UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





R
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.





For
the quarterly period ended November 3, 2008





OR





£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.





For
the transition period from _________to _________.





Commission
file number 1-11313











CKE
RESTAURANTS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            33-0602639(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer
              Identification
      No.)6307
      Carpinteria Avenue, Ste. A, Carpinteria, California
            93013(Address
      of Principal Executive Offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code: (805) 745-7500





Former Name, Former Address and
Former Fiscal Year, if changed since last report.





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes R No £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer £
            Accelerated
      filer R
            Non-accelerated
      filer £
            Smaller
      reporting company £(Do
      not check if a smaller reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No R





As of
December 4, 2008, 54,643,498 shares of the registrant’s common stock were
outstanding.















CKE RESTAURANTS, INC. AND SUBSIDIARIES


INDEX




Page No.Part
      I. Financial InformationItem
      1 Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of November 3,
      2008 and January 31, 2008
                  
                  
                  3Condensed Consolidated Statements of Income for the twelve and
      forty weeks ended November 3, 2008 and November 5,
2007
                  
                  
                  4Condensed Consolidated Statement of Stockholders’ Equity for
      the forty weeks ended November 3, 2008
                  
                  
                  5Condensed Consolidated Statements of Cash Flows for the forty
      weeks ended November 3, 2008 and November 5, 2007
                  
                  
                  6Notes to Condensed Consolidated Financial
      Statements
                  
                  
                  7Item 2 Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                  
                  
                  16Item 3 Quantitative and Qualitative Disclosures About Market
      Risk
                  
                  
                  31Item 4 Controls and Procedures
                  
                  
                  31Part
      II. Other InformationItem 1 Legal Proceedings
                  
                  
                  32Item 2 Unregistered Sales of Equity Securities and
      Use of Proceeds
                  
                  
                  32Item 6 Exhibits
                  
                  
                  33Signatures
                  
                  
                  34







2
 Table of Contents




PART
I. FINANCIAL INFORMATION




ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





CKE RESTAURANTS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except par values)


(Unaudited)





November 3, 2008
                    
                    
                    January 31, 2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    21,424
                    
                    
                    $
                    19,993Accounts
      receivable, net of allowance for doubtful accounts of $427 as of November
      3, 2008 and $755 as of January 31, 2008
                    
                    
                    44,217
                    
                    
                    
                    51,394Related
      party trade receivables
                    
                    
                    4,643
                    
                    
                    
                    5,179Inventories,
      net
                    
                    
                    23,502
                    
                    
                    
                    26,030Prepaid
      expenses
                    
                    
                    14,580
                    
                    
                    
                    12,509Assets
      held for sale
                    
                    
                    556
                    
                    
                    
                    1,038Advertising
      fund assets, restricted
                    
                    
                    17,068
                    
                    
                    
                    18,207Deferred
      income tax assets, net
                    
                    
                    13,405
                    
                    
                    
                    23,768Other
      current assets
                    
                    
                    2,134
                    
                    
                    
                    2,887Total
      current assets
                    
                    
                    141,529
                    
                    
                    
                    161,005Notes
      receivable, net of allowance for doubtful accounts of $546 as of November
      3, 2008 and $608 as of January 31, 2008
                    
                    
                    164
                    
                    
                    
                    298Property
      and equipment, net of accumulated depreciation and amortization of
      $418,822 as of November 3, 2008 and $422,192 as of January 31,
      2008
                    
                    
                    524,992
                    
                    
                    
                    503,774Property
      under capital leases, net of accumulated amortization of $47,782 as of
      November 3, 2008 and $46,390 as of January 31, 2008
                    
                    
                    18,887
                    
                    
                    
                    21,104Deferred
      income tax assets, net
                    
                    
                    64,469
                    
                    
                    
                    72,878Goodwill
                    
                    
                    22,649
                    
                    
                    
                    22,649Other
      assets, net
                    
                    
                    10,397
                    
                    
                    
                    10,003Total
      assets
                    
                    $
                    783,087
                    
                    
                    $
                    791,711LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Current
      portion of bank indebtedness and other long-term debt
                    
                    $
                    2,747
                    
                    
                    $
                    18,024Current
      portion of capital lease obligations
                    
                    
                    5,924
                    
                    
                    
                    5,774Accounts
      payable
                    
                    
                    57,212
                    
                    
                    
                    80,697Advertising
      fund liabilities
                    
                    
                    17,068
                    
                    
                    
                    18,207Other
      current liabilities
                    
                    
                    92,273
                    
                    
                    
                    86,678Total
      current liabilities
                    
                    
                    175,224
                    
                    
                    
                    209,380Bank
      indebtedness and other long-term debt, less current
portion
                    
                    
                    315,746
                    
                    
                    
                    333,082Capital
      lease obligations, less current portion
                    
                    
                    30,918
                    
                    
                    
                    35,156Other
      long-term liabilities
                    
                    
                    69,196
                    
                    
                    
                    68,851Total
      liabilities
                    
                    
                    591,084
                    
                    
                    
                    646,469Commitments
      and contingencies (Notes 4 and 6)Subsequent
      events (Notes 2, 4 and 7)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; 54,644 shares issued and
      outstanding as of November 3, 2008; 52,504 shares issued and 52,476 shares
      outstanding as of January 31, 2008
                    
                    
                    546
                    
                    
                    
                    525Common
      stock held in treasury, at cost; none as of November 3, 2008 and 28 shares
      as of January 31, 2008
                    
                    
                    —
                    
                    
                    
                    (359
                    )Additional
      paid-in capital
                    
                    
                    273,127
                    
                    
                    
                    251,524Accumulated
      deficit
                    
                    
                    (81,670
                    )
                    
                    
                    (106,448
                    )Total
      stockholders’ equity
                    
                    
                    192,003
                    
                    
                    
                    145,242Total
      liabilities and stockholders’ equity
                    
                    $
                    783,087
                    
                    
                    $
                    791,711





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)





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5,2007
                
                
                November 3, 2008
                
                
                November 5, 2007Revenue:Company-operated
      restaurants
                
                $
                255,545
                
                
                $
                273,319
                
                
                $
                880,858
                
                
                $
                941,639Franchised
      and licensed restaurants and other
                
                
                81,050
                
                
                
                78,303
                
                
                
                274,398
                
                
                
                254,876Total
      revenue
                
                
                336,595
                
                
                
                351,622
                
                
                
                1,155,256
                
                
                
                1,196,515Operating
      costs and expenses:Restaurant
      operating costs:Food
      and packaging
                
                
                76,785
                
                
                
                82,298
                
                
                
                262,214
                
                
                
                279,761Payroll
      and other employee benefits
                
                
                71,237
                
                
                
                78,261
                
                
                
                250,349
                
                
                
                273,901Occupancy
      and other
                
                
                61,841
                
                
                
                62,459
                
                
                
                199,687
                
                
                
                207,706Total
      restaurant operating costs
                
                
                209,863
                
                
                
                223,018
                
                
                
                712,250
                
                
                
                761,368Franchised
      and licensed restaurants and other
                
                
                61,474
                
                
                
                60,373
                
                
                
                210,131
                
                
                
                197,685Advertising
                
                
                15,105
                
                
                
                15,829
                
                
                
                51,902
                
                
                
                55,861General
      and administrative
                
                
                31,156
                
                
                
                32,636
                
                
                
                108,037
                
                
                
                110,278Facility
      action charges, net
                
                
                1,242
                
                
                
                287
                
                
                
                2,666
                
                
                
                (1,513
                )Total
      operating costs and expenses
                
                
                318,840
                
                
                
                332,143
                
                
                
                1,084,986
                
                
                
                1,123,679Operating
      income
                
                
                17,755
                
                
                
                19,479
                
                
                
                70,270
                
                
                
                72,836Interest
      expense
                
                
                (9,363
                )
                
                
                (7,686
                )
                
                
                (16,330
                )
                
                
                (17,442
                )Other
      income, net
                
                
                769
                
                
                
                1,079
                
                
                
                2,290
                
                
                
                3,291Income
      before income taxes and discontinued operations
                
                
                9,161
                
                
                
                12,872
                
                
                
                56,230
                
                
                
                58,685Income
      tax expense
                
                
                3,773
                
                
                
                5,388
                
                
                
                21,882
                
                
                
                23,851Income
      from continuing operations
                
                
                5,388
                
                
                
                7,484
                
                
                
                34,348
                
                
                
                34,834Loss
      from discontinued operations (net of income tax (benefit) expense of
      $(500) and $1,841 for the twelve and forty weeks ended November 5, 2007,
      respectively)
                
                
                —
                
                
                
                (1,282
                )
                
                
                —
                
                
                
                (3,856
                )Net
      income
                
                $
                5,388
                
                
                $
                6,202
                
                
                $
                34,348
                
                
                $
                30,978Basic
      income per common share:Continuing
      operations
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.66
                
                
                $
                0.57Discontinued
      operations
                
                
                —
                
                
                
                (0.02
                )
                
                
                —
                
                
                
                (0.06
                )Net
      income
                
                $
                0.10
                
                
                $
                0.11
                
                
                $
                0.66
                
                
                $
                0.51Diluted
      income per common share:Continuing
      operations
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.64
                
                
                $
                0.54Discontinued
      operations
                
                
                —
                
                
                
                (0.02
                )
                
                
                —
                
                
                
                (0.06
                )Net
      income
                
                $
                0.10
                
                
                $
                0.11
                
                
                $
                0.64
                
                
                $
                0.48Dividends
      per common share
                
                $
                0.06
                
                
                $
                0.06
                
                
                $
                0.18
                
                
                $
                0.18Weighted-average
      common shares outstanding:Basic
                
                
                52,574
                
                
                
                55,908
                
                
                
                51,898
                
                
                
                61,312Diluted
                
                
                54,258
                
                
                
                58,964
                
                
                
                54,281
                
                
                
                64,550





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)









Forty Weeks Ended November 3,
      2008Common Stock
                          
                          
                          Common
      Stock
                            Held in Treasury
                          
                          
                          Additional
      Paid-In
                          
                          
                          Accumulated
                          
                          
                          Total
      Stockholders'Shares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          EquityBalance
      at January 31, 2008
                          
                          
                          52,504
                          
                          
                          $
                          525
                          
                          
                          
                          (28
                          )
                          
                          $
                          (359
                          )
                          
                          $
                          251,524
                          
                          
                          $
                          (106,448
                          )
                          
                          $
                          145,242Cash
      dividends declared ($0.18 per share)
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (9,570
                          )
                          
                          
                          (9,570
                          )Issuance
      of restricted stock awards, net of forfeitures
                          
                          
                          612
                          
                          
                          
                          6
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (6
                          )
                          
                          
                          —
                          
                          
                          
                          —Exercise
      of stock options
                          
                          
                          218
                          
                          
                          
                          2
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,624
                          
                          
                          
                          —
                          
                          
                          
                          1,626Conversion
      of 2023 Convertible Notes into common stock
                          
                          
                          1,787
                          
                          
                          
                          18
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          15,149
                          
                          
                          
                          —
                          
                          
                          
                          15,167Net
      tax deficiency from exercise of stock options and vesting of restricted
      stock awards
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (298
                          )
                          
                          
                          —
                          
                          
                          
                          (298
                          )Share-based
      compensation expense
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          9,515
                          
                          
                          
                          —
                          
                          
                          
                          9,515Repurchase
      and retirement of common stock
                          
                          
                          (477
                          )
                          
                          
                          (5
                          )
                          
                          
                          28
                          
                          
                          
                          359
                          
                          
                          
                          (4,381
                          )
                          
                          
                          —
                          
                          
                          
                          (4,027
                          )Net
      income
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          34,348
                          
                          
                          
                          34,348Balance
      at November 3, 2008
                          
                          
                          54,644
                          
                          
                          $
                          546
                          
                          
                          
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          273,127
                          
                          
                          $
                          (81,670
                          )
                          
                          $
                          192,003








See
Accompanying Notes to Condensed Consolidated Financial Statements





5
 Table of Contents





CKERESTAURANTS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007Cash
      flows from operating activities:Net
      income
                
                $
                34,348
                
                
                $
                30,978Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                48,141
                
                
                
                49,679Amortization
      and write-off of deferred loan fees
                
                
                948
                
                
                
                686Share-based
      compensation expense
                
                
                9,515
                
                
                
                7,616Change
      in fair value of interest rate swap agreements
                
                
                658
                
                
                
                1,839Provision
      for (recovery of) losses on accounts and notes receivable
                
                
                15
                
                
                
                (693
                )Loss
      on sale of property and equipment and capital leases
                
                
                1,914
                
                
                
                3,706Facility
      action charges, net
                
                
                2,666
                
                
                
                (2,218
                )Deferred
      income taxes
                
                
                17,723
                
                
                
                12,355Other
      non-cash charges
                
                
                28
                
                
                
                39Net
      changes in operating assets and liabilities:Receivables,
      inventories, prepaid expenses and other current and non-current
      assets
                
                
                6,226
                
                
                
                943Estimated
      liability for closed restaurants and estimated liability for
      self-insurance
                
                
                (4,470
                )
                
                
                (4,211
                )Accounts
      payable and other current and long-term liabilities
                
                
                (9,338
                )
                
                
                5,562Net
      cash provided by operating activities
                
                
                108,374
                
                
                
                106,281Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (82,658
                )
                
                
                (101,692
                )Proceeds
      from sale of property and equipment
                
                
                21,042
                
                
                
                44,252Collections
      of non-trade notes receivable
                
                
                2,799
                
                
                
                2,903Disposition
      of La Salsa, net of cash surrendered
                
                
                —
                
                
                
                5,720Other
      investing activities
                
                
                68
                
                
                
                58Net
      cash used in investing activities
                
                
                (58,749
                )
                
                
                (48,759
                )Cash
      flows from financing activities:Net
      change in bank overdraft
                
                
                (13,911
                )
                
                
                (5,979
                )Borrowings
      under revolving credit facility
                
                
                133,500
                
                
                
                306,500Repayments
      of borrowings under revolving credit facility
                
                
                (135,000
                )
                
                
                (303,000
                )Borrowings
      under credit facility term loan
                
                
                —
                
                
                
                200,179Repayments
      of credit facility term loan
                
                
                (15,815
                )
                
                
                (1,100
                )Repayments
      of other long-term debt
                
                
                (131
                )
                
                
                (133
                )Net
      repayment by consolidated variable interest entity
                
                
                —
                
                
                
                (44
                )Repayments
      of capital lease obligations
                
                
                (4,493
                )
                
                
                (4,200
                )Payment
      of deferred loan fees
                
                
                (399
                )
                
                
                (1,279
                )Repurchase
      of common stock
                
                
                (4,296
                )
                
                
                (233,803
                )Exercise
      of stock options
                
                
                1,626
                
                
                
                2,649Excess
      tax benefits from exercise of stock options and vesting of restricted
      stock awards
                
                
                174
                
                
                
                1,616Dividends
      paid on common stock
                
                
                (9,449
                )
                
                
                (10,115
                )Net
      cash used in financing activities
                
                
                (48,194
                )
                
                
                (48,709
                )Net increase
      in cash and cash equivalents
                
                
                1,431
                
                
                
                8,813Cash
      and cash equivalents at beginning of period
                
                
                19,993
                
                
                
                18,680Cash
      and cash equivalents at end of period
                
                $
                21,424
                
                
                $
                27,493





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)


(Unaudited)





Note 1 — Basis of Presentation and
Description of Business




CKE Restaurants,
Inc. (“CKE” or the “Company”), through its wholly-owned subsidiaries, owns,
operates, franchises and licenses the Carl’s Jr.®, Hardee’s®, Green
Burrito® and Red
BurritoTM concepts. References toCKE
Restaurants, Inc.
throughout these Notes to Condensed
Consolidated Financial Statements are made using the first person notations of
“we,” “us” and “our.”





Carl’s
Jr. restaurants are primarily located in the Western United States. Hardee’s
restaurants are located throughout the Southeastern and Midwestern United
States. Green Burrito restaurants are primarily located in dual-branded Carl’s
Jr. restaurants. The Red Burrito concept is located in dual-branded Hardee’s
restaurants. As of November 3, 2008, our system-wide restaurant portfolio
consisted of:





Carl’s Jr.
                  
                  
                  Hardee’s
                  
                  
                  Other
                  
                  
                  TotalCompany-operated
                  
                  
                  412
                  
                  
                  
                  490
                  
                  
                  
                  1
                  
                  
                  
                  903Franchised
      and licensed
                  
                  
                  773
                  
                  
                  
                  1,422
                  
                  
                  
                  12
                  
                  
                  
                  2,207Total
                  
                  
                  1,185
                  
                  
                  
                  1,912
                  
                  
                  
                  13
                  
                  
                  
                  3,110





Our
accompanying unaudited Condensed Consolidated Financial Statements include the
accounts of CKE, our wholly-owned subsidiaries, and certain variable interest
entities for which we are the primary beneficiary and have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“GAAP”), the instructions to Form 10-Q, and Article 10 of Regulation
S-X. These financial statements should be read in conjunction with the audited
Consolidated Financial Statements presented in our Annual Report on Form 10-K
for the fiscal year ended January 31, 2008. In our opinion, all adjustments
considered necessary for a fair presentation of financial position and results
of operations for this interim period have been included. The results of
operations for such interim period are not necessarily indicative of results for
the full year or for any future period.





We
operate on a retail accounting calendar. Our fiscal year has 13 four-week
accounting periods and ends on the last Monday in January. The first quarter of
our fiscal year has four periods, or 16 weeks. All other quarters have three
periods, or 12 weeks. For clarity of presentation, we generally label all fiscal
year ends as if the fiscal year ended January 31.





In our
accompanying Condensed Consolidated Balance Sheet as of January 31, 2008, $865
was reclassified from other long-term liabilities to other current
liabilities.  In our accompanying Condensed Consolidated Statement of Cash
Flows for the forty weeks ended November 5, 2007, $1,839 was reclassified from
net change in accounts payable and other current and long-term liabilities to
change in fair value of interest rate swap agreements.





Note 2 — Accounting Pronouncements
Not Yet Adopted and Adoption of New Accounting
Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) 157, Fair Value Measurements. SFAS 157
establishes a framework for measuring fair value under GAAP and expands
disclosures about fair value measurement. SFAS 157 for financial assets and
liabilities is effective for fiscal years beginning after November 15, 2007. We
have adopted the standard for those assets and liabilities as of the beginning
of fiscal 2009 and there was no impact on our consolidated financial position or
results of operations (see Note 5). In February 2008, the FASB deferred the
effective date of SFAS 157 for one year for certain non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (i.e., at least annually). We are
currently evaluating the impact of adopting SFAS 157 at the beginning of fiscal
2010 for non-financial assets and liabilities on our consolidated financial
position and results of operations.





In
December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations(“SFAS 141R”),
and SFAS 160, Noncontrolling
Interests in Consolidated Financial Statements —
an amendment of ARB No. 51. SFAS 141R and SFAS 160 require most
identifiable assets, liabilities, noncontrolling interests and goodwill acquired
in a business combination to be recorded at “full fair value” and require
noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions
with noncontrolling interest holders. Both of the pronouncements are effective
for periods beginning on or after December 15, 2008, which for us is the first
quarter of fiscal 2010, and earlier adoption is prohibited. SFAS 141R will be
applied to business combinations occurring after the effective date. SFAS 160
will be applied prospectively to all noncontrolling interests, including any
that arose before the effective date. We do not anticipate the adoption of SFAS
141R and SFAS 160 will have any effect on our consolidated financial
position and results of operations.





7
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





In March
2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging
Activities, which amends SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, and expands disclosures to include information about the fair
value of derivatives, related credit risks and a company’s strategies and
objectives for using derivatives. SFAS 161 is effective for fiscal periods
beginning on or after November 15, 2008, which for us is the first quarter of
fiscal 2010.





In April
2008, the FASB issued FASB Staff Position (“FSP”) 142-3, Determination of the Useful Life of
Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS 142, Goodwill and Other Intangible
Assets. FSP 142-3 is effective for fiscal periods beginning after
December 15, 2008, which for us is the first quarter of fiscal 2010. We do not
expect the adoption of FSP 142-3 to have a material effect on our consolidated
financial position and results of operations.





In May
2008, the FASB issued SFAS 162, The Hierarchy of Generally
Accepted Accounting
Principles. SFAS 162 identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with GAAP.  SFAS 162 became
effective on November 15, 2008, subsequent to the end of our third quarter
of fiscal 2009.  Our adoption of SFAS 162 in our fourth
quarter of fiscal 2009 had no impact on our consolidated financial position or
results of operations.





In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) 08-3, Accounting by Lessees for
Maintenance Deposits, which provides guidance for accounting for
maintenance deposits paid by a lessee to a lessor. EITF 08-3 is effective for
fiscal periods beginning after December 15, 2008, which for us is the first
quarter of fiscal 2010. We do not expect the adoption of EITF 08-3 to have any
effect on our consolidated financial position and results of
operations.





In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities. FSP EITF 03-6-1
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents, whether paid or unpaid, are
participating securities and should be included in the computation of earnings
per share pursuant to the two-class method. This FSP is effective for fiscal
periods beginning after December 15, 2008, which for us is the first quarter of
fiscal 2010. We expect the adoption of FSP EITF 03-6-1 to impact the amount of
our previously-reported earnings per share, but have not yet determined the
amount.





Note 3 — Assets Held For
Sale





Surplus
restaurant properties and company-operated restaurants that we expect to sell
within one year are classified in our accompanying Condensed Consolidated
Balance Sheets as assets held for sale. As of November 3, 2008, total assets
held for sale were $556. This was comprised of two surplus properties in our
Hardee’s operating segment. As of January 31, 2008, total assets held for sale
were $1,038 and were comprised of four surplus properties in our Hardee’s
operating segment.





Note 4 — Indebtedness and Interest
Expense





As of
November 3, 2008, we had borrowings outstanding of $252,410 under the term loan
portion and borrowings outstanding of $65,000 under the revolving portion of our
senior credit facility (“Facility”). In addition, we had outstanding letters of
credit totaling $35,893 and remaining availability of $99,107, under the
revolving portion of our Facility. The principal amount of the term loan is
scheduled to be repaid in quarterly installments of $675 through January 1,
2012; three quarterly payments of $64,175, beginning on April 1, 2012; and a
final payment of $51,110 due on January 1, 2013. The Facility also requires
annual principal payments on the term loan based on excess cash flows, as
defined. We made aggregate principal payments of $675 and $15,815 on the term
loan, including a payment of $13,790 based on excess cash flows for
fiscal 2008, during the twelve and forty weeks ended November 3, 2008,
respectively.  The revolving portion of our Facility matures on March
17, 2012.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





As of
November 3, 2008, the borrowings outstanding under the revolving portion of our
Facility bore interest at a weighted-average interest rate of 4.70% per annum.
As of November 3, 2008, our term loan debt had a nominal weighted-average
interest rate of 5.69% per annum; however, we have fixed rate swap agreements
(which were amended effective September 10, 2008) with various
counterparties to effectively fix future interest payments on $200,000 of our
term loan debt at 6.12%. These agreements will expire March 12, 2012. These
derivative instruments were not designated as cash flow hedges under the terms
of SFAS 133. Accordingly, the change in the fair value of the interest rate swap
agreements is recognized in interest expense in our Condensed Consolidated
Statements of Income.  During the twelve and forty weeks ended November 3,
2008, we paid $1,474 and $1,690, respectively, for net settlements under
our fixed rate swap agreements. The fair value of the interest rate swap
agreements, inclusive of unpaid periodic settlements, is included in other
current liabilities and other long-term liabilities, in our accompanying
Condensed Consolidated Balance Sheets, and was $10,348 and $11,380 as of
November 3, 2008 and January 31, 2008, respectively. Subsequent to November 3,
2008, we paid a periodic settlement of $575. As a matter of policy, we do not
enter into derivative instruments unless there is an underlying
exposure.





Our
Facility permits us to make annual capital expenditures in the amount of
$85,000, plus 80% of the amount of actual Adjusted EBITDA (as defined in our
Facility) in excess of $150,000. In addition, we may reinvest proceeds from the
sale of assets and carry forward certain unused capital expenditure amounts to
the following year. Our Facility also contains financial performance covenants,
which include a maximum leverage ratio.





Effective
August 11, 2008, the cumulative dividends declared since the most recent
conversion rate adjustment resulted in a 1.0404% change in the conversion rate
per $1 of the Convertible Subordinated Notes due 2023 (“2023 Convertible
Notes”), from the previous conversion rate of 116.6063 to an adjusted conversion
rate of 117.8195.  As a result of the conversion rate adjustment, the
previous conversion price of approximately $8.58 was adjusted to a conversion
price of approximately $8.49.  On August 29, 2008, we notified the
holders of the 2023 Convertible Notes that we would redeem all outstanding notes
on October 1, 2008.  During the twelve weeks ended November 3, 2008,
we redeemed and converted the remaining $15,167 of our 2023 Convertible Notes
into 1,786,963 shares of our common stock. We also paid $303 for accrued
interest and partial shares.  The $15,167 of 2023 Convertible Notes
has been included in current portion of bank indebtedness and other long-term
debt in our accompanying Condensed Consolidated Balance Sheet as of January 31,
2008.





Interest
expense consisted of the following:





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Facility
                
                $
                2,864
                
                
                $
                4,147
                
                
                $
                10,216
                
                
                $
                9,799Interest
      rate swaps
                
                
                4,911
                
                
                
                1,839
                
                
                
                658
                
                
                
                1,839Capital
      lease obligations
                
                
                1,039
                
                
                
                1,171
                
                
                
                3,418
                
                
                
                3,9032023
      Convertible Notes
                
                
                81
                
                
                
                140
                
                
                
                404
                
                
                
                466Amortization
      of loan fees
                
                
                244
                
                
                
                187
                
                
                
                847
                
                
                
                679Letter
      of credit fees and other
                
                
                224
                
                
                
                202
                
                
                
                787
                
                
                
                756$
                9,363
                
                
                $
                7,686
                
                
                $
                16,330
                
                
                $
                17,442





9
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





Note
5 — Fair Value Measurement





We
adopted SFAS 157 for financial assets and liabilities as of the beginning of
fiscal 2009. SFAS 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:





Level
      1 -
                              Quoted
      prices in active markets for identical assets or
    liabilities;Level
      2 -
                              Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets or liabilities;
      andLevel
      3 -
                              Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities.





The
following table summarizes the financial liabilities measured at fair value on a
recurring basis as of November 3, 2008:





Total
                      
                      
                      Quoted Prices inActive Markets forIdentical Assets
                        (Level 1)
                      
                      
                      Significant Other
                        Observable Inputs
                        (Level 2)
                      
                      
                      Significant
                        Unobservable Inputs
                        (Level 3)Interest
      rate swap agreements
                      
                      $
                      10,348
                      
                      
                      $
                      —
                      
                      
                      $
                      10,348
                      
                      
                      $
                      —





The
interest rate swap agreements are recorded at fair value based upon valuation
models as reported by our counterparties. These valuation models are based upon
relevant factors such as the contractual terms of our interest rate swap
agreements and interest rate curves.





Note 6— Commitments and Contingent
Liabilities





Under
various past and present refranchising programs, we have sold restaurants to
franchisees, some of which were on leased sites. We entered into sublease
agreements with these franchisees but remained principally liable for the lease
obligations. We account for the sublease payments received as franchising rental
income in franchised and licensed restaurants and other revenue, and the
payments on the leases as rental expense in franchised and licensed restaurants
and other expense, in our accompanying Condensed Consolidated Statements of
Income. As of November 3, 2008, the present value of the lease obligations under
the remaining master leases’ primary terms is $118,980. Franchisees may, from
time to time, experience financial hardship and may cease payment on their
sublease obligations to us. The present value of the exposure to us from
franchisees characterized as under financial hardship is $1,075, of which $85 is
reserved for in our estimated liability for closed restaurants in our
accompanying Condensed Consolidated Balance Sheet as of November 3, 2008. In
addition to the sublease arrangements with franchisees described above, we also
lease land and buildings to franchisees. As of November 3, 2008, the net book
value of property under lease to Hardee’s and Carl’s Jr. franchisees was $26,169
and $3,266, respectively.





10
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





Pursuant
to our Facility, a letter of credit sub-facility in the amount of $85,000 was
established (see Note 4). Several standby letters of credit are outstanding
under this sub-facility, which secure our potential workers’ compensation,
general and auto liability obligations. We are required to provide letters of
credit each year, or set aside a comparable amount of cash or investment
securities in a trust account, based on our existing claims experience. As of
November 3, 2008, we had outstanding letters of credit of $35,893, expiring at
various dates through February 2010.





As of
November 3, 2008, we had unconditional purchase obligations in the amount of
$70,459, which consist primarily of contracts for goods and services related to
restaurant operations and contractual commitments for marketing and sponsorship
arrangements.





We have
employment agreements with certain key executives (“Agreements”). These
Agreements include provisions for lump sum payments to the executives that may
be triggered by the termination of employment under certain conditions, as
defined in each Agreement. If such provisions were triggered, each affected
executive would receive an amount ranging from one to three times his base
salary for the remainder of his employment term plus, in some instances, an
amount ranging from a pro-rata portion of the current year bonus to three times
the bonus in effect for the year in which the termination occurs. Additionally,
all options awarded to the affected executives which have not vested as of the
date of termination would vest immediately. For certain of the key executives,
all unvested restricted stock awards as of the date of termination would vest
immediately and restricted stock awards which have not yet been awarded would be
awarded and would vest immediately. If all of these Agreements had been
triggered as of November 3, 2008, we would have been required to make cash
payments of approximately $16,416.





We are,
from time to time, the subject of complaints or litigation from customers
alleging illness, injury or other food quality, health or operational concerns.
Adverse publicity resulting from such allegations may materially adversely
affect us and our restaurants, regardless of whether such allegations are valid
or whether we are liable. We are also, at times, the subject of complaints or
allegations from current or former employees, franchisees, vendors, landlords
and others.





As of
November 3, 2008, we had recorded an accrued liability for contingencies related
to litigation in the amount of $208, which relates to certain employment, real
estate and other business disputes. Certain of the matters for which we maintain
an accrued liability for litigation pose risk of loss significantly above the
accrued amounts. In addition, as of November 3, 2008, we estimated the
contingent liability of those losses related to other litigation claims that, in
accordance with SFAS 5, Accounting for Contingencies, are not
accrued, but that we believe are reasonably possible to result in an adverse
outcome, to be in the range of $1,030 to $3,045.





Note 7 — Stockholders’
Equity





Repurchase
of Common Stock





Pursuant
to a program (“Stock Repurchase Plan”) authorized by our Board of Directors, we
are allowed to repurchase up to an aggregate of $400,000 of our common
stock. The
following table summarizes the repurchase of common stock for the twelve and
forty weeks ended November 3, 2008:





Twelve Weeks
                
                
                Forty WeeksCommon
      shares repurchased
                
                
                339,038
                
                
                
                449,600Average
      price per share
                
                $
                7.89
                
                
                $
                8.96Total
      cost, including trading commissions
                
                $
                2,675
                
                
                $
                4,027Common
      shares retired
                
                
                339,038
                
                
                
                477,400





As of
November 3, 2008, there were no shares of common stock that had been
repurchased, but not yet retired.  As of January 31, 2008, we had 27,800
shares of common stock that had been repurchased, but not yet retired, and are
shown as common stock held in treasury in our accompanying Condensed
Consolidated Balance Sheet. These shares were retired subsequent to January 31,
2008.





Based on
the Board of Directors’ authorization and the amount of cumulative repurchases
of our common stock that we have already made thereunder (21,727,856 shares at
an average price of $16.63 per share, for a total cost, including trading
commissions, of $361,280), we are permitted to make additional repurchases of
our common stock up to $38,720 under the Stock Repurchase Plan as of November 3,
2008.




Dividends





During
the forty weeks ended November 3, 2008, we declared cash dividends of $0.18 per
share of common stock, for a total of $9,580. Dividends payable of $3,279 and
$3,148 have been included in other current liabilities in our accompanying
Condensed Consolidated Balance Sheets as of November 3, 2008 and January 31,
2008, respectively. The dividends declared during the twelve weeks ended
November 3, 2008 were subsequently paid on November 24, 2008.




Subsequent
to November 3, 2008, we declared cash dividends of $0.06 per share of
common stock, payable to the stockholders of record as of January 26,
2009.




11
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)






Note 8 — Share-Based
Compensation
 
 We have
various share-based compensation plans that provide restricted stock awards and
stock options for certain employees, non-employee directors and external service
providers to acquire shares of our common stock. The total number of shares
available under all of our stock incentive plans was 3,380,707 as of November 3,
2008.




Total
share-based compensation expense and associated tax benefits recognized under
SFAS 123R were as follows:





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Share-based
      compensation expense related to performance-vested restricted stock
      awards
                
                $
                993
                
                
                $
                1,283
                
                
                $
                3,271
                
                
                $
                2,188All
      other share-based compensation expense
                
                
                1,665
                
                
                
                1,567
                
                
                
                6,253
                
                
                
                5,567Total
      share-based compensation expense
                
                $
                2,658
                
                
                $
                2,850
                
                
                $
                9,524
                
                
                $
                7,755Associated
      tax benefits
                
                $
                760
                
                
                $
                654
                
                
                $
                2,794
                
                
                $
                1,969





Note 9 — Facility Action Charges,
Net





The
components of facility action charges, net are as follows:




Twelve
      Weeks Ended
                      
                      
                      Forty
      Weeks EndedNovember
      3, 2008
                      
                      
                      November
      5, 2007
                      
                      
                      November
      3, 2008
                      
                      
                      November
      5, 2007Estimated
      liability for new restaurant closures
                      
                      $
                      10
                      
                      
                      $
                      51
                      
                      
                      $
                      601
                      
                      
                      $
                      221Adjustments
      to estimated liability for closed restaurants
                      
                      
                      370
                      
                      
                      
                      61
                      
                      
                      
                      73
                      
                      
                      
                      645Impairment
      of assets to be disposed of
                      
                      
                      35
                      
                      
                      
                      105
                      
                      
                      
                      1,150
                      
                      
                      
                      485Impairment
      of assets to be held and used
                      
                      
                      96
                      
                      
                      
                      —
                      
                      
                      
                      876
                      
                      
                      
                      496Loss
      (gain) on sales of restaurants and surplus properties, net
                      
                      
                      627
                      
                      
                      
                      (46
                      )
                      
                      
                      (393
                      )
                      
                      
                      (3,779
                      )Amortization
      of discount related to estimated liability for closed
      restaurants
                      
                      
                      104
                      
                      
                      
                      116
                      
                      
                      
                      359
                      
                      
                      
                      419$
                      1,242
                      
                      
                      $
                      287
                      
                      
                      $
                      2,666
                      
                      
                      $
                      (1,513
                      )


Note 10 — Income
Taxes





Income
tax expense consisted of the following:





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Federal
      and state income taxes
                
                $
                3,384
                
                
                $
                5,145
                
                
                $
                20,642
                
                
                $
                23,011Foreign
      income taxes
                
                
                389
                
                
                
                243
                
                
                
                1,240
                
                
                
                840Income
      tax expense
                
                $
                3,773
                
                
                $
                5,388
                
                
                $
                21,882
                
                
                $
                23,851Effective
      income tax rate
                
                
                41.2
                %
                
                
                41.9
                %
                
                
                38.9
                %
                
                
                40.6
                %





Our
effective income tax rates for the twelve and forty weeks ended November 3, 2008
and November 5, 2007 differ from the federal statutory rate primarily as a
result of state income taxes and certain expenses that are nondeductible for
income tax purposes. During the forty weeks ended November 3, 2008, our income
tax expense was reduced by $1,273 as a result of the impact of recent tax
regulations. We had $3,784 and $4,554 of tax benefits as of November 3, 2008 and
January 31, 2008, respectively, that, if recognized, would affect our effective
income tax rate. As of November 3, 2008 and January 31, 2008, we also had
$13,860 and $14,824, respectively, of tax benefits that, if recognized, would
result in adjustments to other tax accounts, primarily deferred taxes, income
taxes payable and valuation allowance.





As of
November 3, 2008, we maintained a valuation allowance of $28,105 for state
capital loss carryforwards, certain state net operating loss and income tax
credit carryforwards and other temporary differences related to various states
in which one or more of our entities file separate income tax returns.
Realization of the tax benefit of such deferred income tax assets may remain
uncertain for the foreseeable future, even though we expect to generate taxable
income, since they are subject to various limitations and may only be used to
offset income of certain entities or of a certain character.





12
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





Note 11 — Income Per
Share





The table
below presents the computation of basic and diluted earnings per share for the
twelve and forty weeks ended November 3, 2008 and November 5, 2007:





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007(In
      thousands except per share amounts)Numerator:Income
      from continuing operations
                
                $
                5,388
                
                
                $
                7,484
                
                
                $
                34,348
                
                
                $
                34,834Loss
      from discontinued operations
                
                
                —
                
                
                
                (1,282
                )
                
                
                —
                
                
                
                (3,856
                )Net
      income for computation of basic earnings per share
                
                $
                5,388
                
                
                $
                6,202
                
                
                $
                34,348
                
                
                $
                30,978Adjustment
      for interest and amortization costs for 2023 Convertible Notes, net of
      related tax effect
                
                
                56
                
                
                
                102
                
                
                
                292
                
                
                
                341Income
      from continuing operations for computation of diluted earnings per
      share
                
                $
                5,444
                
                
                $
                7,586
                
                
                $
                34,640
                
                
                $
                35,175Net
      income for computation of diluted earnings per share
                
                $
                5,444
                
                
                $
                6,304
                
                
                $
                34,640
                
                
                $
                31,319Denominator:Weighted-average
      shares for computation of basic earnings per share
                
                
                52,574
                
                
                
                55,908
                
                
                
                51,898
                
                
                
                61,312Dilutive
      effect of stock options and restricted stock
                
                
                680
                
                
                
                1,309
                
                
                
                838
                
                
                
                1,491Dilutive
      effect of 2023 Convertible Notes
                
                
                1,004
                
                
                
                1,747
                
                
                
                1,545
                
                
                
                1,747Weighted-average
      shares for computation of diluted earnings per share
                
                
                54,258
                
                
                
                58,964
                
                
                
                54,281
                
                
                
                64,550Basic
      earnings per share:Basic
      income per share from continuing operations
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.66
                
                
                $
                0.57Basic
      loss per share from discontinued operations
                
                
                —
                
                
                
                (0.02
                )
                
                
                —
                
                
                
                (0.06
                )Basic
      net income per share
                
                $
                0.10
                
                
                $
                0.11
                
                
                $
                0.66
                
                
                $
                0.51Diluted
      earnings per share:Diluted
      income per share from continuing operations
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.64
                
                
                $
                0.54Diluted
      loss per share from discontinued operations
                
                
                —
                
                
                
                (0.02
                )
                
                
                —
                
                
                
                (0.06
                )Diluted
      net income per share
                
                $
                0.10
                
                
                $
                0.11
                
                
                $
                0.64
                
                
                $
                0.48








The
following table presents the number of potentially dilutive shares excluded from
the computation of diluted earnings per share because their effect would have
been anti-dilutive for the twelve and forty weeks ended November 3, 2008 and
November 5, 2007:




Twelve Weeks Ended
              
              
              Forty Weeks EndedNovember 3, 2008
              
              
              November 5, 2007
              
              
              November 3, 2008
              
              
              November 5, 2007Stock
      options and restricted stock
              
              
              3,630
              
              
              
              1,344
              
              
              
              3,249
              
              
              
              1,155





Note 12 — Segment
Information





We are
principally engaged in developing, operating, franchising and licensing our
Carl’s Jr. and Hardee’s quick-service restaurant concepts, each of which is
considered an operating segment that is managed and evaluated separately. The
accounting policies of the segments are the same as those described in our
summary of significant accounting policies (see Note 1 of Notes to Consolidated
Financial Statements in our Annual Report on Form 10-K for the fiscal year ended
January 31, 2008).





13
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





Carl’s Jr.
                  
                  
                  Hardee’s
                  
                  
                  Other
                  
                  
                  TotalTwelve
      Weeks Ended November 3, 2008Revenue
                  
                  $
                  199,314
                  
                  
                  $
                  137,066
                  
                  
                  $
                  215
                  
                  
                  $
                  336,595Operating
      income
                  
                  
                  12,871
                  
                  
                  
                  4,801
                  
                  
                  
                  83
                  
                  
                  
                  17,755Income
      (loss) before income taxes and discontinued operations
                  
                  
                  12,769
                  
                  
                  
                  3,773
                  
                  
                  
                  (7,381
                  )
                  
                  
                  9,161





Carl’s Jr.
                  
                  
                  Hardee’s
                  
                  
                  Other
                  
                  
                  TotalTwelve
      Weeks Ended November 5, 2007Revenue
                  
                  $
                  192,609
                  
                  
                  $
                  158,004
                  
                  
                  $
                  1,009
                  
                  
                  $
                  351,622Operating
      income
                  
                  
                  14,570
                  
                  
                  
                  4,599
                  
                  
                  
                  310
                  
                  
                  
                  19,479Income
      (loss) before income taxes and discontinued operations
                  
                  
                  14,326
                  
                  
                  
                  2,917
                  
                  
                  
                  (4,371
                  )
                  
                  
                  12,872





Carl’s Jr.
                
                
                Hardee’s
                
                
                Other
                
                
                TotalForty
      Weeks Ended November 3, 2008Revenue
                
                $
                686,380
                
                
                $
                468,195
                
                
                $
                681
                
                
                $
                1,155,256Operating
      income
                
                
                53,594
                
                
                
                16,394
                
                
                
                282
                
                
                
                70,270Income
      (loss) before income taxes and discontinued operations
                
                
                52,912
                
                
                
                12,692
                
                
                
                (9,374
                )
                
                
                56,230





Carl’s Jr.
                
                
                Hardee’s
                
                
                Other
                
                
                TotalForty
      Weeks Ended November 5, 2007Revenue
                
                $
                647,983
                
                
                $
                545,295
                
                
                $
                3,237
                
                
                $
                1,196,515Operating
      income
                
                
                51,058
                
                
                
                21,468
                
                
                
                310
                
                
                
                72,836Income
      (loss) before income taxes and discontinued operations
                
                
                50,293
                
                
                
                15,736
                
                
                
                (7,344
                )
                
                
                58,685





Note 13 — Discontinued
Operations





We sold
our La Salsa Fresh Mexican Grill restaurants and the related franchise
operations to LAS Acquisition, LLC (“Buyer”) on July 16, 2007. Under the
agreement, Santa Barbara Restaurant Group, Inc., a wholly-owned subsidiary of
the Company, sold its 100 percent equity interest in La Salsa, Inc. and La Salsa
of Nevada, Inc. for adjusted consideration of $15,889. Pursuant to the
agreement, we have retained contingent liabilities related to tax matters and
certain litigation matters arising prior to the completion of the sale of La
Salsa. During the forty weeks ended November 3, 2008, we received payments
totaling $2,600 from Buyer, and the remaining $4,026 note is included in
accounts receivable, net, in our accompanying Condensed Consolidated Balance
Sheet as of November 3, 2008.





The
results from discontinued operations for the twelve and forty weeks ended
November 5, 2007 were as follows:





Twelve Weeks Ended
                                                              
                                                              
                                                              Forty Weeks EndedRevenue
                                                              
                                                              $
                                                              --
                                                              
                                                              
                                                              $
                                                              20,907Operating
      loss
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              
                                                              (724
                                                              )Interest
      expense
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              
                                                              (22
                                                              )Other
      income, net
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              
                                                              92Income
      tax benefit
                                                              
                                                              
                                                              --
                                                              
                                                              
                                                              
                                                              173--
                                                              
                                                              
                                                              
                                                              (481
                                                              )Loss
      on disposal of La Salsa
                                                              
                                                              
                                                              (1,782
                                                              )
                                                              
                                                              
                                                              (1,361
                                                              )Income
      tax expense related to disposal of La Salsa
                                                              
                                                              
                                                              500
                                                              
                                                              
                                                              
                                                              (2,014
                                                              )Net
      loss on disposal of La Salsa
                                                              
                                                              
                                                              (1,282
                                                              )
                                                              
                                                              
                                                              (3,375
                                                              )Loss
      from discontinued operations
                                                              
                                                              $
                                                              (1,282
                                                              )
                                                              
                                                              $
                                                              (3,856
                                                              )





14
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Dollars
in thousands, except per share amounts)


(Unaudited)





Note 14 — Purchase and Sale of
Assets




Hardee’s
Refranchising Program





During
fiscal 2008, we launched a refranchising program for our Hardee’s concept.
During the twelve weeks ended November 3, 2008, we sold 23 company-operated
Hardee’s restaurants and related real property with a net book value of $2,560
to one franchisee. In connection with this transaction, we received aggregate
consideration of $4,075, including $605 in initial franchise fees, which is
included in franchised and licensed restaurants and other revenue, and we
recognized a net loss of $1,070 which is included in facility action charges,
net, in our Hardee’s segment.  During the forty weeks ended November 3,
2008, we sold 88 company-operated Hardee’s restaurants and related real property
with a net book value of $12,682 to three franchisees. In connection with these
transactions, we received aggregate consideration of $16,428, including $2,290
in initial franchise fees, which is included in franchised and licensed
restaurants and other revenue, and we recognized a net loss of $1,682, which is
included in facility action charges, net, in our accompanying Condensed
Consolidated Statement of Income for the forty weeks ended November 3, 2008, in
our Hardee’s segment. As part of these transactions, the franchisees acquired
the real property and/or subleasehold interest in the real property related to
the restaurant locations.




Related
Party Transaction





During
the forty weeks ended November 3, 2008, we sold three company-operated Carl’s
Jr. restaurants and related real property with a net book value of $1,068 to a
former executive and new franchisee. In connection with this transaction, we
received aggregate consideration of $2,173, including $100 in initial franchise
fees, which is included in franchised and licensed restaurants and other
revenue, and we recognized a net gain of $983, which is included in facility
action charges, net, in our accompanying Condensed Consolidated Statements of
Income for the forty weeks ended November 3, 2008, in our Carl’s Jr. segment. As
part of this transaction, the franchisee acquired the real property and/or
subleasehold interest in the real property related to the restaurant
locations.





Note 15 — Termination of a Franchise
Agreement





During the forty
weeks ended November 3, 2008, we terminated our franchise agreement and
subleases with a Hardee’s franchisee as a result of its inability to remedy, on
a timely basis, certain defaults under the terms of the agreements. As a result,
we assumed full operational control of their 32 open restaurants, six of which
were closed during the twelve weeks ended November 3, 2008. 12 of the affected
restaurants are located on leased premises that we sublet to the franchisee. The
remaining 14 are leased by the former franchisee from third parties and,
although we are operating the restaurants, we have not assumed any of the lease
rights or obligations for those properties. If we are unable to negotiate
acceptable lease terms for any of the leased locations, we may decide to close
the restaurants.





Note 16 — Supplemental Cash Flow
Information





Forty Weeks EndedNovember 3, 2008
                          
                          
                          November 5, 2007Cash
      paid for:Interest,
      net of amounts capitalized
                          
                          $
                          17,476
                          
                          
                          $
                          16,690Income
      taxes, net of refunds received
                          
                          $
                          1,863
                          
                          
                          $
                          6,837Non-cash
      investing and financing activities:Gain
      recognized on sale and leaseback transactions
                          
                          $
                          264
                          
                          
                          $
                          266Dividends
      declared, not paid
                          
                          $
                          3,279
                          
                          
                          $
                          3,304Capital
      lease obligation incurred to acquire assets
                          
                          $
                          761
                          
                          
                          $
                          —




During
the forty weeks ended November 3, 2008, we redeemed and converted the remaining
$15,167 of our 2023 Convertible Notes into 1,786,963 shares of our common stock
(see Note 4).


15
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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





CKE
Restaurants, Inc. and its subsidiaries (collectively referred to as the
“Company”) is comprised of the operations of Carl’s Jr., Hardee’s, Green Burrito
(which is primarily operated as a dual-branded concept with Carl’s Jr.
quick-service restaurants) and Red Burrito (which is operated as a dual-branded
concept with Hardee’s quick-service restaurants). The following Management’s
Discussion and Analysis should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements contained herein, and our Annual
Report on Form 10-K for the fiscal year ended January 31, 2008.





Matters
discussed in this Form 10-Q contain forward-looking statements relating to
future plans and developments, financial goals and operating performance that
are based on our current beliefs and assumptions. Such statements are subject to
risks and uncertainties that are often difficult to predict, are beyond our
control and which may cause results to differ materially from expectations.
Factors that could cause our results to differ materially from those described
include, but are not limited to, whether or not restaurants will be closed and
the number of restaurant closures, consumers’ concerns or adverse publicity
regarding our products, the effectiveness of operating initiatives and
advertising and promotional efforts (particularly at the Hardee’s brand),
changes in economic conditions or prevailing interest rates, changes in the
price or availability of commodities, availability and cost of energy, workers’
compensation and general liability premiums and claims experience, changes in
our suppliers’ ability to provide quality and timely products to us, delays in
opening new restaurants or completing remodels, severe weather conditions, the
operational and financial success of our franchisees, franchisees’ willingness
to participate in our strategies, the availability of financing for us and our
franchisees, unfavorable outcomes in litigation, changes in accounting policies
and practices, effectiveness of internal controls over financial reporting, new
legislation or government regulation (including environmental laws), the
availability of suitable locations and terms for the sites designated for
development, and other factors as discussed in our filings with the Securities
and Exchange Commission ("SEC").





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





New Accounting
Pronouncements Not Yet Adopted and Adoption of New Accounting Pronouncements





See Note
2 of Notes to Condensed Consolidated Financial Statements for a description of
the new accounting pronouncements that we have and have not yet
adopted.





Critical
Accounting Policies





Our
reported results are impacted by the application of certain accounting policies
that require us to make subjective or complex judgments. These judgments involve
making estimates about the effect of matters that are inherently uncertain and
may significantly impact our consolidated financial position and results of
operations. See our Annual Report on Form 10-K for the year ended January 31,
2008 for a description of our critical accounting policies. Specific risks
associated with these critical accounting policies are described in the
following paragraphs.





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





In
connection with analyzing long-lived assets to determine if they have been
impaired, we estimate future cash flows for each of our restaurants based upon
experience gained, current intentions about refranchising restaurants and
closures, expected sales trends, internal plans and other relevant information.
These estimates utilize key assumptions, such as same-store sales and the rates
at which restaurant operating costs will increase in the future. If our
same-store sales do not perform at or above our forecasted level, or if
restaurant operating cost increases exceed our forecast and we are unable to
recover such costs through price increases, the carrying value of certain of our
restaurants may prove to be unrecoverable and we may incur additional impairment
charges in the future.





16
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Impairment
of Goodwill





During
the first quarter of fiscal 2009, we evaluated the Carl’s Jr. brand, the only
one of our reporting units for which goodwill is recorded. As a result of our
annual impairment test, we concluded that the fair value of the net assets of
Carl’s Jr. exceeded the carrying value, and thus no impairment charge was
required. As of November 3, 2008, we had $22,649 in goodwill recorded in our
accompanying Condensed Consolidated Balance Sheet.





Estimated
Liability for Closed Restaurants





In
determining the amount of the estimated liability for closed restaurants, we
estimate the cost to maintain vacant leased properties until the lease can be
abated. If the costs to maintain properties increase, or it takes longer than
anticipated to sublease or terminate leases, we may need to record additional
estimated liabilities. If the leases on the vacant restaurants are not
terminated or subleased on the terms that we used to estimate the liabilities,
we may be required to record losses in future periods. Conversely, if the leases
on the vacant restaurants are terminated or subleased on more favorable terms
than we used to estimate the liabilities, we reverse previously established
estimated liabilities, resulting in an increase in operating
income.





Estimated
Liability for Self-Insurance





If we
experience a higher than expected number of claims or the costs of claims rise
more than the estimates used by management, developed with the assistance of our
actuary, our reserves would require adjustment and we would be required to
adjust the expected losses upward and increase our future self-insurance
expense.





Our
actuary provides us with estimated unpaid losses for each loss category, upon
which our analysis is based. As of November 3, 2008, our estimated liability for
self-insured workers’ compensation, general and auto liability losses was
$35,617.





Franchised
and Licensed Operations





We have
sublease agreements with some of our franchisees on properties for which we
remain principally liable for the lease obligations. If sales trends or economic
conditions worsen for our franchisees, their financial health may worsen, our
collection rates may decline and we may be required to assume the responsibility
for additional lease payments on franchised restaurants. The likelihood of
needing to increase the estimated liability for future lease obligations is
primarily related to the success of our Hardee’s concept, although we can
provide no assurance that our Carl’s Jr. franchisees will not experience a
similar level of financial difficulties as our Hardee’s
franchisees.





Income
Taxes





When
necessary, we record a valuation allowance to reduce our net deferred tax assets
to the amount that is more likely than not to be realized. In considering the
need for a valuation allowance against some portion or all of our deferred tax
assets, we must make certain estimates and assumptions regarding future taxable
income, the feasibility of tax planning strategies and other factors. Changes in
facts and circumstances or in the estimates and assumptions that are involved in
establishing and maintaining a valuation allowance against deferred tax assets
could result in adjustments to the valuation allowance in future quarterly or
annual periods.





We use an
estimate of our annual income tax rate to recognize a provision for income taxes
in financial statements for interim periods. However, changes in facts and
circumstances could result in adjustments to our effective tax rate in future
quarterly or annual periods.





17
 Table of Contents





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 2009 Comparisons
with Fiscal 2008





The
factors discussed below impact comparability of operating performance for the
twelve and forty weeks ended November 3, 2008 and November 5, 2007, or could
impact comparisons for the remainder of fiscal 2009.





Fiscal
Year and Seasonality





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





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





Operating
Review





The
following table sets forth the percentage relationship to total revenue, unless
otherwise indicated, of certain items included in our accompanying Condensed
Consolidated Statements of Income:





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Revenue:Company-operated
      restaurants
                
                
                75.9
                %
                
                
                77.7
                %
                
                
                76.2
                %
                
                
                78.7
                %Franchised
      and licensed restaurants and other
                
                
                24.1
                
                
                
                22.3
                
                
                
                23.8
                
                
                
                21.3Total
      revenue
                
                
                100.0
                
                
                
                100.0
                
                
                
                100.0
                
                
                
                100.0Operating
      costs and expenses:Restaurant
      operating costs (1):Food
      and packaging
                
                
                30.0
                
                
                
                30.1
                
                
                
                29.8
                
                
                
                29.7Payroll
      and other employee benefits
                
                
                27.9
                
                
                
                28.6
                
                
                
                28.4
                
                
                
                29.1Occupancy
      and other
                
                
                24.2
                
                
                
                22.9
                
                
                
                22.7
                
                
                
                22.1Total
      restaurant operating costs
                
                
                82.1
                
                
                
                81.6
                
                
                
                80.9
                
                
                
                80.9Franchised
      and licensed restaurants and other (2)
                
                
                75.8
                
                
                
                77.1
                
                
                
                76.6
                
                
                
                77.6Advertising
      (1)
                
                
                5.9
                
                
                
                5.8
                
                
                
                5.9
                
                
                
                5.9General
      and administrative
                
                
                9.3
                
                
                
                9.3
                
                
                
                9.4
                
                
                
                9.2Facility
      action charges, net
                
                
                0.4
                
                
                
                0.1
                
                
                
                0.2
                
                
                
                (0.1
                )Operating
      income
                
                
                5.3
                
                
                
                5.5
                
                
                
                6.1
                
                
                
                6.1Interest
      expense
                
                
                (2.8
                )
                
                
                (2.2
                )
                
                
                (1.4
                )
                
                
                (1.5
                )Other
      income, net
                
                
                0.2
                
                
                
                0.3
                
                
                
                0.2
                
                
                
                0.3Income
      before income taxes and discontinued operations
                
                
                2.7
                
                
                
                3.7
                
                
                
                4.9
                
                
                
                4.9Income
      tax expense
                
                
                1.1
                
                
                
                1.5
                
                
                
                1.9
                
                
                
                2.0Income
      from continuing operations
                
                
                1.6
                %
                
                
                2.1
                %
                
                
                3.0
                %
                
                
                2.9
                %





____________


(1)
            As
      a percent of company-operated restaurants
  revenue.





(2)
            As
      a percent of franchised and licensed restaurants and other
      revenue.





18
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





The
following table is presented to facilitate Management’s Discussion and Analysis
of Financial Condition and Results of Operations.





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Company-operated
      restaurants revenue
                
                $
                255,545
                
                
                $
                273,319
                
                
                $
                880,858
                
                
                $
                941,639Restaurant
      operating costs:Food
      and packaging
                
                
                76,785
                
                
                
                82,298
                
                
                
                262,214
                
                
                
                279,761Payroll
      and other employee benefits
                
                
                71,237
                
                
                
                78,261
                
                
                
                250,349
                
                
                
                273,901Occupancy
      and other
                
                
                61,841
                
                
                
                62,459
                
                
                
                199,687
                
                
                
                207,706Total
      restaurant operating costs
                
                
                209,863
                
                
                
                223,018
                
                
                
                712,250
                
                
                
                761,368Franchised
      and licensed restaurants and other revenue:Royalties
                
                
                19,592
                
                
                
                17,311
                
                
                
                64,757
                
                
                
                57,958Distribution
      centers
                
                
                51,858
                
                
                
                50,995
                
                
                
                178,693
                
                
                
                167,535Rent
                
                
                8,257
                
                
                
                6,998
                
                
                
                26,105
                
                
                
                22,969Retail
      sales of variable interest entity
                
                
                —
                
                
                
                807
                
                
                
                —
                
                
                
                2,593Franchise
      fees
                
                
                1,343
                
                
                
                2,192
                
                
                
                4,843
                
                
                
                3,821Total
      franchised and licensed restaurants and other revenue
                
                
                81,050
                
                
                
                78,303
                
                
                
                274,398
                
                
                
                254,876Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                
                
                3,236
                
                
                
                2,833
                
                
                
                11,145
                
                
                
                9,185Distribution
      centers
                
                
                51,955
                
                
                
                51,023
                
                
                
                178,518
                
                
                
                167,505Rent
      and other occupancy
                
                
                6,283
                
                
                
                5,753
                
                
                
                20,468
                
                
                
                18,491Operating
      costs of variable interest entity
                
                
                —
                
                
                
                764
                
                
                
                —
                
                
                
                2,504Total
      franchised and licensed restaurants and other expenses
                
                
                61,474
                
                
                
                60,373
                
                
                
                210,131
                
                
                
                197,685Advertising
                
                
                15,105
                
                
                
                15,829
                
                
                
                51,902
                
                
                
                55,861General
      and administrative
                
                
                31,156
                
                
                
                32,636
                
                
                
                108,037
                
                
                
                110,278Facility
      action charges, net
                
                
                1,242
                
                
                
                287
                
                
                
                2,666
                
                
                
                (1,513
                )Operating
      income
                
                $
                17,755
                
                
                $
                19,479
                
                
                $
                70,270
                
                
                $
                72,836








The
following table shows the change in our restaurant portfolio for the twelve and
forty weeks ended November 3, 2008:





Twelve Weeks Ended
                  
                  
                  Forty Weeks EndedCompany-
                    operated
                  
                  
                  Franchised
                    and Licensed
                  
                  
                  Total
                  
                  
                  Company-
                    operated
                  
                  
                  Franchised
                    and Licensed
                  
                  
                  TotalOpen
      at beginning of period
                  
                  
                  928
                  
                  
                  
                  2,172
                  
                  
                  
                  3,100
                  
                  
                  
                  967
                  
                  
                  
                  2,116
                  
                  
                  
                  3,083New
                  
                  
                  8
                  
                  
                  
                  24
                  
                  
                  
                  32
                  
                  
                  
                  16
                  
                  
                  
                  70
                  
                  
                  
                  86Closed
                  
                  
                  (10
                  )
                  
                  
                  (12
                  )
                  
                  
                  (22
                  )
                  
                  
                  (21
                  )
                  
                  
                  (38
                  )
                  
                  
                  (59
                  )Divested
                  
                  
                  (23
                  )
                  
                  
                  —
                  
                  
                  
                  (23
                  )
                  
                  
                  (91
                  )
                  
                  
                  (32
                  )
                  
                  
                  (123
                  )Acquired
                  
                  
                  —
                  
                  
                  
                  23
                  
                  
                  
                  23
                  
                  
                  
                  32
                  
                  
                  
                  91
                  
                  
                  
                  123Open
      at November 3, 2008
                  
                  
                  903
                  
                  
                  
                  2,207
                  
                  
                  
                  3,110
                  
                  
                  
                  903
                  
                  
                  
                  2,207
                  
                  
                  
                  3,110





19
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Carl’s
Jr.





Twelve Weeks Ended
                
                
                Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007
                
                
                November 3, 2008
                
                
                November 5, 2007Company-operated
      restaurants revenue
                
                $
                140,307
                
                
                $
                135,849
                
                
                $
                482,669
                
                
                $
                455,971Restaurant
      operating costs:Food
      and packaging
                
                
                41,319
                
                
                
                39,642
                
                
                
                141,753
                
                
                
                132,820Payroll
      and other employee benefits
                
                
                36,842
                
                
                
                35,484
                
                
                
                128,343
                
                
                
                122,880Occupancy
      and other
                
                
                34,024
                
                
                
                31,976
                
                
                
                110,130
                
                
                
                102,319Total
      restaurant operating costs
                
                
                112,185
                
                
                
                107,102
                
                
                
                380,226
                
                
                
                358,019Franchised
      and licensed restaurants and other revenue:Royalties
                
                
                7,623
                
                
                
                7,221
                
                
                
                26,003
                
                
                
                24,413Distribution
      centers
                
                
                45,984
                
                
                
                44,079
                
                
                
                159,876
                
                
                
                149,330Rent
                
                
                4,957
                
                
                
                5,067
                
                
                
                16,315
                
                
                
                17,074Franchise
      fees
                
                
                443
                
                
                
                393
                
                
                
                1,517
                
                
                
                1,195Total
      franchised and licensed restaurants and other revenue
                
                
                59,007
                
                
                
                56,760
                
                
                
                203,711
                
                
                
                192,012Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                
                
                1,677
                
                
                
                1,316
                
                
                
                5,553
                
                
                
                4,522Distribution
      centers
                
                
                45,966
                
                
                
                44,059
                
                
                
                159,297
                
                
                
                149,148Rent
      and other occupancy
                
                
                4,326
                
                
                
                4,287
                
                
                
                14,191
                
                
                
                14,469Total
      franchised and licensed restaurants and other expenses
                
                
                51,969
                
                
                
                49,662
                
                
                
                179,041
                
                
                
                168,139Advertising
                
                
                8,436
                
                
                
                8,143
                
                
                
                28,557
                
                
                
                26,949General
      and administrative
                
                
                13,524
                
                
                
                12,898
                
                
                
                45,802
                
                
                
                42,868Facility
      action charges, net
                
                
                329
                
                
                
                234
                
                
                
                (840
                )
                
                
                950Operating
      income
                
                $
                12,871
                
                
                $
                14,570
                
                
                $
                53,594
                
                
                $
                51,058Company-operated
      average unit volume (trailing-13 periods)
                
                $
                1,529
                
                
                $
                1,486Franchise-operated
      average unit volume (trailing-13 periods)
                
                $
                1,192
                
                
                $
                1,201Company-operated
      same-store sales increase
                
                
                0.5
                %
                
                
                0.7
                %
                
                
                2.9
                %
                
                
                0.8
                %Franchise-operated
      same-store sales decrease
                
                
                (2.2
                )%
                
                
                (1.3
                )%
                
                
                (1.0
                )%
                
                
                (0.1
                )%Company-operated
      same-store transaction decrease
                
                
                (4.3
                )%
                
                
                (1.2
                )%
                
                
                (0.6
                )%
                
                
                (3.1
                )%Average
      check (actual $)
                
                $
                7.07
                
                
                $
                6.62
                
                
                $
                7.02
                
                
                $
                6.73Restaurant
      operating costs as a percentage of company-operated restaurants
      revenue:Food
      and packaging
                
                
                29.4
                %
                
                
                29.2
                %
                
                
                29.4
                %
                
                
                29.1
                %Payroll
      and other employee benefits
                
                
                26.3
                %
                
                
                26.1
                %
                
                
                26.6
                %
                
                
                26.9
                %Occupancy
      and other
                
                
                24.2
                %
                
                
                23.5
                %
                
                
                22.8
                %
                
                
                22.4
                %Total
      restaurant operating costs
                
                
                80.0
                %
                
                
                78.8
                %
                
                
                78.8
                %
                
                
                78.5
                %Advertising
      as a percentage of company-operated restaurants revenue
                
                
                6.0
                %
                
                
                6.0
                %
                
                
                5.9
                %
                
                
                5.9
                %





20
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





The
following table shows the change in our restaurant portfolio for the twelve and
forty weeks ended November 3, 2008:





Twelve Weeks Ended
                
                
                Forty Weeks EndedCompany-
                  operated
                
                
                Franchised
                  and licensed
                
                
                Total
                
                
                Company-
                  operated
                
                
                Franchised
                  and licensed
                
                
                TotalOpen
      at beginning of period
                
                
                408
                
                
                
                762
                
                
                
                1,170
                
                
                
                406
                
                
                
                735
                
                
                
                1,141New
                
                
                6
                
                
                
                15
                
                
                
                21
                
                
                
                11
                
                
                
                40
                
                
                
                51Closed
                
                
                (2
                )
                
                
                (4
                )
                
                
                (6
                )
                
                
                (2
                )
                
                
                (5
                )
                
                
                (7
                )Divested
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (3
                )
                
                
                —
                
                
                
                (3
                )Acquired
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3
                
                
                
                3Open
      at November 3, 2008
                
                
                412
                
                
                
                773
                
                
                
                1,185
                
                
                
                412
                
                
                
                773
                
                
                
                1,185






Company-Operated
Restaurants





Revenue
from company-operated Carl’s Jr. restaurants increased $4,458, or 3.3%, to
$140,307 during the twelve weeks ended November 3, 2008, as compared to the
twelve weeks ended November 5, 2007. This increase was primarily due to a $43
increase in average unit volume, which reached $1,529, an increase in same-store
sales of 0.5%, and the opening of 18 new company-operated restaurants since the
end of the third quarter of fiscal 2008, partially offset by three restaurants
divested to a franchisee and four closed company-operated restaurants.





Revenue
from company-operated Carl’s Jr. restaurants increased $26,698, or 5.9%, to
$482,669 during the forty weeks ended November 3, 2008, as compared to the forty
weeks ended November 5, 2007. This increase is mainly due to the $43 increase in
average unit volume, a 2.9% increase in same-store sales, and the net impact of
the changes in our company-operated restaurant portfolio discussed above. We
believe our average unit volume and same-store sales increases are primarily due
to increased sales resulting from recent restaurant remodeling and our continued
focus on offering premium products that compete based on quality, innovation and
taste.





The
changes in the restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:




Twelve
                Weeks
              
              
              Forty
                WeeksRestaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the period ended November 5, 2007
              
              
              78.8
              %
              
              
              78.5
              %Increase
      in utilities expense
              
              
              0.5
              
              
              
              0.4Increase
      in depreciation and amortization expense
              
              
              0.4
              
              
              
              0.4Increase
      (decrease) in workers’ compensation expense
              
              
              0.2
              
              
              
              (0.4
              )Increase
      in rent expense
              
              
              0.3
              
              
              
              —Increase
      in food and packaging costs
              
              
              0.2
              
              
              
              0.3Decrease
      in supplies and uniforms expense
              
              
              (0.2
              )
              
              
              —Decrease
      in repairs and maintenance
              
              
              —
              
              
              
              (0.2
              )Other,
      net
              
              
              (0.2
              )
              
              
              (0.2
              )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the period ended November 3, 2008
              
              
              80.0
              %
              
              
              78.8
              %




Utilities
expense increased as a percent of company-operated restaurants revenue during
the twelve and forty weeks ended November 3, 2008, from the comparable prior
year periods, mainly due to rate increases for natural gas and
electricity.




Depreciation
and amortization expense as a percent of company-operated restaurants revenue
increased during the twelve and forty weeks ended November 3, 2008, from the
comparable prior year periods, mainly due to increased restaurant remodel
activity.





21
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Workers’
compensation expense decreased as a percent of company-operated restaurants
revenue during the forty weeks ended November 3, 2008, from the comparable prior
year period due primarily to the impact of an increase of $2,487 in our
self-insured workers’ compensation liability in the prior year period related to
a single claim from 1982.








Food and
packaging costs as a percent of company-operated restaurants revenue increased
during the forty weeks ended November 3, 2008, as compared to the prior
year period, due primarily to higher commodity costs for beef,
pork, cheese, potato and oil products. In addition, during
the forty weeks ended November 5, 2007, we recognized vendor credits
related to previously purchased inventories that did not recur in the current
year period.




Franchised
and Licensed Restaurants





Total
franchised and licensed restaurants and other revenue increased $2,247, or 4.0%,
to $59,007 during the twelve weeks ended November 3, 2008, as compared to the
twelve weeks ended November 5, 2007. Distribution center sales of food, paper
and supplies to franchisees increased by $1,905, or 4.3%, primarily due to the
increase in the franchise store base over the comparable prior year period and
an increase in the cost of food, paper and supplies, upon which the sales price
of those items is based. Franchise royalties grew $402, or 5.6%, during the
twelve weeks ended November 3, 2008, as compared to the twelve weeks ended
November 5, 2007, due to the net increase of 53 domestic and international
franchised and licensed restaurants during the trailing-13 periods ended
November 3, 2008.





Total
franchised and licensed restaurants and other revenue increased $11,699, or
6.1%, to $203,711 during the forty weeks ended November 3, 2008, as compared to
the forty weeks ended November 5, 2007. Distribution center sales of food, paper
and supplies to franchisees increased by $10,546, or 7.1%, primarily due to the
increase in the franchise store base over the comparable prior year period and
an increase in the cost of food, paper and supplies, upon which the sales price
of those items is based. Franchise royalties grew $1,590, or 6.5%, during the
forty weeks ended November 3, 2008, as compared to the forty weeks ended
November 5, 2007, due to the increase in domestic and international
franchised and licensed restaurants discussed above. Rental revenue decreased by
$759, or 4.4%, due to lease terminations and expirations and a same-store sales
decrease on franchise restaurants that pay rent calculated as a percent of
revenue.





Franchised
and licensed restaurants and other expenses increased $2,307, or 4.6%, to
$51,969 during the twelve weeks ended November 3, 2008, as compared to the prior
year period. This increase is mainly due to an increase in sales to franchisees
and the relatively proportional increase in the cost of food, paper and supplies
sold, as well as an increase in distribution costs related to higher fuel, labor
and other costs.





Franchised
and licensed restaurants and other expenses increased $10,902 or 6.5%, to
$179,041 during the forty weeks ended November 3, 2008, as compared to the prior
year period. This increase is mainly due to an increase in sales to franchisees
and the relatively proportional increase in the cost of food, paper and supplies
sold.





As of
November 3, 2008, approximately 84.2% of Carl’s Jr. franchised and licensed
restaurants purchase food, paper and other supplies from us.





22
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Hardee’s





Twelve Weeks Ended
                              
                              
                              Forty Weeks EndedNovember 3, 2008
                              
                              
                              November 5, 2007
                              
                              
                              November 3,
      2008
                              
                              November 5, 2007Company-operated
      restaurants revenue
                              
                              $
                              115,171
                              
                              
                              $
                              137,395
                              
                              
                              $
                              397,967
                              
                              
                              $
                              485,419Restaurant
      operating costs:Food
      and packaging
                              
                              
                              35,438
                              
                              
                              
                              42,638
                              
                              
                              
                              120,383
                              
                              
                              
                              146,866Payroll
      and other employee benefits
                              
                              
                              34,365
                              
                              
                              
                              42,746
                              
                              
                              
                              121,904
                              
                              
                              
                              150,919Occupancy
      and other
                              
                              
                              27,796
                              
                              
                              
                              30,459
                              
                              
                              
                              89,486
                              
                              
                              
                              105,299Total
      restaurant operating costs
                              
                              
                              97,599
                              
                              
                              
                              115,843
                              
                              
                              
                              331,773
                              
                              
                              
                              403,084Franchised
      and licensed restaurants and other revenue:Royalties
                              
                              
                              11,821
                              
                              
                              
                              9,960
                              
                              
                              
                              38,305
                              
                              
                              
                              33,142Distribution
      centers
                              
                              
                              5,874
                              
                              
                              
                              6,919
                              
                              
                              
                              18,817
                              
                              
                              
                              18,213Rent
                              
                              
                              3,303
                              
                              
                              
                              1,931
                              
                              
                              
                              9,793
                              
                              
                              
                              5,895Franchise
      fees
                              
                              
                              897
                              
                              
                              
                              1,799
                              
                              
                              
                              3,313
                              
                              
                              
                              2,626Total
      franchised and licensed restaurants and other revenue
                              
                              
                              21,895
                              
                              
                              
                              20,609
                              
                              
                              
                              70,228
                              
                              
                              
                              59,876Franchised
      and licensed restaurants and other expenses:Administrative
      expense (including provision for bad debts)
                              
                              
                              1,559
                              
                              
                              
                              1,517
                              
                              
                              
                              5,591
                              
                              
                              
                              4,663Distribution
      centers
                              
                              
                              5,989
                              
                              
                              
                              6,964
                              
                              
                              
                              19,221
                              
                              
                              
                              18,357Rent
      and other occupancy
                              
                              
                              1,957
                              
                              
                              
                              1,466
                              
                              
                              
                              6,277
                              
                              
                              
                              4,022Total
      franchised and licensed restaurants and other expenses
                              
                              
                              9,505
                              
                              
                              
                              9,947
                              
                              
                              
                              31,089
                              
                              
                              
                              27,042Advertising
                              
                              
                              6,656
                              
                              
                              
                              7,686
                              
                              
                              
                              23,331
                              
                              
                              
                              28,909General
      and administrative
                              
                              
                              17,591
                              
                              
                              
                              19,694
                              
                              
                              
                              62,101
                              
                              
                              
                              67,255Facility
      action charges, net
                              
                              
                              914
                              
                              
                              
                              235
                              
                              
                              
                              3,507
                              
                              
                              
                              (2,463
                              )Operating
      income
                              
                              $
                              4,801
                              
                              
                              $
                              4,599
                              
                              
                              $
                              16,394
                              
                              
                              $
                              21,468Company-operated
      average unit volume (trailing-13 periods)
                              
                              $
                              982
                              
                              
                              $
                              945Franchise-operated
      average unit volume (trailing-13 periods)
                              
                              $
                              971
                              
                              
                              $
                              969Company-operated
      same-store sales increase
                              
                              
                              1.3
                              %
                              
                              
                              2.7
                              %
                              
                              
                              1.1
                              %
                              
                              
                              2.4
                              %Franchise-operated
      same-store sales increase
                              
                              
                              2.5
                              %
                              
                              
                              0.4
                              %
                              
                              
                              0.8
                              %
                              
                              
                              0.5
                              %Company-operated
      same-store transaction (decrease) increase
                              
                              
                              (3.5
                              )%
                              
                              
                              1.8
                              %
                              
                              
                              (3.2
                              )%
                              
                              
                              1.9
                              %Average
      check (actual $)
                              
                              $
                              5.09
                              
                              
                              $
                              4.87
                              
                              
                              $
                              5.14
                              
                              
                              $
                              4.93Restaurant
      operating costs as a percentage of company-operated restaurants
      revenue:Food
      and packaging
                              
                              
                              30.8
                              %
                              
                              
                              31.0
                              %
                              
                              
                              30.2
                              %
                              
                              
                              30.3
                              %Payroll
      and other employee benefits
                              
                              
                              29.8
                              %
                              
                              
                              31.1
                              %
                              
                              
                              30.6
                              %
                              
                              
                              31.1
                              %Occupancy
      and other
                              
                              
                              24.1
                              %
                              
                              
                              22.2
                              %
                              
                              
                              22.5
                              %
                              
                              
                              21.7
                              %Total
      restaurant operating costs
                              
                              
                              84.7
                              %
                              
                              
                              84.3
                              %
                              
                              
                              83.4
                              %
                              
                              
                              83.0
                              %Advertising
      as a percentage of company-operated restaurants revenue
                              
                              
                              5.8
                              %
                              
                              
                              5.6
                              %
                              
                              
                              5.9
                              %
                              
                              
                              6.0
                              %





23
 Table of Contents





CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





The
following table shows the change in our restaurant portfolio for the twelve and
forty weeks ended November 3, 2008:





Twelve Weeks Ended
                
                
                Forty Weeks EndedCompany-
                  operated
                
                
                Franchised
                  and licensed
                
                
                Total
                
                
                Company-
                  operated
                
                
                Franchised
                  and licensed
                
                
                TotalOpen
      at beginning of period
                
                
                519
                
                
                
                1,398
                
                
                
                1,917
                
                
                
                560
                
                
                
                1,366
                
                
                
                1,926New
                
                
                2
                
                
                
                9
                
                
                
                11
                
                
                
                5
                
                
                
                30
                
                
                
                35Closed
                
                
                (8
                )
                
                
                (8
                )
                
                
                (16
                )
                
                
                (19
                )
                
                
                (30
                )
                
                
                (49
                )Divested
                
                
                (23
                )
                
                
                —
                
                
                
                (23
                )
                
                
                (88
                )
                
                
                (32
                )
                
                
                (120
                )Acquired
                
                
                —
                
                
                
                23
                
                
                
                23
                
                
                
                32
                
                
                
                88
                
                
                
                120Open
      at November 3, 2008
                
                
                490
                
                
                
                1,422
                
                
                
                1,912
                
                
                
                490
                
                
                
                1,422
                
                
                
                1,912








Company-Operated
Restaurants





Revenue
from company-operated Hardee’s restaurants decreased $22,224, or 16.2%, to
$115,171 during the twelve weeks ended November 3, 2008, as compared to the
comparable prior year period. This decrease is mostly due to the net decrease of
94 company-operated restaurants since the end of the third quarter of fiscal
2008, which resulted from the divestiture of 118 company-operated restaurants to
franchisees and the closure of 20 company-operated restaurants. This decrease
was partially offset by a same-store sales increase of 1.3%, an increase in
average unit volume and the additional revenues from seven new
company-operated restaurants that opened during the same period and 37
restaurants that we acquired from two franchisees.





During
the forty weeks ended November 3, 2008, revenue from company-operated
restaurants decreased $87,452, or 18.0%, to $397,967 as compared to the forty
weeks ended November 5, 2007. This decrease is primarily due to the net impact
of the changes in our restaurant portfolio discussed above, partially offset by
a same-store sales increase of 1.1%.





The
changes in the restaurant operating costs as a percentage of company-operated
restaurants revenue are explained as follows:


Twelve
                Weeks
              
              
              Forty
                WeeksRestaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the period ended November 5, 2007
              
              
              84.3
              %
              
              
              83.0
              %Decrease
      in labor costs, excluding workers’ compensation
              
              
              (1.2
              )
              
              
              (0.3
              )Increase
      in depreciation and amortization expense
              
              
              0.9
              
              
              
              0.6Increase
      in utilities expense
              
              
              0.6
              
              
              
              0.3Increase
      in asset disposal expense
              
              
              0.6
              
              
              
              0.3Decrease
      in repairs and maintenance
              
              
              (0.2
              )
              
              
              (0.4
              )Increase
      in rent expense
              
              
              0.3
              
              
              
              0.1Decrease
      in food and packaging costs
              
              
              (0.2
              )
              
              
              (0.1
              )Other,
      net
              
              
              (0.4
              )
              
              
              (0.1
              )Restaurant
      operating costs as a percentage of company-operated restaurants revenue
      for the period ended November 3, 2008
              
              
              84.7
              %
              
              
              83.4
              %




Labor
costs, excluding workers’ compensation expense, decreased as a percent of
company-operated restaurants revenue during the twelve and forty weeks ended
November 3, 2008, as compared to the prior year periods, due primarily to sales
leverage and more efficient use of labor, partially offset by an increase in
restaurant manager bonuses due to the performance of the restaurants against
certain performance criteria.





Depreciation
and amortization expense increased as a percent of company-operated restaurants
revenue during the twelve and forty weeks ended November 3, 2008, from the
comparable prior year periods, mainly due to increased restaurant remodel
activity, asset additions from new restaurant openings and the impact of
refranchising company-operated restaurants that had a higher proportion of fully
depreciated assets.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Utilities
expense increased as a percent of company-operated restaurants revenue during
the twelve and forty weeks ended November 3, 2008, from the comparable prior
year periods, mainly due to natural gas and electricity rate
increases.





Asset disposal
expense increased as a percent of company-operated restaurants revenue during
the twelve and forty weeks ended November 3, 2008, from the comparable prior
year periods, mainly due to $413 of asset disposals related
to two restaurant rebuilds during the current year periods and asset
disposals resulting from our ongoing remodel program.





Repairs
and maintenance expense decreased as a percent of company-operated restaurants
revenue during the forty weeks ended November 3, 2008, as compared to the prior
year period. During the forty weeks ended November 5, 2007, repairs and
maintenance costs were unusually high due to the restaurants acquired in
connection with the termination of a franchise agreement.





Rent
expense increased as a percent of company-operated restaurants revenue during
the twelve weeks ended November 3, 2008, from the comparable prior year period,
due to the termination of a franchise agreement and our assumption of full
operational control of those restaurants under operating leases. Some of these
leases have unreasonable rent and if we are unable to negotiate acceptable lease
terms for them, we may decide to close the restaurants.  There was no
similar activity in the prior year period.


Franchised
and Licensed Restaurants





Total
franchised and licensed restaurants and other revenue increased $1,286, or 6.2%,
to $21,895 during the twelve weeks ended November 3, 2008, as compared to the
prior year period. This increase is mainly due to an increase in royalty
revenues of $1,861, or 18.7%, which is primarily due to the increase in the
number of franchised restaurants resulting from our refranchising program. In
addition, there was a $1,372 increase in sublease rental revenue, primarily due
to rent related to restaurants that were divested in our refranchising efforts
and an increase of $656 in collections of previously unrecognized rent from
financially troubled franchisees. These increases were partially offset
by a decrease in distribution center revenues of $1,045, or 15.1%, due to
decreased new store construction and remodel activity, and a decrease in
franchise fees of $902, or 50.1%, related mainly to a reduction in restaurant
divestitures as compared to the prior year period.





Total
franchised and licensed restaurants and other revenue increased $10,352, or
17.3%, to $70,228 during the forty weeks ended November 3, 2008, as compared to
the prior year period. This increase is mainly due to an increase in
royalty revenues of $5,163, or 15.6%, which is primarily due to the increase in
the number of franchised restaurants resulting from our refranchising
program.  In addition, there was a $3,898 increase in sublease rental
revenue, primarily due to rent related to restaurants that were divested in our
refranchising efforts and an increase of $1,310 in collections of previously
unrecognized rent from financially troubled franchisees over the prior year
period. We also experienced an increase in distribution center revenues of $604,
due to increased new store construction and remodel activity earlier in the
year,and an increase
of $687 in franchise fees primarily resulting from our refranchising
efforts.





Franchised
and licensed restaurants and other expenses decreased $442, or 4.4%, to $9,505,
during the twelve weeks ended November 3, 2008, as compared to the prior year
period. This decrease in costs is mainly due to a $975 decrease
in distribution center costs (due to the related decrease in equipment
sales) and an increase of $491 in rent expense related to an increase in the
number of franchised restaurants that sublease property from us as a result of
our refranchising program.





Franchised
and licensed restaurants and other expenses increased $4,047, or 15.0%, to
$31,089, during the forty weeks ended November 3, 2008, as compared to the prior
year period. This increase in costs is mainly due to a $864 increase in
distribution center costs (due to the related increase in equipment sales) and a
$2,255 increase in rent expense related to an increase in the number of
franchised restaurants that sublease property from us as a result of our
refranchising program. We also had increased administrative costs of $928 as
compared to the prior year period. This increase is mainly due to increased
salaries and benefits expense due to the addition of new positions to
support our refranchising efforts and various other expenses.








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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Consolidated
Expenses





General
and Administrative Expense





General
and administrative expenses decreased $1,480, or 4.5%, to $31,156, but remained
a consistent 9.3% of total revenue, for the twelve weeks ended November 3, 2008,
as compared to the twelve weeks ended November 5, 2007. This decrease was mainly
due to a $715 decrease in training costs, primarily for operations, an $856
decrease in regional administrative costs, due to headcount reductions and other
cost decreases resulting primarily from our refranchising program, and a $427
decrease in software depreciation. These decreases were partially offset by
increased management bonuses of $663 based on our performance relative to
executive management and operations bonus criteria.





General
and administrative expenses decreased $2,241, or 2.0%, to $108,037, but
increased 0.2% to 9.4% of total revenue, for the forty weeks ended November 3,
2008, as compared to the forty weeks ended November 5, 2007. This decrease was
mainly due to a $2,937 decrease in training costs, primarily for operations, a
$2,644 decrease in regional administrative costs, due to headcount reductions
and other cost decreases resulting from our refranchising program, a $1,170
decrease in software depreciation, and a $438 decrease in aviation costs. 
These decreases were partially offset by a $1,827 increase in share-based
compensation expense, as a result of the issuance of additional stock options
and restricted stock awards in fiscal 2008 that continue to vest in fiscal 2009
and increased management bonuses of $2,852 based on our performance relative to
executive management and operations bonus criteria.





We
currently expect to record approximately $2,800 of share-based compensation
expense in the fourth quarter of fiscal 2009, which would be relatively
consistent with the comparable prior year period. The actual charge will be
dependent upon various factors, including our actual performance against the
specified performance goals for fiscal 2009.








Interest
Expense





During
the twelve weeks ended November 3, 2008, interest expense increased $1,677, or
21.8%, to $9,363, as compared to the twelve weeks ended November 5, 2007. This
increase is primarily due to an increase of $3,072 in the expense during the
current period to adjust the carrying value of our interest rate swap
agreements to fair value. This was partially offset by a $1,283 reduction in
interest expense on our Facility, due to decreased average outstanding
borrowings and lower interest rates during the current year period as compared
to the prior year period.
 
 During
the forty weeks ended November 3, 2008, interest expense decreased $1,112, or
6.4%, to $16,330, as compared to the comparable prior year period. This decrease
is primarily due to a decrease of $1,181 in the expense recognized during the
current period to adjust the carrying value of our interest rate swap
agreements to fair value. In addition, there was a decrease of $485 of interest
expense due to the continued reduction of our capital lease obligations. These
decreases were partially offset by a $417 increase in the interest on our
Facility due to increased average outstanding borrowings earlier in the
year which were primarily used for the prior year repurchases of our common
stock and our capital expenditures for new restaurants and remodels. See Note 4
of Notes to Condensed Consolidated Financial Statements for additional detail of
the components of interest expense.





Income
Tax Expense





Our
income tax expense during the forty weeks ended November 3, 2008 was reduced by
$1,273 due to the impact of recent tax regulations. We expect our effective
income tax rate for the remainder of fiscal 2009 to be approximately 41%. See
Note 10 of Notes to Condensed Consolidated Financial Statements for additional
detail of the components of income tax expense. See “Liquidity and Capital
Resources” for a discussion of the expected impact of income taxes on our
liquidity.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Presentation
of Non-GAAP Measurements





Adjusted
EBITDA





Adjusted
EBITDA is not a recognized term under GAAP and does not purport to be an
alternative to income from operations, an indicator of cash flow from operations
or a measure of liquidity. As shown in the table below and defined in our
Facility, Adjusted EBITDA is calculated as earnings before cumulative effect of
accounting changes, interest expense, income taxes, depreciation and
amortization, facility action charges, share-based compensation expense,
impairment of goodwill and impairment of assets held for sale. Because not all
companies calculate Adjusted EBITDA identically, this presentation of Adjusted
EBITDA may not be comparable to similarly titled measures of other companies.
Adjusted EBITDA is not intended to be a measure of free cash flow for
management’s discretionary use, as it does not consider certain cash
requirements such as interest expense, income taxes, debt service payments and
cash costs arising from facility actions. Our maximum annual capital
expenditures are limited by our Facility, based on a sliding scale driven by our
Adjusted EBITDA.





Twelve Weeks Ended
              
              
              Forty Weeks Ended
              
              
              Trailing-13
                Periods
      EndedNovember 3, 2008
              
              
              November 5, 2007
              
              
              November 3, 2008
              
              
              November 5, 2007
              
              
              November 3, 2008Net
      income
              
              $
              5,388
              
              
              $
              6,202
              
              
              $
              34,348
              
              
              $
              30,978
              
              
              $
              34,446Interest
      expense
              
              
              9,363
              
              
              
              7,686
              
              
              
              16,330
              
              
              
              17,464
              
              
              
              31,921Income
      tax expense
              
              
              3,773
              
              
              
              4,888
              
              
              
              21,882
              
              
              
              25,692
              
              
              
              22,802Depreciation
      and amortization
              
              
              14,835
              
              
              
              14,769
              
              
              
              48,141
              
              
              
              49,679
              
              
              
              62,564Facility
      action charges, net
              
              
              1,242
              
              
              
              287
              
              
              
              2,666
              
              
              
              (2,218
              )
              
              
              3,602Share-based
      compensation expense
              
              
              2,658
              
              
              
              2,850
              
              
              
              9,524
              
              
              
              7,755
              
              
              
              13,147Adjusted
      EBITDA
              
              $
              37,259
              
              
              $
              36,682
              
              
              $
              132,891
              
              
              $
              129,350
              
              
              $
              168,482





Liquidity
and Capital Resources





Over the
past several months, worldwide capital and credit markets have seen
unprecedented volatility. We are closely monitoring the potential impact of
these market conditions on our liquidity. To date, these market conditions have
not had any material adverse impact on our liquidity or the availability of
committed funds under our Facility. Based on information available to
us, all of the financial institutions syndicated under our Facility are
able to fulfill their commitments as of December 10, 2008.  However, there
can be no assurance that one or more of them may not be able to fulfill their
future funding obligations.





Notwithstanding
the above, we expect that our cash on hand, coupled with future cash flows from
operations and borrowings under our Facility will provide sufficient liquidity
to allow us to service existing debt and to meet our operating and capital
requirements for at least the next 12 months. We believe our most significant
cash use during the next 12 months will be for capital expenditures. Based on
our current capital spending projections, we expect capital expenditures to be
between $120,000 and $130,000 for fiscal 2009 and between $100,000 to $110,000
for fiscal 2010. Under the terms of our Facility, we have no significant debt
maturities coming due until April 1, 2012. See Note 4 of Notes to Condensed
Consolidated Financial Statements for more information on our existing
debt.





As a
result of our income tax credit carryforwards and expected reversals of
temporary differences, we expect that our fiscal 2009 obligation for federal,
state and foreign income taxes will be approximately 17% of our income before
income taxes in fiscal 2009. This rate results primarily from federal income
taxes reduced by available alternative minimum tax and general business tax
credits, as well as state and foreign income taxes. Our actual cash requirements
for income taxes could vary significantly from our expectations for a number of
reasons, including, but not limited to, unanticipated fluctuations in our
deferred income tax assets and liabilities, unexpected gains from significant
transactions, unexpected outcomes of income tax audits, and changes in tax
law.





During
fiscal 2008, we launched a refranchising program for our Hardee’s concept.
During the twelve weeks ended November 3, 2008, we sold 23 company-operated
Hardee’s restaurants and related real property with a net book value of $2,560
to one franchisee. In connection with this transaction, we received aggregate
consideration of $4,075, including $605 in initial franchise fees, which is
included in franchised and licensed restaurants and other revenue, and we
recognized a net loss of $1,070, which is included in facility action charges,
net, in our Hardee’s segment.  During the forty weeks ended November
3, 2008, we sold 88 company-operated Hardee’s restaurants and related real
property with a net book value of $12,682 to three franchisees. In connection
with these transactions, we received aggregate consideration of $16,428,
including $2,290 in initial franchise fees, which is included in franchised and
licensed restaurants and other revenue, and we recognized a net loss of $1,682,
which is included in facility action charges, net, in our accompanying Condensed
Consolidated Statement of Income for the forty weeks ended November 3, 2008, in
our Hardee’s segment. As part of these transactions, the franchisees acquired
the real property and/or subleasehold interest in the real property related to
the restaurant locations.





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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





During
the forty weeks ended November 3, 2008, we sold three company-operated Carl’s
Jr. restaurants and related real property with a net book value of $1,068 to a
former executive and new franchisee. In connection with this transaction, we
received aggregate consideration of $2,173, including $100 in initial franchise
fees, which is included in franchised and licensed restaurants and other
revenue, and we recognized a net gain of $983, which is included in facility
action charges, net, in our accompanying Condensed Consolidated Statements of
Income for the forty weeks ended November 3, 2008, in our Carl’s Jr. segment. As
part of this transaction, the franchisee acquired the real property and/or
subleasehold interest in the real property related to the restaurant
locations.





During
the forty weeks ended November 3, 2008, we terminated our franchise agreement
and subleases with a Hardee’s franchisee as a result of its inability to remedy,
on a timely basis, certain defaults under the terms of the agreements. As a
result, we assumed full operational control of their 32 open restaurants, six of
which were closed during the twelve weeks ended November 3, 2008. 12 of the
affected restaurants are located on leased premises that we sublet to the
franchisee. The remaining 14 are leased by the former franchisee from third
parties and, although we are operating the restaurants, we have
not assumed any of the lease rights or obligations for those properties. If
we are unable to negotiate acceptable lease terms for any of the leased
locations, we may decide to close the restaurants.





Our
Facility provides for a $470,000 senior secured credit facility consisting of a
$200,000 revolving credit facility and a $270,000 term loan. The revolving
credit facility matures on March 27, 2012, and includes an $85,000 letter of
credit sub-facility. During the twelve and forty weeks ended November 3, 2008,
we made aggregate principal payments of $675 and $15,815, respectively, on the
term loan. As of November 3, 2008, we had (i) borrowings outstanding under the
term loan portion of our Facility of $252,410, (ii) borrowings outstanding under
the revolving portion of our Facility of $65,000, (iii) outstanding letters of
credit under the revolving portion of our Facility of $35,893, and (iv)
availability under the revolving portion of our Facility of
$99,107.





Our
Facility permits us to make additional common stock repurchases and/or pay cash
dividends of $58,434 as of November 3, 2008. In addition, the amount that
we may spend to repurchase our common stock and/or pay dividends is increased
each year by a portion of excess cash flow (as defined in our Facility) during
the term of our Facility. Our Facility also permits us to make annual capital
expenditures in the amount of $85,000, plus 80% of the amount of actual Adjusted
EBITDA (as defined in our Facility) in excess of $150,000. In addition, we may
reinvest proceeds from the sale of assets and carry forward certain unused
capital expenditure amounts to the following year. As of November 3, 2008, we
expect to be permitted to make total capital expenditures of $171,379 in
fiscal 2009.





The terms
of our Facility include financial performance covenants, which include a maximum
leverage ratio, and certain restrictive covenants. Among other things, these
covenants restrict our ability to incur debt, incur liens on our assets, make
any significant change in our corporate structure or the nature of our business,
prepay certain debt, engage in a change of control transaction without the
member banks’ consents and make investments or acquisitions. Our Facility is
collateralized by a lien on all of our personal property assets and liens on
certain restaurant properties. We were in compliance with these covenants and
all other requirements of our Facility as of November 3, 2008.





We have
fixed rate swap agreements (which were amended effective September 10, 2008)
with various counterparties to effectively fix future interest payments on
$200,000 of our term loan debt at 6.12%.  These agreements will expire on
March 12, 2012.  These derivative instruments were not designated as
cash flow hedges under the terms of SFAS 133. Accordingly, the change in the
fair value of the interest rate swap agreements is recognized in interest
expense in our Condensed Consolidated Statements of Income.  During the
twelve and forty weeks ended November 3, 2008, we paid $1,474 and $1,690,
respectively, for net settlements under our fixed rate swap
agreements.  As a matter of policy, we do not enter into derivative
instruments unless there is an underlying exposure. These interest rate swap
agreements are highly sensitive to interest rate fluctuations which could result
in significant variability in their future value.








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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Effective
August 11, 2008, the cumulative dividends declared since the most recent
conversion rate adjustment resulted in a 1.0404% change in the conversion rate
per $1 of the 2023 Convertible Notes, from the previous conversion rate of
116.6063 to an adjusted conversion rate of 117.8195.  As a result of
the conversion rate adjustment, the previous conversion price of approximately
$8.58 was adjusted to a conversion price of approximately $8.49.  On
August 29, 2008, we notified the holders of the 2023 Convertible Notes that we
would redeem all outstanding notes on October 1, 2008.  During the
twelve weeks ended November 3, 2008, we redeemed and converted the remaining
$15,167 of our 2023 Convertible Notes into 1,786,963 shares of our common stock.
We also paid $303 for accrued interest and partial
shares.





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





During
the forty weeks ended November 3, 2008, we declared cash dividends of $0.18 per
share of common stock, for a total of $9,580. Dividends payable of $3,279 and
$3,148 have been included in other current liabilities in our accompanying
Condensed Consolidated Balance Sheets as of November 3, 2008 and January 31,
2008, respectively. The dividends declared during the twelve weeks ended
November 3, 2008 were subsequently paid on November 24, 2008.





Subsequent
to November 3, 2008, we declared cash dividends of $0.06 per share of common
stock, payable to the stockholders of record as of January 26,
2009.





During
the forty weeks ended November 3, 2008, cash provided by operating activities
was $108,374, an increase of $2,093, or 2.0%, over the prior year comparable
period. This increase is primarily attributable to an increase in net income of
$3,370 and increases in deferred income tax of $5,368,  facility action
charges, net, of $4,884, share-based compensation expense of
$1,899, and provision for losses on accounts and notes receivable of $708.
These increases were partially offset by a decrease in loss on sale of property
and equipment and capital leases of $1,792, a decrease in depreciation and
amortization of $1,538, and a decrease in the change in fair value of interest
rate swap agreements of $1,181, as well as changes in operating assets and
liabilities, including accounts receivable, accounts payable and other liability
accounts. Working capital account balances can vary significantly from quarter
to quarter, depending upon the timing of large customer receipts and payments to
vendors, but they are not anticipated to be a significant source or use of cash
over the long term.


Cash used
in investing activities during the forty weeks ended November 3, 2008 totaled
$58,749, which principally consisted of purchases of property and equipment,
partially offset by proceeds from the sale of property and equipment and
collections on non-trade notes receivable.





Capital
expenditures were as follows:


Forty Weeks EndedNovember 3, 2008
                
                
                November 5, 2007Non-discretionary:RemodelsCarl’s
      Jr.
                
                $
                8,760
                
                
                $
                22,882Hardee’s
                
                
                15,949
                
                
                
                13,021Capital
      MaintenanceCarl’s
      Jr.
                
                
                8,896
                
                
                
                8,423Hardee’s
                
                
                13,269
                
                
                
                12,615Corporate/other
                
                
                3,942
                
                
                
                5,726Total
      non-discretionary
                
                
                50,816
                
                
                
                62,667Discretionary:New
      restaurants/rebuildsCarl’s
      Jr.
                
                
                15,246
                
                
                
                14,634Hardee’s
                
                
                7,025
                
                
                
                7,509Dual-brandingCarl’s
      Jr.
                
                
                969
                
                
                
                1,077Hardee’s
                
                
                2,201
                
                
                
                2,763Real
      estate/franchise acquisitions
                
                
                5,477
                
                
                
                7,286Corporate/other
                
                
                924
                
                
                
                2,233Capital
      expenditures — discontinued operations
                
                
                —
                
                
                
                3,523Total
      discretionary
                
                
                31,842
                
                
                
                39,025Total
                
                $
                82,658
                
                
                $
                101,692




29
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CKE
RESTAURANTS, INC. AND SUBSIDIARIES


MANAGEMENT’S
DISCUSSION AND ANALYSIS


(Dollars
in thousands, except per share amounts)





Capital
expenditures for the forty weeks ended November 3, 2008 decreased $19,034, or
18.7%, from the comparable prior year period mainly due to a $11,194 decrease in
restaurant remodel activity, a $3,093 decrease in corporate and other asset
additions and a $3,523 decrease in capital expenditures related to discontinued
operations. Pursuant to our agreement to sell La Salsa, during fiscal 2008,
Buyer reimbursed us for substantially all of the capital expenditures —
discontinued operations.





Cash used
in financing activities during the forty weeks ended November 3, 2008 was
$48,194, which principally consisted of net repayments of $1,500 under the
revolving portion of our Facility, payments of $15,815 under the term loan
portion of our Facility, a change in cash overdraft of $13,911, repayments of
$4,493 of capital lease obligations, repurchase of common stock of $4,296, and
dividends of $9,449.





30
 Table of Contents





Item 3. Quantitative and Qualitative Disclosures About Market
Risk


(Dollars
in thousands)





Interest
Rate Risk





Our
principal exposure to financial market risks relates to the impact that interest
rate changes could have on our Facility. Our Facility, which is comprised of a
revolving credit facility and a term loan, bears interest at an annual rate
equal to the prime rate or LIBOR plus an applicable margin. As of November 3,
2008, we had $317,410 of borrowings and $35,893 of letters of credit outstanding
under our Facility.  We have entered into fixed rate swap agreements with a
combined notional amount of $200,000. These agreements will expire on March 12,
2012. The effect of the agreements is to limit the interest rate exposure on a
portion of our term loan debt under our Facility to a fixed rate of 6.12%. 
The interest rate swap agreements were not designated as cash flow hedges
under the terms of SFAS 133. Accordingly, the change in the fair value of the
interest rate swap agreements is recognized in interest expense in our Condensed
Consolidated Statements of Income. These interest rate swap agreements are
highly sensitive to interest rate fluctuations which could result in significant
variability in their future fair values.





A
hypothetical increase of 100 basis points in short-term interest rates would
result in a reduction in our annual pre-tax earnings of $1,174. The estimated
reduction is based upon the outstanding balance of the borrowings under our
Facility that are not covered by our interest rate swaps and the
weighted-average interest rate for the fiscal year and assumes no change in the
volume, index or composition of debt as in effect on November 3,
2008.





Substantially
all of our business is transacted in U.S. dollars. Accordingly, foreign exchange
rate fluctuations have not had a significant impact on us and are not expected
to in the foreseeable future.





Commodity
Price Risk





We
purchase certain products which are affected by commodity prices and are,
therefore, subject to price volatility caused by weather, market conditions and
other factors which are not considered predictable or within our control.
Although many of the products purchased are subject to changes in commodity
prices, certain purchasing contracts or pricing arrangements contain risk
management techniques designed to minimize price volatility. The purchasing
contracts and pricing arrangements we use may result in unconditional purchase
obligations, which are not reflected in our accompanying Condensed Consolidated
Balance Sheets. Typically, we use these types of purchasing techniques to
control costs as an alternative to directly managing financial instruments to
hedge commodity prices. In many cases, we believe we will be able to address
material commodity cost increases by adjusting our menu pricing or changing our
product delivery strategy. However, increases in commodity prices, without
adjustments to our menu prices, could increase restaurant operating costs as a
percent of company-operated restaurants revenue.





Item 4. Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, our management
recognized that any system of controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.





31
 Table of Contents





In
connection with the preparation of this Quarterly Report on Form 10-Q, as of
November 3, 2008, an evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this Quarterly Report on Form
10-Q to ensure that the information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and
to ensure that the information required to be disclosed by us in reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosures.





(b)
Changes in Internal Control





There
have been no changes in our internal control over financial reporting during the
fiscal quarter ended November 3, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





Part II. Other
Information





Item 1. Legal Proceedings





See Note
6 of Notes to Condensed Consolidated Financial Statements for information
regarding legal proceedings.





Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds


(Dollars
in thousands, except per share amounts)





Issuer
Purchase of Equity Securities





The
following table provides information as of November 3, 2008, with respect to
shares of common stock repurchased by us during the fiscal quarter then ended
(dollars in thousands, except per share amounts):





(a)
                
                
                (b)
                
                
                (c)
                
                
                (d)Period
                
                Total
                  Number of Shares
                  Purchased
                
                
                Average
                  Price
                  Paid per
                  Share
                
                
                Total
                  Number of Shares
                  Purchased as Part
                  of Publicly
                  Announced Plans
                  or Programs
                
                
                Maximum
                  Dollar
                  Value of
                  Shares that
                  May Yet Be
                  Purchased
                  Under the
                  Plans or
                  ProgramsAugust
      12, 2008 — September 8, 2008
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                $
                41,395September
      9, 2008 — October 6, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                41,395October
      7, 2008 — November 3, 2008 (1)
                
                
                339,038
                
                
                
                7.89
                
                
                
                339,038
                
                
                
                38,720Total
                
                
                339,038
                
                
                $
                7.89
                
                
                
                339,038
                
                
                $
                38,720


____________


(1)
            We
      received and cancelled a total of 18,967 shares of our outstanding common
      stock in payment of taxes owed on ordinary income recognized by 16 of our
      employees in connection with the vesting of restricted stock awards issued
      under our stock incentive plans, which is included in the total number of
      shares purchased.





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 Table of Contents





Item 6. Exhibits





Exhibit
#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.





33
 Table of Contents





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





CKE
      RESTAURANTS, INC.(Registrant)Date:
      December 10, 2008
            /s/ Reese StewartReese
      StewartSenior
      Vice PresidentChief
      Accounting Officer





34
 Table of Contents





Exhibit
Index





Exhibit #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.





35