CKE Restaurants, Inc. (Form: 8-K)

CKE RESTAURANTS, INC. REPORTS FISCAL 2006 INCOME BEFORE TAXES OF $57.3 MILLION VERSUS $17.1
MILLION IN THE PRIOR YEAR

Fourth Quarter Income Before Taxes of $15.3 Million versus $5.0 Million in the Prior Year

CARPINTERIA, Calif. — April 6, 2006 —CKE Restaurants, Inc. (NYSE:CKR) announced today fiscal 2006 fourth quarter and year-end results and the filing of its Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”) for fiscal 2006.

“We are pleased to report continuing progress with respect to our goals of growing profitability and generating wealth for our stockholders. We are well positioned to pursue this Company’s excellent growth opportunities, consistent with our discipline of allocating capital so as to give all stockholders the best long-term returns,” said Andrew F. Puzder, President and Chief Executive Officer.

•

Fourth quarter income before taxes and discontinued operations grew to $15.3 million, or $0.22 per diluted share, more than triple last year’s fourth quarter result of $5.0 million, or $0.09 per share.

•

Fourth quarter net income rose to $154.3 million, or $2.14 per diluted share, up from $7.1 million or $0.12 per diluted share in last year’s fourth quarter. This represents an increase of $147.2 million over the prior year’s fourth quarter. This year’s results include a $139.0 million, or $1.92 per diluted share, income tax benefit primarily related to a substantial reduction of our deferred tax asset valuation allowance.

•

Fourth quarter operating income was $20.5 million for the current year quarter, an increase of $11.8 million over the prior year quarter’s operating income of $8.7 million.

•

Same-store sales increased 5.3 percent and 2.9 percent at company-operated Carl’s Jr.â and Hardee’sâ restaurants, respectively, compared to the prior year quarter.

•

Restaurant operating costs at Carl’s Jr. company-operated stores declined 530 basis points, compared to the prior year quarter, to 73.7 percent of company-operated revenue. The improvement was primarily due to reduced workers’ compensation and general liability claims expense and lower labor costs.

•

Restaurant operating costs at Hardee’s company-operated stores declined 380 basis points, compared to the prior year quarter, to 84.4 percent of company-operated revenue. The improvement was primarily due to reduced workers’ compensation and general liability claims expense as well as lower repair and maintenance and food costs.

•

Average unit volumes for the trailing 52 weeks increased by 3.1 percent to $1,341,000 and by 1.4 percent to $874,000 at company-operated Carl’s Jr. and Hardee’s restaurants, respectively, compared to the prior year quarter.

	•		Consolidated revenue for the current year quarter was $348.5 million, a 3.7 percent decrease from the prior year quarter. The fourth quarter of fiscal 2005 included 13 weeks of operations, while the current year quarter included only 12 weeks of operating results.

			*Full-Year Highlights* —

•

Income before taxes and discontinued operations grew to $57.3 million, a $40.2 million increase over the prior year total of $17.1 million. This year’s results include an $11.0 million charge to purchase and cancel the options of our former Chairman. Prior year results included $22.3 million of charges primarily related to legal settlements and early debt extinguishment. Absent these charges, fiscal 2006 income before taxes and discontinued operations would have been $68.3 million, or $0.97 per diluted share, compared to income before taxes and discontinued operations of $39.4 million, or $0.66 per diluted share, for fiscal 2005.

•

Net income grew to $194.6 million or $2.70 per diluted share. This represents an increase of $176.6 million over the prior year net income of $18.0 million or $0.30 per diluted share. This year’s results include a $137.3 million income tax benefit primarily related to a substantial reduction of our deferred tax asset valuation allowance and the previously noted $11.0 million charge to purchase and cancel the options of our former Chairman. Prior year results included $22.3 million of charges primarily related to legal settlements and early debt extinguishment.

•

Same-store sales increased 2.2 percent at company-operated Carl’s Jr. restaurants and decreased 0.2 percent at company-operated Hardee’s restaurants, compared to the prior year.

•

Consolidated revenue for fiscal 2006 decreased 0.1 percent, to $1.52 billion. Fiscal 2005 included 53 weeks and fiscal 2006 included 52 weeks.

•

Restaurant operating costs declined 230 basis points to 76.6 percent of company-operated revenue at Carl’s Jr. and declined 120 basis points to 84.5 percent of company-operated revenue at Hardee’s, respectively, compared to the prior year.

•

Carl’s Jr. operating income increased by $21.1 million, or 34.2 percent, to $82.8 million.

•

Hardee’s operating income increased by $8.1 million, or 153.0 percent, to $13.4 million.

•

We repaid a total of $39.9 million of our term loan during fiscal 2006, reducing the term loan balance to $98.7 million as of fiscal year-end.

•

The Company repurchased a total of 297,300 shares of common stock during fiscal 2006, at a total cost of $4.0 million.

•

For the fiscal year ended January 31, 2006, the Company generated earnings before interest, taxes, depreciation and amortization and facility action charges (“Adjusted EBITDA”) of $152.4 million compared with $144.1 million in fiscal 2005.

•

Fully diluted shares outstanding for the 12 and 52 weeks ended January 31, 2006, were 72.5 million and 73.3 million, respectively.

In this earnings release, we provide both net income and income before taxes and discontinued operations determined in accordance with generally accepted accounting principles (“GAAP”), and income before taxes and discontinued operations adjusted to exclude a charge to purchase stock options, increases to legal settlement reserves, reversal of valuation allowance for deferred taxes, charges related to refinancing our debt and certain non-operating charges. These non-GAAP financial measures are used by management to evaluate financial and operating performance. We do not consider the option purchase charge, reversal of valuation allowance for deferred taxes, increases to legal settlement reserves, charges related to refinancing our debt and certain non-operating charges to be directly related to operating results for the periods discussed. We believe that presentation of these non-GAAP financial measures assists our investors by facilitating comparisons to prior-period financial results and to the results of our competitors. These financial measures are also comparable to forecasts made by security analysts and others, which generally exclude special items, as they are difficult to predict in advance. In addition, Adjusted EBITDA is used by our lenders as an indicator of earnings available to service debt, fund capital expenditures and for other corporate uses. Non-GAAP financial measures are not intended to be a substitute for net income and income before taxes and discontinued operations determined in accordance with GAAP.

“As result of our continued profitability, we were able to reverse most of our deferred tax asset valuation allowance, resulting in an income tax benefit of $139 million in the fourth quarter of fiscal 2006. We believe this change in our deferred tax asset valuation allowance marks an important milestone in the turnaround of the Company and the start of a new phase of growth.

“In addition, our efforts over the past two years to strengthen our balance sheet allowed us to return almost $14 million to stockholders in fiscal 2006 through quarterly cash dividends and common stock repurchases. We are currently planning to return more than $17 million to stockholders during fiscal 2007.

“Both Carl’s Jr. and Hardee’s finished the year with strong same-store sales momentum, driven by our premium quality products and our efforts to expand Hardee’s appeal via the selective development of other menu categories. Fourth quarter revenue was $348.5 million, a 3.7 percent decrease as compared to the prior year quarter due primarily to the impact of an extra week in the fourth quarter of fiscal 2005.”

“Same-store sales at company-operated Carl’s Jr. restaurants increased 5.3 percent during the fourth quarter. On a two-year cumulative basis, Carl’s Jr. same-store sales were up approximately 10.2 percent for the fourth quarter. Revenues at

company-operated Carl’s Jr. restaurants decreased $3.7 million, or 2.7 percent, over the prior-year quarter, due to the impact of an extra operating week in the prior year quarter,” continued Puzder. “At Carl’s Jr., growth in our breakfast day-part and the introduction of several new products during the year, including the Western Bacon Charbroiled Chicken Sandwichä, The Portobello Mushroom Six Dollar Burgerä, the Jalapeño Burgerä and Hand-Scooped Ice Cream Shakes & Maltsä, raised our average unit volume to $1,341,000 – a $40,000 increase over the prior year and an all-time high. Carl’s Jr. continues to differentiate itself from our competitors through our innovative, premium product strategy and remains an industry leader.”

“Carl’s Jr. reduced its cost of restaurant operations at its company-operated stores by 530 basis points over the prior-year quarter, to 73.7 percent of revenue. The improvement was due primarily to reduced workers’ compensation and general liability claims expense and lower labor costs. Carl’s Jr. generated $25.1 million of operating income during the fourth quarter, an increase of $7.4 million or 41.5 percent over the prior year quarter.”

“Same-store sales at company-operated Hardee’s restaurants increased 2.9 percent during the fourth quarter. On a two-year cumulative basis, Hardee’s same-store sales were up approximately 7.3 percent for the fourth quarter,” added Puzder. “Revenue from company-operated Hardee’s restaurants decreased $8.2 million, or 5.9 percent, over the prior year quarter. As with Carl’s Jr., the prior year quarter contained an extra operating week. Hardee’s strengthened its industry-leading breakfast daypart position over the past year through the introduction of the Loaded Breakfast Burritoä, the Grilled Pork Chop Biscuitä and the Steak ‘N’ Egg Burritoä. In addition, Hardee’s added to its premium quality Thickburgerâ lineup with a selection of complementary products, including the Charbroiled Chicken Club Sandwichä and Red Burrito Taco Saladä, and introduced an improved value offering, a 1/4-lb. Double Cheeseburger. Despite the significant challenges that faced the brand, including record-high gasoline prices and the most active Atlantic hurricane season ever, Hardee’s average unit volume increased to $874,000 at fiscal year end, a 1.4 percent increase over the prior year and a ten-year high.”

“Hardee’s cost of restaurant operations at its company-operated stores improved 380 basis points over the prior year quarter, to 84.4 percent of revenue. As with Carl’s Jr., Hardee’s benefited from reduced workers’ compensation and general liability claims expense, as well as lower repair and maintenance and food costs. For the year, Hardee’s generated operating income of approximately $13.4 million, which is an improvement of $8.1 million over the prior year income of $5.3 million.”

“Our focus will remain on the fundamentals within our restaurants, including our premium products and ‘Six Dollar Service’, effective advertising, cost control, and building-out existing core markets to enhance our infrastructure and marketing presence. We are very pleased with the results for the fourth quarter and fiscal 2006 and look forward to continuing to provide value to our stockholders,” Puzder concluded.

As of the end of its fiscal 2006 fourth quarter, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,160 franchised or company-owned restaurants in 43 states and in 13 countries, including 1,049 Carl’s Jr. restaurants, 1,993 Hardee’s restaurants and 102 La Salsa Fresh Mexican Grillâ restaurants.

The Company will host a conference call and webcast on April 7, 2006, at 9:00 a.m. (EDT) / 6:00 a.m. (PDT) to review these results, discuss the company’s progress and provide more information on the company’s growth plans. The Company invites investors to listen to the live webcast of the conference call at www.ckr.com under “Investors.”

The Company’s filings with the SEC are available to investors at www.ckr.com under “Investors/SEC Filings.”

Matters discussed in this news release contain forward-looking statements relating to future plans and developments, financial goals and operating performance that are based on management’s current beliefs and assumptions. Such statements are subject to risks and uncertainties that are often difficult to predict, are beyond the Company’s control and which may cause results to differ materially from expectations. Factors that could cause the Company’s 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 the Company’s 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 the Company’s suppliers’ ability to provide quality and timely products to the Company, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of the Company’s franchisees, franchisees’ willingness to participate in the Company’s strategies, the availability of financing for the Company and its 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 the Company’s 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.

CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)


	January 31,			January 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	21,343		$	18,432
Accounts receivable, net		36,153			31,199
Related party trade receivables		4,987			6,760
Inventories, net		20,953			19,297
Prepaid expenses		13,101			13,056
Assets held for sale		—			1,058
Advertising fund assets, restricted		17,226			21,951
Deferred income tax assets, net		31,413			—
Other current assets		2,251			2,278

Total current assets		147,427			114,031
Notes receivable, net		1,968			3,328
Property and equipment, net		460,083			461,286
Property under capital leases, net		29,364			36,060
Deferred income tax assets, net		117,770			—
Goodwill		22,649			22,649
Other assets, net		25,519			31,529

Total assets	$	804,780		$	668,883

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of bank indebtedness and other long-term debt	$	9,247		$	16,066
Current portion of capital lease obligations		4,960			5,079
Accounts payable		53,883			52,484
Advertising fund liabilities		17,226			21,951
Other current liabilities		89,556			93,358

Total current liabilities		174,872			188,938
Bank indebtedness and other long-term debt, less current portion		98,731			138,418
Convertible subordinated notes due 2023		105,000			105,000
Capital lease obligations, less current portion		46,724			52,485
Other long-term liabilities		57,072			64,374

Total liabilities		482,399			549,215


Stockholders’ equity:
Preferred stock, $.01 par value; authorized 5,000 shares; 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; authorized 100,000 shares; 59,803 shares issued and outstanding as of January 31, 2006 and 58,082 shares issued and outstanding as of January 31, 2005		598			581
Additional paid-in capital		472,834			453,391
Unearned compensation on restricted stock		(1,816	)		—
Accumulated deficit		(149,235	)		(334,304	)

Total stockholders’ equity		322,381			119,668

Total liabilities and stockholders’ equity	$	804,780		$	668,883

CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)


	Twelve Weeks
	Ended			Thirteen Weeks Ended			Fiscal Years Ended
	Jan. 31, 2006			Jan. 31, 2005			Jan. 31, 2006			Jan. 31, 2005

Revenue:
Company-operated restaurants	$	276,503		$	288,982		$	1,209,456		$	1,217,273
Franchised and licensed restaurants and other		72,039			72,908			308,891			302,608

Total revenue		348,542			361,890			1,518,347			1,519,881

Operating costs and expenses:
Restaurant operating costs:
Food and packaging		81,123			86,105			354,239			359,939
Payroll and other employee benefits		79,260			90,435			356,960			377,405
Occupancy and other		60,024			67,046			270,716			273,294

Total restaurant operating costs		220,407			243,586			981,915			1,010,638
Franchised and licensed restaurants and other		55,813			56,056			238,461			227,588
Advertising		14,548			15,699			70,964			71,839
General and administrative		32,997			33,277			141,102			138,716
Facility action charges, net		4,238			4,575			8,025			14,320

Total operating costs and expenses		328,003			353,193			1,440,467			1,463,101

Operating income		20,539			8,697			77,880			56,780
Interest expense		(5,086	)		(6,319	)		(23,016	)		(36,748	)
Other income (expense), net		(137	)		2,574			2,387			(2,962	)

Income before income taxes and discontinued operations		15,316			4,952			57,251			17,070
Income tax (benefit) expense		(138,996	)		(2,117	)		(137,331	)		(1,592	)

Income from continuing operations		154,312			7,069			194,582			18,662
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of $0)		—			—			—			(646	)

Net income	$	154,312		$	7,069		$	194,582		$	18,016

Basic income (loss) per common share:
Continuing operations	$	2.59		$	0.12		$	3.29		$	0.32
Discontinued operations		—			—			—			(0.01	)

Net income	$	2.59		$	0.12		$	3.29		$	0.31

Diluted income (loss) per common share (1):
Continuing operations	$	2.14		$	0.12		$	2.70		$	0.31
Discontinued operations		—			—			—			(0.01	)

Net income	$	2.14		$	0.12		$	2.70		$	0.30

Dividends per common share	$	0.04		$	—		$	0.16		$	—

Weighted-average common shares outstanding:
Basic		59,467			57,758			59,226			57,615
Dilutive effect of stock options, warrants, convertible notes and restricted stock		13,081			13,962			14,024			1,968

Diluted		72,548			71,720			73,250			59,583

(1) The interest expense adjustment, net of tax, which is added to the Company’s income from continuing operations and net income for the diluted per share calculation, due to the dilutive effect of its 4.0% convertible subordinated notes, was $709 and $3,070 for the twelve and
fifty-two weeks ended January 31, 2006, respectively, and $1,229 for the twelve weeks ended January 31, 2005.

CKE RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED PRESENTATION OF NON-GAAP MEASUREMENTS
(In thousands)


				Fiscal Year Ended
	Fiscal Year Ended			January 31, 2005
	January 31, 2006			(1)
Net income	$	194,582		$	18,016
Discontinued operations, excluding impairment		—			(252	)
Interest expense		23,016			36,748
Income tax benefit		(137,331	)		(1,592	)
Depreciation and amortization		64,155			66,793
Facility action charges, net.		8,025			14,320
Premium on early redemption of Senior Notes		—			9,126
Impairment of Timber Lodge		—			898

Adjusted EBITDA	$	152,447		$	144,057

Good day and welcome everyone to the CKE Restaurants Fiscal 2006 earnings conference call. Today’s call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, John Beisler. Please go ahead.

Thank you. Good morning. And thank you for joining us, especially to those of you on the west coast.

My name is John Beisler, Vice President of Investor Relations for CKE Restaurants. CKE Restaurants is hosting this conference call to discuss our results for the fourth quarter and fiscal year ended January 31, 2006.

Yesterday, CKE issued a press release announcing the filing of its report on Form 10-K for the fiscal year ended January 31, 2006. The press release is also available on our Web site. This call will reflect items discussed within that press release and Form 10-K. CKE management will make reference to it several times this morning.

Speaking on today’s call are Andy Puzder, President and Chief Executive Officer; and Ted Abajian, Executive Vice President and Chief Financial Officer.

Andy will begin today’s presentation with a top-level overview of our performance for the quarter and fiscal 2006. Ted will then review aspects of our financial results with you. Andy will conclude today’s presentation with comments regarding the company’s future growth plans. Andy and Ted will then take questions from callers.

Before we begin, I would like to remind you of our disclosure regarding forward-looking statements contained in our form 10-K and earnings release. Within the form 10-K, our disclosure regarding forward-looking statements can be found at the beginning of item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation. Matters discussed during our conference call today may include forward-looking statements relating to future plans and developments, financial goals, and operating performance, and are based on management’s current beliefs and assumptions. Such statements are subject to risks and uncertainties and actual results may differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, 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.

Fiscal 2006 was a year of significant progress for CKE Restaurants and, we believe, a year of transition. On the whole, we had a great year.

This morning, as John noted, I am going to discuss our prior year results, Ted will discuss the financials and then I will come back and provide some insights on our vision for the Company’s future. As I will discuss, we believe our year end results validate the turnaround plan we put in place five years ago. Having improved the Company’s operating results and financial strength; we can now focus on the growth opportunities ahead. We believe that over the next five years our business can realistically support Adjusted EBITDA growth targets of 11 to 13% per year. We also believe we can achieve these targets while continuing to follow our discipline of allocating capital where it will earn the highest returns for our shareholders.

With respect to the results for fiscal 2006, on a consolidated basis, our pre-tax income was $57.3 million, more than triple the prior year’s total of $17.1 million. We attribute this performance to our much improved internal systems, our strategic planning process and our improved capital structure. We achieved these results despite some unfavorable macroeconomic conditions and difficult prior year comparisons.

On the brand level, these results reflected our continuing efforts to offer our guests distinctive, high quality menu items delivered with courteous service in a clean dining atmosphere and supported by cutting edge advertising.

Carl’s Jr. recorded a same-store sales increase of 2.2%, its sixth consecutive year of positive sales and raised its 52-week average unit volume to $1,341,000, a $40,000 thousand dollar increase over the prior year. At the end of period 2, Carl’s Jr. trailing 52 week average unit volume stood at $1,356,000, an additional $15,000 improvement. This is the highest average unit volume ever for Carl’s Jr. The brand now has an industry leading cost structure and, among the major QSR chains in the United States, it has the second highest average unit volume.

At our other major brand, Hardee’s, our fiscal 2006 same-store sales decreased 0.2%. Essentially, we held on to the 7% same-store sales gain that we achieved in the prior year. This is respectable performance given the headwinds the brand faced over the year, including the most active Atlantic hurricane season in history, which contributed to record gasoline prices and natural gas prices and increased discounting by our competitors. We believe the impact of these macroeconomic events was felt most strongly in the markets where Hardee’s restaurants are located in the Midwest and Southeast.

Despite the pressures to discount, Hardee’s menu remained primarily focused on our lineup of premium-priced, 100% Angus beef, charbroiled Thickburgers. We knew we needed to convince consumers that the Thickburger Revolution menu was a permanent change and to build credibility around the fact that the quality of our lunch/dinner Thickburger offerings were now just as good as, if not better, than our well established breakfast menu which is based around our made from scratch biscuits.

In fact, our research was showing that consumers were, indeed, increasingly recognizing that Hardee’s Thickburgers were superior to other fast-food offerings. As such, we felt the time was right to reach a broader audience of consumers by filling some of the gaps on Hardee’s menu. The process began in June with the debut of our hand-scooped ice cream milk shakes and malts and continued in September with the subsequent introduction of our Charbroiled Chicken Club. This marked our first non-Thickburger sandwich item to be promoted with advertising since we launched the Revolution menu almost two-and-a-half years earlier.

We followed that up in mid-December with the Red Burrito Taco Salad, Hardee’s first-and-only salad since well before the Revolution began. We also improved our value proposition by replacing our 2-for 99 cent Slammers mini-burgers with a 2-for $3 quarter pound Double Cheeseburger.

These items helped drive our sales improvement at Hardee’s. Since November, for four consecutive periods, Hardee’s has reported positive same store sales of plus 1.5% for period 12, plus 12.4% for period 13, and plus 4.3% for period 1, all over positive comps in the prior year. We also recently reported same store sales for period 2 of plus 7.2% over negative 0.3% in the prior year. While period same store sales fluctuate for various reasons such as weather and holiday mismatches, sales at Hardee’s are clearly trending positive, averaging a positive 6.3% for the last 4 periods. This improvement has reversed the flat to negative sales trend that we were seeing at Hardee’s – a trend that began last March, when gasoline prices began to rise significantly, and continued through last November. We hope to maintain this momentum going into the summer months.

Hardee’s trailing 52-week average unit volume reached $874,000 at the end of fiscal 2006, and $883,000 at the end of period 2, the highest level for the brand in a decade.

With continuing strong cash flow, we repaid almost $40 million of our term loan in fiscal 2006, reducing our outstanding balance to under $99 million. With our improved capital structure, we were additionally able to return nearly $14 million to our shareholders through the initiation of a quarterly dividend (the first in five years) and share repurchases. We anticipate additionally returning a minimum of nearly $18 million to our shareholders in fiscal 2007.

As I mentioned, our pre-tax income for fiscal 2006 was $57.3 million, more than tripling the prior year’s total of $17.1 million. As a result of our improved financial performance, we recorded a $139 million income tax benefit in the fourth quarter; this is primarily related to a substantial reduction of our deferred tax asset valuation allowance. It reflects the record of profitability that we have achieved. Ted will go into further detail later, but this event reflects an important milestone in concluding the turnaround of our Company and moving on to a growth phase.

I will now turn the discussion over to Ted Abajian, our Chief Financial Officer, for his discussion of the financials. Following which I will discuss our vision for the future of this Company. Ted.

Before I get started, I need to make you aware that during this conference call, we will refer to certain non-GAAP financial measures as explained in our earnings release issued yesterday. I will start with a brief review of our consolidated results for the fourth quarter, and then I will elaborate on some of the highlights for both Carl’s Jr. and Hardee’s. Next, I will discuss the casualty insurance adjustments that we have recorded this year and provide some insight with respect to anticipated future costs. Finally, I will review the impact of the reduction to our deferred tax asset valuation allowance on our tax rate and future cash tax payments.

The fourth quarter was a very good quarter for CKE. Operating income for the quarter was $20.5 million, representing an $11.8 million or 136 percent increase compared to the prior-year’s quarter. Income before taxes grew to $15.3 million or $0.22 per diluted share in the fourth quarter, representing a $10.4 million or 209% increase over the same period a year ago. Net income for the fourth quarter was $154.3 million, or $2.14 per diluted share. This includes a $139 million, or $1.92 per diluted share, income tax benefit primarily related to the reduction of our deferred tax asset valuation allowance.

Turning to our performance at the operating unit level, both Carl’s Jr. and Hardee’s increased same-store sales and reduced restaurant operating costs during the quarter.

Same-store sales at Carl’s Jr. increased by 5.3% during the quarter, on top of a 4.9% increase recorded in the prior year. Restaurant operating costs at Carl’s Jr. fell to 73.7% of company-operated revenue, representing a 530 basis point improvement over the prior year quarter. The operating cost improvement was primarily driven by a 400-basis-point decrease in workers’ compensation and general liability expense as well as an 80-basis-point decline in direct labor costs. These favorable items were partially offset by a 30-basis-point increase in utilities costs, primarily natural gas. The powerful combination of a 5.3% same-store sales increase and the 530 basis point reduction in operating costs drove Carl’s Jr. operating income to $25.1 million for the quarter representing an increase of $7.4 million or 41.5% over the prior year quarter.

Turning now to Hardee’s. Same-store sales rose 2.9% for the quarter, rolling over a 4.4% increase in the prior year. Fourth quarter restaurant operating costs decreased to 84.4% of company-operated revenue, representing a 380 basis point improvement over the prior year quarter. The operating cost improvement was mostly due to a 230-basis point improvement in workers’ compensation and general liability expense; a 70-basis point reduction in repair and maintenance expense; a 60 basis point reduction in food costs; and a 50 basis point reduction in labor costs. These favorable items were partially offset by a 60 basis point increase in natural gas and electric costs. For the quarter, Hardee’s operating loss was reduced by over 55% to a loss of $2.0 million as compared to an operating loss of $4.7 million in the prior year quarter.

The strong fourth quarter results at both Carl’s Jr. and Hardee’s contributed to our fiscal 2006 pretax income of $57.3 million, up from $17.1 million in the prior year. As described in our press release, this year’s results include an $11 million charge to purchase and cancel stock options from our former chairman. Prior year results included $22.3 million of charges primarily related to legal settlements and early debt extinguishment. Absent these charges, fiscal 2006 pretax income would have been $68.3 million, or $0.97 per diluted share, compared to pretax income of $39.4 million, or $0.66 per diluted share in the prior year.

As many of you are aware, decreases in workers’ compensation and general liability claims costs had a very favorable impact on our operating results this year. At CKE, we benefited from overall reductions in not only the number of claims occurring, but also the severity of those claims that do occur. I compliment our restaurant operations and risk management teams on a job well done. We also benefited from recently enacted workers’ compensation reform legislation in California. The combined impact of our internal efforts to prevent claims and control claim costs and the favorable legislation has been a series of reductions to our claim reserves over the past year. Since we are essentially self-insured, our claim reserves reflect the expected future cost of all outstanding claims, even those that occurred many years ago. Each year, we incur charges for the expected future cost of claims occurring in that year. In addition, each quarter we evaluate the expected future cost of all open claims and make an adjustment to increase or decrease reserves. Prior to fiscal 2006, claims costs continued to escalate and these evaluations generally resulted in an increase to our reserves, which caused us to record additional charges in our income statement. This year, we were able to significantly decrease our reserves, and such reductions lowered our claims costs. This resulted in our fiscal 2006 workers’ compensation and general liability costs being approximately $17 million below fiscal 2005. Our current actuarial estimates do not anticipate material adjustments to our historical claims reserves in fiscal 2007. Absent such reserve adjustments, we expect workers’ compensation and general liability costs in fiscal 2007 to be approximately $11 million higher than fiscal 2006 costs. This is not a result of poor performance in managing our claims but, rather it’s due to the fact that we do not anticipate claims cost benefits from reserve reductions comparable to the reductions we achieved in fiscal 2006. In fact, our performance has improved and fiscal 2007 costs are expected to be approximately 20% below the fiscal 2004/2005 run rate.

Moving now to income taxes, where I will refer to disclosures made within Management’s Discussion and Analysis in our report on Form 10-K as filed with the SEC yesterday. For fiscal 2006, we recorded a $137.3 million income tax benefit which is comprised of foreign income taxes of $905,000, federal and state income taxes of $685,000 and a $138.9 million tax benefit resulting from a substantial reduction to our deferred tax asset valuation allowance. The reduction to the valuation allowance is the result of a number of factors, including our three-year earnings history and the likelihood of our ability to generate profits in the future. Going forward, we expect to book income taxes, for federal and state purposes, using an effective tax rate of approximately 38%. However, we continue to expect our cash payments for federal and state income taxes to remain around 2% of our taxable earnings until our various net operating losses (“NOLs”) and tax credits are utilized. We currently have approximately $35 million of regular federal NOLs available, which when utilized, will generate about $12 million in federal tax savings. After we use the federal NOLs, we will begin utilizing approximately $24 million in federal tax credits, including $12 million of AMT tax credits, which can be used to reduce future federal tax payments. Regarding state income taxes, we currently have over $300 million of state NOLs. Unfortunately, as we have previously disclosed, a significant amount of the state NOLs will likely go unused for various reasons. We do however, expect to generate in excess of $4.3 million in state tax savings as result of the state NOLs.

One last item before I hand the call back to Andy. I would like to call your attention to the chart titled “Presentation of non-GAAP measurements” that is included in our form 10-K. This chart presents earnings before interest, taxes, depreciation and amortization, facility action charges, and discontinued operations, or Adjusted EBITDA for fiscal 2006. Adjusted EBITDA is a non-GAAP financial measure that our lenders and some in the investment community use as an indicator of earnings available to service debt and for reinvestment into the Company. Our Adjusted EBITDA for fiscal 2006 was $152.4 million. Our net income, upon which our Adjusted EBITDA is based, includes the $11 million charge to purchase stock options from the Company’s former Chairman and the offsetting workers’ compensation reserve reductions discussed earlier in the call.

In closing, Fiscal 2006 ended on a very positive note with both Carl’s Jr. and Hardee’s posting significant same store sales gains and earnings growth in the fourth quarter. The strong fourth quarter results allowed us to post our highest annual pretax income since fiscal 1999.

Before we take your questions, I would like to take a few minutes to discuss our vision for the future of this Company.

Last September marked the end of my 5th year as president and CEO of CKE Restaurants. Early on we faced some challenging times. Although a number of our shareholders are still with us from these times, recent activity in our stock indicates that we also have a number of new holders who may not recall those problems, and the actions we took to turn around the business and put it on a path to profitability and growth. I mentioned earlier that fiscal 2006 was a year of transition for us and I would like to take a moment to remind you of how far we have come.

Looking back to fiscal 2001, Carl’s Jr. was experiencing negative to flat same store sales and declining margins. Hardee’s had experienced consistently declining same-store sales for more than 7 years; AUVs had fallen to $716,000, and the brand was bleeding cash. In that year, the Company reported a net loss of $194 million. We had over $600 million of debt. The Company was in technical default on much of this debt and a number of banks in our line of credit had turned our loan over to their workout departments. Some people were wondering whether the Company would file for bankruptcy and Hardee’s would disappear as a brand.

Nonetheless, we had a plan and a vision. We went to work, selling assets to repay debt, closing hundreds of underperforming stores and implementing significant cost reductions to generate cash flow. Three years ago, three months before virtually our entire capital structure came due, we were able to issue convertible debt, term out our bank loans and provide the Company with the financial flexibility to fix the business permanently.

But, we went beyond the financial fixes of asset sales, closures and cost reductions. We emphasized restaurant-level fundamentals. We upgraded our operating management where necessary. We improved systems and controls, dramatically simplified Hardee’s menu, rolled out charbroilers in all our Hardee’s restaurants, all as we brought our fragmented franchise communities together in a common vision. Finally, we focused both Hardee’s and Carl’s Jr. on premium products in the form of big juicy delicious burgers for young, hungry guys.

The success of this plan is evident in our fiscal 2006 results. Carl’s Jr. achieved revenues of $1,356,000 per unit as of the end of period 2, which represents the second highest average unit volumes of any major QSR chain in the United States. Hardee’s has experienced positive same store sales in 27 of its last 35 periods, and has achieved a ten-year high average unit volume of $883,000.

Our adjusted EBITDA was $152 million in fiscal 2006. Debt was $159.7 million (including our capital leases but excluding our convert). Pre-tax net income (excluding the Foley option purchase) was $68.3 million. The Company is paying a regular quarterly dividend to its shareholders, has a 10b-5-1 share repurchase program in place and even repurchases additional shares of its stock from time to time.

While we have had our ups and downs during these past five years, and will continue to have them in the future, we believe that we have delivered on and surpassed expectations. We are now closing the chapter on our turnaround story and opening a new chapter for the future.

As those of you who have met with us or been shareholders for a while will recognize, nothing I am about to say is new, although it’s organized differently and I’m going to provide more detail. However, given recent changes to our shareholder base, we believe it is important to reiterate our plans and our vision for this company.

As most of you are aware, we have a lot of operating leverage in this business. Our goal is to take advantage of that operating leverage to generate superior growth in earnings through modest growth in revenues. But, we also need to remember that operating leverage works both ways. If we fail to continue to invest in growing our business, we may face stagnant or declining sales and profitability, and risk what we have put so much effort into achieving over the past five years. It is our view, based on what we have learned during this turnaround that if we stay focused and continue to invest in growing our business, we will see substantial and sustainable growth over the next five years.

Our best opportunity for growth is with the Hardee’s brand, which is just beginning to reach the average unit volume levels necessary to take advantage of the brand’s huge operating leverage. As has been the case over the past three years, Hardee’s can continue to grow same store sales through a distinctive brand positioning, high-quality new products and cutting edge advertising. However, even more substantial revenue growth should come from dual branding, remodels and the construction of net new units. We are very optimistic that this combination of factors can lead Hardee’s to $1 million plus average unit volumes and very strong profitability.

As with Hardee’s, Carl’s Jr. has been experiencing dynamic same store sales growth from its clearly positioned brand, innovative new products and breakthrough advertising. Carl’s Jr. has additionally benefited from dual branding and, more recently, net new units. Notwithstanding that Carl’s Jr. has already experienced substantial and sustainable growth over the past five years; we believe it still has significant room for growth over the next five years, particularly at breakfast and from accelerated dual branding and new unit development. In addition Carl’s Jr.’s same store sales should also benefit from remodeling existing units.

This revenue growth at both brands combined with the Company’s strong operating leverage should lead to increased Adjusted EBITDA and net income. However, to attain the desired levels of growth, the Company must make the required capital expenditures over and above the levels of spending in which we have engaged in recent years. Let me remind you briefly of the opportunity we see in this business.

In fiscal 2006, as I mentioned, on an adjusted basis, the Company generated $152 million in Adjusted EBITDA. By successfully implementing our business plan and executing our vision, we believe that the Company can generate long term Adjusted EBITDA growth of 11-13% per year. We do not expect straight-line growth at those levels, as our business is subject to the ups and downs of any retail business, especially as we are transitioning to a growth mode. In fiscal 2007, for example, we expect Adjusted EBITDA growth to be in the high single digits; because it will take time for the investments we make this year to generate returns. However, we believe that if we remain focused on and committed to our plan, we can sustain long term Adjusted EBITDA growth of 11% to 13% per year.

In order to implement this business plan and achieve these growth targets, the Company will need to re-invest a significant portion of its cash flow in the business. The four key areas of capital investment are: 1) store remodels, 2) dual branding, 3) new units and 4) corporate and IT infrastructure. I will address each of these categories in more detail below, but, in aggregate, the Company needs to invest approximately $500 million to fund its plan over the next five years.

In fiscal 2007, we plan to spend approximately $65 million of that total to fund growth. In addition, the Company needs to spend approximately $30-35 million in maintenance capital expenditures per year just to support the core business. So, total capital expenditures in fiscal 2007 will likely be in the $90-$100 million range.

We are extremely return focused at the Company, and target cash on cash returns on invested capital in excess of 15%. Our plan is predicated on achieving returns at that level and, in some cases more, depending on the risk and leverage associated with a particular project. We monitor the performance of our investments, and, as a matter of policy, if we fail to achieve attractive returns, we make adjustments as necessary. As explained in more detail below, for some of our projects, while initial results are encouraging, we lack a sufficiently large sampling to make a definitive statement on returns at this time. We need visibility on what happens when we scale up the number of projects and get results for more than one year. In addition, as also discussed below, some of our projects, such as remodels, just need to be done.

Both Carl’s Jr. and Hardee’s restaurants need to be remodeled. That is a total of slightly over 1,000 Company owned restaurants, which need to be remodeled at a currently projected cost of approximately $125,000 per restaurant or about $125 million. We anticipate that remodels result in increased same store sales growth, and have some evidence to support this assumption. However, we are at the point where we will have to complete these remodels if only to maintain the business we have. While there may be some discretion in the timing and scope of these remodels, the reality is that the restaurants have to be remodeled.

With respect to Carl’s Jr., we began the remodel process last year, but I was dissatisfied with the results on both an aesthetic and a financial basis. I reassigned the project, brought in a design firm and we are now on target to have prototype remodels completed by August of this year for both brands. We anticipate accelerating a rollout of the remodel program beginning in the late fall. We plan to have 20 Carl’s Jr. units remodeled this fiscal year and, if test results support a go decision, to remodel 100 to 125 units per year thereafter.

We have delayed Carl’s Jr. remodels for a number of reasons. Primarily, we felt we could get a better return for our shareholders in the last few years if we used our capital to repay debt and invest in the Hardee’s turnaround. Today, however, we have Carl’s Jr. units that have not been remodeled in 10 to 12 years. In our industry, such a delay tends to lead to a loss in competitive position. If Carl’s Jr. is to maintain its competitive position, we need to remodel these restaurants.

Hardee’s is also in need of a remodel program as the initial restaurants the Company remodeled following its purchase of Hardee’s are now seven to eight years old. In addition, the last remodel at Hardee’s was designed to bring Hardee’s up to minimal standards as it had been neglected for so long. We now need a remodel program at Hardee’s that will improve the competitive positioning of its facilities consistent with its premium product positioning and improved service. This is not a project that we can delay for long without negatively impacting the brand’s competitiveness and giving up some of the progress we have made in the last three years. As such, we plan to remodel a few Hardee’s units this year and to begin a more aggressive 100 to 125 units per year pace within a year or two.

Dual branding is another opportunity. Dual branding Green Burrito with Carl’s Jr. and Red Burrito with Hardee’s holds the potential to be a significant business builder for both brands. We have a history of success with this concept at Carl’s Jr. and initial testing at Hardee’s continues to be very encouraging.

With almost 10 years of positive results from dual branding Carl’s Jr. with Green Burrito, we have recently expanded our dual branding efforts beyond our southern California core markets with great success. We currently operate 248 dual branded Carl’s Jr./ Green Burrito restaurants (139 at Company owned stores). We plan on dual branding 30 to 40 Company owned Carl’s Jr. units in Fiscal 2007. We anticipate dual branding to proceed at the 30-unit per year level for at least two to three additional years.

On the Hardee’s side, we believe Red Burrito has the capability to take Hardee’s over the $1 million average unit volume level far more rapidly than we might otherwise have anticipated. While we are still working through the margin issues at Hardee’s, our sales results to date are already exceeding our targeted expectations. We hope to dual brand 40 Company owned Hardee’s with Red Burrito this year assuming that our initial testing is completed in time to do so. We anticipate dual branding to proceed at the 60 to 100-unit level for two to three additional years.

New units are also a significant source of growth for both brands. We anticipate building 20 new Company owned units this year, 15 Carl’s Jr. and 5 Hardee’s, at a total cost of $25-$30 million.

Costs vary depending upon whether we purchase the land and the building or rent one or both. We make the decision as to which alternative is preferable on an opportunistic basis – we look at each property from the perspective of allocating our capital to get the best results.

The limited number of Carl’s Jr. units we have built in the last few years have on average generated attractive returns. Although our newer Hardee’s units also have shown promising returns, these returns are not as attractive as the Carl’s Jr. units due primarily to a difference in average unit volumes. We have yet to open a new Hardee’s/Red Burrito dual concept unit.

Within the next three to four years, we would like to open a minimum of 50 quality company-operated units per year which could cost $60 — $70 million per year, assuming we see returns that meet our targets.

The Company also needs to invest in its corporate and IT infrastructure in order to support its existing business and planned growth. This year, we are investing approximately $15 million to install new point of sale and back office software in all Company owned Carl’s Jr. and Hardee’s restaurants. This investment will give us the flexibility to do a number of things we need to do to stay competitive, including the sale of gift cards, continued acceptance of credit and debit cards, and better restaurant management, particularly with respect to more efficient labor planning and utilization. Both Carl’s Jr. and Hardee’s need to have updated software and we believe we have found the right solution.

Later this year we will move our distribution center for Carl’s Jr. to a larger facility in Ontario, California. We simply ran out of space in the old facility. This is a good problem to have since it reflects our growth in both same-store sales and unit counts, but the move will require a capital expenditure of approximately $4 million.

Finally, we plan to maintain the flexibility to make modest, opportunistic investments if the returns are attractive or the investment is strategic. For example, as discussed in our 10-K filed yesterday, we just exercised our right of first refusal to purchase for $15.7 million (or approximately $436,000 per site) the real estate underlying 36 of our existing Hardee’s and Carl’s Jr. locations that we previously leased from a commercial lessor. We are not in the habit of purchasing the real estate underlying our stores, but will do so, from time to time, if it makes economic sense.

The exact timing and the amount of our spending will depend on how well our plan is going and the returns we are generating. As we get deeper into fiscal 2007, and certainly as we enter fiscal 2008, we will continue to evaluate our capital plans and make adjustments to the plan as the results come in. We believe our capital spending, particularly with respect to remodels and maintenance is necessary in order to sustain our current average unit volumes and support long term same store sales growth.

As CEO, a Director and a major shareholder of this Company, I am very interested in rewarding shareholders both today and over the longer term. Over the past five years, we have demonstrated our record of striking the right balance between investing in the long-term growth of the business and returning capital to our shareholders. As a result, we have rewarded shareholders while turning the Company around. Now, our Company has exceptional growth opportunities – opportunities to grow Adjusted EBITDA at rates of 11% to 13% per year over the next five years. As we take our next steps, we will continue to be guided by our discipline of allocating capital to the use that strengthens the business while generating the best returns for our shareholders.

We remain committed to maintaining the most appropriate capital structure and we continue to carefully assess our options to invest in the business and return wealth to our shareholders with the assistance of our advisor, Citigroup. We brought Citigroup in several years ago to help insure that we were taking a realistic and continuing look at all prudent options for delivering value to our shareholders.

In principle, if we don’t have a good corporate use for capital, we want to return it to shareholders as long as we maintain sufficient balance sheet flexibility to weather a business downturn and to pursue our commitment to take our business to the next level. We also want to avoid taking on so much financial leverage that, when combined with the Company’s already substantial operating leverage; overall risk and stock price volatility become unacceptable. For the Company to do well, we need to strike the right balance between investment in the Company and return of capital to shareholders.

While we remain open minded and are continuing to study our options with our advisor, Citigroup, we are reluctant to undertake a major share repurchase program at this time. We would like to evaluate at least another year of results before making major financial decisions on optimal capital structure and shareholder distribution strategy. We believe that the best way to create value for shareholders is to assure that the business can grow on a sustainable basis, and it may be premature to put the Company’s growth plan at risk through a major recapitalization and share repurchase.

If all goes according to plan, the Company will take advantage of its significant operating leverage, generate significant free cash flow and the business will prove its growth potential. Under this scenario, we anticipate being able to increase shareholders distributions. But, we need to see how things play out.

In closing, throughout the last 5 years our management team has successfully taken this Company from the depths of financial despair to not just profitability and financial strength but to the cusp of significant growth. We fully intend to retain our credibility and our shareholders’ confidence, to build on our financial strength and to grow this Company to its full potential consistent with the reasoned and focused approach we have demonstrated over the past 5 years to create lasting value for our shareholders.

Finally, I want to thank you for your continued support and we will now take your questions.


Delaware	1-11313	33-0602639
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)

6307 Carpinteria Ave., Ste. A, Carpinteria, California		93013
_________________________________ (Address of principal executive offices)		___________ (Zip Code)


	CKE Restaurants, Inc.

April 7, 2006	By:	Theodore Abajian

		Name: Theodore Abajian
		Title: Executive Vice President and Chief Financial Officer


Exhibit No.		Description

99.1		Press release, dated April 6, 2006, issued by CKE Restaurants, Inc.
99.2		Script for conference call and webcast held on April 7, 2006


Date of Report (Date of Earliest Event Reported):		April 6, 2006


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