FORM 10-K





Securities And Exchange Commission Washington, D.C. 20549





(Mark One)





|lAnnual |  | Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|------- |  | -----------------------------------------------------------------------------

For the fiscal year ended January 28, 2002





or





|OTransition |  | 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. Employer Identification No.)Incorporation or organization)





3916 State Street, Suite 300,


Santa Barbara, California 93105


(Address of principal executive offices)





(714) 774-5796


Registrants telephone number, including
area code





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 Exchange





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


None





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 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  [X]    No  [  ]





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation


S-K 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.  [X]





The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 5, 2002 was $505,635,841.





The number of outstanding shares of the registrants common stock was 56,987,127 as of April 5, 2002.





Documents Incorporated By Reference:Portions of the registrants Proxy Statement for the 2002 Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission on May 10, 2002, are incorporated by reference into Part III of this Report.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES


Index To Annual Report On Form 10-K





For the Fiscal Year Ended January 28, 2002








Table of ContentsPart I



Page No.Item 1.

Business

1Item 2.

Properties

17Item 3.

Legal Proceedings

17Item 4.

Submission of Matters to a Vote of Security Holders

18Part IIItem 5.

Market for Registrants Common Equity and Related Stockholder Matters

19Item 6.

Selected Financial Data

20Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations

22Item 7a.

Quantitative and Qualitative Disclosure About Market Risk

37Item 8.

Financial Statements and Supplementary Data

37Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

37Part IIIItem 10.

Directors and Executive Officers of the Registrant

38Item 11.

Executive Compensation

38Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

38Item 13.

Certain Relationships and Related Transactions

38Part IVItem 14.

Exhibits, Financial Statements, Schedules and Reports on Form 8-K

42




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Part I





Item 1. Business





Overview


We own, operate and franchise
approximately 3,400 quick-service restaurants (QSR), primarily under the brand names Carls Jr., and Hardees. Carls Jr. restaurants are predominately located in California. Hardees restaurants are located primarily
in the Midwest and Southeast. According to Finance Corporation of Americas 2001 Chain Restaurant Industry Review and Outlook report (based on system-wide sales), CKE Restaurants, Inc.s (CKE, Management or the
Company) Hardees and Carls Jr. chains are the seventh and eleventh largest QSR hamburger restaurant chains in the United States, respectively. Our system-wide restaurant portfolio at January 28, 2002 consisted of:





Carls Jr.

Hardees

TotalCompany-operated

443

742

1,185Franchised and licensed

526

1,648

2,174Total

969

2,390

3,359





We acquired Hardees in 1997. At that time, we had just completed a turnaround of operations at
Carls Jr. We were aware of Hardees operational difficulties, including a trend of declining same-store sales, however we believed that we could implement a strategy to counter the operational difficulties Hardees was experiencing.
We also believed this acquisition would enable us to expand the scope of our operations and become one of the leading nationwide operators of quick-service hamburger restaurants. Appraisals we obtained from a third party indicated that we had
effectively acquired the brand for the value of the property and equipment. We believed that there was significant value in Hardees and Carls Jr.s complementary geographic markets and relative menu strengths.





Since the initial acquisition, we acquired an additional 691 Hardees restaurants from franchisees in key markets, including 557 restaurants operated by Flagstar
Enterprises, Inc. (FEI), then the largest Hardees franchisee, on April 1, 1998. We believed these additional acquisitions would enable us to exercise further control over, and strengthen, the Hardees brand. Additionally, we
were advised that FEI planned to sell their restaurants to a competitor, and we believed the loss of these restaurants in Hardees prime territory would negatively impact Hardees long-term success.





In conjunction with the two-step acquisition of Hardees, we incurred a substantial amount of long-term debt and became a highly-leveraged company after the acquisition. We
were initially unable to materially alter the declining same-store sales trend at Hardees after the acquisition. In fact, the decline in same-store sales continued. Beginning with fiscal year 2000, Hardees operating losses and increased
interest expense resulted in our operating at a loss. When those Hardees operating losses arose, we had approximately $280 million outstanding under our bank facility. Furthermore, although we were not declared in default, we were not in
compliance with all of the financial covenants under our bank facility. As a result of these circumstances, we embarked upon a program to sell restaurants with the objectives of reducing bank debt and shifting our restaurant system mix to one that
is more franchise than company-operated. We also identified unprofitable restaurants and closed them. We incurred net losses on the sales of Hardees restaurants and recorded charges to establish a reserve for closed restaurants. Additionally,
we reduced our operating costs to a level more commensurate with the revenue mix resulting from the rebalancing of our system-wide restaurant portfolio. We also were required to write down the carrying value of certain properties and charge a loss
to operations, as their performance did not support their carrying values. We have reported losses for each of the last 9 quarters that largely consisted of facility action charges, which are asset impairment charges, restaurant closure reserve
charges, and net gains and losses on sale of restaurants.





Our objective is to complete the turnaround of the Companys operations such that we
operate profitably.





Business Turnaround





As
discussed above, we are attempting to complete a business turnaround of our operations. To achieve this objective we have taken the following actions:





| |  |  | Sold 443 Hardees restaurants since the end of fiscal 2000, resulting in $120.7 million of cash proceeds and incurring net losses on sales of $71.7 million.
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CKE RESTAURANTS, INC.




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| |  |  | Sold 143 Carls Jr. restaurants, resulting in $116.7 million of cash proceeds and realizing net gains on sales of $69.4 million.
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| |  |  | Closed 283 Hardees and 40 Carls Jr. restaurants that we determined could not reasonably be returned to our desired level of profitability.
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| |  |  | Sold our Taco Bueno concept, consisting of 125 Mexican quick-service restaurants. The net cash proceeds from this sale were approximately $62.4 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Reduced the operating costs of the Company, including general and administrative expenses. This included reducing our work force.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------




| |  |  | Reduced the outstanding balance on the revolving loan portion of our bank facility to zero during the third quarter of fiscal 2002, through the application of the proceeds from
the above activities. Following this, we amended our bank credit facility (see Recent Developments below).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Focused our operational efforts on improving the level of quality, service and cleanliness of our Hardees restaurants, as we believed that until we made improvements in
those areas the declining trend in same-store sales could not be reversed.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Focused our new product development efforts on premium products that offer high profit margins. We introduced The Six Dollar Burgerduring fiscal year 2002 at both Carls Jr. and Hardees.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Focused on our brands images to ensure they remain relevant to consumers. We believe we have made substantial progress in this regard for Carls Jr., and have
identified this as a goal for Hardees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Remodeled many restaurants and incurred material repair and maintenance charges with the objective of increasing sales in the remodeled and repaired restaurants.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Changed our strategy at Hardees from the past practice of frequent introduction of new products and offering of products at a discounted price to consumers to a strategy
focusing on premium products with less emphasis on the offering of products at discounted prices.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The
results of our business turnaround activities have been:





| |  |  | We have changed the system-wide mix of restaurants to one that is primarily franchise-operated. At the end of the fiscal year, approximately 55% and 70% of Carls Jr. and
Hardees restaurants were franchised, respectively.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | We have closed many unprofitable restaurants.
| | - |  | ---------------------------------------------




| |  |  | We paid down our existing bank facility and arranged for a new bank facility (see Recent Developments below).
| | - |  | -------------------------------------------------------------------------------------------------------------




| |  |  | We have improved the quality, service and cleanliness of our Hardees restaurants.
| | - |  | ----------------------------------------------------------------------------------




| |  |  | Our same-store sales trends, for company-operated restaurants, by quarter, for each brand are:
| | - |  | ----------------------------------------------------------------------------------------------




Fiscal 2002

Carls Jr.

HardeesFirst Quarter

0.7%

(4.2)%Second Quarter

2.3%

1.0%Third Quarter

6.1%

1.0%Fourth Quarter

4.3%

6.4%Fiscal 2001First Quarter

3.6%

(6.2)%Second Quarter

2.3%

(8.4)%Third Quarter

1.1%

(6.3)%Fourth Quarter

(0.4)%

(10.7)%







CKE RESTAURANTS, INC.




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| |  |  | Quarterly net income (loss) by segment has been (in millions):
| | - |  | --------------------------------------------------------------




Fiscal 2001

Carls Jr.


Hardees


Other


Total Without Facility Action Charges


Facility Action Charges (Gains)


As ReportedFirst Quarter

$
9.5


$
(10.1
)

$
(2.8
)

$
(3.4
)

(0.9
)

(2.5
)Second Quarter

$
6.5


$
(2.0
)

$
(0.5
)

$
4.0


17.9


(13.9
)Third Quarter

$
1.9


$
5.9


$
(2.9
)

$
4.9


34.3


(29.4
)Fourth Quarter

$
(7.1
)

$
(46.0
)

$
(1.9
)

$
(55.0
)

93.3


(148.3
)Fiscal 2002First Quarter

$
16.5


$
(15.8
)

$
(9.7
)

$
(9.0
)

28.2


(37.1
)Second Quarter

$
9.4


$
(14.1
)

$
(1.6
)

$
(6.3
)

30.5


(36.8
)Third Quarter

$
14.3


$
(9.5
)

$
(4.4
)

$
0.4


2.1


(1.7
)Fourth Quarter

$
13.2


$
(12.3
)

$
1.4


$
2.3


10.6


(8.3
)





See further discussion regarding facility action charges in Item 7  Managements
Discussion and Analysis of Financial Condition and Results of Operations.





Our Strategies


As shown in the segment quarterly net income (loss), table above, as well as the information contained in the notes to the consolidated financial statements, Carls Jr. operates profitably and Hardees operates at a loss. In
viewing the segments, we allocate much of our general and administrative expenses and all of our interest to each of the segments. On that basis, Hardees has been operating at a loss, excluding facility action charges, of approximately $4.3
million per month during the last fiscal year. In order for our business turnaround to be successful, we must improve Hardees operations.





We expect to execute our business turnaround through the following strategies:





| |  |  | Continue our focus on quality, service and cleanliness at Hardees.
| | - |  | -------------------------------------------------------------------




| |  |  | Working with our outside advertising firm, develop an updated brand image for Hardees with the objective of reconnecting the brand with todays QSR consumer.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Continue to maintain the Carls Jr. brands profitability.
| | - |  | ----------------------------------------------------------




| |  |  | Continue our focus on premium, rather than discounted, products.
| | - |  | ----------------------------------------------------------------




| |  |  | Continue our focus on cost control.
| | - |  | -----------------------------------




| |  |  | Grow our system by opening 5 to 10 new Carls Jr. restaurants and 5 to 10 new Hardees restaurants next fiscal year.
| | - |  | --------------------------------------------------------------------------------------------------------------------




| |  |  | Continue our programs to remodel up to 180 Hardees restaurants, and install charbroilers in all our Hardees restaurants.
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| |  |  | Integrate the acquisition of Santa Barbara Restaurant Group, Inc. (SBRG) (see Recent Developments below).
| | - |  | -----------------------------------------------------------------------------------------------------------




| |  |  | Develop a strategy for addressing the maturity of our approximately $159.2 million of convertible notes (see Item 7 Managements Discussion and Analysis of the
Results of Operations below).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The key success factor in operating Hardees profitably is increasing sales. At the end of the
fiscal year, the average-unit volume (AUV) at our company-owned Hardees restaurants was approximately $763,000. We estimate that for the concept to operate profitably, the AUV must be in the range of $850,000 to $900,000. We can
provide no assurance that we will be successful in improving Hardees AUV to those levels. For fiscal 2002, Hardees franchisee AUV was $835,000




CKE RESTAURANTS, INC.




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Restaurant Concepts





Carls Jr.





Concept.    We believe that our Carls Jr. restaurants offer superior food quality, a
diverse menu and attentive customer service, which differentiate Carls Jr. from its competitors and are critical to its success. Carls Jr. restaurants focus on offering customers a quality dining experience, including premium products,
at a reasonable price. The menu at Carls Jr. features freshly prepared food items that appeal to a broad audience. We generally make Carls Jr. charbroiled hamburgers, chicken sandwiches and signature items at the time of the
customers order, applying exacting quality standards and offering them in generous portions. By providing partial table service, unlimited drink refills and an attractive restaurant decor, Carls Jr. restaurants offer a pleasant,
customer-friendly environment. We believe that our focus on our customers and customer service, superior food quality and generous portions enables Carls Jr. restaurants to maintain a strong price-value image with customers that has met with
relative success. Our Carls Jr. AUVs were $1.2 million at January 28, 2002.





Menu and Restaurant
Design.    Carls Jr. restaurants offer a variety of products that have a strong reputation for quality and taste. The Carls Jr. menu is relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including The Six Dollar Burger  , Famous Star, Western Bacon Cheeseburger, Super
Star, Charbroiler Chicken Sandwiches, Crispy Chicken Sandwiches, the Sourdough Bacon Cheeseburger and the Spicy Chicken Sandwich. We also offer a fish sandwich, stuffed baked potatoes, prepackaged salads, french fries, onion rings and fried
zucchini. Most Carls Jr. restaurants also have self-service salad bars and a breakfast menu including eggs, bacon, sausage, French Toast Dips ® , the Sunrise Sandwich ® , Croissant Sunrise Sandwich  and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis. Carls
Jr. was among the first to offer self-service salad bars and all-you-can-drink beverage bars.





Most Carls Jr. restaurants are freestanding, ranging
in size from 2,500 to 4,000 square feet, with a seating capacity of 65 to 115 persons and drive-thru facilities. Some restaurants are located in shopping malls and other in-line facilities. Currently, several building designs and floor plans are in
use system-wide, depending upon operational needs, local zoning requirements and real estate availability.





Substantially all of our Carls Jr.
restaurants have bright colored exteriors, red awnings and a large, tilted Happy Star ® logo. The interiors feature
the same bright colors, food murals, display cases for salads and desserts and accent lighting throughout the dining area. We believe that Carls Jr.s restaurant design further increases consumer awareness of the Carls Jr. brand.
Over the next year we plan to develop a prototype for a more updated design and commence on a remodel program for selected Carls Jr. restaurants.





Operations.    We strive to maintain high standards in all products and equipment used by our restaurants, as well as our operations related to food preparation, service and cleanliness. We generally prepare or
assemble hamburgers and chicken sandwiches at Carls Jr. restaurants after the customer has placed an order and serve them promptly. We charbroil hamburger patties and chicken breasts in a gas-fired double broiler that sears the meat on both
sides in a uniform heating and cooking time.





A general manager who has received nine to 13 weeks of management training operates each company-operated
Carls Jr. restaurant. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. The general manager trains other employees in accordance with our guidelines.
District managers, who are responsible for 11 to 14 restaurants, also supervise general managers. Approximately 50 district managers are under the supervision of a regional vice president, who regularly inspects the operations in their respective
district and region.





Dual-Branding.    Dual-branding allows a single restaurant to offer consumers two distinct brand menus.
In May 1995, we entered into an initial agreement with SBRG to offer the Green Burrito ® menu at selected Carls
Jr. locations. We believe Green Burritos position in the popular Mexican food segment and its dinner menu orientation complement the Carls Jr. menu. Customers of the Carls Jr./Green Burrito dual-brand restaurants are able to order
items from both menu boards located at the same counter. Both menus are also available to customers utilizing the drive-thru. The Green Burrito menu offered at the dual-brand restaurants features a wide variety of traditional Mexican food items,
including burritos, enchiladas, tacos, taquitos and nachos, as well as combination meals which are served with rice and beans. A variety of




CKE RESTAURANTS, INC.




4




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condiments such as jalapeno peppers, hot sauce and mild and hot salsa are available at self-serve salsa bars so that customers can spice and garnish their meals according to individual taste. In
order to convert an existing Carls Jr. restaurant to a Carls Jr./Green Burrito restaurant, the additional equipment necessary to offer the Green Burrito menu is added to the Carls Jr. restaurant, as well as new menu boards and
new signage, both inside and outside, indicating the offering of both brands. In most cases, changes to the seating area or other parts of the physical structure of the restaurant are unnecessary. We believe that this dual-branding program has
attracted new customers, while increasing the frequency of customer visits at converted restaurants. Our dual-branded Carls Jr./Green Burrito restaurants have the highest average unit volumes in the system, at $1.3 million at January 28, 2002.





As of January 28, 2002, 107 Carls Jr. company-operated locations have been converted to Carls Jr./Green Burrito dual concept restaurants,
and we paid a franchise fee and royalty to SBRG, the owner of the Green Burrito brand. At the end of fiscal 1996, we elected to sub-franchise, and shortly thereafter began offering, the Carls Jr./Green Burrito dual-brand to our franchise
community. As of January 28, 2002, 88 franchised Carls Jr. restaurants have been converted to the Carls Jr./Green Burrito concept. On March 1, 2002, we acquired SBRG (see Recent Developments below), which owns the Green Burrito brand.
This acquisition gives us control of the menu and further development of the brand, and eliminates our franchise fee and royalty expense. We receive a franchise fee for each franchise conversion and royalties from our franchisees Green Burrito
food sales.





Franchised and Licensed Operations.    Our franchise strategy is designed to further the development of the
Carls Jr. chain and reduce the total capital we need to develop new Carls Jr. restaurants. Franchise arrangements with Carls Jr. franchisees, which operate in Arizona, California, Colorado, Hawaii, Idaho, Nevada, New Mexico,
Oklahoma, Oregon, Texas and Utah, generally provide for initial fees and continuing royalty payments and advertising fees to us based upon a percentage of gross sales (generally 4% for royalties and 5% to 7% for advertising). Additionally, most
franchisees purchase food, paper and other supplies from us. Franchisees may also be obligated to remit lease payments for the use of company-owned or leased restaurant facilities and to pay related occupancy costs, which include maintenance,
insurance and property taxes. We also plan to continue to pursue non-traditional franchise development opportunities through innovative formats, including gasoline stations, convenience stores and institutional food service outlets.





Our franchising and licensing philosophy is that only candidates with appropriate operational experience and financial stability are considered for the program.
Specific net worth and liquidity requirements must be satisfied. Area development agreements generally require franchisees to open a specified number of Carls Jr. restaurants in a designated geographic area within a specified time period.





As of January 28, 2002, our Carls Jr. franchisees and licensees operated 526 Carls Jr. restaurants. The majority of our Carls Jr.
franchisees own more than one restaurant, with 22 franchisees owning seven or more restaurants. We presently anticipate that our Carls Jr. franchisees and licensees will open approximately 35 new Carls Jr. restaurants during fiscal 2003.





Purchasing and Distribution.    We purchase most of the primary food products and packaging supplies used in our Carls
Jr. restaurant system and warehouse and distribute such items to both company-operated and franchised Carls Jr. restaurants. Although not required to do so, all of our Carls Jr. franchisees in California purchase most of their supplies
from us. Our Carls Jr. restaurant chain is one of the few businesses in the quick-service restaurant industry that has elected not to outsource all of its 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, and 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. We seek competitive bids from suppliers on many of our products, approve suppliers of those products and require them to adhere to our established product specifications. However, for our outlying markets, we are in
the process of analyzing our distribution center business and other options for distributing food products and supplies to these Carls Jr. restaurants.





Hardees


Concept.    Hardees has a leading market presence in the Southeastern and Midwestern United States. The Hardees restaurant
chain offers a variety of menu items, including breakfast and certain made-to-order lunch and dinner offerings




CKE RESTAURANTS, INC.




5




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(including charbroiled hamburgers in those restaurants that have been remodeled). Hardees restaurants emphasize hometown hospitality by providing generous portions at reasonable prices in a
friendly environment. Currently, Hardees has shifted its focus from discount, variety products to premium products, such as The Six Dollar Burger  .





Menu and Restaurant Design.    Hardees restaurants currently offer hamburgers,
chicken sandwiches, roast beef sandwiches and fish sandwiches for lunch and dinner, as well as fried chicken in our restaurants located in certain markets. Unlike many quick-service hamburger restaurants, a significant portion of Hardees day
part is breakfast. Breakfast generates approximately 40% of Hardees overall operating revenue, one of the highest in the quick-service hamburger industry. Hardees breakfast menu features Made From Scratch  biscuits, biscuit breakfast sandwiches and other items such as hash rounds and breakfast platters. Substantially all of
Hardees restaurants have drive-thru facilities, and selected restaurants are open 24 hours a day, primarily on the weekends. Most Hardees restaurants are freestanding, ranging in size from 3,000 to 3,500 square feet, with a seating
capacity of 75 to 100 persons. Currently, several building designs and floor plans are in use system-wide, depending upon operational needs, local zoning requirements and real estate availability.





Since our acquisition of Hardees, we introduced certain made-to-order lunch and dinner menu items that are currently served in our Carls Jr. restaurants, such as The
Six Dollar Burger  , the Famous Star and other signature products from Carls Jr. Our efforts to improve
operations at Hardees have begun producing positive results. As shown in the table on page 2, Hardees has experienced three consecutive quarters of positive same-store sales after several years decline. We have also begun
implementing the Carls Jr.-style limited table service and added all-you-can-drink beverage bars in all of our Hardees restaurants. Additionally, we are remodeling our Hardees restaurants to a new Star
Hardees format, which we designed to update and revitalize the Hardees brand with the menu and operating qualities of Carls Jr. A Star Hardees remodel involves installing charbroilers in the kitchens, remodeling the
interior and exterior of the restaurant and installing new signage that accents the Hardees name with a Star logo. Over the past year, we, along with some franchisees, have been able to revise the remodel, and thus have been able to
significantly reduce the cost. We believe that the revised remodels offer consumers the same quality dining experience as the original Star Hardees conversion.





As of January 28, 2002, we had remodeled 385, or approximately 52%, of our Hardees company restaurants.





Operations.    We strive to maintain high standards in all products and equipment used by our Hardees restaurants, as well as the operations related to food preparation, service and cleanliness. Our initial
attempts to implement all of the elements in a typical Carls Jr. restaurant at a Hardees did not yield the improvements that we had anticipated. Therefore, we identified those elements that we believed had been successfully transitioned
in Hardees markets, primarily the installation of gas-fired charbroilers, and focused on those changes on a go-forward basis. Additionally, we have focused on the fundamentals of restaurant operations: quality, service and cleanliness. It is
our belief that a renewed focus on those factors forms the basis for improved restaurant operations and the recent increases in same-store sales.





Franchised and Licensed Operations.    Franchise agreements with Hardees franchisees, who operate restaurants in the Southeastern and Midwestern United States, generally provide for initial fees and
continuing royalty payments to us based upon a percentage of gross sales (generally 4%). Franchisees are required to purchase certain inventory and supplies from approved suppliers and are required to spend a minimum percentage of sales each month
on advertising. In addition, most franchisees are required to purchase and install all fixtures, furnishings, signs and equipment specified in the approved site layout and plan. Prior to the opening of franchised restaurant, the general manager of
each franchise is required to attend and complete our company-sponsored training program. Franchisees may also be required to remit lease payments for the use of our company-owned or leased restaurant facilities and to pay related occupancy costs.





At Hardees, average unit volumes for our international licensed restaurants were $762,000 in fiscal 2002 and total sales at Hardees
international restaurants exceeded $78.1 million.





Since our acquisition of Hardees, we have worked to develop and enhance a productive
relationship with our Hardees franchisees. We have been supportive in establishing a franchise association and have improved communications with franchisees. As a result, our Hardees franchisees have collectively increased their level of
royalty payment and advertising contribution compliance. Our Hardees franchisees have joined us in our Star Hardees remodel program and, as of January 28, 2002, operated 500 franchised Star Hardees restaurants.




CKE RESTAURANTS, INC.




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As of January 28, 2002, franchisees and licensees operated 1,648 Hardees restaurants. The majority of our
Hardees franchisees own more than one restaurant, with 32 franchisees owning 10 or more restaurants.





Purchasing and
Distribution.    We currently purchase substantially all of the food, packaging and cleaning products sold or used in our Hardees restaurants from Fast Food Merchandisers, Inc. (FFM) and MBM Corporation
(MBM). MBM, which was the primary distributor for FEI, acquired FFM in 1998, and consequently consolidated substantially all of Hardees distribution requirements. FFM and MBM currently distribute products to company-operated
restaurants and to many of the Hardees restaurants operated by our franchisees. Pursuant to the terms of the distribution agreements, we are obligated to purchase substantially all of our specified product requirements from FFM and MBM for
remaining terms of four years each. The prices we pay for FFM and MBM products, and the delivery fees we pay each distribution service, are subject to adjustment in certain circumstances, which may include increases resulting from changes in the
distributors cost structure.





Investments in Other Restaurant Concepts


In the past,
we have invested in other restaurant concepts, as described below (see also Note 8 of Notes to the Consolidated Financial Statements). In fiscal 2002, we shifted our primary focus to our core concepts.





Rallys and Checkers.    Through a series of transactions, the Company has various investments in Checkers Drive-In Restaurants, Inc.
(Checkers) which, as of January 28, 2002, consisted of common stock and warrants to purchase common stock. Checkers operates and franchises approximately 427 Checkers and 427 Rallys double drive-thru quick-service hamburger
restaurants, primarily in the Southeastern and Midwestern United States. Through fiscal 2002, we accounted for our investment in Checkers under the equity method of accounting, as our Chairman of the Board was the Chairman of Checkers. During the
fourth quarter of fiscal 2000, we wrote-down our investment in Checkers by $16.6 million to its fair market value upon our conclusion that the investment had experienced an other than temporary decline in value. Further, as a result of recognizing
our share of the net losses of Checkers, our investment in Checkers was zero as of January 31, 2000. Our Chairman is no longer the chairman of Checkers, however, he is still a member of the Board of Directors. During fiscal 2002 and 2001, we sold
358,000 and 657,000 shares respectively, and generated net proceeds of $2.2 million and $1.9 million respectively. On April 5, 2002, CKE exercised its warrant to purchase shares of Checkers stock and received net shares of 436,000. As of April
5, 2002 we own 982,030 shares of Checkers stock, respresenting 8.6% of the outstanding shares.





Boston Market.    We
held a minority interest in Boston West, LLC (Boston West), which operated Boston Market restaurants in designated markets in Southern California as a franchised area developer of Boston Chicken, Inc. (BCI), the franchisor of
the Boston Market restaurant concept. BCI and its Boston Market subsidiaries filed for protection under Chapter 11 of the Federal Bankruptcy Code on October 5, 1998. In a separate action, on November 9, 1998, Boston West filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code in order to restructure its overall operations. In April 2000, Boston Market Corporation (BMC), a wholly-owned subsidiary of McDonalds Corp., acquired BCIs rights, claims and
interests relating to Boston West. As a result, Boston West and BMC filed a joint plan of reorganization that was approved by the bankruptcy court. Under this plan, we no longer have an ownership interest in Boston West or any of the Boston Market
restaurants operated by Boston West. Additionally, under the plan, Boston West was dissolved.





Taco Bueno.    On June 10,
2001, we sold our Taco Bueno concept. The net proceeds from the sale were approximately $59.1 million and were used to permanently reduce our bank debt (see Note 2 of Notes to the Consolidated Financial Statements).





Santa Barbara Restaurant Group.    On March 1, 2002 we acquired Santa Barbara Restaurant Group, Inc. and its La Salsa, Green Burrito and Timber Lodge
Steakhouse restaurant brands (see Recent Developments and Note 2 of Notes to the Consolidated Financial Statements).





Although we have no present
intention to acquire additional interests in other restaurant concepts, we may do so 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.




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Critical Accounting Policies


Our reported results are
impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgements involve estimations about the effect of matters that are inherently uncertain and may significantly impact our
quarterly or annual results of operations and financial condition. Specific risks associated with these critical accounting policies are described in the following paragraphs.





For all of these policies, we caution that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. We believe our most significant policies require:





| |  |  | Estimation of future cash flows used to assess the recoverability of long-lived assets and establishment of store closure reserves.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------




| |  |  | Determination of the appropriate allowances associated with franchise and license receivables and contingent liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------




| |  |  | Estimation, using actuarially determined methods, of our self-insured losses under our workers compensation and fire and general liability insurance programs not covered
under our stop-loss policy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Estimation of our net deferred income tax asset valuation allowance.
| | - |  | --------------------------------------------------------------------




A detailed description of the critical accounting policies are as follows.





Impairment of property, equipment, property held for sale and
goodwill


We evaluate the carrying value of assets for impairment when the operations of the brand, or certain restaurants in the brand, experience a negative event (i.e., significant
downturn in operations, natural disaster, restaurant closures, etc.). When these events are identified, we review the last two years of operations on a restaurant-by-restaurant basis and, if there are increasing losses, we estimate future
undiscounted cash flows. If the projected cash flows do not exceed the carrying value of the assets, including goodwill, which is allocated to each restaurant for this purpose, we write-down the assets to fair value, based on either (1) estimated
net proceeds our third party broker (a related party  see Item 13.  Certain Relationships and Related Transactions) believes it can obtain in a sale of the site, (2) discounted projected cash flows, or (3) historical
net proceeds obtained on other similar surplus property sales.





The most significant assumptions we use in this analysis are those made in estimating
future cash flows. In estimating future cash flows we generally use the financial assumptions in our strategic plan and modify them if the operators believe other factors should be used. Additionally, in determining the amount we can obtain in a
sale of a site, we use our brokers knowledge of the area the property is located in and current sales trends. See discussion of SFAS 142 Goodwill and Other Intangible Assets on page 33.





Statement or Financial Accounting Standard No. 142 (SFAS 142)





Self-insurance


We are self-insured for a portion of our current and prior years losses related to workers compensation, fire and general liability insurance
programs. We have obtained stop loss insurance for individual workers compensation claims over $250,000 and individual general liability claims over $500,000. Insurance liabilities and reserves are accounted for based on the net present value
of independent actuarial estimates of the amount of loss expected. These estimates rely on actuarial observations of historical claim loss development for similar events. We continually evaluate the potential for changes in loss estimates, and use
the results of these evaluations to adjust recorded provisions.





The assumptions used by the independent actuary to determine the liability balance are
based on the average historical loss rates weve incurred. If the actual loss development is better or worse than the development estimated by the actuary, we will modify the reserve and it will be reflected in future operating performance.
Additionally, if we experience a higher than expected number of claims or the costs of claims rise more than we expected, then the actuary will probably adjust expected losses upward and our future self-insurance costs will rise.





Store closure reserves


We make decisions to close restaurants based on prospects for future estimated
profitability. Our restaurant operators evaluate each restaurants performance each financial period. When restaurants perform poorly, we consider the




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demographics of the location as well as the likelihood of being able to turn an unprofitable restaurant around. Based on the operators judgment, we estimate the future cash flows. If we
determine that the restaurants will not be profitable, and there are no contractual requirements to continue operating the restaurant, we close the restaurant. Additionally, franchisees may close restaurants for which we are the primary lessee. If
the franchisee cannot make payments on the lease, we continue making the lease payments and establish a store closure reserve if we decide not to operate the restaurant as a company-operated restaurant. We establish the reserve in the period we
decide to close a restaurant, which may be before the actual closure date.





The store closure reserve for vacant properties is generally based on the
term of the lease and the lease termination fee we expect to pay, as well as maintenance costs. The amount of the reserve established is generally the net present value of these estimated future payments.





The interest rate used to calculate the net present value of these reserves is based on our incremental borrowing rate at the time the reserve is established. The related
discount is amortized and shown as interest expense in our Statement of Operations.





One significant assumption used in determining the amount of store
closure reserves is the estimated costs to maintain leased and owned vacant properties. Additionally, the amount of the reserve established for future lease payments on vacant restaurants is based upon our third-party brokers assessment of its
ability to successfully negotiate early termination of our lease agreements with the lessors.





If the costs to maintain properties increase, or it takes
longer than anticipated to sell properties or terminate leases, we may need to record additional reserves. If the leases on the vacant restaurants are not terminated on the terms we used to estimate the reserves, we may be required to record losses
in future periods. Conversely if the leases on the vacant restaurants are terminated on more favorable terms than we used to estimate the reserves, we may reverse previously established reserves.





Franchise and licensed operations


We monitor the financial condition of franchisees and record provisions for estimated losses on receivables
when we believe that our franchisees are unable to make their required payments to us. We review quarterly each franchisees account, focusing on those that are past due, and determine a specific reserve for each account, if necessary,
including notes receivable. Additionally, we cease recording royalties from franchisees that are delinquent in paying or in default until such time as we have a history of timely payments.





Depending on the facts and circumstances, there are a number of different actions we may take to resolve collections issues. These may include the sale of franchise restaurants to us or to other
franchisees, a modification to the franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover our costs of service over the life of the franchise agreement, we record the
estimated loss at the time we modify the agreements), a restructuring of the franchisees business and/or finances (including the restructuring of leases for which we are the primary obligee  see further discussion below) or, if
necessary, the termination of the franchise agreement. The allowance established is based on our assessment of the most probable action that will occur. If we believe we will operate the restaurants as company operated restaurants, the allowance for
loss is recorded net of the estimated fair value of the related restaurant assets.





As part of our re-franchising program, many of the restaurants that
we sold to franchisees were on leased sites. Generally, we remained principally liable for the lease and entered into a sublease with the franchisee for the same terms of the primary lease. We account for the sublease payments received as
franchising rental income and our payments on the leases as rental expense in franchising expense. As of January 28, 2002, the net present value of the total obligation on such lease arrangements was $40.2 million.





The determination of when to establish a reserve for future lease obligations on restaurants operated by franchisees for which we are the primary obligee is based on the date
that the following events occur:





| | (1) |  | a franchisee and the Company mutually make the decision to close a restaurant and we will assume the responsibility for the lease;
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------



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| | (2) |  | when a franchise agreement is terminated or the franchisee declares bankruptcy; or
| | --- |  | ----------------------------------------------------------------------------------




| | (3) |  | we enter into a workout agreement with a financially troubled franchisee, where we agree to make part or all of the lease payment for the franchisee.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------




The amount of the reserve is established using the methodology described in the Store Closure Reserve section above. We have not
established reserves for troubled franchisees (i.e., those franchisees that are delinquent or for which we have entered into a workout arrangement) who, as of January 28, 2002, are still making timely rent payments but may have problems in the
future. The net present value of the related lease obligation with franchisees in these circumstances is approximately $14 million.





The lease reserve
for closed franchise restaurants is dependent on our ability to successfully negotiate early termination of our lease agreements with our lessors within the ranges we estimated to establish the reserve.





If sales trends/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. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future.





Valuation allowance for net deferred tax asset


As disclosed in Note 1 of Notes to the Consolidated Financial Statements, we record net deferred tax
assets. Annually, we assess the likelihood that our net deferred tax assets will be recovered from future taxable income.





During fiscal 2001, because we
had experienced two years of net operating losses, we established a 100% valuation reserve for our net deferred tax asset. Reversal of the reserve is dependent upon the Company reporting taxable operating profits in future periods.





The assumptions used to determine this reserve are based on suggested guidance from the Securities and Exchange Commission regarding the definition of the more
likely than not criterion contained in SFAS No. 109.





Competition


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 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 whom dominate the quick-service restaurant 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, as well as supermarkets and convenience stores. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources and higher franchise AUVs.





Trademarks and Service Marks


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





Government Regulations


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




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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 and various federal and state laws governing employment matters, such as minimum wages, overtime pay practices, child labor laws and other working conditions and
citizenship requirements. 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.





The Company monitors its facilities for compliance with the Americans with Disabilities Act (ADA) in order to conform to its requirements. Under the ADA, the Company could be required to expend
funds to modify its 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 material adverse effect on the Companys
operations.





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 assure you 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, although the majority of these sites are being
remediated 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 transaction costs for us.





Seasonal Operations


Our operations, particularly those of the Hardees brand, are seasonal in nature and
subject to disruption from severe weather.





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.





Research and
Development


We operate a research and development facility in California. While research and development activities are important to our business, these expenditures are not material.





Backlog


Our company-operated restaurants and our distribution centers have no material
backlog orders.




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Employees


We employ approximately 31,000 persons,
primarily in restaurants we own and operate and also in our corporate offices and distribution facilities. None of our employees are covered by a collective bargaining agreement and we have never experienced a work stoppage attributable to labor
disputes. 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 in Managements Discussion and Analysis of Financial Condition and Results of Operations for the
years ended January 31, 2002, 2001 and 2000 in Part II, Item 7, pages 34 through 36, and the Consolidated Statement of Cash Flows for the years ended January 31, 2002, 2001 and 2000 in Part II, Item 8, page 37 of this Form 10-K.





Recent Developments





Acquisition of Santa Barbara Restaurant
Group


On March 1, 2002, we acquired SBRG in a stock-for-stock exchange wherein each share of the common stock of SBRG was exchanged for 0.491 shares of CKE common stock. We issued 6.4
million CKE shares in the merger in exchange for the SBRG shares, and issued 1.6 million CKE options in exchange for SBRG options and warrants, for an estimated purchase price of $81.5 million.





SBRG owns, operates and franchises restaurants under the La Salsa, Timber Lodge Steakhouse and Green Burrito brand names. The La Salsa restaurants are quick-service restaurants featuring traditional Mexican
food items. The restaurants, modeled after taquerias of Mexico, primarily cater to the lunch and dinner segment, and feature freshly prepared items such as tacos, burritos, taquitos and quesadillas. The Green Burrito restaurants feature
a menu of traditional Mexican food items including burritos, tostadas, enchiladas, tacos, gorditas, chile rellenos, tortilla soup, appetizers and non-alcoholic Mexican drinks. Timber Lodge Steakhouse restaurants offer consistently high-quality
traditional American meals at moderate prices and in generous portions. Each Timber Lodge Steakhouse incorporates a north woods theme with its log-framed interior, fireplaces, hardwood floors and wood tables, chairs and booths, all of
which help to create a cozy feeling of dining in a warm comfortable north woods log cabin.





We believe the SBRG acquisition is a strategic acquisition
for us and will provide us with benefits that include control of the Green Burrito brand and the opportunity to enter the fresh-mex segment of the QSR industry through the established La Salsa brand.





Amended Credit Facility


On January 31, 2002, we amended our revolving credit facility to replace our existing
$120 million, which expired on February 1, 2002. The amended facility amounts to $100 million. See Note 11 of Notes to the Consolidated Financial Statements for further discussion of the terms.





This new facility will allow us to grow and develop our brands as well as provide for our daily working capital needs and issuance of self-insurance letters of credit.





Disclosure Regarding Forward-Looking Statements


Matters discussed in this Form 10-K contain certain
forward-looking statements that are based on managements beliefs and assumptions, which are derived from information currently known to the Companys management. Forward-looking statements may include, but are not limited to, descriptions
of plans or objectives of the Companys management for future or past operations, products or services, earnings or other measures of economic performance including statements of profitability of business segments and subsidiaries, estimates of
recoverability of long-lived assets, and current repositioning activities including anticipated restaurant closures. Such statements reflect the view of the Companys management with respect to future events and are subject to risks and
uncertainties, such as changes in the fast food industry and changes to the Companys plans, objectives, expectations and intentions. Should one or more of these risks materialize or should




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underlying beliefs or assumptions prove incorrect, the Companys actual results could differ materially from those discussed in this Form 10-K. Factors that could cause or contribute to such
differences are consumers concerns or adverse publicity regarding the Companys products, effectiveness of operating initiatives and advertising and promotional efforts (especially at the Hardees brand), changes in economic
conditions, changes in the price or availability of commodities, ability to hire and retain qualified personnel and contain labor costs, ability to compete with competitors, ability to integrate acquisitions or mergers, availability and cost of
energy, workers compensation and general liability claim experience, ability to judge the impact of competitive products and pricing, changes in the Companys suppliers ability to provide quality and timely products to the Company,
our ability to select appropriate restaurant locations, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of the Companys franchisees, franchisees willingness to
participate in our strategy, availability of financing for the Company and its franchisees, unfavorable outcomes on litigation, changes in accounting policies and practices, new legislation or government regulation, including environmental laws, and
other factors as discussed in the Companys filings with the Securities and Exchange Commission.





Risk Factors


We are engaged in a business turnaround at the Company. The success of a business turnaround, by its very nature, involves a significant number or risks, many of which are discussed below:





Our ability to pursue new business opportunities, remodel older restaurants and open new restaurants, which are necessary in order to remain competitive and grow, may be
impacted by the fact that we are a highly leveraged company


As of the end of the fiscal year, our outstanding indebtedness, including capital leases, was $445.1 million. Our debt level may
restrict the pursuit of new opportunities such as business acquisitions. Our substantial indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which may prevent us from pursuing
plans to open new restaurants and make other capital expenditures necessary to remain competitive in the QSR segment. For instance, the principal measure of success in the QSR segment is same-store sales. Remodeling older restaurants is an effective
way to stimulate sales. If we are required to divert cash flow to repayment of debt from the remodeling of older restaurants, as well as opening new restaurants, our future profitability would be adversely affected. Failure to maintain certain
financial ratios could cause us to violate the terms of our credit facility and thereby result in acceleration of our indebtedness, impair our liquidity and limit our ability to operate. Our failure to make required debt payments could result in an
acceleration of our indebtedness, in which case the lenders would be entitled to exercise their remedies. Our highly-leveraged status may prevent us from accessing credit or equity markets at favorable terms to address future financing needs. The
lack of availability of financing to us may prevent us from implementing growth plans or proceeding with operational improvement initiatives, which may place us at a disadvantage compared to our competitors and increase our vulnerability to general
adverse economic and industry conditions. Additionally, because we are highly leveraged, it may be more difficult for us to satisfy our obligations under our debt securities, Senior Credit Facility and other indebtedness.





Our future success may be affected by our ability to revitalize Hardees


We have been challenged by our
efforts to reestablish the connection between Hardees and consumers. Our efforts have included new marketing strategies, remodeling restaurants, refranchising restaurants, product variety, use of discounting and a focus on the fundamentals
(quality, service and cleanliness). Although Hardees has experienced three consecutive quarters of positive same-store sales, Hardees is an under-performing brand. Failure to further revitalize the brand may have a significant negative
effect on our success.





Our success may be dependent 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 participate in that implementation. The failure of our franchisees to
continue to focus on the fundamentals of restaurant operations (quality, service and cleanliness) may have a negative impact on our success.





Our
financial results may be affected by our franchisees


We receive revenue from our franchisees. Our financial results are somewhat contingent 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/economic conditions worsen for our franchisees, their financial health may worsen, our collection




CKE RESTAURANTS, INC.




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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 revenues. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future.





Our business may be adversely affected by unfavorable economic conditions and increased operating costs adversely affect our results of operations and financial condition


Recently, the United States of America has experienced an economic downturn. When the American consumer has more to spend, restaurant trends are positively impacted, especially the QSR-segment, as it is a cash market.
Because of the relatively low average guest check in the QSR segment, approximately $5.00, the QSR has historically attracted consumers that are either lower income and/or pressed for time. Due to the low average check, the QSR segment is relatively
recession resistant. However, if the national trend were to be a severe economic downturn, the resulting impact on our customers disposable incomes would have a negative impact on our sales. Our profitability could also be negatively impacted
if we face increased costs for food, fuel, utilities, wages, clothing and equipment, and are unable to recover them through price increases.





Our
business depends on our ability to obtain commodities


Operation of our restaurants requires the purchase of energy and agriculture products. Occasionally, the availability of such
commodities is limited due to circumstances beyond our control. If we are unable to obtain such products we may be unable to offer certain products. Also, if the cost of such commodities increases we may be unable to implement appropriate price
increases.





Our success depends on our ability to compete with our competitors


The
foodservice industry is intensely competitive with respect to the quality and value of food products offered, concept, service, price, dining experience and location. We compete with major restaurant chains, some of whom dominate the quick-service
restaurant 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, as well as supermarkets and convenience stores.
Many of our competitors have substantially greater brand recognition and financial, marketing, operating and other resources than we have, which may give them competitive advantages. Our competitors could also make changes to pricing or other
marketing strategies that may impact us. As our competitors expand operations, we expect competition to intensify. Such increased competition could have a material adverse effect on our financial condition and results of operations.





Our business depends on our suppliers abilities to provide quality products to us timely.


Our
profitability is dependent upon, among other things, our ability to offer fresh, high-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 independent
distributors for our Hardees restaurants. In particular, our Hardees restaurants depend on the distribution services of two distributors, MBM Corporation, (MBM) an independent supplier and distributor of food and other
products, and Fast Food Merchandisers, Inc. (FFM), which MBM recently acquired. MBM and FFM are responsible for delivering food, paper and other products from our vendors to our Hardees restaurants on a regular basis. MBM and FFM
also provide distribution services to a large number of our Hardees franchisees. Any disruption in these distribution services could have a material adverse effect on our business. In addition, our dependence on frequent deliveries of food and
paper products subjects our restaurants to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients.





Given recent events regarding livestock diseases in various parts of the world, it is possible that the production and supply of beef could be negatively impacted in the future.
A reduction in the supply of beef could have a material effect on the price at which it could be obtained, which could have a material negative impact on our results.





Our business may be significantly impacted by consumer preferences and perceptions


Foodservice businesses are often affected by changes in consumer
tastes and perceptions. Traffic patterns and demographics, as well as the type, number and locations of competing restaurants may adversely affect the performance of individual restaurants. Multi-unit foodservice businesses such as ours can also be
materially and adversely affected by publicity resulting from poor food quality, 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.




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Unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit
costs (including increases in hourly wage and unemployment tax rates), increases in the number of locations of competing quick-service restaurants, regional weather conditions and the availability of experienced management and hourly employees may
also adversely affect our financial condition and results of operations.





Our business may suffer due to our ability to hire and retain qualified
personnel or if labor costs continue to increase


Until recently, the United States of America has experienced reduced levels of unemployment. 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 the minimum wage have impacted our labor costs. Due to the labor-intensive nature of our business, a continued shortage of labor or increases in wage levels could have a negative effect on our results of
operations.





Our sales and profits may be materially and adversely affected by our ability to successfully integrate acquisitions or mergers or derive
the benefits we expect


Out future results of operations and cash flow may depend in part upon our ability to integrate acquisitions and mergers such as the acquisition of SBRG. If we are
unable to achieve the strategic operating objectives we anticipate from such acquisitions we may experience increased costs or decreased sales which would have a negative impact on our results from operations. Strategic operating initiatives that we
may be unable to achieve include, economies of scale in operations, cost reduction, sales increases or marketing initiatives. The recoverability of the goodwill expected to arise from the acquisition, approximately $40 million as disclosed in the
Joint Proxy Statement/Prospectus dated January 30, 2002, is dependent upon the ability of SBRG to operate profitably.





Our business may be impacted by
increased insurance costs


In the past we have been negatively affected by increases in both workers compensation insurance and general liability insurance 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 income.





Our operations are seasonal and heavily influenced by weather
conditions


Weather, which is unpredictable, can impact our sales. Harsh weather conditions that keep 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, 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 operating margins, resulting in restaurant operating losses. These adverse, weather-driven events principally
arise at our Hardees restaurants. For these reasons, a quarter-to-quarter comparison is not a good indication of our performance or how we may perform in the future.





Our financial results may be impacted by our ability to construct new restaurants or complete remodels


In recent years, we have not opened a significant
number of new restaurants as all available cash was used to repay bank indebtedness . Our strategic plan, and a component of our business turnaround, includes the construction of new restaurants and the remodeling of existing restaurants, including
the installation of charbroilers. The Company and its franchisees face competition from other restaurants operators, retail chains, companies and developers for desirable site locations, which may adversely affect the cost, implementation and timing
of the Companys expansion plans. If we experience delays in the construction process we may be unable to complete such construction activities at the planned cost, thereby adversely affecting our future results from operations. Additionally,
there can be no assurance that such remodels and conversions will increase the revenues generated by these restaurants or, even if revenues are initially increased, that such increases will be sustainable. Likewise, we cannot be sure that the sites
we select for new restaurants will indeed result in restaurants whose sales results meet our expectations.





Our business may be affected by
unfavorable outcomes on litigation.


As discussed below under the heading Item 3  Legal Proceedings, we have thousands of interactions and transactions each day with vendors,
franchisees, customers, employees and others. In the ordinary course of business, disputes may arise for a number of reasons. We cannot be certain that we will prevail in every action brought against us.




CKE RESTAURANTS, INC.




15




---




Our business is subject to requirements imposed by governmental regulations or interpretation of governmental
regulations may change and require us to incur substantial expenditures to comply


We are subject to governmental regulation at the federal, state and local level in many areas of our
business, such as food safety and sanitation, the sale of alcoholic beverages, environmental issues and minimum wage. While we endeavor to comply with all applicable laws and regulations, governmental units may make changes in the regulatory
frameworks that we operate in that may require us to incur substantial cost increases in order to comply with such laws and regulations. While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full
compliance with all laws and regulations at all times or that we will be able to comply with any future laws or regulations. If we fail to comply with applicable laws and regulations, we may be subject to sanctions or civil remedies, including fines
and injunctions. The cost of compliance or the consequences of non-compliance could have a material adverse effect on our business and results of operations.





Our operations are regulated by environmental laws


We are 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 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. Although we are not aware of any such conditions, the costs of such cleanup could be significant have a material effect on our financial results.





Executive Officers of the Registrant


Our executive officers are as follows:





Name

Age

PositionAndrew F. Puzder

51

Chief Executive Officer and PresidentTheodore Abajian

39

Executive Vice President, Chief Administrative OfficerJohn J. Dunion

44

Executive Vice President, Supply Chain ManagementRenea S. Hutchings

44

Executive Vice President, DevelopmentDennis J. Lacey

48

Executive Vice President, Chief Financial OfficerE. Michael Murphy

50

Executive Vice President, General Counsel and SecretaryBarbara Pacifico

45

Executive Vice President, Corporate Affairs





Andrew F. Puzderbecame Chief Executive Officer and President in September 2000. Since June 2000 he
served as President of Hardees and since February 1997 he served as Executive Vice President, General Counsel and Secretary of the Company. Mr. Puzder also served as Chief Executive Officer of SBRG from August 1997 to June 2000 and Executive
Vice President of Fidelity National Financial, Inc. from January 1995 to June 2000. From March 1994 to December 1994, he was a shareholder with the law firm of Stradling Yocca Carlson & Rauth. Prior to that, he was a partner with the law firm of
Lewis, DAmato, Brisbois & Bisgard, from September 1991 through March 1994, and he was a partner of the Stolar Partnership from February 1984 through September 1991. Mr. Puzder is a member of the Board of Directors.


Theodore Abajian was appointed Executive Vice President and Chief Administrative Officer upon our acquisition of Santa Barbara Restaurant Group, Inc. Mr. Abajian was appointed President and Chief Executive
Officer of SBRG in November 2000. Previously he served as Executive Vice President and Chief Financial Officer of SBRG beginning in May 1998. Mr. Abajian has also held positions with several other restaurant companies during his career.





Dennis J. Laceywas appointed Executive Vice President and Chief Financial Officer in April 2001. From April 1998 to April 2001, he was employed
by Imperial Bank Corporation where his last position was Chief Financial Officer. Prior to that, he served as Chief Executive Officer of Capital Associates Inc., and prior to that he was a partner with Coopers and Lybrand.





E. Michael Murphy became Executive Vice President, General Counsel and Secretary in February 2001. Since August 1998 he served as Senior Vice President, General Counsel
of Hardees. From March 1987 to August 1998, Mr. Murphy was a partner of the Stolar Partnership.




CKE RESTAURANTS, INC.




16




---




John J. Dunionwas appointed Executive Vice President, Supply Chain Management in July 2001. Prior to that he
held the position of Executive Vice President and Chief Administrative Officer. Before joining CKE in 1996, Mr. Dunion held various management positions with Black-Eyed Pea Management Corporation, Jack-in-the Box Restaurants and Taco Bell
Restaurants.





Renea S. Hutchingswas appointed Executive Vice President, Development in February 2001. Ms. Hutchings began her career with CKE in
1982, and has held various positions with us, most recently as Vice President, Franchising.





Barbara Pacificowas appointed Executive Vice
President, Corporate Affairs in July 2001. Ms. Pacifico began her career at Hardees in 1990, holding various management positions, most recently as Vice President, Franchising.





Item 2. Properties





The following table sets forth information regarding our restaurant properties at January 28, 2002:





Land and Building Owned

Land Leased And Building Owned

Land and Building Leased

Operating Agreement

TotalCarls Jr.:Company-operated

53

95

294

1

443Franchise-operated(1)

13

37

188



238Third party-operated/vacant(2)

14

5

36



55Subtotal

80

137

518

1

736Hardees:Company-operated

311

162

269



742Franchise-operated(1)

66

95

153



314Third party-operated/vacant(2)

73

50

131



254Subtotal

450

307

553



1,310TotalCompany-operated

364

257

563

1

1,185Franchise-operated(1)

79

132

341



552Third party-operated/vacant(2)

87

55

167



309Subtotal

530

444

1,071

1

2,046





|(1) |  | Franchise-operated properties are those which we own or lease and lease or sublease to franchisee operators.
|--- |  | --------------------------------------------------------------------------------------------------------------




|(2) |  | Third party-operated/vacant properties are those we own that are either operated by unaffiliated entities or are currently vacant.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------




The terms of our leases or subleases vary in length expiring on various dates through. 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, located in Santa Barbara, California, our primary
distribution center and Carls Jr. brand headquarters, both located in Anaheim, California, and Hardees corporate facility, located in St. Louis, Missouri, are leased and contain approximately 21,000, 102,000, 78,000 and 39,000 square
feet, respectively.





Item 3. Legal Proceedings





There are currently a number of lawsuits pending against us. These lawsuits cover a variety of
allegations spanning our entire business. The following is a brief description of the more significant of these categories of lawsuits. In addition, we are subject to various federal, state and local regulations that affect of our business. We do
not believe that any such claims, lawsuits or regulations will have a material adverse effect on the financial condition or results of operations of the Company.




CKE RESTAURANTS, INC.




17




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Employees


We employ many thousands of persons, both by
us and in restaurants owned and operated by subsidiaries of ours. 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, to operate our restaurants. On occasion,
disputes arise between us and our suppliers on a number of issues including, but not limited to, compliance with product specifications and our business relationship with suppliers. Additionally, disputes may arise on a number of issues between us
and individuals or entities who claim they should have been granted the 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,
occasional disputes arise between the Company and its franchisees relating to a broad range of subjects including, without limitation, quality, service and cleanliness issues, contentions regarding grants or terminations of franchises, and
delinquent payments. Additionally, on occasion disputes arise between us and individuals who claim they should have been granted a franchise.





Summary
of Significant Pending Litigation


On October 3, 2001, an action was filed by Adam Huizar and Michael Bolden, individually and on behalf of all others similarly situated, in the Superior
Court of the State of California, Los Angeles County, seeking class action status and alleging violations of California wage and hour laws. On April 5, 2002, a similar action was filed by Mary Jane Amberson, individually and on behalf of others
similarly situated, in the Superior Court of the State of California, Alameda County. The complaints allege that salaried restaurant management personnel at our Carls Jr. restaurants in California were improperly classified as exempt from
California overtime laws, thereby depriving them of overtime pay. The complaints seek damages in an unspecified amount, injunctive relief, prejudgment interest, costs and attorneys fees. We believe our employee classifications are appropriate,
that we comply with state and federal wage and hour laws and plan to vigorously defend these actions.





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





None.




CKE RESTAURANTS, INC.




18




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Part II





Item 5. Market For Registrants Common Equity and Related Stockholder Matters





Our common stock is listed on the New York
Stock Exchange under the symbol CKR. As of April 5, 2002, there were approximately 1,950 record holders of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common
stock, as reported on the New York Stock Exchange Composite Tape:





High

LowFiscal 2002First Quarter

$
3.80

$
2.05Second Quarter


5.40


2.28Third Quarter


7.80


5.06Fourth Quarter


10.30


7.00Fiscal 2001First Quarter

$
7.00

$
3.25Second Quarter


3.63


2.63Third Quarter


4.56


2.06Fourth Quarter


3.44


2.00





During fiscal 1999, we paid dividends at the annual rate of $0.07 per share (adjusted to give retroactive
effect to 10% stock dividends in February 1998 and January 1999) and at a semi-annual rate of $0.04 per share during fiscal 2000. In fiscal 2001, we paid a semi-annual cash dividend of $0.04 per share in May 2000. In September 2000, our Board of
Directors announced that the Company would not be making the second semi-annual cash dividend payment, scheduled for November 2000. In accordance with our Senior Credit Facility, as amended, we are now prohibited from making any cash dividend
payments to our shareholders and, accordingly, have not declared any cash dividends for fiscal 2002.





Equity Compensation Plan Information





Plan Category

Number of Securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding option 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

7,455,000

$
11.47

275,000(1)Equity compensation plans not approved by security holders(2)

241,000

$
8.39

560,000Total

7,696,000

$
11.37

835,000





|(1) |  | A total of 4.2 million shares of common stock are available for grants of options or other awards under the 1999 stock incentive plan, with the amount of
available shares increased by 350,000 shares on the date of each annual meeting of shareholders.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Represents options that are part of a broad-based plan as defined by the New York Stock Exchange. See Note 21 of Notes to the Consolidated Financial
Statements.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




19




---




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 Form 10-K. Per share data has been retroactively adjusted for stock splits and stock dividends.





Selected Financial and Operating Data





(In thousands except per share amounts, restaurant counts, and percentages)

Fiscal-year-ended-as-of-January 31,(1)(4)2002


2001


2000(2)


1999(2)


1998(3)Consolidated Statements of Operations Data:Total revenue(7)

$
1,438,127


$
1,784,784


$
1,990,073


$
1,892,044


$
1,149,659Operating income (loss)(7)


(26,293
)


(131,994
)


63,055



168,220



86,191Interest expense(7)


57,659



70,541



63,283



43,453



16,914Net income (loss)(5)


(83,956
)


(194,116
)


(29,117
)


77,712



46,757Net income (loss) per share  diluted

$
(1.66
)

$
(3.84
)

$
(0.56
)

$
1.37


$
0.97Weighted average paid per common share


50,507



50,501



51,668



56,714



48,121Cash dividends paid per common share

$



$
0.04



0.08


$
0.07


$
0.07Ratio of earnings to fixed charges(6)










0.5
x


2.8
x


3.2
xConsolidated Balance Sheet Data:Total assets(7)

$
931,589


$
1,207,537


$
1,568,514


$
1,496,914



957,144Total long-term debt and capital lease obligations, including current portion


445,117



624,335



741,419



625,393



216,905Stockholders equity

$
261,666


$
349,557


$
545,757


$
586,842



498,512





|(1) |  | Our fiscal year is 52 or 53 weeks, ending the last Monday in January. For clarity of presentation, all years are presented as if the fiscal year ended January
31. Fiscal 2000 includes 53 weeks. Fiscal 2002, 2001, 1999 and 1998 include 52 weeks.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Fiscal 1999 includes operating results of FEI from and after April 1, 1998.
|--- |  | ---------------------------------------------------------------------------




|(3) |  | Fiscal 1998 includes operating results of Hardees from and after July 15, 1997. Share and per share data were also affected during fiscal 1998 by a public
offering of 10,088,375 shares of common stock, completed in July 1997.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Fiscal 2002, 2001, 2000, 1999 and 1998 include $43.1 million, $219.0 million, $209.5 million, $229.5 million and $282.2 million, respectively, of revenue
generated from other restaurant concepts we acquired prior to fiscal 1998, and have since sold. See Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(5) |  | Net income (loss) for fiscal 2000 and 1999 includes an extraordinary gain of $0.3 million and $3.3 million, respectively, net of applicable income tax expense,
on early retirement of debt. Fiscal 2002, 2001 and 2000 also include repositioning charges $76.9 million, $146.4 million and $29.4 million, respectively. See Item 7  Managements Discussion and Analysis of Financial Condition and Results
of Operations.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(6) |  | For purposes of calculating the ratio of earnings to fixed charges (a) earnings represent income (loss) before income taxes and extraordinary item 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). Earnings were insufficient to cover fixed charges for the years ended January 28, 2002 and January 29, 2001 by $84.5 million and $205.3 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(7) |  | Certain reclassifications to prior year amounts were made to conform to fiscal 2002 presentation.
|--- |  | -------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




20




---




Fiscal year ended January 31,(1)2002


2001


2000(2)


1999(2)


1998Carls Jr. RestaurantsRestaurants open (at end of fiscal year):Company-operated


443



491



563



539



443Franchised and licensed


526



486



371



322



265Total


969



977



934



861



708Systemwide restaurant revenue:Company-operated restaurants

$
516,998


$
604,928


$
613,155


$
535,038


$
488,495Franchised and licensed restaurants


586,144



432,387



306,564



261,341



214,534Total systemwide revenue

$
1,103,142


$
1,037,315


$
919,719


$
796,379


$
703,029Average annual sales per company- operated restaurant(3)

$
1,204


$
1,078


$
1,086


$
1,185


$
1,157Percentage increase (decrease) in comparable company-operated restaurant sales(4)


2.9
%


1.8
%


(3.0
)%


3.0
%


4.8
%Company-operated restaurant-level operating margins:


19.9
%


19.4
%


22.8
%


25.9
%


24.2
%Fiscal year ended January 31,2002


2001


2000


1999(5)


1998(6)Hardees RestaurantsRestaurants open (at end of fiscal year):Company-operated


742



923



1,354



1,403



863Franchised and licensed


1,648



1,737



1,434



1,401



2,175Total


2,390



2,660



2,788



2,804



3,038Systemwide restaurant revenue:Company-operated restaurants

$
614,291


$
855,060


$
1,096,805


$
1,063,075


$
339,942Franchised and licensed restaurants


1,390,072



1,370,656



1,219,229



1,412,929



1,123,034Total systemwide revenue

$
2,004,363


$
2,225,716


$
2,316,034


$
2,476,004


$
1,462,976Average annual sales per company-operated restaurant(3)

$
763


$
715


$
769


$
793


$
803Percentage increase (decrease) in comparable company-operated restaurant sales(4)


0.1
%


(7.6
)%


(5.0
)%


(7.5
)%


(7.2
)%Company-operated restaurant-level operating margins:


9.6
%


(2.7
)%


9.7
%


16.7
%


12.9
%





|(1) |  | Our fiscal year is 52 or 53 weeks, ending the last Monday in January. For clarity of presentation, all years are presented as if the fiscal year ended January
31. Fiscal 2000 includes 53 weeks. Fiscal 2002, 2001, 1999 and 1998 include 52 weeks.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | The Hardees-to-Carls Jr. converted restaurants operating in Oklahoma, Kansas and Texas are included in the number of Carls Jr. restaurants
open at January 31, 2002, 2001, 2000 and 1999. The operating results of these restaurants, however, are included in the Carls Jr. financial information beginning in fiscal 2000. In fiscal 1999 and prior, these operating results are included as
part of Hardees financial results. There were 63 company-operated and franchised restaurants open during fiscal 1999 and 64 company-operated and franchised restaurants open during fiscal 2000 in these markets.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Calculated on a 52-week trailing basis for all years presented.
|--- |  | ---------------------------------------------------------------




|(4) |  | Includes only restaurants open throughout the full years being compared.
|--- |  | ------------------------------------------------------------------------




|(5) |  | Fiscal 1999 includes operating results of FEI from and after April 1, 1998.
|--- |  | ---------------------------------------------------------------------------




|(6) |  | Includes results of operations for Hardees from and after July 15, 1997.
|--- |  | -------------------------------------------------------------------------



CKE RESTAURANTS, INC.




21




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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 Form 10-K.





Overview


We are a nationwide owner, operator and franchisor of quick-service restaurants, operating principally under the Carls Jr. and
Hardees brand names. Based on domestic systemwide sales, our Hardees and Carls Jr. chains are the seventh and eleventh largest quick-service hamburger restaurant chains in the United States, respectively (according to Finance
Corporation of Americas 2001 Chain Restaurant Industry Review and Outlook Report, based on system-wide sales). As of January 31, 2002, the Carls Jr. system included 969 restaurants, of which we operated 443 restaurants and our
franchisees and licensees operated 526 restaurants. The Carls Jr. restaurants are located in the Western United States, predominantly in California. As of January 31, 2002, the Hardees system consisted of 2,390 restaurants, of which we
operated 742 restaurants and our franchisees and licensees operated 1,648 restaurants. Hardees restaurants are located primarily throughout the Southeastern and Midwestern United States.





We derive our revenue primarily from sales by company-operated restaurants and revenue from franchisees, including franchise and royalty fees, sales to Carls Jr. franchisees and licensees of food and
packaging products, rentals 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. Operating costs of our franchised and licensed restaurants include the cost of food and packaging products sold to Carls Jr.s franchisees and licensees, lease payments on
properties subleased to our franchisees and the costs of equipment purchases. Other operating expenses, including advertising expenses and general and administrative expenses, relate to company-operated restaurants as well as franchisee and licensee
operations. 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.





Factors Affecting Comparability of Fiscal Years 2002, 2001 and 2000


Our fiscal year results in a fifty-third week every fifth or sixth year. Fiscal 2000
includes 53 weeks of operations. Fiscal 2002 and 2001 include 52 weeks of operations.




CKE RESTAURANTS, INC.




22




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Our results reflect the substantial changes we have made in executing our business turnaround including the sale and
closure of restaurants, the reduction of corporate overhead and our efforts to improve margins and repay down bank indebtedness. The table below is a condensed presentation of those activities, and other changes in the components of income, designed
to facilitate the discussion of results in this Form 10-K. As shown, the sale and closure of restaurants involved in facility actions caused a reduction in operating earnings of $9.7 million and $40.3 million in fiscal 2002 and 2001,
respectively. These amounts include field-level general and administrative expenses. In order to sell restaurants to franchisees to generate funds to repay bank indebtedness, we had to sell restaurants that generated positive cash flows. The bulk of
these sales occurred in fiscal 2001 and, accordingly, the disposition of these restaurants resulted in a reduction of operating income. Additionally, we closed more unprofitable restaurants in the current fiscal year as compared to the prior year.





(All amounts are approximate and in millions)

Fiscal year 2002 vs. Fiscal year 2001


Fiscal year 2001 vs. Fiscal year 2000Current Year Analyzed:Reported net loss under generally accepted accounting principles

$
(84.0
)

$
(194.1
)Repositioning activities:Facility action charges, net


71.4



144.6Write-off of deferred financing costs


4.1



1.8Severance


1.4



Repositioning subtotal


76.9



146.4Year analyzed results without repositioning activities

$
(7.1
)

$
(47.7
)Year Compared To:Reported net loss under generally accepted accounting principles

$
(194.1
)

$
(29.1
)Repositioning activities:Facility action charges, net


144.6



26.8Write-off of deferred financing costs


1.8



3.6Severance






(1.0
)Repositioning subtotal


146.4



29.4Prior year results without repositioning activities

$
(47.7
)

$
0.3Increase (decrease) in earnings, without repositioning activities

$
40.6


$
(48.0
)Items causing earnings to increase (decrease) from the prior year to the year being analyzed:(Increase) reduction in corporate overhead


21.0



(12.4
)(Increase) reduction in interest expense


15.2



(3.8
)Approximate operating income of restaurants involved in facility actions


(9.7
)


(40.3
)Increase in net franchising income


8.6



18.0Approximate store margin improvement (decline) in stores owned at January 28, 2002 and January 29, 2001,
respectively.


6.1



(36.0
)Increase (decrease) in distribution center income


2.9



(9.4
)Favorable (unfavorable) claim development/settlement on insurance programs


2.9



(7.3
)(Increase) decrease in the provision for doubtful accounts


(2.7
)


5.3Reduction in advertising expenses


1.9



2.5One time franchising agreement settlement fee


1.8



Write down of investments






37.3Write-off of distribution center software






9.1Change in income taxes


(10.6
)


(7.2
)All other, net


3.2



(3.8
)Increase (decrease) in earnings, without repositioning charges

$
40.6


$
(48.0
)




CKE RESTAURANTS, INC.




23




---




Restaurant Portfolio Strategy


As described above, in
late fiscal 2000 we embarked on a re-franchising initiative to generate cash to reduce outstanding borrowings on our Senior Credit Facility, as well as increase the number of franchise-operated restaurants. Additionally, as sales trends for the
Hardees restaurants and certain Carls Jr. restaurants (primarily in the Oklahoma area) continued to decline in fiscal 2000 through fiscal 2001, we determined that it was necessary to close certain restaurants for which a return to
profitability was not likely. These repositioning activities resulted in the charges generally reflected in our financial statements as facility action charges. We have made reductions to operating expenses in an effort to bring them to levels
commensurate with our re-balanced restaurant portfolio.





During fiscal 2002, we recorded repositioning charges of $76.9 million. These charges, which
were primarily non-cash in nature, consisted of net facility action charges of $71.4, a charge of $4.1 million recorded as interest expense reflecting the write-off of deferred loan costs as a result of modification of our credit facility and $1.4
million relating to severance costs. During fiscal 2001 and 2000, we recorded repositioning charges of $146.4 million and $29.4 million, respectively, relating primarily to facility action charges.





We believe we have substantially completed our repositioning activities and are now able to focus on the operations of our core brands, Carls Jr. and Hardees. We
have substantially completed the closure of under-performing restaurants. However, there can be no guarantee that we will not determine in the future that additional repositioning activities will be necessary or that we would not take advantage of
opportunities to further improve our financial position through additional restaurant asset sales which could result in losses, which may be material. Our management team remains focused on revitalizing Hardees. Even though Hardees has
experienced three consecutive quarters of same-store sales increases this year for the first time in many years (see discussion below), Hardees is still an under-performing brand. In June 2001, we took a more basic approach to addressing the
issues in the Hardees restaurants and launched a program focused on quality, service and cleanliness. That program focuses on the fundamentals of restaurant operations: hiring good people, focusing them on the guests, serving hot quality food,
and keeping the restaurants clean. We have returned to salaried managers running the restaurants, which provides an extra manager to hire, train and manage our workforce. We have implemented a new incentive compensation plan to focus our operators
on building sales, providing service to our guests and reducing work injuries. Additionally, we have acknowledged regional differences by adjusting product promotions and advertising to a regional scope. The continuation of our business turnaround
is based on the following next steps:





| |  |  | Re-define the Hardees brand image so that we re-connect with todays customer;
| | - |  | -------------------------------------------------------------------------------




| |  |  | Deliver premium products to our customers;
| | - |  | ------------------------------------------




| |  |  | Contain costs;
| | - |  | --------------




| |  |  | Grow our brands;
| | - |  | ----------------




| |  |  | Integrate the SBRG brands  LaSalsa, Green Burrito and Timber Lodge; and
| | - |  | ------------------------------------------------------------------------




| |  |  | Continue our focus on improving our restaurant operations so that each restaurant visit is a satisfying one for our customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------




If we are unable to continue the recent sales and operating margin improvements at Hardees, it would significantly affect our future profitability and cash flows. Such
circumstances would affect our ability to access both the amount and terms of financing available to us in the future, (See Financial Condition section below).




CKE RESTAURANTS, INC.




24




---




The asset sales arising from our repositioning activities have resulted, and will continue to result, in a decline in
restaurant revenue and costs simply because we operate fewer restaurants. Additionally, we expect the closure of unprofitable restaurants to improve our future overall profit margin. The following table summarizes the historical operating results of
restaurants that we sold, closed or identified to be closed:





Fiscal Year 2002


Fiscal Year 2001(Dollars in thousands)

No. Of Stores

Revenue

Operating Income/ (Loss)(1)


Revenue

Operating Income/ (Loss)(1)Carls Jr.Stores sold

119

$
12,141

$
884


$
114,547

$
14,990Stores closed or to be closed

32


2,261


(956
)


14,321


(3,748
)Subtotal

151


14,402


(72
)


128,868


11,242HardeesStores sold

351


8,926


(1,488
)


164,175


1,230Stores closed or to be closed

273


35,251


(9,301
)


126,856


(14,842
)Subtotal

624


44,177


(10,789
)


291,031


(13,612
)Rallys stores sold

21


5,557


160



12,201


363Taco Bueno stores sold

125


37,538


3,693



97,316


(3.545
)TotalStores sold

762


64,162


3,249



388,239


13,038Stores closed or to be closed

305


37,512


(10,257
)


141,171


(18,590
)Total

1,067

$
101,674

$
(7,008
)

$
529,416

$
(5,552
)





|(1) |  | Represents the operating income (loss) before corporate general and administrative expenses associated with these stores that is included in our Consolidated
Statements of Operations for the fiscal year noted.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




As a result of these circumstances, we have reduced costs, principally general
and administrative expenses, which included a reduction in headcount as well as other expenses.





Franchise operations


From time to time, some of our franchise operators experience financial difficulties with respect to their franchise operations. A number of franchise operators in the Hardees system have experienced significant
financial problems. We are working with them in an attempt to maximize our future franchising income. During the fourth quarter, we recorded a charge of approximately $6 million related to one of those franchisees who is closing about 20 restaurants
subleased to him by Hardees. We also recorded bad debt expense related to the another franchisee who is experiencing financial difficulties and we believe may be unable to repay its note to us.





There are a number of courses of action available in these situations. They include, but are not limited to, a sale of some or all of the franchise operators restaurants
to us or another Hardees franchisee, a modification to the franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover our costs of service over the life of the
franchise agreement we record the estimated loss at the time we modify the agreement), a restructuring of the franchisees business and/or finances, or, if necessary, a termination of the franchise agreement. We have increased the allowance for
doubtful accounts at Hardees from 38% of the gross balance of accounts and notes receivable at the beginning of the year to 49% at the end of the year. On a quarterly basis, we assess our exposure from franchise-related risks, which include
estimated uncollectibility of accounts receivable related to unpaid royalties and advertising fees, contingent lease liabilities, guarantees to support certain third party financial arrangements with franchisees and potential claims by franchisees.
Although the ultimate impact of these franchise financial issues cannot be predicted with certainty at this time, we have provided for the current estimate of our probable loss as of January 28, 2002. However, there can be no assurance that the
number of franchise operators or franchised restaurants experiencing financial difficulties will not change from our current estimates, nor can there be any assurance that we will be successful in resolving financial issues relating to any specific
franchise operator.




CKE RESTAURANTS, INC.




25




---




Our franchise agreements typically have terms of 20 years. We are now beginning to see agreements come up for renewal.
There are 18 Carls Jr. franchise agreements, pertaining to 27 restaurants, maturing during the next year. Additionally, there are 23 Hardees franchise agreements, pertaining to 52 restaurants, maturing during the same period. In the
event those agreements are not renewed, we would suffer a loss of revenue.





The discussion of our financial condition and our results of operations that
follows is based on the consolidated financial statements as presented on pages 42 through 75.





Fourth Quarter Adjustments


During the fourth quarter of fiscal 2002, we recorded facility action charges of $10.6 million. These charges consisted of (a) an impairment charge of $5.8 million, (b) store closure expense and goodwill
impairment of $6.2 million for Hardees restaurants formerly operated by a franchisee and for which the we are the primary obligor on the leases, and (c) net gains on the sale of restaurants to franchisees and surplus properties of $1.4
million.





During the fourth quarter of fiscal 2001, we recorded facility action charges of $93.3 million. These charges, which were primarily non-cash in
nature, consisted of (a) a $19.1 million restaurant closure reserve for approximately 80 Hardees and approximately 20 Carls Jr. restaurants that we have closed or plan to close, (b) an impairment charge of $76.8 million for certain
restaurants that we will close or for restaurants that we plan to continue to operate but for which the net book value is not supported by future estimated cash flows, (c) a credit for a net $11.3 million gain on the sale of restaurants sold to
franchisees, and (d) a loss of $8.7 million from the sale of Taco Bueno.





Operating Review


The following table sets forth the percentage relationship to total revenue, unless otherwise indicated, of certain items included in our consolidated statements of operations for the years indicated:





Fiscal year ended January 312002


2001


2000Revenue:Company-operated restaurants

81.7
%

87.9
%

91.2
%Franchised and licensed restaurants and other

18.3


12.1


8.8Total revenue

100.0
%

100.0
%

100.0
%Operating costs and expenses:Restaurant operations(1):Food and packaging

30.3


30.9


30.5Payroll and other employee benefits

32.5


32.8


31.2Occupancy and other operating expenses

22.7


23.4


21.1Franchised and licensed restaurants and other(2)

77.1


74.1


73.1Advertising expenses(1)

6.2


6.4


6.7General and administrative expenses

7.8


8.1


7.4Facility action charges (gains), net

5.0


8.1


(1.4
)Operating income (loss)

(1.8
)

(7.4
)

3.2Interest expense

(4.0
)

(4.0
)

(3.2
)Other expense, net




(0.2
)

(2.4
)Loss before income taxes and extraordinary item

(5.9
)

(11.5
)

(2.4
)Income tax benefit

0.1


(0.6
)

(0.9
)Loss before extraordinary item

(5.8
)

(10.9
)

(1.5
)Extraordinary item  gain on early retirement of debt







Net loss

(5.8
)%

(10.9
)%

(1.5
)%





|(1) |  | As a percentage of revenue from company-operated restaurants.
|--- |  | -------------------------------------------------------------




|(2) |  | As a percentage of revenue from franchised and licensed restaurants and other.
|--- |  | ------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




26




---




The following tables are presented to facilitate Managements Discussion and Analysis and is presented in the same
format as we present segment information (see Note 20 of Notes to the Consolidated Financial Statements).





Fiscal Year 2002(Dollars in thousands, except average check data)

Carls


Hardees


Other


TotalCompany-operated sales

$
516,998


$
614,291


$
43,095


$
1,174,384Company-operated same-store sales increase


2.9
%


0.1
%Franchise-operated same-store sales increase (decrease)


2.4
%


(1.2
)%Operating costs (as a % of co.-operated sales):Food and paper


29.0
%


31.5
%Payroll and other employee benefits


29.1
%


35.3
%Occupancy and other operating costs


22.0
%


23.6
%Gross margin


19.9
%


9.6
%Franchising revenue:Royalties

$
19,830


$
46,264






$
66,094Distribution center


145,733



13,231







158,964Rent


20,741



14,108







34,849Other


1,259



2,577







3,836Total franchising revenue

$
187,563


$
76,180






$
263,743Franchising expense:Administrative expense (including provision for accounts receivable bad debts)

$
2,459


$
13,267






$
15,726Distribution center


142,353



14,999







157,352Rent and other occupancy


20,898



9,388







30,286Total franchising expense

$
165,710


$
37,654






$
203,364Net franchising income

$
21,853


$
38,526






$
60,379Operating income (loss)

$
58,374


$
(70,258
)

$
(14,409
)

$
(26,293
)Facility action charges, net


942



65,740



4,707



71,389Operating income (loss) excluding facility action charges, net

$
59,316


$
(4,518
)

$
(9,702
)

$
45,096EBITDA(A)

$
78,477


$
(30,290
)

$
(3,899
)

$
44,288Facility action charges, net


942



65,740



4,707



71,389EBITDA excluding facility action charges, net

$
79,419


$
35,450


$
808


$
115,677




CKE RESTAURANTS, INC.




27




---




Fiscal Year 2001(Dollars in thousands, except average check data)

Carls


Hardees


Other


TotalCompany-operated sales

$
604,927


$
855,060


$
109,517


$
1,569,504Company-operated same-store sales increase (decrease)


1.8
%


(7.6
)%Franchise-operated same-store sales increase (decrease)


4.7
%


(4.7
)%Operating costs (as a % of co.-operated sales):Food and paper


29.6
%


32.1
%Payroll and other employee benefits


29.0
%


35.5
%Occupancy and other operating costs


22.0
%


24.9
%Gross margin


19.4
%


7.5
%Franchising revenue:Royalties

$
13,686


$
45,946






$
59,632Distribution center


100,717



23,461







124,178Rent


11,650



8,996







20,646Other


2,504



8,320







10,824Total franchising revenue

$
128,557


$
86,723






$
215,280Franchising expense:Administrative expense (including provision for accounts receivable bad debts)

$
4,184


$
12,790






$
16,974Distribution center


98,439



27,076







125,515Rent and other occupancy


13,092



3,903







16,995Total franchising expense

$
115,715


$
43,769






$
159,484Net franchising income

$
12,842


$
42,954






$
55,796Operating income (loss)

$
73,871


$
(185,489
)

$
(20,376
)

$
(131,994
)Facility action charges (gains), net


(29,959
)


165,901



8,700



144,642Operating income (loss) excluding facility action charges

$
43,912


$
(19,588
)

$
(11,676
)

$
12,648EBITDA(A)

$
100,732


$
(123,759
)

$
(9,563
)

$
(32,590
)Facility action charges (gains), net


(29,959
)


165,901



8,700



144,642EBITDA excluding facility action charges

$
70,773


$
42,142


$
(863
)

$
112,052




CKE RESTAURANTS, INC.




28




---




Fiscal Year 2000(Dollars in thousands, except average check data)

Carls


Hardees


Other


TotalCompany-operated sales

$
613,155


$
1,096,805


$
104,735


$
1,814,695Company-operated same-store sales increase (decrease)


(3.0
)%


(5.0
)%Franchise-operated same-store sales increase (decrease)


(0.6
)%


(1.3
)%Operating costs (as a % of co.-operated sales):Food and paper


29.2
%


31.4
%Payroll and other employee benefits


27.0
%


33.5
%Occupancy and other operating costs


21.0
%


21.5
%Gross margin


22.8
%


13.6
%Franchising revenue:Royalties


10,273



42,419







52,692Distribution center


80,094



27,876







107,970Rent


9,879



1,037







10,916Other


1,103



2,697







3,800Total franchising revenue


101,349



74,029







175,378Franchising expense:Administrative expense (including provision for accounts receivable bad debts)


4,719



12,929







17,648Distribution center


78,881



21,006







99,887Rent and other occupancy


9,554



1,039







10,593Total franchising expense


93,154



34,974







128,128Net franchising income


8,195



39,055







47,250Operating income (loss)

$
73,369



(1,935
)

$
(8,379
)

$
63,055Facility action charges (gains), net


(12,200
)


39,002







26,802Operating income (loss) excluding facility action charges, net

$
61,169



37,067


$
(8,379
)

$
89,857EBITDA(A)

$
102,900


$
43,310


$
(32,805
)

$
113,405Facility action charges (gains), net


(12,200
)


39,002







26,802EBITDA excluding facility action charges, net

$
90,700


$
82,312


$
(32,805
)

$
140,207





|(A) |  | EBITDA, is not a recognized term under generally accepted accounting principles. EBITDA
represents net income before interest, taxes, depreciation and amortization. Because not all companies calculate EBITDA identically, our use of EBITDA may not be comparable to other similarly titled measures of other companies.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




29




---




Fiscal 2002 Compared with Fiscal 2001 and Fiscal 2001 Compared with Fiscal 2000





Carls Jr.


During the year, we sold 30 restaurants to franchisees, closed 24, acquired 1 from a franchisee
and opened 5. Carls Jr. franchisees and licensees opened 25 new restaurants, acquired 30 from us, sold 1 to us, and closed 14. As of January 28, 2002, the Carls Jr. system consisted of the following:





Restaurant Portfolio

Fiscal Year Revenue(Dollars in millions)

2002

2001

2002

2001

ChangeCompany

443

491

$
517.0

$
604.9

$
(87.9
)Franchised and licensed

526

486


187.6


128.6


59.0Total

969

977

$
704.6

$
733.5

$
(28.9
)





Revenue from company-operated Carls Jr. restaurants decreased $87.9 million, or 14.5%, to $517.0
million during fiscal year 2002, as compared to fiscal 2001, and revenue declined $8.3 million or 1.4% when comparing fiscal 2001 to fiscal 2000. The decrease in revenue is due primarily to the sale of company-operated restaurants to franchisees, as
well as the closure of certain underperforming company-operated restaurants. The table above provides a comparison of the number of company-operated restaurants at the end of fiscal year 2002 and 2001 with the revenue earned. Same-store sales for
company-operated Carls Jr. restaurants increased 2.9% during fiscal 2002, on top of a 1.8% increase the prior year. Carls Jr. company-operated restaurants average unit volumes were $1.204 million for the trailing thirteen periods
ended January 28, 2002. Net franchising income increased $9.0 million or 70.2% during fiscal 2002, as compared to the fiscal year 2001 and $4.6 million or 56.7% when comparing fiscal 2001 to 2000. This increase is due primarily to increased
royalties from the sale of restaurants to franchisees and lower administrative costs.





Restaurant-level margins for our company-operated Carls Jr.
restaurants were 19.9% during fiscal 2002, a slight increase from the 19.4% operating margin achieved during fiscal 2001. The increase in margins is due to (i) decreased food and packaging costs, which were down 0.6% during fiscal 2002 as compared
to fiscal 2001, from 29.6% to 29.0% as a percentage of company-operated restaurant revenue, (ii) an increase in payroll and other employee benefits, which increased 0.1% in the current year as compared to the prior year, from 29.0% to 29.1% as a
percentage of company-operated restaurant revenue, and (iii) flat occupancy and other expense. The decrease in food and packaging is primarily due to a shift in focus to high margin, premium products. The slight increase in payroll and other
employee benefits is due to a mid-year increase in the minimum wage rate in California and Washington that was partially offset by lower workers compensation costs. Occupancy and other operating expenses remained flat because reduced
depreciation levels due to cumulative asset impairment charges reducing the depreciable base of restaurants this year and a reduction in restaurant operating costs due to renegotiated service contracts, which were offset by higher repair and
maintenance costs. Carls Jr. fiscal 2001 company-operated restaurant-level margins were 3.4% lower than fiscal 2000. Food and packaging costs increased 0.4%, mainly due to increases in certain commodity costs during the year (primarily beef
and bacon) and the introduction of a plastic cup that has a higher cost than the traditional paper cup. Payroll and employee benefit expenses increased 2.0%, primarily due to an increase in the actuarially determined liability for our workers
compensation program and a tighter labor market. Occupancy and other operating expenses increased 1.0%, which was attributable to increased energy costs in California and higher rent costs arising from sales leaseback transactions.





Currently, the legislature of the State of California is considering a bill which, if passed by two-thirds majorities in both Californias Senate and Assembly,
would implement a surtax of $2 per gallon of beverage syrup and 21 cents per gallon for bottled, canned or reconstituted drinks sold in California. We have not determined the financial impact that passage of this bill would have on our business.




CKE RESTAURANTS, INC.




30




---




Hardees


During fiscal 2002, we acquired 5
restaurants from franchisees, sold 27 to franchisees and closed 159 restaurants. Hardees franchisees and licensees opened 22 new restaurants, acquired 27 restaurants from us, sold 5 to us and closed 132. As of January 28, 2002, the
Hardees system consisted of the following:





Restaurant Portfolio

Fiscal Year Revenue(Dollars in millions)

2002

2001

2002

2001

ChangeCompany

742

923

$
614.3

$
855.1

$
(240.8
)Franchise and licensed

1,648

1,737


76.2


86.7


(10.5
)Total

2,390

2,660

$
690.5

$
941.8

$
(251.3
)





Revenue from company-operated Hardees restaurants decreased $240.8 million, or 28.2%, to $614.3
million for the year ended January 28, 2002, when compared to the prior year, and decreased $241.7 million, or 22.0% when comparing fiscal 2001 to fiscal 2000. The decrease in revenue for both time periods is due primarily to the sale of
company-operated restaurants to franchisees, as well as the closure of certain underperforming company-operated restaurants. The table above provides a comparison of the number of company-operated restaurants at the end of fiscal year 2002 and 2001
with the revenue earned. Same-store sales during fiscal 2002 for company-operated Hardees restaurants increased 0.1% during the current year and Hardees company-operated restaurant average unit volumes were $763,000 for the trailing
thirteen periods. During fiscal 2001, company-operated Hardees restaurants had same-store sales decline 7.6% and average unit volumes of $715,000.





Net franchising income decreased $4.4 million or 10.3% during fiscal 2002, as compared to the prior fiscal year. This decrease is due primarily to the decreased revenue at Hardees equipment division because franchisees remodeled more
restaurants in fiscal 2001 than they did in fiscal 2002. and the fact that the increased royalties we received from new franchisees in the current year was less than the franchise fees we received last year when we were selling restaurants. During
fiscal 2001, Hardees net franchising income increased $3.9 million, as compared to fiscal 2000, primarily due to the increased number of company-operated restaurants sold to franchisees.





Restaurant-level margins for company-operated Hardees restaurants increased 2.1% during fiscal 2002, when measured as a percentage of company-operated restaurant revenue, from 7.5% to 9.6%. Food and
packaging costs decreased 0.6%. Payroll and other employee benefits decreased 0.2% in the current year. Occupancy and other operating expenses decreased 1.3% in the current year. Our improved margin was due to the closing of unprofitable
restaurants, a focus on premium products and less discounting, improved self-insurance claims management, and reduced comparative deprecation levels due to a reduced depreciable base of restaurants, partially offset by increased repair and
maintenance expenses to improve the visual appeal of our restaurants. During fiscal 2001, Hardees company-operated restaurant margins decreased from 13.6% to 7.5%. Our fixed and semi-fixed costs, as a percentage of revenue vary greatly with
changes in restaurant sales. As same-store sales decline at Hardees, fixed and semi-fixed costs such as rent and restaurant management represent a higher percentage of revenue even though the dollar amount remains relatively the same.





Taco Bueno


Taco Buenos restaurant-level operating margins were 20.5% in fiscal
2002, a 0.7% decline from fiscal 2001. In fiscal 2001, restaurant-level operating margins were 21.2%, a decrease of 3.3% from fiscal 2000. The decrease in fiscal 2002 was due to increased food and paper costs, partially offset by lower occupancy and
other expenses. The 3.3% decrease in margins during fiscal 2001 was a result of increased labor costs resulting from a tight labor market in Texas and Oklahoma, as well as an increase in the workers compensation insurance reserve due to an
actuarially determined liability. Taco Bueno was sold during the second quarter of fiscal 2002 (see Note 5 of Notes to the Consolidated Financial Statements). In addition, the sale of the Taco Bueno brand has and will continue to result in less
operating income than reported in prior periods.




CKE RESTAURANTS, INC.




31




---




Other Consolidated Expenses


Advertising expenses
decreased $27.0 million, or 27.0%, to $73.2 million during fiscal 2002. Advertising expenses, as a percentage of company-operated revenue, have decreased slightly from 6.4% to 6.2%. This is due to the enhanced commercial production cost management
and more effective utilization of point-of-purchase sales materials. During fiscal year 2001, advertising expenses decreased $21.5 million, or 17.7% as compared to fiscal year 2000, due to significantly higher expenditures for special advertising
campaigns during fiscal 2000.





General and administrative expenses decreased $33.7 million or 23.2% year ended January 28, 2002, as compared to the prior
fiscal year and were 7.8% of total revenue. This decrease is primarily due to lower corporate and field salaries due to a decrease in headcount this year, as well as reduced consulting and professional service expenses, which were partially offset
by increased relocation costs due to the completion of the relocation of Hardees corporate offices to St. Louis, Missouri and the relocation of our executive offices to Santa Barbara, California. This decline from the prior year is consistent
with our goal to have general and administrative expenses be commensurate with our mix of company-operated and franchise-operated restaurants.





During
fiscal 2001, general and administrative expenses decreased $2.0 million or 1.4% and were 8.1% of total revenue, compared to 7.4% of total revenue during fiscal 2000. The increase as a percentage of revenue was primarily due to the fact that our
costs in fiscal 2001 had not declined as quickly as our revenue had, and that we incurred added contract labor during the first two quarters of fiscal 2001 relating to information technology support and depreciation on computer systems that were
installed in the prior year. Additionally, in the early part of fiscal 2001, we incurred significant recruiting expenses to fill open positions. Prior to filling these positions, temporary labor was used to fill these vacancies. We also incurred
$8.5 million of charges, in fiscal 2000, including: (a) $2.1 million of restructuring charges in connection with consolidating certain administrative functions from Rocky Mount, North Carolina to Anaheim, California; (b) $2.6 million of Y2K
expenses associated with restaurant computer systems; (c) $6.6 million in capitalized software development costs which were written-off because they will not by utilized; (d) $1.7 million in additional vacation expense in connection with a change in
our vacation policy; (e) offset by $2.8 million gain on the sale of an aircraft that we acquired in connection with the original Hardees acquisition; and (f) $1.7 million in other miscellaneous items.





In November 1999, we decided that we would consolidated the majority of the corporate functions of our Hardees subsidiary, located in Rocky Mount, North Carolina, within
our corporate headquarters in Anaheim, California, creating a single support and administrative center for our Carls Jr., Hardees and Taco Bueno restaurants. During the fourth quarter of fiscal 2000, we incurred a charge of $2.1 million
of termination benefits for approximately 150 employees that were laid off during fiscal 2001.





Interest Expense


Interest expense for fiscal 2002 decreased $12.9 million or 18.3% as compared with fiscal 2001. This decrease was due to lower levels of borrowings outstanding under our Senior Credit Facility throughout the fiscal
year. During fiscal 2001, we had increased levels of borrowing on our Senior Credit Facility and incurred an entire year of interest expense on our $200.0 million, 9.125% senior subordinated notes, while in fiscal 2000, we incurred only a partial
year of interest expense as the notes were issued during fiscal 2000.





Other Income (Expense), Net


Other income (expense), net, mainly consists of interest income, lease income from parties other than franchisees, dividend income, income, (gain) and loss on long-term investments, and net property management income for sites leased to
third parties. Other income (expense), net was an expense of $588,000 in fiscal 2002. Other income (expense), net in fiscal 2001 was an expense of $2.7 million. The decreased net expense in fiscal 2002 was primarily due to the recognition of a $1.9
million gain on sale of long-term investments. In fiscal 2000, we had other net expense of $47.2 million, which consists primarily of (a) recording an impairment charge and our equity in the operating losses of our investments of $37.3 million to
write-down our investments in Checkers, SBRG, and Boston West to fair market value based upon our conclusion that these investments had experienced an other than temporary decline in value; and (b) writing-off approximately $10.9 million of
Hardees acquisition-related assets which we believe had no future benefit.




CKE RESTAURANTS, INC.




32




---




Income Taxes


As a result of our net operating losses in
fiscal 2002 and 2001, we have recorded a valuation allowance of approximately $82 million for all of our net deferred tax asset at January 28, 2002. While we have been able to carryback approximately $35 million of these losses against amounts
previously paid, we have provided a valuation allowance for the remaining net operating loss carryforward as well as the net deferred tax asset that existed at the beginning of the fiscal year 2001. At January, 28, 2002, the Company had a federal
net operating loss (NOL) carryforward of approximately $44.0 million, expiring in varying amounts in the years 2021 through 2022 and various state NOL carryforwards in varying amounts expiring in the years 2006 through 2022.
Additionally, the Company has an alternative minimum tax credit carryforward of approximately $4.0 million and general business credit carryforwards expiring in varying amounts in the years 2019 through 2022 and foreign tax credits which expire in
varying amounts in the years 2004 through 2006. In fiscal 2000, we recorded income tax at the statutory rates.





We expect to receive a $4.3 million
income tax refund in the first quarter of fiscal year 2003. This refund results from the NOL carryback of our fiscal year 2002 operating loss. We paid Alternative Minimum Tax on our fiscal year 2000 results and will now receive a refund of that tax.





Extraordinary Item


During the third quarter of fiscal 1999, our Board of Directors
approved the buyback of up to $50.0 million aggregate principal amount of convertible subordinated notes. In fiscal 2000, we repurchased $3.0 million of such notes for $2.5 million in cash, including accrued interest thereon. In connection with this
repurchase, we recognized an extraordinary gain on the early retirement of debt of $290,000, net of applicable income taxes of $186,000 for fiscal 2000.





New Accounting Pronouncements Not Yet Adopted


In 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations
(SFAS 141) which supersedes APB Opinion No. 16, Business Combinations. SFAS 141 eliminates the pooling-of-interest methods of accounting for business combinations and modifies the application of the purchase accounting
method. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. The provisions of SFAS 141 were effective for transactions accounted for
using the purchase method that were completed after June 30, 2001. We have used the purchase method for all previous acquisitions and will do so for the acquisition of SBRG (see Note 2 of Notes to the Consolidated Financial Statements).





In 2001, the FASB also issued SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), which supercedes APB Opinion No. 17,
Intangible Assets. SFAS 142 requires that goodwill and other intangible assets be reported separately, eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible
assets with a defined life, and addresses impairment testing and recognition for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible assets arising from transactions completed before and after its effective date. SFAS 142 is
effective for the Company for fiscal year 2003.





SFAS 142 changes the method of accounting for the recoverability of goodwill such that, for the Company,
it will be evaluated at the brand level, based upon the estimated fair value of the brand. Currently, we allocate goodwill to each restaurant and, we evaluate the recoverability of goodwill on a restaurant-by-restaurant basis. Under the SFAS 142,
the valuation methodology is significantly different and could result in a substantial write-down of the recorded goodwill. The impairment review will involve a two-step process as follows:





| |  |  | Step 1  Compare the fair value for each brand to its carrying value, including goodwill. For each brand where the carrying value, including goodwill, exceeds
the brands fair value, move on to step 2. If a brands fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Step 2  Allocate the fair value of the brand to its identifiable tangible and non-goodwill intangible assets and liabilities. This will derive an implied fair
value for the brands goodwill. Then, compare the implied fair value of the reporting brands goodwill with the carrying amount of reporting brands goodwill. If the carrying amount of the reporting brands goodwill is greater
than the implied fair value of its goodwill, an impairment loss must be recognized for the excess.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




33




---




We have not finalized our evaluation of adopting SFAS 142, but do know that approximately $6 million of goodwill
amortization will no longer be recorded as amortization expense in general and administrative costs. We expect upon adoption of this pronouncement that a significant goodwill impairment charge relating to our Hardees brand will be recorded as
a cumulative effect of accounting change in the first quarter of fiscal 2003.





In 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS 143), which will be effective for the Company in the first quarter of fiscal year 2004. SFAS 143 addresses the financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. We have not yet determined the impact of adopting SFAS 143 on our financial statements.





In 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses the impairment for all tangible assets. SFAS 144 will be effective for the
Company in the first quarter of fiscal 2003. We have not yet determined the impact of adopting SFAS No. 144 on the Companys financial statements.





Impact of Inflation


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





Seasonality


Our business is affected by seasonality. Average restaurant sales are normally higher in the summer months than during the winter months for each of our restaurant concepts. In comparison
with our Carls Jr. restaurant concept, the weather has a greater impact on average restaurant sales at our Hardees restaurants, because a significant number of them are located in rural areas that experience severe winter conditions
without the benefit of municipal storm services typical of more urban areas.





Competition


As discussed previously in Item 1  Business, the foodservice industry is intensively competitive with respect to several factors. We compete with a variety of foodservice companies. Because our competition is a diverse group
(major restaurant chains, casual dining restaurants, nutrition-oriented restaurants and prepared food stores), it is difficult for us to attribute specific results of operations to the actions of any of our competitors.





Financial Condition





Liquidity and Capital Resources


Free cash flow  cash provided by operations less capital expenditures  for fiscal 2002 was $46.0 million. Free cash flow, together with proceeds from asset sales, was used primarily to pay back
borrowings on our revolving credit facility. For the year, we generated cash flows from operations of $71.5 million, as compared to $23.4 million during fiscal 2001. This increase was due to improved operations, as well as the receipt of an income
tax refund of approximately $34.6 million. Investing activities generated $116.1 million primarily from asset sales. Financing activities used $179.8 million primarily to pay down our Senior Credit Facility. Cash and cash equivalents increased $7.9
million to $24.6 million in fiscal 2002. Earnings were insufficient to cover fixed charges by $84.5 million. Excluding the effect of the repositioning charges discussed above, earnings would be insufficient to cover fixed charges by $7.6 million
(See Exhibit 12.1).





As discussed above, in fiscal year 2000, we embarked on an asset sale program designed to generate cash to reduce indebtedness under
our Senior Credit Facility. During fiscal 2002, we made a net repayment on our revolving credit facility of approximately $168.5 million, of which approximately $134.8 million was provided by cash proceeds from assets sales (including $62.4 million
from the sale of Taco Bueno). The balance of the repayment was generated from operations.





In fiscal 2000, we repurchased $3.0 million aggregate
principal amount of convertible notes for $2.5 million in cash, including accrued interest thereon. We recognized an extraordinary gain on the early retirement of debt of $290,000 net of applicable taxes of $186,000 for fiscal 2000.




CKE RESTAURANTS, INC.




34




---




On March 4, 1999, we completed a private placement of $200.0 million aggregate principal amount of 9.125% senior
subordinated notes due 2009. We received net proceeds of $194.8 million, of which $190.0 million was used to repay outstanding term loan balances under our Senior Credit Facility. The indenture relating to the senior subordinated notes imposes
certain restrictions on our ability (and the ability of our subsidiaries) to incur indebtedness (including, but not limited to, indebtedness under the credit facility, indebtedness to refinance existing debt, which must become subordinate to these
notes, and indebtedness required in the ordinary course of business) pay dividends on, redeem or repurchase our capital stock, make restricted payments (as defined in the agreement) in excess of $75 million (as of January 28, 2002 we have made
approximately $25 million in restricted payments), make investments, incur liens on our assets, sell assets other than in the ordinary course of business, or enter into certain transactions with our affiliates. The senior subordinated notes
represent unsecured general obligations subordinate in right of payment to our senior indebtedness, including our Senior Credit Facility.





We amended and
restated our senior facility on January 31, 2002, securing a $100 million lenders commitment under a revolving credit facility. The amended facility includes a letter of credit sub-facility, and changed the maturity date to December 14, 2003,
extendable to November 15, 2006, provided we are able to earlier refinance our convertible subordinated notes due March 2004. The credit facility is collateralized by all of our personal property assets and certain restaurant property deeds of trust
with a carrying value of $218.2 million as of January 31, 2002.





The amended and restated credit facility, which may be used for working capital and
other general corporate purposes, including permitted investments and acquisitions, includes the following features among others:





| |  |  | We are permitted to spend on targeted restaurant development as specified in our strategic plan.
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | We are permitted to divest restaurants not in the collateral pool, to balance our portfolio or achieve strategic direction, and invest the proceeds back into the business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | We are restricted from incurring new indebtedness.
| | - |  | --------------------------------------------------

| |  |  | The interest rate under the facility is the lower of LIBOR or prime, plus applicable margins based on our leverage ratio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

| |  |  | We are allowed to repurchase up to $10.0 million of convertible subordinated notes.
| | - |  | -----------------------------------------------------------------------------------

| |  |  | We are prohibited from repurchasing our common stock.
| | - |  | -----------------------------------------------------

| |  |  | We must comply with specified covenants including minimum EBITDA, fixed charges coverage, and consolidated tangible net worth and maximum leverage ratios.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------




During the last three years, we sold approximately 143 Carls Jr. restaurants to franchisees, generating net cash proceeds (as defined in the
Companys Senior Credit Facility) of approximately $116.7 million, and approximately 443 Hardees restaurants to franchisees, generating net cash proceeds of approximately $120.7 million. This strategy was intended to generate cash to pay
down borrowings under our Senior Credit Facility, and to allow us to focus on running the balance of our Hardees system with a smaller number of company-operated restaurants.





The quick-service restaurant business generally receives simultaneous cash payment for sales. We presently use the net cash flow from operations to repay outstanding indebtedness and to reinvest in long-term assets,
primarily for the remodeling and construction of restaurants. Normal operating expenses for inventories and current liabilities generally carry longer payment terms (usually 15 to 30 days). As a result, we typically maintain current liabilities in
excess of current assets.





We believe that cash generated from our various restaurant operations and the cash and cash equivalents on hand as of January
28, 2002, and amounts available under our Senior Credit Facility, will provide the funds necessary to meet all of our capital spending and working capital requirements for the foreseeable future. Under our amended credit facility, we have $55.1
million of outstanding letters of credit at January 28, 2002 and, as we had not borrowed on the facility at that date, we had $44.9 million available for our use.





Subsequent to the end of fiscal year 2002 (January 28, 2002), we began repurchasing convertible notes under the terms provided in our amended credit facility. The new facility allows us to repurchase up to $10 million
of convertible notes. Through March 15, 2002, we repurchased $11.1 million (face value) of convertible notes for $10.0 million, at various prices ranging from $87.25 to $90.25. Those transactions resulted in recognition of a gain on retirement of
debt of $1.1 million, which will be recognized in the first quarter of fiscal year 2003.




CKE RESTAURANTS, INC.




35




---




The repurchase of convertible debt subsequent to the end of the fiscal year was the first step in addressing our plan to
begin developing a strategy for retiring our maturing $159.2 million of convertible notes, due March 2004. Strategies we may consider include the sale of assets (including restaurants), a debt or equity offering, a debt swap or some combination of
those items. In the event that we are unable to successfully implement one or more of those options, we may be required to sell additional restaurants at a loss to raise sufficient funds to retire the debt. Those losses may be material and have a
significant negative impact on our operating results.





Long-term Obligations


The
following table presents our long-term contractual obligations:





Contractual Obligations





Payments due by periods(Dollars in thousands)

Total

Less than one year

13 years

45 years

After 5 yearsLong-term debt(1)

$
359,205

$


$
159,205

$


$
200,000Capital lease obligations(1)(2)


135,091


18,851


41,948


20,312


53,980Operating leases


704,965


86,722


215,315


107,080


295,848Unconditional purchase obligations(3)


20,442


20,400


42





Total contractual cash obligations

$
1,219,703

$
125,973

$
416,510

$
127,392

$
549,828





|(1) |  | The amounts reported above as operating leases and capital lease obligations include leases contained in the restaurant closure reserve and leases for which we
are the obligee to the property owner and sublease to franchisees. Additional information regarding operating leases and capital lease obligations can be found in Note 7 of Notes to the Consolidated Financial Statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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




|(3) |  | Unconditional purchase obligations include contacts for goods and services, primarily related to restaurant operations. We have classified the payments due by
periods based on our average usage for each individual contract rather than the remaining term of the contract to better match expected expenditures with actual usage rates (see further discussion regarding these obligations in Item 7A
Quantitative and Qualitative Disclosures About Market Risk.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The following table presents our other commercial commitments
including lines of credit, letters of credit and guarantees. The specific commitments are discussed previously in Item 7  Management Discussion and Analysis  as well as the Notes to the Consolidated Financial Statements.





Other Commitments





Amount of commitment expirations per period(Dollars in thousands)

Total amounts committed

Less than one year

13 yearsStandby letters of credit under the Companys Senior Credit Facility

$
55,120

$
34,304

$
20,816Guarantees(1)


4,719


19


4,700Total commercial commitments

$
59,839

$
34,323

$
25,516





|(1) |  | See further discussion regarding guarantees in Note 24 of Notes to the Consolidated Financial Statements.
|--- |  | ---------------------------------------------------------------------------------------------------------

|
|



CKE RESTAURANTS, INC.




36




---




Item 7A. Quantitative and Qualitative Disclosures about Market Risk





Interest Rate Risk


Our principal exposure to financial market risks is the impact that interest rate changes could have on our $100.0 million Senior Credit Facility, of which $0 million was outstanding as of January 28, 2002 (and as of
April 1, 2002, we had $13.5 million outstanding). Borrowings under our Senior Credit Facility bear interest at the prime rate or at LIBOR plus an applicable margin based on certain financial ratios (averaging 9.7% in fiscal 2002). A hypothetical
increase of 100 basis points in short-term interest rates at fiscal year end would result in no reduction in annual pre-tax earnings as no amounts were borrowed at that time. The estimated reduction is based upon the outstanding balance of our
Senior Credit Facility and assumes no change in the volume, index or composition of debt at January 28, 2002. Substantially all of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations have never 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
many of the products purchased 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 typically result in unconditional purchase obligations, which are not reflected in the consolidated balance sheet. As noted in the table above, our unconditional purchase obligations currently total $20.4 million and are due at
various dates during the next 3 years. 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 commodity cost increases, which are significant and appear to be long-term in nature by adjusting our menu pricing or changing our product delivery strategy. However, increases in commodity prices could result in lower restaurant-level
operating margins for our restaurant concepts.





Item 8. Financial Statements and Supplementary Data


See the Index included at Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K.





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


None.




CKE RESTAURANTS, INC.




37




---




Part III





Item 10. Directors and Executive Officers of the Registrant


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 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002. Information concerning the current executive officers is contained in Item
1 of Part I of this Annual Report on Form 10-K.





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 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002.





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 is hereby incorporated by reference from our Proxy Statement to be used in connection with our 2002 Annual Meeting of Stockholders, to be filed with the Commission within 120 days of January 28, 2002.





Item 13. Certain Relationships and Related Transactions


From time-to-time we enter into transactions with parties or entities that may be deemed related parties or
affiliates. This may include parties with whom we, or our related parties, have a relationship that enables the parties to negotiate terms of material transactions that may not be available from others. Such transactions contribute to our operating
results, which may be materially affected if we were to conduct such transactions with independent vendors and suppliers.




CKE RESTAURANTS, INC.




38




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During fiscal years 2002, 2001 and 2000, we entered into the following transactions with those parties:





Involved Party

Business Purpose

How Transaction Prices are Determined

On-going Contractual Commitments

FY 2002 $000s

FY 2001 $000s

FY 2000 $000sCarl N. Karcher (Chairman Emeritus)

Leased property for Anaheim, Ca. office, distribution facility and three restaurants.

Lease based upon the prevailing market for similar space within the area.

Several leases with varying expiration dates

$1,661

$1,500

$1,500Fidelity National Financial, Inc. (FNF) (Our Chairman is also the Chairman of FNF)

Title and escrow work on sale of restaurant properties and mortgages on properties for collateral on Senior Credit Facility

Escrow and title fees are determined per transaction based upon the stated standard rates as set by Fidelity to the general public at the time of each transaction.

None

1,216



FNF Capital, Inc. (100% owned subsidiary of FNF)

Leased equipment

Bids for the lease of equipment were submitted and most favorable terms were selected.

Several leases with varying expiration dates

5,455

5,804

2,334Kensington Development (100% owned subsidiary of FNF)

Lease of Santa Barbara, Ca. office

Lease based upon the prevailing market for similar space within the area.

Lease agreement expires September 2003

195

63

M&N Foods, Inc. (Affiliate of a current board member)

Sale of Carls Jr. restaurants to franchisee

Purchase price based on a multiple of cash flow from operations as achieved in other sales of Carls Jr. restaurants to other franchisees. Transaction was evaluated for
fairness by First Tennessee Securities Corp., an investment banking firm.

None, other than those contained in the franchise agreement and asset purchased agreement

4,100



14,059Orion Realty Corp. (100% owned subsidiary of FNF)

Sale of surplus properties and termination of leases

(A)

Contractual arrangement

329

58

Praetorian Group (Formerly an investment of FNF)

Sale of restaurants to franchisees

(A)

None

60

6,959

Rallys Restaurants (Owned by Checkers Drive-In Restaurants, Inc. of which we own 4.9%)

Purchase of food and paper products from the Company

Mark-up consistent with price charged to Carls Jr. franchises.

Contract no longer in effect

1,652

3,634

3,781Rocky Mountain Aviation (100% owned subsidiary of FNF)

Expenses associated with Companys leased aircraft

Based on contracted lease rates, partially offset by income from others use of contracted planes. Contracted lease rates depend on number of passengers, distance, weights,
airport fees and other factors to determine the cost for each specific trip.

Lease agreement expires June 2007

414

554

507SBRG

License the Green Burrito Brand

According to License Agreement.

Requirements cease after acquisition of SBRG

443

621

810




CKE RESTAURANTS, INC.




39




---

Involved Party

Business Purpose

How Transaction Prices are Determined

On-going Contractual Commitments

FY 2002 $000s

FY 2001 $000s

FY 2000 $000sTWM Industries, Inc. (Affiliate of a former CEO and board member of the Company)

Sale of Carls Jr. restaurants to franchisee

Purchase price based on a multiple of cash flow from operations as achieved in other sales of Carls Jr. restaurants to other franchisees. Reduced by final payout due
under employment agreement. Transaction was evaluated for fairness by First Tennessee Securities Corp., an investment banking firm.

None, other than those contained in the franchise agreement and asset purchased agreement

12,080

4,192







|(A) |  | During fiscal 2000, we were in a workout situation with our lenders and we had to immediately begin to dispose of a significant number of assets to raise cash to repay our bank
indebtedness. Also, during this time, we began closing a significant number of underperforming restaurants which resulted in a significant number of surplus properties that needed to be converted to cash. Under these circumstances, we determined
that it was impractical under the time constraints to develop an internal real estate sales competency and, accordingly, we retained the services of these affiliates that possessed the requisite real estate competency. We periodically benchmark the
fees charged by these affiliates.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|
|



CKE RESTAURANTS, INC.




40




---




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.By:

/s/                  ANDREW F.
PUZDERAndrew F. Puzder





Date: April 25, 2002





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/                  WILLIAM P.
FOLEY II William P. Foley II



Chairman of the Board



April 25, 2002/s/                  ANDREW F.
PUZDER Andrew F. Puzder



Chief Executive Officer and President (Principal Executive
Officer)



April 25, 2002/s/                BYRON ALLUMBAUGH Byron
Allumbaugh



Director



April 25, 2002/s/                    PETER
CHURM Peter Churm



Director



April 25, 2002/s/                  CARL L.
KARCHER Carl L. Karcher



Director



April 25, 2002Carl N. Karcher



Director



April 25, 2002/s/                    DENNIS
J. LACEY Dennis J. Lacey



Executive Vice President, ChiefFinancial Officer (Principal Financialand Accounting Officer)



April 25, 2002/s/                    DANIEL
D. LANE Daniel D. Lane



Vice Chairman of the Board



April 25, 2002/s/                    DANIEL
PONDER Daniel Ponder



Director



April 25, 2002/s/                FRANK P.
WILLEY Frank P. Willey



Director



April 25, 2002





|
|



CKE RESTAURANTS, INC.




41




---

Part IV





Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K





Page(a)(1)

Index to Consolidated Financial Statements:Independent Auditors Report

43Consolidated Balance Sheets  as of January 31, 2002 and 2001

44Consolidated Statements of Operations  for the fiscal yearsended January 31, 2002, 2001 and 2000

45Consolidated Statements of Stockholders Equity  for the fiscal yearsended January 31, 2002, 2001 and 2000

46Consolidated Statements of Cash Flows  for the fiscal yearsended January 31, 2002, 2001 and 2000

47Notes to Consolidated Financial Statements

48(a)(2)

Index to Financial Statement Schedules:Schedule II Valuation and Qualifying Accounts

75All other 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)(3)

Exhibits: An Exhibit Index has been filed as a part of this Form 10-K beginning on page 76 hereof and is incorporated herein by reference.(b)

Current Reports on Form 8-K:None.





|
|



CKE RESTAURANTS, INC.




42




---

Independent Auditors Report





The Board of
Directors and Stockholders


CKE Restaurants, Inc.:





We have audited the accompanying
consolidated financial statements of CKE Restaurants, Inc. and Subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.





We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. 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. and Subsidiaries as of January 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2002 in
conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information shown therein.





KPMG LLP





Orange County, California


March 13, 2002





|
|



CKE RESTAURANTS, INC.




43




---




CKE RESTAURANTS, INC. AND SUBSIDIARIES





Consolidated Balance Sheets





Part 1. Financial Information





Item 1. Consolidated Financial Statements





(Dollars in thousands)

January 31, 2002

January 31, 2001ASSETSCurrent assets:Cash and cash equivalents

$
24,642

$
16,860Accounts receivable, net


38,942


73,956Related party trade receivables


5,404


2,505Inventories


17,365


17,694Prepaid expenses


8,318


10,212Other current assets


1,703


2,534Net assets of subsidiary held for sale





66,912Total current assets


96,374


190,673Property and equipment, net


542,193


656,214Property under capital leases, net


64,834


73,617Long-term investments


1,186


3,461Notes receivable


7,352


14,098Costs in excess of assets acquired, net


186,868


203,900Other assets


32,782


65,574Total assets

$
931,589

$
1,207,537LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of bank indebtedness

$


$
67,000Current portion of capital lease obligations


10,266


9,845Accounts payable


47,414


53,759Other current liabilities


91,167


86,489Total current liabilities


148,847


217,093Bank indebtedness





101,500Senior subordinated notes


200,000


200,000Convertible subordinated notes


159,205


159,225Capital lease obligations


70,107


81,173Other long-term liabilities


91,764


98,989Total liabilities


669,923


857,980Stockholders equity:Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued or outstanding





Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 52,162,000 shares and 52,086,000
shares


522


521Additional paid-in capital


383,319


383,016Non-employee director and officer notes receivable


(4,239)


Accumulated deficit


(107,530)


(23,574
)Treasury stock at cost, 1,585,000 shares


(10,406)


(10,406
)Total stockholders equity


261,666


349,557Total liabilities and stockholders equity

$
931,589

$
1,207,537





See Accompanying Notes to Consolidated Financial Statements







CKE RESTAURANTS, INC.




44




---

CKE RESTAURANTS, INC. AND SUBSIDIARIES





Consolidated
Statements of Operations





Fiscal years ended January 31,(In thousands except per share amounts)

2002


2001


2000Revenue:Company-operated restaurants

$
1,174,384


$
1,569,504


$
1,814,695Franchised and licensed restaurants and other


263,743



215,280



175,378Total revenue


1,438,127



1,784,784



1,990,073Operating costs and expenses:Restaurant operations:Food and packaging


356,157



484,439



553,451Payroll and other employee benefits


381,756



514,535



566,394Occupancy and other operating expenses


266,874



368,100



383,1441,004,787



1,367,074



1,502,989Franchised and licensed restaurants and other


203,364



159,484



128,128Advertising expenses


73,184



100,199



121,727General and administrative expenses


111,696



145,379



147,372Facility action charges, net


71,389



144,642



26,802Total operating costs and expenses


1,464,420



1,916,778



1,927,018Operating income (loss)


(26,293
)


(131,994
)


63,055Interest expense


(57,659
)


(70,541
)


(63,283
)Other expense, net


(588
)


(2,729
)


(47,232
)Loss before income taxes and extraordinary item


(84,540
)


(205,264
)


(47,460
)Income tax benefit


(584
)


(11,148
)


(18,053
)Loss before extraordinary item

$
(83,956
)

$
(194,116
)


(29,407
)Extraordinary item  gain on early retirement of debt net of applicable income taxes of $186










290Net loss

$
(83,956
)

$
(194,116
)

$
(29,117
)Basic and diluted: Loss per share before extraordinary item

$
(1.66
)

$
(3.84
)

$
(0.57
)Extraordinary item  gain on early retirement of debt net of applicable income taxes










0.01Net loss per share

$
(1.66
)

$
(3.84
)

$
(0.56
)Weighted average shares outstanding, basic and diluted


50,507



50,501



51,668





See Accompanying Notes to Consolidated Financial Statements





|
|



CKE RESTAURANTS, INC.




45




---

CKE RESTAURANTS, INC. AND SUBSIDIARIES





Consolidated
Statements of Stockholders Equity





Common Stock

Treasury Stock(In thousands except per share amounts)

Number of Shares

Amount

Number of Shares


Amount


Additional Paid-In Capital

Non-employee Director and Officer Notes Receivable


Retained Earnings (Accumulated Deficit)


Total Stockholders EquityFISCAL YEARS ENDED JANUARY 31, 2002, 2001 AND 2000Balance at January 31, 1999

51,850

$
519




$



$
380,423

$



$
205,900


$
586,842Cash dividends ($.08 per share)





















(4,157
)


(4,157
)Exercise of stock options

181


2









1,363










1,365Purchase of treasury shares






(1,585
)


(10,406
)













(10,406
)Shares issued to third-party

55












722










722Tax benefit associated with exercise of stock options














508










508Net loss





















(29,117
)


(29,117
)Balance at January 31, 2000

52,086

$
521

(1,585
)

$
(10,406
)

$
383,016





$
172,626


$
545,757Cash dividends ($.04 per share)





















(2,084
)


(2,084
)Net loss





















(194,116
)


(194,116
)Balance at January 31, 2001

52,086

$
521

(1,585
)

$
(10,406
)

$
383,016





$
(23,574
)

$
349,557Exercise of stock options

76


1









283










284Conversion of convertible subordinated notes














20










20Non-employee director and officer notes receivable

















(4,239
)






(4,239
)Net loss





















(83,956
)


(83,956
)Balance at January 31, 2002

52,162

$
522

(1,585
)

$
(10,406
)

$
383,319

$
(4,239
)

$
(107,530
)

$
261,666





See Accompanying Notes to Consolidated Financial Statements




CKE RESTAURANTS, INC.




46




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Consolidated
Statements of Cash Flows





Fiscal years ended January 31,(In thousands)

2002


2001


2000Net cash flow from operating activities:Net loss

$  (83,956
)

$
(194,116
)

$
(29,117
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization

76,639



106,981



104,450Provision for losses on accounts and notes receivable

10,641



8,602



1,485(Gain) loss on investments, sale of property equipment, capital leases,and extinguishment of debts





3,046



(2,398
)Facility action charges, net

71,389



144,642



26,802Other, non cash charges

4,146



17,618



64,521Deferred income taxes





15,006



(30,035
)(Gain) loss on non-current asset and liability transactions

(1,846
)


(2,104
)


4,744Change in store closure and self-insurance reserves

(17,493
)


(4,908
)


(6,109
)Net change in receivables, inventories, prepaid expenses and other current assets

28,650



(27,879
)


(12,457
)Net change in accounts payable and other current liabilities

(16,633
)


(43,496
)


(13,406
)Net cash provided by operating activities

71,537



23,392



108,480Cash flow from investing activities:Purchase of:Property and equipment

(25,503
)


(74,680
)


(263,589
)Long-term investments





(2,957
)


Proceeds from sale of:Marketable securities and long-term investments

4,121



4,210



Property and equipment

68,278



154,132



52,753Increase in notes receivable and related party receivables





(18,305
)


(5,544
)Collections on notes receivable and related party receivables

2,625



13,791



7,725Cash of subsidiary in property held for sale





(3,827
)


Net change in other assets

4,154



2,653



(5,012
)Dispositions of brand, net of cash surrendered

62,412







(2,491
)Net cash provided by (used in) investing activities

116,087



75,017



(216,158
)Cash flow from financing activities:Net change in bank overdraft

6,633



(7,565
)


14,210Repayments of short-term debt





(1,123
)


(3,600
)Long-term borrowings

140,217



266,000



467,500Repayments of long-term debt

(308,737
)


(371,313
)


(350,853
)Repayments of capital lease obligations

(10,645
)


(10,095
)


(7,689
)Payment of deferred financing costs

(2,775
)


(904
)


(10,759
)Net change in other long-term liabilities

(600
)


9,030



1,767Payment of dividends





(2,084
)


(4,157
)Purchase of treasury stock









(10,406
)Issuance of non-employee director and officer notes receivable

(4,239
)






Exercise of stock options

304







1,365Tax benefit associated with the exercise of stock options









508Net cash provided by (used in) financing activities

(179,842
)


(118,054
)


97,886Net increase (decrease) in cash and cash equivalents

7,782



(19,645
)


(9,792
)Cash and cash equivalents at beginning of year

16,860



36,505



46,297Cash and cash equivalents at end of year

$    24,642


$
16,860


$
36,505





See Accompanying Notes to Consolidated Financial Statements




CKE RESTAURANTS, INC.




47




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes to
Consolidated Financial Statements


(Dollars in thousands, except per share amounts)





Note 1  Significant Accounting Policies





A summary of certain significant accounting policies not disclosed elsewhere in
the footnotes to the consolidated financial statements is set forth below.





Description of Business


CKE Restaurants, Inc. (CKE or the Company) owns, operates, franchises and licenses the Carls Jr. and Hardees quick-service restaurant concepts. Carls Jr. restaurants are
located in the Western United States, predominantly in California. Hardees restaurants are located throughout the Southeastern and Midwestern United States. The Companys system-wide restaurant portfolio as of January 31, 2002 consisted
of:





Carls Jr.

Hardees

TotalCompany-operated

443

742

1,185Franchised and licensed

526

1,648

2,174Total

969

2,390

3,359





CKE acquired Hardees in 1997. At the time Hardees was acquired, a turnaround of operations at
Carls Jr. had just been completed. Hardees had historical trends of operational difficulties, including declining same-store sales. Management believed it could implement a strategy to counter the operational difficulties Hardees
was experiencing. In conjunction with the Hardees acquisition, the Company incurred a substantial amount of long-term debt and became a highly-leveraged company. Management was initially unable to materially alter the declining same-store
sales trend at Hardees after the acquisition. In fact, the decline in same-store sales continued. Beginning with fiscal year 2000, Hardees operating losses resulted in the Company operating at a loss. When those operating losses arose,
there was approximately $280,000 outstanding under the Companys facility. Under these circumstances, the Company was compelled to reduce its level of bank debt and embarked upon a program to sell restaurants with the objectives of reducing
bank debt and shifting the restaurant system mix to one that is more franchised than company-operated. Management also identified many under-performing restaurants for closure. The Company incurred net losses on the sales of restaurants, recorded
charges for restaurant closure reserves and wrote-down the carrying value of certain properties and charged a loss to operations as their performance did not support their corresponding carrying values. Additionally, management reduced operating
costs to a level more commensurate with the revenue mix resulting from the rebalancing of its systems. The Company has reported losses for each of the last three years. The Company is in the midst of a business turnaround and has made several
changes to its business. The Company not only sold or closed Carls Jr. and Hardees restaurants, but also sold the Taco Bueno brand and ceased to operate certain Rallys restaurants under a management agreement. These changes have
significantly impacted the comparability of results from year to year.





Basis of Presentation and Fiscal Year


The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions are eliminated. Transactions between subsidiaries with different
fiscal periods relate solely to transfers of cash and are accounted for in other current liabilities. The Companys fiscal year is 52 or 53 weeks, ending the last Monday in January each year. Fiscal year 2000 included 53 weeks of operations.
Fiscal years 2002 and 2001 each included 52 weeks of operations. For clarity of presentation, the Company has labeled all years presented as fiscal year ended January 31.





The equity method of accounting is used for investments in which the Company has the ability to exercise significant influence. Under the equity method, the Company recognizes its share of the net earnings or losses
of these entities and adjusts the carrying value of its investment by the amount of net earnings or losses recognized and by the amount of contributions made or distributions received. The Companys share of net earnings or losses is calculated
based on the Companys expected share of the investments estimated profit or loss. The Company accounted for its investments in Santa Barbara Restaurant Group, Inc. and Checkers Drive-Thru Restaurants, Inc. under the equity method.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Cash Equivalents


For purposes of reporting cash flows, highly liquid investments purchased with original maturities of three months or less are
considered cash equivalents. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.





Inventories


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





Deferred Financing Costs


Costs related to the issuance of debt are deferred and amortized, utilizing a
method which approximates the effective interest method, as a component of interest expense over the terms of the respective debt issues. In accordance with Emerging Issues Task Force Bulletin 98-14, Debtors Accounting for Changes in
Line of Credit or Revolving Debt Arrangements (EITF 98-14), the Company writes-off a portion of these deferred financing charges when the borrowing capacity of its Senior Credit Facility is reduced.





Deferred Lease Costs


Deferred lease costs arising from an acquisition represent the excess of actual rent
payments on an operating lease over the current market rate on the date of the acquisition. Deferred lease costs are amortized over the remaining lives of the related leases.





Property and Equipment


Property and equipment are recorded at cost, less accumulated depreciation and amortization, impairment writedowns and valuation
allowances. Depreciation is computed using the straight-line method based on the assets estimated useful lives, which range from three to 40 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated
useful lives of the assets or the related lease terms.





Goodwill


Goodwill represents the
excess of the purchase price for certain assets over the estimated fair value of the tangible assets. Through fiscal 2002, this asset is amortized over 40 years. Through fiscal 2002, for purposes of recoverability testing, goodwill is allocated to
individual restaurants (both company-operated restaurants and restaurants that the Company previously owned and has subsequently sold to franchisees).





Facility Action Charges


In late fiscal 2000, the Company embarked on a refranchising initiative to reduce outstanding borrowings under its revolving credit facility, as well as
to increase the number of franchise-operated restaurants. In addition, it identified and closed under-performing restaurants. The results of these strategies have caused the following transactions to be recorded in the financial statements as
facility action charges, net:





| | (i) |  | Impairment of long-lived assets for restaurants the Company plans to continue to operate and restaurants the Company intends to close beyond the quarter in which the closure
decision is made.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) |  | Store closure costs; and
| | ---- |  | ------------------------

| | (iii) |  | Gains (losses) on the sale of restaurants.
| | ----- |  | ------------------------------------------



CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







(i) Impairment of Long-Lived Assets


The Company evaluates the carrying value of assets for the
possibility of impairment when the operations of the brand, or certain restaurants in the brand, experience a negative event (i.e. significant downturn in operations, natural disaster, restaurant closures, etc.). When events are identified that
indicate the assets may be impaired, management reviews the last two years of operations on a restaurant-by-restaurant basis and if there are increasing losses in both of those years, management estimates future un-discounted cash flows. If the
projected cash flows do not support the net respective book values including goodwill, which is allocated to each restaurant for this purpose, the assets are written-down to their fair value, based on either: (1) the estimated net proceeds that the
Companys broker (a related party) believes it can obtain for the particular site; (2) the discounted projected cash flows or (3) historical net proceeds that have been obtained on other similar surplus property sales.





(ii) Store Closure Costs


Management makes decisions to close
restaurants based on the prospects for future estimated profitability. The Companys restaurant operators evaluate each restaurants performance each financial period. When restaurants are performing poorly, management considers the
demographics associated with the location as well as the likelihood of being able to turn an unprofitable restaurant around. Based on the operators judgement, an estimate of future cash flows is made. If it is determined that the restaurants
will not be profitable, additional evaluation of the site is done to determine whether or not there is a provision in the lease that would prohibit the restaurant from being closed (i.e. a continuous operating clause). If management decides to close
a restaurant, then a reserve for the net present value of future rent and fixed costs (i.e. taxes, utilities) is estimated and asset impairment charges, if necessary, are recorded in the period the decision is made. Additionally, franchisees may
close restaurants for which the Company is the primary lessee. If the franchisee cannot make payments on the lease, we continue making the lease payments and establish a store closure reserve if management decides not to operate the restaurants as
company-operated restaurants.





The store closure reserve for vacant properties is generally based on the term of the lease and
the lease termination fee we expect to pay, as well as maintenance costs. The interest rate used to calculate the net present value of these reserves is based on the Companys incremental borrowing rate at the time the reserve is established.
The related discount is amortized and shown as interest expense in the Statements of Operations.





(iii) Gains (Losses)
on the Sale of Restaurants


The Company records gains and losses on the sale of restaurants as the difference between the net proceeds received and net asset values
of the restaurants sold, excluding goodwill. Additionally, the gains (losses) are further impacted by lease obligations management has agreed to pay on behalf of the franchises the Company sold restaurants to.





Self-insurance


The Company is self-insured for a portion of its current and prior years losses
related to workers compensation, fire and general liability insurance programs. The Company has obtained stop-loss insurance for individual workers compensation claims over $250 and individual general liability claims over $500.
Insurance liabilities and reserves area accounted for based on the net present value of independent actuarial estimates of the amount of loss expected. These estimates rely on actuarial observations of historical claim loss development which is
generally the average historical loss rate for similar events. Management continually evaluates the potential for changes in loss estimates, and uses the results of these evaluations to adjust recorded provisions.





Franchise and License Operations


The Company executes franchise or license agreements for each brand that sets
out the terms of our 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 sales. Subject to
our approval and payment of renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







The Company recognizes initial fees as revenue when we have performed substantially all initial services required by the franchise or license agreement, which is generally upon opening of a restaurant. Further,
continuing fees are recognized as earned with an appropriate provision for estimated uncollectible amounts, which is included in franchise and license expenses. We recognize renewal fees in income when a renewal agreement becomes effective. Initial
fees collected upon the sale of a restaurant to a franchisee are included in franchising revenue.





The Company incurs expenses that benefit both our
franchise and license communities. These expenses, along with other costs of sales and servicing of franchise and license agreements are charged to franchising expense as incurred. Finally, net franchise and license income also includes rent income
from leasing or subleasing restaurants to franchisees net of the related occupancy costs. If the Company leases restaurants to a franchisee that results in a loss over the term of the lease, a lease subsidy reserve is established at inception.





The Company monitors the financial condition of our franchisees and records provisions and estimated losses on receivables when management believes that
certain franchisees are unable to make their required payments. Each individual franchisees account is reviewed quarterly, focusing on those that are past due and, if necessary, a specific reserve for each account is recorded including notes
receivable. Additionally, the Company ceases recording royalties from franchisee that are delinquent until such time as there is a history of timely payments.





Depending on the facts and circumstances, there are a number of different actions that may be taken to resolve collection issues. These include the sale of franchisee restaurants to the Company or to other franchisees, a modification to the
franchise agreement which may include a provision for reduced royalty rates in the future (if royalty rates are not sufficient to cover the Companys costs of service over the life of the franchise agreement, the Company records the estimated
loss at the time it modifies the agreement), a restructuring of the franchisees business and /or finances (including the restructuring of leases for which we are the primary obligee) or, if necessary, the termination of the franchisee
agreement. The amount of the allowance established is based on our assessment of the most probable action that will occur. In the event that the Company decides to operate the restaurants as company-operated restaurants, the allowance for loss is
recorded net of the estimated fair value of the related restaurant assets.





Advertising


The Company charges marketing costs to expense ratably in relation to revenues over the year in which incurred and in the case of advertising production costs it is charged when the commercial is first aired. The Companys
contributions to independent advertising cooperatives are expensed when paid.





Income Taxes


Income taxes are accounted for under the asset and liability method. The Company estimates its income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax exposure together with
assessing temporary differences resulting from differing treatment of items, such as depreciation, restaurant closure reserves, self-insurance reserves, tax credits and operating losses for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within the consolidated balance sheet. 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The recovery of net tax assets is evaluated each
year using the more likely than not criterion contained in Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes. To the extent a valuation allowance is recorded or increased, an expense within the
tax provision in the statement of operations is recorded. Reversal of the reserve is dependent upon the Company reporting taxable operating profits in future years.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Estimations


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.





The Companys most significant areas of
estimation are:





| |  |  | Estimation of future cash flows used to assess the recoverability of long-lived assets and the establishment of store closure reserves.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Determination of the appropriate allowances associated with franchise and license receivables and contingent liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

| |  |  | Estimation, using actuarially determined methods, of self-insured losses under the Companys workers compensation, fire and general liability insurance programs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Estimation of net deferred income tax valuation allowances.
| | - |  | -----------------------------------------------------------




Loss per share


The Company presents basic loss per share, which represents net loss divided by the weighted average shares outstanding excluding all potentially
dilutive securities as they would be anti-dilutive. Diluted loss per share will therefore be the same as the basic loss per share.





In fiscal 2002, 2001
and 2000, 7.7 million, 8.1 million and 6.2 million shares, respectively, relating to the possible exercise of outstanding stock options and in fiscal 2002, 2001 and 2000, 3.6 million shares issuable upon conversion of convertible subordinated notes,
were not included in the computation of net loss per share as their effect would have been anti-dilutive.





Comprehensive Income


The Company did not have any other comprehensive income items requiring reporting under Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income.





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(s) in deciding how to allocate resources and in assessing performance.





New Accounting Pronouncements Not Yet Adopted


In 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 Business
Combinations (SFAS 141), which supersedes APB Opinion No. 16, Business Combinations. SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the
purchase accounting method. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported separately from goodwill. The provisions of SFAS 141 were effective for
transactions accounted for using the purchase method that were completed after June 30, 2001. The Company has used the purchase method for all previous acquisitions and will do so for the acquisition of SBRG (see Note 2).





In 2001, the FASB also issued SFAS 142, Goodwill and Other Intangible Assets (SFAS 142) which supercedes APB Opinion No. 17, Intangible
Assets. SFAS 142 requires that goodwill and other intangibles be reported separately, eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life,
and addresses impairment testing and recognition for goodwill and intangible assets. SFAS 142 applies to goodwill and intangible assets arising from transactions completed before and after its effective date. SFAS 142 is effective for the Company
for fiscal year 2003.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







SFAS 142 changes the accounting for the recoverability of goodwill such that, for the Company, it will be evaluated at the brand level, based upon the estimated fair value of the brand. As noted above, the Company has
allocated goodwill to each restaurant, and evaluates the recoverability of goodwill on a restaurant-by-restaurant basis. Under the SFAS 142, the valuation methodology is significantly different and could result in a substantial write-down of the
recorded goodwill. The impairment review will involve a two-step process as follows:





| | Step |  | 1  Compare the fair value for each brand to its carrying value, including goodwill. For each brand where the carrying value, including goodwill, exceeds the brands, fair
value, move on to step 2. If a brands fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Step |  | 2  Allocate the fair value of the brand to its identifiable tangible and non-goodwill intangible assets and liabilities. This will derive an implied fair value for the
brands goodwill. Then, compare the implied fair value of the reporting brands goodwill with the carrying amount of reporting brands goodwill. If the carrying amount of the reporting brands goodwill is greater than the implied
fair value of its goodwill, an impairment loss must be recognized for the excess.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The Company has not finalized it evaluation of
adopting SFAS 142, but management does know that approximately $6,000 of goodwill amortization will no longer be recorded as amortization expense in general and administrative costs. Management expects upon adoption of this pronouncement that a
significant goodwill impairment charge relating to its Hardees brand will be recorded as a cumulative effect of accounting change in the first quarter of fiscal 2003.





In 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143), which will be effective for the Company beginning fiscal year 2004. SFAS 143 addresses the
financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Management has not yet determined the impact of adopting SFAS 143 on the Companys
financial statements.





In 2001, the FASB issued SFAS No. 144  Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144)
which addresses the impairment of all intangible assets. SFAS 144 will be effective for The Company in the first quarter of fiscal year 2003. Management has not yet determined the impact of adopting SFAS No. 144 on the Companys financial
statements.





Reclassifications


Prior year amounts in the accompanying consolidated
financial statements are reclassified to conform with the current year presentation. On the Balance Sheet, the Company reclassified asset impairment reserves originally reported in the store closure reserves directly to property and equipment.
Additionally, to conform to industry practice, the Company has classified usage of the store closure reserve (previously shown as a financing activity) as a component of cash flow from operations for all periods presented.





Note 2    Acquisitions





Subsequent to fiscal
year 2002, on March 1, 2002, the Company acquired Santa Barbara Restaurant Group, Inc. (SBRG). SBRG owns, operates and franchises The Green Burrito and La Salsa quick-service Mexican food restaurants, and Timber Lodge Steakhouse. Through
the Companys dual-branding relationship with The Green Burrito, the Company is SBRGs largest franchisee. Under the terms of the stock purchase agreement, each outstanding share of SBRG stock was converted into 0.491 shares of Company
common stock. The purchase price was based on the average closing price of the Companys commons stock for the 10 trading days ending two days before completion of the acquisition (Pricing Period). The average




CKE RESTAURANTS, INC.




53




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)




closing price of the Companys common stock was $10.19 for the Pricing Period. SBRG had approximately 12.9 million shares of stock outstanding and approximately 3.2 million of options and
warrants outstanding. As a result of purchasing SBRG through an exchange of stock, Fidelity National Financial, Inc. owns 6.6% of the Company. For the fifty-two weeks ended December 31, 2001, SBRG had revenue and net income of $88,728 (unaudited)
and $2,954 (unaudited), respectively. The resulting purchase price was $81,547. The Company will begin consolidating SBRGs operating results in the first quarter of Fiscal year 2003, from the March 1, 2002 date of acquisition. The Company has
not yet determined the allocation of the purchase price to the net assets acquired.





Note 3  Facility Action Charges, Net





A summary of the impact of facility actions on the reduction to each brands company-operated restaurant count is as follows:





2002

2001

2000Carls Jr.

Hardees

Carls Jr.

Hardees

Carls Jr.

HardeesSold

30

27

89

324

24

61Closed

24

159

8

114

8

10Total

54

186

97

438

32

71




CKE RESTAURANTS, INC.




54




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







The components of facility action charges are as follows:





2002


2001


2000HardeesStore closure reserves provided, net

$
14,045


$
17,253


$
16,274Impairment on stores closed, to be closed or sold


39,170



53,453



25,331Impairment on stores that will continue to be operated


7,093



16,705



383Losses (gains) on sales of restaurants, net


5,432



78,490



(2,986
)65,740



165,901



39,002Carls Jr.Store closure reserves provided, net


656



1,884



Impairment on stores closed, to be closed or sold


6,378



5,955



Impairment on stores that will continue to be operated


8,145



3,035



Gains on sales of restaurants, net


(14,237
)


(40,833
)


(12,200
)942



(29,959
)


(12,200
)Rallys and Taco BuenoLosses on sales of restaurants


4,707



8,700



TotalStore closure reserves provided, net


14,701



19,137



16,274Impairment on stores closed, to be closed or sold


45,548



59,408



25,331Impairment on stores that will continue to be operated


15,238



19,740



383Losses (gains) on sales of restaurants, net


(4,098
)


46,357



(15,186
)$
71,389


$
144,642


$
26,802





Included in the impairment on restaurants closed, to be closed or sold for fiscal 2002 is $7,860 related
to additional asset impairment charges made on restaurants recognized as being impaired in previous reporting periods.





Impairment charges were recorded
against the following asset categories:





2002

2001

2000Fixed assetsHardees

$
33,820

$
46,138

15,265Carls Jr.


14,523


8,990

38348,343


55,128

15,648Costs in excess of net assets acquired, netHardees


12,443


24,020

10,066Carls Jr.







12,443


24,020

10,066TotalHardees


46,263


70,158

25,331Carls Jr.


14,523


8,990

383$
60,786

$
79,148

25,714


|
|



CKE RESTAURANTS, INC.




55




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







The following table summarizes the activity in our store closure reserves. We believe that the remaining carrying amounts are adequate to complete our disposal actions. The remaining unamortized discount to present
value of the lease subsidies associated with these restaurants at January 31, 2002 was $5,729 and is to be recorded as a component of interest expense over the remaining sublease terms, which range up to 17 years, utilizing a method approximating
the effective interest method.





Balance at January 31, 1999

$
24,135New decisions


16,274Usage


(4,179
)Discount amortization and other


585Balance at January 31, 2000


36,815New decisions


19,137Usage


(6,367
)Discount amortization and other


2,110Balance at January 31, 2001


51,695New decisions


28,911Usage


(19,424
)Reversal of reserves for stores that will not be closed


(6,440
)Favorable disposition of surplus properties


(7,770
)Discount amortization and other


2,286Balance at January 31, 2002


49,258Less: Current portion


(11,097
)Long-term portion

$
38,161





The following table summarizes average annual sales per restaurant and operating losses related to the
restaurants the Company decided to close.





2002


2001


2000Sales per restaurantCarls Jr.

$
420


$
467


$
562Hardees


527



507



557Operating lossCarls Jr.

$
(956
)

$
(3,748
)

$
(1,937
)Hardees

$
(9,301
)

$
(14,842
)

$
(19,158
)





|
|



CKE RESTAURANTS, INC.




56




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Note 4    Accounts Receivable, Net





Accounts receivable, net consists of the following:





2002


2001Trade receivables

$
37,665


$
42,682Income tax receivable


5,048



36,586Notes receivable, current portion


2,677



2,651Other


254



278Allowance for doubtful accounts


(6,702
)


(8,241
)$
38,942


$
73,956





The long-term portion of notes receivable consists of the following:





2002


2001Franchisee

$
15,951


$
20,500Employees


499



100Others


1,980



1,980Allowance for doubtful accounts


(11,078
)


(8,482
)$
7,352


$
14,098





Note 5  Net Assets of Subsidiary Held for Sale





In November 2000, the Company entered into a stock purchase agreement to sell Taco Bueno. Accordingly, for financial reporting purposes, the assets and liabilities attributable
to this transaction were classified on the consolidated balance sheet as net assets of subsidiary held for sale and a loss of $8,700 was recorded for the difference between the sales price and the carrying value of the net assets. In June 2001, the
sale of Taco Bueno to Jacobson Partners was completed for $62,412, a price lower than originally estimated and an additional $4,500 loss was recorded. The carrying value of the net assets exceeded the net proceeds from the sale by $13,200. Net
assets of subsidiary held for sale consisted of the following at January 31, 2001:





Current assets

$
6,540Property and equipment, net


69,347Property under capital leases, net


1,357Costs in excess of net assets acquired, net


8,959Other assets


975Total assets


87,178Current liabilities


9,469Capital lease obligations


970Other long-term liabilities


1,127Total liabilities


11,566Gross property held for sale


75,612Reduction to net sales contract value


(8,700
)Net assets of subsidiary held for sale

$
66,912





Taco Buenos results included in the Companys accompanying statements of operations are as
follows:





2002

2001


2000Revenue

$
37,538

$
97,316


$
91,950Operating income (loss)


3,693


(3,545
)


8,136


|
|



CKE RESTAURANTS, INC.




57




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Note 6  Property and Equipment





Property and equipment consists of the following:





Estimated Useful Life

2002

2001Land



$
146,880

$
168,902Leasehold improvements

4-25 years


165,644


233,250Buildings and improvements

7-40 years


244,129


257,935Equipment, furniture and fixtures

3-10 years


287,797


289,585844,450


949,672Less: Accumulated depreciation and amortization




302,257


293,458$
542,193

$
656,214





Note 7  Leases





The Company occupies land and buildings under lease agreements expiring on dates through 2062. Many leases provide for future rent escalations and renewal options. In addition, contingent rentals, determined as a
percentage of sales in excess of specified levels, are often stipulated. Most leases obligate the Company to pay costs of maintenance, insurance and property taxes.





Property under capital leases consists of the following:





2002

2001Buildings

$
107,016

$
110,314Equipment


15,156


15,260Less: Accumulated amortization


57,338


51,957$
64,834

$
73,617





Amortization is calculated on a straight-line basis over the shorter of the respective lease terms or the
estimated useful lives of the related assets.





Minimum lease payments for all leases, including those in the store closure reserve, and the present value
of net minimum lease payments for capital leases as of January 31, 2002 are as follows:





Capital

OperatingFiscal Year:2003

$
18,851

$
86,7222004


17,262


80,3602005


13,696


71,6962006


10,990


63,2592007


10,237


55,334Thereafter


64,055


347,594Total minimum lease payments


135,091

$
704,965Less: amount representing interest


54,718Present value of minimum lease payments (interest rates ranging from 8% to 16%)


80,373Less: current portion


10,266Capital lease obligations, excluding current portion

$
70,107




CKE RESTAURANTS, INC.




58




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Total minimum lease payments have not been reduced for future minimum sublease rentals of $175,893 expected to be received under certain operating subleases.





The Company has 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
sales exceed certain levels, while others provide for monthly rentals based on a percentage of sales. Lessees generally bear the cost of maintenance, insurance and property taxes. Components of the net investment in leases receivable, included in
other current assets and other assets, are as follows:


2002

2001Net minimum lease payments receivable

$
1,261

$
1,681Less: unearned income


264


407Net investment

$
997

$
1,274





The carrying value of assets leased to others is as follows:





2002

2001Land

$
15,878

$
16,557Leasehold improvements


2,866


5,835Buildings and improvements


14,925


16,089Equipment, furniture and fixtures


2,177


3,26135,846


41,742Less: accumulated depreciation


7,644


7,507$
28,202

$
34,235





Minimum future rentals expected to be received as of January 28, 2002, including amounts reducing the our
restaurant closure reserve, are as follows:


Capital Leases or Subleases

Operating Lessor LeasesFiscal Year:2003

$
363

$
23,2572004


302


21,2192005


277


18,1292006


251


15,7332007


68


13,299Thereafter





84,256Total minimum future rentals

$
1,261

$
175,893





Total minimum future rentals do not include contingent rentals, which may be received under certain
leases. Included in the operating lease minimum rentals is $84,131 that is also included in the store closure reserve.





Aggregate rents under
noncancelable operating leases are as follows:


2002

2001

2000Minimum rentals

$
92,658

$
82,478

$
92,107Contingent rentals


4,550


4,923


5,275Less: sublease rentals


24,065


19,115


10,064$
73,143

$
68,286

$
87,318




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







During fiscal 2002 and 2001, the Company entered into certain sales leaseback transactions relating to restaurant properties it currently operates in order to generate cash to repay its bank indebtedness. The Company
generated proceeds of $16,494 and $5,237 during fiscal 2002 and 2001, respectively. The resulting net gains of $4,269 and $884 at fiscal year end 2002 and 2001, respectively, were deferred and are being amortized as a reduction to occupancy and
other operating expenses over the term of the lease.





Note 8  Long-Term Investments





The Company has invested in other restaurant concepts, as follows:





Santa Barbara Restaurant Group, Inc.


Prior to its acquisition of SBRG (see Note 2), the Company held stock in SBRG through various transactions. The Company accounted for its investment in SBRG under the equity method of
accounting due to shared management and directors. During the fourth quarter of fiscal 2000, the Company wrote down its investment in SBRG by $8,958 to $2,382 upon its conclusion that the investment had experienced an other than temporary decline in
value. During fiscal 2001, the Company sold its shares of SBRG to a American National Financial, Inc., a subsidiary of Fidelity National Financial, Inc., (see Note 15) for cash proceeds of $1,900 and recorded a loss of $400, which is included in
other expense, net (see Note 18).





Checkers Drive-In Restaurants, Inc.


Through a series
of transactions, the Company has various investments in Checkers Drive-In Restaurants, Inc. (Checkers) which as of January 31, 2002, consisted of common stock and warrants to purchase common stock. Checkers operates and franchises
approximately 427 Checkers and 427 Rallys double drive-thru quick-service hamburger restaurants, primarily in the Southeastern and Midwestern United States. During fiscal 2002, 2001 and 2000, the Company accounted for its investments under the
equity method of accounting as its Chairman of the Board was the Chairman of Checkers as well. As of September 28, 2002, the Companys Chairman of the Board is no longer the Chairman of Checkers, but remains a member of the Board of Directors.
During the fourth quarter of fiscal 2000, the Company wrote-down its investment in Checkers by $16,620 to its fair market value upon its conclusion that the investment had experienced an other than temporary decline in value. Further, as a result of
the Company recognizing its share of the net losses of Checkers, the Companys investment in Checkers was zero as of January 31, 2000. During fiscal 2002 and 2001, the Company sold 358,000 and 657,000 shares, respectively, of Checkers common
stock, and reflected gains of $1,876 and $2,235, respectively in Other Expense, Net (see Note 18). As of January 31, 2002, the Company holds 546,000 shares of Checkers common stock and 613,000 warrants to purchase Checkers common stock for $3.00 per
share. These warrants expire in November 2002. As of January 31, 2002, the Company has a 4.9% ownership interest in Checkers and the right to acquire common shares representing an additional 5.6% of Checkers.





During fiscal 2001, a $3,236 note receivable from Checkers, which was entered into during fiscal 1997, was repaid in full.





Boston Market


The Company, through its wholly owned subsidiary, Boston Pacific, Inc. (BPI), owned an 11% interest in Boston West,
LLC (Boston West), which operates Boston Market restaurants in designated markets in Southern California as a franchised area developer of Boston Chicken, Inc. (BCI), the franchisor of the Boston Market restaurant concept.
BCI and its Boston Market subsidiaries filed for protection under Chapter 11 of the Federal Bankruptcy Code on October 5, 1998. In a separate action, on November 9, 1998, Boston West filed a voluntary petition under Chapter 11 of the Federal
Bankruptcy Code to restructure its overall operations. Pursuant to Boston Wests plan of organization, as filed with the bankruptcy court, it was anticipated




CKE RESTAURANTS, INC.




60




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)




that the Company would own approximately 25% of Boston West after emergence from bankruptcy. In addition, during fiscal 1999, the Company signed an agreement with Boston West to provide
administrative and management services to the Boston Market franchises operated by Boston West and Boston West closed or sold 42 Boston Market restaurants.





Under the original reorganization plan, BCI acquired certain rights, claims and interests relating to Boston West. In April 2000, Boston Market Corporation (BMC), a wholly-owned subsidiary of McDonalds Corp., acquired
BCIs rights, claims and interests relating to Boston West. As a result, Boston West negotiated an agreement on a new plan of reorganization with BMC. Under this agreement the Company no longer provides administrative or management services to
Boston Market franchises operated by Boston West and the Company no longer has an ownership interest in Boston West. In anticipation of this agreement, in the fourth quarter of fiscal 2000 the Company wrote down its investment in Boston West to zero
by recording a $8,377 charge which is included in Other Expense, Net (see note 18). Additionally, under the plan, Boston West was dissolved.





Note 9
 Other Assets





Other assets consist of the following:





2002

2001Deferred financing costs

$
6,297

$
11,705Deferred lease costs


6,174


10,545Rentals due under leases


743


963Surplus property


16,350


37,993Other


3,218


4,368$
32,782

$
65,574





Note 10  Other Current Liabilities





Other current liabilities consist of the following:





2002

2001Salaries, wages and other benefits

$
27,313

$
28,444State sales taxes


16,968


14,016Store closure reserves


11,097


6,874Accrued interest


7,624


7,805Other accrued liabilities


28,165


29,350$
91,167

$
86,489





Note 11  Long-Term Debt





Long-term debt consists of the following:





2002

2001Senior Credit Facility, interest based on LIBOR plus applicable margin, averaging 9.7% in fiscal 2002

$


$
168,500Senior subordinated notes due 2009, interest at 9.125%


200,000


200,000Convertible subordinated notes due 2004, interest at 4.25%


159,205


159,225359,205


527,725Less: current portion





67,000$
359,205

$
460,725




CKE RESTAURANTS, INC.




61




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







On March 13, 1998, the Company completed a private placement of $197,200 aggregate principal amount of convertible subordinated notes (the Convertible Notes), in which the Company received net proceeds of
approximately $192,300, of which $24,100 was used to repay indebtedness under our then $300,000 credit facility (the Senior Credit Facility). The Convertible Notes, which represent unsecured general obligations subordinate in right of
payment to certain other obligations, including the Senior Credit Facility and the senior subordinated notes, described below, are due in 2004, are convertible into the Companys common stock at a conversion price of $43.82 (adjusted for the
10% stock dividend paid on January 11, 1999) and carry a 4.25% coupon. The remaining net proceeds from the Convertible Notes, together with borrowings under the Senior Credit Facility, were used to fund the acquisition of Flagstar Enterprises, Inc.
on April 1, 1998. In fiscal 2000, the Company repurchased $3,000, aggregate principal amount of Convertible Notes for $2,500 in cash, including accrued interest thereon. The Company recognized an extraordinary gain on the early retirement of debt of
$290, net of applicable taxes of $186 during fiscal 2000.





On March 4, 1999, the Company completed a private placement of $200,000 aggregate principal
amount of 9.125% senior subordinated notes (the Senior Subordinated Notes) due 2009. The Company received net proceeds of $194,800, of which $190,000 was used to repay outstanding term loan balances under its Senior Credit Facility. The
indenture relating to the Senior Subordinated Notes imposes certain restrictions on the Companys ability (and the ability of its subsidiaries) to incur indebtedness, to an amount not greater than the senior debt outstanding when the Company
issued the senior Notes, less any contractually required permanent reductions, pay dividends on, redeem or repurchase capital stock, make restricted payments (as defined in the agreement) in excess of $75,000 (as of January 31, 2002, the Company has
made approximately $25,000 in restricted payments),make investments, incur liens on assets, sell assets other than in the ordinary course of business, or enter into certain transactions with affiliates. The Senior Subordinated Notes represent
unsecured general obligations subordinate in right of payment to the Companys senior indebtedness, including its Senior Credit Facility.





The
Company concluded amending and restating its Senior Credit Facility on January 31, 2002 and secured a $100,000 lenders commitment under a revolving credit facility. The amended credit facility includes a letter of credit sub-facility, and
changed the maturity date of the Senior Credit Facility to December 14, 2003, extendable to November 15, 2006, provided certain convenants are met by the Company. The amended Senior Credit Facility is collateralized by certain restaurant property
deeds of trust, with a carrying value of $218,200 as of January 31, 2002. The Senior Credit Facility was amended and structured to provide specific targets and objectives as established by the Companys strategic plan, and to provide
flexibility as the Companys targets are exceeded.





The amended and restated Senior Credit Facility contains the following covenants, among others:





| |  |  | Capital expenditures  the Company is permitted to spend on targeted restaurant development as specified in the Companys strategic plan.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Sale of assets  the credit agreement permits the Company to divest restaurants, outside of the collateral pool, as it deems appropriate in order to balance its restaurant
portfolio as well as to achieve strategic direction in any given market. The Senior Credit Facility permits the Company to invest proceeds from these sales back into the business within specified timelines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Additional indebtedness  the amended credit agreement, consistent with previous amendments and restatements, restricts the Company from incurring new indebtedness.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




62




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







| |  |  | Interest rate  the amended credit agreement will charge interest on the lower of LIBOR, or Prime Rate, plus applicable margins based on the Companys leverage ratio.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Repurchases of Debt and Common Stock  the amended and restated Senior Credit Facility contains provisions that allow the Company to purchase up to $10,000 of convertible
subordinated notes but it restricts the Company from repurchasing the Companys common stock.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The Companys Senior Credit
Facility, consistent with previous amendments and restatements, contains restrictive convenants, which include a minimum EBITDA requirement, minimum fixed charge coverage ratio, minimum consolidated tangible net worth requirements and maximum
leverage ratios and capital expenditures.





Long-term debt matures in fiscal years ending after January 31, 2001 as follows:





Fiscal Year:2003

$
2004


2005


159,2052006


2007


Thereafter


200,000$
359,205





Note 12  Other Long-Term Liabilities





Other long-term liabilities consist of the following:





2002

2001Store closure reserves

$
38,161

$
44,821Self-insurance reserves


30,459


30,828Other


23,144


23,340$
91,764

$
98,989





The Company presently self-insures for its primary workers compensation and general liability
insurance exposures not covered by its stop-loss policy. A total of $35,454 and $36,080 was accrued as of January 31, 2002 and 2001, respectively, representing the current and long-term portions of the net present value of an independent actuarial
valuation of both Companys workers compensation and general liability claims. These amounts are net of a present value discount of $5,800 and $4,700 in fiscal 2002 and 2001, respectively.





Note 13  Stockholders Equity





During the third quarter of
fiscal 1999, the Companys Board of Directors authorized the purchase of up to five million shares of the Companys common stock. As of January 31, 2002, the Company had repurchased 1,585,000 shares of common stock for $10,406, at an
average price of $6.53 per share.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Note 14  Fair Value of Financial Instruments





The following table presents information on the Companys
financial instruments:





2002

2001Carrying Amount


Estimated Fair Value


Carrying Amount


Estimated Fair ValueFinancial assets:Cash and cash equivalents

$
24,642

$
24,642

$
16,860

$
16,860Notes receivable


21,107


9,713


25,231


14,247Long-term investments





5,424





6,758Financial liabilities:Long-term debt, including current portion

$
359,205

$
340,390

$
527,725

$
352,425





The fair value of cash and cash equivalents approximates their carrying amount
due to their short maturity. The estimated fair value of notes receivable were determined by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. The estimated fair value of
long-term investments was determined based on the closing stock price times the number of shares held or, for the warrants, the closing stock price minus the exercise price times the number of warrants. The estimated fair value of long-term debt was
determined by discounting future cash flows using rates currently available to the Company for debt with similar terms and remaining maturities and using market quotes for the Companys Senior Subordinated Notes and Convertible Notes.





Note 15  Related Party Transactions





Certain members of management, the Board of Directors, and the Karcher family are franchisees of the Company. Additionally, these franchisees regularly purchase food and other products from the Company on the same terms and conditions as
other franchisees.





In fiscal 1994, the Chairman Emeritus was granted future retirement benefits for past services consisting principally of payments of
$200 per year for life and supplemental health benefits, which had a net present value of $1,700 as of that date. This amount was computed using certain actuarial assumptions, including a discount rate of 7%. A total of $827 and $882 remained
accrued in other long-term liabilities as of January 31, 2002, and 2001, respectively. The Company anticipates funding these obligations as they become due.





The Company leases various properties, including its previous corporate headquarters, a distribution facility and three restaurants from the Chairman Emeritus. Included in capital lease obligations were $911 and $1,785, representing the
present value of lease obligations related to these various properties at January 31, 2002 and 2001, respectively. Lease payments under these leases for fiscal 2002, 2001 and 2000 amounted to $1,661, $1,500, and $1,500, respectively. This was net of
sublease rentals of $142, $161 and $161 in fiscal 2002, 2001 and 2000, respectively.





The Company has several leases with wholly owned subsidiaries of
Fidelity National Financial, Inc. (FNF), of which the chairman of the board of the Company is also chairman of the board, for point-of-sale equipment, corporate office facility, and expenses associated with the Companys leased
aircraft. The Company paid $6,064 and $6,421 and $2,841 in fiscal 2002, 2001 and 2000 respectively to FNF under these lease agreements. Additionally, the Company paid an entity formerly invested in by FNF commissions of $60 and $6,959 in fiscal 2002
and 2001 relating to the sale of certain restaurant properties during the year.




CKE RESTAURANTS, INC.




64




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







In fiscal 2001 the Company entered into an agreement with an a wholly-owned subsidiary of FNF to assist in the disposition of surplus real estate properties and negotiate the termination of leases for closed
restaurants. The affiliate is paid a fee for each property sold or each lease terminated. The Company paid this affiliate $329 and $58 during fiscal 2002 and 2001, respectively. The company also paid $1,216 in the current year for escrow and title
fees on the sale of restaurant properties and the establishment of mortgages on properties for collateral on the Senior Credit Facility.





In July 2001,
the Companys Board of Directors approved the adoption of CKE Restaurants, Inc. Employee Stock Purchase Loan Plan and the Non-Employee Director Stock Purchase Loan Program (collectively the Programs). The purpose of the Programs is
to provide key employees and directors with further incentive to maximize stockholder value. The Programs funds must be used to make private or open market purchase of Company common stock through a broker-dealer designated by the Company. All
loans are full recourse and unsecured and have a 5 year term. However, they can be forgiven at the discretion of the Compensation Committee of the Board of Directors, of the Company. Interest accrues on the loans at a rate of 6.0% per annum, due at
maturity. However, in the event that the stock is sold, transferred or pledged, the interest rate is adjusted to the prime rate plus 4%. These loans may be prepaid anytime without penalty. As of January 31, 2002, loans had been made in the amount of
$4,239 to purchase 739,900 shares of the Company common stock at an average purchase price of $5.73 per share (which included 189,900 shares for $1,086 from SBRG (see Note 2). Through the third quarter fiscal 2002, these loans were classified as
notes receivable. In January 2002 the Emerging Issues Task Force (EITF) issued EITF 02-1, Classification of Assets Received In Exchange For Equity Instruments Granted to Other Than Employees. This EITIF states that
non-employee stock loans should be classified as contra equity. As such, the Company adopted EITF 02-1 and reclassified these loans to stockholders equity.





During fiscal years 2002, 2001 and 2000 the Company paid royalties to SBRG of $443, $621 and $810 respectively. With the acquisition of SBRG, the Company will no longer be required to pay these amounts.





The following restaurant sales transactions with affiliates occurred:





2002

2001

2000Proceeds

Gain

Proceeds

Gain

Proceeds

GainAffiliateFormer CEO and member of the board of directors of the Company

$
12,080

$
6,300

$
4,192

$
1,600





Relative of member of the board of directors of the Company

$
4,100

$
2,500







$
14,059

$
12,208





Finally, during fiscal years 2002, 2001, and 2000 the Company reported food service revenue from
Rallys of $1,652, $3,634, and $3,781, respectively. Rallys restaurants are owned by Checkers (see Note 8).





Note 16  Franchise and
License Operations





Franchise arrangements generally provide for initial fees and continuing royalty payments to the Company based upon a percentage
of sales. The Company generally charges an initial franchise fee for each new franchised restaurant that is added to its 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 the Companys international licensing operations. These fees are recognized ratably when substantially all the services required of the
Company are complete and the restaurants covered by these agreements commence operations.




CKE RESTAURANTS, INC.




65




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Certain franchisees may also purchase food, paper, supplies and equipment from the Company. Additionally, franchisees may be obligated to remit lease payments for the use of restaurant facilities owned or leased by
the Company, generally for a period of 20 years. Under the terms of these leases, they are generally required to pay related occupancy costs which include maintenance, insurance and property taxes.





Revenue from franchised and licensed restaurants consist of the following:





2002

2001

2000Foodservice

$
145,733

$
100,717

$
80,094Royalties


64,644


59,632


52,692Equipment sales


13,231


23,461


27,876Rental income


36,001


20,645


10,916Initial fees and other


4,134


10,825


3,800$
263,743

$
215,280

$
175,378


|
|




Operating costs and expenses for franchised and licensed restaurants consist of the following:





2002

2001

2000Foodservice

$
142,353

$
98,439

$
78,881Occupancy and other operating expenses


49,602


33,971


28,241Equipment purchases


11,409


27,074


21,006$
203,364

$
159,484

$
128,128





Note 17  Interest Expense





Interest expense consists of the following:





2002


2001


2000Notes payable and Senior Credit Facility

$
(16,601
)

$
(30,848
)

$
(26,674
)Senior Subordinated Notes


(18,952
)


(18,909
)


(16,880
)Capital lease obligations


(9,575
)


(10,204
)


(11,570
)Convertible Notes


(7,697
)


(7,537
)


(7,509
)Closed Store Reserve and Other


(4,834
)


(3,043
)


(650
)$
(57,659
)

$
(70,541
)

$
(63,283
)





Note 18  Other Expense, Net





Other income (expense), net consists of the following:





2002


2001


2000Interest income

$
1,986


$
1,452


$
2,615Bad debt expense on notes receivable


(4,095
)


(988
)


(1,218
)Gain (loss) from long-term investments


2,054



510



(39,302
)Other


(533
)


(3,703
)


(9,327
)$
(588
)

$
(2,729
)

$
(47,232
)




CKE RESTAURANTS, INC.




66




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Note 19  Income Taxes





Income tax expense (benefit) consists of the following:





2002


2001


2000Current:Federal

$
(3,100
)

$
(26,154
)

$
10,883State


1,862







1,285Foreign


654







(584
)


(26,154
)


12,168Deferred:Federal






11,445



(26,353
)State






3,561



(3,682
)



15,006



(30,035
)$
(584
)

$
(11,148
)

$
(17,867
)





Total income tax benefit for the years ended January 31, 2002, 2001 and 2000 was allocated as follows:





2002


2001


2000Income (loss) from continuing operations

$
(584
)

$
(11,148
)

$
(18,053
)Extraordinary gain










186$
(584
)

$
(11,148
)

$
(17,867
)





A reconciliation of income tax expense (benefit) at the federal statutory rate of 35% to the
Companys provision for taxes on income is as follows:





2002


2001


2000Income taxes at statutory rate

$
(29,589
)

$
(71,841
)

$
(16,444
)State income taxes, net of federal income tax benefit


(168
)


(6,467
)


(3,637
)Work opportunity tax credits


(1,605
)


(1,500
)


(1,119
)Alternative minimum tax


(3,100
)


5,800



Increase in valuation allowance


34,828



61,014



3,378Other, net


(950
)


1,846



(45
)$
(584
)

$
(11,148
)

$
(17,867
)




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







Temporary differences and carryforwards gave rise to a significant amount of deferred tax assets and liabilities as follows:





2002

2001Deferred tax assets:Impairment and closure reserves

$
49,523

$
32,573Workers compensation reserve


10,961


10,928Federal net operating losses


15,496


10,463State net operating losses


7,621


9,674Capitalized leases


8,416


9,135Long-term investments


1,576


4,834Goodwill amortization


15,083


4,494Bad debt reserves


7,009


4,279Insurance reserves


3,100


3,354Other reserves


1,442


1,902Accrued payroll


2,485


837Other


1,513


4,552124,225


97,025Alternative minimum tax credits


3,397


8,323General business tax credits


6,458


3,955Foreign tax credits


1,394


Less: valuation allowance


101,240


66,412Total deferred tax assets


34,234


42,891Deferred tax liabilities  depreciation


34,234


42,891Net deferred tax asset (liability)

$


$






As a result of net operating losses in fiscal 2002 and 2001, the Company has recorded a valuation
allowance of approximately $101,000 for its entire net deferred tax asset. The Company was able to carryback approximately $93,000 of these losses to previously filed income tax returns.





At January 31, 2002, the Company had federal net operating loss carryforwards (NOL) of approximately $44,000, expiring in varying amounts in the years 2021 through 2022. and state NOL
carryforwards in the amount of approximately $109,000 expiring in varying amounts in the years 2006 through 2022. The Company has no net operating Loss carryforwards for alternative minimum tax purposes. Additionally, the Company has an alternative
minimum tax credit carryforward (AMT) of approximately $3,400. The Company also has generated general business credit carryforwards in the amount of $6,458 expiring in varying amounts in the years 2019 through 2022 and foreign tax
credits in the amount of $1,394 which expire in varying amounts in the years 2004 through 2006.





Note 20    Segment
Information





The Company is engaged principally in developing, operating and franchising its Carls Jr. and Hardees quick-service
restaurants, each of which is considered an operating segment that is managed and evaluated separately. Additionally, during the first quarter of fiscal 2002, the Company operated one chain that was held for sale, Taco Bueno, which was sold during
the second quarter. The activity of the Taco Bueno chain, as well as certain parent company expenditures, is included in the Other segment. The Company considers its Carls Jr. and Hardees chains each to be a reportable
segment. Management evaluates the performance of its segments and allocates resources to them based on several factors, of which




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)




the primary measure is segment operating income or loss. General and administrative expenses are attributed to each segment based on Managements analysis of the resources applied to each
segment. Interest expense is allocated based on debt, if any, assumed during acquisitions, operating cash flows and capital expenditures. The accounting policies of the segments are the same as those described in the summary of significant
accounting policies in Note 1.


|
|




Carls Jr.

Hardees


Other


Total2002Revenue

$
704,561

$
690,471


$
43,095


$
1,438,127Segment operating income (loss)


58,358


(70,258
)


(14,393
)


(26,293
)Interest expense


6,338


41,276



10,045



57,659Total assets


285,134


638,193



8,262



931,589Capital expenditures


8,323


11,797



5,382



25,502Depreciation and amortization


20,631


42,804



13,204



76,6392001Revenue

$
733,485

$
941,783


$
109,516


$
1,784,784Segment operating income (loss)


73,869


(185,489
)


(20,374
)


(131,994
)Interest expense


5,934


56,431



8,176



70,541Total assets


356,266


766,611



84,660



1,207,537Capital expenditures


28,892


33,514



12,274



74,680Depreciation and amortization


28,317


63,495



15,169



106,9812000Revenue

$
714,495

$
1,170,834


$
104,744


$
1,990,073Segment operating income (loss)


61,157


10,266



(8,368
)


63,055Interest expense


6,642


49,311



7,330



63,283Total assets


383,124


1,089,867



95,523



1,568,514Capital expenditures


72,804


146,677



44,108



263,589Depreciation and amortization


26,873


63,398



14,179



104,450





Note 21    Employee Benefit and Retirement Plans





Profit Sharing and Savings Plan


The Company maintains a voluntary contributory profit sharing and savings
investment plan for all eligible employees other than operations hourly employees. Annual contributions under the profit sharing portion of the plan are determined at the discretion of the Companys Board of Directors. Under the savings
investment portion of the plan, participants may elect to contribute up to 15% of their annual salaries to the plan.





Post Retirement Benefits Other
Than Pensions


The Company provides an unfunded retiree medical benefit plan for substantially all Hardees employees (except restaurant hourly employees) who retire on or after age 55
with at least five years of service. The retiree pays the actual costs of the plan with a Company subsidy provided for retirees with 10 or more years of credited service. The dollar amount of this subsidy will be capped by management in 2003. Such
benefits provided by the Company are immaterial.





Stock Purchase Plan


In fiscal 1995, the
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 907,500 shares of the Companys common stock through payroll deductions.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)




Pursuant to the ESPP, employees may contribute an amount between 3% and 15% of their base salaries. The Company contributes varying amounts as specified in the ESPP. During fiscal 2002, 2001 and
2000, 289,239, 524,660 and 338,417 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $4.64, $3.49 and $10.15 per share, respectively. The Company contributed $495 or an equivalent
of 94,362 shares for the year ended January 31, 2002, $1,103 or an equivalent of 333,092 shares for the year ended January 31, 2001 and $1,176 or an equivalent of 137,568 shares for the year ended January 31, 2000.





Stock Incentive Plans


The Companys 2001 stock incentive plan was approved by the Companys Board of
Directors in September 2001. The 2001 plan has been 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 provision determined by the compensation committee of Board of Directors. Options generally have a term of 10 years from the date of grant. Options are generally granted at a price equal to or greater than the fair market value
of the underlying common stock on the date of grant. A total of 800,000 shares are available for grants of options or other awards under the 2001 plan. As of January 31, 2000, 240,800 options were outstanding under this plan with an exercise price
of $8.39 per share.





The Companys 1999 stock incentive plan was approved by stockholders in June 1999 and amended and again approved in June 2000.
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 provision determined by the compensation committee of Board of Directors. Options generally have a
term of 10 years from the date of grant, except for five years from the date of grant in the case of incentive stock options granted 10% or greater shareholders of the Company. Operations are generally at a price equal to or greater than the fair
market value of the underlying common stock on the date of grant, except that incentive stock options granted to 10% or greater shareholders of the Company may not be granted at less that 110% of the fair market value of the common stock on the date
of grant. A total of 4,200,000 shares are available for grants of options or other awards under the amended 1999 plan, with such amount of available shares increased by 350,000 shares on the date of each annual meeting of shareholders. As of January
31, 2002, 3,898,777 million options were outstanding under this plan with exercise prices ranging from $2.14 per share to $18.13 per share.





Under the
1999 plan on January 3, 2001, the Companys Chief Executive Officer and Chairman were each granted 375,000 stock options to purchase shares. These options vest as follows: the earlier of 7 years from date of grant or (i) 100,000 options vest
upon the reduction below $100,000 of the aggregate outstanding balance or the Companys Senior Credit Facility; (ii) 50,000 options vest upon consummation of any restructuring or refinancing of the Senior Credit Facility; (iii) 75,000 options
vest upon the date which the closing price of the Companys common stock has been $4.00 per share on any 10 of 20 consecutive trading days; (iv) 75,000 options vest upon the date which the Companys common stock has been $6.00 per share on
any 10 of 20 consecutive trading days; (v) 75,000 shares vest upon the date which the closing price of the Companys common stock has been $8.00 per share on any 10 of 20 consecutive trading days. As of January 31, 2002, each of the vesting
criteria had been met and all of these options were fully vested.





The Companys 1994 stock incentive plan expired in April 1999. Options generally
had a term of five years from the date of grant for the nonemployee directors and 10 years from the date of grant for employees, became exercisable at a rate of 33 1/3% per year following the grant date and were priced at the fair market value of
the shares on the date of grant. A total of 6,352,500 shares were available for grants of options or other awards under this plan, of which stock 3,444,232 options were outstanding as of January 31, 2002, with exercise prices ranging from $3.72 per
share to $36.65 per share.




CKE RESTAURANTS, INC.




70




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







The Companys 1993 stock incentive plan was superseded by the 1994 plan, as discussed above. As of January 31, 2002, 82,700 stock options, with exercise prices ranging from $3.99 per share to $6.27 per share,
were outstanding under the plan. No further awards may be granted under this plan.





The Companys 1982 stock option plan expired in September 1992.
Under this plan, stock options were granted to key employees to purchase up to 5,445,000 shares of its common stock at a price equal to or greater than the fair market value at the date of grant. The options generally had a term of 10 years from the
grant date and became exercisable at a rate of 25%, 35% and 40% per year following the grant date. The exercise price of the 29,300 stock options outstanding as of January 31, 2002 under this plan is $4.27 per share.





In general, the Companys stock incentive plans have a term of 10 years and vest over a period of 3 years.





Transactions under all plans are as follows:





Shares


Weighted Average Exercise Price

ExercisableBalance, January 31, 1999

5,367,186


$
19.47

3,064,429Granted

1,830,300



16.66Canceled

(798,006
)


33.38Exercised

(181,671
)


8.28Balance, January 31, 2000

6,217,809


$
17.19

3,986,469Granted

2,420,850



2.99Canceled

(530,060
)


18.92Exercised





Balance, January 31, 2001

8,108,599


$
12.83

5,550,408Granted

1,006,300



4.23Canceled

(1,344,894
)


15.23Exercised

(75,778
)


3.85Balance, January 31, 2002

7,694,227


$
11.36

5,403,892





The following table summarizes information related to stock options outstanding and exercisable at January
31, 2002:





Options Outstanding

Options ExercisableRange ofExercise Prices

(000s) Shares Outstanding

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

(000s) Shares Exercisable

Weighted Average Exercise Price$  2.14

to

$
2.63

1,293

$
2.61

8.87

828

$
2.632.92




3.31

1,618


3.14

8.72

299


3.313.38




8.39

1,289


6.84

4.69

1,028


6.539.30




16.25

1,316


15.07

5.25

1,309


15.0816.63




23.68

1,633


20.42

5.53

1,393


20.8124.38




36.65

547


31.07

5.78

547


31.07$  2.14



$
36.65

7,696

$
11.36

6.59

5,404

$
13.99





For purposes of the following pro forma disclosures required by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) the fair value of each option granted after fiscal 1995 has been




CKE RESTAURANTS, INC.




71




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)




estimated on the date of grant using the Black-Scholes option-pricing model, with the following assumptions used for grants in fiscal 2002, 2001 and 2000: annual dividends consistent with the
Companys current dividend policy, which resulted in payments of $0.00 per share in fiscal 2002, $0.04 per share in fiscal 2001 and $0.08 per share in fiscal 2000; expected volatility of 60% in fiscal 2002, 52% in fiscal 2001 and 50% in fiscal
2000; risk-free interest rates of 4.48% in fiscal 2002, 4.97% in fiscal 2001 and 6.69% in fiscal 2000; and an expected life of 5.38 years in fiscal 2002, 5.00 years in fiscal 2001 and 5.40 years in fiscal 2000. The weighted average fair value of
each option granted during fiscal 2002, 2001 and 2000 was $2.41, $1.58 and $8.07, respectively. Had compensation expense been recognized for fiscal 2002, 2001 and 2000 grants for stock-based compensation plans in accordance with provisions of SFAS
123, the Company would have recorded net income (loss) and earnings (loss) per share of $(88,432), or $(1.55) per basic and diluted share in fiscal 2002; $203,000, or $(4.02) per basic and diluted share in fiscal 2001; and $35,200, or $(0.68) per
basic share and diluted share in fiscal 2000.





The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companys stock options
have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in managements opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock options.





Note 22  Supplemental Cash Flow Information


2002


2001

2000Cash paid for interest and income taxes are as follows:Interest

$
48,224


$
68,251

$
50,009Income tax paid and (refund received)


(32,313
)


130


15,193Non-cash operating charges are as follows:Provision for impairment of long-term investments

$



$


$
34,431Write-off of Hardees acquisition-related assets









10,989Write-off of capitalized software development cost









6,553Write-off of deferred financing costs


4,146



1,807


3,565Restructuring charges









2,058Other, net






15,811


6,925$
4,146


$
17,618

$
64,521Non-cash investing and financing charges are as follows:Deferred gain on sales leaseback

$
4,269


$
884

$
Transfer of vacant restaurants to surplus property

$
1,175


$
41,644

$






Note 23  Selected Quarterly Financial Data (Unaudited)





The following table presents summarized quarterly results:


Quarter1st


2nd


3rd


4thFiscal 2002Total revenue

$
470,556


$
340,969


$
325,457


$
301,145Operating income (loss)


(15,480
)


(21,644
)


9,818



1,013Net loss


(37,145
)


(36,769
)


(1,731
)


(8,311
)Net loss per share  basic and diluted

$
(0.74
)

$
(0.73
)

$
(0.03
)

$
(0.16
)Fiscal 2001Total revenue

$
584,474


$
439,459


$
408,820


$
352,031Operating income (loss)


22,811



(6,590
)


(31,827
)


(116,388
)Net loss


(2,451
)


(13,930
)


(29,429
)


(148,306
)Net loss per share  basic and diluted

$
(0.04
)

$
(0.28
)

$
(0.58
)

$
(2.94
)




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







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 have 12-week accounting periods, except the first quarters of fiscal 2002 and 2001, which have 16-week accounting periods.





Fourth Quarter Adjustments


During the fourth quarter of fiscal 2002, the Company recorded facility action charges
of $10,600. These charges, which were primarily non-cash in nature, consisted of (i) an impairment charge of $5,800, (ii) store closure expense and goodwill impairment, principally for Hardees restaurants that were formerly operated by a
franchisee and for which the Company is the primary obligor on the leases, in the amount of $6,200, and (iii) net gains on the sale of restaurants to franchisees and surplus properties of $1,400.





During the fourth quarter of fiscal 2001, we recorded a repositioning charge of $93,300. This charge, which was primarily non-cash in nature, consisted of (a) a $19,100 restaurant closure reserve for
approximately 80 Hardees and approximately 20 Carls Jr. restaurants that we have closed or plan to close, (b) an impairment charge of $76,800 for certain restaurants that we will close or for restaurants that we plan to continue to
operate but for which the net book value is not supported by future estimated cash flows, (c) a credit for a net $11,300 gain on the sale of restaurants sold to franchisees and (d) a loss of $8,700 on the sale of Taco Bueno.





Note 24  Commitments and Contingent Liabilities





In conjunction with
the Senior Credit Facility, a letter of credit sub-facility in the amount of $75,000 was established (see Note 11). Several letters of credit are outstanding under this facility, which secure the Companys potential workers compensation
claims and general and health liability claims. The Company is required to provide a letter of credit each year based on its existing claims experience, or set aside a comparable amount of cash or investment securities in a trust account.





The Companys standby letter of credit agreements with various banks expire as follows:





March 2002

$  6,651April 2002

4,300July 2002

4,821November 2002

12,788December 2002

5,744February 2003

20,816$55,120





In fiscal 1996, the Company sold certain of its Carls Jr. franchise notes receivable, with recourse,
to an independent third party. In addition, the Company entered into a limited term guarantee with certain independent third parties during fiscal 1997 on behalf of a Carls Jr. franchisee and an additional limited term guarantee in fiscal 1998
with an independent third party on behalf of its Hardees franchisees. The Company is contingently liable for an aggregate of approximately $4,719 under these guarantees as of January 31, 2002.





In fiscal 2000, fiscal 2001 and fiscal 2002, in connection with the sale of restaurants to qualified franchisees, the Company subleased restaurants to these franchisees and it
remains as the primary lessee. The Company accounts for the sublease payments received as franchising rental revenue and the payments on the leases as rental expense in franchise expense. The present value of the lease obligations under the master
leases primary term remaining is $40,200. Franchisees may, from time to time, experience financial hardship and may cease payment on the sublease obligation to the Company. The present value of the exposure to the Company from franchisees
characterized under financial hardship is $13,900.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements (Continued)


(Dollars in thousands, except per share amounts)







The Company is 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 the Company and its restaurants, regardless of whether such allegations are valid or whether the Company is liable. The Company is also the subject of complaints or allegations from employees, former employees and
franchisees from time to time. On October 3, 2001, an action was filed by Adam Huizar and Michael Bolden, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, Los Angeles County, seeking
class action status and alleging violations of California wage and hour laws. On April 5, 2002, a similar action was filed by Mary Jane Amberson, individually and on behalf of others similarly situated, in the Superior Court of the State of
California, Alameda County. The complaints allege that salaried restaurant management personnel at the Companys Carls Jr. restaurants in California were improperly classified as exempt from California overtime laws, thereby depriving
them of overtime pay. The complaints seek damages in an unspecified amount, injunctive relief, prejudgment interest, costs and attorneys fees. The Companys management believes its employee classifications are appropriate, that it
complies with state and federal wage and hour laws and plans to vigorously defend these actions. The Company believes that, based in part on advice of legal counsel, the lawsuits, claims and other legal matters to which it has become subject in the
course of its business are not material to the Companys financial condition or results of operations.




CKE RESTAURANTS, INC.




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Schedule II  Valuation and Qualifying Accounts





For the fiscal years ended January
31, 2002, 2001 and 2000





(Dollars in thousands)

Allowance for Doubtful AccountsBalance at January 31, 1999


15,554Charges to operations


1,485Deductions


(6,643
)Balance at January 31, 2000

$
10,396Charges to operations


8,602Deductions


(2,876
)Balance at January 31, 2001

$
16,122Charges to operations


10,641Deductions

$
(8,983
)Balance at January 31, 2002

$
17,780
(1)(1)Reflected on the balance sheet as:Allowance on notes receivable

$
11,078Allowance on accounts receivable

$
6,702Total

$
17,780





See accompanying independent auditors report.





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CKE RESTAURANTS, INC.




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Exhibit Index





Exhibits

Description3-1

Certificate of Incorporation of the Registrant, incorporated herein by reference to exhibit 3-1 to the Registrants Form S-4 Registration Statement Number
333-05305.3-2

Certificate of Amendment of Certificate of Incorporation, as filed with the Delaware Secretary of State on December 9, 1997, filed as exhibit 3-2 to the Companys Form
10-K Annual Report for the fiscal year ending January 26, 1998, and is hereby incorporated by reference.3-3

Bylaws of the Registrant, incorporated herein by reference to exhibit 3-2 to the Registrants Form S-4 Registration Statement Number 333-05305.4-1

Indenture, dated as of March 14, 1998 for 4.25% Convertible Subordinated Notes due 2004 by and between CKE Restaurants, Inc. and Chase Manhattan Bank and Trust Company,
National Association, as Trustee, filed as exhibit 4.1 to the Companys Form 10-K Annual Report for fiscal year ended January 26, 1998, and is hereby incorporated by reference.4-2

Form of Note (included in exhibit 4.1).4-4

Indenture, dated as of March 4, 1999, by and among the Company, its subsidiary guarantors and Chase Manhattan Bank and Trust Company, N.A., as Trustee, filed as exhibit 4.1 to
the Companys Current Report on Form 8-K dated February 25, 1999, and is hereby incorporated by reference.4-5

Form of Note (included in exhibit 4.4).10-1

Carl Karcher Enterprises, Inc. Profit Sharing Plan, as amended, filed as exhibit 10-21 to the Companys Registration Statement on Form S-1, file No. 2-73695, and is hereby
incorporated by reference.(2)10-2

Carl Karcher Enterprises, Inc. Key Employee Stock Option Plan, filed as exhibit 10-24 to the Companys Registration Statement on Form S-1, file No. 2-80283, and is hereby
incorporated by reference.(2)10-3

Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive Plan, filed as exhibit 10-123 to the Companys Form 10-K Annual Report for fiscal year ended January 25, 1993,
and is hereby incorporated by reference.(2)10-4

CKE Restaurants, Inc. 1994 Stock Incentive Plan, as amended, incorporated herein by reference to exhibit 4-1 to the Registrants Form S-8 Registration Statement Number
333-12399.(2)10-5

CKE Restaurants, Inc. 1999 Stock Incentive Plan, incorporated herein by reference to exhibit 4-1 to the Registrants Form S-8 Registration Statement Number
333-83601.(2)10-6

CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as amended, filed as exhibit 10-22 to the Companys Form 10-K Annual Report for fiscal year ended January 27,
1997, and is hereby incorporated by reference.(2)10-7

Employment Agreement dated January 1, 1994, by and between Carl Karcher Enterprises, Inc. and Carl N. Karcher, filed as exhibit 10-89 to the Companys Form 10-K Annual
Report for fiscal year ended January 31, 1994, and is hereby incorporated by reference.(2)10-8

First Amendment to Employment Agreement dated November 1, 1997, by and between Carl N. Karcher and Carl Karcher Enterprises, Inc., filed as exhibit 10-8 to the Companys
Form 10-K Annual Report for fiscal year ended January 26, 1998, and is hereby incorporated by reference.(2)10-9

Employment Agreement dated as of April 9, 1999, by and between the Company and William P. Foley, II, filed as exhibit 10-1 to the Companys Form 10-Q Quarterly Report for
the quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)




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Exhibits

Description10-12

Employment Agreement dated as of April 9, 1999, by and between the Company and Robert W. Wisely, filed as exhibit 10-4 to the Companys Form 10-Q Quarterly Report for the
quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)10-14

Employment Agreement dated as of April 9, 1999, by and between the Company and Andrew F. Puzder, filed as exhibit 10-6 to the Companys Form 10-Q Quarterly Report for the
quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)10-15

Employment Agreement dated as of April 9, 1999, by and between the Company and John J. Dunion, filed as exhibit 10-7 to the Companys Form 10-Q Quarterly Report for the
quarterly period ended May 17, 1999, and is hereby incorporated by reference.(2)10-16

Settlement Agreement and Release dated as of April 26, 1996, by and between Giant Group, Ltd; William P. Foley II; CKE Restaurants, Inc.; Fidelity National Financial, Inc.; and
other parties, filed as exhibit 10-42 to the Companys Form 10-Q Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.10-17

Operating Agreement by and between Rallys Hamburgers, Inc. and Carl Karcher Enterprises, Inc. dated May 26, 1996, filed as exhibit 10-43 to the Companys Form 10-Q
Quarterly Report for the quarterly period ended May 20, 1996, and is hereby incorporated by reference.*10-18

Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of May 1995, filed as exhibit 10-31
to the Companys Form 10-K Annual Report for the fiscal year ended January 29, 1996, and is hereby incorporated by reference.10-19

First Amendment to Settlement and Development Agreement by and between Carl Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB Foods Corporation dated as of February 20,
1997, filed as exhibit 10-31 to the Companys Form 10-K Annual Report for the fiscal year ended January 27, 1997, and is hereby incorporated by reference.10-25

Supply Agreement, dated as of July 14, 1997, by and between Hardees Food Systems, Inc. and Fast Food Merchandisers, Inc. (Forest City Division), filed as exhibit 99.3 to
the Companys Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.*10-26

Supply Agreement, dated as of July 14, 1997, by and between Hardees Food Systems, Inc. and Fast Food Merchandisers, Inc. (Monterey Division), filed as exhibit 99.4 to the
Companys Current Report on Form 8-K dated April 27, 1997, and is hereby incorporated by reference.*10-27

Supply Agreement, dated as of July 14, 1997, by and between Hardees Food Systems, Inc. and QVS, Inc., filed as exhibit 99.5 to the Companys Current Report on Form
8-K dated April 27, 1997, and is hereby incorporated by reference.*10-28

Distribution Agreement, dated as of July 14, 1997, by and among the Company, Hardees Food Systems, Inc. and Fast Food Merchandisers, Inc., filed as exhibit 99.6 to the
Companys Current Report on Form 8-K dated April 27, 1997, as is hereby incorporated by reference.*10-29

Exchange Agreement, dated as of December 8, 1997, by and between Rallys Hamburgers, Inc., CKE Restaurants, Inc., Fidelity National Financial, Inc., Giant Group, LTD and
others, filed as exhibit 10-35 to the Companys Form 10-K Annual Report for the fiscal year ended January 26, 1998, and is hereby incorporated by reference.*10-30

Stock Purchase Agreement dated February 18, 1998, among CKE Restaurants, Inc., Advantica Restaurant Group, Inc., Spartan Holdings, Inc. and Flagstar Enterprises, Inc., filed as
exhibit 99-2 to the Companys Current Report on Form 8-K dated February 19, 1998, and is hereby incorporated by reference.*10-31

Third Amended and Restated Credit Agreement, dated as of November 24,1999, by and between the Company and Paribas, as agent, and the Lenders party thereto, filed as exhibit
10-8 to the Companys form 10-Q Quarterly Report for the quarterly period ended November 1, 1999, and is hereby incorporated by reference.*10-32

Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of April 26, 2000, by and between the Company and Paribas, as agent, and the Lenders party thereto,
filed as exhibit 10-32 to the Companys form 10-K Annual Report for the annual period ended January 31, 2000, and is hereby incorporated by reference.




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Exhibits

Description10-33

Green Burrito Master Franchise Agreement dated June 5, 2000 by and among the Company and Green Burrito Grill Franchise Corporation and Santa Barbara Restaurant Group, Inc. and
is hereby incorporated by reference.*10-34

Amendment to Employment Agreement dated as of September 6, 2000 by and Between the Company and C. Thomas Thompson, and is hereby incorporated by reference.*(2)10-35

Amendment No. 2 to Third Amended and Restated Credit Agreement and Limited Waiver dated September 28, 2000 by and between the Company and BNP Paribas, as Agent for the Lenders,
and is hereby incorporated by reference.*10-38

First Amendment to Master Franchise Agreement dated December 29, 2000 by and among the Company and Green Burrito Grill Franchise Corporation and Santa Barbara Restaurant Group,
Inc. filed as exhibit 10-38 to the Companys Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by reference.10-39

Amendment to Employment Agreement as of January 3, 2001 by and between the Company and Andrew F. Puzder filed as exhibit 10-39 to the Companys Form 10-K Annual Report for
the annual period ended January 29, 2001, and is hereby incorporated by reference.10-40

Amendment No. 3 to Third Amended and Restated Credit Agreement and Limited Waiver dated January 29, 2001 by and between the Company and BNP Paribas, a bank organized under the
laws of France acting through its Chicago branch (as successor in interest to Paribas), as Agent, filed as exhibit 10-40 to the Companys Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by
reference.10-41

Stock Purchase Agreement dated March 13, 2001 by and among the Company and JP Acquisition Fund III, filed as exhibit 10-41 to the Companys Form 10-K Annual Report for the
annual period ended January 29, 2001, and is hereby incorporated by reference.10-42

Amendment No. 4 to Third Amended and Restated Credit Agreement and Limited Waiver dated April 13, 2001 by and between the Company and BNP Paribas, a bank organized under the
laws of France acting through its Chicago branch (as successor in interest to Paribas), as Agent, filed as exhibit 10-42 to the Companys Form 10-K Annual Report for the annual period ended January 29, 2001, and is hereby incorporated by
reference.10-43

CKE Restaurants, Inc. July 23, 2001 Employee Loan and Stock Purchase Agreement, filed as exhibit 10-43 to the Companys Form 10-Q Quarterly Report for the quarterly period
ended August 13, 2001, and is hereby incorporated by reference.*10-44

CKE Restaurants, Inc. July 23, 2001 Non-employee Director Loan and Stock Purchase Agreement, filed as exhibit 10-44 to the Companys Form 10-Q Quarterly Report for the
quarterly period ended August 13, 2001, and is hereby incorporated by reference.*




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CKE RESTAURANTS, INC. AND SUBSIDIARIES





Notes
to Consolidated Financial Statements


(Dollars in thousands, except per share amounts)


Exhibits

Description10-45

Stock Purchase Agreement by and between the Purchasers Set Forth on Exhibit A, Santa Barbara Restaurant Group, Inc., and CKE Restaurants, Inc. for the Purchase of 189,900
Shares of Common Stock of CKE Restaurants, Inc. dated August 20, 2001, filed as exhibit 10-45 to the Companys Form 10-Q Quarterly Report for the quarterly period ended August 13, 2001, and is hereby incorporated by reference.*10-46

Employment Agreement dated as of December 20, 2001, by and between the Company and Theodore Abajian.(1)(2)10-47

Fourth Amended and Restated Credit Agreement and Limited Waiver, dated as of January 31, 2002, by and between the Company and BNP Paribas, a bank organized under the laws of
France acting through its Chicago branch (as successor in interest to Paribas, as Agent, and the Lenders party hereto.(1)10-48

CKE Restaurants, Inc. 2001 Stock Incentive Plan, Incorporated herein by reference to exhibit 4.1 to the Registrants Form S-8 Registration Statement Number
333-76884.12-1

Computation of Ratios.(1)21-1

Subsidiaries of Registrant.(1)23-1

Consent of KPMG LLP independent auditors.(1)





|* |  | Schedules omitted. The Registrant shall furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------




|(1) |  | Filed herewith.
|--- |  | ---------------




|(2) |  | A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



CKE RESTAURANTS, INC.




79