##### 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 May 21, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from  to.
 Commission file number 1-11313
 
 CKE RESTAURANTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0602639(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)6307 Carpinteria Avenue, Ste. A, Carpinteria, California
    
    93013(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (805) 745-7500
 Former Name, Former Address and Former Fiscal Year, if changed since last report.
 þ o
  þ o o
 o þ




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##### 



CKE RESTAURANTS, INC. AND SUBSIDIARIES
INDEX
 Page No.Part I. Financial InformationItem 1    Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of May 21, 2007 and January 31, 2007
    
    
    3Condensed Consolidated Statements of Income for the sixteen weeks ended May
21, 2007 and May 22, 2006
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the sixteen
weeks ended May 21, 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the sixteen weeks ended
May 21, 2007 and May 22, 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    20Item 3    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4    Controls and Procedures
    
    
    42Part II. Other InformationItem 1    Legal Proceedings
    
    
    42Item 1A Risk Factors
    
    
    42Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3    Defaults Upon Senior Securities
    
    
    43Item 4    Submission of Matters to a Vote of Security Holders
    
    
    43Item 5    Other Information
    
    
    43Item 6    Exhibits
    
    
    44Signatures
    
    
    45EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 10.5EXHIBIT 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)
 May 21, 2007
    
    
    January 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,371
    
    
    $
    18,620Accounts receivable, net of allowance for doubtful accounts of $1,029 as of May 21,
2007 and $821 as of January 31, 2007
    
    
    36,452
    
    
    
    42,485Related party trade receivables
    
    
    5,016
    
    
    
    4,644Inventories, net
    
    
    26,140
    
    
    
    21,708Prepaid expenses
    
    
    15,848
    
    
    
    13,548Assets held for sale
    
    
    19,296
    
    
    
    3,949Advertising fund assets, restricted
    
    
    17,539
    
    
    
    17,896Deferred income tax assets, net
    
    
    19,300
    
    
    
    25,450Current assets of discontinued operations
    
    
    2,096
    
    
    
    2,007Other current assets
    
    
    3,465
    
    
    
    1,971Total current assets
    
    
    171,523
    
    
    
    152,278Notes receivable, net of allowance for doubtful accounts of $1,837 as of May 21, 2007
and $2,786 as of January 31, 2007
    
    
    1,305
    
    
    
    775Property and equipment, net of accumulated depreciation and amortization of $450,805
as of May 21, 2007 and $441,447 as of January 31, 2007
    
    
    471,751
    
    
    
    482,388Property under capital leases, net of accumulated amortization of $45,572 as of May
21, 2007 and $44,885 as of January 31, 2007
    
    
    23,774
    
    
    
    25,153Deferred income tax assets, net
    
    
    87,554
    
    
    
    85,997Goodwill
    
    
    22,649
    
    
    
    22,649Long-term assets of discontinued operations
    
    
    19,777
    
    
    
    18,859Other assets, net
    
    
    9,596
    
    
    
    8,539Total assets
    
    $
    807,929
    
    
    $
    796,638LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of bank indebtedness and other long-term debt
    
    $
    24,504
    
    
    $
    1,500Current portion of capital lease obligations
    
    
    5,423
    
    
    
    5,323Accounts payable
    
    
    71,796
    
    
    
    63,994Advertising fund liabilities
    
    
    17,539
    
    
    
    17,896Current liabilities of discontinued operations
    
    
    2,466
    
    
    
    1,749Other current liabilities
    
    
    87,573
    
    
    
    94,677Total current liabilities
    
    
    209,301
    
    
    
    185,139Bank indebtedness and other long-term debt, less current portion
    
    
    169,071
    
    
    
    114,942Convertible subordinated notes due 2023
    
    
    15,167
    
    
    
    15,167Capital lease obligations, less current portion
    
    
    39,310
    
    
    
    41,123Long-term liabilities of discontinued operations
    
    
    5,247
    
    
    
    5,746Other long-term liabilities
    
    
    56,999
    
    
    
    55,675Total liabilities
    
    
    495,095
    
    
    
    417,792Commitments and contingencies (Notes 6 and 14)Subsequent
events (Notes 4 and 12)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; 63,166 shares issued and
63,157 shares outstanding as of May 21, 2007; 67,247 shares issued and 67,229
shares outstanding as of January 31, 2007
    
    
    632
    
    
    
    672Common stock held in treasury, at cost; 9 shares as of May 21, 2007 and 18 shares
as of January 31, 2007
    
    
    (193
    )
    
    
    (360
    )Additional paid-in capital
    
    
    424,468
    
    
    
    501,437Accumulated deficit
    
    
    (112,073
    )
    
    
    (122,903
    )Total stockholders equity
    
    
    312,834
    
    
    
    378,846Total liabilities and stockholders equity
    
    $
    807,929
    
    
    $
    796,638
 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)
 Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Revenue:Company-operated restaurants
    
    $
    380,524
    
    
    $
    377,143Franchised and licensed restaurants and other
    
    
    101,278
    
    
    
    96,905Total revenue
    
    
    481,802
    
    
    
    474,048Operating costs and expenses:Restaurant operating costs:Food and packaging
    
    
    111,435
    
    
    
    108,334Payroll and employee benefits
    
    
    110,479
    
    
    
    109,490Occupancy and other
    
    
    81,874
    
    
    
    78,491Total restaurant operating costs
    
    
    303,788
    
    
    
    296,315Franchised and licensed restaurants and other
    
    
    79,492
    
    
    
    74,347Advertising
    
    
    22,762
    
    
    
    22,404General and administrative
    
    
    46,027
    
    
    
    44,812Facility action charges, net
    
    
    (254
    )
    
    
    2,533Total operating costs and expenses
    
    
    451,815
    
    
    
    440,411Operating income
    
    
    29,987
    
    
    
    33,637Interest expense
    
    
    (5,295
    )
    
    
    (7,042
    )Other income, net
    
    
    1,624
    
    
    
    365Income before income taxes and discontinued operations
    
    
    26,316
    
    
    
    26,960Income tax expense
    
    
    10,617
    
    
    
    10,756Income from continuing operations
    
    
    15,699
    
    
    
    16,204Loss from
discontinued operations (net of income tax benefit of
$160 and expense of $32 for the sixteen weeks ended May 21, 2007 and May
22, 2006, respectively)
    
    
    (348
    )
    
    
    (36
    )Net income
    
    $
    15,351
    
    
    $
    16,168Basic income per common share:Continuing operations
    
    $
    0.24
    
    
    $
    0.27Discontinued operations
    
    
    0.00
    
    
    
    0.00Net income
    
    $
    0.24
    
    
    $
    0.27Diluted income per common share:Continuing operations
    
    $
    0.23
    
    
    $
    0.23Discontinued operations
    
    
    0.00
    
    
    
    0.00Net income
    
    $
    0.23
    
    
    $
    0.23Dividends per common share
    
    $
    0.06
    
    
    $
    0.04Weighted-average common shares outstanding:Basic
    
    
    64,823
    
    
    
    59,664Dilutive effect of stock options, convertible notes and restricted stock
    
    
    3,327
    
    
    
    13,494Diluted
    
    
    68,150
    
    
    
    73,158
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands, except per share amounts)
 (Unaudited)
 Sixteen Weeks Ended May 21, 2007Common Stock
    
    
    Additional
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Held in Treasury
    
    
    Paid-In
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    EquityBalance at January 31, 2007
    
    
    67,247
    
    
    $
    672
    
    
    
    (18
    )
    
    $
    (360
    )
    
    $
    501,437
    
    
    $
    (122,903
    )
    
    $
    378,846Cash dividends declared ($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,750
    )
    
    
    (3,750
    )Issuance of restricted stock awards
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    307
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1,554
    
    
    
    
    
    
    
    1,557Tax benefit from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    
    
    
    
    1,800Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,101
    
    
    
    
    
    
    
    3,101Repurchase and retirement of common stock
    
    
    (4,389
    )
    
    
    (43
    )
    
    
    9
    
    
    
    167
    
    
    
    (83,424
    )
    
    
    
    
    
    
    (83,300
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,351
    
    
    
    15,351FIN 48 transition amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (771
    )
    
    
    (771
    )Balance at May 21, 2007
    
    
    63,166
    
    
    $
    632
    
    
    
    (9
    )
    
    $
    (193
    )
    
    $
    424,468
    
    
    $
    (112,073
    )
    
    $
    312,834
 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)
 Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Cash flows from operating activities:Net income
    
    $
    15,351
    
    
    $
    16,168Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    19,884
    
    
    
    18,653Amortization of loan fees
    
    
    265
    
    
    
    1,016Share-based compensation expense
    
    
    3,101
    
    
    
    1,770(Recovery of) provision for losses on accounts and notes receivable
    
    
    (665
    )
    
    
    574Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    618
    
    
    
    569Facility action charges, net
    
    
    (463
    )
    
    
    2,562Deferred income taxes
    
    
    4,639
    
    
    
    10,020Other non-cash charges (credits)
    
    
    24
    
    
    
    (79
    )Net change in estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    (2,518
    )
    
    
    (1,797
    )Net change in receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    (3,247
    )
    
    
    (4,314
    )Net change in accounts payable and other current and long-term liabilities
    
    
    2,146
    
    
    
    1,810Net cash provided by operating activities
    
    
    39,135
    
    
    
    46,952Cash flows from investing activities:Purchases of property and equipment
    
    
    (35,495
    )
    
    
    (34,635
    )Proceeds from sales of property and equipment
    
    
    12,118
    
    
    
    181Collections on notes receivable
    
    
    67
    
    
    
    415Other investing activities
    
    
    23
    
    
    
    20Net cash used in investing activities
    
    
    (23,287
    )
    
    
    (34,019
    )Cash flows from financing activities:Net change in bank overdraft
    
    
    479
    
    
    
    2,768Borrowings under revolving credit facility
    
    
    94,000
    
    
    
    18,000Repayments of borrowings under revolving credit facility
    
    
    (117,000
    )
    
    
    (24,500
    )Borrowings
under credit facility term loan
    
    
    100,179
    
    
    
    Repayment of credit facility term loan
    
    
    
    
    
    
    (3,251
    )Repayment of other long-term debt
    
    
    (52
    )
    
    
    (46
    )Borrowing by consolidated variable interest entity
    
    
    5
    
    
    
    33Repayments of capital lease obligations
    
    
    (1,539
    )
    
    
    (1,420
    )Payment of deferred loan fees
    
    
    (1,022
    )
    
    
    Repurchase of common stock
    
    
    (83,467
    )
    
    
    (1,999
    )Exercise of stock options
    
    
    1,557
    
    
    
    1,153Tax benefit from exercise of stock options
    
    
    1,457
    
    
    
    244Dividends paid on common stock
    
    
    (2,694
    )
    
    
    (2,394
    )Net cash used in financing activities
    
    
    (8,097
    )
    
    
    (11,412
    )Net increase in cash and cash equivalents
    
    
    7,751
    
    
    
    1,521Cash and cash equivalents at beginning of period
    
    
    18,680
    
    
    
    21,343Cash and cash equivalents at end of period
    
    $
    26,431
    
    
    $
    22,864
 See Accompanying Notes to Condensed Consolidated Financial Statements
 6




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 Note 1  Basis of Presentation and Description of Business
 ® ® ®
  Carls Jr.
    
    Hardees
    
    Other
    
    TotalCompany-operated
    
    
    398
    
    
    
    664
    
    
    
    1
    
    
    
    1,063Franchised and licensed
    
    
    703
    
    
    
    1,241
    
    
    
    15
    
    
    
    1,959Total
    
    
    1,101
    
    
    
    1,905
    
    
    
    16
    
    
    
    3,022
   ®
 Variable Interest Entities
 Consolidation
of Variable Interest Entities  an interpretation of ARB No. 51
  7




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Accounting for Franchise
Fee Revenue
  Note 2  Accounting Pronouncements Not Yet Adopted
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115 Accounting for Certain Investment in Debt and Equity Securities
 Note 3  Adoption of New Accounting Pronouncements
 Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No. 133 and 140. Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities  a replacement of FASB Statement 125.
 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
 8




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation).
 Note 4  Share-Based Compensation
 Share-Based Payment
 Stock Incentive Plans
   9




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
     Stock options outstanding:
 Weighted-Average
    
    
    AggregateWeighted-Average
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    ValueOutstanding at January 31, 2007
    
    
    5,374,306
    
    
    $
    13.36
    
    
    
    5.38Exercised
    
    
    (306,911
    )
    
    
    5.07Forfeited
    
    
    (24,707
    )
    
    
    21.19Expired
    
    
    (33,180
    )
    
    
    18.07Outstanding at May 21, 2007
    
    
    5,009,508
    
    
    $
    13.80
    
    
    
    5.13
    
    
    $
    39,736Exercisable at May 21, 2007
    
    
    3,669,848
    
    
    $
    13.27
    
    
    
    3.89
    
    
    $
    32,252Expected to vest at May 21, 2007
    
    
    1,219,653
    
    
    $
    15.19
    
    
    
    8.48
    
    
    $
    6,878
 Restricted stock awards:
 Weighted-AverageGrant DateShares
    
    
    Fair ValueRestricted stock awards at January 31, 2007
    
    
    616,012
    
    
    $
    17.36Granted
    
    
    775
    
    
    $
    19.34Restricted stock awards at May 21, 2007
    
    
    616,787
    
    
    $
    17.36
  10




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
   Employee Stock Purchase Plan
  Note 5  Other Assets
  May 21,
    
    
    January 31,2007
    
    
    2007Intangible assets (see table below)
    
    $
    2,837
    
    
    $
    2,922Deferred financing costs
    
    
    4,441
    
    
    
    3,697Net investment in lease receivables, less current portion
    
    
    588
    
    
    
    610Other
    
    
    1,730
    
    
    
    1,310$
    9,596
    
    
    $
    8,539
   Weighted-
    
    
    May 21, 2007
    
    
    January 31, 2007Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingIntangible Assets
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks
    
    
    20
    
    
    $
    3,166
    
    
    $
    (825
    )
    
    $
    2,341
    
    
    $
    3,166
    
    
    $
    (776
    )
    
    $
    2,390Favorable lease agreements
    
    
    21
    
    
    
    1,467
    
    
    
    (971
    )
    
    
    496
    
    
    
    1,491
    
    
    
    (959
    )
    
    
    532$
    4,633
    
    
    $
    (1,796
    )
    
    $
    2,837
    
    
    $
    4,657
    
    
    $
    (1,735
    )
    
    $
    2,922
  Note 6  Indebtedness and Interest Expense
   11




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
        12




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
   Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Facility
    
    $
    2,943
    
    
    $
    2,125Capital lease obligations
    
    
    1,561
    
    
    
    1,7382023 Convertible Notes
    
    
    187
    
    
    
    1,292Amortization of loan fees
    
    
    265
    
    
    
    1,016Letter of credit fees and other
    
    
    339
    
    
    
    871$
    5,295
    
    
    $
    7,042
 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 refranchising transactions; and(iv)
    
    amortization of discount related to estimated liability for closing restaurants.
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Carls Jr.Unfavorable dispositions of leased and fee surplus properties, net
    
    $
    320
    
    
    $
    667Impairment of assets to be held and used
    
    
    
    
    
    
    36Loss on sales of restaurants and surplus properties, net
    
    
    4
    
    
    
    9Amortization of discount related to estimated liability for
closing restaurants
    
    
    51
    
    
    
    78375
    
    
    
    790HardeesNew decisions regarding closing restaurants
    
    
    51
    
    
    
    1,776Unfavorable dispositions of leased and fee surplus properties, net
    
    
    152
    
    
    
    66Impairment of assets to be disposed of
    
    
    17
    
    
    
    186Impairment of assets to be held and used
    
    
    2
    
    
    
    4Gain on sales of restaurants and surplus properties, net
    
    
    (1,117
    )
    
    
    (601
    )Amortization of discount related to estimated liability for
closing restaurants
    
    
    132
    
    
    
    152(763
    )
    
    
    1,583OtherLoss on sales of restaurants and surplus properties, net
    
    
    134
    
    
    
    160
 13




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006TotalNew decisions regarding closing restaurants
    
    $
    51
    
    
    $
    1,776Unfavorable dispositions of leased and fee surplus properties, net
    
    
    472
    
    
    
    733Impairment of assets to be disposed of
    
    
    17
    
    
    
    186Impairment of assets to be held and used
    
    
    2
    
    
    
    40Gain on sales of restaurants and surplus properties, net
    
    
    (979
    )
    
    
    (432
    )Amortization of discount related to estimated liability for
closing restaurants
    
    
    183
    
    
    
    230$
    (254
    )
    
    $
    2,533
  Carls Jr.
    
    
    Hardees
    
    
    TotalBalance at January 31, 2007
    
    $
    3,186
    
    
    $
    9,173
    
    
    $
    12,359New decisions regarding closing restaurants
    
    
    
    
    
    
    51
    
    
    
    51Usage
    
    
    (458
    )
    
    
    (1,236
    )
    
    
    (1,694
    )Unfavorable dispositions of leased and fee surplus properties, net
    
    
    320
    
    
    
    152
    
    
    
    472Amortization of discount
    
    
    51
    
    
    
    132
    
    
    
    183Balance at May 21, 2007
    
    
    3,099
    
    
    
    8,272
    
    
    
    11,371Less current portion
    
    
    957
    
    
    
    2,566
    
    
    
    3,523Long-term portion
    
    $
    2,142
    
    
    $
    5,706
    
    
    $
    7,848
  Note 8  Income Taxes
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Federal and state income taxes
    
    $
    10,301
    
    
    $
    10,431Foreign income taxes
    
    
    316
    
    
    
    325Income tax expense
    
    $
    10,617
    
    
    $
    10,756Effective income tax rate
    
    
    40.4
    %
    
    
    39.9
    %
    14




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
   Note 9  Income Per Share
    Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006(In thousands except per share amounts)Basic earnings per share:Income from continuing operations
    
    $
    15,699
    
    
    $
    16,204Loss from
discontinued operations
    
    
    (348
    )
    
    
    (36
    )Net income
    
    $
    15,351
    
    
    $
    16,168Weighted-average shares for computation of basic earnings per share
    
    
    64,823
    
    
    
    59,664Basic income per share from continuing operations
    
    $
    0.24
    
    
    $
    0.27Basic income per share from discontinued operations
    
    
    0.00
    
    
    
    0.00Basic net income per share
    
    $
    0.24
    
    
    $
    0.27Diluted earnings per share:Income from continuing operations
    
    $
    15,699
    
    
    $
    16,204Add: Interest and amortization costs for 2023 Convertible Notes, net of
related tax effect
    
    
    137
    
    
    
    917Income from continuing operations for computation of diluted earnings
per share
    
    $
    15,836
    
    
    $
    17,121Loss from discontinued operations
    
    $
    (348
    )
    
    $
    (36
    )Net income
    
    $
    15,351
    
    
    $
    16,168Add: Interest and amortization costs for 2023 Convertible Notes, net of
related tax effect
    
    
    137
    
    
    
    917Net income for computation of diluted earnings per share
    
    $
    15,488
    
    
    $
    17,085
 15




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006(In thousands except per share amounts)Weighted-average shares for computation of basic earnings per share
    
    
    64,823
    
    
    
    59,664Dilutive effect of stock options and restricted stock
    
    
    1,580
    
    
    
    1,543Dilutive effect of 2023 Convertible Notes
    
    
    1,747
    
    
    
    11,951Weighted-average shares for computation of diluted earnings per share
    
    
    68,150
    
    
    
    73,158Diluted income per share from continuing operations
    
    $
    0.23
    
    
    $
    0.23Diluted
income per share from discontinued operations
    
    
    0.00
    
    
    
    0.00Diluted net income per share
    
    $
    0.23
    
    
    $
    0.23
  Sixteen Weeks EndedMay 21, 2007
    
    May 22, 2006Stock options and restricted stock
    
    
    1,208
    
    
    
    2,174
 Note 10  Segment Information
  Carls Jr.
    
    Hardees
    
    Other
    
    TotalSixteen Weeks Ended May 21, 2007Revenue
    
    $
    258,145
    
    
    $
    222,435
    
    
    $
    1,222
    
    
    $
    481,802Operating income (loss)
    
    
    21,427
    
    
    
    8,596
    
    
    
    (36
    )
    
    
    29,987Income (loss) before income taxes
and discontinued operations
    
    
    21,231
    
    
    
    6,207
    
    
    
    (1,122
    )
    
    
    26,316Goodwill (as of May 21, 2007)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    Other
    
    TotalSixteen Weeks Ended May 22, 2006Revenue
    
    $
    260,114
    
    
    $
    212,630
    
    
    $
    1,304
    
    
    $
    474,048Operating income (loss)
    
    
    26,731
    
    
    
    7,034
    
    
    
    (128
    )
    
    
    33,637Income (loss) before income taxes
and discontinued operations
    
    
    25,847
    
    
    
    1,960
    
    
    
    (847
    )
    
    
    26,960Goodwill (as of May 22, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Note 11  Net Assets Held For Sale
  16




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 12  Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets
  May 21, 2007
    
    
    January 31, 2007Cash and cash equivalents
    
    $
    60
    
    
    $
    60Accounts receivable, net
    
    
    263
    
    
    
    319Inventories, net
    
    
    282
    
    
    
    257Prepaid expenses
    
    
    807
    
    
    
    626Deferred income tax assets, net
    
    
    548
    
    
    
    548Other current assets
    
    
    136
    
    
    
    197Current assets of discontinued operations
    
    $
    2,096
    
    
    $
    2,007Notes receivable, net
    
    $
    19
    
    
    $
    Property and equipment, net
    
    
    7,393
    
    
    
    6,202Other assets, net
    
    
    12,365
    
    
    
    12,657Long-term assets of discontinued operations
    
    $
    19,777
    
    
    $
    18,859Accounts payable
    
    $
    854
    
    
    $
    293Other current liabilities
    
    
    1,612
    
    
    
    1,456Current liabilities of discontinued operations
    
    $
    2,466
    
    
    $
    1,749Deferred income tax liabilities, net
    
    $
    2,216
    
    
    $
    2,216Other
long-term liabilities
    
    
    3,031
    
    
    
    3,530Long-term liabilities of discontinued operations
    
    $
    5,247
    
    
    $
    5,746
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Revenue
    
    $
    14,032
    
    
    $
    14,509Operating loss
    
    
    (502
    )
    
    
    (3
    )Interest expense
    
    
    (15
    )
    
    
    (7
    )Other income, net
    
    
    9
    
    
    
    6Income tax benefit (expense)
    
    
    160
    
    
    
    (32
    )Loss from discontinued operations
    
    $
    (348
    )
    
    $
    (36
    )
 17




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
  Note 13  Purchase and Sale of Assets
  Note 14  Commitments and Contingent Liabilities
       18




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
 Accounting for
Contingencies
 Note 15  Stockholders Equity
 Repurchase of Common Stock
   Dividends
  Note 16  Supplemental Cash Flow Information
 Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Cash paid for:Interest, net of amounts capitalized
    
    $
    5,259
    
    
    $
    6,613Income taxes, net of refunds received
    
    $
    525
    
    
    $
    558Non-cash investing and financing activities:Gain recognized on sale and leaseback transactions
    
    $
    107
    
    
    $
    107Dividends declared, not paid
    
    $
    3,750
    
    
    $
    2,394
  19




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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
and to establish the estimated liability for closing restaurants and subsidizing lease
payments of franchisees;
 20




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
    
    estimation, using actuarially determined methods, of our self-insured claim losses under
our workers compensation, general and auto liability insurance programs;
    
    determination of appropriate estimated liabilities for loss contingencies;
    
    determination of appropriate assumptions to use in evaluating leases for capital versus
operating lease treatment, establishing depreciable lives for leasehold improvements and
establishing straight-line rent expense periods;
    
    estimation of the appropriate allowances associated with 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, liabilities related
to uncertain tax positions 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
    21




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Impairment of Goodwill
 Business Combinations
  Estimated Liability for Closing Restaurants
    22




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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
  23




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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
     Accounting for Costs Associated with Exit or Disposal Activities
 24




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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
     25




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2008 Comparisons with
Fiscal 2007
  Fiscal Year and Seasonality
   Business Strategy
  
    
    increase revenues, average unit volumes and operating income at our major brands;
    
    remain focused on restaurant fundamentals  quality, service and cleanliness;
    
    capitalize on our unique brand positioning and cutting-edge advertising;
    
    offer premium products that compete on quality, innovation and taste;
    
    continue to capitalize on dual-branding opportunities available with Green Burrito and Red Burrito;
    
    control costs and improve capital structure while increasing
stockholder distributions;
    
    leverage our infrastructure and marketing presence to build out existing core markets;
    
    remodel our existing store base to remain competitive;
    
    focus on the strategic growth of the Hardees brand through our new refranchising program; and
    
    strengthen our franchise system and pursue further franchising opportunities, including new franchisees.
 Franchise Operations
   26




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  27




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Operating Review
  Sixteen Weeks Ended May 21, 2007Carls Jr.
    
    
    Hardees
    
    
    Other(A)
    
    
    Eliminations(B)
    
    
    TotalCompany-operated restaurants revenue
    
    $
    181,229
    
    
    $
    199,192
    
    
    $
    103
    
    
    $
    
    
    
    $
    380,524Restaurant operating costs:Food and packaging
    
    
    52,923
    
    
    
    58,479
    
    
    
    33
    
    
    
    
    
    
    
    111,435Payroll and employee benefits
    
    
    48,535
    
    
    
    61,902
    
    
    
    42
    
    
    
    
    
    
    
    110,479Occupancy and other
    
    
    38,898
    
    
    
    42,943
    
    
    
    33
    
    
    
    
    
    
    
    81,874Total restaurant operating costs
    
    
    140,356
    
    
    
    163,324
    
    
    
    108
    
    
    
    
    
    
    
    303,788Franchised and licensed restaurants and other revenue:Royalties
    
    
    9,753
    
    
    
    12,992
    
    
    
    165
    
    
    
    1
    
    
    
    22,911Distribution centers
    
    
    59,770
    
    
    
    7,707
    
    
    
    
    
    
    
    (3
    )
    
    
    67,474Rent
    
    
    7,010
    
    
    
    2,335
    
    
    
    
    
    
    
    
    
    
    
    9,345Retail sales of variable interest entity
    
    
    
    
    
    
    
    
    
    
    956
    
    
    
    
    
    
    
    956Other
    
    
    383
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    592Total franchised and licensed restaurants and other revenue
    
    
    76,916
    
    
    
    23,243
    
    
    
    1,121
    
    
    
    (2
    )
    
    
    101,278Franchised and licensed restaurants and other expenses:Administrative expense (including provision for bad debts)
    
    
    1,858
    
    
    
    1,742
    
    
    
    
    
    
    
    
    
    
    
    3,600Distribution centers
    
    
    59,927
    
    
    
    7,726
    
    
    
    
    
    
    
    
    
    
    
    67,653Rent and other occupancy
    
    
    5,900
    
    
    
    1,393
    
    
    
    
    
    
    
    
    
    
    
    7,293Operating costs of variable interest entity
    
    
    
    
    
    
    
    
    
    
    968
    
    
    
    (22
    )
    
    
    946Total franchised and licensed restaurants and other expenses
    
    
    67,685
    
    
    
    10,861
    
    
    
    968
    
    
    
    (22
    )
    
    
    79,492Advertising
    
    
    10,601
    
    
    
    12,159
    
    
    
    2
    
    
    
    
    
    
    
    22,762General and administrative
    
    
    17,701
    
    
    
    28,258
    
    
    
    68
    
    
    
    
    
    
    
    46,027Facility action charges, net
    
    
    375
    
    
    
    (763
    )
    
    
    134
    
    
    
    
    
    
    
    (254
    )Operating income (loss)
    
    $
    21,427
    
    
    $
    8,596
    
    
    $
    (56
    )
    
    $
    20
    
    
    $
    29,987Company-operated average unit volume (trailing-13 periods)
    
    $
    1,461
    
    
    $
    923Franchise-operated average unit volume (trailing-13 periods)
    
    $
    1,204
    
    
    $
    961Company-operated same-store sales increase
    
    
    
    
    
    
    1.8
    %Franchise-operated same-store sales increase
    
    
    0.1
    %
    
    
    1.1
    %Company-operated same-store transaction (decrease) increase
    
    
    (5.3
    )%
    
    
    1.2
    %Average check (actual $)
    
    $
    6.77
    
    
    $
    4.93Restaurant operating costs as a % of company-operated
restaurants revenue:Food and packaging
    
    
    29.2
    %
    
    
    29.4
    %Payroll and employee benefits
    
    
    26.8
    %
    
    
    31.0
    %Occupancy and other
    
    
    21.5
    %
    
    
    21.6
    %Total restaurant operating costs
    
    
    77.5
    %
    
    
    82.0
    %Advertising as a percentage of company-operated restaurants
revenue
    
    
    5.9
    %
    
    
    6.1
    %
 28




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Sixteen Weeks Ended May 22, 2006Carls Jr.
    
    
    Hardees
    
    
    Other(A)
    
    
    Eliminations(B)
    
    
    TotalCompany-operated restaurants revenue
    
    $
    187,097
    
    
    $
    189,939
    
    
    $
    107
    
    
    $
    
    
    
    $
    377,143Restaurant operating costs:Food and packaging
    
    
    53,237
    
    
    
    55,062
    
    
    
    35
    
    
    
    
    
    
    
    108,334Payroll and employee benefits
    
    
    48,846
    
    
    
    60,601
    
    
    
    43
    
    
    
    
    
    
    
    109,490Occupancy and other
    
    
    38,443
    
    
    
    40,014
    
    
    
    34
    
    
    
    
    
    
    
    78,491Total restaurant operating costs
    
    
    140,526
    
    
    
    155,677
    
    
    
    112
    
    
    
    
    
    
    
    296,315Franchised and licensed restaurants and other revenue:Royalties
    
    
    8,646
    
    
    
    13,636
    
    
    
    138
    
    
    
    (11
    )
    
    
    22,409Distribution centers
    
    
    57,823
    
    
    
    5,850
    
    
    
    
    
    
    
    (2
    )
    
    
    63,671Rent
    
    
    6,229
    
    
    
    2,998
    
    
    
    
    
    
    
    
    
    
    
    9,227Retail sales of variable interest entity
    
    
    
    
    
    
    
    
    
    
    1,072
    
    
    
    
    
    
    
    1,072Other
    
    
    319
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    526Total franchised and licensed restaurants and other revenue
    
    
    73,017
    
    
    
    22,691
    
    
    
    1,210
    
    
    
    (13
    )
    
    
    96,905Franchised and licensed restaurants and other expenses:Administrative expense (including provision for bad debts)
    
    
    1,643
    
    
    
    1,696
    
    
    
    
    
    
    
    
    
    
    
    3,339Distribution centers
    
    
    56,293
    
    
    
    6,123
    
    
    
    
    
    
    
    
    
    
    
    62,416Rent and other occupancy
    
    
    5,566
    
    
    
    1,949
    
    
    
    
    
    
    
    
    
    
    
    7,515Operating costs of variable interest entity
    
    
    
    
    
    
    
    
    
    
    1,084
    
    
    
    (7
    )
    
    
    1,077Total franchised and licensed restaurants and other expenses
    
    
    63,502
    
    
    
    9,768
    
    
    
    1,084
    
    
    
    (7
    )
    
    
    74,347Advertising
    
    
    11,051
    
    
    
    11,351
    
    
    
    2
    
    
    
    
    
    
    
    22,404General and administrative
    
    
    17,514
    
    
    
    27,216
    
    
    
    82
    
    
    
    
    
    
    
    44,812Facility action charges, net
    
    
    790
    
    
    
    1,584
    
    
    
    159
    
    
    
    
    
    
    
    2,533Operating income (loss)
    
    $
    26,731
    
    
    $
    7,034
    
    
    $
    (122
    )
    
    $
    (6
    )
    
    $
    33,637Company-operated average unit volume (trailing-13 periods)
    
    $
    1,365
    
    
    $
    892Franchise-operated average unit volume (trailing-13 periods)
    
    $
    1,187
    
    
    $
    905Company-operated same-store sales increase
    
    
    5.6
    %
    
    
    5.6
    %Franchise-operated same-store sales increase
    
    
    4.7
    %
    
    
    5.5
    %Company-operated same-store transaction increase
    
    
    2.9
    %
    
    
    1.7
    %Average check (actual $)
    
    $
    6.32
    
    
    $
    4.91Restaurant operating costs as a % of company-operated
restaurants revenue:Food and packaging
    
    
    28.5
    %
    
    
    29.0
    %Payroll and employee benefits
    
    
    26.1
    %
    
    
    31.9
    %Occupancy and other operating costs
    
    
    20.5
    %
    
    
    21.1
    %Total restaurant operating costs
    
    
    75.1
    %
    
    
    82.0
    %Advertising as a percentage of company-operated restaurants
revenue
    
    
    5.9
    %
    
    
    6.0
    %
 
 (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 accompanying
Condensed Consolidated Financial Statements. 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)
 Presentation of Non-GAAP Measurements
 Adjusted EBITDA
    Sixteen Weeks Ended May 21, 2007DiscontinuedCarls Jr.
    
    
    Hardees
    
    
    Other
    
    
    Operations
    
    
    TotalNet income (loss)
    
    $
    12,659
    
    
    $
    3,701
    
    
    $
    (661
    )
    
    $
    (348
    )
    
    $
    15,351Interest expense
    
    
    924
    
    
    
    2,900
    
    
    
    1,471
    
    
    
    15
    
    
    
    5,310Income tax expense (benefit)
    
    
    8,572
    
    
    
    2,506
    
    
    
    (461
    )
    
    
    (160
    )
    
    
    10,457Depreciation and amortization
    
    
    9,030
    
    
    
    9,891
    
    
    
    59
    
    
    
    904
    
    
    
    19,884Facility action charges, net
    
    
    375
    
    
    
    (763
    )
    
    
    134
    
    
    
    (209
    )
    
    
    (463
    )Share-based compensation expense
    
    
    1,202
    
    
    
    1,936
    
    
    
    
    
    
    
    
    
    
    
    3,138Adjusted EBITDA
    
    $
    32,762
    
    
    $
    20,171
    
    
    $
    542
    
    
    $
    202
    
    
    $
    53,677
 Sixteen Weeks Ended May 22, 2006DiscontinuedCarls Jr.
    
    
    Hardees
    
    
    Other
    
    
    Operations
    
    
    TotalNet income (loss)
    
    $
    15,515
    
    
    $
    1,176
    
    
    $
    (487
    )
    
    $
    (36
    )
    
    $
    16,168Interest expense
    
    
    1,390
    
    
    
    5,652
    
    
    
    
    
    
    
    7
    
    
    
    7,049Income tax expense (benefit)
    
    
    10,332
    
    
    
    784
    
    
    
    (360
    )
    
    
    32
    
    
    
    10,788Depreciation and amortization
    
    
    7,678
    
    
    
    9,940
    
    
    
    51
    
    
    
    984
    
    
    
    18,653Facility action charges, net
    
    
    790
    
    
    
    1,584
    
    
    
    159
    
    
    
    29
    
    
    
    2,562Share-based compensation expense
    
    
    678
    
    
    
    1,092
    
    
    
    
    
    
    
    
    
    
    
    1,770Adjusted EBITDA
    
    $
    36,383
    
    
    $
    20,228
    
    
    $
    (637
    )
    
    $
    1,016
    
    
    $
    56,990
 Trailing-13 Periods Ended May 21, 2007DiscontinuedCarls Jr.
    
    
    Hardees
    
    
    Other
    
    
    Operations
    
    
    TotalNet income (loss)
    
    $
    45,503
    
    
    $
    9,024
    
    
    $
    (837
    )
    
    $
    (4,335
    )
    
    $
    49,355Interest expense (income)
    
    
    3,525
    
    
    
    12,739
    
    
    
    1,757
    
    
    
    (9
    )
    
    
    18,012Income tax expense (benefit)
    
    
    28,582
    
    
    
    5,799
    
    
    
    (501
    )
    
    
    (2,312
    )
    
    
    31,568Depreciation and amortization
    
    
    27,680
    
    
    
    32,772
    
    
    
    227
    
    
    
    2,970
    
    
    
    63,649Facility action charges, net
    
    
    249
    
    
    
    147
    
    
    
    360
    
    
    
    4,765
    
    
    
    5,521Share-based compensation expense
    
    
    3,729
    
    
    
    6,007
    
    
    
    
    
    
    
    
    
    
    
    9,736Adjusted EBITDA
    
    $
    109,268
    
    
    $
    66,488
    
    
    $
    1,006
    
    
    $
    1,079
    
    
    $
    177,841
 30




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Net cash provided by operating activities
    
    $
    39,135
    
    
    $
    46,952Interest expense
    
    
    5,310
    
    
    
    7,049Income tax expense
    
    
    10,457
    
    
    
    10,788Amortization of loan fees
    
    
    (265
    )
    
    
    (1,016
    )Recovery of (provision for) losses on accounts and notes receivable
    
    
    665
    
    
    
    (574
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    (618
    )
    
    
    (569
    )Deferred income taxes
    
    
    (4,639
    )
    
    
    (10,020
    )Other non-cash (charges) credits
    
    
    (24
    )
    
    
    79Change in estimated liability for closing restaurants and estimated
liability for self-insurance
    
    
    2,518
    
    
    
    1,797Net change in receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    3,247
    
    
    
    4,314Net change in accounts payable and other current and long-term liabilities
    
    
    (2,146
    )
    
    
    (1,810
    )Dividends on
unvested restricted stock awards
    
    
    37
    
    
    
    Adjusted EBITDA
    
    $
    53,677
    
    
    $
    56,990
 Trailing-13 PeriodsEnded May 21, 2007Net cash provided by operating activities
    
    $
    156,328Interest expense
    
    
    18,012Income tax expense
    
    
    31,568Amortization of loan fees
    
    
    (2,346
    )Recovery of losses on accounts and notes receivable
    
    
    1,431Loss on sales of property and equipment, capital leases and extinguishment of debt
    
    
    (3,498
    )Deferred income taxes
    
    
    (20,580
    )Other non-cash charges
    
    
    (180
    )Change in estimated liability for closing restaurants and estimated liability for
self-insurance
    
    
    5,925Net change in receivables, inventories, prepaid expenses and other current and
non-current assets
    
    
    7,028Net change in accounts payable and other current and long-term liabilities
    
    
    (15,944
    )Dividends on
unvested restricted stock awards
    
    
    97Adjusted EBITDA
    
    $
    177,841
 Carls Jr.
  Restaurant Portfolio
    
    
    RevenueFirst Fiscal Quarter
    
    
    First Fiscal Quarter2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeCompany-operated
    
    
    398
    
    
    
    430
    
    
    
    (32
    )
    
    $
    181,229
    
    
    $
    187,097
    
    
    $
    (5,868
    )Franchised and licensed(a)
    
    
    703
    
    
    
    632
    
    
    
    71
    
    
    
    76,916
    
    
    
    73,017
    
    
    
    3,899Total
    
    
    1,101
    
    
    
    1,062
    
    
    
    39
    
    
    $
    258,145
    
    
    $
    260,114
    
    
    $
    (1,969
    )
 
 (a)
    
    Includes $59,770 and $57,823 of revenues from distribution of food, packaging and supplies to
franchised and licensed restaurants during the sixteen weeks ended May 21, 2007, and May 22,
2006, respectively. 31




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Company-Operated Restaurants
 ® ®
  SixteenWeeksRestaurant operating costs as a percentage of
company-operated restaurants revenue for the period ended May 22,
2006
    
    
    75.1
    %Increase in food and packaging costs
    
    
    0.8Increase in depreciation and amortization expense
    
    
    0.6Increase in rent expense
    
    
    0.5Increase in workers compensation expense
    
    
    0.4Decrease in general liability expense
    
    
    (0.4
    )Increase in repairs and maintenance
    
    
    0.2Increase in labor costs, excluding workers compensation
    
    
    0.2Decrease in utilities expense
    
    
    (0.2
    )Increase in
asset retirement expense
    
    
    0.1Other, net
    
    
    0.2Restaurant operating costs as a percentage of company-operated
restaurants revenue for the period ended May 21, 2007
    
    
    77.5
    %
      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)
 Franchised and Licensed Restaurants
    Hardees
  Restaurant Portfolio
    
    
    RevenueFirst Fiscal Quarter
    
    
    First Fiscal Quarter2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeCompany-operated
    
    
    664
    
    
    
    705
    
    
    
    (41
    )
    
    $
    199,192
    
    
    $
    189,939
    
    
    $
    9,253Franchised and licensed
    
    
    1,241
    
    
    
    1,258
    
    
    
    (17
    )
    
    
    23,243
    
    
    
    22,691
    
    
    
    552Total
    
    
    1,905
    
    
    
    1,963
    
    
    
    (58
    )
    
    $
    222,435
    
    
    $
    212,630
    
    
    $
    9,805
 Company-Operated Restaurants
 ®
 33




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  SixteenWeeksRestaurant operating costs as a percentage of
company-operated restaurants revenue for the period ended May 22,
2006
    
    
    82.0
    %Increase in repairs and maintenance expense
    
    
    0.7Decrease in labor costs, excluding workers compensation
    
    
    (0.5
    )Increase in food and packaging costs
    
    
    0.4Decrease in workers compensation expense
    
    
    (0.4
    )Decrease in rent expense
    
    
    (0.2
    )Decrease in depreciation and amortization expense
    
    
    (0.2
    )Other, net
    
    
    0.2Restaurant operating costs as a percentage of company-operated
restaurants revenue for the period ended May 21, 2007
    
    
    82.0
    %
     Franchised and Licensed Restaurants
   Discontinued Operations
  34




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
    Restaurant Portfolio
    
    
    RevenueFirst Fiscal Quarter
    
    
    First Fiscal Quarter2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeCompany-operated
    
    
    55
    
    
    
    56
    
    
    
    (1
    )
    
    $
    13,405
    
    
    $
    13,901
    
    
    $
    (496
    )Franchised and licensed
    
    
    44
    
    
    
    44
    
    
    
    
    
    
    
    627
    
    
    
    608
    
    
    
    19Total
    
    
    99
    
    
    
    100
    
    
    
    (1
    )
    
    $
    14,032
    
    
    $
    14,509
    
    
    $
    (477
    )
   Consolidated Expenses
 Consolidated Variable Interest Entities
   35




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Advertising Expense
  General and Administrative Expense
  Facility Action Charges
    Interest Expense
   36




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Other Income, Net
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Interest income on notes receivable from
franchisees, disposition properties and capital leases
    
    $
    233
    
    
    $
    402Rental income from properties leased to third parties, net
    
    
    612
    
    
    
    579Other, net
    
    
    779
    
    
    
    (616
    )Total other income, net
    
    $
    1,624
    
    
    $
    365
 Income Taxes
  Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006Federal and state income taxes
    
    $
    10,301
    
    
    $
    10,431Foreign income taxes
    
    
    316
    
    
    
    325Income tax expense
    
    $
    10,617
    
    
    $
    10,756Effective income tax rate
    
    
    40.4
    %
    
    
    39.9
    %
    Liquidity and Capital Resources
    37




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
          38




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
         39




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CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
    Sixteen Weeks EndedMay 21, 2007
    
    
    May 22, 2006New restaurants (including restaurants under development)Carls Jr.
    
    $
    3,583
    
    
    $
    2,548Hardees
    
    
    4,872
    
    
    
    928Remodels/Dual-branding (including construction in process)Carls Jr.
    
    
    7,968
    
    
    
    910Hardees
    
    
    4,133
    
    
    
    2,011Other restaurant additionsCarls Jr.
    
    
    5,030
    
    
    
    2,382Hardees
    
    
    3,896
    
    
    
    21,081Corporate/other
    
    
    4,199
    
    
    
    4,383Capital expenditures  discontinued operations
    
    
    1,814
    
    
    
    392Total
    
    $
    35,495
    
    
    $
    34,635
   Contractual Obligations
  40




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
   Commodity Price Risk
  41




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##### Table of Contents



Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
   (b) Changes in Internal Control
  
 Part II. Other Information.
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchase of Equity Securities
  42




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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
    
    
    ProgramsJanuary 30, 2007  February 26, 2007
    
    
    61,700
    
    
    $
    19.68
    
    
    
    61,700
    
    
    $
    108,170February 27, 2007  March 26, 2007
    
    
    67,200
    
    
    
    19.05
    
    
    
    67,200
    
    
    
    106,889March 27, 2007  April 23, 2007
    
    
    4,188,620
    
    
    
    18.98
    
    
    
    4,188,620
    
    
    
    77,371April 24, 2007  May 21, 2007
    
    
    62,500
    
    
    
    20.52
    
    
    
    62,500
    
    
    
    76,087Total
    
    
    4,380,020
    
    
    $
    19.02
    
    
    
    4,380,020
    
    
    $
    76,087
 
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  43




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##### Table of Contents



Item 6. Exhibits.
 Exhibit #3.1
    
    
    Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    
    Certificate of Amendment of Certificate of Incorporation of
the Company, as filed with the Delaware Secretary of State
on December 9, 1997 (incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended January 26, 1998 filed with the Securities
and Exchange Commission on April 24, 1998).3.3
    
    
    Bylaws of the Company (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement Form S-4 filed
with the Securities and Exchange Commission on March 7,
1994).3.4
    
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended January
26, 2004 filed with the Securities and Exchange Commission
on April 7, 2004).10.1
    
    
    Employment Agreement, effective January 2004, by and between
Hardees Food Systems, Inc. and Noah J. Griggs.10.2
    
    
    Amendment No. 1 to Employment Agreement between the Company
and Noah J. Griggs, effective as of December 6, 2005.10.3
    
    
    Amendment No. 2 to Employment Agreement between the Company
and Noah J. Griggs, effective as of March 20, 2007.10.4
    
    
    Amendment No. 3 to Employment Agreement between the Company
and Noah J. Griggs, effective as of June 11, 2007.10.5
    
    
    Additional Loan and First Amendment to Seventh Amended and
Restated Credit Agreement, dated as of May 3, 2007, by and
among the Company, the Lenders party thereto, and BNP
Paribas, a bank organized under the laws of France acting
through its Chicago branch, as Administrative Agent.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.
 44




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##### Table of Contents



SIGNATURES
  CKE RESTAURANTS, INC.
(Registrant)Date: June 27, 2007
    
    /s/ Theodore AbajianTheodore AbajianExecutive Vice PresidentChief Financial Officer
 45




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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).10.1
    
    
    Employment Agreement, effective January 2004, by and between
Hardees Food Systems, Inc. and Noah J. Griggs.10.2
    
    
    Amendment No. 1 to Employment Agreement between the Company
and Noah J. Griggs, effective as of December 6, 2005.10.3
    
    
    Amendment No. 2 to Employment Agreement between the Company
and Noah J. Griggs, effective as of March 20, 2007.10.4
    
    
    Amendment No. 3 to Employment Agreement between the Company
and Noah J. Griggs, effective as of June 11, 2007.10.5
    
    
    Additional Loan and First Amendment to Seventh Amended and
Restated Credit Agreement, dated as of May 3, 2007, by and
among the Company, the Lenders party thereto, and BNP
Paribas, a bank organized under the laws of France acting
through its Chicago branch, as Administrative Agent.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.
 46