##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended November 6, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from  to  .
 Commission file number 1-11313
 
 CKE RESTAURANTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0602639(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)6307 Carpinteria Avenue, Ste. A, Carpinteria, California
    
    93013(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (805) 745-7500
 Former Name, Former Address and Former Fiscal Year, if changed since last report.
 þ o
  þ o o
 o þ




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##### 



CKE RESTAURANTS, INC. AND SUBSIDIARIES
INDEX
 Page No.Part I. Financial InformationItem 1   Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of November 6, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the twelve and forty weeks ended November 6, 2006 and November 7, 2005
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the forty weeks ended November 6, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the forty weeks ended November 6, 2006 and November 7, 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3   Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 4   Controls and Procedures
    
    
    50Part II. Other InformationItem 1    Legal Proceedings
    
    
    50Item 1A Risk Factors
    
    
    50Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    50Item 3    Defaults Upon Senior Securities
    
    
    51Item 4    Submission of Matters to a Vote of Security Holders
    
    
    51Item 5    Other Information
    
    
    51Item 6    Exhibits
    
    
    51Signatures
    
    
    53EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except par values)
 (Unaudited)
 November 6, 2006
    
    
    January 31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,565
    
    
    $
    21,343Accounts receivable, net of allowance for doubtful accounts
of $969 as of November 6, 2006 and $2,833 as of January 31,
2006
    
    
    35,825
    
    
    
    36,153Related party trade receivables
    
    
    4,867
    
    
    
    4,987Inventories, net
    
    
    20,926
    
    
    
    20,953Prepaid expenses
    
    
    13,121
    
    
    
    13,101Assets held for sale
    
    
    1,882
    
    
    
    Advertising fund assets, restricted
    
    
    18,185
    
    
    
    17,226Deferred income tax assets, net
    
    
    28,998
    
    
    
    31,413Other current assets
    
    
    3,692
    
    
    
    2,251Total current assets
    
    
    153,061
    
    
    
    147,427Notes receivable, net of allowance for doubtful accounts of
$2,116 as of November 6, 2006 and $6,257 as of January 31, 2006
    
    
    2,622
    
    
    
    1,968Property and equipment, net of accumulated depreciation and
amortization of $453,961 as of November 6, 2006 and $431,002 as
of January 31, 2006
    
    
    480,036
    
    
    
    460,083Property under capital leases, net of accumulated amortization
of $44,184 as of November 6, 2006 and $43,183 as of January 31,
2006
    
    
    26,158
    
    
    
    29,364Deferred income tax assets, net
    
    
    90,231
    
    
    
    117,770Goodwill
    
    
    22,649
    
    
    
    22,649Other assets, net
    
    
    19,724
    
    
    
    25,519Total assets
    
    $
    794,481
    
    
    $
    804,780LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of bank indebtedness and other long-term debt
    
    $
    2,015
    
    
    $
    9,247Current portion of capital lease obligations
    
    
    5,267
    
    
    
    4,960Accounts payable
    
    
    58,124
    
    
    
    53,883Advertising fund liabilities
    
    
    18,185
    
    
    
    17,226Other current liabilities
    
    
    97,773
    
    
    
    89,556Total current liabilities
    
    
    181,364
    
    
    
    174,872Bank indebtedness and other long-term debt, less current portion
    
    
    70,133
    
    
    
    98,731Convertible subordinated notes due 2023
    
    
    15,192
    
    
    
    105,000Capital lease obligations, less current portion
    
    
    42,320
    
    
    
    46,724Other long-term liabilities
    
    
    58,110
    
    
    
    57,072Total liabilities
    
    
    367,119
    
    
    
    482,399Commitments and contingencies (Notes 6 and 14)Stockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized;
none issued or outstanding
    
    
    
    
    
    
    Series A Junior Participating Preferred stock, $.01 par
value; 1,500 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000 shares authorized;
69,819 shares issued and 69,663 shares outstanding as of
November 6, 2006; 59,803 shares issued and outstanding as of
January 31, 2006
    
    
    698
    
    
    
    598Common stock held in treasury, at cost; 156 shares as of
November 6, 2006 and none as of January 31, 2006
    
    
    (3,060
    )
    
    
    Additional paid-in capital
    
    
    546,851
    
    
    
    472,834Unearned compensation on restricted stock
    
    
    
    
    
    
    (1,816
    )Accumulated deficit
    
    
    (117,127
    )
    
    
    (149,235
    )Total stockholders equity
    
    
    427,362
    
    
    
    322,381Total liabilities and stockholders equity
    
    $
    794,481
    
    
    $
    804,780
 See Accompanying Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share amounts)
 (Unaudited)
 Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005Revenue:Company-operated restaurants
    
    $
    290,943
    
    
    $
    274,822
    
    
    $
    982,190
    
    
    $
    932,953Franchised and licensed restaurants
and other
    
    
    73,975
    
    
    
    69,291
    
    
    
    247,251
    
    
    
    236,852Total revenue
    
    
    364,918
    
    
    
    344,113
    
    
    
    1,229,441
    
    
    
    1,169,805Operating costs and expenses:Restaurant operating costs:Food and packaging
    
    
    84,208
    
    
    
    80,301
    
    
    
    281,595
    
    
    
    273,116Payroll and employee benefits
    
    
    84,494
    
    
    
    81,952
    
    
    
    285,831
    
    
    
    277,700Occupancy and other
    
    
    64,759
    
    
    
    62,068
    
    
    
    211,989
    
    
    
    210,692Total restaurant operating costs
    
    
    233,461
    
    
    
    224,321
    
    
    
    779,415
    
    
    
    761,508Franchised and licensed restaurants
and other
    
    
    55,191
    
    
    
    53,521
    
    
    
    185,221
    
    
    
    182,648Advertising
    
    
    16,128
    
    
    
    16,334
    
    
    
    56,083
    
    
    
    56,416General and administrative
    
    
    35,893
    
    
    
    28,220
    
    
    
    113,999
    
    
    
    108,105Facility action charges, net
    
    
    (10
    )
    
    
    733
    
    
    
    3,526
    
    
    
    3,787Total operating costs and
expenses
    
    
    340,663
    
    
    
    323,129
    
    
    
    1,138,244
    
    
    
    1,112,464Operating income
    
    
    24,255
    
    
    
    20,984
    
    
    
    91,197
    
    
    
    57,341Interest expense
    
    
    (3,804
    )
    
    
    (5,334
    )
    
    
    (15,916
    )
    
    
    (17,930
    )Conversion inducement expense
    
    
    (2,807
    )
    
    
    
    
    
    
    (6,406
    )
    
    
    Other income, net
    
    
    1,874
    
    
    
    743
    
    
    
    3,423
    
    
    
    2,524Income before income taxes
    
    
    19,518
    
    
    
    16,393
    
    
    
    72,298
    
    
    
    41,935Income tax expense
    
    
    10,061
    
    
    
    570
    
    
    
    32,457
    
    
    
    1,665Net income
    
    $
    9,457
    
    
    $
    15,823
    
    
    $
    39,841
    
    
    $
    40,270Basic income per common share
    
    $
    0.14
    
    
    $
    0.27
    
    
    $
    0.64
    
    
    $
    0.68Diluted income per common share
    
    $
    0.13
    
    
    $
    0.23
    
    
    $
    0.57
    
    
    $
    0.60Dividends per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.12
    
    
    $
    0.12Weighted-average common shares
outstanding:Basic
    
    
    68,001
    
    
    
    59,440
    
    
    
    62,233
    
    
    
    59,154Dilutive effect of stock options,
warrants, convertible notes and
restricted stock
    
    
    4,004
    
    
    
    13,514
    
    
    
    10,481
    
    
    
    14,266Diluted
    
    
    72,005
    
    
    
    72,954
    
    
    
    72,714
    
    
    
    73,420
 See Accompanying Notes to Condensed Consolidated Financial Statements
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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands, except per share amounts)
 (Unaudited)
 Forty Weeks Ended November 6, 2006Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury StockUnearnedAdditional
    
    
    Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPaid-In
    
    
    On Restricted
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at January 31, 2006
    
    
    59,803
    
    
    $
    598
    
    
    $
    472,834
    
    
    $
    (1,816
    )
    
    $
    (149,235
    )
    
    
    
    
    
    $
    
    
    
    $
    322,381Cash dividends declared
($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,733
    )
    
    
    
    
    
    
    
    
    
    
    (7,733
    )Issuance of restricted
stock awards, net of
forfeitures
    
    
    634
    
    
    
    6
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reclassification of
unearned compensation
pursuant to SFAS 123R
adoption
    
    
    
    
    
    
    
    
    
    
    (1,816
    )
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    1,069
    
    
    
    11
    
    
    
    9,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,561Conversion of 2023
Convertible Notes into
common stock
    
    
    10,222
    
    
    
    102
    
    
    
    88,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,452Tax benefit from
exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    3,924
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,924Share-based
compensation expense
    
    
    
    
    
    
    
    
    
    
    4,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,934Repurchase of common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,065
    )
    
    
    (33,998
    )
    
    
    (33,998
    )Retirement of treasury
stock
    
    
    (1,909
    )
    
    
    (19
    )
    
    
    (30,919
    )
    
    
    
    
    
    
    
    
    
    
    1,909
    
    
    
    30,938
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,841
    
    
    
    
    
    
    
    
    
    
    
    39,841Balance at November 6, 2006
    
    
    69,819
    
    
    $
    698
    
    
    $
    546,851
    
    
    $
    
    
    
    $
    (117,127
    )
    
    
    (156
    )
    
    $
    (3,060
    )
    
    $
    427,362
 See Accompanying Notes to Condensed Consolidated Financial Statements
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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005Cash flows from operating activities:Net income
    
    $
    39,841
    
    
    $
    40,270Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    47,245
    
    
    
    49,962Amortization of loan fees
    
    
    2,349
    
    
    
    2,705Share-based compensation expense
    
    
    4,934
    
    
    
    57Recovery of losses on accounts and notes receivable
    
    
    (351
    )
    
    
    (494
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    1,942
    
    
    
    2,231Facility action charges, net
    
    
    3,526
    
    
    
    3,787Deferred income taxes
    
    
    29,954
    
    
    
    141Other non-cash charges
    
    
    56
    
    
    
    38Net changes in operating assets and liabilities:Estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    (3,875
    )
    
    
    (5,218
    )Refundable income taxes
    
    
    (8
    )
    
    
    423Receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    (2,466
    )
    
    
    (1,008
    )Accounts payable and other current and long-term liabilities
    
    
    11,723
    
    
    
    6,159Net cash provided by operating activities
    
    
    134,870
    
    
    
    99,053Cash flows from investing activities:Purchases of property and equipment
    
    
    (85,020
    )
    
    
    (54,263
    )Proceeds from sales of property and equipment
    
    
    19,312
    
    
    
    5,953Collections on notes receivable
    
    
    2,725
    
    
    
    588Other investing activities
    
    
    51
    
    
    
    67Net cash used in investing activities
    
    
    (62,932
    )
    
    
    (47,655
    )Cash flows from financing activities:Net change in bank overdraft
    
    
    (774
    )
    
    
    (4,527
    )Borrowings under revolving credit facility
    
    
    69,500
    
    
    
    109,500Repayments of borrowings under revolving credit facility
    
    
    (76,500
    )
    
    
    (124,000
    )Repayment of credit facility term loan
    
    
    (28,748
    )
    
    
    (26,650
    )Repayment of other long-term debt
    
    
    (121
    )
    
    
    (148
    )Borrowing by consolidated variable interest entity
    
    
    39
    
    
    
    51Repayments of capital lease obligations
    
    
    (3,898
    )
    
    
    (4,135
    )Payment of deferred loan fees
    
    
    
    
    
    
    (101
    )Repurchase of common stock
    
    
    (30,938
    )
    
    
    (1,999
    )Proceeds from exercises of stock options and warrants
    
    
    9,561
    
    
    
    7,106Tax benefit from exercise of stock options
    
    
    1,527
    
    
    
    Dividends paid on common stock
    
    
    (7,364
    )
    
    
    (4,740
    )Net cash used in financing activities
    
    
    (67,716
    )
    
    
    (49,643
    )Net increase in cash and cash equivalents
    
    
    4,222
    
    
    
    1,755Cash and cash equivalents at beginning of period
    
    
    21,343
    
    
    
    18,432Cash and cash equivalents at end of period
    
    $
    25,565
    
    
    $
    20,187
 See Accompanying Notes to Condensed Consolidated Financial Statements
 6




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 Note 1  Basis of Presentation and Description of Business
 ® ® ® ®
  Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalCompany-operated
    
    
    394
    
    
    
    705
    
    
    
    54
    
    
    
    1
    
    
    
    1,154Franchised and licensed
    
    
    685
    
    
    
    1,218
    
    
    
    41
    
    
    
    15
    
    
    
    1,959Total
    
    
    1,079
    
    
    
    1,923
    
    
    
    95
    
    
    
    16
    
    
    
    3,113
    Variable Interest Entities
 Consolidation of Variable Interest Entities
 Accounting for
Franchise Fee Revenue
 7




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 2  Accounting Pronouncements Not Yet Adopted
 Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140
 Accounting for Servicing of Financial Assetsan
amendment of FASB Statement No. 140
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, Accounting for Income Taxes
 How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That is, Gross versus Net Presentation)
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year
Financial Statements
 Fair Value Measurements
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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106 and 132(R)
 Note 3  Adoption of New Accounting Pronouncements
 Inventory Costsan amendment of ARB No. 43,
Chapter 4
 Share-Based Payment
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 Accounting for
Rental Costs Incurred during a Construction Period,
 Note 4  Share-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
    Statement of Cash Flows
  Twelve Weeks
    
    Forty WeeksDecrease in income before income taxes
    
    $
    1,165
    
    
    $
    3,747Decrease in net income
    
    
    702
    
    
    
    2,256Decrease in basic net income per common share
    
    
    0.01
    
    
    
    0.04Decrease in diluted net income per common share
    
    
    0.01
    
    
    
    0.03
   10




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Twelve Weeks
    
    
    Forty WeeksNet income, as reported
    
    $
    15,823
    
    
    $
    40,270Add: Share-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    47
    
    
    
    57Deduct: Total share-based
employee compensation expense
determined under fair value
based method, net of related tax
effects
    
    
    (913
    )
    
    
    (3,363
    )Net income  pro forma
    
    $
    14,957
    
    
    $
    36,964Net income per common share:Basic  as reported
    
    $
    0.27
    
    
    $
    0.68Basic  pro forma
    
    
    0.25
    
    
    
    0.62Diluted  as reported
    
    
    0.23
    
    
    
    0.60Diluted  pro forma
    
    
    0.22
    
    
    
    0.55
 Employee Stock Purchase Plan
  Stock Incentive Plans
   11




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
     Twelve Weeks EndedNovember 6, 2006
    
    November 7, 2005Annual dividend yield
    
    
    1.09
    %
    
    
    1.24
    %Expected volatility
    
    
    48.50
    %
    
    
    64.52
    %Risk-free interest rate (matched to the expected
term of the outstanding option)
    
    
    4.74
    %
    
    
    4.55
    %Expected life (years)
    
    
    5.96
    
    
    
    5.22Weighted-average fair value of each option granted
    
    $
    9.06
    
    
    $
    7.30
 Forty Weeks EndedNovember 6, 2006
    
    November 7, 2005Annual dividend yield
    
    
    1.09
    %
    
    
    1.24
    %Expected volatility
    
    
    48.66
    %
    
    
    64.50
    %Risk-free interest rate (matched to the expected
term of the outstanding option)
    
    
    4.76
    %
    
    
    4.55
    %Expected life (years)
    
    
    5.97
    
    
    
    5.22Weighted-average fair value of each option granted
    
    $
    8.95
    
    
    $
    7.19
  Twelve Weeks EndedChange in Assumption
    
    November 6, 2006
    
    November 7, 200510% increase in expected volatility
    
    $
    1.25
    
    
    $
    0.771% increase in risk-free interest rate
    
    
    0.29
    
    
    
    0.141 year increase in expected life
    
    
    0.56
    
    
    
    0.4510% decrease in expected volatility
    
    
    (1.33
    )
    
    
    (0.83
    )1% decrease in risk-free interest rate
    
    
    (0.29
    )
    
    
    (0.15
    )1 year decrease in expected life
    
    
    (0.66
    )
    
    
    (0.56
    )
 12




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Forty Weeks EndedChange in Assumption
    
    November 6, 2006
    
    November 7, 200510% increase in expected volatility
    
    $
    1.23
    
    
    $
    0.821% increase in risk-free interest rate
    
    
    0.28
    
    
    
    0.151 year increase in expected life
    
    
    0.55
    
    
    
    0.4810% decrease in expected volatility
    
    
    (1.31
    )
    
    
    (0.89
    )1% decrease in risk-free interest rate
    
    
    (0.28
    )
    
    
    (0.15
    )1 year decrease in expected life
    
    
    (0.65
    )
    
    
    (0.59
    )
  Stock options outstanding:
 Weighted-Average
    
    
    AggregateWeighted-Average
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    ValueOutstanding at January 31, 2006
    
    
    6,162,082
    
    
    $
    12.08
    
    
    
    5.67Granted
    
    
    546,750
    
    
    
    18.84Exercised
    
    
    (1,068,627
    )
    
    
    8.95Forfeited
    
    
    (53,480
    )
    
    
    12.68Expired
    
    
    (80,223
    )
    
    
    17.77Outstanding at November 6, 2006
    
    
    5,506,502
    
    
    $
    13.27
    
    
    
    5.61
    
    
    $
    39,847Exercisable at November 6, 2006
    
    
    3,844,908
    
    
    $
    12.51
    
    
    
    4.13
    
    
    $
    32,423Expected to vest at November 6, 2006
    
    
    1,546,096
    
    
    $
    14.96
    
    
    
    9.02
    
    
    $
    7,023
 Restricted stock awards:
 Weighted-AverageGrant DateShares
    
    
    Fair ValueRestricted stock awards at January 31, 2006
    
    
    150,000
    
    
    $
    13.33Granted
    
    
    638,543
    
    
    $
    18.30Awards vested
    
    
    (21,670
    )
    
    $
    13.60Forfeited
    
    
    (5,000
    )
    
    $
    13.53Restricted stock awards at November 6, 2006
    
    
    761,873
    
    
    $
    17.49
   13




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 5  Other Assets
  November 6,
    
    
    January 31,2006
    
    
    2006Intangible assets (see table below)
    
    $
    15,736
    
    
    $
    16,836Deferred financing costs
    
    
    1,728
    
    
    
    5,708Net investment in lease receivables, less current portion
    
    
    621
    
    
    
    748Other
    
    
    1,639
    
    
    
    2,227$
    19,724
    
    
    $
    25,519
   Weighted-
    
    
    November 6, 2006
    
    
    January 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingIntangible Assets
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks
    
    
    20
    
    
    $
    17,171
    
    
    $
    (4,026
    )
    
    $
    13,145
    
    
    $
    17,171
    
    
    $
    (3,365
    )
    
    $
    13,806Franchise agreements
    
    
    20
    
    
    
    1,780
    
    
    
    (396
    )
    
    
    1,384
    
    
    
    1,780
    
    
    
    (328
    )
    
    
    1,452Favorable lease
agreements
    
    
    16
    
    
    
    3,241
    
    
    
    (2,034
    )
    
    
    1,207
    
    
    
    4,034
    
    
    
    (2,456
    )
    
    
    1,578$
    22,192
    
    
    $
    (6,456
    )
    
    $
    15,736
    
    
    $
    22,985
    
    
    $
    (6,149
    )
    
    $
    16,836
  Note 6  Indebtedness and Interest Expense
    14




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 %,
 Accounting for Derivative
Instruments and Hedging Activities
     15




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
     Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005Facility
    
    $
    1,421
    
    
    $
    1,743
    
    
    $
    5,288
    
    
    $
    5,868Capital lease obligations
    
    
    1,306
    
    
    
    1,446
    
    
    
    4,345
    
    
    
    4,8272023 Convertible Notes
    
    
    202
    
    
    
    969
    
    
    
    2,428
    
    
    
    3,230Amortization of loan fees
    
    
    570
    
    
    
    820
    
    
    
    2,349
    
    
    
    2,705Write-off of unamortized loan
fees, term loan due July 2,
2008
    
    
    69
    
    
    
    125
    
    
    
    240
    
    
    
    354Letter of credit fees and other
    
    
    236
    
    
    
    231
    
    
    
    1,266
    
    
    
    946$
    3,804
    
    
    $
    5,334
    
    
    $
    15,916
    
    
    $
    17,930
 Note 7  Facility Action Charges, Net
  (i)
    
    impairment of long-lived assets for under-performing restaurants to be disposed of or held
and used;(ii)
    
    store closure costs, including sublease of closed facilities at amounts below our primary lease obligation;(iii)
    
    gain/(loss) on the sale of restaurants; and(iv)
    
    amortization of discount related to estimated liability for closing restaurants.
 16




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005Carls Jr.New decisions
regarding
closing
restaurants
    
    $
    74
    
    
    $
    
    
    
    $
    74
    
    
    $
    (Favorable)
unfavorable
dispositions of
leased and fee
surplus
properties, net
    
    
    (196
    )
    
    
    305
    
    
    
    916
    
    
    
    795Impairment of
assets to be
held and used
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    775Loss (gain) on
sales of
restaurants and
surplus
properties, net
    
    
    123
    
    
    
    4
    
    
    
    (706
    )
    
    
    (507
    )Amortization of
discount related
to estimated
liability for
closing
restaurants
    
    
    63
    
    
    
    58
    
    
    
    194
    
    
    
    18264
    
    
    
    367
    
    
    
    522
    
    
    
    1,245HardeesNew decisions
regarding
closing
restaurants
    
    
    712
    
    
    
    213
    
    
    
    2,633
    
    
    
    957Unfavorable
(favorable)
dispositions of
leased and fee
surplus
properties, net
    
    
    6
    
    
    
    187
    
    
    
    (117
    )
    
    
    (357
    )Impairment of
assets to be
disposed of
    
    
    182
    
    
    
    14
    
    
    
    634
    
    
    
    23Impairment of
assets to be
held and used
    
    
    123
    
    
    
    
    
    
    
    359
    
    
    
    641(Gain) loss on sales of restaurants and surplus properties, net
    
    
    (2,688
    )
    
    
    74
    
    
    
    (3,786
    )
    
    
    299Amortization of
discount related
to estimated
liability for
closing
restaurants
    
    
    111
    
    
    
    142
    
    
    
    390
    
    
    
    538(1,554
    )
    
    
    630
    
    
    
    113
    
    
    
    2,101La Salsa and OtherNew decisions
regarding
closing
restaurants
    
    
    617
    
    
    
    
    
    
    
    617
    
    
    
    157Unfavorable
(favorable)
dispositions of
leased and fee
surplus
properties, net
    
    
    18
    
    
    
    (342
    )
    
    
    156
    
    
    
    (256
    )Impairment of
assets to be
held and used
    
    
    
    
    
    
    
    
    
    
    1,054
    
    
    
    243Loss on sales of
restaurants and
surplus
properties, net
    
    
    844
    
    
    
    75
    
    
    
    1,059
    
    
    
    292Amortization of
discount related
to estimated
liability for
closing
restaurants
    
    
    1
    
    
    
    3
    
    
    
    5
    
    
    
    51,480
    
    
    
    (264
    )
    
    
    2,891
    
    
    
    441
 17




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005TotalNew decisions
regarding
closing
restaurants
    
    
    1,403
    
    
    
    213
    
    
    
    3,324
    
    
    
    1,114(Favorable)
unfavorable
dispositions of
leased and fee
surplus
properties, net
    
    
    (172
    )
    
    
    150
    
    
    
    955
    
    
    
    182Impairment of
assets to be
disposed of
    
    
    182
    
    
    
    14
    
    
    
    634
    
    
    
    23Impairment of
assets to be
held and used
    
    
    123
    
    
    
    
    
    
    
    1,457
    
    
    
    1,659(Gain) loss on
sales of
restaurants and
surplus
properties, net
    
    
    (1,721
    )
    
    
    153
    
    
    
    (3,433
    )
    
    
    84Amortization of
discount related
to estimated
liability for
closing
restaurants
    
    
    175
    
    
    
    203
    
    
    
    589
    
    
    
    725$
    (10
    )
    
    $
    733
    
    
    $
    3,526
    
    
    $
    3,787
  La SalsaCarls Jr.
    
    
    Hardees
    
    
    and Other
    
    
    TotalBalance at January 31, 2006
    
    $
    3,615
    
    
    $
    9,865
    
    
    $
    120
    
    
    $
    13,600New decisions regarding closing restaurants
    
    
    74
    
    
    
    2,633
    
    
    
    617
    
    
    
    3,324Usage
    
    
    (1,032
    )
    
    
    (3,133
    )
    
    
    (32
    )
    
    
    (4,197
    )Unfavorable (favorable) dispositions of
leased and fee surplus properties, net
    
    
    916
    
    
    
    (117
    )
    
    
    156
    
    
    
    955Amortization of discount
    
    
    194
    
    
    
    390
    
    
    
    5
    
    
    
    589Balance at November 6, 2006
    
    
    3,767
    
    
    
    9,638
    
    
    
    866
    
    
    
    14,271Less current portion
    
    
    1,305
    
    
    
    2,933
    
    
    
    348
    
    
    
    4,586Long-term portion
    
    $
    2,462
    
    
    $
    6,705
    
    
    $
    518
    
    
    $
    9,685
  Note 8  Income Taxes
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005Foreign income taxes
    
    $
    222
    
    
    $
    200
    
    
    $
    844
    
    
    $
    666Federal and state income taxes
    
    
    9,839
    
    
    
    370
    
    
    
    31,613
    
    
    
    999Income tax expense
    
    $
    10,061
    
    
    $
    570
    
    
    $
    32,457
    
    
    $
    1,665Effective income tax rate
    
    
    51.5
    %
    
    
    3.5
    %
    
    
    44.9
    %
    
    
    4.0
    %
  18




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 9  Income Per Share
    Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005
    
    
    November 6, 2006
    
    
    November 7, 2005(In thousands except per share amounts)Net income for computation of
basic earnings per share
    
    $
    9,457
    
    
    $
    15,823
    
    
    $
    39,841
    
    
    $
    40,270Weighted-average shares for computation
of basic earnings per share
    
    
    68,001
    
    
    
    59,440
    
    
    
    62,233
    
    
    
    59,154Basic net income per share
    
    $
    0.14
    
    
    $
    0.27
    
    
    $
    0.64
    
    
    $
    0.68Net income for computation of basic
earnings per share
    
    $
    9,457
    
    
    $
    15,823
    
    
    $
    39,841
    
    
    $
    40,270Add: Interest and amortization costs for
Convertible Notes due 2023, net of
related tax effect
    
    
    152
    
    
    
    1,125
    
    
    
    1,743
    
    
    
    3,750Net income for computation of diluted
earnings per share
    
    $
    9,609
    
    
    $
    16,948
    
    
    $
    41,584
    
    
    $
    44,020Weighted-average shares for computation
of basic earnings per share
    
    
    68,001
    
    
    
    59,440
    
    
    
    62,233
    
    
    
    59,154Dilutive effect of stock options,
warrants and restricted stock
    
    
    1,515
    
    
    
    1,703
    
    
    
    1,501
    
    
    
    2,455Dilutive effect of 2023 convertible notes
    
    
    2,489
    
    
    
    11,811
    
    
    
    8,980
    
    
    
    11,811Weighted-average shares for computation
of diluted earnings per share
    
    
    72,005
    
    
    
    72,954
    
    
    
    72,714
    
    
    
    73,420Diluted net income per share
    
    $
    0.13
    
    
    $
    0.23
    
    
    $
    0.57
    
    
    $
    0.60
  Twelve Weeks Ended
    
    Forty Weeks EndedNovember 6, 2006
    
    November 7, 2005
    
    November 6, 2006
    
    November 7, 2005Stock options and restricted stock
    
    
    1,647
    
    
    
    2,105
    
    
    
    2,179
    
    
    
    2,402
 Note 10  Segment Information
  19




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended November 6, 2006Revenue
    
    $
    187,194
    
    
    $
    166,154
    
    
    $
    10,531
    
    
    $
    1,039
    
    
    $
    364,918Operating income (loss)
    
    
    17,157
    
    
    
    10,764
    
    
    
    (3,669
    )
    
    
    3
    
    
    
    24,255Income (loss) before income taxes
    
    
    17,124
    
    
    
    5,918
    
    
    
    (3,654
    )
    
    
    130
    
    
    
    19,518Goodwill (as of November 6, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended November 7, 2005Revenue
    
    $
    181,041
    
    
    $
    150,822
    
    
    $
    11,200
    
    
    $
    1,050
    
    
    $
    344,113Operating income (loss)
    
    
    17,754
    
    
    
    4,275
    
    
    
    (904
    )
    
    
    (141
    )
    
    
    20,984Income (loss) before income taxes
    
    
    17,100
    
    
    
    327
    
    
    
    (897
    )
    
    
    (137
    )
    
    
    16,393Goodwill (as of November 7, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalForty Weeks Ended November 6, 2006Revenue
    
    $
    641,989
    
    
    $
    547,490
    
    
    $
    36,602
    
    
    $
    3,360
    
    
    $
    1,229,441Operating income (loss)
    
    
    66,397
    
    
    
    31,864
    
    
    
    (6,980
    )
    
    
    (84
    )
    
    
    91,197Income (loss) before income taxes
    
    
    64,927
    
    
    
    14,701
    
    
    
    (6,964
    )
    
    
    (366
    )
    
    
    72,298Goodwill (as of November 6, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalForty Weeks Ended November 7, 2005Revenue
    
    $
    612,443
    
    
    $
    515,083
    
    
    $
    38,392
    
    
    $
    3,887
    
    
    $
    1,169,805Operating income (loss)
    
    
    57,654
    
    
    
    15,346
    
    
    
    (4,379
    )
    
    
    (11,280
    )
    
    
    57,341Income (loss) before income taxes
    
    
    55,256
    
    
    
    1,992
    
    
    
    (4,352
    )
    
    
    (10,961
    )
    
    
    41,935Goodwill (as of November 7, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Note 11  Net Assets Held For Sale
  Note 12  Purchase and Sale of Restaurant Assets
   20




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 13  Termination of Franchise Agreement
  Note 14  Commitments and Contingent Liabilities
     21




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  ,
  Note 15  Stockholders Equity
 Repurchase of Common Stock
  Dividends
  22




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Note 16  Supplemental Cash Flow Information
 Forty Weeks EndedNovember 6,
    
    
    November 5,2006
    
    
    2005Cash paid for:Interest, net of amounts capitalized
    
    $
    14,787
    
    
    $
    16,388Income taxes, net of refunds received
    
    $
    545
    
    
    $
    1,362Non-cash investing and financing activities:Gain recognized on sale and leaseback transactions
    
    $
    269
    
    
    $
    280Dividends declared, not paid
    
    $
    2,794
    
    
    $
    2,379Capital lease obligations incurred to acquire assets
    
    $
    102
    
    
    $
    344
  23




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction and Safe Harbor Disclosure
    New Accounting Pronouncements Not Yet Adopted
  Adoption of New Accounting Pronouncements
  Critical Accounting Policies
   
    
    estimation of future cash flows used to assess the recoverability of
long-lived assets, including goodwill, and to 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, general and auto
liability insurance programs;
 24




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
    
    determination of appropriate estimated liabilities for loss contingencies;
    
    determination of appropriate assumptions to use in evaluating leases for capital versus operating lease treatment,
establishing depreciable lives for leasehold improvements and establishing straight-line rent expense periods;
    
    estimation of the appropriate allowances associated with franchise and license receivables and liabilities for franchise
subleases;
    
    determination of the appropriate assumptions to use to estimate the fair value of share-based compensation; and
    
    estimation of our deferred income tax asset valuation allowance and effective tax rate.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
     25




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Impairment of Goodwill
    Estimated Liability for Closing Restaurants
    26




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Estimated Liability for Self-Insurance
   Loss Contingencies
 Accounting for Contingencies
 Accounting for Lease Obligations
  27




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Franchised and Licensed Operations
      28




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Share-Based Compensation
  Income Taxes
    Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2007 Comparisons with
Fiscal 2006
  Fiscal Year and Seasonality
  29




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Business Strategy
  
    
    increase revenues, average unit volumes and operating income at our
major brands;
    
    remain focused on restaurant fundamentals  quality, service and cleanliness;
    
    capitalize on our unique brand positioning and cutting-edge
advertising;
    
    offer premium products that compete on quality, innovation and taste;
    
    continue to capitalize on dual-branding opportunities
available with Green Burrito and Red
BurritoTM;
    
    control costs and improve the capital structure while
increasing shareholder distributions;
    
    leverage our infrastructure and marketing presence to build out existing core markets;
    
    remodel our existing store base to remain competitive; and
    
    strengthen our franchise system and pursue further
franchising opportunities, including new franchisees.
 Franchise Operations
   30




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Operating Review
  Twelve Weeks Ended November 6, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    132,068
    
    
    $
    148,668
    
    
    $
    10,122
    
    
    $
    85
    
    
    $
    
    
    
    $
    290,943Restaurant operating costs:Food and packaging
    
    
    38,599
    
    
    
    42,912
    
    
    
    2,669
    
    
    
    28
    
    
    
    
    
    
    
    84,208Payroll and employee benefits
    
    
    34,522
    
    
    
    46,535
    
    
    
    3,407
    
    
    
    30
    
    
    
    
    
    
    
    84,494Occupancy and other
operating costs
    
    
    29,197
    
    
    
    31,965
    
    
    
    3,571
    
    
    
    26
    
    
    
    
    
    
    
    64,759Total restaurant
operating costs
    
    
    102,318
    
    
    
    121,412
    
    
    
    9,647
    
    
    
    84
    
    
    
    
    
    
    
    233,461Franchising and licensed
restaurants and other revenues:Royalties
    
    
    6,984
    
    
    
    11,793
    
    
    
    409
    
    
    
    128
    
    
    
    4
    
    
    
    19,318Distribution centers
    
    
    42,883
    
    
    
    4,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,934Rent
    
    
    4,979
    
    
    
    1,531
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,510Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    822
    
    
    
    
    
    
    
    822Other
    
    
    280
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    391Total franchising and
licensed restaurants and
other revenues
    
    
    55,126
    
    
    
    17,486
    
    
    
    409
    
    
    
    950
    
    
    
    4
    
    
    
    73,975Franchising and licensed
restaurants and other expenses:Administrative expense
(including provision for bad
debts)
    
    
    1,168
    
    
    
    556
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    2,037Distribution centers
    
    
    42,695
    
    
    
    4,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,985Rent and other occupancy
    
    
    4,238
    
    
    
    1,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,364Operating costs of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    801
    
    
    
    4
    
    
    
    805Total franchising and
licensed restaurants and
other expenses
    
    
    48,101
    
    
    
    5,972
    
    
    
    313
    
    
    
    801
    
    
    
    4
    
    
    
    55,191Advertising
    
    
    7,140
    
    
    
    8,684
    
    
    
    303
    
    
    
    1
    
    
    
    
    
    
    
    16,128General and administrative
    
    
    12,414
    
    
    
    20,876
    
    
    
    2,523
    
    
    
    80
    
    
    
    
    
    
    
    35,893Facility action charges, net
    
    
    64
    
    
    
    (1,554
    )
    
    
    1,414
    
    
    
    66
    
    
    
    
    
    
    
    (10
    )Operating income (loss)
    
    $
    17,157
    
    
    $
    10,764
    
    
    $
    (3,669
    )
    
    $
    3
    
    
    $
    
    
    
    $
    24,255Company-operated average unit
volume (trailing-13 periods)
    
    $
    1,416
    
    
    $
    907
    
    
    $
    793Franchise-operated average unit
volume (trailing-13 periods)
    
    $
    1,192
    
    
    $
    924
    
    
    $
    844Company-operated same-store
sales increase
    
    
    6.2
    %
    
    
    5.6
    %
    
    
    2.0
    %Franchise-operated same-store
sales increase
    
    
    5.7
    %
    
    
    4.1
    %
    
    
    1.7
    %Company-operated same-store
transaction increase (decrease)
    
    
    1.0
    %
    
    
    2.5
    %
    
    
    (4.1
    )%Average check (actual $)
    
    $
    6.49
    
    
    $
    4.83
    
    
    $
    10.79Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    29.2
    %
    
    
    28.9
    %
    
    
    26.4
    %Payroll and employee benefits
    
    
    26.1
    %
    
    
    31.3
    %
    
    
    33.7
    %Occupancy and other
operating costs
    
    
    22.1
    %
    
    
    21.5
    %
    
    
    35.3
    %Total restaurant
operating costs
    
    
    77.5
    %
    
    
    81.7
    %
    
    
    95.3
    %Advertising as a percentage of
company-operated revenue
    
    
    5.4
    %
    
    
    5.8
    %
    
    
    3.0
    %
 31




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Twelve Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    129,548
    
    
    $
    134,420
    
    
    $
    10,770
    
    
    $
    84
    
    
    $
    
    
    
    $
    274,822Restaurant operating costs:Food and packaging
    
    
    37,708
    
    
    
    39,648
    
    
    
    2,916
    
    
    
    29
    
    
    
    
    
    
    
    80,301Payroll and employee benefits
    
    
    34,467
    
    
    
    43,720
    
    
    
    3,729
    
    
    
    36
    
    
    
    
    
    
    
    81,952Occupancy and other
operating costs
    
    
    28,491
    
    
    
    29,835
    
    
    
    3,714
    
    
    
    28
    
    
    
    
    
    
    
    62,068Total restaurant
operating costs
    
    
    100,666
    
    
    
    113,203
    
    
    
    10,359
    
    
    
    93
    
    
    
    
    
    
    
    224,321Franchising and licensed
restaurants and other revenues:Royalties
    
    
    5,941
    
    
    
    9,836
    
    
    
    400
    
    
    
    116
    
    
    
    (20
    )
    
    
    16,273Distribution centers
    
    
    40,028
    
    
    
    5,304
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    45,199Rent
    
    
    5,113
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,194Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,003
    
    
    
    
    
    
    
    1,003Other
    
    
    411
    
    
    
    181
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    622Total franchising and
licensed restaurants and
other revenues
    
    
    51,493
    
    
    
    16,402
    
    
    
    430
    
    
    
    1,119
    
    
    
    (153
    )
    
    
    69,291Franchising and licensed
restaurants and other expenses:Administrative expense
(including provision for bad
debts)
    
    
    995
    
    
    
    1,152
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    2,438Distribution centers
    
    
    39,210
    
    
    
    5,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,724Rent and other
occupancy
    
    
    4,258
    
    
    
    1,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,565Operating costs of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    995
    
    
    
    (201
    )
    
    
    794Total franchising and
licensed restaurants and
other expenses
    
    
    44,463
    
    
    
    7,973
    
    
    
    291
    
    
    
    995
    
    
    
    (201
    )
    
    
    53,521Advertising
    
    
    7,801
    
    
    
    8,208
    
    
    
    323
    
    
    
    2
    
    
    
    
    
    
    
    16,334General and administrative
    
    
    9,990
    
    
    
    16,533
    
    
    
    1,409
    
    
    
    288
    
    
    
    
    
    
    
    28,220Facility action charges, net
    
    
    367
    
    
    
    630
    
    
    
    (278
    )
    
    
    14
    
    
    
    
    
    
    
    733Operating income (loss)
    
    $
    17,754
    
    
    $
    4,275
    
    
    $
    (904
    )
    
    $
    (189
    )
    
    $
    48
    
    
    $
    20,984Company-operated average unit
volume (trailing-13 periods)
    
    $
    1,324
    
    
    $
    869
    
    
    $
    765Franchise-operated average unit
volume (trailing-13 periods)
    
    $
    1,150
    
    
    $
    880
    
    
    $
    890Company-operated same-store
sales (decrease) increase
    
    
    (0.1
    )%
    
    
    (3.5
    )%
    
    
    2.6
    %Franchise-operated same-store
sales (decrease) increase
    
    
    (1.1
    )%
    
    
    (4.0
    )%
    
    
    2.0
    %Company-operated same-store
transaction decrease
    
    
    (4.7
    )%
    
    
    (5.1
    )%
    
    
    (1.3
    )%Average check (actual $)
    
    $
    6.10
    
    
    $
    4.69
    
    
    $
    10.06Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    29.1
    %
    
    
    29.5
    %
    
    
    27.1
    %Payroll and employee benefits
    
    
    26.6
    %
    
    
    32.5
    %
    
    
    34.6
    %Occupancy and other
operating costs
    
    
    22.0
    %
    
    
    22.2
    %
    
    
    34.5
    %Total restaurant
operating costs
    
    
    77.7
    %
    
    
    84.2
    %
    
    
    96.2
    %Advertising as a percentage of
company-operated revenue
    
    
    6.0
    %
    
    
    6.1
    %
    
    
    3.0
    %
 32




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Forty Weeks Ended November 6, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    457,572
    
    
    $
    489,234
    
    
    $
    35,111
    
    
    $
    273
    
    
    $
    
    
    
    $
    982,190Restaurant operating costs:Food and packaging
    
    
    131,337
    
    
    
    141,187
    
    
    
    8,981
    
    
    
    90
    
    
    
    
    
    
    
    281,595Payroll and employee benefits
    
    
    119,991
    
    
    
    154,261
    
    
    
    11,476
    
    
    
    103
    
    
    
    
    
    
    
    285,831Occupancy and other
operating costs
    
    
    96,321
    
    
    
    103,707
    
    
    
    11,875
    
    
    
    86
    
    
    
    
    
    
    
    211,989Total restaurant
operating costs
    
    
    347,649
    
    
    
    399,155
    
    
    
    32,332
    
    
    
    279
    
    
    
    
    
    
    
    779,415Franchising and licensed
restaurants and other revenues:Royalties
    
    
    22,478
    
    
    
    38,070
    
    
    
    1,491
    
    
    
    382
    
    
    
    (38
    )
    
    
    62,383Distribution centers
    
    
    144,201
    
    
    
    13,531
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,732Rent
    
    
    16,196
    
    
    
    6,101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,297Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,743
    
    
    
    
    
    
    
    2,743Other
    
    
    1,542
    
    
    
    554
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,096Total franchising and
licensed restaurants and
other revenues
    
    
    184,417
    
    
    
    58,256
    
    
    
    1,491
    
    
    
    3,125
    
    
    
    (38
    )
    
    
    247,251Franchising and licensed
restaurants and other expenses:Administrative expense
(including provision for bad
debts)
    
    
    4,000
    
    
    
    3,100
    
    
    
    1,087
    
    
    
    
    
    
    
    
    
    
    
    8,187Distribution centers
    
    
    142,026
    
    
    
    14,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,248Rent and other occupancy
    
    
    13,948
    
    
    
    4,173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,121Operating costs of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,695
    
    
    
    (30
    )
    
    
    2,665Total franchising and
licensed restaurants and
other expenses
    
    
    159,974
    
    
    
    21,495
    
    
    
    1,087
    
    
    
    2,695
    
    
    
    (30
    )
    
    
    185,221Advertising
    
    
    26,253
    
    
    
    28,772
    
    
    
    1,053
    
    
    
    5
    
    
    
    
    
    
    
    56,083General and administrative
    
    
    41,194
    
    
    
    66,091
    
    
    
    6,493
    
    
    
    221
    
    
    
    
    
    
    
    113,999Facility action charges, net
    
    
    522
    
    
    
    113
    
    
    
    2,617
    
    
    
    274
    
    
    
    
    
    
    
    3,526Operating income (loss)
    
    $
    66,397
    
    
    $
    31,864
    
    
    $
    (6,980
    )
    
    $
    (76
    )
    
    $
    (8
    )
    
    $
    91,197Company-operated same-store
sales increase
    
    
    5.5
    %
    
    
    4.8
    %
    
    
    1.6
    %Franchise-operated same-store
sales increase
    
    
    6.0
    %
    
    
    4.4
    %
    
    
    1.6
    %Company-operated same-store
transaction increase (decrease)
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    (4.5
    )%Average check (actual $)
    
    $
    6.42
    
    
    $
    4.89
    
    
    $
    10.87Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    28.7
    %
    
    
    28.9
    %
    
    
    25.6
    %Payroll and employee
benefits
    
    
    26.2
    %
    
    
    31.5
    %
    
    
    32.7
    %Occupancy and other
operating costs
    
    
    21.1
    %
    
    
    21.2
    %
    
    
    33.8
    %Total restaurant
operating costs
    
    
    76.0
    %
    
    
    81.6
    %
    
    
    92.1
    %Advertising as a percentage of
company-operated revenue
    
    
    5.7
    %
    
    
    5.9
    %
    
    
    3.0
    %
 33




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Forty Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    439,530
    
    
    $
    456,057
    
    
    $
    37,012
    
    
    $
    354
    
    
    $
    
    
    
    $
    932,953Restaurant operating costs:Food and packaging
    
    
    127,460
    
    
    
    135,713
    
    
    
    9,822
    
    
    
    121
    
    
    
    
    
    
    
    273,116Payroll and employee benefits
    
    
    118,225
    
    
    
    147,095
    
    
    
    12,221
    
    
    
    159
    
    
    
    
    
    
    
    277,700Occupancy and other
operating costs
    
    
    94,964
    
    
    
    102,816
    
    
    
    12,788
    
    
    
    124
    
    
    
    
    
    
    
    210,692Total restaurant
operating costs
    
    
    340,649
    
    
    
    385,624
    
    
    
    34,831
    
    
    
    404
    
    
    
    
    
    
    
    761,508Franchising and licensed
restaurants and other revenues:Royalties
    
    
    19,760
    
    
    
    32,949
    
    
    
    1,349
    
    
    
    338
    
    
    
    (68
    )
    
    
    54,328Distribution centers
    
    
    136,201
    
    
    
    19,613
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    155,681Rent
    
    
    15,874
    
    
    
    5,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,694Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,396
    
    
    
    
    
    
    
    3,396Other
    
    
    1,078
    
    
    
    644
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    1,753Total franchising and
licensed restaurants and
other revenues
    
    
    172,913
    
    
    
    59,026
    
    
    
    1,380
    
    
    
    3,734
    
    
    
    (201
    )
    
    
    236,852Franchising and licensed
restaurants and other
expenses:Administrative expense
(including provision for bad
debts)
    
    
    3,610
    
    
    
    3,762
    
    
    
    1,008
    
    
    
    
    
    
    
    
    
    
    
    8,380Distribution centers
    
    
    132,603
    
    
    
    20,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,650Rent and other occupancy
    
    
    13,795
    
    
    
    4,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,446Operating costs of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,421
    
    
    
    (249
    )
    
    
    3,172Total franchising and
licensed restaurants and
other expenses
    
    
    150,008
    
    
    
    28,460
    
    
    
    1,008
    
    
    
    3,421
    
    
    
    (249
    )
    
    
    182,648Advertising
    
    
    28,228
    
    
    
    27,139
    
    
    
    1,042
    
    
    
    7
    
    
    
    
    
    
    
    56,416General and administrative
    
    
    34,659
    
    
    
    56,413
    
    
    
    5,479
    
    
    
    11,554
    
    
    
    
    
    
    
    108,105Facility action charges, net
    
    
    1,245
    
    
    
    2,101
    
    
    
    411
    
    
    
    30
    
    
    
    
    
    
    
    3,787Operating income (loss)
    
    $
    57,654
    
    
    $
    15,346
    
    
    $
    (4,379
    )
    
    $
    (11,328
    )
    
    $
    48
    
    
    $
    57,341Company-operated same-store
sales increase (decrease)
    
    
    1.2
    %
    
    
    (1.1
    )%
    
    
    2.3
    %Franchise-operated same-store
sales (decrease) increase
    
    
    (0.4
    )%
    
    
    (3.1
    )%
    
    
    3.1
    %Company-operated same-store
transaction decrease
    
    
    (3.8
    )%
    
    
    (3.5
    )%
    
    
    (2.1
    )%Average check (actual $)
    
    $
    6.16
    
    
    $
    4.75
    
    
    $
    10.15Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    29.0
    %
    
    
    29.8
    %
    
    
    26.5
    %Payroll and employee benefits
    
    
    26.9
    %
    
    
    32.3
    %
    
    
    33.0
    %Occupancy and other
operating costs
    
    
    21.6
    %
    
    
    22.5
    %
    
    
    34.6
    %Total restaurant
operating costs
    
    
    77.5
    %
    
    
    84.6
    %
    
    
    94.1
    %Advertising as a percentage of
company-operated revenue
    
    
    6.4
    %
    
    
    6.0
    %
    
    
    2.8
    %
 
 (A)
    
    Other consists of Green Burrito and amounts that we do not believe would be proper to
allocate to the operating segments.(B)
    
    Eliminations consists of the elimination of royalty revenues and expenses generated between
Hardees and a consolidated variable interest entity franchisee included in our Condensed
Consolidated Financial Statements. 34




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Presentation of Non-GAAP Measurements
 Adjusted EBITDA
   Twelve Weeks Ended November 6, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    9,162
    
    
    $
    2,142
    
    
    $
    (2,099
    )
    
    $
    252
    
    
    $
    9,457Interest expense (income)
    
    
    875
    
    
    
    2,937
    
    
    
    (8
    )
    
    
    
    
    
    
    3,804Income tax expense (benefit)
    
    
    7,962
    
    
    
    3,776
    
    
    
    (1,555
    )
    
    
    (122
    )
    
    
    10,061Depreciation and amortization
    
    
    6,100
    
    
    
    7,722
    
    
    
    677
    
    
    
    46
    
    
    
    14,545Facility action charges, net
    
    
    64
    
    
    
    (1,554
    )
    
    
    1,414
    
    
    
    66
    
    
    
    (10
    )Adjusted EBITDA
    
    $
    24,163
    
    
    $
    15,023
    
    
    $
    (1,571
    )
    
    $
    242
    
    
    $
    37,857
 Twelve Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    16,667
    
    
    $
    287
    
    
    $
    (879
    )
    
    $
    (252
    )
    
    $
    15,823Interest expense
    
    
    1,006
    
    
    
    4,323
    
    
    
    5
    
    
    
    
    
    
    
    5,334Income tax expense (benefit)
    
    
    433
    
    
    
    40
    
    
    
    (18
    )
    
    
    115
    
    
    
    570Depreciation and amortization
    
    
    5,634
    
    
    
    7,582
    
    
    
    799
    
    
    
    38
    
    
    
    14,053Facility action charges, net
    
    
    367
    
    
    
    630
    
    
    
    (278
    )
    
    
    14
    
    
    
    733Adjusted EBITDA
    
    $
    24,107
    
    
    $
    12,862
    
    
    $
    (371
    )
    
    $
    (85
    )
    
    $
    36,513
 Forty Weeks Ended November 6, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    38,182
    
    
    $
    5,997
    
    
    $
    (4,092
    )
    
    $
    (246
    )
    
    $
    39,841Interest expense (income)
    
    
    3,146
    
    
    
    12,654
    
    
    
    (2
    )
    
    
    118
    
    
    
    15,916Income tax expense (benefit)
    
    
    26,745
    
    
    
    8,704
    
    
    
    (2,872
    )
    
    
    (120
    )
    
    
    32,457Depreciation and amortization
    
    
    19,532
    
    
    
    25,183
    
    
    
    2,378
    
    
    
    152
    
    
    
    47,245Facility action charges, net
    
    
    522
    
    
    
    113
    
    
    
    2,617
    
    
    
    274
    
    
    
    3,526Adjusted EBITDA
    
    $
    88,127
    
    
    $
    52,651
    
    
    $
    (1,971
    )
    
    $
    178
    
    
    $
    138,985
 Forty Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    53,869
    
    
    $
    1,886
    
    
    $
    (4,265
    )
    
    $
    (11,220
    )
    
    $
    40,270Interest expense
    
    
    3,305
    
    
    
    14,512
    
    
    
    21
    
    
    
    92
    
    
    
    17,930Income tax expense (benefit)
    
    
    1,387
    
    
    
    106
    
    
    
    (87
    )
    
    
    259
    
    
    
    1,665Depreciation and amortization
    
    
    19,268
    
    
    
    27,805
    
    
    
    2,761
    
    
    
    128
    
    
    
    49,962Facility action charges, net
    
    
    1,245
    
    
    
    2,101
    
    
    
    411
    
    
    
    30
    
    
    
    3,787Adjusted EBITDA
    
    $
    79,074
    
    
    $
    46,410
    
    
    $
    (1,159
    )
    
    $
    (10,711
    )
    
    $
    113,614
 35




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Trailing Four Quarters Ended November 6, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    61,378
    
    
    $
    329
    
    
    $
    (6,682
    )
    
    $
    139,128
    
    
    $
    194,153Interest expense
    
    
    4,096
    
    
    
    16,783
    
    
    
    5
    
    
    
    118
    
    
    
    21,002Income tax expense (benefit)
    
    
    27,313
    
    
    
    8,598
    
    
    
    (2,923
    )
    
    
    (139,527
    )
    
    
    (106,539
    )Depreciation and amortization
    
    
    25,222
    
    
    
    32,851
    
    
    
    3,175
    
    
    
    190
    
    
    
    61,438Facility action charges, net
    
    
    1,069
    
    
    
    2,665
    
    
    
    3,750
    
    
    
    280
    
    
    
    7,764Adjusted EBITDA
    
    $
    119,078
    
    
    $
    61,226
    
    
    $
    (2,675
    )
    
    $
    189
    
    
    $
    177,818
  Twelve Weeks EndedNovember 6, 2006
    
    
    November 7, 2005Net cash provided by operating activities
    
    $
    37,209
    
    
    $
    31,330Interest expense
    
    
    3,804
    
    
    
    5,334Income tax expense
    
    
    10,061
    
    
    
    570Amortization of loan fees
    
    
    (571
    )
    
    
    (820
    )Share-based compensation expense
    
    
    (2,009
    )
    
    
    (47
    )Recovery of (provision for) losses on accounts and notes receivable
    
    
    645
    
    
    
    (5
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    (953
    )
    
    
    (410
    )Deferred income taxes
    
    
    (8,683
    )
    
    
    (44
    )Other non-cash (charges) credits
    
    
    (103
    )
    
    
    14Net changes in operating assets and liabilities:Estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    1,789
    
    
    
    2,136Refundable income taxes
    
    
    10
    
    
    
    221Receivables, inventories, prepaid expenses and other current and
non-current assets
    
    
    (144
    )
    
    
    571Accounts payable and other current and long-term liabilities
    
    
    (3,198
    )
    
    
    (2,337
    )Adjusted EBITDA
    
    $
    37,857
    
    
    $
    36,513
 Forty Weeks EndedNovember 6, 2006
    
    
    November 7, 2005Net cash provided by operating activities
    
    $
    134,870
    
    
    $
    99,053Interest expense
    
    
    15,916
    
    
    
    17,930Income tax expense
    
    
    32,457
    
    
    
    1,665Amortization of loan fees
    
    
    (2,349
    )
    
    
    (2,705
    )Share-based compensation expense
    
    
    (4,934
    )
    
    
    (57
    )Recovery of losses on accounts and notes receivable
    
    
    351
    
    
    
    494Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    (1,942
    )
    
    
    (2,231
    )Deferred income taxes
    
    
    (29,954
    )
    
    
    (141
    )Other non-cash charges
    
    
    (56
    )
    
    
    (38
    )Net changes in operating assets and liabilities:Estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    3,875
    
    
    
    5,218Refundable income taxes
    
    
    8
    
    
    
    (423
    )Receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    2,466
    
    
    
    1,008Accounts payable and other current and long-term liabilities
    
    
    (11,723
    )
    
    
    (6,159
    )Adjusted EBITDA
    
    $
    138,985
    
    
    $
    113,614
 36




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Trailing Four QuartersEnded November 6, 2006Net cash provided by operating activities
    
    $
    151,990Interest expense
    
    
    21,002Income tax benefit
    
    
    (106,539
    )Amortization of loan fees
    
    
    (2,956
    )Share-based compensation expense
    
    
    (5,066
    )Provision for losses on accounts and notes receivable
    
    
    (319
    )Loss on sales of property and equipment, capital leases and extinguishment of debt
    
    
    (2,891
    )Deferred income taxes
    
    
    109,108Other non-cash charges
    
    
    (105
    )Net changes in operating assets and liabilities:Estimated liability for closing restaurants and estimated liability for self-insurance
    
    
    12,551Refundable income taxes
    
    
    (181
    )Receivables, inventories, prepaid expenses and other current and non-current assets
    
    
    6,460Accounts payable and other current and long-term liabilities
    
    
    (5,236
    )Adjusted EBITDA
    
    $
    177,818
 Carls Jr.
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    394
    
    
    
    428
    
    
    
    (34
    )
    
    $
    132,068
    
    
    $
    129,548
    
    
    $
    2,520
    
    
    $
    457,572
    
    
    $
    439,530
    
    
    $
    18,042Franchised and
licensed(a)
    
    
    685
    
    
    
    614
    
    
    
    71
    
    
    
    55,126
    
    
    
    51,493
    
    
    
    3,633
    
    
    
    184,417
    
    
    
    172,913
    
    
    
    11,504Total
    
    
    1,079
    
    
    
    1,042
    
    
    
    37
    
    
    $
    187,194
    
    
    $
    181,041
    
    
    $
    6,153
    
    
    $
    641,989
    
    
    $
    612,443
    
    
    $
    29,546
 
 (a)
    
    Includes $42,883, $40,028, $144,201 and $136,201 of revenues from distribution of food,
packaging and supplies to franchised and licensed restaurants during the twelve weeks ended
November 6, 2006, and November 7, 2005, and the forty weeks ended November 6, 2006 and
November 7, 2005, respectively. Company-Operated Restaurants
   37




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Twelve
    
    FortyWeeks
    
    WeeksRestaurant operating costs as a percentage of
company-operated revenue for the period ended November 7,
2005
    
    
    77.7
    %
    
    
    77.5
    %Decrease in labor costs, excluding workers compensation
    
    
    (0.7
    )
    
    
    (0.5
    )Decrease in utilities expense
    
    
    (0.5
    )
    
    
    Increase (decrease) in workers compensation expense
    
    
    0.2
    
    
    
    (0.1
    )Increase (decrease) in asset retirement expense
    
    
    0.2
    
    
    
    (0.1
    )Increase in banking/ATM expense
    
    
    0.2
    
    
    
    0.1Increase (decrease) in depreciation expense
    
    
    0.2
    
    
    
    (0.1
    )Increase (decrease) in food and packaging costs
    
    
    0.1
    
    
    
    (0.3
    )Decrease in cost of promotional items
    
    
    
    
    
    
    (0.3
    )Decrease in rent expense
    
    
    
    
    
    
    (0.2
    )Other, net
    
    
    0.1
    
    
    
    Restaurant operating costs as a percentage of
company-operated revenue for the period ended November 6,
2006
    
    
    77.5
    %
    
    
    76.0
    %
       38




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
    Franchised and Licensed Restaurants
      Hardees
  39




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    705
    
    
    
    664
    
    
    
    41
    
    
    $
    148,668
    
    
    $
    134,420
    
    
    $
    14,248
    
    
    $
    489,234
    
    
    $
    456,057
    
    
    $
    33,177Franchised and
licensed
    
    
    1,218
    
    
    
    1,340
    
    
    
    (122
    )
    
    
    17,486
    
    
    
    16,402
    
    
    
    1,084
    
    
    
    58,256
    
    
    
    59,026
    
    
    
    (770
    )Total
    
    
    1,923
    
    
    
    2,004
    
    
    
    (81
    )
    
    $
    166,154
    
    
    $
    150,822
    
    
    $
    15,332
    
    
    $
    547,490
    
    
    $
    515,083
    
    
    $
    32,407
 Company-Operated Restaurants
    Twelve
    
    FortyWeeks
    
    WeeksRestaurant operating costs as a percentage of
company-operated revenue for the period ended November 7,
2005
    
    
    84.2
    %
    
    
    84.6
    %Decrease in labor costs, excluding workers compensation
    
    
    (1.5
    )
    
    
    (1.0
    )Decrease in food and packaging costs
    
    
    (0.6
    )
    
    
    (0.9
    )Decrease in rent expense
    
    
    (0.4
    )
    
    
    (0.4
    )Decrease in depreciation and amortization expense
    
    
    (0.3
    )
    
    
    (0.8
    )Increase in workers compensation expense
    
    
    0.3
    
    
    
    0.3Increase in repairs and maintenance expense
    
    
    0.4
    
    
    
    Decrease in utilities expense
    
    
    (0.3
    )
    
    
    Decrease in supplies and uniform expense
    
    
    
    
    
    
    (0.2
    )Other, net
    
    
    (0.1
    )
    
    
    Restaurant operating costs as a percentage of
company-operated revenue for the period ended November 6,
2006
    
    
    81.7
    %
    
    
    81.6
    %
    40




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
      Franchised and Licensed Restaurants
    41




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  La Salsa
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    54
    
    
    
    61
    
    
    
    (7
    )
    
    $
    10,122
    
    
    $
    10,770
    
    
    $
    (648
    )
    
    $
    35,111
    
    
    $
    37,012
    
    
    $
    (1,901
    )Franchised and licensed
    
    
    41
    
    
    
    40
    
    
    
    1
    
    
    
    409
    
    
    
    430
    
    
    
    (21
    )
    
    
    1,491
    
    
    
    1,380
    
    
    
    111Total
    
    
    95
    
    
    
    101
    
    
    
    (6
    )
    
    $
    10,531
    
    
    $
    11,200
    
    
    $
    (669
    )
    
    $
    36,602
    
    
    $
    38,392
    
    
    $
    (1,790
    )
   Consolidated Expenses
 Consolidated Variable Interest Entities
  42




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Advertising Expense
  General and Administrative Expense
   Facility Action Charges
    43




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
   Interest Expense
   Conversion Inducement Expense
  Other Income, Net
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6,
    
    
    November 7,
    
    
    November 6,
    
    
    November 7,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income
on notes receivable
from franchisees,
disposition properties
and capital leases
    
    $
    243
    
    
    $
    277
    
    
    $
    872
    
    
    $
    886Rental income from
properties leased to
third parties, net
    
    
    375
    
    
    
    347
    
    
    
    1,361
    
    
    
    986Other, net
    
    
    1,256
    
    
    
    119
    
    
    
    1,190
    
    
    
    652Total other income, net
    
    $
    1,874
    
    
    $
    743
    
    
    $
    3,423
    
    
    $
    2,524
  Income Taxes
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 6,
    
    
    November 7,
    
    
    November 6,
    
    
    November 7,2006
    
    
    2005
    
    
    2006
    
    
    2005Foreign income taxes
    
    $
    222
    
    
    $
    200
    
    
    $
    844
    
    
    $
    666Federal and state income taxes
    
    
    9,839
    
    
    
    370
    
    
    
    31,613
    
    
    
    999Income tax expense
    
    $
    10,061
    
    
    $
    570
    
    
    $
    32,457
    
    
    $
    1,665Effective income tax rate
    
    
    51.5
    %
    
    
    3.5
    %
    
    
    44.9
    %
    
    
    4.0
    %
  44




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Liquidity and Capital Resources
       45




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
       46




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
       47




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Forty Weeks EndedNovember 6,
    
    
    November 7,2006
    
    
    2005New restaurants (including restaurants under development)Carls Jr.
    
    $
    8,263
    
    
    $
    6,921Hardees
    
    
    3,280
    
    
    
    8,714La Salsa
    
    
    1,055
    
    
    
    307Remodels/Dual-branding (including construction in process)Carls Jr.
    
    
    4,775
    
    
    
    3,902Hardees
    
    
    4,557
    
    
    
    4,260La Salsa
    
    
    210
    
    
    
    123Other restaurant additionsCarls Jr.
    
    
    17,760
    
    
    
    7,298Hardees
    
    
    37,412
    
    
    
    16,515La Salsa
    
    
    382
    
    
    
    380Corporate/other
    
    
    7,326
    
    
    
    5,843Total
    
    $
    85,020
    
    
    $
    54,263
   Contractual Obligations
  48




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
   Commodity Price Risk
  Derivative Financial Instruments
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Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Changes in Internal Control
  
 Part II. Other Information.
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchase of Equity Securities
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(a)
    
    
    (b)
    
    
    (c)
    
    
    (d)MaximumDollarValue ofTotal
    
    
    Shares thatNumber of Shares
    
    
    May Yet BeAverage
    
    
    Purchased as Part
    
    
    PurchasedTotal
    
    
    Price
    
    
    of Publicly
    
    
    Under theNumber of Shares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    ProgramsAugust 15  September 11, 2006
    
    
    42,000
    
    
    $
    15.31
    
    
    
    42,000
    
    
    $
    15,801September 12, 2006  October 9, 2006
    
    
    40,000
    
    
    
    16.96
    
    
    
    40,000
    
    
    
    15,121October 10, 2006  November 6, 2006
    
    
    442,400
    
    
    
    19.58
    
    
    
    442,400
    
    
    
    56,446Total
    
    
    524,400
    
    
    $
    19.04
    
    
    
    524,400
    
    
    $
    56,446
 
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 Exhibit #3.1
    
    Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    Certificate of Amendment of Certificate of Incorporation
of the Company, as filed with the Delaware Secretary of
State on December 9, 1997 (incorporated by reference to
Exhibit 3.2 to the Companys Annual Report on Form 10-K
for the fiscal year ended January 26, 1998 filed with the
Securities and Exchange Commission on April 24, 1998).3.3
    
    Bylaws of the Company (incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement Form
S-4 filed with the Securities and Exchange Commission on
March 7, 1994).3.4
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended
January 26, 2004 filed with the Securities and Exchange
Commission on April 7, 2004).4.1
    
    Rights Agreement, dated as of October 10, 2005, between
the Company and Mellon Investor Services, LLC, which
includes as Exhibit A thereto a form of Certificate of
Designation for the Series A Junior Participating
Preferred Stock, as Exhibit B thereto the Form of Rights
Certificate and as Exhibit C thereto a Summary of Rights
to Purchase Preferred Stock (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on
Form 8-A filed with the Securities and Exchange Commission
on October 11, 2005).10.1
    
    Amendment No. 3 to Employment Agreement between CKE
Restaurants, Inc. and Andrew F. Puzder, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).
 51




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##### Table of Contents



Exhibit #10.2
    
    Amendment No. 2 to Employment Agreement between CKE
Restaurants, Inc. and E. Michael Murphy, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).10.3
    
    Amendment No. 2 to Employment Agreement between CKE
Restaurants, Inc. and Theodore Abajian, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.3 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).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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##### Table of Contents



SIGNATURES
  CKE RESTAURANTS, INC.(Registrant)Date: December 12, 2006
    
    /s/ Theodore AbajianTheodore AbajianExecutive Vice PresidentChief Financial Officer
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##### Table of Contents



Exhibit Index
 Exhibit #3.1
    
    Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    Certificate of Amendment of Certificate of Incorporation
of the Company, as filed with the Delaware Secretary of
State on December 9, 1997 (incorporated by reference to
Exhibit 3.2 to the Companys Annual Report on Form 10-K
for the fiscal year ended January 26, 1998 filed with the
Securities and Exchange Commission on April 24, 1998).3.3
    
    Bylaws of the Company (incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement Form
S-4 filed with the Securities and Exchange Commission on
March 7, 1994).3.4
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended
January 26, 2004 filed with the Securities and Exchange
Commission on April 7, 2004).4.1
    
    Rights Agreement, dated as of October 10, 2005, between
the Company and Mellon Investor Services, LLC, which
includes as Exhibit A thereto a form of Certificate of
Designation for the Series A Junior Participating
Preferred Stock, as Exhibit B thereto the Form of Rights
Certificate and as Exhibit C thereto a Summary of Rights
to Purchase Preferred Stock (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on
Form 8-A filed with the Securities and Exchange Commission
on October 11, 2005).10.1
    
    Amendment No. 3 to Employment Agreement between CKE
Restaurants, Inc. and Andrew F. Puzder, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).10.2
    
    Amendment No. 2 to Employment Agreement between CKE
Restaurants, Inc. and E. Michael Murphy, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).10.3
    
    Amendment No. 2 to Employment Agreement between CKE
Restaurants, Inc. and Theodore Abajian, effective as of
October 12, 2006 (incorporated by reference to Exhibit
10.3 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 17,
2006).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.
 54