UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549





Form 10-K


(Mark
One)





þ
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the fiscal year ended January 26, 2009oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934





Commission
File Number 1-11313










CKE
Restaurants, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            33-0602639(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)





6307
Carpinteria Ave., Ste. A


Carpinteria,
California 93013


(Address
of principal executive offices)





Registrant’s
telephone number, including area code


(805) 745-7500





Securities
Registered Pursuant to Section 12(b) of the Act:





Title of Each Class
                      Name of Each Exchange on Which
      RegisteredCommon
      Stock, $.01 par value
                      New
      York Stock ExchangePreferred
      Share Purchase Rights, $.01 per share
                      New
      York Stock
Exchange





Securities
Registered Pursuant to Section 12(g) of the Act:


None





Indicate
by check mark whether the registrant is well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.  Yes o     No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o     No þ





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 þ     No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) 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.  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer o
            Accelerated
      filer þ
            Non-accelerated
      filer o
            Smaller
      reporting company o(Do not
      check if a smaller reporting
company)





Indicate
by check mark if the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes o     No þ





The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 11, 2008 was $671,967,852.





The
number of outstanding shares of the registrant’s common stock was 54,654,250 as
of March 18, 2009.





DOCUMENTS
INCORPORATED BY REFERENCE:





Portions
of the registrant’s Proxy Statement for the 2009 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission within
120 days of January 26, 2009, are incorporated by reference into
Part III of this Report.














CKE RESTAURANTS, INC. AND SUBSIDIARIES





INDEX
TO ANNUAL REPORT ON FORM 10-K


For
the Fiscal Year Ended January 26, 2009





TABLE OF CONTENTS





Page
                      No.Part IItem 1.
                    Business
                    
                    
                    1Item 1A.
                    Risk Factors
                    
                    
                    11Item 1B.
                    Unresolved Staff Comments
                    
                    
                    17Item 2.
                    Properties
                    
                    
                    17Item 3.
                    Legal Proceedings
                    
                    
                    18Item 4.
                    Submission of Matters to a Vote of Security
      Holders
                    
                    
                    18Part IIItem 5.
                    Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                    
                    
                    19Item 6.
                    Selected Financial Data
                    
                    
                    21Item 7.
                    Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                    
                    
                    24Item 7A.
                    Quantitative and Qualitative Disclosures About Market
      Risk
                    
                    
                    48Item 8.
                    Financial Statements and Supplementary
    Data
                    
                    
                    48Item 9.
                    Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                    
                    
                    48Item 9A.
                    Controls and Procedures
                    
                    
                    48Item 9B.
                    Other Information
                    
                    
                    51Part IIIItem 10.
                    Directors, Executive Officers and Corporate
      Governance
                    
                    
                    52Item 11.
                    Executive Compensation
                    
                    
                    52Item 12.
                    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                    
                    
                    52Item 13.
                    Certain Relationships and Related Transactions, and
      Director Independence
                    
                    
                    53Item 14.
                    Principal Accounting Fees and Services
                    
                    
                    53Part IVItem 15.
                    Exhibits, Financial Statement
Schedules
                    
                    
                    54








Table of Contents




PART I





Item1.Business




CKE Restaurants, Inc.® (“CKE”
or “Company”), through its wholly-owned subsidiaries, owns, operates, franchises
and licenses the Carl’s Jr.®,
Hardee’s®, Green
Burrito® and Red
Burritotm
concepts. References to CKE Restaurants, Inc. throughout this Annual Report on
Form 10-K are made using the first person notations of “we,” “us” and
“our.”




Our
fiscal year ends on the last Monday in January each year. In this Annual Report
on Form 10-K, we refer to the fiscal years by reference to the calendar
year in which they end, and we generally label all fiscal years presented
as if the fiscal year ended January 31 (e.g., the fiscal year ended
January 26, 2009, is referred to as fiscal 2009 or the fiscal year ended
January 31, 2009). All dollar amounts, except per share amounts, presented in
this Annual Report on Form 10-K are in thousands, unless otherwise
noted.




Company
Overview




As of
January 31, 2009, we own, operate, franchise and/or license 3,116
quick-service restaurants, which are referred to in our industry as QSRs,
primarily under the brand names Carl’s Jr.® and
Hardee’s®.
According to the June 30, 2008 issue of Nation’s Restaurant News, our
Hardee’s and Carl’s Jr. chains are the eleventh and twelfth largest sandwich
restaurant chains in the U.S., respectively, based on U.S. system-wide
foodservice sales. Our system-wide restaurant portfolio as of January 31, 2009,
consisted of:





Carl’s Jr.
                                                              
                                                              
                                                              Hardee’s
                                                              
                                                              
                                                              Other
                                                              
                                                              
                                                              TotalCompany-operated
                                                              
                                                              
                                                              416
                                                              
                                                              
                                                              
                                                              482
                                                              
                                                              
                                                              
                                                              1
                                                              
                                                              
                                                              
                                                              899Franchised
      and licensed
                                                              
                                                              
                                                              779
                                                              
                                                              
                                                              
                                                              1,426
                                                              
                                                              
                                                              
                                                              12
                                                              
                                                              
                                                              
                                                              2,217Total
                                                              
                                                              
                                                              1,195
                                                              
                                                              
                                                              
                                                              1,908
                                                              
                                                              
                                                              
                                                              13
                                                              
                                                              
                                                              
                                                              3,116




Carl’s
Jr.  The first Carl’s Jr. restaurant was opened in 1956. Our
Carl’s Jr. restaurants are located predominantly in the Western United States.
Carl’s Jr. restaurants offer superior quality food, a largely burger-based menu
with other premium dining selections at reasonable prices and attentive customer
service to create a very pleasant dining experience for our customers. As of
January 31, 2009, 211 of our 416 company-operated Carl’s Jr.
restaurants are dual-branded with Green Burrito®. These
dual-branded Carl’s Jr. restaurants typically have both higher sales and
profits. Carl’s Jr. is predominantly a lunch and dinner concept, with
approximately 85% of Carl’s Jr. company-operated restaurants revenue coming from
the lunch and dinner portion of its business in fiscal
2009.




Hardee’s.  The
first Hardee’s restaurant was opened in 1960. Our Hardee’s restaurants are
located predominantly in the Southeastern and Midwestern United States. Hardee’s
lunch and dinner menu is anchored by its super-premium quality line of 1/3-,
1/2- and 2/3-lb. 100% Black Angus beef Thickburgerstm,
which are complemented with best-in-class charbroiled and crispy chicken
sandwiches. Historically, Hardee’s has been known as the best choice for
breakfast in the QSR industry, with approximately 48% of company-operated
restaurants revenue derived from that portion of its business in fiscal 2009.
Hardee’s breakfast menu can attribute much of its success to the industry-first
Made From Scratchtm
biscuits and biscuit breakfast sandwiches. The brand’s emphasis on superior
customer service coupled with its more balanced current menu now gives Hardee’s
an ideal opportunity to build sales in all meal
occasions.




Recent
Developments




Refranchising
Program. During fiscal 2009, we completed our Hardee’s refranchising
program through the sale of 102 company-operated Hardee’s restaurants and
related real property to new and existing franchisees. We divested a total of
238 Hardee’s restaurants during fiscal 2009 and 2008, exceeding our initial goal
of 200 restaurants.




Redemption
of Convertible Subordinated Notes due 2023 (“2023 Convertible
Notes”).During fiscal 2009, the entire $15,167 principal
amount of our outstanding 2023 Convertible Notes was converted into 1,786,963
shares of our common stock. Prior to the conversions, we had delivered notice to
the holders of the notes indicating that we intended to redeem the notes in full
and informing the holders of their right to convert the notes into our common
stock.  However, each of the holders elected to convert their notes in
lieu of having the notes redeemed by us.  We paid $303 for accrued
interest and partial shares in connection with the
conversion.







1
 Table of Contents





Adoption of Stockholder Rights
Plan.  During fiscal 2009, our Board of Directors approved the
adoption of a Stockholder Rights Plan and declared a dividend distribution of
one right (“Right”) for each outstanding share of our common stock to
stockholders of record as of the close of business on January 7,
2009.  The Rights were distributed as a non-taxable
distribution.  Each Right entitles the registered holder to purchase
from us a unit consisting of one one-hundredth of a share (“Unit”) of Series A
Junior Participating Preferred Stock, $0.01 par value (“Series A Preferred
Stock”), at a purchase price of $40.00 per Unit, subject to
adjustment.  One Right will be delivered with each share of common
stock that is issued after January 7, 2009.





The
Rights, which are initially attached to and will trade with our common stock,
become exercisable, and will begin to trade separately at the “Distribution
Date”, which would occur in the event that a tender offer for at least 15% of
our common stock is announced, or a person acquires or obtains the right to
acquire at least 15% of our common. The Rights are not exercisable until the
Distribution Date and will expire at the close of business on December 31,
2009, unless previously redeemed or exchanged by us.





Termination of Franchise
Agreements.During the third and fourth quarters of fiscal
2009, we terminated our franchise agreements with two Hardee’s franchisees that
operated 32 and 27 franchised restaurants, respectively, as a result of their
inability to remedy, on a timely basis, certain defaults under the terms of the
agreements.  During the third quarter, we assumed full operational
control of 32 restaurants formerly operated by the first franchisee, six of
which were subsequently closed, 23 of which we are operating as of January
31, 2009, and three of which were refranchised during the fourth quarter of
fiscal 2009. We recorded a gain of $615, which is included in facility action
charges, net, in connection with this refranchising
transaction.  As of January 31, 2009, the second former franchisee is
continuing to operate the 27 restaurants pursuant to the terms of a temporary
license agreement.





Purchase of Restaurant
Assets.On January 19, 2009, we purchased five Hardee’s
restaurants from one of our franchisees for $3,477, net of cash acquired. As a
result of this transaction, we recorded inventory of $38, property and equipment
of $2,348, identifiable intangible assets of $52 and goodwill of $1,039. A sixth
restaurant owned by the franchisee will continue to be operated by the
franchisee under the existing franchise agreement.





Use
of Non-GAAP Financial Measures





In
various places throughout this Annual Report on Form 10-K, we use certain
financial measures which are not prepared in accordance with accounting
principles generally accepted in the United States (“non-GAAP”), which we
believe provide valuable information to our stockholders. An example of such a
non-GAAP financial measure would be Adjusted EBITDA, which is a measure used by
our lenders under our senior credit facility ("Facility") to evaluate our
ability to service debt and fund capital expenditures. Additional information
regarding the non-GAAP financial measures used in this Annual Report can be
found under the heading “Presentation of Non-GAAP Measures” in Item 7
of this Annual Report on Form 10-K.





Contact
Information; Obtaining Copies of this Annual Report





We are
incorporated in the State of Delaware. Our principal offices are located at 6307
Carpinteria Avenue, Suite A, Carpinteria, California, 93013. Our general
website address is www.ckr.com.





Electronic
copies of our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, and any amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 ("Exchange Act"), are available free of charge
by visiting the “Investors” section of www.ckr.com. These
reports are posted as soon as reasonably practicable after they are
electronically filed with the Securities and Exchange Commission (“SEC”). You
may read and copy any materials we file with the SEC at www.sec.gov.




In
addition, print copies of any of the foregoing documents may be obtained free of
charge by visiting the “Contact” section of www.ckr.com, or by
contacting Investor Relations at (805) 745-7500.
 
 Information
contained in our website is not deemed to be a part of this Annual
Report.







2
 Table of Contents





Competitive
Strengths





The QSR
industry is highly competitive. In order to maintain or increase their sales, a
number of our major competitors have from time to time discounted certain menu
items and promoted these or other “value items.” By contrast, we have developed
and implemented a strategy to differentiate our Carl’s Jr. and Hardee’s brands
from our competitors that includes the following elements:





•
            promotion
      of distinctive, premium-quality, great tasting products such as the Carl’s
      Jr. line of 100% Black Angus beef Six Dollar Burgerstm,
      Hand-Scooped Ice Cream Shakes and Maltstm
      and authentic breakfast burritos and the unique Breakfast Burgertm;
      as well as Hardee’s line of 1/3-, 1/2-
      and 2/3-lb. 100% Black Angus beef Thickburgers, Hand-Scooped Ice Cream
      Shakes and Maltstm,
      and Made From Scratch breakfast
biscuits;





•
            utilization
      of gas-fired charbroilers in all of our Carl’s Jr. and Hardee’s
      restaurants to improve taste, operations and food
      safety; and





•
            ongoing
      programs to elevate customer service at Carl’s Jr. and Hardee’s to an
      industry-leading level.





Carl’s
Jr. and Hardee’s further differentiate themselves from their competitors by
preparing their products according to exacting standards so that customers
receive hot and fresh food, and by offering their customers the convenience of
table service once the order is placed.





As a
result of current economic conditions, a number of our major competitors have
been increasing their “value item” offerings and implementing certain pricing
promotions for various other menu items.  If consumer preference continues
to shift towards these “value items”, it may become necessary for us to
implement temporary promotional pricing offerings.  If we implement such
promotional offerings our operating margins may be adversely impacted.  Any
promotional offerings or temporary price cuts implemented by us will not
represent a permanent change in our business strategy, and will only be
temporary in duration.





Carl’s Jr.  Carl’s
Jr. is a well-recognized brand that has operated profitably in each of the past
twelve fiscal years. The brand focuses on selling its signature products, such
as the Western Bacon Cheeseburger®
and a full line of Six Dollar Burgers, and on developing innovative new premium
products, such as the Big Country Breakfast Burrito, the Monster Breakfast
Sandwichtm,
the Prime Rib Six Dollar Burgertm,
the Pastrami Six Dollar Burgertm,
the Philly Cheesesteak Six Dollar Burgertm,
and Jalapeno Chicken Sandwich to attract what we characterize as the “young,
hungry guy.” Carl’s Jr.’s focus on this customer type is enhanced through edgy,
breakthrough advertising and high visibility sports sponsorships with
professional sports teams in its major markets, including the National
Basketball Association’s (“NBA”) Los Angeles Lakers and Sacramento Kings, the
National Football League’s San Diego Chargers and Major League Baseball’s
(“MLB”) Los Angeles Dodgers, Los Angeles Angels of Anaheim, and San Diego
Padres. The brand’s growth in recent years has come from new company-operated
restaurants and from those built by its strong franchise community as well as
its dual-branding opportunities with our Green Burrito brand.





Hardee’s.  Hardee’s
is a well-recognized brand that has completed its turnaround phase and is now
focused on long-term growth initiatives. The brand focuses on selling its
signature products, such as its line of 100% Black Angus beef Thickburger and
Made From Scratch breakfast biscuits, and on developing innovative new premium
products, such as the Strawberry Biscuit, Ham and Three Cheese Breakfast
Burrito, Country Potatoes, Chicken Fillet Biscuit, Pork Chop ‘N’ Gravy Biscuit,
the Little Thickburger, Prime Rib Thickburger®,
and Chicken Parmesan Sandwich, to attract what we characterize as the “young,
hungry guy.” Hardee’s focus on this customer type is enhanced through edgy,
breakthrough advertising and high visibility sports sponsorships with
professional sports teams in its major markets, including the NBA’s Indiana
Pacers and the MLB’s St. Louis Cardinals. While we believe the greatest
opportunity for the brand is within building the lunch and dinner dayparts at
our existing restaurants, we expect to gradually increase the number of new
restaurants built and will continue to dual-brand with our Red Burritotm
concept.







3
 Table of Contents





Business
Strategy





We remain
focused on vigorously pursuing a comprehensive business strategy. The main
components of our strategy are as follows:





•
            increase
      revenues, average unit volumes and operating income at Carl’s Jr. and
      Hardee’s;





•
            increase
      development of new company-operated Carl’s Jr. and Hardee’s restaurants,
      primarily in existing core markets;





•
            increase
      development of new franchised restaurants in the U.S. and licensed
      restaurants internationally for both Carl’s Jr. and
    Hardee’s;





•
            remain
      focused on restaurant fundamentals — quality, service and
      cleanliness;





•
            capitalize
      on our unique brand positioning and cutting-edge
    advertising;





•
            offer
      premium products that compete on quality, innovation and taste while
      continuing to control costs;





•
            continue
      to capitalize on dual-branding opportunities available with Green Burrito
      and Red Burrito; and





•
            remodel
      our existing restaurant base to remain
  competitive.





Increasing
average unit volume ("AUV") at Hardee’s remains a primary focus of our
management team. The key driver in improving Hardee’s profitability is
increasing sales. For fiscal 2009, the AUV at our company-operated Hardee’s
restaurants was approximately $993, up from $954 in fiscal 2008 and $916 in
fiscal 2007. Franchise-operated AUV was approximately $970 at the end of fiscal
2009, up from $964 at the end of fiscal 2008 and $949 in fiscal
2007.





Franchise
Strategy





Our
franchise and licensing strategy depends upon on our franchisees’ active
involvement in and management of restaurant operations. Candidates are reviewed
for appropriate operational experience and financial stability, including
specific net worth and liquidity requirements.





Carl’s
Jr.  Franchise agreements with Carl’s Jr. franchisees, which
operate in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Nevada, New
Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming, generally provide
for franchise fees plus continuing royalty and advertising fees to us based upon
a percentage of gross sales (generally 4% for royalties and 5% to 6% for
advertising). As of January 31, 2009, our Carl’s Jr. franchisees and licensees
operated 779 Carl’s Jr. restaurants, or approximately 65% of the Carl’s Jr.
system. The Carl’s Jr. franchise community is actively developing new
restaurants across the Carl’s Jr. system. The majority of our Carl’s Jr.
franchisees own more than one restaurant, with 21 franchisees owning ten or more
restaurants.





Hardee’s.  Franchise
agreements with Hardee’s franchisees, which operate restaurants predominantly in
the Southeastern and Midwestern United States, generally provide for franchise
fees and royalty fees to us, and advertising fees to a national fund and/or a
regional cooperative fund, based upon a percentage of gross sales (generally 4%
for royalties and 4% to 6% for advertising). As of January 31, 2009, our
Hardee’s franchisees and licensees operated 1,426 Hardee’s restaurants, or
approximately 75% of the Hardee’s system. The majority of our Hardee’s
franchisees own more than one restaurant, with 28 franchisees owning ten or more
restaurants.  Our refranchising program, combined with improving sales
and store economics, has stimulated new franchise restaurant growth in the
Hardee’s system in recent years.


International.  Licensee
development is an integral part of our growth strategy. Our international
expansion efforts focus on penetrating existing markets while targeting new
markets that have been identified as part of our strategic planning process. In
fiscal 2009, we, through our licensees, opened 40 international locations.
Carl’s Jr. licensed restaurants currently operate in American Samoa, Malaysia,
Mexico, Singapore and the Russian Federation. Hardee’s licensed restaurants are
concentrated in the Middle East in the countries of Bahrain, Egypt, Jordan,
Kuwait, Lebanon, Oman, Qatar and Saudi Arabia, and United Arab
Emirates.




4
 Table of Contents




Development Agreements. Area
development agreements require franchisees to open a specified number of
restaurants in a designated geographic area within a specified period of time.
Our franchisees tend to open more than the required number of new restaurants
specified in their development agreements. Our franchise strategy is designed to
accelerate the development of our restaurant chains and reduce the total capital
we need to invest in order to develop our brands. As of January 31, 2009, we
have 20 franchise development agreements representing commitments to build a
total of 380 restaurants, consisting of 236 domestic and 144 international
restaurants. Our two most significant domestic agreements call for the
development of 153 new restaurants in Texas and Nevada over the next ten
years. Our four most significant international agreements provide for the
development of 137 new restaurants in China, Pakistan and Kazakhstan over the
next four to eight years.





The
results of executing our business strategy have been:





•
            We
      evolved the system-wide mix of restaurants to one that is primarily
      franchise-operated. At the end of fiscal 2009, approximately 71% of Carl’s
      Jr. and Hardee’s restaurants combined were
  franchised.





•
            Our
      same-store sales trends for company-operated restaurants, for each brand
      by quarter were:





Carl’s Jr.
                                    
                                    
                                    Hardee’sFiscal
      2009First
      Quarter
                                    
                                    
                                    3.9
                                    %
                                    
                                    
                                    (0.6
                                    )%Second
      Quarter
                                    
                                    
                                    3.8
                                    %
                                    
                                    
                                    3.3
                                    %Third
      Quarter
                                    
                                    
                                    0.5
                                    %
                                    
                                    
                                    1.3
                                    %Fourth
      Quarter
                                    
                                    
                                    (0.6
                                    )%
                                    
                                    
                                    1.5
                                    %Fiscal
      2008First
      Quarter
                                    
                                    
                                    —
                                    %
                                    
                                    
                                    1.8
                                    %Second
      Quarter
                                    
                                    
                                    2.0
                                    %
                                    
                                    
                                    2.9
                                    %Third
      Quarter
                                    
                                    
                                    0.7
                                    %
                                    
                                    
                                    2.7
                                    %Fourth
      Quarter
                                    
                                    
                                    1.4
                                    %
                                    
                                    
                                    0.4
                                    %





•
            Quarterly
      operating income (loss) from continuing operations by segment has
      been:




Carl’s Jr.
                                    
                                    
                                    Hardee’s
                                    
                                    
                                    Other
                                    
                                    
                                    ConsolidatedFiscal
      2009First
      Quarter
                                    
                                    $
                                    24,051
                                    
                                    
                                    $
                                    5,468
                                    
                                    
                                    $
                                    111
                                    
                                    
                                    $
                                    29,630Second
      Quarter
                                    
                                    
                                    16,672
                                    
                                    
                                    
                                    6,125
                                    
                                    
                                    
                                    88
                                    
                                    
                                    
                                    22,885Third
      Quarter
                                    
                                    
                                    12,871
                                    
                                    
                                    
                                    4,801
                                    
                                    
                                    
                                    83
                                    
                                    
                                    
                                    17,755Fourth
      Quarter
                                    
                                    
                                    13,911
                                    
                                    
                                    
                                    (241
                                    )
                                    
                                    
                                    80
                                    
                                    
                                    
                                    13,750Fiscal
      2008First
      Quarter
                                    
                                    $
                                    21,427
                                    
                                    
                                    $
                                    8,596
                                    
                                    
                                    $
                                    (36
                                    )
                                    
                                    $
                                    29,987Second
      Quarter
                                    
                                    
                                    15,060
                                    
                                    
                                    
                                    8,271
                                    
                                    
                                    
                                    39
                                    
                                    
                                    
                                    23,370Third
      Quarter
                                    
                                    
                                    14,570
                                    
                                    
                                    
                                    4,599
                                    
                                    
                                    
                                    310
                                    
                                    
                                    
                                    19,479Fourth
      Quarter
                                    
                                    
                                    15,744
                                    
                                    
                                    
                                    (239
                                    )
                                    
                                    
                                    (14
                                    )
                                    
                                    
                                    15,491





Financial
Information about Operating Segments





We are engaged in the development, operation and franchising of
quick-service restaurants, primarily under the brand names Carl’s Jr. and
Hardee’s, principally in the U.S. Information about our revenues, operating
results and assets is contained in Part II, Items 6 and 7 of this
Annual Report on Form 10-K and in Note 20 of Notes to Consolidated
Financial Statements. As shown in the table of quarterly operating income (loss)
from continuing operations above, both Carl’s Jr. and Hardee’s typically
generate operating income. In evaluating the profitability of our segments, we
allocate the majority of our general and administrative
expenses to these segments.




Investments
in Other Restaurant Concepts
 
 We
selectively evaluate opportunities to acquire additional interests in other
restaurant concepts, and we may make such investments and/or acquisitions in the
future depending on the business prospects of the restaurant concept, the
availability of financing at attractive terms, alternative business
opportunities available to us, the consent of our senior lenders, if required,
and general economic conditions.




5
 Table of Contents





Restaurant
Development





We have a
detailed two year capital spending plan to develop new company-operated
restaurants and remodel and maintain existing restaurants.  Based on
our current capital spending projections, we expect capital expenditures for the
next two fiscal years to be between $180,000 and $200,000.  We
perform extensive due diligence on prospective restaurant sites before we commit
to opening, or permitting a franchisee to open, a restaurant at a location. We
will continue to penetrate existing markets, while exploring new market
opportunities as they arise. In fiscal 2009, we opened 24 new company-operated
restaurants, and our franchisees and licensees opened 85 new restaurants. The
average development cost for company-operated restaurants opened in fiscal 2009
is summarized in the following table:





Average
      per
                                                        restaurant(1)(2)Carl’s Jr.
                                                      
                                                      
                                                      Hardee’sBuilding
      and leasehold improvements
                                                      
                                                      $
                                                      983
                                                      
                                                      
                                                      $
                                                      894Equipment
                                                      
                                                      
                                                      370
                                                      
                                                      
                                                      
                                                      336Total
                                                      
                                                      $
                                                      1,353
                                                      
                                                      
                                                      $
                                                      1,230


_________


(1)
            Averages
      are contingent upon a number of factors including, but not limited to,
      restaurant prototype, geographical area and local zoning
      requirements.





(2)
            The
      majority of these restaurants were constructed on leased
      land.  One Carl’s Jr. restaurant and one Hardee’s restaurant
      were constructed on land we purchased at a cost of $805 and $563,
      respectively.





Restaurant
Operations and Support





Our goal
is to quickly serve the highest quality products to our guests in a clean
environment. We adhere to very strict procedures for cleanliness, food
preparation, safety and sanitation, food quality and guest service. This is
accomplished through two guiding principles — Operation QSC and Six Dollar
Service.





Operation
QSC puts in place the processes and procedures to operate our restaurants in the
most efficient manner. Six Dollar Service ensures our crew people are doing
everything possible to exceed our guests’ expectations while providing a very
pleasant dining experience.





We
charbroil our burgers for maximum flavor. We cook all of our fried foods in zero
trans fat shortening. We cook, heat and assemble our lunch and dinner burgers
and sandwiches after our guests place their orders for guaranteed freshness. Our
Hardee’s breakfast menu, built on our Made From Scratch biscuits, continues to
lead the industry.





Our
commitment to quality in both our products and operations is supported by our
training programs. A general manager oversees the operation of each
company-operated Carl’s Jr. and Hardee’s restaurant. Our general managers are
required to complete a comprehensive training course which covers restaurant
operations, product quality, safety awareness, people skills, and food safety.
These training programs include a combination of instructor-led classroom
training and in-restaurant, hands-on training in a certified training
restaurant.


Our other
training initiatives include Operation Drive-thru, which focuses on labor
scheduling optimization and achieving drive-thru service standards. We offer
English as a Second Language tools to help those crew members who need it to
assimilate quicker. We recently developed Learning Management System (“LMS”), a
web-based tool that enables us to deliver and track learning and training
throughout the organization. LMS’ benefits include consistent delivery of
training, an audit trail for compliance, a culture of recognition and
accountability and talent management to develop management from
within.  LMS integration has begun for all company-operated
restaurants and is expected to be available to all franchise-operated
restaurants in the near future.




6
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At the
restaurant level, our general managers hire, train and supervise our crew
members in accordance with our operations’ guidelines. Crew members that
demonstrate a desire and aptitude for advancement can enter our Shift Leader
Development Program to begin their careers in management. Training kiosks are
being installed in all company-operated restaurants to better prepare our crew
members and management teams for their careers with us.





Our
general managers are supervised, coached and developed by district managers, who
are typically responsible for seven to nine restaurants each. District managers
are, in turn, supervised, coached and developed by a Regional Vice President or
Regional Director of Operations.





Marketing
and Advertising





Our
marketing and advertising initiatives focus on building brand awareness through
the balanced use of television, radio and print advertising. During fiscal 2009,
Carl’s Jr. company-operated restaurants contributed 4.5% of their sales for
television, radio and print advertising and spent an additional 1.4% of sales on
local advertising, billboards and point of purchase materials. Carl’s Jr.
franchised restaurants contributed 5.7% of their sales for advertising during
fiscal 2009.





During
fiscal 2009, Hardee’s company-operated restaurants contributed 4.4% of their
sales for television, radio and print advertising and spent an additional 1.5%
of sales on local advertising, billboards and point of purchase materials.
Hardee’s franchised restaurants contributed 3.3% to 5.5% of their sales for
advertising during fiscal 2009.





Additional
discussion of advertising can be found under the heading “Consolidated Expenses”
in Item 7 of this Annual Report on Form 10-K.





Supply
Chain





We
purchase most of the food products and packaging supplies that are used in our
Carl’s Jr. restaurant system and we distribute these items to both
company-operated and franchised Carl’s Jr. restaurants. A small percentage of
franchised and company-operated Carl’s Jr. restaurants, which are located
outside our distribution service area, receive food, packaging and supplies from
The SYGMA Network, Inc. (“SYGMA”) and Meadowbrook Meat Company, Inc.,
dba MBM, Inc. (“MBM”). Our agreements with SYGMA and MBM expire on
December 31, 2011 and July 14, 2010, respectively.





Our
Carl’s Jr. franchisees in California and some adjacent states purchase most of
their food, packaging and supplies from us. We have elected not to outsource our
Carl’s Jr. distribution activities because we believe our mature procurement
process allows us to effectively manage our food costs, provide adequate
quantities of food and supplies at competitive prices, generate revenue from
Carl’s Jr. franchisees by adding a nominal mark-up to cover direct costs and
provide better overall service to our restaurants in California and some
adjacent states.





Excluding
fresh baked buns, we purchase substantially all of the food, packaging and
supplies sold or used in our Hardee’s restaurants from MBM. MBM distributes
products to our company-operated and franchised Hardee’s restaurants. Pursuant
to the terms of our distribution agreements we are obligated to purchase
substantially all of our specified product requirements from MBM through
July 14, 2010. The prices and delivery fees we pay for MBM products are
subject to adjustment in certain circumstances, which may include increases or
decreases resulting from changes in MBM’s cost structure.


We seek
competitive bids from suppliers on many of our products, and we require approved
suppliers of those products to comply with certain quality assurance
requirements including facility standards and product
specifications.


Information
about our unconditional purchase obligations can be found under the heading
“Long-Term Obligations” in Item 7 of this Annual Report on
Form 10-K.




7
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Competition
and Markets





The
restaurant business is intensely competitive and affected by changes in a
geographic area, 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 the industry
are the price, quality and value of food products offered, quality and speed of
service, advertising effectiveness, brand name identification, restaurant
locations 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. 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.





Trademarks
and Service Marks





We own
numerous trademarks and service marks, and have registered many of those marks
with the United States Patent and Trademark Office, including Carl’s Jr.,
the Happy Star logo, Hardee’s, Green Burrito, Red Burrito and proprietary names
for a number of our menu items. We believe our trademarks and service marks have
value and play an important role in our marketing efforts.





Government
Regulation





Each
company-operated and franchised restaurant must comply with regulations adopted
by federal agencies and with licensing and other regulations enforced by state
and local health, sanitation, safety, fire and other departments. In addition,
these restaurants must comply with federal and state environmental regulations,
but those regulations have not had a material effect on the restaurants’
operations. Stringent and varied requirements of local governmental bodies with
respect to zoning, land use and environmental factors can delay and sometimes
prevent development of new restaurants and remodeling of existing restaurants in
particular locations.





We are
also subject to federal laws and a substantial number of state laws regulating
the offer and sale of franchises. Such laws impose registration and disclosure
requirements on franchisors in the offer and sale of franchises and may include
substantive standards regarding the relationship between franchisor and
franchisee, including limitations on the ability of franchisors to terminate
franchise agreements or otherwise alter franchise arrangements. We believe we
are operating in substantial compliance with applicable laws and regulations
governing our franchise operations.





We, and
our franchisees, must comply with the Fair Labor Standards Act (“FLSA”) and
various federal and state laws governing employment matters, such as minimum
wage, overtime pay practices, child labor laws, citizenship requirements and
other working conditions. Many of our employees are paid hourly rates related to
the federal and state minimum wage laws and, accordingly, increases in the
minimum wage increase our labor costs. Federal and state laws may also require
us to provide new or increased levels of employee benefits to our employees,
many of whom are not currently eligible for such benefits. We believe we are
operating in substantial compliance with all such laws and
regulations.





We
monitor our facilities for compliance with the Americans with Disabilities Act
of 1990 (“ADA”) in order to conform to its requirements. Under the ADA, we could
be required to expend funds to modify our restaurants to better provide service
to, or make reasonable accommodation for the employment of, disabled persons. We
believe that such expenditures, if required, would not have a material adverse
effect on our consolidated financial position or results of
operations.







8
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Environmental
Matters





We are
subject to various federal, state and local environmental laws. These laws
govern discharges to air and water from our restaurants, as well as handling and
disposal practices for solid and hazardous wastes. These laws may impose
liability for damages from and the costs of cleaning up sites of spills,
disposals or other releases of hazardous materials. We may be responsible for
environmental conditions relating to our restaurants and the land on which our
restaurants are located, regardless of whether we lease or own the restaurants
or land in question and regardless of whether such environmental conditions were
created by us or by a prior owner or tenant.





We cannot
provide assurance that all such environmental conditions have been identified by
us. These conditions include the presence of asbestos-containing materials,
leaking underground storage tanks and on-site spills. Further, certain
properties formerly had landfills, historic industrial use, gasoline stations
and/or dry cleaning businesses located on or near the premises. Corrective
action, as required by the regulatory agencies, has been undertaken at some of
the sites by former landowners or tenants. The enforcement of our rights against
third parties for environmental conditions, such as off-site sources of
contamination, may result in additional costs for us. However, we do not believe
that any such costs, if incurred, would have a material adverse effect on our
consolidated financial position or results of operations.





Seasonality





Our
restaurant sales and, therefore, our profitability are subject to seasonal
fluctuations and are traditionally higher during the spring and summer months
because of factors such as increased travel during school vacations and improved
weather conditions, which affect the public’s dining habits.





Government
Contracts





No
material portion of our business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the
U.S. government.





Employees





As of
January 31, 2009, we employed approximately 23,000 persons, primarily in
company-operated restaurants and in our corporate offices and distribution
facilities. Past attempts to unionize our distribution center employees have
been rejected by employee votes. We believe our employee relations are
good.





Working
Capital Practices





Information
about our liquidity is contained under the caption “Liquidity and Capital
Resources” in Item 7 of this Annual Report on Form 10-K and the
accompanying Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 2009, 2008 and 2007.







9
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Disclosure
Regarding Forward-Looking Statements





Matters
discussed in this Annual Report on Form 10-K contain forward-looking
statements relating to future plans and developments, financial goals and
operating performance that are based on our current beliefs and assumptions.
Such statements are subject to risks and uncertainties that are often difficult
to predict, are beyond our control and which may cause results to differ
materially from expectations. Factors that could cause our results to differ
materially from those described include, but are not limited to, whether or not
restaurants will be closed and the number of restaurant closures, consumers’
concerns or adverse publicity regarding our products, the effectiveness of
operating initiatives and advertising and promotional efforts (particularly at
the Hardee’s brand), changes in economic conditions or prevailing interest
rates, changes in the price or availability of commodities, availability and
cost of energy, workers’ compensation and general liability premiums and claims
experience, changes in our suppliers’ ability to provide quality and timely
products, delays in opening new restaurants or completing remodels, severe
weather conditions, the operational and financial success of our franchisees,
franchisees’ willingness to participate in our strategies, the availability of
financing for us and our franchisees, unfavorable outcomes in litigation,
changes in accounting policies and practices, effectiveness of internal control
over financial reporting, new legislation or government regulation (including
environmental laws), the availability of suitable locations and terms for the
sites designated for development, and other factors as discussed under the
caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K and in our
other filings with the SEC.





Forward-looking
statements speak only as of the date they are made. We undertake no obligation
to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise, except as required by law or the
rules of the New York Stock Exchange ("NYSE").





Executive
Officers of the Registrant





The names
and ages, as of March 25, 2009, of our executive officers are as
follows:





Name
                                
                                
                                Age
                                
                                PositionAndrew
      F. Puzder
                                
                                
                                58
                                
                                Chief
      Executive Officer ("CEO")E.
      Michael Murphy
                                
                                
                                57
                                
                                President
      and Chief Legal OfficerTheodore
      Abajian
                                
                                
                                45
                                
                                Executive
      Vice President and Chief Financial Officer ("CFO")Noah
      J. Griggs, Jr.
                                
                                
                                45
                                
                                Executive
      Vice President, Training — Carl’s Jr. and
    Hardee’sBradford
      R. Haley
                                
                                
                                50
                                
                                Executive
      Vice President, Marketing — Carl’s Jr. and
    Hardee’s





Andrew F. Puzderwas
appointed to our Board of Directors in May 2001. Mr. Puzder became
our CEO in September 2000. From September 2000 to January 2009, he also
served as our President and from February 1997 to September 2000, he served as
our Executive Vice President, General Counsel and Secretary. Mr. Puzder was
also Executive Vice President of Fidelity National Financial, Inc. (“FNF”) from
January 1995 to June 2000. Mr. Puzder was a partner in the Costa Mesa,
California law firm of Lewis, D’Amato, Brisbois & Bisgaard from
September 1991 to March 1994, and a shareholder in the Newport Beach, California
law firm of Stradling Yocca Carlson & Rauth from March 1994 until
joining FNF in 1995.





E. Michael Murphybecame our
President and Chief Legal Officer in January 2009 and continues to serve as our
Secretary.  From January 2001 to January 2009, he served as our
Executive Vice President, General Counsel, and previously served as Senior Vice
President of CKE and Senior Vice President, General Counsel of Hardee’s Food
Systems, Inc. from July 1998. He also served as our Chief Administrative Officer
from August 2006 to January 2009. For the ten years prior to 1998,
Mr. Murphy was a partner of The Stolar Partnership law firm in
St. Louis, Missouri.





Theodore Abajianwas
appointed our Executive Vice President and CFO in May 2003. From March 2002
to May 2003, he served as our Executive Vice President, Chief Administrative
Officer. From November 2000 to March 2002, Mr. Abajian served as President
and CEO of Santa Barbara Restaurant Group (“SBRG”), and as its Executive
Vice President and CFO from May 1998. In addition, from January 2000 to
October 2000, Mr. Abajian held the position of Senior Vice President
and CFO for Checkers Drive-In Restaurants, Inc., and served as the CFO
of Star Buffet, Inc. from July 1997 to May 1998. Mr. Abajian also served as
a director of Staceys Buffet, Inc. from October 1997 to February 1998, and was
Vice President and Controller with Summit Family Restaurants, Inc. from 1994 to
1998.







10
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Noah J. Griggs, Jr.was
named Executive Vice President, Training of Carl’s Jr. and Hardee’s in May 2007.
Prior to that appointment, Mr. Griggs served as Executive Vice President,
Hardee’s Operations for company-operated restaurants beginning in July 2000 and
franchisee-operated restaurants beginning in July 2002. Mr. Griggs joined
Hardee’s in July 1996 as Vice President of Quality and Standards and was named
Senior Vice President of Operations in April 1998. Prior to joining Hardee’s,
Mr. Griggs worked as Vice President of Operations for one of Hardee’s
largest franchisees.





Bradford R. Haleywas
appointed Executive Vice President, Marketing for Hardee’s in September 2000. He
also assumed responsibility for Carl’s Jr. marketing in January 2004. Prior to
joining Hardee’s, Mr. Haley worked as Chief Marketing Officer for Church’s
Chicken. From 1992 to 1999, Mr. Haley served as Corporate Vice President of
Marketing Communications for Jack in the Box Inc.





Item 1A.Risk
Factors





We are
engaged in a business strategy that includes the long-term growth of our
operations. The success of a business strategy, by its very nature, involves a
significant number of risks, many of which are discussed below:





Our
success depends on our ability to compete with others.





The
foodservice industry is intensely competitive with respect to the quality and
value of food products offered, service, price, dining experience and location.
We compete with major restaurant chains, some of which dominate the QSR
industry. Our competitors also include a variety of mid-price, full-service
casual-dining restaurants, health and nutrition-oriented restaurants,
delicatessens and prepared food restaurants, take-out food service companies,
fast food restaurants, supermarkets and convenience stores. In addition to
competing with such companies for customers, we also must compete with them for
access to qualified employees and management personnel, suitable restaurant
locations and capable franchisees. Many of our competitors have substantially
greater brand recognition, as well as greater financial, marketing, operating
and other resources than we have, which may give them competitive advantages
with respect to some or all of these areas of competition. As our competitors
expand operations and marketing campaigns, we expect competition to
intensify.  Such increased competition could have a material adverse
effect on our consolidated financial position and results of
operations.




Our
business and stock price may be adversely impacted by economic
conditions.





Our
financial condition and results of operations are dependent upon discretionary
spending by consumers, which may be affected by general economic conditions and
the current global financial crisis.  Worldwide economic conditions
and consumer spending have recently deteriorated significantly and may remain
depressed for some time.  Some of the factors that are having an
impact on discretionary consumer spending include increased unemployment,
reductions in disposable income as a result of recent severe market declines and
declines in residential real estate values, credit availability and consumer
confidence.  In addition, the recent deterioration in the economic
climate may seriously harm the market price of our common stock regardless of
our operating performance.





In
addition, unfavorable macroeconomic trends or developments concerning factors
such as increased food, fuel, utilities, labor and benefits costs may also
adversely affect our financial condition and results of
operations.  Current economic conditions may prevent us from
increasing prices to match increased costs without further harming our
sales.  If we were unable to raise prices in order to recover
increased costs for food, packaging, fuel, utilities, wages, clothing and
equipment, our profitability would be negatively affected.





Restrictive
covenants in our credit facility could adversely affect our
business.





Our
Facility contains restrictive covenants and requirements that we comply with
certain financial ratios. Certain of these covenants limit our ability to take
various actions, including the incurrence of additional debt, the guaranteeing
of indebtedness and engaging in various types of transactions, including mergers
and sales of assets, and making specified distributions or other restricted
payments, including capital expenditures and other investments. These covenants
could have an adverse effect on our business by limiting our ability to take
advantage of business opportunities. Failure to maintain financial ratios
required by our Facility or to comply with the covenants in our Facility could
also result in acceleration of our indebtedness, which would impair our
liquidity and limit our ability to operate.  If the current economic
conditions and decreases in discretionary consumer spending continue for a
prolonged period of time, our results of operations may be materially impacted
and we may fail to maintain the financial ratios required by our
Facility.







11
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The
current financial crisis has resulted in diminished liquidity and credit
availability, and the recent or future turmoil in the financial markets could
make it more difficult and more costly for us to refinance our Facility (if
necessary) or incur additional indebtedness and could impact the ability of
banks to honor draws on our existing credit facilities.




Our
success depends on our ability to attract and retain key personnel.





We
believe that our success will depend, in part, on the continuing services of our
key management personnel. The loss of the services of key personnel could have a
material impact on our financial results. Additionally, our success may depend
on our ability to attract and retain additional skilled management
personnel.





Our
success depends on our franchisees’ participation in our strategy.





Our
franchisees are an integral part of our business. We may be unable to
successfully implement our brand strategies if our franchisees do not actively
participate in that implementation. The failure of our franchisees to focus on
the fundamentals of restaurant operations, such as quality, service and
cleanliness, would have a negative impact on our success.  It may be
more difficult for us to monitor our international franchisees’ implementation
of our brand strategies due to our lack of personnel in the markets served by
such franchisees.





Our
financial results are affected by the financial results of our
franchisees.





We
receive royalties from our franchisees. As a result, our financial results are
somewhat dependent upon the operational and financial success of our
franchisees, including implementation of our strategic plans, as well as their
ability to secure adequate financing. If sales trends or economic conditions
worsen for our franchisees, and they are unable to secure adequate sources of
financing, their financial health may worsen, our collection rates may decline
and we may be required to assume the responsibility for additional lease
payments on franchised restaurants. Additionally, refusal on the part of
franchisees to renew their franchise agreements may result in decreased
royalties. Entering into restructured franchise agreements may result in reduced
franchise royalty rates in the future.  Additionally, due to the
current global credit crisis, our franchisees may not be able to obtain the
financing necessary to complete planned remodel and construction projects, and
may be forced to postpone or cancel such projects.





The
financial conditions of our international licensees may also be adversely
impacted by political, economic or other changes in the global markets in which
they operate.  As a result, the royalties we receive from our
international licensees may be affected by recessionary or expansive trends in
international markets, increasing labor costs in certain international markets,
changes in applicable tax laws, changes in inflation rates, changes in exchange
rates and the imposition of restrictions on currency conversion or the transfer
of funds, expropriation of private enterprises, political and economic
instability and other external factors.





Changes in
consumer preferences and perceptions, economic, market and other conditions could
adversely affect our operating results.





The QSR
industry is affected by changes in economic conditions, consumer preferences and
spending patterns, demographic trends, consumer perceptions of food safety,
weather, traffic patterns, the type, number and location of competing
restaurants, and the effects of war or terrorist activities and any governmental
responses thereto. Multi-location foodservice businesses such as ours can also
be materially and adversely affected by publicity resulting from poor food
quality, food tampering, illness, injury or other health concerns or operating
issues stemming from one or a limited number of restaurants. We can be similarly
affected by consumer concerns with respect to the nutritional value of
quick-service food.







12
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As a
result of current economic conditions, a number of our major competitors have
been increasing their “value item” offerings and implementing certain pricing
promotions for various other menu items.  If consumer preference
continues to shift towards these “value items”, it may become necessary for us
to implement temporary promotional pricing offerings.  If we implement
such promotional offerings our operating margins may be adversely
impacted.  Any promotional offerings or temporary price cuts
implemented by us are not expected to represent a permanent change in
our business strategy, and will only be temporary in duration.





Factors
such as interest rates, inflation, gasoline prices, commodity costs, labor and
benefits costs, legal claims, and the availability of management and hourly
employees also affect restaurant operations and administrative expenses. In
particular, increases in interest rates may increase land and construction costs
and the cost and availability of borrowed funds, and thereby adversely affect
our ability and our franchisees’ ability to finance new restaurant development
and improvements and additions to existing restaurants. In addition, inflation
can cause increased commodity and labor and benefits costs and can increase our
operating expenses.





We
face commodity price and availability risks.





We and
our franchisees purchase large quantities of food and supplies which may be
subject to substantial price fluctuations. We purchase agricultural and
livestock products that are subject to price volatility caused by weather,
supply, global demand, fluctuations in the value of the U.S. dollar, commodity
market conditions and other factors that are not predictable or within our
control. Increases in commodity prices could result in higher restaurant
operating costs. Since we have a higher concentration of company-operated
restaurants than many of our competitors, we may have greater operating cost
exposure than those competitors who are more heavily franchised. Occasionally,
the availability of commodities can be limited due to circumstances beyond our
control. If we are unable to obtain such commodities, we may be unable to offer
related products, which would have a negative impact on our operating
expenses and profitability.





We
depend on our suppliers to deliver quality products to us timely.





Our
profitability is dependent on, among other things, our continuing ability to
offer premium-quality food at moderate prices. While we continue to operate our
own distribution business for most of our Carl’s Jr. system, we rely upon an
independent distributor for our Hardee’s restaurants. Our Hardee’s restaurants
depend on the distribution services of MBM, a national distributor of food and
other products. MBM is responsible for delivering food, packaging and other
products from our suppliers to our Hardee’s restaurants on a frequent and
routine basis. MBM also provides distribution services to nearly all of our
Hardee’s franchisees. Pursuant to the terms of our distribution agreement, we
are obligated to purchase substantially all of our specified product
requirements from MBM through July 14, 2010. We cannot, however, predict the
terms or prices upon which we will be able to purchase supplies from MBM, or
from any other supplier, after expiration of the agreement.





Our
suppliers and other vendors may be adversely impacted by the tightening of the
credit markets, decreased economic activity, fluctuating commodity prices and
other consequences of the economic downturn. Our vendors may seek to change the
terms on which they do business with us in order to lessen the impact of the
economic downturn on their business. If we are forced to renegotiate the terms
upon which we conduct business with our vendors or find alternative vendors to
provide key services, it could adversely impact our financial condition or
results of operations.





In
addition, the current economic environment has forced some food suppliers to
seek financing in order to stabilize their businesses, and others have ceased
operations completely.  If MBM or a large number of other suppliers
suspend or cease operations, we may have difficulty keeping our restaurants
fully supplied with the high quality ingredients we require.  If we
were forced to suspend serving one or more of our menu items that could have a
significant adverse impact on our restaurant traffic and public perceptions of
us, which would be harmful to our business.





Events reported
in the media, such as incidents involving food-borne illnesses or food tampering,
whether accurate or not, could reduce the production and supply of important food
products, cause damage to our reputation and adversely affect our sales and
profitability.


Reports,
whether true or not, of food-borne illnesses, such as those caused by E. coli,
Listeria or Salmonella, in addition to Avian Influenza (commonly known as bird
flu) and Bovine Spongiform Encephalopathy (commonly known as BSE or mad cow
disease), and injuries caused by food tampering have, in the past, severely
impacted the production and supply of certain food products, including poultry
and beef. A reduction in the supply of such food products could have a material
effect on the price at which we could obtain them. Failure to procure food
products, such as poultry or beef, at reasonable terms and prices or any
reduction in consumption of such food products by consumers could have a
material adverse effect on our consolidated financial condition and results of
operations.




13
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In
addition, reports, whether or not true, of food-borne illnesses or the use of
hormones, antibiotics or pesticides in the production of certain food products
may cause consumers to reduce or avoid consumption of such food products. Our
brands’ reputations are important assets to us, and any such reports could
damage our brands’ reputations and immediately and severely hurt sales and
profits. If customers become ill from food-borne illnesses or food tampering, we
could be forced to temporarily close some, or all, of our restaurants. In
addition, instances of food-borne illnesses or food tampering occurring at the
restaurants of competitors, could, by resulting in negative publicity about the
QSR industry, adversely affect our sales on a local, regional, or national
basis.





Our
operations are seasonal and heavily influenced by weather
conditions.





Weather,
which is unpredictable, can adversely impact our sales. Harsh weather conditions
that discourage customers from dining out result in lost opportunities for our
restaurants. A heavy snowstorm can leave an entire metropolitan area snowbound,
resulting in a reduction in sales. Our first and fourth quarters, most notably
the fourth quarter, include winter months when there is historically a lower
level of sales. Because a significant portion of our restaurant operating costs
is fixed or semi-fixed in nature, the loss of sales during these periods
adversely impacts our profitability. These adverse, weather-driven events have a
more pronounced impact on our Hardee’s restaurants. For these reasons,
sequential quarter-to-quarter comparisons may not be a good indication of our
performance or how we may perform in the future.





Our
business may suffer due to our inability to hire and retain qualified personnel
and due to higher labor costs.





Given
that our restaurant-level workforce requires large numbers of both entry-level
and skilled employees, low levels of unemployment could compromise our ability
to provide quality service in our restaurants. From time to time, we have had
difficulty hiring and maintaining qualified restaurant management personnel.
Increases in minimum wage levels have negatively impacted our labor costs.
Due to the labor-intensive nature of our business, further increases in minimum
wage levels could have additional negative effects on our consolidated results
of operations.





Our
business may be impacted by increased insurance and/or self-insurance
costs.





From time
to time, we have been negatively affected by increases in both workers’
compensation and general liability insurance and claims expense due to our
claims experience and rising healthcare costs. Although we seek to manage our
claims to prevent increases, such increases can occur unexpectedly and without
regard to our efforts to limit them. If such increases occur, we may be unable
to pass them along to the consumer through product price increases, resulting in
decreased operating results.





Our financial
results may be impacted by our ability to select appropriate restaurant
locations,
construct new restaurants, complete remodels or renew leases with desirable
terms.





Our
strategic plan, and a component of our business strategy, includes the
construction of new restaurants and the remodeling of existing restaurants. We
face competition from other restaurant operators, retail chains, companies and
developers for desirable site locations, which may adversely affect the cost,
implementation and timing of our expansion plans. If we experience delays in the
construction or remodel processes, we may be unable to complete such activities
at the planned cost, which would adversely affect our future results from
operations.  Additionally, we cannot guarantee that such remodels
will increase the revenues generated by these restaurants or be sustainable.
Likewise, we cannot be sure that the sites we select for new restaurants will
result in restaurants whose sales results meet our expectations.




We lease
a substantial number of our restaurant properties. The terms of our leases and
subleases vary in length, with primary terms (i.e., before consideration of
option periods) expiring on various dates through fiscal 2032. We do not expect
the expiration of these leases to have a material impact on our operations in
any particular year, as the expiration dates are staggered over a number of
years and many of the leases contain renewal options. As our leases and
available option periods expire, we will need to negotiate new leases with our
landlords for those leased restaurants that we intend to continue operating. If
we are unable to negotiate acceptable lease terms for them, we may decide to
close the restaurants, or the new lease terms may negatively impact our
consolidated results of operations.




14
 Table of Contents





We are subject to
certain health, employment, environmental and other government regulations, and
failure to comply with existing or future government regulations could expose us
to litigation, damage to our reputation and lower profits.





We, and
our franchisees, are subject to various federal, state and local laws. The
successful development and operation of restaurants depend to a significant
extent on the selection and acquisition of suitable sites, which are subject to
zoning, land use, environmental, traffic and other regulations. Restaurant
operations are also subject to licensing and regulation by state and local
departments relating to health, food preparation, sanitation and safety
standards, federal and state labor and immigration law, (including applicable
minimum wage requirements, overtime pay practices, working and safety conditions
and citizenship requirements), federal and state laws prohibiting discrimination
and other laws regulating the design and operation of facilities, such as the
ADA. If we fail to comply with any of these laws, we may be subject to
governmental action or litigation, and our reputation could be harmed. Injury to
our reputation would, in turn, likely reduce revenues and profits.





In recent
years, there has been an increased legislative, regulatory and consumer focus on
nutrition and advertising practices in the food industry, particularly among
restaurants. As a result, we may become subject to regulatory initiatives in the
area of nutrition disclosure or advertising, such as requirements to provide
information about the nutritional content of our food products, which could
increase expenses. The operation of our franchise system is also subject to
franchise laws and regulations enacted by a number of states and rules
promulgated by the U.S. Federal Trade Commission. Any future legislation
regulating franchise relationships may negatively affect our operations,
particularly our relationship with our franchisees. Failure to comply with new
or existing franchise laws and regulations in any jurisdiction or to obtain
required government approvals could result in a ban or temporary suspension on
future franchise sales. Changes in applicable accounting rules imposed by
governmental regulators or private governing bodies could also affect our
reported results of operations.





We are
subject to the FLSA, which governs such matters as minimum wage, overtime and
other working conditions, along with the ADA, various family leave mandates and
a variety of other laws enacted, or rules and regulations promulgated, by
federal, state and local governmental authorities that govern these and other
employment matters. We have experienced and expect further increases in payroll
expenses as a result of federal and state mandated increases in the minimum
wage. In addition, our vendors may be affected by higher minimum wage standards,
which may increase the price of goods and services they supply to
us.





We are
also subject to various federal, state and local environmental laws. These laws
govern discharges to air and water, as well as handling and disposal practices
for solid and hazardous wastes. These laws may also impose liability for damages
from and the costs of cleaning up sites of spills, disposals or other releases
of hazardous materials. We may be responsible for environmental conditions or
contamination relating to our restaurants and the land on which our restaurants
are located, regardless of whether we lease or own the restaurant or land in
question and regardless of whether such environmental conditions were created by
us or by a prior owner or tenant. The costs of any cleanup could be significant
and have a material adverse effect on our consolidated financial position and
results of operations.




We may not be
able to adequately protect our intellectual property, which could decrease the
value of our brands and products.





The
success of our business depends on the continued ability to use existing
trademarks, service marks and other components of our brands in order to
increase brand awareness and further develop branded products. All of the steps
we have taken to protect our intellectual property may not be
adequate.


Provisions of our
Certificate of Incorporation and Bylaws could limit the ability of our stockholders
to effect a change in control.
  Our
Certificate of Incorporation and Bylaws include several provisions and features
intended to render more difficult certain unsolicited or hostile attempts to
acquire our business. In addition, our Board of Directors has the authority,
without further action by our stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series, and to fix the rights, preferences and
restrictions of such preferred stock.
 
 These
provisions may discourage a third party from attempting to acquire control of us
and could limit the price that investors might be willing to pay in the future
for shares of our common stock.




15
 Table of Contents







Our
Stockholder Rights Plan would cause substantial dilution to any stockholder or
third party that attempts to acquire us on terms not approved by our Board of
Directors.





Our Stockholder Rights Plan provides, among other things, that when specified
events occur, our stockholders will be entitled to purchase from us Series A
Junior Participating Preferred Stock. The preferred stock purchase rights are
triggered by the earlier to occur of (i) ten days after the date of a public
announcement that a person or group acting in concert has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of our outstanding
capital stock, or (ii) ten business days after the commencement of or
announcement of an intention to make a tender offer or exchange offer, the
consummation of which would result in the acquiring person becoming the
beneficial owner of 15% or more of our outstanding capital stock. The preferred
stock purchase rights would cause substantial dilution to a person or group that
attempts to acquire us on terms not approved by our Board of
Directors.





We
face risks related to interest rates.





Our
principal exposures to financial market risks are the impact that interest rate
changes could have on our Facility, the magnitude of which depends on the amount
of borrowings we have outstanding, and on the fair value of our interest rate
swap agreements. As of January 31, 2009, we had borrowings outstanding of
$251,735 and $62,000 under the term loan and revolving portions of our Facility,
respectively. As of January 31, 2009, borrowings under the revolving portion of
our Facility bore interest at a weighted-average rate of 1.93% per annum, and
borrowings on the term loan bore interest at the London Inter Bank Offering Rate
(“LIBOR”) plus 1.38%.





The fair
value of our interest rate swap agreements, which effectively fix future
interest payments on $200,000 of our term loan debt at 6.12% through March 2012,
is directly linked both to current interest rates and to expected future
interest rates over their remaining term. These interest rate swap agreements
are highly sensitive to interest rate fluctuations, which could result in
significant variability in their future fair value.





Catastrophic
events may disrupt our business.





Unforeseen
events, including war, terrorism and other international conflicts, public
health issues, and natural disasters such as hurricanes, earthquakes, or other
adverse weather and climate conditions, whether occurring in the U.S. or abroad,
could disrupt our operations, disrupt the operations of franchisees,
distributors, suppliers or customers, or result in political or economic
instability. These events could reduce demand for our products or make it
difficult or impossible to receive products from our distributors or
suppliers.







16
 Table of Contents





Item 1B.Unresolved Staff
Comments





None.





Item 2.Properties





The
following table sets forth information regarding our restaurant properties as of
January 31, 2009:





Land
      and
                                                                                                                                                  Building
                                                                                                                                                  Owned
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Land
      Leased
                                                                                                                                                  and
      Building
                                                                                                                                                  Owned
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Land
      and
                                                                                                                                                  Building
                                                                                                                                                  Leased
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                TotalCarl’s
      Jr.:Company-operated
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                20
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                139
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                257
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                416Franchise-operated(1)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                9
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                45
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                165
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                219Third
      party-operated/vacant(2)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                4
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                10
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                16Subtotal
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                33
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                186
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                432
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                651Hardee’s:Company-operated
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                248
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                105
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                129
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                482Franchise-operated(1)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                54
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                75
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                128
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                257Third
      party-operated/vacant(2)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                15
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                13
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                43
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                71Subtotal
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                317
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                193
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                300
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                810Other:Company-operated
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1Third
      party-operated/vacant(2)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3Subtotal
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                4Total:Company-operated
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                268
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                244
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                387
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                899Franchise-operated(1)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                63
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                120
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                293
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                476Third
      party-operated/vacant(2)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                19
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                17
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                54
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                90Total
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                350
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                381
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                734
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,465


__________


(1)
            “Franchise-operated”
      properties are those which we own and lease to franchisees, or lease and
      sublease to franchisees.





(2)
            “Third
      party-operated/vacant” properties are those we own or lease that are
      either leased or subleased by unaffiliated entities or are currently
      vacant.





The terms
of our leases and subleases vary in length, with primary terms (i.e., before
consideration of option periods) expiring on various dates through fiscal 2032.
We do not expect the expiration of these leases to have a material impact on our
operations in any particular year, as the expiration dates are staggered over a
number of years and many of the leases contain renewal options.





Our
corporate headquarters and Carl’s Jr. brand headquarters are both located in
Carpinteria, California, and combined they contain approximately
78,000 square feet of space. Our primary administrative service center is
located in Anaheim, California, and contains approximately 78,000 square
feet of space. We plan to relocate our primary administrative service center to
another Anaheim, California location during fiscal 2010. The new facility
contains approximately 93,000 square feet of space. Our primary distribution
center is located in Ontario, California, and contains approximately
201,000 square feet of space. A secondary distribution center for the
Carl’s Jr. brand is located in Manteca, California, and contains approximately
52,000 square feet of space. Our Hardee’s corporate facility is located in
St. Louis, Missouri, and contains approximately 54,000 square feet of
space. Our Hardee’s equipment distribution center is located in Rocky Mount,
North Carolina, and contains approximately 82,000 square feet of
space.







17
 Table of Contents





Item 3.Legal
Proceedings





There are
currently a number of claims and lawsuits pending against us. These claims and
lawsuits cover a variety of allegations spanning our entire business. The
following is a brief description of the more significant of these categories of
claims and lawsuits. In addition, we are subject to various federal, state and
local regulations that affect our business.





Employees





We employ
many thousands of persons, both by us and in restaurants owned and operated by
our subsidiaries. In addition, thousands of persons from time to time seek
employment in such restaurants. In the ordinary course of business, disputes
arise regarding hiring, firing and promotion practices.





Customers





Our
restaurants serve a large cross-section of the public and, in the course of
serving that many people, disputes arise as to products, services, accidents and
other matters typical of an extensive restaurant business such as
ours.





Suppliers





We rely
on large numbers of suppliers who are required to meet and maintain our high
standards. On occasion, disputes may arise with our suppliers on a number of
issues including, but not limited to, compliance with product specifications and
certain business concerns. Additionally, disputes may arise on a number of
issues between us and individuals or entities who claim they should have been
granted the approval or opportunity to supply products or services to our
restaurants.





Franchising





A
substantial number of our restaurants are franchised to independent
entrepreneurs operating under contractual arrangements with us. In the course of
the franchise relationship, disputes occasionally arise between us and our
franchisees relating to a broad range of subjects including, without limitation,
quality, service and cleanliness issues, contentions regarding terminations of
franchises, and delinquent payments. Additionally, occasional disputes arise
between us and individuals who claim they should have been granted a
franchise.





Intellectual
Property





We have
registered trademarks and service marks, patents and copyrights, some of which
are of material importance to our business. From time to time, we may become
involved in litigation to defend and protect our use of our intellectual
property.





Item 4.Submission of Matters to a
Vote of Security Holders





None.







18
 Table of Contents





PART II





Item 5.Market
      For Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity
Securities





Our
common stock is listed on the NYSE under the symbol “CKR”. As of
March 18, 2009, there were approximately 1,629 record holders of our common
stock. The following table sets forth, for the periods indicated, the high and
low sales prices of our common stock, as reported on the NYSE Composite
Tape:





High
                      
                      
                      LowFiscal
      2009First
      Quarter
                      
                      $
                      13.35
                      
                      
                      $
                      10.25Second
      Quarter
                      
                      
                      14.32
                      
                      
                      
                      8.82Third
      Quarter
                      
                      
                      14.45
                      
                      
                      
                      6.36Fourth
      Quarter
                      
                      
                      10.09
                      
                      
                      
                      4.88Fiscal
      2008First
      Quarter
                      
                      $
                      21.35
                      
                      
                      $
                      18.25Second
      Quarter
                      
                      
                      23.24
                      
                      
                      
                      15.40Third
      Quarter
                      
                      
                      18.41
                      
                      
                      
                      15.19Fourth
      Quarter
                      
                      
                      15.43
                      
                      
                      
                      11.31





During
fiscal 2009 and 2008, we declared aggregate annual cash dividends of $0.24 per
share of common stock, for a total of $12,859 and $13,873,
respectively.  We currently anticipate that aggregate cash dividends
will be approximately $13,117, or $0.24 per share of common stock, during fiscal
2010.





Pursuant
to the Stock Repurchase Plan authorized by our Board of Directors, and announced
on April 13, 2004, as modified during fiscal 2008, we are allowed to repurchase
up to an aggregate of $400,000 of our common stock. During fiscal 2009, we
repurchased 463,965 shares of common stock at an average price of $8.94 per
share, for a total of $4,148, including commissions.  Based on our
Board of Directors’ authorization and the amount of cumulative repurchases of
our common stock that we have already made thereunder, we are permitted to make
additional repurchases of our common stock up to $38,599 under the Stock
Repurchase Plan as of January 31, 2009.





We had
27,800 shares of common stock that had been repurchased but not yet retired
as of January 31, 2008 that are shown as common stock held in treasury on our
accompanying Consolidated Balance Sheet and were retired subsequent to the
balance sheet date. There was no common stock held in treasury as of January 31,
2009.




The
following table provides information with respect to shares of common stock
repurchased by us during the fiscal quarter ended January 26,
2009:





(a)
                                                              
                                                              
                                                              (b)
                                                              
                                                              
                                                              (c)
                                                              
                                                              
                                                              (d)Period
                                                              
                                                              Total
                                                                Number
      of
                                                                Shares
                                                                Purchased
                                                              
                                                              
                                                              Average
                                                                Price
                                                                Paid
      per
                                                                Share
                                                              
                                                              
                                                              Total
      Number of
                                                                Shares
      Purchased
                                                                as
      Part of
                                                                Publicly
                                                                Announced
      Plans
                                                                or Programs
                                                              
                                                              
                                                              Maximum
      Dollar
                                                                Value
      of Shares
                                                                that
      May Yet Be
                                                                Purchased
      Under
                                                                the
      Plans or
                                                                ProgramsNovember 4,
      2008 — December 1, 2008
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              $
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              $
                                                              38,720December 2,
      2008 — December 29, 2008
                                                              
                                                              
                                                              12,448
                                                              
                                                              
                                                              
                                                              8.40
                                                              
                                                              
                                                              
                                                              12,448
                                                              
                                                              
                                                              
                                                              38,615December 30,
      2008 — January 26, 2009
                                                              
                                                              
                                                              1,917
                                                              
                                                              
                                                              
                                                              8.56
                                                              
                                                              
                                                              
                                                              1,917
                                                              
                                                              
                                                              
                                                              38,599Total
                                                              
                                                              
                                                              14,365
                                                              
                                                              
                                                              $
                                                              8.42
                                                              
                                                              
                                                              
                                                              14,365
                                                              
                                                              
                                                              $
                                                              38,599







19
 Table of Contents




The graph
below shows the cumulative total stockholder return of an investment of $100
(and the reinvestment of any dividends thereafter) on January 31, 2004 in
(i) our common stock, (ii) the QSR Peer Group and (iii) the
Standard and Poor (“S&P”) Small Cap 600 Index. Our stock price performance
shown in the graph below may not be indicative of future stock price
performance.













*
            $100
      invested on January 31, 2004 in stock or index, including
      reinvestment of dividends.







20
 Table of Contents


Item 6.Selected Financial
Data





The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and related notes and Management’s Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere in this
Annual Report on Form 10-K. All amounts, except per share and ratio
amounts, presented in Item 6 are in thousands.





Selected
Financial and Operating Data


Fiscal
      Year Ended January 31,(1)2009
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
                          
                          
                          2005Consolidated
      Statements of Income Data:Revenue:Company-operated
      restaurants
                          
                          $
                          1,131,312
                          
                          
                          $
                          1,201,577
                          
                          
                          $
                          1,225,227
                          
                          
                          $
                          1,162,179
                          
                          
                          $
                          1,170,323Franchised
      and licensed restaurants and other
                          
                          
                          351,398
                          
                          
                          
                          333,057
                          
                          
                          
                          316,844
                          
                          
                          
                          307,012
                          
                          
                          
                          300,764Total
      revenue
                          
                          $
                          1,482,710
                          
                          
                          $
                          1,534,634
                          
                          
                          $
                          1,542,071
                          
                          
                          $
                          1,469,191
                          
                          
                          $
                          1,471,087Operating
      income(2)
                          
                          $
                          84,020
                          
                          
                          $
                          88,327
                          
                          
                          $
                          110,694
                          
                          
                          $
                          80,368
                          
                          
                          $
                          63,326Interest
      expense(3)
                          
                          
                          28,609
                          
                          
                          
                          33,033
                          
                          
                          
                          19,768
                          
                          
                          
                          22,988
                          
                          
                          
                          36,775Income
      tax expense (benefit)(4)
                          
                          
                          21,533
                          
                          
                          
                          24,659
                          
                          
                          
                          34,019
                          
                          
                          
                          (122,962
                          )
                          
                          
                          654Income
      from continuing operations
                          
                          
                          36,956
                          
                          
                          
                          35,072
                          
                          
                          
                          54,194
                          
                          
                          
                          182,709
                          
                          
                          
                          22,979Loss
      from discontinued operations(5)
                          
                          
                          —
                          
                          
                          
                          (3,996
                          )
                          
                          
                          (4,022
                          )
                          
                          
                          (1,570
                          )
                          
                          
                          (4,963
                          )Net
      income
                          
                          
                          36,956
                          
                          
                          
                          31,076
                          
                          
                          
                          50,172
                          
                          
                          
                          181,139
                          
                          
                          
                          18,016Income
      from continuing operations per share — basic
                          
                          
                          0.71
                          
                          
                          
                          0.59
                          
                          
                          
                          0.85
                          
                          
                          
                          3.08
                          
                          
                          
                          0.40Income
      from continuing operations per share — diluted
                          
                          
                          0.69
                          
                          
                          
                          0.57
                          
                          
                          
                          0.77
                          
                          
                          
                          2.54
                          
                          
                          
                          0.39Loss
      from discontinued operations per share — diluted
                          
                          
                          —
                          
                          
                          
                          (0.07
                          )
                          
                          
                          (0.05
                          )
                          
                          
                          (0.03
                          )
                          
                          
                          (0.09
                          )Net
      income per share — diluted
                          
                          $
                          0.69
                          
                          
                          $
                          0.50
                          
                          
                          $
                          0.72
                          
                          
                          $
                          2.51
                          
                          
                          $
                          0.30Weighted-average
      shares outstanding — diluted
                          
                          
                          54,282
                          
                          
                          
                          62,559
                          
                          
                          
                          72,377
                          
                          
                          
                          73,250
                          
                          
                          
                          59,583Cash
      dividends declared per common share
                          
                          $
                          0.24
                          
                          
                          $
                          0.24
                          
                          
                          $
                          0.16
                          
                          
                          $
                          0.16
                          
                          
                          $
                          —Ratio
      of earnings to fixed charges(6)
                          
                          
                          2.0
                          x
                          
                          
                          1.9
                          x
                          
                          
                          2.8
                          x
                          
                          
                          2.1
                          x
                          
                          
                          1.3
                          xSegment
      Operating Data:Carl’s
      Jr.:Total
      revenue
                          
                          $
                          886,349
                          
                          
                          $
                          845,634
                          
                          
                          $
                          830,961
                          
                          
                          $
                          802,761
                          
                          
                          $
                          792,829Operating
      income
                          
                          
                          67,505
                          
                          
                          
                          66,801
                          
                          
                          
                          80,692
                          
                          
                          
                          80,047
                          
                          
                          
                          59,826Hardee’s:Total
      revenue
                          
                          
                          595,487
                          
                          
                          
                          685,273
                          
                          
                          
                          706,884
                          
                          
                          
                          661,509
                          
                          
                          
                          673,172Operating
      income
                          
                          
                          16,153
                          
                          
                          
                          21,227
                          
                          
                          
                          30,201
                          
                          
                          
                          11,600
                          
                          
                          
                          3,398Consolidated
      Balance Sheet Data:Cash
      and cash equivalents
                          
                          $
                          17,869
                          
                          
                          $
                          19,993
                          
                          
                          $
                          18,620
                          
                          
                          $
                          21,279
                          
                          
                          $
                          18,363Working
      capital deficit
                          
                          
                          (38,779
                          )
                          
                          
                          (47,510
                          )
                          
                          
                          (33,631
                          )
                          
                          
                          (27,038
                          )
                          
                          
                          (74,907
                          )Total
      assets
                          
                          
                          804,687
                          
                          
                          
                          791,711
                          
                          
                          
                          796,638
                          
                          
                          
                          795,428
                          
                          
                          
                          669,434Total
      long-term debt and capital lease obligations, including currentportion
                          
                          
                          357,450
                          
                          
                          
                          392,036
                          
                          
                          
                          178,055
                          
                          
                          
                          264,662
                          
                          
                          
                          317,048Stockholders’
      equity
                          
                          
                          194,276
                          
                          
                          
                          145,242
                          
                          
                          
                          378,846
                          
                          
                          
                          308,938
                          
                          
                          
                          119,668








21
 Table of Contents


________


(1)
            Our
      fiscal year is 52 or 53 weeks, ending the last Monday in January. For
      clarity of presentation, we generally label all fiscal years presented as
      if the fiscal year ended January 31. Fiscal 2009, 2008, 2007 and 2006
      include 52 weeks. Fiscal 2005 includes
  53 weeks.





(2)
            Fiscal
      2009, 2008, 2007, 2006 and 2005, include $4,139, $(577), $3,543, $6,481
      and $9,975, respectively, of facility action charges, net, which are
      included in operating income.





(3)
            Fiscal
      2009 and 2008 include $9,010 and $11,380, respectively, of interest
      expense related to changes in the fair value of our interest rate swap
      agreements.





(4)
            Fiscal
      2006 includes a $147,988 income tax benefit related to the reversal of
      previously established valuation allowance against deferred income tax
      assets.





(5)
            Discontinued
      operations contain the financial results of La Salsa in fiscal 2008,
      2007, 2006 and 2005.  In addition, fiscal 2005 discontinued
      operations include the financial results of Timber Lodge Steakhouse,
      Inc., a wholly-owned subsidiary that we sold during fiscal
      2005.





(6)
            For
      purposes of calculating the ratio of earnings to fixed charges,
      (a) earnings represent income before income taxes, discontinued
      operations and fixed charges, and (b) fixed charges consist of
      interest on all indebtedness, interest related to capital lease
      obligations, amortization of debt issuance costs and a portion of rental
      expense that is representative of the interest factor (deemed by us to be
      one-third).








22
 Table of Contents





Selected
Financial and Operating Data by Segment





Fiscal
      Year Ended January 31,(1)2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005Carl’s
      Jr. RestaurantsRestaurants
      open (at end of fiscal year):Company-operated
                  
                  
                  416
                  
                  
                  
                  406
                  
                  
                  
                  393
                  
                  
                  
                  428
                  
                  
                  
                  428Franchised
      and licensed
                  
                  
                  779
                  
                  
                  
                  735
                  
                  
                  
                  694
                  
                  
                  
                  621
                  
                  
                  
                  586Total
                  
                  
                  1,195
                  
                  
                  
                  1,141
                  
                  
                  
                  1,087
                  
                  
                  
                  1,049
                  
                  
                  
                  1,014Restaurant
      revenue:Company-operated
      restaurants
                  
                  $
                  625,109
                  
                  
                  $
                  595,272
                  
                  
                  $
                  590,613
                  
                  
                  $
                  574,663
                  
                  
                  $
                  567,960Franchised
      and licensed restaurants(2)
                  
                  
                  894,611
                  
                  
                  
                  853,391
                  
                  
                  
                  795,520
                  
                  
                  
                  700,590
                  
                  
                  
                  679,734Company-operated AUV
      (trailing-13 periods)
                  
                  
                  1,528
                  
                  
                  
                  1,493
                  
                  
                  
                  1,440
                  
                  
                  
                  1,341
                  
                  
                  
                  1,301Franchise-operated AUV
      (trailing-13 periods)
                  
                  
                  1,182
                  
                  
                  
                  1,197
                  
                  
                  
                  1,205
                  
                  
                  
                  1,160
                  
                  
                  
                  1,146Company-operated
      same-store sales increase
                  
                  
                  2.1
                  %
                  
                  
                  0.9
                  %
                  
                  
                  4.9
                  %
                  
                  
                  2.2
                  %
                  
                  
                  7.7
                  %Franchise-operated
      same-store sales (decrease) increase
                  
                  
                  (1.6
                  )%
                  
                  
                  (0.6
                  )%
                  
                  
                  5.4
                  %
                  
                  
                  0.7
                  %
                  
                  
                  6.6
                  %Restaurant
      operating costs as a percentage of company-operated restaurants
      revenue
                  
                  
                  78.8
                  %
                  
                  
                  78.5
                  %
                  
                  
                  76.3
                  %
                  
                  
                  76.6
                  %
                  
                  
                  78.9
                  %Hardee’s
      RestaurantsRestaurants
      open (at end of fiscal year):Company-operated
                  
                  
                  482
                  
                  
                  
                  560
                  
                  
                  
                  696
                  
                  
                  
                  663
                  
                  
                  
                  677Franchised
      and licensed
                  
                  
                  1,426
                  
                  
                  
                  1,366
                  
                  
                  
                  1,210
                  
                  
                  
                  1,330
                  
                  
                  
                  1,357Total
                  
                  
                  1,908
                  
                  
                  
                  1,926
                  
                  
                  
                  1,906
                  
                  
                  
                  1,993
                  
                  
                  
                  2,034Restaurant
      revenue:Company-operated
      restaurants
                  
                  $
                  505,919
                  
                  
                  $
                  605,986
                  
                  
                  $
                  634,264
                  
                  
                  $
                  587,082
                  
                  
                  $
                  601,068Franchised
      and licensed restaurants(2)
                  
                  
                  1,314,624
                  
                  
                  
                  1,196,505
                  
                  
                  
                  1,156,201
                  
                  
                  
                  1,173,442
                  
                  
                  
                  1,203,750Company-operated AUV
      (trailing-13 periods)
                  
                  
                  993
                  
                  
                  
                  954
                  
                  
                  
                  916
                  
                  
                  
                  874
                  
                  
                  
                  862Franchise-operated AUV
      (trailing-13 periods)
                  
                  
                  970
                  
                  
                  
                  964
                  
                  
                  
                  949
                  
                  
                  
                  897
                  
                  
                  
                  891Company-operated
      same-store sales increase (decrease)
                  
                  
                  1.2
                  %
                  
                  
                  2.0
                  %
                  
                  
                  4.8
                  %
                  
                  
                  (0.2
                  )%
                  
                  
                  7.0
                  %Franchise-operated
      same-store sales increase (decrease)
                  
                  
                  1.3
                  %
                  
                  
                  0.4
                  %
                  
                  
                  4.3
                  %
                  
                  
                  (2.2
                  )%
                  
                  
                  3.6
                  %Restaurant
      operating costs as a percentage of company-operated restaurantsrevenue
                  
                  
                  83.9
                  %
                  
                  
                  83.6
                  %
                  
                  
                  81.9
                  %
                  
                  
                  84.5
                  %
                  
                  
                  85.7
                  %


__________


(1)
            Our
      fiscal year is 52 or 53 weeks, ending the last Monday in January. For
      clarity of presentation, we generally label all fiscal years presented as
      if the fiscal year ended January 31. Fiscal 2009, 2008, 2007 and 2006
      include 52 weeks. Fiscal 2005 includes
  53 weeks.





(2)
            Franchised
      and licensed restaurant operations are not included in our Consolidated
      Statements of Income; however, franchised and licensed restaurants
      revenues result in royalties and rental revenues, which are included in
      franchised and licensed restaurants and other
  revenue.








23
 Table of Contents








Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations





The
following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes and Selected Financial and Operating Data
included elsewhere in this Annual Report on Form 10-K.





Overview





Highlights
from fiscal 2009 include:





•
            Income
      from continuing operations increased $1,884 to $36,956, or $0.69 per
      diluted share, versus $35,072, or $0.57 per diluted share, in the prior
      year.





•
            Net
      income increased to $36,956, or $0.69 per diluted share. This represents
      an increase of $5,880 from the prior year net
  income.





•
            Same-store
      sales increased 2.1% and 1.2% at Carl’s Jr. and Hardee’s company-operated
      restaurants, respectively.





•
            Average
      unit volumes increased to $1,528 and $993 for the trailing-13 periods at
      company-operated Carl’s Jr. and Hardee’s restaurants,
      respectively.





•
            Restaurant
      operating costs as a percentage of company-operated restaurants revenue on
      a consolidated basis remained steady at 81.1% as higher depreciation and
      amortization expense was offset by lower payroll and other employee
      benefits costs. Food and packaging costs were flat versus the prior
      year.





•
            Bank
      and other long-term debt decreased by $36,318 to
  $314,788.





•
            Carl’s
      Jr. and Hardee’s systemwide restaurant count increased by 36 restaurants,
      marking our second straight year of net restaurant growth. We opened 24
      company-operated and our franchisees and licensees opened 45 domestic and
      40 international restaurants,
respectively.





•
            We
      successfully completed our Hardee’s refranchising program through the sale
      of 102 restaurants during the year to new and existing franchisees. We
      divested a total of 238 Hardee’s restaurants during fiscal 2009 and 2008,
      exceeding our initial goal of 200
restaurants.





•
            A
      total of 20 development agreements were signed with new and existing
      franchisees representing commitments to build a total of 380 restaurants
      domestically and internationally.





•
            We
      remodeled 61 Carl’s Jr. and 101 Hardee’s company-operated restaurants, and
      we also completed a combined 41 dual-branded Green Burrito and Red Burrito
      company-operated restaurant conversions. In addition, our franchisees
      completed 20 dual-branded restaurant
  conversions.





•
            Consolidated
      revenue decreased 3.4%, to $1,482,710 in fiscal 2009 from $1,534,634 in
      fiscal 2008.





•
            During
      fiscal 2009, we declared cash dividends of $0.06 per share of our common
      stock each quarter for an annual total of $0.24 per share, or
      $12,859.





We are an
international owner, operator and franchisor of QSRs, operating principally
under the Carl’s Jr. and Hardee’s brand names. As of January 31, 2009, we
operated 416 and our franchisees and licensees operated 658 domestic and 121
international Carl’s Jr. restaurants. These 1,195 Carl’s Jr. restaurants are
predominately located in the Western United States, primarily in California,
with a strong international presence in Mexico and a growing presence in the
Russian Federation, Malaysia and Singapore. As of January 31, 2009, we operated
482 and our franchisees and licensees operated 1,231 domestic and 195
international Hardee’s restaurants. These 1,908 Hardee’s restaurants are located
predominately throughout the Southeastern and Midwestern United States, with a
growing international presence in the Middle East.





We derive
our revenue primarily from sales at company-operated restaurants and revenue
from franchisees and licensees, including franchise and royalty fees, sales to
Carl’s Jr. franchisees and licensees of food and packaging products, rental
revenue under real property leases and revenue from the sale of equipment to our
franchisees. Restaurant operating expenses consist primarily of food and
packaging costs, payroll and other employee benefits and occupancy and other
operating expenses of company-operated restaurants. Franchise operating costs
include the cost of food and packaging products sold to Carl’s Jr. franchisees
and licensees, lease payments or depreciation expense on properties leased or
subleased to our franchisees, the cost of equipment sold to franchisees and
franchise administrative support. Our revenue and expenses are directly affected
by the number and sales volume of company-operated restaurants and, to a lesser
extent, franchised and licensed restaurants.








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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





From time
to time, we experience increases in our general operating costs. In the past, we
have been successful at passing on such increases through price increases, but
such price increases have likely had an impact on transaction counts. If we were
unable to pass along such price increases, and at the same time could not
increase our transaction counts, the recoverability of the carrying value of our
restaurants could be impacted.





Critical
Accounting Policies and Estimates





Our
reported results are impacted by the application of certain accounting policies
that require us to make subjective or complex judgments. These judgments involve
making estimates about the effect of matters that are inherently uncertain and
may significantly impact our consolidated financial position and results of
operations. Information regarding our significant accounting policies and
estimates can be found in Note 1 of Notes to Consolidated Financial
Statements.  Specific risks associated with these critical accounting
policies and estimations are described in the following paragraphs.





Impairment of
Property and Equipment and Other Amortizable Long-Lived Assets Held and
Used, Held
for Sale or To Be Disposed of Other Than By Sale





During
the second and fourth quarter of each fiscal year, and whenever events and/or
circumstances indicate that the carrying value of assets may be impaired, we
perform an asset recoverability analysis. In connection with this analysis, we
estimate future cash flows for each of our restaurants based upon experience
gained, current intentions about refranchising restaurants and closures,
expected sales trends, internal plans and other relevant information. We
generally estimate the useful life of restaurants on owned property to be 20 to
40 years and estimate the remaining useful life of restaurants subject to
leases to range from the end of the lease term then in effect to the end of such
lease term including option periods. We also make assumptions about future
same-store sales and operating expenses. We then estimate the future cash flows
from operating the restaurant over its estimated useful life. In reaching a
conclusion as to whether or not impairment has occurred, we consider the period
of time since the restaurant was opened or remodeled, trends in operating
results and expectations for future sales growth. If an estimate of the fair
value of our assets becomes necessary, we typically base such estimate on
forecasted cash flows discounted at an estimated weighted-average cost of
capital.





Same-store
sales and the rates at which restaurant operating costs will increase in the
future are key assumptions used to estimate future cash flow for evaluating
recoverability. If our same-store sales do not perform at or above our
forecasted level, or if restaurant operating cost increases exceed our forecast
and we are unable to recover such costs through price increases, the carrying
value of certain of our restaurants may prove to be unrecoverable and we may
incur additional impairment charges in the future.





As of
January 31, 2009, we had a total of 70 restaurants among our two major
restaurant concepts that generated negative cash flows on a trailing-13 period
basis. These restaurants had combined net book values of $27,237. If these
negative cash flow restaurants were not to begin generating positive cash flows
within a reasonable period of time, the carrying value of these restaurants may
prove to be not fully recoverable and we may recognize additional impairment
charges in the future.





Impairment
of Goodwill





We also
test goodwill for impairment, on an annual basis, during the first quarter of
our fiscal year, or more frequently if events and/or circumstances indicate that
the asset might be impaired. The impairment test is performed at the reporting
unit level, and an impairment loss is recognized to the extent that the carrying
amount exceeds the asset’s fair value. During the first quarter of fiscal 2009,
we performed our evaluation and concluded that no impairment charge was
required.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Estimated
Liability for Closed Restaurants
 
 The most
significant assumptions used in determining the amount of the estimated
liability for closed restaurants are the amount of the estimated liability for
future lease payments and other contractual obligations on vacant restaurants,
and the extent to which these costs may be reasonably expected to be recovered
by future sublease income. We estimate the cost to maintain leased
vacant properties until the lease can be abated. If the costs to maintain
properties increase, or it takes longer than anticipated to sublease such
properties, we may need to record additional estimated liabilities. If the
vacant restaurants are not subleased on the terms that we used to estimate the
liabilities, we may be required to record losses in future periods. Conversely,
if the leases on the vacant restaurants are terminated or subleased on more
favorable terms than we used to estimate the liabilities, we reverse previously
established estimated liabilities, resulting in an increase in operating income.





Estimated
Liability for Self-Insurance





We are
self-insured for a portion of our current and prior years’ losses related to
workers’ compensation, general and auto liability insurance
programs.  We have stop loss insurance for individual workers’
compensation and general liability claims over $500 and auto liability claims
over $250. We estimate our self-insurance exposure based on the average
historical losses on claims we have incurred and on actuarial observations of
historical claim loss development and our actuary’s estimate of unpaid losses
for each loss category. We record our accrued liabilities for self-insurance at
present value, based on an estimated risk-free interest rate at the balance
sheet date. Our actual future claim loss development may be better or worse than
the development we estimated in conjunction with our actuary, in which case our
reserves would require adjustment. If we experience a higher than expected
number of claims or the costs of claims rise more than expected, then we would
be required to adjust the expected losses upward and increase our future
self-insurance expense.





Loss
Contingencies





We
account for contingent obligations related to litigation in accordance with
Statement of Financial Accounting Standards ("SFAS") 5, Accounting for Contingencies, which requires
that we assess each loss contingency to determine estimates of the degree of
probability and range of possible settlement. Those contingencies that are
deemed to be probable and for which the amount of such settlement is reasonably
estimable are accrued in our Consolidated Financial Statements. If only a range
of loss can be determined, with no amount in the range representing a better
estimate than any other amount within the range, we record an accrued liability
equal to the low end of the range. In accordance with SFAS 5, as of January
31, 2009, we have recorded an accrued liability for contingencies related to
litigation in the amount of $215 (see Notes 9 and 24 of Notes to
Consolidated Financial Statements for further information). The assessment of
contingencies is highly subjective and requires judgments about future events.
Contingencies are reviewed at least quarterly to determine the adequacy of the
recorded liabilities and related consolidated financial statement disclosure.
The ultimate resolution of such loss contingencies may differ materially from
amounts we have accrued in our Consolidated Financial Statements.





In
addition, as of January 31, 2009, we estimated our potential exposure for those
loss contingencies related to other litigation claims that we believe are
reasonably possible to result in an adverse outcome, to be in the range of $870
to $2,905. In accordance with SFAS 5, we have not recorded a liability for
these contingent losses.





Accounting
for Lease Obligations





We lease
a substantial number of our restaurant properties. At the inception of the
lease, each property is evaluated to determine whether the lease is an operating
or capital lease. The lease accounting evaluation may require significant
judgment in estimating the fair value and useful life of the leased property and
to establish the appropriate lease term. The lease term used for this evaluation
includes renewal option periods only in instances in which the exercise of the
renewal option can be reasonably assured because failure to exercise such option
would result in an economic penalty. Such economic penalty would typically
result from our having to abandon buildings and other non-detachable
improvements with remaining economic value upon vacating the
property.





26
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





The lease
term may also include a “rent holiday”, which begins on the date we are given
control of the leased premises and typically ends upon restaurant opening.
Factors that may affect the length of the rent holiday period include
construction-related delays. Extension of the rent holiday period due to such
delays would result in greater rent expense recognized during the rent holiday
period.





Franchised
and Licensed Operations





We
sublease a number of restaurant properties to our franchisees. As such, we
remain principally liable for these leases. If sales trends or economic
conditions worsen for our franchisees, their financial health may worsen, our
collection rates may decline and we may be required to assume the responsibility
for additional lease payments on franchised restaurants. The likelihood of
needing to increase the estimated liability for future lease obligations is
primarily related to the success of our Hardee’s brand. We do not expect Carl’s
Jr. franchisees to experience the same level of financial difficulties as
Hardee’s franchisees have encountered in the past; however, we can provide no
assurance that this will not occur.





Our
franchising income is dependent on both the number of restaurants operated by
our franchisees and licensees and their operational and financial success, such
that they can make their royalty and rent payments to us. When appropriate, we
establish notes receivable pursuant to completing workout agreements with
financially troubled franchisees. We cease accruing royalties and rental revenue
from franchisees during the fiscal quarter in which we determine that
collectability of such revenue is not reasonably assured. As of January 31,
2009, we have not recognized, on a cumulative basis, $1,002 in accounts
receivable and $3,745 in notes receivable, nor the royalty and rental revenue
associated with these accounts and notes receivable, due from franchisees that
are in default under the terms of their franchise agreements.





Our
consolidated allowances for doubtful accounts on accounts receivable and notes
receivable are 1.7% and 10.0% of the gross accounts and notes receivable
balances, respectively, as of January 31, 2009. Although we review the
allowances for doubtful accounts, there can be no assurance that the number of
franchisees or franchised restaurants experiencing financial difficulties will
not increase from our current assessments, nor can there be any assurance that
we will be successful in resolving financial issues relating to any specific
franchisee.





Income
Taxes





Our
income tax expense, deferred income tax assets and liabilities, valuation
allowance against deferred income tax assets and reserves for uncertain tax
positions reflect management’s best assessment of estimated current and future
taxes to be paid. We are subject to income taxes in both the U.S. and
various foreign jurisdictions. Significant judgments and estimates are required
in determining our consolidated income tax expense.





Deferred
income taxes are provided for the estimated income tax effect of temporary
differences between the financial and tax bases of assets and liabilities using
the asset and liability method. Deferred tax assets are also provided for net
operating loss (“NOL”) and income tax credit carryforwards. A valuation
allowance to reduce the carrying amount of deferred tax assets is established
when it is more likely than not that we will not realize some portion or all of
the tax benefit of our deferred tax assets. We evaluate, on a quarterly basis,
whether it is more likely than not that our deferred income tax assets are
realizable. In performing this analysis, we consider all available evidence,
both positive and negative, including historical operating results, the
estimated timing of future reversals of existing taxable temporary differences,
estimated future taxable income exclusive of reversing temporary differences and
carryforwards, and potential tax planning strategies that may be employed to
prevent operating loss or tax credit carryforwards from expiring
unused.




In fiscal
2008, we adopted Financial Accounting Standards Board Interpretation ("FIN")
48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No.
109. FIN 48 requires us to maintain a liability for
underpayment of income taxes and related interest and penalties, if any, for
uncertain income tax positions. In considering the need for and magnitude of a
liability for uncertain income tax positions, we must make certain estimates and
assumptions regarding the amount of income tax benefit that will ultimately be
realized. The ultimate resolution of an uncertain tax position may not be known
for a number of years, during which time we may be required to adjust these
reserves in light of changing facts and circumstances.





27
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





Operating
Review





The
following table sets forth the percentage relationship to total revenue, unless
otherwise indicated, of certain items included in our accompanying Consolidated
Statements of Income for fiscal 2009, 2008 and 2007, and our unaudited Condensed
Consolidated Statements of Income for the fourth quarters of fiscal 2009 and
2008:





Fiscal
                  
                  
                  Fourth Quarter Fiscal2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2009
                  
                  
                  2008(unaudited)Revenue:Company-operated
      restaurants
                  
                  
                  76.3
                  %
                  
                  
                  78.3
                  %
                  
                  
                  79.5
                  %
                  
                  
                  76.5
                  %
                  
                  
                  76.9
                  %Franchised
      and licensed restaurants and other
                  
                  
                  23.7
                  
                  
                  
                  21.7
                  
                  
                  
                  20.5
                  
                  
                  
                  23.5
                  
                  
                  
                  23.1Total
      revenue
                  
                  
                  100.0
                  
                  
                  
                  100.0
                  
                  
                  
                  100.0
                  
                  
                  
                  100.0
                  
                  
                  
                  100.0Operating
      costs and expenses:Restaurant
      operating costs(1):Food
      and packaging
                  
                  
                  29.7
                  
                  
                  
                  29.7
                  
                  
                  
                  28.8
                  
                  
                  
                  29.3
                  
                  
                  
                  29.5Payroll
      and other employee benefits
                  
                  
                  28.5
                  
                  
                  
                  29.2
                  
                  
                  
                  29.1
                  
                  
                  
                  29.0
                  
                  
                  
                  29.5Occupancy
      and other
                  
                  
                  22.9
                  
                  
                  
                  22.3
                  
                  
                  
                  21.3
                  
                  
                  
                  23.7
                  
                  
                  
                  23.0Total
      restaurant operating costs
                  
                  
                  81.1
                  
                  
                  
                  81.1
                  
                  
                  
                  79.2
                  
                  
                  
                  82.0
                  
                  
                  
                  81.9Franchised
      and licensed restaurants and other(2)
                  
                  
                  76.8
                  
                  
                  
                  77.6
                  
                  
                  
                  75.6
                  
                  
                  
                  77.4
                  
                  
                  
                  77.5Advertising(1)
                  
                  
                  5.9
                  
                  
                  
                  5.9
                  
                  
                  
                  5.8
                  
                  
                  
                  6.0
                  
                  
                  
                  5.6General
      and administrative
                  
                  
                  9.5
                  
                  
                  
                  9.4
                  
                  
                  
                  9.5
                  
                  
                  
                  9.9
                  
                  
                  
                  10.0Facility
      action charges, net
                  
                  
                  0.3
                  
                  
                  
                  —
                  
                  
                  
                  0.2
                  
                  
                  
                  0.4
                  
                  
                  
                  0.3Operating
      income
                  
                  
                  5.7
                  
                  
                  
                  5.8
                  
                  
                  
                  7.2
                  
                  
                  
                  4.2
                  
                  
                  
                  4.6Interest
      expense
                  
                  
                  (1.9
                  )
                  
                  
                  (2.2
                  )
                  
                  
                  (1.3
                  )
                  
                  
                  (3.7
                  )
                  
                  
                  (4.6
                  )Conversion
      inducement expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (0.4
                  )
                  
                  
                  —
                  
                  
                  
                  —Other
      income, net
                  
                  
                  0.2
                  
                  
                  
                  0.3
                  
                  
                  
                  0.2
                  
                  
                  
                  0.2
                  
                  
                  
                  0.3Income
      before income taxes and discontinued operations
                  
                  
                  3.9
                  
                  
                  
                  3.9
                  
                  
                  
                  5.7
                  
                  
                  
                  0.7
                  
                  
                  
                  0.3Income
      tax expense (benefit)
                  
                  
                  1.5
                  
                  
                  
                  1.6
                  
                  
                  
                  2.2
                  
                  
                  
                  (0.1
                  )
                  
                  
                  0.2Income
      from continuing operations
                  
                  
                  2.5
                  %
                  
                  
                  2.3
                  %
                  
                  
                  3.5
                  %
                  
                  
                  0.8
                  %
                  
                  
                  0.1
                  %


__________





(1)
            As
      a percentage of company-operated restaurants revenue.(2)
            As
      a percentage of franchised and licensed restaurants and other
      revenue.





28
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars in
thousands)





The
following table is presented to facilitate Management’s Discussion and Analysis
of Financial Condition and Results of Operations.





Fiscal
                                    
                                    
                                    Fourth
      Quarter Fiscal2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2009
                                    
                                    
                                    2008(unaudited)Company-operated
      restaurants revenue
                                    
                                    $
                                    1,131,312
                                    
                                    
                                    $
                                    1,201,577
                                    
                                    
                                    $
                                    1,225,227
                                    
                                    
                                    $
                                    250,454
                                    
                                    
                                    $
                                    259,938Restaurant
      operating costs:Food
      and packaging
                                    
                                    
                                    335,707
                                    
                                    
                                    
                                    356,332
                                    
                                    
                                    
                                    352,952
                                    
                                    
                                    
                                    73,493
                                    
                                    
                                    
                                    76,571Payroll
      and other employee benefits
                                    
                                    
                                    322,936
                                    
                                    
                                    
                                    350,526
                                    
                                    
                                    
                                    355,933
                                    
                                    
                                    
                                    72,587
                                    
                                    
                                    
                                    76,625Occupancy
      and other
                                    
                                    
                                    258,995
                                    
                                    
                                    
                                    267,372
                                    
                                    
                                    
                                    261,576
                                    
                                    
                                    
                                    59,308
                                    
                                    
                                    
                                    59,666Total
      restaurant operating costs
                                    
                                    
                                    917,638
                                    
                                    
                                    
                                    974,230
                                    
                                    
                                    
                                    970,461
                                    
                                    
                                    
                                    205,388
                                    
                                    
                                    
                                    212,862Franchised
      and licensed restaurants and other revenue:Royalties
                                    
                                    
                                    83,600
                                    
                                    
                                    
                                    75,690
                                    
                                    
                                    
                                    77,655
                                    
                                    
                                    
                                    18,843
                                    
                                    
                                    
                                    17,732Distribution
      centers
                                    
                                    
                                    228,480
                                    
                                    
                                    
                                    219,441
                                    
                                    
                                    
                                    204,520
                                    
                                    
                                    
                                    49,787
                                    
                                    
                                    
                                    51,906Rent
                                    
                                    
                                    33,625
                                    
                                    
                                    
                                    29,659
                                    
                                    
                                    
                                    28,637
                                    
                                    
                                    
                                    7,520
                                    
                                    
                                    
                                    6,691Retail
      sales of variable interest entity
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,954
                                    
                                    
                                    
                                    3,467
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    361Franchise
      fees
                                    
                                    
                                    5,693
                                    
                                    
                                    
                                    5,313
                                    
                                    
                                    
                                    2,565
                                    
                                    
                                    
                                    850
                                    
                                    
                                    
                                    1,491Total
      franchised and licensed restaurants and other revenue
                                    
                                    
                                    351,398
                                    
                                    
                                    
                                    333,057
                                    
                                    
                                    
                                    316,844
                                    
                                    
                                    
                                    77,000
                                    
                                    
                                    
                                    78,181Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                                    
                                    
                                    14,542
                                    
                                    
                                    
                                    11,951
                                    
                                    
                                    
                                    9,622
                                    
                                    
                                    
                                    3,397
                                    
                                    
                                    
                                    2,765Distribution
      centers
                                    
                                    
                                    228,360
                                    
                                    
                                    
                                    219,350
                                    
                                    
                                    
                                    203,111
                                    
                                    
                                    
                                    49,842
                                    
                                    
                                    
                                    51,845Rent
      and other occupancy
                                    
                                    
                                    26,797
                                    
                                    
                                    
                                    24,095
                                    
                                    
                                    
                                    23,397
                                    
                                    
                                    
                                    6,329
                                    
                                    
                                    
                                    5,604Operating
      costs of variable interest entity
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,899
                                    
                                    
                                    
                                    3,390
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    396Total
      franchised and licensed restaurants and other expenses
                                    
                                    
                                    269,699
                                    
                                    
                                    
                                    258,295
                                    
                                    
                                    
                                    239,520
                                    
                                    
                                    
                                    59,568
                                    
                                    
                                    
                                    60,610Advertising
                                    
                                    
                                    66,911
                                    
                                    
                                    
                                    70,324
                                    
                                    
                                    
                                    70,914
                                    
                                    
                                    
                                    15,009
                                    
                                    
                                    
                                    14,463General
      and administrative
                                    
                                    
                                    140,303
                                    
                                    
                                    
                                    144,035
                                    
                                    
                                    
                                    146,939
                                    
                                    
                                    
                                    32,266
                                    
                                    
                                    
                                    33,757Facility
      action charges, net
                                    
                                    
                                    4,139
                                    
                                    
                                    
                                    (577
                                    )
                                    
                                    
                                    3,543
                                    
                                    
                                    
                                    1,473
                                    
                                    
                                    
                                    936Operating
      income
                                    
                                    $
                                    84,020
                                    
                                    
                                    $
                                    88,327
                                    
                                    
                                    $
                                    110,694
                                    
                                    
                                    $
                                    13,750
                                    
                                    
                                    $
                                    15,491








29
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





The
following tables show the change in restaurant portfolios, consolidated and by
brand, for fiscal 2008 and 2009:




Company-
                                                                  operated
                                                                
                                                                
                                                                Franchised
                                                                  and
      Licensed
                                                                
                                                                
                                                                TotalConsolidatedOpen
      as of January 31, 2007
                                                                
                                                                
                                                                1,090
                                                                
                                                                
                                                                
                                                                1,919
                                                                
                                                                
                                                                
                                                                3,009New
                                                                
                                                                
                                                                23
                                                                
                                                                
                                                                
                                                                98
                                                                
                                                                
                                                                
                                                                121Closed
                                                                
                                                                
                                                                (15
                                                                )
                                                                
                                                                
                                                                (32
                                                                )
                                                                
                                                                
                                                                (47
                                                                )Divested
                                                                
                                                                
                                                                (136
                                                                )
                                                                
                                                                
                                                                (5
                                                                )
                                                                
                                                                
                                                                (141
                                                                )Acquired
                                                                
                                                                
                                                                5
                                                                
                                                                
                                                                
                                                                136
                                                                
                                                                
                                                                
                                                                141Open
      as of January 31, 2008
                                                                
                                                                
                                                                967
                                                                
                                                                
                                                                
                                                                2,116
                                                                
                                                                
                                                                
                                                                3,083New
                                                                
                                                                
                                                                24
                                                                
                                                                
                                                                
                                                                85
                                                                
                                                                
                                                                
                                                                109Closed
                                                                
                                                                
                                                                (24
                                                                )
                                                                
                                                                
                                                                (52
                                                                )
                                                                
                                                                
                                                                (76
                                                                )Divested
                                                                
                                                                
                                                                (105
                                                                )
                                                                
                                                                
                                                                (37
                                                                )
                                                                
                                                                
                                                                (142
                                                                )Acquired
                                                                
                                                                
                                                                37
                                                                
                                                                
                                                                
                                                                105
                                                                
                                                                
                                                                
                                                                142Open
      as of January 31, 2009
                                                                
                                                                
                                                                899
                                                                
                                                                
                                                                
                                                                2,217
                                                                
                                                                
                                                                
                                                                3,116Carl's
      Jr.
                                                                
                                                                Company-
                                                                  operated
                                                                
                                                                
                                                                Franchised
                                                                  and
      Licensed
                                                                
                                                                
                                                                TotalOpen
      as of January 31, 2007
                                                                
                                                                
                                                                393
                                                                
                                                                
                                                                
                                                                694
                                                                
                                                                
                                                                
                                                                1,087New
                                                                
                                                                
                                                                16
                                                                
                                                                
                                                                
                                                                53
                                                                
                                                                
                                                                
                                                                69Closed
                                                                
                                                                
                                                                (3
                                                                )
                                                                
                                                                
                                                                (12
                                                                )
                                                                
                                                                
                                                                (15
                                                                )Open
      as of January 31, 2008
                                                                
                                                                
                                                                406
                                                                
                                                                
                                                                
                                                                735
                                                                
                                                                
                                                                
                                                                1,141New
                                                                
                                                                
                                                                17
                                                                
                                                                
                                                                
                                                                48
                                                                
                                                                
                                                                
                                                                65Closed
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                
                                                                (7
                                                                )
                                                                
                                                                
                                                                (11
                                                                )Divested
                                                                
                                                                
                                                                (3
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                (3
                                                                )Acquired
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                3
                                                                
                                                                
                                                                
                                                                3Open
      as of January 31, 2009
                                                                
                                                                
                                                                416
                                                                
                                                                
                                                                
                                                                779
                                                                
                                                                
                                                                
                                                                1,195Hardee's
                                                                
                                                                Company-
                                                                  operated
                                                                
                                                                
                                                                Franchised
                                                                  and
      Licensed
                                                                
                                                                
                                                                TotalOpen
      as of January 31, 2007
                                                                
                                                                
                                                                696
                                                                
                                                                
                                                                
                                                                1,210
                                                                
                                                                
                                                                
                                                                1,906New
                                                                
                                                                
                                                                7
                                                                
                                                                
                                                                
                                                                45
                                                                
                                                                
                                                                
                                                                52Closed
                                                                
                                                                
                                                                (12
                                                                )
                                                                
                                                                
                                                                (20
                                                                )
                                                                
                                                                
                                                                (32
                                                                )Divested
                                                                
                                                                
                                                                (136
                                                                )
                                                                
                                                                
                                                                (5
                                                                )
                                                                
                                                                
                                                                (141
                                                                )Acquired
                                                                
                                                                
                                                                5
                                                                
                                                                
                                                                
                                                                136
                                                                
                                                                
                                                                
                                                                141Open
      as of January 31, 2008
                                                                
                                                                
                                                                560
                                                                
                                                                
                                                                
                                                                1,366
                                                                
                                                                
                                                                
                                                                1,926New
                                                                
                                                                
                                                                7
                                                                
                                                                
                                                                
                                                                37
                                                                
                                                                
                                                                
                                                                44Closed
                                                                
                                                                
                                                                (20
                                                                )
                                                                
                                                                
                                                                (42
                                                                )
                                                                
                                                                
                                                                (62
                                                                )Divested
                                                                
                                                                
                                                                (102
                                                                )
                                                                
                                                                
                                                                (37
                                                                )
                                                                
                                                                
                                                                (139
                                                                )Acquired
                                                                
                                                                
                                                                37
                                                                
                                                                
                                                                
                                                                102
                                                                
                                                                
                                                                
                                                                139Open
      as of January 31, 2009
                                                                
                                                                
                                                                482
                                                                
                                                                
                                                                
                                                                1,426
                                                                
                                                                
                                                                
                                                                1,908








30
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





The
following tables are presented to facilitate Management’s Discussion and
Analysis of Financial Condition and Results of Operations and are classified in
the same way as we present segment information (see Note 20 of Notes to
Consolidated Financial Statements).





Carl’s
      Jr.
                                                                                                                                      
                                                                                                                                      Fiscal
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      Fourth
      Quarter Fiscal2009
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2008
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2007
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2009
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2008(unaudited)Company-operated
      restaurants revenue
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      625,109
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      595,272
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      590,613
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      142,440
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      139,301Restaurant
      operating costs:Food
      and packaging
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      182,705
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      172,990
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      170,142
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      40,952
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      40,170Payroll
      and other employee benefits
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      166,833
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      159,828
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      154,791
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      38,490
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      36,948Occupancy
      and other
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      143,149
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      134,685
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      125,750
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      33,019
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      32,366Total
      restaurant operating costs
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      492,687
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      467,503
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      450,683
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      112,461
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      109,484Franchised
      and licensed restaurants and other revenue:Royalties
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      33,375
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      31,851
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      29,692
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,372
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,438Distribution
      centers
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      204,834
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      195,144
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      187,533
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      44,958
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      45,814Rent
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      21,216
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      21,751
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      21,211
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4,901
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4,677Franchise
      fees
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,815
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,616
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,912
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      298
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      421Total
      franchised and licensed restaurants and other revenue
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      261,240
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      250,362
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      240,348
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      57,529
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      58,350Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,318
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,845
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5,283
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,765
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,323Distribution
      centers
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      203,898
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      194,929
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      185,271
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      44,601
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      45,781Rent
      and other occupancy
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      18,515
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      18,601
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      18,280
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4,324
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4,132Total
      franchised and licensed restaurants and other expenses
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      229,731
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      219,375
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      208,834
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      50,690
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      51,236Advertising
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      36,963
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      34,424
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      33,318
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      8,406
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      7,474General
      and administrative
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      60,012
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      56,501
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      56,770
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      14,210
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      13,633Facility
      action charges, net
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (549
                                                                                                                                      )
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1,030
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      664
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      291
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      80Operating
      income
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      67,505
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      66,801
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      80,692
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      13,911
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      15,744Company-operated AUV
      (trailing-13 periods)
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,528
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,493
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,440Franchise-operated AUV
      (trailing-13 periods)
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,182
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,197
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      1,205Company-operated
      same-store sales increase (decrease)
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      2.1
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      0.9
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      4.9
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (0.6
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      1.4
                                                                                                                                      %Franchise-operated
      same-store sales (decrease) increase
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (1.6
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (0.6
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.4
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (3.6
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (2.2
                                                                                                                                      )%Company-operated
      same-store transaction (decrease) increase
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (0.6
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (2.9
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      0.7
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (0.4
                                                                                                                                      )%
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      (2.2
                                                                                                                                      )%Average
      check (actual $)
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      7.01
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      6.80
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      6.49
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      7.06
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      $
                                                                                                                                      7.05Restaurant
      operating costs as a percentage of company-operated restaurants
      revenue:Food
      and packaging
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      29.2
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      29.1
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      28.8
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      28.8
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      28.8
                                                                                                                                      %Payroll
      and employee benefits
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      26.7
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      26.8
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      26.2
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      27.0
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      26.5
                                                                                                                                      %Occupancy
      and other
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      22.9
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      22.6
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      21.3
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      23.2
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      23.2
                                                                                                                                      %Total restaurant operating costs
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      78.8
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      78.5
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      76.3
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      79.0
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      78.6
                                                                                                                                      %Advertising
      as a percentage of company-operated restaurants revenue
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.9
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.8
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.6
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.9
                                                                                                                                      %
                                                                                                                                      
                                                                                                                                      
                                                                                                                                      5.4
                                                                                                                                      %








31
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





Hardee'sFiscal
                                                                                                                                
                                                                                                                                
                                                                                                                                Fourth
      Quarter Fiscal2009
                                                                                                                                
                                                                                                                                
                                                                                                                                2008
                                                                                                                                
                                                                                                                                
                                                                                                                                2007
                                                                                                                                
                                                                                                                                
                                                                                                                                2009
                                                                                                                                
                                                                                                                                
                                                                                                                                2008(unaudited)Company-operated
      restaurants revenue
                                                                                                                                
                                                                                                                                $
                                                                                                                                505,919
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                605,986
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                634,264
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                107,952
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                120,567Restaurant
      operating costs:Food
      and packaging
                                                                                                                                
                                                                                                                                
                                                                                                                                152,889
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                183,228
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                182,695
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                32,506
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                36,362Payroll
      and other employee benefits
                                                                                                                                
                                                                                                                                
                                                                                                                                155,973
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                190,567
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                201,008
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                34,069
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                39,648Occupancy
      and other
                                                                                                                                
                                                                                                                                
                                                                                                                                115,755
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                132,577
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                135,716
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                26,269
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                27,278Total
      restaurant operating costs
                                                                                                                                
                                                                                                                                
                                                                                                                                424,617
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                506,372
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                519,419
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                92,844
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                103,288Franchised
      and licensed restaurants and other revenue:Royalties
                                                                                                                                
                                                                                                                                
                                                                                                                                49,646
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                43,375
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                47,546
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                11,341
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                10,233Distribution
      centers
                                                                                                                                
                                                                                                                                
                                                                                                                                23,646
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                24,307
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                16,995
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                4,829
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                6,094Rent
                                                                                                                                
                                                                                                                                
                                                                                                                                12,411
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                7,908
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                7,426
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                2,618
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                2,014Franchise
      fees
                                                                                                                                
                                                                                                                                
                                                                                                                                3,865
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                3,697
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                653
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                552
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,070Total
      franchised and licensed restaurants and other revenue
                                                                                                                                
                                                                                                                                
                                                                                                                                89,568
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                79,287
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                72,620
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                19,340
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                19,411Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                                                                                                                                
                                                                                                                                
                                                                                                                                7,224
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                6,106
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                4,339
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,633
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,442Distribution
      centers
                                                                                                                                
                                                                                                                                
                                                                                                                                24,462
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                24,421
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                17,840
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                5,241
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                6,064Rent
      and other occupancy
                                                                                                                                
                                                                                                                                
                                                                                                                                8,282
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                5,494
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                5,117
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                2,005
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,472Total
      franchised and licensed restaurants and other expenses
                                                                                                                                
                                                                                                                                
                                                                                                                                39,968
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                36,021
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                27,296
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                8,879
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                8,978Advertising
                                                                                                                                
                                                                                                                                
                                                                                                                                29,948
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                35,897
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                37,589
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                6,617
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                6,988General
      and administrative
                                                                                                                                
                                                                                                                                
                                                                                                                                80,113
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                87,363
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                89,885
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                18,012
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                20,107Facility
      action charges, net
                                                                                                                                
                                                                                                                                
                                                                                                                                4,688
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                (1,607
                                                                                                                                )
                                                                                                                                
                                                                                                                                
                                                                                                                                2,494
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                1,181
                                                                                                                                
                                                                                                                                
                                                                                                                                
                                                                                                                                856Operating
      income (loss)
                                                                                                                                
                                                                                                                                $
                                                                                                                                16,153
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                21,227
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                30,201
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                (241
                                                                                                                                )
                                                                                                                                
                                                                                                                                $
                                                                                                                                (239
                                                                                                                                )Company-operated AUV
      (trailing-13 periods)
                                                                                                                                
                                                                                                                                $
                                                                                                                                993
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                954
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                916Franchise-operated AUV
      (trailing-13 periods)
                                                                                                                                
                                                                                                                                $
                                                                                                                                970
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                964
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                949Company-operated
      same-store sales increase
                                                                                                                                
                                                                                                                                
                                                                                                                                1.2
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                2.0
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                4.8
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                1.5
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                0.4
                                                                                                                                %Franchise-operated
      same-store sales increase
                                                                                                                                
                                                                                                                                
                                                                                                                                1.3
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                0.4
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                4.3
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                3.0
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                0.3
                                                                                                                                %Company-operated
      same-store transaction (decrease) increase
                                                                                                                                
                                                                                                                                
                                                                                                                                (1.8
                                                                                                                                )%
                                                                                                                                
                                                                                                                                
                                                                                                                                0.8
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                1.4
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                3.8
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                (3.2
                                                                                                                                )%Average
      check (actual $)
                                                                                                                                
                                                                                                                                $
                                                                                                                                5.13
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                4.97
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                4.89
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                5.09
                                                                                                                                
                                                                                                                                
                                                                                                                                $
                                                                                                                                5.11Restaurant
      operating costs as a percentage of company-operated restaurants
      revenue:Food
      and packaging
                                                                                                                                
                                                                                                                                
                                                                                                                                30.2
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                30.2
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                28.8
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                30.1
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                30.2
                                                                                                                                %Payroll
      and employee benefits
                                                                                                                                
                                                                                                                                
                                                                                                                                30.8
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                31.4
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                31.7
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                31.6
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                32.9
                                                                                                                                %Occupancy
      and other
                                                                                                                                
                                                                                                                                
                                                                                                                                22.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                21.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                21.4
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                24.3
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                22.6
                                                                                                                                %Total restaurant operating costs
                                                                                                                                
                                                                                                                                
                                                                                                                                83.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                83.6
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                81.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                86.0
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                85.7
                                                                                                                                %Advertising
      as a percentage of company-operated restaurants revenue
                                                                                                                                
                                                                                                                                
                                                                                                                                5.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                5.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                5.9
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                6.1
                                                                                                                                %
                                                                                                                                
                                                                                                                                
                                                                                                                                5.8
                                                                                                                                %








32
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)




Fiscal
2009 Compared with Fiscal 2008
 
 Carl’s
Jr.
 
 Company-Operated
Restaurants
 
 Revenue
from company-operated restaurants increased $29,837, or 5.0%, to $625,109 during
fiscal 2009 as compared to the prior year, due primarily to a 2.1% increase in
same-store sales and the addition of 17 new company-operated restaurants,
partially offset by the closing of four restaurants and the divestiture of three
restaurants to franchisees during fiscal 2009. Same-store sales were positively
impacted by a number of factors including the successful promotion of the Prime
Rib Burger, Chili Cheese Burgers and Fries and the Guacamole Bacon Burgers. In
addition, we had successful menu additions such as the Monster Breakfast
Sandwich, the Big CountryBreakfast Burrito and the
latest Hand-Scooped Ice Cream Shakes and Malts flavors. AUV for the trailing-13
periods ended January 31, 2009, reached $1,528, a 2.3% increase over the prior
year. During the same period, the average guest check increased by 3.1%. In
addition, price increases were implemented in fiscal 2008 and 2009 that also
contributed to the overall fiscal 2009 increase in revenue.
 
 The
changes in restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2008
                  
                  
                  78.5
                  %Increase
      in depreciation and amortization expense
                  
                  
                  0.4Increase
      in utilities expense
                  
                  
                  0.3Decrease
      in workers’ compensation expense
                  
                  
                  (0.2
                  )Decrease
      in repairs and maintenance expense
                  
                  
                  (0.2
                  )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2009
                  
                  
                  78.8
                  %
 
 Depreciation
and amortization expense as a percentage of company-operated restaurants revenue
increased during fiscal 2009 as compared to fiscal 2008, mainly due to asset
additions from restaurant remodel activity and the opening of new
restaurants.
 
 Utilities
expense as a percentage of company-operated restaurants revenue increased during
fiscal 2009 as compared to fiscal 2008, mainly due to rate increases for natural
gas and electricity.
 
 Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue increased by $10,878, or
4.3%, to $261,240 in fiscal 2009, as compared to the prior year. Distribution
center sales of food, paper and supplies to franchisees increased by $9,690, or
5.0%, during fiscal 2009 as compared to fiscal 2008, due primarily to the
increase in the franchise store base over the comparable prior year period.
Franchise royalties grew $1,524, or 4.8%, during fiscal 2009 as compared to
fiscal 2008 due to the net increase of 26 domestic franchised and 18
international licensed restaurants during fiscal 2009 and a 1.6% decrease in
franchise-operated same-store sales.
 
 Total
franchised and licensed operating and other expenses increased by $10,356, or
4.7%, to $229,731 in fiscal 2009, as compared to fiscal 2008. This increase is
mainly due to the corresponding increase in distribution center sales of food,
paper and supplies to franchisees, the increase in the franchise store base in
fiscal 2009 and an increase in distribution costs related to higher fuel and
other costs.
 
 Approximately
84.3% of Carl’s Jr. franchised and licensed restaurants purchase food, paper and
supplies from us.


33
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Hardee’s


Company-Operated
Restaurants
 
 Revenue
from company-operated restaurants decreased $100,067 or 16.5%, to $505,919 in
fiscal 2009 from fiscal 2008. The decrease is mostly due to our successful
refranchising program, which resulted in net decreases of 78 and 136
company-operated restaurants during fiscal 2009 and 2008, respectively. During
fiscal 2009, we opened seven new company-operated restaurants, acquired 37
restaurants from franchisees, sold 102 restaurants to franchisees and closed 20
restaurants. This decrease in the company-operated restaurant base was partially
offset by a 1.2% increase in same-store sales. AUV for the trailing-13 periods
ended January 31, 2009, reached $993, an increase of 4.1% over the comparable
period ended January 31, 2008. During the same period, the average guest
check increased by 3.2% due to the introduction of several new innovative
premium products, such as the Made from Scratch Strawberry Biscuit, Ham and
Three Cheese Breakfast Burrito, Country Potatoes, Chicken Fillet Biscuit, Pork
Chop ‘N’ Gravy Biscuit, the Little Thickburger and Prime Rib Thickburger. In
addition, price increases were implemented in fiscal 2008 and 2009 that also
contributed to the fiscal 2009 increase in same-store sales.
 
 The
changes in restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2008
                  
                  
                  83.6
                  %Increase
      in depreciation and amortization expense
                  
                  
                  0.7Decrease
      in labor costs, excluding workers’ compensation
                  
                  
                  (0.5
                  )Decrease
      in repairs and maintenance expense
                  
                  
                  (0.4
                  )Increase
      in utilities expense
                  
                  
                  0.3Increase
      in rent, property tax and license expense
                  
                  
                  0.2Increase
      in asset disposal expense
                  
                  
                  0.2Other,
      net
                  
                  
                  (0.2
                  )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2009
                  
                  
                  83.9
                  %
  Depreciation
and amortization expense as a percentage of company-operated restaurants revenue
increased during fiscal 2009 as compared to fiscal 2008 primarily due to
increased restaurant remodel activity, asset additions from new restaurant
openings and the impact of refranchising company-operated restaurants that had a
higher proportion of fully depreciated assets.
 
 Labor
costs, excluding workers’ compensation, decreased as a percentage of
company-operated restaurants revenue in fiscal 2009 as compared to fiscal 2008
due primarily to sales leverage and more efficient use of labor, partially
offset by the impact of minimum wage rate increases.
 
 Repairs
and maintenance expense as a percentage of company-operated restaurants revenue
decreased during fiscal 2009, due to the impact of additional spending controls.
In addition, fiscal 2008 included significant repairs and maintenance costs
related to the restaurants acquired in connection with the termination of a
franchise agreement.
 
 Utilities
expense increased as a percent of company-operated restaurants revenue during
fiscal 2009 as compared to fiscal 2008, mainly due to natural gas and
electricity rate increases.
  Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue increased $10,281, or
13.0%, to $89,568 during fiscal 2009 as compared to fiscal 2008. The increase is
primarily due to a $6,271, or 14.5%, increase in royalty revenues, which is
primarily due to the increase in the number of franchised restaurants resulting
from our refranchising program. In addition, rent revenues increased $4,503, or
56.9%, during fiscal 2009 from
fiscal 2008, which is mainly due to sublease rental income from restaurants that
were divested in our refranchising efforts and an increase in collections of
previously unrecognized rent from financially troubled franchisees. During
fiscal 2009, we collected $1,784 of previously unrecognized rent from
significantly past due franchisees, compared to $419 of collections in the prior
year.  Franchise fees in fiscal 2009 and 2008 include $2,640 and
$2,735, respectively, of initial franchise fees received in connection with our
refranchising program, which we completed in late fiscal
2009.


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RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)




Total
franchised and licensed restaurants and other expenses increased by $3,947, or
11.0%, to $39,968 in fiscal 2009, as compared to fiscal 2008, mainly due to
increases of $2,788, or 50.7%, in rent expense related to an increase in the
number of franchised restaurants that sublease property from us as a result of
our refranchising program. We also had increased administrative costs of
$1,118, or 18.3%, as compared to fiscal 2008. This increase is mainly due to
increased salaries and benefits expense due to the addition of new
positions to support our refranchising efforts and international licensee
expansion, an increase in bad debt expense and various other
expenses.
 
 Consolidated
Expenses
 
 Advertising
Expense
 
 Advertising
expense decreased $3,413, or 4.9%, to $66,911 during fiscal 2009 from fiscal
2008, but remained a consistent 5.9% as a percentage of company-operated
restaurants revenue.
 
 General
and Administrative Expenses
 
 General
and administrative expenses decreased $3,732, or 2.6%, to $140,303 in fiscal
2009 from fiscal 2008. This decrease was mainly due to a $3,901 decrease in
training costs, primarily for operations, a $3,895 decrease in regional
administrative costs, due to overall headcount reductions and cost decreases
resulting from our refranchising program, a $1,491 decrease in software
depreciation, and a $438 decrease in aviation costs. These decreases were
partially offset by an increase of $4,127 in management bonus expense based on
our performance relative to executive management and operations bonus criteria,
and increased share-based compensation expense of $1,226, due to the issuance of
additional options and restricted stock awards. In addition, in fiscal 2008, we
had a credit of $830 related to the elimination of a liability for
post-employment benefits for our former Chairman Emeritus as the benefits
terminated upon his death in fiscal 2008. General and administrative expenses,
as a percentage of total revenue, increased by 0.1% to 9.5% in fiscal
2009.
 
 Facility
Action Charges
 
 Facility
action charges arise from closure of company-operated restaurants, sublease of
closed facilities at amounts below our primary lease obligation, impairment of
long-lived assets to be disposed of or held and used, gains or losses upon
disposal of surplus property and refranchising transactions, and discount
amortization for obligations related to closed or subleased
facilities.
 
 Net
facility action charges increased $4,716 from a credit of $(577) in fiscal 2008
to a charge of $4,139 in fiscal 2009. The increase is mainly due to a $3,184
decrease in gains on sales of restaurants and surplus properties. In fiscal
2008, we had a gain of $2,964, and in fiscal 2009, we had a loss of $220. In
addition, we experienced a $1,146 increase in asset impairments during fiscal
2009.
 
 See
Note 15 of Notes to Consolidated Financial Statements included herein for
additional detail of the components of facility action charges.
  Interest
Expense
 
 Interest
expense decreased $4,424 or 13.4% from fiscal 2008 to fiscal 2009 primarily due
to a $2,370 decrease in the interest expense related to the change in the fair
value of our interest rate swap agreements from fiscal 2008 to fiscal 2009. In
addition, there was a reduction of $1,513 of interest expense on our Facility
due to decreased average outstanding borrowings and lower interest rates during
fiscal 2009 as compared to fiscal 2008. We also had a continued reduction of our
capital lease obligations.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Income
Taxes
 
 Income
tax expense for fiscal 2009 and 2008 consisted of the following:
 
 2009
                  
                  
                  2008Federal
      income taxes
                  
                  $
                  19,564
                  
                  
                  $
                  20,183State
      income taxes
                  
                  
                  358
                  
                  
                  
                  3,312Foreign
      income taxes
                  
                  
                  1,611
                  
                  
                  
                  1,164Income
      tax expense
                  
                  $
                  21,533
                  
                  
                  $
                  24,659Effective
      income tax rate
                  
                  
                  36.8
                  %
                  
                  
                  41.3
                  %
 
 Our
effective income tax rate differs from the federal statutory rate primarily as a
result of state income taxes and certain expenses that are nondeductible for
income tax purposes, the impact of which can vary significantly from year to
year. Our effective income tax rate is also impacted by the relative amounts of
income we earn in various state and foreign jurisdictions. Our income tax
expense for fiscal 2009 benefitted from the impact of recent tax law changes and
an increase in the amount of state tax credits that we were able to generate. We
expect our effective income tax rate for fiscal 2010 to be approximately
41%.
 
 As of
January 31, 2009, we have federal alternative minimum tax (“AMT”) credit,
general business tax credit and foreign tax credit carryforwards of
approximately $13,924, which we expect to utilize to offset federal income taxes
that would otherwise be payable in future years.  As of January 31,
2009, we have recognized $1,584 of net deferred income tax assets related to our
state income tax credit carryforwards and $255 of net deferred income tax assets
related to our state NOL carryforwards, which represent our expected future tax
savings from such carryforwards.
 
 We have
recognized a net deferred income tax asset of $78,613 as of January 31,
2009, which resulted from our net deferred income tax assets and valuation
allowance of approximately $105,741 and $27,128, respectively.
  
 Fiscal
2008 Compared with Fiscal 2007
 
 Carl’s
Jr.
 
 Company-Operated
Restaurants
 
 Revenue
from company-operated restaurants increased $4,659, or 0.8%, to $595,272 during
fiscal 2008 as compared to the prior year, mainly due to a 0.9% increase in
same-store sales and the addition of 16 new company-operated restaurants
partially offset by the closing of three restaurants and the impact of the
divestiture of 40 restaurants to franchisees during fiscal 2007. Same-store
sales were positively impacted by a number of factors including the successful
promotion of the Buffalo Chicken Sandwich and Boneless Buffalo Wings dipped in
Franks RedHot buffalo wing sauce, the Chipotle Chicken Salad, the Breakfast Club
Sandwichtm,
the Teriyaki Burger and the Patty Melt, and the latest Hand-Scooped Ice Cream
Shakes and Malts flavors such as mint chip and OrangeSicle. AUV for the
trailing-13 periods ended January 31, 2008, reached $1,493, a 3.7% increase
over the prior year. During the same period, the average guest
check increased by 4.8%. In addition, price increases were implemented in the
third and fourth quarters of fiscal 2008. 
 The
changes in restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2007
                        
                        
                        76.3
                        %Increase
      in depreciation and amortization expense
                        
                        
                        0.7Increase
      in workers’ compensation expense
                        
                        
                        0.4Increase
      in rent and property tax expense
                        
                        
                        0.4Increase
      in food and packaging costs
                        
                        
                        0.3Increase
      in repairs and maintenance expense
                        
                        
                        0.3Increase
      in labor costs, excluding workers’ compensation
                        
                        
                        0.3Other,
      net
                        
                        
                        (0.2
                        )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2008
                        
                        
                        78.5
                        %


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RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





Depreciation
and amortization expense as a percentage of company-operated restaurants revenue
increased during fiscal 2008 as compared to fiscal 2007, mainly due to the
addition of new assets related to the rollout of new point-of-sale software and
related hardware and asset additions from increased restaurant remodel
activity.
 
 Workers’
compensation expense as a percentage of company-operated restaurants revenue
increased during fiscal 2008 as compared to fiscal 2007 due primarily to an
increase of $2,487 in our self-insured workers’ compensation liability related
to a single claim from 1982, which was partially offset by favorable claims
reserves adjustments recorded in fiscal 2008 for all other open claims as a
result of actuarial analyses of outstanding claims reserves.
 
 Rent and
property tax expense as a percentage of company-operated restaurants revenue
increased during fiscal 2008 as compared to fiscal 2007, due mainly to rental
rate increases resulting from Consumer Price Index and fair market value
adjustments and the refranchising during fiscal 2007 of a number of
company-operated restaurants that were on owned property.
 
 Food and
packaging costs as a percentage of company-operated restaurants revenue
increased during fiscal 2008 as compared to fiscal 2007 due primarily to higher
commodity costs for dairy, potatoes, produce and oil products, in addition to an
increase in soft drink syrup prices.
 
 Repairs
and maintenance expense increased as a percentage of company-operated
restaurants revenue during fiscal 2008 as compared to the prior year, due to
increased repairs of kitchen equipment, point-of-sale equipment and
buildings.
 
 Labor
costs, excluding workers’ compensation, as a percentage of company-operated
restaurants revenue increased during fiscal 2008 as compared to fiscal 2007 due
primarily to an increase in minimum wage rates, partially offset by decreased
restaurant manager bonuses due to store performance.
 
 Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue increased by $10,014, or
4.2%, to $250,362 in fiscal 2008, as compared to the prior year. Franchise
royalties grew $2,159, or 7.3%, during fiscal 2008 as compared to fiscal 2007
due to the net increase of 24 domestic franchised and 17 international licensed
restaurants during fiscal 2008, partially offset by the impact of a 0.6%
decrease in franchise-operated same-store sales. In addition, fiscal 2008
included a full year of royalties for the 40 restaurants that were sold to
franchisees in fiscal 2007. Distribution center sales of food, paper and
supplies to franchisees increased by $7,611,
or 4.1%, due primarily to the increase in the franchise store base over the
comparable prior year period. 
 Total
franchised and licensed operating and other expenses increased by $10,541, or
5.0%, to $219,375 in fiscal 2008, as compared to fiscal 2007. This increase is
primarily due to higher distribution center costs of $9,658, or 5.2%, which can
be attributed mainly to the increase in the cost of food, paper and supplies due
to a corresponding increase in sales to franchisees and the increase in the
franchise store base in fiscal 2008.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Hardee’s
 
 Company-Operated
Restaurants
 
 Revenue
from company-operated restaurants decreased $28,278 or 4.5%, to $605,986 in
fiscal 2008 from fiscal 2007. The decrease is mostly due to a net decrease of
136 company-operated restaurants during the year due to the success of our
refranchising program, partially offset by a 2.0% increase in same-store sales.
AUV for the trailing-13 periods ended January 31, 2008, reached $954, an
increase of 4.1% over the comparable period ended January 31, 2007. During
the same period, the average guest check increased by 1.6% due to the
introduction of several new premium products such as our Buffalo Chicken
Sandwich and Boneless Buffalo Wings dipped in Franks RedHot buffalo wing sauce,
the Breakfast Club Sandwich, the Patty Melt Thickburger and the Hawaiian Chicken
Sandwich, the continued promotion of our Southwest Chicken Saladtm,
Monster Biscuittm
and the 2-for-$3 Big Twintm
burgers. In addition, price increases were implemented in fiscal
2008.
 
 The
changes in restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2007
                    
                    
                    81.9
                    %Increase
      in food and packaging costs
                    
                    
                    1.4Decrease
      in workers’ compensation expense
                    
                    
                    (0.3
                    )Increase
      in other occupancy costs
                    
                    
                    0.2Other,
      net
                    
                    
                    0.4Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for fiscal 2008
                    
                    
                    83.6
                    %
  Food and
packaging costs as a percentage of company-operated restaurants revenue
increased during fiscal 2008 as compared to fiscal 2007 due to higher commodity
costs for dairy, wheat, potatoes and oil products, in addition to an increase in
soft drink syrup prices. The increased cost of dairy and wheat products impacted
Hardee’s disproportionately due to the brand’s high concentration of sales in
the breakfast daypart. A significant number of our menu offerings during the
breakfast daypart include biscuits.
 
 Workers’
compensation expense as a percentage of company-operated restaurants revenue
decreased during fiscal 2008, mainly due to favorable loss development trends
which resulted in reduced actuarially estimated ultimate
losses.


Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue increased $6,667, or 9.2%,
to $79,287 during fiscal 2008 as compared to fiscal 2007. The increase is
primarily due to a $7,312, or 43.0%, increase in distribution center revenues
related to an increase in remodel activity and new restaurant openings. In
addition, there was a $3,044 increase in franchise fees primarily due to the
sale of 136 company-operated restaurants as a part of our refranchising
efforts and an increase of $482 in rental revenue, partially due to the
collection of previously unrecognized rent from a financially troubled
franchisee. These increases were partially offset by franchise royalties, which
decreased by $4,171, or 8.8%, which is primarily due to a decrease
of $4,404 in collections of previously unrecognized royalties from financially
troubled franchisees. During fiscal 2008, we collected $343 of previously
unrecognized royalties from significantly past due franchisees, compared to
$4,747 of collections in the prior year. 
 Total
franchised and licensed restaurants and other expenses increased by $8,725, or
32.0%, to $36,021 in fiscal 2008, as compared to fiscal 2007, mainly due to
increases of $6,581, or 36.9%, in the cost of equipment sales as the result of a
corresponding increase in equipment sales to franchisees, and $1,767, or 40.7%,
in administrative expense primarily due to a $652 increase in salaries and
benefits expense due to new positions. In addition, in fiscal 2007, we collected
amounts from troubled franchisees, which resulted in an $860 reduction of bad
debt expense that did not recur to the same extent in fiscal 2008. Finally,
there was also an increase in rent expense in fiscal 2008 compared with fiscal
2007 due to new restaurants acquired by franchisees as part of our refranchising
program.


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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Consolidated
Expenses
 
 Advertising
Expense
 
 Advertising
expense decreased $590, or 0.8%, to $70,324 during fiscal 2008 from fiscal 2007,
but increased 0.1% to 5.9% as a percentage of company-operated restaurants
revenue from fiscal 2007 to fiscal 2008.
 
 General
and Administrative Expenses
  General
and administrative expenses decreased $2,904, or 2.0%, to $144,035 in fiscal
2008 from fiscal 2007. This decrease was mainly due to lower management bonus
expense of $9,279, based on our performance relative to executive management and
operations bonus criteria. This decrease was partially offset by an increase of
$3,010 in share-based compensation expense, due to the issuance of additional
options and restricted stock awards; an increase in real estate and construction
department expenses, resulting from the implementation of our growth strategies;
an increase in operations training to support various Company initiatives; and
increases in various other expenses. General and administrative expenses, as a
percentage of total revenue, decreased by 0.1% to 9.4% in fiscal
2008.




Facility
Action Charges





Net
facility action charges decreased $4,120 or 116.3%, to a credit of $(577) during
fiscal 2008, as compared to fiscal 2007. The decrease is mainly due to a
decrease of $2,021 in asset impairments and a decrease of $2,891 in new
decisions to close restaurants, partially offset by a decrease of $1,161 in
gains on sales of restaurants and surplus properties.





See
Note 15 of Notes to Consolidated Financial Statements included herein for
additional detail of the components of facility action charges.




Interest
Expense
 
 Interest
expense increased $13,265 or 67.1% from fiscal 2007 to fiscal 2008 primarily due
to changes in the fair value of our interest rate swap agreements and higher
average borrowings during fiscal 2008. We did not have these swap agreements in
fiscal 2007. These increases were partially offset by continued reduction of our
capital lease obligations and lower fees for our letters of credit. In addition,
in fiscal 2007, we wrote-off a portion of our deferred loan fees related to the
amendment of our Facility; we had no similar expense in fiscal
2008.
 
 Conversion
Inducement Expense
 
 During
fiscal 2007, we recorded conversion inducement expense of $6,406 as a result of
payments made, in response to unsolicited offers, to induce the holders of
$89,833 of our 2023 Convertible Notes to convert their notes into
10,224,424 shares of our common stock, respectively. No comparable expense
was recorded during fiscal 2008, and we do not expect to incur comparable
conversion inducement expense in future periods as the remainder of our 2023
Convertible Notes were converted during fiscal 2009 (see Note 10 of Notes to
Consolidated Financial Statements).




Income
Taxes
 
 Income
tax expense for fiscal 2008 and 2007 consisted of the following:
 
 2008
                  
                  
                  2007Federal
      income taxes
                  
                  $
                  20,183
                  
                  
                  $
                  28,081State
      income taxes
                  
                  
                  3,312
                  
                  
                  
                  4,814Foreign
      income taxes
                  
                  
                  1,164
                  
                  
                  
                  1,124Income
      tax expense
                  
                  $
                  24,659
                  
                  
                  $
                  34,019Effective
      income tax rate
                  
                  
                  41.3
                  %
                  
                  
                  38.6
                  %
 
 Our
effective income tax rate differs from the federal statutory rate primarily as a
result of state income taxes and certain expenses that are nondeductible for
income tax purposes, the impact of which can vary significantly from year to
year. Our effective income tax rate is also impacted by the relative amounts of
income we earn in various state and foreign jurisdictions. Our income tax
expense for fiscal 2007 benefitted from a $4,884 reduction in our valuation
allowance against deferred tax assets.


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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Fiscal
Fourth Quarter 2009 Compared with Fiscal Fourth Quarter 2008
 Carl’s
Jr.
 
 Company-Operated
Restaurants
 
 Company-operated
restaurants revenue increased by $3,139, or 2.3%, for the fourth quarter of
fiscal 2009 as compared to the fourth quarter of fiscal 2008, due mainly to a
net increase of ten company-operated restaurants since the end of the
fourth quarter of fiscal 2008, partially offset by a 0.6% decrease in same-store
sales.
 
 The
changes in the restaurant operating costs as a percentage of company-operated
restaurants revenue from the fiscal fourth quarter 2008 to the fiscal fourth
quarter 2009 are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the fiscal fourth quarter 2008
                    
                    
                    78.6
                    %Increase
      in depreciation and amortization expense
                    
                    
                    0.4Increase
      in rent and property tax expense
                    
                    
                    0.4Increase
      in workers’ compensation expense
                    
                    
                    0.4Decrease
      in repairs and maintenance expense
                    
                    
                    (0.4
                    )Decrease
      in general liability insurance expense
                    
                    
                    (0.2
                    )Other,
      net
                    
                    
                    (0.2
                    )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the fiscal fourth quarter 2009
                    
                    
                    79.0
                    %
 
 Depreciation
expense increased as a percentage of company-operated restaurants revenue during
the fourth quarter of fiscal 2009 as compared to the fourth quarter of fiscal
2008 primarily due to the addition of assets for newly opened and newly
remodeled restaurants.
 
 Rent and
property tax expense increased as a percentage of company-operated restaurants
revenue increased during the fourth quarter of fiscal 2009 compared to the
comparable fiscal 2008 period, mainly due to rental rate increases resulting
from Consumer Price Index (“CPI”) adjustments, as well as the impact of slightly
negative same-store sales during the current year quarter.
 
 Workers’
compensation expense increased as a percentage of company-operated restaurants
revenue during the fourth quarter of fiscal 2009 as compared to the comparable
prior year period primarily due to the impact of unfavorable actuarial
adjustments recorded in the current year quarter that did not occur to the same
extent in the prior year quarter.
 
 Repairs
and maintenance expense decreased as a percentage of company-operated
restaurants revenue during the fourth quarter of fiscal 2009 as compared to the
comparable prior year period primarily due to decreased repairs of point-of-sale
equipment, kitchen equipment and buildings.  In addition, repairs and
maintenance expense was reduced by the elimination of a support contract for our
point-of-sale system, which is now supported by company employees.
 
 Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue decreased $821, or 1.4%,
in the fourth quarter of fiscal 2009 from the comparable fiscal 2008 period
primarily due to a decrease of $856, or 1.9%, in distribution center sales of
food, paper and supplies to franchisees, due primarily to a 3.6% decrease in
franchise-operated same-store sales. This decrease was partially offset by an
increase in rent of $224, or 4.8%, over the comparable prior year period, due
primarily to rental rate increases resulting from CPI adjustments and the impact
of refranchising three restaurants during fiscal 2009.
 
 Total
franchised and licensed restaurants and other expenses decreased $546, or 1.1%,
in the fourth quarter of fiscal 2009 from the fourth quarter of fiscal 2008 due
primarily to a decrease in distribution center costs of $1,180, or 2.6%, as a
result of a corresponding decrease in sales to franchisees. This decrease was
partially offset by a $442 increase in various administrative
expenses.
 40
 Table of Contents
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 Management’s
Discussion and Analysis — (Continued)
 (Dollars
in thousands)
  Hardee’s
  Company-Operated
Restaurants
 
 Revenue
from company-operated restaurants decreased $12,615, or 10.5%, in the fourth
quarter of fiscal 2009 compared to the fourth quarter of fiscal 2008. This
decrease can be mainly attributed to the net decrease of 78 restaurants from the
fourth quarter of fiscal 2008, which resulted from the divestiture of
102 company-operated restaurants to franchisees and the closure of 20
company-operated restaurants.  This decrease was partially offset by a
1.5% increase in same-store sales, an increase in AUV and the additional
revenues from seven new company-operated restaurants that opened during the same
period and 37 restaurants that we acquired from two franchises.
 
 The
changes in the restaurant operating costs as a percentage of company-operated
restaurants revenue from the fiscal fourth quarter 2008 to the fiscal fourth
quarter 2009 are explained as follows:
 
 Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the fiscal fourth quarter 2008
                    
                    
                    85.7
                    %Increase
      in depreciation and amortization expense
                    
                    
                    1.2Decrease
      in labor costs, excluding workers’ compensation
                    
                    
                    (1.2
                    )Increase
      in general liability insurance expense
                    
                    
                    0.7Decrease
      in repair and maintenance expense
                    
                    
                    (0.5
                    )Increase
      in utilities
                    
                    
                    0.4Increase
      in rent
                    
                    
                    0.3Decrease
      in uniforms and supplies
                    
                    
                    (0.2
                    )Other,
      net
                    
                    
                    (0.4
                    )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the fiscal fourth quarter 2009
                    
                    
                    86.0
                    %
 
 Depreciation
and amortization expense increased as a percent of company-operated restaurants
revenue during the fourth quarter of fiscal 2009 as compared to the comparable
quarter in fiscal 2008, mainly due to increased restaurant remodel activity,
asset additions from new restaurant openings and the impact of refranchising
company-operated restaurants that had a higher proportion of fully depreciated
assets.
 
 Labor
costs, excluding workers’ compensation expense, decreased as a percent of
company-operated restaurants revenue in the fourth quarter of fiscal 2009 as
compared to the fourth quarter of fiscal 2008, due primarily to sales leverage
and more efficient use of labor, partially offset by minimum wage rate
increases.
 
 General
liability expense increased as a percentage of company-operated restaurants
revenue during the fourth quarter of fiscal 2009 as compared to the fourth
quarter of fiscal 2008 as a result of unfavorable actuarial adjustments recorded
in the fourth quarter of fiscal 2009 contrasted with favorable adjustments
recorded in the comparable prior year period.
 
 Repairs
and maintenance expense decreased as a percent of company-operated restaurants
revenue during the fourth quarter of fiscal 2009, as compared to the prior year
period due in part to the impact of additional spending controls. In addition,
repairs and maintenance costs during the prior year quarter were unusually high
due to the restaurants acquired in connection with the termination of a
franchise agreement.
 
 Utilities
expense increased as a percent of company-operated restaurants revenue during
the fourth quarter of fiscal 2009 as compared to the comparable quarter in
fiscal 2008, mainly due to natural gas and electricity rate
increases.
 
 Rent
expense increased as a percent of company-operated restaurants revenue during
the fourth quarter of fiscal 2009, as compared to the prior year period, due to
the termination of a franchise agreement and our assumption of full operational
control of those restaurants under operating leases. Some of these leases have
above average rent and if we are unable to negotiate acceptable lease terms for
them, we may decide to close the restaurants.  There was no similar
activity in the prior year period.
  41
 Table of Contents
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 Management’s
Discussion and Analysis — (Continued)
 (Dollars
in thousands)
 
 Franchised
and Licensed Restaurants
 
 Total
franchised and licensed restaurants and other revenue decreased by $71, or 0.4%,
in the fourth quarter of fiscal 2009 from the fourth quarter of fiscal 2008 as a
result of a $1,265 decrease in distribution center sales of equipment which
resulted from lower remodel activity in the fourth quarter of fiscal 2009 as
compared to the prior year quarter. We also experienced a $518 decrease in
franchise fees. These decreases were partially offset by a $1,108 increase in
royalty revenues and a $604 increase in rental revenue primarily due to the
divestiture of company-operated restaurants as a part of our refranchising
efforts.
 
 Total
franchised and licensed restaurants and other expenses decreased $99, or 1.1%,
during the fourth quarter of fiscal 2009 from the fourth quarter of fiscal 2008
primarily due to an $823 decrease in distribution center expenses.  We
experienced lower cost of equipment sales due to the decrease in distribution
center equipment sales to franchisees, which was partially offset by a $533
increase in rent expense due to restaurants acquired by franchisees as part of
our refranchising program and a $268 increase in bad debt expense.
 
 Discontinued
Operations
 
 We sold
our La Salsa Fresh Mexican Grill restaurants and the related franchise
operations to LAS Acquisition, LLC (“Buyer”) on July 16, 2007. Under the
agreement, SBRG, a wholly-owned subsidiary of the Company, sold its 100 percent
equity interest in La Salsa, Inc. and La Salsa of Nevada, Inc. (collectively “La
Salsa”) for adjusted consideration of $15,889. Pursuant to the agreement, we
have retained contingent liabilities related to tax matters and certain
litigation matters arising prior to the completion of the sale of La
Salsa.  In addition, we remain contingently liable for certain lease
obligations and self-insurance exposures arising prior to the completion of the
sale.
 
 As of
January 31, 2008, we had a $6,626 note receivable from Buyer, which was required
to be repaid in full on or before December 31, 2008.  During fiscal
2009, we received timely principal payments of $2,600; however, Buyer failed to
make the remaining $4,026 balloon payment on December 31, 2008.  As of
January 31, 2009, $914 and $3,112 of the outstanding principal balance is
included in accounts receivable, net, and notes receivable, net, respectively,
in our accompanying Consolidated Balance Sheet.  Since January 31,
2009, Buyer has made aggregate payments of $526 to us. The note is secured by
the personal property of Buyer, a pledge of the La Salsa equity interests
acquired by Buyer, and certain personal and corporate
guarantees.
 42
 Table of Contents
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 Management’s
Discussion and Analysis — (Continued)
 (Dollars
in thousands)


Presentation
of Non-GAAP Measures





Adjusted
EBITDA





Adjusted
EBITDA is a non-GAAP measure used by our senior lenders under our Facility to
evaluate our ability to service debt and fund capital expenditures. Adjusted
EBITDA is not a recognized term under GAAP and does not purport to be an
alternative to income from operations, an indicator of cash flow from operations
or a measure of liquidity. As shown in the table below and defined in our
Facility, Adjusted EBITDA is calculated as earnings before cumulative effect of
accounting changes, interest expense, income taxes, depreciation and
amortization, facility action charges, share-based compensation expense,
impairment of goodwill and impairment of assets held for sale. Because not all
companies calculate Adjusted EBITDA identically, this presentation of Adjusted
EBITDA may not be comparable to similarly titled measures of other companies.
Adjusted EBITDA is not intended to be a measure of free cash flow for
management’s discretionary use, as it does not consider certain cash
requirements such as interest expense, income taxes, debt service payments and
cash costs arising from facility actions.





Fiscal2009
                  
                  
                  2008
                  
                  
                  2007Net
      income
                  
                  $
                  36,956
                  
                  
                  $
                  31,076
                  
                  
                  $
                  50,172Interest
      expense
                  
                  
                  28,609
                  
                  
                  
                  33,055
                  
                  
                  
                  19,751Income
      tax expense
                  
                  
                  21,533
                  
                  
                  
                  26,612
                  
                  
                  
                  31,899Depreciation
      and amortization
                  
                  
                  63,497
                  
                  
                  
                  64,102
                  
                  
                  
                  62,418Facility
      action charges, net
                  
                  
                  4,139
                  
                  
                  
                  (1,282
                  )
                  
                  
                  8,546Share-based
      compensation expense
                  
                  
                  12,534
                  
                  
                  
                  11,378
                  
                  
                  
                  8,368Adjusted
      EBITDA
                  
                  $
                  167,268
                  
                  
                  $
                  164,941
                  
                  
                  $
                  181,154




New
Accounting Pronouncements





See Note
2 of Notes to Consolidated Financial Statements.





Impact
of Inflation





Inflation
has an impact on food and packaging, construction, occupancy, labor and
benefits, and general and administrative costs, all of which can significantly
affect our operations. Historically, consistent with the industry, we have been
able to pass along to our customers, through price increases, higher costs
arising from these inflationary factors.





Competition





As
discussed above in “Business” in Item 1 of this Annual Report on
Form 10-K, the QSR industry is intensely competitive. We compete with a
diverse group of food service companies (major restaurant chains, casual dining
restaurants, nutrition-oriented restaurants and prepared food stores), making it
difficult to attribute specific results of operations to the actions of any of
our competitors.





Liquidity
and Capital Resources





Over the
past several months, worldwide capital and credit markets have seen
unprecedented volatility. We are closely monitoring the potential impact of
these market conditions on our liquidity. To date, these market conditions have
not had any material adverse impact on our liquidity or the availability of
committed funds under our Facility. Based on information available to
us, all of the financial institutions syndicated under our Facility are
able to fulfill their commitments as of March 25, 2009.  However, there can
be no assurance that one or more of them may not be able to fulfill their future
funding obligations.




43
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





Notwithstanding
the above, we expect that our cash on hand, coupled with future cash flows from
operations and borrowings under our Facility will provide sufficient liquidity
to allow us to service existing debt and to meet our operating and capital
requirements for at least the next 12 months. We believe our most significant
cash use during the next 12 months will be for capital expenditures. Based on
our current capital spending projections, we expect capital expenditures to be
between $100,000 and $110,000 for fiscal 2010. Under the terms of our Facility,
we may be required to make an annual principal prepayment, based on excess cash
flows (as defined in our Facility).  Other than these prepayments, we have
no significant debt maturities coming due until March 27, 2012. See Note 10 of
Notes to Consolidated Financial Statements for more information on our existing
debt.




During
fiscal 2009, we completed our refranchising program for our Hardee’s concept and
sold 102 company-operated Hardee’s restaurants and related real property with a
net book value of $14,454 to six franchisees. In connection with these
transactions, we received net proceeds of $16,979, including $2,640 in
initial franchise fees, which is included in franchised and licensed restaurants
and other revenue, and we recognized a net loss of $2,036, which is included in
facility action charges, net, in our Hardee’s segment.  As part of
these transactions, the franchisees entered into leases for or acquired the real
property and/or subleasehold interest in the real property related to the
restaurant locations.




We, and
the restaurant industry in general, maintain relatively low levels of accounts
receivable and inventories, and vendors grant trade credit for purchases such as
food and supplies. We also continually invest in our business through the
addition of new sites and the refurbishment of existing sites, which are
reflected as long-term assets and not as part of working capital. As a result,
we typically maintain current liabilities in excess of current assets, resulting
in a working capital deficit. As of January 31, 2009, our current ratio was 0.78
to 1.




Our
Facility provides for a $470,000 senior secured credit facility consisting of a
$200,000 revolving credit facility and a $270,000 term loan. The revolving
credit facility matures on March 27, 2012, and includes an $85,000 letter of
credit sub-facility. During fiscal 2009, we made aggregate principal payments of
$16,490 on the term loan, including a payment of $13,790 based on excess cash
flows for fiscal 2008, as required by the terms of our Facility. As of January
31, 2009, we had (i) borrowings outstanding under the term loan portion of our
Facility of $251,735, (ii) borrowings outstanding under the revolving portion of
our Facility of $62,000, (iii) outstanding letters of credit under the revolving
portion of our Facility of $35,643, and (iv) availability under the revolving
portion of our Facility of $102,357. During the first quarter of fiscal 2010,
we expect to make a $1,616 principal payment on the term loan portion
of our Facility based on excess cash flows for fiscal 2009, as required by the
terms of our Facility. Accordingly, this amount has been included in the current
portion of bank indebtedness and other long-term debt in our accompanying
Consolidated Balance Sheet as of January 31, 2009.




The terms
of our Facility include financial performance covenants, which include a maximum
leverage ratio, and certain restrictive covenants. On March 7, 2008, we amended
our Facility to increase our maximum leverage ratio for each of the fiscal
quarters of fiscal 2009 through 2012. This covenant requires us to maintain a
leverage ratio not to exceed 3.00, 2.75, 2.50 and 2.25 in fiscal 2009, 2010,
2011 and 2012, respectively.  As of January 31, 2009, our leverage ratio
was 2.28. Our most significant restrictive covenants limit our ability to incur
debt, incur liens on our assets, make any significant change in our corporate
structure or the nature of our business, prepay certain debt, engage in a change
of control transaction without the member banks’ consents and make investments
or acquisitions.




Our
Facility permits us to spend an aggregate of $340,994 to repurchase our common
stock and/or pay cash dividends, of which $44,052 remains for additional common
stock repurchases and/or cash dividend payments, as of January 31, 2009. The
aggregate amount allowed for common stock repurchases and/or cash dividend
payments is increased each year by a portion of excess cash flows (as defined in
our Facility). In addition to being limited by our Facility, our ability to
repurchase common stock is limited by our Board of Directors’ authorization and
the amount of cumulative repurchases of our common stock that we have already
made thereunder. As of January 31, 2009, we are permitted to make additional
repurchases of our common stock up to $38,599 under the Stock Repurchase
Plan.




Our
Facility permits us to make annual capital expenditures in the amount of
$85,000, plus 80% of the amount of actual Adjusted EBITDA (as defined in our
Facility) in excess of $150,000. In addition, we may reinvest proceeds from the
sale of assets and carry forward certain unused capital expenditure amounts to
the following year. As of January 31, 2009, we expect to be permitted to make
total capital expenditures of $172,322 in fiscal 2010.




Our
Facility is collateralized by a lien on all of our personal property assets and
liens on certain restaurant properties. We were in compliance with these
covenants and all other requirements of our Facility as of January 31, 2009. See
Note 10 of Notes to Consolidated Financial Statements for additional
details about our Facility, such as repayment schedule and events that could
result in an acceleration of amounts due.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





We have
fixed rate swap agreements (which were amended effective September 10, 2008)
with various counterparties to effectively fix future interest payments on
$200,000 of our term loan debt at 6.12%.  These agreements will expire on
March 12, 2012.  These derivative instruments were not designated as
cash flow hedges under the terms of SFAS 133. Accordingly, the change in the
fair value of the interest rate swap agreements is recognized in interest
expense in our Consolidated Statements of Income.  During fiscal 2009, we
paid $2,800 for net settlements under our fixed rate swap
agreements.  As a matter of policy, we do not enter into derivative
instruments unless there is an underlying exposure. These interest rate swap
agreements are highly sensitive to interest rate fluctuations which could result
in significant variability in their future value.





The terms
of our Facility are not impacted by any changes in our credit rating. We believe
the key Company-specific factors affecting our ability to maintain our existing
debt financing relationships and to access such capital in the future are our
present and expected levels of profitability, cash flows from operations,
capital expenditures, asset collateral bases and the level of our Adjusted
EBITDA relative to our debt obligations. In addition, as noted above, our
existing debt agreements include significant restrictions on future financings
including, among others, limits on the amount of indebtedness we may incur or
which may be secured by any of our assets.





During
fiscal 2009, we declared cash dividends of $0.24 per share of common stock, for
a total of $12,859. Dividends payable of $3,279 and $3,148 have been included in
other current liabilities in our accompanying Consolidated Balance Sheets as of
January 31, 2009 and 2008, respectively. The dividends declared during the
quarter ended January 31, 2009 were subsequently paid on February 17,
2009.





During
fiscal 2009, cash provided by operating activities was $145,737, an increase of
$24,372, or 20.1%, from the prior year. This increase is primarily attributable
to increases of $5,880 in net income, $5,421 in facility action charges, net,
$3,054 in deferred income taxes and $1,379 in the provision for losses on
accounts and notes receivable. These increases were partially offset by
decreases of $2,076 in losses on sale of property and equipment, capital leases
and extinguishment of debt. The remaining fluctuation is attributable primarily
to changes in operating assets and liabilities, including accounts receivable,
accounts payable and other liability accounts. Working capital account balances
can vary significantly, depending upon the timing of large customer receipts and
payments to vendors, but they are not anticipated to be a significant source or
use of cash over the long term.





Cash used
in investing activities during fiscal 2009 totaled $91,818, which principally
consisted of purchases of property and equipment, partially offset by proceeds
from the sale of property and equipment. Our capital expenditures consist
of non-discretionary items, which are expenditures we feel necessary to sustain
our business, and discretionary items, which are expenditures related to the
growth of our business. Capital expenditures for fiscal 2009 and 2008 were
as follows:




2009
                            
                            
                            2008Non-discretionary:RemodelsCarl’s
      Jr.
                            
                            $
                            10,199
                            
                            
                            $
                            28,735Hardee’s
                            
                            
                            20,506
                            
                            
                            
                            15,610Capital
      maintenanceCarl’s
      Jr.
                            
                            
                            11,981
                            
                            
                            
                            10,805Hardee’s
                            
                            
                            16,758
                            
                            
                            
                            16,012Corporate/other
                            
                            
                            4,302
                            
                            
                            
                            7,845Total
      non-discretionary
                            
                            
                            63,746
                            
                            
                            
                            79,007Discretionary:New
      restaurantsCarl’s
      Jr.
                            
                            
                            24,349
                            
                            
                            
                            22,329Hardee’s
                            
                            
                            10,470
                            
                            
                            
                            10,460Dual-brandingCarl’s
      Jr.
                            
                            
                            901
                            
                            
                            
                            1,151Hardee’s
                            
                            
                            2,327
                            
                            
                            
                            3,049Real
      estate/franchise acquisitions
                            
                            
                            9,881
                            
                            
                            
                            12,033Corporate/other
                            
                            
                            4,839
                            
                            
                            
                            2,242Capital
      expenditures — discontinued operations
                            
                            
                            -
                            
                            
                            
                            3,545Total
      discretionary
                            
                            
                            52,767
                            
                            
                            
                            54,809Total
                            
                            $
                            116,513
                            
                            
                            $
                            133,816








45
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)





Capital
expenditures for fiscal 2009 decreased $17,303, or 12.9%, from the prior year
mainly due to a $13,640 decrease in restaurant remodel activity and a $3,545
decrease in capital expenditures related to discontinued
operations.  Pursuant to our agreement to sell La Salsa, Buyer
reimbursed us for substantially all of the capital expenditures —
discontinued operations for fiscal 2008. We currently anticipate capital
expenditures for fiscal 2010 will be between $100,000 and $110,000. Based on our
current capital spending projections, we expect capital expenditures for the
next two fiscal years to be between $180,000 and $200,000.





Cash used
in financing activities during fiscal 2009, was $56,043, which principally
consisted of payments of $12,728 of dividends, repayments of $16,490 on the term
loan portion of our Facility, repayments of $5,725 of capital lease obligations,
net repayments of borrowings under our revolving credit facility of $4,500 and
payments to repurchase common stock of $4,416. We currently anticipate that
quarterly dividends will be approximately $13,117 during fiscal
2010.





Long-Term
Obligations





Contractual
Cash Obligations





The
following table presents our long-term contractual cash obligations as of
January 31, 2009:





Payments Due by PeriodsTotal
                
                
                Less
      Than
                  One Year
                
                
                1-3 Years
                
                
                3-5 Years
                
                
                After
                  5 YearsLong-term
      debt
                
                $
                314,788
                
                
                $
                4,341
                
                
                $
                5,456
                
                
                $
                304,085
                
                
                $
                906Capital
      lease obligations(1)(2)
                
                
                62,302
                
                
                
                10,708
                
                
                
                18,984
                
                
                
                13,821
                
                
                
                18,789Operating
      leases(1)
                
                
                639,834
                
                
                
                85,648
                
                
                
                143,006
                
                
                
                113,317
                
                
                
                297,863Unconditional
      purchase obligations(3)
                
                
                73,537
                
                
                
                59,866
                
                
                
                5,872
                
                
                
                2,812
                
                
                
                4,987Other
      commitments(4)
                
                
                3,219
                
                
                
                1,620
                
                
                
                1,599
                
                
                
                —
                
                
                
                —Total
      contractual cash obligations
                
                $
                1,093,680
                
                
                $
                162,183
                
                
                $
                174,917
                
                
                $
                434,035
                
                
                $
                322,545


__________


(1)
            The
      amounts reported above as operating leases and capital lease obligations
      include leases contained in the estimated liability for closed restaurants
      and leases for which we sublease to franchisees. Additional information
      regarding operating leases and capital lease obligations can be found in
      Note 7 of Notes to Consolidated Financial
  Statements.





(2)
            Represents
      the undiscounted value of capital lease
  payments.





(3)
            Unconditional
      purchase obligations include contracts for goods and services, primarily
      related to system restaurant operations and contractual commitments for
      marketing and sponsorship
arrangements.





(4)
            Other
      commitments shown in the table above are comprised of FIN 48
      obligations which represent uncertain tax positions. The years for which
      the uncertain tax positions will reverse have been estimated in scheduling
      the obligations within the table. In addition to the FIN 48
      obligations in the table above, approximately $2,606 of unrecognized tax
      benefits have been recorded as liabilities in accordance with FIN 48,
      of which $179 is anticipated to reverse within one year and the remainder
      of which we are uncertain as to if or when such amounts may be settled.
      Additionally, there is $11,369 of unrecognized tax positions which are
      fully offset by a valuation allowance of which we are uncertain as to if
      or when such amounts may be
settled.








46
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





Management’s
Discussion and Analysis — (Continued)


(Dollars
in thousands)


Other
Commercial Commitments
 
 The
following table presents our other commercial commitments as of January 31,
2009. The specific commitments are discussed previously in Item 7, as well
as in Note 24 of Notes to Consolidated Financial
Statements.


Amount of Commitment Expirations Per
      PeriodTotal
                  Amounts
                  Committed
                
                
                Less
      Than
                  One Year
                
                
                1-3
                  Years
                
                
                3-5
                  Years
                
                
                >5
                  YearsStandby
      letters of credit under our Facility
                
                $
                35,643
                
                
                $
                9,998
                
                
                $
                25,645
                
                
                $
                —
                
                
                $
                —Other
                
                
                6,317
                
                
                
                1,649
                
                
                
                2,833
                
                
                
                1,451
                
                
                
                384Total
      other commercial commitments
                
                $
                41,960
                
                
                $
                11,647
                
                
                $
                28,478
                
                
                $
                1,451
                
                
                $
                384





47
 Table of Contents





Item 7A.Quantitative and Qualitative
Disclosures About Market Risk





Interest
Rate Risk





Our
principal exposures to financial market risks relate to the impact that interest
rate changes could have on our Facility and on the fair value of our interest
rate swap agreements. As of January 31, 2009, our Facility is comprised of a
revolving credit facility and a term loan, which bears interest at an annual
rate equal to LIBOR plus 1.50% and LIBOR plus 1.38%, respectively. As of January
31, 2009, we had $313,735 of borrowings and $35,643 of letters of credit
outstanding under our Facility. We have entered into interest rate swap
agreements with a combined notional amount of $200,000. These agreements will
expire on March 12, 2012. The effect of the agreements is to limit the
interest rate exposure on a portion of our term loan debt under our Facility to
a fixed rate of 6.12%. The agreements were not designated as cash flow hedges
under the terms of SFAS 133. Accordingly, the change in the fair value of
the interest rate swap agreements is recognized in interest expense in our
Consolidated Statements of Income. These interest rate swap agreements are
highly sensitive to interest rate fluctuations which could result in significant
variability in their future fair value.





A
hypothetical increase of 100 basis points in short-term interest rates
would result in a reduction in our annual pre-tax earnings of $1,137. The
estimated reduction is based upon the outstanding balance of the borrowings
under our Facility that are not covered by our interest rate swaps and the
weighted-average interest rate for the fiscal year and assumes no change in the
volume, index or composition of debt as in effect on January 31,
2009.





Substantially
all of our business is transacted in U.S. dollars. Accordingly, foreign
exchange rate fluctuations have not had a significant impact on us and are not
expected to in the foreseeable future.





Commodity
Price Risk





We
purchase certain products which are affected by commodity prices and are,
therefore, subject to price volatility caused by weather, market conditions and
other factors which are not considered predictable or within our control.
Although these products are subject to changes in commodity prices, certain
purchasing contracts or pricing arrangements contain risk management techniques
designed to minimize price volatility. The purchasing contracts and pricing
arrangements we use may result in unconditional purchase obligations, which are
not reflected in our accompanying Consolidated Balance Sheets. Typically, we use
these types of purchasing techniques to control costs as an alternative to
directly managing financial instruments to hedge commodity prices. In many
cases, we believe we will be able to address material commodity cost increases
by adjusting our menu pricing or changing our product delivery strategy.
However, increases in commodity prices, without adjustments to our menu prices,
could increase restaurant operating costs as a percentage of company-operated
restaurants revenue.





Item 8.Financial Statements and
Supplementary Data





See the
Index included at Item 15 — Exhibits, Financial Statement
Schedules.





Item 9.Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure





None.





Item 9A.Controls and
Procedures





(a) Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including our CEO and CFO, to allow timely
decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, our management recognized that any system of
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, as ours
are designed to do, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.





48
 Table of Contents




In
connection with the preparation of this Annual Report on Form 10-K, an
evaluation was performed under the supervision and with the participation of our
management, including our CEO and CFO, of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Based on that evaluation,
our CEO and CFO concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this Annual Report on
Form 10-K to ensure that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and to ensure that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our CEO and CFO, as appropriate,
to allow timely decisions regarding required disclosures.





(b) Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act. Our internal control system is designed to provide reasonable
assurance to our management and Board of Directors regarding the preparation and
fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.





Management
has assessed the effectiveness of our internal control over financial reporting
as of January 31, 2009. In making its assessment of internal control over
financial reporting, management used the criteria set forth in Internal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).





Management
has concluded that, as of January 31, 2009, our internal control over financial
reporting was effective.





KPMG LLP,
the independent registered public accounting firm that audited our Consolidated
Financial Statements included in this Annual Report on Form 10-K, has
issued an audit report on our internal control over financial
reporting.





(c) Changes
in Internal Control over Financial Reporting





There
have been no changes in our internal control over financial reporting during the
fourth quarter of fiscal 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





49
 Table of Contents





(d) Report
of Independent Registered Public Accounting Firm





The Board
of Directors and Stockholders


CKE
Restaurants, Inc.:





We have
audited CKE Restaurants, Inc.’s (the Company) internal control over financial
reporting as of January 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).Management of CKE Restaurants, Inc. is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanyingManagement’s
Report on Internal Control over Financial Reporting (Item 9A(b)). Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.





A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, CKE Restaurants, Inc. maintained, in all material respects, effective
internal control over financial reporting as of January 31, 2009, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of CKE
Restaurants, Inc. and subsidiaries as of January 31, 2009 and 2008, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the years in the three-year period ended January 31, 2009, and our
report datedMarch
25, 2009,expressed an
unqualified opinion on those consolidated financial statements.








/s/ KPMG
LLP








Costa
Mesa, California


March 25,
2009





50
 Table of Contents





(e) Certifications





The
certifications of our CEO and CFO required under Section 302 of
the Sarbanes-Oxley Act of 2002 have been filed as Exhibits 31.1 and 31.2 to
this Annual Report on Form 10-K. Additionally, in 2008 our CEO
submitted to the NYSE an Annual Chief Executive Officer Certification, as
required by the commentary to Section 303A.12(a) of the NYSE Listed Company
Manual, indicating that he was not aware of any violations by the Company of the
NYSE’s corporate governance listing standards. Such certification was
unqualified.





Item 9B.Other
Information





Not
Applicable.





51
 Table of Contents





PART III





Item 10.Directors, Executive Officers
and Corporate Governance





The
information pertaining to directors and executive officers of the registrant is
hereby incorporated by reference from our Proxy Statement to be used in
connection with our 2009 Annual Meeting of Stockholders, to be filed with
the SEC within 120 days of January 26, 2009. Information
concerning the current executive officers is contained in Item 1 of
Part I of this Annual Report on Form 10-K.





Code
of Ethics and Corporate Governance Information





We have
adopted a code of business conduct and ethics (“Code of Conduct”) to help ensure
our directors and employees conduct the business of CKE fairly, free of
conflicts of interest, and in an ethical and proper manner. We have also adopted
a code of ethics (“Code of Ethics”) for our CEO and senior financial officers,
including our principal financial officer and principal accounting officer or
controller, or persons performing similar functions. The Code of Conduct and the
Code of Ethics can be found on our website at www.ckr.com. We will
satisfy the disclosure requirement under Item 10 of Form 8-K, as
necessary, regarding any amendment to, or waiver from, any applicable provision
(related to elements listed under Item 406(b) of Regulation S-K) of
the Code of Conduct or the Code of Ethics by posting such information on our
website.





The Board
of Directors has adopted and approved the Code of Conduct, Code of Ethics,
Corporate Governance Guidelines, and written charters for its Nominating and
Corporate Governance, Audit and Compensation Committees. All of the foregoing
documents are available on our website at www.ckr.com, and a
copy of the foregoing will be made available (without charge) to any stockholder
upon request.





Item 11.Executive
Compensation





The
information pertaining to executive compensation is hereby incorporated by
reference from our Proxy Statement to be used in connection with our 2009 Annual
Meeting of Stockholders, to be filed with the SEC within 120 days of
January 26, 2009.





Item 12.Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





The
information pertaining to security ownership of certain beneficial owners and
management and related stockholder matters is hereby incorporated by reference
from our Proxy Statement to be used in connection with our 2009 Annual Meeting
of Stockholders, to be filed with the SEC within 120 days of
January 26, 2009.





Equity
Compensation Plan Information





Equity
compensation plans as of January 31, 2009 were:





Plan Category
                      
                      Number
      of Securities
                        to
      be Issued Upon
                        Exercise
      of
                        Outstanding
      Options,
                        Warrants and Rights
                      
                      
                      Weighted-Average
                        Exercise
      Price of
                        Outstanding
                        Options,
      Warrants
                        and Rights
                      
                      
                      Number
      of Securities
                        Remaining
      Available
                        for
      Future Issuance
                        Under
      Equity
                        Compensation
      Plans
                        (Excluding
                        Securities
      Reflected
                        in Column (a))(a)
                      
                      
                      (b)
                      
                      
                      (c)Equity
      compensation plans approved by security holders
                      
                      
                      4,475,663
                      
                      
                      $
                      11.61
                      
                      
                      
                      2,855,038Equity
      compensation plans not approved by security holders(1)
                      
                      
                      340,606
                      
                      
                      
                      8.65
                      
                      
                      
                      24,734Total
                      
                      
                      4,816,269
                      
                      
                      $
                      11.40
                      
                      
                      
                      2,879,772


__________


(1)
            Represents
      options that are part of a “broad-based plan” as then defined by the NYSE.
      See Note 16 of Notes to Consolidated Financial
      Statements.








52
 Table of Contents





Item 13.Certain Relationships and
Related Transactions, and Director Independence





The
information pertaining to certain relationships and related transactions and
director independence of the registrant is hereby incorporated by reference from
our Proxy Statement to be used in connection with our 2009 Annual Meeting of
Stockholders, to be filed with the SEC within 120 days of
January 26, 2009.





Item 14.Principal Accounting Fees and
Services





The
information pertaining to principal accounting fees and services is hereby
incorporated by reference from our Proxy Statement to be used in connection with
our 2009 Annual Meeting of Stockholders, to be filed with the SEC within
120 days of January 26, 2009.





53
 Table of Contents





PART IV





Item 15.Exhibits, Financial Statement
Schedules





Page(a)(1)
                  Index
      to Consolidated Financial Statements:Report
      of Independent Registered Public Accounting Firm
                  
                  
                  56Consolidated
      Balance Sheets — as of January 31, 2009 and 2008
                  
                  
                  57Consolidated
      Statements of Income — for the fiscal years ended January 31, 2009,
      2008 and 2007
                  
                  
                  58Consolidated
      Statements of Stockholders’ Equity — for the fiscal years ended
      January 31, 2009, 2008 and 2007
                  
                  
                  59Consolidated
      Statements of Cash Flows — for the fiscal years ended January 31,
      2009, 2008 and 2007
                  
                  
                  60Notes
      to Consolidated Financial Statements
                  
                  
                  61All
      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 Consolidated Financial Statements
      or the notes thereto.(a)(2)
                  Exhibits:  An
      “Exhibit Index” has been filed as a part of this Annual Report on
      Form 10-K beginning on page 90 hereof and is incorporated herein
      by reference





54
 Table of Contents





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.




CKE
      RESTAURANTS, INC.Date:
      March 25, 2009
                    By:
                    /s/  Andrew
      F. PuzderAndrew
      F. Puzder,Chief
      Executive Officer


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/  Byron
      Allumbaugh
                    Chairman
      of the Board
                    March
      25, 2009Byron
      Allumbaugh/s/  Andrew
      F. Puzder
                    Chief
      Executive Officer (Principal
                    March
      25, 2009Andrew
      F. Puzder
                    Executive
      Officer)/s/  Theodore
      Abajian
                    Executive
      Vice President, Chief Financial
                    March
      25, 2009Theodore
      Abajian
                    Officer
      (Principal Financial Officer)/s/  Reese
      Stewart
                    Senior
      Vice President, Chief Accounting
                    March
      25, 2009Reese
      Stewart
                    Officer
      (Principal Accounting Officer)/s/  Peter
      Churm
                    Director
                    March
      25, 2009Peter
      Churm/s/  Matthew
      Goldfarb
                    Director
                    March
      25, 2009Matthew
      Goldfarb/s/  Carl
      L. Karcher
                    Director
                    March
      25, 2009Carl
      L. Karcher/s/  Janet
      E. Kerr
                    Director
                    March
      25, 2009Janet
      E. Kerr/s/  Daniel
      D. Lane
                    Director
                    March
      25, 2009Daniel
      D. Lane/s/  Daniel
      E. Ponder, Jr.
                    Director
                    March
      25, 2009Daniel
      E. Ponder, Jr./s/  Jerold
      H. Rubinstein
                    Director
                    March
      25, 2009Jerold
      H. Rubinstein/s/  Frank
      P. Willey
                    Director
                    March
      25, 2009Frank
      P. Willey





55
 Table of Contents





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Stockholders


CKE
Restaurants, Inc.:




We have
audited the accompanying consolidated balance sheets of CKE Restaurants, Inc.
andsubsidiaries
as of January 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity, and cash flows for each of the years in the
three-year period ended January 31, 2009. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of CKE Restaurants, Inc.
andsubsidiaries
as of January 31, 2009 and 2008, and the results of their operations and their
cash flows for each of the years in the three-year period ended January 31,
2009, in conformity with U.S. generally accepted accounting
principles.




As
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for uncertainties in income taxes in fiscal
2008 due to the adoption of a new accounting pronouncement.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of January 31, 2009, based oncriteria established
inInternal Control -
Integrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated March 25, 2009,
expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.







/s/ KPMG
LLP








Costa
Mesa, California


March 25,
2009





56
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS
OF JANUARY 31, 2009 AND 2008


(In
thousands, except par values)





2009
                
                
                2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                17,869
                
                
                $
                19,993Accounts
      receivable, net
                
                
                40,738
                
                
                
                51,394Related
      party trade receivables
                
                
                4,923
                
                
                
                5,179Inventories,
      net
                
                
                24,215
                
                
                
                26,030Prepaid
      expenses
                
                
                13,445
                
                
                
                12,509Assets
      held for sale
                
                
                805
                
                
                
                1,038Advertising
      fund assets, restricted
                
                
                16,340
                
                
                
                18,207Deferred
      income tax assets, net
                
                
                20,781
                
                
                
                23,768Other
      current assets
                
                
                1,843
                
                
                
                2,887Total
      current assets
                
                
                140,959
                
                
                
                161,005Notes
      receivable, net
                
                
                3,259
                
                
                
                298Property
      and equipment, net
                
                
                543,770
                
                
                
                503,774Property
      under capital leases, net
                
                
                23,403
                
                
                
                21,104Deferred
      income tax assets, net
                
                
                57,832
                
                
                
                72,878Goodwill
                
                
                23,688
                
                
                
                22,649Intangible
      assets, net
                
                
                2,508
                
                
                
                2,677Other
      assets, net
                
                
                9,268
                
                
                
                7,326Total
      assets
                
                $
                804,687
                
                
                $
                791,711LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of bank indebtedness and other long-term debt
                
                $
                4,341
                
                
                $
                18,024Current
      portion of capital lease obligations
                
                
                6,389
                
                
                
                5,774Accounts
      payable
                
                
                60,903
                
                
                
                80,697Advertising
      fund liabilities
                
                
                16,340
                
                
                
                18,207Other
      current liabilities
                
                
                91,765
                
                
                
                85,813Total
      current liabilities
                
                
                179,738
                
                
                
                208,515Bank
      indebtedness and other long-term debt, less current
portion
                
                
                310,447
                
                
                
                333,082Capital
      lease obligations, less current portion
                
                
                36,273
                
                
                
                35,156Other
      long-term liabilities
                
                
                83,953
                
                
                
                69,716Total
      liabilities
                
                
                610,411
                
                
                
                646,469Commitments
      and contingencies (Notes 7, 9, 10, 11 and 24)Subsequent
      events (Notes 6, 10, 12, 16 and 21)Stockholders’
      equity:Preferred
      stock, $.01 par value; authorized 5,000 shares; none issued or
      outstanding
                
                
                —
                
                
                
                —Series A
      Junior Participating Preferred stock, $.01 par value;
      1,500 shares authorized; none issued or outstanding
                
                
                —
                
                
                
                —Common
      stock, $.01 par value; authorized 100,000 shares;
      54,653 shares issued and outstanding as of January 31, 2009 and
      52,504 shares issued and 52,476 shares outstanding as of
      January 31, 2008
                
                
                546
                
                
                
                525Common
      stock held in treasury, at cost; none and 28 shares as of
      January 31, 2009 and  2008, respectively
                
                
                —
                
                
                
                (359
                )Additional
      paid-in capital
                
                
                276,068
                
                
                
                251,524Accumulated
      deficit
                
                
                (82,338
                )
                
                
                (106,448
                )Total
      stockholders’ equity
                
                
                194,276
                
                
                
                145,242Total
      liabilities and stockholders’ equity
                
                $
                804,687
                
                
                $
                791,711




See Accompanying Notes to
Consolidated Financial Statements





57
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE FISCAL YEARS ENDED JANUARY 31, 2009, 2008 AND 2007


(In
thousands, except per share amounts)





2009
                
                
                2008
                
                
                2007Revenue:Company-operated
      restaurants
                
                $
                1,131,312
                
                
                $
                1,201,577
                
                
                $
                1,225,227Franchised
      and licensed restaurants and other
                
                
                351,398
                
                
                
                333,057
                
                
                
                316,844Total
      revenue
                
                
                1,482,710
                
                
                
                1,534,634
                
                
                
                1,542,071Operating
      costs and expenses:Restaurant
      operating costs:Food
      and packaging
                
                
                335,707
                
                
                
                356,332
                
                
                
                352,952Payroll
      and other employee benefits
                
                
                322,936
                
                
                
                350,526
                
                
                
                355,933Occupancy
      and other
                
                
                258,995
                
                
                
                267,372
                
                
                
                261,576Total
      restaurant operating costs
                
                
                917,638
                
                
                
                974,230
                
                
                
                970,461Franchised
      and licensed restaurants and other
                
                
                269,699
                
                
                
                258,295
                
                
                
                239,520Advertising
                
                
                66,911
                
                
                
                70,324
                
                
                
                70,914General
      and administrative
                
                
                140,303
                
                
                
                144,035
                
                
                
                146,939Facility
      action charges, net
                
                
                4,139
                
                
                
                (577
                )
                
                
                3,543Total
      operating costs and expenses
                
                
                1,398,690
                
                
                
                1,446,307
                
                
                
                1,431,377Operating
      income
                
                
                84,020
                
                
                
                88,327
                
                
                
                110,694Interest
      expense
                
                
                (28,609
                )
                
                
                (33,033
                )
                
                
                (19,768
                )Conversion
      inducement expense
                
                
                —
                
                
                
                —
                
                
                
                (6,406
                )Other
      income, net
                
                
                3,078
                
                
                
                4,437
                
                
                
                3,693Income
      before income taxes and discontinued operations
                
                
                58,489
                
                
                
                59,731
                
                
                
                88,213Income
      tax expense
                
                
                21,533
                
                
                
                24,659
                
                
                
                34,019Income
      from continuing operations
                
                
                36,956
                
                
                
                35,072
                
                
                
                54,194Discontinued
      operations:Loss
      from discontinued operations (net of income tax expense (benefit) of
      $1,953 for 2008 and $(2,120) for 2007)
                
                
                —
                
                
                
                (3,996
                )
                
                
                (4,022
                )Net
      income
                
                $
                36,956
                
                
                $
                31,076
                
                
                $
                50,172Basic
      income per common share:Continuing
      operations
                
                $
                0.71
                
                
                $
                0.59
                
                
                $
                0.85Discontinued
      operations
                
                
                —
                
                
                
                (0.07
                )
                
                
                (0.06
                )Net
      income
                
                $
                0.71
                
                
                $
                0.52
                
                
                $
                0.79Diluted
      income per common share:Continuing
      operations
                
                $
                0.69
                
                
                $
                0.57
                
                
                $
                0.77Discontinued
      operations
                
                
                —
                
                
                
                (0.07
                )
                
                
                (0.05
                )Net
      income
                
                $
                0.69
                
                
                $
                0.50
                
                
                $
                0.72Dividends
      per common share
                
                $
                0.24
                
                
                $
                0.24
                
                
                $
                0.16Weighted-average
      common shares outstanding:Basic
                
                
                52,254
                
                
                
                59,410
                
                
                
                63,562Dilutive
      effect of stock options, convertible notes and restricted
      stock
                
                
                2,028
                
                
                
                3,149
                
                
                
                8,815Diluted
                
                
                54,282
                
                
                
                62,559
                
                
                
                72,377




See Accompanying Notes to
Consolidated Financial Statements





58
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


FOR
THE FISCAL YEARS ENDED JANUARY 31, 2009, 2008 AND 2007


(In
thousands)


UnearnedCommon
      Stock
                  
                  
                  Additional
                  
                  
                  Compensation
                  
                  
                  
                  
                  
                  TotalCommon Stock
                  
                  
                  Held in Treasury
                  
                  
                  Paid-In
                  
                  
                  on
      Restricted
                  
                  
                  Accumulated
                  
                  
                  Stockholders’Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stock
                  
                  
                  Deficit
                  
                  
                  EquityBalance
      as of January 31, 2006
                  
                  
                  59,803
                  
                  
                  $
                  598
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  472,834
                  
                  
                  $
                  (1,816
                  )
                  
                  $
                  (162,678
                  )
                  
                  $
                  308,938Cash
      dividends declared
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (10,397
                  )
                  
                  
                  (10,397
                  )Issuance
      of restricted stock awards, net of forfeitures
                  
                  
                  634
                  
                  
                  
                  6
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (6
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Reclassification
      of unearned compensation pursuant to SFAS 123R
    adoption
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,816
                  )
                  
                  
                  1,816
                  
                  
                  
                  —
                  
                  
                  
                  —Exercise
      of stock options
                  
                  
                  1,175
                  
                  
                  
                  12
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  10,315
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  10,327Conversion
      of 2023 Convertible Notes into common stock
                  
                  
                  10,224
                  
                  
                  
                  102
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  88,375
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  88,477Net
      tax benefit from exercise of stock options and vesting of restricted stock
      awards
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,078
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  4,078Share-based
      compensation expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  8,308
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  8,308Repurchase
      and retirement of common stock
                  
                  
                  (4,589
                  )
                  
                  
                  (46
                  )
                  
                  
                  (18
                  )
                  
                  
                  (360
                  )
                  
                  
                  (80,651
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (81,057
                  )Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  50,172
                  
                  
                  
                  50,172Balance
      as of January 31, 2007
                  
                  
                  67,247
                  
                  
                  
                  672
                  
                  
                  
                  (18
                  )
                  
                  
                  (360
                  )
                  
                  
                  501,437
                  
                  
                  
                  —
                  
                  
                  
                  (122,903
                  )
                  
                  
                  378,846Cash
      dividends declared
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (13,850
                  )
                  
                  
                  (13,850
                  )Issuance
      of restricted stock awards, net of forfeitures
                  
                  
                  643
                  
                  
                  
                  6
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (6
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercise
      of stock options
                  
                  
                  459
                  
                  
                  
                  5
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,317
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,322Net
      tax benefit from exercise of stock options and vesting of restricted stock
      awards
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,904
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,904Share-based
      compensation expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  11,355
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  11,355Repurchase
      and retirement of common stock
                  
                  
                  (15,845
                  )
                  
                  
                  (158
                  )
                  
                  
                  (10
                  )
                  
                  
                  1
                  
                  
                  
                  (266,483
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (266,640
                  )Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  31,076
                  
                  
                  
                  31,076FIN 48
      transition amount
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (771
                  )
                  
                  
                  (771
                  )Balance
      as of January 31, 2008
                  
                  
                  52,504
                  
                  
                  
                  525
                  
                  
                  
                  (28
                  )
                  
                  
                  (359
                  )
                  
                  
                  251,524
                  
                  
                  
                  —
                  
                  
                  
                  (106,448
                  )
                  
                  
                  145,242Cash
      dividends declared
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (12,846
                  )
                  
                  
                  (12,846
                  )Issuance
      of restricted stock awards, net of forfeitures
                  
                  
                  636
                  
                  
                  
                  6
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (6
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Exercise
      of stock options
                  
                  
                  218
                  
                  
                  
                  2
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,624
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,626Conversion
      of 2023 Convertible Notes into common stock
                  
                  
                  1,787
                  
                  
                  
                  18
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  15,149
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  15,167Net
      tax deficiency from exercise of stock options and vesting of restricted
      stock awards
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (242
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (242
                  )Share-based
      compensation expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  12,521
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  12,521Repurchase
      and retirement of common stock
                  
                  
                  (492
                  )
                  
                  
                  (5
                  )
                  
                  
                  28
                  
                  
                  
                  359
                  
                  
                  
                  (4,502
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (4,148
                  )Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  36,956
                  
                  
                  
                  36,956Balance
      as of January 31, 2009
                  
                  
                  54,653
                  
                  
                  $
                  546
                  
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  276,068
                  
                  
                  $
                  —
                  
                  
                  $
                  (82,338
                  )
                  
                  $
                  194,276




See Accompanying Notes to
Consolidated Financial Statements




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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE FISCAL YEARS ENDED JANUARY 31, 2009, 2008 AND 2007


(In
thousands)





Fiscal Years Ended
      January 31,2009
                
                
                2008
                
                
                2007Cash
      flows from operating activities:Net
      income
                
                $
                36,956
                
                
                $
                31,076
                
                
                $
                50,172Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                63,497
                
                
                
                64,102
                
                
                
                62,418Amortization
      of deferred loan fees
                
                
                1,186
                
                
                
                930
                
                
                
                3,097Share-based
      compensation expense
                
                
                12,521
                
                
                
                11,355
                
                
                
                8,308Change
      in fair value of interest rate swap agreements
                
                
                9,010
                
                
                
                11,380
                
                
                
                —Provision
      for (recovery of) losses on accounts and notes receivable
                
                
                309
                
                
                
                (1,070
                )
                
                
                (192
                )Loss
      on sale of property and equipment, capital leases and extinguishment of
      debt
                
                
                2,353
                
                
                
                4,429
                
                
                
                3,449Facility
      action charges, net
                
                
                4,139
                
                
                
                (1,282
                )
                
                
                8,546Deferred
      income taxes
                
                
                18,033
                
                
                
                14,979
                
                
                
                25,961Other
      non-cash charges
                
                
                34
                
                
                
                48
                
                
                
                77Net
      changes in operating assets and liabilities:Receivables,
      inventories, prepaid expenses and other current and non-current
      assets
                
                
                6,298
                
                
                
                (8,431
                )
                
                
                (9,095
                )Estimated
      liability for closed restaurants and estimated liability for
      self-insurance
                
                
                (4,140
                )
                
                
                (5,028
                )
                
                
                (5,181
                )Accounts
      payable and other current and long-term liabilities
                
                
                (4,459
                )
                
                
                (1,123
                )
                
                
                15,585Net
      cash provided by operating activities
                
                
                145,737
                
                
                
                121,365
                
                
                
                163,145Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (114,165
                )
                
                
                (133,816
                )
                
                
                (117,268
                )Proceeds
      from sale of property and equipment
                
                
                22,689
                
                
                
                56,419
                
                
                
                21,929Collections
      of non-trade notes receivable
                
                
                3,048
                
                
                
                5,406
                
                
                
                3,749Acquisition
      of restaurants, net of cash received
                
                
                (3,477
                )
                
                
                —
                
                
                
                —Decrease
      in cash upon deconsolidation of variable interest entity
                
                
                —
                
                
                
                (49
                )
                
                
                —Disposition
      of La Salsa, net of cash surrendered
                
                
                —
                
                
                
                5,720
                
                
                
                —Other
      investing activities
                
                
                87
                
                
                
                70
                
                
                
                62Net
      cash used in investing activities
                
                
                (91,818
                )
                
                
                (66,250
                )
                
                
                (91,528
                )Cash
      flows from financing activities:Net
      change in bank overdraft
                
                
                (13,424
                )
                
                
                8,791
                
                
                
                2,620Borrowings
      under revolving credit facility
                
                
                153,000
                
                
                
                372,500
                
                
                
                127,000Repayments
      of borrowings under revolving credit facility
                
                
                (157,500
                )
                
                
                (351,500
                )
                
                
                (89,500
                )Borrowings
      under credit facility term loan
                
                
                —
                
                
                
                200,179
                
                
                
                —Repayments
      of credit facility term loan
                
                
                (16,490
                )
                
                
                (1,775
                )
                
                
                (28,928
                )Repayments
      of other long-term debt
                
                
                (161
                )
                
                
                (160
                )
                
                
                (145
                )Borrowing
      by consolidated variable interest entity
                
                
                —
                
                
                
                —
                
                
                
                38Repayments
      of capital lease obligations
                
                
                (5,725
                )
                
                
                (5,340
                )
                
                
                (4,937
                )Payment
      of deferred loan fees
                
                
                (399
                )
                
                
                (1,279
                )
                
                
                (2,733
                )Repurchase
      of common stock
                
                
                (4,416
                )
                
                
                (266,732
                )
                
                
                (80,697
                )Exercise
      of stock options
                
                
                1,626
                
                
                
                3,322
                
                
                
                10,327Excess
      tax benefits from exercise of stock options and vesting of restricted
      stock awards
                
                
                174
                
                
                
                1,611
                
                
                
                2,801Dividends
      paid on common stock
                
                
                (12,728
                )
                
                
                (13,419
                )
                
                
                (10,126
                )Net
      cash used in financing activities
                
                
                (56,043
                )
                
                
                (53,802
                )
                
                
                (74,280
                )Net
      (decrease) increase in cash and cash equivalents
                
                
                (2,124
                )
                
                
                1,313
                
                
                
                (2,663
                )Cash
      and cash equivalents at beginning of year
                
                
                19,993
                
                
                
                18,680
                
                
                
                21,343Cash
      and cash equivalents at end of year
                
                $
                17,869
                
                
                $
                19,993
                
                
                $
                18,680




See Accompanying Notes to
Consolidated Financial Statements





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE FISCAL YEARS ENDED JANUARY 31, 2009, 2008 AND 2007


(Dollars
in thousands, except per share amounts)





Note 1 —
Organization and Significant Accounting Policies





Description
of Business





CKE
Restaurants, Inc.® (“CKE”
or “Company”), through its wholly-owned subsidiaries, owns, operates, franchises
and licenses the Carl’s Jr.®,
Hardee’s®, Green
Burrito® and Red
Burritotm
concepts. References to CKE Restaurants, Inc. throughout these Notes to
Consolidated Financial Statements are made using the first person notations of
“we,” “us” and “our.”





Carl’s
Jr. restaurants are primarily located in the Western United States. Hardee’s
restaurants are located throughout the Southeastern and Midwestern United
States. Green Burrito restaurants are primarily located in dual-branded Carl’s
Jr. restaurants. The Red Burrito concept is located in dual-branded Hardee’s
restaurants. As of January 31, 2009, our system-wide restaurant portfolio
consisted of:





Carl’s Jr.
                
                
                Hardee’s
                
                
                Other
                
                
                TotalCompany-operated
                
                
                416
                
                
                
                482
                
                
                
                1
                
                
                
                899Franchised
      and licensed
                
                
                779
                
                
                
                1,426
                
                
                
                12
                
                
                
                2,217Total
                
                
                1,195
                
                
                
                1,908
                
                
                
                13
                
                
                
                3,116





Basis
of Presentation and Fiscal Year





Our
accompanying Consolidated Financial Statements include the accounts of CKE, our
wholly-owned subsidiaries, and certain variable interest entities for which we
are the primary beneficiary and have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”).  All
significant intercompany transactions are eliminated.





We
operate on a retail accounting calendar. Our fiscal year is comprised of 13
four-week accounting periods, and ends on the last Monday in January each year.
The first quarter of our fiscal year has four periods, or 16 weeks. All other
quarters have three periods, or 12 weeks. For clarity of presentation, we
generally label all years presented as if the fiscal year ended January 31
(e.g., the fiscal year ended January 26, 2009, is referred to as fiscal 2009 or
the fiscal year ended January 31, 2009).





Certain
prior year amounts in the accompanying Consolidated Financial Statements have
been reclassified to conform to current year presentation.





Variable
Interest Entities





As
required by Financial Accounting Standards Board (“FASB”) Interpretation 46R,
Consolidation of Variable
Interest Entities — an interpretation of ARB No. 51
(“FIN 46R”), we consolidate one national and approximately 80 local
co-operative advertising funds (“Hardee’s Funds”). We have included $16,340 of
advertising fund assets, restricted, and advertising fund liabilities in our
accompanying Consolidated Balance Sheet as of January 31, 2009, and $18,207 of
advertising fund assets, restricted, and advertising fund liabilities in our
accompanying Consolidated Balance Sheet as of January 31, 2008. Advertising
fund assets, restricted, are comprised primarily of cash and receivables. These
assets are restricted to funding the advertising fund liabilities. Advertising
fund liabilities are comprised primarily of accounts payable and deferred
obligations. The Hardee’s Funds have been included in our accompanying
Consolidated Statements of Income for the fiscal years ended January 31, 2009,
2008 and 2007, on a net basis, whereby, in accordance with Statement of
Financial Accounting Standards (“SFAS”) 45, Accounting for Franchise Fee Revenue, we do
not reflect franchisee contributions as revenue, but rather as an offset to
reported advertising expenses. The Hardee’s Funds have been included in our
accompanying Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 2009, 2008 and 2007, but had no net impact.


During
fiscal 2008 and 2007, we also consolidated one of our Hardee’s franchisees
because we concluded that we were the primary beneficiary of this variable
interest entity (“VIE”). We stopped consolidating this VIE in the fourth quarter
of fiscal 2008 when we terminated its franchise agreement and began operating
its five restaurants as company-operated restaurants. The operating results of
this VIE have been included in our accompanying Consolidated Statements of
Income for the fiscal years ended January 31, 2008 and 2007 and are not
significant to our consolidated results of operations.


61
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RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





Although
the VIEs referred to above have been included in our accompanying Consolidated
Financial Statements, we have no rights to the assets, nor do we have any
obligation with respect to the liabilities, of these VIEs, and none of our
assets serve as collateral for the creditors of these VIEs.





Certain
of our franchisees, which combine to operate approximately 5.9% of all our
franchised restaurants, are VIEs in which we hold a significant variable
interest, but for which we are not the primary beneficiary. As of January 31,
2009, we have exposures of $11,267 related to these VIEs, which relate
to the collection of trade receivables and our lease obligations
for properties subleased to these entities.





Estimations





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.





Our most
significant areas of estimation are:





•
            estimation
      of future cash flows used to assess the recoverability of long-lived
      assets, including goodwill, and to establish the estimated liability for
      closed restaurants and subsidizing lease payments of
      franchisees;





•
            estimation,
      using actuarially determined methods, of our self-insured claim losses
      under our workers’ compensation, general and auto liability insurance
      programs;





•
            determination
      of appropriate estimated liabilities for loss
    contingencies;





•
            determination
      of appropriate assumptions to use in evaluating leases for capital versus
      operating lease treatment, establishing depreciable lives for leasehold
      improvements and establishing straight-line rent expense
      periods;





•
            estimation
      of the appropriate allowances associated with franchisee, licensee and
      other receivables;





•
            determination
      of the appropriate assumptions to use to estimate the fair value of
      share-based compensation; and





•
            estimation
      of our deferred income tax asset valuation allowance, liabilities related
      to uncertain tax positions and effective tax
  rate.





Cash
and Cash Equivalents





For
purposes of reporting cash and cash equivalents, highly liquid investments
purchased with original maturities of three months or less are considered cash
equivalents.


Inventories
  Inventories
are stated at the lower of cost (on a first-in, first-out basis) or market and
consist primarily of restaurant food, paper, equipment and
supplies.


62
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Assets Held for Sale





Assets
held for sale consist of surplus restaurant properties and company-operated
restaurants that we expect to sell within one year. Such assets are classified
as assets held for sale upon meeting the requirements of SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. We no longer depreciate assets once classified as held
for sale.





As of
January 31, 2009, total assets held for sale were $805 and were comprised
of four surplus properties in our Hardee’s operating segment.  As of
January 31, 2008, total assets held for sale were $1,038 and were comprised
of four surplus properties in our Hardee’s operating segment.





Property
and Equipment





Property
and equipment are recorded at cost, less accumulated depreciation, amortization
and impairment write-downs. Depreciation is computed using the straight-line
method based on the assets’ estimated useful lives, which generally range from
three to 40 years.





Leasehold
improvements are amortized on a straight-line basis over the shorter of the
estimated useful lives of the assets or the related lease terms, as determined
in accordance with SFAS 13, Accounting for Leases, as amended. In
circumstances in which leasehold improvements are made during the course of a
lease term such that the exercise of options available to us to extend the lease
term becomes reasonably assured, such leasehold improvements may be amortized
over periods that include one or more lease option terms.





Leases





We
account for our leases in accordance with SFAS 13 and other related
guidance. At the inception of each lease, we perform an evaluation to determine
whether the lease is an operating or capital lease. The lease term used for this
evaluation includes renewal option periods only in instances in which the
exercise of the renewal option can be reasonably assured because failure to
exercise such option would result in an economic penalty. Such economic penalty
would typically result from our having to abandon buildings and other
non-detachable improvements with remaining economic value upon vacating the
property.





We record
rent expense for leases that contain scheduled rent increases on a straight-line
basis over the term of the lease. The lease term used for straight-line rent
expense is calculated from the date we are given control of the leased premises
through the end of the lease term, as established in accordance with
SFAS 13, which may include a rent holiday period prior to our opening the
restaurant on the leased premises. The lease term used for this evaluation also
provides the basis for establishing depreciable lives for buildings subject to
lease and leasehold improvements, as well as the period over which we record
straight-line rent expense. Contingent rentals are generally based on revenue in
excess of stipulated amounts, and thus are not considered minimum lease payments
and are included in rent expense as they are incurred. We generally do not
receive rent concessions or leasehold improvement incentives upon opening a
store that is subject to a lease.





Capitalized
Costs





We have
elected to account for construction costs in a manner similar to SFAS 67,
Accounting for Costs and
Initial Rental Operations of Real Estate Projects. As such, costs that
have a future benefit for the project(s) are capitalized. If we subsequently
make a determination that a site for which development costs have been
capitalized will not be acquired or developed, any previously capitalized
development costs are expensed and included in general and administrative
expenses.




Goodwill
  In
accordance with SFAS 142, Goodwill and Other Intangible
Assets, goodwill is tested annually for impairment, or more frequently if
events or circumstances indicate that the asset might be impaired. We perform
our annual impairment test during the first quarter of our fiscal year. An
impairment loss is recognized to the extent that the carrying
amount exceeds the asset’s fair value. The impairment test is performed at the
reporting unit level. We consider the reporting unit level to be the brand level
as the components (e.g., restaurants) within each brand have similar economic
characteristics, including products and services, production processes, types or
classes of customers and distribution methods.




63
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




During
the first quarters of fiscal 2009, 2008 and 2007, we completed our annual
assessments of the valuation of the Carl’s Jr. brand. Those assessments
concluded that the fair value of the brand exceeded the carrying value and no
impairment was recorded. As of January 31, 2009 and 2008, we had $23,688 and
$22,649, respectively, in goodwill recorded on our accompanying Consolidated
Balance Sheets.




Deferred
Loan Fees




Costs
related to the issuance of debt are deferred and amortized, utilizing the
effective interest method, as a component of interest expense over the terms of
the respective debt issues. Upon entering into or modifying our financing
arrangements, we account for deferred financing costs in accordance with
Emerging Issues Task Force (“EITF”) 98-14, Debtor’s
Accounting for Changes in Line of Credit or Revolving-Debt
Arrangements, and EITF 96-19, Debtor’s
Accounting for a Modification
or Exchange of Debt Instruments.




Revenue
Recognition




Company-operated
restaurants revenue is recognized upon the sale of food or beverage to a
customer in the restaurant. Franchised and licensed restaurants and other
revenue includes continuing rent and service fees, initial fees and royalties.
Continuing fees and royalties are recognized in the period earned. Initial fees
are recognized upon the opening of a restaurant, which is when we have performed
substantially all initial services required by the franchise agreement. Renewal
fees are recognized when a renewal agreement becomes effective. Rental revenue
is recognized in the period earned. Sales of food and equipment to franchisees
are recognized at the time of delivery to the franchisees.




In
June 2006, the FASB ratified EITF 06-3, How
Taxes Collected from Customers and Remitted
to Governmental Authorities Should Be Presented in the Income Statement
(That
Is, Gross versus Net Presentation),to address the presentation of taxes
in the income statement. Our accounting policy is to present the taxes within
the scope of EITF 06-3 on a net basis.




Franchised
and Licensed Operations




We
execute franchise or license agreements for each brand that set out the terms of
its arrangement with the franchisee or licensee. Our franchise and certain
license agreements require the franchisee or licensee to pay an initial,
non-refundable fee and continuing fees based upon a percentage of gross sales.
Subject to our approval and payment of a renewal fee, a franchisee may generally
renew the franchise agreement upon its expiration.




We incur
expenses that benefit both our franchisee and licensee communities. These
expenses, along with other costs of sales and servicing of franchise and license
agreements, are charged to franchised and licensed restaurants and other expense
as incurred. Franchised and licensed restaurants and other revenue also includes
rental revenue from leasing or subleasing restaurants to franchisees. The
related occupancy costs are included in franchised and licensed restaurants and
other expense. If we sublease restaurants to a franchisee that results in a
probable loss over the term of the lease, a lease subsidy allowance is
established at inception and charged to facility action charges, net. (See
accounting policy for Facility Action Charges, Store
Closure Costs, below.)




Each quarter, we perform
an analysis to estimate bad debts for each franchisee, compare the aggregate
result of that analysis to the allowances for doubtful accounts and adjust the
allowances as appropriate. Additionally, we cease accruing royalties and rental
revenue from franchisees during the fiscal quarter in which we determine that
collectability of such amounts is not reasonably assured. Over time, our
assessment of individual franchisees may change. For instance, we have had some
franchisees, who in the past we had determined required an estimated loss equal
to the total amount of the receivable, which have paid us in full or established
a consistent record of payments (generally six months) such that we determined
an allowance was no longer required.




64
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Depending
on the facts and circumstances, there are a number of different actions we
and/or our franchisees may take to resolve franchise collections issues. These
actions may include the purchase of franchise restaurants by us or by other
franchisees, a modification to the franchise agreement (which may include a
provision to defer certain royalty payments or reduce royalty rates in the
future), a restructuring of the franchisee’s business and/or finances (including
the restructuring of subleases for which we are the primary obligee to the
landlord— see further discussion below) or, if necessary, the termination
of the franchise agreement. The allowance established is based on our assessment
of the most likely course of action that will occur.




Advertising




We
utilize a single advertising fund (“Carl’s Jr. Fund”) to administer our Carl’s
Jr. advertising programs and the Hardee’s Funds to administer our Hardee’s
advertising programs. As the contributions to these cooperatives are designated
and segregated for advertising, we act as an agent for the franchisees and
licensees with regard to these contributions. We consolidate the Carl’s Jr. Fund
into our financial statements on a net basis, whereby contributions from
franchisees, when received, are recorded as offsets to our reported advertising
expenses, in accordance with SFAS 45. To the extent we participate in
Hardee’s advertising cooperatives, our contributions are expensed as incurred.
We consolidate the Hardee’s funds into our financial statements in accordance
with FIN 46R.




We charge
Carl’s Jr. marketing costs to expense ratably in relation to revenues over the
year in which incurred and, in the case of advertising production costs, when
the commercial is first aired. To the extent we participate in Hardee’s
advertising cooperatives, our contributions are expensed as
incurred.




Share-Based
Compensation




We
adopted SFAS 123 (revised 2004), Share-Based
Payment(“SFAS 123R”), as of the beginning of fiscal 2007, using the
modified prospective approach. Under SFAS 123R, share-based compensation
cost is recognized ratably over the requisite service period and includes
(i) previously unrecognized compensation cost for all share-based payments
granted prior to, but not yet vested as of, January 31, 2006 based on their
fair values measured at the grant date, (ii) compensation cost of all
share-based payments granted subsequent to January 31, 2006 based on their
respective grant date fair value, and (iii) the incremental fair value of
awards modified subsequent to January 31, 2006 measured as of the date of
such modification. In addition, these amounts are adjusted for forfeitures,
estimated at the time of the grant, subsequently revised to reflect actual
forfeitures.




For tax
purposes, we expect to be entitled to a tax deduction, subject to certain
limitations, based on the fair value of certain equity awards when the
restrictions lapse or stock options are exercised.The
cumulative compensation cost recognized for certain equity awards pursuant to
SFAS 123R and amounts that ultimately will be deductible for tax purposes
are temporary differences as prescribed by SFAS 109, Accounting
for Income Taxes. The tax effect of compensation deductions for tax
purposes in excess of compensation cost recognized in our financial statements,
if any, will be recorded as an increase to additional paid-in capital when
realized. A deferred tax asset recorded for compensation cost recognized in the
financial statements that exceeds the amount that is ultimately realized on the
tax return, if any, will be charged to income tax expense when the restrictions
lapse or stock options are exercised or expire unless we have an available
additional paid-in capital pool, as defined pursuant to
SFAS 123R.




As of
January 31, 2009, we had several share-based compensation plans in effect, which
are described more fully in Note 16.




Loss Contingencies
  As
required by SFAS 5, Accounting
for Contingencies, we assess each loss contingency to determine estimates
of the degree of probability and range of possible settlement. Those
contingencies that are deemed to be probable and where the amount of such
settlement is reasonably estimable are accrued in our Consolidated Financial
Statements. We do not record liabilities for losses we believe are only
reasonably possible to result in an adverse outcome. See Note 24 for
further discussion.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Self-Insurance





We are
self-insured for a portion of our current and prior years’ losses related to
workers’ compensation, general and auto liability insurance programs. We have
stop-loss insurance for individual workers’ compensation and general liability
claims over $500 and auto liability claims over $250. Accrued liabilities for
self-insurance are recorded based on the present value of actuarial estimates of
the amounts of incurred and unpaid losses, based on an estimated risk-free
interest rate of 3.5% as of January 31, 2009. In determining our estimated
liability, management, with the assistance of our actuary, develops assumptions
based on the average historical losses on claims we have incurred, actuarial
observations of historical claim loss development, and our actuary’s estimate of
unpaid losses for each loss category. As of January 31, 2009, our estimated
liability for self-insured workers’ compensation, general and auto liability
losses was $36,972.





Facility
Action Charges





From time
to time, we identify under-performing restaurants that have carrying values in
excess of their fair values and, as a result, we may record an impairment
charge. We may also close or refranchise these or other restaurants and lease or
sublease the restaurant property to a franchisee or to a business other than one
of our restaurant concepts. The following costs that result from these actions
are recorded in our accompanying Consolidated Statements of Income as facility
action charges, net:





(i) impairment
of long-lived assets for under-performing restaurants to be disposed of or held
and used;





(ii) store
closure costs, including sublease of closed facilities at amounts below our
primary lease obligations;





(iii) (gain)
loss on the sale of restaurants and refranchising
transactions; and





(iv) amortization
of discount related to estimated liability for closed restaurants.





Considerable
management judgment is necessary to estimate future cash flows, including cash
flows from continuing use, terminal value, closure costs, expected sublease
income and refranchising proceeds. Accordingly, actual results could vary
significantly from our estimates.





(i)
Impairment of Long-Lived Assets





During
the second and fourth quarter of each fiscal year and whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable, we review long-lived assets, such as property and equipment and
purchased intangibles subject to amortization, for impairment in accordance with
SFAS 144.  Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset (including the value
of associated intangible assets) to its related estimated undiscounted future
cash flows. If the undiscounted future cash flows are less than the carrying
value, an impairment charge is recognized to the extent that the carrying amount
of the asset exceeds the fair value of the asset. We typically estimate the fair
value of assets based on the estimated future cash flows discounted at an
estimated weighted-average cost of capital.


For purposes of the recoverability analysis, assets are grouped at the lowest
level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities, which is generally the individual restaurant
level for fixed assets, capital lease assets and favorable leases. However,
intangible assets, such as trademarks and franchise agreements, are grouped at a
higher level, such as the concept level or franchise operations thereof, since
we have determined such groupings to be the lowest level at which largely
independent cash flows associated with these assets can be
identified.


(ii)
Store Closure Costs
 
 We
typically make decisions to close restaurants based on prospects for estimated
future profitability. However, sometimes we are forced to close restaurants due
to circumstances beyond our control (e.g., a landlord’s refusal to negotiate a
new lease). When restaurants continue to perform poorly, we consider a number of
factors, including the demographics of the location and the likelihood of being
able to improve an unprofitable restaurant. Based on the operators’ judgment and
a financial review, we estimate the future cash flows. If we determine that the
restaurant will not, within a reasonable period of time, operate at break-even
cash flow or be profitable, and we are not contractually obligated to continue
operating the restaurant, we may decide to close the restaurant.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




The
estimated liability for closed restaurants on properties vacated is based on the
terms of the lease as well as estimated maintenance costs until the lease has
been abated. The amount of the estimated liability established is the present
value of these estimated future payments, net of the present value of expected
sublease income. The interest rate used to calculate the present value of these
liabilities is based on an estimated credit-adjusted risk-free rate at the time
the liability is established. The related discount is amortized and shown in
facility action charges, net in our accompanying Consolidated Statements of
Income.




(iii)
Gain (Loss) on the Sale of Restaurants




We record
gains and losses on the sale of restaurants as the difference between the net
proceeds received and net carrying values of the net assets of the restaurants
sold.




(iv)
Amortization of Discount Related to Estimated Liability for Closed Restaurants




When we
calculate the present value of the estimated liability for closed restaurants,
we use an interest rate that is based on an estimated credit-adjusted risk-free
rate at the time the liability is established. This estimated credit-adjusted
risk-free rate was 6.0% as of January 31, 2009. We amortize the discount over
the expected term of the lease.




Income
Taxes




Our
current provision for income taxes is based on our estimated taxable income in
each of the jurisdictions in which we operate, after considering the impact on
our taxable income of temporary differences resulting from disparate treatment
of items, such as depreciation, estimated liability for closed restaurants,
estimated liabilities for self-insurance, tax credits and net operating losses
(“NOL”) for tax and financial reporting purposes. Deferred income taxes are
provided for the estimated future income tax effect of temporary differences
between the financial and tax bases of assets and liabilities using the asset
and liability method. Deferred tax assets are also provided for NOL and income
tax credit carryforwards. A valuation allowance to reduce the carrying amount of
deferred income tax assets is established when it is more likely than not that
we will not realize some portion or all of the tax benefit of our deferred
income tax assets. We evaluate, on a quarterly basis, whether it is more likely
than not that our deferred income tax assets are realizable. In performing this
analysis, we consider all available evidence, both positive and negative,
including historical operating results, the estimated timing of future reversals
of existing taxable temporary differences, estimated future taxable income
exclusive of reversing temporary differences and carryforwards and potential tax
planning strategies that may be employed to prevent an operating loss or tax
credit carryforwards from expiring unused. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.




We adopted FIN 48, Accounting
for Uncertainty in Income Taxes —
an interpretation of FASB Statement No. 109,in fiscal 2008. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in financial
statements and provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. See Note 19 for a
description of the impact of this adoption on our consolidated financial
position and results of operations.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




In
accordance with FIN 48, we maintain a liability for underpayment of income taxes
and related interest and penalties, if any, for uncertain income tax positions.
The tax benefit from an uncertain tax position is recognized when it is more
likely than not that the position will be sustained upon examination, including
resolutions of any related appeals or litigation processes, based on the
technical merits. Our policy on the classification of interest and penalties
related to the underpayment of income taxes and uncertain tax positions is to
record interest in interest expense, and to record penalties, if any, in general
and administrative expense, in our consolidated statements of income. Accrued
interest and penalties are included in our liability for uncertain tax
positions.





Income
Per Share





We
present “basic” and “diluted” income per share. Basic income per share
represents net income divided by weighted-average shares outstanding. Diluted
income per share represents net income plus the interest and fees relating to
any dilutive convertible debt outstanding, divided by weighted-average shares
outstanding, including all potentially dilutive securities and excluding all
potentially anti-dilutive securities.





The
dilutive effect of stock options is determined using the “treasury stock”
method, whereby exercise is assumed at the beginning of the reporting period and
proceeds from such exercise, unamortized compensation on share-based awards, and
excess tax benefits arising in connection with share-based compensation are
assumed to be used to purchase our common stock at the average market price
during the period. The dilutive effect of unvested time-vested restricted
stock awards is determined using the “treasury stock” method, whereby vesting is
assumed at the beginning of the reporting period, and unamortized compensation
on share-based awards and excess tax benefits arising in connection with
share-based compensation are assumed to be used to purchase our common stock at
the average market price during the period. The dilutive effect of unvested
performance-vested restricted stock awards is determined by treating those
shares that would vest as of the end of the reporting period as outstanding for
the entire reporting period.  The dilutive effect of convertible debt is
determined using the “if-converted” method, whereby interest charges and
amortization of debt issuance costs, net of taxes, applicable to the convertible
debt are added back to income and the convertible debt is assumed to have been
converted at the beginning of the reporting period, with the resulting common
shares being included in weighted-average shares.





The table
below presents the computation of basic and diluted income per share for fiscal
2009, 2008 and 2007 as follows:





2009
                
                
                2008
                
                
                2007(In
      thousands, except per share amounts)Numerator:Income
      from continuing operations
                
                $
                36,956
                
                
                $
                35,072
                
                
                $
                54,194Loss
      from discontinued operations
                
                
                —
                
                
                
                (3,996
                )
                
                
                (4,022
                )Net
      income for computation of basic income per share
                
                $
                36,956
                
                
                $
                31,076
                
                
                $
                50,172Adjustment
      for interest and amortization costs for 2023 Convertible Notes, net of
      related tax effect
                
                $
                292
                
                
                $
                444
                
                
                $
                1,880Income
      from continuing operations for computation of diluted income per
      share
                
                $
                37,248
                
                
                $
                35,516
                
                
                $
                56,074Net
      income for computation of diluted income per share
                
                $
                37,248
                
                
                $
                31,520
                
                
                $
                52,052Denominator:Weighted-average
      shares for computation of basic income per share
                
                
                52,254
                
                
                
                59,410
                
                
                
                63,562Dilutive
      effect of stock options and restricted stock awards
                
                
                840
                
                
                
                1,397
                
                
                
                1,509Dilutive
      effect of 2023 Convertible Notes
                
                
                1,188
                
                
                
                1,752
                
                
                
                7,306Weighted-average
      shares for computation of diluted income per share
                
                
                54,282
                
                
                
                62,559
                
                
                
                72,377Basic
      income per share:Basic
      income per share from continuing operations
                
                $
                0.71
                
                
                $
                0.59
                
                
                $
                0.85Basic
      loss per share from discontinued operations
                
                
                —
                
                
                
                (0.07
                )
                
                
                (0.06
                )Basic
      net income per share
                
                $
                0.71
                
                
                $
                0.52
                
                
                $
                0.79Diluted
      income per share:Diluted
      income per share from continuing operations
                
                $
                0.69
                
                
                $
                0.57
                
                
                $
                0.77Diluted
      loss per share from discontinued operations
                
                
                —
                
                
                
                (0.07
                )
                
                
                (0.05
                )Diluted
      net income per share
                
                $
                0.69
                
                
                $
                0.50
                
                
                $
                0.72


We
excluded 3,472, 1,332 and 1,897 potentially dilutive shares of our common stock,
in thousands, related to stock options and restricted stock, from the
computation of diluted income per share as their effect would have been
anti-dilutive for fiscal 2009, 2008 and 2007,
respectively.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Derivative
Financial Instruments





We do not
use derivative instruments for trading purposes. Currently our only derivative
instruments are interest rate swap agreements with various
counterparties.





We
account for these derivative financial instruments in accordance with
SFAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. SFAS 133
requires that all derivative instruments be recognized at fair value. Our
interest rate swap agreements are not designated as hedging instruments.
Accordingly, the gain or loss as a result of the change in fair value is
recognized in our results of operations immediately. See Note 10 for a
discussion of our use of interest rate swap agreements.





Credit
Risks





Accounts
receivable consists primarily of amounts due from franchisees and licensees for
initial and continuing fees. In addition, we have notes and lease receivables
from certain of our franchisees. The financial condition of these franchisees
and licensees is largely dependent upon the underlying business trends of our
brands. This concentration of credit risk is mitigated, in part, by the large
number of franchisees and licensees of each brand and the short-term nature of
the franchise and license fee receivables.





Credit
risk from our interest rate swap agreements is dependent both on movement in
interest rates and the possibility of non-payment by counterparties. We limit
our credit risk exposure by entering into these agreements with high-quality
counterparties.





Comprehensive
Income





We did
not have any items of other comprehensive income requiring reporting under
SFAS 130, Reporting
Comprehensive Income, during fiscal 2009, 2008 and 2007.





Segment
Information





Operating
segments are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Our segments are determined at the brand level (see
Note 20).





Financial
Statement Misstatement Evaluation





We apply
the provisions of Staff Accounting Bulletin (“SAB”) 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements.SAB 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement for the purpose of the materiality
assessment.




Note 2 —
New Accounting Pronouncements
 
 In
September 2006, the FASB issued SFAS 157, Fair
Value Measurments. SFAS 157 establishes a framework for measuring fair
value under GAAP and expands disclosures about fair value measurement. SFAS 157
for financial assets and liabilities is effective for fiscal years beginning
after November 15, 2007. We have adopted the standard for those assets and
liabilities as of the beginning of fiscal 2009, and there was no impact on our
consolidated financial position or results of operations (see Note 3). In
February 2008, the FASB deferred the effective date of SFAS 157 for one year for
certain non-financial assets and liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis
(i.e., at least annually). We are currently evaluating the impact of adopting
SFAS 157 at the beginning of fiscal 2010 for non-financial assets and
liabilities on our consolidated financial position and results of
operations.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations(“SFAS 141R”),
and SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements —
an amendment ofARBNo. 51. SFAS 141R and SFAS
160 require most identifiable assets, liabilities, noncontrolling interests and
goodwill acquired in a business combination to be recorded at “full fair value”
and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both of the
pronouncements are effective for periods beginning on or after December 15,
2008, which for us is the first quarter of fiscal 2010, and earlier adoption is
prohibited. SFAS 141R will be applied to business combinations occurring after
the effective date. SFAS 160 will be applied prospectively to all noncontrolling
interests, including any that arose before the effective date.





In March
2008, the FASB issued SFAS 161, Disclosures about
Derivative Instruments and Hedging
Activities, which amends SFAS 133, Accountingfor Derivative Instruments and Hedging
Activities, and expands disclosures to include information about the fair
value of derivatives, related credit risks and a company’s strategies and
objectives for using derivatives. SFAS 161 is effective for fiscal periods
beginning on or after November 15, 2008, which for us is the first quarter of
fiscal 2010.





In June
2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities. FSP EITF
03-6-1 provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents, whether paid or
unpaid, are participating securities and should be included in the computation
of earnings per share pursuant to the two-class method. This FSP is effective
for fiscal periods beginning after December 15, 2008, which for us is the first
quarter of fiscal 2010. We expect the adoption of FSP EITF 03-6-1 to impact
the amount of our previously-reported earnings per share, but have not yet
determined the amount.




Note 3 —
Fair Value of Financial Instruments
 
 The
following table presents information on our financial instruments as of January
31, 2009 and 2008:
 
 2009
                  
                  
                  2008Carrying
                    Amount
                  
                  
                  Estimated
                    Fair Value
                  
                  
                  Carrying
                    Amount
                  
                  
                  Estimated
                    Fair ValueFinancial
      assets:Cash
      and cash equivalents
                  
                  $
                  17,869
                  
                  
                  $
                  17,869
                  
                  
                  $
                  19,993
                  
                  
                  $
                  19,993Notes
      receivable, net of allowance for doubtful accounts
                  
                  
                  5,406
                  
                  
                  
                  5,171
                  
                  
                  
                  7,132
                  
                  
                  
                  6,979Financial
      liabilities —Long-term
      debt and bank indebtedness, including current portion
                  
                  
                  314,788
                  
                  
                  
                  269,186
                  
                  
                  
                  351,106
                  
                  
                  
                  360,762


The fair
value of cash and cash equivalents approximates its carrying amount due to its
short maturity. The estimated fair value of notes receivable was determined by
discounting future cash flows using current rates at which similar loans might
be made to borrowers with similar credit ratings.  The estimated fair
value of long-term debt was determined by using market quotes for our 2023
Convertible Notes and using a combination of discounting future cash flows using
rates currently available to us for debt with similar terms and remaining
maturities.


As of the
beginning of fiscal 2009, we adopted SFAS 157 for financial assets and
liabilities. SFAS 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
 
 Level 1 -
              Quoted
      prices in active markets for identical assets or
    liabilities;Level 2 -
              Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets or liabilities;
      andLevel 3 -
              Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
      liabilities.
 
 The
following table summarizes the financial liabilities measured at fair value on a
recurring basis as of January 31, 2009:
 
 Total
              
              
              Quoted
      Prices in Active Markets for Identical Assets
                (Level
      1)
              
              
              Significant
      Other
                Observable
      Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
      Inputs
                (Level
      3)Interest
      rate swap agreements
              
              $
              17,590
              
              
              $
              —
              
              
              $
              17,590
              
              
              $
              —
 
 The
interest rate swap agreements are recorded at fair value based upon valuation
models which utilize relevant factors such as the contractual terms of our
interest rate swap agreements, credit spreads for the contracting parties and
interest rate curves.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





Note 4 —
Accounts Receivable, Net and Notes Receivable, Net





Accounts
receivable, net, as of January 31, 2009 and 2008 consisted of the
following:





2009
                
                
                2008Trade
      receivables
                
                $
                34,888
                
                
                $
                37,277Refundable
      income taxes
                
                
                4,231
                
                
                
                7,497Notes
      receivable, current portion
                
                
                2,217
                
                
                
                7,199Other
                
                
                122
                
                
                
                176Allowance
      for doubtful accounts
                
                
                (720
                )
                
                
                (755
                )$
                40,738
                
                
                $
                51,394





The
long-term portion of notes receivable, net, as of January 31, 2009 and 2008
consisted of the following:





2009
                    
                    
                    2008Franchisees
                    
                    $
                    676
                    
                    
                    $
                    906Other
                    
                    
                    3,112
                    
                    
                    
                    —Allowance
      for doubtful accounts
                    
                    
                    (529
                    )
                    
                    
                    (608
                    )$
                    3,259
                    
                    
                    $
                    298





The
following table summarizes the activity in the allowances for doubtful accounts
for fiscal 2007, 2008 and 2009:





Accounts
                  Receivable
                
                
                Notes
                  Receivable
                
                
                TotalBalance
      as of January 31, 2006
                
                $
                2,816
                
                
                $
                6,257
                
                
                $
                9,073(Recovery
      of provision) provision
                
                
                (1,501
                )
                
                
                1,244
                
                
                
                (257
                )Charge-offs
                
                
                (494
                )
                
                
                (4,715
                )
                
                
                (5,209
                )Balance
      as of January 31, 2007
                
                
                821
                
                
                
                2,786
                
                
                
                3,607Recovery
      of provision
                
                
                (24
                )
                
                
                (1,170
                )
                
                
                (1,194
                )Charge-offs
                
                
                (42
                )
                
                
                (1,008
                )
                
                
                (1,050
                )Balance
      as of January 31, 2008
                
                
                755
                
                
                
                608
                
                
                
                1,363Provision
                
                
                272
                
                
                
                53
                
                
                
                325Charge-offs
                
                
                (307
                )
                
                
                (132
                )
                
                
                (439
                )Balance
      as of January 31, 2009
                
                $
                720
                
                
                $
                529
                
                
                $
                1,249





Note 5 —
Property and Equipment, Net





Property
and equipment, net, consisted of the following as of January 31, 2009 and
2008:





Estimated
                  Useful Life
                
                2009
                
                
                2008Land
                
                
                $
                124,492
                
                
                $
                125,963Leasehold
      improvements
                3-25 years
                
                
                202,598
                
                
                
                196,005Buildings
      and improvements
                3-40 years
                
                
                340,777
                
                
                
                303,535Equipment,
      furniture and fixtures
                3-10 years
                
                
                296,278
                
                
                
                300,463964,145
                
                
                
                925,966Less
      accumulated depreciation and amortization
                
                
                
                (420,375
                )
                
                
                (422,192
                )$
                543,770
                
                
                $
                503,774





During
fiscal 2009, 2008 and 2007, we capitalized interest costs in the amounts of
$1,294, $2,059 and $784, respectively.




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 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 Note 6
– Purchase and Sale of Assets
 
 Hardee’s
Refranchising Program
 
 During
fiscal 2009, we completed our refranchising program for our Hardee’s concept.
The following table summarizes the sale of company-operated Hardee’s restaurants
to franchisees and the related impact on our consolidated financial
statements.
  Fiscal2009
                  
                  
                  2008Number
      of franchisees
                  
                  
                  6
                  
                  
                  
                  7Company-operated
      restaurants sold
                  
                  
                  102
                  
                  
                  
                  136Net
      book value of restaurants sold
                  
                  $
                  14,454
                  
                  
                  $
                  46,328Net
      proceeds
                  
                  
                  16,979
                  
                  
                  
                  53,009Initial
      franchise fees received
                  
                  
                  2,640
                  
                  
                  
                  2,735Net
      (loss) gain from refranchising
                  
                  
                  (2,036
                  )
                  
                  
                  2,457
 
 As part
of these transactions, the franchisees acquired the real property and/or
subleasehold interest in real property related to the restaurant
locations.  Initial franchise fees received from franchisees are
included in franchised and licensed restaurants and other revenue, and net
(loss) gain from refranchising is included in facility action charges, net, in
our accompanying Consolidated Statements of Income, in our Hardee’s
segment.  There were no refranchising transactions in fiscal
2007.
 Related
Party Transactions
 
 During
fiscal 2009, we sold three company-operated Carl’s Jr. restaurants and related
real property with a net book value of $1,068 to two former executives and new
franchisee. In connection with this transaction, we received aggregate
consideration of $2,173, including $100 in initial franchise fees, which is
included in franchised and licensed restaurants and other revenue, and we
recognized a net gain of $983, which is included in facility action charges,
net, in our accompanying Consolidated Statement of Income for fiscal 2009, in
our Carl’s Jr. segment. As part of this transaction, the franchisee acquired the
real property and/or subleasehold interest in the real property related to the
restaurant locations.
 
 During
fiscal 2009, we purchased the lease rights for a restaurant property, including
the right to purchase the underlying land for an amount substantially below its
fair value, and the building constructed on the leased land from a Trust, which
is a related party of a member of our Board of Directors.  In connection
with this transaction, we paid aggregate consideration of $1,868.
The building is recorded at its estimated fair market value of $100, and
the remaining $1,768 is included in land, in property and equipment, net in our
accompanying Consolidated Balance Sheet, as of January 31, 2009. Subsequent to
January 31, 2009, we exercised the lease’s bargain purchase option and paid $160
to acquire the leased land.
 
 Purchase
of Restaurant Assets.
 
 On
January 19, 2009, we purchased five Hardee’s restaurants from one of our
franchisees for $3,477, net of cash acquired. As a result of this transaction,
we recorded inventory of $38, property and equipment of $2,348, identifiable
intangible assets of $52 and goodwill of $1,039. A sixth restaurant owned by
franchisee will continue to be operated by the franchisee under the existing
franchise agreement.
 
 Note 7 —
Leases





We occupy
land and buildings under lease agreements expiring on various dates through
fiscal 2032. Many leases provide for future rent escalations and renewal
options. In addition, contingent rentals, determined as a percentage of revenue
in excess of specified levels, are often required. Most leases obligate us to
pay costs of maintenance, insurance and property taxes.





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 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Property
under capital leases, net, consisted of the following as of January 31, 2009 and
2008:





2009
                
                
                2008Buildings
                
                $
                66,999
                
                
                $
                67,182Equipment
                
                
                4,745
                
                
                
                31271,744
                
                
                
                67,494Less
      accumulated amortization
                
                
                (48,341
                )
                
                
                (46,390
                )$
                23,403
                
                
                $
                21,104





We
sublease to our franchisees some of our property under capital leases. These
assets are recorded as leases receivables and are included in other current
assets and other assets instead of property under capital leases.





Net
leases receivable consisted of the following, as of January 31, 2009 and
2008:





2009
                
                
                2008Lease
      payments receivable
                
                $
                3,420
                
                
                $
                875Less
      unearned income
                
                
                (1,250
                )
                
                
                (265
                )2,170
                
                
                
                610Less
      leases receivable in other current assets
                
                
                (123
                )
                
                
                (70
                )Net
      leases receivable in other assets, net
                
                $
                2,047
                
                
                $
                540





We have
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 revenue exceeds certain levels, while others
provide for monthly rentals based on a percentage of revenue. Lessees generally
bear the cost of maintenance, insurance and property taxes. The carrying value
of assets leased to others as of January 31, 2009 and 2008 was as
follows:





2009
                
                
                2008Land
                
                $
                18,231
                
                
                $
                9,581Leasehold
      improvements
                
                
                5,477
                
                
                
                4,934Buildings
      and improvements
                
                
                26,017
                
                
                
                12,910Equipment,
      furniture and fixtures
                
                
                975
                
                
                
                77950,700
                
                
                
                28,204Less
      accumulated depreciation and amortization
                
                
                (17,511
                )
                
                
                (11,994
                )$
                33,189
                
                
                $
                16,210





Minimum
lease payments for all leases, including those in the estimated liability for
closed restaurants, and the present value of net minimum lease payments for
capital leases as of January 31, 2009 are as follows:





Capital
                
                
                OperatingFiscal:2010
                
                $
                10,708
                
                
                $
                85,6482011
                
                
                9,964
                
                
                
                76,0702012
                
                
                9,020
                
                
                
                66,9362013
                
                
                7,859
                
                
                
                59,1962014
                
                
                5,962
                
                
                
                54,121Thereafter
                
                
                18,789
                
                
                
                297,863Total
      minimum lease payments
                
                
                62,302
                
                
                $
                639,834Less
      amount representing interest
                
                
                (19,640
                )Present
      value of minimum lease payments (interest rates primarily ranging from 6%
      to 14%)
                
                
                42,662Less
      current portion
                
                
                (6,389
                )Capital
      lease obligations, excluding current portion
                
                $
                36,273








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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





Total
minimum lease payments have not been reduced for future minimum sublease rentals
expected to be received. As of January 31, 2009, future minimum lease and
sublease rental revenue expected to be received including amounts reducing the
estimated liability for closed restaurants but not including contingent rentals
(which may be received under certain leases), are as follows:





Capital
                  Subleases
                
                
                Operating
                  Leases
      or
                  SubleasesFiscal:2010
                
                $
                287
                
                
                $
                32,1192011
                
                
                287
                
                
                
                28,6782012
                
                
                287
                
                
                
                23,3162013
                
                
                287
                
                
                
                19,2782014
                
                
                297
                
                
                
                16,396Thereafter
                
                
                1,975
                
                
                
                79,285Total
      future minimum rentals
                
                $
                3,420
                
                
                $
                199,072





Net rent
expense under non-cancelable operating leases for fiscal 2009, 2008 and 2007
were as follows:





2009
                
                
                2008
                
                
                2007Minimum
      rentals
                
                $
                91,896
                
                
                $
                88,405
                
                
                $
                84,833Contingent
      rentals
                
                
                3,559
                
                
                
                3,924
                
                
                
                4,205Gross
      rent expense
                
                
                95,455
                
                
                
                92,329
                
                
                
                89,038Less
      minimum sublease rentals
                
                
                (31,133
                )
                
                
                (28,588
                )
                
                
                (27,626
                )Less
      contingent sublease rentals
                
                
                (3,350
                )
                
                
                (3,830
                )
                
                
                (3,610
                )$
                60,972
                
                
                $
                59,911
                
                
                $
                57,802





During
fiscal 2002, we entered into certain sale leaseback transactions relating to
restaurant properties we currently operate through which we generated net gains
of $5,158. The net gains from such transactions were deferred and are being
amortized as a reduction to occupancy and other operating costs over the terms
of the leases. During fiscal 2009, 2008 and 2007, we recognized gains of $342,
$339 and $368, respectively.





Note 8 —
Intangible Assets, Net





As of
January 31, 2009 and 2008, intangible assets with finite useful lives were
primarily comprised of intangible assets obtained through our acquisition of
Santa Barbara Restaurant Group, Inc. (“SBRG”) in fiscal 2003 and our
Hardee’s acquisition transactions in fiscal 1999 and 1998. We amortize these
assets on the straight-line basis over amortization periods ranging from 11 to
43 years.





The table
below presents identifiable, definite-lived intangible assets as of January 31,
2009 and 2008:





Weighted-
                                  
                                  
                                  January 31, 2009
                                  
                                  
                                  January 31, 2008Average
                                  
                                  
                                  Gross
                                  
                                  
                                  
                                  
                                  
                                  Net
                                  
                                  
                                  Gross
                                  
                                  
                                  
                                  
                                  
                                  NetAverage
      Life
                                  
                                  
                                  Carrying
                                  
                                  
                                  Accumulated
                                  
                                  
                                  Carrying
                                  
                                  
                                  Carrying
                                  
                                  
                                  Accumulated
                                  
                                  
                                  CarryingIntangible Asset
                                  
                                  (Years)
                                  
                                  
                                  Amount
                                  
                                  
                                  Amortization
                                  
                                  
                                  Amount
                                  
                                  
                                  Amount
                                  
                                  
                                  Amortization
                                  
                                  
                                  AmountTrademarks
                                  
                                  
                                  20
                                  
                                  
                                  $
                                  3,166
                                  
                                  
                                  $
                                  (1,093
                                  )
                                  
                                  $
                                  2,073
                                  
                                  
                                  $
                                  3,166
                                  
                                  
                                  $
                                  (935
                                  )
                                  
                                  $
                                  2,231Favorable
      lease agreements
                                  
                                  
                                  22
                                  
                                  
                                  
                                  1,089
                                  
                                  
                                  
                                  (706
                                  )
                                  
                                  
                                  383
                                  
                                  
                                  
                                  1,085
                                  
                                  
                                  
                                  (639
                                  )
                                  
                                  
                                  446Franchise
      agreement
                                  
                                  
                                  11
                                  
                                  
                                  
                                  52
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  52
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —$
                                  4,307
                                  
                                  
                                  $
                                  (1,799
                                  )
                                  
                                  $
                                  2,508
                                  
                                  
                                  $
                                  4,251
                                  
                                  
                                  $
                                  (1,574
                                  )
                                  
                                  $
                                  2,677





Amortization
expense related to these intangible assets for fiscal 2009, 2008 and 2007 was
$225, $213 and $284, respectively.  For fiscal 2010 through 2012,
amortization expense is expected to be approximately $225 annually. For fiscal
2013 and 2014, amortization expense is expected to be approximately $217 and
$205, respectively.




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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Note 9 —
Other Current Liabilities
 
 Other
current liabilities as of January 31, 2009 and 2008 consisted of the
following:


2009
                
                
                2008Salaries,
      wages and other benefits
                
                $
                30,094
                
                
                $
                29,682Estimated
      liability for self-insurance, current portion
                
                
                10,547
                
                
                
                9,984Interest
      rate swaps, current portion
                
                
                7,234
                
                
                
                2,012State
      sales taxes
                
                
                5,643
                
                
                
                5,769Accrued
      property taxes
                
                
                5,070
                
                
                
                4,553Accrued
      utilities
                
                
                3,670
                
                
                
                3,505Estimated
      liability for closed restaurants, current portion
                
                
                3,367
                
                
                
                3,264Accrued
      interest
                
                
                415
                
                
                
                1,284Estimated
      liability for litigation
                
                
                215
                
                
                
                173Other
      accrued liabilities
                
                
                25,510
                
                
                
                25,587$
                91,765
                
                
                $
                85,813





Note 10 —
Long-Term Debt and Bank Indebtedness





Long-term
debt and bank indebtedness as of January 31, 2009 and 2008 consisted of the
following:





2009
                    
                    
                    2008Borrowings
      under revolving portion of our Facility
                    
                    $
                    62,000
                    
                    
                    $
                    66,500Term
      loan under our Facility
                    
                    
                    251,735
                    
                    
                    
                    268,225Convertible
      subordinated notes due 2023, interest at 4%
                    
                    
                    —
                    
                    
                    
                    15,167Other
      long-term debt
                    
                    
                    1,053
                    
                    
                    
                    1,214314,788
                    
                    
                    
                    351,106Less
      current portion
                    
                    
                    (4,341
                    )
                    
                    
                    (18,024
                    )$
                    310,447
                    
                    
                    $
                    333,082





Interest
expense for fiscal 2009, 2008 and 2007 consisted of the following:





2009
                  
                  
                  2008
                  
                  
                  2007Facility
                  
                  $
                  12,580
                  
                  
                  $
                  14,093
                  
                  
                  $
                  6,089Change
      in fair value of interest rate swap agreements
                  
                  
                  9,010
                  
                  
                  
                  11,380
                  
                  
                  
                  —Capital
      lease obligations
                  
                  
                  4,546
                  
                  
                  
                  5,074
                  
                  
                  
                  5,6652023
      Convertible Notes
                  
                  
                  404
                  
                  
                  
                  608
                  
                  
                  
                  2,553Amortization
      of deferred loan fees
                  
                  
                  1,081
                  
                  
                  
                  918
                  
                  
                  
                  3,096Letter
      of credit fees and other
                  
                  
                  988
                  
                  
                  
                  960
                  
                  
                  
                  2,365Total
      interest expense
                  
                  $
                  28,609
                  
                  
                  $
                  33,033
                  
                  
                  $
                  19,768





We
amended and restated our senior credit facility (“Facility”) on March 27,
2007 and amended our Facility again on May 3, 2007, August 27, 2007,
and March 7, 2008. Our Facility provides for a $470,000 senior secured credit
facility consisting of a $200,000 revolving credit facility and a $270,000 term
loan. The revolving credit facility matures on March 27, 2012, and includes
an $85,000 letter of credit sub-facility. During the first quarter of fiscal
2010, we expect to make a $1,616 principal payment on the term loan
portion of our Facility based on excess cash flows for fiscal 2009, as required
by the terms of our Facility. Accordingly, this amount has been included in the
current portion of bank indebtedness and other long-term debt in our
accompanying Consolidated Balance Sheet as of January 31, 2009. The
remaining principal amount of the term loan is scheduled to be repaid in
quarterly installments of $675 through January 1, 2012; three quarterly
payments of $64,175, beginning on April 1, 2012; and a final payment of
$49,494 due on January 1, 2013.





During
fiscal 2009, we made $16,490 of regularly scheduled principal payments on the
term loan, including a payment of $13,790 based on excess cash flows for fiscal
2008, as required by the terms of our Facility. As of January 31, 2009, we
had (i) borrowings outstanding under the term loan portion of our Facility
of $251,735, (ii) borrowings outstanding under the revolving portion of our
Facility of $62,000, (iii) outstanding letters of credit under the
revolving portion of our Facility of $35,643, and (iv) availability under
the revolving portion of our Facility of $102,357.


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NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


As of
January 31, 2009, the applicable interest rate on the term loan was the London
Inter Bank Offering Rate (“LIBOR”) plus 1.38% per annum. Our outstanding
borrowings under the revolving loan portion of our Facility bore interest at
rates that were locked in for fixed terms of approximately 30 days, at LIBOR
plus 1.50%, per annum, at January 31, 2009, and at Prime plus 0.50% or at LIBOR
plus 1.50%, per annum, at January 31, 2008. As of January 31, 2009 and 2008,
borrowings under the revolving loan bore interest at weighted-average rates of
1.93% and 5.76% per annum, respectively. We also incur fees on outstanding
letters of credit under our Facility at a per annum rate equal to 1.50% times
the stated amounts.




We have
fixed rate swap agreements (which were amended effective September 10, 2008)
with various counterparties to effectively fix future interest payments on
$200,000 of our term loan debt at 6.12%. These agreements will expire on
March 12, 2012. These derivative instruments were not designated as cash
flow hedges under the terms of SFAS 133. Accordingly, the change in the
fair value of the interest rate swap agreements is recognized in interest
expense in our Consolidated Statements of Income. We recorded interest expense
under the swaps of $9,010 and $11,380 during fiscal 2009 and 2008, respectively,
to adjust the carrying value of the interest rate swap agreements to the fair
value. During fiscal 2009, we paid $2,800 for net settlements under our fixed
swap agreements.  The fair value of the interest rate swap agreements,
inclusive of unpaid periodic settlements, is included in other current
liabilities and other long-term liabilities, in our accompanying Consolidated
Balance Sheets, and was $17,590 and $11,380 as of January 31, 2009 and 2008,
respectively. As a matter of policy, we do not enter into derivative instruments
unless there is an underlying exposure.





The terms
of our Facility include financial performance covenants, which include a maximum
leverage ratio, and certain restrictive covenants. On March 7, 2008 we amended
our Facility to increase our maximum leverage ratio for each of the fiscal
quarters of fiscal 2009 through 2012. This covenant requires us to maintain a
leverage ratio not to exceed 3.00, 2.75, 2.50 and 2.25 in fiscal 2009, 2010,
2011 and 2012, respectively.  As of January 31, 2009, our leverage ratio
was 2.28. Our most significant restrictive covenants limit our ability to incur
debt, incur liens on our assets, make any significant change in our corporate
structure or the nature of our business, prepay certain debt, engage in a change
of control transaction without the member banks’ consents and make investments
or acquisitions. Our Facility is collateralized by a lien on all of our personal
property assets and liens on certain restaurant properties.





Our
Facility permits us to spend an aggregate of $340,994 to repurchase our common
stock and/or pay cash dividends, of which $44,052 remains for additional common
stock repurchases and/or cash dividend payments, as of January 31, 2009. The
aggregate amount allowed for common stock repurchases and/or cash dividend
payments is increased each year by a portion of excess cash flows (as defined in
our Facility). In addition to being limited by our Facility, our ability to
repurchase common stock is limited by our Board of Directors’ authorization and
the amount of cumulative repurchases of our common stock that we have already
made thereunder. As of January 31, 2009, we are permitted to make additional
repurchases of our common stock up to $38,599 under the Stock Repurchase
Plan.





Our
Facility permits us to make annual capital expenditures in the amount of
$85,000, plus 80% of the amount of actual Adjusted EBITDA (as defined in our
Facility) in excess of $150,000. In addition, we may reinvest proceeds from the
sale of assets and carry forward certain unused capital expenditure amounts to
the following year.





The full
text of the contractual requirements imposed by our Facility is set forth in the
Seventh Amended and Restated Credit Agreement, dated as of March 27, 2007,
and the amendments thereto, which we have filed with the Securities and Exchange
Commission, and in the ancillary loan documents described therein. Subject to
cure periods in certain instances, the lenders under our Facility may demand
repayment of borrowings prior to stated maturity upon certain events of default,
including, but not limited to, if we breach the terms of the agreement, suffer a
material adverse change, engage in a change of control transaction, suffer
certain adverse legal judgments, in the event of specified events of insolvency
or if we default on other significant obligations.





The terms
of our Facility are not impacted by changes in our credit rating. We believe the
key Company-specific factors affecting our ability to maintain our existing debt
financing relationships and to access such capital in the future are our present
and expected levels of profitability, cash flows from operations, capital
expenditures, asset collateral bases and the level of our Adjusted EBITDA
relative to our debt obligations. In addition, as noted above, our existing debt
agreements include significant restrictions on future financings including,
among others, limits on the amount of indebtedness we may incur or which may be
secured by any of our assets.





Our
Convertible Subordinated Notes due 2023 (“2023 Convertible Notes”) bore interest
at 4% annually.  During fiscal 2007, in response to unsolicited offers
from the holders of $89,833 of the 2023 Convertible Notes, we made cash payments
to the holders, comprised of accrued interest through the dates of conversion
and inducements for the holders to convert in lieu of payment of future interest
on the converted notes. The inducement payments were $6,406, and are included in
the conversion inducement expense in our accompanying Consolidated Statement of
Income for the fiscal year ended January 31, 2007.





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RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Effective
August 11, 2008, the cumulative dividends declared since the most recent
conversion rate adjustment resulted in a 1.0404% change in the conversion rate
per $1 of the 2023 Convertible Notes, from the previous conversion rate of
116.6063 to an adjusted conversion rate of 117.8195.  As a result of
the conversion rate adjustment, the previous conversion price of approximately
$8.58 per share was adjusted to a conversion price of approximately $8.49 per
share.  During the third quarter of fiscal 2009, the remaining $15,167
principal amount of our outstanding 2023 Convertible Notes into 1,786,963 shares
of our common stock. Prior to conversion, we had delivered notice to the holders
of the notes indicating that we intended to redeem the notes in full and
informing the holders of their right to convert the notes into our common
stock.  However, each of the holders elected to convert their notes in
lieu of having the notes redeemed by us.  We paid $303 for accrued
interest and partial shares in connection with the conversion.  The
$15,167 of 2023 Convertible Notes is included in current portion of bank
indebtedness and other long-term debt in our accompanying Consolidated Balance
Sheet as of January 31, 2008.





Long-term
debt matures as follows:





Fiscal:2010
                
                $
                4,3412011
                
                
                2,7272012
                
                
                2,7292013
                
                
                304,0512014
                
                
                34Thereafter
                
                
                906$
                314,788





Note 11 —
Other Long-Term Liabilities





Other
long-term liabilities as of January 31, 2009 and 2008 consisted of the
following:





2009
                
                
                2008Estimated
      liability for self-insurance
                
                $
                26,425
                
                
                $
                27,042Estimated
      liability for deferred rent
                
                
                13,620
                
                
                
                11,655Interest
      rate swaps
                
                
                10,356
                
                
                
                9,368Estimated
      liability for closed restaurants
                
                
                6,233
                
                
                
                7,146Other
                
                
                27,319
                
                
                
                14,505$
                83,953
                
                
                $
                69,716





We are
self-insured for our primary workers’ compensation, general and auto liability
insurance exposures not covered by our stop-loss policy. A total of $36,972 and
$37,026 was accrued as of January 31, 2009 and 2008, respectively (including the
long-term portions noted in the above table and the current portions included in
other current liabilities, as discussed in Note 9). See Note 1 for
further discussion regarding our estimation process.





Note 12 —
Stockholders’ Equity





Common
Stock Repurchases





Pursuant
to a program (“Stock Repurchase Plan”) authorized by our Board of Directors, as
modified during fiscal 2008, we are allowed to repurchase up to an aggregate of
$400,000 of our common stock.





The
following table summarizes the repurchase of shares of common stock for fiscal
2009:





Shares
      repurchased
                
                
                463,965Average
      price per share
                
                $
                8.94Total
      cost, including trading commissions
                
                $
                4,148Shares
      retired
                
                
                491,765










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RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





We had
zero and 27,800 shares of common stock that had been repurchased but not yet
retired as of January 31, 2009 and 2008, respectively. These shares are shown as
common stock held in treasury on our accompanying Consolidated Balance Sheets
and were retired in fiscal 2009.




Based on
our Board of Directors’ authorization and the amount of cumulative repurchases
of our common stock that we have already made thereunder (21,742,221 shares
at an average price of $16.62 per share, for a total cost, including trading
commissions, of $361,401), we are permitted to make additional repurchases of
our common stock up to $38,599 under the Stock Repurchase Plan as of January 31,
2009.




During
fiscal 2009, we declared cash dividends of $0.24 per share of common stock, for
a total of $12,859. Dividends payable of $3,279 and $3,148 have been included in
other current liabilities in our accompanying Consolidated Balance Sheets as of
January 31, 2009 and 2008, respectively. The dividends declared during the
quarter ended January 31, 2009 were subsequently paid on February 17,
2009.




Stockholder
Rights Plan




During
fiscal 2009, our Board of Directors approved the adoption of a Stockholder
Rights Plan and declared a dividend distribution of one right (“Right”) for each
outstanding share of our common stock to stockholders of record as of the close
of business on January 7, 2009.  The Rights were distributed as a
non-taxable distribution.  Each Right entitles the registered holder
to purchase from us a unit consisting of one one-hundredth of a share (“Unit”)
of Series A Junior Participating Preferred Stock, $0.01 par value (“Series A
Preferred Stock”), at a purchase price of $40.00 per Unit, subject to
adjustment.  One Right will be delivered with each share of common
stock that is issued after January 7, 2009.





The
Rights, which are initially attached to and will trade with our common stock,
become exercisable and will begin to trade separately at the “Distribution
Date”, which would occur in the event that a tender offer for at least 15% of
our common stock is announced, or a person acquires or obtains the right to
acquire at least 15% of our common stock. The Rights are not exercisable until
the Distribution Date and will expire at the close of business on
December 31, 2009, unless previously redeemed or exchanged by
us.





The
holders of Series A Preferred Stock, if any, are entitled to receive
quarterly dividends in the amount of 100 times the aggregate per share amount of
all cash dividends declared on common stock, subject to adjustment. Each share
of Series A Preferred Stock entitles the holder to 100 votes on all matters
submitted to a vote of the stockholders. The holders of Series A Preferred
Stock and the holders of common stock will vote together as one class.
Series A Preferred Stock ranks junior to all other series of our preferred
stock and senior to our common stock as to the payment of dividends and the
distribution of assets.




Note 13 —
Franchised and Licensed Operations
  Franchise
arrangements generally provide for initial fees and continuing royalty payments
to us based upon a percentage of gross revenue. We generally charge an initial
franchise fee for each new franchised restaurant that is added to our system,
and in some cases, an area development fee, which grants exclusive rights to
develop a specified number of restaurants in a designated geographic area within
a specified time period. Similar fees are charged in connection with our
international licensing operations. These fees are recognized ratably when
substantially all the services required of us are complete and the restaurants
covered by these agreements commence operations.
  Certain franchisees also
purchase food, paper, supplies and equipment from us. Additionally, franchisees
may be obligated to remit lease payments for the use of restaurant facilities
owned or leased by us, generally for periods up to 20 years. Under the
terms of these leases, franchisees are generally required to pay related
occupancy costs, which include maintenance, insurance and property
taxes.
 
 78
 Table of Contents
 
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  Franchised
and licensed restaurants and other revenue for fiscal 2009, 2008 and 2007
consisted of the following:
 
 2009
                  
                  
                  2008
                  
                  
                  2007Royalties
                  
                  $
                  83,600
                  
                  
                  $
                  75,690
                  
                  
                  $
                  77,655Distribution
      center — food
                  
                  
                  204,834
                  
                  
                  
                  195,144
                  
                  
                  
                  187,533Distribution
      center — equipment
                  
                  
                  23,646
                  
                  
                  
                  24,297
                  
                  
                  
                  16,987Rent
                  
                  
                  33,625
                  
                  
                  
                  29,659
                  
                  
                  
                  28,637Franchise
      fees and other
                  
                  
                  5,693
                  
                  
                  
                  8,267
                  
                  
                  
                  6,032$
                  351,398
                  
                  
                  $
                  333,057
                  
                  
                  $
                  316,844
 
 Franchised
and licensed restaurants and other expenses for fiscal 2009, 2008 and 2007
consisted of the following:
 
 2009
                  
                  
                  2008
                  
                  
                  2007Distribution
      center — food
                  
                  $
                  203,898
                  
                  
                  $
                  194,929
                  
                  
                  $
                  185,271Distribution
      center — equipment
                  
                  
                  24,462
                  
                  
                  
                  24,421
                  
                  
                  
                  17,840Rent
      and other occupancy
                  
                  
                  26,797
                  
                  
                  
                  24,095
                  
                  
                  
                  23,397Other
      operating expenses
                  
                  
                  14,542
                  
                  
                  
                  14,850
                  
                  
                  
                  13,012$
                  269,699
                  
                  
                  $
                  258,295
                  
                  
                  $
                  239,520


Note 14
— Termination of Franchise Agreements
 
 During
the third and fourth quarters of fiscal 2009, we terminated our franchise
agreements with two Hardee’s franchisees that operated 32 and 27 franchised
restaurants, respectively, as a result of their inability to remedy, on a timely
basis, certain defaults under the terms of the agreements.  During the
third quarter, we assumed full operational control of 32 restaurants formerly
operated by the first franchisee, six of which were subsequently closed, 23
of which we are operating as of January 31, 2009, and three of which were
refranchised during the fourth quarter of fiscal 2009. We recorded a gain of
$615, which is included in facility action charges, net, in connection with
this refranchising transaction.  As of January 31, 2009, the second
former franchisee is continuing to operate the 27 restaurants pursuant to the
terms of a temporary license agreement.
 
 During
fiscal 2007, we terminated our franchise agreement with a Hardee’s franchisee
that operated 90 franchised restaurants as a result of its inability to remedy,
on a timely basis, certain defaults under the terms of the
agreement.  We assumed full operational control of 61 restaurants
formerly operated by the franchisee, 19 of which were subsequently closed,
resulting in facility action charges of $1,959.  The former
franchisee’s lenders (through a receiver) kept the remaining 29 restaurant
locations, of which they subsequently closed 15. During October 2006, we
purchased 11 of these restaurants for $6,538 and an existing franchisee, under a
franchise agreement, purchased the remaining three restaurants. The total
purchase price included land, buildings and existing equipment.
 
 We did
not terminate any franchise agreements in fiscal 2008.


Note 15 —
Facility Action Charges, Net
 The
components of facility action charges, net, for fiscal 2009, 2008 and 2007 were
as follows:
 
 2009
                  
                  
                  2008
                  
                  
                  2007Estimated
      liability for new restaurant closures
                  
                  $
                  601
                  
                  
                  $
                  221
                  
                  
                  $
                  3,112Adjustments
      to estimated liability for closed restaurants
                  
                  
                  540
                  
                  
                  
                  426
                  
                  
                  
                  633Impairment
      of assets to be disposed of
                  
                  
                  1,528
                  
                  
                  
                  485
                  
                  
                  
                  2,148Impairment
      of assets to be held and used
                  
                  
                  789
                  
                  
                  
                  686
                  
                  
                  
                  1,044Loss
      (gain) on sales of restaurants and surplus properties, net
                  
                  
                  220
                  
                  
                  
                  (2,964
                  )
                  
                  
                  (4,125
                  )Amortization
      of discount related to estimated liability for closed
                    restaurants
                  
                  
                  461
                  
                  
                  
                  569
                  
                  
                  
                  731$
                  4,139
                  
                  
                  $
                  (577
                  )
                  
                  $
                  3,543


79
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




Impairment
charges recognized in facility action charges, net were recorded against the
following asset categories during fiscal 2009, 2008 and 2007:
 
 2009
                  
                  
                  2008
                  
                  
                  2007Property
      and equipmentCarl’s
      Jr.
                  
                  $
                  237
                  
                  
                  $
                  120
                  
                  
                  $
                  332Hardee’s
                  
                  
                  2,080
                  
                  
                  
                  1,034
                  
                  
                  
                  2,7792,317
                  
                  
                  
                  1,154
                  
                  
                  
                  3,111Property
      under capital leasesHardee’s
                  
                  
                  —
                  
                  
                  
                  17
                  
                  
                  
                  49Favorable
      lease rightsCarl’s
      Jr.
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  32TotalCarl’s
      Jr.
                  
                  
                  237
                  
                  
                  
                  120
                  
                  
                  
                  364Hardee’s
                  
                  
                  2,080
                  
                  
                  
                  1,051
                  
                  
                  
                  2,828$
                  2,317
                  
                  
                  $
                  1,171
                  
                  
                  $
                  3,192
  The
following table summarizes the activity in our estimated liability for closed
restaurants for fiscal 2007, 2008 and 2009:
 
 Carl’s Jr.
                  
                  
                  Hardee’s
                  
                  
                  TotalBalance
      as of January 31, 2006
                  
                  $
                  3,615
                  
                  
                  $
                  9,865
                  
                  
                  $
                  13,480Estimated
      liability for new restaurant closures
                  
                  
                  74
                  
                  
                  
                  3,038
                  
                  
                  
                  3,112Usage
                  
                  
                  (1,380
                  )
                  
                  
                  (4,217
                  )
                  
                  
                  (5,597
                  )Adjustments
      to estimated liability for closed restaurants
                  
                  
                  629
                  
                  
                  
                  4
                  
                  
                  
                  633Amortization
      of discount
                  
                  
                  248
                  
                  
                  
                  483
                  
                  
                  
                  731Balance
      as of January 31, 2007
                  
                  
                  3,186
                  
                  
                  
                  9,173
                  
                  
                  
                  12,359Estimated
      liability for new restaurant closures
                  
                  
                  —
                  
                  
                  
                  221
                  
                  
                  
                  221Estimated
      liability for refranchising transactions
                  
                  
                  —
                  
                  
                  
                  1,430
                  
                  
                  
                  1,430Usage
                  
                  
                  (1,332
                  )
                  
                  
                  (3,263
                  )
                  
                  
                  (4,595
                  )Adjustments
      to estimated liability for closed restaurants
                  
                  
                  770
                  
                  
                  
                  (344
                  )
                  
                  
                  426Amortization
      of discount
                  
                  
                  152
                  
                  
                  
                  417
                  
                  
                  
                  569Balance
      as of January 31, 2008
                  
                  
                  2,776
                  
                  
                  
                  7,634
                  
                  
                  
                  10,410Estimated
      liability for new restaurant closures
                  
                  
                  —
                  
                  
                  
                  601
                  
                  
                  
                  601Estimated
      liability for refranchising transactions
                  
                  
                  —
                  
                  
                  
                  1,924
                  
                  
                  
                  1,924Usage
                  
                  
                  (1,009
                  )
                  
                  
                  (3,159
                  )
                  
                  
                  (4,168
                  )Adjustments
      to estimated liability for closed restaurants
                  
                  
                  336
                  
                  
                  
                  36
                  
                  
                  
                  372Amortization
      of discount
                  
                  
                  124
                  
                  
                  
                  337
                  
                  
                  
                  461Balance
      as of January 31, 2009
                  
                  
                  2,227
                  
                  
                  
                  7,373
                  
                  
                  
                  9,600Less
      current portion, included in other current liabilities
                  
                  
                  712
                  
                  
                  
                  2,655
                  
                  
                  
                  3,367Long-term
      portion, included in other long-term liabilities
                  
                  $
                  1,515
                  
                  
                  $
                  4,718
                  
                  
                  $
                  6,233
   80
 Table of Contents
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  Note 16 —
Share-Based Compensation
  Total
share-based compensation expense and associated tax benefits recognized under
SFAS 123R for fiscal 2009, 2008 and 2007 was as follows:
 
 2009
                    
                    
                    2008
                    
                    
                    2007Share-based
      compensation expense related to performance-vested restricted stock
      awards
                    
                    $
                    4,970
                    
                    
                    $
                    4,231
                    
                    
                    $
                    2,296All
      other share-based compensation expense
                    
                    
                    7,564
                    
                    
                    
                    7,147
                    
                    
                    
                    6,072Total
      share-based compensation expense
                    
                    $
                    12,534
                    
                    
                    $
                    11,378
                    
                    
                    $
                    8,368Associated
      tax benefits
                    
                    $
                    3,684
                    
                    
                    $
                    2,338
                    
                    
                    $
                    2,068
  Employee
Stock Purchase Plan
 
 In fiscal
1995, our Board of Directors adopted, and stockholders subsequently approved in
fiscal 1996, an Employee Stock Purchase Plan (“ESPP”). Under the terms of the
ESPP and subsequent amendments, eligible employees may voluntarily purchase, at
current market prices, up to 3,907,500 shares of our common stock through
payroll deductions.
 
 Pursuant
to the ESPP, employees may contribute an amount between 3% and 15% of their base
salaries. We contribute varying amounts, as specified in the ESPP. During fiscal
2009, 2008 and 2007, 299,335, 195,665 and 168,901 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $9.83, $16.87 and $17.01 per share, respectively. We
contributed $1,269 or an equivalent of 120,686 shares for fiscal 2009, $960 or
an equivalent of 50,936 shares for fiscal 2008 and $752 or an equivalent of
45,369 shares for fiscal 2007. As of January 31, 2009, 40,273 shares
were available for purchase under the ESPP. Subsequent to January 31, 2009, our
Board of Directors approved the Amended and Restated 1994 Employee Stock
Purchase Plan (“Amendment”). The Amendment, among other things, increased the
total shares authorized for issuance under the ESPP to 5,407,500.
 
 Stock
Incentive Plans
 
 The 2005
Omnibus Incentive Compensation Plan (“2005 Plan”) that was approved by our
stockholders in June 2005 and modified in June 2007 is an “omnibus” stock
plan consisting of a variety of equity vehicles to provide flexibility in
implementing equity awards, including incentive stock options, non-qualified
stock options, restricted stock awards, unrestricted stock grants, stock
appreciation rights and stock units. Participants in the 2005 Plan may be
granted any one of the equity awards or any combination thereof, as determined
by the Compensation Committee of our Board of Directors. A total of
5,500,000 shares have been authorized for grant under the 2005 Plan.
Options have a term of ten years from the date of grant and vest as prescribed
by the Compensation Committee. Options are granted at a price equal to the fair
market value of the underlying common stock on the date of grant. Restricted
stock awards are awarded with an exercise price of $0. The 2005 Plan will
terminate on March 22, 2015, unless the Board of Directors, at its
discretion, terminates the Plan at an earlier date. For restricted stock awards
prior to our adoption of SFAS 123R, the difference between the market price
of the underlying common stock on the date of grant and the exercise price of
restricted stock awards was initially recorded as unearned compensation on
restricted stock within the stockholders’ equity section of our accompanying
Consolidated Balance Sheet and was being subsequently amortized over the vesting
period. The balance of unearned compensation related to the unearned portion of
these awards was eliminated against additional paid-in capital upon our adoption
of SFAS 123R as of the beginning of fiscal 2007. As of January 31, 2009,
2,844,500 shares are available for future grants of options or other awards
under the 2005 Plan.
 
 Our 2001
Stock Incentive Plan (“2001 Plan”) was approved by our Board of Directors in
September 2001. There were 800,000 shares authorized for grant under the 2001
Plan. The 2001 Plan was established as a ”broad-based plan”, as defined by the
New York Stock Exchange, whereby at least a majority of the options awarded
under the 2001 Plan must be awarded to employees of the Company who are not
executive officers or directors, within the first three years of the plan’s
existence. Awards granted to eligible employees under the 2001 Plan are not
restricted as to any specified form or structure, with such form, vesting and
pricing provisions determined by the Compensation Committee of our Board of
Directors. Options have a term of ten years from the date of grant. Options are
granted at a price equal to the fair market value of the underlying common stock
on the date of grant. As of January 31, 2009, 24,734 shares are available
for future grants of options or other awards under the 2001 Plan.
 
 81
 Table of Contents
 
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
  Our 1999
Stock Incentive Plan (“1999 Plan”) was approved by stockholders in June 1999 and
amended and again approved in June 2000. There were 1,500,000 shares originally
authorized for grant under the 1999 Plan, with such authorization increased by
350,000 shares on the date of each annual meeting of stockholders. Awards
granted to eligible employees under the 1999 Plan are not restricted as to any
specified form or structure, with such form, vesting and pricing provisions
determined by the Compensation Committee of our Board of Directors. Options have
a term of ten years from the date of grant, except for incentive stock options
granted to 10% or greater stockholders of CKE, which have a term of five years
from the date of grant. Options are at a price equal to the fair market value of
the underlying common stock on the date of grant, except that incentive stock
options granted to 10% or greater stockholders of CKE may not be granted at less
than 110% of the fair market value of the common stock on the date of grant.
Restricted stock awards are awarded with an exercise price of $0 per share. As
of January 31, 2009, 10,538 shares are available for future grants of
options or other awards under the 1999 Plan.
 
 Our 1994
Stock Incentive Plan expired in April 1999 and all outstanding options under the
plan are fully vested. Outstanding options have a term of five years from the
date of grant for the non-employee directors and ten years from the date of
grant for employees and were priced at the fair market value of the shares on
the date of grant. As of January 31, 2009, there were no shares available for
future grants of options or other awards under this plan.
 
 In
general, options issued under our stock incentive plans have a term of ten years
and vest over a period of three years. We generally issue new shares of common
stock for option exercises. The grant date fair value is calculated using a
Black-Scholes option valuation model.
 
 The
weighted-average assumptions used for grants in fiscal 2009, 2008 and 2007 were
as follows:
 
 2009
                    
                    
                    2008
                    
                    
                    2007Annual
      dividend yield
                    
                    
                    2.16
                    %
                    
                    
                    1.32
                    %
                    
                    
                    1.09
                    %Expected
      volatility
                    
                    
                    58.07
                    %
                    
                    
                    47.95
                    %
                    
                    
                    48.66
                    %Risk-free
      interest rate (matched to the expected term of the outstanding
      option)
                    
                    
                    1.84
                    %
                    
                    
                    3.33
                    %
                    
                    
                    4.76
                    %Expected
      life (years)
                    
                    
                    6.17
                    
                    
                    
                    6.00
                    
                    
                    
                    5.97Weighted-average
      grant date fair value
                    
                    $
                    3.93
                    
                    
                    $
                    5.01
                    
                    
                    $
                    8.95
 
 Transactions
under all plans for fiscal 2009 were as follows:
 
 Stock
options outstanding:
 Shares
                    
                    
                    Weighted-Average
                      Exercise Price
                    
                    
                    Weighted-Average
                      Remaining
                      Contractual Life
                    
                    
                    Aggregate
                      Intrinsic
                      ValueOutstanding
      as of January 31, 2008
                    
                    
                    4,869,307
                    
                    
                    $
                    12.60Granted
                    
                    
                    505,250
                    
                    
                    
                    8.55Exercised
                    
                    
                    (218,333
                    )
                    
                    
                    7.45Forfeited
                    
                    
                    (64,806
                    )
                    
                    
                    13.61Expired
                    
                    
                    (275,149
                    )
                    
                    
                    29.93Outstanding
      as of January 31, 2009
                    
                    
                    4,816,269
                    
                    
                    $
                    11.40
                    
                    
                    
                    5.37
                    
                    
                    $
                    4,007Exercisable
      as of January 31, 2009
                    
                    
                    3,821,212
                    
                    
                    $
                    11.44
                    
                    
                    
                    4.36
                    
                    
                    $
                    4,007Expected
      to vest as of January 31, 2009
                    
                    
                    918,652
                    
                    
                    $
                    11.39
                    
                    
                    
                    9.22
                    
                    
                    $
                    —
 
 The total
intrinsic value of stock options exercised during fiscal 2009, 2008 and 2007 was
$964, $5,717 and $11,147, respectively.
 
 82
 Table of Contents
 
 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 Restricted stock
awards:
 Shares
                    
                    
                    Weighted-Average
                      Grant
      Date
                      Fair ValueRestricted
      stock awards as of January 31, 2008
                    
                    
                    854,618
                    
                    
                    $
                    16.67Granted
                    
                    
                    636,396
                    
                    
                    
                    9.05Awards
      vested
                    
                    
                    (605,386
                    )
                    
                    
                    18.63Forfeited
                    
                    
                    (1,416
                    )
                    
                    
                    14.40Restricted
      stock awards as of January 31, 2009
                    
                    
                    884,212
                    
                    
                    
                    11.99
 
 The total
fair value of restricted stock awards vested during fiscal 2009, 2008 and 2007
was $11,294, $6,787 and $644.
 
 Unvested
restricted stock awards as of January 31, 2009 consist of 494,692 restricted
stock awards that have vesting periods ranging from one to four years and
389,520 performance-vested restricted stock awards that were awarded to certain
key executives. Pursuant to their amended employment agreements, these
executives are awarded performance-vested restricted stock on an annual basis
through fiscal 2011. Annual awards are subject to adjustment, based on the final
performance relative to specified performance goals over a specified performance
period, resulting in minimum annual awards of no shares and maximum annual
awards of 360,000 shares. We begin recognizing the share-based compensation
expense related to these awards when we deem the achievement of performance
goals to be probable. As of January 31, 2009, there was $9,602 of unrecognized
compensation expense related to restricted stock awards. If all performance
goals and service requirements are met for these restricted stock awards, the
unamortized expense will be recognized over a weighted-average period of
2.28 years.
 Note 17 —
Employee Benefit and Retirement Plans


Savings
and Profit Sharing Plan
  We
sponsor a contributory plan (“401(k) Plan”) to provide retirement benefits under
the provisions of Section 401(k) of the Internal Revenue Code (“IRC”) for
eligible employees other than operations hourly employees and highly compensated
employees. Participants may elect to contribute up to 25% of their annual
salaries on a pre-tax basis to the 401(k) Plan, subject to the maximum
contribution allowed by the IRC. Our matching contributions are determined at
the discretion of our Board of Directors. For fiscal 2009, 2008 and 2007, we did
not make matching contributions to the 401(k) Plan.
  Deferred
Compensation Plan
  On
June 28, 2005, our Board of Directors approved the CKE Restaurants, Inc.
Deferred Compensation Plan (“Plan”). Under the Plan, participants may elect to
defer, on a pre-tax basis, a portion of their base salary. Any amounts deferred
by a participant will be credited to such participant’s deferred compensation
account and we may make discretionary contributions to a participant’s deferred
compensation account. The Board of Directors amended the Plan during the third
quarter of fiscal 2009 to comply with recent changes to the Internal Revenue
Code of 1986, as amended. The Plan terminated effective December 31,
2008.  The participants’ balances, totaling $632 as of January 31,
2009, will be distributed to participants in accordance with the terms of the
Plan during fiscal 2010. We made no discretionary contributions to participants’
accounts in fiscal 2009, 2008 or 2007.




Note 18 —
Related Party Transactions





Certain
members of the Board of Directors are also our franchisees. These franchisees
regularly pay royalties and purchase food and other products from us on the same
terms and conditions as our other franchisees.





We lease
various properties, including certain of our corporate offices and two
restaurants from a Partnership and a Trust, both of which are related parties of
a member of our Board of Directors. Lease payments under these leases for fiscal
2009, 2008 and 2007 amounted to $1,034, $1,063 and $1,948,
respectively.




See
Note 6 for discussion of the purchases and sales of assets with related
parties.







83
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Note 19 —
Income Taxes





Income
tax expense for fiscal 2009, 2008 and 2007 consisted of the
following:





2009
                
                
                2008
                
                
                2007Current:Federal
                
                $
                595
                
                
                $
                6,361
                
                
                $
                4,323State
                
                
                1,061
                
                
                
                1,676
                
                
                
                431Foreign
                
                
                1,611
                
                
                
                1,164
                
                
                
                1,1243,267
                
                
                
                9,201
                
                
                
                5,878Noncurrent
                
                
                233
                
                
                
                503Deferred:Federal
                
                
                18,736
                
                
                
                13,319
                
                
                
                23,758State
                
                
                (703
                )
                
                
                1,636
                
                
                
                4,38318,033
                
                
                
                14,955
                
                
                
                28,141Total
                
                $
                21,533
                
                
                $
                24,659
                
                
                $
                34,019





The
following is a reconciliation of income tax expense attributable to continuing
operations at the federal statutory rate of 35% to our income tax expense for
fiscal 2009, 2008 and 2007:





2009
                
                
                2008
                
                
                2007Income
      tax expense at statutory rate
                
                $
                20,472
                
                
                $
                20,907
                
                
                $
                30,875State
      income taxes, net of federal income tax benefit
                
                
                233
                
                
                
                2,153
                
                
                
                3,129Decrease
      in valuation allowance, federal
                
                
                —
                
                
                
                —
                
                
                
                (4,842
                )Nondeductible
      compensation
                
                
                1,750
                
                
                
                1,416
                
                
                
                2,390Other,
      net
                
                
                (922
                )
                
                
                183
                
                
                
                2,467$
                21,533
                
                
                $
                24,659
                
                
                $
                34,019


Temporary
differences and carryforwards gave rise to a significant amount of deferred tax
assets and liabilities as follows:
 
 2009
                  
                  
                  2008Estimated
      liability for closed restaurants
                  
                  $
                  4,249
                  
                  
                  $
                  4,572Net
      operating loss carryforwards
                  
                  
                  18,858
                  
                  
                  
                  17,888Basis
      difference in fixed assets
                  
                  
                  (10,080
                  )
                  
                  
                  8,729Goodwill
      and other intangible assets
                  
                  
                  26,369
                  
                  
                  
                  34,419Reserves
      and allowances
                  
                  
                  24,581
                  
                  
                  
                  25,146Capital
      leases
                  
                  
                  11,138
                  
                  
                  
                  12,720Federal
      and state tax credits
                  
                  
                  14,511
                  
                  
                  
                  12,806Interest
      rate swap agreements
                  
                  
                  6,883
                  
                  
                  
                  4,756Other
                  
                  
                  9,232
                  
                  
                  
                  3,715105,741
                  
                  
                  
                  124,751Valuation
      allowance
                  
                  
                  (27,128
                  )
                  
                  
                  (28,105
                  )Net
      deferred tax asset
                  
                  $
                  78,613
                  
                  
                  $
                  96,646





84
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)





Our
remaining valuation allowance of $27,128 as of January 31, 2009, relates to
state capital loss carryforwards, certain state net operating loss and income
tax credit carryforwards and other temporary differences related to various
states in which one or more of our entities file separate income tax returns.
Realization of the tax benefit of such deferred income tax assets may remain
uncertain for the foreseeable future, even though we expect to
generate consolidated taxable income, since they are subject to various
limitations and may only be used to offset income of certain entities or of a
certain character.  During fiscal 2009 and 2008, our valuation
allowance decreased by $977 and $16,339, respectively.





As of
January 31, 2009, we have federal alternative minimum tax (“AMT”) credit,
general business tax credit and foreign tax credit carryforwards of
approximately $13,924. Our AMT credits will be carried forward until utilized,
and our general business tax credits and foreign tax credits would expire, if
unused, in varying amounts in fiscal 2014 through 2029. As of January 31,
2009, we have state tax credit carryforwards of $3,193, which can be carried
forward indefinitely but are subject to substantive limitations with regard to
utilization. As of January 31, 2009, we have state NOL carryforwards in the
amount of approximately $458,898, which expire in varying amounts in fiscal 2010
through 2023. As of January 31, 2009, we have recognized $1,584 of net deferred
income tax assets related to our state income tax credit carryforwards and $255
of net deferred income tax assets related to our state NOL carryforwards, which
represent our expected future tax savings from such carryforwards.





The
federal and state tax credits and the state net operating loss carryforwards
reflected in our income tax returns, as filed, include the impact of uncertain
tax positions taken in open years. Due to the application of FIN 48, they
are larger than the tax credits and net operating losses for which deferred
income tax assets are recognized for financial statement purposes.





We
adopted FIN 48 (see Note 1) at the beginning of fiscal 2008. The adoption
of FIN 48 resulted in a decrease of $175 in refundable income taxes, an increase
of $642 in income tax liabilities, an increase of $46 in deferred income tax
assets and an increase of $771 in accumulated deficit.





The
following is a tabular reconciliation of the total amounts of unrecognized tax
benefits for fiscal 2009 and 2008:





2009
                
                
                2008Unrecognized
      tax benefits, beginning of year
                
                $
                19,378
                
                
                $
                15,913Gross
      increases related to tax positions taken in prior years
                
                
                19
                
                
                
                363Gross
      decreases related to tax positions taken in prior years
                
                
                (464
                )
                
                
                —Gross
      increases related to tax positions taken in the current
    year
                
                
                424
                
                
                
                3,102Gross
      decreases related to tax positions taken in the current
    year
                
                
                (2,163
                )
                
                
                —Unrecognized
      tax benefits, end of year
                
                $
                17,194
                
                
                $
                19,378





Included
in the balance of unrecognized tax benefits as of January 31, 2009, are $4,027
of tax benefits that, if recognized, would affect the effective tax rate. Also
included in the balance of unrecognized tax benefits as of January 31, 2009, are
$13,167 of tax benefits that, if recognized, would result in adjustments to
other tax accounts, primarily deferred taxes, income taxes payable and valuation
allowance. Amounts recorded for interest and penalties in connection with the
unrecognized tax benefits noted above were not significant as of January 31,
2009 and for fiscal 2009 and 2008.





We
believe that it is reasonably possible that decreases in unrecognized tax
benefits of up to $1,818 may be necessary within the coming year as a result of
statutes closing on such items. In addition, we believe that it is reasonably
possible that our unrecognized tax benefits may increase as a result of tax
positions that may be taken in fiscal 2010.





We file
income tax returns in the U.S. federal jurisdiction and various states and
foreign jurisdictions. We have carried forward various federal and state NOL and
income tax credits to income tax years that remain open by statute. As a result,
such NOL and income tax credit carryforwards remain subject to adjustment by the
respective tax authorities. The IRS has completed an examination of our
U.S. income tax returns through fiscal 2005, and the subsequent years
remain open to examination. In addition, our state income tax returns generally
have statutes of limitations ranging from three to four years from the filing
date.




85
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 CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)
 
 Note 20 —
Segment Information
 
 We are
principally engaged in developing, operating and franchising our Carl’s Jr. and
Hardee’s quick-service concepts, each of which is considered an operating
segment that is managed and evaluated separately. Management evaluates the
performance of our segments and allocates resources to them based on several
factors, of which the primary financial measure is segment operating income or
loss. General and administrative expenses are allocated to each segment based on
management’s analysis of the resources applied to each segment. Interest expense
related to our Facility and the 2023 Convertible Notes have been allocated based
on the use of funds. Certain amounts that we do not believe would be proper to
allocate to the operating segments are included in “Other” (e.g., gains or
losses on sales of long-term investments and the results of operations of
consolidated VIEs). The accounting policies of the segments are the same as
those described in our summary of significant accounting policies (see
Note 1).
  Carl’s Jr.
                  
                  
                  Hardee’s
                  
                  
                  Other
                  
                  
                  Total2009Revenue
                  
                  $
                  886,349
                  
                  
                  $
                  595,487
                  
                  
                  $
                  874
                  
                  
                  $
                  1,482,710Segment
      operating income
                  
                  
                  67,505
                  
                  
                  
                  16,153
                  
                  
                  
                  362
                  
                  
                  
                  84,020Interest
      expense
                  
                  
                  2,359
                  
                  
                  
                  6,148
                  
                  
                  
                  20,102
                  
                  
                  
                  28,609Total
      assets
                  
                  
                  285,962
                  
                  
                  
                  352,023
                  
                  
                  
                  166,702
                  
                  
                  
                  804,687Capital
      expenditures
                  
                  
                  58,822
                  
                  
                  
                  57,691
                  
                  
                  
                  —
                  
                  
                  
                  116,513Goodwill
                  
                  
                  22,649
                  
                  
                  
                  1,039
                  
                  
                  
                  —
                  
                  
                  
                  23,688Depreciation
      and amortization
                  
                  
                  33,011
                  
                  
                  
                  30,328
                  
                  
                  
                  158
                  
                  
                  
                  63,497Income
      tax expense (benefit)
                  
                  
                  24,530
                  
                  
                  
                  4,246
                  
                  
                  
                  (7,243
                  )
                  
                  
                  21,5332008Revenue
                  
                  $
                  845,634
                  
                  
                  $
                  685,273
                  
                  
                  $
                  3,727
                  
                  
                  $
                  1,534,634Segment
      operating income
                  
                  
                  66,801
                  
                  
                  
                  21,227
                  
                  
                  
                  299
                  
                  
                  
                  88,327Interest
      expense
                  
                  
                  2,764
                  
                  
                  
                  8,921
                  
                  
                  
                  21,348
                  
                  
                  
                  33,033Total
      assets
                  
                  
                  262,968
                  
                  
                  
                  336,745
                  
                  
                  
                  191,998
                  
                  
                  
                  791,711Capital
      expenditures(1)
                  
                  
                  81,298
                  
                  
                  
                  48,966
                  
                  
                  
                  1
                  
                  
                  
                  130,265Goodwill
                  
                  
                  22,649
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22,649Depreciation
      and amortization(1)
                  
                  
                  31,579
                  
                  
                  
                  31,023
                  
                  
                  
                  159
                  
                  
                  
                  62,761Income
      tax expense (benefit)
                  
                  
                  26,283
                  
                  
                  
                  5,552
                  
                  
                  
                  (7,176
                  )
                  
                  
                  24,6592007Revenue
                  
                  $
                  830,961
                  
                  
                  $
                  706,884
                  
                  
                  $
                  4,226
                  
                  
                  $
                  1,542,071Segment
      operating income (loss)
                  
                  
                  80,692
                  
                  
                  
                  30,201
                  
                  
                  
                  (199
                  )
                  
                  
                  110,694Interest
      expense
                  
                  
                  3,991
                  
                  
                  
                  15,491
                  
                  
                  
                  286
                  
                  
                  
                  19,768Total
      assets(1)
                  
                  
                  212,480
                  
                  
                  
                  369,954
                  
                  
                  
                  193,338
                  
                  
                  
                  775,772Capital
      expenditures(1)
                  
                  
                  61,280
                  
                  
                  
                  53,406
                  
                  
                  
                  18
                  
                  
                  
                  114,704Goodwill
                  
                  
                  22,649
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22,649Depreciation
      and amortization(1)
                  
                  
                  26,328
                  
                  
                  
                  32,821
                  
                  
                  
                  219
                  
                  
                  
                  59,368Income
      tax expense (benefit)
                  
                  
                  30,342
                  
                  
                  
                  4,077
                  
                  
                  
                  (400
                  )
                  
                  
                  34,019
 __________
 (1)
              The
      difference between the total and the amount reported in our accompanying
      consolidated financial statements relates to our discontinued
      operations.
 
 86
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Continued)


Note 21 —
Discontinued Operations





We sold
our La Salsa Fresh Mexican Grill restaurants and the related franchise
operations to LAS Acquisition, LLC (“Buyer”) on July 16, 2007. Under the
agreement, SBRG, a wholly-owned subsidiary of the Company, sold its 100 percent
equity interest in La Salsa, Inc. and La Salsa of Nevada, Inc. (collectively,
“La Salsa”) for adjusted consideration of $15,889. Pursuant to the agreement, we
have retained contingent liabilities related to tax matters and certain
litigation matters arising prior to the completion of the sale of La
Salsa. In addition, we remain contingently liable for certain lease
obligations and self-insurance exposures arising prior to the completion of the
sale.





As of
January 31, 2008, we had a $6,626 note receivable from Buyer, which was required
to be repaid in full on or before December 31, 2008.  During fiscal
2009, we received timely principal payments of $2,600; however, Buyer failed to
make the remaining $4,026 balloon payment on December 31, 2008.  As of
January 31, 2009, $914 and $3,112 of the outstanding principal balance is
included in accounts receivable, net, and notes receivable, net, respectively,
in our accompanying Consolidated Balance Sheet.  Since January 31,
2009, Buyer has made aggregate payments of $526 to us. The note is secured by
the personal property of Buyer, a pledge of the La Salsa equity interests
acquired by Buyer, and certain personal and corporate guarantees.





The
results from discontinued operations for fiscal 2008 and 2007 were as
follows:





2008
                
                
                2007Revenue
                
                $
                20,907
                
                
                $
                46,339Operating
      loss
                
                
                (724
                )
                
                
                (6,202
                )Interest
      (expense) income
                
                
                (22
                )
                
                
                17Other
      income, net
                
                
                92
                
                
                
                43Income
      tax benefit
                
                
                173
                
                
                
                2,120(481
                )
                
                
                (4,022
                )Loss
      on disposal of La Salsa
                
                
                (1,389
                )
                
                
                —Income
      tax expense related to disposal of La Salsa
                
                
                (2,126
                )
                
                
                —Net
      loss on disposal of La Salsa
                
                
                (3,515
                )
                
                
                —Loss
      from discontinued operations
                
                $
                (3,996
                )
                
                $
                (4,022
                )




Note 22 —
Supplemental Cash Flow Information





The
following table presents supplemental cash flow information for fiscal 2009,
2008 and 2007:





2009
                
                
                2008
                
                
                2007Cash
      paid for:Interest,
      net of amounts capitalized
                
                $
                21,753
                
                
                $
                20,235
                
                
                $
                16,903Income
      taxes, net of refunds received
                
                
                1,252
                
                
                
                6,703
                
                
                
                5,324Non-cash
      investing and financing activities:Gain
      recognized on sale and leaseback transactions
                
                
                342
                
                
                
                339
                
                
                
                368Dividends
      declared, not paid
                
                
                3,279
                
                
                
                3,148
                
                
                
                2,694Capital
      lease obligations incurred to acquire assets
                
                
                6,485
                
                
                
                —
                
                
                
                302Accrued
      property and equipment purchases at January 31
                
                
                9,486
                
                
                
                7,307
                
                
                
                4,944


During
fiscal 2009 and 2007, we redeemed and converted $15,167 and $89,833 of our 2023
Convertible Notes into 1,786,963 and 10,224,424 shares of our common stock,
respectively.  There were no conversions during fiscal
2008.
  The cash
used in financing activities related to the repurchase of common stock for
fiscal 2009, 2008 and 2007 differs from the repurchase of common stock in our
accompanying Consolidated Statements of Stockholders’ Equity by $268, $92 and
$(360), respectively, reflecting the timing difference between the recognition
of share repurchase transactions and their settlement for cash. The liability
for unsettled repurchases of common stock included in other current liabilities
in our accompanying Consolidated Balance Sheets was $0 and $268 as of January
31, 2009 and 2008, respectively.
  87
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)


Note 23 —
Selected Quarterly Financial Data (Unaudited)





The
following table presents summarized quarterly results:





Quarter1st
                
                
                2nd
                
                
                3rd
                
                
                4thFiscal
      2009Total
      revenue
                
                $
                466,171
                
                
                $
                352,490
                
                
                $
                336,595
                
                
                $
                327,454Operating
      income
                
                
                29,630
                
                
                
                22,885
                
                
                
                17,755
                
                
                
                13,750Net
      income
                
                
                16,620
                
                
                
                12,340
                
                
                
                5,388
                
                
                
                2,608Basic
      income per common share
                
                
                0.32
                
                
                
                0.24
                
                
                
                0.10
                
                
                
                0.05Diluted
      income per common share
                
                
                0.31
                
                
                
                0.23
                
                
                
                0.10
                
                
                
                0.05Fiscal
      2008Total
      revenue
                
                $
                481,802
                
                
                $
                363,091
                
                
                $
                351,622
                
                
                $
                338,119Operating
      income
                
                
                29,987
                
                
                
                23,370
                
                
                
                19,479
                
                
                
                15,491Net
      income
                
                
                15,351
                
                
                
                9,425
                
                
                
                6,202
                
                
                
                98Basic
      income per common share
                
                
                0.24
                
                
                
                0.15
                
                
                
                0.11
                
                
                
                —Diluted
      income per common share
                
                
                0.23
                
                
                
                0.15
                
                
                
                0.11
                
                
                
                —





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 and unpredictable adverse weather conditions, which may
affect sales volume and food costs. In addition, all quarters presented are
comprised of three four-week accounting periods, except the first quarters of
fiscal 2009 and 2008, which are comprised of four four-week accounting
periods.




Fourth
Quarter Adjustment




During
the fourth quarter of fiscal 2009, we recorded interest expense of $8,353
related to changes in the fair value of our interest rate swap
agreements.




Note 24 —
Commitments and Contingent Liabilities




Under
various past and present refranchising programs, we have sold restaurants to
franchisees, some of which were on leased sites. We entered into sublease
agreements with these franchisees but remained principally liable for the lease
obligations. We account for the sublease payments received as franchising rental
revenue and the payments on the leases as rental expense in franchised and
licensed restaurants and other expense on our Consolidated Statements of Income.
As of January 31, 2009, the present value of the lease obligations under the
remaining master leases’ primary terms is $118,727. Franchisees may, from time
to time, experience financial hardship and may cease payment on the sublease
obligation to us. The present value of the exposure to us from franchisees
characterized as under financial hardship is $6,194, of which $1,266 is reserved
for in our estimated liability for closed restaurants as of January 31,
2009.




Pursuant
to our Facility, a letter of credit sub-facility in the amount of $85,000 was
established (see Note 10). Several standby letters of credit are
outstanding under this sub-facility, which secure our potential workers’
compensation, general and auto liability obligations. We are required to provide
letters of credit each year, or set aside a comparable amount of cash or
investment securities in a trust account, based on our existing claims
experience. As of January 31, 2009, we had outstanding letters of credit of
$35,643, expiring at various dates through March 2010 to secure our
self-insurance obligations.




As of
January 31, 2009, we had unconditional purchase obligations in the amount of
$73,537, which primarily include contracts for goods and services related to
restaurant operations and contractual commitments for marketing and sponsorship
arrangements.
  We have
employment agreements with certain key executives (“Agreements”). These
Agreements include provisions for lump sum payments to the executives that may
be triggered by the termination of employment under certain conditions, as
defined in each Agreement. If such provisions were triggered, each affected
executive would receive an amount ranging from one to three times his base
salary for the remainder of his employment term plus, in some instances, either
all of or a pro-rata portion of the bonus in effect for the year in which the
termination occurs. Additionally, all options and restricted stock awarded to
the affected executives which have not vested as of the date of termination
would vest immediately, and restricted stock awards which have not yet been
awarded would be awarded and would vest immediately. If all of these Agreements
had been triggered as of January 31, 2009, we would have been required to make
cash payments of approximately $13,593.


88
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(Continued)




We are,
from time to time, the subject of complaints or litigation from customers
alleging illness, injury or other food quality, health or operational concerns.
Adverse publicity resulting from such allegations may materially adversely
affect us and our restaurants, regardless of whether such allegations are valid
or whether we are liable. We are also, at times, the subject of complaints or
allegations from current or former employees, franchisees, vendors, landlords
and others.





As of
January 31, 2009, we had recorded an accrued liability for contingencies related
to litigation in the amount of $215, which relates to certain employment, real
estate and other business disputes. Certain of the matters for which we maintain
an accrued liability for litigation pose risk of loss significantly above the
accrued amounts. In addition, as of January 31, 2009, we estimated the
contingent liability of those losses related to other litigation claims that, in
accordance with SFAS 5, are not accrued, but that we believe are reasonably
possible to result in an adverse outcome, to be in the range of $870 to
$2,905.








89
 Table of Contents





EXHIBIT
INDEX




Exhibits
                                                        Description3.1
                                                        Certificate
      of Incorporation of the Company, incorporated herein by reference to
      Exhibit 3.1 to the Company’s Form S-4 Registration Statement (File Number
      33-52523), as filed with the SEC on March 7, 1994.3.2
                                                        Certificate
      of Amendment of Certificate of Incorporation, as filed with the Delaware
      Secretary of State on December 9, 1997, incorporated herein by reference
      to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 26, 1998.3.3
                                                        Bylaws
      of the Company, as amended through September 4, 2008, incorporated herein
      by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q
      for the quarter ended August 11, 2008.4.1
                                                        Rights
      Agreement, dated as of January 5, 2009, by and between the Company and
      Mellon Investor Services, LLC, incorporated herein by reference to Exhibit
      4.1 to the Company’s Registration Statement on Form 8-A (File Number
      001-11313), as filed with the SEC on January 5, 2009.10.1
                                                        Carl
      Karcher Enterprises, Inc. Profit Sharing Plan, as amended, incorporated
      herein by reference to Exhibit 10.21 to the Company’s Form S-1
      Registration Statement (File Number 2-73695).**10.2
                                                        CKE
      Restaurants, Inc. 1994 Stock Incentive Plan, as amended, incorporated
      herein by reference to Exhibit 4.1 to the Company’s Form S-8 Registration
      Statement (File Number 333-12399), as filed with the SEC on September 20,
      1996.**10.3
                                                        CKE
      Restaurants, Inc. Amended and Restated 1994 Employee Stock Purchase Plan,
      effective as of February 26, 2009.**10.4
                                                        CKE
      Restaurants, Inc. 1999 Stock Incentive Plan, incorporated herein by
      reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement
      (File Number 333-83601), as filed with the SEC on July 23,
      1999.**10.5
                                                        CKE
      Restaurants, Inc. 2001 Stock Incentive Plan, incorporated herein by
      reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement
      (File Number 333-76884), as filed with the SEC on January 17,
      2002.**10.6
                                                        CKE
      Restaurants, Inc. 2005 Omnibus Incentive Compensation Plan (the “2005
      Plan”), as amended, incorporated herein by reference to Exhibit 10.1 to
      the Company’s Current Report on Form 8-K, as filed with the SEC on June
      15, 2007.**10.7
                                                        Form
      of Stock Option Agreement under the 2005 Plan, incorporated herein by
      reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as
      filed with the SEC on June 30, 2005.**10.8
                                                        Form
      of Restricted Stock Award Agreement under the 2005 Plan, incorporated
      herein by reference to Exhibit 10.3 to the Company’s Current Report on
      Form 8-K, as filed with the SEC on June 30, 2005.**10.9
                                                        Form
      of Stock Appreciation Rights Award Agreement under the 2005 Plan,
      incorporated herein by reference to Exhibit 10.4 to the Company’s Current
      Report on Form 8-K, as filed with the SEC on June 30,
    2005.**10.10
                                                        Form
      of Restricted Stock Unit Award Agreement under the 2005 Plan, incorporated
      herein by reference to Exhibit 10.5 to the Company’s Current Report on
      Form 8-K, as filed with the SEC on June 30, 2005.**10.11
                                                        Form
      of Stock Award Agreement under the 2005 Plan, incorporated herein by
      reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, as
      filed with the SEC on June 30,
2005.**


10.13
              CKE
      Restaurants, Inc. Deferred Compensation Plan, incorporated herein by
      reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, as
      filed with the SEC on June 30, 2005.**10.14
              Employment
      Agreement, effective as of April 4, 2004, by and between the Company and
      Andrew F. Puzder, incorporated herein by reference to Exhibit 10.55 to the
      Company’s Annual Report on Form 10-K for the fiscal year ended January 26,
      2004.**10.15
              Amendment
      to Employment Agreement between the Company and Andrew F. Puzder,
      effective as of February 1, 2005, incorporated herein by reference to
      Exhibit 10.60 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 31, 2005.**10.16
              Amendment
      No. 2 to Employment Agreement between the Company and Andrew F. Puzder,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.71 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 30, 2006.**10.17
              Amendment
      No. 3 to Employment Agreement between the Company and Andrew F. Puzder,
      effective as of October 12, 2006, incorporated herein by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on October 17, 2006.**10.18
              Amendment
      No. 4 to Employment Agreement between the Company and
      Andrew F. Puzder, effective as of December 16, 2008.**10.19
              Employment
      Agreement, effective as of January 27, 2004, by and between the Company
      and E. Michael Murphy, incorporated herein by reference to Exhibit 10.56
      to the Company’s Annual Report on Form 10-K for the fiscal year ended
      January 26, 2004.**10.20
              Amendment
      No. 1 to Employment Agreement between the Company and E. Michael Murphy,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 30, 2006.**10.21
              Amendment
      No. 2 to Employment Agreement between the Company and E. Michael Murphy,
      effective as of October 12, 2006, incorporated herein by reference to
      Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on October 17, 2006.**10.22
              Amendment
      No. 3 to Employment Agreement between the Company and
      E. Michael Murphy, effective as of December 16, 2008.**10.23
              Employment
      Agreement, effective as of January 27, 2004, by and between the Company
      and Theodore Abajian, incorporated herein by reference to Exhibit 10.53 to
      the Company’s Annual Report on Form 10-K for the fiscal year ended January
      26, 2004.**10.24
              Amendment
      No. 1 to Employment Agreement between the Company and Theodore Abajian,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.73 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 30, 2006.**10.25
              Amendment
      No. 2 to Employment Agreement between the Company and Theodore Abajian,
      effective as of October 12, 2006, incorporated herein by reference to
      Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with
      the SEC on October 17, 2006.**


90
 Table of Contents







Exhibits
              Description


10.26
                                                    Amendment
      No. 3 to Employment Agreement between the Company and
      Theodore Abajian, effective as of December 16, 2008.**10.27
                                                    Employment
      Agreement, effective as of January 27, 2004, by and between the Company
      and Brad R. Haley, incorporated herein by reference to Exhibit 10.57 to
      the Company’s Quarterly Report on Form 10-Q for the quarter ended May 17,
      2004.**10.28
                                                    Amendment
      No. 1 to Employment Agreement between the Company and Brad R. Haley,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.74 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 30, 2006.**10.29
                                                    Amendment
      No. 2 to Employment Agreement between the Company and Brad R. Haley,
      effective as of March 20, 2007, incorporated herein by reference to
      Exhibit 10.80 to the Company’s Annual Report on Form 10-K for the fiscal
      year ended January 29, 2007.**10.30
                                                    Amendment
      No. 3 to Employment Agreement between the Company and
      Brad R. Haley, effective as of December 16, 2008.**10.31
                                                    Employment
      Agreement, effective January 2004, by and between Hardee’s Food Systems,
      Inc. and Noah J. Griggs, incorporated herein by reference to Exhibit 10.1
      to the Company’s Quarterly Report on Form 10-Q for the quarter ended May
      21, 2007.**10.32
                                                    Amendment
      No. 1 to Employment Agreement between the Company and Noah J. Griggs,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended May 21, 2007.**10.33
                                                    Amendment
      No. 2 to Employment Agreement between the Company and Noah J. Griggs,
      effective as of March 20, 2007, incorporated herein by reference to
      Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended May 21, 2007.**10.34
                                                    Amendment
      No. 3 to Employment Agreement between the Company and Noah J. Griggs,
      effective as of June 11, 2007, incorporated herein by reference to Exhibit
      10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      May 21, 2007.**10.35
                                                    Amendment
      No. 4 to Employment Agreement between the Company and
      Noah J. Griggs, effective as of December 16, 2008.**10.36
                                                    Employment
      Agreement between the Company and Richard E. Fortman, effective as of
      January, 2004, incorporated herein by reference to Exhibit 10.2 to the
      Company’s Quarterly Report on Form 10-Q for the quarter ended May 19,
      2008.**10.37
                                                    Amendment
      No. 1 to Employment Agreement between the Company and Richard E. Fortman,
      effective as of December 6, 2005, incorporated herein by reference to
      Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended May 19, 2008.**10.38
                                                    Amendment
      No. 2 to Employment Agreement between the Company and Richard E. Fortman,
      effective as of March 20, 2007, incorporated herein by reference to
      Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended May 19, 2008.**10.39
                                                    Amendment
      No. 3 to Employment Agreement between the Company and
      Richard E. Fortman, effective as of December 16, 2008.**
 10.40
                                                        Employment
      Agreement between Hardee’s Food Systems, Inc. and
      Robert J. Starke, effective as of January 27,
      2009.**10.41
                                                        Seventh
      Amended and Restated Credit Agreement, dated as of March 27, 2007, by and
      among the Company, the Lenders party thereto, and BNP Paribas, a bank
      organized under the laws of France acting through its Chicago Branch, as
      Administrative Agent, and Citigroup Global Markets, Inc. and Bank of
      America, N.A., as Co-Syndication Agents, incorporated herein by reference
      to Exhibit 10.79 to the Company’s Annual Report on Form 10-K for the
      fiscal year ended January 29, 2007. *10.42
                                                        Additional
      Loan and First Amendment to Seventh Amended and Restated Credit Agreement,
      dated as of May 3, 2007, by and among the Company, the Lenders party
      thereto, and BNP Paribas, a bank organized under the laws of France acting
      through its Chicago branch, as Administrative Agent, incorporated herein
      by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form
      10-Q for the quarter ended May 21, 2007.10.43
                                                        Additional
      Loan and Second Amendment to Seventh Amended and Restated Credit
      Agreement, dated as of August 27, 2007, by and among the Company, the
      Lenders party thereto, and BNP Paribas, a bank organized under the laws of
      France acting through its Chicago branch, as Administrative Agent,
      incorporated herein by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K, as filed with the SEC on August 29,
    2007.10.44
                                                        Third
      Amendment to Seventh Amended and Restated Credit Agreement, dated as of
      March 7, 2008, by and among the Company, BNP Paribas, a bank organized
      under the laws of France acting through its Chicago branch, as
      Administrative Agent, and the subsidiaries of the Company, incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed March 13, 2008.10.45
                                                        Stock
      Purchase Agreement, effective as of April 3, 2007, by and between the
      Company and Pirate Capital, LLC, a Delaware limited liability company, on
      behalf of Jolly Roger Activist Portfolio LTD, Jolly Roger Fund LP and
      Jolly Roger Offshore Fund LTD, incorporated herein by reference to Exhibit
      10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
      April 5, 2007.11.1
                                                        Computation
      of Per Share Earnings, included in Note 1 of Notes to Consolidated
      Financial Statements.12.1
                                                        Computation
      of Ratios.14.1
                                                        CKE
      Restaurants, Inc. Code of Ethics for CEO and Senior Financial Officers, as
      approved by the Company’s Board of Directors on March 3, 2004,
      incorporated herein by reference to Exhibit 14.1 to the Company’s Annual
      Report on Form 10-K for the fiscal year ended January 26,
      2004.21.1
                                                        Subsidiaries
      of the Company.23.1
                                                        Consent
      of Independent Registered Public Accounting Firm.31.1
                                                        Certification
      of Chief Executive Officer pursuant to Rule 13a- 14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
                                                        Certification
      of Chief Financial Officer pursuant to Rule 13a- 14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                                                        Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                                                        Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


__________


*
            Schedules
      or exhibits omitted. The Company shall furnish supplementally to the SEC a
      copy of any omitted schedule or exhibit upon
  request.





**
            A
      management contract or compensatory plan or arrangement required to be
      filed as an exhibit to this report pursuant to Item 15(c) of Form
      10-K.





91