##### 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 22, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 For the transition period from  to.
 Commission file number 1-11313
 
 
 CKE RESTAURANTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0602639(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)6307 Carpinteria Avenue, Ste. A, Carpinteria, California
    
    93013(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (805) 745-7500
 Former Name, Former Address and Former Fiscal Year, if changed since last report.
 þ o
  þ o o
 o þ




---



##### Table of Contents



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 22, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the sixteen weeks ended May 22, 2006
and May 23, 2005
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the sixteen weeks ended
May 22, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows for the sixteen weeks ended May 22,
2006 and May 23, 2005
    
    
    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
    
    
    40Item 4 Controls and Procedures
    
    
    40Part II. Other InformationItem 1 Legal Proceedings
    
    
    41Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3 Defaults Upon Senior Securities
    
    
    41Item 4 Submission of Matters to a Vote of Security Holders
    
    
    41Item 5 Other Information
    
    
    42Item 6 Exhibits
    
    
    42Signatures
    
    
    43EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




---



##### 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 22, 2006
    
    
    January 31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,864
    
    
    $
    21,343Accounts receivable, net of allowance for doubtful accounts of
$2,534 as of May 22, 2006 and $2,833 as of January 31, 2006
    
    
    31,844
    
    
    
    36,153Related party trade receivables
    
    
    6,184
    
    
    
    4,987Inventories, net
    
    
    22,605
    
    
    
    20,953Prepaid expenses
    
    
    18,147
    
    
    
    13,101Assets held for sale
    
    
    12,264
    
    
    
    Advertising fund assets, restricted
    
    
    16,057
    
    
    
    17,226Deferred income tax assets, net
    
    
    29,860
    
    
    
    31,413Other current assets
    
    
    2,143
    
    
    
    2,251Total current assets
    
    
    161,968
    
    
    
    147,427Notes receivable, net of allowance for doubtful accounts of $7,679 as of
May 22, 2006 and $6,257 as of January 31, 2006
    
    
    2,459
    
    
    
    1,968Property and equipment, net of accumulated depreciation and
amortization of $442,380 as of May 22, 2006 and $431,002 as of
January 31, 2006
    
    
    464,620
    
    
    
    460,083Property under capital leases, net of accumulated amortization of
$44,132 as of May 22, 2006 and $43,183 as of January 31, 2006
    
    
    28,147
    
    
    
    29,364Deferred income tax assets, net
    
    
    109,302
    
    
    
    117,770Goodwill
    
    
    22,649
    
    
    
    22,649Other assets, net
    
    
    23,870
    
    
    
    25,519Total assets
    
    $
    813,015
    
    
    $
    804,780LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of bank indebtedness and other long-term debt
    
    $
    2,756
    
    
    $
    9,247Current portion of capital lease obligations
    
    
    5,083
    
    
    
    4,960Accounts payable
    
    
    62,134
    
    
    
    53,883Advertising fund liabilities
    
    
    16,057
    
    
    
    17,226Other current liabilities
    
    
    85,835
    
    
    
    89,556Total current liabilities
    
    
    171,865
    
    
    
    174,872Bank indebtedness and other long-term debt, less current portion
    
    
    95,458
    
    
    
    98,731Convertible subordinated notes due 2023
    
    
    105,000
    
    
    
    105,000Capital lease obligations, less current portion
    
    
    45,180
    
    
    
    46,724Other long-term liabilities
    
    
    57,909
    
    
    
    57,072Total liabilities
    
    
    475,412
    
    
    
    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; 59,813
shares issued and outstanding as of May 22, 2006; 59,803 shares
issued and outstanding as of January 31, 2006
    
    
    598
    
    
    
    598Additional paid-in capital
    
    
    472,466
    
    
    
    472,834Unearned compensation on restricted stock
    
    
    
    
    
    
    (1,816
    )Accumulated deficit
    
    
    (135,461
    )
    
    
    (149,235
    )Total stockholders equity
    
    
    337,603
    
    
    
    322,381Total liabilities and stockholders equity
    
    $
    813,015
    
    
    $
    804,780
 See Accompanying Notes to Condensed Consolidated Financial Statements
 3




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share amounts)
 (Unaudited)
 Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005Revenue:Company-operated restaurants
    
    $
    391,044
    
    
    $
    371,488Franchised and licensed restaurants and other
    
    
    97,513
    
    
    
    94,421Total revenue
    
    
    488,557
    
    
    
    465,909Operating costs and expenses:Restaurant operating costs:Food and packaging
    
    
    111,869
    
    
    
    108,015Payroll and employee benefits
    
    
    114,144
    
    
    
    113,210Occupancy and other
    
    
    83,163
    
    
    
    85,181Total restaurant operating costs
    
    
    309,176
    
    
    
    306,406Franchised and licensed restaurants and other
    
    
    74,776
    
    
    
    72,833Advertising
    
    
    22,821
    
    
    
    22,991General and administrative
    
    
    45,588
    
    
    
    39,971Facility action charges, net
    
    
    2,562
    
    
    
    560Total operating costs and expenses
    
    
    454,923
    
    
    
    442,761Operating income
    
    
    33,634
    
    
    
    23,148Interest expense
    
    
    (7,049
    )
    
    
    (7,373
    )Other income, net
    
    
    371
    
    
    
    863Income before income taxes
    
    
    26,956
    
    
    
    16,638Income tax expense
    
    
    10,788
    
    
    
    639Net income
    
    $
    16,168
    
    
    $
    15,999Basic income per common share
    
    $
    0.27
    
    
    $
    0.27Diluted income per common share
    
    $
    0.23
    
    
    $
    0.24Dividends per common share
    
    $
    0.04
    
    
    $
    0.04Weighted-average common shares outstanding:Basic
    
    
    59,664
    
    
    
    58,696Dilutive effect of stock options, warrants,
convertible notes and restricted stock
    
    
    13,494
    
    
    
    14,997Diluted
    
    
    73,158
    
    
    
    73,693
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands, except per share amounts)
 (Unaudited)
 Sixteen Weeks Ended May 22, 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 ($0.04
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,394
    )
    
    
    
    
    
    
    
    
    
    
    (2,394
    )Reclassification of
unearned
compensation
pursuant to SFAS
123R adoption
    
    
    
    
    
    
    
    
    
    
    (1,816
    )
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of
stock options
    
    
    130
    
    
    
    1
    
    
    
    1,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,153Tax benefit from
exercise of
stock options
    
    
    
    
    
    
    
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    524Share-based
compensation
    
    
    
    
    
    
    
    
    
    
    1,770
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,770Repurchase of
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (1,999
    )
    
    
    (1,999
    )Retirement of
treasury stock
    
    
    (120
    )
    
    
    (1
    )
    
    
    (1,998
    )
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    1,999
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,168
    
    
    
    
    
    
    
    
    
    
    
    16,168Balance at
May 22, 2006
    
    
    59,813
    
    
    $
    598
    
    
    $
    472,466
    
    
    $
    
    
    
    $
    (135,461
    )
    
    
    
    
    
    $
    
    
    
    $
    337,603
 See Accompanying Notes to Condensed Consolidated Financial Statements
 5




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005Cash flows from operating activities:Net income
    
    $
    16,168
    
    
    $
    15,999Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    18,653
    
    
    
    20,605Amortization of loan fees
    
    
    1,016
    
    
    
    1,090Share-based compensation expense
    
    
    1,770
    
    
    
    Provision for (recovery of) losses on accounts and notes receivable
    
    
    574
    
    
    
    (386
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    569
    
    
    
    1,057Facility action charges, net
    
    
    2,562
    
    
    
    560Deferred income taxes
    
    
    10,020
    
    
    
    50Other non-cash (credits) charges
    
    
    (79
    )
    
    
    56Change in estimated liability for closing restaurants and
estimated liability for self-insurance
    
    
    (1,797
    )
    
    
    308Net change in refundable income taxes
    
    
    22
    
    
    
    261Net change in receivables, inventories, prepaid expenses and other
current and non-current assets
    
    
    (4,336
    )
    
    
    (5,172
    )Net change in accounts payable and other current and long-term
liabilities
    
    
    1,810
    
    
    
    5,474Net cash provided by operating activities
    
    
    46,952
    
    
    
    39,902Cash flows from investing activities:Purchases of property and equipment
    
    
    (34,635
    )
    
    
    (25,221
    )Proceeds from sales of property and equipment
    
    
    181
    
    
    
    3,961Collections on notes receivable
    
    
    415
    
    
    
    267Other investing activities
    
    
    20
    
    
    
    111Net cash used in investing activities
    
    
    (34,019
    )
    
    
    (20,882
    )Cash flows from financing activities:Net change in bank overdraft
    
    
    2,768
    
    
    
    1,146Borrowings under revolving credit facility
    
    
    18,000
    
    
    
    49,500Repayments of borrowings under revolving credit facility
    
    
    (24,500
    )
    
    
    (56,500
    )Repayment of credit facility term loan
    
    
    (3,251
    )
    
    
    (15,829
    )Repayment of other long-term debt
    
    
    (46
    )
    
    
    (69
    )Borrowing by consolidated variable interest entity
    
    
    33
    
    
    
    54Repayments of capital lease obligations
    
    
    (1,420
    )
    
    
    (1,576
    )Payment of deferred loan fees
    
    
    
    
    
    
    (100
    )Repurchase of common stock
    
    
    (1,999
    )
    
    
    Exercise of stock options and warrants
    
    
    1,153
    
    
    
    5,945Tax benefit from exercise of stock options
    
    
    244
    
    
    
    Dividends paid on common stock
    
    
    (2,394
    )
    
    
    Net cash used in financing activities
    
    
    (11,412
    )
    
    
    (17,429
    )Net increase in cash and cash equivalents
    
    
    1,521
    
    
    
    1,591Cash and cash equivalents at beginning of period
    
    
    21,343
    
    
    
    18,432Cash and cash equivalents at end of period
    
    $
    22,864
    
    
    $
    20,023Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    6,613
    
    
    $
    7,061Income taxes, net of refunds received
    
    $
    558
    
    
    $
    561Non-cash investing and financing activities:Gain recognized on sale and leaseback transactions
    
    $
    107
    
    
    $
    119Dividends declared, not paid
    
    $
    2,394
    
    
    $
    2,361
 See Accompanying Notes to Condensed Consolidated Financial Statements
 6




---



##### 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
    
    
    430
    
    
    
    705
    
    
    
    56
    
    
    
    1
    
    
    
    1,192Franchised and licensed
    
    
    632
    
    
    
    1,258
    
    
    
    44
    
    
    
    15
    
    
    
    1,949Total
    
    
    1,062
    
    
    
    1,963
    
    
    
    100
    
    
    
    16
    
    
    
    3,141
    Variable Interest Entities
 Consolidation of Variable Interest Entities
 Accounting for Franchise Fee Revenue
 7




---



##### 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
 Note 3  Adoption Of New Accounting Pronouncements
 Inventory Costsan amendment of ARB No. 43,
Chapter 4
 Share-Based Payment
 Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3
 Accounting for
Rental Costs Incurred during a Construction Period,
 Note 4
 Share-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 8




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
   Accounting for Income Taxes
 Statement of Cash Flows
 share-based
  9




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Net income, as reported
    
    $
    15,999Add: Share-based employee compensation expense included in reported net income
    
    
    Deduct:
Total share-based employee compensation expense determined under fair
value based method, net of related tax effects
    
    
    (1,508
    )Net income  pro forma
    
    $
    14,491Net income per common share:Basic  as reported
    
    $
    0.27Basic  pro forma
    
    
    0.25Diluted  as reported
    
    
    0.24Diluted  pro forma
    
    
    0.22
 Employee Stock Purchase Plan
  Stock Incentive Plans
    10




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  1 3
    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
    
    
    
    
    
    
    Exercised
    
    
    (130,027
    )
    
    
    8.86Forfeited
    
    
    (16,547
    )
    
    
    15.30Expired
    
    
    (234
    )
    
    
    7.21Outstanding at May 22, 2006
    
    
    6,015,274
    
    
    $
    12.14
    
    
    
    5.29
    
    
    $
    32,548Exercisable at May 22, 2006
    
    
    4,302,699
    
    
    $
    12.24
    
    
    
    4.35
    
    
    $
    25,346Expected to
vest at May 22, 2006
    
    
    1,483,659
    
    
    $
    11.78
    
    
    
    8.62
    
    
    $
    6,378
 Restricted stock awards:
 Weighted-AverageGrant DateShares
    
    
    Fair ValueRestricted stock awards at January 31, 2006
    
    
    150,000
    
    
    $
    13.33Granted
    
    
    Awards vested
    
    
    Forfeited
    
    
    Restricted stock awards at May 22, 2006
    
    
    150,000
    
    
    $
    13.33
  Note 5  Other Assets
  May 22,
    
    
    January 31,2006
    
    
    2006Intangible assets (see below)
    
    $
    16,326
    
    
    $
    16,836Deferred financing costs
    
    
    4,742
    
    
    
    5,708Net investment in lease receivables, less current portion
    
    
    652
    
    
    
    748Other
    
    
    2,150
    
    
    
    2,227$
    23,870
    
    
    $
    25,519
  11




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
   Weighted-
    
    
    May 22, 2006
    
    
    January 31, 2006Average
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    NetIntangible
    
    Life
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAsset
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks
    
    
    20
    
    
    $
    17,171
    
    
    $
    (3,629
    )
    
    $
    13,542
    
    
    $
    17,171
    
    
    $
    (3,365
    )
    
    $
    13,806Franchise agreements
    
    
    20
    
    
    
    1,780
    
    
    
    (355
    )
    
    
    1,425
    
    
    
    1,780
    
    
    
    (328
    )
    
    
    1,452Favorable lease agreements
    
    
    16
    
    
    
    3,669
    
    
    
    (2,310
    )
    
    
    1,359
    
    
    
    4,034
    
    
    
    (2,456
    )
    
    
    1,578$
    22,620
    
    
    $
    (6,294
    )
    
    $
    16,326
    
    
    $
    22,985
    
    
    $
    (6,149
    )
    
    $
    16,836
  Note 6  Indebtedness and Interest Expense
     Accounting for Derivative
Instruments and Hedging Activities
 12




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
         Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005Facility
    
    $
    2,290
    
    
    $
    2,401Capital lease obligations
    
    
    1,738
    
    
    
    1,9312023 Convertible Notes
    
    
    1,292
    
    
    
    1,292Amortization of loan fees
    
    
    1,016
    
    
    
    1,090Write-off of unamortized loan fees, term loan due July 2, 2008
    
    
    31
    
    
    
    225Letter of credit fees and other
    
    
    682
    
    
    
    434$
    7,049
    
    
    $
    7,373
 13




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 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.
  Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005Carls Jr.Unfavorable dispositions of leased and fee surplus properties, net
    
    $
    667
    
    
    $
    76Impairment of assets to be held and used
    
    
    36
    
    
    
    381Loss/(gain) on sales of restaurants and surplus properties, net
    
    
    9
    
    
    
    (506
    )Amortization of discount related to estimated liability for closing restaurants
    
    
    78
    
    
    
    73790
    
    
    
    24HardeesNew decisions regarding closing restaurants
    
    
    1,776
    
    
    
    177Unfavorable/(favorable) dispositions of leased and fee surplus properties, net
    
    
    66
    
    
    
    (199
    )Impairment of assets to be disposed of
    
    
    186
    
    
    
    8Impairment of assets to be held and used
    
    
    4
    
    
    
    104Gain on sales of restaurants and surplus properties, net
    
    
    (601
    )
    
    
    (199
    )Amortization of discount related to estimated liability for closing restaurants
    
    
    152
    
    
    
    2561,583
    
    
    
    147La Salsa and OtherNew decisions regarding closing restaurants
    
    
    
    
    
    
    157(Favorable)/unfavorable dispositions of leased and fee surplus properties, net
    
    
    (11
    )
    
    
    68Impairment of assets to be disposed of
    
    
    39
    
    
    
    Impairment of assets to be held and used
    
    
    
    
    
    
    75Loss on sales of restaurants and surplus properties, net
    
    
    159
    
    
    
    83Amortization of discount related to estimated liability for closing restaurants
    
    
    2
    
    
    
    6189
    
    
    
    389TotalNew decisions regarding closing restaurants
    
    
    1,776
    
    
    
    334Unfavorable/(favorable) dispositions of leased and fee surplus properties, net
    
    
    722
    
    
    
    (55
    )Impairment of assets to be disposed of
    
    
    225
    
    
    
    8Impairment of assets to be held and used
    
    
    40
    
    
    
    560Gain on sales of restaurants and surplus properties, net
    
    
    (433
    )
    
    
    (622
    )Amortization of discount related to estimated liability for closing restaurants
    
    
    232
    
    
    
    335$
    2,562
    
    
    $
    560
 14




---



##### 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
    
    
    
    
    
    
    1,776
    
    
    
    
    
    
    
    1,776Usage
    
    
    (483
    )
    
    
    (1,045
    )
    
    
    
    
    
    
    (1,528
    )Unfavorable/(favorable) dispositions of leased and fee
surplus properties, net
    
    
    667
    
    
    
    66
    
    
    
    (11
    )
    
    
    722Amortization of discount
    
    
    78
    
    
    
    152
    
    
    
    2
    
    
    
    232Balance at May 22, 2006
    
    
    3,877
    
    
    
    10,814
    
    
    
    111
    
    
    
    14,802Less current portion, included in other current liabilities
    
    
    1,222
    
    
    
    3,499
    
    
    
    25
    
    
    
    4,746Long-term portion, included in other long-term liabilities
    
    $
    2,655
    
    
    $
    7,315
    
    
    $
    86
    
    
    $
    10,056
 Note 8  Income Taxes
  Note 9  Income Per Share
   15




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005(In thousands, except per share amounts)Net income for computation of basic earnings per share
    
    $
    16,168
    
    
    $
    15,999Weighted-average shares for computation of basic earnings per
share
    
    
    59,664
    
    
    
    58,696Basic net income per share
    
    $
    0.27
    
    
    $
    0.27Net income for computation of basic earnings per share
    
    $
    16,168
    
    
    $
    15,999Add: Interest and amortization costs for Convertible Notes due
2023, net of taxes
    
    
    917
    
    
    
    1,500Net income for computation of diluted earnings per share
    
    $
    17,085
    
    
    $
    17,499Weighted-average shares for computation of basic earnings per
share
    
    
    59,664
    
    
    
    58,696Dilutive effect of 2023 convertible notes
    
    
    11,951
    
    
    
    11,811Dilutive effect of stock options, warrants and restricted stock
    
    
    1,543
    
    
    
    3,186Weighted-average shares for computation of diluted earnings
per share
    
    
    73,158
    
    
    
    73,693Diluted net income per share
    
    $
    0.23
    
    
    $
    0.24
  Sixteen Weeks EndedMay 22, 2006
    
    May 23, 2005Stock options and restricted stock
    
    
    2,174
    
    
    
    2,151
 Note 10  Segment Information
  Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalSixteen Weeks Ended May 22, 2006Revenue
    
    $
    260,114
    
    
    $
    212,630
    
    
    $
    14,509
    
    
    $
    1,304
    
    
    $
    488,557Operating income (loss)
    
    
    27,669
    
    
    
    7,796
    
    
    
    (1,701
    )
    
    
    (130
    )
    
    
    33,634Income (loss) before income taxes
    
    
    26,785
    
    
    
    2,721
    
    
    
    (1,711
    )
    
    
    (839
    )
    
    
    26,956Goodwill (as of May 22, 2006)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalSixteen Weeks Ended May 23, 2005Revenue
    
    $
    246,039
    
    
    $
    203,146
    
    
    $
    15,132
    
    
    $
    1,592
    
    
    $
    465,909Operating income (loss)
    
    
    21,265
    
    
    
    4,168
    
    
    
    (2,233
    )
    
    
    (52
    )
    
    
    23,148Income (loss) before income taxes
    
    
    20,233
    
    
    
    (1,429
    )
    
    
    (2,219
    )
    
    
    53
    
    
    
    16,638Goodwill (as of May 23, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 16




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Note 11  Net Assets Held For Sale
   Note 12  Purchase of Restaurant Assets
  Note 13  Termination of Franchise Agreement
  Note 14  Commitments and Contingent Liabilities
   17




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
    , Accounting for Contingencies
  Note 15  Stockholders Equity
 Repurchase of Common Stock
  18




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Dividends
  19




---



##### 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;
 20




---



##### 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.
 Descriptions of these critical accounting policies follow.
 Impairment of Property and Equipment and Other Amortizable Long-Lived Assets Held and Used, Held
for Sale or To Be Disposed of Other Than By Sale
      21




---



##### Table of Contents



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




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Estimated Liability for Self-Insurance
   Loss Contingencies
   Accounting for Lease Obligations
   23




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Franchised and Licensed Operations
       24




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Share-Based Compensation
 
 Income Taxes
    Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2007 Comparisons with
Fiscal 2006
  Fiscal Year and Seasonality
   Business Strategy
  
    
    remain focused on restaurant fundamentals  quality, service and cleanliness;
 25




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
    
    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
   26




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Operating Review
  Sixteen Weeks Ended May 22, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Eliminations(B)
    
    
    TotalCompany-operated revenue
    
    $
    187,097
    
    
    $
    189,939
    
    
    $
    13,901
    
    
    $
    107
    
    
    $
    
    
    
    $
    391,044Restaurant operating costs:Food and packaging
    
    
    53,237
    
    
    
    55,062
    
    
    
    3,535
    
    
    
    35
    
    
    
    
    
    
    
    111,869Payroll and employee benefits
    
    
    48,846
    
    
    
    60,601
    
    
    
    4,654
    
    
    
    43
    
    
    
    
    
    
    
    114,144Occupancy and other operating costs
    
    
    38,395
    
    
    
    40,014
    
    
    
    4,720
    
    
    
    34
    
    
    
    
    
    
    
    83,163Total restaurant operating costs
    
    
    140,478
    
    
    
    155,677
    
    
    
    12,909
    
    
    
    112
    
    
    
    
    
    
    
    309,176Franchising and licensed restaurants and
other revenues:Royalties
    
    
    8,646
    
    
    
    13,636
    
    
    
    606
    
    
    
    138
    
    
    
    (11
    )
    
    
    23,015Distribution 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
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    528Total franchising and licensed
restaurants and other revenues
    
    
    73,017
    
    
    
    22,691
    
    
    
    608
    
    
    
    1,210
    
    
    
    (13
    )
    
    
    97,513Franchising and licensed restaurants and
other expenses:Administrative expense (including
provision for bad debts)
    
    
    1,643
    
    
    
    1,696
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    3,769Distribution centers
    
    
    56,293
    
    
    
    6,123
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,416Rent and other occupancy
    
    
    5,565
    
    
    
    1,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,513Operating costs of variable interest
entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,085
    
    
    
    (7
    )
    
    
    1,078Total franchising and licensed
restaurants and other expenses
    
    
    63,501
    
    
    
    9,767
    
    
    
    430
    
    
    
    1,085
    
    
    
    (7
    )
    
    
    74,776Advertising
    
    
    11,051
    
    
    
    11,351
    
    
    
    417
    
    
    
    2
    
    
    
    
    
    
    
    22,821General and administrative
    
    
    16,625
    
    
    
    26,456
    
    
    
    2,425
    
    
    
    82
    
    
    
    
    
    
    
    45,588Facility action charges, net
    
    
    790
    
    
    
    1,583
    
    
    
    29
    
    
    
    160
    
    
    
    
    
    
    
    2,562Operating income (loss)
    
    $
    27,669
    
    
    $
    7,796
    
    
    $
    (1,701
    )
    
    $
    (124
    )
    
    $
    (6
    )
    
    $
    33,634Company-operated average unit volume
(trailing-13 periods)
    
    
    1,365
    
    
    
    892
    
    
    
    778Franchise-operated average unit volume
(trailing-13 periods)
    
    
    1,174
    
    
    
    899
    
    
    
    860Average check (actual $)
    
    
    6.32
    
    
    
    4.91
    
    
    
    10.84Company-operated same-store sales increase
    
    
    5.6
    %
    
    
    5.6
    %
    
    
    1.0
    %Company-operated same-store transaction
increase (decrease)
    
    
    2.9
    %
    
    
    1.7
    %
    
    
    (6.2
    )%Franchise-operated same-store sales
increase (decrease)
    
    
    4.7
    %
    
    
    5.5
    %
    
    
    (0.8
    )%Restaurant operating costs as a % of
company-operated revenue:Food and packaging
    
    
    28.5
    %
    
    
    29.0
    %
    
    
    25.4
    %Payroll and employee benefits
    
    
    26.1
    %
    
    
    31.9
    %
    
    
    33.5
    %Occupancy and other operating costs
    
    
    20.5
    %
    
    
    21.1
    %
    
    
    34.0
    %Total restaurant operating costs
    
    
    75.1
    %
    
    
    82.0
    %
    
    
    92.9
    %Advertising as a percentage of
company-operated revenue
    
    
    5.9
    %
    
    
    6.0
    %
    
    
    3.0
    %
 27




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 Sixteen Weeks Ended May 23, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Eliminations(B)
    
    
    TotalCompany-operated revenue
    
    $
    176,956
    
    
    $
    179,771
    
    
    $
    14,573
    
    
    $
    188
    
    
    $
    
    
    
    $
    371,488Restaurant operating costs:Food and packaging
    
    
    50,839
    
    
    
    53,299
    
    
    
    3,812
    
    
    
    65
    
    
    
    
    
    
    
    108,015Payroll and employee benefits
    
    
    48,817
    
    
    
    59,484
    
    
    
    4,820
    
    
    
    89
    
    
    
    
    
    
    
    113,210Occupancy and other operating costs
    
    
    38,599
    
    
    
    41,479
    
    
    
    5,034
    
    
    
    69
    
    
    
    
    
    
    
    85,181Total restaurant operating costs
    
    
    138,255
    
    
    
    154,262
    
    
    
    13,666
    
    
    
    223
    
    
    
    
    
    
    
    306,406Franchising and licensed restaurants and
other revenues:Royalties
    
    
    7,763
    
    
    
    12,766
    
    
    
    559
    
    
    
    122
    
    
    
    (26
    )
    
    
    21,184Distribution centers
    
    
    54,912
    
    
    
    7,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,408Rent
    
    
    6,130
    
    
    
    2,840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,970Retail sales of variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,308
    
    
    
    
    
    
    
    1,308Other
    
    
    278
    
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    551Total franchising and licensed
restaurants and other revenues
    
    
    69,083
    
    
    
    23,375
    
    
    
    559
    
    
    
    1,430
    
    
    
    (26
    )
    
    
    94,421Franchising and licensed restaurants and
other expenses:Administrative expense (including
provision for bad debts)
    
    
    1,447
    
    
    
    1,458
    
    
    
    377
    
    
    
    
    
    
    
    
    
    
    
    3,282Distribution centers
    
    
    53,324
    
    
    
    7,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,916Rent and other occupancy
    
    
    5,476
    
    
    
    1,861
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,337Operating costs of variable interest
entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,324
    
    
    
    (26
    )
    
    
    1,298Total franchising and licensed
restaurants and other expenses
    
    
    60,247
    
    
    
    10,911
    
    
    
    377
    
    
    
    1,324
    
    
    
    (26
    )
    
    
    72,833Advertising
    
    
    11,779
    
    
    
    10,840
    
    
    
    368
    
    
    
    4
    
    
    
    
    
    
    
    22,991General and administrative
    
    
    14,469
    
    
    
    22,818
    
    
    
    2,593
    
    
    
    91
    
    
    
    
    
    
    
    39,971Facility action charges, net
    
    
    24
    
    
    
    147
    
    
    
    361
    
    
    
    28
    
    
    
    
    
    
    
    560Operating income (loss)
    
    $
    21,265
    
    
    $
    4,168
    
    
    $
    (2,233
    )
    
    $
    (52
    )
    
    $
    
    
    
    $
    23,148Company-operated average unit volume
(trailing-13 periods)
    
    
    1,315
    
    
    
    868
    
    
    
    753Franchise-operated average unit volume
(trailing-13 periods)
    
    
    1,149
    
    
    
    891
    
    
    
    842Average check (actual $)
    
    
    6.16
    
    
    
    4.70
    
    
    
    10.11Company-operated same-store sales
increase (decrease)
    
    
    2.4
    %
    
    
    (0.1
    )%
    
    
    2.0
    %Company-operated same-store transaction
decrease
    
    
    (3.4
    )%
    
    
    (2.9
    )%
    
    
    (2.8
    )%Franchise-operated same-store sales
increase (decrease)
    
    
    0.3
    %
    
    
    (3.1
    )%
    
    
    2.9
    %Restaurant operating costs as a % of
company-operated revenue:Food and packaging
    
    
    28.7
    %
    
    
    29.6
    %
    
    
    26.2
    %Payroll and employee benefits
    
    
    27.6
    %
    
    
    33.1
    %
    
    
    33.1
    %Occupancy and other operating costs
    
    
    21.8
    %
    
    
    23.1
    %
    
    
    34.5
    %Total restaurant operating costs
    
    
    78.1
    %
    
    
    85.8
    %
    
    
    93.8
    %Advertising as a percentage of
company-operated revenue
    
    
    6.7
    %
    
    
    6.0
    %
    
    
    2.5
    %
 
 (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. 28




---



##### 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 22, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    16,325
    
    
    $
    1,630
    
    
    $
    (1,025
    )
    
    $
    (762
    )
    
    $
    16,168Interest expense
    
    
    1,390
    
    
    
    5,652
    
    
    
    7
    
    
    
    
    
    
    
    7,049Income tax expense (benefit)
    
    
    10,460
    
    
    
    1,091
    
    
    
    (686
    )
    
    
    (77
    )
    
    
    10,788Depreciation and amortization
    
    
    7,678
    
    
    
    9,940
    
    
    
    984
    
    
    
    51
    
    
    
    18,653Facility action charges, net
    
    
    790
    
    
    
    1,583
    
    
    
    29
    
    
    
    160
    
    
    
    2,562Adjusted EBITDA
    
    $
    36,643
    
    
    $
    19,896
    
    
    $
    (691
    )
    
    $
    (628
    )
    
    $
    55,220
 Sixteen Weeks Ended May 23, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    19,733
    
    
    $
    (1,404
    )
    
    $
    (2,175
    )
    
    $
    (155
    )
    
    $
    15,999Interest expense
    
    
    1,329
    
    
    
    5,943
    
    
    
    10
    
    
    
    91
    
    
    
    7,373Income tax expense (benefit)
    
    
    500
    
    
    
    (25
    )
    
    
    (44
    )
    
    
    208
    
    
    
    639Depreciation and amortization
    
    
    7,819
    
    
    
    11,597
    
    
    
    1,138
    
    
    
    51
    
    
    
    20,605Facility action charges, net
    
    
    24
    
    
    
    147
    
    
    
    361
    
    
    
    28
    
    
    
    560Adjusted EBITDA
    
    $
    29,405
    
    
    $
    16,258
    
    
    $
    (710
    )
    
    $
    223
    
    
    $
    45,176
 Trailing Four Quarters Ended May 22, 2006Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    73,657
    
    
    $
    (748
    )
    
    $
    (5,705
    )
    
    $
    127,547
    
    
    $
    194,751Interest expense
    
    
    4,316
    
    
    
    18,350
    
    
    
    25
    
    
    
    1
    
    
    
    22,692Income tax expense (benefit)
    
    
    11,915
    
    
    
    1,116
    
    
    
    (780
    )
    
    
    (139,433
    )
    
    
    (127,182
    )Depreciation and amortization
    
    
    24,817
    
    
    
    33,816
    
    
    
    3,404
    
    
    
    166
    
    
    
    62,203Facility action charges, net
    
    
    2,558
    
    
    
    6,089
    
    
    
    1,212
    
    
    
    168
    
    
    
    10,027Adjusted EBITDA
    
    $
    117,263
    
    
    $
    58,623
    
    
    $
    (1,844
    )
    
    $
    (11,551
    )
    
    $
    162,491
 29




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Sixteen Weeks EndedMay 22, 2006
    
    
    May 23, 2005Cash flows provided by operating activities
    
    $
    46,952
    
    
    $
    39,902Interest expense
    
    
    7,049
    
    
    
    7,373Income tax expense
    
    
    10,788
    
    
    
    639Amortization of loan fees
    
    
    (1,016
    )
    
    
    (1,090
    )Share-based compensation expense
    
    
    (1,770
    )
    
    
    (Provision for) recovery of losses on accounts and notes
receivable
    
    
    (574
    )
    
    
    386Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    (569
    )
    
    
    (1,057
    )Deferred income taxes
    
    
    (10,020
    )
    
    
    (50
    )Other
non-cash credits (charges)
    
    
    79
    
    
    
    (56
    )Change in estimated liability for closing restaurants and
estimated liability for self-insurance
    
    
    1,797
    
    
    
    (308
    )Net change in refundable income taxes
    
    
    (22
    )
    
    
    (261
    )Net change in receivables, inventories, prepaid expenses
and other current and non-current assets
    
    
    4,336
    
    
    
    5,172Net change
in accounts payable and other current and long-term liabilities
    
    
    (1,810
    )
    
    
    (5,474
    )Adjusted EBITDA
    
    $
    55,220
    
    
    $
    45,176
 Trailing Four QuartersEnded May 22, 2006Cash flows provided by operating activities
    
    $
    123,223Interest expense
    
    
    22,692Income tax benefit
    
    
    (127,182
    )Amortization of loan fees
    
    
    (3,238
    )Share-based compensation expense
    
    
    (1,770
    )Provision for losses on accounts and notes receivable
    
    
    (1,136
    )Loss on sales of property and equipment, capital leases and
extinguishment of debt
    
    
    (2,692
    )Deferred income taxes
    
    
    128,951Other non-cash charges
    
    
    (141
    )Change in estimated liability for closing restaurants and
estimated liability for self-insurance
    
    
    15,999Net change in refundable income taxes
    
    
    (373
    )Net change in receivables, inventories, prepaid expenses
and other current and non-current assets
    
    
    4,166Net change
in accounts payable and other current and long-term liabilities
    
    
    3,992Adjusted EBITDA
    
    $
    162,491
 Carls Jr.
  Restaurant Portfolio
    
    
    RevenueFirst Fiscal Quarter
    
    
    First Fiscal Quarter2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    430
    
    
    
    428
    
    
    
    2
    
    
    $
    187,097
    
    
    $
    176,956
    
    
    $
    10,141Franchised and licensed(a)
    
    
    632
    
    
    
    592
    
    
    
    40
    
    
    
    73,017
    
    
    
    69,083
    
    
    
    3,934Total
    
    
    1,062
    
    
    
    1,020
    
    
    
    42
    
    
    $
    260,114
    
    
    $
    246,039
    
    
    $
    14,075
 
 (a)
    
    Includes $57,823 and $54,912 of revenues from distribution of food, packaging and supplies to
franchised and licensed restaurants during the sixteen weeks ended May 22, 2006 and May 23,
2005, respectively. 30




---



##### Table of Contents



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 revenue for the period ended May 23, 2005
    
    
    78.1
    %Decrease in workers compensation expense
    
    
    (0.9
    )Decrease in cost of promotional items
    
    
    (0.8
    )Decrease in labor costs, excluding workers compensation
    
    
    (0.6
    )Decrease in rent, common area maintenance and property taxes
    
    
    (0.4
    )Decrease in food and packaging costs
    
    
    (0.3
    )Decrease in depreciation and amortization expense
    
    
    (0.3
    )Decrease in asset retirement expense
    
    
    (0.2
    )Increase in utilities expense
    
    
    0.2Increase in repair and maintenance expense
    
    
    0.1Increase in banking/ATM fees
    
    
    0.1Other, net
    
    
    0.1Restaurant operating costs as a percentage of company-operated
revenue for the period ended May 22, 2006
    
    
    75.1
    %
       31




---



##### 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 Quarter2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    705
    
    
    
    676
    
    
    
    29
    
    
    $
    189,939
    
    
    $
    179,771
    
    
    $
    10,168Franchised and licensed
    
    
    1,258
    
    
    
    1,353
    
    
    
    (95
    )
    
    
    22,691
    
    
    
    23,375
    
    
    
    (684
    )Total
    
    
    1,963
    
    
    
    2,029
    
    
    
    (66
    )
    
    $
    212,630
    
    
    $
    203,146
    
    
    $
    9,484
 Company-Operated Restaurants
  32




---



##### Table of Contents



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
revenue for the period ended May 23, 2005
    
    
    85.8
    %Decrease in labor and incentive costs, excluding workers compensation
    
    
    (1.1
    )Decrease in depreciation and amortization expense
    
    
    (1.1
    )Decrease in food and packaging costs
    
    
    (0.7
    )Decrease in repair and maintenance expense
    
    
    (0.5
    )Decrease in supplies and uniform expense
    
    
    (0.4
    )Increase in utilities expense
    
    
    0.2Increase in equipment lease expense
    
    
    0.2Increase in bank/ATM fees
    
    
    0.1Decrease in workers compensation expense
    
    
    (0.1
    )Decrease in asset retirement expense
    
    
    (0.1
    )Other, net
    
    
    (0.3
    )Restaurant operating costs as a percentage of company-operated revenue
for the period ended May 22, 2006
    
    
    82.0
    %
        Franchised and Licensed Restaurants
  33




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  La Salsa
  Restaurant Portfolio
    
    
    RevenueFirst Fiscal Quarter
    
    
    First Fiscal Quarter2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeCompany-operated
    
    
    56
    
    
    
    61
    
    
    
    (5
    )
    
    $
    13,901
    
    
    $
    14,573
    
    
    $
    (672
    )Franchised and licensed
    
    
    44
    
    
    
    39
    
    
    
    5
    
    
    
    608
    
    
    
    559
    
    
    
    49Total
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    $
    14,509
    
    
    $
    15,132
    
    
    $
    (623
    )
   Consolidated Expenses
 Consolidated Variable Interest Entities
   34




---



##### Table of Contents



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
   Other Income, Net
  Sixteen Weeks EndedMay 22,
    
    
    May 23,2006
    
    
    2005Interest income on notes receivable from
franchisees, disposition properties and capital leases
    
    $
    406
    
    
    $
    379Bad debt expense
    
    
    (722
    )
    
    
    Rental income from properties leased to third parties, net
    
    
    581
    
    
    
    323Other, net
    
    
    106
    
    
    
    161Total other income, net
    
    $
    371
    
    
    $
    863
 35




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  Income Taxes
   Liquidity and Capital Resources
     36




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
         37




---



##### Table of Contents



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




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
  May 22,
    
    
    May 23,2006
    
    
    2005New restaurants (including restaurants under development)Carls Jr.
    
    $
    2,548
    
    
    $
    3,573Hardees
    
    
    928
    
    
    
    3,186La Salsa
    
    
    73
    
    
    
    216Remodels/Dual-branding (including construction in process)Carls Jr.
    
    
    910
    
    
    
    1,672Hardees
    
    
    2,011
    
    
    
    2,445La Salsa
    
    
    144
    
    
    
    19Other restaurant additionsCarls Jr.
    
    
    2,382
    
    
    
    2,710Hardees
    
    
    21,081
    
    
    
    7,192La Salsa
    
    
    175
    
    
    
    107Corporate/other
    
    
    4,383
    
    
    
    4,101Total
    
    $
    34,635
    
    
    $
    25,221
   Contractual Obligations
  39




---



##### 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
   40




---



##### 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
   (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 31, 2006  February 27, 2006
    
    
    29,600
    
    
    $
    16.39
    
    
    
    29,600
    
    
    $
    9,957February 28, 2006  March 27, 2006
    
    
    29,900
    
    
    
    17.12
    
    
    
    29,900
    
    
    
    9,444March 28, 2006  April 24, 2006
    
    
    28,900
    
    
    
    16.88
    
    
    
    28,900
    
    
    
    8,955April 25, 2006  May 22, 2006
    
    
    31,800
    
    
    
    16.05
    
    
    
    31,800
    
    
    
    8,444Total
    
    
    120,200
    
    
    $
    16.60
    
    
    
    120,200
    
    
    $
    8,444
 
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  41




---



##### Table of Contents



Item 5. Other Information.
  
 Item 6. Exhibits.
 Exhibit #3.1
    
    
    
    Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    
    
    Certificate of Amendment of Certificate of Incorporation of
the Company, as filed with the Delaware Secretary of State
on December 9, 1997 (incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended January 26, 1998 filed with the Securities
and Exchange Commission on April 24, 1998).3.3
    
    
    
    Bylaws of the Company (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement Form S-4 filed
with the Securities and Exchange Commission on March 7,
1994).3.4
    
    
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended January
26, 2004 filed with the Securities and Exchange Commission
on April 7, 2004).4.1
    
    
    
    Rights Agreement, dated as of October 10, 2005, between the
Company and Mellon Investor Services, LLC, which includes as
Exhibit A thereto a form of Certificate of Designation for
the Series A Junior Participating Preferred Stock, as
Exhibit B thereto the Form of Rights Certificate and as
Exhibit C thereto a Summary of Rights to Purchase Preferred
Stock (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on October 11, 2005).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.
 42




---



##### Table of Contents



SIGNATURES
  CKE RESTAURANTS, INC.
(Registrant)Date: June 26, 2006
    
    /s/ Theodore AbajianTheodore AbajianExecutive Vice PresidentChief Financial Officer
 43




---



##### 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.
 44