##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended January 26,
    2004                                              
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-11313

CKE Restaurants, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                                            |  |                                         
|----------------------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                                    |  | 33-0602639                              
|(State or other jurisdiction of
    incorporation or organization)                                          |  | (I.R.S. Employer
    Identification No.)
|6307 Carpinteria Ave., Ste. A
    Carpinteria, California 93013(Address of principal executive
    offices)

Registrants telephone number, including
area code

(805) 745-7500


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

|                                           |  |                                          
|------------------------------------------ |  | -----------------------------------------
|Title of Each Class                        |  | Name of Each Exchange on Which Registered
|                                           |  |                                          
|Common Stock, $.01 par value               |  | New York Stock Exchange                  
|9 1/8% Senior Subordinated Notes due 2009  |  | New York Stock Exchange                  
|4% Convertible Subordinated Notes due 2023 |  | 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
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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.     þ

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the
Act).     Yes þ          No o

The aggregate
market value of the voting stock held by non-affiliates of the
registrant as of August 11, 2003 was $269,404,159.

The number of
outstanding shares of the registrants common stock was
57,680,702 as of April 2, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the
registrants Proxy Statement for the 2004 Annual Meeting of
Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days of January 26,
2004, 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 26,
2004


TABLE OF CONTENTS

|              |  |                                                                                                        |  |      |    | 
|------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|              |  |                                                                                                        |  | Page
|              |  |                                                                                                        |  | No. 
|              |  |                                                                                                        |  |     
|Part I       
|Item 1.       |  | Business                                                                                               |  |      | 1  | 
|Item 2.       |  | Properties                                                                                             |  |      | 15 | 
|Item 3.       |  | Legal Proceedings                                                                                      |  |      | 16 | 
|Item 4.       |  | Submission of Matters to a
    Vote of Security Holders                                                |  |      | 16 | 
|Part II      
|Item 5.       |  | Market for Registrants
    Common Equity and Related Stockholder Matters                              |  |      | 17 | 
|Item 6.       |  | Selected Financial Data                                                                                |  |      | 18 | 
|Item 7.       |  | Managements Discussion
    and Analysis of Financial Condition and
    Results of Operations          |  |      | 22 | 
|Item 7A.      |  | Quantitative and Qualitative
    Disclosures About Market Risk                                         |  |      | 56 | 
|Item 8.       |  | Financial Statements and
    Supplementary Data                                                        |  |      | 57 | 
|Item 9.       |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |      | 57 | 
|Item 9A.      |  | Controls and Procedures                                                                                |  |      | 57 | 
|Part III     
|Item 10.      |  | Directors and Executive
    Officers of the Registrant                                                 |  |      | 58 | 
|Item 11.      |  | Executive Compensation                                                                                 |  |      | 58 | 
|Item 12.      |  | Security Ownership of
    Certain Beneficial Owners and Management and
    Related Stockholder Matters |  |      | 58 | 
|Item 13.      |  | Certain Relationships and
    Related Transactions                                                     |  |      | 58 | 
|Item 14.      |  | Principal Accountant Fees
    and Services                                                             |  |      | 60 | 
|Part IV      
|Item 15.      |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |  |      | 61 | 
|EXHIBIT 3-4  
|EXHIBIT 10-53
|EXHIBIT 10-54
|EXHIBIT 10-55
|EXHIBIT 10-56
|EXHIBIT 12-1 
|EXHIBIT 14-1 
|EXHIBIT 21-1 
|EXHIBIT 23-1 
|EXHIBIT 31-1 
|EXHIBIT 31-2 
|EXHIBIT 32-1 
|EXHIBIT 32-2 



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PART I



Item 1.     Business

Our fiscal year ends on the last Monday in
January in each year. In this Annual Report, we refer to the
fiscal years by reference to the calendar year in which they end
(e.g., the fiscal year ended January 26, 2004, is referred
to as fiscal 2004). Fiscal 2004, 2003 and 2002 each
includes 52 weeks. All dollar amounts used in the text of
this Annual Report are in thousands, unless otherwise
noted.

Company Overview

We own, operate, franchise and license
approximately 3,250 quick-service restaurants, which are
referred to in our industry as QSRs, primarily under the
brand names Carls Jr.®, Hardees® and La
Salsa Fresh Mexican Grill®. According to the June 30,
2003 issue of Nations Restaurant News, our Hardees
and Carls Jr. chains are the tenth and eleventh largest
sandwich restaurant chains in the U.S., respectively, based on
U.S. system-wide foodservice sales. Our system-wide restaurant
portfolio at January 31, 2004, consisted of:

|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |       | 
|----------------------- | ----- | ---------- | --- | -------- |  | -------- | ----- | ----- |  | ----- | -- | --- |  |  | -- | -- |  |  | ----- | ----- | 
|                        |       | Carls Jr. |     | Hardees |  | La Salsa |       | Other |  | Total
|                        |       |            |     |          |  |          |       |       |  |      
|Company-operated        |       |            | 426 |          |  |          | 721   |       |  |       | 61 |     |  |  | 4  |    |  |  | 1,212 |      
|Franchised and licensed |       |            | 580 |          |  |          | 1,400 |       |  |       | 41 |     |  |  | 17 |    |  |  | 2,038 |      
|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |      
|                        | Total |            |     | 1,006    |  |          |       | 2,121 |  |       |    | 102 |  |  |    | 21 |  |  |       | 3,250 | 
|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |      

Carls Jr. The
first Carls Jr. restaurant was opened in 1956. Our
Carls Jr. restaurants are located predominantly in the
Western United States. Carls Jr. restaurants offer
superior food quality, a diverse menu focused on burgers,
premium dining selections at reasonable prices and attentive
customer service to create a quality dining experience for its
customers. Approximately 20% of Carls Jr. restaurants are
dual-branded with Green Burrito. Typically, dual-branded
Carls Jr. restaurants have both higher sales and profits.
Carls Jr. is predominantly a lunch and dinner concept,
with approximately 88% of Carls Jr. company-operated
restaurant revenues coming from the lunch and dinner portion of
its business.

Hardees. The
first Hardees restaurant was opened in 1960. Our
Hardees restaurants are located predominantly in the
Southeastern and Midwestern United States. Hardees
restaurants offer quality food in generous portions at moderate
prices. Historically, Hardees has been a place for
breakfast, with approximately 44% of company-operated revenues
derived from that portion of its business. In early 2003, we
restructured our lunch/dinner menu, which now features large
Angus beef Thickburgers and chicken sandwiches.
Hardees breakfast menu is largely unchanged, featuring
such items as Made From Scratch® biscuits and biscuit
breakfast sandwiches. The new menu gives Hardees the
opportunity to grow the lunch and dinner portion of its business.

La Salsa. We
acquired La Salsa on March 1, 2002, when we acquired Santa
Barbara Restaurant Group, Inc., or SBRG. Our La Salsa
restaurants are located predominantly in California, and are
quality, fast-casual restaurants featuring traditional Mexican
food items including tacos, burritos, enchiladas and salads. We
believe that our presence in the fast-casual segment provides us
with an attractive growth opportunity.

Recent Developments

Repayment of Convertible Subordinated Notes at
Maturity. We repaid and retired the
portion of our 4 1/4% Convertible Subordinated Notes Due
2004 then still outstanding at their maturity on March 15,
2004.

Closure of Hardees
Restaurants. On February 13,
2004, we announced our intention to close 28 under-performing
Hardees restaurants. We determined that these restaurants
do not fit in with our new menu strategy and could not respond
to the changes weve made.

Impairment of Goodwill Associated with La
Salsa Fresh Mexican Grill. During the
first quarter of fiscal 2004, we completed our annual assessment
of goodwill, including an assessment of the La Salsa brand
conducted by an independent consultant, which did not result in
an impairment charge. During the fourth quarter of fiscal 2004,
we determined that it was more likely than not that the value of
the La Salsa brand had decreased due to deterioration of La
Salsas business and future growth prospects. Accordingly,
we again

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engaged an independent consultant to assist us in
performing an assessment of the value of the brand. Based on the
results of that assessment, during the fourth quarter of fiscal
2004 we recorded an impairment charge of $34,059 to the carrying
value of the goodwill associated with the acquisition of La
Salsa. The carrying value of the goodwill associated with the
acquisition of La Salsa is now $0.


Bovine Spongiform
Encephalopathy. On December 23,
2003, the United States Department of Agriculture announced a
presumptive positive case of bovine spongiform encephalopathy
(BSE), also known as mad cow.
Subsequently, the USDA announced that additional testing
confirmed the diagnosis of BSE. We have not purchased beef from
the State of Washington meat-packing facility that processed the
BSE-infected cow (either directly or indirectly through our
suppliers).

Divestiture of Timber
Lodge. As discussed in Note 6 of Notes
to Consolidated Financial Statements, Timber Lodge is accounted
for as a discontinued operation. The operating results of Timber
Lodge, a loss of approximately $2,790 and $53 for fiscal year
2004 and the period March 1, 2002 (the Acquisition
Date) through January 31, 2003, respectively, are
included in the Consolidated Financial Statements as
discontinued operations. During March 2004, we executed a letter
of intent to sell Timber Lodge and expect to close the sale
transaction no later than the second quarter of fiscal 2005.
However, we can provide no assurance that this transaction will
be completed.

Adoption of New Accounting
Pronouncements. See Note 1 of
Notes to Consolidated Financial Statements.

Use of Non-GAAP Financial
Measurements

In various places throughout this Annual Report,
we use certain non-GAAP financial measures when describing our
performance, which we believe provide valuable information to
our stockholders. An example of such a non-GAAP financial
measures would be EBITDA, which we believe is a valuable
performance measure for our security holders as an indicator of
earnings available to service debt. Please see discussion of the
non-GAAP financial measures we use in this Annual Report
contained in Item 7 under the heading
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Presentation of
Non-GAAP Measurements.

Contact Information; Obtaining Copies of this
Annual Report

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

Electronic copies of our Annuals Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to Section 13 (a) or 15
(d) of the Exchange Act, are available free of charge by
visiting the Investors section of www.ckr.com. These
reports are posted as soon as reasonably practicable after they
are electronically filed with the Securities and Exchange
Commission.

In addition, print copies of any of the foregoing
documents may be obtained free of charge by contacting Investor
Relations at ir@ckr.com or by phone at (805) 745-7500.

Information contained in our website is not
deemed to be a part of this Annual Report.

Competitive Strengths

The QSR industry is highly competitive. In order
to maintain or increase their sales, throughout fiscal 2003 and
fiscal 2004 a number of our major competitors discounted their
menu items and promoted these discounted value
items. By contrast, we have developed and implemented a
strategy to differentiate our Carls Jr. and Hardees
brands from our competitors that includes the following elements:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | promotion of premium, great tasting products such
    as Carls Jr.s The Six Dollar Burger and
    Hardees Thickburgers and Big Chicken Sandwich;
|
| |  | installation of gas-fired charbroilers in all of
    our restaurants to improve taste, operations and food safety; and                              

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| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | implementation of a program to focus on the
    essentials of restaurant operations  quality, service and
    cleanliness.

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

Carls Jr.
Carls Jr. is a well-recognized brand that has operated
profitably for the past seven fiscal years. The brand focuses on
selling its signature products, such as the Super Star®
hamburger, and on developing innovative new premium products,
such as The Six Dollar Burger, Chicken Breast Strips and Chili
Burgers, to attract what we characterize as the young,
hungry guy. Carls Jr.s focus on this customer
type is enhanced through edgy, breakthrough advertising and high
visibility sports sponsorships with professional sports teams in
its major markets, including the National Basketball
Associations Los Angeles Lakers and Sacramento Kings and
Major League Baseballs Los Angeles Dodgers, San Francisco
Giants and Anaheim Angels. While we continue to build new
Carls Jr. restaurants, most of the brands growth has
come from its strong franchise community and its dual branding
opportunities with our Green Burrito® brand.

Hardees.Hardees is in the midst of a
turnaround program which is targeted at improving Hardees
same-store sales and returning the Hardees brand to
prominence in the QSR sector. The key elements of the turnaround
program are to:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | improve restaurant operations by streamlining the
    menu and returning to restaurant fundamentals 
    quality, service and cleanliness;                                                                   
|
| |  | remodel Hardees restaurants to the
    Star Hardees format and upgrade the condition
    of the facilities so that our customers enjoy comfortable
    surroundings and a pleasant dining experience;     
|
| |  | transform Hardees from a discount variety
    brand to a premium product brand that appeals to what we believe
    to be our industrys most attractive demographic segment,
    18-to 35-year old males; and
|
| |  | grow the lunch and dinner portion of
    Hardees business while maintaining Hardees already
    strong breakfast business.                                                                                  

Pursuant to this program, Hardees rolled
out its new menu during early fiscal 2004, which we refer to as
the Revolution. As part of the Revolution, we
eliminated a significant number of menu items with the goal of
simplifying the Hardees menu and improving restaurant
operations. The Hardees menu now features a premium Angus
beef line of  1/3 lb.,  1/2 lb.
and  2/3 lb. burgers called Thickburgers.
We believe Thickburgers will help increase Hardees sales
because burgers still represent the largest QSR segment, and the
18 to 35-year old male demographic segment which we target shows
a strong preference for burgers. We believe the taste and
quality of our Thickburgers are unparalleled in the QSR
industry. Hardees focus on burgers marks a return to its
roots of offering superior tasting charbroiled burgers, which we
believe will increase the average customer check and average
unit volumes.

We completed the implementation of the
Hardees Revolution during fiscal year 2004. The results of
the new menu focus for Hardees have been positive,
including eight consecutive periods of increased same-store
sales comparisons at Hardees through March 22, 2004.

La Salsa. Our La
Salsa restaurants, modeled after the taquerias of
Mexico, primarily cater to the lunch and dinner segment, and
feature freshly prepared items such as tacos, burritos,
taquitos, and quesadillas. La Salsa restaurants emphasize
generous portions and quality ingredients including
Grade A skinless chicken, USDA lean steak, Mahi
Mahi fish, shrimp, real cheddar and Monterey Jack cheese,
long-grain rice and both black and pinto beans.

All ingredients are fresh, and there are no can
openers or microwave ovens in the restaurants. Food is prepared
to order, so that each item served will be fresh and hot. The
restaurants offer a self-service salsa bar featuring a variety
of condiments and freshly made salsas. The La Salsa brand
provides us with a growth vehicle in the attractive Fresh
Mex QSR sector.

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Business Strategy

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



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | remain focused on restaurant fundamentals 
    quality, service and cleanliness;                           
|
| |  | offer premium products that compete on quality
    and taste  not price;                                   
|
| |  | build on the strength of the Carls Jr.
    brand, including dual branding opportunities with Green Burrito;
|
| |  | continue to execute and refine the Hardees
    Revolution;                                                 
|
| |  | continue to control costs while increasing
    revenues;                                                    
|
| |  | leverage our infrastructure and marketing
    presence to build out existing core markets; and              
|
| |  | strengthen our franchise system and pursue
    further franchising opportunities.                           

Revitalizing Hardees remains the primary
challenge for our management team. The key success factor in
operating Hardees profitably is increasing sales. For the
fiscal year ended January 31, 2004, the average-unit volume
(AUV) at our company-owned Hardees restaurants
was approximately $792, while franchise-operated AUV was $845.
We estimate that for the concept to operate profitably, the AUV
must be in the range of $850 to $900 in todays operating
environment. We can provide no assurance that we will be
successful in improving Hardees AUVs to those levels.

Franchise Strategy

Our franchise and licensing strategy is premised
on our franchisees active involvement in and management of
restaurant operations. Candidates are reviewed for appropriate
operational experience and financial stability, including
specific net worth and liquidity requirements. Generally, area
development agreements require franchisees to open a specified
number of restaurants in a designated geographic area within a
specified period of time. Our franchise strategy is designed to
further the development of our individual restaurant chains and
reduce the total capital we need to develop our brands.

Carls Jr.
Franchise arrangements with Carls Jr. franchisees, which
operate in Alaska, 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). As of
January 31, 2004, our Carls Jr. franchisees and
licensees operated 580 Carls Jr. restaurants, or
approximately 58% of the Carls Jr. system. The majority of
our Carls Jr. franchisees own more than one restaurant,
with twenty-two franchisees owning seven or more restaurants.

Hardees.
Franchise agreements with Hardees franchisees, who operate
restaurants predominantly in the Southeastern and Midwestern
United States, generally provide for initial fees and continuing
royalty payments to us, and advertising fees to a national fund
and/or a regional cooperative fund, based upon a percentage of
gross sales (generally 4% for royalties and 3% to 5% for
advertising). As of January 31, 2004, our Hardees
franchisees and licensees operated 1,400 Hardees
restaurants, or approximately 66% of the Hardees system.
The majority of our Hardees franchisees own more than one
restaurant, with twenty-nine franchisees owning ten or more
restaurants. Since our acquisition of Hardees in 1997, we
have worked hard to develop and enhance a productive
relationship with our Hardees franchisees. We have been
supportive of Hardees franchise association and we believe
we have improved communications with the franchisees. Our
Hardees franchisees are joining us in our Star
Hardees remodel program and, as of January 31, 2004,
operated 720 franchised Star Hardees restaurants.

La Salsa. Franchise
agreements with La Salsa franchisees, who operate restaurants
predominantly in California, generally provide for initial fees
and continuing royalty payments and advertising fees to us based
upon a percentage of gross sales (generally 5% for royalties and
1% to 3% for advertising). As of January 31,

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2004, our La Salsa franchisees and licensees
operated 41 La Salsa restaurants, or approximately 40% of the La
Salsa system.


The results of our business turnaround activities
have been:



| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We changed the system-wide mix of restaurants to
    one that is primarily franchise-operated. At the end of the
    fiscal year, approximately 58% and 66% of Carls Jr. and
    Hardees restaurants, respectively, were franchised.
|
| |  | We closed many unprofitable operations, which has
    improved our gross margin percentage and AUV.                                                                                                                                   
|
| |  | We believe we have improved the quality, service
    and cleanliness of our Hardees restaurants.                                                                                                                                     
|
| |  | Our same-store sales trends for company-operated
    restaurants, for each brand by quarter are:                                                                                                                                      

|            |                |            |  |          |    |          |  |      |    |  |  |      |   
|----------- | -------------- | ---------- |  | -------- | -- | -------- |  | ---- | -- |  |  | ---- | --
|            |                | Carls Jr. |  | Hardees |    | La Salsa
|            |                |            |  |          |    |         
|Fiscal 2004 |                |            |  |          |    |          |  |      |    |  |  |     
|            | First Quarter  |            |  | (0.4     | )% |          |  | (3.8 | )% |  |  | (1.9 | )%
|            | Second Quarter |            |  | 2.3      | %  |          |  | 1.0  | %  |  |  | (2.0 | )%
|            | Third Quarter  |            |  | 5.4      | %  |          |  | 6.8  | %  |  |  | (2.6 | )%
|            | Fourth Quarter |            |  | 5.3      | %  |          |  | 9.2  | %  |  |  | 2.0  | % 
|Fiscal 2003 |                |            |  |          |    |          |  |      |    |  |  |     
|            | First Quarter  |            |  | 4.2      | %  |          |  | 0.3  | %  |  |  | 1.9  | % 
|            | Second Quarter |            |  | 0.6      | %  |          |  | (1.0 | )% |  |  | 1.9  | % 
|            | Third Quarter  |            |  | (5.0     | )% |          |  | (3.5 | )% |  |  | 0.8  | % 
|            | Fourth Quarter |            |  | 2.1      | %  |          |  | (5.8 | )% |  |  | (0.7 | )%



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | Quarterly net income (loss) by segment has
    been (in thousands):

|            |                |            |   |          |  |          |   |                  |   |                     |   |            |   |            |   |        |   |  |   |         |   |  |   |          |   |  |   |          |  
|----------- | -------------- | ---------- | - | -------- |  | -------- | - | ---------------- | - | ------------------- | - | ---------- | - | ---------- | - | ------ | - |  | - | ------- | - |  | - | -------- | - |  | - | -------- | -
|            |                |            |   |          |  |          |   |                  |   | Income (Loss)       |   | Cumulative |   |           
|            |                |            |   |          |  |          |   | Other, Including |   | Before Cumulative   |   | Effect of  |   | Net Income
|            |                |            |   |          |  |          |   | Discontinued     |   | Effect of Change in |   | Change in  |   | (Loss) As 
|            |                | Carls Jr. |   | Hardees |  | La Salsa |   | Operations       |   | Accounting          |   | Accounting |   | Reported  
|            |                |            |   |          |  |          |   |                  |   |                     |   |            |   |           
|Fiscal 2004 |                |            |   |          |  |          |   |                  |   |                     |   |            |   |            |   |        |   |  |   |         |   |  |   |          |   |  |   |         
|            | First Quarter  |            | $ | 17,012   |  |          | $ | (20,947          | ) |                     | $ | (193       | ) |            | $ | (1,688 | ) |  | $ | (5,816  | ) |  | $ |         |   |  | $ | (5,816   | )
|            | Second Quarter |            |   | 14,475   |  |          |   | (8,256           | ) |                     |   | 33         |   |            |   | 3      |   |  |   | 6,255   |   |  |   |         |   |  |   | 6,255    |  
|            | Third Quarter  |            |   | 11,080   |  |          |   | (8,523           | ) |                     |   | (652       | ) |            |   | 257    |   |  |   | 2,162   |   |  |   |         |   |  |   | 2,162    |  
|            | Fourth Quarter |            |   | 8,625    |  |          |   | (22,627          | ) |                     |   | (35,596    | ) |            |   | (1,563 | ) |  |   | (51,161 | ) |  |   |         |   |  |   | (51,161  | )
|Fiscal 2003 |                |            |   |          |  |          |   |                  |   |                     |   |            |   |            |   |        |   |  |   |         |   |  |   |          |   |  |   |         
|            | First Quarter  |            | $ | 18,504   |  |          | $ | (8,409           | ) |                     | $ | 292        |   |            | $ | 2,786  |   |  | $ | 13,173  |   |  | $ | (175,780 | ) |  | $ | (162,607 | )
|            | Second Quarter |            |   | 14,643   |  |          |   | (7,045           | ) |                     |   | 228        |   |            |   | 2,945  |   |  |   | 10,771  |   |  |   |         |   |  |   | 10,771   |  
|            | Third Quarter  |            |   | 10,480   |  |          |   | (3,390           | ) |                     |   | (1         | ) |            |   | 2,414  |   |  |   | 9,503   |   |  |   |         |   |  |   | 9,503    |  
|            | Fourth Quarter |            |   | 10,511   |  |          |   | (18,312          | ) |                     |   | (736       | ) |            |   | 847    |   |  |   | (7,690  | ) |  |   |         |   |  |   | (7,690   | )

The net loss for La Salsa for the fourth quarter
of fiscal 2004 includes an impairment charge of $34,059 to
reduce the carrying value of La Salsas goodwill to $0.

See discussion regarding income
(loss) before cumulative effect of accounting change under
Factors Affecting Comparability in Item 7 
Managements Discussion and Analysis of Financial Condition
and Results of Operations.

Financial Information about Operating
Segments

We are engaged in the development, operation and
franchising of quick-service and fast-casual restaurants,
primarily under the brand names Carls Jr., Hardees,
and La Salsa, principally in the United States of America.
Information about our revenues, operating profits and assets is
contained in Part II, Item 6 of this Annual Report on
Form 10-K. As shown in the segment quarterly net income
(loss) table above, as well as the information contained in
the consolidated financial statements and notes thereto,
Carls Jr. operates profitably while Hardees operates
at a loss. In viewing the segments, we allocate much of our
general and

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administrative expenses and substantially all of
our interest to each of the segments. On that basis,
Hardees has been operating at a loss of approximately
$5,000 per month during the last fiscal year.


Investments in Other Restaurant
Concepts

In the past, we have invested in other restaurant
concepts, as described in Note 9 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.

Restaurant Development

We perform extensive due diligence on prospective
restaurant sites before we commit to opening, or permitting a
franchisee to open, a restaurant at a location. We intend to
continue to open new company-operated restaurants, primarily in
established markets. In fiscal 2004, we opened 17 new
restaurants, and our franchisees and licensees opened
51 new restaurants. The average development cost for fiscal
years 2004 and 2003 for owned restaurants, including
capitalizing ground and equipment leases at 8% for La Salsa, was
as follows(1):

|                         |  |                        |       |          |  |          |       |  |  |   |       | 
|------------------------ |  | ---------------------- | ----- | -------- |  | -------- | ----- |  |  | - | ----- | 
|                         |  |                       
|                         |  | Average per restaurant
|                         |  |                       
|                         |  | Carls Jr.             |       | Hardees |  | La Salsa
|                         |  |                        |       |          |  |         
|Land                     |  | $                      | 645   |          |  | $        | 375   |  |  | $ |      | 
|Building                 |  |                        | 585   |          |  |          | 500   |  |  |   | 355   | 
|Equipment                |  |                        | 250   |          |  |          | 250   |  |  |   | 120   | 
|Capitalization of leases |  |                        |      |          |  |          |      |  |  |   | 805   | 
|                         |  |                        |       |          |  |          |       |  |  |   |       | 
|Total                    |  | $                      | 1,480 |          |  | $        | 1,125 |  |  | $ | 1,280 | 
|                         |  |                        |       |          |  |          |       |  |  |   |       | 



---



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

Restaurant Operations and Support

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 our hamburgers, chicken sandwiches and
breakfast items after the customer has placed an order, with the
goal of serving them promptly. In addition, 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. At our La Salsa restaurants, we prepare our
fresh-Mexican menu items after the customer has placed an order
with the goal of serving them promptly.

Our commitment to quality in both our products
and our operations is supported by our training program. Each
company-operated Carls Jr. and Hardees restaurant is
operated by a general manager who has received a minimum of nine
weeks of management training. Each company-operated La Salsa
restaurant is operated by a general manager who has received
5-8 weeks of management training. 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 seven to
nine restaurants, also supervise general managers. Approximately
150 Carls Jr. and Hardees district
managers are under the supervision of regional vice presidents,
who regularly inspect the operations in their respective
districts and regions.

Marketing and Advertising

Our marketing and advertising initiatives focus
on building brand awareness through the balanced use of
television, radio and print advertising. These activities are
supported by contributions of approximately 6.0% of sales from
both franchise and company-operated Carls Jr. restaurants.

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Hardees franchise and company-operated
restaurants contribute approximately 3.5% of their sales to
advertising co-operatives which use the funds to purchase
television and radio advertising time. In addition,
Hardees restaurants contribute approximately 1.5% of their
sales to purchase merchandising materials, print coupons, and
execute outdoor and local restaurant marketing efforts.

La Salsa franchise and company-operated
restaurants contribute approximately 1.0% of their sales for the
production of print and broadcast advertising and marketing
material.

See discussion of advertising in Item 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Purchasing

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

We currently purchase substantially all of the
food, packaging and supplies sold or used in our Hardees
restaurants from MBM Corporation (MBM) (see Risk
Factors  We depend on our suppliers to deliver
quality products to us timely). MBM currently distributes
products to company-operated restaurants and to many of the
franchise-operated restaurants. Pursuant to the terms of our
distribution agreements, we are obligated to purchase
substantially all of our specified product requirements from MBM
through July 2010. The prices and delivery fees we pay for MBM
products are subject to adjustment in certain circumstances,
which may include increases or decreases resulting from changes
in the distributors cost structure.

We purchase most of the food, packaging and
supplies used in our La Salsa restaurants from McCabes
Quality Foods. We have distribution agreements with both
McCabes Quality Foods, which services restaurants in
California, Nevada and Arizona, and Sysco, which distributes to
our outer market franchise restaurants. The agreements with
Sysco and McCabes Quality Foods expire in fiscal 2006 and
2007, respectively.

Competition and Markets

The restaurant business is intensely competitive
and affected by changes in a geographic area, changes in the
publics eating habits and preferences, local and national
economic conditions affecting consumer spending habits,
population trends and local traffic patterns. Key elements of
competition in the industry are the price, quality and value of
food products offered, quality and speed of service, advertising
effectiveness, brand name identification, restaurant locations
and attractiveness of facilities.

We primarily compete with major restaurant
chains, some of whom dominate the QSR industry, and also compete
with a variety of other take-out foodservice companies and
fast-food restaurants. Our competitors also include a variety of
mid-price, full-service casual-dining restaurants, health and
nutrition-oriented restaurants, delicatessens and prepared food
restaurants, 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 with the United States
Patent and Trademark Office, including Carls Jr., the
Happy Star logo, Hardees, La Salsa Fresh Mexican Grill and
proprietary names for a number of the Carls Jr. and
Hardees menu items. We believe our trademarks and service
marks have value and play an important role in our marketing
efforts.

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Government Regulation

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

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

We, and our franchisees, must comply with the
Fair Labor Standards Act 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. Federal and state laws may also require us to provide new
or increased levels of employee benefits to our employees, many
of whom are not currently eligible for such benefits.

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 a
material adverse effect on the Companys financial position
or results of 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 provide assurance that all such
environmental conditions have been identified by us. These
conditions include the presence of asbestos-containing
materials, leaking underground storage tanks and on-site spills.
Further, certain properties formerly had landfills, historic
industrial use, gasoline stations and/or dry cleaning businesses
located on or near the premises. Corrective action, as required
by the regulatory agencies, has been undertaken at some of the
sites, 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.

Seasonality

We operate on a retail accounting calendar. Our
fiscal year has 13 four-week accounting periods and ends
the last Monday in January. The first quarter of our fiscal year
has four periods, or 16 weeks. All other quarters have
three periods, or 12 weeks.

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

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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 research and development facilities in
California and Missouri. While research and development
activities are important to our business, these expenditures are
not material.

Employees

We employ approximately 29,000 persons,
primarily in company-operated restaurants and in our corporate
offices and distribution facilities. Only those employees
working at the La Salsa restaurant located in the Luxor Hotel in
Las Vegas, Nevada are covered by a collective bargaining
agreement, and our commitment to that location is on a
month-to-month basis. 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 fiscal years ended
January 31, 2004, 2003 and 2002 in Part II,
Item 7, pages 52 through 55, and the Consolidated
Statement of Cash Flows for the fiscal years ended
January 31, 2004, 2003 and 2002 in Part II,
Item 8, page 68 of this Form 10-K.

Disclosure Regarding Forward-Looking
Statements

Matters discussed in this Form 10-K contain
forward-looking statements relating to future plans and
developments, financial goals, and operating performance that
are based on managements current beliefs and assumptions.
Such statements are subject to risks and uncertainties. Factors
that could cause the Companys results to differ materially
from those described include, but are not limited to, whether or
not restaurants will be closed and the number of restaurant
closures, consumers concerns or adverse publicity
regarding the Companys products, effectiveness of
operating initiatives and advertising and promotional efforts
(particularly at the Hardees brand), changes in economic
conditions, changes in the price or availability of commodities,
availability and cost of energy, workers compensation and
general liability premiums and claims experience, changes in the
Companys suppliers ability to provide quality and
timely products to the Company, delays in opening new
restaurants or completing remodels, severe weather conditions,
ability to hire and retain key personnel, 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), the availability of suitable
locations and terms for the sites designed for development, and
other factors as discussed in the Companys filings with
the Securities and Exchange Commission.

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

Risk Factors

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



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | We may be unable to remain competitive or
    grow because we are a highly leveraged company.

We have a significant amount of indebtedness. As
of January 31, 2004, we had a total of $418,424 of debt and
capital lease obligations. This indebtedness requires us to
dedicate a substantial portion of our cash flow from operations
to payments on our indebtedness, which could prevent us from
implementing growth plans or proceeding with operational
improvement initiatives. For instance, the principal measure of
success in the

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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 or the opening of new
restaurants, we may be at a disadvantage compared to our
competitors and our vulnerability to general adverse economic
and industry conditions may be increased.


As of January 26, 2004, we had $24,062
outstanding under the term loan portion of the senior credit
facility and $63,680 in outstanding letter of credit
obligations. We face a series of maturity dates on our
outstanding indebtedness that occur in close proximity to each
other, beginning with the maturity of the revolving credit
facility portion of our senior credit facility on
November 15, 2006, the maturity date of the term loan
portion of our senior credit facility on April 1, 2008, the
requirement to repurchase our 4% Convertible Notes Due 2023
at the option of the holders of the notes in October 2008 and
the maturity of $200,000 of our 9 1/8% Senior Subordinated
Notes Due 2009. Our highly leveraged status may prevent us from
accessing credit or equity markets to satisfy our repayment
obligations as they mature on favorable terms, or at all.



| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Restrictive covenants in our credit
    facility and outstanding senior indebtedness could adversely
    affect our business.

Our credit facility and our other outstanding
senior indebtedness contain restrictive covenants and, in the
case of our credit facility, requirements that we comply with
certain financial ratios. These covenants limit our ability to
take various actions, including the incurrence of additional
debt, the guaranteeing of indebtedness and engaging in various
types of transactions, including mergers and sales of assets,
paying dividends and making distributions or other restricted
payments, including investments. These covenants could have an
adverse effect on our business by limiting our ability to take
advantage of business opportunities. Failure to maintain
financial ratios required by our credit facility or to comply
with the covenants in our credit facility or our other
indebtedness could also result in acceleration of our
indebtedness, which would impair our liquidity and limit our
ability to operate.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Failure to revitalize Hardees would
    have a significant negative effect on our success.

We have been challenged in our efforts to
reestablish the connection between Hardees and consumers.
Our efforts have included developing new marketing strategies,
remodeling restaurants, refranchising restaurants, product
variety, and a focus on the fundamentals of quality, service and
cleanliness. However, we believe Hardees remains an
under-performing brand.



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

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



| |                                                                           
| | --------------------------------------------------------------------------
| | Our success depends on our
    franchisees participation in our strategy.

Our franchisees are an integral part of our
business. We may be unable to successfully implement our brand
strategies if our franchisees do not participate in that
implementation. The failure of our franchisees to focus on the
fundamentals of restaurant operations, such as quality, service
and cleanliness, would have a negative impact on our success.



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

We receive royalties 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 or economic
conditions worsen for our franchisees, their financial health
may worsen, our collection rates may decline and we may be
required to assume the responsibility for additional lease
payments on franchised restaurants. Additionally, refusal on the
part of franchisees to renew their franchise agreements may
result in decreased royalties. Entering into restructured
franchise agreements may result in reduced franchise royalty
rates in the future.

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| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Our success depends on our ability to judge
    the impact of competitive products and pricing.

Successful operation of our restaurants requires
the ability to identify the effects of product and pricing
trends. If we are unable to evaluate the impact of product or
pricing trends effectively, we may fail to implement strategies
allowing us to capitalize on those trends, which may result in
decreased sales or increased costs.



| |                                                                        
| | -----------------------------------------------------------------------
| | 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 which dominate the
QSR segment. 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, as well as greater 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 which may impact us
detrimentally. As our competitors expand operations, we expect
competition to intensify. Such increased competition could have
a material adverse effect on our financial position and results
of operations.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | We may be unable to recover increased
    operating costs through price increases.

The QSR segment historically has attracted
consumers that are either lower income and/or pressed for time.
An economic downturn that decreases our customers
disposable incomes would have a negative impact on our sales and
profitability. In addition, unfavorable macroeconomic trends or
developments concerning factors such as increased food, labor
and employee benefit costs and availability of experienced
employees may also adversely affect our financial condition and
results of operations. We may be unable to increase prices to
match increased costs without further harming our sales. If we
are unable to raise prices in order to recover increased costs
for food, fuel, utilities, wages, clothing and equipment, our
profitability will be negatively affected.



| |                                                    
| | ---------------------------------------------------
| | We face commodity price and availability
    risks.

We purchase energy and agricultural products that
are subject to price volatility caused by weather, market
conditions and other factors that are not predictable or within
our control. Increases in commodity prices could result in lower
restaurant-level operating margins for our restaurant concepts.
Occasionally, the availability of commodities can be limited due
to circumstances beyond our control. If we are unable to obtain
such commodities, we may be unable to offer related products,
which would have a negative impact on our profitability.



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

Our profitability is dependent on, among other
things, our continuing ability to offer 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 and La
Salsa restaurants. Our Hardees restaurants depend on the
distribution services of MBM Corporation, an independent
supplier and distributor of food and other products. MBM is
responsible for delivering food, paper and other products from
our vendors to our Hardees restaurants on a regular basis.
MBM also provides distribution services to a large number of our
Hardees franchisees. We purchase most of the food,
packaging and supplies used in our La Salsa restaurants from
McCabes Quality Foods. We have distribution agreements
with both McCabes Quality Foods, which services
restaurants in California, Nevada and Arizona, and Sysco, which
distributes to our franchise restaurants outside these states.
The agreements with Sysco and McCabes Quality Foods expire
in fiscal 2006 and 2007, respectively. 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. Any disruption in these distribution
services could have a material adverse effect on our financial
position and results of operations.

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| |                                                                           
| | --------------------------------------------------------------------------
| | Adverse publicity regarding beef could
    negatively impact our business.

Given the events regarding afflictions affecting
livestock in various parts of the world, such as mad
cow disease, it is possible that the production and supply
of beef could be negatively impacted. A reduction in the supply
of beef could have a material effect on the price at which it
could be obtained. In addition, concerns regarding hormones,
steroids and antibiotics may cause consumers to reduce or avoid
consumption of beef. Failure to procure beef at reasonable terms
and prices, or any reduction in consumption of beef by
consumers, could have a material adverse effect on our financial
condition and results of operations.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Consumer preferences and perceptions may
    have significant effects on our business.

Foodservice businesses are often affected by
changes in consumer tastes and perceptions. Traffic patterns,
demographics and 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 affected materially and adversely 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.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Our operations are seasonal and heavily
    influenced by weather conditions.

Weather, which is unpredictable, can adversely
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, and to a lesser
extent, La Salsa restaurants. For these reasons, a
quarter-to-quarter comparison may not be a good indication of
our performance or how we may perform in the future.



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

Given that our restaurant-level workforce
requires large numbers of both entry-level and skilled
employees, low levels of unemployment could compromise our
ability to provide quality service in our restaurants. From time
to time, we have had difficulty hiring and maintaining qualified
restaurant management personnel. Increases in the minimum wage
have impacted our labor costs. Due to the labor-intensive nature
of our business, a continuing 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 inability to integrate acquisitions
    successfully.

Our future results of operations and cash flow
may depend in part upon our ability to integrate acquisitions
and mergers such as our 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
reductions, sales increases and marketing initiatives.



| |                                                               
| | --------------------------------------------------------------
| | 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
operating results. For example, on October 5, 2003, the
Governor of California signed a bill which will require
California businesses with 50 or more employees either

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to pay at least 80% of the premiums for a basic
individual health insurance package for each of its employees
and their dependents, or to pay a fee into a state pool for the
purchase of health insurance for uninsured, low-income workers.
We currently do not offer health insurance benefits to our
hourly employees. We are evaluating the impact this legislation
may have on our health insurance costs.




| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our financial results may be impacted by
    our ability to select appropriate restaurant locations,
    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 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. We and our
franchisees face competition from other restaurant operators,
retail chains, companies and developers for desirable site
locations, which may adversely affect the cost, implementation
and timing of our expansion plans. If we experience delays in
the construction process we may be unable to complete such
construction activities at the planned cost, which would
adversely affect our future results from operations.
Additionally, we cannot assure you that such remodels and
conversions will increase the revenues generated by these
restaurants or be sustainable. Likewise, we cannot be sure that
the sites we select for new restaurants will result in
restaurants whose sales results meet our expectations.



| |                                                                   
| | ------------------------------------------------------------------
| | The nature of our business exposes us to
    potential litigation.

We have thousands of interactions or 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 legal action brought against us.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | 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. Governmental
entities may change regulations that may require us to incur
substantial cost increases in order to comply with such laws and
regulations. While we endeavor 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.



| |                                                                           
| | --------------------------------------------------------------------------
| | Compliance with environmental laws may
    affect our financial condition.

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 or contamination
relating to our restaurants and the land on which our
restaurants are located, regardless of whether we lease or own
the restaurant or land in question and regardless of whether
such environmental conditions were created by us or by a prior
owner or tenant. The costs of any cleanup could be significant
and have a material adverse effect on our financial position and
results of operations.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions of our Certificate of
    Incorporation and Bylaws could limit the ability of our
    stockholders to effect a change in control.

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

13



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##### Table of Contents





| |                                             
| | --------------------------------------------
| | We face risks related to interest
    rates.

Our principal exposure to financial market risks
is the impact that interest rate changes could have on our
senior credit facility, the magnitude of which depends on the
amount of borrowings we have outstanding. As of January 31,
2004, we had no cash borrowings outstanding under our revolving
credit facility, $24,062 outstanding under the term loan
portion of our credit facility and $63,680 in outstanding letter
of credit obligations. Borrowings under the term loan portion of
our senior credit facility currently bear interest at LIBOR plus
an applicable margin, or 4.94%.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Our financial results may be impacted by
    changes in accounting policies and practices.

In the first quarter of fiscal 2003, we
recognized a charge of $175,780 as a result of the adoption of
SFAS No. 142, Goodwill and Other Intangible Assets.
Future changes to accounting principles generally accepted in
the U.S. may impact our financial results if we are required to
change our methods of accounting for transactions.

Executive Officers of the Registrant

Our executive officers are as follows:

|                   |  |     |    |          |  |                                                                  
|------------------ |  | --- | -- | -------- |  | -----------------------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Andrew F. Puzder   |  |     | 53 |          |  | Chief Executive Officer and President                            
|Theodore Abajian   |  |     | 40 |          |  | Executive Vice President, Chief Financial Officer                
|John J. Dunion     |  |     | 46 |          |  | Executive Vice President, Supply Chain Management                
|Brad Haley         |  |     | 45 |          |  | Executive Vice President, Marketing 
    Carls Jr. and Hardees
|Renea S. Hutchings |  |     | 46 |          |  | Executive Vice President, Development                            
|E. Michael Murphy  |  |     | 52 |          |  | Executive Vice President, General Counsel and
    Secretary      

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 Abajianwas
appointed Executive Vice President and Chief Administrative
Officer upon our acquisition of SBRG in March 2002. During
fiscal 2004, Mr. Abajian also was appointed Chief Financial
Officer. 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.

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.

Brad Haleywas
appointed Executive Vice President, Marketing for Hardees
during September 2000. He was also given responsibility for
Carls Jr. marketing during January 2004. Prior to joining
Hardees, Mr. Haley worked as Chief Marketing Officer
for Churchs Chicken. From 1992 to 1999, Mr. Haley
served as corporate vice president of marketing communications
for Jack-in-the Box restaurants.

14



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##### Table of Contents



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.

E. Michael Murphybecame Executive Vice President,
General Counsel and Secretary in February 2001. From August 1998
to February 2001, 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.




Item 2.Properties

The following table sets forth information
regarding our restaurant properties at January 31, 2004:

|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |       |       | 
|----------- | ------------------------------ | -------- | - | ------------ | --- | -------- | - | ----- | --- |  | - | --- | ----- |  | - | ----- | ----- | 
|            |                                | Land and |   | Land Leased  |     | Land and |   |      
|            |                                | Building |   | and Building |     | Building |   |      
|            |                                | Owned    |   | Owned        |     | Leased   |   | Total
|            |                                |          |   |              |     |          |   |      
|Carls Jr.: |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            | Company-operated               |          |   | 40           |     |          |   | 102   |     |  |   | 284 |       |  |   | 426   |      
|            | Franchise-operated(1)          |          |   | 8            |     |          |   | 42    |     |  |   | 190 |       |  |   | 240   |      
|            | Third party-operated/vacant(2) |          |   | 4            |     |          |   | 5     |     |  |   | 31  |       |  |   | 40    |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            |                                | Subtotal |   |              | 52  |          |   |       | 149 |  |   |     | 505   |  |   |       | 706   | 
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|Hardees:   |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            | Company-operated               |          |   | 325          |     |          |   | 155   |     |  |   | 241 |       |  |   | 721   |      
|            | Franchise-operated(1)          |          |   | 37           |     |          |   | 68    |     |  |   | 119 |       |  |   | 224   |      
|            | Third party-operated/vacant(2) |          |   | 27           |     |          |   | 20    |     |  |   | 110 |       |  |   | 157   |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            |                                | Subtotal |   |              | 389 |          |   |       | 243 |  |   |     | 470   |  |   |       | 1,102 | 
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|La Salsa:   |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            | Company-operated               |          |   |             |     |          |   | 4     |     |  |   | 57  |       |  |   | 61    |      
|            | Third party-operated/vacant(2) |          |   |             |     |          |   |      |     |  |   | 7   |       |  |   | 7     |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            |                                | Subtotal |   |              |    |          |   |       | 4   |  |   |     | 64    |  |   |       | 68    | 
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|Other:      |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            | Company-operated               |          |   |             |     |          |   |      |     |  |   | 4   |       |  |   | 4     |      
|            | Third party-operated/vacant(2) |          |   |             |     |          |   | 2     |     |  |   | 1   |       |  |   | 3     |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            |                                |          |  |              |     |          | 2 |       |     |  | 5 |     |       |  | 7 |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|Total:      |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            | Company-operated               |          |   | 365          |     |          |   | 261   |     |  |   | 586 |       |  |   | 1,212 |      
|            | Franchise-operated(1)          |          |   | 45           |     |          |   | 110   |     |  |   | 309 |       |  |   | 464   |      
|            | Third party-operated/vacant(2) |          |   | 31           |     |          |   | 27    |     |  |   | 149 |       |  |   | 207   |      
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      
|            |                                | Subtotal |   |              | 441 |          |   |       | 398 |  |   |     | 1,044 |  |   |       | 1,883 | 
|            |                                |          |   |              |     |          |   |       |     |  |   |     |       |  |   |      



---



|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Franchise-operated properties are
    those which we own and lease to franchisees or lease and
    sublease to franchisees.                        
|   
|(2) | Third party-operated/vacant
    properties are those we own or lease that are either operated by
    unaffiliated entities or are currently vacant.

The terms of our leases or subleases vary in
length expiring on various dates through 2066. 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
Carpinteria, 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 53,000,
102,000, 78,000 and 39,000 square feet, respectively.

15



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##### Table of Contents






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 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.

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 may arise with our suppliers
on a number of issues including, but not limited to, compliance
with product specifications and certain business concerns.
Additionally, disputes may arise on a number of issues between
us and individuals or entities who claim they should have been
granted the approval or opportunity to supply products or
services to our restaurants.

Franchising

A substantial number of our restaurants are
franchised to independent entrepreneurs operating under
contractual arrangements with us. In the course of the franchise
relationship, disputes occasionally arise between 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.
Similar actions were filed by Mary Jane Amberson and James
Bolin, individually and on behalf of others similarly situated,
in the Superior Court of the State of California, Los Angeles
County, on April 5, 2002 and November 26, 2002,
respectively. In or about January 2003, the Amberson and Bolin
actions were coordinated with the Huizar action in the Superior
Court of California, Los Angeles 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 and that we comply with state and federal wage
and hour laws. We plan to vigorously defend these actions.




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

None.

16



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##### Table of Contents



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 March 10,
2004, there were approximately 1,992 record holders of our
common stock. The following table sets forth, for the periods
indicated, the high and low sales prices of our common stock, as
reported on the New York Stock Exchange Composite Tape:

|            |                       |      |   |       |  |  |   |      | 
|----------- | --------------------- | ---- | - | ----- |  |  | - | ---- | 
|            |                       | High |   | Low  
|            |                       |      |   |      
|Fiscal 2004 |                       |      |   |       |  |  |   |     
|            | First Fiscal Quarter  |      | $ | 6.01  |  |  | $ | 3.05 | 
|            | Second Fiscal Quarter |      |   | 7.04  |  |  |   | 4.75 | 
|            | Third Fiscal Quarter  |      |   | 7.95  |  |  |   | 5.81 | 
|            | Fourth Fiscal Quarter |      |   | 7.69  |  |  |   | 5.74 | 
|Fiscal 2003 |                       |      |   |       |  |  |   |     
|            | First Fiscal Quarter  |      | $ | 12.85 |  |  | $ | 8.10 | 
|            | Second Fiscal Quarter |      |   | 11.55 |  |  |   | 4.80 | 
|            | Third Fiscal Quarter  |      |   | 7.89  |  |  |   | 3.01 | 
|            | Fourth Fiscal Quarter |      |   | 5.15  |  |  |   | 3.41 | 

Our senior credit facility, as amended, prohibits
us from paying cash dividends to our stockholders and,
accordingly, we did not declare any cash dividends for fiscal
2004, fiscal 2003 or fiscal 2002. We paid dividends of $0.04 per
share during fiscal 2001, $0.08 per share during fiscal 2000 and
$0.07 per share (adjusted to give retroactive effect to 10%
stock dividends in February 1998 and January 1999) during fiscal
1999. We do not expect to pay cash dividends on our common stock
in the foreseeable future, and intend to use our future
earnings, if any, to pay down debt and to finance the growth and
development of our business.

17



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##### Table of Contents






Item 6.Selected
Financial Data

The information set forth below should be read in
conjunction with the consolidated financial statements and
related notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere
in this Form 10-K.

Selected Financial and Operating
Data

|                                                |                                                                                         |                                                                             |   |            |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |           |           | 
|----------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | - | ---------- | --------- | ---- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                |                                                                                         |                                                                            
|                                                |                                                                                         | Fiscal Year Ended as of January 31,(1)(2)(3)                               
|                                                |                                                                                         |                                                                            
|                                                |                                                                                         | 2004                                                                        |   | 2003(5)(6) |           | 2002 |   | 2001      |           | 2000
|                                                |                                                                                         |                                                                             |   |            |           |      |   |           |           |     
|                                                |                                                                                         |                                                                            
|                                                |                                                                                         | (In thousands except per share amounts, restaurant counts, and percentages)
|Consolidated Statements of Operations
    Data: |                                                                                         |                                                                             |   |            |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                | Revenue:                                                                                |                                                                             |   |            |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |           |          
|                                                | Company-operated restaurants                                                            |                                                                             | $ | 1,142,929  |           |      | $ | 1,109,646 |           |      | $ | 1,174,384 |           |  | $ | 1,569,504 |           |  | $ | 1,814,695 |          
|                                                | Franchised and licensed restaurants and other                                           |                                                                             |   | 270,508    |           |      |   | 253,749   |           |      |   | 263,743   |           |  |   | 215,280   |           |  |   | 175,378   |          
|                                                |                                                                                         |                                                                             |   |            |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                |                                                                                         | Total revenue                                                               |   |            | 1,413,437 |      |   |           | 1,363,395 |      |   |           | 1,438,127 |  |   |           | 1,784,784 |  |   |           | 1,990,073 | 
|                                                |                                                                                         |                                                                             |   |            |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                | Operating income (loss)                                                                 |                                                                             |   | (4,584     | )         |      |   | 42,023    |           |      |   | (30,015   | )         |  |   | (131,994  | )         |  |   | 63,055    |          
|                                                | Interest expense                                                                        |                                                                             |   | 39,991     |           |      |   | 39,954    |           |      |   | 53,937    |           |  |   | 70,541    |           |  |   | 63,283    |          
|                                                | Income (loss) from continuing operations                                                |                                                                             |   | (45,770    | )         |      |   | 25,810    |           |      |   | (83,956   | )         |  |   | (194,116  | )         |  |   | (29,117   | )        
|                                                | Loss from discontinued operations                                                       |                                                                             |   | (2,790     | )         |      |   | (53       | )         |      |   |          |           |  |   |          |           |  |   |          |          
|                                                | Net income (loss) before cumulative effect
    of accounting change                     |                                                                             |   | (48,560    | )         |      |   | 25,757    |           |      |   | (83,956   | )         |  |   | (194,116  | )         |  |   | (29,117   | )        
|                                                | Cumulative effect of accounting change(6)                                               |                                                                             |   |           |           |      |   | (175,780  | )         |      |   |          |           |  |   |          |           |  |   |          |          
|                                                | Net loss                                                                                |                                                                             |   | (48,560    | )         |      |   | (150,023  | )         |      |   | (83,956   | )         |  |   | (194,116  | )         |  |   | (29,117   | )        
|                                                | Net loss per share  basic                                                              |                                                                             |   | (0.82      | )         |      |   | (2.65     | )         |      |   | (1.66     | )         |  |   | (3.84     | )         |  |   | (0.56     | )        
|                                                | Income (loss) from continuing operations per
    share  diluted                        |                                                                             |   | (0.77      | )         |      |   | 0.44      |           |      |   | (1.66     | )         |  |   | (3.84     | )         |  |   | (0.56     | )        
|                                                | Loss from discontinued operations per
    share  diluted                               |                                                                             |   | (0.05      | )         |      |   |          |           |      |   |          |           |  |   |          |           |  |   |          |          
|                                                | Net income (loss) before cumulative effect
    of accounting change per share  diluted |                                                                             |   | (0.82      | )         |      |   | 0.44      |           |      |   | (1.66     | )         |  |   | (3.84     | )         |  |   | (0.56     | )        
|                                                | Cumulative effect of accounting change per
    share  diluted(6)                       |                                                                             |   |           |           |      |   | (3.02     | )         |      |   |          |           |  |   |          |           |  |   |          |          
|                                                | Net income (loss) per share 
    diluted                                               |                                                                             |   | (0.82      | )         |      |   | (2.58     | )         |      |   | (1.66     | )         |  |   | (3.84     | )         |  |   | (0.56     | )        
|                                                | Weighted average shares outstanding 
    diluted                                       |                                                                             |   | 59,121     |           |      |   | 58,124    |           |      |   | 50,507    |           |  |   | 50,501    |           |  |   | 51,668    |          
|                                                | Cash dividends paid per common share                                                    |                                                                             |   |           |           |      |   |          |           |      |   |          |           |  |   | 0.04      |           |  |   | 0.08      |          
|                                                | Ratio of earnings to fixed charges(4)                                                   |                                                                             |   |           |           |      |   | 1.3x      |           |      |   |          |           |  |   |          |           |  |   |          |          

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|                                 |                                                                                   |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |           |           |  
|-------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | - | ---------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | --------- | -------- | - | - | --------- | --------- | -
|                                 |                                                                                   |                                                                            
|                                 |                                                                                   | Fiscal Year Ended as of January 31,(1)(2)(3)                               
|                                 |                                                                                   |                                                                            
|                                 |                                                                                   | 2004                                                                        |   | 2003(5)(6) |         | 2002 |   | 2001    |         | 2000
|                                 |                                                                                   |                                                                             |   |            |         |      |   |         |         |     
|                                 |                                                                                   |                                                                            
|                                 |                                                                                   | (In thousands except per share amounts, restaurant counts, and percentages)
|Segment Operating Data:          |                                                                                   |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |          
|                                 | Carls Jr.:                                                                       |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |           |          
|                                 |                                                                                   | Total revenue                                                               |   | $          | 725,076 |      |   | $       | 693,713 |      |   | $       | 704,561 |   |   | $         | 733,484  |   |   | $         | 714,495   |  
|                                 |                                                                                   | Operating income(8)                                                         |   |            | 56,602  |      |   |         | 55,798  |      |   |         | 50,310  |   |   |           | 61,188   |   |   |           | 68,006    |  
|                                 | Hardees:                                                                         |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |           |          
|                                 |                                                                                   | Total revenue                                                               |   |            | 642,690 |      |   |         | 627,798 |      |   |         | 690,471 |   |   |           | 941,783  |   |   |           | 1,170,834 |  
|                                 |                                                                                   | Operating loss(8)                                                           |   |            | (24,990 | )    |   |         | (13,480 | )    |   |         | (79,995 | ) |   |           | (196,453 | ) |   |           | (12,319   | )
|                                 | La Salsa:                                                                         |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |           |          
|                                 |                                                                                   | Total revenue                                                               |   |            | 43,933  |      |   |         | 39,959  |      |   |         |        |   |   |           |         |   |   |           |          |  
|                                 |                                                                                   | Operating loss(7)(8)                                                        |   |            | (36,459 | )    |   |         | (185    | )    |   |         |        |   |   |           |         |   |   |           |          |  
|Consolidated Balance Sheet Data: |                                                                                   |                                                                             |   |            |         |      |   |         |         |      |   |         |         |   |   |           |          |   |   |          
|                                 | Cash and cash equivalents                                                         |                                                                             | $ | 54,355     |         |      | $ | 18,440  |         |      | $ | 24,642  |         |   | $ | 16,860    |          |   | $ | 36,505    |          
|                                 | Working capital deficit                                                           |                                                                             |   | (45,344    | )       |      |   | (71,452 | )       |      |   | (52,473 | )       |   |   | (26,420   | )        |   |   | (83,848   | )        
|                                 | Total assets                                                                      |                                                                             |   | 773,323    |         |      |   | 843,473 |         |      |   | 931,589 |         |   |   | 1,207,537 |          |   |   | 1,568,514 |          
|                                 | Total long-term debt and capital lease
    obligations, including current portion |                                                                             |   | 418,424    |         |      |   | 423,535 |         |      |   | 445,117 |         |   |   | 624,335   |          |   |   | 741,419   |          
|                                 | Stockholders equity                                                              |                                                                             |   | 146,232    |         |      |   | 193,574 |         |      |   | 261,666 |         |   |   | 349,557   |          |   |   | 545,757   |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 2004, 2003, 2002, and 2001 include 52 weeks. Fiscal
    2000 includes 53 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Fiscal 2002, 2001 and 2000 include
    $43.1 million, $219.0 million, and
    $209.5 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.                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Fiscal 2004, 2003, 2002, 2001 and 2000 included
    of $19.8 million, $6.0 million, $75.1,
    $146.4 million and $29.4 million, respectively, of
    facility action charges, net.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(4) | For purposes of calculating the ratio of earnings
    to fixed charges (a) earnings represent income
    (loss) before income taxes, discontinued operations and
    cumulative effect of accounting change 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 sufficient to cover fixed charges for
    fiscal 2003, and insufficient to cover fixed charges for fiscal
    2004, 2002, 2001 and 2000 by $43,927, $84,540, $205,264 and
    $47,460, respectively.
|   
|(5) | Fiscal 2003 includes operating results of SBRG
    from the date of acquisition, March 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(6) | During fiscal 2003, we adopted Statement of
    Financial Accounting Standards No. 142
    (SFAS 142), Goodwill and Other Intangible
    Assets, resulting in a transitional impairment charge of
    $175.8 million (or $3.02 per diluted common share).                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(7) | Fiscal 2004 included a $34.1 million
    impairment charge to reduce the carrying value of La Salsa
    goodwill to $0.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) | Certain amounts have been reclassified to conform
    segment operating income (loss) presentation with that of
    fiscal 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

19



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##### Table of Contents



Selected Financial and Operating Data by
Segment

|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       | 
|---------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----- | ----- | --------- | ----- |  | ----- | --------- | ----- |  | ----- | --------- | ----- |  | ----- | --------- | ----- |  | ----- | --------- | ----- | 
|                       |                                                                                       |                                                         
|                       |                                                                                       | Fiscal Year Ended January 31,(1)                        
|                       |                                                                                       |                                                         
|                       |                                                                                       | 2004                                                     |       | 2003  |           | 2002  |  | 2001  |           | 2000 
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |      
|                       |                                                                                       |                                                         
|                       |                                                                                       | (In thousands, except restaurant counts and percentages)
|Carls Jr. Restaurants |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                      
|                       | Restaurants open (at end of fiscal year):                                             |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated                                         |       |       | 426       |       |  |       | 440       |       |  |       | 443       |       |  |       | 491       |       |  |       | 563       |      
|                       |                                                                                       | Franchised and licensed                                  |       |       | 580       |       |  |       | 547       |       |  |       | 526       |       |  |       | 486       |       |  |       | 371       |      
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       |                                                                                       |                                                          | Total |       |           | 1,006 |  |       |           | 987   |  |       |           | 969   |  |       |           | 977   |  |       |           | 934   | 
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       | Restaurant sales:                                                                     |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated restaurants                             |       | $     | 523,945   |       |  | $     | 507,526   |       |  | $     | 516,998   |       |  | $     | 604,927   |       |  | $     | 613,155   |      
|                       |                                                                                       | Franchised and licensed restaurants(3)                   |       |       | 596,318   |       |  |       | 567,048   |       |  |       | 586,144   |       |  |       | 432,387   |       |  |       | 306,564   |      
|                       | Average unit volume per company-operated
    restaurant                               |                                                          |       | 1,187 |           |       |  | 1,152 |           |       |  | 1,135 |           |       |  | 1,078 |           |       |  | 1,086 |          
|                       | Percentage increase (decrease) in comparable
    company-operated restaurant sales(2) |                                                          |       | 2.9   | %         |       |  | 0.7   | %         |       |  | 2.9   | %         |       |  | 1.8   | %         |       |  | (3.0  | )%       
|                       | Company-operated restaurant-level operating
    margins:                              |                                                          |       | 21.0  | %         |       |  | 21.7  | %         |       |  | 19.9  | %         |       |  | 19.4  | %         |       |  | 22.8  | %        
|Hardees Restaurants   |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       | Restaurants open (at end of fiscal year):                                             |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated                                         |       |       | 721       |       |  |       | 730       |       |  |       | 742       |       |  |       | 923       |       |  |       | 1,354     |      
|                       |                                                                                       | Franchised and licensed                                  |       |       | 1,400     |       |  |       | 1,499     |       |  |       | 1,648     |       |  |       | 1,737     |       |  |       | 1,434     |      
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       |                                                                                       |                                                          | Total |       |           | 2,121 |  |       |           | 2,229 |  |       |           | 2,390 |  |       |           | 2,660 |  |       |           | 2,788 | 
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       | Restaurant sales:                                                                     |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated restaurants                             |       | $     | 575,238   |       |  | $     | 562,010   |       |  | $     | 614,291   |       |  | $     | 855,060   |       |  | $     | 1,096,805 |      
|                       |                                                                                       | Franchised and licensed restaurants(3)                   |       |       | 1,186,490 |       |  |       | 1,251,526 |       |  |       | 1,390,072 |       |  |       | 1,370,656 |       |  |       | 1,219,229 |      
|                       | Average unit volume per company-operated
    restaurant                               |                                                          |       | 792   |           |       |  | 763   |           |       |  | 763   |           |       |  | 715   |           |       |  | 769   |          
|                       | Percentage increase (decrease) in comparable
    company-operated restaurant sales(2) |                                                          |       | 2.5   | %         |       |  | (2.2  | )%        |       |  | 0.1   | %         |       |  | (7.6  | )%        |       |  | (5.0  | )%       
|                       | Company-operated restaurant-level operating
    margins:                              |                                                          |       | 9.9   | %         |       |  | 11.1  | %         |       |  | 9.6   | %         |       |  | 7.5   | %         |       |  | 9.7   | %        
|La Salsa Restaurants   |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       | Restaurants open (at end of fiscal year):                                             |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated                                         |       |       | 61        |       |  |       | 57        |       |  |       |           |       |  |       |           |       |  |       |           |      
|                       |                                                                                       | Franchised and licensed                                  |       |       | 41        |       |  |       | 42        |       |  |       |           |       |  |       |           |       |  |       |           |      
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       |                                                                                       |                                                          | Total |       |           | 102   |  |       |           | 99    |  |       |           |       |  |       |           |       |  |       |           |       | 
|                       |                                                                                       |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |      
|                       | Restaurant sales:                                                                     |                                                          |       |       |           |       |  |       |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       |                                                                                       | Company-operated restaurants                             |       | $     | 42,310    |       |  | $     | 38,550    |       |  |       |           |       |  |       |           |       |  |       |           |      
|                       |                                                                                       | Franchised and licensed restaurants(3)                   |       |       | 28,176    |       |  |       | 23,802    |       |  |       |           |       |  |       |           |       |  |       |           |      
|                       | Average unit volume per company-operated
    restaurant                               |                                                          |       | 723   |           |       |  | 751   |           |       |  |       |           |       |  |       |           |       |  |       |          
|                       | Percentage increase (decrease) in comparable
    company-operated restaurant sales(2) |                                                          |       | (1.3  | )%        |       |  | 0.8   | %         |       |  |       |           |       |  |       |           |       |  |       |          
|                       | Company-operated restaurant-level operating
    margins:                              |                                                          |       | 6.5   | %         |       |  | 12.6  | %         |       |  |       |           |       |  |       |           |       |  |       |          

20



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##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 2004, 2003, 2002 and 2001 include 52 weeks. Fiscal
    2000 includes 53 weeks.
|   
|(2) | Includes only restaurants open throughout the
    full years being compared.                                                                                                                                                                                        
|   
|(3) | Franchisee operations are not included in our
    consolidated financial statements; however, franchisee sales
    result in royalties and some rental income, which are included
    in franchised and licensed revenues.                                          

21



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with the consolidated financial statements and
related notes and Selected Financial and Operating Data included
elsewhere in this Form 10-K.

Overview

We are a nationwide owner, operator and
franchisor of quick-service restaurants
(QSRs), operating principally under the
Carls Jr. and Hardees brand names. Based on United
States system-wide sales, our Hardees and Carls Jr.
chains are the tenth and eleventh largest quick-service
hamburger restaurant chains in the United States of America,
respectively (according to the June 30, 2003 issue of
Nations Restaurant News). As of January 31, 2004, the
Carls Jr. system included 1,006 restaurants, of which
we operated 426 restaurants and our franchisees and
licensees operated 580 restaurants. The Carls Jr.
restaurants are located in the Western United States,
predominantly in California. As of January 31, 2004, the
Hardees system consisted of 2,121 restaurants, of
which we operated 721 restaurants and our franchisees and
licensees operated 1,400 restaurants. Hardees
restaurants are located primarily throughout the Southeastern
and Midwestern United States.

We derive our revenue primarily from sales at
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. Franchise operating costs include
the cost of food and packaging products sold to Carls Jr.
franchisees and licensees, lease payments on properties
subleased to our franchisees, the cost of equipment sold to
franchisees and franchise administrative support. Our revenue
and expenses are directly affected by the number and sales
volume of company-operated restaurants and, to a lesser extent,
franchised and licensed restaurants.

During periods in which we report positive
same-store sales, those increases are achieved by our strategy
that emphasizes premium products, as well as routine price
increases prompted by increases in labor, food or other
operating costs. The impact of this strategy is evidenced by the
increase in average guest check and, in fiscal 2004, the
same-store sales growth at Carls Jr. and Hardees, as
shown in the tables on pages 35-37. However, a possible
consequence of this strategy has been a decrease in transaction
counts, also shown in the same table, as some customers show a
preference for lower priced fare. Many of our competitors
strategies have been to offer lower prices or discounted fare,
which we believe has affected our transaction counts. Although
difficult to quantify, we generally have experienced negative
transaction counts at Hardees, at least since our
acquisition of the brand, and at Carls Jr. for nearly four
years, which we believe is due in part to increased competition
from fast casual dining and other QSR companies offering
products at discounted prices. In addition, the fast-food sector
has been impacted by shifts in customer food preferences. We
cannot quantify how much of our transaction count declines are
related to our business segment and how much are related to
circumstances involving our own brands. Despite these decreases,
however, same-store sales have increased at company-operated
Carls Jr. restaurants in each of the last four years and
same-store sales increased at company-operated Hardees
restaurants during fiscal 2004.

We are currently experiencing an increase in our
general operating costs (workers compensation and general
liability insurance premiums, utilities, workers
compensation claims costs in California and food costs). In the
past, we have been successful at passing on such increases
through price increases, but it has likely had an impact on
transaction counts.

The sensitivity analysis for the recoverability
of restaurants (see Impairment of Property and Equipment and
Other Amortizable Long-Lived Assets Held and Used, Held for Sale
or To Be Disposed of Other Than By Sale) assumes that our
same-store sales in the future grow at the same rate as the rate
of inflation for our costs for delivering our products of food,
labor, utilities, etc. If we were unable to pass along such
price increases, and at the same time could not increase our
transaction counts, the recoverability of the carrying value of
our restaurants would be further impacted.

22



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


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 judgments involve
making estimates 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. Our most significant
accounting policies require:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | estimation of future cash flows used to assess
    the recoverability of long-lived assets, including goodwill, and
    establish the estimated liability for closing restaurants and
    subsidizing lease payments of franchisees;
|
| |  | estimation, using actuarially determined methods,
    of our self-insured claim losses under our workers
    compensation, property and general liability insurance programs;                                                      
|
| |  | determination of appropriate estimated
    liabilities for litigation;                                                                                                                                                              
|
| |  | determination of the appropriate allowances
    associated with franchise and license receivables and estimated
    liabilities for franchise subleases;                                                                            
|
| |  | determination of the appropriate assumptions to
    use to estimate the fair value of stock-based compensation for
    purposes of disclosures of pro forma net income; and                                                         
|
| |  | estimation of our net deferred income tax asset
    valuation allowance.                                                                                                                                                            

Descriptions of these critical accounting
policies follow.



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

Each quarter we evaluate the carrying value of
individual restaurants when the operating results have
reasonably progressed to a point to adequately evaluate the
probability of continuing operating losses or a current
expectation that a restaurant will be sold or otherwise disposed
of before the end of its previously estimated useful life. In
making these judgments, we consider the period of time since the
restaurant was opened or remodeled, and the trend of operations
and expectations for future sales growth. For restaurants
selected for review, we estimate the future estimated cash flows
from operating the restaurant over its estimated useful life. We
make judgments about future same-store sales and the operating
expenses and estimated useful life that we would expect with
such level of same-store sales. We employ a probability-weighted
approach wherein we estimate the effectiveness of future sales
and marketing efforts on same-store sales and related estimated
useful life. In general, in expected same-store sales scenarios
where sales are not expected to increase, we generally assume a
shorter than previously estimated useful life.

Quarterly, we update our model for estimating
future cash flows based upon experience gained, current
intentions about refranchising restaurants and closures,
expected sales trends, internal plans and other relevant
information. In prior fiscal years, because we were
significantly engaged in refranchising restaurants to generate
cash to repay indebtedness, we had assumed, in some cases,
estimated lives that were less than the estimated useful life
for certain restaurants. As our financial position has improved
such that refranchising activities are less likely, we estimated
cash flows over the remaining estimated useful life of the
restaurants. As the operations of restaurants opened or
remodeled in recent years progress to the point that their
profitability and future prospects can adequately be evaluated,
additional restaurants will become subject to review and the
possibility that impairments exist. Most likely, this would
arise in new markets we expanded into in recent years.

23



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Same-store sales are the key indicator used to
estimate future cash flow for evaluating recoverability. To
provide a sensitivity analysis of the impairment that could
arise were the actual same-store sales of all mature restaurants
we owned to grow at only the assumed rate of inflation for our
operating costs (same-store sales sensitivity), the aggregate
additional impairment loss would be approximately $34,816. The
inflation rate assumed in making this calculation generally is
2.0% for both revenue and expenses.

Additionally, typically restaurants are operated
for three years before we test them for impairment. Also,
restaurants typically are not tested for either two or three
years following a major remodel (contingent upon the extent of
the remodel). We believe this provides the restaurant sufficient
time to establish its presence in the market and build a
customer base. If we were to test all restaurants for impairment
without regard to the amount of time the restaurants were
operating, the total asset impairment would increase
substantially. Assuming all restaurants were tested under the
same assumptions used in the same-store sales sensitivity
analysis, without regard to the length of time open (time open
sensitivity), we would be required to record additional
impairment losses of approximately $19,475.

The following tables summarize the sensitivity
analyses, as classified by restaurants with positive or negative
cash flow during fiscal 2004, for both same-store sales
sensitivity and time open sensitivity:

Carls Jr.

|                             |                                     |          |         |             |  |                  |     |     |  |   |       |       | 
|---------------------------- | ----------------------------------- | -------- | ------- | ----------- |  | ---------------- | --- | --- |  | - | ----- | ----- | 
|                             |                                     | Net Book |         | Number of   |  | Impairment Under
|                             |                                     | Value    |         | Restaurants |  | Sensitivity Test
|                             |                                     |          |         |             |  |                 
|Same-store sales sensitivity |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             | Restaurants with positive cash flow |          | $       | 85,255      |  |                  |     | 350 |  |   | $     | 2,025 | 
|                             | Restaurants with negative cash flow |          |         | 10,333      |  |                  |     | 50  |  |   |       | 5,440 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             |                                     |          | 95,588  |             |  |                  | 400 |     |  |   | 7,465 |      
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      
|Time open sensitivity        |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             | Restaurants with positive cash flow |          |         | 12,617      |  |                  |     | 21  |  |   |       |      | 
|                             | Restaurants with negative cash flow |          |         | 3,976       |  |                  |     | 5   |  |   |       | 2,328 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             |                                     |          | 16,593  |             |  |                  | 26  |     |  |   | 2,328 |      
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      
|Total                        |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             | Restaurants with positive cash flow |          |         | 97,872      |  |                  |     | 371 |  |   |       | 2,025 | 
|                             | Restaurants with negative cash flow |          |         | 14,309      |  |                  |     | 55  |  |   |       | 7,768 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      
|                             |                                     | $        | 112,181 |             |  |                  | 426 |     |  | $ | 9,793 |      
|                             |                                     |          |         |             |  |                  |     |     |  |   |       |      

24



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Hardees

|                             |                                     |          |         |             |  |                  |     |     |  |   |        |        | 
|---------------------------- | ----------------------------------- | -------- | ------- | ----------- |  | ---------------- | --- | --- |  | - | ------ | ------ | 
|                             |                                     | Net Book |         | Number of   |  | Impairment Under
|                             |                                     | Value    |         | Restaurants |  | Sensitivity Test
|                             |                                     |          |         |             |  |                 
|Same-store sales sensitivity |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             | Restaurants with positive cash flow |          | $       | 162,179     |  |                  |     | 366 |  |   | $      | 5,095  | 
|                             | Restaurants with negative cash flow |          |         | 33,528      |  |                  |     | 141 |  |   |        | 21,572 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             |                                     |          | 195,707 |             |  |                  | 507 |     |  |   | 26,667 |       
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       
|Time open sensitivity        |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             | Restaurants with positive cash flow |          |         | 86,361      |  |                  |     | 161 |  |   |        | 3,492  | 
|                             | Restaurants with negative cash flow |          |         | 14,335      |  |                  |     | 53  |  |   |        | 10,315 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             |                                     |          | 100,696 |             |  |                  | 214 |     |  |   | 13,807 |       
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       
|Total                        |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             | Restaurants with positive cash flow |          |         | 248,540     |  |                  |     | 527 |  |   |        | 8,587  | 
|                             | Restaurants with negative cash flow |          |         | 47,863      |  |                  |     | 194 |  |   |        | 31,887 | 
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       
|                             |                                     | $        | 296,403 |             |  |                  | 721 |     |  | $ | 40,474 |       
|                             |                                     |          |         |             |  |                  |     |     |  |   |        |       

La Salsa

|                             |                                     |          |        |             |  |                  |    |    |  |   |       |       | 
|---------------------------- | ----------------------------------- | -------- | ------ | ----------- |  | ---------------- | -- | -- |  | - | ----- | ----- | 
|                             |                                     | Net Book |        | Number of   |  | Impairment Under
|                             |                                     | Value    |        | Restaurants |  | Sensitivity Test
|                             |                                     |          |        |             |  |                 
|Same-store sales sensitivity |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             | Restaurants with positive cash flow |          | $      | 7,561       |  |                  |    | 41 |  |   | $     | 172   | 
|                             | Restaurants with negative cash flow |          |        | 512         |  |                  |    | 2  |  |   |       | 512   | 
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             |                                     |          | 8,073  |             |  |                  | 43 |    |  |   | 684   |      
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      
|Time open sensitivity        |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             | Restaurants with positive cash flow |          |        | 1,608       |  |                  |    | 9  |  |   |       |      | 
|                             | Restaurants with negative cash flow |          |        | 4,472       |  |                  |    | 9  |  |   |       | 3,340 | 
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             |                                     |          | 6,080  |             |  |                  | 18 |    |  |   | 3,340 |      
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      
|Total                        |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             | Restaurants with positive cash flow |          |        | 9,169       |  |                  |    | 50 |  |   |       | 172   | 
|                             | Restaurants with negative cash flow |          |        | 4,984       |  |                  |    | 11 |  |   |       | 3,852 | 
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      
|                             |                                     | $        | 14,153 |             |  |                  | 61 |    |  | $ | 4,024 |      
|                             |                                     |          |        |             |  |                  |    |    |  |   |       |      

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Core Concepts Combined

|                             |                                     |          |         |             |  |                  |       |     |  |   |        |        | 
|---------------------------- | ----------------------------------- | -------- | ------- | ----------- |  | ---------------- | ----- | --- |  | - | ------ | ------ | 
|                             |                                     | Net Book |         | Number of   |  | Impairment Under
|                             |                                     | Value    |         | Restaurants |  | Sensitivity Test
|                             |                                     |          |         |             |  |                 
|Same-store sales sensitivity |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             | Restaurants with positive cash flow |          | $       | 254,995     |  |                  |       | 757 |  |   | $      | 7,292  | 
|                             | Restaurants with negative cash flow |          |         | 44,373      |  |                  |       | 193 |  |   |        | 27,524 | 
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             |                                     |          | 299,368 |             |  |                  | 950   |     |  |   | 34,816 |       
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       
|Time open sensitivity        |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             | Restaurants with positive cash flow |          |         | 100,586     |  |                  |       | 191 |  |   |        | 3,492  | 
|                             | Restaurants with negative cash flow |          |         | 22,783      |  |                  |       | 67  |  |   |        | 15,983 | 
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             |                                     |          | 123,369 |             |  |                  | 258   |     |  |   | 19,475 |       
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       
|Total                        |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             | Restaurants with positive cash flow |          |         | 355,581     |  |                  |       | 948 |  |   |        | 10,784 | 
|                             | Restaurants with negative cash flow |          |         | 67,156      |  |                  |       | 260 |  |   |        | 43,507 | 
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       
|                             |                                     | $        | 422,737 |             |  |                  | 1,208 |     |  | $ | 54,291 |       
|                             |                                     |          |         |             |  |                  |       |     |  |   |        |       



| |                       
| | ----------------------
| | Impairment of Goodwill

At the reporting unit level, goodwill is tested
for impairment at least annually during the first quarter of our
fiscal year, and on an interim basis if an event or circumstance
indicates that it is more likely than not impairment may have
occurred. We consider the reporting unit level to be the brand
level since the components (e.g., restaurants) within each
brand have similar economic characteristics, including products
and services, production processes, types or classes of
customers and distribution methods. The impairment, if any, is
measured based on the estimated fair value of the brand. Fair
value can be determined based on discounted cash flows,
comparable sales or valuations of other restaurant brands.
Impairment occurs when the carrying amount of goodwill exceeds
its estimated fair value.

The most significant assumptions we use in this
analysis are those made in estimating future cash flows. In
estimating future cash flows, we use the assumptions in our
strategic plan for items such as same-store sales, store count
growth rates, and the discount rate we consider to be the market
discount rate for acquisitions of restaurant companies and
brands.

If our assumptions used in performing the
impairment test prove inaccurate, the fair value of the brands
may ultimately prove to be significantly lower, thereby causing
the carrying value to exceed the fair value and indicating an
impairment has occurred. During the first quarter of fiscal year
2004, we engaged an independent consultant to assist us in
performing a valuation of the La Salsa brand. At that time, we
concluded that the value of La Salsas net assets exceeded
their carrying value. Accordingly, no impairment charge was
required. Also at that time, we concluded that the value of the
net assets of Carls Jr. exceeded the carrying value and no
impairment charge was required. Recognizing that the operations
and growth prospects of the La Salsa brand continued to
deteriorate throughout fiscal 2004, we engaged the same
independent consultant assist us in performing a valuation of
the La Salsa brand during the fourth quarter of fiscal 2004.
That valuation concluded that the carrying value of the goodwill
associated with the acquisition of La Salsa exceeded the current
value and, accordingly, we recorded an impairment charge of
$34,059, representing all of La Salsas goodwill. As of
January 31, 2004, we have $22,649 in goodwill recorded on
the balance sheet, which primarily relates to Carls Jr.

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)




| |                                                
| | -----------------------------------------------
| | Estimated Liability for Closing
    Restaurants

We make decisions to close restaurants based on
prospects for estimated future profitability and sometimes we
are forced to close restaurants due to circumstances beyond our
control (e.g., a landlords refusal to negotiate a new
lease). Our restaurant operators evaluate each restaurants
performance every quarter. When restaurants continue to perform
poorly, we consider the demographics of the location, as well as
the likelihood of being able to improve an unprofitable
restaurant. Based on the operators judgment, we estimate
the future cash flows. If we determine that the restaurant will
not, within a reasonable period of time, operate at break-even
cash flow or be profitable, and we are not contractually
obligated to continue operating the restaurant, we may 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 an estimated liability for the closed restaurant if we
decide not to operate it as a company-operated restaurant.
Effective January 1, 2003, we establish the estimated
liability on the actual closure date. Prior to the adoption of
Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities(SFAS 146) on January 1,
2003, we established the estimated liability when we identified
a restaurant for closure, which may or may not have been the
actual closure date.

The estimated liability for closing restaurants
on properties vacated is generally based on the term of the
lease and the lease termination fee we expect to pay, as well as
estimated maintenance costs until the lease has been abated. The
amount of the estimated liability established is generally the
present value of these estimated future payments. The interest
rate used to calculate the present value of these liabilities is
based on our incremental borrowing rate at the time the
liability is established. The related discount is amortized and
shown in facility action charges, net in our consolidated
statements of operations.

A significant assumption used in determining the
amount of the estimated liability for closing restaurants is the
amount of the estimated liability for future lease payments on
vacant restaurants, which we determine based on our
brokers (a related party) assessment of its ability to
successfully negotiate early terminations of our lease
agreements with the lessors or sublease the property.
Additionally, we estimate the cost to maintain leased and owned
vacant properties until the lease has been abated. If the costs
to maintain properties increase, or it takes longer than
anticipated to sell properties or sublease or terminate leases,
we may need to record additional estimated liabilities. If the
leases on the vacant restaurants are not terminated or subleased
on the terms we used to estimate the liabilities, we may be
required to record losses in future periods. Conversely, if the
leases on the vacant restaurants are terminated or subleased on
more favorable terms than we used to estimate the liabilities,
we reverse previously established estimated liabilities,
resulting in an increase in operating income. The present value
of lease payments on all closed restaurants is approximately
$49,571, which represents the discounted amount we would be
required to pay if we are unable to terminate the leases prior
to the terms required in the lease agreements or enter into
sublease agreements. However, it is our experience that we can
terminate those leases for less than that amount or sublease the
property and, accordingly, we have recorded an estimated
liability for lease obligations of $16,993 as of
January 31, 2004.

Estimated
Liability for Self-Insurance

We are self-insured for a portion of our current
and prior years losses related to workers
compensation, property and general liability insurance programs.
We have obtained stop loss insurance for individual
workers compensation claims, property claims and
individual general liability claims over $500. Insurance
liabilities and reserves are accounted for based on the present
value of actuarial estimates of the amount of incurred and
unpaid losses, based approximately on a risk-free interest rate.
During the fourth quarter of fiscal 2004, we adjusted the rate
to 4.5% due to prolonged changes in the interest rate
environment. These estimates rely on actuarial observations of
historical claim loss development. The actuary, in determining
the estimated liability, bases the assumptions on the average
historical losses on claims we have incurred. The actual loss
development may be better or worse than the development we
estimated in conjunction with the actuary. In

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


that event, we will modify the reserve. As such,
if we experience a higher than expected number of claims or the
costs of claims rise more than expected, then we may, in
conjunction with the actuary, adjust the expected losses upward
and our future self-insurance expenses will rise. Consistent
with trends the restaurant industry has experienced in recent
years, particularly in California where claim cost trends are
among the highest in the country, workers compensation
liability premiums and claim costs continue to increase.
Additionally, after several years of increases, our property and
general liability insurance premiums have leveled.

Loss
Contingencies

We maintain accrued liabilities for contingencies
related to litigation. We account for contingent obligations in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 5, Accounting for Contingencies
(SFAS 5) ,which requires that we assess
each contingency to determine estimates of the degree of
probability and range of possible settlement. Those
contingencies that are deemed to be probable and where the
amount of such settlement is reasonably estimable are accrued in
our consolidated financial statements. If only a range of loss
can be determined, we accrue to the low end of the range. In
accordance with SFAS 5, as of January 31, 2004, we
have recorded an accrued liability for contingencies related to
litigation in the amount of $3,670. The assessment of
contingencies is highly subjective and requires judgments about
future events. Contingencies are reviewed at least quarterly to
determine the adequacy of the accruals and related consolidated
financial statement disclosure. The ultimate settlement of
contingencies may differ materially from amounts we have accrued
in our consolidated financial statements.

We estimate the liability for those losses
related to litigation claims that we believe are reasonably
possible to result in an adverse outcome to be in the range of
$350 to $650. In accordance with SFAS No. 5, we have not
recorded a liability for those losses.

Franchised
and Licensed Operations

We monitor the financial condition of certain
franchisees and record provisions for estimated losses on
receivables when we believe that our franchisees are unable to
make their required payments to us. Each quarter we perform an
analysis to develop estimated bad debts for each franchisee. We
then compare the aggregate result of that analysis to the amount
recorded in our consolidated financial statements as the
allowance for doubtful accounts and adjust the allowance as
appropriate. Additionally, we cease accruing royalties and rent
income from franchisees that are materially delinquent in paying
or in default for other reasons and reverse any royalties and
rent income accrued during the last 90 days. Over time our
assessment of individual franchisees may change. For instance,
we have had some franchisees, who in the past we had determined
required an estimated loss equal to the total amount of the
receivable, who have paid us in full or established a consistent
record of payments (generally one year) such that we determined
an allowance was no longer required.

Depending on the facts and circumstances, there
are a number of different actions we and/or our franchisees may
take to resolve franchise collections issues. These actions may
include the purchase of franchise restaurants by us or by other
franchisees, a modification to the franchise agreement which may
include a provision to defer certain royalty payments or reduce
royalty rates in the future (if royalty rates are not sufficient
to cover our costs of service over the life of the franchise
agreement, we record an 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 course of action that will occur.

Many of the restaurants that we sold to
Hardees and Carls Jr. franchisees as part of
our refranchising program were on leased sites. Generally, we
remain principally liable for the lease and have entered into a
sublease with the franchisee on the same terms as the primary
lease. We account for the sublease payments received as
franchising rental income. Our payments on the leases are
accounted for as rental expense in

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


franchised and licensed restaurants and other
expense in our consolidated statements of operations. As of
January 31, 2004, the present value of our total obligation
on such lease arrangements with Hardees and
Carls Jr. franchisees was $44,453 and $90,841,
respectively. We do not expect Carls Jr. franchisees
to experience the same level of financial difficulties as
Hardees franchisees have encountered in the past or may
encounter in the future. However, we can provide no assurance
that this will not occur.

In addition to the sublease arrangements with
franchisees described above, we also lease land and buildings to
franchisees. As of January 31, 2004, the net book value of
property under lease to Hardees and Carls Jr.
franchisees was $28,477 and $9,509, respectively. Troubled
franchisees are those with whom we have entered into workout
agreements and who may have liquidity problems in the future. In
the event that a troubled franchisee closes a restaurant for
which we own the property, our options are to operate the
restaurant as a company-owned restaurant, lease the property to
another tenant or sell the property. These circumstances would
cause us to consider whether the carrying value of the land and
building was impaired. If we determined the property value was
impaired, we would record a charge to operations for the amount
the carrying value of the property exceeds its fair value. As of
January 31, 2004, the net book value of land and buildings
under lease to Hardees franchisees that are considered to
be troubled franchisees was approximately $20,932 and is
included in the amount above. During fiscal 2005 or thereafter,
some of these franchisees may close restaurants and,
accordingly, we may record an impairment loss in connection with
some of these closures.

Prior to adoption of SFAS 146, the
determination of when to establish an estimated liability for
future lease obligations on restaurants operated by franchisees
for which we are the primary obligee was based on the date that
either of the following events occurred:



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) we and the franchisee mutually decided
    to close a restaurant and we assumed the responsibility for the
    lease, usually after a franchise agreement was terminated or the
    franchisee declared bankruptcy; or
|
| | (2) we entered into a workout agreement with
    a financially troubled franchisee, wherein we agreed to make
    part or all of the lease payments for the franchisee.                                                   

In accordance with SFAS 146, which we
adopted on January 1, 2003, an estimated liability for
future lease obligations on restaurants operated by franchisees
for which we are the primary obligee is established on the date
the franchisee closes the restaurant. Also, we record an
estimated liability for subsidized lease payments when we sign a
sublease agreement committing us to the subsidy.

The amount of the estimated liability is
established using the methodology described in Estimated
Liability for Closing Restaurants above. Consistent with
SFAS 146, we have not established an additional estimated
liability for potential losses not yet incurred. The present
value of the lease obligations for which we remain principally
liable and have entered into subleases to troubled franchisees
is approximately $27,162 (six troubled franchisees represent
substantially all of this amount). 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 (see discussion above). The likelihood of
needing to increase the estimated liability for future lease
obligations is related to the success of our Hardees
concept (i.e., if our Hardees concept results improve from
the execution of our comprehensive plan, we would reasonably
expect that the financial performance of our franchisees would
improve).

Stock-Based
Compensation

As discussed in Notes 1 and 23 of Notes to
Consolidated Financial Statements, we have various stock-based
compensation plans that provide options for certain employees
and outside directors to purchase common shares of stock. We
have elected to account for stock-based compensation in
accordance with APB Opinion No. 25, Accounting for Stock
Issued to Employees, which utilizes the intrinsic value
method of accounting for stock-based compensation, as opposed to
using the fair-value method prescribed in SFAS

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


No. 123, Accounting for Stock-Based
Compensation(SFAS 123). Because of this
election, we are required to make certain disclosures of pro
forma net income assuming we had adopted SFAS 123. We determine
the estimated fair value of stock-based compensation on the date
of the grant using the Black-Scholes option-pricing model. The
Black-Scholes option-pricing model requires the input of highly
subjective assumptions, including the historical stock price
volatility, expected life of the option and the risk-free
interest rate. A change in one or more of the assumptions used
in the Black-Scholes option-pricing model may result in a
material change to the estimated fair value of the stock-based
compensation (see Note 1 of Notes to Consolidated Financial
Statements for analysis of the effect of certain changes in
assumptions used to determine the fair value of stock-based
compensation).

Valuation
Allowance for Net Deferred Tax Asset

As disclosed in Note 20 of Notes to
Consolidated Financial Statements, we have recorded a 100%
valuation allowance against our net deferred tax assets. If our
business turnaround is successful, we have been profitable for a
number of years and our prospects for the realization of our
deferred tax assets are more likely than not, we would then
reverse our valuation allowance and credit income tax expense.
In assessing the prospects for future profitability, many of the
assessments of same-store sales and cash flows mentioned above
become relevant. When circumstances warrant, we assess the
likelihood that our net deferred tax assets will more likely
than not be realized from future taxable income. As of
January 31, 2004, our net deferred tax assets and related
valuation allowance totaled approximately $171,000.

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Factors Affecting Comparability of Fiscal
Years 2004, 2003 and 2002

Our fiscal year results in a fifty-third week
every fifth or sixth year. Fiscal 2004, 2003 and 2002 include
52 weeks of operations.

Our results reflect the substantial changes we
have made in executing our business turnaround including the
sale and closure of restaurants, the disposal of non-core
investments, the reduction of corporate overhead, and our
efforts to improve margins and repay indebtedness. The table
below is a condensed presentation of those activities, and other
changes in the components of income (loss) before
cumulative effect of accounting change for goodwill, designed to
facilitate the discussion of results in this Form 10-K.

|                                                                                                     |                                                                                                                                                     |                    |       |             |   |   |       |       |  
|---------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----- | ----------- | - | - | ----- | ----- | -
|                                                                                                     |                                                                                                                                                     | Fiscal Year        |       | Fiscal Year
|                                                                                                     |                                                                                                                                                     | 2004 vs.           |       | 2003 vs.   
|                                                                                                     |                                                                                                                                                     | Fiscal Year        |       | Fiscal Year
|                                                                                                     |                                                                                                                                                     | 2003               |       | 2002       
|                                                                                                     |                                                                                                                                                     |                    |       |            
|                                                                                                     |                                                                                                                                                     |                   
|                                                                                                     |                                                                                                                                                     | (All amounts are  
|                                                                                                     |                                                                                                                                                     | approximate and in
|                                                                                                     |                                                                                                                                                     | millions)         
|Financial Comparison                                                                                 |                                                                                                                                                     |                    |       |             |   |   |       |      
|Most Recent Year:                                                                                    |                                                                                                                                                     |                    |       |             |   |   |       |      
|                                                                                                     | Income (loss) before cumulative effect of
    accounting change for goodwill                                                                        |                    | $     | (48.6       | ) |   | $     | 25.8  |  
|Year Compared To:                                                                                    |                                                                                                                                                     |                    |       |             |   |   |       |      
|                                                                                                     | Income (loss) before cumulative effect of
    accounting change for goodwill                                                                        |                    |       | 25.8        |   |   |       | (84.0 | )
|                                                                                                     |                                                                                                                                                     |                    |       |             |   |   |       |      
|Increase (decrease) in income or loss before
    cumulative effect of accounting change for goodwill |                                                                                                                                                     | $                  | (74.4 | )           |   | $ | 109.8 |      
|                                                                                                     |                                                                                                                                                     |                    |       |             |   |   |       |      
|Items causing earnings to increase
    (decrease) from the prior year to the year being analyzed:    |                                                                                                                                                     |                    |       |             |   |   |       |      
|                                                                                                     | Impairment of La Salsa goodwill                                                                                                                     |                    | $     | (34.1       | ) |   | $     |      |  
|                                                                                                     | (Increase) decrease in facility action charges,
    net                                                                                             |                    |       | (13.8       | ) |   |       | 69.1  |  
|                                                                                                     | Increase (decrease) in gain on sales of
    Checkers stock                                                                                          |                    |       | (9.2        | ) |   |       | 7.4   |  
|                                                                                                     | Increase (decrease) in income tax benefit
    from change in federal tax law                                                                        |                    |       | (9.2        | ) |   |       | 9.2   |  
|                                                                                                     | Approximate store margin deterioration in
    Hardees restaurants owned at January 31, 2004 and
    January 31, 2003, respectively                 |                    |       | (8.4        | ) |   |       | (1.9  | )
|                                                                                                     | Approximate store margin improvement in
    Hardees restaurants owned at January 31, 2004
    resulting from sales leverage                        |                    |       | 2.2         |   |   |       |      |  
|                                                                                                     | Approximate store margin improvement
    (deterioration) in Carls Jr. restaurants owned at
    January 31, 2004 and January 31, 2003, respectively |                    |       | (4.4        | ) |   |       | 8.2   |  
|                                                                                                     | Approximate store margin improvement in
    Carls Jr. restaurants owned at January 31, 2004
    resulting from sales leverage                      |                    |       | 4.0         |   |   |       |      |  
|                                                                                                     | Increase in approximate operating income of
    restaurants sold or closed(a)                                                                       |                    |       | 0.8         |   |   |       | 6.1   |  
|                                                                                                     | (Increase) decrease in general and administrative
    expenses                                                                                      |                    |       | 6.6         |   |   |       | (1.9  | )
|                                                                                                     | (Increase) decrease in the provision for doubtful
    accounts                                                                                      |                    |       | (3.5        | ) |   |       | 7.1   |  
|                                                                                                     | Change in gain or loss on repurchases of
    convertible notes                                                                                      |                    |       | (3.5        | ) |   |       | 2.8   |  
|                                                                                                     | Change in Timber Lodge net loss                                                                                                                     |                    |       | (2.7        | ) |   |       | (0.1  | )
|                                                                                                     | (Increase) decrease in advertising expenses(b)                                                                                                      |                    |       | 2.0         |   |   |       | (4.7  | )
|                                                                                                     | Increase in operating loss of SBRG, excluding
    Timber Lodge                                                                                      |                    |       | (1.9        | ) |   |       | (0.1  | )
|                                                                                                     | Increase (decrease) in net franchising income                                                                                                       |                    |       | 1.5         |   |   |       | (8.2  | )
|                                                                                                     | (Increase) decrease in interest expense                                                                                                             |                    |       | (0.1        | ) |   |       | 14.0  |  

31



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                                                                                                     |                                                                                                  |                    |       |             |   |   |       |      |  
|---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------ | ----- | ----------- | - | - | ----- | ---- | -
|                                                                                                     |                                                                                                  | Fiscal Year        |       | Fiscal Year
|                                                                                                     |                                                                                                  | 2004 vs.           |       | 2003 vs.   
|                                                                                                     |                                                                                                  | Fiscal Year        |       | Fiscal Year
|                                                                                                     |                                                                                                  | 2003               |       | 2002       
|                                                                                                     |                                                                                                  |                    |       |            
|                                                                                                     |                                                                                                  |                   
|                                                                                                     |                                                                                                  | (All amounts are  
|                                                                                                     |                                                                                                  | approximate and in
|                                                                                                     |                                                                                                  | millions)         
|                                                                                                     | Amortization of goodwill no longer recorded in
    fiscal 2003                                   |                    |       |            |   |   |       | 5.7  |  
|                                                                                                     | Severance recorded in prior periods                                                              |                    |       |            |   |   |       | 1.4  |  
|                                                                                                     | Impact of franchising agreement settlement fees
    and vendor rebates received in prior periods |                    |       |            |   |   |       | (2.6 | )
|                                                                                                     | Other, net                                                                                       |                    |       | (0.7        | ) |   |       | (1.7 | )
|                                                                                                     |                                                                                                  |                    |       |             |   |   |       |     
|Increase (decrease) in income or loss before
    cumulative effect of accounting change for goodwill |                                                                                                  | $                  | (74.4 | )           |   | $ | 109.8 |     
|                                                                                                     |                                                                                                  |                    |       |             |   |   |       |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The sale and closure of restaurants involved in
    facility actions caused an increase in operating earnings of
    $800 in fiscal 2004 and an increase in operating earnings of
    $6,100 in fiscal 2003. These amounts include field-level general
    and administrative expenses. The $800 increase during fiscal
    2004 and the $6,100 increase during fiscal 2003 were the benefit
    of closing unprofitable restaurants.
|   
|(b) | Net of restaurants sold or closed.                                                                                                                                                                                                                                                                                                                                                                                                   

Restaurant Portfolio Strategy

As described above, in late fiscal 2000 we
embarked on a refranchising 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 activities resulted in the charges generally
reflected in our consolidated 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 2004, 2003 and 2002, we recorded
facility action charges of $19,788, $6,012 and $75,111,
respectively, which were primarily non-cash in nature.
Subsequent to January 31, 2004, we announced our intention
to close 28 Hardees restaurants that do not fit
within our new menu strategy. We expect those closures to occur
during the first quarter of fiscal 2005 and result in
approximately $2,500 in additional facility action charges.

32



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


The asset sales arising from our facility actions
have resulted in a decline in restaurant revenue and costs
because we operate fewer restaurants. The following table
summarizes the historical operating results of restaurants that
we sold, closed or identified to be closed during fiscal year
2004 (including the 28 restaurants scheduled to be closed
during the first quarter of fiscal 2005):

|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |        |        |  
|--------- | ---------------------------------- | ---------------------- | -- | ---------------- | -- | ---------------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | --------- | ------ | ------ | ------ |  | ------ | ------ | ------ | - | ------ | ------ | ------ |  | ------ | ------ | ------ | -
|          |                                    |                        |    |                  |    |                 
|          |                                    | Fiscal Year 2004       |    | Fiscal Year 2003 |    | Fiscal Year 2002
|          |                                    |                        |    |                  |    |                 
|          |                                    |                        |    | Operating        |    |                  |        | Operating |        |           |        | Operating
|          |                                    | No. of                 |    |                  |    | Income/          |        |           |        | Income/   |        |           |        | Income/  
|          |                                    | Stores                 |    | Revenue          |    | (Loss)(1)        |        | Revenue   |        | (Loss)(1) |        | Revenue   |        | (Loss)(1)
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |          
|          |                                    |                       
|          |                                    | (Dollars in thousands)
|Carls Jr. |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          | Restaurants sold                   |                        |    | 15               |    |                  | $      | 11,537    |        |           | $      | 362       |        |           | $      | 11,775 |        |  | $      | 206    |        |   | $      | 12,143 |        |  | $      | 300    |       
|          | Restaurants closed                 |                        |    | 4                |    |                  |        | 1,305     |        |           |        | (327      | )      |           |        | 2,195  |        |  |        | (270   | )      |   |        | 2,384  |        |  |        | (245   | )     
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          |                                    | Subtotal               |    |                  | 19 |                  |        |           | 12,842 |           |        |           | 35     |           |        |        | 13,970 |  |        |        | (64    | ) |        |        | 14,527 |  |        |        | 55     |  
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|Hardees  |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          | Restaurants closed                 |                        |    | 15               |    |                  |        | 4,025     |        |           |        | (872      | )      |           |        | 7,834  |        |  |        | (657   | )      |   |        | 10,484 |        |  |        | 2      |       
|          | Restaurants to be closed           |                        |    | 28               |    |                  |        | 14,856    |        |           |        | (3,162    | )      |           |        | 15,474 |        |  |        | (2,419 | )      |   |        | 17,199 |        |  |        | (1,581 | )     
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          |                                    |                        | 43 |                  |    |                  | 18,881 |           |        |           | (4,034 | )         |        |           | 23,308 |        |        |  | (3,076 | )      |        |   | 27,683 |        |        |  | (1,579 | )     
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|La Salsa  |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          | Restaurants closed                 |                        |    | 4                |    |                  |        | 604       |        |           |        | (225      | )      |           |        | 1,139  |        |  |        | (328   | )      |   |        |       |        |  |        |       |       
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|Total     |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          | Restaurants sold                   |                        |    | 15               |    |                  |        | 11,537    |        |           |        | 362       |        |           |        | 11,775 |        |  |        | 206    |        |   |        | 12,143 |        |  |        | 300    |       
|          | Restaurants closed or to be closed |                        |    | 51               |    |                  |        | 20,790    |        |           |        | (4,586    | )      |           |        | 26,642 |        |  |        | (3,674 | )      |   |        | 30,067 |        |  |        | (1,824 | )     
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       
|          |                                    | Total                  |    |                  | 66 |                  |        | $         | 32,327 |           |        | $         | (4,224 | )         |        | $      | 38,417 |  |        | $      | (3,468 | ) |        | $      | 42,210 |  |        | $      | (1,524 | )
|          |                                    |                        |    |                  |    |                  |        |           |        |           |        |           |        |           |        |        |        |  |        |        |        |   |        |        |        |  |        |       



---



|    |                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 related fiscal
    year.

Business Strategy

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



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | remain focused on restaurant
    fundamentals  quality, service and cleanliness;                           
|
| |  | offer premium products that compete on quality
    and taste  not price;                                   
|
| |  | build on the strength of the Carls Jr.
    brand, including dual branding opportunities with Green Burrito;
|
| |  | continue to execute and refine the Hardees
    Revolution;                                                 
|
| |  | continue to control costs while increasing
    revenues;                                                    
|
| |  | leverage our infrastructure and marketing
    presence to build out existing core markets; and              
|
| |  | strengthen our franchise system and pursue
    further franchising opportunities.                           

We believe a key factor in operating
Hardees profitably is increasing sales. For the fiscal
year ended January 31, 2004, the AUV at our
company-operated Hardees restaurants was approximately
$792, while franchise-operated AUV was $845. If we are unable to
grow sales at Hardees to the level at which we estimate
the brand would operate profitably and improve operating
margins, it will affect our ability to access both the amount
and terms of financing available to us in the future (see
Liquidity and Capital Resources section below).

33



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Hardees Revolution

We have implemented a comprehensive plan to
revitalize Hardees involving a repositioning of the brand
as a premium burger restaurant. We refer to this plan as the
Hardees Revolution. The plan includes menu adjustments and
associated advertising and media strategies. In January 2003, we
announced a new menu focus for Hardees featuring Angus
beef Thickburgers. This menu, along with related media, seeks to
distinguish Hardees as a premium burger specialist.

Franchisees operations

Like others in the quick-service restaurant
industry, some of our franchise operators experience financial
difficulties from time to time with respect to their operations.
Our approach to dealing with financial and operational issues
that arise from these situations is described under Critical
Accounting Policies above, under the heading Franchised
and Licensed Operations. Some franchise operators in the
Hardees system have experienced significant financial
problems and, as discussed above, there are a number of
potential resolutions of these financial issues.

We continue to work with franchisees in an
attempt to maximize our future franchising income. Our
franchising income is dependent on both the number of
restaurants operated by franchisees and their operational and
financial success, such that they can make their royalty and
lease payments to us. Although we quarterly review the allowance
for doubtful accounts and the estimated liability for closed
franchise restaurants (see discussion under Critical Accounting
Policies  Franchised and Licensed Operations), there
can be no assurance that the number of franchisees or franchised
restaurants experiencing financial difficulties will not
increase from our current assessments, nor can there be any
assurance that we will be successful in resolving financial
issues relating to any specific franchisee. As of
January 31, 2004, our consolidated allowance for doubtful
accounts of notes receivable was 73% of the gross balance of
notes receivable and our consolidated allowance for doubtful
accounts on accounts receivable was 10% of the gross balance of
accounts receivable. During fiscal year 2004, we established
several notes receivable pursuant to completing workout
agreements with several troubled franchisees. Also, as of
January 31, 2004, we have not recognized $6,032 in accounts
receivable and $6,004 in notes receivable pertaining to royalty
and rent revenue due from franchisees that are in default under
the terms of their franchise agreements. We still experience
specific problems with troubled franchisees (see Critical
Accounting Policies  Franchise and Licensed
Operations) and may be required to increase the amount of our
allowances for doubtful accounts and/or increase the amount of
our estimated liability for future lease obligations. The result
of increasing the allowance for doubtful accounts is an
effective royalty rate lower than our standard contractual
royalty rate.

Effective royalty rate reflects royalties deemed
collectible as a percent of franchise generated revenue for all
franchisees for which we are recognizing revenue. For the fiscal
year ended January 31, 2004, the effective royalty rates
for domestic Carls Jr. and Hardees were 3.7%
and 3.2%, respectively.

34



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Operating Review

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

|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |      |       | 
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | ---- | ---- | ----- | 
|                                                                                                                           |                                                  |                                       
|                                                                                                                           |                                                  | Fiscal Year Ended January 31,         
|                                                                                                                           |                                                  |                                       
|                                                                                                                           |                                                  | 2004                                   |      | 2003 |       | 2002
|                                                                                                                           |                                                  |                                        |      |      |       |     
|Revenue:                                                                                                                   |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|                                                                                                                           | Company-operated restaurants                     |                                        |      | 80.9 | %     |      |      | 81.4 | %     |  |      | 81.7 | %    
|                                                                                                                           | Franchised and licensed restaurants and other    |                                        |      | 19.1 |       |      |      | 18.6 |       |  |      | 18.3 |      
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|                                                                                                                           |                                                  | Total revenue                          |      |      | 100.0 |      |      |      | 100.0 |  |      |      | 100.0 | 
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|Operating costs and expenses:                                                                                              |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|                                                                                                                           | Restaurant operations(1):                        |                                        |      |      |       |      |      |      |       |  |      |      |      
|                                                                                                                           |                                                  | Food and packaging                     |      |      | 29.8  |      |      |      | 28.9  |  |      |      | 30.3  | 
|                                                                                                                           |                                                  | Payroll and other employee benefits    |      |      | 32.4  |      |      |      | 32.3  |  |      |      | 32.5  | 
|                                                                                                                           |                                                  | Occupancy and other operating expenses |      |      | 22.9  |      |      |      | 22.8  |  |      |      | 22.7  | 
|                                                                                                                           | Franchised and licensed restaurants and other(2) |                                        |      | 78.3 |       |      |      | 77.4 |       |  |      | 76.8 |      
|                                                                                                                           | Advertising expenses(1)                          |                                        |      | 6.2  |       |      |      | 6.5  |       |  |      | 6.2  |      
|                                                                                                                           | General and administrative expenses              |                                        |      | 7.6  |       |      |      | 8.4  |       |  |      | 7.8  |      
|                                                                                                                           | Facility action charges, net                     |                                        |      | 1.4  |       |      |      | 0.4  |       |  |      | 5.2  |      
|                                                                                                                           | Impairment of Goodwill                           |                                        |      | 2.4  |       |      |      |     |       |  |      |     |      
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|Operating income (loss)                                                                                                    |                                                  |                                        | (0.3 | )    |       |      | 3.1  |      |       |  | (2.1 | )   
|Interest expense                                                                                                           |                                                  |                                        | (2.8 | )    |       |      | (2.9 | )    |       |  | (3.8 | )   
|Other income, net                                                                                                          |                                                  |                                        |     |      |       |      | 1.2  |      |       |  |     |     
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|Income (loss) before income taxes,
    discontinued operations and cumulative effect of accounting
    change for goodwill |                                                  |                                        | (3.1 | )    |       |      | 1.3  |      |       |  | (5.9 | )   
|Income tax benefit (expense)                                                                                               |                                                  |                                        | (0.1 | )    |       |      | 0.6  |      |       |  | 0.1  |     
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     
|Income (loss) from continuing operations                                                                                   |                                                  |                                        | (3.2 | )%   |       |      | 1.9  | %    |       |  | (5.8 | )%  
|                                                                                                                           |                                                  |                                        |      |      |       |      |      |      |       |  |      |     



---



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

35



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


The following tables are presented to facilitate
Managements Discussion and Analysis of Financial Condition
and Results of Operations and are classified in the same way as
we present segment information (see Note 21 of Notes to the
Consolidated Financial Statements).

|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |         |         | 
|----------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------- | ------- | -------- | ------- | -------- | ------- | -------- | ------ | ----- | ------- | ----- | ----- | - | ----- | --- | --- | - | --------- | ------- | ------- | 
|                                                                              |                                                                |                          
|                                                                              |                                                                | Fiscal Year 2004         
|                                                                              |                                                                |                          
|                                                                              |                                                                | Carls Jr.                |         | Hardees |         | La Salsa |         | Other(A) |        | Total
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |      
|Company-operated revenue                                                      |                                                                | $                         | 523,945 |          |         | $        | 575,238 |          |        | $     | 42,310  |       |       | $ | 1,436 |     |     | $ | 1,142,929 |        
|Company-operated average unit volume (trailing-13
    periods)                |                                                                |                           | 1,187   |          |         |          | 792     |          |        |       | 723     |       |       |   |       |     |     |   |           |        
|Franchise-operated average unit volume
    (trailing-13 periods)              |                                                                |                           | 1,074   |          |         |          | 845     |          |        |       | 711     |       |       |   |       |     |     |   |           |        
|Average check                                                                 |                                                                |                           | 5.53    |          |         |          | 4.34    |          |        |       | 9.20    |       |       |   |       |     |     |   |           |        
|Company-operated same-store sales increase
    (decrease)                     |                                                                |                           | 2.9     | %        |         |          | 2.5     | %        |        |       | (1.3    | )%    |       |   |       |     |     |   |           |        
|Company-operated same-store transaction decrease                              |                                                                |                           | (1.7    | )%       |         |          | (6.1    | )%       |        |       | (4.9    | )%    |       |   |       |     |     |   |           |        
|Franchise-operated same-store sales increase                                  |                                                                |                           | 0.6     | %        |         |          | 1.0     | %        |        |       | 1.7     | %     |       |   |       |     |     |   |           |        
|Operating costs as a % of company-operated
    revenue
    Food and packaging |                                                                |                           | 28.8    | %        |         |          | 31.0    | %        |        |       | 26.8    | %     |       |   |       |     |     |   |           |        
|                                                                              | Payroll and employee benefits                                  |                           |         | 29.1     | %       |          |         | 35.4     | %      |       |         | 32.8  | %     |   |       |     |     |   |           |         |        
|                                                                              | Occupancy and other operating costs                            |                           |         | 21.1     | %       |          |         | 23.7     | %      |       |         | 33.9  | %     |   |       |     |     |   |           |         |        
|                                                                              | Restaurant-level margin                                        |                           |         | 21.0     | %       |          |         | 9.9      | %      |       |         | 6.5   | %     |   |       |     |     |   |           |         |        
|Advertising as a percentage of company- operated
    revenue                  |                                                                |                           | 6.5     | %        |         |          | 6.2     | %        |        |       | 2.9     | %     |       |   |       |     |     |   |           |        
|Franchising revenue:                                                          |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|                                                                              | Royalties                                                      |                           |         | 21,794   |         |          |         | 38,348   |        |       |         | 1,623 |       |   |       | 302 |     |   |           | 62,067  |        
|                                                                              | Distribution centers                                           |                           |         | 155,945  |         |          |         | 20,693   |        |       |         |      |       |   |       |    |     |   |           | 176,638 |        
|                                                                              | Rent                                                           |                           |         | 22,080   |         |          |         | 7,984    |        |       |         |      |       |   |       |    |     |   |           | 30,064  |        
|                                                                              | Other                                                          |                           |         | 1,312    |         |          |         | 427      |        |       |         |      |       |   |       |    |     |   |           | 1,739   |        
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|                                                                              |                                                                | Total franchising revenue |         |          | 201,131 |          |         |          | 67,452 |       |         |       | 1,623 |   |       |     | 302 |   |           |         | 270,508 | 
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|Franchising expense:                                                          |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|                                                                              | Administrative expense (including provision for
    bad debts) |                           |         | 3,720    |         |          |         | 5,917    |        |       |         | 731   |       |   |       |    |     |   |           | 10,368  |        
|                                                                              | Distribution centers                                           |                           |         | 152,285  |         |          |         | 20,336   |        |       |         |      |       |   |       |    |     |   |           | 172,621 |        
|                                                                              | Rent and other occupancy                                       |                           |         | 21,610   |         |          |         | 7,210    |        |       |         |      |       |   |       |    |     |   |           | 28,820  |        
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|                                                                              |                                                                | Total franchising expense |         |          | 177,615 |          |         |          | 33,463 |       |         |       | 731   |   |       |     |    |   |           |         | 211,809 | 
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|Net franchising income                                                        |                                                                |                           | 23,516  |          |         |          | 33,989  |          |        |       | 892     |       |       |   | 302   |     |     |   | 58,699    |        
|                                                                              |                                                                |                           |         |          |         |          |         |          |        |       |         |       |       |   |       |     |     |   |           |        
|Facility action charges, net                                                  |                                                                |                           | 2,843   |          |         |          | 17,293  |          |        |       | 325     |       |       |   | (673  | )   |     |   | 19,788    |        
|Impairment of goodwill                                                        |                                                                |                           |        |          |         |          |        |          |        |       | 34,059  |       |       |   |      |     |     |   | 34,059    |        
|Operating income (loss)                                                       |                                                                | $                         | 56,602  |          |         | $        | (24,990 | )        |        | $     | (36,459 | )     |       | $ | 263   |     |     | $ | (4,584    | )      

36



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |         |         | 
|------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------- | ------- | -------- | ------- | -------- | ------- | -------- | ------ | ----- | ------ | ----- | ----- | - | ----- | --- | --- | - | --------- | ------- | ------- | 
|                                                                          |                                                                |                          
|                                                                          |                                                                | Fiscal Year 2003         
|                                                                          |                                                                |                          
|                                                                          |                                                                | Carls Jr.                |         | Hardees |         | La Salsa |         | Other(A) |        | Total
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |      
|Company-operated revenue                                                  |                                                                | $                         | 507,526 |          |         | $        | 562,010 |          |        | $     | 38,550 |       |       | $ | 1,560 |     |     | $ | 1,109,646 |        
|Company-operated average unit volume (trailing-13
    periods)            |                                                                |                           | 1,152   |          |         |          | 763     |          |        |       | 751    |       |       |   |       |     |     |   |           |        
|Franchise-operated average unit volume
    (trailing-13 periods)          |                                                                |                           | 1,055   |          |         |          | 812     |          |        |       | 751    |       |       |   |       |     |     |   |           |        
|Average check                                                             |                                                                |                           | 5.26    |          |         |          | 3.98    |          |        |       | 8.80   |       |       |   |       |     |     |   |           |        
|Company-operated same-store sales increase
    (decrease)                 |                                                                |                           | 0.7     | %        |         |          | (2.2    | )%       |        |       | 0.8    | %     |       |   |       |     |     |   |           |        
|Company-operated same-store transaction increase
    (decrease)           |                                                                |                           | (3.4    | )%       |         |          | (7.4    | )%       |        |       | 0.1    | %     |       |   |       |     |     |   |           |        
|Franchise-operated same-store sales increase
    (decrease)               |                                                                |                           | 0.2     | %        |         |          | (2.6    | )%       |        |       | 0.9    | %     |       |   |       |     |     |   |           |        
|Operating costs as a % of company-operated
    revenue Food and packaging |                                                                |                           | 27.9    | %        |         |          | 29.9    | %        |        |       | 26.9   | %     |       |   |       |     |     |   |           |        
|                                                                          | Payroll and employee benefits                                  |                           |         | 28.8     | %       |          |         | 35.5     | %      |       |        | 32.4  | %     |   |       |     |     |   |           |         |        
|                                                                          | Occupancy and other operating costs                            |                           |         | 21.6     | %       |          |         | 23.5     | %      |       |        | 28.1  | %     |   |       |     |     |   |           |         |        
|                                                                          | Restaurant-level margin                                        |                           |         | 21.7     | %       |          |         | 11.1     | %      |       |        | 12.6  | %     |   |       |     |     |   |           |         |        
|Advertising as a percentage of company-operated
    revenue               |                                                                |                           | 6.9     | %        |         |          | 6.5     | %        |        |       | 3.3    | %     |       |   |       |     |     |   |           |        
|Franchising revenue:                                                      |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|                                                                          | Royalties                                                      |                           |         | 21,071   |         |          |         | 37,355   |        |       |        | 1,409 |       |   |       | 365 |     |   |           | 60,200  |        
|                                                                          | Distribution centers                                           |                           |         | 145,055  |         |          |         | 18,155   |        |       |        |      |       |   |       |    |     |   |           | 163,210 |        
|                                                                          | Rent                                                           |                           |         | 19,412   |         |          |         | 9,709    |        |       |        |      |       |   |       |    |     |   |           | 29,121  |        
|                                                                          | Other                                                          |                           |         | 649      |         |          |         | 569      |        |       |        |      |       |   |       |    |     |   |           | 1,218   |        
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|                                                                          |                                                                | Total franchising revenue |         |          | 186,187 |          |         |          | 65,788 |       |        |       | 1,409 |   |       |     | 365 |   |           |         | 253,749 | 
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|Franchising expense:                                                      |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|                                                                          | Administrative expense (including provision for
    bad debts) |                           |         | 2,880    |         |          |         | 5,358    |        |       |        | 411   |       |   |       |    |     |   |           | 8,649   |        
|                                                                          | Distribution centers                                           |                           |         | 141,429  |         |          |         | 18,310   |        |       |        |      |       |   |       |    |     |   |           | 159,739 |        
|                                                                          | Rent and other occupancy                                       |                           |         | 19,163   |         |          |         | 8,974    |        |       |        |      |       |   |       |    |     |   |           | 28,137  |        
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|                                                                          |                                                                | Total franchising expense |         |          | 163,472 |          |         |          | 32,642 |       |        |       | 411   |   |       |     |    |   |           |         | 196,525 | 
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|Net franchising income                                                    |                                                                |                           | 22,715  |          |         |          | 33,146  |          |        |       | 998    |       |       |   | 365   |     |     |   | 57,224    |        
|                                                                          |                                                                |                           |         |          |         |          |         |          |        |       |        |       |       |   |       |     |     |   |           |        
|Facility action charges, net                                              |                                                                |                           | 1,318   |          |         |          | 4,694   |          |        |       |       |       |       |   |      |     |     |   | 6,012     |        
|Operating income (loss)                                                   |                                                                | $                         | 55,798  |          |         | $        | (13,480 | )        |        | $     | (185   | )     |       | $ | (110  | )   |     | $ | 42,023    |        

37



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |         |         | 
|---------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------- | ------- | -------- | ------- | -------- | ------- | ------ | ------ | - | ------ | - | - | - | --------- | ------- | ------- | 
|                                                                 |                                                                |                          
|                                                                 |                                                                | Fiscal Year 2002         
|                                                                 |                                                                |                          
|                                                                 |                                                                | Carls Jr.                |         | Hardees |         | Other(A) |         | Total 
|                                                                 |                                                                |                           |         |          |         |          |         |       
|Company-operated revenue                                         |                                                                | $                         | 516,998 |          |         | $        | 614,291 |        |        | $ | 43,095 |   |   | $ | 1,174,384 |        
|Company-operated average unit volume (trailing-13
    periods)   |                                                                |                           | 1,135   |          |         |          | 763     |        |        |   |        |   |   |   |           |        
|Franchise-operated average unit volume
    (trailing-13 periods) |                                                                |                           | 1,019   |          |         |          | 826     |        |        |   |        |   |   |   |           |        
|Average check                                                    |                                                                |                           | 5.04    |          |         |          | 3.74    |        |        |   |        |   |   |   |           |        
|Company-operated same-store sales increase                       |                                                                |                           | 2.9     | %        |         |          | 0.1     | %      |        |   |        |   |   |   |           |        
|Company-operated same-store transaction decrease                 |                                                                |                           | (2.4    | )%       |         |          | (4.8    | )%     |        |   |        |   |   |   |           |        
|Franchise-operated same-store sales increase
    (decrease)      |                                                                |                           | 2.4     | %        |         |          | (1.2    | )%     |        |   |        |   |   |   |           |        
|Operating costs as a % of company-operated revenue               |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|                                                                 | Food and packaging                                             |                           |         | 29.0     | %       |          |         | 31.5   | %      |   |        |   |   |   |           |         |        
|                                                                 | Payroll and employee benefits                                  |                           |         | 29.1     | %       |          |         | 35.3   | %      |   |        |   |   |   |           |         |        
|                                                                 | Occupancy and other operating costs                            |                           |         | 22.0     | %       |          |         | 23.6   | %      |   |        |   |   |   |           |         |        
|                                                                 | Restaurant-level margin                                        |                           |         | 19.9     | %       |          |         | 9.6    | %      |   |        |   |   |   |           |         |        
|Advertising as a percentage of company-operated
    revenue      |                                                                |                           | 6.4     | %        |         |          | 6.1     | %      |        |   |        |   |   |   |           |        
|Franchising revenue:                                             |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|                                                                 | Royalties                                                      |                           |         | 19,830   |         |          |         | 46,264 |        |   |        |  |   |   |           | 66,094  |        
|                                                                 | Distribution centers                                           |                           |         | 145,733  |         |          |         | 13,231 |        |   |        |  |   |   |           | 158,964 |        
|                                                                 | Rent                                                           |                           |         | 20,741   |         |          |         | 14,108 |        |   |        |  |   |   |           | 34,849  |        
|                                                                 | Other                                                          |                           |         | 1,259    |         |          |         | 2,577  |        |   |        |  |   |   |           | 3,836   |        
|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|                                                                 |                                                                | Total franchising revenue |         |          | 187,563 |          |         |        | 76,180 |   |        |   |  |   |           |         | 263,743 | 
|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|Franchising expense:                                             |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|                                                                 | Administrative expense (including provision for
    bad debts) |                           |         | 2,501    |         |          |         | 11,346 |        |   |        |  |   |   |           | 13,847  |        
|                                                                 | Distribution centers                                           |                           |         | 142,353  |         |          |         | 14,999 |        |   |        |  |   |   |           | 157,352 |        
|                                                                 | Rent and other occupancy                                       |                           |         | 20,856   |         |          |         | 10,465 |        |   |        |  |   |   |           | 31,321  |        
|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|                                                                 |                                                                | Total franchising expense |         |          | 165,710 |          |         |        | 36,810 |   |        |   |  |   |           |         | 202,520 | 
|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|Net franchising income                                           |                                                                |                           | 21,853  |          |         |          | 39,370  |        |        |   |       |   |   |   | 61,223    |        
|                                                                 |                                                                |                           |         |          |         |          |         |        |        |   |        |   |   |   |           |        
|Facility action charges, net                                     |                                                                |                           | 1,589   |          |         |          | 68,815  |        |        |   | 4,707  |   |   |   | 75,111    |        
|Operating income (loss)                                          |                                                                | $                         | 50,310  |          |         | $        | (79,995 | )      |        | $ | (330   | ) |   | $ | (30,015   | )      

38



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |        |        | 
|----------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------- | ------- | -------- | ------ | -------- | ------- | -------- | ------ | ----- | ------- | ---- | --- | - | --- | -- | -- | - | ------- | ------ | ------ | 
|                                                            |                                                                |                                
|                                                            |                                                                | Fourth Quarter Fiscal Year 2004
|                                                            |                                                                |                                
|                                                            |                                                                | Carls Jr.                      |         | Hardees |        | La Salsa |         | Other(A) |        | Total
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |      
|Company-operated revenue                                    |                                                                | $                               | 122,944 |          |        | $        | 129,070 |          |        | $     | 9,348   |      |     | $ | 330 |    |    | $ | 261,692 |       
|Average check                                               |                                                                |                                 | 5.74    |          |        |          | 4.55    |          |        |       | 9.10    |      |     |   |     |    |    |   |         |       
|Company-operated same-store sales increase                  |                                                                |                                 | 5.3     | %        |        |          | 9.2     | %        |        |       | 2.0     | %    |     |   |     |    |    |   |         |       
|Company-operated same-store transaction decrease            |                                                                |                                 | (2.4    | )%       |        |          | (2.1    | )%       |        |       | (2.1    | )%   |     |   |     |    |    |   |         |       
|Franchise-operated same-store sales increase                |                                                                |                                 | 3.2     | %        |        |          | 6.1     | %        |        |       | 2.6     | %    |     |   |     |    |    |   |         |       
|Operating costs as a % of company-operated revenue          |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|                                                            | Food and packaging                                             |                                 |         | 29.7     | %      |          |         | 30.2     | %      |       |         | 27.7 | %   |   |     |    |    |   |         |        |       
|                                                            | Payroll and employee benefits                                  |                                 |         | 30.0     | %      |          |         | 35.6     | %      |       |         | 36.6 | %   |   |     |    |    |   |         |        |       
|                                                            | Occupancy and other operating costs                            |                                 |         | 19.8     | %      |          |         | 25.2     | %      |       |         | 39.6 | %   |   |     |    |    |   |         |        |       
|                                                            | Restaurant-level margin                                        |                                 |         | 20.5     | %      |          |         | 9.0      | %      |       |         | (3.9 | )%  |   |     |    |    |   |         |        |       
|Advertising as a percentage of company-operated
    revenue |                                                                |                                 | 7.0     | %        |        |          | 6.2     | %        |        |       | 2.8     | %    |     |   |     |    |    |   |         |       
|Franchising revenue:                                        |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|                                                            | Royalties                                                      |                                 |         | 5,093    |        |          |         | 9,411    |        |       |         | 428  |     |   |     | 58 |    |   |         | 14,990 |       
|                                                            | Distribution centers                                           |                                 |         | 37,165   |        |          |         | 3,167    |        |       |         |     |     |   |     |   |    |   |         | 40,332 |       
|                                                            | Rent                                                           |                                 |         | 5,451    |        |          |         | 2,120    |        |       |         |     |     |   |     |   |    |   |         | 7,571  |       
|                                                            | Other                                                          |                                 |         | 660      |        |          |         | 138      |        |       |         |     |     |   |     |   |    |   |         | 798    |       
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|                                                            |                                                                | Total franchising revenue       |         |          | 48,369 |          |         |          | 14,836 |       |         |      | 428 |   |     |    | 58 |   |         |        | 63,691 | 
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|Franchising expense:                                        |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|                                                            | Administrative expense (including provision for
    bad debts) |                                 |         | 835      |        |          |         | 1,311    |        |       |         | 157  |     |   |     |   |    |   |         | 2,303  |       
|                                                            | Distribution centers                                           |                                 |         | 36,258   |        |          |         | 3,052    |        |       |         |     |     |   |     |   |    |   |         | 39,310 |       
|                                                            | Rent and other occupancy                                       |                                 |         | 5,170    |        |          |         | 1,652    |        |       |         |     |     |   |     |   |    |   |         | 6,822  |       
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|                                                            |                                                                | Total franchising expense       |         |          | 42,263 |          |         |          | 6,015  |       |         |      | 157 |   |     |    |   |   |         |        | 48,435 | 
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|Net franchising income                                      |                                                                |                                 | 6,106   |          |        |          | 8,821   |          |        |       | 271     |      |     |   | 58  |    |    |   | 15,256  |       
|                                                            |                                                                |                                 |         |          |        |          |         |          |        |       |         |      |     |   |     |    |    |   |         |       
|Facility action charges, net                                |                                                                |                                 | 3,299   |          |        |          | 13,165  |          |        |       | 131     |      |     | $ |    |    |    |   | 16,595  |       
|Impairment of goodwill                                      |                                                                |                                 |        |          |        |          |        |          |        |       | 34,059  |      |     |   |    |    |    |   | 34,059  |       
|Operating income (loss)                                     |                                                                | $                               | 9,710   |          |        | $        | (15,410 | )        |        | $     | (35,657 | )    |     | $ | (38 | )  |    | $ | (41,395 | )     

39



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |        |        | 
|--------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------- | ------- | -------- | ------ | -------- | ------- | -------- | ------ | ----- | ----- | ---- | --- | - | --- | -- | -- | - | ------- | ------ | ------ | 
|                                                                |                                                                |                                
|                                                                |                                                                | Fourth Quarter Fiscal Year 2003
|                                                                |                                                                |                                
|                                                                |                                                                | Carls Jr.                      |         | Hardees |        | La Salsa |         | Other(A) |        | Total
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |      
|Company-operated revenue                                        |                                                                | $                               | 116,517 |          |        | $        | 115,857 |          |        | $     | 9,737 |      |     | $ | 390 |    |    | $ | 242,501 |       
|Average check                                                   |                                                                |                                 | 5.30    |          |        |          | 4.10    |          |        |       | 8.40  |      |     |   |     |    |    |   |         |       
|Company-operated same-store sales increase
    (decrease)       |                                                                |                                 | 2.1     | %        |        |          | (5.8    | )%       |        |       | (0.7  | )%   |     |   |     |    |    |   |         |       
|Company-operated same-store transaction increase
    (decrease) |                                                                |                                 | 0.7     | %        |        |          | (9.4    | )%       |        |       | (1.2  | )%   |     |   |     |    |    |   |         |       
|Franchise-operated same-store sales increase
    (decrease)     |                                                                |                                 | 0.4     | %        |        |          | (4.1    | )%       |        |       | 1.4   | %    |     |   |     |    |    |   |         |       
|Operating costs as a % of company-operated revenue              |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|                                                                | Food and packaging                                             |                                 |         | 28.0     | %      |          |         | 30.5     | %      |       |       | 26.7 | %   |   |     |    |    |   |         |        |       
|                                                                | Payroll and employee benefits                                  |                                 |         | 29.4     | %      |          |         | 37.5     | %      |       |       | 35.2 | %   |   |     |    |    |   |         |        |       
|                                                                | Occupancy and other operating costs                            |                                 |         | 22.9     | %      |          |         | 27.5     | %      |       |       | 32.5 | %   |   |     |    |    |   |         |        |       
|                                                                | Restaurant-level margin                                        |                                 |         | 19.7     | %      |          |         | 4.5      | %      |       |       | 5.6  | %   |   |     |    |    |   |         |        |       
|Advertising as a percentage of company-operated
    revenue     |                                                                |                                 | 6.9     | %        |        |          | 7.3     | %        |        |       | 3.3   | %    |     |   |     |    |    |   |         |       
|Franchising revenue:                                            |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|                                                                | Royalties                                                      |                                 |         | 5,367    |        |          |         | 7,128    |        |       |       | 372  |     |   |     | 90 |    |   |         | 12,957 |       
|                                                                | Distribution centers                                           |                                 |         | 33,259   |        |          |         | 4,536    |        |       |       |     |     |   |     |   |    |   |         | 37,795 |       
|                                                                | Rent                                                           |                                 |         | 4,473    |        |          |         | 568      |        |       |       |     |     |   |     |   |    |   |         | 5,041  |       
|                                                                | Other                                                          |                                 |         | 132      |        |          |         | 170      |        |       |       |     |     |   |     |   |    |   |         | 302    |       
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|                                                                |                                                                | Total franchising revenue       |         |          | 43,231 |          |         |          | 12,402 |       |       |      | 372 |   |     |    | 90 |   |         |        | 56,095 | 
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|Franchising expense:                                            |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|                                                                | Administrative expense (including provision for
    bad debts) |                                 |         | 966      |        |          |         | 1,551    |        |       |       | 111  |     |   |     |   |    |   |         | 2,628  |       
|                                                                | Distribution centers                                           |                                 |         | 32,591   |        |          |         | 4,817    |        |       |       |     |     |   |     |   |    |   |         | 37,408 |       
|                                                                | Rent and other occupancy                                       |                                 |         | 4,559    |        |          |         | 1,368    |        |       |       |     |     |   |     |   |    |   |         | 5,927  |       
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|                                                                |                                                                | Total franchising expense       |         |          | 38,116 |          |         |          | 7,736  |       |       |      | 111 |   |     |    |   |   |         |        | 45,963 | 
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|Net franchising income                                          |                                                                |                                 | 5,115   |          |        |          | 4,666   |          |        |       | 261   |      |     |   | 90  |    |    |   | 10,132  |       
|                                                                |                                                                |                                 |         |          |        |          |         |          |        |       |       |      |     |   |     |    |    |   |         |       
|Facility action charges, net                                    |                                                                |                                 | (39     | )        |        |          | 224     |          |        |       |      |      |     |   |    |    |    |   | 185     |       
|Operating income (loss)                                         |                                                                | $                               | 10,400  |          |        | $        | (14,160 | )        |        | $     | (722  | )    |     | $ | 119 |    |    | $ | (4,363  | )     



---



|    |                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Other consists of Green Burrito in
    fiscal 2004 and fiscal 2003 and Taco Bueno and Rallys in
    fiscal 2002. Additionally, amounts that we do not believe would
    be proper to allocate to the operating segments are included in
    Other.

40



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Presentation of Non-GAAP
Measurements

EBITDA

EBITDA is a typical non-GAAP measurement for
companies that issue public debt and a measure used by the
lenders under our bank credit facility. We believe EBITDA is
useful to our investors as an indicator of earnings available to
service debt. EBITDA is not a recognized term under GAAP and
does not purport to be an alternative to income from operations,
an indicator of cash flow from operations or a measure of
liquidity. We calculate EBITDA as earnings before discontinued
operations, interest expense, income taxes, depreciation and
amortization, facility action charges, impairment of goodwill
and impairment of assets held for sale. Because not all
companies calculate EBITDA identically, this presentation of
EBITDA may not be comparable to similarly titled measures of
other companies. Additionally, we believe EBITDA is a more
meaningful indicator of earnings available to service debt when
certain charges, such as impairment of goodwill and facility
action charges are excluded from income (loss) from
continuing operations. EBITDA is not intended to be a measure of
free cash flow for managements discretionary use, as it
does not consider certain cash requirements such as interest
expense, income taxes and debt service payments and cash costs
arising from facility actions.

|                                              |  |            |        |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |         |  
|--------------------------------------------- |  | ---------- | ------ | -------- |  | -------- | ------- | ----- |  | ----- | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                              |  |           
|                                              |  | 2004      
|                                              |  |           
|                                              |  | Carls Jr. |        | Hardees |  | La Salsa |         | Other |  | Total
|                                              |  |            |        |          |  |          |         |       |  |      
|Net income (loss)                             |  | $          | 51,192 |          |  | $        | (60,353 | )     |  | $     | (36,408 | ) |  | $ | (2,991 | ) |  | $ | (48,560 | )
|Discontinued operations, excluding impairment |  |            |       |          |  |          |        |       |  |       |        |   |  |   | (89    | ) |  |   | (89     | )
|Interest expense                              |  |            | 6,292  |          |  |          | 33,787  |       |  |       | (81     | ) |  |   | (7     | ) |  |   | 39,991  |  
|Income tax expense (benefit)                  |  |            | 147    |          |  |          | (19     | )     |  |       |        |   |  |   | 1,715  |   |  |   | 1,843   |  
|Depreciation and amortization                 |  |            | 25,074 |          |  |          | 37,944  |       |  |       | 3,534   |   |  |   | 407    |   |  |   | 66,959  |  
|Facility action charges, net                  |  |            | 2,843  |          |  |          | 17,293  |       |  |       | 325     |   |  |   | (673   | ) |  |   | 19,788  |  
|Impairment of goodwill                        |  |            |       |          |  |          |        |       |  |       | 34,059  |   |  |   |       |   |  |   | 34,059  |  
|Impairment of Timber Lodge                    |  |            |       |          |  |          |        |       |  |       |        |   |  |   | 2,879  |   |  |   | 2,879   |  
|                                              |  |            |        |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |         |  
|EBITDA                                        |  | $          | 85,548 |          |  | $        | 28,652  |       |  | $     | 1,429   |   |  | $ | 1,241  |   |  | $ | 116,870 |  
|                                              |  |            |        |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |         |  

|                              |  |            |        |          |  |          |         |       |  |       |       |   |  |   |       |  |  |   |         |  
|----------------------------- |  | ---------- | ------ | -------- |  | -------- | ------- | ----- |  | ----- | ----- | - |  | - | ----- |  |  | - | ------- | -
|                              |  |           
|                              |  | 2003      
|                              |  |           
|                              |  | Carls Jr. |        | Hardees |  | La Salsa |         | Other |  | Total
|                              |  |            |        |          |  |          |         |       |  |      
|Net income (loss)             |  | $          | 54,138 |          |  | $        | (37,156 | )     |  | $     | (217  | ) |  | $ | 8,992 |  |  | $ | 25,757  |  
|Discontinued operations       |  |            |       |          |  |          |        |       |  |       |      |   |  |   | 53    |  |  |   | 53      |  
|Interest expense              |  |            | 6,249  |          |  |          | 33,657  |       |  |       | 32    |   |  |   | 16    |  |  |   | 39,954  |  
|Income tax expense (benefit)  |  |            | (2,436 | )        |  |          | (5,702  | )     |  |       |      |   |  |   | 206   |  |  |   | (7,932  | )
|Depreciation and amortization |  |            | 26,268 |          |  |          | 33,888  |       |  |       | 2,908 |   |  |   |      |  |  |   | 63,064  |  
|Facility action charges, net  |  |            | 1,318  |          |  |          | 4,694   |       |  |       |      |   |  |   |      |  |  |   | 6,012   |  
|                              |  |            |        |          |  |          |         |       |  |       |       |   |  |   |       |  |  |   |         |  
|EBITDA                        |  | $          | 85,537 |          |  | $        | 29,381  |       |  | $     | 2,723 |   |  | $ | 9,267 |  |  | $ | 126,908 |  
|                              |  |            |        |          |  |          |         |       |  |       |       |   |  |   |       |  |  |   |         |  

41



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


|                              |  |            |        |          |  |       |          |       |  |   |       |  |  |   |         |  
|----------------------------- |  | ---------- | ------ | -------- |  | ----- | -------- | ----- |  | - | ----- |  |  | - | ------- | -
|                              |  |           
|                              |  | 2002      
|                              |  |           
|                              |  | Carls Jr. |        | Hardees |  | Other |          | Total
|                              |  |            |        |          |  |       |          |      
|Net income (loss)             |  | $          | 41,971 |          |  | $     | (126,902 | )     |  | $ | 975   |  |  | $ | (83,956 | )
|Interest expense              |  |            | 10,753 |          |  |       | 42,519   |       |  |   | 665   |  |  |   | 53,937  |  
|Income tax (benefit) expense  |  |            | (1,917 | )        |  |       | 1,333    |       |  |   |      |  |  |   | (584    | )
|Depreciation and amortization |  |            | 27,091 |          |  |       | 42,243   |       |  |   | 1,537 |  |  |   | 70,871  |  
|Facility action charges, net  |  |            | 1,589  |          |  |       | 68,815   |       |  |   | 4,707 |  |  |   | 75,111  |  
|                              |  |            |        |          |  |       |          |       |  |   |       |  |  |   |         |  
|EBITDA                        |  | $          | 79,487 |          |  | $     | 28,008   |       |  | $ | 7,884 |  |  | $ | 115,379 |  
|                              |  |            |        |          |  |       |          |       |  |   |       |  |  |   |         |  

The following table reconciles EBITDA (a non-GAAP
measurement) to cash flow provided by operating activities (a
GAAP measurement):

|                                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                          |  | 2004 |         | 2003 |  | 2002
|                                                                                                          |  |      |         |      |  |     
|Cash flow provided by operating activities                                                                |  | $    | 74,062  |      |  | $    | 57,878  |   |  | $ | 75,385  |  
|Interest expense                                                                                          |  |      | 39,991  |      |  |      | 39,954  |   |  |   | 53,937  |  
|Income tax expense (benefit)                                                                              |  |      | 1,843   |      |  |      | (7,932  | ) |  |   | (584    | )
|Amortization of loan fees                                                                                 |  |      | (4,451  | )    |  |      | (4,238  | ) |  |   | (9,616  | )
|(Provision for) recovery of losses on accounts
    and notes receivable                                   |  |      | (2,260  | )    |  |      | 1,290   |   |  |   | (6,057  | )
|Gain (loss) on investments, sale of property
    and equipment, capital leases and extinguishment of debt |  |      | (3,275  | )    |  |      | 10,586  |   |  |   |        |  
|Other non-cash items                                                                                      |  |      | 284     |      |  |      | (13     | ) |  |   | (2,300  | )
|Change in estimated liability for closing
    restaurants and estimated liability for self-insurance      |  |      | 10,304  |      |  |      | 16,476  |   |  |   | 21,215  |  
|Net change in refundable income taxes                                                                     |  |      | (643    | )    |  |      | (3,262  | ) |  |   | (31,539 | )
|Net change in receivables, inventories, prepaid
    expenses and other current assets                     |  |      | (2,971  | )    |  |      | 11,075  |   |  |   | (1,695  | )
|Net change in accounts payable and other current
    liabilities                                          |  |      | 3,742   |      |  |      | 1,990   |   |  |   | 16,633  |  
|EBITDA from discontinued operations                                                                       |  |      | 108     |      |  |      | (53     | ) |  |   |        |  
|Net cash provided to discontinued operations                                                              |  |      | 244     |      |  |      | 3,104   |   |  |   |        |  
|                                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|EBITDA, including discontinued operations                                                                 |  |      | 116,978 |      |  |      | 126,855 |   |  |   | 115,379 |  
|Less: EBITDA from discontinued operations                                                                 |  |      | (108    | )    |  |      | 53      |   |  |   |        |  
|                                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|EBITDA                                                                                                    |  | $    | 116,870 |      |  | $    | 126,908 |   |  | $ | 115,379 |  
|                                                                                                          |  |      |         |      |  |      |         |   |  |   |         |  

Fiscal 2004 Compared with Fiscal 2003 and
Fiscal 2003 Compared with Fiscal 2002



| |           
| | ----------
| | Carls Jr.

During fiscal 2004, we sold 15 restaurants to
franchisees, closed four restaurants and opened five
restaurants. Carls Jr. franchisees and licensees opened 30
restaurants, acquired 15 restaurants from us and closed 12
restaurants. As of January 31, 2004, the Carls Jr.
system consisted of the following:

|                           |       |                      |     |                     |  |           |     |        |  |           |     |           |  |      |     |      |  |        |    |        |  |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |        |         |  
|-------------------------- | ----- | -------------------- | --- | ------------------- |  | --------- | --- | ------ |  | --------- | --- | --------- |  | ---- | --- | ---- |  | ------ | -- | ------ |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ------ | ------- | -
|                           |       |                      |     |                    
|                           |       | Restaurant Portfolio |     | Fiscal Year Revenue
|                           |       |                      |     |                    
|                           |       |                      |     | 2004-2003           |  | 2003-2002 |     |        |  | 2004-2003 |     | 2003-2002
|                           |       | 2004                 |     | 2003                |  | 2002      |     | Change |  | Change    |     | 2004      |  | 2003 |     | 2002 |  | Change |    | Change
|                           |       |                      |     |                     |  |           |     |        |  |           |     |           |  |      |     |      |  |        |    |       
|Company                    |       |                      | 426 |                     |  |           | 440 |        |  |           | 443 |           |  |      | (14 | )    |  |        | (3 | )      |  | $ | 523,945 |         |  | $ | 507,526 |         |  | $ | 516,998 |         |  | $ | 16,419 |        |  | $ | (9,472 | )      
|Franchised and licensed(a) |       |                      | 580 |                     |  |           | 547 |        |  |           | 526 |           |  |      | 33  |      |  |        | 21 |        |  |   | 201,131 |         |  |   | 186,187 |         |  |   | 187,563 |         |  |   | 14,944 |        |  |   | (1,376 | )      
|                           |       |                      |     |                     |  |           |     |        |  |           |     |           |  |      |     |      |  |        |    |        |  |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |        |        
|                           | Total |                      |     | 1,006               |  |           |     | 987    |  |           |     | 969       |  |      |     | 19   |  |        |    | 18     |  |   | $       | 725,076 |  |   | $       | 693,713 |  |   | $       | 704,561 |  |   | $      | 31,363 |  |   | $      | (10,848 | )
|                           |       |                      |     |                     |  |           |     |        |  |           |     |           |  |      |     |      |  |        |    |        |  |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |        |        

42



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)




---



|    |                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes $155,945, $145,055 and $145,733 of
    revenues from distribution of food, packaging and supplies to
    franchised and licensed restaurants in fiscal 2004, 2003 and
    2002, respectively.



| |                             
| | ----------------------------
| | Company-Operated Restaurants

Revenue from company-operated Carls Jr.
restaurants increased $16,419, or 3.2%, to $523,945 during
fiscal 2004 as compared to fiscal 2003. This increase resulted
primarily from a 2.9% increase in same-store sales driven by
price increases and increases in the average customer check,
partially offset by a 1.7% decrease in transaction counts.
Revenue from company-operated restaurants decreased $9,472, or
1.8%, to $507,526 during fiscal 2003 as compared to fiscal 2002.
This decrease resulted primarily from the sale of
company-operated restaurants to franchisees and the closure of
under-performing company-operated restaurants, partially offset
by a 0.7% increase in same-store sales.

The changes in the restaurant-level margin
percentage are explained as follows:

|                                              |                                                                |      |      |      |   |  |      |      |  
|--------------------------------------------- | -------------------------------------------------------------- | ---- | ---- | ---- | - |  | ---- | ---- | -
|                                              |                                                                | 2004 |      | 2003
|                                              |                                                                |      |      |     
|Restaurant-level margins for the prior year   |                                                                |      | 21.7 | %    |   |  | 19.9 | %   
|                                              | (Increase) decrease in food and packaging costs                |      |      | (0.9 | ) |  |      | 1.1  |  
|                                              | (Increase) decrease in workers compensation
    expense       |      |      | (0.3 | ) |  |      | 0.6  |  
|                                              | Increase in labor costs, excluding workers
    compensation   |      |      |     |   |  |      | (0.3 | )
|                                              | Decrease in equipment lease expense                            |      |      | 0.3  |   |  |      |     |  
|                                              | Decrease in depreciation expense                               |      |      | 0.3  |   |  |      |     |  
|                                              | (Increase) decrease in general liability
    insurance expense |      |      | (0.2 | ) |  |      | 0.2  |  
|                                              | Increase in rent expense, property taxes and
    licenses      |      |      | (0.1 | ) |  |      |     |  
|                                              | (Increase) decrease in repair and maintenance
    expense      |      |      | 0.1  |   |  |      | (0.1 | )
|                                              | Other, net                                                     |      |      | 0.1  |   |  |      | 0.3  |  
|                                              |                                                                |      |      |      |   |  |      |     
|Restaurant-level margins for the current year |                                                                |      | 21.0 | %    |   |  | 21.7 | %   
|                                              |                                                                |      |      |      |   |  |      |     

Food and packaging costs increased in fiscal 2004
from fiscal 2003 as a percent of sales primarily due to
increases in the cost of beef and other commodities. In fiscal
2003 from fiscal 2002, food and packaging costs decreased due to
favorable commodity price trends.

Workers compensation expense increased in
fiscal 2004 from fiscal 2003 due to higher claims costs, driven
mainly by California Assembly Bill No. 749, which was
signed into law during fiscal 2003. We estimate that this law,
which includes benefit payment increases that will phase in
through 2006, will result ultimately in increased annual costs
of approximately $1,000 to $2,000. To a much lesser extent,
workers compensation costs were also negatively affected
in fiscal 2004 by a reduction in the discount rate applied to
arrive at our claims reserves, which we maintain at present
value. The discount rate reduction was due to prolonged changes
in the interest rate environment. Workers compensation
expense decreased in fiscal 2003 from fiscal 2002 due, in part,
to actuarially estimated reductions in claims reserves. Labor
costs excluding workers compensation remained constant as
a percent of sales in fiscal 2004 as compared to fiscal 2003 due
to the benefits of sales leverage on staffing costs being offset
by increased restaurant general manager bonuses.

Equipment lease expense decreased in fiscal 2004
from fiscal 2003 due mainly to expiration of several
point-of-sale equipment leases, at which time we acquired the
equipment at its fair market value. Depreciation expense
decreased as a percent of sales in fiscal 2004 from fiscal 2003
as more assets became fully depreciated while the amount of
capital expenditures in fiscal 2004 remained moderate relative
to historical levels.

General liability insurance expense increased in
fiscal 2004 from fiscal 2003 due mainly to a $2,200 credit
recorded during fiscal 2003 as compared to an approximate $500
credit recorded during fiscal 2004. Such credits are based on
actuarial analyses of our claims reserves and reflect
dispositions of general liability claims

43



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


more favorable than previously anticipated.
General liability insurance expense decreased in fiscal 2003
from fiscal 2002 as a result of the aforementioned credit
recorded in fiscal 2003. We do not anticipate a significant
amount of actuarially determined adjustments to our claims
reserves in the future, but we can provide no assurance that
they will not occur.

Previously, we had a fixed-rate contract with
Enron to supply energy to a majority of our California
Carls Jr. restaurants. As part of its bankruptcy
reorganization, Enron rejected that contract during the third
quarter of fiscal 2003. In connection with Enron rejecting our
fixed-rate contract, we have filed bankruptcy court claims
totaling $14,204 against Enron. At this time, we cannot make a
determination as to the potential recovery, if any, with respect
to these claims and, accordingly, no recognition of this
uncertainty has been recorded in our consolidated financial
statements.

On October 5, 2003, the Governor of
California signed Senate Bill 2, known as the Health
Insurance Act of 2003 (SB2), which will
require certain California businesses either to pay at least 80%
of the premiums for a basic individual health insurance package
for its employees who work over 100 hours per month and
their dependents, or to pay a fee into a state pool for the
purchase of health insurance for uninsured, low-income workers.
California businesses that employ 200 or more employees must
comply with the new law beginning on January 1, 2006. We
currently do not offer health insurance benefits to our hourly
employees. SB2 is currently being challenged on several fronts.
We continue to evaluate the status and impact of this
legislation, which could be material to our results of
operations.

Franchised and
Licensed Restaurants

Franchised and licensed restaurant revenues
increased $14,944, or 8.0%, to $201,131 during fiscal 2004 from
fiscal 2003. The increase is due mainly to a $10,890, or 7.5%,
increase in food, paper and supplies distribution revenues as a
result of the increase in the number of franchised stores, price
increases resulting from pass-through of higher costs of beef
and other commodities, and the increase in franchise restaurant
same-store sales. Franchise royalties also grew $723, or 3.4%,
in fiscal 2004 from fiscal 2003 as a result of the growth in
franchised restaurants store count and same-store sales.
Franchise revenues also benefited from higher sublease revenues
from franchisees. Revenues from franchised and licensed
restaurants decreased slightly in fiscal 2003 from fiscal 2002
due mainly to minor decreases in distribution and rent revenues,
partially offset by higher royalty revenues that resulted from
the sale of company-operated restaurants to franchisees that
occurred during fiscal 2002. Also, franchise fees decreased in
fiscal 2003 from fiscal 2002 as franchisees acquired 28 less
restaurants from us during fiscal 2003 as compared to fiscal
2002.

Net franchising income increased $801, or 3.5%,
during fiscal 2004 from fiscal 2003, and $862, or 3.9%, in
fiscal 2003 from fiscal 2002. The increase during fiscal 2004 is
primarily due to the increase in royalty revenues and increased
franchise fees received during fiscal 2004, as franchisees
acquired 13 more restaurants from us and opened two more
restaurants in fiscal 2004 as compared to fiscal 2003, partially
offset by an increase in franchise administrative expenses due
mainly to an increase in provision for bad debts. The increase
in franchising income in fiscal 2003 from fiscal 2002 is
primarily due to the increase in royalty revenues, partially
offset by the decrease in franchise fees.

Although not required to do so, approximately 88%
of Carls Jr. franchised and licensed restaurants
purchase food, paper and other supplies from us.

44



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)




| |         
| | --------
| | Hardees

During fiscal 2004, we acquired two restaurants
from franchisees, opened four restaurants and closed
15 restaurants. Hardees franchisees and licensees
opened 15 new restaurants, sold two restaurants to us and closed
112 restaurants. As of January 31, 2004, the
Hardees system consisted of the following:

|                        |       |                      |       |                     |  |           |       |        |  |           |       |           |  |      |     |      |   |        |      |        |   |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |         |         |  
|----------------------- | ----- | -------------------- | ----- | ------------------- |  | --------- | ----- | ------ |  | --------- | ----- | --------- |  | ---- | --- | ---- | - | ------ | ---- | ------ | - | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------- | -
|                        |       |                      |       |                    
|                        |       | Restaurant Portfolio |       | Fiscal Year Revenue
|                        |       |                      |       |                    
|                        |       |                      |       | 2004-2003           |  | 2003-2002 |       |        |  | 2004-2003 |       | 2003-2002
|                        |       | 2004                 |       | 2003                |  | 2002      |       | Change |  | Change    |       | 2004      |  | 2003 |     | 2002 |   | Change |      | Change
|                        |       |                      |       |                     |  |           |       |        |  |           |       |           |  |      |     |      |   |        |      |       
|Company                 |       |                      | 721   |                     |  |           | 730   |        |  |           | 742   |           |  |      | (9  | )    |   |        | (12  | )      |   | $ | 575,238 |         |  | $ | 562,010 |         |  | $ | 614,291 |         |  | $ | 13,228 |        |  | $ | (52,281 | )      
|Franchised and licensed |       |                      | 1,400 |                     |  |           | 1,499 |        |  |           | 1,648 |           |  |      | (99 | )    |   |        | (149 | )      |   |   | 67,452  |         |  |   | 65,788  |         |  |   | 76,180  |         |  |   | 1,664  |        |  |   | (10,392 | )      
|                        |       |                      |       |                     |  |           |       |        |  |           |       |           |  |      |     |      |   |        |      |        |   |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |         |        
|                        | Total |                      |       | 2,121               |  |           |       | 2,229  |  |           |       | 2,390     |  |      |     | (108 | ) |        |      | (161   | ) |   | $       | 642,690 |  |   | $       | 627,798 |  |   | $       | 690,471 |  |   | $      | 14,892 |  |   | $       | (62,673 | )
|                        |       |                      |       |                     |  |           |       |        |  |           |       |           |  |      |     |      |   |        |      |        |   |   |         |         |  |   |         |         |  |   |         |         |  |   |        |        |  |   |         |        



| |                             
| | ----------------------------
| | Company-Operated Restaurants

Revenue from company-operated Hardees
restaurants increased $13,228, or 2.4%, to $575,238 in fiscal
2004 from fiscal 2003, primarily due to a 2.5% increase in
same-store sales that resulted from price increases and the
shift toward premium products pursuant to the Revolution
strategy, partially offset by transaction count decreases,
likely due to our shift in strategy. Revenue from
company-operated restaurants decreased $52,281, or 8.5%, to
$562,010 in fiscal 2003 from fiscal 2002, primarily due to the
sale of company-operated restaurants to franchisees, closure of
under-performing company-operated restaurants and a 2.2%
decrease in same-store sales.

The changes in the restaurant-level margin
percentage are explained as follows:

|                                              |                                                                         |      |      |      |   |  |      |      |  
|--------------------------------------------- | ----------------------------------------------------------------------- | ---- | ---- | ---- | - |  | ---- | ---- | -
|                                              |                                                                         | 2004 |      | 2003
|                                              |                                                                         |      |      |     
|Restaurant-level margins for the prior year   |                                                                         |      | 11.1 | %    |   |  | 9.6  | %   
|                                              | (Increase) decrease in food and packaging costs                         |      |      | (1.1 | ) |  |      | 1.4  |  
|                                              | Increase in depreciation expense                                        |      |      | (0.6 | ) |  |      |     |  
|                                              | (Increase) decrease in repair and maintenance
    expenses              |      |      | 0.4  |   |  |      | (0.4 | )
|                                              | (Increase) decrease in labor costs, excluding
    workers compensation |      |      | 0.4  |   |  |      | (0.9 | )
|                                              | Increase in workers compensation expense                               |      |      | (0.3 | ) |  |      |     |  
|                                              | Increase in rent expense, taxes and licenses                            |      |      | (0.2 | ) |  |      | (0.3 | )
|                                              | Increase in utilities expense                                           |      |      | (0.1 | ) |  |      | (0.2 | )
|                                              | Decrease in opening costs                                               |      |      | 0.1  |   |  |      |     |  
|                                              | Increase due to closure of unprofitable
    restaurants                 |      |      |     |   |  |      | 1.8  |  
|                                              | Other, net                                                              |      |      | 0.2  |   |  |      | 0.1  |  
|                                              |                                                                         |      |      |      |   |  |      |     
|Restaurant-level margins for the current year |                                                                         |      | 9.9  | %    |   |  | 11.1 | %   
|                                              |                                                                         |      |      |      |   |  |      |     

Food and packaging costs increased in fiscal 2004
from fiscal 2003 as a percent of sales primarily due to
increases in the cost of beef and other commodities and their
effect on the shift toward premium products. In fiscal 2003 food
and packaging costs decreased as a percent of sales as compared
to fiscal 2002, mainly as a result of favorable commodity price
trends and an overall reduction in discounting, which had been a
primary marketing strategy for the brand.

Depreciation expense increased in fiscal 2004
from fiscal 2003 due to placement into service of major capital
expenditures for restaurant remodeling and equipment upgrades in
the latter part of fiscal 2003 and into fiscal 2004, as well as
a fourth quarter charge to accelerate amortization of
point-of-sale equipment under capital lease. With much of the
remodeling and upgrade activity substantially complete (see
Liquidity and Capital Resources on page 51 for
further discussion), such capital spending pursuant to the Star
Hardees

45



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


remodel program significantly decreased in fiscal
2004. Repair and maintenance expenses decreased in fiscal 2004
from fiscal 2003, after having increased to a similar degree in
fiscal 2003 from fiscal 2002, also due to the reduced remodeling
and upgrade activity noted above and improved cost management.

Labor costs, excluding workers
compensation, decreased slightly during fiscal 2004 due mainly
to the benefits of sales leverage and return to normal staffing
levels upon completion of Revolution management and staff
training early in the year, partially offset by increased
general manager bonuses due to improved operating performance in
the second half of fiscal 2004. In fiscal 2003, labor costs
increased over fiscal 2002 levels primarily due to commencement
of Revolution management and staff training and the decrease in
same-store sales. Workers compensation expense increased
in fiscal 2004 from fiscal 2003 due mainly to increased
actuarial estimates of claims losses pertaining to prior policy
years and, to a lesser extent, a reduction in the discount rate
applied to arrive at our claims reserves, which we maintain at
present value. The discount rate reduction was due to prolonged
changes in the interest rate environment.

Franchised and
Licensed Restaurants

Franchised and licensed restaurant revenues
increased $1,664, or 2.5%, to $67,452 in fiscal 2004 from fiscal
2003. This increase is due mainly to an increase in equipment
sales to franchisees of $2,538, or 14.0%, which resulted from
equipment upgrades by franchisees pursuant to the Star
Hardees remodel program. During fiscal 2004, franchisees
remodeled 232 restaurants. Franchise royalty revenues also
increased $993, or 2.7%, in fiscal 2004 from fiscal 2003
primarily as a result of a 1.0% increase in franchised
restaurants same-store sales and improved financial health of
certain franchisees, which allowed them to resume royalty
payments to us, partially offset by the decrease in number of
franchised restaurants. Revenues from franchised and licensed
restaurants decreased $10,392, or 13.6%, in fiscal 2003 from
fiscal 2002. This decrease was primarily due to a $8,909,or
19.3%, decrease in royalty revenues and a $4,399, or 31.2%
decrease in rent revenues resulting from closure by franchisees
of under-performing restaurants during fiscal 2003 and 2002, as
well as the financial difficulties of certain franchisees, which
resulted in our inability to recognize unpaid royalties and rent
as revenues. Partially offsetting these decreases was an
increase in distribution revenues resulting from equipment sales
to franchisees pursuant to the Star Hardees remodel program

Net franchising income increased $843, or 2.5%,
in fiscal 2004 from fiscal 2003 and decreased $6,224,or 15.8%,
in fiscal 2003 from fiscal 2002. The increase during fiscal 2004
is primarily due to the increase in royalty revenues and
increased distribution profitability from the equipment sales
volume growth. The decrease in fiscal 2003 from fiscal 2002
resulted mainly from the royalty and rent revenue decreases
noted above, partially offset by a decrease in provision for bad
debts.

La
Salsa

During fiscal 2004, we opened eight restaurants
and closed four restaurants. La Salsa franchisees and licensees
opened six restaurants and closed seven. As of January 31,
2004, the La Salsa system consisted of the following:

|                        |       |                      |    |         |  |        |    |      |  |         |    |        |  |   |        |        |  |   |        |        |  |   |       |       | 
|----------------------- | ----- | -------------------- | -- | ------- |  | ------ | -- | ---- |  | ------- | -- | ------ |  | - | ------ | ------ |  | - | ------ | ------ |  | - | ----- | ----- | 
|                        |       |                      |    |        
|                        |       | Restaurant Portfolio |    | Revenue
|                        |       |                      |    |        
|                        |       | 2004                 |    | 2003    |  | Change |    | 2004 |  | 2003(1) |    | Change
|                        |       |                      |    |         |  |        |    |      |  |         |    |       
|Company                 |       |                      | 61 |         |  |        | 57 |      |  |         | 4  |        |  | $ | 42,310 |        |  | $ | 38,550 |        |  | $ | 3,760 |      
|Franchised and licensed |       |                      | 41 |         |  |        | 42 |      |  |         | (1 | )      |  |   | 1,623  |        |  |   | 1,409  |        |  |   | 214   |      
|                        |       |                      |    |         |  |        |    |      |  |         |    |        |  |   |        |        |  |   |        |        |  |   |       |      
|                        | Total |                      |    | 102     |  |        |    | 99   |  |         |    | 3      |  |   | $      | 43,933 |  |   | $      | 39,959 |  |   | $     | 3,974 | 
|                        |       |                      |    |         |  |        |    |      |  |         |    |        |  |   |        |        |  |   |        |        |  |   |       |      



---



|    |                                                           
|--- | ----------------------------------------------------------
|(1) | For the period March 1, 2002 through
    January 31, 2003.

Revenue from company-operated La Salsa
restaurants increased $3,760, or 9.8%, to $42,310 in fiscal 2004
from fiscal 2003 primarily as a result of recording 31
additional days of revenues in fiscal 2004 (operating

46



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


results for La Salsa were not included in our
consolidated financial statements until our acquisition of the
concept on March 1, 2002) and, to a lesser extent, the net
addition of four company-operated restaurants during fiscal
2004. The increase was partially offset by a 1.3% decrease in
same-store sales in fiscal 2004 from fiscal 2003.

Restaurant-level margins as a percent of sales
were 6.5% and 12.6% in fiscal 2004 and fiscal 2003,
respectively. Payroll and employee benefits costs increased 0.4%
as a percent of sales in fiscal 2004 from fiscal 2003 due mainly
to increased direct labor costs, partially offset by a decrease
in workers compensation expense. Occupancy and other
expenses increased 5.8% as a percent of sales in fiscal 2004
from fiscal 2003 primarily as a result of increased rent and
common area maintenance expenses, higher depreciation expense
upon full placement of open restaurant assets into service, as
well as increases in utilities and repair and maintenance
expenses.

Consolidated
Expenses

Advertising
Expense

Advertising expenses decreased $1,228, or 1.7%,
to $71,154 during fiscal 2004. Advertising expenses as a
percentage of company-operated revenue decreased to 6.2% from
6.5%, as a result of increased sales leverage during fiscal 2004
and increased advertising in conjunction with the Hardees
Revolution in the prior year. Advertising expenses decreased
$802, or 1.1%, to $72,382 during fiscal 2003. However,
advertising expenses, as a percentage of company-operated
revenue, increased marginally to 6.5% from 6.2% during fiscal
year 2003 as a result of several new product introductions and
our effort to bolster sales in response to same-store sales
declines.

General and
Administrative Expense

General and administrative expenses were 7.6% of
total revenue in fiscal 2004, as compared to 8.4% in fiscal
2003. General and administrative expenses decreased $6,639, or
5.8%, to $107,799 during fiscal 2004. This decrease is primarily
due to (i) reduced executive incentive compensation,
(ii) lower relocation and recruiting expenses,
(iii) lower telephone expense, (iv) lower travel
expense and (v) lower supplies expense.

General and administrative expenses were 8.4% of
total revenue in fiscal 2003, as compared to 7.8% in fiscal
2002. General and administrative expenses increased $1,898, or
1.7%, to $114,438 during the year ended January 31, 2003,
as compared to the prior fiscal year. This increase is primarily
due to the acquisition of SBRG, which resulted in $6,752 of
additional expense in fiscal 2003, partially offset by the prior
year including amortization of goodwill in the amount of $5,736,
and a decrease in field general and administrative expense at
Hardees as a result of the closure of unprofitable
restaurants.

Interest
Expense

Interest expense was as follows:

|                                |                        |      |        |        |  |      |        |        |  |   |        |        | 
|------------------------------- | ---------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                |                        | 2004 |        | 2003   |  | 2002
|                                |                        |      |        |        |  |     
|Bank credit facility            |                        | $    | 1,146  |        |  | $    | 631    |        |  | $ | 6,130  |       
|Senior notes due 2009           |                        |      | 18,250 |        |  |      | 18,150 |        |  |   | 18,250 |       
|Capital lease obligations       |                        |      | 8,532  |        |  |      | 9,164  |        |  |   | 9,575  |       
|2004 convertible notes          |                        |      | 4,206  |        |  |      | 6,032  |        |  |   | 6,767  |       
|2023 convertible notes          |                        |      | 1,385  |        |  |      |       |        |  |   |       |       
|Amortization of loan fees       |                        |      | 4,451  |        |  |      | 4,238  |        |  |   | 9,616  |       
|Letter of credit fees and other |                        |      | 2,021  |        |  |      | 1,739  |        |  |   | 3,599  |       
|                                |                        |      |        |        |  |      |        |        |  |   |        |       
|                                | Total interest expense |      | $      | 39,991 |  |      | $      | 39,954 |  |   | $      | 53,937 | 
|                                |                        |      |        |        |  |      |        |        |  |   |        |       

47



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


The increase from 2003 to 2004 was primarily due
to the addition of $25,000 outstanding under the term loan
portion of the bank credit facility and a higher average balance
of letters of credit outstanding and increased interest rate on
letters of credit outstanding, partially offset by the
amortization and termination of leases in our capital lease base
and lower average convertible note balances in fiscal 2004.

The decrease from 2002 to 2003 was primarily due
to (i) lower levels of borrowings outstanding under our
senior credit facility throughout the fiscal year, (ii) a
decrease of 260 basis points on the interest rate charged on the
senior credit facility and letters of credit, (iii) a lower
outstanding balance of our convertible subordinated notes and
(iv) write-off of approximately $4,100 of deferred
financing costs in fiscal 2002.

Other Income
(Expense), Net

Other Income (Expense), Net, consists of the
following:

|                                                                       |  |                               |       |      |  |      |        |  |  |   |        |  
|---------------------------------------------------------------------- |  | ----------------------------- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                                       |  |                              
|                                                                       |  | Fiscal Year Ended January 31,
|                                                                       |  |                              
|                                                                       |  | 2004                          |       | 2003 |  | 2002
|                                                                       |  |                               |       |      |  |     
|Gains on the sale of Checkers stock                                    |  | $                             |      |      |  | $    | 9,248  |  |  | $ | 1,876  |  
|Gains (losses) on the repurchase of convertible
    subordinated notes |  |                               | (708  | )    |  |      | 2,800  |  |  |   |       |  
|Other, net                                                             |  |                               | 1,356 |      |  |      | 3,761  |  |  |   | (2,464 | )
|                                                                       |  |                               |       |      |  |      |        |  |  |   |        |  
|Total other income (expense), net                                      |  | $                             | 648   |      |  | $    | 15,809 |  |  | $ | (588   | )
|                                                                       |  |                               |       |      |  |      |        |  |  |   |        |  

During fiscal 2004, we recorded $1,315 of other
income related to point-of-sale equipment lease sales , which is
recorded as a component of other above.

During fiscal 2003, we reversed a $1,300
estimated liability established in prior periods related to
certain records lost during a natural disaster, which is
recorded as a component of other above.

Income
Taxes

We recorded income tax expense for the fiscal
year ended January 31, 2004 of $1,843, comprised primarily
of foreign income taxes and provision for certain matters under
audit. Our net operating losses are such that we will not be
required to pay federal income taxes for fiscal 2004. We
recorded a net tax benefit for the fiscal year ended
January 31, 2003 of $7,932 arising from filing amended tax
returns to carryback operating losses as permitted by the Job
Creation and Worker Assistance Act of 2002, partially offset by
foreign income taxes. We were not required to pay federal or
state income taxes in fiscal 2003.

Our deferred tax assets net to $0 due to the
existence of our tax valuation allowance of approximately
$171,000 at January 31, 2004. We have recorded a 100%
valuation allowance against our deferred tax assets because we
believe it is more likely than not we will not realize the
benefits of these deductible differences at January 31,
2004. When circumstances warrant, we assess the likelihood that
our deferred net tax assets will more likely than not be
realized from future taxable income

At January 31, 2004, we had federal net
operating loss (NOL) carryforwards of approximately
$91,970, expiring in varying amounts in the years 2010 through
2024, and state NOL carryforwards in the amount of approximately
$335,948 expiring in varying amounts in the years 2006 through
2024. Our state NOL carryforwards exceed our federal NOL
carryforwards primarily due to stand-alone operating losses of
certain of our subsidiaries that report separately for tax
purposes in several states. We have federal NOL carryforwards
for alternative minimum tax purposes of approximately $72,210.
Additionally, we have an alternative minimum tax credit
carryforward (AMT) of approximately $10,691. We also
have generated general business credit forwards in the amount of
$10,952 expiring in varying amounts in the years 2020 through
2024, and foreign tax credits in the amount of $2,829 which
expire in varying amounts in the years 2008 and 2009.

48



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Discontinued
Operations

Timber Lodge is classified as an asset held for
sale in our consolidated balance sheet and the results of
operations of Timber Lodge are classified as discontinued
operations in our consolidated statement of operations. During
fiscal 2004, loss from discontinued operations was $2,790, which
included impairment charges of $1,566 and $1,313 recorded during
the first and fourth quarters of fiscal 2004, respectively, to
write-down Timber Lodge to its fair value.

Fiscal Fourth Quarter 2004 Compared with
Fiscal Fourth Quarter 2003

Carls
Jr.

Company-Operated
Restaurants

The changes in the restaurant-level margin
percentage for the fiscal fourth quarter 2004 are explained
as follows:

|                                              |                                                              |  |      |      |  
|--------------------------------------------- | ------------------------------------------------------------ |  | ---- | ---- | -
|Restaurant-level margins for the prior year   |                                                              |  | 19.7 | %   
|                                              | Increase in food and packaging costs                         |  |      | (1.7 | )
|                                              | Decrease in utilities expense                                |  |      | 1.1  |  
|                                              | Increase in workers compensation expense                    |  |      | (0.7 | )
|                                              | Decrease in labor costs, excluding workers
    compensation |  |      | 0.1  |  
|                                              | Decrease in depreciation expense                             |  |      | 0.5  |  
|                                              | Decrease in property taxes                                   |  |      | 0.4  |  
|                                              | Decrease in repairs and maintenance expense                  |  |      | 0.3  |  
|                                              | Decrease in equipment lease expense                          |  |      | 0.2  |  
|                                              | Other, net                                                   |  |      | 0.6  |  
|                                              |                                                              |  |      |     
|Restaurant-level margins for the current year |                                                              |  | 20.5 | %   
|                                              |                                                              |  |      |     

Food and packaging costs increased in fiscal 2004
from fiscal 2003 as a percent of sales primarily due to
increases in the cost of beef and other commodities.

Utilities expenses decreased in fiscal 2004
mainly due to abnormally high costs in fiscal 2003. To replace
the previously discussed energy contract with Enron, we entered
into a fixed-rate contract with another energy supplier, which
took full effect during the fourth quarter of fiscal 2003. Prior
to this occurring, while neither the Enron nor our new contract
was in effect, we incurred energy costs exceeding the rates for
either of the two contracts.

Workers compensation expense increased in
fiscal 2004 from fiscal 2003 primarily due to a reduction in the
discount rate applied to arrive at our claims reserves, which we
maintain at present value (0.6% of the increase), as well as
higher claims costs, driven mainly by California Assembly Bill
No. 749, as discussed earlier. The discount rate reduction
was due to prolonged changes in the interest rate environment.
Labor costs excluding workers compensation decreased
slightly as a percent of sales in fiscal 2004 as compared to
fiscal 2003 due to the benefits of sales leverage on staffing
costs, partially offset by increased restaurant general manager
bonuses.

Depreciation expense decreased as a percent of
sales in fiscal 2004 from fiscal 2003 due to a continuation of
the trend during the course of the year whereby more assets
became fully depreciated while the amount of capital
expenditures in fiscal 2004 remained moderate. Property tax
expense decreased in fiscal 2004 from fiscal 2003 due to an
adjustment to our overall accrued property tax position based on
a thorough review of balances by jurisdiction.

49



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Franchised and
Licensed Restaurants

Revenues from franchised and licensed restaurants
increased in fiscal 2004 from fiscal 2003 primarily due to
increased food, paper and supplies sales to franchisees and an
increase in sublease revenues from franchisees. Franchising
income increased in fiscal 2004 mainly as a result of this
revenue growth, partially offset by a slight decrease in royalty
revenues.

Hardees

Company-Operated
Restaurants

The changes in the restaurant-level margin
percentage for the fiscal fourth quarter 2004 are explained as
follows:

|                                              |                                                              |  |     |      |  
|--------------------------------------------- | ------------------------------------------------------------ |  | --- | ---- | -
|Restaurant-level margins for the prior year   |                                                              |  | 4.5 | %   
|                                              | Decrease in labor costs, excluding workers
    compensation |  |     | 2.8  |  
|                                              | Increase in workers compensation expense                    |  |     | (0.9 | )
|                                              | Increase in depreciation expense                             |  |     | (1.9 | )
|                                              | Decrease in repair and maintenance expense                   |  |     | 1.2  |  
|                                              | Decrease in general liability insurance expense              |  |     | 1.2  |  
|                                              | Decrease in utilities expense                                |  |     | 1.1  |  
|                                              | Increase in fixed asset retirements expense                  |  |     | (0.9 | )
|                                              | Decrease in opening costs                                    |  |     | 0.5  |  
|                                              | Decrease in write-down of promotional items                  |  |     | 0.4  |  
|                                              | Decrease in food and packaging costs                         |  |     | 0.3  |  
|                                              | Other, net                                                   |  |     | 0.7  |  
|                                              |                                                              |  |     |     
|Restaurant-level margins for the current year |                                                              |  | 9.0 | %   
|                                              |                                                              |  |     |     

Labor costs excluding workers compensation
decreased significantly during the fiscal fourth quarter 2004
from fiscal 2003 due to return to normal staffing levels upon
completion of Revolution management and staff training early in
the year and benefits from sales leverage, partially offset by
increased general manager bonuses due to improved operating
performance in the fourth quarter of fiscal 2004. Workers
compensation expense increased in fiscal 2004 from fiscal 2003
due to a reduction in the discount rate applied to arrive at our
claims reserves, which we maintain at present value (0.5% of the
increase), as well as increased actuarial estimates of claims
losses pertaining to prior policy years in fiscal 2004 as
compared to a decrease in such actuarial estimates in fiscal
2003 (0.4% of the increase).

Depreciation expense increased in fiscal 2004
from fiscal 2003 substantially all due to a charge to accelerate
amortization of point-of-sale equipment under capital lease. We
intend to replace this equipment earlier than originally
planned. As a result, we will amortize this equipment in fiscal
2005 at a rate slightly higher than that used for such equipment
through the first three fiscal quarters of 2004.

General liability insurance expense decreased in
fiscal 2004 from fiscal 2003 primarily due to a significant
decrease in actuarial estimates of claims reserves pertaining to
prior policy years. Utilities expense decreased as a result of
benefits from sales leverage and a decrease in electricity
costs, partially offset by higher natural gas expense. We
incurred increased fixed asset retirement costs in fiscal 2004
due to final removal of old equipment in connection with the
Hardees menu update and Star Hardees remodeling
efforts.

Franchised and
Licensed Restaurants

Revenues from franchised and licensed restaurants
increased by $2,434, or 19.6% in fiscal fourth quarter 2004 from
fiscal 2003 as a result of increased royalty and rent revenues,
partially offset by a decrease in

50



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


distribution revenues. Franchise royalty revenues
increased primarily as a result of a 6.1% increase in franchised
restaurants same-store sales and improved financial health of
certain franchisees, which allowed them to resume royalty
payments to us, partially offset by the decrease in number of
franchised restaurants. Distribution revenues decreased in
fiscal 2004 from fiscal 2003 due to a slowing in latter 2004 of
equipment purchases by franchisees after significant investments
made in fiscal 2003 and early fiscal 2004 pursuant to the Star
Hardees remodel program. Franchising income increased by
$4,155 or 89.0% in fiscal 2004 mainly as a result of the $2,283
increase in royalty revenues resulting from increased same-store
sales and improved financial health of the franchisees as noted
above.

La
Salsa

La Salsa restaurant-level margins as a percent of
sales decreased to negative 3.9% in fiscal fourth quarter 2004
from 5.6% in fiscal 2003. Food and packaging costs increased as
a percent of sales mainly due to higher paper costs and reduced
vendor marketing allowances. Payroll and employee benefits costs
increased as a percent of sales due mainly to increased direct
labor costs, partially offset by a decrease in workers
compensation expense. Occupancy and other expenses increased
significantly due to higher rent, repair and maintenance, common
area maintenance and property tax expenses in fiscal 2004.

During the fourth quarter of fiscal 2004, we
recorded a charge of $34,059, recognizing the impairment of the
goodwill associated with the acquisition of La Salsa.

Accounting Pronouncements Not Yet
Adopted

In January 2003, the Financial Accounting
Standards Board issued FIN 46, Consolidation of
Variable Interest Entities  an interpretation of
Accounting Research Bulletin (ARB)
No. 51. This Interpretation is intended to
clarify the application of the majority voting interest
requirement of ARB No. 51, Consolidated Financial
Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46
requires the consolidation of these entities, known as variable
interest entities (VIEs), by the primary beneficiary
of the entity. The primary beneficiary is the entity, if any,
that is subject to a majority of the risk of loss from the
VIEs activities, entitled to receive a majority of the
VIEs residual returns, or both. FIN 46 may be applied
prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued
financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first
year restated. FIN 46 is applicable immediately to variable
interests in a variable interest entity (VIE)
created or obtained after January 31, 2003.

During the course of 2003, the FASB proposed
modifications to FIN 46 and issued FASB Staff Positions
(FSPs) that changed and clarified FIN 46. These
modifications and FSPs were subsequently incorporated into
FIN 46 (revised) (FIN 46R), which was
issued on December 23, 2003 and replaced FIN 46.
FIN 46R is effective for all entities at the end of the
first reporting period ending after March 15, 2004 (the
quarter ending May 17, 2004 for us). FIN 46 was
effective for special-purpose entities (as defined by
FIN 46R) at the end of the first reporting period ending
after December 15, 2003, which did not impact our
consolidated financial statements. FIN 46R requires certain
disclosures in financial statements issued after
December 31, 2003, if it is reasonably possible that we
will consolidate or disclose information about VIEs when FIN 46R
becomes effective.

FIN 46R excludes operating businesses, as
defined, from its scope subject to four conditions, and states
the provisions of FIN 46R need not be applied if a company is
unable, subject to making an exhaustive effort, to obtain the
necessary information. We are currently evaluating whether any
of the aforementioned conditions exist that would subject any of
our franchise arrangements to the provisions of FIN 46R,
requiring us to determine if they are VIEs, and, if so, whether
we are the primary beneficiary. We do not possess any ownership
interests in our franchisees. Additionally, we generally do not
provide financial support to our

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


franchisees in a typical franchise relationship.
Also, our franchise agreements currently do not require our
franchisees to provide the timely financial information
necessary to apply the provisions of FIN 46R to our
franchisees.

We continue to evaluate the applicability of
FIN 46R to our franchise relationships and have not yet
determined whether required consolidation of franchise entities,
if any, would be material to our financial statements.
Consolidation of some, if any, of these arrangements, at a
minimum, would to result in a gross up of amounts
such as revenues and expenses. None of these entities have been
consolidated in our financial statements.

We utilize various advertising funds
(Funds) to administer our advertising programs. The
Carls Jr. National Advertising Fund (CJNAF) is
Carls Jr.s sole cooperative advertising program. We
consolidate CJNAF into our financial statements on a net basis,
whereby contributions form franchisees, when received, are
recorded as offsets to our reported advertising expenses. The
Hardees cooperative advertising funds consist of
Hardees National Advertising Fund (HNAF) and
many local advertising cooperative funds (Co-op
Funds). Each of these funds is a separate non-profit
association, with all proceeds segregated and managed by a
third-party accounting service company. We have determined that
consolidation of all of our advertising funds is appropriate
under FIN 46R. As noted above, we have historically
consolidated the Carls Jr. advertising fund. However, the
Hardees advertising funds will be newly consolidated upon
full adoption of FIN 46R at the end of the fiscal quarter ending
May 17, 2004.

We have determined the impact of the
consolidation of HNAF and the Co-op Funds will be an increase of
approximately $20,000 to current assets and liabilities. We do
not anticipate the consolidation of the funds will have a
material impact on our results of operations or
stockholders equity.

Impact of Inflation

Inflation has an impact on food and packaging,
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, through price increases, 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,
inclement weather has a greater impact on restaurant sales at
our Hardees restaurants, because a significant number of
them are located in areas that experience severe winter
conditions, principally in the Midwest and certain East Coast
locations.

Competition

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

Liquidity and Capital Resources

We have historically financed our business
through cash flow from operations, borrowings under our credit
facility and the sale of restaurants. Our most significant cash
uses during the next 12 months will arise primarily from
funding our capital expenditures and paying interest on our
long-term debt. The revolving credit facility portion of our
senior credit facility (Facility) matures on
November 15, 2006. We anticipate that existing cash
balances, availability under the Facility and cash generated
from operations will be sufficient to service existing debt and
to meet our operating and capital requirements for the next
12 months.

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Additionally, we are able to sell restaurants as
a source of liquidity, although we have no intention to do so
significantly at this time. We repaid and retired the remaining
outstanding portion of our 4 1/4% Convertible Subordinated
Notes due 2004 at their maturity on March 15, 2004. We have
no potential mandatory payments of principal on our $105,000 of
4% Convertible Subordinated Notes due 2023 (the
Convertible Notes) until October 1, 2008 (see
discussion below). We have no mandatory payments of principal on
the $200,000 of 9 1/8% Senior Subordinated Notes due 2009
(Senior Notes) outstanding prior to their final
maturity in May 2009.

We, and the QSR industry in general, maintain
relatively low levels of accounts receivable and inventories,
and vendors grant trade credit for purchases such as food and
supplies. We also continually invest in our business through the
addition of new sites and the refurbishment of existing sites,
which are reflected as long-term assets and not as part of
working capital. As a result, we typically maintain current
liabilities in excess of current assets, resulting in a working
capital deficit. As of January 31, 2004, our current ratio
was 0.76 to 1.

We use the Facility as a source of letters of
credit required for our self-insurance programs. Additionally,
the Facility may provide working capital during those periods
when seasonality affects our cash flow. The Facility currently
permits borrowings of up to $175,000, including a $25,000 term
loan issued on November 12, 2003, and due April 1,
2008, and an $80,000 letter of credit sub-facility. The
principal amount of the term loan will be repaid in quarterly
installments until maturity on April 1, 2008. As of
January 31, 2004, we had $24,062 outstanding under the term
loan, $63,680 of outstanding letters of credit and borrowing
availability of $86,320. Borrowings bear interest at either the
LIBOR rate plus an applicable margin or the Prime Rate plus an
applicable margin, with interest due monthly. The applicable
interest rate on both the revolver and term loan portions of the
Facility at January 31, 2004 is LIBOR plus 3.75%, or 4.94%
per annum. Subsequent to January 31, 2004, we repaid
$13,515 of the outstanding term loan balance in advance of the
terms of the bank credit facility.

The agreement underlying the Facility includes
certain restrictive covenants. Among other things, these
covenants restrict our ability to incur debt, incur liens on our
assets, make any significant change in our corporate structure
or the nature of our business, dispose of assets in the
collateral pool securing the Facility, prepay certain debt,
repurchase stock, engage in a change of control transaction
without the lenders consents, pay dividends and make
investments or acquisitions.

Subject to the terms of the Facility, each fiscal
year after fiscal 2004 we may make capital expenditures of
$45,000 plus 80% of the amount of actual EBITDA (as defined in
the Facility) in excess of $110,000. Additionally, we may
carryforward any unused capital expenditure amounts to the
following year. As of January 31, 2004, we are able to
carryforward approximately $7,100 in capital expenditures to
fiscal 2005.

The full text of the contractual requirements
imposed by this financing is set forth in the Fifth Amended and
Restated Credit Agreement, dated as of November 12, 2003,
which we filed with the Securities and Exchange Commission. We
were in compliance with the requirements of the Facility as of
January 31, 2004. Subject in certain instances to cure
periods, the lenders under our Facility may demand repayment of
borrowings prior to stated maturity upon certain events,
including if we breach the terms of the agreement, suffer a
material adverse change, engage in a change of control
transaction, suffer certain adverse legal judgments, in the
event of specified events of insolvency or if we default under
other significant obligations. In the event the Facility is
declared accelerated by the lenders (which can occur only if we
are in default under the Facility), our Senior Notes and our
Convertible Notes may also become accelerated under certain
circumstances and after all cure periods have expired.

On September 29, 2003, we issued $105,000
principal amount of our Convertible Notes. The Convertible
Notes, which are our unsecured general obligations, are governed
by an indenture. The indenture requires that we pay interest at
a rate of 4.00% per annum in semiannual coupons due each
April 1 and October 1, with all outstanding principal
due and payable October 1, 2023. We have the right to
prepay the notes after October 1,

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


2008 for an amount equal to 100% of the principal
amount of the notes redeemed plus accrued interest, subject to a
notice requirement. The full text of the contractual
requirements imposed by this financing is set forth in the
related indenture, which we filed with the Securities and
Exchange Commission. The indenture contains certain minimal
restrictive covenants. We were in compliance with the covenants
of the Convertible Notes as of January 31, 2004. Subject in
certain instances to cure periods, the holders of the
Convertible Notes may demand repayment of these borrowings prior
to stated maturity upon certain events, including if we breach
the terms of the indenture, specified events of insolvency, or
if other significant obligations are accelerated. On
October 1 of 2008, 2013 and 2018, holders of the
Convertible Notes have the right to require us to repurchase all
or a portion of the notes at prices specified in the related
indenture. The notes are convertible into our common stock on
the conditions set forth in the related indenture. The notes
were not convertible during the period September 29, 2003
through January 31, 2004. The net proceeds from the
issuance of these notes were used to repay a portion of our
4 1/4% Convertible Subordinated Notes Due 2004 during
fiscal 2004.

The Senior Notes, which are unsecured obligations
but are guaranteed by our subsidiaries, are governed by an
indenture. The indenture requires that we pay interest at a rate
of 9.125% per annum in semi-annual coupons due on each
May 1 and November 1, with all outstanding principal
due and payable May 1, 2009. We do not have the right to
prepay the notes until May 1, 2004, at which time we may
prepay the notes for an amount equal to principal, accrued
interest and a premium, subject to a notice requirement. The
premium from May 1, 2004 to May 1, 2005, is 4.56% of
the principal amount redeemed, but reduces annually through May
2007, at which point no premium is payable. The indenture
includes certain significant restrictive covenants, including
limitations on our ability to incur debt, incur liens on our
assets, make any significant change in our corporate structure
or the nature of our business, pay dividends, make investments,
dispose of assets and make restricted payments. Restricted
payments include certain loans, treasury stock repurchases and
voluntary repurchases of outstanding debt. As of
January 31, 2004, the remaining amount of permitted
restricted payments is $28,257. The full text of the contractual
requirements imposed by this financing is set forth in the
indenture, which has been filed with the Securities and Exchange
Commission. We were in compliance with such requirements as of
January 31, 2004. Subject in certain instances to cure
periods, the holders of the Senior Notes may demand repayment of
these borrowings prior to stated maturity upon certain events,
including if we breach the terms of the indenture, specified
events of insolvency, if we suffer certain adverse legal
judgments or if other significant obligations are accelerated.

The terms of the Facility and the Senior Notes
are not dependent on any change in our credit rating. The
Convertible Notes contain a convertibility trigger based on the
credit ratings of the notes (see discussion above). We believe
the key company-specific factors affecting our ability to
maintain our existing debt financing relationships and to access
such capital in the future are our present and expected levels
of profitability and cash flow from operations, asset collateral
bases and the level of our equity capital relative to our debt
obligations. In addition, as noted above, our existing
agreements include significant restrictions on future financings
including, among others, limits on the amount of indebtedness we
may incur or which may be secured by any of our assets.

On April 5, 2004, we received a commitment from
Paribas, the agent and a lender under the Facility, to
restructure the Facility to provide for a $380,000 senior
secured credit facility, which would include a revolver and term
loans. We intend to use the proceeds from the term loan portion
of the restructured Facility to prepay and retire the Senior
Notes in their entirety, which we anticipate will result in an
annual interest savings of approximately $6,500 during the first
year, which will be initially offset by the prepayment premium
of $9,120 that we will pay to retire the Senior Notes. We will
also incur a non-cash charge of approximately $3,200 to
write-off unamortized debt issuance costs associated with the
Senior Notes. The restructuring of the Facility is conditioned
upon the execution of definitive agreements and certain other
contingencies. We can provide no assurance that we will be
successful in restructuring the Facility on the terms described
above.

Cash provided by operating activities during
fiscal 2004 increased $16,184 or 28.0%, as compared to fiscal
2003, primarily due to improved working capital management and a
decrease in funding of discontinued

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


operations, partially offset by income tax
refunds received during fiscal 2003. Cash used in investing
activities decreased $17,437 or 46.6%, as compared to fiscal
2003, primarily due to reduced capital expenditures, partially
offset by proceeds from the disposal of all our remaining
Checkers stock during fiscal 2003. The decrease in capital
expenditures was primarily due to reduced spending at our
Hardees concept, in which we invested significantly during
fiscal 2003 pursuant to the Star Hardees remodel program,
and a reduction in new restaurant development, also primarily at
Hardees. The decrease in funding of discontinued
operations resulted from a decrease in capital spending at
Timber Lodge during fiscal 2004, which reduced the amount of
cash used by that operation. Cash used in financing activities
during fiscal 2004 decreased $8,496 or 31.9%, as compared to
fiscal 2003, primarily as a result of proceeds from the issuance
of the Convertible Notes and proceeds from the term loan portion
of the Facility, partially offset by the repurchase of $100,000
of our 4 1/4% Convertible Subordinated Notes Due 2004 and
net repayments on the Facility.

Capital expenditures for the years ended
January 31, 2004 and 2003 were:

|                                                                |               |             |        |             |  |   |        |        | 
|--------------------------------------------------------------- | ------------- | ----------- | ------ | ----------- |  | - | ------ | ------ | 
|                                                                |               | January 31, |        | January 31,
|                                                                |               | 2004        |        | 2003       
|                                                                |               |             |        |            
|New restaurants (including restaurants under
    development)   |               |             |        |             |  |   |        |       
|                                                                | Carls Jr.    |             | $      | 6,432       |  |   | $      | 9,473  | 
|                                                                | Hardees      |             |        | 3,743       |  |   |        | 13,299 | 
|                                                                | La Salsa      |             |        | 4,033       |  |   |        | 1,474  | 
|Remodels, Dual-branding (including
    construction in process) |               |             |        |             |  |   |        |       
|                                                                | Carls Jr.    |             |        | 2,485       |  |   |        | 3,191  | 
|                                                                | Hardees      |             |        | 11,192      |  |   |        | 30,574 | 
|                                                                | La Salsa      |             |        | 107         |  |   |        |       | 
|Other restaurant additions                                      |               |             |        |             |  |   |        |       
|                                                                | Carls Jr.    |             |        | 4,890       |  |   |        | 4,026  | 
|                                                                | Hardees      |             |        | 6,284       |  |   |        | 8,567  | 
|                                                                | La Salsa      |             |        | 2,602       |  |   |        | 2,928  | 
|                                                                | Green Burrito |             |        |            |  |   |        | 1      | 
|Corporate                                                       |               |             | 6,105  |             |  |   | 3,872  |       
|                                                                |               |             |        |             |  |   |        |       
|Total                                                           |               | $           | 47,873 |             |  | $ | 77,405 |       
|                                                                |               |             |        |             |  |   |        |       

As of January 31, 2004, we had remodeled 80%
of the Hardees company-operated restaurants to the Star
Hardees format and had installed charbroilers in 99% of
the company-operated restaurants.

In an effort to improve operations and reduce
future operating costs, we have relocated several of our
corporate facilities to new locations. During 2002, we began
relocating our corporate headquarters to the Santa Barbara,
California area. We have entered into a five-year agreement to
lease the facility in Carpinteria, California. During 2001, we
relocated Hardees corporate offices to St. Louis,
Missouri and have entered into a five-year agreement to lease
the facility.

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


Managements Discussion and
Analysis  (Continued)

(Dollars in thousands)


Long-Term Obligations

Contractual
Cash Obligations

The following table presents our long-term
contractual cash obligations:

|                                      |                                    |                         |         |           |  |       |        |         |  |         |         |         |  |   |         |         |  |   |         |         | 
|------------------------------------- | ---------------------------------- | ----------------------- | ------- | --------- |  | ----- | ------ | ------- |  | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                      |                                    |                        
|                                      |                                    | Payments Due by Periods
|                                      |                                    |                        
|                                      |                                    |                         |         | Less Than |  | 1-3   |        | 3-5     |  | After  
|                                      |                                    | Total                   |         | One Year  |  | Years |        | Years   |  | 5 Years
|                                      |                                    |                         |         |           |  |       |        |         |  |        
|Long-term debt(1)                     |                                    | $                       | 354,271 |           |  | $     | 26,843 |         |  | $       | 10,644  |         |  | $ | 11,784  |         |  | $ | 305,000 |        
|Capital lease obligations(2)(3)       |                                    |                         | 108,004 |           |  |       | 14,086 |         |  |         | 22,216  |         |  |   | 20,939  |         |  |   | 50,763  |        
|Operating leases(2)                   |                                    |                         | 595,643 |           |  |       | 82,524 |         |  |         | 140,513 |         |  |   | 108,829 |         |  |   | 263,777 |        
|Unconditional purchase obligations(4) |                                    |                         | 44,519  |           |  |       | 14,365 |         |  |         | 13,180  |         |  |   | 10,544  |         |  |   | 6,430   |        
|                                      |                                    |                         |         |           |  |       |        |         |  |         |         |         |  |   |         |         |  |   |         |        
|                                      | Total contractual cash obligations |                         | $       | 1,102,437 |  |       | $      | 137,818 |  |         | $       | 186,553 |  |   | $       | 152,096 |  |   | $       | 625,970 | 
|                                      |                                    |                         |         |           |  |       |        |         |  |         |         |         |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Assumes holders of the 2023 Convertible Notes do
    not exercise redemption rights in October 2008.                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | The amounts reported above as operating leases
    and capital lease obligations include leases contained in the
    estimated liability for closing restaurants 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 8 of
    Notes to the Consolidated Financial Statements.                                                                     
|   
|(3) | Represents the undiscounted value of capital
    lease payments.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(4) | Unconditional purchase obligations include
    contracts 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 letters of credit and guarantees. The
specific commitments are discussed previously in
Item 7  Management Discussion and Analysis of
Financial Condition and Results of Operations  as
well as in Note 26 of the Notes to the Consolidated
Financial Statements.



| |                             
| | ----------------------------
| | Other Commercial Commitments

|                                                                         |                                    |                        |        |           |  |       |        |        |  |   |       |       | 
|------------------------------------------------------------------------ | ---------------------------------- | ---------------------- | ------ | --------- |  | ----- | ------ | ------ |  | - | ----- | ----- | 
|                                                                         |                                    |                       
|                                                                         |                                    | Amount of Commitment  
|                                                                         |                                    | Expirations Per Period
|                                                                         |                                    |                       
|                                                                         |                                    | Total                  |        |          
|                                                                         |                                    | Amounts                |        | Less Than |  | 1-3  
|                                                                         |                                    | Committed              |        | One Year  |  | Years
|                                                                         |                                    |                        |        |           |  |      
|Standby letters of credit under the
    Companys Senior Credit Facility |                                    | $                      | 63,680 |           |  | $     | 63,680 |        |  | $ |      |      
|Guarantees                                                               |                                    |                        | 4,700  |           |  |       |       |        |  |   | 4,700 |      
|                                                                         |                                    |                        |        |           |  |       |        |        |  |   |       |      
|                                                                         | Total other commercial commitments |                        | $      | 68,380    |  |       | $      | 63,680 |  |   | $     | 4,700 | 
|                                                                         |                                    |                        |        |           |  |       |        |        |  |   |       |      




Item 7A.Quantitative
and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our principal exposure to financial market risks
relates to the impact that interest rate changes could have on
our $175,000 Facility. As of January 31, 2004, we had
$24,062 and $63,680 in cash borrowings and letters of credit
outstanding, respectively. Borrowings under the Facility bear
interest at the Prime Rate or LIBOR plus an applicable margin. A
hypothetical increase of 100 basis points in short-term interest
rates would result in a reduction in the Companys annual
pre-tax earnings of $877. The estimated reduction is

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##### Table of Contents



based upon the outstanding balance of the
Facility plus letters of credit issued, and assumes no change in
the volume, index or composition of debt as in effect
January 31, 2004. Substantially all of our business is
transacted in U.S. dollars. Accordingly, foreign exchange
rate fluctuations have not had a significant impact on us and
are not expected to in the foreseeable future.


Commodity Price Risk

We purchase certain products which are affected
by commodity prices and are, therefore, subject to price
volatility caused by weather, market conditions and other
factors which are not considered predictable or within our
control. Although 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 may result in unconditional purchase
obligations, which are not reflected in our consolidated balance
sheet. Typically, we use these types of purchasing techniques to
control costs as an alternative to directly managing financial
instruments to hedge commodity prices. In many cases, we believe
we will be able to address material commodity cost increases by
adjusting our menu pricing or changing our product delivery
strategy. However, increases in commodity prices, without
adjustments to our menu prices (see page 11), 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 15  Exhibits, Financial Statement Schedules
and Reports on Form 8-K.




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

None.




Item 9A.Controls
and Procedures

The Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures as
of the end of the period covered by this report, pursuant to
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 as amended. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure
controls and procedures, as of the end of the period covered by
this report, were effective in timely alerting them to material
information relating to the Company required to be included in
the Companys periodic filings.

There has been no change in the Companys
internal control over financial reporting during the fourth
quarter of the Companys fiscal year ended January 26,
2004, that has materially affected, or is reasonably likely to
affect, the Companys internal control over financial
reporting.

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##### Table of Contents



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 2004 Annual Meeting of Stockholders, to be filed with the
Commission within 120 days of January 26, 2004.
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 2004 Annual Meeting
of Stockholders, to be filed with the Commission within
120 days of January 26, 2004.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|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 2004 Annual Meeting of Stockholders, to be
filed with the Commission within 120 days of
January 26, 2004.

Equity Compensation Plan Information

Equity compensation plans as of January 31,
2004 were:

|                                                                  |       |                      |           |                   |  |                                     |       |       |  |  |           |           | 
|----------------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | ----------------------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                                  |       |                      |           | Weighted-Average  |  |                                    
|                                                                  |       | Number of Securities |           | Exercise Price of |  | Number of Securities Remaining     
|                                                                  |       | to be Issued Upon    |           | Outstanding       |  | Available for Future Issuance Under
|                                                                  |       | Exercise of          |           | Options,          |  | Equity Compensation Plans          
|                                                                  |       | Outstanding Options, |           | Warrants and      |  | (Excluding Securities Reflected in 
|Plan Category                                                     |       | Warrants and Rights  |           | Rights            |  | Column(a))                         
|                                                                  |       |                      |           |                   |  |                                    
|                                                                  |       | (a)                  |           | (b)               |  | (c)                                
|Equity compensation plans approved by security
    holders        |       |                      | 8,614,756 |                   |  | $                                   | 10.23 |       |  |  | 1,099,646 | (1)      
|Equity compensation plans not approved by
    security holders(2) |       |                      | 590,150   |                   |  | $                                   | 6.60  |       |  |  | 209,850   |          
|                                                                  |       |                      |           |                   |  |                                     |       |       |  |  |           |          
|                                                                  | Total |                      |           | 9,204,906         |  |                                     | $     | 10.00 |  |  |           | 1,309,496 | 
|                                                                  |       |                      |           |                   |  |                                     |       |       |  |  |           |          



---



|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | A total of 4.9 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 then defined by the New York
    Stock Exchange. See Note 23 of Notes to the Consolidated
    Financial Statements.                                                                                       




Item 13.     Certain
Relationships and Related Transactions

The information pertaining to certain
relationships and related transactions of the registrant is
hereby incorporated by reference from our Proxy Statement to be
used in connection with our 2004 Annual Meeting of Stockholders,
to be filed with the Commission within 120 days of
January 26, 2004.

From time to time we enter into transactions
that, while not required to be disclosed pursuant to this
Item 13, are with parties or entities that are affiliates
of ours or that may otherwise be deemed to be related parties of
CKE, whether directly or indirectly. These relationships may
give rise to the possibility that the related transactions may
have been on other than arms-length terms. While we
believe that all of the following transactions were in the best
interests of our stockholders, we cannot assure you that if such
transactions had been entered into with independent vendors and
suppliers, the resulting terms would not be materially different.

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During fiscal years 2004, 2003 and 2002, we
entered into the following related party transactions:

|                                                                                               |  |                                                                                                                                     |  |                                                                                                                                                                                                                                                                    |  |                                                                                              |  |                   |       |      |  |      |        |  |  |   |       | 
|---------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---- |  | ---- | ------ |  |  | - | ----- | 
|                                                                                               |  |                                                                                                                                     |  |                                                                                                                                                                                                                                                                    |  |                                                                                              |  |                  
|                                                                                               |  |                                                                                                                                     |  |                                                                                                                                                                                                                                                                    |  |                                                                                              |  | Fiscal Year Ended
|                                                                                               |  |                                                                                                                                     |  |                                                                                                                                                                                                                                                                    |  | On-Going                                                                                     |  | January 31,      
|                                                                                               |  |                                                                                                                                     |  | How Transaction Prices                                                                                                                                                                                                                                             |  | Contractual                                                                                  |  |                  
|Involved Party                                                                                 |  | Business Purpose                                                                                                                    |  | are Determined                                                                                                                                                                                                                                                     |  | Commitments                                                                                  |  | 2004              |       | 2003 |  | 2002
|                                                                                               |  |                                                                                                                                     |  |                                                                                                                                                                                                                                                                    |  |                                                                                              |  |                   |       |      |  |     
|Carl 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                                                 |  | $                 | 1,828 |      |  | $    | 1,534  |  |  | $ | 1,661 | 
|Fidelity 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 FNF
    to the general public at the time of each transaction.                                                                                             |  | None                                                                                         |  |                   |      |      |  |      | 10     |  |  |   | 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                                                 |  |                   | 4,364 |      |  |      | 7,445  |  |  |   | 5,455 | 
|Kensington 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 2007                                                       |  |                   | 548   |      |  |      | 598    |  |  |   | 195   | 
|M&N Foods, LLC. (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 purchase agreement |  |                   |      |      |  |      |       |  |  |   | 4,100 | 
|Orion Realty Corp. (100% owned subsidiary of FNF)                                              |  | Sale of surplus properties and termination of
    leases                                                                            |  | (A)                                                                                                                                                                                                                                                                |  | Contractual arrangement                                                                      |  |                   | 816   |      |  |      | 494    |  |  |   | 329   | 
|Praetorian Group (formerly an investment of FNF)                                               |  | Sale of restaurants to franchisees                                                                                                  |  | (A)                                                                                                                                                                                                                                                                |  | None                                                                                         |  |                   |      |      |  |      |       |  |  |   | 60    | 
|Rallys Restaurants (owned by Checkers
    Drive-In Restaurants, Inc.)                         |  | 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 | 
|Rocky Mountain Aviation (100% owned subsidiary of
    FNF)                                     |  | Expenses associated with Companys two
    leased aircraft                                                                          |  | (B)                                                                                                                                                                                                                                                                |  | Lease agreements expire June 2007 and December
    2010, respectively                        |  |                   | 1,190 |      |  |      | 784    |  |  |   | 414   | 
|Santa Barbara Restaurant Group, Inc.
    (SBRG) (our Chairman was also the Chairman of SBRG) |  | Merged with restaurants company for strategic
    growth purposes                                                                   |  | Based on relative market values and expected
    accretive value of SBRG to CKE. Transaction was evaluated for
    fairness by Morgan Keegan & Company, Inc., an investment
    banking firm                                                                       |  | None                                                                                         |  |                   |      |      |  |      | 80,280 |  |  |   |      | 
|SBRG                                                                                           |  | License the Green Burrito Brand                                                                                                     |  | According to License Agreement.                                                                                                                                                                                                                                    |  | Requirements ceased after acquisition of SBRG                                                |  |                   | n/a   |      |  |      | n/a    |  |  |   | 443   | 
|CLK, Inc. (affiliate of a current board
    member)                                            |  | Sale of Carls Jr. restaurants to franchisee                                                                                        |  | (C)                                                                                                                                                                                                                                                                |  | None, other than those contained in the franchise
    agreement and asset purchase agreement |  |                   |      |      |  |      | 983    |  |  |   |      | 

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|                                                                                     |  |                                              |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                              |  |                   |       |      |  |      |   |  |  |  |        | 
|------------------------------------------------------------------------------------ |  | -------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----------------- | ----- | ---- |  | ---- | - |  |  |  | ------ | 
|                                                                                     |  |                                              |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                              |  |                  
|                                                                                     |  |                                              |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                              |  | Fiscal Year Ended
|                                                                                     |  |                                              |  |                                                                                                                                                                                                                                                                                                                                 |  | On-Going                                                                                     |  | January 31,      
|                                                                                     |  |                                              |  | How Transaction Prices                                                                                                                                                                                                                                                                                                          |  | Contractual                                                                                  |  |                  
|Involved Party                                                                       |  | Business Purpose                             |  | are Determined                                                                                                                                                                                                                                                                                                                  |  | Commitments                                                                                  |  | 2004              |       | 2003 |  | 2002
|                                                                                     |  |                                              |  |                                                                                                                                                                                                                                                                                                                                 |  |                                                                                              |  |                   |       |      |  |     
|MJKL Enterprises, Inc. (affiliate of a current
    board member)                     |  | Sale of Carls Jr. restaurants to franchisee |  | (D)                                                                                                                                                                                                                                                                                                                             |  | None, other than those contained in the franchise
    agreement and asset purchase agreement |  |                   | 4,535 |      |  |      |  |  |  |  |       | 
|TWM 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 payment 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 purchase agreement |  |                   |      |      |  |      |  |  |  |  | 12,080 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 under-performing 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 and, in the case
    of Orion Realty Corp., we continue to use those services.



|    |                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | For first leased aircraft, based on contracted
    lease rates, partially offset by use by others 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. For second leased aircraft,
    based upon the prevailing market for similar aircraft.
|   
|(c) | Purchase price based on a multiple of cash flow
    from operations as achieved in other sales of Carls Jr.
    restaurants to other franchisees.                                                                                                                                                                                                                               
|   
|(d) | Purchase price was established by using the
    greater of CKEs carrying value or a multiple of cash flow
    from operations as achieved in other sales of Carls Jr.
    restaurants to other franchisees.                                                                                                                                                                    




Item 14.     Principal
Accountant Fees and Services

The information pertaining to principal
accountant fees and services is hereby incorporated by reference
from our Proxy Statement to be used in connection with our 2004
Annual Meeting of Stockholders, to be filed with the Commission
within 120 days of January 26, 2004.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

|       |  |                                                                                                                                                                                                                                                                     |  |      |    | 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|       |  |                                                                                                                                                                                                                                                                     |  | Page
|       |  |                                                                                                                                                                                                                                                                     |  |     
|(a)(1) |  | Index to Consolidated Financial
    Statements:                                                                                                                                                                                                                     |  |      |    | 
|       |  | Independent Auditors Report                                                                                                                                                                                                                                        |  |      | 64 | 
|       |  | Consolidated Balance Sheets  as of
    January 31, 2004 and 2003                                                                                                                                                                                                   |  |      | 65 | 
|       |  | Consolidated Statements of Operations 
    for the fiscal years ended January 31, 2004, 2003 and 2002                                                                                                                                                              |  |      | 66 | 
|       |  | Consolidated Statements of Stockholders
    Equity  for the fiscal years ended January 31,
    2004, 2003 and 2002                                                                                                                                                |  |      | 67 | 
|       |  | Consolidated Statements of Cash Flows 
    for the fiscal years ended January 31, 2004, 2003 and 2002                                                                                                                                                              |  |      | 68 | 
|       |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                          |  |      | 69 | 
|       |  | All schedules are omitted since the required
    information is not present in amounts sufficient to require
    submission of the schedule, or because the information required
    is included in the consolidated financial statements or the
    notes thereto. |  |      |    | 
|(a)(2) |  | Exhibits:An
    Exhibit Index has been filed as a part of this
    Form 10-K beginning on page 111 hereof and is
    incorporated herein by reference.                                                                                                            |  |      |    | 
|(b)    |  | Current Reports on Form 8-K:                                                                                                                                                                                                                                        |  |      |    | 
|       |  | A Current Report on Form 8-K, dated
    December 10, 2003, was filed during the fourth quarter of
    fiscal 2004, furnishing the Companys financial results for
    the third quarter ended November 3, 2003.                                                     |  |      |    | 
|       |  | A Current Report on Form 8-K/A, dated
    December 10, 2003, was filed during the fourth quarter of
    fiscal 2004, furnishing a correction to the Companys
    financial results for the third quarter ended November 3,
    2003.                               |  |      |    | 

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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                      
| | ---------------------
| | CKE RESTAURANTS, INC.



| |     |                     
| | --- | --------------------
| | By: | /s/ ANDREW F. PUZDER

| |                                          
| | -----------------------------------------
| |                                          
| | Andrew F. Puzder,                        
| | President and Chief Executive
    Officer

Date: April 7, 2004

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 IIWilliam P. Foley, II |  | Chairman of the Board                                                                              |  | April 7, 2004
|                                           
|/s/ ANDREW F. PUZDERAndrew F. Puzder        |  | President and Chief Executive Officer
    (Principal Executive Officer)                            |  | April 7, 2004
|                                           
|/s/ THEODORE ABAJIANTheodore Abajian        |  | Executive Vice President, Chief Financial Officer
    (Principal Financial and Accounting Officer) |  | April 7, 2004
|                                           
|/s/ BYRON ALLUMBAUGHByron Allumbaugh        |  | Director                                                                                           |  | April 7, 2004
|                                           
|/s/ DOUG AMMERMANDoug Ammerman              |  | Director                                                                                           |  | April 7, 2004
|                                           
|/s/ PETER CHURMPeter Churm                  |  | Director                                                                                           |  | April 7, 2004
|                                           
|/s/ CARL L. KARCHERCarl L. Karcher          |  | Director                                                                                           |  | April 7, 2004
|                                           
|/s/ CARL N. KARCHERCarl N. Karcher          |  | Director                                                                                           |  | April 7, 2004
|                                           
|/s/ DANIEL D. LANEDaniel D. Lane            |  | Vice Chairman of the Board                                                                         |  | April 7, 2004

62



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|                                       |  |          |  |               |  | 
|-------------------------------------- |  | -------- |  | ------------- |  | 
|                                       |  |          |  |              
|Signature                              |  | Title    |  | Date         
|                                       |  |          |  |              
|                                      
|/s/ RONALD B. MAGGARDRonald B. Maggard |  | Director |  | April 7, 2004
|                                      
|/s/ DANIEL PONDERDaniel Ponder         |  | Director |  | April 7, 2004
|                                      
|/s/ FRANK P. WILLEYFrank P. Willey     |  | Director |  | April 7, 2004

63



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##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

CKE Restaurants, Inc.:


We have audited the accompanying consolidated
balance sheets of CKE Restaurants, Inc. and subsidiaries as of
January 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the years in the three-year period ended
January 31, 2004. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
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, 2004 and January 31, 2003, and the results
of their operations and their cash flows for each of the years
in the three-year period ended January 31, 2004, in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in notes 1 and 3 of notes
to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets and Statement of
Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, during
the first and fourth quarters of fiscal 2003, respectively.



| |             
| | ------------
| | /s/ KPMG LLP

Orange County, California

March 26, 2004


64



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##### Table of Contents



Part 1.     Financial
Information

Item 1.     Consolidated
Financial Statements

CKE RESTAURANTS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |          |         | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ----------- | ------- |  | ------- | -------- | ------- | 
|                                                                     |                                                                                                                                                                                | January 31,                                |         | January 31,
|                                                                     |                                                                                                                                                                                | 2004                                       |         | 2003       
|                                                                     |                                                                                                                                                                                |                                            |         |            
|                                                                     |                                                                                                                                                                                |                                           
|                                                                     |                                                                                                                                                                                | (Dollars in thousands                     
|                                                                     |                                                                                                                                                                                | except par values)                        
|ASSETS                                                              
|Current assets:                                                      |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     | Cash and cash equivalents                                                                                                                                                      |                                            | $       | 54,355      |         |  | $       | 18,440   |        
|                                                                     | Accounts receivable, net                                                                                                                                                       |                                            |         | 26,729      |         |  |         | 40,593   |        
|                                                                     | Related party trade receivables                                                                                                                                                |                                            |         | 7,991       |         |  |         | 5,106    |        
|                                                                     | Inventories                                                                                                                                                                    |                                            |         | 18,492      |         |  |         | 19,224   |        
|                                                                     | Prepaid expenses                                                                                                                                                               |                                            |         | 15,589      |         |  |         | 16,325   |        
|                                                                     | Assets held for sale                                                                                                                                                           |                                            |         | 18,760      |         |  |         | 21,170   |        
|                                                                     | Other current assets                                                                                                                                                           |                                            |         | 1,656       |         |  |         | 1,492    |        
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total current assets                       |         |             | 143,572 |  |         |          | 122,350 | 
|Notes receivable                                                     |                                                                                                                                                                                |                                            | 2,317   |             |         |  | 3,891   |         
|Property and equipment, net                                          |                                                                                                                                                                                |                                            | 518,881 |             |         |  | 553,325 |         
|Property under capital leases, net                                   |                                                                                                                                                                                |                                            | 46,382  |             |         |  | 59,014  |         
|Goodwill                                                             |                                                                                                                                                                                |                                            | 22,649  |             |         |  | 56,708  |         
|Other assets                                                         |                                                                                                                                                                                |                                            | 39,522  |             |         |  | 48,185  |         
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total assets                               |         | $           | 773,323 |  |         | $        | 843,473 | 
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY                            
|Current liabilities:                                                 |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     | Current portion of bank indebtedness and other
    long-term debt                                                                                                              |                                            | $       | 26,843      |         |  | $       | 25,320   |        
|                                                                     | Current portion of capital lease obligations                                                                                                                                   |                                            |         | 7,042       |         |  |         | 9,782    |        
|                                                                     | Accounts payable                                                                                                                                                               |                                            |         | 47,592      |         |  |         | 56,968   |        
|                                                                     | Other current liabilities                                                                                                                                                      |                                            |         | 107,439     |         |  |         | 101,732  |        
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total current liabilities                  |         |             | 188,916 |  |         |          | 193,802 | 
|Bank indebtedness and other long-term debt, less
    current portion |                                                                                                                                                                                |                                            | 22,428  |             |         |  | 3,596   |         
|Senior subordinated notes                                            |                                                                                                                                                                                |                                            | 200,000 |             |         |  | 200,000 |         
|Convertible subordinated notes due 2004                              |                                                                                                                                                                                |                                            |        |             |         |  | 122,319 |         
|Convertible subordinated notes due 2023                              |                                                                                                                                                                                |                                            | 105,000 |             |         |  |        |         
|Capital lease obligations, less current portion                      |                                                                                                                                                                                |                                            | 57,111  |             |         |  | 62,518  |         
|Other long-term liabilities                                          |                                                                                                                                                                                |                                            | 53,636  |             |         |  | 67,664  |         
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total liabilities                          |         |             | 627,091 |  |         |          | 649,899 | 
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|Stockholders 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 59,216,000 shares and
    58,868,000 shares on January 31, 2004 and 2003, respectively |                                            |         | 592         |         |  |         | 589      |        
|                                                                     | Additional paid-in capital                                                                                                                                                     |                                            |         | 464,689     |         |  |         | 463,474  |        
|                                                                     | Officer and non-employee director notes receivable                                                                                                                             |                                            |         | (2,530      | )       |  |         | (2,530   | )      
|                                                                     | Accumulated deficit                                                                                                                                                            |                                            |         | (306,113    | )       |  |         | (257,553 | )      
|                                                                     | Treasury stock at cost, 1,585,000 shares                                                                                                                                       |                                            |         | (10,406     | )       |  |         | (10,406  | )      
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total stockholders equity                 |         |             | 146,232 |  |         |          | 193,574 | 
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         
|                                                                     |                                                                                                                                                                                | Total liabilities and stockholders equity |         | $           | 773,323 |  |         | $        | 843,473 | 
|                                                                     |                                                                                                                                                                                |                                            |         |             |         |  |         |         

See Accompanying Notes to Consolidated Financial
Statements

65



---



##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |           |           | 
|-------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | --------- | --------- | ---- | -------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                                           |                                                                                                                                                                               |                                            
|                                                                                                                           |                                                                                                                                                                               | Fiscal Years Ended January 31,             
|                                                                                                                           |                                                                                                                                                                               |                                            
|                                                                                                                           |                                                                                                                                                                               | 2004                                        |         | 2003      |           | 2002
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |     
|                                                                                                                           |                                                                                                                                                                               |                                            
|                                                                                                                           |                                                                                                                                                                               | (In thousands except per share amounts)    
|Revenue:                                                                                                                   |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Company-operated restaurants                                                                                                                                                  |                                             | $       | 1,142,929 |           |      | $        | 1,109,646 |           |   | $         | 1,174,384 |          
|                                                                                                                           | Franchised and licensed restaurants and other                                                                                                                                 |                                             |         | 270,508   |           |      |          | 253,749   |           |   |           | 263,743   |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           |                                                                                                                                                                               | Total revenue                               |         |           | 1,413,437 |      |          |           | 1,363,395 |   |           |           | 1,438,127 | 
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Operating costs and expenses:                                                                                              |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Restaurant operations:                                                                                                                                                        |                                             |         |           |           |      |          |           |           |   |           |           |          
|                                                                                                                           |                                                                                                                                                                               | Food and packaging                          |         |           | 340,676   |      |          |           | 320,217   |   |           |           | 356,157   | 
|                                                                                                                           |                                                                                                                                                                               | Payroll and other employee benefit expenses |         |           | 370,700   |      |          |           | 358,827   |   |           |           | 381,756   | 
|                                                                                                                           |                                                                                                                                                                               | Occupancy and other operating expenses      |         |           | 262,036   |      |          |           | 252,971   |   |           |           | 266,874   | 
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           |                                                                                                                                                                               |                                             | 973,412 |           |           |      | 932,015  |           |           |   | 1,004,787 |          
|                                                                                                                           | Franchised and licensed restaurants and other                                                                                                                                 |                                             |         | 211,809   |           |      |          | 196,525   |           |   |           | 202,520   |          
|                                                                                                                           | Advertising expenses                                                                                                                                                          |                                             |         | 71,154    |           |      |          | 72,382    |           |   |           | 73,184    |          
|                                                                                                                           | General and administrative expenses                                                                                                                                           |                                             |         | 107,799   |           |      |          | 114,438   |           |   |           | 112,540   |          
|                                                                                                                           | Facility action charges, net                                                                                                                                                  |                                             |         | 19,788    |           |      |          | 6,012     |           |   |           | 75,111    |          
|                                                                                                                           | Impairment of goodwill                                                                                                                                                        |                                             |         | 34,059    |           |      |          |          |           |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           |                                                                                                                                                                               | Total operating costs and expenses          |         |           | 1,418,021 |      |          |           | 1,321,372 |   |           |           | 1,468,142 | 
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Operating income (loss)                                                                                                    |                                                                                                                                                                               |                                             | (4,584  | )         |           |      | 42,023   |           |           |   | (30,015   | )        
|Interest expense                                                                                                           |                                                                                                                                                                               |                                             | (39,991 | )         |           |      | (39,954  | )         |           |   | (53,937   | )        
|Other income (expense), net                                                                                                |                                                                                                                                                                               |                                             | 648     |           |           |      | 15,809   |           |           |   | (588      | )        
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Income (loss) before income taxes, discontinued
    operations and cumulative effect of accounting change for
    goodwill |                                                                                                                                                                               |                                             | (43,927 | )         |           |      | 17,878   |           |           |   | (84,540   | )        
|Income tax expense (benefit)                                                                                               |                                                                                                                                                                               |                                             | 1,843   |           |           |      | (7,932   | )         |           |   | (584      | )        
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Income (loss) from continuing operations                                                                                   |                                                                                                                                                                               |                                             | (45,770 | )         |           |      | 25,810   |           |           |   | (83,956   | )        
|Discontinued operations:                                                                                                   |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Loss from operations of discontinued segment (net
    of income tax benefit of $0 and $31 for the fiscal years ended
    January 31, 2004 and January 31, 2003, respectively) |                                             |         | (2,790    | )         |      |          | (53       | )         |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Income (loss) before cumulative effect of
    accounting change for goodwill                                               |                                                                                                                                                                               |                                             | (48,560 | )         |           |      | 25,757   |           |           |   | (83,956   | )        
|Cumulative effect of accounting change for
    goodwill                                                                    |                                                                                                                                                                               |                                             |        |           |           |      | (175,780 | )         |           |   |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Net loss                                                                                                                   |                                                                                                                                                                               | $                                           | (48,560 | )         |           | $    | (150,023 | )         |           | $ | (83,956   | )        
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Basic income (loss) per common share:                                                                                      |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Continuing operations                                                                                                                                                         |                                             | $       | (0.77     | )         |      | $        | 0.45      |           |   | $         | (1.66     | )        
|                                                                                                                           | Discontinued operations                                                                                                                                                       |                                             |         | (0.05     | )         |      |          |          |           |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Income (loss) before cumulative effect of
    accounting change                                                                                                               |                                             |         | (0.82     | )         |      |          | 0.45      |           |   |           | (1.66     | )        
|                                                                                                                           | Cumulative effect of accounting change for
    goodwill                                                                                                                       |                                             |         |          |           |      |          | (3.10     | )         |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Net loss                                                                                                                                                                      |                                             |         | (0.82     | )         |      |          | (2.65     | )         |   |           | (1.66     | )        
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Diluted income (loss) per common share:                                                                                    |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Continuing operations                                                                                                                                                         |                                             |         | (0.77     | )         |      |          | 0.44      |           |   |           | (1.66     | )        
|                                                                                                                           | Discontinued operations                                                                                                                                                       |                                             |         | (0.05     | )         |      |          |          |           |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Income (loss) before cumulative effect of
    accounting change                                                                                                               |                                             |         | (0.82     | )         |      |          | 0.44      |           |   |           | (1.66     | )        
|                                                                                                                           | Cumulative effect of accounting change for
    goodwill                                                                                                                       |                                             |         |          |           |      |          | (3.02     | )         |   |           |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|                                                                                                                           | Net loss                                                                                                                                                                      |                                             | $       | (0.82     | )         |      | $        | (2.58     | )         |   | $         | (1.66     | )        
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Weighted-average common shares outstanding:                                                                                |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Basic                                                                                                                      |                                                                                                                                                                               |                                             | 59,121  |           |           |      | 56,649   |           |           |   | 50,507    |          
|Dilutive effect of stock options, warrants and
    convertible notes                                                       |                                                                                                                                                                               |                                             |        |           |           |      | 1,475    |           |           |   |          |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          
|Diluted                                                                                                                    |                                                                                                                                                                               |                                             | 59,121  |           |           |      | 58,124   |           |           |   | 50,507    |          
|                                                                                                                           |                                                                                                                                                                               |                                             |         |           |           |      |          |           |           |   |           |          

See Accompanying Notes to Consolidated Financial
Statements

66



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

FISCAL YEARS ENDED JANUARY 31, 2004,
2003, AND 2002


|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |        |   |   |          |          |   |  |        |   |  |   |         |   |  |   |         |          |  
|--------------------------- | -------------------------------------------------- | -------------- | ------ | ---------- |  | -------------- | --- | ----------- |  | -------------- | ------- | ------------- |  | ------ | ------ | ------ | - | - | -------- | -------- | - |  | ------ | - |  | - | ------- | - |  | - | ------- | -------- | -
|                            |                                                    |                |        |            |  | Officer and    |     |             |  |                |         |              
|                            |                                                    | Common Stock   |        | Additional |  | Non-employee   |     |             |  | Treasury Stock |         | Total        
|                            |                                                    |                |        | Paid-In    |  | Director Notes |     | Accumulated |  |                |         | Stockholders
|                            |                                                    | Shares         |        | Amount     |  | Capital        |     | Receivable  |  | Deficit        |         | Shares        |  | Amount |        | Equity
|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |       
|                            |                                                    |               
|                            |                                                    | (In thousands)
|Balance at January 31, 2001 |                                                    |                | 52,086 |            |  | $              | 521 |             |  | $              | 383,016 |               |  |        |       |        |   | $ | (23,574  | )        |   |  | (1,585 | ) |  | $ | (10,406 | ) |  |   | 349,557 |         
|                            | Exercise of stock options                          |                |        | 76         |  |                |     | 1           |  |                |         | 283           |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 284      |  
|                            | Conversion of convertible subordinated notes       |                |        |           |  |                |     |            |  |                |         | 20            |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 20       |  
|                            | Officer and non-employee director notes receivable |                |        |           |  |                |     |            |  |                |         |              |  |        |        | (4,239 | ) |   |          |         |   |  |        |  |  |   |         |  |  |   |         | (4,239   | )
|                            | Net loss                                           |                |        |           |  |                |     |            |  |                |         |              |  |        |        |       |   |   |          | (83,956  | ) |  |        |  |  |   |         |  |  |   |         | (83,956  | )
|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |        |   |   |          |          |   |  |        |   |  |   |         |   |  |   |         |         
|Balance at January 31, 2002 |                                                    |                | 52,162 |            |  |                | 522 |             |  |                | 383,319 |               |  |        | (4,239 | )      |   |   | (107,530 | )        |   |  | (1,585 | ) |  |   | (10,406 | ) |  |   | 261,666 |         
|                            | Exercise of stock options                          |                |        | 353        |  |                |     | 3           |  |                |         | 1,270         |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 1,273    |  
|                            | Conversion of convertible subordinated notes       |                |        | 1          |  |                |     |            |  |                |         | 134           |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 134      |  
|                            | Officer and non-employee director notes receivable |                |        |           |  |                |     |            |  |                |         |              |  |        |        | 1,709  |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 1,709    |  
|                            | Issuance of stock in conjunction with acquisition  |                |        | 6,352      |  |                |     | 64          |  |                |         | 78,751        |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 78,815   |  
|                            | Net loss                                           |                |        |           |  |                |     |            |  |                |         |              |  |        |        |       |   |   |          | (150,023 | ) |  |        |  |  |   |         |  |  |   |         | (150,023 | )
|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |        |   |   |          |          |   |  |        |   |  |   |         |   |  |   |         |         
|Balance at January 31, 2003 |                                                    |                | 58,868 |            |  |                | 589 |             |  |                | 463,474 |               |  |        | (2,530 | )      |   |   | (257,553 | )        |   |  | (1,585 | ) |  |   | (10,406 | ) |  |   | 193,574 |         
|                            | Exercise of stock options                          |                |        | 348        |  |                |     | 3           |  |                |         | 1,215         |  |        |        |       |   |   |          |         |   |  |        |  |  |   |         |  |  |   |         | 1,218    |  
|                            | Net loss                                           |                |        |           |  |                |     |            |  |                |         |              |  |        |        |       |   |   |          | (48,560  | ) |  |        |  |  |   |         |  |  |   |         | (48,560  | )
|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |        |   |   |          |          |   |  |        |   |  |   |         |   |  |   |         |         
|Balance at January 31, 2004 |                                                    |                | 59,216 |            |  | $              | 592 |             |  | $              | 464,689 |               |  | $      | (2,530 | )      |   | $ | (306,113 | )        |   |  | (1,585 | ) |  | $ | (10,406 | ) |  | $ | 146,232 |         
|                            |                                                    |                |        |            |  |                |     |             |  |                |         |               |  |        |        |        |   |   |          |          |   |  |        |   |  |   |         |   |  |   |         |         

See Accompanying Notes to Consolidated Financial
Statements

67



---



##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |          |         |          |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | -------- | -
|                                     |                                                                                                                           |                                                                                                           
|                                     |                                                                                                                           | Fiscal Years Ended January 31,                                                                            
|                                     |                                                                                                                           |                                                                                                           
|                                     |                                                                                                                           | 2004                                                                                                       |                                                         | 2003     |         | 2002   
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |        
|                                     |                                                                                                                           |                                                                                                           
|                                     |                                                                                                                           | (In thousands)                                                                                            
|Cash flow from operating activities: |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     | Net loss                                                                                                                  |                                                                                                            | $                                                       | (48,560  | )       |         | $ | (150,023 | )       |         | $ | (83,956  | )      
|                                     | Adjustments to reconcile net loss to net cash
    provided by operating activities, excluding effects of
    acquisition: |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |          |        
|                                     |                                                                                                                           | Cumulative effect of accounting change                                                                     |                                                         |          |        |         |   |          | 175,780 |         |   |          |        |         
|                                     |                                                                                                                           | Impairment of goodwill                                                                                     |                                                         |          | 34,059  |         |   |          |        |         |   |          |        |         
|                                     |                                                                                                                           | Depreciation and amortization                                                                              |                                                         |          | 66,959  |         |   |          | 63,064  |         |   |          | 70,871  |         
|                                     |                                                                                                                           | Amortization of loan fees                                                                                  |                                                         |          | 4,451   |         |   |          | 4,238   |         |   |          | 9,616   |         
|                                     |                                                                                                                           | Provision for (recovery of) losses on accounts
    and notes receivable                                    |                                                         |          | 2,260   |         |   |          | (1,290  | )       |   |          | 6,057   |         
|                                     |                                                                                                                           | (Gain) loss on investments, sale of property and
    equipment, capital leases and extinguishment of debts |                                                         |          | 3,275   |         |   |          | (10,586 | )       |   |          |        |         
|                                     |                                                                                                                           | Facility action charges, net                                                                               |                                                         |          | 19,788  |         |   |          | 6,012   |         |   |          | 75,111  |         
|                                     |                                                                                                                           | Other, non cash charges (credits)                                                                          |                                                         |          | (284    | )       |   |          | 13      |         |   |          | 2,300   |         
|                                     |                                                                                                                           | Change in estimated liability for closing
    restaurants and estimated liability for self-insurance       |                                                         |          | (10,304 | )       |   |          | (16,476 | )       |   |          | (21,215 | )       
|                                     |                                                                                                                           | Net change in refundable income taxes                                                                      |                                                         |          | 643     |         |   |          | 3,262   |         |   |          | 31,539  |         
|                                     |                                                                                                                           | Net change in receivables, inventories, prepaid
    expenses and other current assets                      |                                                         |          | 2,971   |         |   |          | (11,075 | )       |   |          | 1,695   |         
|                                     |                                                                                                                           | Net change in accounts payable and other current
    liabilities                                           |                                                         |          | (3,742  | )       |   |          | (1,990  | )       |   |          | (16,633 | )       
|                                     |                                                                                                                           | Loss from operations of discontinued segment                                                               |                                                         |          | 2,790   |         |   |          | 53      |         |   |          |        |         
|                                     |                                                                                                                           | Net cash provided to discontinued operations                                                               |                                                         |          | (244    | )       |   |          | (3,104  | )       |   |          |        |         
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     |                                                                                                                           |                                                                                                            | Net cash provided by operating activities               |          |         | 74,062  |   |          |         | 57,878  |   |          |         | 75,385   |  
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|Cash flow from investing activities: |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     | Purchase of:                                                                                                              |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |          |        
|                                     |                                                                                                                           | Property and equipment                                                                                     |                                                         |          | (47,873 | )       |   |          | (77,405 | )       |   |          | (25,503 | )       
|                                     | Proceeds from sale of:                                                                                                    |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |          |        
|                                     |                                                                                                                           | Marketable securities and long-term investments                                                            |                                                         |          |        |         |   |          | 9,248   |         |   |          | 4,121   |         
|                                     |                                                                                                                           | Property and equipment                                                                                     |                                                         |          | 18,827  |         |   |          | 23,781  |         |   |          | 68,278  |         
|                                     | Collections on notes receivable and net change in
    related party receivables                                           |                                                                                                            |                                                         | 5,133    |         |         |   | 2,884    |         |         |   | 2,625    |        
|                                     | Acquisition of SBRG, net of payments made to
    acquire SBRG                                                             |                                                                                                            |                                                         |         |         |         |   | 1,670    |         |         |   |         |        
|                                     | Net change in other assets                                                                                                |                                                                                                            |                                                         | 3,937    |         |         |   | 2,409    |         |         |   | 4,154    |        
|                                     | Dispositions of brand, net of cash surrendered                                                                            |                                                                                                            |                                                         |         |         |         |   |         |         |         |   | 62,412   |        
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     |                                                                                                                           |                                                                                                            | Net cash provided by (used in) investing
    activities |          |         | (19,976 | ) |          |         | (37,413 | ) |          |         | 116,087  |  
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|Cash flow from financing activities: |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     | Net change in bank overdraft                                                                                              |                                                                                                            |                                                         | (2,613   | )       |         |   | 3,387    |         |         |   | 6,633    |        
|                                     | Long-term borrowings                                                                                                      |                                                                                                            |                                                         | 149,500  |         |         |   | 114,500  |         |         |   | 140,217  |        
|                                     | Proceeds from issuance of convertible debt                                                                                |                                                                                                            |                                                         | 101,588  |         |         |   |         |         |         |   |         |        
|                                     | Proceeds from credit facility term loan                                                                                   |                                                                                                            |                                                         | 25,000   |         |         |   |         |         |         |   |         |        
|                                     | Repayments of long-term debt                                                                                              |                                                                                                            |                                                         | (274,500 | )       |         |   | (129,957 | )       |         |   | (308,737 | )      
|                                     | Repayments of capital lease obligations                                                                                   |                                                                                                            |                                                         | (10,727  | )       |         |   | (10,340  | )       |         |   | (10,645  | )      
|                                     | Payment of deferred financing costs                                                                                       |                                                                                                            |                                                         | (6,227   | )       |         |   | (5,432   | )       |         |   | (4,208   | )      
|                                     | Net change in other long-term liabilities                                                                                 |                                                                                                            |                                                         | (472     | )       |         |   | (1,941   | )       |         |   | (3,015   | )      
|                                     | Repayment of credit facility term loan                                                                                    |                                                                                                            |                                                         | (938     | )       |         |   |         |         |         |   |         |        
|                                     | Collection (issuance) of officer and non-employee
    director notes receivable                                           |                                                                                                            |                                                         |         |         |         |   | 1,709    |         |         |   | (4,239   | )      
|                                     | Exercise of stock options and conversion of
    convertible subordinated notes                                            |                                                                                                            |                                                         | 1,218    |         |         |   | 1,407    |         |         |   | 304      |        
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     |                                                                                                                           |                                                                                                            | Net cash used in financing activities                   |          |         | (18,171 | ) |          |         | (26,667 | ) |          |         | (183,690 | )
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     | Net increase (decrease) in cash and cash
    equivalents                                                                  |                                                                                                            |                                                         | 35,915   |         |         |   | (6,202   | )       |         |   | 7,782    |        
|                                     | Cash and cash equivalents at beginning of year                                                                            |                                                                                                            |                                                         | 18,440   |         |         |   | 24,642   |         |         |   | 16,860   |        
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         
|                                     | Cash and cash equivalents at end of year                                                                                  |                                                                                                            | $                                                       | 54,355   |         |         | $ | 18,440   |         |         | $ | 24,642   |        
|                                     |                                                                                                                           |                                                                                                            |                                                         |          |         |         |   |          |         |         |   |         

See Accompanying Notes to Consolidated Financial
Statements

68



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Fiscal Years Ended January 31, 2004, 2003
and 2002


(Dollars in thousands, except per share
amounts)


Note 1  Significant Accounting
Policies

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



| |                        
| | -----------------------
| | Description of Business

CKE Restaurants, Inc. (CKE or the
Company), through its wholly-owned subsidiaries,
owns, operates, franchises and licenses the Carls Jr.,
Hardees, and The Green Burrito (Green
Burrito), which is primarily operated as a dual-brand
concept with Carls Jr. quick-service restaurant and La
Salsa Fresh Mexican Grill (La Salsa) restaurant
concepts. Carls Jr. restaurants are primarily located in
the Western United States, predominantly in California.
Hardees restaurants are located throughout the
Southeastern and Midwestern United States. Green Burrito
restaurants are located in California. La Salsa restaurants are
primarily located in California. As of January 31, 2004,
the Companys system-wide restaurant portfolio consisted of:

|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |       | 
|----------------------- | ----- | ---------- | --- | -------- |  | -------- | ----- | ----- |  | ----- | -- | --- |  |  | -- | -- |  |  | ----- | ----- | 
|                        |       | Carls Jr. |     | Hardees |  | La Salsa |       | Other |  | Total
|                        |       |            |     |          |  |          |       |       |  |      
|Company-operated        |       |            | 426 |          |  |          | 721   |       |  |       | 61 |     |  |  | 4  |    |  |  | 1,212 |      
|Franchised and licensed |       |            | 580 |          |  |          | 1,400 |       |  |       | 41 |     |  |  | 17 |    |  |  | 2,038 |      
|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |      
|                        | Total |            |     | 1,006    |  |          |       | 2,121 |  |       |    | 102 |  |  |    | 21 |  |  |       | 3,250 | 
|                        |       |            |     |          |  |          |       |       |  |       |    |     |  |  |    |    |  |  |       |      

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 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 bank credit facility. Under these
circumstances, the Company was compelled to reduce its level of
bank debt and embarked upon a program to sell restaurants,
including the Taco Bueno brand, 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 the estimated liability for closing
restaurants and wrote-down the carrying value of certain
restaurant properties and charged a loss to operations as their
performance did not support their 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
five 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. These events
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. The
Companys fiscal year is 52 or 53 weeks, ending the
last Monday in January each year. Fiscal years 2004, 2003 and
2002 each included 52 weeks of operations. For clarity of
presentation, the Company has labeled all years presented as
fiscal year ended January 31.

69



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | 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 and paper items.



| |                         
| | ------------------------
| | Deferred Financing Costs

Costs related to the issuance of debt are
deferred and amortized, utilizing a method that 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 if the borrowing capacity of its debt is reduced.



| |                     
| | --------------------
| | Assets Held for Sale

Assets held for sale consist of restaurant
concepts and individual properties the Company has decided to
divest. Such assets are classified as current assets upon
meeting the requirements of Statement of Financial Accounting
Standards No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets
(SFAS 144), and the Company thereafter no
longer depreciates such assets.



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost, less
accumulated depreciation, amortization and impairment
writedowns. 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.



| |                  
| | -----------------
| | Capitalized Costs

Pending issuance of a proposed accounting rule,
the Company has elected to account for construction costs in a
manner similar to SFAS 67, Accounting for Costs and
Initial Rental Operations of Real Estate Projects. As
such, costs that have a future benefit for the project(s) are
capitalized.



| |         
| | --------
| | Goodwill

In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, Goodwill is tested annually for
impairment, and is tested for impairment more frequently if
events and circumstances indicate that the asset might be
impaired. The Company performs its annual impairment test during
the first quarter of its fiscal year. An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value. The Company considers the reporting
unit level to be the brand level as the components (e.g.,
restaurants) within each brand have similar economic
characteristics, including products and services, production
processes, types or classes of customers and distribution
methods. This determination is made at the reporting unit level
and consists of two steps. First, the Company determines the
fair value of a reporting unit and compares it to its carrying
amount. Second, if the carrying amount of a reporting unit
exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting units
goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the
fair value of the reporting unit in a manner similar to a
purchase price allocation, in accordance with Statement of
Financial Accounting Standards No. 141,

70



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Business
Combinations. The residual fair
value after this allocation is the implied fair value of the
reporting unit goodwill.



| |                        
| | -----------------------
| | 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 accompanying consolidated financial statements as
facility action charges, net:



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | (i) Impairment of long-lived assets for
    under-performing restaurants;                
|
| | (ii) Store closure costs;                                                                
|
| | (iii) Gains (losses) on the sale of
    restaurants; and                                 
|
| | (iv) Amortization of discount related to
    estimated liability for closing restaurants.



|    |                                
|--- | -------------------------------
|(i) | Impairment of Long-Lived Assets

The Company adopted SFAS 144 during the
first quarter of fiscal 2003. The initial adoption of
SFAS 144 did not affect the Companys consolidated
financial statements. SFAS 144 provides a single accounting
model for long-lived assets, including intangible assets subject
to amortization, to be disposed of. SFAS 144 also changes
the criteria for classifying an asset as held for sale, broadens
the scope of businesses to be disposed of that qualify for
reporting as discontinued operations and changes the timing of
recognizing losses on such operations.

In accordance with SFAS 144, long-lived
assets, such as property, plant, and equipment and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset (including the
value of restaurant intangible assets) to its estimated
undiscounted future cash flows. If the undiscounted future cash
flows are less than the carrying value, an impairment charge is
recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset.

(ii) Store
Closure Costs

Management makes decisions to close restaurants
based on the prospects for estimated future profitability. Our
restaurant operators evaluate each restaurants performance
each quarter. When restaurants continue to perform 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
judgment, we estimate the future cash flows. If we determine
that the restaurant will not be profitable, within a reasonable
period of time, operate at break-even cash flow or be
profitable, and there are no contractual requirements to
continue operating the restaurant, we may close the restaurant.
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 an estimated liability for the closed restaurant if we
decide not to operate it as a company-operated restaurant.

The Company establishes the estimated liability
on the actual closure date. Prior to the adoption of Statement
of Financial Accounting Standards No.146, Accounting for
Costs Associated with Exit or Disposal Activities
(SFAS 146) on January 1, 2003, the Company
established the estimated liability when management identified a
restaurant for closure, which may or may not have been the
actual closure date. The estimated liability for closing
restaurants is generally based on the term of the lease and the
lease termination fee we expect to pay, as well as estimated
maintenance costs.

71



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The amount of the estimated liability established
is the present value of these estimated future payments. The
interest rate used to calculate the present value of these
liabilities is based on the Companys incremental borrowing
rate at the time the liability is established. The related
discount is amortized and shown as an additional component of
facility action charges, net in the accompanying consolidated
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 carrying values of the restaurants sold.

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

The Company records this amortization as a
component of facility action charges, net.



| |                   
| | ------------------
| | Loss Contingencies

The Company assesses each loss contingency to
determine estimates of the degree of probability and range of
possible settlement. Those contingencies deemed to be probable,
and where the amount of such loss is reasonably estimable, are
accrued in the Companys consolidated financial statements.
The Company does not record liabilities for losses it believes
are only reasonably possible to result in an adverse outcome,
which is in accordance with SFAS No. 5.



| |               
| | --------------
| | Self-insurance

The Company is self-insured for a portion of its
current and prior years losses related to workers
compensation, property and general liability insurance programs.
The Company has obtained stop-loss insurance for individual
workers compensation claims and individual general
liability claims over $500. Insurance liabilities are accounted
for based on the present value of independent actuarial
estimates of the amount of loss incurred. These estimates rely
on actuarial observations of historical claim loss development.
During the fourth quarter of fiscal 2004, the Company changed
its estimated discount rate to 4.5% and, as a result, recorded a
charge to operations of approximately $1,600.



| |                                      
| | -------------------------------------
| | Franchise and Licensed
    Operations

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

The Company incurs expenses that benefit both its
franchisee and licensee communities. These expenses, along with
other costs of sales and servicing of franchise and license
agreements, are charged to franchising expense as incurred. 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 allowance is established at inception and charged
to facility action charges, net.

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, an estimated loss is
calculated. The total of the estimated losses is then compared
to the allowance for bad debts recorded in the Companys
consolidated financial statements and an adjustment, if any, is
recorded. At the time a franchisee becomes 90 days
delinquent, the Company ceases recording royalties

72



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and rent income and reverses royalties and rent
income accrued during the previous 90 days. Royalties and
rent income are thereafter not accrued until 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 franchise
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
the Company is the primary obligee) or, if necessary, the
termination of the franchise agreement. The amount of the
allowance established is based on the Companys assessment
of the most probable action that will occur.



| |                    
| | -------------------
| | Revenue Recognition

Revenues for company-operated restaurants are
recognized upon the sale of food or beverage to a customer in
the restaurant. Revenues from franchised and licensed
restaurants include continuing rent and service fees, initial
fees and royalties. Continuing fees and royalties are recognized
in the period earned. Initial fees are recognized upon the
opening of a restaurant, which is when the Company has performed
substantially all initial services required by the franchise
agreement. Renewal fees are recognized when a renewal agreement
becomes effective. Rental income is recognized in the period
earned. Sales of food and equipment to franchisees are
recognized at the time of delivery.



| |            
| | -----------
| | Advertising

The Company utilizes a single advertising fund
(the Carls Jr. Fund) to administer its
Carls Jr. advertising programs and a national and several
local co-operative advertising funds to administer its
Hardees advertising programs (the Hardees
Funds). The Company consolidates the Carls Jr. Fund
into its financial statements on a net basis, whereby
contributions from franchisees, when received, are recorded as
offsets to the Companys reported advertising expenses.

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, when the
commercial is first aired. The Companys contributions to
the Hardees advertising cooperatives are expensed when
paid. During the first quarter of fiscal 2005, the Company will
begin to consolidate the Hardees Funds on a net basis as
well (see Accounting Pronouncements Not Yet Adopted
herein).



| |             
| | ------------
| | Income Taxes

Income taxes are accounted for under the asset
and liability method in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). 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,
estimated liability for closing restaurants, estimated
liabilities for self-insurance, tax credits and operating losses
for tax and financial reporting purposes. These differences
result in deferred tax assets and liabilities, which are
included net of valuation allowances within the accompanying
consolidated balance sheets. 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 SFAS 109.

73



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | 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, including goodwill, and
    establish the estimated liability for closing restaurants and
    subsidizing sublease payments of franchisees;
|
| |  | determination of the appropriate allowances
    associated with franchise and license receivables;                                                                                                                                     
|
| |  | estimation, using actuarially determined methods,
    of our self-insured claim losses under our workers
    compensation, property and general liability insurance programs;                                                         
|
| |  | determination of the appropriate estimated
    liabilities for loss contingencies;                                                                                                                                                     
|
| |  | determination of the appropriate assumptions to
    use to estimate the fair value of stock-based compensation for
    purposes of disclosures of pro forma net income; and                                                            
|
| |  | Estimation of our net deferred income tax asset
    valuation allowance.                                                                                                                                                               



| |                        
| | -----------------------
| | Income (loss) per share

The Company presents basic and
diluted income (loss) per share. Basic income (loss)
per share represents net income (loss) divided by
weighted-average shares outstanding. Diluted income (loss) per
share represents net income (loss) divided by weighted-average
shares outstanding including all potentially dilutive securities
and excluding all potentially anti-dilutive securities.

The following table presents the number of
potentially dilutive shares, in thousands, of the Companys
common stock excluded from the computation of diluted income
(loss) per share:

|                       |  |      |       |      |  |      |       |  |  |  |       | 
|---------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                       |  | 2004 |       | 2003 |  | 2002
|                       |  |      |       |      |  |     
|2004 Convertible Notes |  |      | 2,258 |      |  |      | 3,191 |  |  |  | 3,633 | 
|2023 Convertible Notes |  |      | 1,112 |      |  |      |      |  |  |  |      | 
|Stock Options          |  |      | 4,860 |      |  |      | 4,658 |  |  |  | 7,700 | 
|Warrants               |  |      | 982   |      |  |      | 898   |  |  |  |      | 

Potentially dilutive shares related to the 2004
Convertible Notes, stock options and warrants were excluded as
their effect would have been anti-dilutive. Potentially dilutive
shares related to the 2023 Convertible Notes were excluded
because the notes were not convertible during the fiscal year
and their effect would have been anti-dilutive.

Stock-Based
Compensation

In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148). SFAS 148
amends SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), to provide alternative
methods of transition for a voluntary change to the fair-value
method for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Disclosures required by this standard are
included in the notes to these consolidated financial statements.

74



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For purposes of the following pro forma
disclosures required by SFAS 148 and SFAS 123, the fair
value of each option has been estimated on the date of grant
using the Black-Scholes option-pricing model. The Black-Scholes
option-pricing 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, the
risk-free rate and the expected term of the option. 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.

The Company accounts for stock-based compensation
in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.

The assumptions used for grants in the fiscal
years ended January 31, 2004, 2003 and 2002 are as follows:

|                                                                                                                                    |  |      |       |      |  |      |      |   |  |   |      |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                                                                                    |  | 2004 |       | 2003 |  | 2002
|                                                                                                                                    |  |      |       |      |  |     
|Annual dividends                                                                                                                    |  | $    |      |      |  | $    |     |   |  | $ |     |  
|Expected volatility (based on the historical
    volatility for a term matched to the expected life of all
    options outstanding) |  |      | 140.8 | %    |  |      | 29.5 | % |  |   | 60.0 | %
|Risk-free interest rate (matched to the expected
    term of the outstanding option)                                                |  |      | 2.12  | %    |  |      | 2.97 | % |  |   | 4.48 | %
|Expected life of all options outstanding (years)                                                                                    |  |      | 5.45  |      |  |      | 5.30 |   |  |   | 5.38 |  
|Weighted-average fair value of each option granted                                                                                  |  | $    | 5.20  |      |  | $    | 6.33 |   |  | $ | 2.41 |  

The assumptions used to determine the fair value
of each option granted are highly subjective. Changes in the
assumptions used would affect the fair value of the options
granted as follows:

|                                                                |  |                               |       |      |  |      |       |   |  |   |       |  
|--------------------------------------------------------------- |  | ----------------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                |  |                              
|                                                                |  | Increase/(Decrease) in       
|                                                                |  | Fair Value of Options Granted
|                                                                |  |                              
|Change in Assumption                                            |  | 2004                          |       | 2003 |  | 2002
|                                                                |  |                               |       |      |  |     
|10% increase in volatility                                      |  | $                             | 0.11  |      |  | $    | 0.15  |   |  | $ | 0.21  |  
|1% increase in risk-free rate                                   |  |                               | 0.01  |      |  |      | 0.02  |   |  |   | 0.04  |  
|1 year increase in expected life of all
    options outstanding |  |                               | 0.14  |      |  |      | 0.19  |   |  |   | 0.16  |  
|10% decrease in volatility                                      |  |                               | (0.15 | )    |  |      | (0.17 | ) |  |   | (0.23 | )
|1% decrease in risk-free rate                                   |  |                               | (0.02 | )    |  |      | (0.02 | ) |  |   | (0.04 | )
|1 year decrease in expected life of all
    options outstanding |  |                               | (0.21 | )    |  |      | (0.27 | ) |  |   | (0.20 | )

The following table reconciles reported net loss
to pro forma net loss assuming compensation expense for
stock-based compensation had been recognized in accordance with
SFAS 123 for fiscal years ended January 31, 2004, 2003 and
2002.

|                                                                                                     |                       |      |         |       |   |      |          |       |   |   |         |       |  
|---------------------------------------------------------------------------------------------------- | --------------------- | ---- | ------- | ----- | - | ---- | -------- | ----- | - | - | ------- | ----- | -
|                                                                                                     |                       | 2004 |         | 2003  |   | 2002
|                                                                                                     |                       |      |         |       |   |     
|Net loss, as reported                                                                                |                       | $    | (48,560 | )     |   | $    | (150,023 | )     |   | $ | (83,956 | )    
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method |                       |      | (2,956  | )     |   |      | (2,496   | )     |   |   | (4,476  | )    
|                                                                                                     |                       |      |         |       |   |      |          |       |   |   |         |      
|Net loss  pro forma                                                                                 |                       | $    | (51,516 | )     |   | $    | (152,519 | )     |   | $ | (88,432 | )    
|                                                                                                     |                       |      |         |       |   |      |          |       |   |   |         |      
|Loss per common share:                                                                               |                       |      |         |       |   |      |          |       |   |   |         |      
|                                                                                                     | Basic  as reported   |      | $       | (0.82 | ) |      | $        | (2.65 | ) |   | $       | (1.66 | )
|                                                                                                     | Basic  pro forma     |      |         | (0.87 | ) |      |          | (2.69 | ) |   |         | (1.75 | )
|                                                                                                     | Diluted  as reported |      |         | (0.82 | ) |      |          | (2.58 | ) |   |         | (1.66 | )
|                                                                                                     | Diluted  pro forma   |      |         | (0.87 | ) |      |          | (2.62 | ) |   |         | (1.75 | )

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Comprehensive
Income

The Company did not have any other comprehensive
income items requiring reporting under SFAS 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. The Companys segments are
determined at the brand level (see Note 21).

Reclassifications

Prior year amounts in the consolidated financial
statements have been reclassified to conform to current year
presentation.

Adoption of
New Accounting Pronouncements

During the fourth quarter of fiscal 2003, the
Company adopted SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS146). SFAS 146 supersedes EITF No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring), and requires that a
liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Such
liabilities should be recorded at fair value and updated for any
changes in the fair value each period. This change is effective
for new exit or disposal activities initiated after
December 31, 2002. SFAS 146 changes the timing of expense
recognition for certain costs the Company incurs while closing
restaurants or undertaking other exit or disposal activities.

The timing difference can be significant. The
following table provides a reconciliation of the reported net
loss for fiscal 2003 and 2002 to the net loss for fiscal 2003
and 2002 adjusted as though SFAS 146 had been effective for each
of those fiscal years:

|                                                  |  |      |          |      |  |   |         |  
|------------------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | -
|                                                  |  | 2003 |          | 2002
|                                                  |  |      |          |     
|Reported net loss                                 |  | $    | (150,023 | )    |  | $ | (83,956 | )
|Net effect of retroactive application of SFAS 146 |  |      | (499     | )    |  |   | (10,763 | )
|                                                  |  |      |          |      |  |   |         |  
|Pro forma net loss                                |  | $    | (150,522 | )    |  | $ | (94,719 | )
|                                                  |  |      |          |      |  |   |         |  

During the fourth quarter of fiscal 2003, the
Company adopted Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others (FIN
45) which expands previously issued accounting guidance
and disclosure requirements for certain guarantees. FIN 45
requires companies to recognize an initial liability for the
fair value of an obligation assumed by issuing a guarantee. The
provision for initial recognition and measurement of the
liability is applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of
FIN 45 did not have a material effect on the Companys
consolidated financial statements.

Accounting
Pronouncements Not Yet Adopted

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities 
an interpretation of Accounting Research Bulletin
(ARB) No. 51. This Interpretation is
intended to clarify the application of the majority voting
interest requirement of ARB No. 51, Consolidated
Financial Statements, to certain entities in which
equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 requires the consolidation of these entities, known as
variable interest entities (VIEs), by the primary
beneficiary of the entity. The primary beneficiary is the
entity, if

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

any, that is subject to a majority of the risk of
loss from the VIEs activities, entitled to receive a
majority of the VIEs residual returns, or both. FIN 46 may
be applied prospectively with a cumulative-effect adjustment as
of the date on which it is first applied or by restating
previously issued financial statements for one or more years
with a cumulative-effect adjustment as of the beginning of the
first year restated. FIN 46 is applicable immediately to
variable interests in a variable interest entity
(VIE) created or obtained after January 31,
2003.

During the course of 2003, the FASB proposed
modifications to FIN 46 and issued FASB Staff Positions
(FSPs) that changed and clarified FIN 46. These
modifications and FSPs were subsequently incorporated into
FIN 46 (revised) (FIN 46R), which was issued on
December 23, 2003 and replaced FIN 46. FIN 46R is
effective for all entities at the end of the first reporting
period ending after March 15, 2004 (the quarter ending
May 17, 2004 for the Company). FIN 46 was effective
for special-purpose entities (as defined by FIN 46R) at the
end of the first reporting period ending after December 15,
2003, which did not impact the Companys consolidated
financial statements. FIN 46R requires certain disclosures
in financial statements issued after December 31, 2003, if
it is reasonably possible that the Company will consolidate or
disclose information about VIEs when FIN 46R becomes
effective.

FIN 46R excludes operating businesses, as
defined, from its scope subject to four conditions, and states
the provisions of FIN 46R need not be applied if a company
is unable, subject to making an exhaustive effort, to obtain the
necessary information. The Company is currently evaluating
whether any of the aforementioned conditions exist that would
subject any of its franchise arrangements to the provisions of
FIN 46R, requiring the Company to determine if they are
VIEs, and, if so, whether the Company is the primary
beneficiary. The Company does not possess any ownership
interests in its franchisees. Additionally, the Company
generally does not provide financial support to its franchisees
in a typical franchise relationship. Also, the Companys
franchise agreements currently do not require its franchisees to
provide the timely financial information necessary to apply the
provisions of FIN 46R to its franchisees.

The Company continues to evaluate the
applicability of FIN 46R to its franchise relationships,
and has not yet determined whether required consolidation of
franchise entities, if any, would be material to its
consolidated financial statements. Consolidation of some, if
any, of these arrangements, at a minimum would result in a
gross up of amounts such as revenues and expenses.
None of these entities have been consolidated in the
Companys financial statements.

The Company utilizes various advertising funds
(Funds) to administer its advertising programs. The
Carls Jr. National Advertising Fund (CJNAF) is
Carls Jr.s sole cooperative advertising program. The
Company consolidates CJNAF into its financial statements on a
net basis, whereby contributions from franchisees, when
received, are recorded as offsets to the Companys reported
advertising expenses. The Hardees cooperative advertising
funds consist of Hardees National Advertising Fund
(HNAF) and many local advertising cooperative funds
(Co-op Funds). Each of these funds is a separate
non-profit association, with all proceeds segregated and managed
by a third-party accounting service company. The Company has
determined that consolidation of all of its advertising funds is
appropriate under FIN 46R. As noted above, the Company has
historically consolidated the Carls Jr. advertising fund.
However, the Hardees advertising funds will be newly
consolidated upon full adoption of FIN 46R at the end of the
fiscal quarter ending May 17, 2004.

The Company has determined the impact of the
consolidation of HNAF and the Co-op Funds will be an increase of
approximately $20,000 to current assets and liabilities. The
Company does not anticipate the consolidation of the funds will
have a material impact on the Companys results of
operations or stockholders equity.

Note 2  Acquisitions

On March 1, 2002, the Company acquired Santa
Barbara Restaurant Group Inc. (SBRG). SBRG
owns, operates and franchises the Green Burrito, La Salsa and
Timber Lodge restaurant chains. Through the

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys dual-branding relationship with
the GB Franchise Corporation, an indirect wholly-owned
subsidiary of SBRG, Carls Jr. was SBRGs largest
franchisee. At the time of the acquisition, SBRG was a related
party to the company (see Note 16). The Company acquired
SBRG for strategic purposes, which included gaining control of
the Green Burrito brand, eliminating the payment of royalties on
franchised restaurants, investing in the fast-casual segment,
which is an emerging competitor to the quick-service restaurant
segment, and providing the Company with a growth opportunity in
the Fresh Mex segment with La Salsa. The results of
operations of SBRG (excluding the operations of Timber Lodge,
which are classified as discontinued operations) are included in
the operating results for the fiscal year ended January 31,
2004 and the period March 1, 2002 through January 31,
2003. The purchase price consisted of 6,352,000 shares of the
Companys common stock, warrants to purchase
982,000 shares of the Companys common stock and
options to purchase 1,663,000 shares of the Companys
common stock valued in total at $78,815, plus transaction costs
of $1,465.

The final allocation of the purchase price to the
assets acquired, including goodwill and liabilities assumed in
the acquisition of SBRG, are as follows:

|                                          |  |   |        | 
|----------------------------------------- |  | - | ------ | 
|Current assets                            |  | $ | 3,074  | 
|Property and equipment                    |  |   | 11,023 | 
|Goodwill                                  |  |   | 44,729 | 
|Net assets held for sale                  |  |   | 9,835  | 
|Other assets                              |  |   | 23,782 | 
|                                          |  |   |        | 
|Total assets acquired                     |  |   | 92,443 | 
|                                          |  |   |        | 
|Current liabilities                       |  |   | 5,471  | 
|Long-term debt, excluding current portion |  |   | 6,500  | 
|Other long-term liabilities               |  |   | 192    | 
|                                          |  |   |        | 
|Total liabilities assumed                 |  |   | 12,163 | 
|                                          |  |   |        | 
|Net assets acquired                       |  | $ | 80,280 | 
|                                          |  |   |        | 

The Company acquired identifiable intangible
assets as a result of the acquisition of SBRG. The intangible
assets acquired, included in other assets above, excluding
goodwill, are classified and valued as follows:

|                                 |  |                     |               |  |  |   |        | 
|-------------------------------- |  | ------------------- | ------------- |  |  | - | ------ | 
|Intangible Asset                 |  | Amortization Period |               | 
|                                 |  |                     |               | 
|Trademarks                       |  |                     | 20 years      |  |  | $ | 17,171 | 
|Franchise agreements             |  |                     | 20 years      |  |  |   | 1,780  | 
|Favorable leases                 |  |                     | 6 to 15 years |  |  |   | 3,132  | 
|                                 |  |                     |               |  |  |   |        | 
|Total intangible assets acquired |  |                     |               |  |  | $ | 22,083 | 
|                                 |  |                     |               |  |  |   |        | 

Amortization expense related to identifiable
intangible assets acquired as a result of the acquisition of
SBRG was $1,396 and $1,136 for fiscal year 2004 and the period
from March 1, 2002 (the date of acquisition) through
January 31, 2003, respectively.

Identified intangible assets are amortized over
periods of 6-20 years. We expect amortization expense to be
approximately $1,442 during fiscal 2005, declining to
approximately $1,248 during fiscal 2009.

Selected unaudited pro forma combined results of
operations for the fiscal years ended January 31, 2003 and
2002, assuming the SBRG acquisition occurred at the beginning of
the fiscal year ended January 31, 2002,

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

using actual restaurant-level margins and general
and administrative expenses prior to the acquisition, are as
follows:

|                                                                             |                                                                 |                   |           |             |   |   |           |        |  
|---------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------- | --------- | ----------- | - | - | --------- | ------ | -
|                                                                             |                                                                 |                  
|                                                                             |                                                                 | Fiscal Year Ended
|                                                                             |                                                                 |                  
|                                                                             |                                                                 | January 31,       |           | January 31,
|                                                                             |                                                                 | 2003              |           | 2002       
|                                                                             |                                                                 |                   |           |            
|Total revenue                                                                |                                                                 | $                 | 1,364,736 |             |   | $ | 1,480,123 |       
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|Income (loss) before cumulative effect of
    accounting change for goodwill |                                                                 |                   | 24,548    |             |   |   | (82,061   | )     
|Cumulative effect of accounting change for
    goodwill                      |                                                                 |                   | (175,780  | )           |   |   |          |       
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|Net loss                                                                     |                                                                 | $                 | (151,232  | )           |   | $ | (82,061   | )     
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|Basic income (loss) per common share:                                        |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Income (loss) before cumulative effect of
    accounting change |                   | $         | 0.43        |   |   | $         | (1.44  | )
|                                                                             | Cumulative effect of accounting change for
    goodwill         |                   |           | (3.08       | ) |   |           |       |  
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Net loss                                                        |                   | $         | (2.65       | ) |   | $         | (1.44  | )
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|Diluted income (loss) per common share:                                      |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Income (loss) before cumulative effect of
    accounting change |                   | $         | 0.42        |   |   | $         | (1.44  | )
|                                                                             | Cumulative effect of accounting change for
    goodwill         |                   |           | (3.00       | ) |   |           |       |  
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Net loss                                                        |                   | $         | (2.58       | ) |   | $         | (1.44  | )
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|Weighted-average common shares outstanding:                                  |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Basic                                                           |                   |           | 57,139      |   |   |           | 56,859 |  
|                                                                             | Dilutive effect of stock options                                |                   |           | 1,475       |   |   |           |       |  
|                                                                             |                                                                 |                   |           |             |   |   |           |       
|                                                                             | Diluted                                                         |                   |           | 58,614      |   |   |           | 56,859 |  
|                                                                             |                                                                 |                   |           |             |   |   |           |       

Note 3  Goodwill

During the first quarter of fiscal 2003, the
Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), which supercedes
APB Opinion No. 17, Intangible Assets and certain
provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of (SFAS 121). SFAS 142 requires that
goodwill and other intangibles be reported separately;
eliminates the requirement to amortize goodwill and
indefinite-lived assets; addresses the amortization of
intangible assets with a defined life; and addresses impairment
testing and recognition of goodwill and intangible assets.
SFAS 142 changed the method of accounting for the
recoverability of goodwill for the Company, such that it is
evaluated at the brand level based upon the estimated fair value
of the brand. Fair value can be determined based on discounted
cash flows, on comparable sales or valuations of other
restaurant brands. In the past, the Company allocated goodwill
to each restaurant and evaluated the recoverability of goodwill
on a restaurant-by-restaurant basis. Under SFAS 142, the
valuation methodology is significantly different. The impairment
review involves 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
    the reporting brands goodwill. If the carrying amount of
    the reporting brands goodwill is

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |  |                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | greater than the implied fair value of its
    goodwill, an impairment loss must be recognized for the excess.
    The transitional impairment charge, if any, is recorded as a
    cumulative effect of accounting change for goodwill.

During the first quarter of fiscal 2004, the
Company completed its annual assessment of the valuation of the
Carls Jr. and La Salsa brands assisted by an outside
party. That assessment concluded that the fair value of the
brands exceeded the carrying value and no impairment was
recorded.

During the fourth quarter of fiscal 2004, based
on the deterioration of La Salsas business during fiscal
2004 and the reduction in future growth plans, the Company
determined that certain triggering events occurred under SFAS
142. Accordingly, the Company completed another assessment of
the valuation of the La Salsa brand assisted by an outside
party. That assessment concluded that the carrying value of the
brand exceeded the fair value and that the value of La
Salsas goodwill was $0. Accordingly, the Company recorded
an impairment charge of $34,059 representing the write-off of
all of the goodwill associated with the acquisition of La Salsa.

During the first quarter of fiscal year 2003, the
Company completed its initial SFAS 142 transitional impairment
test of goodwill which included an assessment of the valuation
of the Hardees brand provided by an outside party. This
resulted in recording an impairment charge of $175,780,
representing the write-off of all of the goodwill related to the
Hardees brand as a cumulative effect of a change in
accounting. Substantially all of that impairment charge resulted
from the Companys adoption of SFAS 142, as prior analyses
performed under SFAS 121 did not indicate the value of
Hardees goodwill had suffered impairment to that level.
The Companys internal assessment of the valuation of the
Carls Jr. brand resulted in no adjustment to the net
carrying amount of goodwill.

The changes in the net carrying amount of
goodwill for fiscal 2003 and fiscal 2004 are as follows:

|                                                                            |  |        |          |  
|--------------------------------------------------------------------------- |  | ------ | -------- | -
|                                                                            |  | Amount
|                                                                            |  |       
|Balance as of January 31, 2002                                              |  | $      | 186,868  |  
|Recording of goodwill related to acquisition of
    SBRG                    |  |        | 44,729   |  
|Recording of goodwill related to acquisitions of
    franchised restaurants |  |        | 891      |  
|Cumulative effect of accounting change for
    goodwill                     |  |        | (175,780 | )
|                                                                            |  |        |          |  
|Balance as of January 31, 2003                                              |  |        | 56,708   |  
|Impairment of goodwill associated with La Salsa                             |  |        | (34,059  | )
|                                                                            |  |        |          |  
|Balance as of January 31, 2004                                              |  | $      | 22,649   |  
|                                                                            |  |        |          |  

Additionally, the Company ceased amortization of
goodwill in accordance with SFAS 142. The following table
provides a reconciliation of the reported net loss for fiscal
2002 to the net loss for fiscal 2002 adjusted as though SFAS 142
had been effective:

|                                                                                            |  |        |         |           |  |   |       |  
|------------------------------------------------------------------------------------------- |  | ------ | ------- | --------- |  | - | ----- | -
|                                                                                            |  |       
|                                                                                            |  | 2002  
|                                                                                            |  |       
|                                                                                            |  |        |         | Basic and
|                                                                                            |  |        |         | Diluted  
|                                                                                            |  |        |         | Loss Per 
|                                                                                            |  | Amount |         | Share    
|                                                                                            |  |        |         |          
|Reported net loss                                                                           |  | $      | (83,956 | )         |  | $ | (1.66 | )
|Add back goodwill amortization expense (reported
    in general and administrative expense) |  |        | 5,736   |           |  |   | 0.11  |  
|                                                                                            |  |        |         |           |  |   |       |  
|Pro forma net loss                                                                          |  | $      | (78,220 | )         |  | $ | (1.55 | )
|                                                                                            |  |        |         |           |  |   |       |  

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 4  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:

|       |       |            |    |          |  |            |    |          |  |            |   |          |  |  |    |    |  |  |    |    |  |  |     |     | 
|------ | ----- | ---------- | -- | -------- |  | ---------- | -- | -------- |  | ---------- | - | -------- |  |  | -- | -- |  |  | -- | -- |  |  | --- | --- | 
|       |       |            |    |          |  |           
|       |       | 2004       |    | 2003     |  | 2002      
|       |       |            |    |          |  |           
|       |       | Carls Jr. |    | Hardees |  | Carls Jr. |    | Hardees |  | Carls Jr. |   | Hardees
|       |       |            |    |          |  |            |    |          |  |            |   |         
|Sold   |       |            | 15 |          |  |            |   |          |  |            | 2 |          |  |  | 1  |    |  |  | 30 |    |  |  | 27  |    
|Closed |       |            | 4  |          |  |            | 15 |          |  |            | 3 |          |  |  | 23 |    |  |  | 24 |    |  |  | 159 |    
|       |       |            |    |          |  |            |    |          |  |            |   |          |  |  |    |    |  |  |    |    |  |  |     |    
|       | Total |            |    | 19       |  |            |    | 15       |  |            |   | 5        |  |  |    | 24 |  |  |    | 54 |  |  |     | 186 | 
|       |       |            |    |          |  |            |    |          |  |            |   |          |  |  |    |    |  |  |    |    |  |  |     |    

The components of facility action charges
(gains) are as follows:

|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |         |  
|---------------------- | ----------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ----- | ------ | - |  | ------ | ------- | -
|                       |                                                                                     | 2004 |        | 2003   |   | 2002
|                       |                                                                                     |      |        |        |   |     
|Carls Jr.             |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       | New decisions regarding closing restaurants                                         |      | $      | 3,075  |   |      | $     | 194    |   |  | $      | 656     |  
|                       | Favorable dispositions of leased and fee surplus
    properties, net                |      |        | (767   | ) |      |       | (273   | ) |  |        |        |  
|                       | Impairment of assets to be disposed of                                              |      |        |       |   |      |       | 478    |   |  |        | 6,378   |  
|                       | Impairment of assets to be held and used                                            |      |        | 1,372  |   |      |       | 930    |   |  |        | 8,145   |  
|                       | Gain on sales of restaurants and surplus
    property, net                          |      |        | (1,160 | ) |      |       | (492   | ) |  |        | (14,237 | )
|                       | Amortization of discount related to estimated
    liability for closing restaurants |      |        | 323    |   |      |       | 481    |   |  |        | 647     |  
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       |                                                                                     |      | 2,843  |        |   |      | 1,318 |        |   |  | 1,589  |        
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|Hardees               |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       | New decisions regarding closing restaurants                                         |      |        | 2,631  |   |      |       | 1,187  |   |  |        | 28,255  |  
|                       | Favorable dispositions of leased and fee surplus
    properties, net                |      |        | (6,952 | ) |      |       | (2,416 | ) |  |        | (14,210 | )
|                       | Impairment of assets to be disposed of                                              |      |        | 12,054 |   |      |       | 2,703  |   |  |        | 39,170  |  
|                       | Impairment of assets to be held and used                                            |      |        | 5,241  |   |      |       | 4,037  |   |  |        | 7,093   |  
|                       | (Gain) loss on sales of restaurants and surplus
    property, net                   |      |        | 2,071  |   |      |       | (3,108 | ) |  |        | 5,432   |  
|                       | Amortization of discount related to estimated
    liability for closing restaurants |      |        | 2,248  |   |      |       | 2,291  |   |  |        | 3,075   |  
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       |                                                                                     |      | 17,293 |        |   |      | 4,694 |        |   |  | 68,815 |        
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|Rallys and Taco Bueno |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       | Loss on divestiture                                                                 |      |        |       |   |      |       |       |   |  |        | 4,707   |  
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|Other                  |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       | New decisions regarding closing restaurants                                         |      |        | 121    |   |      |       |       |   |  |        |        |  
|                       | Favorable dispositions of leased and fee surplus
    properties, net                |      |        | (846   | ) |      |       |       |   |  |        |        |  
|                       | Impairment of Assets to be disposed of                                              |      |        | 1      |   |      |       |       |   |  |        |        |  
|                       | Impairment of Assets to be held and used                                            |      |        | 429    |   |      |       |       |   |  |        |        |  
|                       | Gain on sales of restaurants and surplus
    properties, net                        |      |        | (54    | ) |      |       |       |   |  |        |        |  
|                       | Amortization of discount related to estimated
    liability for closing restaurants |      |        | 1      |   |      |       |       |   |  |        |        |  
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        
|                       |                                                                                     |      | (348   | )      |   |      |      |        |   |  |       |        
|                       |                                                                                     |      |        |        |   |      |       |        |   |  |        |        

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|      |                                                                                     |      |        |        |   |      |       |        |   |   |        |         |  
|----- | ----------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ----- | ------ | - | - | ------ | ------- | -
|      |                                                                                     | 2004 |        | 2003   |   | 2002
|      |                                                                                     |      |        |        |   |     
|Total |                                                                                     |      |        |        |   |      |       |        |   |   |        |        
|      | New decisions regarding closing restaurants                                         |      |        | 5,827  |   |      |       | 1,381  |   |   |        | 28,911  |  
|      | Favorable dispositions of leased and fee surplus
    properties, net                |      |        | (8,565 | ) |      |       | (2,689 | ) |   |        | (14,210 | )
|      | Impairment of assets to be disposed of                                              |      |        | 12,055 |   |      |       | 3,181  |   |   |        | 45,548  |  
|      | Impairment of assets to be held and used                                            |      |        | 7,042  |   |      |       | 4,967  |   |   |        | 15,238  |  
|      | (Gain) loss on sales of restaurants and surplus
    property, net                   |      |        | 857    |   |      |       | (3,600 | ) |   |        | (4,098  | )
|      | Amortization of discount related to estimated
    liability for closing restaurants |      |        | 2,572  |   |      |       | 2,772  |   |   |        | 3,722   |  
|      |                                                                                     |      |        |        |   |      |       |        |   |   |        |        
|      |                                                                                     | $    | 19,788 |        |   | $    | 6,012 |        |   | $ | 75,111 |        
|      |                                                                                     |      |        |        |   |      |       |        |   |   |        |        

Impairments recorded as facility action charges
were recorded against the following asset categories:

|                              |            |      |        |        |  |      |       |       |  |   |        |        | 
|----------------------------- | ---------- | ---- | ------ | ------ |  | ---- | ----- | ----- |  | - | ------ | ------ | 
|                              |            | 2004 |        | 2003   |  | 2002
|                              |            |      |        |        |  |     
|Property, plant and equipment |            |      |        |        |  |      |       |       |  |   |        |       
|                              | Carls Jr. |      | $      | 801    |  |      | $     | 1,408 |  |   | $      | 14,523 | 
|                              | Hardees   |      |        | 14,280 |  |      |       | 6,740 |  |   |        | 33,820 | 
|                              | La Salsa   |      |        | 430    |  |      |       |      |  |   |        |       | 
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|                              |            |      | 15,511 |        |  |      | 8,148 |       |  |   | 48,343 |       
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|Property under capital leases |            |      |        |        |  |      |       |       |  |   |        |       
|                              | Carls Jr. |      |        | 571    |  |      |       |      |  |   |        |       | 
|                              | Hardees   |      |        | 2,536  |  |      |       |      |  |   |        |       | 
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|                              |            |      | 3,107  |        |  |      |      |       |  |   |       |       
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|Favorable lease rights        |            |      |        |        |  |      |       |       |  |   |        |       
|                              | Hardees   |      |        | 479    |  |      |       |      |  |   |        |       | 
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|                              |            |      | 479    |        |  |      |      |       |  |   |       |       
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|Goodwill, net                 |            |      |        |        |  |      |       |       |  |   |        |       
|                              | Hardees   |      |        |       |  |      |       |      |  |   |        | 12,443 | 
|                              | La Salsa   |      |        |       |  |      |       |      |  |   |        |       | 
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|                              |            |      |       |        |  |      |      |       |  |   | 12,443 |       
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|Total                         |            |      |        |        |  |      |       |       |  |   |        |       
|                              | Carls Jr. |      |        | 1,372  |  |      |       | 1,408 |  |   |        | 14,523 | 
|                              | Hardees   |      |        | 17,295 |  |      |       | 6,740 |  |   |        | 46,263 | 
|                              | La Salsa   |      |        | 430    |  |      |       |      |  |   |        |       | 
|                              |            |      |        |        |  |      |       |       |  |   |        |       
|                              |            | $    | 19,097 |        |  | $    | 8,148 |       |  | $ | 60,786 |       
|                              |            |      |        |        |  |      |       |       |  |   |        |       

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes the activity in
our estimated liability for closing restaurants.

|                            |                                                                     |   |        |         |  
|--------------------------- | ------------------------------------------------------------------- | - | ------ | ------- | -
|Balance at January 31, 2001 |                                                                     | $ | 51,695 |        
|                            | New decisions regarding closing restaurants                         |   |        | 28,911  |  
|                            | Usage                                                               |   |        | (19,424 | )
|                            | Favorable disposition of leased and fee surplus
    properties, net |   |        | (14,210 | )
|                            | Amortization of discount and other                                  |   |        | 2,286   |  
|                            |                                                                     |   |        |        
|Balance at January 31, 2002 |                                                                     |   | 49,258 |        
|                            | New decisions regarding closing restaurants                         |   |        | 1,381   |  
|                            | Usage                                                               |   |        | (14,632 | )
|                            | Favorable disposition of leased and fee surplus
    properties, net |   |        | (2,689  | )
|                            | Amortization of discount and other                                  |   |        | 3,072   |  
|                            |                                                                     |   |        |        
|Balance at January 31, 2003 |                                                                     |   | 36,390 |        
|                            | New decisions regarding closing restaurants                         |   |        | 5,827   |  
|                            | Usage                                                               |   |        | (13,899 | )
|                            | Favorable disposition of leased and fee surplus
    properties, net |   |        | (8,565  | )
|                            | Amortization of discount                                            |   |        | 2,572   |  
|                            |                                                                     |   |        |        
|Balance at January 31, 2004 |                                                                     |   | 22,325 |        
|                            | Current portion                                                     |   |        | 8,593   |  
|                            |                                                                     |   |        |        
|                            | Long-term portion                                                   |   | $      | 13,732  |  
|                            |                                                                     |   |        |        

During fiscal 2002, the Company reversed $6,440
of estimated liability previously established in anticipation
that certain restaurants would be closed. The Company was either
precluded from closing those restaurants under the terms of the
lease or decided not to close those restaurants. This amount is
included above in favorable disposition of leased and fee
surplus properties, net.

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

|                     |            |      |   |      |   |      |   |        |   |  |   |         |  
|-------------------- | ---------- | ---- | - | ---- | - | ---- | - | ------ | - |  | - | ------- | -
|                     |            | 2004 |   | 2003 |   | 2002
|                     |            |      |   |      |   |     
|Sales per restaurant |            |      |   |      |   |      |   |        |   |  |   |        
|                     | Carls Jr. |      | $ | 507  |   |      | $ | 534    |   |  | $ | 503     |  
|                     | Hardees   |      |   | 545  |   |      |   | 558    |   |  |   | 580     |  
|Operating loss       |            |      |   |      |   |      |   |        |   |  |   |        
|                     | Carls Jr. |      | $ | (328 | ) |      | $ | (385   | ) |  | $ | (1,488  | )
|                     | Hardees   |      |   | (968 | ) |      |   | (1,951 | ) |  |   | (10,947 | )

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 5  Accounts Receivable,
Net

Accounts receivable, net as of January 31,
2004 and 2003 consists of the following:

|                                  |  |      |        |      |  |   |        |  
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                  |  | 2004 |        | 2003
|                                  |  |      |        |     
|Trade receivables                 |  | $    | 27,184 |      |  | $ | 36,907 |  
|Refundable income taxes           |  |      | 1,142  |      |  |   | 1,786  |  
|Notes receivable, current portion |  |      | 3,756  |      |  |   | 6,699  |  
|Other                             |  |      | 227    |      |  |   | 224    |  
|Allowance for doubtful accounts   |  |      | (5,580 | )    |  |   | (5,023 | )
|                                  |  |      |        |      |  |   |        |  
|                                  |  | $    | 26,729 |      |  | $ | 40,593 |  
|                                  |  |      |        |      |  |   |        |  

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

|                                |  |      |        |      |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                |  | 2004 |        | 2003
|                                |  |      |        |     
|Franchisees                     |  | $    | 6,299  |      |  | $ | 7,032  |  
|Employees                       |  |      | 149    |      |  |   | 202    |  
|Other                           |  |      | 2,055  |      |  |   | 2,061  |  
|Allowance for doubtful accounts |  |      | (6,186 | )    |  |   | (5,404 | )
|                                |  |      |        |      |  |   |        |  
|                                |  | $    | 2,317  |      |  | $ | 3,891  |  
|                                |  |      |        |      |  |   |        |  

The following table summarizes the activity in
the allowance for doubtful accounts.

|                            |                       |            |       |            |   |       |        |        |   |   |        |        |  
|--------------------------- | --------------------- | ---------- | ----- | ---------- | - | ----- | ------ | ------ | - | - | ------ | ------ | -
|                            |                       | Accounts   |       | Notes      |   |      
|                            |                       | Receivable |       | Receivable |   | Total
|                            |                       |            |       |            |   |      
|Balance at January 31, 2001 |                       | $          | 7,641 |            |   | $     | 8,481  |        |   | $ | 16,122 |       
|                            | Provision             |            |       | 2,201      |   |       |        | 3,856  |   |   |        | 6,057  |  
|                            | Charge-offs           |            |       | (3,264     | ) |       |        | (1,259 | ) |   |        | (4,523 | )
|                            | Recoveries            |            |       | 124        |   |       |        |       |   |   |        | 124    |  
|                            |                       |            |       |            |   |       |        |        |   |   |        |       
|Balance at January 31, 2002 |                       | $          | 6,702 |            |   | $     | 11,078 |        |   | $ | 17,780 |       
|                            | Recovery of provision |            |       | (974       | ) |       |        | (316   | ) |   |        | (1,290 | )
|                            | Charge-offs           |            |       | (1,018     | ) |       |        | (5,358 | ) |   |        | (6,376 | )
|                            | Recoveries            |            |       | 313        |   |       |        |       |   |   |        | 313    |  
|                            |                       |            |       |            |   |       |        |        |   |   |        |       
|Balance at January 31, 2003 |                       | $          | 5,023 |            |   | $     | 5,404  |        |   | $ | 10,427 |       
|                            | Provision             |            |       | 789        |   |       |        | 1,471  |   |   |        | 2,260  |  
|                            | Charge-offs           |            |       | (552       | ) |       |        | (689   | ) |   |        | (1,241 | )
|                            | Recoveries            |            |       | 320        |   |       |        |       |   |   |        | 320    |  
|                            |                       |            |       |            |   |       |        |        |   |   |        |       
|Balance at January 31, 2004 |                       | $          | 5,580 |            |   | $     | 6,186  |        |   | $ | 11,766 |       
|                            |                       |            |       |            |   |       |        |        |   |   |        |       

84



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 6  Net Assets Held for
Sale

The Company made the decision to divest Timber
Lodge as the concept did not fit with its core concepts of QSR
and fast-casual restaurants. Assets held for sale as of
January 31, 2004 and 2003, consisted of the following:

|                      |                              |      |        |        |  |   |        |        | 
|--------------------- | ---------------------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|                      |                              | 2004 |        | 2003  
|                      |                              |      |        |       
|Assets held for sale: |                              |      |        |        |  |   |        |       
|                      | Total assets of Timber Lodge |      | $      | 15,930 |  |   | $      | 21,170 | 
|                      | Other surplus property       |      |        | 2,830  |  |   |        |       | 
|                      |                              |      |        |        |  |   |        |       
|                      |                              | $    | 18,760 |        |  | $ | 21,170 |       
|                      |                              |      |        |        |  |   |        |       

Net assets of Timber Lodge as of January 31,
2004 and 2003 consisted of the following:

|                            |                   |      |       |        |  |   |        |        | 
|--------------------------- | ----------------- | ---- | ----- | ------ |  | - | ------ | ------ | 
|                            |                   | 2004 |       | 2003  
|                            |                   |      |       |       
|ASSETS                      |                   |      |       |        |  |   |        |       
|Current assets              |                   | $    | 1,738 |        |  | $ | 1,874  |       
|Property and equipment, net |                   |      | 7,786 |        |  |   | 11,679 |       
|Other assets                |                   |      | 6,406 |        |  |   | 7,617  |       
|                            |                   |      |       |        |  |   |        |       
|                            | Total assets      |      |       | 15,930 |  |   |        | 21,170 | 
|                            |                   |      |       |        |  |   |        |       
|LIABILITIES                 |                   |      |       |        |  |   |        |       
|Current liabilities         |                   |      | 5,560 |        |  |   | 7,441  |       
|Other long-term liabilities |                   |      | 1,687 |        |  |   | 1,782  |       
|                            |                   |      |       |        |  |   |        |       
|                            | Total liabilities |      |       | 7,247  |  |   |        | 9,223  | 
|                            |                   |      |       |        |  |   |        |       
|NET ASSETS                  |                   | $    | 8,683 |        |  | $ | 11,947 |       
|                            |                   |      |       |        |  |   |        |       

The results of Timber Lodge, from the date of
acquisition, included in the Companys consolidated
statements of operations as discontinued operations are as
follows:

|                        |  |      |        |      |  |   |        |  
|----------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                        |  | 2004 |        | 2003
|                        |  |      |        |     
|Revenue                 |  | $    | 42,893 |      |  | $ | 41,915 |  
|                        |  |      |        |      |  |   |        |  
|Operating income (loss) |  |      | (2,771 | )    |  |   | 35     |  
|Interest expense        |  |      | 19     |      |  |   | 119    |  
|Income tax benefit      |  |      |       |      |  |   | (31    | )
|                        |  |      |        |      |  |   |        |  
|Net loss                |  | $    | (2,790 | )    |  | $ | (53    | )
|                        |  |      |        |      |  |   |        |  

In November 2000, the Company entered into a
stock purchase agreement to sell Taco Bueno. In June 2001, the
sale of Taco Bueno was completed for $62,412. Taco Buenos
operating results included in the Companys consolidated
statement of operations for the fiscal year ended
January 31, 2002 are as follows:

|                 |  |   |        | 
|---------------- |  | - | ------ | 
|Revenue          |  | $ | 37,538 | 
|Operating income |  |   | 3,693  | 

85



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 7  Property and
Equipment

Property and equipment consists of the following
as of January 31, 2004 and 2003:

|                                                |  |             |            |      |  |      |         |  |  |   |         | 
|----------------------------------------------- |  | ----------- | ---------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                |  | Estimated   |            |      |  |     
|                                                |  | Useful Life |            | 2004 |  | 2003
|                                                |  |             |            |      |  |     
|Land                                            |  |             |            |      |  | $    | 135,542 |  |  | $ | 150,127 | 
|Leasehold improvements                          |  |             | 4-25 years |      |  |      | 199,183 |  |  |   | 209,976 | 
|Buildings and improvements                      |  |             | 7-40 years |      |  |      | 250,718 |  |  |   | 241,889 | 
|Equipment, furniture and fixtures               |  |             | 3-10 years |      |  |      | 316,445 |  |  |   | 294,671 | 
|                                                |  |             |            |      |  |      |         |  |  |   |         | 
|                                                |  |             |            |      |  |      | 901,888 |  |  |   | 896,663 | 
|Less: accumulated depreciation and amortization |  |             |            |      |  |      | 383,007 |  |  |   | 343,338 | 
|                                                |  |             |            |      |  |      |         |  |  |   |         | 
|                                                |  |             |            |      |  | $    | 518,881 |  |  | $ | 553,325 | 
|                                                |  |             |            |      |  |      |         |  |  |   |         | 

During fiscal 2004 and 2003, the Company
capitalized interest expense in the amounts of $473 and $765,
respectively.

Note 8  Leases

The Company occupies land and buildings under
lease agreements expiring on various dates through 2066. 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 required. Most
leases obligate the Company to pay costs of maintenance,
insurance and property taxes.

Property under capital leases consists of the
following:

|                               |  |      |        |      |  |   |         | 
|------------------------------ |  | ---- | ------ | ---- |  | - | ------- | 
|                               |  | 2004 |        | 2003
|                               |  |      |        |     
|Buildings                      |  | $    | 90,729 |      |  | $ | 104,657 | 
|Equipment                      |  |      | 13,654 |      |  |   | 15,156  | 
|Less: accumulated amortization |  |      | 58,001 |      |  |   | 60,799  | 
|                               |  |      |        |      |  |   |         | 
|                               |  | $    | 46,382 |      |  | $ | 59,014  | 
|                               |  |      |        |      |  |   |         | 

Amortization is calculated on a straight-line
basis over the respective lease terms or the estimated useful
lives of the related assets which may exceed the lease term for
leased assets subject to bargain purchase options.

86



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Minimum lease payments for all leases, including
those in the estimated liability for closing restaurants, and
the present value of net minimum lease payments for capital
leases as of January 31, 2004 are as follows:

|                                                                                              |                              |         |        |           |  |   |         |         | 
|--------------------------------------------------------------------------------------------- | ---------------------------- | ------- | ------ | --------- |  | - | ------- | ------- | 
|                                                                                              |                              | Capital |        | Operating
|                                                                                              |                              |         |        |          
|Fiscal Year:                                                                                  |                              |         |        |           |  |   |         |        
|2005                                                                                          |                              | $       | 14,086 |           |  | $ | 82,524  |        
|2006                                                                                          |                              |         | 11,471 |           |  |   | 74,759  |        
|2007                                                                                          |                              |         | 10,745 |           |  |   | 65,754  |        
|2008                                                                                          |                              |         | 10,584 |           |  |   | 58,765  |        
|2009                                                                                          |                              |         | 10,355 |           |  |   | 50,064  |        
|Thereafter                                                                                    |                              |         | 50,763 |           |  |   | 263,777 |        
|                                                                                              |                              |         |        |           |  |   |         |        
|                                                                                              | Total minimum lease payments |         |        | 108,004   |  |   | $       | 595,643 | 
|                                                                                              |                              |         |        |           |  |   |         |        
|Less: amount representing interest                                                            |                              |         | 43,851 |           |  |   |         |        
|                                                                                              |                              |         |        |           |  |   |         |        
|Present value of minimum lease payments (interest
    rates primarily ranging from 8% to 14%) |                              |         | 64,153 |           |  |   |         |        
|Less: current portion                                                                         |                              |         | 7,042  |           |  |   |         |        
|                                                                                              |                              |         |        |           |  |   |         |        
|Capital lease obligations, excluding current
    portion                                      |                              | $       | 57,111 |           |  |   |         |        
|                                                                                              |                              |         |        |           |  |   |         |        

Total minimum lease payments have not been
reduced for future minimum sublease rentals of $204,067 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:

|                                      |  |      |  |     
|------------------------------------- |  | ---- |  | ----
|                                      |  | 2004 |  | 2003
|                                      |  |      |  |     
|Net minimum lease payments receivable |  | $596 |  | $898
|Less: unearned income                 |  | 77   |  | 155 
|                                      |  |      |  |     
|Net investment                        |  | $519 |  | $743
|                                      |  |      |  |     

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

|                                                |  |         |  |        
|----------------------------------------------- |  | ------- |  | -------
|                                                |  | 2004    |  | 2003   
|                                                |  |         |  |        
|Land                                            |  | $20,361 |  | $21,870
|Leasehold improvements                          |  | 8,410   |  | 8,356  
|Buildings and improvements                      |  | 27,582  |  | 29,974 
|Equipment, furniture and fixtures               |  | 4,369   |  | 5,036  
|                                                |  |         |  |        
|                                                |  | 60,722  |  | 65,236 
|Less: accumulated depreciation and amortization |  | 19,401  |  | 19,080 
|                                                |  |         |  |        
|                                                |  | $41,321 |  | $46,156
|                                                |  |         |  |        

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of January 31, 2004, minimum future
rentals expected to be received including amounts reducing the
estimated liability for closing restaurants, are as follows:

|                             |  |           |     |           |  |   |         | 
|---------------------------- |  | --------- | --- | --------- |  | - | ------- | 
|                             |  | Capital   |     | Operating
|                             |  | Leases or |     | Lessor   
|                             |  | Subleases |     | Leases   
|                             |  |           |     |          
|Fiscal Year:                 |  |           |     |           |  |   |         | 
|2005                         |  | $         | 277 |           |  | $ | 30,069  | 
|2006                         |  |           | 251 |           |  |   | 27,721  | 
|2007                         |  |           | 68  |           |  |   | 23,536  | 
|2008                         |  |           |    |           |  |   | 20,943  | 
|2009                         |  |           |    |           |  |   | 18,728  | 
|Thereafter                   |  |           |    |           |  |   | 83,070  | 
|                             |  |           |     |           |  |   |         | 
|Total minimum future rentals |  | $         | 596 |           |  | $ | 204,067 | 
|                             |  |           |     |           |  |   |         | 

Total minimum future rentals do not include
contingent rentals, which may be received under certain leases.

Aggregate rents under non-cancelable operating
leases were as follows:

|                       |  |      |        |      |  |      |        |  |  |   |        | 
|---------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                       |  | 2004 |        | 2003 |  | 2002
|                       |  |      |        |      |  |     
|Minimum rentals        |  | $    | 90,016 |      |  | $    | 83,596 |  |  | $ | 92,658 | 
|Contingent rentals     |  |      | 4,789  |      |  |      | 4,811  |  |  |   | 4,550  | 
|Less: sublease rentals |  |      | 32,251 |      |  |      | 30,844 |  |  |   | 36,461 | 
|                       |  |      |        |      |  |      |        |  |  |   |        | 
|                       |  | $    | 62,554 |      |  | $    | 57,563 |  |  | $ | 60,747 | 
|                       |  |      |        |      |  |      |        |  |  |   |        | 

During fiscal 2002, the Company entered into
certain sale leaseback transactions relating to restaurant
properties it currently operates in order to generate cash to
repay its bank indebtedness. During fiscal 2002, the Company
generated proceeds of $16,494 through such transactions with net
gains of $4,269. The net gains from such transactions were
deferred and are being amortized as a reduction to occupancy and
other operating expenses over the term of the leases.

Rent expense for the fiscal years ended
January 31, 2004, 2003 and 2002 was $90,980, $88,226 and
$82,313, respectively.

Note 9  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 March 2002, the Company acquired SBRG in a
stock-for-stock transaction (see Note 2).




| |                                        
| | ---------------------------------------
| | Checkers Drive-In Restaurants,
    Inc.

Through a series of transactions, the Company had
an investment in Checkers Drive-In Restaurants, Inc.
(Checkers). During fiscal 2003 and 2002, the Company
accounted for its investments under the equity method of
accounting, as its Chairman of the Board was also the Chairman
of Checkers. The Companys Chairman resigned as the
Chairman of Checkers on September 28, 2001 and resigned
from the Board of Directors of Checkers on May 29, 2002.
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


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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 $0 as of January 31, 2000. During fiscal 2003
and 2002, the Company sold 976,577 and 358,000 shares,
respectively, of Checkers common stock, and reflected gains of
$9,248 and $1,876, respectively in other income (expense), net
in the consolidated statements of operations (see Note 19). The
Company had fully divested its ownership interest in Checkers
during fiscal 2003.

Note 10  Other
Assets

Other assets as of January 31, 2004 and 2003
consist of the following:

|                                       |  |      |        |      |  |   |        | 
|-------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                       |  | 2004 |        | 2003
|                                       |  |      |        |     
|Trademarks and other intangible assets |  | $    | 18,903 |      |  | $ | 20,111 | 
|Surplus property                       |  |      |       |      |  |   | 9,336  | 
|Favorable lease rights                 |  |      | 5,820  |      |  |   | 8,102  | 
|Deferred financing costs               |  |      | 12,390 |      |  |   | 7,201  | 
|Net investment in lease receivables    |  |      | 293    |      |  |   | 519    | 
|Other                                  |  |      | 2,116  |      |  |   | 2,916  | 
|                                       |  |      |        |      |  |   |        | 
|                                       |  | $    | 39,522 |      |  | $ | 48,185 | 
|                                       |  |      |        |      |  |   |        | 

Note 11  Other Current
Liabilities

Other current liabilities as of January 31,
2004 and 2003 consist of the following:

|                                                             |  |      |         |      |  |   |         | 
|------------------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | 
|                                                             |  | 2004 |         | 2003
|                                                             |  |      |         |     
|Salaries, wages and other benefits                           |  | $    | 27,971  |      |  | $ | 25,289  | 
|State sales taxes                                            |  |      | 15,008  |      |  |   | 15,218  | 
|Estimated liability for closing restaurants                  |  |      | 8,593   |      |  |   | 15,120  | 
|Accrued interest                                             |  |      | 6,786   |      |  |   | 6,876   | 
|Liabilities related to Timber Lodge assets held
    for sale |  |      | 7,247   |      |  |   | 9,223   | 
|Estimated liability for self-insurance, current
    portion  |  |      | 14,432  |      |  |   | 6,314   | 
|Other accrued liabilities                                    |  |      | 27,402  |      |  |   | 23,692  | 
|                                                             |  |      |         |      |  |   |         | 
|                                                             |  | $    | 107,439 |      |  | $ | 101,732 | 
|                                                             |  |      |         |      |  |   |         | 

Note 12  Long-Term Debt and
Bank Indebtedness

Long-term debt as of January 31, 2004 and
2003 consists of the following:

|                                                                             |  |      |         |      |  |   |         | 
|---------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                             |  | 2004 |         | 2003
|                                                                             |  |      |         |     
|Borrowings under revolving portion of senior
    credit facility (see below) |  | $    |        |      |  | $ | 25,000  | 
|Term loan under senior credit facility (see below)                           |  |      | 24,062  |      |  |   |        | 
|Senior subordinated notes due 2009, interest at
    9.125%                   |  |      | 200,000 |      |  |   | 200,000 | 
|Convertible subordinated notes due 2023, interest
    at 4.00%               |  |      | 105,000 |      |  |   |        | 
|Convertible subordinated notes due 2004, interest
    at 4.25%               |  |      | 22,319  |      |  |   | 122,319 | 
|Other long-term debt                                                         |  |      | 2,890   |      |  |   | 3,916   | 
|                                                                             |  |      |         |      |  |   |         | 
|                                                                             |  |      | 354,271 |      |  |   | 351,235 | 
|Less: Current portion                                                        |  |      | 26,843  |      |  |   | 25,320  | 
|                                                                             |  |      |         |      |  |   |         | 
|                                                                             |  | $    | 327,428 |      |  | $ | 325,915 | 
|                                                                             |  |      |         |      |  |   |         | 

89



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company amended and restated its senior
credit facility (Facility) on November 12,
2003, and secured a $150,000 lenders commitment under a
revolving credit facility and a $25,000 term loan. The Facility
includes an $80,000 letter of credit sub-facility. The maturity
date of the revolving portion of the Facility is
November 15, 2006. The principal amount of the term loan
portion of the Facility will be repaid in quarterly installments
maturing on April 1, 2008. The Facility is collateralized
by certain restaurant property deeds of trust.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capital expenditures  the Company is
    permitted to spend approximately $45,000, plus an additional
    amount based on the Companys EBITDA, on capital
    expenditures as specified in the Companys strategic plan.
    Additionally, the Company may carry any unused capital
    expenditure amounts forward to the following year.                                                                                                                                                                                                                                                                                                          
|
| |  | 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 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, limits the Companys ability to incur new
    indebtedness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Interest rate and letter of credit
    fees  the Facility charges interest based on either
    LIBOR, or the prime rate as defined, plus applicable margins
    based on the Companys leverage ratio. The interest rate on
    the facility averaged 5.8% in fiscal 2004 and the interest rate
    on the term loan averaged 5.2% during fiscal 2004. The interest
    rate on the term loan portion at January 31, 2004 was
    4.94%. Letter of credit fees are based on the applicable margin
    for LIBOR-based revolving credit loans less 0.5%. The rate for
    letter of credit fees at January 31, 2004 was 3.25% plus
    issuance costs.
|
| |  | Repurchases of debt and common stock 
    the Facility restricts the Companys ability to repurchase
    convertible debt and common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Consistent with previous amendments and
restatements, the Facility contains financial performance
covenants, which include a minimum EBITDA requirement, minimum
fixed charge coverage ratio, minimum consolidated tangible net
worth requirements, maximum leverage ratios and capital
expenditures and precludes the Company from paying dividends.
The Company was in compliance with all covenants as of
January 31, 2004.

On September 29, 2003, the Company completed
an offering of $105,000 of its 4% Convertible Subordinated Notes
due 2023 (2023 Convertible Notes). Nearly all of the
net proceeds of the offering of $101,588 were used to repurchase
$100,000 of the 2004 Convertible Notes. The 2023 Convertible
Notes bear interest at the annual rate of 4.0%, payable in
semiannual installments due April 1 and October 1 each year. The
2023 Convertible Notes are unsecured general obligations of the
Company and are contractually subordinate in right of payment to
certain other Company obligations, including the Facility and
the Companys 9 1/8% Senior Subordinated Notes due
2009 (Senior Notes). On October 1 of 2008, 2013 and
2018, holders of the 2023 Convertible Notes have the right to
require the Company to repurchase all or a portion of the notes
at 100% of the face value plus accrued interest. The 2023
Convertible Notes are convertible into the Companys common
stock at a conversion rate of 112.4859 shares per one thousand
dollars principal balance of the 2023 Convertible Notes upon the
conditions set forth in the related indenture, which was filed
with the Securities and Exchange Commission. The 2023
Convertible Notes were not convertible during the period
September 29, 2003 through January 31, 2004.

On March 13, 1998, the Company completed a
private placement of $197,200 aggregate principal amount of
Convertible Notes due 2004, in which the Company received net
proceeds of approximately $192,300, of which $24,100 was used to
repay indebtedness under its then $300,000 Credit Facility.
During fiscal 2004, the Company called a portion of the notes
outstanding, recognizing a loss recorded in other income

90



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(expense), net in the consolidated statements of
operations. During fiscal 2003, the Company made open market
purchases of $36,756, aggregate principal amount, of the notes
for $33,956, including accrued interest thereon, recognizing a
gain also recorded in other income (expense), net. The Company
redeemed the $22,319 of the notes that remained outstanding as
of January 31, 2004 upon their maturity on March 15,
2004.

On March 4, 1999, the Company completed a
private placement of $200,000 aggregate principal amount of
9 1/8% Senior Notes due 2009 (Senior Notes).
The Company received net proceeds of $194,800, of which $190,000
was used to repay outstanding term loan balances under the
Facility. The indenture relating to the Senior Notes limits 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. The indenture also
imposes certain restrictions on the Companys ability (and
the ability of its subsidiaries) to 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,
2004, the Company has made $46,743 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 Notes represent
unsecured general obligations subordinate in right of payment to
the Companys senior indebtedness, including its Credit
Facility. All active subsidiaries of the Company are guarantors
of the Senior Notes (see Note 22).

Long-term debt matures in fiscal years ending
after January 31, 2004 as follows:

|             |  |   |         | 
|------------ |  | - | ------- | 
|Fiscal Year: |  |   |         | 
|2005         |  | $ | 26,843  | 
|2006         |  |   | 5,322   | 
|2007         |  |   | 5,322   | 
|2008         |  |   | 7,197   | 
|2009         |  |   | 4,587   | 
|Thereafter   |  |   | 305,000 | 
|             |  |   |         | 
|             |  | $ | 354,271 | 
|             |  |   |         | 

Note 13  Other Long-Term
Liabilities

Other long-term liabilities consist of the
following:

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2004 |        | 2003
|                                            |  |      |        |     
|Estimated liability for closing restaurants |  | $    | 13,732 |      |  | $ | 21,270 | 
|Estimated liability for self-insurance      |  |      | 24,593 |      |  |   | 29,142 | 
|Other                                       |  |      | 15,311 |      |  |   | 17,252 | 
|                                            |  |      |        |      |  |   |        | 
|                                            |  | $    | 53,636 |      |  | $ | 67,664 | 
|                                            |  |      |        |      |  |   |        | 

The Company is self-insured for its primary
workers compensation, property and general liability
insurance exposures not covered by its stop-loss policy. A total
of $39,025 and $35,456 was accrued as of January 31, 2004
and 2003, respectively, (including the long-term portions noted
in the above table and the current portions included in Note 11)
representing of the present value of an independent actuarial
valuation of the Companys workers compensation and
general liability claims.

Note 14  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, 2004, the Company had repurchased 1,585,000
shares of common stock for $10,406, at an average price of $6.57
per share. Under the terms of the Facility, the Company is
prohibited from repurchasing additional shares of the
Companys common stock.

91



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 15  Fair Value of Financial
Instruments

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

|                       |                                               |          |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|---------------------- | --------------------------------------------- | -------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                       |                                               |          |   |           
|                       |                                               | 2004     |   | 2003      
|                       |                                               |          |   |           
|                       |                                               | Carrying |   | Estimated  |  | Carrying |   | Estimated 
|                       |                                               | Amount   |   | Fair Value |  | Amount   |   | Fair Value
|                       |                                               |          |   |            |  |          |   |           
|Financial assets:      |                                               |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|                       | Cash and cash equivalents                     |          | $ | 54,355     |  |          | $ | 54,355     |  |  | $ | 18,440  |  |  | $ | 18,440  | 
|                       | Notes receivable, net of allowance for losses |          |   | 3,250      |  |          |   | 3,780      |  |  |   | 10,590  |  |  |   | 7,859   | 
|Financial liabilities: |                                               |          |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|                       | Long-term debt, including current portion     |          |   | 354,271    |  |          |   | 402,471    |  |  |   | 351,235 |  |  |   | 301,689 | 

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 debt was
determined by discounting future cash flows using rates
currently available to the Company for debt with similar terms
and remaining maturities, using market quotes for the
Companys Senior Subordinated Notes and using a combination
of discounting future cash flows using rates currently available
to the Company for debt with similar terms and remaining
maturities and the Black-Scholes option-pricing model for the
Companys Convertible Subordinated Notes due 2023. The fair
value of the Companys Convertible Subordinated Notes due
2004 was assumed to be equal to its carrying value due to its
short maturity.

Note 16  Related Party
Transactions

Certain members of the Board of Directors and the
Karcher family are franchisees of the Company. These franchisees
regularly pay royalties and 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 $704 and $761 remained accrued in other long-term liabilities
as of January 31, 2004, and 2003, respectively. The Company
anticipates funding these obligations as they become due.

The Company leases various properties, including
certain of its corporate offices, a distribution facility and
three restaurants from the Chairman Emeritus. At
January 31, 2003, capital lease obligations included $193,
representing the present value of lease obligations related to
these various properties. During the fiscal year ended
January 31, 2004, the capital leases associated with these
properties expired, but the Company remained in these facilities
under the terms of renewal options specified in the leases.
During the option period, these leases are being accounted for
as operating leases. Lease payments under these leases for
fiscal 2004, 2003, and 2002 amounted to $1,828, $1,534, and
$1,661, respectively. This was net of sublease rentals of $142,
$142, and $142 in fiscal 2004, 2003, and 2002, 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, a corporate office facility, and expenses associated
with the Companys leased aircraft. The Company paid
$6,102, $8,827, and $6,064 in fiscal 2004, 2003, and 2002,
respectively to FNF under these lease agreements. The Company
also paid the affiliate $10 and $1,216 in fiscal 2003 and 2002,
respectively, for escrow and title fees on the sale of
restaurant properties and the establishment of mortgages on
properties for collateral on the Credit Facility. Additionally,
the Company paid an entity formerly invested in by FNF
commissions of $60 in fiscal 2002 relating to the sale of
certain restaurant properties during the year.

92



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In fiscal 2001, the Company entered into an
agreement with 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 $816, $494 and $329 during fiscal
2004, 2003 and 2002, respectively.

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, unsecured and have a five-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
of the Companys stock from SBRG prior to the acquisition
of SBRG (see Note 2), of which $2,530 was outstanding as of
January 31, 2004 and 2003. These loans are classified as a
reduction of stockholders equity in accordance with
Emerging Issues Task Force 02-1 (EITF 02-1)
Classification of Assets Received In Exchange For Equity
Instruments Granted to Other Than Employees. During fiscal
2003, several loans were repaid in the amount of $1,709.

At the time of the Companys acquisition of
SBRG (see Note 2), the Chairman of the Board of the Company
and two other members of the Companys Board of Directors
held similar positions with SBRG. Immediately prior to the SBRG
acquisition, the Chairman of the Board of the Company and FNF
respectively owned 15.5% and 43.1% of the outstanding shares of
common stock of SBRG. American National Financial, Inc.
(ANFI) owned 4.6% of the issued and outstanding shares of
common stock of SBRG immediately prior to this transaction. The
Chairman of the Board of the Company was a member of the ANFI
board of directors at that time. The transaction was evaluated
for fairness to the Company by an independent investment banking
firm.

During fiscal year 2002 the Company paid
royalties to SBRG of $443. The acquisition of SBRG in fiscal
2003 eliminated the payment of such royalties.

The following restaurant sales transactions with
affiliates were consummated during fiscal 2004, 2003 and 2002:

|          |                                                                    |          |   |       |  |          |   |      |  |          |   |      |  |  |   |     |  |  |   |        |  |  |   |       | 
|--------- | ------------------------------------------------------------------ | -------- | - | ----- |  | -------- | - | ---- |  | -------- | - | ---- |  |  | - | --- |  |  | - | ------ |  |  | - | ----- | 
|          |                                                                    |          |   |       |  |         
|          |                                                                    | 2004     |   | 2003  |  | 2002    
|          |                                                                    |          |   |       |  |         
|          |                                                                    | Proceeds |   | Gain  |  | Proceeds |   | Gain |  | Proceeds |   | Gain
|          |                                                                    |          |   |       |  |          |   |      |  |          |   |     
|Affiliate |                                                                    |          |   |       |  |          |   |      |  |          |   |      |  |  |   |     |  |  |   |        |  |  |   |      
|          | Former CEO and member of the board of directors
    of the Company |          | $ |      |  |          | $ |     |  |          | $ |     |  |  | $ |    |  |  | $ | 12,080 |  |  | $ | 6,300 | 
|          | Relatives of member of the board of directors of
    the Company   |          |   | 4,535 |  |          |   | 291  |  |          |   |     |  |  |   |    |  |  |   | 4,100  |  |  |   | 2,500 | 
|          | Member of the board of directors of the Company                    |          |   |      |  |          |   |     |  |          |   | 983  |  |  |   | 442 |  |  |   |       |  |  |   |      | 

During fiscal year 2002, the Company reported
food service revenue from Rallys of $1,652. Rallys
restaurants are owned by Checkers (see Note 9).

Note 17  Franchise and License
Operations

Franchise arrangements generally provide for
initial fees and continuing royalty payments to the Company
based upon a percentage of gross sales. The Company generally
charges an initial franchise fee for

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

Certain franchisees 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 periods up to 20 years. Under the terms of
these leases, franchisees are generally required to pay related
occupancy costs, which include maintenance, insurance and
property taxes.

Revenue from franchised and licensed restaurants
for the years ended January 31, 2004, 2003 and 2002 consisted of
the following:

|                       |  |          |  |          |  |         
|---------------------- |  | -------- |  | -------- |  | --------
|                       |  | 2004     |  | 2003     |  | 2002    
|                       |  |          |  |          |  |         
|Foodservice            |  | $155,945 |  | $145,055 |  | $145,733
|Royalties              |  | 62,067   |  | 60,200   |  | 66,094  
|Equipment sales        |  | 20,693   |  | 18,155   |  | 13,231  
|Rental income          |  | 30,064   |  | 29,121   |  | 34,849  
|Initial fees and other |  | 1,739    |  | 1,218    |  | 3,836   
|                       |  |          |  |          |  |         
|                       |  | $270,508 |  | $253,749 |  | $263,743
|                       |  |          |  |          |  |         

Operating costs and expenses for franchised and
licensed restaurants for the years ended January 31, 2004,
2003 and 2002 consisted of the following:

|                                       |  |          |  |          |  |         
|-------------------------------------- |  | -------- |  | -------- |  | --------
|                                       |  | 2004     |  | 2003     |  | 2002    
|                                       |  |          |  |          |  |         
|Foodservice costs of sales             |  | $152,285 |  | $141,429 |  | $142,353
|Occupancy and other operating expenses |  | 39,188   |  | 36,786   |  | 45,168  
|Equipment cost of sales                |  | 20,336   |  | 18,310   |  | 14,999  
|                                       |  |          |  |          |  |         
|                                       |  | $211,809 |  | $196,525 |  | $202,520
|                                       |  |          |  |          |  |         

Note 18  Interest
Expense

Interest expense for the years ended
January 31, 2004 and 2003 consisted of the following:

|                                    |  |      |        |      |  |      |        |  |  |   |        | 
|----------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                    |  | 2004 |        | 2003 |  | 2002
|                                    |  |      |        |      |  |     
|Facility                            |  | $    | 1,146  |      |  | $    | 631    |  |  | $ | 6,130  | 
|Senior subordinated notes due 2009  |  |      | 18,250 |      |  |      | 18,150 |  |  |   | 18,250 | 
|Capital lease obligations           |  |      | 8,532  |      |  |      | 9,164  |  |  |   | 9,575  | 
|2004 Convertible subordinated notes |  |      | 4,206  |      |  |      | 6,032  |  |  |   | 6,767  | 
|2023 Convertible subordinated note  |  |      | 1,385  |      |  |      |       |  |  |   |       | 
|Amortization of loan fees           |  |      | 4,451  |      |  |      | 4,238  |  |  |   | 9,616  | 
|Letter of credit fees and other     |  |      | 2,021  |      |  |      | 1,739  |  |  |   | 3,599  | 
|                                    |  |      |        |      |  |      |        |  |  |   |        | 
|                                    |  | $    | 39,991 |      |  | $    | 39,954 |  |  | $ | 53,937 | 
|                                    |  |      |        |      |  |      |        |  |  |   |        | 

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 19  Other Income
(Expense), Net

Other income (expense), net for the years ended
January 31, 2004 and 2003 consisted of the following:

|                                                                |  |      |       |      |  |      |        |  |  |   |        |  
|--------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | -
|                                                                |  | 2004 |       | 2003 |  | 2002
|                                                                |  |      |       |      |  |     
|Gain on sale of long-term investments                           |  | $    |      |      |  | $    | 9,248  |  |  | $ | 1,876  |  
|Gain (loss) on repurchase of convertible
    subordinated notes |  |      | (708  | )    |  |      | 2,800  |  |  |   |       |  
|Other, net                                                      |  |      | 1,356 |      |  |      | 3,761  |  |  |   | (2,464 | )
|                                                                |  |      |       |      |  |      |        |  |  |   |        |  
|                                                                |  | $    | 648   |      |  | $    | 15,809 |  |  | $ | (588   | )
|                                                                |  |      |       |      |  |      |        |  |  |   |        |  

During fiscal 2004, the Company recorded $1,315
of other income related to point-of-sale equipment sales. During
fiscal 2003, the Company reversed a $1,300 estimated liability
established in prior periods related to records lost during a
natural disaster. Each of these transactions is recorded within
other, net above.

Note 20  Income
Taxes

Income tax expense (benefit) consisted of
the following:

|         |         |      |       |       |   |      |        |        |   |   |      |        |  
|-------- | ------- | ---- | ----- | ----- | - | ---- | ------ | ------ | - | - | ---- | ------ | -
|         |         | 2004 |       | 2003  |   | 2002
|         |         |      |       |       |   |     
|Current: |         |      |       |       |   |      |        |        |   |   |      |       
|         | Federal |      | $     | 1,144 |   |      | $      | (9,221 | ) |   | $    | (3,100 | )
|         | State   |      |       | (119  | ) |      |        |       |   |   |      | 1,862  |  
|         | Foreign |      |       | 818   |   |      |        | 1,289  |   |   |      | 654    |  
|         |         |      |       |       |   |      |        |        |   |   |      |       
|         |         | $    | 1,843 |       |   | $    | (7,932 | )      |   | $ | (584 | )     
|         |         |      |       |       |   |      |        |        |   |   |      |       

A reconciliation of income tax expense
(benefit) attributable to continuing operations at the
federal statutory rate of 35% to the Companys income tax
expense (benefit) is as follows:

|                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                          |  | 2004 |         | 2003 |  | 2002
|                                                          |  |      |         |      |  |     
|Income tax expense (benefit) at statutory
    rate        |  | $    | (15,374 | )    |  | $    | 6,257   |   |  | $ | (29,589 | )
|State income taxes, net of federal income tax
    benefit |  |      | (1,483  | )    |  |      | (2,687  | ) |  |   | (168    | )
|Tax credits                                               |  |      | (971    | )    |  |      | (1,874  | ) |  |   | (1,605  | )
|Alternative minimum tax                                   |  |      |        |      |  |      |        |   |  |   | (3,100  | )
|Impairment of goodwill                                    |  |      | 11,921  |      |  |      |        |   |  |   |        |  
|Change in accounting principle                            |  |      |        |      |  |      | (61,523 | ) |  |   |        |  
|Increase in valuation allowance                           |  |      | 6,567   |      |  |      | 51,940  |   |  |   | 34,828  |  
|Tax adjustments due to income tax audit                   |  |      | 1,144   |      |  |      |        |   |  |   |        |  
|Other, net                                                |  |      | 39      |      |  |      | (45     | ) |  |   | (950    | )
|                                                          |  |      |         |      |  |      |         |   |  |   |         |  
|                                                          |  | $    | 1,843   |      |  | $    | (7,932  | ) |  | $ | (584    | )
|                                                          |  |      |         |      |  |      |         |   |  |   |         |  

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                        |                                                                |      |         |        |  |   |         |        | 
|--------------------------------------- | -------------------------------------------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                        |                                                                | 2004 |         | 2003  
|                                        |                                                                |      |         |       
|Deferred tax assets:                    |                                                                |      |         |        |  |   |         |       
|                                        | Impairment and estimated liability for closing
    restaurants |      | $       | 33,367 |  |   | $       | 36,278 | 
|                                        | Federal net operating losses                                   |      |         | 32,189 |  |   |         | 30,420 | 
|                                        | State net operating losses                                     |      |         | 14,237 |  |   |         | 6,034  | 
|                                        | Capitalized leases                                             |      |         | 10,707 |  |   |         | 10,224 | 
|                                        | Impairment of goodwill                                         |      |         | 59,132 |  |   |         | 75,396 | 
|                                        | Allowance for bad debt                                         |      |         | 5,859  |  |   |         | 4,228  | 
|                                        | Self-insurance reserve                                         |      |         | 15,647 |  |   |         | 13,960 | 
|                                        | Other allowances and estimated liabilities                     |      |         | 3,417  |  |   |         | 1,300  | 
|                                        | Capital loss carryforward                                      |      |         | 519    |  |   |         | 1,258  | 
|                                        | Accrued payroll                                                |      |         | 3,077  |  |   |         | 1,699  | 
|                                        | Other                                                          |      |         | 2,709  |  |   |         | 3,595  | 
|                                        |                                                                |      |         |        |  |   |         |       
|                                        |                                                                |      | 180,860 |        |  |   | 184,392 |       
|Alternative minimum tax credits         |                                                                |      | 10,691  |        |  |   | 7,262   |       
|General business tax credits            |                                                                |      | 10,952  |        |  |   | 9,715   |       
|Foreign tax credits                     |                                                                |      | 2,829   |        |  |   | 1,375   |       
|Less: valuation allowance               |                                                                |      | 170,564 |        |  |   | 163,997 |       
|                                        |                                                                |      |         |        |  |   |         |       
|Total deferred tax assets               |                                                                |      | 34,768  |        |  |   | 38,747  |       
|                                        |                                                                |      |         |        |  |   |         |       
|Deferred tax liabilities  depreciation |                                                                |      | 29,117  |        |  |   | 31,033  |       
|SBRG trademarks                         |                                                                |      | 5,651   |        |  |   | 7,258   |       
|Other                                   |                                                                |      |        |        |  |   | 456     |       
|                                        |                                                                |      |         |        |  |   |         |       
|Total deferred tax liabilities          |                                                                |      | 34,768  |        |  |   | 38,747  |       
|                                        |                                                                |      |         |        |  |   |         |       
|Net deferred tax asset (liability)      |                                                                | $    |        |        |  | $ |        |       
|                                        |                                                                |      |         |        |  |   |         |       

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. As a result of net operating losses in fiscal 2004,
2003 and 2002, the Company has recorded a valuation allowance of
$170,564 for its entire net deferred tax asset because
management believes it is more likely than not the Company will
not realize the benefits of these deductible differences at
January 31, 2004.

At January 31, 2004, the Company had federal
net operating loss carryforwards (NOL) of
approximately $91,970, expiring in varying amounts in the years
2010 through 2024, and state NOL carryforwards in the amount of
approximately $335,948 expiring in varying amounts in the years
2006 through 2024. The Companys State NOL carryforwards
exceed its federal NOL carryforwards primarily due to
stand-alone operating losses of certain of the Companys
subsidiaries that report separately for tax purposes in several
states. The Company has federal NOL carryforwards for
alternative minimum tax purposes of approximately $72,210.
Additionally, the Company has an alternative minimum tax credit
carryforward (AMT) of approximately $10,691. The
Company also has generated general business credit carryforwards
in the amount of $10,952 expiring in varying amounts in the
years 2020 through 2024 and foreign tax credits in the amount of
$2,829 which expire in varying amounts in the years 2008 and
2009.

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 21  Segment
Information

The Company is engaged principally in developing,
operating and franchising its Carls Jr.,
Hardees and La Salsa quick-service restaurants, each of
which is considered an operating segment that is managed and
evaluated separately. Management evaluates the performance of
its segments and allocates resources to them based on several
factors, of which the primary financial measure is segment
operating income or loss. General and administrative expenses
are allocated to each segment based on managements
analysis of the resources applied to each segment. Certain
amounts that the Company does not believe would be proper to
allocate to the operating segments are included in
Other (i.e., gains or losses on sales of
long-term investments) and the fiscal 2002 activity of Taco
Bueno, which was classified as an asset held for sale as of
January 31, 2001 (see Note 6). The accounting policies
of the segments are the same as those described in the summary
of significant accounting policies (see Note 1).

|                                |  |            |         |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |           |  
|------------------------------- |  | ---------- | ------- | -------- |  | -------- | ------- | ----- |  | ----- | ------- | - |  | - | ------ | - |  | - | --------- | -
|                                |  | Carls Jr. |         | Hardees |  | La Salsa |         | Other |  | Total
|                                |  |            |         |          |  |          |         |       |  |      
|2004                            |  |            |         |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |           |  
|Revenue                         |  | $          | 725,076 |          |  | $        | 642,690 |       |  | $     | 43,933  |   |  | $ | 1,738  |   |  | $ | 1,413,437 |  
|Segment operating income (loss) |  |            | 56,602  |          |  |          | (24,990 | )     |  |       | (36,459 | ) |  |   | 263    |   |  |   | (4,584    | )
|Interest expense                |  |            | 6,292   |          |  |          | 33,787  |       |  |       | (81     | ) |  |   | (7     | ) |  |   | 39,991    |  
|Total assets                    |  |            | 288,977 |          |  |          | 413,811 |       |  |       | 34,677  |   |  |   | 35,858 |   |  |   | 773,323   |  
|Capital expenditures            |  |            | 13,807  |          |  |          | 21,219  |       |  |       | 6,742   |   |  |   | 6,105  |   |  |   | 47,873    |  
|Goodwill                        |  |            | 22,649  |          |  |          |        |       |  |       |        |   |  |   |       |   |  |   | 22,649    |  
|Depreciation and amortization   |  |            | 25,074  |          |  |          | 37,944  |       |  |       | 3,534   |   |  |   | 407    |   |  |   | 66,959    |  
|Income tax benefit (expense)    |  |            | (147    | )        |  |          | 19      |       |  |       |        |   |  |   | (1,715 | ) |  |   | (1,843    | )
|2003                            |  |            |         |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |           |  
|Revenue                         |  | $          | 693,713 |          |  | $        | 627,798 |       |  | $     | 39,959  |   |  | $ | 1,925  |   |  | $ | 1,363,395 |  
|Segment operating income (loss) |  |            | 55,798  |          |  |          | (13,480 | )     |  |       | (185    | ) |  |   | (110   | ) |  |   | 42,023    |  
|Interest expense                |  |            | 6,249   |          |  |          | 33,657  |       |  |       | 32      |   |  |   | 16     |   |  |   | 39,954    |  
|Total assets                    |  |            | 299,522 |          |  |          | 473,095 |       |  |       | 45,091  |   |  |   | 25,765 |   |  |   | 843,473   |  
|Capital expenditures            |  |            | 16,690  |          |  |          | 52,440  |       |  |       | 4,402   |   |  |   | 3,873  |   |  |   | 77,405    |  
|Goodwill                        |  |            | 22,649  |          |  |          |        |       |  |       | 34,059  |   |  |   |       |   |  |   | 56,708    |  
|Depreciation and amortization   |  |            | 26,268  |          |  |          | 33,888  |       |  |       | 2,908   |   |  |   |       |   |  |   | 63,064    |  
|Income tax benefit (expense)    |  |            | 2,436   |          |  |          | 5,702   |       |  |       |        |   |  |   | (206   | ) |  |   | 7,932     |  
|2002                            |  |            |         |          |  |          |         |       |  |       |         |   |  |   |        |   |  |   |           |  
|Revenue                         |  | $          | 704,561 |          |  | $        | 690,471 |       |  |       |         |   |  | $ | 43,095 |   |  | $ | 1,438,127 |  
|Segment operating income (loss) |  |            | 50,310  |          |  |          | (79,995 | )     |  |       |         |   |  |   | (330   | ) |  |   | (30,015   | )
|Interest expense                |  |            | 10,753  |          |  |          | 42,519  |       |  |       |         |   |  |   | 665    |   |  |   | 53,937    |  
|Total assets                    |  |            | 285,134 |          |  |          | 638,193 |       |  |       |         |   |  |   | 8,262  |   |  |   | 931,589   |  
|Capital expenditures            |  |            | 10,581  |          |  |          | 12,678  |       |  |       |         |   |  |   | 2,244  |   |  |   | 25,503    |  
|Goodwill                        |  |            | 11,659  |          |  |          | 174,949 |       |  |       |         |   |  |   | 260    |   |  |   | 186,868   |  
|Depreciation and amortization   |  |            | 27,091  |          |  |          | 42,243  |       |  |       |         |   |  |   | 1,537  |   |  |   | 70,871    |  
|Income tax benefit (expense)    |  |            | 1,917   |          |  |          | (1,333  | )     |  |       |         |   |  |   |       |   |  |   | 584       |  



|          |                                          
|--------- | -----------------------------------------
|Note 22  | Subsidiaries Guaranty of
    Indebtedness

CKE is the issuer and all active subsidiaries of
CKE are guarantors of the Companys Senior Notes. Separate
financial statements for each guarantor subsidiary are not
included in this filing because each guarantor subsidiary is
wholly-owned and fully, unconditionally, jointly and severally
liable for the Senior

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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Notes. There were no significant restrictions on
the ability of CKE or any guarantor subsidiary to obtain funds
from its subsidiaries by dividend or loan.

The following condensed consolidating financial
information presents the financial position, results of
operations and cash flows of (i) CKE, as parent, as if it
accounted for its subsidiaries on the equity method; and
(ii) the guarantor subsidiaries. CKEs independent
operations are primarily comprised of the Carls Jr. food
and packaging distribution business.

Condensed Consolidating Balance
Sheet

January 31, 2004


|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |         |         | 
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- |  | -------- | - | -------- | - | ------- | ------- | ------- | 
|                                                                            |                                                                            |                                            |         | Guarantor    |         |              |         |             
|                                                                            |                                                                            | Parent                                     |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                                                            |                                                                            |                                            |         |              |         |              |         |             
|ASSETS                                                                      |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|Current assets:                                                             |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            | Cash and cash equivalents                                                  |                                            | $       | 25,297       |         |              | $       | 29,058       |         |  | $        |  |          |   | $       | 54,355  |        
|                                                                            | Accounts receivable, net                                                   |                                            |         | 9,750        |         |              |         | 16,979       |         |  |          |  |          |   |         | 26,729  |        
|                                                                            | Related party trade receivables                                            |                                            |         | 6,333        |         |              |         | 1,658        |         |  |          |  |          |   |         | 7,991   |        
|                                                                            | Inventories                                                                |                                            |         | 6,616        |         |              |         | 11,876       |         |  |          |  |          |   |         | 18,492  |        
|                                                                            | Assets held for sale                                                       |                                            |         |             |         |              |         | 18,760       |         |  |          |  |          |   |         | 18,760  |        
|                                                                            | Prepaid and other current assets                                           |                                            |         | 1,375        |         |              |         | 15,870       |         |  |          |  |          |   |         | 17,245  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total current assets                       |         |              | 49,371  |              |         |              | 94,201  |  |          |   |         |   |         |         | 143,572 | 
|Property and equipment, net                                                 |                                                                            |                                            | 24,455  |              |         |              | 494,426 |              |         |  |         |   |          |   | 518,881 |        
|Property under capital leases, net                                          |                                                                            |                                            |        |              |         |              | 46,382  |              |         |  |         |   |          |   | 46,382  |        
|Goodwill                                                                    |                                                                            |                                            |        |              |         |              | 22,649  |              |         |  |         |   |          |   | 22,649  |        
|Investments in consolidated subsidiaries                                    |                                                                            |                                            | 282,187 |              |         |              |        |              |         |  | (282,187 | ) |          |   |        |        
|Other assets                                                                |                                                                            |                                            | 12,517  |              |         |              | 29,322  |              |         |  |         |   |          |   | 41,839  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total assets                               |         | $            | 368,530 |              |         | $            | 686,980 |  |          | $ | (282,187 | ) |         | $       | 773,323 | 
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                    |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|Current liabilities:                                                        |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            | Current portion of long-term debt, including
    capital lease obligations |                                            | $       | 26,595       |         |              | $       | 7,290        |         |  | $        |  |          |   | $       | 33,885  |        
|                                                                            | Accounts payable                                                           |                                            |         | 15,973       |         |              |         | 31,619       |         |  |          |  |          |   |         | 47,592  |        
|                                                                            | Other current liabilities                                                  |                                            |         | 19,103       |         |              |         | 88,336       |         |  |          |  |          |   |         | 107,439 |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total current liabilities                  |         |              | 61,671  |              |         |              | 127,245 |  |          |   |         |   |         |         | 188,916 | 
|Long-term debt and capital lease obligations,
    excluding current portion |                                                                            |                                            | 325,000 |              |         |              | 59,539  |              |         |  |         |   |          |   | 384,539 |        
|Other long-term liabilities                                                 |                                                                            |                                            | 1,216   |              |         |              | 52,420  |              |         |  |         |   |          |   | 53,636  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total liabilities                          |         |              | 387,887 |              |         |              | 239,204 |  |          |   |         |   |         |         | 627,091 | 
|Stockholders equity (deficiency):                                          |                                                                            |                                            | (19,357 | )            |         |              | 447,776 |              |         |  | (282,187 | ) |          |   | 146,232 |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total liabilities and stockholders equity |         | $            | 368,530 |              |         | $            | 686,980 |  |          | $ | (282,187 | ) |         | $       | 773,323 | 
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        

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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Balance
Sheet

January 31, 2003


|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |         |         | 
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------- |  | -------- | - | -------- | - | ------- | ------- | ------- | 
|                                                                            |                                                                            |                                            |         | Guarantor    |         |              |         |             
|                                                                            |                                                                            | Parent                                     |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                                                            |                                                                            |                                            |         |              |         |              |         |             
|ASSETS                                                                      |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|Current assets:                                                             |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            | Cash and cash equivalents                                                  |                                            | $       | 87           |         |              | $       | 18,353       |         |  | $        |  |          |   | $       | 18,440  |        
|                                                                            | Accounts receivable, net                                                   |                                            |         | 10,854       |         |              |         | 29,739       |         |  |          |  |          |   |         | 40,593  |        
|                                                                            | Related party trade receivables                                            |                                            |         | 5,106        |         |              |         |             |         |  |          |  |          |   |         | 5,106   |        
|                                                                            | Inventories                                                                |                                            |         | 6,499        |         |              |         | 12,725       |         |  |          |  |          |   |         | 19,224  |        
|                                                                            | Assets held for sale                                                       |                                            |         |             |         |              |         | 21,170       |         |  |          |  |          |   |         | 21,170  |        
|                                                                            | Prepaid and other current assets                                           |                                            |         | 1,912        |         |              |         | 15,905       |         |  |          |  |          |   |         | 17,817  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total current assets                       |         |              | 24,458  |              |         |              | 97,892  |  |          |   |         |   |         |         | 122,350 | 
|Property and equipment, net                                                 |                                                                            |                                            | 26,123  |              |         |              | 527,202 |              |         |  |         |   |          |   | 553,325 |        
|Property under capital leases, net                                          |                                                                            |                                            |        |              |         |              | 59,014  |              |         |  |         |   |          |   | 59,014  |        
|Goodwill                                                                    |                                                                            |                                            |        |              |         |              | 56,708  |              |         |  |         |   |          |   | 56,708  |        
|Investments in consolidated subsidiaries                                    |                                                                            |                                            | 329,141 |              |         |              |        |              |         |  | (329,141 | ) |          |   |        |        
|Other assets                                                                |                                                                            |                                            | 7,448   |              |         |              | 44,628  |              |         |  |         |   |          |   | 52,076  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total assets                               |         | $            | 387,170 |              |         | $            | 785,444 |  |          | $ | (329,141 | ) |         | $       | 843,473 | 
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                    |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|Current liabilities:                                                        |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            | Current portion of long-term debt, including
    capital lease obligations |                                            |         | 25,000       |         |              |         | 10,102       |         |  |          |  |          |   |         | 35,102  |        
|                                                                            | Accounts payable                                                           |                                            |         | 16,015       |         |              |         | 40,953       |         |  |          |  |          |   |         | 56,968  |        
|                                                                            | Other current liabilities                                                  |                                            |         | 19,547       |         |              |         | 82,185       |         |  |          |  |          |   |         | 101,732 |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total current liabilities                  |         |              | 60,562  |              |         |              | 133,240 |  |          |   |         |   |         |         | 193,802 | 
|Long-term debt and capital lease obligations,
    excluding current portion |                                                                            |                                            | 322,319 |              |         |              | 66,114  |              |         |  |         |   |          |   | 388,433 |        
|Other long-term liabilities                                                 |                                                                            |                                            | 755     |              |         |              | 66,909  |              |         |  |         |   |          |   | 67,664  |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total liabilities                          |         |              | 383,636 |              |         |              | 266,263 |  |          |   |         |   |         |         | 649,899 | 
|Stockholders equity:                                                       |                                                                            |                                            | 3,534   |              |         |              | 519,181 |              |         |  | (329,141 | ) |          |   | 193,574 |        
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        
|                                                                            |                                                                            | Total liabilities and stockholders equity |         | $            | 387,170 |              |         | $            | 785,444 |  |          | $ | (329,141 | ) |         | $       | 843,473 | 
|                                                                            |                                                                            |                                            |         |              |         |              |         |              |         |  |          |   |          |   |         |        

99



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of
Operations

Fiscal Year Ended January 31,
2004


|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |           |           | 
|-------------------------------------------------------------------- | --------------------------------------------- | --------------------------------------------- | ------- | ------------ | ------- | ------------ | ------- | ------------ | --------- | - | ------ | - | - | - | ------- | --------- | --------- | 
|                                                                     |                                               |                                               |         | Guarantor    |         |              |         |             
|                                                                     |                                               | Parent                                        |         | Subsidiaries |         | Eliminations |         | Consolidated
|                                                                     |                                               |                                               |         |              |         |              |         |             
|Revenue:                                                             |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|                                                                     | Company-operated restaurants                  |                                               | $       |             |         |              | $       | 1,142,929    |           |   | $      |  |   |   | $       | 1,142,929 |          
|                                                                     | Franchised and licensed restaurants and other |                                               |         | 155,945      |         |              |         | 114,563      |           |   |        |  |   |   |         | 270,508   |          
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|                                                                     |                                               | Total revenue                                 |         |              | 155,945 |              |         |              | 1,257,492 |   |        |   |  |   |         |           | 1,413,437 | 
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Operating costs and expenses:                                        |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|                                                                     | Restaurant operations:                        |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |           |          
|                                                                     |                                               | Food and packaging                            |         |              |        |              |         |              | 340,676   |   |        |   |  |   |         |           | 340,676   | 
|                                                                     |                                               | Payroll and other employee benefit expenses   |         |              |        |              |         |              | 370,700   |   |        |   |  |   |         |           | 370,700   | 
|                                                                     |                                               | Occupancy and other operating expenses        |         |              |        |              |         |              | 262,036   |   |        |   |  |   |         |           | 262,036   | 
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|                                                                     |                                               |                                               |        |              |         |              | 973,412 |              |           |   |       |   |   |   | 973,412 |          
|                                                                     |                                               | Franchised and licensed restaurants and other |         |              | 152,285 |              |         |              | 59,524    |   |        |   |  |   |         |           | 211,809   | 
|                                                                     |                                               | Advertising expenses                          |         |              |        |              |         |              | 71,154    |   |        |   |  |   |         |           | 71,154    | 
|                                                                     |                                               | General and administrative expenses           |         |              | 1,853   |              |         |              | 105,946   |   |        |   |  |   |         |           | 107,799   | 
|                                                                     |                                               | Facility action charges, net                  |         |              | 72      |              |         |              | 19,716    |   |        |   |  |   |         |           | 19,788    | 
|                                                                     |                                               | Impairment of goodwill                        |         |              |        |              |         |              | 34,059    |   |        |   |  |   |         |           | 34,059    | 
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|                                                                     |                                               | Total operating costs and expenses            |         |              | 154,210 |              |         |              | 1,263,811 |   |        |   |  |   |         |           | 1,418,021 | 
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Operating income (loss)                                              |                                               |                                               | 1,735   |              |         |              | (6,319  | )            |           |   |       |   |   |   | (4,584  | )        
|Interest expense                                                     |                                               |                                               | (29,438 | )            |         |              | (10,553 | )            |           |   |       |   |   |   | (39,991 | )        
|Allocated interest expense                                           |                                               |                                               | 29,438  |              |         |              | (29,438 | )            |           |   |       |   |   |   |        |          
|Other income (expense), net                                          |                                               |                                               | 1,204   |              |         |              | (556    | )            |           |   |       |   |   |   | 648     |          
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Income (loss) before income taxes and
    discontinued operations    |                                               |                                               | 2,939   |              |         |              | (46,866 | )            |           |   |       |   |   |   | (43,927 | )        
|Income tax expense                                                   |                                               |                                               | 1,715   |              |         |              | 128     |              |           |   |       |   |   |   | 1,843   |          
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Income (loss) from continuing operations                             |                                               |                                               | 1,224   |              |         |              | (46,994 | )            |           |   |       |   |   |   | (45,770 | )        
|Loss from discontinued operations                                    |                                               |                                               |        |              |         |              | (2,790  | )            |           |   |       |   |   |   | (2,790  | )        
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Income (loss) before equity in loss of
    consolidated subsidiaries |                                               |                                               | 1,224   |              |         |              | (49,784 | )            |           |   |       |   |   |   | (48,560 | )        
|Equity in loss of consolidated subsidiaries                          |                                               |                                               | (49,784 | )            |         |              |        |              |           |   | 49,784 |   |   |   |        |          
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          
|Net loss                                                             |                                               | $                                             | (48,560 | )            |         | $            | (49,784 | )            |           | $ | 49,784 |   |   | $ | (48,560 | )        
|                                                                     |                                               |                                               |         |              |         |              |         |              |           |   |        |   |   |   |         |          

100



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of
Operations

Fiscal Year Ended January 31,
2003


|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |           |           | 
|------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------- | -------- | ------------ | ------- | ------------ | -------- | ------------ | --------- | - | ------- | - | - | - | -------- | --------- | --------- | 
|                                                                                                                          |                                               |                                             |          | Guarantor    |         |              |          |             
|                                                                                                                          |                                               | Parent                                      |          | Subsidiaries |         | Eliminations |          | Consolidated
|                                                                                                                          |                                               |                                             |          |              |         |              |          |             
|Revenue:                                                                                                                  |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|                                                                                                                          | Company-operated restaurants                  |                                             | $        |             |         |              | $        | 1,109,646    |           |   | $       |  |   |   | $        | 1,109,646 |          
|                                                                                                                          | Franchised and licensed restaurants and other |                                             |          | 145,055      |         |              |          | 108,694      |           |   |         |  |   |   |          | 253,749   |          
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|                                                                                                                          |                                               | Total revenue                               |          |              | 145,055 |              |          |              | 1,218,340 |   |         |   |  |   |          |           | 1,363,395 | 
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Operating costs and expenses:                                                                                             |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|                                                                                                                          | Restaurant operations:                        |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |           |          
|                                                                                                                          |                                               | Food and packaging                          |          |              |        |              |          |              | 320,217   |   |         |   |  |   |          |           | 320,217   | 
|                                                                                                                          |                                               | Payroll and other employee benefit expenses |          |              |        |              |          |              | 358,827   |   |         |   |  |   |          |           | 358,827   | 
|                                                                                                                          |                                               | Occupancy and other operating expenses      |          |              |        |              |          |              | 252,971   |   |         |   |  |   |          |           | 252,971   | 
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|                                                                                                                          |                                               |                                             |         |              |         |              | 932,015  |              |           |   |        |   |   |   | 932,015  |          
|Franchised and licensed restaurants and other                                                                             |                                               |                                             | 141,429  |              |         |              | 55,096   |              |           |   |        |   |   |   | 196,525  |          
|Advertising expenses                                                                                                      |                                               |                                             |         |              |         |              | 72,382   |              |           |   |        |   |   |   | 72,382   |          
|General and administrative expenses                                                                                       |                                               |                                             | 1,713    |              |         |              | 112,725  |              |           |   |        |   |   |   | 114,438  |          
|Facility action charges, net                                                                                              |                                               |                                             |         |              |         |              | 6,012    |              |           |   |        |   |   |   | 6,012    |          
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|                                                                                                                          |                                               | Total operating costs and expenses          |          |              | 143,142 |              |          |              | 1,178,230 |   |         |   |  |   |          |           | 1,321,372 | 
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Operating income                                                                                                          |                                               |                                             | 1,913    |              |         |              | 40,110   |              |           |   |        |   |   |   | 42,023   |          
|Interest expense                                                                                                          |                                               |                                             | (29,051  | )            |         |              | (10,903  | )            |           |   |        |   |   |   | (39,954  | )        
|Allocated interest expense                                                                                                |                                               |                                             | 29,051   |              |         |              | (29,051  | )            |           |   |        |   |   |   |         |          
|Other income, net                                                                                                         |                                               |                                             | 9,216    |              |         |              | 6,593    |              |           |   |        |   |   |   | 15,809   |          
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Income before income taxes, discontinued
    operations and cumulative effect of accounting change for
    goodwill       |                                               |                                             | 11,129   |              |         |              | 6,749    |              |           |   |        |   |   |   | 17,878   |          
|Income tax expense (benefit)                                                                                              |                                               |                                             | 760      |              |         |              | (8,692   | )            |           |   |        |   |   |   | (7,932   | )        
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Income from continuing operations                                                                                         |                                               |                                             | 10,369   |              |         |              | 15,441   |              |           |   |        |   |   |   | 25,810   |          
|Loss from discontinued operations                                                                                         |                                               |                                             |         |              |         |              | (53      | )            |           |   |        |   |   |   | (53      | )        
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Income before cumulative effect of accounting
    change for goodwill and equity in loss of consolidated
    subsidiaries |                                               |                                             | 10,369   |              |         |              | 15,388   |              |           |   |        |   |   |   | 25,757   |          
|Cumulative effect of accounting change for
    goodwill                                                                   |                                               |                                             |         |              |         |              | (175,780 | )            |           |   |        |   |   |   | (175,780 | )        
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Income (loss) before equity in loss of
    consolidated subsidiaries                                                      |                                               |                                             | 10,369   |              |         |              | (160,392 | )            |           |   |        |   |   |   | (150,023 | )        
|Equity in loss of consolidated subsidiaries                                                                               |                                               |                                             | (160,392 | )            |         |              |         |              |           |   | 160,392 |   |   |   |         |          
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          
|Net income (loss)                                                                                                         |                                               | $                                           | (150,023 | )            |         | $            | (160,392 | )            |           | $ | 160,392 |   |   | $ | (150,023 | )        
|                                                                                                                          |                                               |                                             |          |              |         |              |          |              |           |   |         |   |   |   |          |          

101



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of
Operations

Fiscal Year Ended January 31,
2002


|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |           |           | 
|------------------------------------------------------------ | --------------------------------------------- | ------------------------------------------- | ------- | ------------ | ------- | ------------ | --------- | ------------ | --------- | - | ------ | - | - | - | --------- | --------- | --------- | 
|                                                             |                                               |                                             |         | Guarantor    |         |              |           |             
|                                                             |                                               | Parent                                      |         | Subsidiaries |         | Eliminations |           | Consolidated
|                                                             |                                               |                                             |         |              |         |              |           |             
|Revenue:                                                     |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|                                                             | Company-operated restaurants                  |                                             | $       |             |         |              | $         | 1,174,384    |           |   | $      |  |   |   | $         | 1,174,384 |          
|                                                             | Franchised and licensed restaurants and other |                                             |         | 145,733      |         |              |           | 118,010      |           |   |        |  |   |   |           | 263,743   |          
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|                                                             |                                               | Total revenue                               |         |              | 145,733 |              |           |              | 1,292,394 |   |        |   |  |   |           |           | 1,438,127 | 
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|Operating costs and expenses:                                |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|                                                             | Restaurant operations:                        |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |           |          
|                                                             |                                               | Food and packaging                          |         |              | (3,925  | )            |           |              | 360,082   |   |        |   |  |   |           |           | 356,157   | 
|                                                             |                                               | Payroll and other employee benefit expenses |         |              |        |              |           |              | 381,756   |   |        |   |  |   |           |           | 381,756   | 
|                                                             |                                               | Occupancy and other operating expenses      |         |              | 486     |              |           |              | 266,388   |   |        |   |  |   |           |           | 266,874   | 
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|                                                             |                                               |                                             | (3,439  | )            |         |              | 1,008,226 |              |           |   |       |   |   |   | 1,004,787 |          
|Franchised and licensed restaurants and other                |                                               |                                             | 142,353 |              |         |              | 60,167    |              |           |   |       |   |   |   | 202,520   |          
|Advertising expenses                                         |                                               |                                             |        |              |         |              | 73,184    |              |           |   |       |   |   |   | 73,184    |          
|General and administrative expenses                          |                                               |                                             | 16,354  |              |         |              | 96,186    |              |           |   |       |   |   |   | 112,540   |          
|Facility action charges, net                                 |                                               |                                             | 4,707   |              |         |              | 70,404    |              |           |   |       |   |   |   | 75,111    |          
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|                                                             |                                               | Total operating costs and expenses          |         |              | 159,975 |              |           |              | 1,308,167 |   |        |   |  |   |           |           | 1,468,142 | 
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|Operating loss                                               |                                               |                                             | (14,242 | )            |         |              | (15,773   | )            |           |   |       |   |   |   | (30,015   | )        
|Interest expense                                             |                                               |                                             | (40,763 | )            |         |              | (13,174   | )            |           |   |       |   |   |   | (53,937   | )        
|Allocated interest expense                                   |                                               |                                             | 40,763  |              |         |              | (40,763   | )            |           |   |       |   |   |   |          |          
|Other income (expense), net                                  |                                               |                                             | 1,600   |              |         |              | (2,188    | )            |           |   |       |   |   |   | (588      | )        
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|Loss before income taxes                                     |                                               |                                             | (12,642 | )            |         |              | (71,898   | )            |           |   |       |   |   |   | (84,540   | )        
|Income tax expense (benefit)                                 |                                               |                                             | (3,798  | )            |         |              | 3,214     |              |           |   |       |   |   |   | (584      | )        
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|Loss before equity in loss of consolidating
    subsidiaries |                                               |                                             | (8,844  | )            |         |              | (75,112   | )            |           |   |       |   |   |   | (83,956   | )        
|Equity in loss of consolidating subsidiaries                 |                                               |                                             | (75,112 | )            |         |              |          |              |           |   | 75,112 |   |   |   |          |          
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          
|Net loss                                                     |                                               | $                                           | (83,956 | )            |         | $            | (75,112   | )            |           | $ | 75,112 |   |   | $ | (83,956   | )        
|                                                             |                                               |                                             |         |              |         |              |           |              |           |   |        |   |   |   |           |          

102



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of Cash
Flows

Fiscal Year Ended January 31,
2004


|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |          |  
|------------------------------------------------------- | --------------------------------------------------------------------- | ------ | ------ | ------------ | - | ------------ | ------- | ------------ | - | - | - | - |  | - | ------- | -------- | -
|                                                        |                                                                       |        |        | Guarantor    |   |              |         |             
|                                                        |                                                                       | Parent |        | Subsidiaries |   | Eliminations |         | Consolidated
|                                                        |                                                                       |        |        |              |   |              |         |             
|Net cash provided by operating activities               |                                                                       | $      | 14,746 |              |   | $            | 59,316  |              |   | $ |  |   |  | $ | 74,062  |         
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash flow from investing activities:                    |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|                                                        | Purchase of property and equipment                                    |        |        | (7,102       | ) |              |         | (40,771      | ) |   |   |  |  |   |         | (47,873  | )
|                                                        | Proceeds from sale of property and equipment                          |        |        | 24           |   |              |         | 18,803       |   |   |   |  |  |   |         | 18,827   |  
|                                                        | Other                                                                 |        |        | 21,608       |   |              |         | (12,538      | ) |   |   |  |  |   |         | 9,070    |  
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net cash provided by (used in) investing
    activities |                                                                       |        | 14,530 |              |   |              | (34,506 | )            |   |   |  |   |  |   | (19,976 | )       
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash flow from financing activities:                    |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|                                                        | Long-term borrowings                                                  |        |        | 149,500      |   |              |         |             |   |   |   |  |  |   |         | 149,500  |  
|                                                        | Repayments of long-term debt, including capital
    lease obligations |        |        | (275,438     | ) |              |         | (10,727      | ) |   |   |  |  |   |         | (286,165 | )
|                                                        | Proceeds from issuance of convertible debt                            |        |        | 101,588      |   |              |         |             |   |   |   |  |  |   |         | 101,588  |  
|                                                        | Proceeds from credit facility term loan                               |        |        | 25,000       |   |              |         |             |   |   |   |  |  |   |         | 25,000   |  
|                                                        | Other                                                                 |        |        | (4,716       | ) |              |         | (3,378       | ) |   |   |  |  |   |         | (8,094   | )
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net cash used in financing activities                   |                                                                       |        | (4,066 | )            |   |              | (14,105 | )            |   |   |  |   |  |   | (18,171 | )       
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net increase in cash and cash equivalents               |                                                                       |        | 25,210 |              |   |              | 10,705  |              |   |   |  |   |  |   | 35,915  |         
|Cash and cash equivalents at beginning of year          |                                                                       |        | 87     |              |   |              | 18,353  |              |   |   |  |   |  |   | 18,440  |         
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash and cash equivalents at end of year                |                                                                       | $      | 25,297 |              |   | $            | 29,058  |              |   | $ |  |   |  | $ | 54,355  |         
|                                                        |                                                                       |        |        |              |   |              |         |              |   |   |   |   |  |   |         |         

103



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of Cash
Flows

Fiscal Year Ended January 31,
2003


|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |          |  
|---------------------------------------------- | ------------------------------------------------------------------------- | ------ | ------- | ------------ | - | ------------ | ------- | ------------ | - | - | - | - |  | - | ------- | -------- | -
|                                               |                                                                           |        |         | Guarantor    |   |              |         |             
|                                               |                                                                           | Parent |         | Subsidiaries |   | Eliminations |         | Consolidated
|                                               |                                                                           |        |         |              |   |              |         |             
|Net cash provided by operating activities      |                                                                           | $      | 16,710  |              |   | $            | 41,168  |              |   | $ |  |   |  | $ | 57,878  |         
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash flow from investing activities:           |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|                                               | Purchase of property and equipment                                        |        |         | (6,557       | ) |              |         | (70,848      | ) |   |   |  |  |   |         | (77,405  | )
|                                               | Proceeds from sale of marketable securities and
    long-term investments |        |         | 9,248        |   |              |         |             |   |   |   |  |  |   |         | 9,248    |  
|                                               | Proceeds from sale of property and equipment                              |        |         | 2,318        |   |              |         | 21,463       |   |   |   |  |  |   |         | 23,781   |  
|                                               | Other                                                                     |        |         | (12,524      | ) |              |         | 19,487       |   |   |   |  |  |   |         | 6,963    |  
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net cash used in investing activities          |                                                                           |        | (7,515  | )            |   |              | (29,898 | )            |   |   |  |   |  |   | (37,413 | )       
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash flow from financing activities:           |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|                                               | Long-term borrowings                                                      |        |         | 114,500      |   |              |         |             |   |   |   |  |  |   |         | 114,500  |  
|                                               | Repayments of long-term debt, including capital
    lease obligations     |        |         | (123,457     | ) |              |         | (16,840      | ) |   |   |  |  |   |         | (140,297 | )
|                                               | Other                                                                     |        |         | (1,558       | ) |              |         | 688          |   |   |   |  |  |   |         | (870     | )
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net cash used in financing activities          |                                                                           |        | (10,515 | )            |   |              | (16,152 | )            |   |   |  |   |  |   | (26,667 | )       
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Net decrease in cash and cash equivalents      |                                                                           |        | (1,320  | )            |   |              | (4,882  | )            |   |   |  |   |  |   | (6,202  | )       
|Cash and cash equivalents at beginning of year |                                                                           |        | 1,407   |              |   |              | 23,235  |              |   |   |  |   |  |   | 24,642  |         
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         
|Cash and cash equivalents at end of year       |                                                                           | $      | 87      |              |   | $            | 18,353  |              |   | $ |  |   |  | $ | 18,440  |         
|                                               |                                                                           |        |         |              |   |              |         |              |   |   |   |   |  |   |         |         

104



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Consolidating Statement of Cash
Flows

Fiscal Year Ended January 31,
2002


|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |          |  
|---------------------------------------------- | ------------------------------------------------------------------------- | ------ | -------- | ------------ | - | ------------ | ------ | ------------ | - | - | - | - |  | - | -------- | -------- | -
|                                               |                                                                           |        |          | Guarantor    |   |              |        |             
|                                               |                                                                           | Parent |          | Subsidiaries |   | Eliminations |        | Consolidated
|                                               |                                                                           |        |          |              |   |              |        |             
|Net cash provided by operating activities      |                                                                           | $      | 62,199   |              |   | $            | 13,186 |              |   | $ |  |   |  | $ | 75,385   |         
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Cash flow from investing activities:           |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|                                               | Purchase of property and equipment                                        |        |          | (7,270       | ) |              |        | (18,233      | ) |   |   |  |  |   |          | (25,503  | )
|                                               | Proceeds from sale of marketable securities and
    long-term investments |        |          | 4,121        |   |              |        |             |   |   |   |  |  |   |          | 4,121    |  
|                                               | Proceeds from sale of property and equipment                              |        |          |             |   |              |        | 68,278       |   |   |   |  |  |   |          | 68,278   |  
|                                               | Other                                                                     |        |          | 56,375       |   |              |        | (49,596      | ) |   |   |  |  |   |          | 6,779    |  
|                                               | Dispositions of brand, net of cash surrendered                            |        |          | 62,412       |   |              |        |             |   |   |   |  |  |   |          | 62,412   |  
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Net cash provided by investing activities      |                                                                           |        | 115,638  |              |   |              | 449    |              |   |   |  |   |  |   | 116,087  |         
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Cash flow from financing activities:           |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|                                               | Long-term borrowings                                                      |        |          | 140,217      |   |              |        |             |   |   |   |  |  |   |          | 140,217  |  
|                                               | Repayments of long-term debt, including capital
    lease obligations     |        |          | (308,737     | ) |              |        | (10,645      | ) |   |   |  |  |   |          | (319,382 | )
|                                               | Other                                                                     |        |          | (8,071       | ) |              |        | 3,546        |   |   |   |  |  |   |          | (4,525   | )
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Net cash used in financing activities          |                                                                           |        | (176,591 | )            |   |              | (7,099 | )            |   |   |  |   |  |   | (183,690 | )       
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Net increase in cash and cash equivalents      |                                                                           |        | 1,246    |              |   |              | 6,536  |              |   |   |  |   |  |   | 7,782    |         
|Cash and cash equivalents at beginning of year |                                                                           |        | 161      |              |   |              | 16,699 |              |   |   |  |   |  |   | 16,860   |         
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         
|Cash and cash equivalents at end of year       |                                                                           | $      | 1,407    |              |   | $            | 23,235 |              |   | $ |  |   |  | $ | 24,642   |         
|                                               |                                                                           |        |          |              |   |              |        |              |   |   |   |   |  |   |          |         



|          |                                          
|--------- | -----------------------------------------
|Note 23  | 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.



| |                    
| | -------------------
| | 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.

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 2004, 2003, and 2002, 332,688, 173,954, and
289,239 shares, respectively, were purchased and allocated
to employees, based upon their contributions, at an average
price of $4.04, $5.34, and $4.64 per share, respectively. The
Company contributed $470 or an equivalent of 88,647 shares
for the year ended January 31, 2004, $302 or an equivalent
of 54,497 shares for the year ended January 31, 2003
and $495 or an equivalent of 94,362 shares for the year
ended January 31, 2002.

105



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                      
| | ---------------------
| | 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 provisions
determined by the compensation committee of the Companys
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,
2004, 590,150 options were outstanding under this plan with
exercise prices ranging from $5.75 per share to $11.50 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 provisions determined by the
compensation committee of the Companys 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 to 10% or greater
stockholders of the Company. Options 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 stockholders of the Company
may not be granted at less than 110% of the fair market value of
the common stock on the date of grant. A total of
4,900,000 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,
2004, 4,372,295 options were outstanding under this plan
with exercise prices ranging from $2.63 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 of the
Companys Facility; (ii) 50,000 options vest upon
consummation of any restructuring or refinancing of the
Facility; (iii) 75,000 options vest upon the date
which the closing price of the Companys common stock has
been equal to or greater than $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 equal to or greater than $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 equal to or greater than $8.00 per share on any 10 of
20 consecutive trading days. Each of the vesting criteria
was met during fiscal year 2002 and all of these options are
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 3,005,516 options were outstanding as
of January 31, 2004, with exercise prices ranging from
$3.72 per share to $36.65 per share.

The Companys 1993 stock incentive plan was
superseded by the 1994 plan, as discussed above. As of
January 31, 2004, 25,932 stock options, with exercise
prices of $6.27 per share, were outstanding under the plan. No
further awards may be granted under this plan.

The Companys 92s stock incentive plan had
7,641 options outstanding at January 31, 2004 with an
average exercise price of $16.80 per share.

In conjunction with the acquisition of SBRG, the
Company assumed the options outstanding under various SBRG stock
plans. As of January 31, 2004, 1,203,372 of those options
were outstanding, with an

106



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##### Table of Contents



CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

average exercise price of $5.21 per share. The
Company also assumed warrants to purchase approximately
982,000 shares of the Companys common stock.

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

Transactions under all plans are as follows:

|                          |              |        |           |                  |   |             |       |       |  |  |           |  | 
|------------------------- | ------------ | ------ | --------- | ---------------- | - | ----------- | ----- | ----- |  |  | --------- |  | 
|                          |              |        |           | Weighted Average |   |            
|                          |              | Shares |           | Exercise Price   |   | Exercisable
|                          |              |        |           |                  |   |            
|Balance, January 31, 2001 |              |        | 8,108,199 |                  |   | $           | 12.83 |       |  |  | 5,550,408 | 
|                          | Granted      |        |           | 1,016,300        |   |             |       | 4.23  |  |  |           |  | 
|                          | Canceled     |        |           | (1,335,436       | ) |             |       | 15.23 |  |  |           |  | 
|                          | Exercised    |        |           | (72,444          | ) |             |       | 3.75  |  |  |           |  | 
|                          |              |        |           |                  |   |             |       |       |  |  |           | 
|Balance, January 31, 2002 |              |        | 7,716,619 |                  |   | $           | 11.36 |       |  |  | 5,403,892 | 
|                          | Granted      |        |           | 538,000          |   |             |       | 11.08 |  |  |           |  | 
|                          | Canceled     |        |           | (587,437         | ) |             |       | 16.24 |  |  |           |  | 
|                          | Exercised    |        |           | (366,955         | ) |             |       | 3.58  |  |  |           |  | 
|                          | Converted(1) |        |           | 1,663,004        |   |             |       | 4.85  |  |  |           |  | 
|                          |              |        |           |                  |   |             |       |       |  |  |           | 
|Balance, January 31, 2003 |              |        | 8,963,231 |                  |   | $           | 10.13 |       |  |  | 7,352,816 | 
|                          | Granted      |        |           | 857,000          |   |             |       | 5.74  |  |  |           |  | 
|                          | Canceled     |        |           | (267,322         | ) |             |       | 9.45  |  |  |           |  | 
|                          | Exercised    |        |           | (348,003         | ) |             |       | 3.50  |  |  |           |  | 
|                          |              |        |           |                  |   |             |       |       |  |  |           | 
|Balance, January 31, 2004 |              |        | 9,204,906 |                  |   | $           | 10.00 |       |  |  | 7,758,632 | 
|                          |              |        |           |                  |   |             |       |       |  |  |           | 



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Options assumed by CKE upon acquisition of SBRG.
    Under the terms of the merger 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 common stock for the ten
    trading days ending two days prior to the completion of the
    acquisition and the fair value of options granted.

The following table summarizes information
related to stock options outstanding and exercisable at
January 31, 2004:

|                |       |                                                  |  |                |  |                               |       |        |  |                |       |  |  |   |       |  |  |  |      |  |  |  |       |  |  |   |       | 
|--------------- | ----- | ------------------------------------------------ |  | -------------- |  | ----------------------------- | ----- | ------ |  | -------------- | ----- |  |  | - | ----- |  |  |  | ---- |  |  |  | ----- |  |  | - | ----- | 
|                |       |                                                  |  |                |  |                               |       |        |  |               
|Range of        |       |                                                  |  |                |  |                               |       |        |  |               
|Exercise Prices |       |                                                  |  |                |  |                               |       |        |  |               
|                |       |                                                  |  |                |  |                               |       |        |  |               
|                |       |                                                  |  |                |  |                              
|                |       | Options Outstanding                              |  |                |  |                              
|                |       | -----------------------------------------------) |  |                |  |                              
|                |       | (000s                                           |  |                |  |                               |       |       
|                |       |                                                  |  |                |  |                               |       |       
|                |       |                                                  |  |                |  |                              
|                |       |                                                  |  |                |  | Options Exercisable          
|                |       |                                                  |  |                |  | ----------------------------)
|                |       |                                                  |  | Weighted       |  | Weighted                      |       |        |  | Weighted      
|                |       |                                                  |  | Average        |  | Average                       |       | (000s |  | Average       
|                |       |                                                  |  | Exercise Price |  | Remaining                     |       |        |  | Exercise Price
|                |       |                                                  |  |                |  | Contractual Life              |       |        |  |               
|                |       |                                                  |  |                |  |                               |       |        |  |               
|$               | 2.00  |                                                  |  | to             |  | $                             | 2.99  |        |  |                | 2,253 |  |  | $ | 2.67  |  |  |  | 6.96 |  |  |  | 2,029 |  |  | $ | 2.64  | 
|                | 3.00  |                                                  |  |                |  |                               | 4.49  |        |  |                | 1,263 |  |  |   | 3.51  |  |  |  | 5.29 |  |  |  | 1,232 |  |  |   | 3.50  | 
|                | 4.50  |                                                  |  |                |  |                               | 6.74  |        |  |                | 1,160 |  |  |   | 5.81  |  |  |  | 8.12 |  |  |  | 342   |  |  |   | 5.88  | 
|                | 6.75  |                                                  |  |                |  |                               | 10.12 |        |  |                | 1,030 |  |  |   | 8.54  |  |  |  | 3.61 |  |  |  | 966   |  |  |   | 8.55  | 
|                | 10.13 |                                                  |  |                |  |                               | 15.18 |        |  |                | 1,098 |  |  |   | 12.81 |  |  |  | 6.26 |  |  |  | 789   |  |  |   | 13.48 | 
|                | 15.19 |                                                  |  |                |  |                               | 22.77 |        |  |                | 1,344 |  |  |   | 17.28 |  |  |  | 3.94 |  |  |  | 1,344 |  |  |   | 17.28 | 
|                | 22.78 |                                                  |  |                |  |                               | 34.16 |        |  |                | 870   |  |  |   | 25.11 |  |  |  | 3.63 |  |  |  | 870   |  |  |   | 25.11 | 
|                | 34.17 |                                                  |  |                |  |                               | 36.65 |        |  |                | 187   |  |  |   | 36.65 |  |  |  | 4.06 |  |  |  | 187   |  |  |   | 36.65 | 
|                |       |                                                  |  |                |  |                               |       |        |  |                |       |  |  |   |       |  |  |  |      |  |  |  |       |  |  |   |       | 
|$               | 2.00  |                                                  |  |                |  | $                             | 36.65 |        |  |                | 9,205 |  |  | $ | 10.00 |  |  |  | 5.61 |  |  |  | 7,759 |  |  | $ | 10.63 | 
|                |       |                                                  |  |                |  |                               |       |        |  |                |       |  |  |   |       |  |  |  |      |  |  |  |       |  |  |   |       | 

107



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 24  Supplemental
Cash Flow Information

|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |         |  
|---------------------------------------------------------------------- | ------------------------------------------------------------- | ---- | - | ------ | - | ---- | - | ------- | - |  | - | ------- | -
|                                                                       |                                                               | 2004 |   | 2003   |   | 2002
|                                                                       |                                                               |      |   |        |   |     
|Cash (received) paid for interest and income
    taxes are as follows: |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Interest                                                      |      | $ | 35,786 |   |      | $ | 36,884  |   |  | $ | 48,224  |  
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Income tax paid (refund received)                             |      |   | 1,925  |   |      |   | (11,582 | ) |  |   | (32,313 | )
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        
|Non-cash operating charges are as follows:                             |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Write-off of deferred financing costs                         |      |   | 111    |   |      |   |        |   |  |   | 4,146   |  
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        
|Non-cash investing and financing charges are as
    follows:           |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Gain (loss) recognized on sale and leaseback
    transactions |      |   | (336   | ) |      |   | (343    | ) |  |   | 4,269   |  
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Conversion of convertible notes                               |      |   |       |   |      |   | 134     |   |  |   | 20      |  
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        
|                                                                       | Issuance of stock and stock options to acquire
    SBRG       |      |   |       |   |      |   | 78,815  |   |  |   |        |  
|                                                                       |                                                               |      |   |        |   |      |   |         |   |  |   |        

Note 25  Selected
Quarterly Financial Data (Unaudited)

The following table presents summarized quarterly
results:

|                                                                |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |         |  
|--------------------------------------------------------------- | --------------------------------------------------------------- | ------- | -------- | ------ | - | --- | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ------- | -
|                                                                |                                                                 |        
|                                                                |                                                                 | Quarter
|                                                                |                                                                 |        
|                                                                |                                                                 | 1st     |          | 2nd    |   | 3rd |         | 4th  
|                                                                |                                                                 |         |          |        |   |     |         |      
|Fiscal 2004                                                     |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|Total revenue                                                   |                                                                 | $       | 419,558  |        |   | $   | 333,719 |       |  | $ | 334,777 |       |  | $ | 325,383 |        
|Operating income (loss)                                         |                                                                 |         | 9,329    |        |   |     | 15,216  |       |  |   | 12,266  |       |  |   | (41,395 | )      
|Income (loss) from continuing operations                        |                                                                 |         | (3,704   | )      |   |     | 6,209   |       |  |   | 2,051   |       |  |   | (50,326 | )      
|Discontinued operations                                         |                                                                 |         | (2,112   | )      |   |     | 46      |       |  |   | 111     |       |  |   | (835    | )      
|                                                                | Net income (loss)                                               |         |          | (5,816 | ) |     |         | 6,255 |  |   |         | 2,162 |  |   |         | (51,161 | )
|Basic income (loss) per common share                            |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|                                                                | Net income (loss)                                               |         |          | (0.10  | ) |     |         | 0.11  |  |   |         | 0.04  |  |   |         | (0.86   | )
|Diluted income (loss) per common share                          |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|                                                                | Net income (loss)                                               |         |          | (0.10  | ) |     |         | 0.10  |  |   |         | 0.04  |  |   |         | (0.86   | )
|Fiscal 2003                                                     |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|Total revenue                                                   |                                                                 | $       | 424,398  |        |   | $   | 327,571 |       |  | $ | 312,830 |       |  | $ | 298,596 |        
|Operating income (loss)                                         |                                                                 |         | 18,878   |        |   |     | 17,158  |       |  |   | 10,350  |       |  |   | (4,363  | )      
|Income (loss) from continuing operations                        |                                                                 |         | 12,972   |        |   |     | 10,986  |       |  |   | 10,059  |       |  |   | (8,207  | )      
|Discontinued operations                                         |                                                                 |         | 201      |        |   |     | (215    | )     |  |   | (556    | )     |  |   | 517     |        
|Income (loss) before cumulative effect of
    accounting change |                                                                 |         | 13,173   |        |   |     | 10,771  |       |  |   | 9,503   |       |  |   | (7,690  | )      
|Net income (loss)                                               |                                                                 |         | (162,607 | )      |   |     | 10,771  |       |  |   | 9,503   |       |  |   | (7,690  | )      
|Basic income (loss) per common share                            |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|                                                                | Income (loss) before cumulative effect of
    accounting change |         |          | 0.23   |   |     |         | 0.19  |  |   |         | 0.17  |  |   |         | (0.13   | )
|                                                                | Net income (loss)                                               |         |          | (2.95  | ) |     |         | 0.19  |  |   |         | 0.17  |  |   |         | (0.13   | )
|Diluted income (loss) per common share                          |                                                                 |         |          |        |   |     |         |       |  |   |         |       |  |   |         |        
|                                                                | Income (loss) before cumulative effect of
    accounting change |         |          | 0.23   |   |     |         | 0.18  |  |   |         | 0.16  |  |   |         | (0.13   | )
|                                                                | Net income (loss)                                               |         |          | (2.83  | ) |     |         | 0.18  |  |   |         | 0.16  |  |   |         | (0.13   | )

108



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2004 and 2003, which have 16-week
accounting periods.

Fourth
Quarter Adjustments

During the fourth quarter of fiscal 2004, the
Company recorded a charge of $34,059 representing the 100%
impairment of the goodwill associated with the acquisition of La
Salsa.

During the fourth quarter of 2004, the Company
recorded a charge of $1,313 to adjust the carrying value of
assets held for sale (Timber Lodge) to their fair value.

During the fourth quarter of fiscal 2004, the
Company recorded a charge of approximately $1,600 as a result of
a reduction in the discount rate applied to arrive at the
Companys self-insurance claims reserves, which the Company
records at present value.

Note 26  Commitments and
Contingent Liabilities

In conjunction with the Facility, a letter of
credit sub-facility in the amount of $80,000 was established
(see Note 12). Several standby 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
letters 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:


|              |  |   |        | 
|------------- |  | - | ------ | 
|February 2004 |  | $ | 9,816  | 
|March 2004    |  |   | 26,757 | 
|April 2004    |  |   | 1,175  | 
|July 2004     |  |   | 10,073 | 
|November 2004 |  |   | 15,206 | 
|December 2004 |  |   | 653    | 
|              |  |   |        | 
|              |  | $ | 63,680 | 
|              |  |   |        | 

As of January 31, 2004, the Company has recorded
an accrued liability for contingencies related to litigation in
the amount of $3,670.

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 $4,700 under these guarantees as of
January 31, 2004.

The Company currently has unconditional purchase
obligations in the amount of $44,519, which include contracts
for goods and services primarily related to restaurant
operations.

In prior years, as part of its refranchising
program, the Company sold restaurants to franchisees. In some
cases, these restaurants were on leased sites. The Company
entered into agreements with these franchisees but remained
principally liable for the lease obligations. The Company
accounts for the sublease payments received as franchising
rental income and the payments on the leases as rental expense
in franchising expense. The present value of the lease
obligations under the master leases primary terms
remaining is $135,293. 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 by the
Company as being under financial hardship is $27,162.

109



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CKE RESTAURANTS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, at times, the subject of complaints
or allegations from employees, former employees and franchisees.
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. Similar
actions were filed by Mary Jane Amberson and James Bolin,
individually and on behalf of others similarly situated, in the
Superior Court of the State of California, Los Angeles County,
on April 5, 2002 and November 26, 2002, respectively. 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 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.

110



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##### Table of Contents



EXHIBIT INDEX

|         |    |             |  |                                                                                                                                                                                                                                                                                                                                                                  
|-------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |    | Description
|         |    |            
|         | 3  | -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
    ended 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.                                                                                                                                                                                                          
|         | 3  | -4          |  | Certificate of Amendment of Bylaws.(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).                                                                                                                                                                                                                                                                                                                          
|         | 4  | -6          |  | Indenture, dated as of September 29, 2003,
    by and between the Company and J.P. Morgan Trust Company,
    National Association, as Trustee, filed as Exhibit 4.6 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended November 3, 2003, and is hereby incorporated
    by reference.                                                  
|         | 4  | -7          |  | Form of Notes (included in Exhibit 4-6).                                                                                                                                                                                                                                                                                                                         
|         | 4  | -8          |  | Registration Rights Agreement, dated as of
    September 29, 2003, by and among the Company and Citigroup
    Global Markets, Inc., for itself and the other initial
    purchasers, filed as Exhibit 4.8 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    November 3, 2003, and is hereby incorporated by reference.                
|         | 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 | -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 | -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.

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|         |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |    | Description
|         |    |            
|         | 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.*                                                                                                                                                                                    
|         | 10 | -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 | -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.                                                                                                                                                                                                                                                                           
|         | 10 | -50         |  | Director Fee Agreement, effective as of
    April 1, 2003, by and between the Company and William P.
    Foley, II, filed as Exhibit 10.50 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    November 3, 2003, and is hereby incorporated by
    reference.(2)                                                                                                                                                                    
|         | 10 | -51         |  | Distribution Service Agreement, dated as of
    November 7, 2003, by and between La Salsa, Inc. and
    McCabes Quality Foods, filed as Exhibit 10.51 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended November 3, 2003, and is hereby incorporated
    by reference.                                                                                                                                                           
|         | 10 | -52         |  | Fifth Amended and Restated Credit Agreement,
    dated as of November 12, 2003, by and among the Company,
    the Lenders party thereto, and 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 10.52 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended November 3, 2003, and
    is hereby incorporated by reference.
|         | 10 | -53         |  | Employment Agreement, effective as of
    January 27, 2004, by and between the Company and Theodore
    Abajian.(1)(2)                                                                                                                                                                                                                                                                                                                                       
|         | 10 | -54         |  | Second Amendment to Employment Agreement,
    effective as of January 1, 2004, by and between the Company
    and Carl N. Karcher.(1)(2)                                                                                                                                                                                                                                                                                                                     
|         | 10 | -55         |  | Employment Agreement, effective as of
    April 4, 2004, by and between the Company and Andrew F.
    Puzder.(1)(2)                                                                                                                                                                                                                                                                                                                                          
|         | 10 | -56         |  | Employment Agreement, effective as of
    January 27, 2004, by and between the Company and E. Michael
    Murphy.(1)(2)                                                                                                                                                                                                                                                                                                                                      
|         | 12 | -1          |  | Computation of Ratios.(1)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|         | 14 | -1          |  | CKE Restaurants, Inc. Code of Ethics for CEO and
    Senior Financial Officers, as approved by the Companys
    Board of Directors on March 3, 2004.(1)                                                                                                                                                                                                                                                                                                     
|         | 21 | -1          |  | Subsidiaries of Registrant.(1)                                                                                                                                                                                                                                                                                                                                                                                                                               
|         | 23 | -1          |  | Consent of independent auditors.(1)                                                                                                                                                                                                                                                                                                                                                                                                                          
|         | 31 | -1          |  | Certification of Chief Executive Officer pursuant
    to Rule 13a-14(a)/15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|         | 31 | -2          |  | Certification of Chief Financial Officer pursuant
    to Rule 13a-14(a)/15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                 
|         | 32 | -1          |  | Certification of Chief Executive Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                   
|         | 32 | -2          |  | Certification of Chief Financial Officer pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                   



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| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Schedules or exhibits omitted. The Registrant
    shall furnish supplementally to the Securities and Exchange
    Commission a copy of any omitted schedule or exhibit 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 15(c) of Form 10-K.

112