##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended November 7, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from ___to ___.
 Commission file number 1-11313
 
 
 CKE RESTAURANTS, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    33-0602639(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)6307 Carpinteria Avenue, Ste. A, Carpinteria, California
    
    93013(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (805) 745-7500
 Former Name, Former Address and Former Fiscal Year, if changed since last report.
 
 þ o
 þ o
 o þ




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##### 



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 INDEX
 Page No.Part I. Financial InformationItem 1 Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of November 7, 2005 and January 31, 2005
    
    3Condensed Consolidated Statements of Operations for the twelve and forty weeks ended
November 7, 2005 and November 1, 2004
    
    4Condensed Consolidated Statement of Stockholders Equity for the forty weeks ended
November 7, 2005
    
    5Condensed Consolidated Statements of Cash Flows for the forty weeks ended November
7, 2005 and November 1, 2004
    
    6Notes to Condensed Consolidated Financial Statements
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    22Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    48Item 4 Controls and Procedures
    
    48Part II. Other InformationItem 1 Legal Proceedings
    
    49Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    50Item 3 Defaults Upon Senior Securities
    
    50Item 4 Submission of Matters to a Vote of Security Holders
    
    50Item 5 Other Information
    
    50Item 6 Exhibits
    
    51Signatures
    
    52EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except par values)
 (Unaudited)
 November 7, 2005
    
    
    January 31, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,187
    
    
    $
    18,432Accounts receivable, net of allowance for doubtful accounts
of $3,041 as of November 7, 2005 and $2,542 as of January
31, 2005
    
    
    34,180
    
    
    
    31,199Related party trade receivables
    
    
    5,064
    
    
    
    6,760Inventories, net
    
    
    19,511
    
    
    
    19,297Prepaid expenses
    
    
    12,622
    
    
    
    13,056Assets held for sale
    
    
    525
    
    
    
    1,058Advertising fund assets, restricted
    
    
    20,186
    
    
    
    21,951Other current assets
    
    
    2,297
    
    
    
    2,278Total current assets
    
    
    114,572
    
    
    
    114,031Notes receivable, net of allowance for doubtful accounts of
$5,537 as of November 7, 2005 and $7,081 as of January 31, 2005
    
    
    2,914
    
    
    
    3,328Property and equipment, net of accumulated depreciation and
amortization of $437,637 as of November 7, 2005 and $413,021 as
of January 31, 2005
    
    
    463,136
    
    
    
    461,286Property under capital leases, net of accumulated amortization
of $43,965 as of November 7, 2005 and $52,182 as of January 31,
2005
    
    
    31,239
    
    
    
    36,060Goodwill
    
    
    22,649
    
    
    
    22,649Other assets, net
    
    
    26,927
    
    
    
    31,529Total assets
    
    $
    661,437
    
    
    $
    668,883LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of bank indebtedness and other long-term debt
    
    $
    1,320
    
    
    $
    16,066Current portion of capital lease obligations
    
    
    4,881
    
    
    
    5,079Accounts payable
    
    
    52,395
    
    
    
    52,484Advertising fund liabilities
    
    
    20,186
    
    
    
    21,951Other current liabilities
    
    
    95,515
    
    
    
    93,358Total current liabilities
    
    
    174,297
    
    
    
    188,938Bank indebtedness and other long-term debt, less current portion
    
    
    111,918
    
    
    
    138,418Convertible subordinated notes due 2023
    
    
    105,000
    
    
    
    105,000Capital lease obligations, less current portion
    
    
    48,158
    
    
    
    52,485Other long-term liabilities
    
    
    64,081
    
    
    
    64,374Total liabilities
    
    
    503,454
    
    
    
    549,215Commitments and contingencies (Notes 5 and 10)Stockholders equity:Preferred stock, $.01 par value; 5,000 shares authorized;
none issued or outstanding
    
    
    
    
    
    
    Series A Junior Participating Preferred stock, $.01 par
value; 1,500 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 100,000 shares authorized;
59,449 shares issued and outstanding as of November 7, 2005;
58,082 shares issued and outstanding as of January 31, 2005
    
    
    595
    
    
    
    581Additional paid-in capital
    
    
    459,503
    
    
    
    453,391Unearned compensation on restricted stock
    
    
    (962
    )
    
    
    Accumulated deficit
    
    
    (301,153
    )
    
    
    (334,304
    )Total stockholders equity
    
    
    157,983
    
    
    
    119,668Total liabilities and stockholders equity
    
    $
    661,437
    
    
    $
    668,883
 See Accompanying Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (Unaudited)
 Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004
    
    
    November 7, 2005
    
    
    November 1, 2004Revenue:Company-operated restaurants
    
    $
    274,822
    
    
    $
    280,618
    
    
    $
    932,953
    
    
    $
    928,291Franchised and licensed restaurants and
other
    
    
    69,291
    
    
    
    68,328
    
    
    
    236,852
    
    
    
    229,700Total revenue
    
    
    344,113
    
    
    
    348,946
    
    
    
    1,169,805
    
    
    
    1,157,991Operating costs and expenses:Restaurant operations:Food and packaging
    
    
    80,301
    
    
    
    84,213
    
    
    
    273,116
    
    
    
    273,834Payroll and other employee benefits
    
    
    81,952
    
    
    
    85,162
    
    
    
    277,700
    
    
    
    286,970Occupancy and other
    
    
    62,068
    
    
    
    62,490
    
    
    
    210,692
    
    
    
    206,248224,321
    
    
    
    231,865
    
    
    
    761,508
    
    
    
    767,052Franchised and licensed restaurants and
other
    
    
    53,521
    
    
    
    51,977
    
    
    
    182,648
    
    
    
    171,532Advertising
    
    
    16,334
    
    
    
    16,466
    
    
    
    56,416
    
    
    
    56,140General and administrative
    
    
    28,220
    
    
    
    28,630
    
    
    
    108,105
    
    
    
    105,439Facility action charges, net
    
    
    733
    
    
    
    1,045
    
    
    
    3,787
    
    
    
    9,745Total operating costs and expenses
    
    
    323,129
    
    
    
    329,983
    
    
    
    1,112,464
    
    
    
    1,109,908Operating income
    
    
    20,984
    
    
    
    18,963
    
    
    
    57,341
    
    
    
    48,083Interest expense
    
    
    (5,334
    )
    
    
    (6,746
    )
    
    
    (17,930
    )
    
    
    (30,429
    )Other income (expense), net
    
    
    743
    
    
    
    1,024
    
    
    
    2,524
    
    
    
    (5,536
    )Income before income taxes and
discontinued operations
    
    
    16,393
    
    
    
    13,241
    
    
    
    41,935
    
    
    
    12,118Income tax expense (benefit)
    
    
    570
    
    
    
    (70
    )
    
    
    1,665
    
    
    
    525Income from continuing operations
    
    
    15,823
    
    
    
    13,311
    
    
    
    40,270
    
    
    
    11,593Loss from operations of discontinued
segment (net of income tax expense of $0)
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    (646
    )Net income
    
    $
    15,823
    
    
    $
    13,132
    
    
    $
    40,270
    
    
    $
    10,947Basic income per common share:Continuing operations
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.68
    
    
    $
    0.20Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net income
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.68
    
    
    $
    0.19Diluted income per common share:Continuing operations
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.19Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Net income
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.18Dividends per common share
    
    $
    0.04
    
    
    $
    
    
    
    $
    0.12
    
    
    $
    Weighted-average common shares outstanding:Basic
    
    
    59,440
    
    
    
    57,605
    
    
    
    59,154
    
    
    
    57,568Dilutive effect of stock options,
convertible notes and restricted stock
    
    
    13,514
    
    
    
    13,812
    
    
    
    14,266
    
    
    
    1,934Diluted
    
    
    72,954
    
    
    
    71,417
    
    
    
    73,420
    
    
    
    59,502
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (In thousands, except per share amounts)
 (Unaudited)
 Forty Weeks Ended November 7, 2005Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury StockUnearnedAdditional
    
    
    Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalPaid-In
    
    
    On Restricted
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance at
January 31, 2005
    
    
    58,082
    
    
    $
    581
    
    
    $
    453,391
    
    
    $
    
    
    
    $
    (334,304
    )
    
    
    
    
    
    $
    
    
    
    $
    119,668Cash dividends
declared ($0.12
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,119
    )
    
    
    
    
    
    
    
    
    
    
    (7,119
    )Issuance of
restricted stock
awards
    
    
    75
    
    
    
    1
    
    
    
    1,018
    
    
    
    (1,019
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
unearned
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Exercise of stock
options and
warrants
    
    
    1,442
    
    
    
    15
    
    
    
    7,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,106Repurchase of
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    (1,999
    )
    
    
    (1,999
    )Retirement of
treasury stock
    
    
    (150
    )
    
    
    (2
    )
    
    
    (1,997
    )
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    1,999
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,270
    
    
    
    
    
    
    
    
    
    
    
    40,270Balance at November
7, 2005
    
    
    59,449
    
    
    $
    595
    
    
    $
    459,503
    
    
    $
    (962
    )
    
    $
    (301,153
    )
    
    
    
    
    
    $
    
    
    
    $
    157,983
 See Accompanying Notes to Condensed Consolidated Financial Statements
 5




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004Cash flow from operating activities:Net income
    
    $
    40,270
    
    
    $
    10,947Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    49,962
    
    
    
    52,071Amortization of loan fees
    
    
    2,705
    
    
    
    2,829Recovery of losses on accounts and notes receivable
    
    
    (494
    )
    
    
    (1,784
    )Loss on sales of property and equipment, capital leases and extinguishment of
debts
    
    
    2,231
    
    
    
    8,352Facility action charges, net
    
    
    3,787
    
    
    
    9,745Deferred income taxes
    
    
    141
    
    
    
    205Other non-cash charges
    
    
    95
    
    
    
    320Change in estimated liability for closing restaurants and estimated liability
for self-insurance
    
    
    (5,472
    )
    
    
    (4,317
    )Net change in refundable income taxes
    
    
    423
    
    
    
    (818
    )Net change in receivables, inventories, prepaid expenses and other current assets
    
    
    (2,363
    )
    
    
    3,243Net change in accounts payable and other current and long-term liabilities
    
    
    6,413
    
    
    
    19,331Loss from operations of discontinued segment
    
    
    
    
    
    
    646Net cash provided to discontinued segment
    
    
    
    
    
    
    (257
    )Net cash provided by operating activities
    
    
    97,698
    
    
    
    100,513Cash flow from investing activities:Purchases of property and equipment
    
    
    (54,263
    )
    
    
    (43,864
    )Proceeds from sales of property and equipment
    
    
    5,953
    
    
    
    11,650Collections on notes receivable
    
    
    1,943
    
    
    
    2,337Increase in cash upon consolidation of variable interest entity
    
    
    
    
    
    
    100Disposition of brand, net of cash surrendered
    
    
    
    
    
    
    6,954Other investing activities
    
    
    67
    
    
    
    (407
    )Net cash used in investing activities
    
    
    (46,300
    )
    
    
    (23,230
    )Cash flow from financing activities:Net change in bank overdraft
    
    
    (4,527
    )
    
    
    (8,852
    )Borrowings under revolving credit facility
    
    
    109,500
    
    
    
    18,500Repayments of borrowings under revolving credit facility
    
    
    (124,000
    )
    
    
    (15,000
    )Proceeds from credit facility term loan
    
    
    
    
    
    
    230,000Repayment of credit facility term loan
    
    
    (26,650
    )
    
    
    (99,464
    )Repayment of senior subordinated notes due 2009
    
    
    
    
    
    
    (200,000
    )Repayment of convertible subordinated notes due 2004
    
    
    
    
    
    
    (22,319
    )Repayment of other long-term debt
    
    
    (148
    )
    
    
    (186
    )Borrowing by consolidated variable interest entity
    
    
    51
    
    
    
    Repayments of capital lease obligations
    
    
    (4,135
    )
    
    
    (5,975
    )Collections on officer and non-employee director notes receivable
    
    
    
    
    
    
    1,983Payment of deferred loan fees
    
    
    (101
    )
    
    
    (6,188
    )Repurchase of common stock
    
    
    (1,999
    )
    
    
    (5,559
    )Exercise of stock options and warrants
    
    
    7,106
    
    
    
    2,294Dividends paid on common stock
    
    
    (4,740
    )
    
    
    Net cash used in financing activities
    
    
    (49,643
    )
    
    
    (110,766
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,755
    
    
    
    (33,483
    )Cash and cash equivalents at beginning of period
    
    
    18,432
    
    
    
    54,355Cash and cash equivalents at end of period
    
    $
    20,187
    
    
    $
    20,872Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    16,388
    
    
    $
    28,165Income taxes, net of refunds received
    
    $
    1,362
    
    
    $
    3,363Non-cash investing and financing activities:Gain recognized on sale and leaseback transactions
    
    $
    280
    
    
    $
    258Dividends declared, not paid
    
    $
    2,379
    
    
    $
    Capital lease obligations incurred to acquire assets
    
    $
    344
    
    
    $
    
 See Accompanying Notes to Condensed Consolidated Financial Statements
 6




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 Note 1  Basis Of Presentation And Description Of Business
   Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalCompany-operated
    
    
    428
    
    
    
    664
    
    
    
    61
    
    
    
    1
    
    
    
    1,154Franchised and licensed
    
    
    614
    
    
    
    1,340
    
    
    
    40
    
    
    
    15
    
    
    
    2,009Total
    
    
    1,042
    
    
    
    2,004
    
    
    
    101
    
    
    
    16
    
    
    
    3,163
     Consolidation of Variable Interest Entities
 Consolidation of Variable Interest Entities  an
interpretation of ARB
No. 51
  7




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
   Stock-Based Compensation
 Accounting for
Stock Issued to Employees
 Accounting for Stock-Based Compensation  Transition and
Disclosure, Accounting for Stock-Based Compensation
  November 7, 2005
    
    November 1, 2004Annual dividend yield
    
    
    1.24
    %
    
    
    Expected volatility
    
    
    64.5
    %
    
    
    72.6
    %Risk-free interest rate
    
    
    4.55
    %
    
    
    3.45
    %Expected life of all options outstanding (years)
    
    
    5.22
    
    
    
    5.43Weighted-average fair value of each option granted
    
    $
    7.19
    
    
    $
    7.15
 8




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Increase (Decrease) in
    
    Increase (Decrease) inFair Value of Options
    
    Fair Value of OptionsGranted in the
    
    Granted in theForty Weeks
    
    Forty WeeksEnded
    
    EndedChange in Assumption
    
    November 7, 2005
    
    November 1, 200410% increase in expected volatility
    
    $
    0.82
    
    
    $
    0.631% increase in risk-free interest rate
    
    
    0.15
    
    
    
    0.111 year increase in expected life of all options outstanding
    
    
    0.48
    
    
    
    0.4710% decrease in expected volatility
    
    
    (0.89
    )
    
    
    (0.69
    )1% decrease in risk-free interest rate
    
    
    (0.15
    )
    
    
    (0.12
    )1 year decrease in expected life of all options outstanding
    
    
    (0.59
    )
    
    
    (0.56
    )
  Twelve Weeks EndedNovember 7, 2005
    
    November 1, 2004Net income, as reported
    
    $
    15,823
    
    
    $
    13,132Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    47
    
    
    
    Deduct: Total stock-based
employee compensation expense
determined under fair value based
method, net of related tax
effects
    
    
    (913
    )
    
    
    (1,197
    )Net income  pro forma
    
    $
    14,957
    
    
    $
    11,935Net income per common share:Basic  as reported
    
    $
    0.27
    
    
    $
    0.23Basic  pro forma
    
    
    0.25
    
    
    
    0.21Diluted  as reported
    
    
    0.23
    
    
    
    0.20Diluted  pro forma
    
    
    0.22
    
    
    
    0.18
 Forty Weeks EndedNovember 7, 2005
    
    November 1, 2004Net income, as reported
    
    $
    40,270
    
    
    $
    10,947Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects
    
    
    57
    
    
    
    Deduct: Total stock-based employee
compensation expense determined
under fair value based method, net
of related tax effects
    
    
    (3,363
    )
    
    
    (3,396
    )Net income  pro forma
    
    $
    36,964
    
    
    $
    7,551Net income per common share:Basic  as reported
    
    $
    0.68
    
    
    $
    0.19Basic  pro forma
    
    
    0.62
    
    
    
    0.13Diluted  as reported
    
    
    0.60
    
    
    
    0.18Diluted  pro forma
    
    
    0.55
    
    
    
    0.13
 Note 2  Accounting Pronouncements Not Yet Adopted
 Share-Based Payment Statement of Cash Flows
 9




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 modified-prospective modified-prospective modified-retrospective modified-prospective
  Accounting Changes and Error Corrections
 Accounting for
Rental Costs Incurred during a Construction Period,
 Note 3  Adoption Of New Accounting Pronouncements
 Accounting for Preexisting Relationships between the Parties to a Business
Combination
  10




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Determining the Amortization Period for
Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination.
 Note 4
 Other Assets
  November 7,
    
    
    January 31,2005
    
    
    2005Intangible assets (see below)
    
    $
    17,864
    
    
    $
    19,102Deferred financing costs
    
    
    6,496
    
    
    
    9,470Net investment in lease receivables, less current portion
    
    
    769
    
    
    
    867Other
    
    
    1,798
    
    
    
    2,090$
    26,927
    
    
    $
    31,529
   November 7, 2005
    
    
    January 31, 2005Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetIntangible
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAsset
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks
    
    $
    17,171
    
    
    $
    (3,167
    )
    
    $
    14,004
    
    
    $
    17,171
    
    
    $
    (2,487
    )
    
    $
    14,684Franchise agreements
    
    
    1,780
    
    
    
    (307
    )
    
    
    1,473
    
    
    
    1,780
    
    
    
    (258
    )
    
    
    1,522Favorable lease agreements
    
    
    5,662
    
    
    
    (3,275
    )
    
    
    2,387
    
    
    
    6,265
    
    
    
    (3,369
    )
    
    
    2,896$
    24,613
    
    
    $
    (6,749
    )
    
    $
    17,864
    
    
    $
    25,216
    
    
    $
    (6,114
    )
    
    $
    19,102
  Note 5
 Indebtedness And Interest Expense
  11




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
     Accounting for Derivative
Instruments and Hedging Activities
    12




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
     Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004
    
    
    November 7, 2005
    
    
    November 1, 2004Facility
    
    $
    1,743
    
    
    $
    1,989
    
    
    $
    5,868
    
    
    $
    4,351Senior subordinated notes due 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,855Capital lease obligations
    
    
    1,446
    
    
    
    1,593
    
    
    
    4,827
    
    
    
    5,3922004 Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    732023 Convertible Notes
    
    
    969
    
    
    
    947
    
    
    
    3,230
    
    
    
    3,208Amortization of loan fees
    
    
    820
    
    
    
    884
    
    
    
    2,705
    
    
    
    2,829Write-off of unamortized loan
fees, term loan due July 2, 2008
    
    
    125
    
    
    
    726
    
    
    
    354
    
    
    
    1,597Write-off of unamortized loan
fees, term loan repaid June 2,
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339Write-off of unamortized loan
fees, senior subordinated notes
due 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,068Letter of credit fees and other
    
    
    231
    
    
    
    607
    
    
    
    946
    
    
    
    1,717$
    5,334
    
    
    $
    6,746
    
    
    $
    17,930
    
    
    $
    30,429
 13




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Note 6  Facility Action Charges, Net
  (i)
    
    impairment of long-lived assets for under-performing restaurants to be disposed of or held
and used;(ii)
    
    store closure costs, including sublease of closed facilities at amounts below our primary lease obligation;(iii)
    
    gains (losses) on the sale of restaurants; and(iv)
    
    amortization of discount related to estimated liability for closing restaurants.
 14




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004
    
    
    November 7, 2005
    
    
    November 1, 2004Carls Jr.New decisions regarding closing
restaurants
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7Unfavorable (favorable) dispositions of
leased and fee surplus properties, net
    
    
    305
    
    
    
    67
    
    
    
    795
    
    
    
    (88
    )Impairment of assets to be disposed of
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    28Impairment of assets to be held and used
    
    
    
    
    
    
    43
    
    
    
    775
    
    
    
    1,667Loss (gain) on sales of restaurants and
surplus properties, net
    
    
    4
    
    
    
    (212
    )
    
    
    (507
    )
    
    
    (405
    )Amortization of discount related to
estimated liability for closing
restaurants
    
    
    58
    
    
    
    59
    
    
    
    182
    
    
    
    241367
    
    
    
    (19
    )
    
    
    1,245
    
    
    
    1,450HardeesNew decisions regarding closing
restaurants
    
    
    213
    
    
    
    184
    
    
    
    957
    
    
    
    4,489Unfavorable (favorable) dispositions of
leased and fee surplus properties, net
    
    
    187
    
    
    
    (322
    )
    
    
    (357
    )
    
    
    (744
    )Impairment of assets to be disposed of
    
    
    14
    
    
    
    256
    
    
    
    23
    
    
    
    683Impairment of assets to be held and used
    
    
    
    
    
    
    183
    
    
    
    641
    
    
    
    1,888Loss (gain) on sales of restaurants and
surplus properties, net
    
    
    74
    
    
    
    (126
    )
    
    
    299
    
    
    
    (1,329
    )Amortization of discount related to
estimated liability for closing
restaurants
    
    
    142
    
    
    
    214
    
    
    
    538
    
    
    
    809630
    
    
    
    389
    
    
    
    2,101
    
    
    
    5,796La Salsa and OtherNew decisions regarding closing
restaurants
    
    
    
    
    
    
    275
    
    
    
    157
    
    
    
    1,075Unfavorable (favorable) dispositions of
leased and fee surplus properties, net
    
    
    (342
    )
    
    
    16
    
    
    
    (256
    )
    
    
    41Impairment of assets to be held and used
    
    
    
    
    
    
    384
    
    
    
    243
    
    
    
    1,377Loss (gain) on sales of restaurants and
surplus properties, net
    
    
    75
    
    
    
    (1
    )
    
    
    292
    
    
    
    2Amortization of discount related to
estimated liability for closing
restaurants
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    4(264
    )
    
    
    675
    
    
    
    441
    
    
    
    2,499TotalNew decisions regarding closing
restaurants
    
    
    213
    
    
    
    459
    
    
    
    1,114
    
    
    
    5,571Unfavorable (favorable) dispositions of
leased and fee surplus properties, net
    
    
    150
    
    
    
    (239
    )
    
    
    182
    
    
    
    (791
    )Impairment of assets to be disposed of
    
    
    14
    
    
    
    280
    
    
    
    23
    
    
    
    711Impairment of assets to be held and used
    
    
    
    
    
    
    610
    
    
    
    1,659
    
    
    
    4,932Loss (gain) on sales of restaurants and
surplus properties, net
    
    
    153
    
    
    
    (339
    )
    
    
    84
    
    
    
    (1,732
    )Amortization of discount related to
estimated liability for closing
restaurants
    
    
    203
    
    
    
    274
    
    
    
    725
    
    
    
    1,054$
    733
    
    
    $
    1,045
    
    
    $
    3,787
    
    
    $
    9,745
 15




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  La SalsaCarls Jr.
    
    
    Hardees
    
    
    and Other
    
    
    TotalBalance at January 31, 2005
    
    $
    4,214
    
    
    $
    13,075
    
    
    $
    586
    
    
    $
    17,875New decisions regarding closing restaurants
    
    
    
    
    
    
    957
    
    
    
    157
    
    
    
    1,114Usage
    
    
    (1,421
    )
    
    
    (3,496
    )
    
    
    (329
    )
    
    
    (5,246
    )Unfavorable (favorable) dispositions of leased and
fee surplus properties, net
    
    
    795
    
    
    
    (357
    )
    
    
    (256
    )
    
    
    182Amortization of discount
    
    
    182
    
    
    
    538
    
    
    
    5
    
    
    
    725Balance at November 7, 2005
    
    
    3,770
    
    
    
    10,717
    
    
    
    163
    
    
    
    14,650Less current portion, included in other current liabilities
    
    
    1,170
    
    
    
    3,873
    
    
    
    57
    
    
    
    5,100Long-term portion, included in other long-term liabilities
    
    $
    2,600
    
    
    $
    6,844
    
    
    $
    106
    
    
    $
    9,550
 Note 7  Income Per Share
     Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004
    
    
    November 7, 2005
    
    
    November 1, 2004(In thousands except per share amounts)Net income for computation of
basic earnings per share
    
    $
    15,823
    
    
    $
    13,132
    
    
    $
    40,270
    
    
    $
    10,947Weighted-average shares for computation
of basic earnings per share
    
    
    59,440
    
    
    
    57,605
    
    
    
    59,154
    
    
    
    57,568Basic net income per share
    
    $
    0.27
    
    
    $
    0.23
    
    
    $
    0.68
    
    
    $
    0.19Net income for computation of basic
earnings per share
    
    $
    15,823
    
    
    $
    13,132
    
    
    $
    40,270
    
    
    $
    10,947Add: Interest and amortization costs for
Convertible Notes due 2023
    
    
    1,125
    
    
    
    1,126
    
    
    
    3,750
    
    
    
    Net income for computation of diluted
earnings per share
    
    $
    16,948
    
    
    $
    14,258
    
    
    $
    44,020
    
    
    $
    10,947Weighted-average shares for computation
of basic earnings per share
    
    
    59,440
    
    
    
    57,605
    
    
    
    59,154
    
    
    
    57,568Dilutive effect of stock options and
restricted stock
    
    
    1,703
    
    
    
    2,001
    
    
    
    2,455
    
    
    
    1,934Dilutive effect of 2023 convertible notes
    
    
    11,811
    
    
    
    11,811
    
    
    
    11,811
    
    
    
    Weighted-average shares for computation
of diluted earnings per share
    
    
    72,954
    
    
    
    71,417
    
    
    
    73,420
    
    
    
    59,502Diluted net income per share
    
    $
    0.23
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.18
 16




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Twelve Weeks Ended
    
    Forty Weeks EndedNovember 7, 2005
    
    November 1, 2004
    
    November 7, 2005
    
    November 1, 20042004 Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872023 Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,811Stock Options and
Restricted Stock
    
    
    2,105
    
    
    
    2,721
    
    
    
    2,402
    
    
    
    3,709Warrants
    
    
    
    
    
    
    982
    
    
    
    
    
    
    
    982
 Note 8  Segment Information
 fast-casual long-term
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended November 7, 2005Revenue
    
    $
    181,041
    
    
    $
    150,822
    
    
    $
    11,200
    
    
    $
    1,050
    
    
    $
    344,113Operating income (loss)
    
    
    17,754
    
    
    
    4,275
    
    
    
    (904
    )
    
    
    (141
    )
    
    
    20,984Income (loss) before income taxes
    
    
    17,100
    
    
    
    327
    
    
    
    (897
    )
    
    
    (137
    )
    
    
    16,393Goodwill (as of November 7, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalTwelve Weeks Ended November 1, 2004Revenue
    
    $
    180,890
    
    
    $
    155,572
    
    
    $
    11,061
    
    
    $
    1,423
    
    
    $
    348,946Operating income (loss)
    
    
    16,334
    
    
    
    4,186
    
    
    
    (1,484
    )
    
    
    (73
    )
    
    
    18,963Income (loss) before income taxes
and discontinued operations
    
    
    15,768
    
    
    
    (1,110
    )
    
    
    (1,466
    )
    
    
    49
    
    
    
    13,241Goodwill (as of November 1, 2004)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalForty Weeks Ended November 7, 2005Revenue
    
    $
    612,443
    
    
    $
    515,083
    
    
    $
    38,392
    
    
    $
    3,887
    
    
    $
    1,169,805Operating income (loss)
    
    
    57,654
    
    
    
    15,346
    
    
    
    (4,379
    )
    
    
    (11,280
    )
    
    
    57,341Income (loss) before income taxes
    
    
    55,256
    
    
    
    1,992
    
    
    
    (4,352
    )
    
    
    (10,961
    )
    
    
    41,935Goodwill (as of November 7, 2005)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 Carls Jr.
    
    Hardees
    
    La Salsa
    
    Other
    
    TotalForty Weeks Ended November 1, 2004Revenue
    
    $
    599,315
    
    
    $
    517,104
    
    
    $
    37,719
    
    
    $
    3,853
    
    
    $
    1,157,991Operating income (loss)
    
    
    43,899
    
    
    
    10,014
    
    
    
    (5,947
    )
    
    
    117
    
    
    
    48,083Income (loss) before income
taxes and discontinued
operations
    
    
    41,366
    
    
    
    (23,988
    )
    
    
    (5,998
    )
    
    
    738
    
    
    
    12,118Goodwill (as of November 1, 2004)
    
    
    22,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,649
 17




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Note 9  Net Assets Held For Sale
   Twelve Weeks
    
    
    Forty WeeksEnded
    
    
    EndedNovember 1, 2004
    
    
    November 1, 2004Revenue
    
    $
    2,700
    
    
    $
    24,129Operating loss
    
    $
    (179
    )
    
    $
    (636
    )Interest expense
    
    
    
    
    
    
    10Net loss
    
    $
    (179
    )
    
    $
    (646
    )
     Note 10  Commitments And Contingent Liabilities
    18




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
   , Accounting for Contingencies
  Note 11  Employee Benefit Plans
 2005 Omnibus Incentive Compensation Plan
   19




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 Deferred Compensation Plan
   Note 12  Purchase and Cancellation of Stock Options
  Note 13  Adoption of a Stockholder Rights Plan
   20




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
  Note 14  Repurchase of Common Stock
   21




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction and Safe Harbor Disclosure
    New Accounting Pronouncements Not Yet Adopted
  Adoption of New Accounting Pronouncements
  Critical Accounting Policies
   
    
    estimation of future cash flows used to assess the recoverability of long-lived assets, including goodwill, and to
establish the estimated liability for closing restaurants and subsidizing lease payments of franchisees;
 22




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 
    
    estimation, using actuarially determined methods, of our self-insured claim losses under our workers compensation, general
and auto liability insurance programs;
    
    determination of appropriate estimated liabilities for loss contingencies;
    
    determination of lease terms for purposes of evaluating leases for capital versus operating lease treatment, establishing
depreciable lives for leasehold improvements and establishing straight-line rent expense periods;
    
    estimation of the appropriate allowances associated with franchise and license receivables and liabilities for franchise
subleases;
    
    determination of the appropriate assumptions to use to estimate the fair value of stock-based compensation for purposes of
disclosures of pro forma net income; and
    
    estimation of our net deferred income tax asset valuation allowance.Descriptions of these critical accounting policies follow.
 Impairment of Property and Equipment and Other Amortizable Long-Lived Assets Held and Used, Held
for Sale or To Be Disposed of Other Than By Sale
     23




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
   Impairment of Goodwill
    Estimated Liability for Closing Restaurants
   24




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Estimated Liability for Self-Insurance
   Loss Contingencies
 Accounting for Contingencies
 25




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Accounting for Lease Obligations
   Franchised and Licensed Operations
    26




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
    Stock-Based Compensation
 Accounting for
Stock Issued to Employees, Accounting for
Stock-Based Compensation
 Share-Based
Payment,
 Valuation Allowance for Net Deferred Tax Assets
  27




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS (Continued)
(Dollars in thousands, except per share amounts)
     Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2006 Comparisons with
Fiscal 2005
  Divestiture of Timber Lodge
  Twelve Weeks
    
    
    Forty WeeksEnded
    
    
    EndedNovember 1, 2004
    
    
    November 1, 2004Revenue
    
    $
    2,700
    
    
    $
    24,129Operating loss
    
    $
    (179
    )
    
    $
    (636
    )Interest expense
    
    
    
    
    
    
    10Net loss
    
    $
    (179
    )
    
    $
    (646
    )
  28




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS (Continued)
(Dollars in thousands, except per share amounts)
 Fiscal Year and Seasonality
   Business Strategy
  
    
    remain focused on restaurant fundamentals  quality, service and cleanliness;
    
    offer premium products that compete on quality and taste  not price;
    
    build on the strength of the Carls Jr. brand, including dual-branding opportunities with Green Burrito;
    
    continue to execute and refine the Hardees turnaround program, including consideration
of dual-branding opportunities with Red Burrito;
    
    control costs while increasing revenues;
    
    leverage our infrastructure and marketing presence to build out existing core markets; and
    
    strengthen our franchise system and pursue further franchising opportunities.
 Franchise Operations
   29




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Operating Review
 The following tables are presented to facilitate Managements Discussion and Analysis of our
operations by operating segment.
 Twelve Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    129,548
    
    
    $
    134,420
    
    
    $
    10,770
    
    
    $
    84
    
    
    $
    
    
    
    $
    274,822Company-operated average weekly
unit volume (actual $- not in
thousands)
    
    
    25,167
    
    
    
    16,812
    
    
    
    14,713Company-operated average unit
volume (trailing 52 weeks)
    
    
    1,324
    
    
    
    869
    
    
    
    765Franchise-operated average unit
volume (trailing 52 weeks)
    
    
    1,150
    
    
    
    802
    
    
    
    890Average check (actual $- not in
thousands)
    
    
    6.10
    
    
    
    4.69
    
    
    
    10.06Company-operated same-store sales
(decrease) increase
    
    
    (0.1
    )%
    
    
    (3.5
    )%
    
    
    2.6
    %Company-operated same-store
transaction decrease
    
    
    (4.7
    )%
    
    
    (5.1
    )%
    
    
    (1.3
    )%Franchise-operated same-store
sales (decrease) increase
    
    
    (1.1
    )%
    
    
    (4.0
    )%
    
    
    2.0
    %Operating costs as a % of
company-operated revenue:Food and packaging
    
    
    29.1
    %
    
    
    29.5
    %
    
    
    27.1
    %Payroll and employee
benefits
    
    
    26.6
    %
    
    
    32.5
    %
    
    
    34.6
    %Occupancy and other
operating costs
    
    
    22.0
    %
    
    
    22.2
    %
    
    
    34.5
    %Restaurant-level margin
    
    
    22.3
    %
    
    
    15.8
    %
    
    
    3.8
    %Advertising as a percentage of
company-operated revenue
    
    
    6.0
    %
    
    
    6.1
    %
    
    
    3.0
    %Franchising revenue:Royalties
    
    $
    5,941
    
    
    $
    9,836
    
    
    $
    400
    
    
    $
    116
    
    
    $
    (20
    )
    
    $
    16,273Distribution centers
    
    
    40,028
    
    
    
    5,304
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    45,199Rent
    
    
    5,113
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,194Retail sales of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,003
    
    
    
    
    
    
    
    1,003Other
    
    
    411
    
    
    
    181
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    622Total franchising revenue
    
    
    51,493
    
    
    
    16,402
    
    
    
    430
    
    
    
    1,119
    
    
    
    (153
    )
    
    
    69,291Franchising expense:Administrative expense
(including provision for
bad debts)
    
    
    995
    
    
    
    1,152
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    2,438Distribution centers
    
    
    39,210
    
    
    
    5,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,724Rent and other occupancy
    
    
    4,258
    
    
    
    1,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,565Operating costs of variable
interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    995
    
    
    
    (201
    )
    
    
    794Total franchising expense
    
    
    44,463
    
    
    
    7,973
    
    
    
    291
    
    
    
    995
    
    
    
    (201
    )
    
    
    53,521Net franchising income
    
    $
    7,030
    
    
    $
    8,429
    
    
    $
    139
    
    
    $
    124
    
    
    $
    48
    
    
    $
    15,770Facility action charges (gains),
net
    
    $
    367
    
    
    $
    630
    
    
    $
    (278
    )
    
    $
    14
    
    
    $
    
    
    
    $
    733Operating income (loss)
    
    $
    17,754
    
    
    $
    4,275
    
    
    $
    (904
    )
    
    $
    (141
    )
    
    $
    
    
    
    $
    20,984
 30




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Twelve Weeks Ended November 1, 2004Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other (A)
    
    
    TotalCompany-operated revenue
    
    $
    129,518
    
    
    $
    140,269
    
    
    $
    10,561
    
    
    $
    270
    
    
    $
    280,618Company-operated average weekly unit volume
(actual $- not in thousands)
    
    
    25,059
    
    
    
    17,111
    
    
    
    14,372Company-operated average unit volume (trailing
52 weeks)
    
    
    1,282
    
    
    
    850
    
    
    
    744Franchise-operated average unit volume (trailing
52 weeks)
    
    
    1,136
    
    
    
    901
    
    
    
    814Average check (actual $- not in thousands)
    
    
    5.84
    
    
    
    4.60
    
    
    
    9.66Company-operated same-store sales increase
    
    
    7.9
    %
    
    
    4.5
    %
    
    
    5.6
    %Company-operated same-store transactions
increase (decrease)
    
    
    2.2
    %
    
    
    (1.2
    )%
    
    
    1.2
    %Franchise-operated same-store sales increase
    
    
    6.8
    %
    
    
    1.6
    %
    
    
    3.7
    %Operating costs as a % of company-operated
revenue:Food and packaging
    
    
    29.9
    %
    
    
    30.4
    %
    
    
    26.4
    %Payroll and employee benefits
    
    
    27.9
    %
    
    
    32.3
    %
    
    
    34.3
    %Occupancy and other operating costs
    
    
    21.4
    %
    
    
    22.0
    %
    
    
    36.4
    %Restaurant level margin
    
    
    20.8
    %
    
    
    15.3
    %
    
    
    2.9
    %Advertising as a percentage of company-operated
revenue
    
    
    5.9
    %
    
    
    6.1
    %
    
    
    3.0
    %Franchising revenue:Royalties
    
    $
    5,804
    
    
    $
    10,210
    
    
    $
    421
    
    
    $
    73
    
    
    $
    16,508Distribution centers
    
    
    39,970
    
    
    
    3,396
    
    
    
    
    
    
    
    
    
    
    
    43,366Rent
    
    
    5,393
    
    
    
    1,585
    
    
    
    
    
    
    
    
    
    
    
    6,978Retail sales of variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080
    
    
    
    1,080Other
    
    
    205
    
    
    
    112
    
    
    
    79
    
    
    
    
    
    
    
    396Total franchising revenue
    
    
    51,372
    
    
    
    15,303
    
    
    
    500
    
    
    
    1,153
    
    
    
    68,328Franchising expense:Administrative expense (including
provision for bad debts)
    
    
    1,045
    
    
    
    1,269
    
    
    
    193
    
    
    
    
    
    
    
    2,507Distribution centers
    
    
    38,937
    
    
    
    3,407
    
    
    
    
    
    
    
    
    
    
    
    42,344Rent and other occupancy
    
    
    4,367
    
    
    
    1,716
    
    
    
    
    
    
    
    
    
    
    
    6,083Operating costs of variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,043
    
    
    
    1,043Total franchising expense
    
    
    44,349
    
    
    
    6,392
    
    
    
    193
    
    
    
    1,043
    
    
    
    51,977Net franchising income
    
    $
    7,023
    
    
    $
    8,911
    
    
    $
    307
    
    
    $
    110
    
    
    $
    16,351Facility action charges (gains), net
    
    $
    (19
    )
    
    $
    389
    
    
    $
    641
    
    
    $
    34
    
    
    $
    1,045Operating income (loss)
    
    $
    16,334
    
    
    $
    4,186
    
    
    $
    (1,484
    )
    
    $
    (73
    )
    
    $
    18,963
 31




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Forty Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other(A)
    
    
    Elimination(B)
    
    
    TotalCompany-operated revenue
    
    $
    439,530
    
    
    $
    456,057
    
    
    $
    37,012
    
    
    $
    354
    
    
    $
    
    
    
    $
    932,953Company-operated average
weekly unit volume (actual
$- not in thousands)
    
    
    25,628
    
    
    
    16,934
    
    
    
    15,097Average check (actual $- not
in thousands)
    
    
    6.16
    
    
    
    4.75
    
    
    
    10.15Company-operated
same-store sales increase
(decrease)
    
    
    1.2
    %
    
    
    (1.1
    )%
    
    
    2.3
    %Company-operated
same-store transaction
decrease
    
    
    (3.8
    )%
    
    
    (3.5
    )%
    
    
    (2.1
    )%Franchise-operated
same-store sales (decrease)
increase
    
    
    (0.4
    )%
    
    
    (3.1
    )%
    
    
    3.1
    %Operating costs as a % of
company-operated revenue:Food and packaging
    
    
    29.0
    %
    
    
    29.8
    %
    
    
    26.5
    %Payroll and employee
benefits
    
    
    26.9
    %
    
    
    32.3
    %
    
    
    33.0
    %Occupancy and other
operating costs
    
    
    21.6
    %
    
    
    22.5
    %
    
    
    34.6
    %Restaurant-level margin
    
    
    22.5
    %
    
    
    15.4
    %
    
    
    5.9
    %Advertising as a percentage
of company-operated revenue
    
    
    6.4
    %
    
    
    6.0
    %
    
    
    2.8
    %Franchising revenue:Royalties
    
    $
    19,760
    
    
    $
    32,949
    
    
    $
    1,349
    
    
    $
    338
    
    
    $
    (68
    )
    
    $
    54,328Distribution centers
    
    
    136,201
    
    
    
    19,613
    
    
    
    
    
    
    
    
    
    
    
    (133
    )
    
    
    155,681Rent
    
    
    15,874
    
    
    
    5,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,694Retail sales of
variable interest
entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,396
    
    
    
    
    
    
    
    3,396Other
    
    
    1,078
    
    
    
    644
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    1,753Total franchising
revenue
    
    
    172,913
    
    
    
    59,026
    
    
    
    1,380
    
    
    
    3,734
    
    
    
    (201
    )
    
    
    236,852Franchising expense:Administrative expense
(including provision
for bad debts)
    
    
    3,610
    
    
    
    3,762
    
    
    
    1,008
    
    
    
    
    
    
    
    
    
    
    
    8,380Distribution centers
    
    
    132,603
    
    
    
    20,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,650Rent and other
occupancy
    
    
    13,795
    
    
    
    4,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,446Operating costs of
variable interest
entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,421
    
    
    
    (249
    )
    
    
    3,172Total franchising
expense
    
    
    150,008
    
    
    
    28,460
    
    
    
    1,008
    
    
    
    3,421
    
    
    
    (249
    )
    
    
    182,648Net franchising income
    
    $
    22,905
    
    
    $
    30,566
    
    
    $
    372
    
    
    $
    313
    
    
    $
    48
    
    
    $
    54,204Facility action charges, net
    
    $
    1,245
    
    
    $
    2,101
    
    
    $
    411
    
    
    $
    30
    
    
    $
    
    
    
    $
    3,787Operating income (loss)
    
    $
    57,654
    
    
    $
    15,346
    
    
    $
    (4,379
    )
    
    $
    (11,280
    )
    
    $
    
    
    
    $
    57,341
 32




---



##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Forty Weeks Ended November 1, 2004Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other (A)
    
    
    TotalCompany-operated revenue
    
    $
    429,139
    
    
    $
    461,855
    
    
    $
    36,262
    
    
    $
    1,035
    
    
    $
    928,291Company-operated average weekly unit volume
(actual $- not in thousands)
    
    
    25,044
    
    
    
    16,771
    
    
    
    14,673Average check (actual $- not in thousands)
    
    
    5.85
    
    
    
    4.61
    
    
    
    9.63Company-operated same-store sales increase
    
    
    8.7
    %
    
    
    7.8
    %
    
    
    5.4
    %Company-operated same-store transactions increase
    
    
    1.9
    %
    
    
    0.0
    %
    
    
    1.6
    %Franchise-operated same-store sales increase
    
    
    7.6
    %
    
    
    5.1
    %
    
    
    3.6
    %Operating costs as a % of company-operated
revenue:Food and packaging
    
    
    29.2
    %
    
    
    30.0
    %
    
    
    27.1
    %Payroll and employee benefits
    
    
    28.3
    %
    
    
    33.0
    %
    
    
    34.8
    %Occupancy and other operating costs
    
    
    21.4
    %
    
    
    22.0
    %
    
    
    34.7
    %Restaurant level margin
    
    
    21.1
    %
    
    
    15.0
    %
    
    
    3.4
    %Advertising as a percentage of company-operated
revenue
    
    
    6.4
    %
    
    
    6.0
    %
    
    
    2.9
    %Franchising revenue:Royalties
    
    $
    19,150
    
    
    $
    34,381
    
    
    $
    1,345
    
    
    $
    256
    
    
    $
    55,132Distribution centers
    
    
    133,356
    
    
    
    13,048
    
    
    
    
    
    
    
    
    
    
    
    146,404Rent
    
    
    16,883
    
    
    
    7,438
    
    
    
    
    
    
    
    
    
    
    
    24,321Retail sales of variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,562
    
    
    
    2,562Other
    
    
    787
    
    
    
    382
    
    
    
    112
    
    
    
    
    
    
    
    1,281Total franchising revenue
    
    
    170,176
    
    
    
    55,249
    
    
    
    1,457
    
    
    
    2,818
    
    
    
    229,700Franchising expense:Administrative expense (including
provision for bad debts)
    
    
    3,041
    
    
    
    2,513
    
    
    
    845
    
    
    
    
    
    
    
    6,399Distribution centers
    
    
    129,702
    
    
    
    13,135
    
    
    
    
    
    
    
    
    
    
    
    142,837Rent and other occupancy
    
    
    13,850
    
    
    
    5,941
    
    
    
    
    
    
    
    
    
    
    
    19,791Operating costs of variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,505
    
    
    
    2,505Total franchising expense
    
    
    146,593
    
    
    
    21,589
    
    
    
    845
    
    
    
    2,505
    
    
    
    171,532Net franchising income
    
    $
    23,583
    
    
    $
    33,660
    
    
    $
    612
    
    
    $
    313
    
    
    $
    58,168Facility action charges, net
    
    $
    1,450
    
    
    $
    5,796
    
    
    $
    2,406
    
    
    $
    93
    
    
    $
    9,745Operating income (loss)
    
    $
    43,899
    
    
    $
    10,014
    
    
    $
    (5,947
    )
    
    $
    117
    
    
    $
    48,083
 
 (A)
    
    Other consists of one company-operated and 15 franchised and licensed Green Burrito
restaurants as of November 7, 2005, and three company-operated and 15 franchised and licensed
Green Burrito restaurants as of November 1, 2004, none of which are dual-branded, and a
consolidated variable interest Hardees franchise entity over which we do not exercise
decision-making authority. Additionally, amounts that we do not believe would be appropriate
to allocate to the operating segments are included in Other.(B)
    
    Elimination consists of the elimination of royalty revenues and equipment purchase revenues
and related expenses generated between Hardees and a consolidated variable interest entity
franchisee included in our Condensed Consolidated Financial Statements. Presentation of Non-GAAP Measurements
 EBITDA
  33




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Twelve Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    16,667
    
    
    $
    287
    
    
    $
    (879
    )
    
    $
    (252
    )
    
    $
    15,823Interest expense
    
    
    1,006
    
    
    
    4,323
    
    
    
    5
    
    
    
    
    
    
    
    5,334Income tax expense (benefit)
    
    
    433
    
    
    
    40
    
    
    
    (18
    )
    
    
    115
    
    
    
    570Depreciation and amortization
    
    
    5,634
    
    
    
    7,582
    
    
    
    799
    
    
    
    38
    
    
    
    14,053Facility action charges (gains), net
    
    
    367
    
    
    
    630
    
    
    
    (278
    )
    
    
    14
    
    
    
    733EBITDA
    
    $
    24,107
    
    
    $
    12,862
    
    
    $
    (371
    )
    
    $
    (85
    )
    
    $
    36,513
 Twelve Weeks Ended November 1, 2004Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    15,661
    
    
    $
    (1,131
    )
    
    $
    (1,466
    )
    
    $
    68
    
    
    $
    13,132Net loss of discontinued segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    179Interest expense
    
    
    1,149
    
    
    
    5,577
    
    
    
    
    
    
    
    20
    
    
    
    6,746Income tax expense (benefit)
    
    
    107
    
    
    
    21
    
    
    
    
    
    
    
    (198
    )
    
    
    (70
    )Depreciation and amortization
    
    
    5,542
    
    
    
    8,861
    
    
    
    644
    
    
    
    206
    
    
    
    15,253Facility action charges (gains), net
    
    
    (19
    )
    
    
    389
    
    
    
    641
    
    
    
    34
    
    
    
    1,045EBITDA
    
    $
    22,440
    
    
    $
    13,717
    
    
    $
    (181
    )
    
    $
    309
    
    
    $
    36,285
 Forty Weeks Ended November 7, 2005Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    53,869
    
    
    $
    1,886
    
    
    $
    (4,265
    )
    
    $
    (11,220
    )
    
    $
    40,270Interest expense
    
    
    3,305
    
    
    
    14,512
    
    
    
    21
    
    
    
    92
    
    
    
    17,930Income tax expense (benefit)
    
    
    1,387
    
    
    
    106
    
    
    
    (87
    )
    
    
    259
    
    
    
    1,665Depreciation and amortization
    
    
    19,268
    
    
    
    27,805
    
    
    
    2,761
    
    
    
    128
    
    
    
    49,962Facility action charges, net
    
    
    1,245
    
    
    
    2,101
    
    
    
    411
    
    
    
    30
    
    
    
    3,787EBITDA
    
    $
    79,074
    
    
    $
    46,410
    
    
    $
    (1,159
    )
    
    $
    (10,711
    )
    
    $
    113,614
 Forty Weeks Ended November 1, 2004Carls Jr.
    
    
    Hardees
    
    
    La Salsa
    
    
    Other
    
    
    TotalNet income (loss)
    
    $
    41,012
    
    
    $
    (24,047
    )
    
    $
    (6,000
    )
    
    $
    (18
    )
    
    $
    10,947Net income of discontinued segment,
excluding impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    (252
    )Interest expense (income)
    
    
    3,916
    
    
    
    26,504
    
    
    
    (25
    )
    
    
    34
    
    
    
    30,429Income tax expense
    
    
    354
    
    
    
    59
    
    
    
    2
    
    
    
    110
    
    
    
    525Depreciation and amortization
    
    
    18,663
    
    
    
    30,130
    
    
    
    2,977
    
    
    
    301
    
    
    
    52,071Facility action charges, net
    
    
    1,450
    
    
    
    5,796
    
    
    
    2,406
    
    
    
    93
    
    
    
    9,745Premium paid
upon early redemption of Senior Notes
    
    
    
    
    
    
    9,126
    
    
    
    
    
    
    
    
    
    
    
    9,126Impairment of Timber Lodge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    898
    
    
    
    898EBITDA
    
    $
    65,395
    
    
    $
    47,568
    
    
    $
    (640
    )
    
    $
    1,166
    
    
    $
    113,489
 34




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7, 2005
    
    
    November 1, 2004
    
    
    November 7, 2005
    
    
    November 1, 2004Net cash provided by operating activities
    
    $
    30,757
    
    
    $
    32,904
    
    
    $
    97,698
    
    
    $
    100,513Interest expense
    
    
    5,334
    
    
    
    6,746
    
    
    
    17,930
    
    
    
    30,429Income tax expense (benefit)
    
    
    570
    
    
    
    (70
    )
    
    
    1,665
    
    
    
    525Premium on early redemption of Senior Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,126Amortization of loan fees
    
    
    (820
    )
    
    
    (884
    )
    
    
    (2,705
    )
    
    
    (2,829
    )(Provision for) recovery of losses on
accounts and notes receivable
    
    
    (5
    )
    
    
    (8
    )
    
    
    494
    
    
    
    1,784Loss on sales of property and equipment,
capital leases and extinguishment of debts
    
    
    (410
    )
    
    
    (2,036
    )
    
    
    (2,231
    )
    
    
    (8,352
    )Deferred income taxes
    
    
    (44
    )
    
    
    (61
    )
    
    
    (141
    )
    
    
    (205
    )Other non-cash items
    
    
    (33
    )
    
    
    (254
    )
    
    
    (95
    )
    
    
    (320
    )Net change in refundable income taxes
    
    
    221
    
    
    
    397
    
    
    
    (423
    )
    
    
    818Change in estimated liability for closing
restaurants and estimated liability for
self-insurance
    
    
    2,194
    
    
    
    1,020
    
    
    
    5,472
    
    
    
    4,317Net change in receivables, inventories,
prepaid expenses and other current assets
    
    
    1,144
    
    
    
    3,430
    
    
    
    2,363
    
    
    
    (3,243
    )Net change in accounts payable and other
current and long-term liabilities
    
    
    (2,395
    )
    
    
    (4,904
    )
    
    
    (6,413
    )
    
    
    (19,331
    )EBITDA from discontinued operations
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    262Net cash provided to discontinued segment
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    257EBITDA, including discontinued operations
    
    
    36,513
    
    
    
    36,106
    
    
    
    113,614
    
    
    
    113,751Less: EBITDA from discontinued operations
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    (262
    )EBITDA
    
    $
    36,513
    
    
    $
    36,285
    
    
    $
    113,614
    
    
    $
    113,489
 Carls Jr.
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeCompany-operated
    
    
    428
    
    
    
    432
    
    
    
    (4
    )
    
    $
    129,548
    
    
    $
    129,518
    
    
    $
    30
    
    
    $
    439,530
    
    
    $
    429,139
    
    
    $
    10,391Franchised and
licensed(a)
    
    
    614
    
    
    
    585
    
    
    
    29
    
    
    
    51,493
    
    
    
    51,372
    
    
    
    121
    
    
    
    172,913
    
    
    
    170,176
    
    
    
    2,737Total
    
    
    1,042
    
    
    
    1,017
    
    
    
    25
    
    
    $
    181,041
    
    
    $
    180,890
    
    
    $
    151
    
    
    $
    612,443
    
    
    $
    599,315
    
    
    $
    13,128
  (a)
    
    Includes $40,028, $39,970, $136,201 and $133,356 of revenues from distribution of food,
packaging and supplies to franchised and licensed restaurants during the twelve weeks ended
November 7, 2005 and November 1, 2004, and the forty weeks ended November 7, 2005 and November
1, 2004, respectively.
 35




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Company-Operated Restaurants
 company-operated company-operated same-store
 company-operated same-store
 restaurant-level
 Twelve
    
    
    FortyWeeks
    
    
    WeeksRestaurant-level margin for the period ended November 1, 2004
    
    
    20.8
    %
    
    
    21.1
    %Decrease in workers compensation expense
    
    
    0.9
    
    
    
    1.0Decrease in food and packaging costs
    
    
    0.8
    
    
    
    0.2Increase in utilities expense
    
    
    (0.5
    )
    
    
    (0.2
    )Decrease in labor costs, excluding workers compensation
    
    
    0.4
    
    
    
    0.4Increase in repair and maintenance expense
    
    
    (0.3
    )
    
    
    (0.1
    )Decrease in general liability insurance expense
    
    
    0.2
    
    
    
    0.2Decrease in equipment lease expense
    
    
    0.2
    
    
    
    0.2Increase in rent, common area maintenance and property taxes
    
    
    (0.2
    )
    
    
    (0.1
    )Decrease in banking/ATM fees
    
    
    0.1
    
    
    
    Increase in depreciation and amortization expense
    
    
    (0.1
    )
    
    
    (0.1
    )Increase in asset retirement expense
    
    
    
    
    
    
    (0.1
    )Other, net
    
    
    
    
    
    
    Restaurant-level margin for the period ended November 7, 2005
    
    
    22.3
    %
    
    
    22.5
    %
     36




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
    Franchised and Licensed Restaurants
      37




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Hardees
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeCompany-operated
    
    
    664
    
    
    
    680
    
    
    
    (16
    )
    
    $
    134,420
    
    
    $
    140,269
    
    
    $
    (5,849
    )
    
    $
    456,057
    
    
    $
    461,855
    
    
    $
    (5,798
    )Franchised and
licensed
    
    
    1,340
    
    
    
    1,367
    
    
    
    (27
    )
    
    
    16,402
    
    
    
    15,303
    
    
    
    1,099
    
    
    
    59,026
    
    
    
    55,249
    
    
    
    3,777Total
    
    
    2,004
    
    
    
    2,047
    
    
    
    (43
    )
    
    $
    150,822
    
    
    $
    155,572
    
    
    $
    (4,750
    )
    
    $
    515,083
    
    
    $
    517,104
    
    
    $
    (2,021
    )
 Company-Operated Restaurants
    Twelve
    
    
    FortyWeeks
    
    
    WeeksRestaurant-level margin for the period ended November 1, 2004
    
    
    15.3
    %
    
    
    15.0
    %Decrease in food and packaging costs
    
    
    0.9
    
    
    
    0.1Increase in utilities expense
    
    
    (0.7
    )
    
    
    (0.3
    )(Increase) decrease in labor and incentive costs, excluding workers compensation
    
    
    (0.6
    )
    
    
    0.1Decrease in workers compensation insurance expense
    
    
    0.4
    
    
    
    0.6Decrease in depreciation and amortization expense
    
    
    0.4
    
    
    
    0.3Decrease in general liability insurance expense
    
    
    0.2
    
    
    
    0.1Increase in rent, common area maintenance and property taxes
    
    
    (0.2
    )
    
    
    (0.1
    )Decrease in asset retirement expense
    
    
    0.1
    
    
    
    0.2Decrease (increase) in repair and maintenance expense
    
    
    0.1
    
    
    
    (0.2
    )Decrease (increase) in equipment lease expense
    
    
    0.1
    
    
    
    (0.1
    )Increase in uniform expense
    
    
    
    
    
    
    (0.1
    )Increase in bank/ATM fees
    
    
    (0.1
    )
    
    
    (0.1
    )Rebate received from primary distributor
    
    
    
    
    
    
    0.1Other, net
    
    
    (0.1
    )
    
    
    (0.2
    )Restaurant-level margin for the period ended November 7, 2005
    
    
    15.8
    %
    
    
    15.4
    %
  38




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##### Table of Contents



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




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS (Continued)
(Dollars in thousands, except per share amounts)
   La Salsa
  Restaurant Portfolio
    
    
    RevenueThird Fiscal Quarter
    
    
    Third Fiscal Quarter
    
    
    Year-To-Date2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeCompany-operated
    
    
    61
    
    
    
    61
    
    
    
    
    
    
    $
    10,770
    
    
    $
    10,561
    
    
    $
    209
    
    
    $
    37,012
    
    
    $
    36,262
    
    
    $
    750Franchised and
licensed
    
    
    40
    
    
    
    40
    
    
    
    
    
    
    
    430
    
    
    
    500
    
    
    
    (70
    )
    
    
    1,380
    
    
    
    1,457
    
    
    
    (77
    )Total
    
    
    101
    
    
    
    101
    
    
    
    
    
    
    $
    11,200
    
    
    $
    11,061
    
    
    $
    139
    
    
    $
    38,392
    
    
    $
    37,719
    
    
    $
    673
    40




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Consolidated Variable Interest Entities
   Advertising Expense
   General and Administrative Expense
     41




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Facility Action Charges
       Interest Expense
  write-off
  42




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
 Other Income (Expense), Net
  Twelve Weeks Ended
    
    
    Forty Weeks EndedNovember 7,
    
    
    November 1,
    
    
    November 7,
    
    
    November 1,2005
    
    
    2004
    
    
    2005
    
    
    2004Premium paid
upon early redemption of debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (9,126
    )Interest income on notes receivable from
franchisees, disposition properties and capital
leases
    
    
    277
    
    
    
    298
    
    
    
    886
    
    
    
    1,249Rental income from properties leased to third
parties, net
    
    
    347
    
    
    
    781
    
    
    
    986
    
    
    
    1,468Lease termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515Other, net
    
    
    119
    
    
    
    (55
    )
    
    
    652
    
    
    
    358Total other income (expense), net
    
    $
    743
    
    
    $
    1,024
    
    
    $
    2,524
    
    
    $
    (5,536
    )
  Income Taxes
     43




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
    Liquidity and Capital Resources
      44




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  Accounting for Derivative
Instruments and Hedging Activities
       45




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##### Table of Contents



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




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##### Table of Contents



CKE RESTAURANTS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS  (Continued)
(Dollars in thousands, except per share amounts)
  November 7,
    
    
    November 1,2005
    
    
    2004New restaurants (including restaurants under development)Carls Jr.
    
    $
    6,921
    
    
    $
    8,443Hardees
    
    
    8,714
    
    
    
    3,468La Salsa
    
    
    307
    
    
    
    925Remodels/Dual-branding (including construction in process)Carls Jr.
    
    
    3,902
    
    
    
    618Hardees
    
    
    4,260
    
    
    
    7,107La Salsa
    
    
    123
    
    
    
    21Other restaurant additionsCarls Jr.
    
    
    7,298
    
    
    
    6,594Hardees
    
    
    16,515
    
    
    
    12,194La Salsa
    
    
    380
    
    
    
    1,270Corporate/other
    
    
    5,843
    
    
    
    3,224Total
    
    $
    54,263
    
    
    $
    43,864
   Contractual Obligations
  47




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
   Commodity Price Risk
  Derivative Financial Instruments
  
 Item 4. Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
  48




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##### Table of Contents



(b) Changes in Internal Control and Remediation of Material Weakness
    
    
    implemented additional staff training and management review practices with
respect to assignment of appropriate depreciable lives to fixed assets subject to
operating leases, and
    
    established internal communication and documentation procedures, and management
review practices related thereto, to ensure timely and complete accounting for
straight-line rent expense for the period from possession of leased property to the date
of rent commencement.
  
 Part II. Other Information.
 
 Item 1. Legal Proceedings.
  49




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Issuer Purchase of Equity Securities
    (a)
    
    
    (b)
    
    
    (c)
    
    
    (d)MaximumDollarValue ofTotal
    
    
    Shares thatNumber of Shares
    
    
    May Yet BeAverage
    
    
    Purchased as Part
    
    
    PurchasedTotal
    
    
    Price
    
    
    of Publicly
    
    
    Under theNumber of Shares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    ProgramsAugust 16, 2005  September 12, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    14,441September 13, 2005  October 10, 2005
    
    
    150,100
    
    
    
    13.29
    
    
    
    150,100
    
    
    
    12,442October 11, 2005  November 7, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,442Total
    
    
    150,100
    
    
    $
    13.29
    
    
    
    150,100
    
    
    $
    12,442
 
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  50




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##### Table of Contents



Item 6. Exhibits.
 Exhibit #3.1
    
    Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    Certificate of Amendment of Certificate of Incorporation of
the Company, as filed with the Delaware Secretary of State
on December 9, 1997 (incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended January 26, 1998 filed with the Securities
and Exchange Commission on April 24, 1998).3.3
    
    Bylaws of the Company (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement Form S-4 filed
with the Securities and Exchange Commission on March 7,
1994).3.4
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended January
26, 2004 filed with the Securities and Exchange Commission
on April 7, 2004).4.1
    
    Rights Agreement, dated as of October 10, 2005, between the
Company and Mellon Investor Services, LLC, which includes as
Exhibit A thereto a form of Certificate of Designation for
the Series A Junior Participating Preferred Stock, as
Exhibit B thereto the Form of Rights Certificate and as
Exhibit C thereto a Summary of Rights to Purchase Preferred
Stock (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on October 11, 2005).31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 51




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##### Table of Contents



SIGNATURES
  CKE RESTAURANTS, INC.(Registrant)Date: December 12, 2005
    
    /s/ Theodore AbajianTheodore Abajian
Executive Vice President
Chief Financial Officer
 52




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##### Table of Contents



Exhibit Index
 Exhibit #3.1
    
    Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Companys Registration
Statement Form S-4 filed with the Securities and Exchange
Commission on March 7, 1994).3.2
    
    Certificate of Amendment of Certificate of Incorporation of
the Company, as filed with the Delaware Secretary of State
on December 9, 1997 (incorporated by reference to Exhibit
3.2 to the Companys Annual Report on Form 10-K for the
fiscal year ended January 26, 1998 filed with the Securities
and Exchange Commission on April 24, 1998).3.3
    
    Bylaws of the Company (incorporated by reference to Exhibit
3.1 to the Companys Registration Statement Form S-4 filed
with the Securities and Exchange Commission on March 7,
1994).3.4
    
    Certificate of Amendment of Bylaws of the Company
(incorporated by reference to Exhibit 3.4 to the Companys
Annual Report on Form 10-K for the fiscal year ended January
26, 2004 filed with the Securities and Exchange Commission
on April 7, 2004).4.1
    
    Rights Agreement, dated as of October 10, 2005, between the
Company and Mellon Investor Services, LLC, which includes as
Exhibit A thereto a form of Certificate of Designation for
the Series A Junior Participating Preferred Stock, as
Exhibit B thereto the Form of Rights Certificate and as
Exhibit C thereto a Summary of Rights to Purchase Preferred
Stock (incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on October 11, 2005).31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 53