##### 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 August 14, 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 
Incorporation or Organization)
    
    (I.R.S. Employer
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 August 14, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the twelve and twenty-eight weeks
ended August 14, 2006 and August 15, 2005
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the twenty-eight
weeks ended August 14, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the twenty-eight weeks ended
August 14, 2006 and August 15, 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    47Item 4 Controls and Procedures
    
    
    47Part II. Other InformationItem 1 Legal Proceedings
    
    
    48Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48Item 3 Defaults Upon Senior Securities
    
    
    49Item 4 Submission of Matters to a Vote of Security Holders
    
    
    49Item 5 Other Information
    
    
    49Item 6 Exhibits
    
    
    49Signatures
    
    
    51EXHIBIT 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)
 August 14, 2006
    
    
    January 31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,066
    
    
    $
    21,343Accounts receivable, net of allowance for doubtful accounts
of $1,742 as of August 14, 2006 and $2,833 as of January 31,
2006
    
    
    35,473
    
    
    
    36,153Related party trade receivables
    
    
    5,316
    
    
    
    4,987Inventories, net
    
    
    21,645
    
    
    
    20,953Prepaid expenses
    
    
    12,057
    
    
    
    13,101Assets held for sale
    
    
    2,462
    
    
    
    Advertising fund assets, restricted
    
    
    17,513
    
    
    
    17,226Deferred income tax assets, net
    
    
    29,402
    
    
    
    31,413Other current assets
    
    
    4,316
    
    
    
    2,251Total current assets
    
    
    150,250
    
    
    
    147,427Notes receivable, net of allowance for doubtful accounts of
$3,095 as of August 14, 2006 and $6,257 as of January 31, 2006
    
    
    2,765
    
    
    
    1,968Property and equipment, net of accumulated depreciation and
amortization of $446,148 as of August 14, 2006 and $431,002 as
of January 31, 2006
    
    
    469,356
    
    
    
    460,083Property under capital leases, net of accumulated amortization
of $44,374 as of August 14, 2006 and $43,183 as of January 31,
2006
    
    
    27,002
    
    
    
    29,364Deferred income tax assets, net
    
    
    98,510
    
    
    
    117,770Goodwill
    
    
    22,649
    
    
    
    22,649Other assets, net
    
    
    21,452
    
    
    
    25,519Total assets
    
    $
    791,984
    
    
    $
    804,780LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of bank indebtedness and other long-term debt
    
    $
    7,110
    
    
    $
    9,247Current portion of capital lease obligations
    
    
    5,162
    
    
    
    4,960Accounts payable
    
    
    59,020
    
    
    
    53,883Advertising fund liabilities
    
    
    17,513
    
    
    
    17,226Other current liabilities
    
    
    87,230
    
    
    
    89,556Total current liabilities
    
    
    176,035
    
    
    
    174,872Bank indebtedness and other long-term debt, less current portion
    
    
    79,386
    
    
    
    98,731Convertible subordinated notes due 2023
    
    
    53,580
    
    
    
    105,000Capital lease obligations, less current portion
    
    
    43,570
    
    
    
    46,724Other long-term liabilities
    
    
    58,656
    
    
    
    57,072Total liabilities
    
    
    411,227
    
    
    
    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;
64,404 shares issued and outstanding as of August 14, 2006;
59,803 shares issued and outstanding as of January 31, 2006
    
    
    644
    
    
    
    598Additional paid-in capital
    
    
    503,934
    
    
    
    472,834Unearned compensation on restricted stock
    
    
    
    
    
    
    (1,816
    )Accumulated deficit
    
    
    (123,821
    )
    
    
    (149,235
    )Total stockholders equity
    
    
    380,757
    
    
    
    322,381Total liabilities and stockholders equity
    
    $
    791,984
    
    
    $
    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
    
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005
    
    
    August 14, 2006
    
    
    August 15, 2005Revenue:Company-operated restaurants
    
    $
    300,202
    
    
    $
    286,643
    
    
    $
    691,247
    
    
    $
    658,131Franchised and licensed restaurants and
other
    
    
    75,763
    
    
    
    73,140
    
    
    
    173,276
    
    
    
    167,561Total revenue
    
    
    375,965
    
    
    
    359,783
    
    
    
    864,523
    
    
    
    825,692Operating
costs and expenses:Restaurant operating costs:Food and packaging
    
    
    85,518
    
    
    
    84,800
    
    
    
    197,387
    
    
    
    192,815Payroll and employee benefits
    
    
    87,193
    
    
    
    82,538
    
    
    
    201,337
    
    
    
    195,748Occupancy and other
    
    
    64,067
    
    
    
    63,443
    
    
    
    147,230
    
    
    
    148,624Total restaurant operating costs
    
    
    236,778
    
    
    
    230,781
    
    
    
    545,954
    
    
    
    537,187Franchised and licensed restaurants and
other
    
    
    55,253
    
    
    
    56,294
    
    
    
    130,030
    
    
    
    129,127Advertising
    
    
    17,135
    
    
    
    17,091
    
    
    
    39,955
    
    
    
    40,082General and administrative
    
    
    32,517
    
    
    
    39,914
    
    
    
    78,106
    
    
    
    79,885Facility action charges, net
    
    
    974
    
    
    
    2,494
    
    
    
    3,536
    
    
    
    3,054Total operating costs and expenses
    
    
    342,657
    
    
    
    346,574
    
    
    
    797,581
    
    
    
    789,335Operating income
    
    
    33,308
    
    
    
    13,209
    
    
    
    66,942
    
    
    
    36,357Interest expense
    
    
    (5,063
    )
    
    
    (5,223
    )
    
    
    (12,112
    )
    
    
    (12,596
    )Conversion inducement expense
    
    
    (3,599
    )
    
    
    
    
    
    
    (3,599
    )
    
    
    Other income, net
    
    
    1,178
    
    
    
    918
    
    
    
    1,549
    
    
    
    1,781Income before income taxes
    
    
    25,824
    
    
    
    8,904
    
    
    
    52,780
    
    
    
    25,542Income tax expense
    
    
    11,608
    
    
    
    456
    
    
    
    22,396
    
    
    
    1,095Net income
    
    $
    14,216
    
    
    $
    8,448
    
    
    $
    30,384
    
    
    $
    24,447Basic income per common share
    
    $
    0.24
    
    
    $
    0.14
    
    
    $
    0.51
    
    
    $
    0.41Diluted income per common share
    
    $
    0.20
    
    
    $
    0.13
    
    
    $
    0.44
    
    
    $
    0.37Dividends per common share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.08
    
    
    $
    0.08Weighted-average common shares outstanding:Basic
    
    
    59,850
    
    
    
    59,479
    
    
    
    59,754
    
    
    
    58,935Dilutive effect of stock options,
warrants, convertible notes and
restricted stock
    
    
    12,941
    
    
    
    14,107
    
    
    
    13,257
    
    
    
    14,611Diluted
    
    
    72,791
    
    
    
    73,586
    
    
    
    73,011
    
    
    
    73,546
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




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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)
 Twenty-Eight Weeks Ended August 14, 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
($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,970
    )
    
    
    
    
    
    
    
    
    
    
    (4,970
    )Reclassification of
unearned compensation
pursuant to SFAS 123R
adoption
    
    
    
    
    
    
    
    
    
    
    (1,816
    )
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    290
    
    
    
    3
    
    
    
    2,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,387Conversion of 2023
Convertible Notes into
common stock
    
    
    5,852
    
    
    
    59
    
    
    
    50,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,630Tax benefit from exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    1,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,019Share-based compensation
    
    
    
    
    
    
    
    
    
    
    2,925
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,925Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,541
    )
    
    
    (23,999
    )
    
    
    (23,999
    )Retirement of treasury stock
    
    
    (1,541
    )
    
    
    (16
    )
    
    
    (23,983
    )
    
    
    
    
    
    
    
    
    
    
    1,541
    
    
    
    23,999
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,384
    
    
    
    
    
    
    
    
    
    
    
    30,384Balance at August 14, 2006
    
    
    64,404
    
    
    $
    644
    
    
    $
    503,934
    
    
    $
    
    
    
    $
    (123,821
    )
    
    
    
    
    
    $
    
    
    
    $
    380,757
 See Accompanying Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005Cash flows from operating activities:Net income
    
    $
    30,384
    
    
    $
    24,447Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    32,700
    
    
    
    35,909Amortization of loan fees
    
    
    1,778
    
    
    
    1,885Share-based compensation expense
    
    
    2,925
    
    
    
    11Provision for (recovery of) losses on accounts and notes receivable
    
    
    294
    
    
    
    (499
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    989
    
    
    
    1,821Facility action charges, net
    
    
    3,536
    
    
    
    3,054Deferred income taxes
    
    
    21,271
    
    
    
    97Other non-cash (credits) charges
    
    
    (47
    )
    
    
    51Change in estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    (2,086
    )
    
    
    (3,082
    )Net change in refundable income taxes
    
    
    2
    
    
    
    644Net change in receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    (2,610
    )
    
    
    (437
    )Net change in accounts payable and other current and long-term liabilities
    
    
    8,525
    
    
    
    3,822Net cash provided by operating activities
    
    
    97,661
    
    
    
    67,723Cash flows from investing activities:Purchases of property and equipment
    
    
    (56,089
    )
    
    
    (39,608
    )Proceeds from sales of property and equipment
    
    
    13,475
    
    
    
    5,382Collections on notes receivable
    
    
    1,112
    
    
    
    437Other investing activities
    
    
    35
    
    
    
    193Net cash used in investing activities
    
    
    (41,467
    )
    
    
    (33,596
    )Cash flows from financing activities:Net change in bank overdraft
    
    
    (5,164
    )
    
    
    (4,706
    )Borrowings under revolving credit facility
    
    
    52,500
    
    
    
    105,000Repayments of borrowings under revolving credit facility
    
    
    (54,500
    )
    
    
    (118,500
    )Repayment of credit facility term loan
    
    
    (19,454
    )
    
    
    (16,139
    )Repayment of other long-term debt
    
    
    (73
    )
    
    
    (102
    )Borrowing by consolidated variable interest entity
    
    
    46
    
    
    
    53Repayments of capital lease obligations
    
    
    (2,649
    )
    
    
    (2,873
    )Payment of deferred loan fees
    
    
    
    
    
    
    (100
    )Repurchase of common stock
    
    
    (23,999
    )
    
    
    Exercise of stock options and warrants
    
    
    2,387
    
    
    
    6,966Tax benefit from exercise of stock options
    
    
    223
    
    
    
    Dividends paid on common stock
    
    
    (4,788
    )
    
    
    (2,361
    )Net cash used in financing activities
    
    
    (55,471
    )
    
    
    (32,762
    )Net increase in cash and cash equivalents
    
    
    723
    
    
    
    1,365Cash and cash equivalents at beginning of period
    
    
    21,343
    
    
    
    18,432Cash and cash equivalents at end of period
    
    $
    22,066
    
    
    $
    19,797Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    10,362
    
    
    $
    10,959Income taxes, net of refunds received
    
    $
    558
    
    
    $
    1,120Non-cash investing and financing activities:Gain recognized on sale and leaseback transactions
    
    $
    188
    
    
    $
    199Dividends declared, not paid
    
    $
    2,576
    
    
    $
    2,379Capital lease obligations incurred to acquire assets
    
    $
    
    
    
    $
    344
 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)
 Note 1  Basis of Presentation and Description Of Business
 ® ® ® ®
  Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalCompany-operated
    
    
    394
    
    
    
    701
    
    
    
    55
    
    
    
    1
    
    
    
    1,151Franchised and licensed
    
    
    678
    
    
    
    1,244
    
    
    
    43
    
    
    
    15
    
    
    
    1,980Total
    
    
    1,072
    
    
    
    1,945
    
    
    
    98
    
    
    
    16
    
    
    
    3,131
    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)
 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)
 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
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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)
  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
  Accounting for Income Taxes
 Statement of Cash Flows
  Twelve Weeks
    
    Twenty-Eight WeeksDecrease in income before income taxes
    
    $
    1,016
    
    
    $
    2,582Decrease in net income
    
    
    612
    
    
    
    1,554Decrease in basic net income per common share
    
    $
    0.01
    
    
    $
    0.02Decrease in diluted net income per common share
    
    
    0.01
    
    
    
    0.02
 9




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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)
    Twelve Weeks
    
    
    Twenty-Eight WeeksNet income, as reported
    
    $
    8,448
    
    
    $
    24,447Add: Share-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    10
    
    
    
    10Deduct: Total share-based
employee compensation expense
determined under fair value
based method, net of related tax
effects
    
    
    (933
    )
    
    
    (2,442
    )Net income  pro forma
    
    $
    7,525
    
    
    $
    22,015Net income per common share:Basic  as reported
    
    $
    0.14
    
    
    $
    0.41Basic  pro forma
    
    
    0.13
    
    
    
    0.37Diluted  as reported
    
    
    0.13
    
    
    
    0.37Diluted  pro forma
    
    
    0.12
    
    
    
    0.34
 Employee Stock Purchase Plan
  Stock Incentive Plans
  10




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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)
       August 14, 2006
    
    August 15, 2005Annual dividend yield
    
    
    1.13
    %
    
    
    1.26
    %Expected volatility
    
    
    50.2
    %
    
    
    65.4
    %Risk-free interest rate (matched to the expected term of the outstanding option)
    
    
    4.95
    %
    
    
    4.15
    %Expected life of all options outstanding (years)
    
    
    6.05
    
    
    
    5.22Weighted-average fair value of each option granted
    
    $
    7.82
    
    
    $
    7.14
 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)
  Change in Assumption
    
    August 14, 2006
    
    August 15, 200510% increase in expected volatility
    
    $
    1.02
    
    
    $
    0.851% increase in risk-free interest rate
    
    
    0.23
    
    
    
    0.151 year increase in expected life of all options outstanding
    
    
    0.46
    
    
    
    0.5010% decrease in expected volatility
    
    
    (1.10
    )
    
    
    (0.92
    )1% decrease in risk-free interest rate
    
    
    (0.24
    )
    
    
    (0.15
    )1 year decrease in expected life of all options outstanding
    
    
    (0.55
    )
    
    
    (0.61
    )
  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
    
    
    51,000
    
    
    
    15.98Exercised
    
    
    (290,232
    )
    
    
    8.25Forfeited
    
    
    (43,320
    )
    
    
    12.51Expired
    
    
    (53,256
    )
    
    
    17.87Outstanding at August 14, 2006
    
    
    5,826,274
    
    
    $
    12.25
    
    
    
    5.07
    
    
    $
    24,418Exercisable at August 14, 2006
    
    
    4,607,769
    
    
    $
    11.98
    
    
    
    4.07
    
    
    $
    22,563Expected to vest at August 14, 2006
    
    
    1,135,421
    
    
    $
    13.24
    
    
    
    8.85
    
    
    $
    1,743
 Restricted stock awards:
 Weighted-AverageGrant DateShares
    
    
    Fair ValueRestricted stock awards at January 31, 2006
    
    
    150,000
    
    
    $
    13.33Granted
    
    
    Awards vested
    
    
    (10,001
    )
    
    $
    13.68Forfeited
    
    
    (5,000
    )
    
    $
    13.53Restricted stock awards at August 14, 2006
    
    
    134,999
    
    
    $
    13.29
  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)
 Note 5  Other Assets
  August 14,
    
    
    January 31,2006
    
    
    2006Intangible assets (see below)
    
    $
    16,035
    
    
    $
    16,836Deferred financing costs
    
    
    3,027
    
    
    
    5,708Net investment in lease receivables, less current portion
    
    
    637
    
    
    
    748Other
    
    
    1,753
    
    
    
    2,227$
    21,452
    
    
    $
    25,519
   Weighted-
    
    
    August 14, 2006
    
    
    January 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingIntangible Asset
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks
    
    
    20
    
    
    $
    17,171
    
    
    $
    (3,827
    )
    
    $
    13,344
    
    
    $
    17,171
    
    
    $
    (3,365
    )
    
    $
    13,806Franchise agreements
    
    
    20
    
    
    
    1,780
    
    
    
    (376
    )
    
    
    1,404
    
    
    
    1,780
    
    
    
    (328
    )
    
    
    1,452Favorable lease agreements
    
    
    16
    
    
    
    3,669
    
    
    
    (2,382
    )
    
    
    1,287
    
    
    
    4,034
    
    
    
    (2,456
    )
    
    
    1,578$
    22,620
    
    
    $
    (6,585
    )
    
    $
    16,035
    
    
    $
    22,985
    
    
    $
    (6,149
    )
    
    $
    16,836
  Note 6  Indebtedness and Interest Expense
    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)
  Accounting for Derivative
Instruments and Hedging Activities
      14




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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)
      Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005
    
    
    August 14, 2006
    
    
    August 15, 2005Facility
    
    $
    1,577
    
    
    $
    1,650
    
    
    $
    3,867
    
    
    $
    3,919Capital lease obligations
    
    
    1,301
    
    
    
    1,450
    
    
    
    3,039
    
    
    
    3,3812023 Convertible Notes
    
    
    934
    
    
    
    969
    
    
    
    2,226
    
    
    
    2,261Amortization of loan fees
    
    
    762
    
    
    
    795
    
    
    
    1,778
    
    
    
    1,885Write-off of unamortized loan
fees, term loan due July 2,
2008
    
    
    140
    
    
    
    4
    
    
    
    171
    
    
    
    229Letter of credit fees and other
    
    
    349
    
    
    
    355
    
    
    
    1,031
    
    
    
    921$
    5,063
    
    
    $
    5,223
    
    
    $
    12,112
    
    
    $
    12,596
 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.
 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)
  Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005
    
    
    August 14, 2006
    
    
    August 15, 2005Carls Jr.Unfavorable dispositions of leased and
fee surplus properties, net
    
    $
    445
    
    
    $
    415
    
    
    $
    1,112
    
    
    $
    491Impairment of assets to be held and used
    
    
    8
    
    
    
    394
    
    
    
    44
    
    
    
    775Gain on sales of restaurants and
surplus properties, net
    
    
    (838
    )
    
    
    (6
    )
    
    
    (829
    )
    
    
    (512
    )Amortization of discount related to
estimated liability for closing
restaurants
    
    
    53
    
    
    
    51
    
    
    
    131
    
    
    
    124(332
    )
    
    
    854
    
    
    
    458
    
    
    
    878HardeesNew decisions regarding closing
restaurants
    
    
    145
    
    
    
    567
    
    
    
    1,921
    
    
    
    744Favorable dispositions of leased and
fee surplus properties, net
    
    
    (189
    )
    
    
    (345
    )
    
    
    (123
    )
    
    
    (544
    )Impairment of assets to be disposed of
    
    
    266
    
    
    
    
    
    
    
    452
    
    
    
    8Impairment of assets to be held and used
    
    
    232
    
    
    
    537
    
    
    
    236
    
    
    
    641(Gain) loss on sales of restaurants and
surplus properties, net
    
    
    (497
    )
    
    
    425
    
    
    
    (1,098
    )
    
    
    227Amortization of discount related to
estimated liability for closing
restaurants
    
    
    127
    
    
    
    140
    
    
    
    279
    
    
    
    39584
    
    
    
    1,324
    
    
    
    1,667
    
    
    
    1,471La Salsa and OtherNew decisions regarding closing
restaurants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157Unfavorable dispositions of leased and
fee surplus properties, net
    
    
    149
    
    
    
    11
    
    
    
    138
    
    
    
    80Impairment of assets to be held and used
    
    
    1,015
    
    
    
    167
    
    
    
    1,054
    
    
    
    243Loss on sales of restaurants and
surplus properties, net
    
    
    56
    
    
    
    136
    
    
    
    215
    
    
    
    217Amortization of discount related to
estimated liability for closing
restaurants
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    81,222
    
    
    
    316
    
    
    
    1,411
    
    
    
    705TotalNew decisions regarding closing
restaurants
    
    
    145
    
    
    
    567
    
    
    
    1,921
    
    
    
    901Unfavorable dispositions of leased and
fee surplus properties, net
    
    
    405
    
    
    
    81
    
    
    
    1,127
    
    
    
    27Impairment of assets to be disposed of
    
    
    266
    
    
    
    
    
    
    
    452
    
    
    
    8Impairment of assets to be held and used
    
    
    1,255
    
    
    
    1,098
    
    
    
    1,334
    
    
    
    1,659(Gain) loss on sales of restaurants and
surplus properties, net
    
    
    (1,279
    )
    
    
    555
    
    
    
    (1,712
    )
    
    
    (68
    )Amortization of discount related to
estimated liability for closing
restaurants
    
    
    182
    
    
    
    193
    
    
    
    414
    
    
    
    527$
    974
    
    
    $
    2,494
    
    
    $
    3,536
    
    
    $
    3,054
 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)
  La SalsaCarl's Jr.
    
    
    Hardee's
    
    
    and Other
    
    
    TotalBalance at January 31, 2006
    
    $
    3,615
    
    
    $
    9,865
    
    
    $
    120
    
    
    $
    13,600New decisions regarding closing restaurants
    
    
    
    
    
    
    1,921
    
    
    
    
    
    
    
    1,921Usage
    
    
    (673
    )
    
    
    (1,870
    )
    
    
    (4
    )
    
    
    (2,547
    )Unfavorable (favorable) dispositions of leased and fee
surplus properties, net
    
    
    1,112
    
    
    
    (123
    )
    
    
    138
    
    
    
    1,127Amortization of discount
    
    
    131
    
    
    
    279
    
    
    
    4
    
    
    
    414Balance at August 14, 2006
    
    
    4,185
    
    
    
    10,072
    
    
    
    258
    
    
    
    14,515Less current portion, included in other current liabilities
    
    
    1,241
    
    
    
    2,995
    
    
    
    184
    
    
    
    4,420Long-term portion, included in other long-term liabilities.
    
    $
    2,944
    
    
    $
    7,077
    
    
    $
    74
    
    
    $
    10,095
 Note 8  Income Taxes
  Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005
    
    
    August 14, 2006
    
    
    August 15, 2005Foreign income taxes
    
    $
    297
    
    
    $
    212
    
    
    $
    622
    
    
    $
    466Federal and state income taxes
    
    
    11,311
    
    
    
    244
    
    
    
    21,774
    
    
    
    629Income tax expense
    
    $
    11,608
    
    
    $
    456
    
    
    $
    22,396
    
    
    $
    1,095Effective income tax rate
    
    
    45.0
    %
    
    
    5.1
    %
    
    
    42.4
    %
    
    
    4.3
    %
  Note 9  Income Per Share
   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)
  Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005
    
    
    August 14, 2006
    
    
    August 15, 2005(In thousands except per share amounts)Net income for computation of
basic earnings per share
    
    $
    14,216
    
    
    $
    8,448
    
    
    $
    30,384
    
    
    $
    24,447Weighted-average shares for computation
of basic earnings per share
    
    
    59,850
    
    
    
    59,479
    
    
    
    59,754
    
    
    
    58,935Basic net income per share
    
    $
    0.24
    
    
    $
    0.14
    
    
    $
    0.51
    
    
    $
    0.41Net income for computation of basic
earnings per share
    
    $
    14,216
    
    
    $
    8,448
    
    
    $
    30,384
    
    
    $
    24,447Add: Interest and amortization costs for
Convertible Notes due 2023
    
    
    670
    
    
    
    1,125
    
    
    
    1,592
    
    
    
    2,625Net income for computation of diluted
earnings per share
    
    $
    14,886
    
    
    $
    9,573
    
    
    $
    31,976
    
    
    $
    27,072Weighted-average shares for computation
of basic earnings per share
    
    
    59,850
    
    
    
    59,479
    
    
    
    59,754
    
    
    
    58,935Dilutive effect of stock options,
warrants and restricted stock
    
    
    1,432
    
    
    
    2,296
    
    
    
    1,495
    
    
    
    2,800Dilutive effect of 2023 convertible notes
    
    
    11,509
    
    
    
    11,811
    
    
    
    11,762
    
    
    
    11,811Weighted-average shares for computation
of diluted earnings per share
    
    
    72,791
    
    
    
    73,586
    
    
    
    73,011
    
    
    
    73,546Diluted net income per share
    
    $
    0.20
    
    
    $
    0.13
    
    
    $
    0.44
    
    
    $
    0.37
  Twelve Weeks Ended
    
    Twenty-Eight Weeks EndedAugust 14, 2006
    
    August 15, 2005
    
    August 14, 2006
    
    August 15, 2005Stock Options
and Restricted
Stock
    
    
    2,442
    
    
    
    2,499
    
    
    
    2,154
    
    
    
    2,115
 Note 10  Segment Information
  Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended August 14, 2006Revenue
    
    $
    194,681
    
    
    $
    168,706
    
    
    $
    11,561
    
    
    $
    1,017
    
    
    $
    375,965Operating income (loss)
    
    
    21,571
    
    
    
    13,303
    
    
    
    (1,609
    )
    
    
    43
    
    
    
    33,308Income (loss) before income taxes
    
    
    21,019
    
    
    
    6,061
    
    
    
    (1,598
    )
    
    
    342
    
    
    
    25,824Goodwill (as of August 14, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 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)
 Carl's Jr.
    
    Hardee's
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended August 15, 2005Revenue
    
    $
    185,363
    
    
    $
    161,115
    
    
    $
    12,060
    
    
    $
    1,245
    
    
    $
    359,783Operating income (loss)
    
    
    18,635
    
    
    
    6,903
    
    
    
    (1,242
    )
    
    
    (11,087
    )
    
    
    13,209Income (loss) before income taxes
    
    
    17,923
    
    
    
    3,094
    
    
    
    (1,236
    )
    
    
    (10,877
    )
    
    
    8,904Goodwill (as of August 15, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carl's Jr.
    
    Hardee's
    
    La Salsa
    
    Other
    
    TotalTwenty-Eight Weeks Ended August 14, 2006Revenue
    
    $
    454,795
    
    
    $
    381,336
    
    
    $
    26,071
    
    
    $
    2,321
    
    
    $
    864,523Operating income (loss)
    
    
    49,240
    
    
    
    21,100
    
    
    
    (3,311
    )
    
    
    (87
    )
    
    
    66,942Income (loss) before income taxes
    
    
    47,803
    
    
    
    8,783
    
    
    
    (3,309
    )
    
    
    (497
    )
    
    
    52,780Goodwill (as of August 14, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carl's Jr.
    
    Hardee's
    
    La Salsa
    
    Other
    
    TotalTwenty-Eight Weeks Ended August 15, 2005Revenue
    
    $
    431,402
    
    
    $
    364,261
    
    
    $
    27,192
    
    
    $
    2,837
    
    
    $
    825,692Operating income (loss)
    
    
    39,900
    
    
    
    11,071
    
    
    
    (3,475
    )
    
    
    (11,139
    )
    
    
    36,357Income (loss) before income taxes
    
    
    38,156
    
    
    
    1,665
    
    
    
    (3,455
    )
    
    
    (10,824
    )
    
    
    25,542Goodwill (as of August 15, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Note 11  Net Assets Held For Sale
  Note 12  Purchase and Sale of Restaurant Assets
   Note 13  Termination of Franchise Agreement
  19




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Note 14  Commitments and Contingent Liabilities
      ,
  20




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Note 15  Stockholders Equity
 Repurchase of Common Stock
  Dividends
  21




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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;
    
    determination of appropriate estimated liabilities for loss contingencies;
 22




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
    
    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 net deferred income tax asset valuation allowance and effective tax rate.
  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
      23




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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
    24




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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 Lease Obligations
   25




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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
       26




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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
   27




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Business Strategy
  
    
    remain focused on restaurant fundamentals  quality, service and cleanliness;
    
    offer premium products that compete on quality and taste;
    
    build on the strength of the Carls Jr. brand, including dual-branding opportunities with Green Burrito;
    
    continue to execute and refine the Hardees turnaround program, including
consideration of dual-branding opportunities with Red Burrito;
    
    control costs while increasing revenues;
    
    leverage our infrastructure and marketing presence to build out existing core markets; and
    
    strengthen our franchise system and pursue further franchising opportunities.
 Franchise Operations
   28




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Operating Review
  Twelve Weeks Ended August 14, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    138,407
    
    
    $
    150,627
    
    
    $
    11,088
    
    
    $
    80
    
    
    $
    
    
    
    $
    300,202Restaurant operating costs:Food and packaging
    
    
    39,502
    
    
    
    43,214
    
    
    
    2,777
    
    
    
    25
    
    
    
    
    
    
    
    85,518Payroll and employee benefits
    
    
    36,622
    
    
    
    47,125
    
    
    
    3,415
    
    
    
    31
    
    
    
    
    
    
    
    87,193Occupancy and other operating
costs
    
    
    28,729
    
    
    
    31,728
    
    
    
    3,584
    
    
    
    26
    
    
    
    
    
    
    
    64,067Total restaurant operating
costs
    
    
    104,853
    
    
    
    122,067
    
    
    
    9,776
    
    
    
    82
    
    
    
    
    
    
    
    236,778Franchising and licensed
restaurants and other revenues:Royalties
    
    
    6,849
    
    
    
    12,640
    
    
    
    473
    
    
    
    118
    
    
    
    (29
    )
    
    
    20,051Distribution centers
    
    
    43,494
    
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,125Rent
    
    
    4,988
    
    
    
    1,572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,560Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    848
    
    
    
    
    
    
    
    848Other
    
    
    943
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,179Total franchising and
licensed restaurants
and other revenues
    
    
    56,274
    
    
    
    18,079
    
    
    
    473
    
    
    
    966
    
    
    
    (29
    )
    
    
    75,763Franchising and licensed
restaurants and other expenses:Administrative expense
(including provision for
bad debts)
    
    
    1,189
    
    
    
    848
    
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    2,381Distribution centers
    
    
    43,038
    
    
    
    3,809
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,847Rent and other occupancy
    
    
    4,144
    
    
    
    1,099
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,243Operating costs of
variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    809
    
    
    
    (27
    )
    
    
    782Total franchising and
licensed restaurants
and other expenses
    
    
    48,371
    
    
    
    5,756
    
    
    
    344
    
    
    
    809
    
    
    
    (27
    )
    
    
    55,253Advertising
    
    
    8,063
    
    
    
    8,737
    
    
    
    333
    
    
    
    2
    
    
    
    
    
    
    
    17,135General and administrative
    
    
    12,155
    
    
    
    18,759
    
    
    
    1,545
    
    
    
    58
    
    
    
    
    
    
    
    32,517Facility action charges, net
    
    
    (332
    )
    
    
    84
    
    
    
    1,172
    
    
    
    50
    
    
    
    
    
    
    
    974Operating income (loss)
    
    $
    21,571
    
    
    $
    13,303
    
    
    $
    (1,609
    )
    
    $
    45
    
    
    $
    (2
    )
    
    $
    33,308Company-operated average unit
volume (trailing-13 periods)
    
    $
    1,384
    
    
    $
    896
    
    
    $
    785Franchise-operated average unit
volume (trailing-13 periods)
    
    $
    1,187
    
    
    $
    913
    
    
    $
    852Company-operated same-store
sales increase
    
    
    4.8
    %
    
    
    3.0
    %
    
    
    2.1
    %Franchise-operated same-store
sales increase (decrease)
    
    
    4.7
    %
    
    
    3.9
    %
    
    
    (2.2
    )%Company-operated same-store
transaction increase (decrease)
    
    
    0.1
    %
    
    
    (0.4
    )%
    
    
    (2.6
    )%Average check (actual $)
    
    $
    6.47
    
    
    $
    5.01
    
    
    $
    10.99Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    28.5
    %
    
    
    28.7
    %
    
    
    25.0
    %Payroll and employee benefits
    
    
    26.5
    %
    
    
    31.3
    %
    
    
    30.8
    %Occupancy and other operating
costs
    
    
    20.8
    %
    
    
    21.1
    %
    
    
    32.3
    %Total restaurant operating costs
    
    
    75.8
    %
    
    
    81.0
    %
    
    
    88.2
    %Advertising as a percentage of
company-operated revenue
    
    
    5.8
    %
    
    
    5.8
    %
    
    
    3.0
    %
 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)
 Twelve Weeks Ended August 15, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    133,026
    
    
    $
    141,866
    
    
    $
    11,669
    
    
    $
    82
    
    
    $
    
    
    
    $
    286,643Restaurant operating costs:Food and packaging
    
    
    38,912
    
    
    
    42,766
    
    
    
    3,095
    
    
    
    27
    
    
    
    
    
    
    
    84,800Payroll and employee benefits
    
    
    34,942
    
    
    
    43,891
    
    
    
    3,673
    
    
    
    32
    
    
    
    
    
    
    
    82,538Occupancy and other operating
costs
    
    
    27,874
    
    
    
    31,501
    
    
    
    4,039
    
    
    
    29
    
    
    
    
    
    
    
    63,443Total restaurant operating
costs
    
    
    101,728
    
    
    
    118,158
    
    
    
    10,807
    
    
    
    88
    
    
    
    
    
    
    
    230,781Franchising and licensed
restaurants and other revenues:Royalties
    
    
    6,056
    
    
    
    10,347
    
    
    
    390
    
    
    
    100
    
    
    
    (22
    )
    
    
    16,871Distribution centers
    
    
    41,261
    
    
    
    6,813
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,074Rent
    
    
    4,631
    
    
    
    1,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,530Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,085
    
    
    
    
    
    
    
    1,085Other
    
    
    389
    
    
    
    190
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    580Total franchising and
licensed restaurants
and other revenues
    
    
    52,337
    
    
    
    19,249
    
    
    
    391
    
    
    
    1,185
    
    
    
    (22
    )
    
    
    73,140Franchising and licensed
restaurants and other expenses:Administrative expense
(including provision for
bad debts)
    
    
    1,168
    
    
    
    1,188
    
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    2,696Distribution centers
    
    
    40,069
    
    
    
    6,941
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,010Rent and other occupancy
    
    
    4,061
    
    
    
    1,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,508Operating costs of
variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,102
    
    
    
    (22
    )
    
    
    1,080Total franchising and
licensed restaurants
and other expenses
    
    
    45,298
    
    
    
    9,576
    
    
    
    340
    
    
    
    1,102
    
    
    
    (22
    )
    
    
    56,294Advertising
    
    
    8,648
    
    
    
    8,092
    
    
    
    350
    
    
    
    1
    
    
    
    
    
    
    
    17,091General and administrative
    
    
    10,200
    
    
    
    17,062
    
    
    
    1,477
    
    
    
    11,175
    
    
    
    
    
    
    
    39,914Facility action charges, net
    
    
    854
    
    
    
    1,324
    
    
    
    328
    
    
    
    (12
    )
    
    
    
    
    
    
    2,494Operating income (loss)
    
    $
    18,635
    
    
    $
    6,903
    
    
    $
    (1,242
    )
    
    $
    (11,087
    )
    
    $
    
    
    
    $
    13,209Company-operated average unit
volume (trailing-13 periods)
    
    $
    1,323
    
    
    $
    872
    
    
    $
    761Franchise-operated average unit
volume (trailing-13 periods)
    
    $
    1,151
    
    
    $
    880
    
    
    $
    870Company-operated same-store
sales increase
    
    
    1.0
    %
    
    
    0.0
    %
    
    
    2.6
    %Franchise-operated same-store
sales (decrease) increase
    
    
    (0.6
    )%
    
    
    (3.6
    )%
    
    
    2.2
    %Company-operated same-store
transaction decrease
    
    
    (3.4
    )%
    
    
    (2.8
    )%
    
    
    (1.8
    )%Average check (actual $)
    
    $
    6.23
    
    
    $
    4.85
    
    
    $
    10.30Restaurant operating costs as a
% of company-operated revenue:Food and packaging
    
    
    29.3
    %
    
    
    30.1
    %
    
    
    26.5
    %Payroll and employee benefits
    
    
    26.3
    %
    
    
    30.9
    %
    
    
    31.5
    %Occupancy and other operating
costs
    
    
    20.9
    %
    
    
    22.3
    %
    
    
    34.6
    %Total restaurant operating costs
    
    
    76.5
    %
    
    
    83.3
    %
    
    
    92.6
    %Advertising as a percentage of
company-operated revenue
    
    
    6.5
    %
    
    
    5.7
    %
    
    
    3.0
    %
 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)
 Twenty-Eight Weeks Ended August 14, 2006Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    325,504
    
    
    $
    340,566
    
    
    $
    24,989
    
    
    $
    188
    
    
    $
    
    
    
    $
    691,247Restaurant operating costs:Food and packaging
    
    
    92,738
    
    
    
    98,275
    
    
    
    6,312
    
    
    
    62
    
    
    
    
    
    
    
    197,387Payroll and employee benefits
    
    
    85,469
    
    
    
    107,726
    
    
    
    8,069
    
    
    
    73
    
    
    
    
    
    
    
    201,337Occupancy and other operating costs
    
    
    67,124
    
    
    
    71,742
    
    
    
    8,304
    
    
    
    60
    
    
    
    
    
    
    
    147,230Total restaurant operating costs
    
    
    245,331
    
    
    
    277,743
    
    
    
    22,685
    
    
    
    195
    
    
    
    
    
    
    
    545,954Franchising and licensed
restaurants and other
revenues:Royalties
    
    
    15,495
    
    
    
    26,276
    
    
    
    1,082
    
    
    
    254
    
    
    
    (42
    )
    
    
    43,065Distribution centers
    
    
    101,317
    
    
    
    9,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,797Rent
    
    
    11,217
    
    
    
    4,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,787Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,921
    
    
    
    
    
    
    
    1,921Other
    
    
    1,262
    
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,706Total franchising and
licensed restaurants
and other revenues
    
    
    129,291
    
    
    
    40,770
    
    
    
    1,082
    
    
    
    2,175
    
    
    
    (42
    )
    
    
    173,276Franchising and licensed
restaurants and other
expenses:Administrative expense
(including provision for
bad debts)
    
    
    2,832
    
    
    
    2,544
    
    
    
    774
    
    
    
    
    
    
    
    
    
    
    
    6,150Distribution centers
    
    
    99,331
    
    
    
    9,932
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,263Rent and other occupancy
    
    
    9,710
    
    
    
    3,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,757Operating costs of
variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,894
    
    
    
    (34
    )
    
    
    1,860Total franchising and
licensed restaurants
and other expenses
    
    
    111,873
    
    
    
    15,523
    
    
    
    774
    
    
    
    1,894
    
    
    
    (34
    )
    
    
    130,030Advertising
    
    
    19,113
    
    
    
    20,088
    
    
    
    750
    
    
    
    4
    
    
    
    
    
    
    
    39,955General and administrative
    
    
    28,780
    
    
    
    45,215
    
    
    
    3,970
    
    
    
    141
    
    
    
    
    
    
    
    78,106Facility action charges, net
    
    
    458
    
    
    
    1,667
    
    
    
    1,203
    
    
    
    208
    
    
    
    
    
    
    
    3,536Operating income (loss)
    
    $
    49,240
    
    
    $
    21,100
    
    
    $
    (3,311
    )
    
    $
    (79
    )
    
    $
    (8
    )
    
    $
    66,942Company-operated
same-store sales increase
    
    
    5.2
    %
    
    
    4.4
    %
    
    
    1.5
    %Franchise-operated
same-store sales increase
    
    
    5.8
    %
    
    
    4.6
    %
    
    
    1.6
    %Company-operated
same-store transaction
increase (decrease)
    
    
    1.7
    %
    
    
    0.8
    %
    
    
    (4.6
    )%Average check (actual $)
    
    $
    6.39
    
    
    $
    4.95
    
    
    $
    10.91Restaurant operating costs as
a % of company-operated
revenue:Food and packaging
    
    
    28.5
    %
    
    
    28.9
    %
    
    
    25.3
    %Payroll and employee benefits.
    
    
    26.3
    %
    
    
    31.6
    %
    
    
    32.3
    %Occupancy and other operating
costs
    
    
    20.6
    %
    
    
    21.1
    %
    
    
    33.2
    %Total restaurant operating
costs
    
    
    75.4
    %
    
    
    81.6
    %
    
    
    90.8
    %Advertising as a percentage of
company-operated revenue
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    3.0
    %
 31




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Twenty-Eight Weeks Ended August 15, 2005Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    309,982
    
    
    $
    321,637
    
    
    $
    26,242
    
    
    $
    270
    
    
    $
    
    
    
    $
    658,131Restaurant operating costs:Food and packaging
    
    
    89,752
    
    
    
    96,065
    
    
    
    6,906
    
    
    
    92
    
    
    
    
    
    
    
    192,815Payroll and employee benefits
    
    
    83,758
    
    
    
    103,375
    
    
    
    8,492
    
    
    
    123
    
    
    
    
    
    
    
    195,748Occupancy and other operating costs
    
    
    66,473
    
    
    
    72,981
    
    
    
    9,074
    
    
    
    96
    
    
    
    
    
    
    
    148,624Total restaurant operating costs
    
    
    239,983
    
    
    
    272,421
    
    
    
    24,472
    
    
    
    311
    
    
    
    
    
    
    
    537,187Franchising and licensed
restaurants and other
revenues:Royalties
    
    
    13,819
    
    
    
    23,113
    
    
    
    949
    
    
    
    222
    
    
    
    (48
    )
    
    
    38,055Distribution centers
    
    
    96,173
    
    
    
    14,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,482Rent
    
    
    10,761
    
    
    
    4,739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,500Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,393
    
    
    
    
    
    
    
    2,393Other
    
    
    667
    
    
    
    463
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,131Total franchising and
licensed restaurants
and other revenues
    
    
    121,420
    
    
    
    42,624
    
    
    
    950
    
    
    
    2,615
    
    
    
    (48
    )
    
    
    167,561Franchising and licensed
restaurants and other
expenses:Administrative expense
(including provision for
bad debts)
    
    
    2,615
    
    
    
    2,610
    
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    5,942Distribution centers
    
    
    93,393
    
    
    
    14,533
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107,926Rent and other occupancy
    
    
    9,537
    
    
    
    3,344
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,881Operating costs of
variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,426
    
    
    
    (48
    )
    
    
    2,378Total franchising and
licensed restaurants
and other expenses
    
    
    105,545
    
    
    
    20,487
    
    
    
    717
    
    
    
    2,426
    
    
    
    (48
    )
    
    
    129,127Advertising
    
    
    20,427
    
    
    
    18,931
    
    
    
    719
    
    
    
    5
    
    
    
    
    
    
    
    40,082General and administrative
    
    
    24,669
    
    
    
    39,880
    
    
    
    4,070
    
    
    
    11,266
    
    
    
    
    
    
    
    79,885Facility action charges, net
    
    
    878
    
    
    
    1,471
    
    
    
    689
    
    
    
    16
    
    
    
    
    
    
    
    3,054Operating income (loss)
    
    $
    39,900
    
    
    $
    11,071
    
    
    $
    (3,475
    )
    
    $
    (11,139
    )
    
    $
    
    
    
    $
    36,357Company-operated
same-store sales increase
    
    
    1.8
    %
    
    
    0.0
    %
    
    
    2.2
    %Franchise-operated
same-store sales (decrease)
increase
    
    
    (0.1
    )%
    
    
    (3.3
    )%
    
    
    2.4
    %Company-operated
same-store transaction decrease
    
    
    (3.3
    )%
    
    
    (2.8
    )%
    
    
    (2.4
    )%Average check (actual $)
    
    $
    6.19
    
    
    $
    4.77
    
    
    $
    10.17Restaurant operating costs as
a % of company-operated
revenue:Food and packaging
    
    
    29.0
    %
    
    
    29.9
    %
    
    
    26.3
    %Payroll and employee benefits
    
    
    27.0
    %
    
    
    32.1
    %
    
    
    32.4
    %Occupancy and other operating
costs
    
    
    21.4
    %
    
    
    22.7
    %
    
    
    34.6
    %Total restaurant operating
costs
    
    
    77.4
    %
    
    
    84.7
    %
    
    
    93.3
    %Advertising as a percentage of
company-operated revenue
    
    
    6.6
    %
    
    
    5.9
    %
    
    
    2.7
    %
 
 (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.
 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)
 Presentation of Non-GAAP Measurements
 Adjusted EBITDA
   Twelve Weeks Ended August 14, 2006Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    12,696
    
    
    $
    2,224
    
    
    $
    (967
    )
    
    $
    263
    
    
    $
    14,216Interest expense (income)
    
    
    881
    
    
    
    4,065
    
    
    
    (1
    )
    
    
    118
    
    
    
    5,063Income tax expense (benefit)
    
    
    8,322
    
    
    
    3,837
    
    
    
    (631
    )
    
    
    80
    
    
    
    11,608Depreciation and amortization
    
    
    5,753
    
    
    
    7,522
    
    
    
    718
    
    
    
    54
    
    
    
    14,047Facility action charges, net
    
    
    (332
    )
    
    
    84
    
    
    
    1,172
    
    
    
    50
    
    
    
    974Adjusted EBITDA
    
    $
    27,320
    
    
    $
    17,732
    
    
    $
    291
    
    
    $
    565
    
    
    $
    45,908
 Twelve Weeks Ended August 15, 2005Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    17,469
    
    
    $
    3,003
    
    
    $
    (1,211
    )
    
    $
    (10,813
    )
    
    $
    8,448Interest expense
    
    
    970
    
    
    
    4,246
    
    
    
    6
    
    
    
    1
    
    
    
    5,223Income tax expense (benefit)
    
    
    454
    
    
    
    91
    
    
    
    (25
    )
    
    
    (64
    )
    
    
    456Depreciation and amortization
    
    
    5,815
    
    
    
    8,627
    
    
    
    824
    
    
    
    38
    
    
    
    15,304Facility action charges, net
    
    
    854
    
    
    
    1,324
    
    
    
    328
    
    
    
    (12
    )
    
    
    2,494Adjusted EBITDA
    
    $
    25,562
    
    
    $
    17,291
    
    
    $
    (78
    )
    
    $
    (10,850
    )
    
    $
    31,925
 Twenty-Eight Weeks Ended August 14, 2006Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    29,020
    
    
    $
    3,855
    
    
    $
    (1,992
    )
    
    $
    (499
    )
    
    $
    30,384Interest expense
    
    
    2,271
    
    
    
    9,717
    
    
    
    6
    
    
    
    118
    
    
    
    12,112Income tax expense (benefit)
    
    
    18,783
    
    
    
    4,928
    
    
    
    (1,317
    )
    
    
    2
    
    
    
    22,396Depreciation and amortization
    
    
    13,432
    
    
    
    17,462
    
    
    
    1,701
    
    
    
    105
    
    
    
    32,700Facility action charges, net
    
    
    458
    
    
    
    1,667
    
    
    
    1,203
    
    
    
    208
    
    
    
    3,536Adjusted EBITDA
    
    $
    63,964
    
    
    $
    37,629
    
    
    $
    (399
    )
    
    $
    (66
    )
    
    $
    101,128
 Twenty-Eight Weeks Ended August 15, 2005Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    37,202
    
    
    $
    1,599
    
    
    $
    (3,386
    )
    
    $
    (10,968
    )
    
    $
    24,447Interest expense
    
    
    2,299
    
    
    
    10,189
    
    
    
    16
    
    
    
    92
    
    
    
    12,596Income tax expense (benefit)
    
    
    954
    
    
    
    66
    
    
    
    (69
    )
    
    
    144
    
    
    
    1,095Depreciation and amortization
    
    
    13,634
    
    
    
    20,224
    
    
    
    1,962
    
    
    
    89
    
    
    
    35,909Facility action charges, net
    
    
    878
    
    
    
    1,471
    
    
    
    689
    
    
    
    16
    
    
    
    3,054Adjusted EBITDA
    
    $
    54,967
    
    
    $
    33,549
    
    
    $
    (788
    )
    
    $
    (10,627
    )
    
    $
    77,101
 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)
 Trailing Four Quarters Ended August 14, 2006Carl's Jr.
    
    
    Hardee's
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    68,883
    
    
    $
    (1,526
    )
    
    $
    (5,461
    )
    
    $
    138,623
    
    
    $
    200,519Interest expense
    
    
    4,227
    
    
    
    18,169
    
    
    
    18
    
    
    
    118
    
    
    
    22,532Income tax expense (benefit)
    
    
    19,784
    
    
    
    4,862
    
    
    
    (1,386
    )
    
    
    (139,290
    )
    
    
    (116,030
    )Depreciation and amortization
    
    
    24,756
    
    
    
    32,711
    
    
    
    3,297
    
    
    
    182
    
    
    
    60,946Facility action charges, net
    
    
    1,372
    
    
    
    4,849
    
    
    
    2,058
    
    
    
    228
    
    
    
    8,507Adjusted EBITDA
    
    $
    119,022
    
    
    $
    59,065
    
    
    $
    (1,474
    )
    
    $
    (139
    )
    
    $
    176,474
  Twelve Weeks EndedAugust 14, 2006
    
    
    August 15, 2005Cash flows provided by operating activities
    
    $
    50,709
    
    
    $
    27,821Interest expense
    
    
    5,063
    
    
    
    5,223Income tax expense
    
    
    11,608
    
    
    
    456Amortization of loan fees
    
    
    (762
    )
    
    
    (795
    )Share-based compensation expense
    
    
    (1,155
    )
    
    
    (11
    )Recovery of losses on accounts and notes receivable
    
    
    280
    
    
    
    113Loss on sales of property and equipment, capital leases and extinguishment of
debt
    
    
    (420
    )
    
    
    (764
    )Deferred income taxes
    
    
    (11,251
    )
    
    
    (47
    )Other non-cash (charges) credits
    
    
    (32
    )
    
    
    5Change in estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    289
    
    
    
    3,390Net change in refundable income taxes
    
    
    20
    
    
    
    (383
    )Net change in receivables, inventories, prepaid expenses and other current
and non-current assets
    
    
    (1,726
    )
    
    
    (4,735
    )Net change in accounts payable and other current and long-term liabilities
    
    
    (6,715
    )
    
    
    1,652Adjusted EBITDA
    
    $
    45,908
    
    
    $
    31,925
 Twenty-Eight Weeks EndedAugust 14, 2006
    
    
    August 15, 2005Cash flows provided by operating activities
    
    $
    97,661
    
    
    $
    67,723Interest expense
    
    
    12,112
    
    
    
    12,596Income tax expense
    
    
    22,396
    
    
    
    1,095Amortization of loan fees
    
    
    (1,778
    )
    
    
    (1,885
    )Share-based compensation expense
    
    
    (2,925
    )
    
    
    (11
    )(Provision for) recovery of losses on accounts and notes receivable
    
    
    (294
    )
    
    
    499Loss on sales of property and equipment, capital leases and extinguishment of
debt
    
    
    (989
    )
    
    
    (1,821
    )Deferred income taxes
    
    
    (21,271
    )
    
    
    (97
    )Other non-cash credits (charges)
    
    
    47
    
    
    
    (51
    )Change in estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    2,086
    
    
    
    3,082Net change in refundable income taxes
    
    
    (2
    )
    
    
    (644
    )Net change in receivables, inventories, prepaid expenses and other current
and non-current assets
    
    
    2,610
    
    
    
    437Net change in accounts payable and other current and long-term liabilities
    
    
    (8,525
    )
    
    
    (3,822
    )Adjusted EBITDA
    
    $
    101,128
    
    
    $
    77,101
 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)
 Trailing Four QuartersEnded August 14, 2006Cash flows provided by operating activities
    
    $
    146,111Interest expense
    
    
    22,532Income tax benefit
    
    
    (116,030
    )Amortization of loan fees
    
    
    (3,205
    )Share-based compensation expense
    
    
    (3,103
    )Provision for losses on accounts and notes receivable
    
    
    (969
    )Loss on sales of property and equipment, capital leases and extinguishment of debt
    
    
    (2,348
    )Deferred income taxes
    
    
    117,747Other
non-cash credits
    
    
    11Change in estimated liability for closing restaurants and estimated liability for
self-insurance
    
    
    12,898Net change in refundable income taxes
    
    
    30Net change in receivables, inventories, prepaid expenses and other current and
non-current assets
    
    
    7,175Net change in accounts payable and other current and long-term liabilities
    
    
    (4,375
    )Adjusted EBITDA
    
    $
    176,474
 Carls Jr.
  Restaurant Portfolio
    
    
    RevenueSecond Fiscal Quarter
    
    
    Second Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    394
    
    
    
    429
    
    
    
    (35
    )
    
    $
    138,407
    
    
    $
    133,026
    
    
    $
    5,381
    
    
    $
    325,504
    
    
    $
    309,982
    
    
    $
    15,522Franchised and
licensed(a)
    
    
    678
    
    
    
    603
    
    
    
    75
    
    
    
    56,274
    
    
    
    52,337
    
    
    
    3,937
    
    
    
    129,291
    
    
    
    121,420
    
    
    
    7,871Total
    
    
    1,072
    
    
    
    1,032
    
    
    
    40
    
    
    $
    194,681
    
    
    $
    185,363
    
    
    $
    9,318
    
    
    $
    454,795
    
    
    $
    431,402
    
    
    $
    23,393
 
 (a)
    
    Includes $43,494, $41,261, $101,317 and $96,173 of revenues from distribution of food,
packaging and supplies to franchised and licensed restaurants during the twelve weeks ended
August 14, 2006, and August 15, 2005 and the twenty-eight weeks ended August 14, 2006 and
August 15, 2005, respectively.
 Company-Operated Restaurants
  35




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
   Twenty-Twelve
    
    
    EightWeeks
    
    
    WeeksRestaurant operating costs as a percentage of
company-operated revenue for the period ended August 15, 2005
    
    
    76.5
    %
    
    
    77.4
    %Decrease in food and packaging costs
    
    
    (0.7
    )
    
    
    (0.5
    )Increase (decrease) in workers compensation expense
    
    
    0.6
    
    
    
    (0.2
    )Decrease in labor costs, excluding workers compensation
    
    
    (0.4
    )
    
    
    (0.5
    )Decrease in repair and maintenance expense
    
    
    (0.2
    )
    
    
    Decrease in asset retirement expense
    
    
    (0.1
    )
    
    
    (0.2
    )Decrease in cost of promotional items
    
    
    
    
    
    
    (0.4
    )Decrease in depreciation and amortization expense
    
    
    (0.1
    )
    
    
    (0.2
    )Other, net
    
    
    0.2
    
    
    
    Restaurant operating costs as a percentage of
company-operated revenue for the period ended August 14, 2006
    
    
    75.8
    %
    
    
    75.4
    %
       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)
  Franchised and Licensed Restaurants
      Hardees
  Restaurant Portfolio
    
    
    RevenueSecond Fiscal Quarter
    
    
    Second Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    701
    
    
    
    667
    
    
    
    34
    
    
    $
    150,627
    
    
    $
    141,866
    
    
    $
    8,761
    
    
    $
    340,566
    
    
    $
    321,637
    
    
    $
    18,929Franchised and
licensed
    
    
    1,244
    
    
    
    1,344
    
    
    
    (100
    )
    
    
    18,079
    
    
    
    19,249
    
    
    
    (1,170
    )
    
    
    40,770
    
    
    
    42,624
    
    
    
    (1,854
    )Total
    
    
    1,945
    
    
    
    2,011
    
    
    
    (66
    )
    
    $
    168,706
    
    
    $
    161,115
    
    
    $
    7,591
    
    
    $
    381,336
    
    
    $
    364,261
    
    
    $
    17,075
 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)
    Twenty-Twelve
    
    
    EightWeeks
    
    
    WeeksRestaurant operating costs as a percentage of company-operated revenue
for the period ended August 15, 2005
    
    
    83.3
    %
    
    
    84.7
    %Decrease in food and packaging costs
    
    
    (1.5
    )
    
    
    (1.0
    )Decrease in depreciation and amortization expense
    
    
    (0.9
    )
    
    
    (1.0
    )Increase in workers compensation insurance expense
    
    
    0.8
    
    
    
    0.3Decrease in labor and incentive costs, excluding workers compensation
    
    
    (0.4
    )
    
    
    (0.8
    )Decrease in rent expense
    
    
    (0.6
    )
    
    
    (0.4
    )Increase in utilities expense
    
    
    0.3
    
    
    
    0.2Decrease in supplies and uniform expense
    
    
    (0.1
    )
    
    
    (0.3
    )Other, net
    
    
    0.1
    
    
    
    (0.1
    )Restaurant operating costs as a percentage of company-operated revenue for
the period ended August 14, 2006
    
    
    81.0
    %
    
    
    81.6
    %
       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
     La Salsa
  Restaurant Portfolio
    
    
    RevenueSecond Fiscal Quarter
    
    
    Second Fiscal Quarter
    
    
    Year-To-Date2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    55
    
    
    
    61
    
    
    
    (6
    )
    
    $
    11,088
    
    
    $
    11,669
    
    
    $
    (581
    )
    
    $
    24,989
    
    
    $
    26,242
    
    
    $
    (1,253
    )Franchised and
licensed
    
    
    43
    
    
    
    39
    
    
    
    4
    
    
    
    473
    
    
    
    391
    
    
    
    82
    
    
    
    1,082
    
    
    
    950
    
    
    
    132Total
    
    
    98
    
    
    
    100
    
    
    
    (2
    )
    
    $
    11,561
    
    
    $
    12,060
    
    
    $
    (499
    )
    
    $
    26,071
    
    
    $
    27,192
    
    
    $
    (1,121
    )
 39




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
   Consolidated Expenses
 Consolidated Variable Interest Entities
   Advertising Expense
  General and Administrative Expense
  40




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
   Facility Action Charges
     Interest Expense
   Conversion Inducement Expense
  41




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Other Income, Net
  Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14,
    
    
    August 15,
    
    
    August 14,
    
    
    August 15,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income
on notes receivable
from franchisees,
disposition properties
and capital leases
    
    $
    223
    
    
    $
    252
    
    
    $
    629
    
    
    $
    616Bad debt expense
    
    
    (51
    )
    
    
    
    
    
    
    (773
    )
    
    
    Rental income from
properties leased to
third parties, net
    
    
    405
    
    
    
    359
    
    
    
    986
    
    
    
    713Other, net
    
    
    601
    
    
    
    307
    
    
    
    707
    
    
    
    452Total other income, net
    
    $
    1,178
    
    
    $
    918
    
    
    $
    1,549
    
    
    $
    1,781Other income, net, typically consists of lease and sublease income from non-franchisee
tenants, bad debt expense on non-trade receivables, interest income on notes receivable, and other
non-operating items. Other income, net, increased $260 during the twelve weeks ended August 14,
2006, and decreased $232 during the twenty-eight weeks ended August 14, 2006, as compared to the
comparable periods in the prior year, respectively.Income TaxesIncome tax expense for the twelve and twenty-eight weeks ended August 14, 2006 consisted of
the following:Twelve Weeks Ended
    
    
    Twenty-Eight Weeks EndedAugust 14,
    
    
    August 15,
    
    
    August 14,
    
    
    August 15,2006
    
    
    2005
    
    
    2006
    
    
    2005Foreign income taxes
    
    $
    297
    
    
    $
    212
    
    
    $
    622
    
    
    $
    466Federal and state income taxes
    
    
    11,311
    
    
    
    244
    
    
    
    21,774
    
    
    
    629Income tax expense
    
    $
    11,608
    
    
    $
    456
    
    
    $
    22,396
    
    
    $
    1,095Effective income tax rate
    
    
    45.0
    %
    
    
    5.1
    %
    
    
    42.4
    %
    
    
    4.3
    %
   42




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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
        43




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
         44




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




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Twenty-Eight Weeks EndedAugust 14,
    
    
    August 15,2006
    
    
    2005New restaurants (including restaurants under development)Carls Jr.
    
    $
    4,738
    
    
    $
    5,535Hardees
    
    
    2,283
    
    
    
    4,841La Salsa
    
    
    423
    
    
    
    261Remodels/Dual-branding (including construction in process)Carls Jr.
    
    
    1,691
    
    
    
    2,942Hardees
    
    
    2,819
    
    
    
    3,497La Salsa
    
    
    246
    
    
    
    93Other restaurant additionsCarls Jr.
    
    
    11,556
    
    
    
    5,253Hardees
    
    
    27,031
    
    
    
    12,132La Salsa
    
    
    207
    
    
    
    189Corporate/other
    
    
    5,095
    
    
    
    4,865Total
    
    $
    56,089
    
    
    $
    39,608
   Contractual Obligations
  46




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
   Commodity Price Risk
  Derivative Financial Instruments
  
 Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  47




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##### Table of Contents



(b) Changes in Internal Control
  
 Part II. Other Information.
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchase of Equity Securities
  48




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##### Table of Contents



(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
    
    
    ProgramsMay 23, 2006  June 19, 2006
    
    
    39,600
    
    
    $
    16.53
    
    
    
    39,600
    
    
    $
    37,788June 20, 2006  July 17, 2006
    
    
    356,985
    
    
    
    15.81
    
    
    
    356,985
    
    
    
    32,134July 18, 2006  August 14, 2006
    
    
    1,024,260
    
    
    
    15.29
    
    
    
    1,024,260
    
    
    
    16,445Total
    
    
    1,420,845
    
    
    $
    15.45
    
    
    
    1,420,845
    
    
    $
    16,445
 
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Shares Voted For
    
    Authority to Vote WithheldCarl L. Karcher
    
    
    51,918,147
    
    
    
    2,925,187Jerold H. Rubinstein.
    
    
    52,236,587
    
    
    
    2,606,747Daniel E. Ponder, Jr.
    
    
    51,160,608
    
    
    
    3,682,726
   
 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).
 49




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##### Table of Contents



Exhibit #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).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.
 50




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##### Table of Contents



SIGNATURES
  CKE RESTAURANTS, INC.(Registrant)Date: September 19, 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).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.
 52