Basis Of Presentation And Description Of Business

6 Months Ended

Aug. 15, 2011

Basis Of Presentation And Description Of Business

Basis Of Presentation And Description Of Business

NOTE 1 — BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Description of Business

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

Carl's Jr. restaurants are primarily located in the Western United States. Hardee's restaurants are primarily located throughout the Southeastern and Midwestern United States. Green Burrito restaurants are primarily located in dual-branded Carl's Jr. restaurants. The Red Burrito concept is located in dual-branded Hardee's restaurants. Generally, our franchisees are domestic and our licensees are international. As of August 15, 2011, our system-wide restaurant portfolio consisted of:

	Carl's Jr.		Hardee's		Other		Total
Company-operated		425		468		—		893
Franchised		684		1,226		10		1,920
Licensed		169		220		—		389
Total		1,278		1,914		10		3,202

As of August 15, 2011, 258 of our 425 company-operated Carl's Jr. restaurants were dual-branded with Green Burrito and 185 of our 468 company-operated Hardee's restaurants were dual-branded with Red Burrito.

Merger and Related Transactions

On July 12, 2010, we completed a merger with Columbia Lake Acquisition Corp. ("Merger Sub"), a Delaware corporation and wholly-owned subsidiary of CKE Holdings, Inc. ("Parent"), a Delaware corporation, providing for the merger of Merger Sub with and into CKE (the "Merger"), with CKE surviving the Merger as a wholly-owned subsidiary of Parent, pursuant to the Agreement and Plan of Merger, dated April 18, 2010 ("Merger Agreement"). Parent is indirectly controlled by investment entities managed by Apollo Management VII, L.P. ("Apollo Management"). As a result of the Merger, shares of CKE common stock ceased to be traded on the New York Stock Exchange after the close of market on July 12, 2010.

The aggregate consideration for all equity securities of CKE was $704,065, including $10,587 of post-combination share-based compensation expense, and the total debt assumed and refinanced in connection with the Merger was $270,487. The Merger was funded by (i) equity contributions from affiliates of Apollo Management of $436,645, (ii) equity contributions from our senior management of $13,355, and (iii) proceeds of $588,510 from the issuance of $600,000 senior secured second lien notes (the "Notes"). In addition, we entered into a senior secured revolving credit facility of $100,000 (the "Credit Facility"), which was undrawn at closing.

The aforementioned transactions, including the Merger and payment of costs related to these transactions, are collectively referred to as the "Transactions."

Basis of Presentation and Fiscal Year

Our accompanying unaudited Condensed Consolidated Financial Statements include the accounts of CKE, our wholly-owned subsidiaries and certain variable interest entities ("VIE") for which we are the primary beneficiary and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), the instructions to Form 10-Q and Article 10 of Regulation S-X. CKE does not have any non-controlling interests in other entities. These financial statements should be read in conjunction with the audited Consolidated Financial Statements presented in our Annual Report on Form 10-K for the fiscal year ended January 31, 2011. In our opinion, all adjustments considered necessary for a fair presentation of financial position and results of operations for this interim period have been included. The results of operations for such interim period are not necessarily indicative of results for the full year or for any future period.

We operate on a retail accounting calendar. Our fiscal year ends on the last Monday in January and typically has 13 four-week accounting periods. For clarity of presentation, we generally label all fiscal year ends as if the fiscal year ended January 31. The fiscal year ended January 31, 2011 is referred to herein as fiscal 2011. The fiscal year ending January 30, 2012 is referred to herein as fiscal 2012. The first quarter of our fiscal year has four periods, or 16 weeks. All other quarters generally have three periods, or 12 weeks.

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

For the purposes of presentation and disclosure, all references to "Predecessor" relate to CKE and its consolidated subsidiaries for periods prior to the Merger. All references to "Successor" relate to CKE and its consolidated subsidiaries merged with Merger Sub for periods subsequent to the Merger. References to "we", "us", "our" and the "Company" relate to the Predecessor for the periods prior to the Merger and to the Successor for periods subsequent to the Merger.

Certain prior year amounts in these unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the current year presentation.

Variable Interest Entities

We consolidate one national and approximately 80 local co-operative advertising funds ("Hardee's Funds") as we have concluded that they are VIEs for which we are the primary beneficiary. We have included $21,791 and $18,464 of advertising fund assets, restricted, and advertising fund liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as of August 15, 2011 and January 31, 2011, respectively. Consolidation of the Hardee's Funds had no impact on our accompanying unaudited Condensed Consolidated Statements of Operations and Cash Flows. We have no rights to the assets, nor do we have any obligation with respect to the liabilities, of the Hardee's Funds, and none of our assets serve as collateral for the creditors of these VIEs.