e10vq

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


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. Employer
Incorporation 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.

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

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

As of November 30, 2005, 59,459,678 shares of the registrant’s common stock were outstanding.

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, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	20,187		$	18,432
Accounts 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			31,199
Related party trade receivables		5,064			6,760
Inventories, net		19,511			19,297
Prepaid expenses		12,622			13,056
Assets held for sale		525			1,058
Advertising fund assets, restricted		20,186			21,951
Other current assets		2,297			2,278

Total current assets		114,572			114,031
Notes 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			3,328
Property 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			461,286
Property 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			36,060
Goodwill		22,649			22,649
Other assets, net		26,927			31,529

Total assets	$	661,437		$	668,883

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of bank indebtedness and other long-term debt	$	1,320		$	16,066
Current portion of capital lease obligations		4,881			5,079
Accounts payable		52,395			52,484
Advertising fund liabilities		20,186			21,951
Other current liabilities		95,515			93,358

Total current liabilities		174,297			188,938
Bank indebtedness and other long-term debt, less current portion		111,918			138,418
Convertible subordinated notes due 2023		105,000			105,000
Capital lease obligations, less current portion		48,158			52,485
Other long-term liabilities		64,081			64,374

Total liabilities		503,454			549,215


Commitments 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			581
Additional paid-in capital		459,503			453,391
Unearned compensation on restricted stock		(962	)		—
Accumulated deficit		(301,153	)		(334,304	)

Total stockholders’ equity		157,983			119,668

Total liabilities and stockholders’ equity	$	661,437		$	668,883

See Accompanying Notes to Condensed Consolidated Financial Statements

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Twelve Weeks Ended						Forty Weeks Ended
	November 7, 2005			November 1, 2004			November 7, 2005			November 1, 2004
Revenue:
Company-operated restaurants	$	274,822		$	280,618		$	932,953		$	928,291
Franchised and licensed restaurants and other		69,291			68,328			236,852			229,700

Total revenue		344,113			348,946			1,169,805			1,157,991

Operating costs and expenses:
Restaurant operations:
Food and packaging		80,301			84,213			273,116			273,834
Payroll and other employee benefits		81,952			85,162			277,700			286,970
Occupancy and other		62,068			62,490			210,692			206,248

		224,321			231,865			761,508			767,052
Franchised and licensed restaurants and other		53,521			51,977			182,648			171,532
Advertising		16,334			16,466			56,416			56,140
General and administrative		28,220			28,630			108,105			105,439
Facility action charges, net		733			1,045			3,787			9,745

Total operating costs and expenses		323,129			329,983			1,112,464			1,109,908

Operating income		20,984			18,963			57,341			48,083
Interest 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			12,118
Income tax expense (benefit)		570			(70	)		1,665			525

Income from continuing operations		15,823			13,311			40,270			11,593
Loss from operations of discontinued segment (net of income tax expense of $0)		—			(179	)		—			(646	)

Net income	$	15,823		$	13,132		$	40,270		$	10,947

Basic income per common share:
Continuing operations	$	0.27		$	0.23		$	0.68		$	0.20
Discontinued operations		—			—			—			(0.01	)

Net income	$	0.27		$	0.23		$	0.68		$	0.19

Diluted income per common share:
Continuing operations	$	0.23		$	0.20		$	0.60		$	0.19
Discontinued operations		—			—			—			(0.01	)

Net income	$	0.23		$	0.20		$	0.60		$	0.18

Dividends per common share	$	0.04		$	—		$	0.12		$	—

Weighted-average common shares outstanding:
Basic		59,440			57,605			59,154			57,568
Dilutive effect of stock options, convertible notes and restricted stock		13,514			13,812			14,266			1,934

Diluted		72,954			71,417			73,420			59,502

See Accompanying Notes to Condensed Consolidated Financial Statements

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except per share amounts)

(Unaudited)


	Forty Weeks Ended November 7, 2005
	Common Stock															Treasury Stock
										Unearned
							Additional			Compensation												Total
							Paid-In			On Restricted			Accumulated									Stockholders’
	Shares			Amount			Capital			Stock			Deficit			Shares			Amount			Equity
Balance at January 31, 2005		58,082		$	581		$	453,391		$	—		$	(334,304	)		—		$	—		$	119,668
Cash 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			—			—			—			57
Exercise of stock options and warrants		1,442			15			7,091			—			—			—			—			7,106
Repurchase of common stock		—			—			—			—			—			(150	)		(1,999	)		(1,999	)
Retirement of treasury stock		(150	)		(2	)		(1,997	)		—			—			150			1,999			—
Net income		—			—			—			—			40,270			—			—			40,270

Balance at November 7, 2005		59,449		$	595		$	459,503		$	(962	)	$	(301,153	)		—		$	—		$	157,983

See Accompanying Notes to Condensed Consolidated Financial Statements

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Forty Weeks Ended
	November 7, 2005			November 1, 2004
Cash flow from operating activities:
Net income	$	40,270		$	10,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		49,962			52,071
Amortization of loan fees		2,705			2,829
Recovery 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			8,352
Facility action charges, net		3,787			9,745
Deferred income taxes		141			205
Other non-cash charges		95			320
Change 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	)		3,243
Net change in accounts payable and other current and long-term liabilities		6,413			19,331
Loss from operations of discontinued segment		—			646
Net cash provided to discontinued segment		—			(257	)

Net cash provided by operating activities		97,698			100,513

Cash flow from investing activities:
Purchases of property and equipment		(54,263	)		(43,864	)
Proceeds from sales of property and equipment		5,953			11,650
Collections on notes receivable		1,943			2,337
Increase in cash upon consolidation of variable interest entity		—			100
Disposition of brand, net of cash surrendered		—			6,954
Other 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			18,500
Repayments of borrowings under revolving credit facility		(124,000	)		(15,000	)
Proceeds from credit facility term loan		—			230,000
Repayment 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		—			1,983
Payment of deferred loan fees		(101	)		(6,188	)
Repurchase of common stock		(1,999	)		(5,559	)
Exercise of stock options and warrants		7,106			2,294
Dividends 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			54,355

Cash and cash equivalents at end of period	$	20,187		$	20,872

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	16,388		$	28,165

Income taxes, net of refunds received	$	1,362		$	3,363

Non-cash investing and financing activities:
Gain recognized on sale and leaseback transactions	$	280		$	258

Dividends declared, not paid	$	2,379		$	—

Capital lease obligations incurred to acquire assets	$	344		$	—

See Accompanying Notes to Condensed Consolidated Financial Statements

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

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® (“Green Burrito”) and La Salsa Fresh Mexican Grill® (“La Salsa”) concepts. References to CKE Restaurants, Inc. throughout these Notes to our 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 located in California, primarily in dual-branded Carl’s Jr. restaurants. La Salsa restaurants are primarily located in California. As of November 7, 2005, our system-wide restaurant portfolio consisted of:


	Carl’s Jr.		Hardee’s		La Salsa		Other		Total
Company-operated		428		664		61		1		1,154
Franchised and licensed		614		1,340		40		15		2,009

Total		1,042		2,004		101		16		3,163

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of CKE and our wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America, the instructions to Form 10-Q, and Article 10 of Regulation S-X. These 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, 2005. 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 periods 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 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. Fiscal 2006 will be a 52-week year. Fiscal 2005 was a 53-week year. The fourth quarter of fiscal 2005 had two accounting periods of four weeks and one accounting period of five weeks.

For clarity of presentation, we generally label all fiscal year ends as fiscal year ended January 31.

Prior year amounts in the Condensed Consolidated Financial Statements have been reclassified to conform with current year presentation.

Consolidation of Variable Interest Entities

In accordance with Financial Accounting Standards Board (“FASB”) Interpretation 46 (revised December 2003), Consolidation of Variable Interest Entities — an interpretation of ARB No. 51 (“FIN 46R”), which we adopted on May 17, 2004, we consolidate certain variable interest entities (“VIEs”) within our Condensed Consolidated Financial Statements based on our determination that we are the primary beneficiaries of such VIEs.

We consolidate one franchise entity that operates six Hardee’s restaurants. We sublease to this franchise entity all six of its operating locations and a substantial portion of its operating equipment. Because the principals did not invest a significant amount of equity, the legal entity within which this franchise operates is considered to be inadequately capitalized and, as a result, is a VIE. We determined we are the primary beneficiary of this VIE. The assets and liabilities of this entity are included in the accompanying Condensed Consolidated Balance Sheets, and are not significant to our consolidated financial position. The results of operations of this franchise entity are included within the accompanying Condensed Consolidated Statements of Operations, and are not significant to our consolidated results of operations. The minority interest in the income or loss of this franchise entity is classified in

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

other income (expense), net, in the accompanying Condensed Consolidated Statements of Operations, and in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet as of January 31, 2005. During the forty weeks ended November 7, 2005, the VIE experienced a net loss that changed its equity position to a net deficit. As a result, we no longer have a minority interest obligation as of November 7, 2005. We have no rights to the assets, nor do we have any obligation with respect to the liabilities, of this franchise entity. None of our assets serve as collateral for the creditors of this franchisee or any of our other franchisees.

Stock-Based Compensation

At January 31, 2005, we had several stock-based employee compensation plans in effect, which are described more fully in Note 22 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2005. During the forty weeks ended November 7, 2005, our shareholders approved the 2005 Omnibus Incentive Compensation Plan (the “2005 Plan”) (see Note 11). We account for our stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations. No stock-based employee compensation cost is reflected in net income for options granted under these plans, as all such options had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. During the forty weeks ended November 7, 2005, restricted stock awards were granted to certain executive officers and directors with an exercise price of $0 per share. The difference between the market price of the underlying common stock on the date of grant and the exercise price of restricted stock awards is initially recorded as unearned compensation on restricted stock within the stockholders’ equity section of our Condensed Consolidated Balance Sheet and subsequently amortized over the vesting period. During the twelve and forty weeks ended November 7, 2005, $47 and $57 of unearned compensation expense was amortized and is included in general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.

For purposes of the following pro forma disclosures required by Statement of Financial Accounting Standards (“SFAS”) 148, Accounting for Stock-Based Compensation – Transition and Disclosure, and SFAS 123, Accounting for Stock-Based Compensation, the fair value of each option has been estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility, the risk-free rate and the expected term of the option. Because our stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management’s opinion, the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of our employee stock options.

The assumptions used for grants in the forty weeks ended November 7, 2005 and November 1, 2004, are as follows:


	November 7, 2005			November 1, 2004
Annual 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			5.43
Weighted-average fair value of each option granted	$	7.19		$	7.15

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

The assumptions used to determine the fair value of each option granted are highly subjective. Changes in the assumptions used would affect the fair value of the options granted as follows:


	Increase (Decrease) in			Increase (Decrease) in
	Fair Value of Options			Fair Value of Options
	Granted in the			Granted in the
	Forty Weeks			Forty Weeks
	Ended			Ended
Change in Assumption	November 7, 2005			November 1, 2004
10% increase in expected volatility	$	0.82		$	0.63
1% increase in risk-free interest rate		0.15			0.11
1 year increase in expected life of all options outstanding		0.48			0.47
10% 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	)

The following tables reconcile reported net income to pro forma net income assuming compensation expense for stock-based compensation had been recognized in accordance with SFAS 123:


	Twelve Weeks Ended
	November 7, 2005			November 1, 2004
Net income, as reported	$	15,823		$	13,132
Add: 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		$	11,935

Net income per common share:
Basic — as reported	$	0.27		$	0.23
Basic — pro forma		0.25			0.21
Diluted — as reported		0.23			0.20
Diluted — pro forma		0.22			0.18


	Forty Weeks Ended
	November 7, 2005			November 1, 2004
Net income, as reported	$	40,270		$	10,947
Add: 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		$	7,551

Net income per common share:
Basic — as reported	$	0.68		$	0.19
Basic — pro forma		0.62			0.13
Diluted — as reported		0.60			0.18
Diluted — pro forma		0.55			0.13

Note 2 — Accounting Pronouncements Not Yet Adopted

In December 2004, the FASB issued SFAS 123 (Revised 2004), Share-Based Payment (“SFAS 123R”), which replaces SFAS 123, supersedes APB 25 and related Interpretations and amends SFAS 95, Statement of Cash Flows. The provisions of SFAS 123R are similar to those of SFAS 123; however, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of share-based awards will be determined using option-pricing models (e.g., Black-Scholes or binomial models) and assumptions that appropriately reflect the specific circumstances of the awards. Compensation cost for existing awards will be recognized over the vesting period based on the fair value of awards that actually vest.

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

We will be required to choose between the modified-prospective and modified-retrospective transition alternatives in adopting SFAS 123R. Under the modified-prospective transition method, compensation cost would be recognized in financial statements issued subsequent to the date of adoption for all shared-based payments granted, modified or settled after the date of adoption, as well as for any unvested awards that were granted prior to the date of adoption. As we previously adopted only the pro forma disclosure provisions of SFAS 123, under this method we would recognize compensation cost relating to the unvested portion of awards granted prior to the date of adoption using the same estimate of the grant-date fair value and the same attribution method used to determine the pro forma disclosures under SFAS 123. Under the modified-retrospective transition method, compensation cost would be recognized in a manner consistent with the modified-prospective transition method; however, prior period financial statements would also be restated by recognizing compensation cost as previously reported in the pro forma disclosures under SFAS 123. The restatement provisions can be applied to either (i) all periods presented or (ii) to the beginning of the fiscal year in which SFAS 123R is adopted.

SFAS 123R is effective at the beginning of the first annual period beginning after June 15, 2005 (fiscal 2007 for us) and early adoption is encouraged. We will evaluate the use of certain option-pricing models as well as the assumptions to be used in such models. When such evaluation is complete, we will determine the transition method to use and the timing of adoption. We do not currently anticipate that the impact on net income on a full year basis of the adoption of SFAS 123R will be significantly different from the historical pro forma impacts as disclosed in accordance with SFAS 123.

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. Previously, accounting principles generally accepted in the U.S. (“GAAP”) required that the cumulative effect of most changes in accounting principle be recognized in the period of the change. SFAS 154 requires companies to recognize changes in accounting principle, including changes required by a new accounting pronouncement when the pronouncement does not include specific transition provisions, retrospectively to prior periods’ financial statements. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, which for us is the beginning of fiscal 2007. We do not believe that the adoption of SFAS 154 will have a material impact on our consolidated financial position or results of operations.

On October 6, 2005, the FASB issued FASB Staff Position (“FSP”) FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period, which requires that rental costs associated with ground or building operating leases that are incurred during a construction period must be recognized as rental expense and allocated over the lease term beginning on the date that the lessee is given control of the property. The FSP is effective for the first reporting period beginning after December 15, 2005, which for us is the first quarter of fiscal 2007. We do not believe the adoption of this FSP will have a material impact on our consolidated results of operations or financial position.

Note 3 — Adoption Of New Accounting Pronouncements

In October 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue 04-1, Accounting for Preexisting Relationships between the Parties to a Business Combination (“EITF 04-1”). EITF 04-1 requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists. EITF 04-1 also requires that certain reacquired rights (including the rights to the acquirer’s trade name under a franchise agreement) be recognized as intangible assets apart from goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar items, EITF 04-1 requires that a settlement gain or loss should be measured as the lesser of (i) the amount by which the contract is favorable or unfavorable to market terms from the perspective of the acquirer or (ii) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

EITF 04-1 was effective prospectively for business combinations consummated in reporting periods beginning after October 13, 2004 (our fiscal quarter beginning November 2, 2004). EITF 04-1 applies to acquisitions of restaurants we may make from our franchisees or licensees. We currently attempt to have our franchisees or licensees enter into standard franchise or license agreements for the applicable brand and/or market when renewing or entering into a new agreement. However, in certain instances franchisees or licensees have existing agreements

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

that possess terms, including royalty rates, that differ from our current standard agreements for the applicable brand and/or market. If in the future we were to acquire a franchisee or licensee with such an existing agreement, we may be required to record a settlement gain or loss at the date of acquisition. The amount and timing of any such gains or losses we might record is dependent upon which franchisees or licensees we might acquire and when they are acquired. Accordingly, any impact cannot be currently determined.

On June 29, 2005, the FASB ratified EITF 05-06, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination. This EITF addresses the amortization period for leasehold improvements in operating leases that are either (a) placed in service significantly after and not contemplated at or near the beginning of the initial lease term or (b) acquired in a business combination. Leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. Leasehold improvements acquired in a business combination should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. This EITF is effective for leasehold improvements that are purchased or acquired after June 29, 2005. The adoption of this EITF did not have a material impact on our consolidated results of operations or financial position.

Note 4 — Other Assets

Other assets as of November 7, 2005 and January 31, 2005 consist of the following:


	November 7,		January 31,
	2005		2005
Intangible assets (see below)	$	17,864	$	19,102
Deferred financing costs		6,496		9,470
Net investment in lease receivables, less current portion		769		867
Other		1,798		2,090

	$	26,927	$	31,529

As of November 7, 2005 and January 31, 2005, intangible assets with finite useful lives were primarily comprised of intangible assets obtained through our acquisition of Santa Barbara Restaurant Group (“SBRG”) in fiscal 2003 and our Hardee’s acquisition transactions in fiscal 1999 and 1998. Such intangible assets have amortization periods ranging from three to 20 years and are included in other assets, net, in the accompanying Condensed Consolidated Balance Sheets.

The table below presents identifiable, definite-lived intangible assets as of November 7, 2005 and January 31, 2005:


	November 7, 2005							January 31, 2005
	Gross					Net		Gross					Net
Intangible	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
Asset	Amount		Amortization			Amount		Amount		Amortization			Amount
Trademarks	$	17,171	$	(3,167	)	$	14,004	$	17,171	$	(2,487	)	$	14,684
Franchise agreements		1,780		(307	)		1,473		1,780		(258	)		1,522
Favorable 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

Amortization expense related to identifiable definite-lived intangible assets was $349 and $1,205 for the twelve and forty weeks ended November 7, 2005, and $428 and $1,920 for the twelve and forty weeks ended November 1, 2004, respectively.

Note 5 — Indebtedness And Interest Expense

We maintain a senior credit facility (the “Facility”) that provides for a $380,000 senior secured credit facility consisting of a $150,000 revolving credit facility and a $230,000 term loan. The revolving credit facility matures on

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

May 1, 2007, and includes an $85,000 letter of credit sub-facility. The principal amount of the term loan is scheduled to be repaid in quarterly installments, with a balloon payment of the remaining principal balance at maturity on July 2, 2008. The Facility also requires term loan prepayments based upon an annual excess cash flow formula, as defined therein. Subject to certain conditions as defined in the Facility, the maturity of the term loan may be extended to May 1, 2010.

During the forty weeks ended November 7, 2005, we voluntarily prepaid $25,706 of the $230,000 term loan, in addition to the $944 regularly scheduled principal payments. As of November 7, 2005, we had (i) borrowings outstanding under the term loan portion of the Facility of $112,000, (ii) no outstanding borrowings under the revolving portion of the facility, (iii) outstanding letters of credit under the revolving portion of the Facility of $62,704, and (iv) availability under the revolving portion of the Facility of $87,296. Subsequent to November 7, 2005, we voluntarily prepaid an additional $13,000 on our term loan, reducing the balance to $99,000.

The terms of the Facility include certain restrictive covenants. Among other things, these covenants restrict our ability to incur debt or liens on our assets, make any significant change in our corporate structure or the nature of our business, dispose of assets in the collateral pool securing the Facility, prepay certain debt, engage in a change of control transaction without the member banks’ consents and make investments or acquisitions. The Facility is collateralized by a lien on all of our personal property assets and liens on certain restaurant properties.

As of November 7, 2005, the applicable interest rate on the term loan was LIBOR plus 2.00%, or 6.00%, per annum. We also incur fees on outstanding letters of credit under the Facility at a rate of 2.25% per annum.

The Facility required us to enter into interest rate protection agreements in an aggregate notional amount of at least $70,000 for a term of at least three years. Pursuant to this requirement, on July 26, 2004, we entered into two interest rate cap agreements in an aggregate notional amount of $70,000. Under the terms of each agreement, if LIBOR exceeds 5.375% on the measurement date for any quarterly period, we will receive payments equal to the amount LIBOR exceeds 5.375%, multiplied by (i) the notional amount of the agreement and (ii) the fraction of a year represented by the quarterly period. The agreements expire on July 28, 2007. The agreements were not designated as cash flow hedges under the terms of SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Accordingly, the change in the fair value of the $371 of interest rate cap premiums is recognized quarterly in interest expense in the Condensed Consolidated Statements of Operations. During the quarter ended November 7, 2005, we recorded a credit of $20 to interest expense to increase the carrying value of the interest rate cap premiums to their fair value of $93 at November 7, 2005. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure.

Subject to the terms of the Facility, we may make annual capital expenditures in the amount of $45,000, plus 80% of the amount of actual earnings before interest, taxes, depreciation and amortization (“EBITDA”) (as defined in the agreement) in excess of $110,000. We may also carry forward any unused capital expenditure amounts to the following year. Based on these terms, the Facility permits us to make capital expenditures of at least $63,836 in fiscal 2006, which could increase further based on our performance versus the EBITDA formula described above.

The Facility also permits us to repurchase our common stock in an amount up to approximately $62,081 as of November 7, 2005. In addition, the dollar amount of common stock that we may purchase is increased each year by a portion of excess cash flow (as defined in the agreement) during the term of the Facility.

Until recently, the Facility prohibited us from paying cash dividends. On April 21, 2005, we amended the Facility to permit us to pay cash dividends on substantially the same terms as we have been, and are, permitted to repurchase shares of our common stock. This amendment to the Facility also resulted in a 0.50% decrease in the borrowing rate under our term loan, a 0.25% decrease in the borrowing rate on revolving loans and a 0.25% decrease in our letter of credit fee rate. On April 25, 2005, we announced our Board of Directors’ declaration of a cash dividend of $0.04 per share of our common stock and we further announced our intention to pay a regular quarterly cash dividend. During the forty weeks ended November 7, 2005, we declared cash dividends of $0.12 per share of common stock, for a total of $7,119. As of November 7, 2005, dividends payable of $2,379 have been included in other current liabilities in our Condensed Consolidated Balance Sheet. These dividends were subsequently paid on November 28, 2005.

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

The Facility contains financial performance covenants, which include a minimum EBITDA requirement, a minimum fixed charge coverage ratio, and maximum leverage ratios. We were in compliance with these covenants and all other requirements of the Facility as of November 7, 2005.

The full text of the contractual requirements imposed by the Facility is set forth in the Sixth Amended and Restated Credit Agreement, dated as of June 2, 2004, and the amendments thereto, which we have filed with the Securities and Exchange Commission, and in the ancillary loan documents described therein. Subject to cure periods in certain instances, the lenders under our Facility may demand repayment of borrowings prior to stated maturity upon certain events, including if we breach the terms of the agreement, suffer a material adverse change, engage in a change of control transaction, suffer certain adverse legal judgments, in the event of specified events of insolvency or if we default on other significant obligations. In the event the Facility is declared accelerated by the lenders (which can occur only if we are in default under the Facility), the Company’s 2023 Convertible Notes (described below) may also become accelerated under certain circumstances and after all cure periods have expired.

The 2023 Convertible Notes bear interest at 4.0% annually, payable in semiannual installments due April 1 and October 1 each year, are unsecured general obligations of ours, and are contractually subordinate in right of payment to certain other of our obligations, including the Facility. On October 1 of 2008, 2013 and 2018, the holders of the 2023 Convertible Notes have the right to require us to repurchase all or a portion of the notes at 100% of the face value plus accrued interest. On October 1, 2008 and thereafter, we have the right to call all or a portion of the notes at 100% of the face value plus accrued interest. Under the terms of the 2023 Convertible Notes, such notes become convertible into our common stock at a conversion price of approximately $8.89 per share at any time after our common stock has a closing sale price of at least $9.78 per share, which is 110% of the conversion price per share, for at least 20 days in a period of 30 consecutive trading days ending on the last trading day of a calendar quarter. As a result of the daily closing sales price levels on our common stock during the second calendar quarter of 2004, the 2023 Convertible Notes became convertible into our common stock effective July 1, 2004, and will remain convertible throughout the remainder of their term.

Interest expense consisted of the following:


	Twelve Weeks Ended				Forty Weeks Ended
	November 7, 2005		November 1, 2004		November 7, 2005		November 1, 2004
Facility	$	1,743	$	1,989	$	5,868	$	4,351
Senior subordinated notes due 2009		—		—		—		7,855
Capital lease obligations		1,446		1,593		4,827		5,392
2004 Convertible Notes		—		—		—		73
2023 Convertible Notes		969		947		3,230		3,208
Amortization of loan fees		820		884		2,705		2,829
Write-off of unamortized loan fees, term loan due July 2, 2008		125		726		354		1,597
Write-off of unamortized loan fees, term loan repaid June 2, 2004		—		—		—		339
Write-off of unamortized loan fees, senior subordinated notes due 2009		—		—		—		3,068
Letter of credit fees and other		231		607		946		1,717

	$	5,334	$	6,746	$	17,930	$	30,429

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

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


	Twelve Weeks Ended						Forty Weeks Ended
	November 7, 2005			November 1, 2004			November 7, 2005			November 1, 2004
Carl’s Jr.
New decisions regarding closing restaurants	$	—		$	—		$	—		$	7
Unfavorable (favorable) dispositions of leased and fee surplus properties, net		305			67			795			(88	)
Impairment of assets to be disposed of		—			24			—			28
Impairment of assets to be held and used		—			43			775			1,667
Loss (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			241

		367			(19	)		1,245			1,450


Hardee’s
New decisions regarding closing restaurants		213			184			957			4,489
Unfavorable (favorable) dispositions of leased and fee surplus properties, net		187			(322	)		(357	)		(744	)
Impairment of assets to be disposed of		14			256			23			683
Impairment of assets to be held and used		—			183			641			1,888
Loss (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			809

		630			389			2,101			5,796


La Salsa and Other
New decisions regarding closing restaurants		—			275			157			1,075
Unfavorable (favorable) dispositions of leased and fee surplus properties, net		(342	)		16			(256	)		41
Impairment of assets to be held and used		—			384			243			1,377
Loss (gain) on sales of restaurants and surplus properties, net		75			(1	)		292			2
Amortization of discount related to estimated liability for closing restaurants		3			1			5			4

		(264	)		675			441			2,499


Total
New decisions regarding closing restaurants		213			459			1,114			5,571
Unfavorable (favorable) dispositions of leased and fee surplus properties, net		150			(239	)		182			(791	)
Impairment of assets to be disposed of		14			280			23			711
Impairment of assets to be held and used		—			610			1,659			4,932
Loss (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

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

The following table summarizes the activity in our estimated liability for closing restaurants:


							La Salsa
	Carl’s Jr.			Hardee’s			and Other			Total
Balance at January 31, 2005	$	4,214		$	13,075		$	586		$	17,875
New decisions regarding closing restaurants		—			957			157			1,114
Usage		(1,421	)		(3,496	)		(329	)		(5,246	)
Unfavorable (favorable) dispositions of leased and fee surplus properties, net		795			(357	)		(256	)		182
Amortization of discount		182			538			5			725

Balance at November 7, 2005		3,770			10,717			163			14,650
Less current portion, included in other current liabilities		1,170			3,873			57			5,100

Long-term portion, included in other long-term liabilities	$	2,600		$	6,844		$	106		$	9,550

Note 7 — Income Per Share

We present “basic” and “diluted” income per share. Basic income per share represents net income divided by weighted-average shares outstanding. Diluted income per share represents net income plus the interest and fees relating to any dilutive convertible debt outstanding, divided by weighted-average shares outstanding, including all potentially dilutive securities and excluding all potentially anti-dilutive securities.

The dilutive effect of stock options and warrants is determined using the “treasury stock” method, whereby exercise is assumed at the beginning of the reporting period and proceeds from such exercise, unearned compensation on restricted stock, and tax benefits arising in connection with stock compensation, are assumed to be used to purchase our common stock at the average market price during the period. The dilutive effect of convertible debt is determined using the “if-converted” method, whereby interest charges and amortization of debt issuance costs, net of taxes, applicable to the convertible debt are added back to income and the convertible debt is assumed to have been converted at the beginning of the reporting period, with the resulting common shares being included in weighted-average shares.

In conjunction with the acquisition of SBRG, we assumed the options outstanding under various SBRG stock plans. We also assumed warrants to purchase approximately 982,000 shares of the company’s common stock. Approximately 491,000 of the warrants were exercisable at $14.26 per share; the remaining approximately 491,000 of the warrants were exercisable at $15.28 per share. During the sixteen weeks ended May 23, 2005, approximately 86,000 warrants were exercised. The remaining warrants expired on May 1, 2005.

The table below presents the computation of basic and diluted earnings per share for the twelve and forty weeks ended November 7, 2005 and November 1, 2004:


	Twelve Weeks Ended				Forty Weeks Ended
	November 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	$	10,947
Weighted-average shares for computation of basic earnings per share		59,440		57,605		59,154		57,568
Basic net income per share	$	0.27	$	0.23	$	0.68	$	0.19


Net income for computation of basic earnings per share	$	15,823	$	13,132	$	40,270	$	10,947
Add: 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	$	10,947


Weighted-average shares for computation of basic earnings per share		59,440		57,605		59,154		57,568
Dilutive effect of stock options and restricted stock		1,703		2,001		2,455		1,934
Dilutive 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		59,502

Diluted net income per share	$	0.23	$	0.20	$	0.60	$	0.18

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

The following table presents the number of potentially dilutive shares, in thousands, of our common stock excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive:


	Twelve Weeks Ended				Forty Weeks Ended
	November 7, 2005		November 1, 2004		November 7, 2005		November 1, 2004
2004 Convertible Notes		—		—		—		87
2023 Convertible Notes		—		—		—		11,811
Stock Options and Restricted Stock		2,105		2,721		2,402		3,709
Warrants		—		982		—		982

Note 8 — Segment Information

We are principally engaged in developing, operating and franchising our Carl’s Jr. and Hardee’s quick-service restaurants and La Salsa fast-casual restaurants, each of which is considered an operating segment that is managed and evaluated separately. Management evaluates the performance of its segments and allocates resources to them based on several factors, of which the primary financial measure is segment operating income or loss. General and administrative expenses are allocated to each segment based on management’s analysis of the resources applied to each segment. Interest expense related to the Facility, Senior Notes, 2004 Convertible Notes and 2023 Convertible Notes has been allocated to Hardee’s based on the use of funds. Certain amounts that we do not believe would be proper to allocate to the operating segments are included in Other (e.g., gains or losses on sales of long-term investments and the results of operations of consolidated variable interest entities). 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, 2005).


	Carl’s Jr.		Hardee’s		La Salsa			Other			Total
Twelve Weeks Ended November 7, 2005
Revenue	$	181,041	$	150,822	$	11,200		$	1,050		$	344,113
Operating income (loss)		17,754		4,275		(904	)		(141	)		20,984
Income (loss) before income taxes		17,100		327		(897	)		(137	)		16,393
Goodwill (as of November 7, 2005)		22,649		—		—			—			22,649


	Carl’s Jr.		Hardee’s			La Salsa			Other			Total
Twelve Weeks Ended November 1, 2004
Revenue	$	180,890	$	155,572		$	11,061		$	1,423		$	348,946
Operating income (loss)		16,334		4,186			(1,484	)		(73	)		18,963
Income (loss) before income taxes and discontinued operations		15,768		(1,110	)		(1,466	)		49			13,241
Goodwill (as of November 1, 2004)		22,649		—			—			—			22,649


	Carl’s Jr.		Hardee’s		La Salsa			Other			Total
Forty Weeks Ended November 7, 2005
Revenue	$	612,443	$	515,083	$	38,392		$	3,887		$	1,169,805
Operating income (loss)		57,654		15,346		(4,379	)		(11,280	)		57,341
Income (loss) before income taxes		55,256		1,992		(4,352	)		(10,961	)		41,935
Goodwill (as of November 7, 2005)		22,649		—		—			—			22,649


	Carl’s Jr.		Hardee’s			La Salsa			Other		Total
Forty Weeks Ended November 1, 2004
Revenue	$	599,315	$	517,104		$	37,719		$	3,853	$	1,157,991
Operating income (loss)		43,899		10,014			(5,947	)		117		48,083
Income (loss) before income taxes and discontinued operations		41,366		(23,988	)		(5,998	)		738		12,118
Goodwill (as of November 1, 2004)		22,649		—			—			—		22,649

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

In conjunction with the acquisition of SBRG in fiscal 2003, we made the decision to divest Timber Lodge as the concept did not fit with our core concepts of quick-service and fast-casual restaurants. The sale of Timber Lodge was completed on September 3, 2004.

The results of Timber Lodge included in the accompanying Condensed Consolidated Statements of Operations as discontinued operations for the twelve and forty weeks ended November 1, 2004 are as follows:


	Twelve Weeks			Forty Weeks
	Ended			Ended
	November 1, 2004			November 1, 2004
Revenue	$	2,700		$	24,129

Operating loss	$	(179	)	$	(636	)
Interest expense		—			10

Net loss	$	(179	)	$	(646	)

The operating loss for Timber Lodge for the twelve and forty weeks ended November 1, 2004 includes impairment charges of $0 and $898, respectively, to reduce the carrying value of Timber Lodge to fair value.

On September 3, 2004, we sold Timber Lodge to T-Lodge Acquisition Corp. (“TLAC”) for $8,816. We received $6,954 in cash and accepted two secured notes aggregating approximately $1,862 from the buyer. The notes are both secured by the personal property of TLAC and are comprised of (i) a $1,000 note maturing on January 1, 2009, with annual principal installments of $200 leading up to the maturity date, and bearing interest of 8.0%, payable monthly, and (ii) an $862 note with a balloon principal payment due on September 3, 2005, and bearing interest, payable monthly, of 9.0%. TLAC is a privately-held corporation whose owners include certain members of the management team of Timber Lodge and other investors.

On September 3, 2005, TLAC failed to make the required $862 balloon payment discussed above. We have granted TLAC an extension through December 31, 2005 for payment of the $862. We believe that the collateral securing the aggregate outstanding principal balance of $1,662 at November 7, 2005 is sufficient for us to recover the full amount of the notes.

As of November 7, 2005, assets held for sale consisted of surplus restaurant properties.

Note 10 — Commitments And Contingent Liabilities

In prior years, as part of our refranchising program, we sold existing restaurants to franchisees. In some cases, these restaurants 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 and the payments on the leases as rental expense in franchising expense. As of November 7, 2005, the present value of our lease obligations under the remaining master leases’ primary terms is $126,715. Franchisees may, from time to time, experience financial hardship and may cease payment on the sublease obligation to us. The present value of future sublease obligations from franchisees characterized as under financial hardship is $21,506.

Pursuant to the Facility, a letter of credit sub-facility in the amount of $85,000 was established (see Note 5). Several standby letters of credit are outstanding under this sub-facility, which secure our potential workers’ compensation obligations and general, auto and health 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 7, 2005, we had outstanding letters of credit of $62,704, expiring at various dates through November 2006 under the revolving portion of the Facility.

As of November 7, 2005, we had unconditional purchase obligations in the amount of $55,188, which primarily include contracts for goods and services related to restaurant operations and contractual commitments for marketing and sponsorship arrangements.

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

We have employment agreements with certain key executives (the “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, a pro-rata portion of the bonus in effect for the year in which the termination occurs. Additionally, all options and restricted stock granted to the affected executives which have not vested as of the date of termination would vest immediately. The Agreements have terms of three years. If all of these Agreements had been triggered as of November 7, 2005, the Company would have made payments of approximately $5,683.

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 employees, former employees, franchisees, vendors and landlords.

As of November 7, 2005, we had recorded an accrued liability for contingencies related to litigation in the amount of $3,115, 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 7, 2005, we estimated the contingent liability for 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 $105 to $200.

For several years, we offered a program whereby we guaranteed the loan obligations of certain franchisees to independent lending institutions. Franchisees have used the proceeds from such loans to acquire certain equipment and pay the costs of remodeling Carl’s Jr. restaurants. In the event a franchisee defaults under the terms of a program loan, we are obligated, within 15 days following written demand by the lending institution, to purchase such loan or assume the franchisee’s obligation thereunder by executing an assumption agreement and seeking a replacement franchisee for the franchisee in default. By purchasing such loan, we may seek recovery against the defaulting franchisee. As of November 7, 2005, the principal outstanding under program loans guaranteed by us totaled approximately $988, with maturity dates ranging from 2005 through 2009. As of November 7, 2005, we had no accrued liability for expected losses under this program and were not aware of any outstanding loans being in default.

Note 11 — Employee Benefit Plans

2005 Omnibus Incentive Compensation Plan

Our 2005 Plan was approved by stockholders in June 2005. The 2005 Plan is an “omnibus” stock plan consisting of a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock grants, stock appreciation rights and stock units. Participants in the 2005 Plan may be granted any one of the equity awards or any combination thereof, as determined by a committee of the Board of Directors. A total of 2,500,000 shares are available for grant under the 2005 Plan. Options generally have a term of 10 years from the date of grant and vest as prescribed by the committee that is authorized to administer the 2005 Plan. Options are generally granted at a price equal to or greater than the fair market value of the underlying common stock on the date of grant. The terms of a restricted stock award may require the participant to pay a purchase price for the shares, or the committee may provide that no payment is required.

As of November 7, 2005, a total of 2,015,000 shares are available for future grants under this plan. The 2005 Plan will terminate on March 22, 2015, unless the Board of Directors, at its discretion, terminates the Plan at an earlier date.

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

Deferred Compensation Plan

On June 28, 2005, the Board of Directors approved the CKE Restaurants, Inc. Deferred Compensation Plan (the “Plan”). Under the Plan, participants may elect to defer, on a pre-tax basis, a portion of their base salary (in an amount not to exceed 80%), quarterly or annual bonus (in an amount not to exceed 100%), or, in the case of non-employee directors, annual stipend and meeting fees (in an amount not to exceed 100%). Any amounts deferred by a participant will be credited to such participant’s deferred compensation account, a bookkeeping device utilized solely for the purpose of determining the benefits payable to a participant under the Plan. The Plan further states that the Company may make discretionary contributions to a plan participant’s deferred compensation account. Each plan participant will be vested in the amounts held in such plan participant’s deferred compensation account as follows: (i) one hundred percent (100%) vested at all times with respect to all amounts of deferred compensation; and (ii) vested as determined by the Board of Directors and the compensation committee of the Board of Directors with respect to all discretionary contributions that we make.

The Plan provides that any amounts deferred under the Plan may not be distributed to a plan participant earlier than: (i) the Plan participant’s separation from service with the Company; (ii) the Plan participant’s retirement from the Company; (iii) the Plan participant’s disability; (iv) the Plan participant’s death; (v) the occurrence of a change in control; (vi) the occurrence of an unforeseeable emergency; or (vii) such other date as set forth in the plan participant’s deferral election, including a date that occurs prior to the Plan participant’s separation from service with the Company. Any amounts distributed to a Plan participant will be paid in a form specified by the Plan participant, or in the form of either a lump sum payment in an amount equal to the Plan participant’s deferred compensation account balance or equal annual installments of the Plan participant’s deferred compensation account balance over a period not to exceed (i) fifteen (15) years in the case of a distribution on or after a Plan participant’s attainment of the Normal Retirement Age set forth in the Plan or (ii) five (5) years in all other cases.

Note 12 — Purchase and Cancellation of Stock Options

During the twelve weeks ended August 15, 2005, we purchased and canceled all of the outstanding options of Mr. William P. Foley, who resigned from the Board of Directors on July 19, 2005, for cash consideration of $11,000, which has been recorded as a component of general and administrative expense in the accompanying Condensed Consolidated Statement of Operations for the forty weeks ended November 7, 2005. As of July 18, 2005, Mr. Foley held outstanding options to purchase an aggregate of 1,715,512 shares of our common stock, of which options to purchase 1,665,513 shares were vested and exercisable as of such date, and options to purchase 49,999 shares were unvested. The purchase price for Mr. Foley’s options was determined after negotiations between the parties using the Black-Scholes methodology. We retained a third-party valuation specialist to advise us in connection with this option purchase.

Note 13 — Adoption of a Stockholder Rights Plan

On October 4, 2005, the Board of Directors approved the adoption of a Stockholder Rights Plan and declared a dividend distribution of one right (a “Right”) for each outstanding share of our common stock to stockholders of record at the close of business on October 17, 2005. The Rights were distributed as a non-taxable distribution, and will initially trade with our common stock. Each Right entitles the registered holder to purchase from us a unit consisting of one one-hundredth of a share (a “Unit”) of Series A Junior Participating Preferred Stock, $0.01 par value (the “Series A Preferred Stock”), at a purchase price of $22.00 per Unit, subject to adjustment. One Right will be delivered with each share of common stock that is issued after October 17, 2005.

The Rights, which are initially attached to and will trade with our common stock, become exercisable, and will begin to trade separately, in the event that a tender offer for at least 15% of our common stock is announced, or a person acquires or obtains the right to acquire at least 15% of our common stock (the “Distribution Date”). The Rights are not exercisable until the Distribution Date and will expire at the close of business on December 31, 2008 (or December 31, 2006 if stockholder approval for the Rights Agreement has not been received by December 31, 2006), unless previously redeemed or exchanged by us.

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

The holders of Series A Preferred Stock, if any, are entitled to receive quarterly dividends in the amount of 100 times the aggregate per share amount of all cash dividends declared on common stock, subject to adjustment. Each share of Series A Preferred Stock entitles the holder to 100 votes on all matters submitted to a vote of the stockholders. The holders of Series A Preferred Stock and the holders of common stock will vote together as one class. Series A Preferred Stock ranks junior to all other series of our preferred stock and senior to our common stock as to the payment of dividends and the distribution of assets.

Note 14 — Repurchase of Common Stock

In April 2004, our Board of Directors authorized a program (the “Stock Repurchase Plan”) to allow us to repurchase up to $20,000 of our common stock. During the twelve weeks ended November 7, 2005, we repurchased 150,100 shares of our common stock at an average price of $13.29 per share, for a total cost, including trading commissions, of $1,999. Based on the Board of Directors’ authorization and the amount of repurchase of our common stock that we have already made thereunder, as of November 7, 2005, we are permitted to make additional repurchases of our common stock up to $12,442 under the Stock Repurchase Plan.

In order to facilitate future repurchases of our common stock under the Stock Repurchase Plan, our Board of Directors authorized, and we implemented, a share repurchase plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934 that allows us to repurchase $2,000 of our common stock in the open market each fiscal quarter during the period beginning November 8, 2005 and ending January 29, 2007, for a total of $10,000. Rule 10b5-1 allows us to repurchase our common stock when we might otherwise be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

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, La Salsa, and Green Burrito, which is primarily operated as a dual-branded concept with Carl’s Jr. 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, 2005. Unless otherwise indicated, all Note references herein refer to the accompanying Notes to Condensed Consolidated Financial Statements.

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, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of our franchisees, our 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.

Forward-looking statements speak only as of the date they are made. The Company undertakes 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

See Note 2 of Notes to Condensed Consolidated Financial Statements.

Adoption of New Accounting Pronouncements

See Note 3 of Notes to Condensed Consolidated Financial Statements.

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 quarterly or annual results of operations and financial position. Specific risks associated with these critical accounting policies are described in the following paragraphs.

For all of these policies, we caution that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Our most significant accounting policies require:

•

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;

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

We evaluate the carrying value of individual restaurants when the results of operations have reasonably progressed to a point to adequately evaluate the probability of continuing operating losses or upon expectation that a restaurant will be sold or otherwise disposed of before the end of its previously estimated useful life. We generally estimate the useful life of restaurants on owned property to be 20 to 35 years and estimate the remaining useful life of restaurants subject to leases to range from the end of the lease term then in effect to the end of such lease term including all option periods. We then estimate the future estimated cash flows from operating the restaurant over its estimated useful life. In making these judgments, we consider the period of time since the restaurant was opened or remodeled, and the trend of operations and expectations for future sales growth. We also make judgments about future same-store sales and the operating expenses and estimated useful life that we would expect with such level of same-store sales and related estimated useful life. We employ a probability-weighted approach wherein we estimate the effectiveness of future sales and marketing efforts on same-store sales. If an estimate of the fair value of our assets becomes necessary, we typically base such estimate on forecasted cash flows discounted at the applicable restaurant concept’s weighted average cost of capital.

During the second and fourth quarter of each fiscal year and whenever events and circumstances indicate that the carrying value of assets may be impaired, we perform an asset recoverability analysis through which 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. As the operations of restaurants opened or remodeled in recent years progress to the point that their profitability and future prospects can adequately be evaluated, additional restaurants will become subject to review and to the possibility that impairments exist.

Same-store sales are the key indicator used to estimate future cash flow for evaluating recoverability. For each of our restaurant concepts, to evaluate recoverability of restaurant assets we estimate same-store sales will increase at an annual average rate of approximately 3.0% over the remaining useful life of the restaurant. The inflation rate assumed in making this calculation is 2.0%. If our same-store sales do not perform at or above our forecasted level, or cost inflation exceeds 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.

Typically, restaurants are operated for three years before we test them for impairment. Also, restaurants typically are not tested for two years following a remodel. We believe this provides the restaurant sufficient time to establish its presence in the market and build a customer base. If we were to test all restaurants for impairment without regard to the amount of time the restaurants were operating, the total asset impairment could increase substantially. In

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

addition, if recently opened or remodeled restaurants do not eventually establish stronger market presence and build a customer base, the carrying value of certain of these restaurants may prove to be unrecoverable and we may incur additional impairment charges in the future.

As of November 7, 2005, we had a total of 137 restaurants among our three major restaurant concepts that generated negative cash flows on a trailing one-year basis. These restaurants had combined net book values of $27,657. Included within these totals are 56 restaurants with combined net book values of $8,764 that have not been tested for impairment because they had not yet been operated for a sufficient period of time as of our most recent comprehensive semi-annual asset quality review in the second quarter of fiscal 2006. If these negative cash flow restaurants were not to begin generating positive cash flows within a reasonable period of time, the carrying value of these restaurants may prove to be unrecoverable and we may recognize additional impairment charges in the future.

Impairment of Goodwill

At the reporting unit level, goodwill is tested for impairment at least annually during the first quarter of our fiscal year, and on an interim basis if an event or circumstance indicates that it is more likely than not impairment may have occurred. We consider the reporting unit level to be the brand level since the components (e.g., restaurants) within each brand have similar economic characteristics, including products and services, production processes, types or classes of customers and distribution methods. The impairment, if any, is measured based on the estimated fair value of the brand. Fair value can be determined based on discounted cash flows, comparable sales or valuations of other restaurant brands. Impairment occurs when the carrying amount of goodwill exceeds its estimated fair value.

The most significant assumptions we use in this analysis are those made in estimating future cash flows. In estimating future cash flows, we use the assumptions in our strategic plan for items such as same-store sales, store count growth rates, and the discount rate we consider to be the market discount rate for acquisitions of restaurant companies and brands.

If the assumptions used in performing our impairment testing prove inaccurate, the fair value of the brands may ultimately prove to be significantly lower, thereby causing the carrying value to exceed the fair value and indicating an impairment has occurred. During the first quarter of fiscal year 2006, we evaluated the Carl’s Jr. brand, the only one of our brands for which we currently carry goodwill, through which 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 7, 2005, we had $22,649 in goodwill recorded on the Condensed Consolidated Balance Sheet, which relates to Carl’s Jr.

Estimated Liability for Closing Restaurants

We make decisions to close restaurants based on prospects for estimated future profitability, and sometimes we are forced to close restaurants due to circumstances beyond our control (e.g., a landlord’s refusal to negotiate a new lease). Our restaurant operators evaluate each restaurant’s performance no less frequently than the second and fourth quarter of each fiscal year. When restaurants continue to perform poorly, we consider the demographics of the location, as well as the likelihood of being able to improve an unprofitable restaurant. Based on the operator’s judgment and a financial review, we estimate the future cash flows. If we determine that the restaurant will not, within a reasonable period of time, operate at break-even cash flow or be profitable, and we are not contractually obligated to continue operating the restaurant, we may close the restaurant.

The estimated liability for closing restaurants on properties vacated is based on the term of the lease and the lease termination fee we expect to pay, as well as estimated maintenance costs until the lease has been abated. The amount of the estimated liability established is the present value of these estimated future payments, which approximates the fair value of such obligations. The interest rate used to calculate the present value of these liabilities is based on our incremental borrowing rate at the time the liability is established. The related discount is amortized and shown in facility action charges, net, in our Condensed Consolidated Statements of Operations.

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

A significant assumption used in determining the amount of the estimated liability for closing restaurants is the amount of the estimated liability for future lease payments on vacant restaurants. We estimate the cost to maintain leased and owned vacant properties until the lease has been abated or the owned property has been sold. If the costs to maintain properties increase, or it takes longer than anticipated to sell properties or 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 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. As of November 7, 2005, the present value of our operating lease payment obligations on all closed restaurants was approximately $7,936, which represents the discounted amount we would be required to pay if we are unable to enter into sublease agreements or terminate the leases prior to the terms required in the lease agreements. However, it is our experience that we can often terminate those leases for less than that amount, or sublease the property and, accordingly, we have recorded an estimated liability for operating lease obligations of $4,752 as of November 7, 2005.

Estimated Liability for Self-Insurance

We are self-insured for a portion of our current and prior years’ losses related to workers’ compensation, general and auto liability insurance programs. We have obtained stop loss insurance for individual workers’ compensation, general and auto liability claims over $500. Accrued liabilities for self-insurance are recorded based on the present value of actuarial estimates of the amounts of incurred and unpaid losses, based on an estimated risk-free interest rate of 4.5% as of November 7, 2005. In determining our estimated liability, management and our actuary base the assumptions on the average historical losses on claims we have incurred and on actuarial observations of historical claim loss development. The actual loss development may be better or worse than the development we estimated in conjunction with the actuary. In that event, we will modify the reserve. As such, if we experience a higher than expected number of claims or the costs of claims rise more than expected, then we may, in conjunction with the actuary, adjust the expected losses upward and our future self-insurance expenses will rise.

Our actuary provides a range of estimated unpaid losses for each loss category, upon which our analysis is based. We record adjustments to our accrued self-insurance liabilities, if necessary, to bring each loss category within the related range, provided that no amount in the range represents a better estimate than any other amount in the range. If our accrued liability exceeds the high end of the range, we reduce the accrued liability to the high end of the range. If our accrued liability is below the low end of the range, we record a charge to increase the accrued liability to the low end of the range. We then adjust our accrual rates for each loss category, on a prospective basis, in order to bring the respective accrued liabilities toward the midpoint of the range. As of November 7, 2005, our estimated liability for self-insured workers’ compensation, general and automobile liability losses ranged from a low of $35,671 to a high of $44,454. After applying the methodology described above, our recorded reserves for self-insurance liabilities were $44,278 as of November 7, 2005.

Loss Contingencies

We maintain accrued liabilities for contingencies related to litigation. We account for contingent obligations in accordance with SFAS 5, Accounting for Contingencies, which requires that we assess each loss contingency to determine estimates of the degree of probability and range of possible settlement. Those contingencies that are deemed to be probable and where the amount of such settlement is reasonably estimable are accrued in our Condensed Consolidated Financial Statements. If only a range of loss can be determined, with no amount in the range representing a better estimate than any other amount within the range, we accrue to the low end of the range. In accordance with SFAS 5, as of November 7, 2005, we have recorded an accrued liability for contingencies related to litigation in the amount of $3,115 (see Note 10 for further information). The assessment of contingencies is highly subjective and requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of the recorded reserves and related Condensed Consolidated Financial Statement disclosure. The ultimate resolution of such loss contingencies may differ materially from amounts we have accrued in our Condensed Consolidated Financial Statements.

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

In addition, as of November 7, 2005, we estimated our potential exposure for those loss contingencies related to other litigation claims that we believe are reasonably possible to result in an adverse outcome, to be in the range of $105 to $200. In accordance with SFAS 5, we have not recorded a liability for these contingent losses.

Accounting for Lease Obligations

We lease a substantial portion of our restaurant properties. At the inception of the lease, each property is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The lease accounting evaluation may require significant exercise of judgment in estimating the fair value and useful life of the leased property and to establish the appropriate lease term. The lease term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured because failure to exercise such option would result in an economic penalty. Such economic penalty would typically result from our having to abandon buildings and other non-detachable improvements upon vacating the property. The lease term used for this evaluation also provides the basis for establishing depreciable lives for buildings subject to lease and leasehold improvements, as well as the period over which we recognize straight-line rent expense.

In addition, the lease term is calculated from the date we take possession of the leased premises through the lease termination date. There is potential for variability in the “rent holiday” period, which begins on the possession date and typically ends upon restaurant opening. Factors that may affect the length of the rent holiday period generally include construction-related delays. Extension of the rent holiday period due to such delays would result in greater rent expense recognized during the rent holiday period.

Franchised and Licensed Operations

We monitor the financial condition of certain franchisees and record provisions for estimated losses on receivables when we believe that our franchisees are unable to make their required payments to us. Each quarter, we perform an analysis to develop estimated bad debts for each franchisee. We then compare the aggregate result of that analysis to the amount recorded in our Condensed Consolidated Financial Statements as the allowance for doubtful accounts and adjust the allowance as appropriate. Additionally, we cease accruing royalties and rental income from franchisees that are materially delinquent in paying or in default for other reasons and reverse any royalties and rent income accrued during the fiscal quarter in which such delinquency or default occurs. Over time our assessment of individual franchisees may change. For instance, we have had some franchisees, who in the past we had determined required an estimated loss equal to the total amount of the receivable, who have paid us in full or established a consistent record of payments (generally one year) such that we determined an allowance was no longer required.

Depending on the facts and circumstances, there are a number of different actions we and/or our franchisees may take to resolve franchise collections issues. These actions may include the purchase of franchise restaurants by us or by other franchisees, a modification to the franchise agreement, which may include a provision to defer certain royalty payments or reduce royalty rates in the future (if royalty rates are not sufficient to cover our costs of service over the life of the franchise agreement, we record an estimated loss at the time we modify the agreements), a restructuring of the franchisee’s business and/or finances (including the restructuring of leases for which we are the primary obligee — see further discussion below) or, if necessary, the termination of the franchise agreement. The allowance established is based on our assessment of the most probable course of action that will occur.

Many of the restaurants that we sold to Hardee’s and Carl’s Jr. franchisees as part of our refranchising program were on leased sites. Generally, we remain principally liable for the lease and have entered into a sublease with the franchisee on the same terms as the primary lease. In such cases, we account for the sublease payments received as franchising rental income and the lease payments we make as rental expense in franchised and licensed restaurants and other expense in our Condensed Consolidated Statements of Operations. As of November 7, 2005, the present value of our total obligation on lease arrangements with Hardee’s and Carl’s Jr. franchisees, including subsidized leases discussed further below, was $35,577 and $91,138, respectively. We do not expect Carl’s Jr. franchisees to experience the same level of financial difficulties as Hardee’s franchisees have encountered in the past, however, we can provide no assurance that this will not occur.

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

In addition to the sublease arrangements with franchisees described above, we also lease land and buildings to franchisees. As of November 7, 2005, the net book value of property under lease to Hardee’s and Carl’s Jr. franchisees was $19,003 and $5,530, respectively. Financially troubled franchisees are those with whom we have entered into workout agreements and who may have liquidity problems in the future. In the event that a financially troubled franchisee closes a restaurant for which we own the property, our options are to operate the restaurant as a company-operated restaurant, lease the property to another tenant or sell the property. These circumstances would cause us to consider whether the carrying value of the land and building was impaired. If we determined the property value was impaired, we would record a charge to operations for the amount the carrying value of the property exceeds its fair value. As of November 7, 2005, the net book value of property under lease to Hardee’s franchisees that are considered to be financially troubled franchisees was approximately $17,720 and is included in the amount above. During fiscal 2006 or thereafter, some of these franchisees may close restaurants and, accordingly, we may record an impairment loss in connection with some of these closures.

In accordance with SFAS 146, an estimated liability for future lease obligations on restaurants operated by franchisees for which we are the primary obligee is established on the date the franchisee closes the restaurant. Also, we record an estimated liability for subsidized lease payments when we sign a sublease agreement committing us to the subsidy. The liability includes an estimation related to the risk that certain lease payments from the franchisee may ultimately be uncollectible.

The amount of the estimated liability is established using the methodology described in “Estimated Liability for Closing Restaurants” above. Because losses are typically not probable and/or able to be reasonably estimated, we have not established an additional estimated liability for potential losses not yet incurred under a significant portion of our franchise sublease arrangements. The present value of future sublease obligations from financially troubled franchisees is approximately $21,506 (five financially troubled franchisees represent approximately 97% of this amount). If sales trends/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. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future (see discussion above). The likelihood of needing to increase the estimated liability for future lease obligations is primarily related to the success of our Hardee’s concept.

Stock-Based Compensation

As discussed in Notes 1 and 11, we have various stock-based compensation plans that provide options for certain employees and non-employee directors to purchase shares of our common stock. We have elected to account for stock-based compensation in accordance with APB 25, Accounting for Stock Issued to Employees, which utilizes the intrinsic value method of accounting for stock-based compensation, as opposed to using the fair-value method prescribed in SFAS 123, Accounting for Stock-Based Compensation. Because of this election, we are required to make certain disclosures of pro forma net income assuming we had adopted SFAS 123. We determine the estimated fair value of stock-based compensation on the date of the grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the historical stock price volatility, expected life of the option and the risk-free interest rate. A change in one or more of the assumptions used in the Black-Scholes option-pricing model may result in a material change to the estimated fair value of the stock-based compensation (see Note 1 for analysis of the effect of certain changes in assumptions used to determine the fair value of stock-based compensation).

As discussed in Note 2, we will be required to adopt SFAS 123 (Revised 2004), Share-Based Payment, as of the beginning of fiscal 2007.

Valuation Allowance for Net Deferred Tax Assets

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

can be objectively verified. For the three years ended November 7, 2005, we have incurred a cumulative loss before income taxes of approximately $3,000. The guidance established by SFAS 109 indicates that a cumulative loss in recent years provides a significant piece of objective negative evidence that is difficult to overcome with more subjective evidence, such as projected profitability, in evaluating the realizability of deferred tax assets. However, if profitability continues to the point where we are able to demonstrate a history of income before income taxes, instead of a cumulative loss, coupled with other factors such as projected taxable income, we expect such evidence may allow us to release a substantial majority of our valuation allowance and record an income tax benefit for such amount. While the timing of any such release is dependent on future events and circumstances, we believe that this income tax benefit may be recognized in the near term. If we were able to release some or all of our valuation allowance, we would expect to begin recording income tax expense using an effective tax rate of approximately 40%. Our current effective rate differs from the federal statutory rate primarily as a result of state taxes and changes in our valuation allowance.

As of January 31, 2005, approximately 28% of our net deferred income tax assets related to certain state net operating loss (“NOL”) carryforwards, foreign and state tax credits, and federal alternative minimum tax (“AMT”) and general business tax credits. Utilization of the full benefit of such amounts may remain uncertain for the foreseeable future, even if we generate taxable income, since they are subject to various limitations and may only be used to offset certain types of taxable income.

As a result of our NOL, credit carryforwards and expected favorable book/tax differences from depreciation and amortization, we expect that our cash requirements for U.S. federal and state income taxes will approximate 2.0% of our taxable earnings in fiscal 2006 and until such time that our various NOLs and credits are utilized. The 2.0% rate results primarily from AMT, under which 10% of taxable earnings cannot be offset by NOL carryforwards and is subject to the AMT rate of 20%. The 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 tax assets and liabilities, unexpected gains from significant transactions, unexpected outcomes of income tax audits, and changes in tax law. We expect to continue to incur foreign taxes on our income earned outside the U.S.

As of November 7, 2005, our net deferred tax assets and related valuation allowance result in a net deferred tax liability of $1,848, of which $239 is included in other current liabilities and $1,609 is included in other long-term liabilities in our Condensed Consolidated Balance Sheet.

Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2006 Comparisons with Fiscal 2005

The factors discussed below impact comparability of operating performance for the twelve and forty weeks ended November 7, 2005 and November 1, 2004, or could impact comparisons for the remainder of fiscal 2006.

Divestiture of Timber Lodge

As discussed in Note 9, Timber Lodge was accounted for as a discontinued operation, and we completed the sale of Timber Lodge on September 3, 2004. Because we had previously impaired the carrying value of Timber Lodge to reflect the anticipated sale proceeds, we did not generate additional gain or loss upon the Timber Lodge sale. The results of Timber Lodge included in our Condensed Consolidated Statements of Operations as discontinued operations for the twelve and forty weeks ended November 1, 2004, are as follows:


	Twelve Weeks			Forty Weeks
	Ended			Ended
	November 1, 2004			November 1, 2004
Revenue	$	2,700		$	24,129

Operating loss	$	(179	)	$	(636	)
Interest expense		—			10

Net loss	$	(179	)	$	(646	)

The operating loss for Timber Lodge for the forty weeks ended November 1, 2004 includes an impairment charge of $898 to reduce the carrying value of Timber Lodge to fair value. No impairment of Timber Lodge assets was recorded for the twelve weeks ended November 1, 2004.

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

Fiscal Year and Seasonality

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.

Business Strategy

We remain focused on vigorously pursuing our comprehensive business strategy. The main components of our strategy are as follows:

	•		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

Like others in the quick-service restaurant industry, some of our franchisees experience financial difficulties from time to time with respect to their operations. Our approach to dealing with financial and operational issues that arise from these situations is described under Critical Accounting Policies above, under the heading “Franchised and Licensed Operations.” Some franchisees in the Hardee’s system have experienced significant financial problems and, as discussed above, there are a number of potential resolutions of these financial issues.

We continue to work with franchisees in an attempt to maximize our future franchising income. Our franchising income is dependent on both the number of restaurants operated by franchisees and their operational and financial success, such that they can make their royalty and lease payments to us. Although we quarterly review the allowance for doubtful accounts and the estimated liability for closed franchise restaurants (see discussion under Critical Accounting Policies — Franchised and Licensed Operations), there can be no assurance that the number of franchisees or franchised restaurants experiencing financial difficulties will not increase from our current assessments, nor can there be any assurance that we will be successful in resolving financial issues relating to any specific franchisee. As of November 7, 2005, our consolidated allowance for doubtful accounts on notes receivable was 50.4% of the gross balance of notes receivable and our consolidated allowance for doubtful accounts on accounts receivable was 7.7% of the gross balance of accounts receivable. During fiscal 2004 and to a lesser extent during fiscal 2005, we established several notes receivable pursuant to completing workout agreements with several troubled franchisees. As of November 7, 2005, we have not recognized, on a cumulative basis, $7,105 in accounts receivable and $7,726 in notes receivable, nor the royalty and rent revenue associated with these accounts and notes receivable, due from franchisees that are in default under the terms of their franchise agreements. We still experience specific problems with troubled franchisees (see Critical Accounting Policies — Franchise and Licensed Operations) and may be required to increase the amount of our allowances for doubtful accounts and/or increase the

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

amount of our estimated liability for future lease obligations. The result of increasing the allowance for doubtful accounts is an effective royalty rate lower than our standard contractual royalty rate.

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, 2005
	Carl’s Jr.			Hardee’s			La Salsa			Other(A)			Elimination(B)			Total
Company-operated revenue	$	129,548		$	134,420		$	10,770		$	84		$	—		$	274,822
Company-operated average weekly unit volume (actual $- not in thousands)		25,167			16,812			14,713
Company-operated average unit volume (trailing 52 weeks)		1,324			869			765
Franchise-operated average unit volume (trailing 52 weeks)		1,150			802			890
Average check (actual $- not in thousands)		6.10			4.69			10.06
Company-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	)	$	16,273
Distribution centers		40,028			5,304			—			—			(133	)		45,199
Rent		5,113			1,081			—			—			—			6,194
Retail sales of variable interest entity		—			—			—			1,003			—			1,003
Other		411			181			30			—			—			622

Total franchising revenue		51,493			16,402			430			1,119			(153	)		69,291

Franchising expense:
Administrative expense (including provision for bad debts)		995			1,152			291			—			—			2,438
Distribution centers		39,210			5,514			—			—			—			44,724
Rent and other occupancy		4,258			1,307			—			—			—			5,565
Operating costs of variable interest entity		—			—			—			995			(201	)		794

Total franchising expense		44,463			7,973			291			995			(201	)		53,521

Net franchising income	$	7,030		$	8,429		$	139		$	124		$	48		$	15,770

Facility action charges (gains), net	$	367		$	630		$	(278	)	$	14		$	—		$	733
Operating income (loss)	$	17,754		$	4,275		$	(904	)	$	(141	)	$	—		$	20,984

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


	Twelve Weeks Ended November 1, 2004
	Carl’s Jr.			Hardee’s			La Salsa			Other (A)			Total
Company-operated revenue	$	129,518		$	140,269		$	10,561		$	270		$	280,618
Company-operated average weekly unit volume (actual $- not in thousands)		25,059			17,111			14,372
Company-operated average unit volume (trailing 52 weeks)		1,282			850			744
Franchise-operated average unit volume (trailing 52 weeks)		1,136			901			814
Average check (actual $- not in thousands)		5.84			4.60			9.66
Company-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		$	16,508
Distribution centers		39,970			3,396			—			—			43,366
Rent		5,393			1,585			—			—			6,978
Retail sales of variable interest entity		—			—			—			1,080			1,080
Other		205			112			79			—			396

Total franchising revenue		51,372			15,303			500			1,153			68,328

Franchising expense:
Administrative expense (including provision for bad debts)		1,045			1,269			193			—			2,507
Distribution centers		38,937			3,407			—			—			42,344
Rent and other occupancy		4,367			1,716			—			—			6,083
Operating costs of variable interest entity		—			—			—			1,043			1,043

Total franchising expense		44,349			6,392			193			1,043			51,977

Net franchising income	$	7,023		$	8,911		$	307		$	110		$	16,351

Facility action charges (gains), net	$	(19	)	$	389		$	641		$	34		$	1,045
Operating income (loss)	$	16,334		$	4,186		$	(1,484	)	$	(73	)	$	18,963

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


	Forty Weeks Ended November 7, 2005
	Carl’s Jr.			Hardee’s			La Salsa			Other(A)			Elimination(B)			Total
Company-operated revenue	$	439,530		$	456,057		$	37,012		$	354		$	—		$	932,953
Company-operated average weekly unit volume (actual $- not in thousands)		25,628			16,934			15,097
Average check (actual $- not in thousands)		6.16			4.75			10.15
Company-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	)	$	54,328
Distribution centers		136,201			19,613			—			—			(133	)		155,681
Rent		15,874			5,820			—			—			—			21,694
Retail sales of variable interest entity		—			—			—			3,396			—			3,396
Other		1,078			644			31			—			—			1,753

Total franchising revenue		172,913			59,026			1,380			3,734			(201	)		236,852

Franchising expense:
Administrative expense (including provision for bad debts)		3,610			3,762			1,008			—			—			8,380
Distribution centers		132,603			20,047			—			—			—			152,650
Rent and other occupancy		13,795			4,651			—			—			—			18,446
Operating costs of variable interest entity		—			—			—			3,421			(249	)		3,172

Total franchising expense		150,008			28,460			1,008			3,421			(249	)		182,648

Net franchising income	$	22,905		$	30,566		$	372		$	313		$	48		$	54,204

Facility action charges, net	$	1,245		$	2,101		$	411		$	30		$	—		$	3,787
Operating income (loss)	$	57,654		$	15,346		$	(4,379	)	$	(11,280	)	$	—		$	57,341

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


	Forty Weeks Ended November 1, 2004
	Carl’s Jr.			Hardee’s			La Salsa			Other (A)		Total
Company-operated revenue	$	429,139		$	461,855		$	36,262		$	1,035	$	928,291
Company-operated average weekly unit volume (actual $- not in thousands)		25,044			16,771			14,673
Average check (actual $- not in thousands)		5.85			4.61			9.63
Company-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	$	55,132
Distribution centers		133,356			13,048			—			—		146,404
Rent		16,883			7,438			—			—		24,321
Retail sales of variable interest entity		—			—			—			2,562		2,562
Other		787			382			112			—		1,281

Total franchising revenue		170,176			55,249			1,457			2,818		229,700

Franchising expense:
Administrative expense (including provision for bad debts)		3,041			2,513			845			—		6,399
Distribution centers		129,702			13,135			—			—		142,837
Rent and other occupancy		13,850			5,941			—			—		19,791
Operating costs of variable interest entity		—			—			—			2,505		2,505

Total franchising expense		146,593			21,589			845			2,505		171,532

Net franchising income	$	23,583		$	33,660		$	612		$	313	$	58,168

Facility action charges, net	$	1,450		$	5,796		$	2,406		$	93	$	9,745
Operating 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

EBITDA is a commonly used measurement of operating performance that is not based GAAP for companies that issue public debt and a measure used by the lenders under our bank credit facility. We believe EBITDA is useful to our investors as an indicator of earnings available to service debt. 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, we calculate EBITDA as earnings before cumulative effect of accounting changes, discontinued operations, interest expense, income taxes, depreciation and amortization, facility action charges, impairment of goodwill and impairment of assets held for sale and premiums paid upon early

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

redemption of debt. Because not all companies calculate EBITDA identically, this presentation of EBITDA may not be comparable to similarly titled measures of other companies. Additionally, we believe EBITDA is a more meaningful indicator of earnings available to service debt when certain charges, such as impairment of goodwill and facility action charges, are excluded from income (loss) from continuing operations. 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.


	Twelve Weeks Ended November 7, 2005
	Carl’s Jr.		Hardee’s		La Salsa			Other			Total
Net income (loss)	$	16,667	$	287	$	(879	)	$	(252	)	$	15,823
Interest expense		1,006		4,323		5			—			5,334
Income tax expense (benefit)		433		40		(18	)		115			570
Depreciation and amortization		5,634		7,582		799			38			14,053
Facility action charges (gains), net		367		630		(278	)		14			733

EBITDA	$	24,107	$	12,862	$	(371	)	$	(85	)	$	36,513


	Twelve Weeks Ended November 1, 2004
	Carl’s Jr.			Hardee’s			La Salsa			Other			Total
Net income (loss)	$	15,661		$	(1,131	)	$	(1,466	)	$	68		$	13,132
Net loss of discontinued segment		—			—			—			179			179
Interest expense		1,149			5,577			—			20			6,746
Income tax expense (benefit)		107			21			—			(198	)		(70	)
Depreciation and amortization		5,542			8,861			644			206			15,253
Facility action charges (gains), net		(19	)		389			641			34			1,045

EBITDA	$	22,440		$	13,717		$	(181	)	$	309		$	36,285


	Forty Weeks Ended November 7, 2005
	Carl’s Jr.		Hardee’s		La Salsa			Other			Total
Net income (loss)	$	53,869	$	1,886	$	(4,265	)	$	(11,220	)	$	40,270
Interest expense		3,305		14,512		21			92			17,930
Income tax expense (benefit)		1,387		106		(87	)		259			1,665
Depreciation and amortization		19,268		27,805		2,761			128			49,962
Facility action charges, net		1,245		2,101		411			30			3,787

EBITDA	$	79,074	$	46,410	$	(1,159	)	$	(10,711	)	$	113,614


	Forty Weeks Ended November 1, 2004
	Carl’s Jr.		Hardee’s			La Salsa			Other			Total
Net income (loss)	$	41,012	$	(24,047	)	$	(6,000	)	$	(18	)	$	10,947
Net income of discontinued segment, excluding impairment		—		—			—			(252	)		(252	)
Interest expense (income)		3,916		26,504			(25	)		34			30,429
Income tax expense		354		59			2			110			525
Depreciation and amortization		18,663		30,130			2,977			301			52,071
Facility action charges, net		1,450		5,796			2,406			93			9,745
Premium paid upon early redemption of Senior Notes		—		9,126			—			—			9,126
Impairment of Timber Lodge		—		—			—			898			898

EBITDA	$	65,395	$	47,568		$	(640	)	$	1,166		$	113,489

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

The following table reconciles EBITDA (a non-GAAP measure) to cash flow provided by operating activities (a GAAP measure):


	Twelve Weeks Ended						Forty Weeks Ended
	November 7, 2005			November 1, 2004			November 7, 2005			November 1, 2004
Net cash provided by operating activities	$	30,757		$	32,904		$	97,698		$	100,513
Interest expense		5,334			6,746			17,930			30,429
Income tax expense (benefit)		570			(70	)		1,665			525
Premium on early redemption of Senior Notes		—			—			—			9,126
Amortization of loan fees		(820	)		(884	)		(2,705	)		(2,829	)
(Provision for) recovery of losses on accounts and notes receivable		(5	)		(8	)		494			1,784
Loss 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	)		818
Change in estimated liability for closing restaurants and estimated liability for self-insurance		2,194			1,020			5,472			4,317
Net 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	)		—			262
Net cash provided to discontinued segment		—			5			—			257

EBITDA, including discontinued operations		36,513			36,106			113,614			113,751
Less: EBITDA from discontinued operations		—			179			—			(262	)

EBITDA	$	36,513		$	36,285		$	113,614		$	113,489

Carl’s Jr.

During the twelve weeks ended November 7, 2005, we closed one Carl’s Jr. restaurant and Carl’s Jr. franchisees and licensees opened 13 restaurants and closed two. During the forty weeks ended November 7, 2005, we opened five and closed five Carl’s Jr. restaurants and Carl’s Jr. franchisees and licensees opened 33 restaurants and closed five. The following tables show the change in the Carl’s Jr. restaurant portfolio, as well as the change in revenue for the current quarter:


	Restaurant Portfolio							Revenue
	Third Fiscal Quarter							Third Fiscal Quarter						Year-To-Date
	2006		2005		Change			2006		2005		Change		2006		2005		Change
Company-operated		428		432		(4	)	$	129,548	$	129,518	$	30	$	439,530	$	429,139	$	10,391
Franchised and licensed(a)		614		585		29			51,493		51,372		121		172,913		170,176		2,737

Total		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.

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

Company-Operated Restaurants

Revenue from company-operated Carl’s Jr. restaurants increased $30, or 0.0%, to $129,548 during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. This small increase resulted in part from the opening of five new company-operated restaurants during the trailing 52 weeks ended November 7, 2005 and the closing of nine restaurants during the same time period for a net sales increase of $385. This increase was partially offset by a decrease in same-store sales of 0.1%, which we attribute in part to the high gasoline prices that were experienced during the fiscal quarter ended November 7, 2005. The average check increased by 4.5%. In addition, the average unit volume for the trailing 52 weeks ended November 7, 2005, reached $1,324, an increase of 3.3% over the similar period ended November 1, 2004. We believe the successful expansion of our signature Six Dollar Burger™ line, including the introduction of our Portobello Mushroom Six Dollar Burger™, along with the successful promotion of the Western Bacon Charbroiled Chicken Sandwich™ and the Green Burrito Taco Salad™, contributed to these increases.

During the forty weeks ended November 7, 2005, revenue from company-operated Carl’s Jr. restaurants increased $10,391, or 2.4%, to $439,530. The increases are mainly due to a 1.2% increase in same-store sales and a 5.3% increase in the average check, mostly due to the reasons discussed above.

The changes in the restaurant-level margin are explained as follows:


	Twelve			Forty
	Weeks			Weeks
Restaurant-level margin for the period ended November 1, 2004		20.8	%		21.1	%
Decrease in workers’ compensation expense		0.9			1.0
Decrease in food and packaging costs		0.8			0.2
Increase in utilities expense		(0.5	)		(0.2	)
Decrease in labor costs, excluding workers’ compensation		0.4			0.4
Increase in repair and maintenance expense		(0.3	)		(0.1	)
Decrease in general liability insurance expense		0.2			0.2
Decrease in equipment lease expense		0.2			0.2
Increase 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	%

Workers’ compensation expense decreased by $1,134 and $4,172 during the twelve and forty weeks ended November 7, 2005, as compared to the twelve and forty weeks ended November 1, 2004, respectively. These decreases are attributable to favorable actuarial trends in claim frequency and severity. General liability insurance expense decreased by $280 and $712 during the twelve and forty weeks ended November 7, 2005, as compared to the prior year comparable periods, respectively. These decreases resulted from continuing favorable actuarial loss development trends.

Food and packaging costs as a percent of sales decreased during the twelve and forty weeks ended November 7, 2005, as compared to the prior year periods, due primarily to decreases in the cost of several commodities such as beef, bacon and cheese.

Utilities expense as a percent of sales increased during the twelve and forty weeks ended November 7, 2005, as compared to the twelve and forty weeks ended November 1, 2004, mainly due to increases in the prices of electricity and natural gas.

Labor costs, excluding workers’ compensation, as a percent of sales decreased during the twelve and forty weeks ended November 7, 2005, as compared to the twelve and forty weeks ended November 1, 2004, due mainly to more effective management of direct labor costs and the benefits of sales leverage.

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

Repair and maintenance expense, as a percent of sales, increased during the twelve weeks ended November 7, 2005, from the comparable prior year period, due mainly to the timing of ongoing and routine restaurant maintenance.

Equipment lease expense as a percent of sales decreased during the twelve and forty weeks ended November 7, 2005, from the comparable prior year periods, mainly due to the expiration of certain operating leases on point-of-sale equipment, which is being replaced by purchased equipment.

Rent, common area maintenance and property taxes as a percent of sales increased during the twelve and forty weeks ended November 7, 2005, as compared to the twelve and forty weeks ended November 1, 2004, mainly due to the opening of new restaurants as discussed above, as well as increased revenues and certain increases to the Consumer Price Index that is a factor in the calculation of rental expense.

Franchised and Licensed Restaurants

Total franchising revenue increased $121, or 0.2%, to $51,493 during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. Franchise royalties also grew $137, or 2.4%, during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004 due to the net increase of 29 domestic and international franchised restaurants during the trailing 13 periods ended November 7, 2005. Franchise fees, which are included in other franchise revenue and relate to the opening of new franchise units, increased $206, or 100.5%, also due to the opening of new franchise units discussed above. Rental income decreased $280, or 5.2%, due to the expiration of certain leases on property we previously sublet to franchisees. For most of these leases, the franchisees directly negotiated lease renewals with the landlord. Food, paper and supplies sales to franchisees increased by $58, or 0.1%, due to the increase in the franchise store base over the comparable prior year period, partially offset by the food purchasing volume impact of the 1.1% decrease in franchise same-store sales.

Total franchising revenue increased $2,737, or 1.6%, to $172,913 during the forty weeks ended November 7, 2005, as compared to the forty weeks ended November 1, 2004. The increase is comprised mainly of an increase of $2,845, or 2.1%, in food, paper and supplies sales to franchisees, increased franchise royalties of $610, or 3.2%, and increased franchise fees of $291, or 37.0%, partially offset by decreased rental income of $1,009, or 6.0%, primarily for reasons similar to those noted in the third fiscal quarter discussion above.

Net franchising income remained essentially flat during the twelve weeks ended November 7, 2005, as compared to the same period in the prior year primarily due to increased franchise royalty and fee receipts, which were largely offset by increased costs of food, paper and supplies sales to franchisees and reduced rental income.

Net franchising income decreased $678, or 2.9%, during the forty weeks ended November 7, 2005, as compared to the same period in the prior year primarily due to a prior year net recovery of bad debts of $378 and a reduction in rental income that was accompanied by a slight increase in rent expense.

Although not required to do so, approximately 89.7% of Carl’s Jr. franchised and licensed restaurants purchase food, paper and other supplies from us.

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

Hardee’s

During the twelve weeks ended November 7, 2005, we closed three Hardee’s restaurants; during the same period, Hardee’s franchisees and licensees opened ten and closed 14 restaurants. For the forty weeks ended November 7, 2005, we opened three, acquired one, sold three and closed 14 Hardee’s restaurants; during the same period, Hardee’s franchisees and licensees opened 25, sold one, acquired three and closed 44 restaurants. The following table shows the change in the Hardee’s restaurant portfolio, as well as the change in revenue for the current quarter:


	Restaurant Portfolio							Revenue
	Third Fiscal Quarter							Third Fiscal Quarter							Year-To-Date
	2006		2005		Change			2006		2005		Change			2006		2005		Change
Company-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		3,777

Total		2,004		2,047		(43	)	$	150,822	$	155,572	$	(4,750	)	$	515,083	$	517,104	$	(2,021	)

Company-Operated Restaurants

Revenue from company-operated Hardee’s restaurants decreased $5,849, or 4.2%, to $134,420 during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. The decrease is mostly due to a net decrease of 16 restaurants since the third quarter of fiscal 2005 and to a reduction of 3.5% in same-store sales. Same-store sales were significantly affected by three named tropical storms and hurricanes that occurred during the quarter, as well as by continuing high gasoline prices. We believe these factors had a significant negative impact on consumers’ discretionary spending during the quarter. Average unit volume for the trailing 52 weeks ended November 7, 2005, reached $869, an increase of 2.2% over the similar period ended November 1, 2004. During the same period, average check increased by 2.0% due to the continued promotion of premium products such as our Grilled Pork Chop Biscuit™ and our Charbroiled Chicken Club™ sandwich.

During the forty weeks ended November 7, 2005, revenue from company-operated Hardee’s restaurants decreased $5,798, or 1.3%, to $456,057, due mostly to the net decrease in restaurants, the severe weather and higher gasoline prices discussed above.

The changes in restaurant-level margins are explained as follows:


	Twelve			Forty
	Weeks			Weeks
Restaurant-level margin for the period ended November 1, 2004		15.3	%		15.0	%
Decrease in food and packaging costs		0.9			0.1
Increase in utilities expense		(0.7	)		(0.3	)
(Increase) decrease in labor and incentive costs, excluding workers’ compensation		(0.6	)		0.1
Decrease in workers’ compensation insurance expense		0.4			0.6
Decrease in depreciation and amortization expense		0.4			0.3
Decrease in general liability insurance expense		0.2			0.1
Increase in rent, common area maintenance and property taxes		(0.2	)		(0.1	)
Decrease in asset retirement expense		0.1			0.2
Decrease (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		—			0.1
Other, net		(0.1	)		(0.2	)

Restaurant-level margin for the period ended November 7, 2005		15.8	%		15.4	%

Food and packaging costs as a percent of sales decreased during the twelve and forty weeks ended November 7, 2005, compared to the comparable prior year periods due to reduced costs for beef, cheese and pork products.

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

Utilities expense as a percent of sales increased during the twelve and forty weeks ended November 7, 2005, mostly due to higher prices for natural gas and electricity.

Labor costs, excluding workers’ compensation, increased as a percent of sales during the twelve weeks ended November 7, 2005, primarily due to the semi-fixed nature of direct labor and the impact of declining same-store sales.

Workers’ compensation expense decreased by $600 and $3,095 during the twelve and forty weeks ended November 7, 2005, as compared to the twelve and forty weeks ended November 1, 2004, respectively. These decreases resulted from favorable loss development trends resulting in reduced actuarially estimated ultimate losses. General liability insurance expense decreased as a percent of sales from the prior year comparable periods, due to continuing favorable actuarial loss development trends.

Depreciation and amortization expense as a percent of sales decreased during the twelve and forty weeks ended November 7, 2005, as compared to the prior year periods, mostly due to the expiration of certain point-of-sale equipment capital leases during fiscal 2006 as well as the continued use of certain fully depreciated assets, partially offset by increased depreciation for new company-operated restaurants and the 3.5% reduction in same-store sales.

Rent, common area maintenance and property taxes as a percent of sales increased during the twelve and forty weeks ended November 7, 2005 primarily due to the opening of two new restaurants with higher than normal occupancy costs, as well as the decline in same-store sales.

Asset retirement expense as a percent of sales decreased during the forty weeks ended November 7, 2005, mostly due to write-offs of certain fixed assets in fiscal 2005 that were not repeated in fiscal 2006.

Repair and maintenance expense as a percent of sales increased during the forty weeks ended November 7, 2005 due to increased maintenance on restaurant buildings and kitchen equipment, as well as the implementation of a preventative maintenance program earlier in fiscal 2006.

Franchised and Licensed Restaurants

Total franchising revenue increased $1,099, or 7.2%, to $16,402 during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. The increase is primarily due to a $1,908, or 56.2%, increase in distribution center revenues related to increased equipment sales to new franchisees and increased franchise remodel activity, partially offset by decreases in royalty revenues and rental income, which decreased by $374, or 3.7%, and $504, or 31.8%, respectively. The decrease in royalty revenue is primarily due to the reduction in the number of franchise restaurants discussed above and a decline in domestic same-store sales, partially offset by a $375 increase in royalty collections from financially troubled franchisees. Rental income decreased due to a $394 reduction in rent collections from financially troubled franchisees and the expiration of certain leases on property we previously sublet to franchisees that are now leased directly from the landlord.

Total franchising revenue increased $3,777, or 6.8%, to $59,026 during the forty weeks ended November 7, 2005, as compared to the forty weeks ended November 1, 2004. The increase is primarily due to a $6,565, or 50.3%, increase in distribution center revenues related to equipment sales to franchisees and increased franchise remodel activity, partially offset by franchise royalties, which decreased by $1,432, or 4.2%, and franchise rental income, which decreased $1,618, or 21.8%. The decrease in royalty revenue is primarily due to the reduction in the number of franchise restaurants discussed above, a decline in domestic same-store sales, and a $1,481 decrease in royalty collections from financially troubled franchisees, partially offset by a $230 increase in international royalties. The decrease in rental income is primarily due a $1,069 reduction in rent collections from financially troubled franchisees and the expiration of certain leases on property we previously sublet to franchisees that are now leased directly from the landlord.

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

Net franchising income decreased $482, or 5.4%, during the twelve weeks ended November 7, 2005, as compared to the same period in the prior year primarily due to $199 reduced profits from sales of equipment to franchisees, mostly related to increased costs for parts and temporary labor, and reduced royalty and rent revenues.

Net franchising income decreased $3,094, or 9.2%, during the forty weeks ended November 7, 2005, as compared to the same period in the prior year primarily due to $347 reduced profits from sales of equipment to franchisees, mostly related to increased costs for parts and temporary labor, reduced royalty and rental income, and to a $356 decrease in bad debt recoveries. During the forty weeks ended November 7, 2005, we recorded a net recovery of $154, compared with a net recovery of $510 in the same period in the prior year.

La Salsa

During the twelve weeks ended November 7, 2005, we did not open or close any La Salsa restaurants; during the same period, La Salsa franchisees and licensees opened one restaurant. For the forty weeks ended November 7, 2005, we closed one La Salsa restaurant; during the same period, La Salsa franchisees and licensees opened one restaurant. The following table shows the change in the La Salsa restaurant portfolio, as well as the change in revenue at La Salsa for the current quarter:


	Restaurant Portfolio						Revenue
	Third Fiscal Quarter						Third Fiscal Quarter							Year-To-Date
	2006		2005		Change		2006		2005		Change			2006		2005		Change
Company-operated		61		61		—	$	10,770	$	10,561	$	209		$	37,012	$	36,262	$	750
Franchised 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

Same-store sales for company-operated La Salsa restaurants increased 2.6% during the twelve weeks ended November 7, 2005, as compared to the same period in the prior year. Revenue from company-operated La Salsa restaurants increased $209, or 2.0%, as compared to the twelve weeks ended November 1, 2004, primarily due to the increase in same-store sales. For the forty weeks ended November 7, 2005, same-store sales for company-operated La Salsa restaurants increased 2.3%, as compared to the same period in the prior year; and, revenue from company-operated La Salsa restaurants increased $750, or 2.1%, as compared to the same period in the prior year, primarily due to the increase in same-store sales.

Restaurant-level margins were 3.8% and 2.9% as a percent of company-operated restaurant revenues for the twelve weeks ended November 7, 2005, and November 1, 2004, respectively. Margins were favorably impacted by approximately 190 basis points due to reduced depreciation and amortization expense that resulted from the impairment of 16 La Salsa restaurants during the second half of fiscal 2005 and the first half of fiscal 2006. Margins were also favorably impacted by approximately 80 basis points due to a decrease in workers’ compensation and general liability insurance expense due primarily to favorable actuarial claims development trends. Labor costs, excluding workers’ compensation expense, increased by approximately 90 basis points due to the placement of general managers in certain units that did not have general managers in the third quarter of fiscal 2005; food and packaging costs increased approximately 70 basis points due to certain rebates on food items received in the third quarter of fiscal 2005 that were not repeated in the third quarter of fiscal 2006.

Restaurant-level margins were 5.9% and 3.4% as a percent of company-operated restaurant revenues for the forty weeks ended November 7, 2005, and November 1, 2004, respectively, mostly due to the reasons discussed above. Margins were favorably impacted by approximately 180 basis points due to reduced depreciation and amortization expense due to reduced depreciation and amortization expense that resulted from the impairment of 16 La Salsa restaurants during the second half of fiscal 2005 and the first half of fiscal 2006. Margins were also favorably impacted by approximately 190 basis points due to a net decrease in workers’ compensation and general liability insurance expense, which was the result of favorable actuarial claims development trends. These were partially offset by an increase of approximately 90 basis points in asset retirement expense due to the retirement of certain point of sale equipment.

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

Consolidated Variable Interest Entities

We consolidate the results of one franchise VIE, which operates six Hardee’s restaurants. We do not possess any ownership interest in the franchise VIE. Retail sales and operating expenses of the franchise VIE are included within franchised and licensed restaurants and other. The assets and liabilities of this entity are included in the accompanying Condensed Consolidated Balance Sheets, and are not significant to our consolidated financial position. The results of operations of this entity are included within the accompanying Condensed Consolidated Statements of Operations, and are not significant to our consolidated results of operations. The minority interest in the income or loss of this franchise entity is classified in other income (expense), net, in the accompanying Condensed Consolidated Statements of Operations, and in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet as of January 31, 2005. During the forty weeks ended November 7, 2005, the franchise VIE experienced a net loss that changed its equity position to a net deficit. As a result, we no longer have a minority interest obligation as of November 7, 2005. We have no rights to the assets, nor do we have any obligation with respect to the liabilities, of this franchise entity. None of our assets serve as collateral for the creditors of this franchisee or any of our other franchisees. (See Note 1 for further discussion of the franchise VIE.)

We also consolidate the Hardee’s cooperative advertising funds, which consist of the Hardee’s National Advertising Fund and approximately 82 local advertising cooperative funds because we have determined we are the primary beneficiaries of these funds. Each of these funds is a separate non-profit association with all the proceeds segregated and managed by a third-party accounting service company. The group of funds has been reported in our Condensed Consolidated Balance Sheets on a net basis, and is included within advertising fund assets, restricted, and advertising fund liabilities within current assets and current liabilities, respectively. The funds are reported as of the latest practicable date, which is the last day of the calendar quarter immediately preceding the balance sheet date.

Advertising Expense

Advertising expenses decreased $132, or 0.8%, to $16,334 during the twelve weeks ended November 7, 2005, as compared to the similar period in the prior year. Advertising expenses as a percentage of company-operated restaurant revenue remained flat at 5.9% during the same period.

Advertising expenses increased $276, or 0.5%, to $56,416 during the forty weeks ended November 7, 2005, as compared to the similar period in the prior year. Advertising expenses as a percentage of company-operated restaurant revenue remained flat at 6.0% during the same period.

General and Administrative Expense

General and administrative expenses decreased $410, or 1.4%, to $28,220 for the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. General and administrative expenses were 8.2% of total revenue for the twelve weeks ended November 7, 2005 and November 1, 2004.

During the twelve weeks ended November 7, 2005 general and administrative expenses decreased primarily due to reduced management bonus expense and a recovery of rental income on an administrative location that is now fully subleased, partially offset by the costs of implementing our Shareholder Rights Plan.

General and administrative expenses increased $2,666, or 2.5%, to $108,105 for the forty weeks ended November 7, 2005, as compared to the forty weeks ended November 1, 2004. General and administrative expenses were 9.2% and 9.1% of total revenue for the forty weeks ended November 7, 2005 and November 1, 2004, respectively. The net increase resulted from the factors identified in the third quarter discussion above, as well as from the following items.

During the second quarter of fiscal 2006, we purchased and canceled all of the outstanding options of Mr. William P. Foley, who resigned from the Board of Directors on July 19, 2005, for cash consideration of $11,000, which has been recorded as a component of general and administrative expense (see Note 12). During the forty weeks ended November 7, 2005, we also incurred increases in salary and benefits due to increased staffing levels in certain functions, increased professional expenses primarily due to legal fees and compliance work associated with the Sarbanes-Oxley Act of 2002, which were largely offset by a reduction in management bonus expense based on our performance relative to executive management bonus criteria.

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

During the forty weeks ended November 1, 2004, we incurred an $8,250 charge to increase certain litigation reserves as well as a loss of approximately $1,479 incurred upon the disposal of a partial interest in a corporate jet in which we shared ownership interest with a related party.

Facility Action Charges

Facility action charges arise from closure of company-operated restaurants, sublease of closed facilities at amounts below our primary lease obligation, impairments of long-lived assets to be disposed of or held and used, gains or losses upon disposal of surplus property, and discount amortization for obligations related to closed or subleased facilities to their future costs.

Facility action charges decreased $312, or 29.9%, to $733 during the twelve weeks ended November 7, 2005, as compared to the twelve weeks ended November 1, 2004. During the twelve weeks ended November 7, 2005, we recorded reserves of $213 related to the closure of two Hardee’s stores, $203 of discount amortization, and losses of $153 related to disposals of surplus property and lease terminations. The remaining expense for the third quarter of fiscal 2006 relates primarily to adjustments of previously recorded reserves.

We recorded $1,045 of facility action charges during the twelve weeks ended November 1, 2004, which was mainly comprised of asset impairments of $890 primarily related to 13 Hardee’s and two La Salsa units, reserves of $459 primarily related to four store closures, discount amortization of $274, partially offset by net gains of $339 related to disposals of surplus property and lease terminations and a net recovery attributable to adjustments of previously recorded reserves.

Facility action charges decreased $5,958, or 61.1%, to $3,787 during the forty weeks ended November 7, 2005, as compared to the forty weeks ended November 1, 2004. During the forty weeks ended November 7, 2005, we recorded asset impairments of $1,682 primarily related to 21 Carl’s and 19 Hardee’s units, reserves of $1,114 related to the closure of 12 Hardee’s stores, $725 of discount amortization, and losses of $84 related to disposals of surplus property and lease terminations. The remaining year-to-date expense for fiscal 2006 relates primarily to adjustments of previously recorded reserves.

We recorded $9,745 of facility action charges during the forty weeks ended November 1, 2004, which was mainly comprised of asset impairments of $5,643 primarily related to 33 Hardee’s, 27 Carl’s Jr. and eight La Salsa units; reserves of $5,571 primarily related to 43 Hardee’s and three La Salsa store closures; and discount amortization of $1,054, partially offset by net gains of $1,732 related to disposals of surplus property and lease terminations and a net recovery attributable to adjustments of previously recorded reserves.

See Note 6 for additional detail of the components of facility action charges.

Interest Expense

During the twelve weeks ended November 7, 2005, interest expense decreased $1,412, or 20.9%, to $5,334, as compared to the twelve weeks ended November 1, 2004, primarily as a result of lower average borrowings, reduced write-off of unamortized loan fees and further amortization of our capital lease obligations since the prior year comparable period.

During the forty weeks ended November 7, 2005, interest expense decreased $12,499, or 41.1%, to $17,930, as compared to the forty weeks ended November 1, 2004, primarily as a result of lower average borrowings, lower interest rates upon refinancing our Senior Notes with a lower cost bank term loan and further amortization of our capital lease obligations since the prior year comparable period, as well as the write-off in fiscal 2005 of unamortized loan fees related to our Senior Notes, for which there was no comparable write-off in fiscal 2006.

See Note 5 for additional detail of the components of interest expense.

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

Other Income (Expense), Net

Other income (expense), net, for the twelve and forty weeks ended November 7, 2005 and November 1, 2004, consisted of the following:


	Twelve Weeks Ended					Forty Weeks Ended
	November 7,		November 1,			November 7,		November 1,
	2005		2004			2005		2004
Premium paid upon early redemption of debt	$	—	$	—		$	—	$	(9,126	)
Interest income on notes receivable from franchisees, disposition properties and capital leases		277		298			886		1,249
Rental income from properties leased to third parties, net		347		781			986		1,468
Lease termination		—		—			—		515
Other, net		119		(55	)		652		358

Total other income (expense), net	$	743	$	1,024		$	2,524	$	(5,536	)

Other income (expense), net, typically consists of lease and sublease income from non-franchisee tenants, interest income on notes receivable, and other non-operating items. During the forty weeks ended November 1, 2004, we recorded $9,126 premium paid upon the early redemption of our Senior Notes due 2009, and the receipt of a $515 lease termination make-whole payment. We also recorded approximately $300 of interest income upon collection of officer and non-employee director notes receivable, which is included in “interest income” above.

Income Taxes

We recorded income tax expense for the twelve weeks ended November 7, 2005 of $570, comprised of foreign income taxes of $200 and federal and state income taxes of $370. For the forty weeks ended November 7, 2005, we recorded income tax expense of $1,665, comprised of foreign income taxes of $666 and federal and state income taxes of $999. Our effective rate differs from the federal statutory rate primarily as a result of changes in our valuation allowance and state taxes. If we had never been required to record a valuation allowance against our net deferred tax asset, our effective tax rate would have been approximately 40% for the year ended January 31, 2005 and the forty weeks ended November 7, 2005.

We maintained a deferred tax liability of $1,708 as of January 31, 2005, which resulted from our net deferred tax assets and tax valuation allowance of approximately $188,471 and $190,179, respectively. As of November 7, 2005, our net deferred tax assets and related valuation allowance result in a net deferred tax liability of $1,848.

At January 31, 2005, we had federal NOL carryforwards of approximately $99,608, expiring in varying amounts in the years 2014 through 2025, and state NOL carryforwards in the amount of approximately $331,754, which expire in varying amounts in the years 2006 through 2025. We have federal NOL carryforwards for alternative minimum tax purposes of approximately $91,142. Additionally, we have an AMT credit carryforward of approximately $11,465. We also have generated general business credit carryforwards in the amount of $11,181, which expire in varying amounts in the years 2020 through 2025, and foreign tax credits in the amount of $3,598, which expire in varying amounts in the years 2006 through 2010.

We have recorded a 100% valuation allowance against our net deferred tax assets because we currently believe it is more likely than not that we will not realize the benefits of these deductible differences based on the evaluation of all available evidence in accordance with SFAS 109. When circumstances warrant, we assess the likelihood that our net deferred tax assets will more likely than not be realized from future taxable income by evaluating the available evidence, including history of profitability, projection of income and other factors. In considering the weight given to the potential effect of both positive and negative evidence, an emphasis is placed on evidence that can be objectively verified. For the three years ended November 7, 2005, we have incurred a cumulative loss before income taxes of approximately $3,000. The guidance established by SFAS 109 indicates that a cumulative loss in recent years provides a significant piece of objective negative evidence that is difficult to overcome with more subjective evidence, such as projected profitability, in evaluating the realizability of deferred tax assets. However, if

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

profitability continues to the point where we are able to demonstrate a history of income before income taxes, instead of a cumulative loss, coupled with other factors such as projected taxable income, we expect such evidence may allow us to release a substantial majority of our valuation allowance and record an income tax benefit for such amount. While the timing of any such release is dependent on future events and circumstances, we believe that this income tax benefit may be recognized in the near term. If we were able to release some or all of our valuation allowance, we would expect to begin recording income tax expense using an effective rate of approximately 40%.

As of January 31, 2005, approximately 28% of our net deferred income tax assets related to certain state NOL carryforwards, foreign and state tax credits, and federal AMT and general business tax credits. Utilization of the full benefit of such amounts may remain uncertain for the foreseeable future, even if we generate taxable income, since they are subject to various limitations and may only be used to offset certain types of taxable income.

Liquidity and Capital Resources

We currently finance our business through cash flow from operations and borrowings under our credit facility. We believe our most significant cash use during the next 12 months will be for capital expenditures. We amended and restated our senior credit facility (the “Facility”) on June 2, 2004, and amended the Facility again on November 4, 2004 and April 21, 2005 (see below). We anticipate that existing cash balances, borrowing capacity under the Facility, and cash generated from operations will be sufficient to service existing debt and to meet our operating and capital requirements for at least the next 12 months. We have no potential mandatory payments of principal on our $105,000 of 4% Convertible Subordinated Notes due 2023 until October 1, 2008.

We, and the restaurant industry in general, maintain relatively low levels of accounts receivable and inventories, and vendors grant trade credit for purchases such as food and supplies. We also continually invest in our business through the addition of new sites and the refurbishment of existing sites, which are reflected as long-term assets and not as part of working capital. As a result, we typically maintain current liabilities in excess of current assets, resulting in a working capital deficit. As of November 7, 2005, our current ratio was 0.66 to 1.

The Facility provides for a $380,000 senior secured credit facility consisting of a $150,000 revolving credit facility and a $230,000 term loan. The revolving credit facility matures on May 1, 2007, and includes an $85,000 letter of credit sub-facility. The principal amount of the term loan is scheduled to be repaid in quarterly installments, with a balloon payment of the remaining principal balance that is scheduled to mature on July 2, 2008. Subject to certain conditions as defined in the Facility, the maturity of the term loan may be extended to May 1, 2010.

The terms of the Facility include 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, dispose of assets in the collateral pool securing the Facility, prepay certain debt, engage in a change of control transaction without the member banks’ consents and make investments or acquisitions. The Facility is collateralized by a lien on all of our personal property assets and liens on certain restaurant properties.

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

In April 2004, our Board of Directors authorized a Stock Repurchase Plan to allow us to repurchase up to $20,000 of our common stock. During the twelve weeks ended November 7, 2005, we repurchased 150,100 shares of our common stock at an average price of $13.29 per share, for a total cost, including trading commissions, of $1,999. Based on the Board of Directors’ authorization and the amount of repurchase of our common stock that we have already made thereunder, as of November 7, 2005, we are permitted to make additional repurchases of our common stock up to $12,442 under the Stock Repurchase Plan.

Subject to the terms of the Facility, we may make annual capital expenditures in the amount of $45,000, plus 80% of the amount of actual EBITDA (as defined in the agreement) in excess of $110,000. We may also carry forward any unused capital expenditure amounts to the following year. Based on these terms, the Facility permits us to make capital expenditures of at least $63,836 in fiscal 2006, which could increase further based on our performance versus the EBITDA formula described above.

Until recently, the Facility prohibited us from paying cash dividends. On April 21, 2005, we amended the Facility to permit us to pay cash dividends on substantially the same terms as we have been and are permitted to repurchase shares of our common stock. This amendment to the Facility also resulted in a 0.50% decrease in the borrowing rate under our term loan, a 0.25% decrease in the borrowing rate on revolving loans and a 0.25% decrease in our letter of credit fee rate. On April 25, 2005, we announced our Board of Directors’ declaration of a cash dividend of $0.04 per share of our common stock and we further announced our intention to pay a regular quarterly cash dividend. During the forty weeks ended November 7, 2005, we have declared cash dividends of $0.12 per share of common stock, for a total of $7,119. As of November 7, 2005, dividends payable of $2,379 have been included in other current liabilities in our Condensed Consolidated Balance Sheet. These dividends were subsequently paid on November 28, 2005.

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

The terms of the Facility are not dependent on any change in our credit rating. The 2023 Convertible Notes contain a convertibility trigger based on the credit ratings of the notes; however, such trigger is no longer applicable since the notes are now convertible through the remainder of their term, as discussed above. 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 flow 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 7, 2005, cash provided by operating activities was $97,698, a decrease of $2,815, or 2.8%, from the prior year comparable period. Although net income for the forty weeks ended November 7, 2005 was $29,323 higher than net income for the prior year comparable period, there was not a corresponding increase in cash provided by operating activities since the prior year period included significantly more non-cash charges, including higher depreciation and amortization, losses on asset disposals, write-off of deferred financing costs related to debt extinguishments, facility action charges, and accruals for litigation. The remaining fluctuation is attributable primarily to changes in operating assets and liabilities, including accounts receivable and accounts payable. Working capital account balances, including accounts receivable and accounts payable, 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.

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

Cash used in investing activities during the forty weeks ended November 7, 2005 totaled $46,300, which principally consisted of purchases of property and equipment, partially offset by proceeds from the sale of property and equipment, and collections on notes receivable. Capital expenditures for the forty weeks ended November 7, 2005 and November 1, 2004 were as follows:


	November 7,		November 1,
	2005		2004
New restaurants (including restaurants under development)
Carl’s Jr.	$	6,921	$	8,443
Hardee’s		8,714		3,468
La Salsa		307		925
Remodels/Dual-branding (including construction in process)
Carl’s Jr.		3,902		618
Hardee’s		4,260		7,107
La Salsa		123		21
Other restaurant additions
Carl’s Jr.		7,298		6,594
Hardee’s		16,515		12,194
La Salsa		380		1,270
Corporate/other		5,843		3,224

Total	$	54,263	$	43,864

Capital expenditures for the forty weeks ended November 7, 2005, increased $10,399, or 23.7%, over the comparable prior year period mainly due to ongoing upgrades to our restaurant point-of-sale and back-office systems and our human resources and payroll systems during the first three quarters of fiscal 2006, rollout of equipment associated with a hand-dipped ice cream milkshake program, increased spending on several new units under construction, and implementation of an image enhancement program for Carl’s Jr. restaurants.

Cash used in financing activities during the forty weeks ended November 7, 2005 was $49,643, which principally consisted of repayment of $26,650 of term loans under our Facility (of which $25,706 represented voluntary prepayment thereof), net repayments of $14,500 under the revolving portion of our Facility, repayment of $4,135 of capital lease obligations, payment of $4,740 of dividends, payment of $1,999 for the repurchase of common stock, and a $4,527 decrease in our bank overdraft position (which is generally not a significant source or use of cash over the long term), partially offset by receipts from the exercise of stock options and warrants of $7,106.

Contractual Obligations

We enter into purchasing contracts and pricing arrangements to control costs for commodities and other items that are subject to price volatility. We also enter into contractual commitments for marketing and sponsorship arrangements. These arrangements in addition to any unearned supplier funding and distributor inventory obligations result in unconditional purchase obligations (see further discussion regarding these obligations in Item 3 — Quantitative and Qualitative Disclosures About Market Risk), which totaled $55,188 as of November 7, 2005.

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. As of November 7, 2005, we had $112,000 of borrowings and $62,704 of letters of credit outstanding under the Facility. Borrowings under the Facility bear interest at the prime rate or LIBOR plus an applicable margin. A hypothetical increase of 100 basis points in short-term interest rates would result in a reduction in the Company’s annual pre-tax earnings of $1,120. The estimated reduction is based upon the outstanding balance of the borrowings under the Facility and the weighted-average interest rate for the quarter and assumes no change in the volume, index or composition of debt as in effect on November 7, 2005. As of November 7, 2005, a hypothetical increase of 100 basis points in short-term interest rates would also cause the fair value of our convertible subordinated notes due 2023 to decrease approximately $2,780. The decrease in fair value was determined by discounting the projected cash flows assuming redemption on October 1, 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 the 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 result in lower restaurant-level operating margins for our restaurant concepts.

Derivative Financial Instruments

On July 26, 2004, we entered into two interest rate cap agreements in an aggregate notional amount of $70,000. Under the terms of each agreement, if LIBOR exceeds 5.375% on the measurement date for any quarterly period, we will receive payments equal to the amount LIBOR exceeds 5.375%, multiplied by (i) the notional amount of the agreement and (ii) the fraction of a year represented by the quarterly period. The agreements expire on July 28, 2007. The agreements were not designated as hedges under the terms of SFAS 133. Accordingly, the change in the fair value of the $371 of interest rate cap premiums will be recognized quarterly in interest expense in the consolidated statement of operations. During the twelve weeks ended November 7, 2005, we recorded a credit of $20 to interest expense to increase the carrying value of the interest rate cap premiums to their fair value of $93 at November 7, 2005. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure.

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 Securities Exchange Act of 1934, as amended (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.

In connection with the preparation of this Quarterly Report on Form 10-Q, as of November 7, 2005, 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 Form 10-Q report 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 Securities and Exchange Commission’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 disclosure.

(b) Changes in Internal Control and Remediation of Material Weakness

As reported in Item 9A of our Annual Report on Form 10-K as of January 31, 2005, we had concluded that our internal control over financial reporting was not effective as of the end of the period covered by that report. That conclusion resulted from the existence of deficiencies in our internal control associated with the selection, monitoring and review of assumptions and factors affecting certain of our depreciation and lease accounting policies and procedures. Such deficiencies constituted a material weakness in our internal control.

As of January 31, 2005, with regard to our depreciation policies and procedures, we had not established and maintained appropriate depreciable lives for fixed assets subject to operating leases, and, with regard to lease accounting policies and procedures, we had not properly applied U.S. generally accepted accounting principles to so-called “rent holidays” — the period during which a tenant is in possession of the leased property but the lease payments had not yet begun — because we were not recording straight-line rent expense for the period from possession of a leased property to the date of rent commencement.

In our fiscal quarter ended May 23, 2005, we:

	•		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.

We believe these changes effectively remediated the material weakness in our internal control over financial reporting that had existed as of January 31, 2005. We did not make any other changes in our internal control over financial reporting during the fiscal quarters ended May 23, 2005, August 15, 2005, and November 7, 2005, 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.

Information regarding legal proceedings is incorporated by reference from Note 10 of Notes to Condensed Consolidated Financial Statements set forth in Part 1 of this report.

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

(Dollars in thousands, except per share amounts)

Issuer Purchase of Equity Securities

In April 2004, our Board of Directors authorized a Stock Repurchase Plan to allow us to repurchase up to $20,000 of our common stock. Pursuant to this authorization, during fiscal 2005, we repurchased 519,000 shares of our common stock at an average price of $10.68 per share, for a total cost, including trading commissions, of $5,559. During the twelve weeks ended November 7, 2005, we repurchased 150,100 shares of our common stock at an average price of $13.29 per share, for a total cost, including trading commissions, of $1,999.

The following table provides information as of November 7, 2005, with respect to shares of common stock repurchased by the Company during the fiscal quarter then ended (dollars in thousands, except per share amounts):

(a)

(b)

(c)

(d)

Maximum

Dollar

Value of

Total

Shares that

Number of Shares

May Yet Be

Average

Purchased as Part

Purchased

Total

Price

of Publicly

Under the

Number of Shares

Paid per

Announced Plans

Plans or

Period

Purchased

Share

or Programs

Programs

August 16, 2005 — September 12, 2005

—

14,441

September 13, 2005 — October 10, 2005

150,100

13.29

150,100

12,442

October 11, 2005 — November 7, 2005

—

12,442

Total

150,100

13.29

150,100

12,442

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

Not applicable.

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.

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.


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


		CKE RESTAURANTS, INC.
		(Registrant)

Date: December 12, 2005		/s/ Theodore Abajian

		Theodore Abajian Executive Vice President Chief Financial Officer



Date: December 12, 2005	/s/ Andrew F. Puzder
	Andrew F. Puzder
	President and Chief Executive Officer

(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.

	1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m(a) or Section 780(d)); and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: December 12, 2005	/s/ Theodore Abajian
	Theodore Abajian
	Executive Vice President and Chief Financial Officer