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UNITED STATES 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 May 21, 2012
For the quarterly period ended August 13, 2012
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________.

Commission file number 1-11313 and 333-169977

CKE RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)



Delaware		33-0602639
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

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

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 o No þ Explanatory Note: While the registrant is not subject to the filing requirements of Section 13 or 15(d) of the Exchange Act, it has filed all reports pursuant to Section 13 or 15(d) of the Exchange Act during the preceding 12 months.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company 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

The number of outstanding shares of the registrant’s common stock was 100 shares as of ~~June~~September 2214, 2012.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

INDEX

	Page No.
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1516
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3336
Item 4. Controls and Procedures	3437
Part II. Other Information
Item 1. Legal Proceedings	3538
Item 1A. Risk Factors	3639
Item 6. Exhibits	3744
Signatures	3845

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except shares and par values)

(Unaudited)

	May 21, 2012			January 31, 2012
	August 13, 2012			January 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	~~125~~62,~~422~~168		$	64,555
Accounts receivable, net of allowance for doubtful accounts of $24 as of May 21, 2012 and $38 as of January 31, 2012	21,274			24,099
Cash and cash equivalents - restricted	31,073			—
Related party trade receivables	358			252
Accounts receivable, net of allowance for doubtful accounts of $29 as of August 13, 2012 and $38 as of January 31, 2012	19,517			24,099
Inventories	15,728			16,144
Related party trade receivables	24			252
Prepaid expenses	11,300			15,897
Inventories	17,050			16,144
Advertising fund assets, restricted	18,822			18,407
Prepaid expenses	12,861			15,897
Deferred income tax assets, net	25,265			25,140
Advertising fund assets, restricted	22,941			18,407
Other current assets	3,830			3,695
Deferred income tax assets, net	25,487			25,140
Total current assets	221,999			168,189
Other current assets	3,857			3,695
Property and equipment, net of accumulated depreciation and amortization of $140,738 as of May 21, 2012 and $117,010 as of January 31, 2012	636,240			645,552
Total current assets	194,978			168,189
Goodwill	208,885			208,885
Property and equipment, net of accumulated depreciation and amortization of $157,637 as of August 13, 2012 and $117,010 as of January 31, 2012	624,614			645,552
Intangible assets, net	428,399			433,139
Goodwill	208,923			208,885
Other assets, net	25,533			24,373
Intangible assets, net	425,059			433,139
Total assets	$	1,521,056		$	1,480,138
Other assets, net	25,393			24,373
Total assets	$	1,478,967		$	1,480,138
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current portion of long-term debt	$	34		$	3
Current portion of capital lease obligations	7,~~951~~982			7,988
Accounts payable	2724,~~661~~113			40,790
Advertising fund liabilities	1822,~~822~~941			18,407
Other current liabilities	~~107~~99,~~726~~458			85,169
Total current liabilities	~~162~~154,~~163~~498			152,357
Long-term debt, less current portion	~~523~~465,~~930~~094			523,638
Capital lease obligations, less current portion	3231,~~651~~083			34,981
Deferred income tax liabilities, net	~~151~~148,~~143~~214			156,656
Other long-term liabilities	~~225~~251,~~504~~581			197,767
Total liabilities	1,~~095~~050,~~391~~470			1,065,399
Commitments and contingencies (Notes 4, 5, 7 and 12)
Stockholder’s equity:
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of May 21, 2012 and January 31, 2012	—			—
Common stock, $0.01 par value; 100 shares authorized, issued and outstanding as of August 13, 2012 and January 31, 2012	—			—
Additional paid-in capital	~~458~~459,~~669~~733			457,252
Investment in CKE Inc. Toggle Notes	(8,362		)	(8,362		)
Accumulated deficit	(2422,~~642~~874		)	(34,151		)
Total stockholder’s equity	~~425~~428,~~665~~497			414,739
Total liabilities and stockholder’s equity	$	1,~~521~~478,~~056~~967		$	1,480,138

See Accompanying Notes to Condensed Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

	Sixteen Weeks Ended			Sixteen Weeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Revenue:
Company-operated restaurants	$	~~361~~270,~~466~~734		$	~~351~~262,~~604~~991		$	632,200		$	614,595
Franchised restaurants and other	5037,~~865~~893			4836,~~979~~738			88,758			85,717
Total revenue	~~412~~308,~~331~~627			~~400~~299,~~583~~729			720,958			700,312
Operating costs and expenses:
Restaurant operating costs:
Food and packaging	~~108~~80,~~502~~113			~~108~~80,~~902~~231			188,615			189,133
Payroll and other employee benefits	~~102~~76,~~765~~233			~~101~~75,~~663~~310			178,998			176,973
Occupancy and other	8161,~~485~~992			8263,~~683~~393			143,477			146,076
Total restaurant operating costs	~~292~~218,~~752~~338			~~293~~218,~~248~~934			511,090			512,182
Franchised restaurants and other	2518,~~629~~854			2518,~~878~~440			44,483			44,318
Advertising	2016,~~852~~016			2015,~~061~~399			36,868			35,460
General and administrative	4129,~~716~~772			4029,~~960~~346			71,488			70,306
Facility action charges, net	~~401~~2,029			~~511~~(70		)	2,430			441
Other operating expenses	—			~~351~~194			—			545
Total operating costs and expenses	~~381~~285,~~350~~009			~~381~~282,~~009~~243			666,359			663,252
Operating income	3023,~~981~~618			1917,~~574~~486			54,599			37,060
Interest expense	(2317,~~799~~834		)	(2417,~~395~~816		)	(41,633		)	(42,211		)
Other income, net	1,149			799
Other expense, net	(3,179		)	(2,215		)	(2,030		)	(1,416		)
Income (loss) before income taxes	82,~~331~~605			(42,~~022~~545		)	10,936			(6,567		)
Income tax benefit	(1,178		)	(1,421		)
Income tax expense (benefit)	837			(314		)	(341		)	(1,735		)
Net income (loss)	$	91,~~509~~768		$	(2,~~601~~231	)	$	11,277		$	(4,832	)

See Accompanying Notes to Condensed Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Sixteen Weeks Ended			Sixteen Weeks Ended
	Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011
Cash flows from operating activities:
Net income (loss)	$	911,~~509~~277		$	(24,~~601~~832	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	2543,~~467~~912			2443,~~938~~843
Amortization of deferred financing costs and discount on notes	12,~~328~~278			12,~~244~~169
Share-based compensation expense	1,417			1,469
Loss on early extinguishment of senior secured second lien notes	3,695			2,641
(Recovery of) provision for losses on accounts and notes receivable	(11		)	71
Share-based compensation expense	2,481			2,468
(Gain) loss on disposal of property and equipment	(13		)	557
(Recovery of) provision for losses on accounts and notes receivable	(3		)	94
Deferred income taxes	(5,638		)	(1,913		)
Loss on disposal of property and equipment	463			529
Other non-cash charges (gains)	297			(55		)
Deferred income taxes	(8,789		)	2,376
Other non-cash charges	2,266			179
Net changes in operating assets and liabilities:
Receivables, inventories, prepaid expenses and other current and non-current assets	65,~~735~~905			2(1,~~071~~951		)
Estimated liability for closed restaurants and estimated liability for self-insurance	~~152~~9			~~834~~(105		)
Accounts payable and other current and long-term liabilities	199,~~131~~577			2710,~~683~~403
Net cash provided by operating activities	5873,~~374~~071			5457,~~298~~814
Cash flows from investing activities:
Purchases of property and equipment	(1525,~~725~~476		)	(1328,~~581~~113		)
Proceeds from sale of property and equipment	~~350~~1,282			~~947~~1,748
Collections of non-trade notes receivable	841			~~572~~639
Other investing activities	73			57
Acquisition of restaurants, net of cash received	(75		)	—
Net cash used in investing activities	(14,461		)	(12,005		)
Other investing activities	125			102
Net cash used in investing activities	(23,303		)	(25,624		)
Cash flows from financing activities:
Net change in bank overdraft	(89,~~790~~053		)	(6,~~382~~416		)
Proceeds from financing method sale-leaseback transactions	29,946			—
Change in restricted cash and cash equivalents	(31,073		)	—
Payment of deferred financing costs	(1,676		)	(44		)
Proceeds from financing method sale-leaseback transactions	57,507			16,991
Repayments of other long-term debt	(2		)	(9		)
Payment of deferred financing costs	(3,328		)	(1,013		)
Repayments of capital lease obligations	(2,524		)	(2,506		)
Payment for early extinguishment of senior secured second lien notes	(61,811		)	(41,200		)
Net cash provided by (used in) financing activities	16,954			(8,941		)
Repayments of other long-term debt	(2		)	(614		)
Net increase in cash and cash equivalents	60,867			33,352
Repayments of capital lease obligations	(4,395		)	(4,266		)
Net cash used in financing activities	(52,155		)	(36,518		)
Net decrease in cash and cash equivalents	(2,387		)	(4,328		)
Cash and cash equivalents at beginning of period	64,555			42,586
Cash and cash equivalents at end of period	$	~~125~~62,~~422~~168		$	7538,~~938~~258

See Accompanying Notes to Condensed Consolidated Financial Statements

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Description of Business

CKE Restaurants, Inc. (“CKE Restaurants”), through its wholly-owned subsidiaries, owns, operates and franchises the Carl’s Jr.^®, Hardee’s^®, Green Burrito^® and Red Burrito^® concepts. References to CKE Restaurants 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.”

Domestic Carl’s Jr. restaurants are predominately located in the Western United States, primarily in California, with a growing presence in Texas. International Carl’s Jr. restaurants are located primarily in Mexico, with a growing presence in the rest of Latin America, Russia and Asia. Hardee’s restaurants are primarily located throughout the Southeastern and Midwestern United States, with a growing international presence in the Middle East and Central Asia. Green Burrito restaurants are primarily located in dual-branded Carl’s Jr. restaurants. The Red Burrito concept is located in dual-branded Hardee’s restaurants. As of ~~May 21~~August 13, 2012, our system-wide restaurant portfolio consisted of:

	Carl’s Jr.	Hardee’s	Other	Total
Company-operated	~~424~~423	~~468~~469	—	892
Domestic franchised	~~694~~696	1,~~227~~230	97	1,~~930~~933
International franchised	~~204~~214	~~237~~240	—	~~441~~454
Total	1,~~322~~333	1,~~932~~939	97	3,~~263~~279

As of ~~May 21~~August 13, 2012, 261 of our ~~424~~423 company-operated Carl’s Jr. restaurants were dual-branded with Green Burrito and ~~242~~252 of our ~~468~~469 company-operated Hardee’s restaurants were dual-branded with Red Burrito.

Basis of Presentation and Fiscal Year

Our accompanying unaudited Condensed Consolidated Financial Statements include the accounts of CKE Restaurants, ~~our~~its ~~wholly-owned~~consolidated subsidiaries and ~~our~~its consolidated variable interest entities (“~~VIE~~VIEs”). These unaudited Condensed Consolidated Financial Statements 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 Restaurants 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, 2012. 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.

10-K for the fiscal year ended January 31, 2012. 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. Accordingly, the fiscal year ended January 30, 2012 is referred to herein as the fiscal year ended January 31, 2012 or fiscal 2012, and the fiscal year ending January 28, 2013 is referred to herein as the fiscal year ending January 31, 2013 or fiscal 2013. 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.

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

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

Variable Interest Entities

We consolidate one national and approximately 80 local co-operative advertising funds (the “Hardee’s Funds”) as we have concluded that they are VIEs for which we are the primary beneficiary. We have included $1822,~~822~~941 and $18,407 of advertising fund assets, restricted, and advertising fund liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as of ~~May 21~~August 13, 2012 and January 31, 2012, 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.

NOTE 2 —ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED AND ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In September 2011, the FASB updated its guidance on the annual testing of goodwill for impairment to allow companies to first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. If an entity determines, based on qualitative factors, that it is not more likely than not that a reporting unit’s fair value is less than its carrying amount, then it is not required to perform the quantitative two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The provisions of this guidance ~~apply~~became applicable to CKE Restaurants ~~beginning~~during inthe first quarter of fiscal 2013. The adoption of this guidance has not had, and is not expected to have, a material impact on our Condensed Consolidated Financial Statements.

In July 2012, the FASB updated its guidance on impairment testing for indefinite-lived intangible assets by allowing an entity to first perform a qualitative impairment assessment before proceeding to a quantitative impairment test. If an entity determines, based on qualitative factors, that it is not more likely than not that an indefinite-lived intangible asset is impaired, then it is not required to perform a quantitative impairment test. This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our Condensed Consolidated Financial Statements.

NOTE 3 — PURCHASE OF ASSETS

During the ~~sixteen~~twelve weeks ended ~~May 23~~August 13, ~~2011~~2012, we purchased ~~three~~one Hardee’s ~~restaurants~~restaurant from ~~one~~a offranchisee ~~our franchisees~~ for ~~the~~ aggregate purchase price consideration of $175,~~500,~~ ~~which~~and ~~was reduced by the settlement of certain pre-existing liabilities, resulting in a net purchase price consideration of $1,207. As a result of this transaction, we~~ recorded property and equipment (including capital lease assets) of $~~109,~~54 ~~identifiable intangible assets of $85~~ and capital lease obligations of $5517, resulting in $~~1,068~~38 of additional goodwill in our Hardee’'s operating segment.

WeDuring ~~did~~the ~~not~~twenty-eight ~~purchase~~weeks ~~any~~ended August 15, 2011, we purchased three Hardee’s restaurants from ~~franchisees~~a ~~during~~franchisee for aggregate purchase price consideration of $1,500, which was reduced by the ~~sixteen~~settlement ~~weeks~~of ~~ended~~certain ~~May~~pre-existing 21liabilities, ~~2012~~resulting in net purchase price consideration of $1,207. As a result of this transaction, we recorded property and equipment (including capital lease assets) of $109, identifiable intangible assets of $85 and capital lease obligations of $55, resulting in $1,068 of additional goodwill in our Hardee’s operating segment.

NOTE 4 — INDEBTEDNESS AND INTEREST EXPENSE

Our senior secured revolving credit facility (the “Credit Facility”) provides for senior secured revolving facility loans, swingline loans and letters of credit in an aggregate amount of up to $100,000. As of ~~May 21~~August 13, 2012, we had no outstanding loan borrowings, $30,~~913~~603 of outstanding letters of credit and remaining availability of $69,~~087~~397 on our Credit Facility. ~~The~~Borrowings under the Credit Facility ~~bears~~bear interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley’s “prime rate” plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the London Interbank Offered Rate (“LIBOR”) plus 3.75%.

The terms of our Credit Facility include financial performance covenants, which include a maximum secured leverage ratio and a ~~specified~~ minimum interest coverage ratio. As of ~~May 21~~August 13, 2012, our financial performance covenants did not limit our ability to draw on the remaining availability of $69,~~087~~397 under our Credit Facility.

As of May 21, 2012, the carrying value of our senior secured second lien notes (the “Senior Secured Notes”) was $523,544, which is presented net of the remaining unamortized portion of the original issue discount of $8,578 in our accompanying unaudited Condensed Consolidated Balance Sheet. The aggregate principal amount of the Senior Secured Notes outstanding was $532,122 as of May 21, 2012. The Senior Secured Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

ofOn ~~each~~July 16, 2012, we redeemed $60,000 of the ~~guarantors~~principal ~~are~~amount ~~not~~of ~~presented~~our ~~because~~senior ~~CKE~~secured ~~Restaurants,~~second ~~Inc.~~lien isnotes (the "Senior Secured Notes") at a ~~holding~~redemption ~~company~~price ~~with~~of no103% ~~material~~of ~~independent~~the ~~assets~~principal oramount ~~operations,~~of the ~~guarantor~~Senior ~~subsidiaries~~Secured ~~are~~Notes pursuant to the terms of the indenture governing the Senior Secured Notes. During the twelve and twenty-eight weeks ended August 13, ~~directly~~2012, orwe ~~indirectly~~recognized a loss of $3,695 ~~wholly-owned~~on ~~subsidiaries~~the early extinguishment of ~~CKE~~the ~~Restaurants,~~Senior ~~Inc~~Secured Notes. Subsequent to the redemption, and ~~such~~as ~~guarantees~~of ~~are~~August 13, ~~full~~2012, ~~unconditional~~the ~~and~~remaining ~~joint~~aggregate ~~and~~principal ~~several~~amount of the Senior Secured Notes was $472,122. ~~The~~As ~~aggregate~~of ~~assets~~August 13, ~~liabilities~~2012, ~~earnings~~the ~~and~~carrying ~~equity~~value of the ~~guarantor~~Senior ~~subsidiaries~~Secured ~~are~~Notes ~~substantially~~was ~~equivalent~~$464,710, towhich ~~the~~is ~~assets,~~presented ~~liabilities,~~net ~~earnings~~of ~~and~~the ~~equity~~remaining unamortized portion of ~~CKE~~the ~~Restaurants~~original issue discount of $7,412 ~~Inc.~~in onour aaccompanying ~~consolidated~~unaudited ~~basis~~Condensed Consolidated Balance Sheet. The ~~one~~Senior ~~non-guarantor~~Secured ~~subsidiary~~Notes isbear ~~minor~~interest at a rate of 11.375% per ~~There~~annum, ~~are~~payable nosemi-annually ~~significant~~in ~~restrictions~~arrears on January 15 and July 15. During the ~~ability~~twelve ofand ~~CKE~~twenty-eight ~~Restaurants~~weeks ended August 15, ~~Inc.~~2011, orwe ~~any~~recognized a loss of ~~the~~$2,641 ~~guarantors~~on tothe ~~obtain~~early ~~funds~~extinguishment ~~from~~of ~~its~~$40,000 ~~respective~~principal ~~subsidiaries~~amount byof ~~dividend~~our orSenior ~~loan.~~Secured Notes.

OnIn ~~June~~accordance ~~15,~~with ~~2012,~~ the ~~holders~~indenture ofgoverning the Senior Secured Notes, ~~were~~we ~~notified~~are ~~that~~required weto ~~will~~make ~~redeem~~offers ~~$60,000~~to ~~aggregate~~repurchase a portion of our Senior Secured Notes at a price of 103% of the principal amount of the Senior Secured Notes ~~outstanding~~with a portion of the net proceeds received from certain sale-leaseback transactions. Pursuant to these requirements, on July 1618, 2012, we commenced a tender offer to purchase up to $29,875 of the principal amount of our Senior Secured Notes (the “Tender Offer”) at a redemption price of 103%, ofwhich ~~the~~expired ~~aggregate~~on ~~principal~~August ~~amount~~16, of2012 ~~the~~with no Senior Secured Notes ~~being~~tendered. ~~redeemed~~As of August 13, 2012, pursuant to the ~~terms~~requirements of the ~~indenture~~Tender ~~governing~~Offer, we had $31,073 of cash and cash equivalents that were held by a trustee, which were restricted as to use. Following the ~~Senior~~expiration ~~Secured~~of ~~Notes~~the Tender Offer on August 16, 2012, the restrictions on the use of the escrowed cash and cash equivalents were removed and the amounts held by the trustee were returned to us in full.

Each of our wholly-owned domestic subsidiaries that guarantees indebtedness under the Credit Facility also guarantees the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all our obligations under the Senior Secured Notes. Separate financial statements and other disclosures of each of the guarantors are not presented because: (i) CKE Restaurants, Inc. is a holding company with no material independent assets or operations; (ii) the guarantor subsidiaries are, directly or indirectly, wholly-owned subsidiaries of CKE Restaurants, Inc.; (iii) such guarantees are full, unconditional and joint and several; (iv) the aggregate assets, liabilities, earnings and equity of the guarantor subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of CKE Restaurants, Inc. on a consolidated basis; (v) the one non-guarantor subsidiary is minor; and (vi) there are no significant restrictions on the ability of CKE Restaurants, Inc. or any of the guarantors to obtain funds from its respective subsidiaries by dividend or loan.

Interest Expense

Interest expense consisted of the following:

	SixteenWeeks Ended		SixteenWeeks Ended
	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Senior secured revolving credit facility	$	—	$	—	$	—	$	—
Senior secured second lien notes	1813,~~624~~397		2115,~~116~~358		32,021		36,474
Amortization of deferred financing costs and discount on notes	~~1,328~~950		~~1,244~~925		2,278		2,169
Capital lease obligations	~~1,280~~943		1,~~462~~117		2,223		2,579
Financing method sale-leaseback transactions(1)	2,~~090~~241		—101		4,331		101
Letter of credit fees and other	~~477~~303		~~573~~315		780		888
	$	2317,~~799~~834	$	2417,~~395~~816	$	41,633	$	42,211

___________


(1)	See Note 5.

As of May 21, 2012 and January 31, 2012, accrued interest was $21,377 and $2,650, respectively, which is included in other current liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets.

CKE Inc. Senior Unsecured PIK Toggle Notes

During fiscal 2012, CKE Inc. (formerly known as CKE Holdings, Inc.), our parent, issued $200,000 aggregate principal amount of senior unsecured PIK toggle notes (the “Toggle Notes”). We have not guaranteed the Toggle Notes, nor have we pledged any of our assets or stock as collateral for the Toggle Notes. As a result, we have not reflected the Toggle Notes in our unaudited Condensed Consolidated Financial Statements.

The interest on the Toggle Notes, which is payable semi-annually on March 15 and September 15 of each year, can be paid (1) entirely in cash, at a rate of 10.50% (“Cash Interest”), (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% (“PIK Interest”) or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. CKE Inc. paid the March 15, 2012, and will pay the September 15, 2012, interest payments entirely in PIK Interest.

As of May 21, 2012, the principal amount of CKE Inc.’s total long-term debt on a stand-alone basis was $223,199, which includes PIK Interest payments that have been added to the principal amount of the Toggle Notes. The principal amount of CKE Inc.’s long-term debt on a stand-alone basis has not been reduced by the $10,508 principal amount of Toggle Notes held by CKE Restaurants as of May 21, 2012 (the “Purchased Toggle Notes”)

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

~~since the Purchased Toggle Notes remain outstanding.~~ As of ~~May 21~~August 13, 2012, ~~the~~and ~~carrying~~January 31, ~~amount~~2012, ofaccrued ~~CKE~~interest ~~Inc.’s~~was ~~total long-term debt on a stand-alone basis~~$4,456 ~~including the current portion~~ and ~~the Purchased Toggle Notes, was~~ $~~219~~2,~~908~~650, respectively, which is ~~presented~~included ~~net~~in ofother ~~the~~current ~~unamortized~~liabilities ~~portion~~in ofour ~~the~~accompanying ~~original~~unaudited ~~issue~~Condensed ~~discount~~Consolidated ofBalance ~~$3,291~~Sheets.

CKE Inc. Senior Unsecured PIK Toggle Notes

The interest on the Toggle Notes, which is payable semi-annually on March 15 and September 15 of each year, can be paid (1) entirely in cash, at a rate of 10.50% (“Cash Interest”), (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% (“PIK Interest”) or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. CKE Inc. paid the March 15, 2012 and September 15, 2012 interest payments entirely in PIK Interest and has elected to pay the March 15, 2013 interest payment entirely in Cash Interest.

As of August 13, 2012, the principal amount of CKE Inc.’s total long-term debt on a stand-alone basis was $223,199, which includes PIK Interest payments that have been added to the principal amount of the Toggle Notes. The principal amount of CKE Inc.’s long-term debt on a stand-alone basis has not been reduced by the $10,508 principal amount of Toggle Notes held by CKE Restaurants as of August 13, 2012 (the “Purchased Toggle Notes”) since the Purchased Toggle Notes remain outstanding. As of August 13, 2012, the carrying value of CKE Inc.’s total long-term debt on a stand-alone basis, including the current portion and the Purchased Toggle Notes, was $220,022, which is presented net of the unamortized portion of the original issue discount of $3,177.

NOTE 5 — SALE-LEASEBACK TRANSACTIONS

During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, we entered into agreements with independent third parties under which we sold and leased back 2 Carl’s Jr. and 1837 Hardee’s restaurant properties. The initial minimum lease terms are 20 years, and the leases include renewal options and right of first offer provisions that, for accounting purposes, constitute continuing involvement with the associated restaurant properties. Due to this continuing involvement, these sale-leaseback transactions are accounted for under the financing method, rather than as completed sales. Under the financing method, we include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, report the associated property as owned assets, continue to depreciate the assets over their remaining useful lives, and record the rental payments as interest expense. Closing costs and other fees related to these sale-leaseback transactions are recorded as deferred financing costs and amortized to interest expense over the initial minimum lease term. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the associated restaurant property and any unamortized deferred financing costs. ~~During the sixteen weeks ended May 21, 2012, we received proceeds of $29,946 and capitalized deferred financing costs of $1,766 in connection with these transactions.~~

~~The~~During ~~cumulative~~the ~~proceeds received in connection with financing method sale~~twenty-~~leaseback~~eight ~~transactions~~weeks ofended ~~$97~~August 13,~~400 and~~ ~~$67~~2012,~~454~~ ~~are~~we ~~included~~received inproceeds ~~other long-term liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as~~ of ~~May 21~~$57,507 ~~2012~~ and ~~January~~capitalized ~~31,~~deferred ~~2012,~~financing ~~respectively.~~costs ~~The net book value~~ of ~~the associated assets~~$3,344 ~~which is included~~ in ~~property~~connection ~~and~~with ~~equipment,~~39 net of accumulated depreciation and amortization in our accompanying unaudited Condensed Consolidated Balance Sheets, was $71,580 and $48,722 as of May 21, 2012 and January 31, 2012, respectively. With respect to the financing method sale-leaseback transactions,. ~~our~~During ~~future~~the ~~minimum~~twenty-eight ~~cash~~weeks ~~obligations~~ended ~~as of May 21~~August 15, ~~2012 are $4~~2011,~~647,~~ ~~$6,970,~~we ~~$6,970,~~received ~~$6,970,~~proceeds ~~$7,144,~~of $716,~~633~~991 and ~~$117,701~~capitalized ~~for~~deferred ~~the~~financing ~~period~~costs ~~from~~of ~~May~~$964 ~~22,~~in ~~2012~~connection ~~through~~with ~~January 31,~~11 ~~2013,~~financing ~~for~~method ~~fiscal~~sale-leaseback ~~2014, 2015, 2016, 2017, 2018 and thereafter, respectively~~transactions.

~~NOTE~~The 6cumulative —proceeds ~~FAIR~~received ~~VALUE~~in OFconnection ~~FINANCIAL~~with ~~INSTRUMENTS~~financing method sale-leaseback transactions of $124,961 and $67,454 are included in other long-term liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as of August 13, 2012 and January 31, 2012, respectively. The net book value of the associated assets, which is included in property and equipment, net of accumulated depreciation and amortization in our accompanying unaudited Condensed Consolidated Balance Sheets, was $91,728 and $48,722 as of August 13, 2012 and January 31, 2012, respectively. With respect to the financing method sale-leaseback transactions, our future minimum cash obligations as of August 13, 2012 are $4,521, $9,041, $9,041, $9,041, $9,215, $9,835 and $153,960 for the period from August 14, 2012 through January 31, 2013, for fiscal 2014, 2015, 2016, 2017, 2018 and thereafter, respectively.

The following table presents information on our financial instruments as of:

	May 21, 2012				January 31, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	125,422	$	125,422	$	64,555	$	64,555
Notes receivable	752		879		1,696		2,050
Financial liabilities:
Bank indebtedness and other long-term debt, including current portion	523,933		608,338		523,641		599,027

The fair value of cash and cash equivalents approximates its carrying amount due to its short maturity. The estimated fair value of notes receivable was determined by discounting future cash flows using current rates at which similar loans might be made to borrowers with similar credit ratings. The estimated fair value of the Senior Secured Notes was determined by using estimated market prices of our outstanding Senior Secured Notes. For all other long-term debt, the estimated fair value was determined by discounting future cash flows using rates currently available to us for debt with similar terms and remaining maturities.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents information on our financial instruments as of:



	August 13, 2012				January 31, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	62,168	$	62,168	$	64,555	$	64,555
Cash and cash equivalents - restricted	31,073		31,073		—		—
Notes receivable	616		741		1,696		2,050
Financial liabilities:
Bank indebtedness and other long-term debt, including current portion	465,098		540,967		523,641		599,027

The fair values of cash and cash equivalents and restricted cash and cash equivalents each approximate their respective carrying amounts due to the short maturity of the balances. The estimated fair value of notes receivable was determined by discounting future cash flows using current rates at which similar loans might be made to borrowers with similar credit ratings. The estimated fair value of the Senior Secured Notes was determined by using estimated market prices of our outstanding Senior Secured Notes. For all other long-term debt, the estimated fair value was determined by discounting future cash flows using rates currently available to us for debt with similar terms and remaining maturities.

Our non-financial assets, which include long-lived assets, including goodwill, intangible assets and property and equipment, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment. When impairment has occurred, such long‑lived assets are written down to fair value.

During the twelve weeks ended August 13, 2012, we determined that the assets at two underperforming company-operated Carl's Jr. restaurants were impaired. As a result, property and equipment with a carrying value of $1,265 was written down to fair value, resulting in impairment charges of $1,195. Additionally, during the twelve weeks ended August 13, 2012, we determined that a property leased to a Hardee's franchisee was impaired due to a highway project that will eliminate direct access to the property, rendering it unfit for retail purposes. As a result, property and equipment with a carrying value of $1,250 was written down to fair value, resulting in an impairment charge of $1,204. We impaired each of the assets down to their respective fair values using measurements with significant unobservable inputs (Level 3). These fair value estimates are based on the assumption of the highest and best use of the asset group, or individual asset, and generally include estimates of future cash flows, assumptions of future same-store sales, projected operating expenses, and/or broker estimates of value, when readily available or determinable. These impairment charges were recorded to facility action charges, net in our accompanying unaudited Condensed Consolidated Statements of Operations (see Note 9).

NOTE 7 — COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitments

Under various refranchising programs, we have sold restaurants to franchisees, some of which were on leased sites. We entered into sublease agreements with these franchisees but remained principally liable for the lease obligations. We account for the sublease payments received as franchising rental income in franchised restaurants and other revenue, and the payments on the leases as rental expense in franchised restaurants and other expense, in our accompanying unaudited Condensed Consolidated Statements of Operations. As of ~~May 21~~August 13, 2012, the present value of the lease obligations under the remaining master leases’ primary terms is $~~124~~122,~~349~~926. Franchisees may, from time to time, experience financial hardship and may cease payment on their sublease obligations to us. The present value of the exposure to us from franchisees characterized as under financial hardship is $2,~~513~~538.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

Letters of Credit

Pursuant to our Credit Facility, we may borrow up to $100,000 for senior secured revolving facility loans, swingline loans and letters of credit (see Note 4). We have several standby letters of credit outstanding under our Credit Facility, which primarily secure our potential workers’ compensation, general and auto liability obligations. We are required to provide letters of credit each year, or set aside a comparable amount of cash or investment securities in a trust account, based on our existing claims experience. As of ~~May 21~~August 13, 2012, we had outstanding letters of credit of $30,~~913~~603, expiring at various dates through August ~~2012~~2013.

Unconditional Purchase Obligations

As of ~~May 21~~August 13, 2012, we had unconditional purchase obligations in the amount of $8984,~~576~~937, which consisted primarily of contracts for goods and services related to restaurant operations and contractual commitments for marketing and sponsorship arrangements.

Employment Agreements

We have entered into employment agreements with certain key executives (the “Employment Agreements”). Pursuant to the terms of the Employment Agreements, each executive is entitled to receive certain retention bonus payments that will be paid out in October 2012 and 2013, in accordance with such executive’s Employment Agreement. In addition, each executive will be entitled to payments that may be triggered by the termination of employment under certain circumstances, as set forth in each Employment Agreement. If certain provisions are triggered, our Chief Executive Officer shall be entitled to receive an amount equal to his minimum base salary multiplied by six and our President and Chief Legal Officer and our Chief Financial Officer shall each be entitled to receive an amount equal to his respective minimum base salary multiplied by three plus a pro-rata portion of his then-current year bonus. The affected executive may also be entitled to receive a portion of his retention bonus. If all payment provisions of the Employment Agreements had been triggered as of ~~May 21~~August 13, 2012, we would have been required to make cash payments of approximately $1214,~~301~~651.

Litigation

We are currently involved in legal disputes related to employment claims, real estate claims and other business disputes. AsWith ofrespect ~~May~~to ~~21,~~employment ~~2012~~matters, our ~~accrued~~most ~~liability~~significant ~~for~~legal ~~litigation~~disputes ~~contingencies~~relate ~~with~~to aemployee ~~probable~~meal ~~likelihood~~and rest break disputes, and wage and hour disputes. Several potential class action lawsuits have been filed in the State of ~~loss~~California, ~~was~~regarding such employment matters, each of which is seeking injunctive relief and monetary compensation on behalf of current and former employees. The Company intends to vigorously defend against all claims in these lawsuits; however, we are presently unable to predict the ultimate outcome of these actions.

As of August 13, 2012, our accrued liability for litigation contingencies with a probable likelihood of loss was $2,322, with an expected range of losses from $2,322 to $5,472. As of August 13, 2012, we estimated the contingent liability of those losses related to litigation claims that are not accrued, but that we believe are reasonably possible to result in an adverse outcome and for which a range of loss can be reasonably estimated, to be in the range of $2,160 to $10,575. In addition, we are involved in legal matters where the likelihood of loss has been judged to be reasonably possible, but for which a range of the potential loss cannot be reasonably estimated based on current facts and circumstances.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

$2,395, with an expected range of losses from $2,395 to $5,530. With respect to employment matters, our most significant legal disputes relate to employee meal and rest break disputes, and wage and hour disputes. Several potential class action lawsuits have been filed in the State of California, regarding such employment matters, each of which is seeking injunctive relief and monetary compensation on behalf of current and former employees. The Company intends to vigorously defend against all claims in these lawsuits; however, we are presently unable to predict the ultimate outcome of these actions. As of May 21, 2012, we estimated the contingent liability of those losses related to litigation claims that are not accrued, but that we believe are reasonably possible to result in an adverse outcome and for which a range of loss can be reasonably estimated, to be in the range of $2,135 to $10,425. In addition, we are involved in legal matters where the likelihood of loss has been judged to be reasonably possible, but for which a range of the potential loss cannot be reasonably estimated based on current facts and circumstances.

NOTE 8 — SHARE-BASED COMPENSATION

Total share-based compensation expense and associated tax benefits recognized were as follows:

	SixteenWeeks Ended		SixteenWeeks Ended
	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Share-based compensation expense related to Units that contain performance conditions	$	~~740~~555	$	~~767~~480	$	1,295	$	1,247
Share-based compensation expense related to all other Units	~~677~~509		~~702~~519		1,186		1,221
Total share-based compensation expense	$	1,~~417~~064	$	~~1,469~~999	$	2,481	$	2,468
Associated tax benefits	$	—	$	—

Funds managed by Apollo Management VII, L.P., certain members of our senior management team and our board of directors formed Apollo CKE Holdings, L.P., a limited partnership (the “Partnership”) to fund the equity contribution to CKE Restaurants, Inc. The Partnership granted profit sharing interests (“Units”) in the Partnership to certain of our senior management team and directors in the form of time vesting and performance vesting Units. ~~Under~~There ~~certain~~are ~~circumstances~~no income tax benefits associated with the Units. On August 13, a2012, ~~portion~~the offinancial targets for the performance vesting Units ~~may~~were ~~become~~met ~~subject~~causing the performance vesting Units to ~~both~~be ~~performance~~converted into time vesting Units that will vest in two equal installments on August 13, 2013 and ~~market~~August ~~conditions~~13, 2014. The maximum unrecognized compensation cost for ~~the~~unvested ~~time and performance vesting~~ Units was $87,~~747~~684 as of ~~May 21~~August 13, 2012.

NOTE 9 — FACILITY ACTION CHARGES, NET

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

	SixteenWeeks Ended			SixteenWeeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Estimated liability for new restaurant closures	$	—		$	~~133~~—		$	—		$	133
Adjustments to estimated liability for closed restaurants	4(261		)	~~466~~57			(257		)	523
Impairment of assets to be held and used	~~109~~2,416			58192			2,525			250
Gain on disposal of property and equipment	(234		)	(156		)
Loss (gain) on disposal of property and equipment	277			(311		)	43			(467		)
Other losses (gains)	396			(116		)
Other gains	(487		)	(134		)	(91		)	(250		)
Amortization of discount related to estimated liability for closed restaurants	~~126~~84			126			210			252
	$	~~401~~2,029		$	~~511~~(70	)	$	2,430		$	441

We evaluate our restaurant-level long-lived assets for impairment whenever events or circumstances indicate that the carrying value of assets may be impaired. We determine whether the assets are recoverable by comparing the undiscounted future cash flows that we expect to generate from their use and disposal to their carrying value. Restaurant-level assets that are not deemed to be recoverable are written down to their estimated fair value, which is determined by assessing the highest and best use of the assets and the amounts that would be received for such assets in an orderly transaction between market participants. The determination of fair value is dependent upon level 3 significant unobservable inputs.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

Restaurant‑level assets that are not deemed to be recoverable are written down to their estimated fair value, which is determined by assessing the highest and best use of the assets and the amounts that would be received for such assets in an orderly transaction between market participants. The determination of fair value is dependent upon level 3 significant unobservable inputs.

Impairment charges recognized in facility action charges, net were recorded against the following asset category:

	SixteenWeeks Ended		SixteenWeeks Ended
	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Property and equipment:
Carl’s Jr.	$	—1,195	$	—	$	1,195	$	—
Hardee’s	~~109~~1,221		58192		1,330		250
	$	~~109~~2,416	$	58192	$	2,525	$	250

NOTE 10 — INCOME TAXES

Income tax expense (benefit) consisted of the following:

	SixteenWeeks Ended			SixteenWeeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Federal and state income taxes	$	~~(1,817~~339	)	$	(~~1,912~~760	)	$	(1,478	)	$	(2,672	)
Foreign income taxes	~~639~~498			~~491~~446			1,137			937
Income tax benefit	$	(1,178	)	$	(1,421	)
Income tax expense (benefit)	$	837		$	(314	)	$	(341	)	$	(1,735	)

Our effective income tax rate for the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012 differs from the federal statutory rate primarily as a result of non-deductible share-based compensation expense, state income taxes, and federal income tax credits. Our ~~and~~effective tax rate for the twenty-eight weeks ended August 13, 2012 also differs from the federal statutory rate as a result of the release of $6,370 of valuation allowance on state income tax credit and net operating loss (“NOL”) carryforwards. After considering all available evidence, both positive and negative, including future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporary differences on a jurisdictional basis and statutory expiration dates of NOL carryforwards, we concluded that we will more likely than not realize future tax benefits related to certain of our state income tax credit and NOL carryforwards, for which an income tax benefit has not previously been recognized. As of ~~May 21~~August 13, 2012, we maintained a valuation allowance of $2,935 for a portion of our state NOL and income tax credit carryforwards. Realization of the tax benefit of such deferred income tax assets may remain uncertain for the foreseeable future, even if we generate consolidated taxable income, since they are subject to various limitations and may only be used to offset income of certain entities or in certain jurisdictions.

Our effective income tax rate for the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 23~~August 15, 2011 differs from the federal statutory rate primarily as a result of non-deductible share-based compensation expense, state income taxes and federal income tax credits.

We had $2,977 of unrecognized tax benefits as of January 31, 2012 that, if recognized, would affect our effective income tax rate. There were no material changes in the unrecognized tax benefits during the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012. We believe that it is reasonably possible that decreases in unrecognized tax benefits of up to $1,642 may be necessary within twelve months as a result of statutes closing on such items. In addition, we believe that it is reasonably possible that our unrecognized tax benefits may increase as a result of tax positions that may be taken during the next twelve months.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)

NOTE 11 — SEGMENT INFORMATION

We are principally engaged in developing, operating, franchising and licensing our Carl’s Jr. and Hardee’s quick-service restaurant concepts, each of which is considered an operating segment that is managed and evaluated separately. The accounting policies of the segments are the same as those described in our summary of significant accounting policies (see Note 1 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012).

	SixteenWeeks Ended			SixteenWeeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Revenue:
Carl’s Jr.	$	~~211~~158,~~524~~309		$	~~206~~152,~~134~~314		$	369,833		$	358,448
Hardee’s	~~200~~150,~~665~~206			~~194~~147,~~216~~234			350,871			341,450
Other	~~142~~112			~~233~~181			254			414
Total	$	~~412~~308,~~331~~627		$	~~400~~299,~~583~~729		$	720,958		$	700,312
Segment income:
Carl’s Jr.	$	3225,~~764~~516		$	2720,~~421~~682		$	58,280		$	48,103
Hardee’s	4029,~~195~~794			3326,~~842~~165			69,989			60,007
Other	~~139~~109			~~133~~109			248			242
Total	7355,~~098~~419			6146,~~396~~956			128,517			108,352
Less: General and administrative expense	(4129,~~716~~772		)	(4029,~~960~~346		)	(71,488		)	(70,306		)
Less: Facility action charges, net	(~~401~~2,029		)	~~(511~~70		)	(2,430		)	(441		)
Less: Other operating expenses	—			(~~351~~194		)	—			(545		)
Operating income	3023,~~981~~618			1917,~~574~~486			54,599			37,060
Interest expense	(2317,~~799~~834		)	(2417,~~395~~816		)	(41,633		)	(42,211		)
Other income, net	1,149			799
Other expense, net	(3,179		)	(2,215		)	(2,030		)	(1,416		)
Income (loss) before income taxes	$	82,~~331~~605		$	(42,~~022~~545	)	$	10,936		$	(6,567	)
Capital expenditures:
Carl’s Jr.	$	75,~~522~~313		$	45,~~101~~865		$	12,835		$	9,966
Hardee’s	74,~~742~~288			98,~~271~~488			12,030			17,759
Other	~~461~~187			~~209~~179			648			388
Total	$	159,~~725~~788		$	1314,~~581~~532		$	25,513		$	28,113
Depreciation and amortization:
Depreciation and amortization included in segment income:
Carl’s Jr.	$	118,~~560~~370		$	118,~~924~~655		$	19,930		$	20,579
Hardee’s	129,~~822~~322			129,~~055~~411			22,144			21,466
Other	—			—			—			—
Other depreciation and amortization(1)	~~1,085~~753			~~959~~839			1,838			1,798
Total depreciation and amortization	$	2518,~~467~~445		$	2418,~~938~~905		$	43,912		$	43,843
	May 21, 2012			January 31, 2012
Total assets:
Carl’s Jr.	$	827,571		$	779,970
Hardee’s	626,882			633,127
Other	66,603			67,041
Total	$	1,521,056		$	1,480,138

___________


(1)	Represents depreciation and amortization excluded from the computation of segment income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

(Unaudited)



	August 13, 2012		January 31, 2012
Total assets:
Carl’s Jr.	$	754,057	$	779,970
Hardee’s	620,540		633,127
Other	104,370		67,041
Total	$	1,478,967	$	1,480,138

NOTE 12 — RELATED PARTY TRANSACTIONS

Transactions with Apollo Management VII, L.P.

Pursuant to our management services agreement with Apollo Management VII, L.P. and in exchange for on-going investment banking, management, consulting and financial planning services ~~that will be provided to us~~, we are obligated to pay Apollo Management VII, L.P. an aggregate annual management fee of $2,500, which may be increased at Apollo Management VII, L.P.’s sole discretion up to an amount equal to two percent of our Adjusted EBITDA, as defined in our Credit Facility. We recorded $~~765~~574, $575, $1,339 and $~~767~~1,342 in management fees, which are included in general and administrative expense in our accompanying unaudited Condensed Consolidated Statements of Operations for the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012 and ~~May~~August 15, 232011, and twenty-eight weeks ended August 13, 2012 and August 15, 2011, respectively.

Transactions with Board of Directors

Certain members of our Board of Directors are also our franchisees. These franchisees regularly pay royalties and purchase equipment and other products from us on the same terms and conditions as our other franchisees. During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012 and ~~May 23~~August 15, 2011, total revenue generated from related party franchisees was $23,~~087~~471 and $3,~~361~~641, respectively, which is included in franchised restaurants and other revenue in our accompanying unaudited Condensed Consolidated ~~Statement~~Statements of Operations. As of ~~May 21~~August 13, 2012 and January 31, 2012, our related party trade receivables from franchisees were $~~358~~24 and $252, respectively.

NOTE 13 — SUPPLEMENTAL CASH FLOW INFORMATION

	SixteenWeeks Ended		SixteenWeeks Ended
	Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011
Cash paid for:
Interest, net of amounts capitalized	$	336,~~549~~658	$	137,~~656~~369
Income taxes paid (received), net	13,~~587~~164		(~~727~~326		)
Non-cash investing and financing activities:
Capital lease obligations incurred to acquire assets	~~576~~1,042		12,~~665~~456
Accrued property and equipment purchases	1,~~346~~224		23,~~765~~983

During the ~~sixteen~~twenty-eight weeks ended ~~May 23~~August 15, 2011, we recorded a non-cash transaction to acquire three Hardee’s restaurants from ~~one~~a offranchisee ~~our franchisees~~ for an aggregate purchase price of $1,500. The entire purchase price was applied as a reduction of outstanding promissory notes due to the Company. See Note 3 for additional discussion.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of financial statements with a narrative from the perspective of management on the financial condition, results of operations, liquidity and certain other factors that may affect future results. MD&A is presented in the following sections:


•	Overview


•	Operating Review


•	Liquidity and Capital Resources


•	Critical Accounting Policies


•	Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2013 Comparisons with Fiscal 2012


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


•	Presentation of Non-GAAP Measures


•	Certain Financial Information of CKE Inc.

The MD&A should be read in conjunction with the unaudited Condensed Consolidated Financial Statements contained herein and the CKE Restaurants, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 2012 (the “2012 Annual Report”).

Overview

CKE Restaurants, Inc. (“CKE Restaurants”) and its subsidiaries (collectively referred to herein as the "Company", "we", "us" or "our"), is an owner, operator and franchisor of quick-service restaurants (“QSR”) in the United States and 2526 other countries, operating principally under the Carl’s Jr.® and Hardee’s® brand names. As of ~~May 21~~August 13, 2012, we operated 892 domestic restaurants and our franchisees operated 1,~~930~~933 domestic and ~~441~~454 international restaurants, primarily under the Carl’s Jr. and Hardee’s brands. Domestic Carl’s Jr. restaurants are predominately located in the Western United States, primarily in California, with a growing presence in Texas. International Carl’s Jr. restaurants are located primarily in Mexico, with a growing presence in the rest of Latin America, Russia and Asia. Hardee’s restaurants are located predominately throughout the Southeastern and Midwestern United States, with a growing international presence in the Middle East and Central Asia. Our Green Burrito restaurants are primarily located in dual-branded Carl’s Jr. restaurants. ~~The~~and our Red Burrito ~~concept~~restaurants isare exclusively located in dual-branded Hardee’s restaurants.

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MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

Operating Review

The following tables present the change in our restaurant portfolios, consolidated and by brand, for the trailing-13 periods ended ~~May 21~~August 13, 2012:

Consolidated:	Company-operated		Domestic Franchised		International Franchised		Total
	Company-operated		Domestic Franchised		International Franchised		Total
Open at May 23, 2011	895		1,915		372		3,182
Consolidated:
New	4		39		79		122
Open at August 15, 2011	893		1,920		389		3,202
Closed	(7	)	(24	)	(10	)	(41	)
New	3		46		76		125
Open at May 21, 2012	892		1,930		441		3,263
Closed	(5	)	(32	)	(11	)	(48	)
Acquired	1		—		—		1
Divested	—		(1	)	—		(1	)
Open at August 13, 2012	892		1,933		454		3,279

Carl’s Jr.:	~~Company-operated~~		~~Domestic Franchised~~		~~International Franchised~~		~~Total~~
Open at May 23, 2011	424		680		158		1,262
Open at August 15, 2011	425		684		169		1,278
New	32		2629		4948		7879
Closed	(34	)	(1217	)	(3	)	(1824	)
Open at May 21, 2012	424		694		204		1,322
Open at August 13, 2012	423		696		214		1,333

Hardee’s:	~~Company-operated~~		~~Domestic Franchised~~		~~International Franchised~~		~~Total~~
Open at May 23, 2011	470		1,225		214		1,909
Open at August 15, 2011	468		1,226		220		1,914
New	1		1317		3028		4446
Closed	(31	)	(1112	)	(78	)	(21	)
Open at May 21, 2012	468		1,227		237		1,932
Acquired	1		—		—		1
Divested	—		(1	)	—		(1	)
Open at August 13, 2012	469		1,230		240		1,939

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MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

Consolidated ~~Fiscal Quarter~~

	SixteenWeeks Ended			SixteenWeeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Revenue:
Company-operated restaurants	$	~~361~~270,~~466~~734		$	~~351~~262,~~604~~991		$	632,200		$	614,595
Franchised restaurants and other	5037,~~865~~893			4836,~~979~~738			88,758			85,717
Total revenue	~~412~~308,~~331~~627			~~400~~299,~~583~~729			720,958			700,312
Operating costs and expenses:
Restaurant operating costs	~~292~~218,~~752~~338			~~293~~218,~~248~~934			511,090			512,182
Franchised restaurants and other	2518,~~629~~854			2518,~~878~~440			44,483			44,318
Advertising	2016,~~852~~016			2015,~~061~~399			36,868			35,460
General and administrative	4129,~~716~~772			4029,~~960~~346			71,488			70,306
Facility action charges, net	~~401~~2,029			~~511~~(70		)	2,430			441
Other operating expenses	—			~~351~~194			—			545
Total operating costs and expenses	~~381~~285,~~350~~009			~~381~~282,~~009~~243			666,359			663,252
Operating income	3023,~~981~~618			1917,~~574~~486			54,599			37,060
Interest expense	(2317,~~799~~834		)	(2417,~~395~~816		)	(41,633		)	(42,211		)
Other income, net	1,149			799
Other expense, net	(3,179		)	(2,215		)	(2,030		)	(1,416		)
Income (loss) before income taxes	82,~~331~~605			(42,~~022~~545		)	10,936			(6,567		)
Income tax benefit	(1,178		)	(1,421		)
Income tax expense (benefit)	837			(314		)	(341		)	(1,735		)
Net income (loss)	$	91,~~509~~768		$	(2,~~601~~231	)	$	11,277		$	(4,832	)
Blended company-operated average unit volume (trailing-52 weeks)	$	1,268		$	1,231
Company-operated average unit volume (trailing-52 weeks)	$	1,277		$	1,262
Blended domestic franchise-operated average unit volume (trailing-52 weeks)	$	1,080		$	1,058
Domestic franchise-operated average unit volume (trailing-52 weeks)	1,094			1,062
Blended company-operated same-store sales increase	2.6		%	5.5		%
Company-operated same-store sales increase	2.9		%	2.2		%	2.7		%	4.1		%
Blended domestic franchise-operated same-store sales increase	2.1		%	3.8		%
Domestic franchise-operated same-store sales increase	3.4		%	0.1		%	2.9		%	2.3		%
Company-operated restaurant-level adjusted EBITDA(1):
Company-operated restaurants revenue	$	~~361~~270,~~466~~734		$	~~351~~262,~~604~~991		$	632,200		$	614,595
Less: restaurant operating costs	(~~292~~218,~~752~~338		)	(~~293~~218,~~248~~934		)	(511,090		)	(512,182		)
Add: depreciation and amortization expense	2216,~~069~~030			2116,~~600~~387			38,099			37,987
Less: advertising expense	(2016,~~852~~016		)	(2015,~~061~~399		)	(36,868		)	(35,460		)
Company-operated restaurant-level adjusted EBITDA	$	6952,~~931~~410		$	5945,~~895~~045		$	122,341		$	104,940
Company-operated restaurant-level adjusted EBITDA margin	19.34		%	17.01		%	19.4		%	17.1		%
Franchise restaurant adjusted EBITDA(1):
Franchised restaurants and other revenue	$	5037,~~865~~893		$	4836,~~979~~738		$	88,758		$	85,717
Less: franchised restaurants and other expense	(2518,~~629~~854		)	(2518,~~878~~440		)	(44,483		)	(44,318		)
Add: depreciation and amortization expense	21,~~313~~662			21,~~379~~679			3,975			4,058
Franchise restaurant adjusted EBITDA	$	2720,~~549~~701		$	2519,~~480~~977		$	48,250		$	45,457

__________________


(1)	Refer to definitions of company-operated restaurant-level non-GAAP measures and franchise restaurant adjusted EBITDA under the heading “Presentation of Non-GAAP Measures” in this Item 2.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

Carl’s Jr.

Carl’s Jr. Fiscal Quarter



	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Company-operated restaurants revenue	$	144,003		$	138,370		$	336,919		$	326,658
Franchised restaurants and other revenue	14,306			13,944			32,914			31,790
Total revenue	158,309			152,314			369,833			358,448
Restaurant operating costs:
Food and packaging	42,356			41,384			99,619			98,940
Payroll and other employee benefits	40,537			39,039			95,117			92,718
Occupancy and other	33,809			35,379			79,040			81,697
Total restaurant operating costs	116,702			115,802			273,776			273,355
Franchised restaurants and other expense	7,504			7,508			17,615			17,493
Advertising expense	8,587			8,322			20,162			19,497
General and administrative expense	13,894			14,309			34,036			33,608
Facility action charges, net	890			(169		)	922			190
Operating income	$	10,732		$	6,542		$	23,322		$	14,305

Company-operated average unit volume (trailing-52 weeks)	$	1,438		$	1,396
Domestic franchise-operated average unit volume (trailing-52 weeks)	1,101			1,096
Company-operated same-store sales increase	4.0		%	2.0		%	3.2		%	2.0		%
Domestic franchise-operated same-store sales (decrease) increase	1.5		%	(0.5		)%	0.5		%	0.0		%
Company-operated same-store transaction increase (decrease)	3.6		%	(0.1		)%	3.1		%	(0.1		)%
Company-operated average check (actual $)	$	7.12		$	7.08		$	7.04		$	7.02
Restaurant operating costs as a percentage of company-operated restaurants revenue:
Food and packaging	29.4		%	29.9		%	29.6		%	30.3		%
Payroll and other employee benefits	28.2		%	28.2		%	28.2		%	28.4		%
Occupancy and other	23.5		%	25.6		%	23.5		%	25.0		%
Total restaurant operating costs	81.0		%	83.7		%	81.3		%	83.7		%
Advertising expense as a percentage of company-operated restaurants revenue	6.0		%	6.0		%	6.0		%	6.0		%

Company-operated restaurant-level adjusted EBITDA⁽¹⁾:
Company-operated restaurants revenue	$	144,003		$	138,370		$	336,919		$	326,658
Less: restaurant operating costs	(116,702		)	(115,802		)	(273,776		)	(273,355		)
Add: depreciation and amortization expense	7,589			7,891			18,087			18,727
Less: advertising expense	(8,587		)	(8,322		)	(20,162		)	(19,497		)
Company-operated restaurant-level adjusted EBITDA	$	26,303		$	22,137		$	61,068		$	52,533
Company-operated restaurant-level adjusted EBITDA margin	18.3		%	16.0		%	18.1		%	16.1		%

Franchise restaurant adjusted EBITDA⁽¹⁾:
Franchised restaurants and other revenue	$	14,306		$	13,944		$	32,914		$	31,790
Less: franchised restaurants and other expense	(7,504		)	(7,508		)	(17,615		)	(17,493		)
Add: depreciation and amortization expense	781			764			1,843			1,852
Franchise restaurant adjusted EBITDA	$	7,583		$	7,200		$	17,142		$	16,149

	SixteenWeeks Ended			SixteenWeeks Ended
	May 21, 2012			May 23, 2011
Company-operated restaurants revenue	$	192,916		$	188,288
Franchised restaurants and other revenue	18,608			17,846
Total revenue	211,524			206,134
Restaurant operating costs:
Food and packaging	57,263			57,556
Payroll and other employee benefits	54,580			53,679
Occupancy and other	45,231			46,318
Total restaurant operating costs	157,074			157,553
Franchised restaurants and other expense	10,111			9,985
Advertising expense	11,575			11,175
General and administrative expense	20,142			19,299
Facility action charges, net	32			359
Operating income	$	12,590		$	7,763
Company-operated average unit volume (trailing-52 weeks)	$	1,424		$	1,389
Domestic franchise-operated average unit volume (trailing-52 weeks)	$	1,093		$	1,102
Company-operated same-store sales increase	2.6		%	2.1		%
Domestic franchise-operated same-store sales (decrease) increase	(0.4		)%	0.4		%
Company-operated same-store transaction increase (decrease)	2.8		%	(0.1		)%
Company-operated average check (actual $)	$	6.98		$	6.97
Restaurant operating costs as a percentage of company-operated restaurants revenue:
Food and packaging	29.7		%	30.6		%
Payroll and other employee benefits	28.3		%	28.5		%
Occupancy and other	23.4		%	24.6		%
Total restaurant operating costs	81.4		%	83.7		%
Advertising expense as a percentage of company-operated restaurants revenue	6.0		%	5.9		%
Company-operated restaurant-level adjusted EBITDA(1):
Company-operated restaurants revenue	$	192,916		$	188,288
Less: restaurant operating costs	(157,074		)	(157,553		)
Add: depreciation and amortization expense	10,498			10,836
Less: advertising expense	(11,575		)	(11,175		)
Company-operated restaurant-level adjusted EBITDA	$	34,765		$	30,396
Company-operated restaurant-level adjusted EBITDA margin	18.0		%	16.1		%
Franchise restaurant adjusted EBITDA(1):
Franchised restaurants and other revenue	$	18,608		$	17,846
Less: franchised restaurants and other expense	(10,111		)	(9,985		)
Add: depreciation and amortization expense	1,062			1,088
Franchise restaurant adjusted EBITDA	$	9,559		$	8,949

__________________


(1)	Refer to definitions of company-operated restaurant-level non-GAAP measures and franchise restaurant adjusted EBITDA under the heading “Presentation of Non-GAAP Measures” in this Item 2.

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MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

Hardee’s ~~Fiscal Quarter~~

	SixteenWeeks Ended			SixteenWeeks Ended
	Twelve Weeks Ended						Twenty-Eight Weeks Ended
	May 21, 2012			May 23, 2011
	August 13, 2012			August 15, 2011			August 13, 2012			August 15, 2011
Company-operated restaurants revenue	$	~~168~~126,~~550~~731		$	~~163~~124,~~250~~575		$	295,281		$	287,825
Franchised restaurants and other revenue	3223,~~115~~475			3022,~~966~~659			55,590			53,625
Total revenue	~~200~~150,~~665~~206			~~194~~147,~~216~~234			350,871			341,450
Restaurant operating costs:
Food and packaging	5137,~~239~~757			5138,~~317~~828			88,996			90,145
Payroll and other employee benefits	4835,~~185~~696			4736,~~941~~241			83,881			84,182
Occupancy and other	3628,~~254~~183			3627,~~337~~991			64,437			64,328
Total restaurant operating costs	~~135~~101,~~678~~636			~~135~~103,~~595~~060			237,314			238,655
Franchised restaurants and other expense	1511,~~515~~347			1510,~~893~~932			26,862			26,825
Advertising expense	97,~~277~~429			87,~~886~~077			16,706			15,963
General and administrative expense	2115,~~574~~878			2115,~~662~~037			37,452			36,699
Facility action charges, net	~~369~~1,139			~~151~~96			1,508			247
Operating income	$	1812,~~252~~777		$	1211,~~029~~032		$	31,029		$	23,061
Company-operated average unit volume (trailing-52 weeks)	$	1,~~128~~132		$	1,~~088~~096
Domestic franchise-operated average unit volume (trailing-52 weeks)	$1,088	~~1,072~~		$1,038	~~1,035~~
Company-operated same-store sales increase	21.6		%	92.65		%	2.2		%	6.4		%
Domestic franchise-operated same-store sales increase	4.04		%	50.95		%	4.3		%	3.7		%
Company-operated same-store transaction (decrease) increase	(2.2		)%	3.(0.8		)%	(2.2		)%	1.3		%
Company-operated average check (actual $)	$	5.5765		$	5.3044		$	5.60		$	5.36
Restaurant operating costs as a percentage of company-operated restaurants revenue:
Food and packaging	3029.48		%	31.42		%	30.1		%	31.3		%
Payroll and other employee benefits	28.62		%	29.41		%	28.4		%	29.2		%
Occupancy and other	2122.52		%	22.35		%	21.8		%	22.3		%
Total restaurant operating costs	80.52		%	8382.17		%	80.4		%	82.9		%
Advertising expense as a percentage of company-operated restaurants revenue	5.59		%	5.47		%	5.7		%	5.5		%
Company-operated restaurant-level adjusted EBITDA(1):
Company-operated restaurants revenue	$	~~168~~126,~~550~~731		$	~~163~~124,~~250~~575		$	295,281		$	287,825
Less: restaurant operating costs	(~~135~~101,~~678~~636		)	(~~135~~103,~~595~~060		)	(237,314		)	(238,655		)
Add: depreciation and amortization expense	118,~~571~~441			108,~~764~~496			20,012			19,260
Less: advertising expense	(97,~~277~~429		)	(87,~~886~~077		)	(16,706		)	(15,963		)
Company-operated restaurant-level adjusted EBITDA	$	3526,~~166~~107		$	2922,~~533~~934		$	61,273		$	52,467
Company-operated restaurant-level adjusted EBITDA margin	20.96		%	18.14		%	20.8		%	18.2		%
Franchise restaurant adjusted EBITDA(1):
Franchised restaurants and other revenue	$	3223,~~115~~475		$	3022,~~966~~659		$	55,590		$	53,625
Less: franchised restaurants and other expense	(1511,~~515~~347		)	(1510,~~893~~932		)	(26,862		)	(26,825		)
Add: depreciation and amortization expense	~~1,251~~881			~~1,291~~915			2,132			2,206
Franchise restaurant adjusted EBITDA	$	1713,~~851~~009		$	1612,~~364~~642		$	30,860		$	29,006

__________________


(1)	Refer to definitions of company-operated restaurant-level non-GAAP measures and franchise restaurant adjusted EBITDA under the heading “Presentation of Non-GAAP Measures” in this Item 2.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

Consolidated

Total Revenue

Total revenue increased $118,~~748~~898, or 23.90%, to $~~412~~308,~~331~~627 during the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, as compared to the prior year period, due to the increase in company-operated restaurants revenue of $97,~~862~~743 and the increase in franchised restaurants and other revenue of $1,~~886~~155. ~~Blended company~~Company-operated same-store sales increased 2.69%, and ~~blended~~ domestic franchise-operated same-store sales increased 23.14%.

Total revenue increased $20,646, or 2.9%, to $720,958 during the twenty-eight weeks ended August 13, 2012, as compared to the prior year period, due to the increase in company-operated restaurants revenue of $17,605 and the increase in franchised restaurants and other revenue of $3,041. Company-operated same-store sales increased 2.7%, and domestic franchise-operated same-store sales increased 2.9%.

Restaurant Operating Costs

Restaurant operating costs decreased $~~496~~596, or 0.23%, to $~~292~~218,~~752~~338 during the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, as compared to the prior year period. Restaurant operating costs as a percentage of company-operated restaurants revenue were 8180.06% during for the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, as compared to 83.42% for the ~~sixteen~~twelve weeks ended ~~May 23~~August 15, 2011. This decrease in restaurant operating costs as a percentage of company-operated restaurants revenue was in part due to ~~higher~~the increase in company-operated ~~average~~same-store ~~unit volumes~~sales, which ~~benefited~~was ~~from~~driven, in part, by menu price increases taken over the past year. Occupancy and other expense as a percentage of company-operated restaurants revenue decreased ~~100~~120 basis points compared to the prior year period, primarily as a result of sales leverage and lower repairs and maintenance expense and utilities expense. Food and packaging costs as a percentage of company-operated restaurants revenue decreased ~~100~~90 basis points from the prior year period, primarily as a result of higher restaurant pricing and ~~lower~~changes in product mix. While commodity costs for ~~produce~~beef products were essentially flat when compared to the prior year period, commodity costs for pork, cheese and dairy, ~~partially~~products ~~offset~~decreased byand ~~higher~~ commodity costs for ~~beef~~potato and chicken products increased. Payroll and other employee benefits as a percentage of company-operated restaurants revenue decreased 50 basis points from the prior year period.

Restaurant operating costs decreased $1,092, or 0.2%, to $511,090 during the twenty-eight weeks ended August 13, 2012, as compared to the prior year period. Restaurant operating costs as a percentage of company-operated restaurants revenue were 80.8% during for the twenty-eight weeks ended August 13, 2012, as compared to 83.3% for the twenty-eight weeks ended August 15, 2011. This decrease in restaurant operating costs as a percentage of company-operated restaurants revenue was in part due to the increase in company-operated same-store sales, which was driven, in part, by menu price increases taken over the past year. Occupancy and other expense as a percentage of company-operated restaurants revenue decreased 110 basis points compared to the prior year period, primarily as a result of sales leverage and lower repairs and maintenance expense and utilities expense. Food and packaging costs as a percentage of company-operated restaurants revenue decreased 90 basis points from the prior year period, primarily as a result of higher restaurant pricing and changes in product mix. Commodity costs for produce, pork and cheese products decreased, while commodity costs for potato, chicken and beef products increased from the comparable prior year period. Payroll and other employee benefits as a percentage of company-operated restaurants revenue decreased 50 basis points from the prior year period.

Franchised Restaurants and Other Expense

During the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012, franchised restaurants and other expense of $2518,~~629~~854 ~~was~~and $44,483, respectively, were comparable with the prior year ~~period~~periods.

Advertising Expense

Advertising expense increased $~~791~~617, or 34.90%, to $2016,~~852~~016 during the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, as compared to the prior year period. Advertising expense as a percentage of company-operated restaurants revenue was 5.89% during both the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, asand ~~compared to 5.7% during~~ the comparable prior year period.

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Advertising expense increased $1,408, or 4.0%, to $36,868 during the twenty-eight weeks ended August 13, 2012, as compared to the prior year period. Advertising expense as a percentage of company-operated restaurants revenue was 5.8% during both the twenty-eight weeks ended August 13, 2012 and the comparable prior year period.

General and Administrative Expense

General and administrative expense increased $~~756~~426, or 1.85%, to $4129,~~716~~772 induring the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012 from the prior year period. This increase was mainly due to an increase of $~~629~~1,027 in bonus expense, which is based on our performance relative to executive management and operations bonus criteria, partially offset by reduced legal expenditures.

General and administrative expense increased $1,182, or 1.7%, to $71,488 during the twenty-eight weeks ended August 13, 2012 from the prior year period. This increase was mainly due to an increase of $1,657 in bonus expense, which is based on our performance relative to executive management and operations bonus criteria, partially offset by reduced legal expenditures.

Facility Action Charges, Net

During the twelve and twenty-eight weeks ended August 13, 2012, net facility action charges were $2,029 and $2,430, respectively, which primarily resulted from asset impairment charges of $2,416 and $2,525 recorded during the respective periods. These asset impairment charges primarily consisted of $1,195 of impairment charges recorded for two underperforming company-operated Carl's Jr. restaurants and a $1,204 impairment charge recorded for a property leased to a franchisee that became impaired due to a highway project that will eliminate direct access to the property, rendering it unfit for retail purposes.

See Note 9 of Notes to Condensed Consolidated Financial Statements included herein for additional detail of the components of facility action charges, net.

Interest Expense

During the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, interest expense ~~decreased~~increased $~~596~~18, or 20.41%, to $2317,~~799~~834, as compared to the prior year period. This ~~decrease~~increase was primarily caused by ~~the~~an ~~early~~increase ~~extinguishment~~in interest expense from our financing method sale-leaseback transactions of $672,~~878~~140, ofpartially ~~the~~offset ~~principal~~by ~~amount~~a reduction of interest expense on our senior secured second lien notes (the "Senior Secured Notes") ~~during~~of ~~fiscal 2012~~$1,961 ~~partially~~due ~~offset~~to bythe ~~interest~~early ~~expense~~redemptions ~~related~~of to our ~~financing~~Senior ~~method~~Secured ~~sale-leaseback transactions~~Notes.

During the twenty-eight weeks ended August 13, 2012, interest expense decreased $578, or 1.4%, to $41,633, as compared to the prior year period. This decrease was primarily caused by a reduction of interest expense on our Senior Secured Notes of $4,453 due to the early redemptions of our Senior Secured Notes, partially offset by an increase in interest expense from our financing method sale-leaseback transactions of $4,230.

See Note 4 of Notes to Condensed Consolidated Financial Statements included herein for additional detail of the components of interest expense.

Income Tax Benefit

2022

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Carl’s Jr.

Company-Operated Restaurants Revenue

Revenue from company-operated Carl’s Jr. restaurants increased $45,~~628~~633, or 24.51%, to $~~192~~144,~~916~~003 during the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012, as compared to the ~~sixteen~~twelve weeks ended ~~May 23~~August 15, 2011. This increase was primarily due to the 24.60% increase in company-operated same-store sales for the quarter,. ~~which~~Both ~~was~~menu ~~driven,~~price inincreases ~~part,~~and bysame-store ~~price~~transaction increases ~~taken~~contributed ~~over~~to the ~~past~~same-store ~~year~~sales increase.

Revenue from company-operated Carl’s Jr. restaurants increased $10,261, or 3.1%, to $336,919 during the twenty-eight weeks ended August 13, 2012, as compared to the twenty-eight weeks ended August 15, 2011. This increase was primarily due to the 3.2% increase in company-operated same-store sales from the comparable prior year period. Both menu price increases and same-store transaction increases contributed to the same-store sales increase.

Company-Operated Restaurant-Level Adjusted EBITDA Margin

The changes in the company-operated restaurant-level adjusted EBITDA margin are summarized as follows:

Company-operated restaurant-level adjusted EBITDA margin for the period ended May 23, 2011	16.1	%
	Twelve Weeks		Twenty-EightWeeks
Decrease in food and packaging costs	0.9
Company-operated restaurant-level adjusted EBITDA margin for the period ended August 15, 2011	16.0	%	16.1	%
Payroll and other employee benefits:
Decrease in food and packaging costs	0.5		0.7
Decrease in workers’ compensation expense	0.1
Payroll and other employee benefits:
Decrease in labor costs, excluding workers’ compensation	0.1
Increase in workers’ compensation expense	(0.8	)	(0.3	)
Occupancy and other (excluding depreciation and amortization):
Decrease in labor costs, excluding workers’ compensation	0.9		0.5
Decrease in repairs and maintenance expense	0.6
Occupancy and other (excluding depreciation and amortization):
Decrease in utilities expense	0.26		0.4
Other, net	0.1
Decrease in repairs and maintenance expense	0.4		0.5
Increase in advertising expense	(0.1	)
Decrease in rent expense	0.3		0.1
Company-operated restaurant-level adjusted EBITDA margin for the period ended May 21, 2012	18.0	%
Decrease in property tax expense	0.2		0.1
Other, net	0.2		—
Company-operated restaurant-level adjusted EBITDA margin for the period ended August 13, 2012	18.3	%	18.1	%

Food and Packaging Costs

Food and packaging costs decreased as a percentage of company-operated restaurants revenue during the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012, as compared to the prior year ~~period~~periods, mainly due to the impact of menu price increases taken over the past year and ~~decreased~~changes in product mix. During the twelve weeks ended August 13, 2012, commodity costs for ~~produce,~~beef ~~pork~~products were essentially flat when compared to the prior year period, ~~chicken~~while ~~and~~commodity costs for cheese and produce products, ~~partially~~decreased ~~offset~~and bycommodity costs for potato and chicken products increased. During the twenty-eight weeks ended August 13, 2012, commodity costs for ~~beef~~produce, cheese and pork products decreased, while commodity costs for potato, beef and chicken products increased from the comparable prior year period.

~~Occupancy and Other Costs~~23

Repairs and maintenance expense decreased as a percentage of company-operated restaurants revenue during the sixteen weeks ended May 21, 2012, as compared to the prior year period, mainly due to decreased spending on contract services, repairs of restaurant equipment and building maintenance.

Depreciation and amortization expense decreased as a percentage of company-operated restaurants revenue during the sixteen weeks ended May 21, 2012, as compared to the prior fiscal year, due primarily to sales leverage and the acceleration of depreciation expense in the prior year period for certain restaurants.

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Payroll and Other Employee Benefits

Workers' compensation expense increased as a percentage of company-operated restaurants revenue during the twelve weeks ended August 13, 2012, as compared to the prior year period, due primarily to unfavorable claims reserve adjustments as a result of actuarial analyses of outstanding claims reserves in the current year period and favorable claims reserve adjustments in the comparable prior year period. During the twenty-eight weeks ended August 13, 2012, workers' compensation expense increased as a percentage of company-operated restaurants revenue, as compared to the prior year period, due primarily to the impact of unfavorable claims reserve adjustments in the current year period that did not occur to the same extent in the prior year period.

Labor costs, excluding workers' compensation expense, decreased as a percentage of company-operated restaurants revenue during the twelve and twenty-eight weeks ended August 13, 2012, as compared to the prior year periods, due primarily to more efficient use of labor in the restaurants and sales leverage resulting from the company-operated same-store sales increase.

Occupancy and Other Costs

Utilities expense decreased as a percentage of company-operated restaurants revenue during the twelve and twenty-eight weeks ended August 13, 2012, as compared to the prior year periods, mainly due to a decrease in electricity usage and rates, a decrease in natural gas rates, and sales leverage caused by the increase in company-operated same-store sales.

Repairs and maintenance expense decreased as a percentage of company-operated restaurants revenue during

the twelve and twenty-eight weeks ended August 13, 2012, as compared to the prior year periods, mainly due to decreased spending on contract services, repairs of restaurant equipment and building maintenance.

Rent expense decreased as a percentage of company-operated restaurants revenue during the twelve weeks ended August 13, 2012, as compared to the prior year period, mainly due to sales leverage resulting from the company-operated same-store sales increase.

Depreciation and amortization expense decreased as a percentage of company-operated restaurants revenue during the twelve and twenty-eight weeks ended August 13, 2012, as compared to the prior year periods, due primarily to sales leverage and certain property and equipment reaching the end of its useful life.

Franchised Restaurants

	SixteenWeeks Ended		SixteenWeeks Ended
	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Franchised restaurants and other revenue:
Royalties	$	118,~~655~~809	$	108,~~672~~123	$	20,464	$	18,795
Rent and other occupancy	64,~~474~~957		65,~~746~~267		11,431		12,013
Franchise fees	~~479~~540		~~428~~554		1,019		982
Total franchised restaurants and other revenue	$	1814,~~608~~306	$	1713,~~846~~944	$	32,914	$	31,790
Franchised restaurants and other expense:
Administrative expense (including provision for bad debts)	$	32,~~607~~764	$	32,~~436~~630	$	6,371	$	6,066
Rent and other occupancy	64,~~504~~740		64,~~549~~878		11,244		11,427
Total franchised restaurants and other expense	$	107,~~111~~504	$	97,~~985~~508	$	17,615	$	17,493

Franchised restaurants and other revenue increased $762, or 4.3%, to $18,608 during the sixteen weeks ended May 21, 2012, as compared to the prior year period. Royalty revenues increased $983, or 9.2%, to $11,655, due primarily to the net increase of 46 international and 14 domestic franchised restaurants since the end of the first quarter of fiscal 2012. 24

Franchised restaurants and other expense increased $126, or 1.3%, to $10,111 during the sixteen weeks ended May 21, 2012, from the comparable prior year period. Administrative expense increased $171, or 5.0%, from the comparable prior year period, due primarily to increased franchise operations and administration costs related to our international growth strategy.

Hardee’s

Company-Operated Restaurants Revenue

Revenue from company-operated Hardee’s restaurants increased $5,300, or 3.2%, to $168,550 during the sixteen weeks ended May 21, 2012, as compared to the sixteen weeks ended May 23, 2011. This increase was primarily due to the 2.6% increase in company-operated same-store sales for the quarter, which was driven, in part, by price increases taken over the past year and revenue generated from five restaurants opened or acquired during the sixteen weeks ended May 23, 2011 that were only open for a portion of the comparable prior year period.

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Franchised restaurants and other revenue increased $362, or 2.6%, to $14,306 during the twelve weeks ended August 13, 2012, as compared to the prior year period. Royalty revenues increased $686, or 8.4%, to $8,809, due primarily to the net increase of 45 international and 12 domestic franchised restaurants since the end of the second quarter of fiscal 2012.

Franchised restaurants and other revenue increased $1,124, or 3.5%, to $32,914 during the twenty-eight weeks ended August 13, 2012, as compared to the prior year period. Royalty revenues increased $1,669, or 8.9%, to $20,464, due primarily to the net increase of 45 international and 12 domestic franchised restaurants since the end of the second quarter of fiscal 2012.

During the twelve weeks ended August 13, 2012, franchised restaurants and other expense was consistent with the prior year period.

During the twenty-eight weeks ended August 13, 2012, franchised restaurants and other expense increased $122, or 0.7%, to $17,615, as compared to the prior year period. Administrative expense increased $305, or 5.0%, to $6,371 during the twenty-eight weeks ended August 13, 2012, from the comparable prior year period, due primarily to increased franchise operations and administration costs related to our international growth strategy.

Hardee’s

Company-Operated Restaurants Revenue

Revenue from company-operated Hardee’s restaurants increased $2,156, or 1.7%, to $126,731 during the twelve weeks ended August 13, 2012, as compared to the twelve weeks ended August 15, 2011. This increase was primarily due to the 1.6% increase in company-operated same-store sales for the quarter, which was driven mainly by menu price increases taken over the past year.

Revenue from company-operated Hardee’s restaurants increased $7,456, or 2.6%, to $295,281 during the twenty-eight weeks ended August 13, 2012, as compared to the twenty-eight weeks ended August 15, 2011. This increase was primarily due to the 2.2% increase in company-operated same-store sales from the comparable prior year period, which was driven mainly by menu price increases taken over the past year.

Company-Operated Restaurant-Level Adjusted EBITDA Margin

The changes in the company-operated restaurant-level adjusted EBITDA margin are summarized as follows:

Company-operated restaurant-level adjusted EBITDA margin for the period ended May 23, 2011	18.1	%
	Twelve Weeks		Twenty-EightWeeks
Decrease in food and packaging costs	1.0
Company-operated restaurant-level adjusted EBITDA margin for the period ended August 15, 2011	18.4	%	18.2	%
Payroll and other employee benefits:
Decrease in food and packaging costs	1.4		1.2
Decrease in labor costs, excluding workers’ compensation	0.9
Payroll and other employee benefits:
Increase in workers’ compensation expense	(0.1	)
Decrease in labor costs, excluding workers’ compensation	0.5		0.7
Occupancy and other (excluding depreciation and amortization):
Decrease in workers’ compensation expense	0.4		0.1
Decrease in repairs and maintenance expense	0.4
Occupancy and other (excluding depreciation and amortization):
Decrease in general liability insurance expense	0.3
Decrease in repairs and maintenance expense	0.2		0.3
Decrease in asset disposal expense	0.3
(Increase) decrease in general liability insurance expense	(0.2	)	0.1
Other, net	0.1
Decrease in asset disposal expense	—		0.2
Increase in advertising expense	(0.1	)
Other, net	0.1		0.1
Company-operated restaurant-level adjusted EBITDA margin for the period ended May 21, 2012	20.9	%
Increase in advertising expense	(0.2	)	(0.1	)
Company-operated restaurant-level adjusted EBITDA margin for the period ended August 13, 2012	20.6	%	20.8	%

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Food and Packaging Costs

Food and packaging costs decreased as a percentage of company-operated restaurants revenue during the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012, as compared to the prior year ~~period~~periods, mainly due to the impact of menu price increases taken over the past year and ~~decreased~~changes in product mix. During the twelve weeks ended August 13, 2012, commodity costs for ~~produce~~beef products were essentially flat when compared to the prior year period, while commodity costs for pork, dairy and cheese products, ~~partially~~decreased ~~offset~~and bycommodity costs for chicken and potato products increased. During the twenty-eight weeks ended August 13, 2012, commodity costs for ~~beef~~pork, dairy and produce products decreased, while commodity costs for chicken, potato and beef products. increased from the comparable prior year period.

~~Labor~~Payroll ~~Costs~~and Other Employee Benefits

Labor costs, excluding workers’ compensation expense, decreased as a percentage of company-operated restaurants revenue during the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012, as compared to the prior year ~~period~~periods, due primarily to more efficient use of labor in the restaurants and sales leverage resulting from the same-store sales increase.

Workers' compensation expense decreased as a percentage of company-operated restaurants revenue during the twelve weeks ended August 13, 2012, as compared to the prior year period, due primarily to favorable claims reserve adjustments as a result of actuarial analyses of outstanding claims reserves in the current year period that did not occur to the same extent in the prior year period.

Occupancy and Other Costs

Repairs and maintenance expense decreased as a percentage of company-operated restaurants revenue during the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, as compared to the prior year period, mainly due to decreased spending on contract services, and repairs of restaurant equipment ~~and building maintenance~~.

General liability insurance expense decreased as a percentage of company-operated restaurants revenue during the sixteen weeks ended May 21, 2012, as compared to the prior year period, due primarily to favorable claims reserve adjustments as a result of actuarial analyses of outstanding claims reserves in the current year period and unfavorable claims reserve adjustments in the comparable prior year period.

Asset disposal expense decreased as a percentage of company-operated restaurants revenue during the sixteen weeks ended May 21, 2012, as compared to the prior year period, due primarily to lower asset disposals resulting from a reduction in restaurant remodels in the current year period.

Depreciation and amortization expense increased as a percentage of company-operated restaurants revenue during the sixteen weeks ended May 21, 2012, as compared to the prior year period, due primarily to the impact of fixed asset additions.

Franchised Restaurants



	Twelve Weeks Ended				Twenty-Eight Weeks Ended
	August 13, 2012		August 15, 2011		August 13, 2012		August 15, 2011
Franchised restaurants and other revenue:
Royalties	$	14,707	$	13,841	$	34,142	$	31,812
Equipment sales	5,763		5,639		14,130		14,210
Rent and other occupancy	2,836		2,987		6,664		7,010
Franchise fees	169		192		654		593
Total franchised restaurants and other revenue	$	23,475	$	22,659	$	55,590	$	53,625
Franchised restaurants and other expense:
Administrative expense (including provision for bad debts)	$	2,940	$	2,822	$	6,760	$	6,786
Equipment distribution center	5,996		5,580		14,395		14,112
Rent and other occupancy	2,411		2,530		5,707		5,927
Total franchised restaurants and other expense	$	11,347	$	10,932	$	26,862	$	26,825

Total franchised restaurants and other revenue increased $816, or 3.6%, to $23,475 during the twelve weeks ended August 13, 2012, as compared to the prior year period. Royalty revenues increased $866 or 6.3%, to $14,707 from the comparable prior year period, due primarily to a net increase of 20 international and 4 domestic franchised restaurants since the end of the second quarter of fiscal 2012 and an increase in domestic franchise-operated same-store sales of 4.4%.

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	SixteenWeeks Ended		SixteenWeeks Ended
	May 21, 2012		May 23, 2011
Franchised restaurants and other revenue:
Royalties	$	19,435	$	17,971
Equipment sales	8,367		8,571
Rent and other occupancy	3,828		4,023
Franchise fees	485		401
Total franchised restaurants and other revenue	$	32,115	$	30,966
Franchised restaurants and other expense:
Administrative expense (including provision for bad debts)	$	3,820	$	3,964
Equipment distribution center	8,399		8,532
Rent and other occupancy	3,296		3,397
Total franchised restaurants and other expense	$	15,515	$	15,893

Total franchised restaurants and other revenue increased $1,965, or 3.7%, to $55,590 during the twenty-eight weeks ended August 13, 2012, as compared to the prior year period. Royalty revenues increased $2,330, or 7.3%, to $34,142 from the comparable prior year period, due primarily to a net increase of 20 international and 4 domestic franchised restaurants since the end of the second quarter of fiscal 2012 and an increase in domestic franchise-operated same-store sales of 4.3%.

~~Total~~Franchised ~~franchised~~ restaurants and other ~~revenue~~expense increased $1415,~~149,~~ or 3.78%, to $3211,~~115~~347 during the ~~sixteen~~twelve weeks ended ~~May~~August 2113, 2012, asfrom ~~compared to~~ the comparable prior year period. ~~Royalty~~Equipment ~~revenues~~distribution center costs increased $1416,~~464,~~ or 87.15%, to $195,~~435~~996 from the comparable prior year period, due ~~primarily~~ to ahigher ~~net~~equipment ~~increase~~sales ofand 23increased ~~international~~freight and 2general ~~domestic franchised restaurants since the end of the first quarter of fiscal 2012~~ and anadministrative ~~increase~~costs inrelated ~~domestic franchise-operated same-store sales of 4.0%. Equipment sales decreased $204, or 2.4%,~~ to ~~$8,367,~~our ~~from the comparable prior year period, primarily due to a decrease in~~ equipment ~~sales~~distribution ~~to franchisees~~center.

~~Franchised~~During ~~restaurants and other expense decreased $378, or 2.4%, to $15,515, during~~ the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, asfranchised ~~compared~~restaurants toand ~~the~~other ~~prior year period. The decrease in administrative~~ expense ~~of $144, or 3.6%, to $3,820~~ was ~~primarily~~consistent ~~due~~with toprior ~~reduced~~year ~~travel and meeting costs~~period. ~~The decrease in equipment distribution center costs of $133, or 1.6%, resulted directly from the decrease in equipment sales to franchisees.~~

Liquidity and Capital Resources

Overview

Our cash requirements consist principally of our food and packaging purchases, labor, and occupancy costs; capital expenditures for restaurant remodels and refreshes, new restaurant construction and replacement of equipment; debt service requirements; advertising expenditures; and general and administrative expenses. In addition, onwe ~~June~~may ~~15,~~elect ~~2012,~~to ~~the~~redeem ~~holders~~up ofto ~~the Senior Secured Notes were notified that we will redeem~~ $60,000 of the principal amount of our Senior Secured Notes ~~on July 16, 2012~~ at a redemption price of 103% of the principal amount of the Senior Secured Notes ~~being~~during ~~redeemed.~~the Ontwelve ~~July~~month ~~15,~~period ~~2012,~~commencing weJuly ~~will be required to make an interest payment of $30~~15,~~264~~ ~~on our Senior Secured Notes~~2013. ~~Following~~Assuming the ~~partial~~aggregate ~~redemption~~outstanding ofprincipal ~~$60,000~~amount of our Senior Secured Notes onremains ~~July~~unchanged ~~16,~~from ~~2012~~August ~~and~~13, ~~assuming no other redemptions~~2012, we will be required to make semi-annual interest payments on our Senior Secured Notes of approximately $26,852. As discussed below, our senior secured revolving credit facility (the “Credit Facility”) matures on July 12, 2015 and our Senior Secured Notes mature on July 15, 2018. Based on our current capital spending projections, we expect capital expenditures to be between $60,000 and $70,000 for fiscal 2013.

We expect that our cash on hand and future cash flows from operations will provide sufficient liquidity to allow us to meet our operating and capital requirements, and service our existing debt. As of August 13, 2012, we had $62,168 in cash and ~~complete~~cash aequivalents ~~partial~~and ~~redemption~~$69,397 ofin available commitments under our ~~Senior~~Credit ~~Secured~~Facility ~~Notes~~to onhelp ~~July~~meet ~~16,~~our ~~2012~~operating and capital requirements. Additionally, Asas of ~~May~~August 2113, 2012, we ~~have~~had $~~125~~31,~~422~~073 inof restricted cash and cash equivalents that were held by a trustee, and ~~$69~~restricted as to use,~~087~~ inrelated ~~available~~to ~~commitments~~the ~~under~~tender ~~our~~offer ~~Credit~~to ~~Facility~~purchase up to ~~help~~$29,875 ~~meet~~of the principal amount of our ~~operating~~Senior Secured Notes at a redemption price of 103% (the "Tender Offer") as described further below. On August 16, 2012, the Tender Offer expired with no Senior Secured Notes tendered. Following the expiration of the Tender Offer, the restrictions on the use of the escrowed cash and ~~capital~~cash ~~requirements~~equivalents were removed and the amounts held by the trustee were returned to us in full.

24Credit Facility

Our Credit Facility provides for senior secured revolving facility loans, swingline loans and letters of credit, in an aggregate amount of up to $100,000. Borrowings under the Credit Facility bear interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley’s “prime rate” plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the LIBOR plus 3.75%. The Credit Facility matures on July 12, 2015, at which time all outstanding revolving facility loans and accrued and unpaid interest must be repaid. As of August 13, 2012, we had no outstanding loan borrowings, $30,603 of outstanding letters of credit, and remaining availability of $69,397 under our Credit Facility.

Pursuant to the terms of our Credit Facility, during each fiscal year, our capital expenditures cannot exceed the sum of (1) the greater of (i) $100,000 and (ii) 8.5% of our consolidated gross total tangible assets as of the end of such fiscal year plus, without duplication, (2) 10% of certain assets acquired in permitted acquisitions during such fiscal year (the "Acquired Assets Amount") and (3) 5% of the Acquired Assets Amount for the preceding fiscal year, calculated on a cumulative basis. In addition, the annual base amount of permitted capital expenditures may be increased by an amount equal to any cumulative credit (as defined in the Credit Facility) which we elect to apply for this purpose and may be carried-back and/or carried-forward subject to the terms set forth in the Credit Facility.

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Credit Facility

Our Credit Facility provides for senior secured revolving facility loans, swingline loans and letters of credit, in an aggregate amount of up to $100,000. The Credit Facility bears interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley’s “prime rate” plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the LIBOR plus 3.75%. The Credit Facility matures on July 12, 2015, at which time all outstanding revolving facility loans and accrued and unpaid interest must be repaid. As of May 21, 2012, we had no outstanding loan borrowings, $30,913 of outstanding letters of credit, and remaining availability of $69,087 under our Credit Facility.

Pursuant to the terms of our Credit Facility, during each fiscal year our capital expenditures cannot exceed the sum of (1) the greater of (i) $100,000 and (ii) 8.5% of our consolidated gross total tangible assets as of the end of such fiscal year plus, without duplication, (2) 10% of certain assets acquired in permitted acquisitions during such fiscal year (the "Acquired Assets Amount") and (3) 5% of the Acquired Assets Amount for the preceding fiscal year, calculated on a cumulative basis. In addition, the annual base amount of permitted capital expenditures may be increased by an amount equal to any cumulative credit (as defined in the Credit Facility) which we elect to apply for this purpose and may be carried-back and/or carried-forward subject to the terms set forth in the Credit Facility.

The Credit Facility contains covenants that restrict our ability and the ability of our subsidiaries to: incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or indebtedness; make investments, loans, advances and acquisitions; create restrictions on the payment of dividends or other amounts to us from our subsidiaries; sell assets, including capital stock of our subsidiaries; consolidate or merge; create liens; enter into sale and leaseback transactions; amend, modify or permit the amendment or modification of any senior secured second lien note documents; engage in certain transactions with our affiliates; issue capital stock; create subsidiaries; and change the business conducted by us or our subsidiaries.

The terms of our Credit Facility also include financial performance covenants, which include a maximum secured leverage ratio and a specified minimum interest coverage ratio. Our Credit Facility defines our secured leverage ratio as the ratio of our: (1) Total Secured Debt plus eight times our Net Rent less Unrestricted Cash and Permitted Investments; over (2) Adjusted EBITDAR, each as defined in our Credit Facility. In determining our consolidated Total Secured Debt for the purpose of our financial covenants, we include our Senior Secured Notes and other long-term secured debt, capital lease obligations and the portion of the proceeds from financing method sale-leaseback transactions equal to the net book value of the associated properties. As of ~~May 21~~August 13, 2012, the net book value of the assets associated with financing method sale-leaseback transactions was $7191,~~580~~728. See Note 5 of Notes to Condensed Consolidated Financial Statements included herein for further discussion of these sale-leaseback transactions. Our Credit Facility defines our interest coverage ratio as the ratio of Adjusted EBITDA to Cash Interest Expense, each as defined in our Credit Facility. As of ~~May 21~~August 13, 2012, our financial performance covenants did not limit our ability to draw on the remaining availability of $69,~~087~~397 under our Credit Facility.

We were in compliance with the covenants of our Credit Facility as of ~~May 21~~August 13, 2012.

The terms of our Credit Facility are not impacted by any changes in our credit rating. We believe the key company-specific factors affecting our ability to maintain our existing debt financing relationships and to access such capital in the future are our present and expected levels of profitability, cash flows from operations, capital expenditures, asset collateral bases and the level of our Adjusted EBITDA relative to our debt obligations. In addition, as noted above, our Credit Facility includes 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.

Senior Secured Second Lien Notes

AsOn July 16, 2012, we redeemed $60,000 of ~~May~~the 21principal amount of our Senior Secured Notes at a redemption price of 103% of the principal amount of the Senior Secured Notes pursuant to the terms of the indenture governing the Senior Secured Notes. Subsequent to the redemption and as of August 13, 2012, the remaining aggregate principal amount of our Senior Secured Notes ~~outstanding~~ was $~~532~~472,122. The Senior Secured Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15. As of ~~May 21~~August 13, 2012, the carrying value of the notes was $~~523~~464,~~544~~710, which is presented net of the remaining unamortized original issue discount of $87,~~578~~412. The Senior Secured Notes mature on July 15, 2018.

25In accordance with the indenture governing the Senior Secured Notes, we are required to make offers to repurchase a portion of our Senior Secured Notes at a price of 103% of the principal amount of the Senior Secured Notes with a portion of the net proceeds received from sale-leaseback transactions. Pursuant to these requirements, on July 18, 2012, we commenced the Tender Offer to purchase up to $29,875 of the principal amount of our Senior Secured Notes at a redemption price of 103%, which expired on August 16, 2012 with no Senior Secured Notes tendered. As of August 13, 2012, pursuant to the requirements of the Tender Offer, we had $31,073 of cash and cash equivalents that were held by a trustee, which were restricted as to use. Following the expiration of the Tender Offer on August 16, 2012, the restrictions on the use of the escrowed cash and cash equivalents were removed and the amounts held by the trustee were returned to us in full.

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The indenture governing the Senior Secured Notes contains restrictive covenants that limit our and our guarantor subsidiaries’ ability to, among other things: incur or guarantee additional debt or issue certain preferred equity; pay dividends, make capital stock distributions or other restricted payments; make certain investments; sell certain assets; create or incur liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Additionally, the indenture contains certain reporting covenants, which requires us to provide all such information required to be filed by the Securities and Exchange Commission ("SEC") in accordance with the reporting requirements of Section 13 or 15(d) of the Exchange Act, as a non-accelerated filer, even if we are not specifically required to comply with such sections of the Exchange Act. Failure to comply with these covenants constitutes a default and may lead to the acceleration of the principal amount and accrued but unpaid interest on the Senior Secured Notes.

We were in compliance with the covenants included in the indenture governing the Senior Secured Notes as of ~~May 21~~August 13, 2012.

OnWe ~~June~~may redeem the Senior Secured Notes prior to the maturity date based upon the following conditions: (1) prior to July 15, ~~2012~~2013, we may redeem up to $82,122 of the ~~holders~~aggregate principal amount of the Senior Secured Notes ~~were~~(provided ~~notified~~at ~~that~~least $390,000 of the aggregate principal amount of the Senior Secured Notes remains outstanding after such redemption) with the proceeds of certain equity offerings at a redemption price of 111.375% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest, (2) during the 12-month period beginning July 15, 2013, we ~~will~~may elect to redeem up to $60,000 of the aggregate principal amount of the Senior Secured Notes ~~outstanding~~at a redemption price of 103% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest, (3) on or after July 1615, ~~2012~~2014, atwe amay redeem all or any portion of the Senior Secured Notes during the 12-month periods commencing July 15, 2014, July 15, 2015, July 15, 2016 and July 15, 2017 and thereafter at redemption ~~price~~prices of ~~103~~105.688%, 102.844%, 101.422% and 100%, respectively, of the aggregate principal amount of the Senior Secured Notes being redeemed ~~pursuant~~plus accrued and unpaid interest, and (4) prior to July 15, 2014, we may redeem all or any portion of the ~~terms~~Senior Secured Notes at a price equal to 100% of the ~~indenture~~aggregate ~~governing~~principal amount of the Senior Secured Notes being redeemed plus a make-whole premium and accrued and unpaid interest. Upon a change in control, the holders of our Senior Secured Notes each have the right to require us to redeem their Senior Secured Notes at a redemption price of 101% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest.

In accordance with the indenture governing the Senior Secured Notes, we are required to make offers to repurchase a portion of the Senior Secured Notes at a price of 103% of the principal amount of the Senior Secured Notes with a portion of the net proceeds received from sale-leaseback transactions. Pursuant to these requirements, on December 1, 2011, we commenced a tender offer to purchase up to $27,871 of the principal amount of the Senior Secured Notes, which tender offer expired on December 29, 2011, with no Senior Secured Notes tendered. As a result of further sale-leaseback transactions completed since the December 2011 tender offer and expected to be completed during the second quarter of fiscal 2013, we expect we will be required to commence a second tender offer to purchase Senior Secured Notes. However, this requirement is dependent upon the completion of future sale-leaseback transactions, which may or may not be completed.

We may redeem the Senior Secured Notes prior to the maturity date based upon the following conditions: (1) prior to July 15, 2013, we may redeem up to 35% of the original aggregate principal amount of the Senior Secured Notes (provided at least 65% of the original aggregate principal amount of the Senior Secured Notes remains outstanding after such redemption) with the proceeds of certain equity offerings at a redemption price of 111.375% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest, (2) during the 12-month period beginning July 15, 2013, we may elect to redeem up to $60,000 of the aggregate principal amount of the Senior Secured Notes at a redemption price of 103% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest, (3) on or after July 15, 2014, we may redeem all or any portion of the Senior Secured Notes during the 12-month periods commencing July 15, 2014, July 15, 2015, July 15, 2016 and July 15, 2017 and thereafter at redemption prices of 105.688%, 102.844%, 101.422% and 100%, respectively, of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest, and (4) prior to July 15, 2014, we may redeem all or any portion of the Senior Secured Notes at a price equal to 100% of the aggregate principal amount of the Senior Secured Notes being redeemed plus a make-whole premium and accrued and unpaid interest. Upon a change in control, the holders of our Senior Secured Notes each have the right to require us to redeem their Senior Secured Notes at a redemption price of 101% of the aggregate principal amount of the Senior Secured Notes being redeemed plus accrued and unpaid interest.

Sale-Leaseback Transactions

During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, we entered into agreements with independent third parties under which we sold and leased back 2039 restaurant properties. The initial minimum lease terms are 20 years, and the leases include renewal options and right of first offer provisions that, for accounting purposes, constitute continuing involvement with the associated restaurant properties. Due to this continuing involvement, these sale-leaseback transactions are accounted for under the financing method, rather than as completed sales. Under the financing method, we include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, report the associated property as owned assets, continue to depreciate the assets over their remaining useful lives, and record the rental payments as interest expense. Closing costs and other fees related to these sale-leaseback transactions are recorded as deferred financing costs and amortized to interest expense over the initial minimum lease term. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the associated restaurant property and any unamortized deferred financing costs. During the twenty-eight weeks ended August 13, 2012, we received proceeds of $57,507 and capitalized deferred financing costs of $3,344 in connection with these transactions.

26The cumulative proceeds received in connection with financing method sale-leaseback transactions of $124,961 and $67,454 are included in other long-term liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as of August 13, 2012 and January 31, 2012, respectively. The net book value of the associated assets, which is included in property and equipment, net of accumulated depreciation and amortization in our Condensed Consolidated Balance Sheets, was $91,728 and $48,722 as of August 13, 2012 and January 31, 2012, respectively.

We expect that we will sell and leaseback additional restaurant properties in the future; however, there can be no assurance as to the number of transactions we will be able to complete, the amount of proceeds we will generate or whether we will be able to complete additional sale-leaseback transactions at all. See Note 5 of Notes to Condensed Consolidated Financial Statements included herein for further discussion.

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method, we include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, report the associated property as owned assets, continue to depreciate the assets over their remaining useful lives, and record the rental payments as interest expense. Closing costs and other fees related to these sale-leaseback transactions are recorded as deferred financing costs and amortized to interest expense over the initial minimum lease term. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the associated restaurant property and any unamortized deferred financing costs. During the sixteen weeks ended May 21, 2012, we received proceeds of $29,946 and capitalized deferred financing costs of $1,766 in connection with these transactions.

The cumulative proceeds received in connection with financing method sale-leaseback transactions of $97,400 and $67,454 are included in other long-term liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets as of May 21, 2012 and January 31, 2012, respectively. The net book value of the associated assets, which is included in property and equipment, net of accumulated depreciation and amortization in our Condensed Consolidated Balance Sheets, was $71,580 and $48,722 as of May 21, 2012 and January 31, 2012, respectively.

CKE Inc. Senior Unsecured PIK Toggle Notes

During fiscal 2012, our parent company, CKE Inc., formerly known as CKE Holdings, Inc., issued $200,000 aggregate principal amount of senior unsecured PIK toggle notes due March 14, 2016 (the “Toggle Notes”). The interest on the Toggle Notes, which is paid semi-annually on March 15 and September 15 of each year, can be paid (1) entirely in cash, at a rate of 10.50% (“Cash Interest”), (2) entirely by increasing the principal amount of the Toggle Notes or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% (“PIK Interest”) or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. CKE Inc. paid the ~~September~~March 15, ~~2011~~2012 and ~~March~~ September 15, 2012 interest payments entirely in PIK Interest. ~~CKE~~and ~~Inc.~~we ~~will~~have ~~also~~elected to pay the ~~September~~ March 15, ~~2012~~2013 interest payment entirely in ~~PIK~~Cash Interest.

We have not guaranteed the Toggle Notes, nor have we pledged any of our assets or stock as collateral for the Toggle Notes. The covenants included within the indenture governing our Senior Secured Notes and our Credit Facility are not directly impacted by the obligations of CKE Inc. Because the Toggle Notes contain a PIK feature, the interest obligations can be added to the principal amount of the Toggle Notes and CKE Inc. has the ability to defer cash payments of interest through March 14, 2016. At or prior to maturity, we expect CKE Inc. will evaluate all available options for redemption of the Toggle Notes, including refinancing the Toggle Notes, receiving dividends, and other options. Our Credit Facility and indenture governing our Senior Secured Notes contain restrictive covenants which limit our ability to pay dividends to CKE Inc.

Cash Flows

During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, cash provided by operating activities was $5873,~~374~~071, an increase of $415,~~076~~257, or 726.54%, compared with the ~~sixteen~~twenty-eight weeks ended ~~May 23~~August 15, 2011. Net income of $911,~~509~~277 for the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012 includes certain income and expense items that are excluded in deriving cash flows from operations, including depreciation and amortization expense of $2543,~~467~~912, loss on early extinguishment of our Senior Secured Notes of $3,695, share-based compensation expense of $12,~~417,~~481 and amortization of $12,~~328~~278 for deferred financing costs and discount on notes and a deferred income tax benefit of $58,~~638~~789. Additionally, changes in our operating assets and liabilities of $2615,~~018~~491 resulted in an increase to cash flows from operations. The amounts of our operating assets and liabilities 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.

27Cash used in investing activities during the twenty-eight weeks ended August 13, 2012 totaled $23,303, which principally consisted of purchases of property and equipment of $25,476, partially offset by $1,282 of proceeds from the sale of property and equipment and $841 of collections of non-trade notes receivable.

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Cash used in investing activities during the sixteen weeks ended May 21, 2012 totaled $14,461, which principally consisted of purchases of property and equipment of $15,725, partially offset by $841 of collections of non-trade notes receivable and $350 of proceeds from the sale of property and equipment.

Capital expenditures were as follows:

	SixteenWeeks Ended		SixteenWeeks Ended
	Twenty-Eight Weeks Ended
	May 21, 2012		May 23, 2011
	August 13, 2012		August 15, 2011
Remodels:
Carl’s Jr.	$	~~980~~1,875	$	441,382
Hardee’s	2,~~148~~423		47,~~282~~907
Capital maintenance:
Carl’s Jr.	14,~~969~~167		14,~~849~~353
Hardee’s	25,~~591~~756		37,~~392~~246
New restaurants and rebuilds:
Carl’s Jr.	46,~~538~~658		13,~~968~~813
Hardee’s	~~138~~361		1,~~190~~445
Dual-branding:
Carl’s Jr.	1615		~~244~~424
Hardee’s	~~772~~1,275		~~234~~886
Real estate	1,984		11
Real estate and franchise acquisitions	2,096		11
Corporate and other	~~589~~887		~~367~~646
Total	$	1525,~~725~~513	$	1328,~~581~~113

Capital expenditures for the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, ~~increased~~decreased $2,~~144~~600, or 159.82%, from the comparable prior year period mainly due to ~~increases~~decreases of $14,~~973~~991 in ~~real~~remodels ~~estate acquisitions~~ and $1,~~518~~676 in ~~new~~capital ~~restaurants and rebuilds~~maintenance, partially offset by ~~decreases~~increases of $12,~~198~~085 in ~~remodels~~real estate and franchise acquisitions and $~~681~~1,761 in ~~capital~~new ~~maintenance~~restaurants and rebuilds. Based on our current capital spending projections, we expect capital expenditures to be between $60,000 and $70,000 for fiscal 2013.

Cash ~~provided~~used byin financing activities during the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012 totaled $1652,~~954~~155, which principally consisted of ~~proceeds~~$61,811 payment for early extinguishment of our Senior Secured Notes and $2931,~~946~~073 ~~from~~for ~~financing~~changes ~~method~~in ~~sale-leaseback~~restricted ~~transactions~~cash and cash equivalents, partially offset by proceeds of $857,~~790~~507 ~~for~~from ~~net~~financing ~~changes~~method insale-leaseback ~~bank~~transactions. As ~~overdraft,~~discussed $2above,~~524~~ ~~for~~the ~~repayments~~restrictions on the use of ~~capital~~the ~~lease~~escrowed ~~obligations~~cash and $1cash equivalents related to our Senior Secured Notes were removed on August 16,~~676~~ ~~for~~2012 ~~payment~~and ofthe ~~deferred~~amounts ~~financing~~held ~~costs.~~by the trustee were returned in full.

Critical Accounting Policies

Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our consolidated financial position and results of operations. See our 2012 Annual Report for a description of our critical accounting policies. Specific risks associated with these critical accounting policies are described in the following paragraphs.

Impairment of Restaurant-Level Long-Lived Assets

In connection with analyzing restaurant-level long-lived assets to determine if they have been impaired, we make certain estimates and assumptions, including estimates of future cash flows, assumptions of future same-store sales and projected operating expenses for each of our restaurants over their estimated useful lives in order to evaluate recoverability and estimate fair value. Future cash flows are estimated based upon experience gained, current intentions about refranchising restaurants and closures, recent and expected sales trends, internal plans, the period of time since the restaurant was opened or remodeled and other relevant information. If our future cash flows or same-store sales do not meet or exceed our forecasted levels, or if restaurant operating cost increases exceed our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our restaurants may prove to be unrecoverable, and we may incur additional impairment charges in the future.

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period of time since the restaurant was opened or remodeled and other relevant information. If our future cash flows or same-store sales do not meet or exceed our forecasted levels, or if restaurant operating cost increases exceed our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our restaurants may prove to be unrecoverable, and we may incur additional impairment charges in the future.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

As of ~~May 21~~August 13, 2012, our goodwill consisted of $199,166 for our Carl’s Jr. reporting unit and $9,~~719~~757 for our Hardee’s reporting unit. During the fourth quarter of fiscal 2012, we performed our goodwill impairment test for our Carl’s Jr. and Hardee’s reporting units. As of the date of the annual impairment test, the fair value of the Carl’s Jr. and Hardee’s reporting units exceeded their respective carrying values by more than 20%. The excess of the fair value as compared to the carrying value was attributed primarily to the general improvement in financial markets between the date of the acquisition and the date of the impairment test, and improvements in operating results and cash flows. However, future declines in market conditions and the actual future performance of our reporting units could negatively impact the results of future impairment tests.

As of ~~May 21~~August 13, 2012, our indefinite-lived intangible assets consisted of Carl’s Jr. trademarks / tradenames of $144,000 and Hardee’s trademarks / tradenames of $134,000. During the fourth quarter of fiscal 2012, we performed our impairment test for trademarks / tradenames at both Carl’s Jr. and Hardee’s and concluded that no impairment charge was required. However, any future declines in our system-wide restaurant portfolio at either concept, declines in company-operated or franchised revenues or increases to the discount rate used in our impairment test could negatively impact the results of future impairment tests.

Estimated Liability for Closed Restaurants

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

Estimated Liability for Self-Insurance

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

Our actuary provides us with estimated unpaid losses for each loss category, upon which our analysis is based. As of ~~May 21~~August 13, 2012 and January 31, 2012, our estimated liability for self-insured workers’ compensation, general and auto liability losses was $42,~~073~~494 and $41,466, respectively.

Franchised Operations

We have sublease agreements with some of our franchisees on properties for which we remain principally liable for the lease obligations. If sales trends or economic conditions deteriorate 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.

Income Taxes

We are included in the consolidated federal income tax returns and combined state income tax returns of CKE Inc., our parent. For the purpose of determining the income taxes attributed to CKE Restaurants and its subsidiaries, we prepare our income tax provision as if we were a separate taxpayer. As a result of this treatment, we make income tax payments to CKE Inc. based upon our separate return taxable income.

29When necessary, we record a valuation allowance to reduce our net deferred tax assets to the amount that is more likely than not to be realized. In considering the need for a valuation allowance against some portion or all of our deferred tax assets, we must make certain estimates and assumptions regarding future taxable income, the

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wefeasibility ~~prepare~~of ~~our~~tax ~~income~~planning ~~tax~~strategies ~~provision~~and asother iffactors. weChanges ~~were~~in afacts ~~separate~~and ~~taxpayer.~~circumstances Asor ain ~~result~~the ofestimates ~~this~~and ~~treatment,~~assumptions wethat ~~make~~are ~~income~~involved in establishing and maintaining a valuation allowance against deferred tax ~~payments~~assets could result in adjustments to ~~CKE~~the ~~Inc.~~valuation ~~based~~allowance ~~upon~~in ~~our~~future ~~separate~~quarterly ~~return~~or ~~taxable~~annual ~~income~~periods.

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

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

Significant Known Events, Trends, or Uncertainties Expected to Impact Fiscal 2013 Comparisons with Fiscal 2012

The factors discussed below impact comparability of operating performance for the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012 and ~~May 23~~August 15, 2011, and for the remainder of fiscal 2013.

Commodity Costs

The cost of food commodities has increased markedly over the last two years and we expect that there may be additional pricing pressure on some of our key ingredients, most notably beef, during fiscal 2014, which may adversely affect our operating results or cause us to consider changes to our product delivery strategy and adjustments to our menu pricing. See further discussion in "Quantitative and Qualitative Disclosures About Market Risk" included in Item 3 of Part I of this Quarterly Report on Form 10-Q.

Sale-Leaseback Transactions

During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012 and fiscal 2012, we entered into agreements with independent third parties under which we sold and leased back 2039 and 47 restaurant properties, respectively. The initial minimum lease terms are 20 years, and the leases include renewal options and right of first offer provisions that, for accounting purposes, constitute continuing involvement with the associated restaurant properties. Due to this continuing involvement, these sale-leaseback transactions are accounted for under the financing method, rather than as completed sales. Under the financing method, we include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, report the associated property as owned assets, continue to depreciate the assets over their remaining useful lives, and record the rental payments as interest expense. As of ~~May 21~~August 13, 2012, the net book value of the assets associated with these transactions was $7191,~~580~~728. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the associated restaurant property. As of ~~May 21~~August 13, 2012, the cumulative proceeds received of $97124,~~400~~961 exceeded the net book value of the associated restaurant properties by $2533,~~820~~233. We expect that we will sell and leaseback additional restaurant properties in future quarters; however, there can be no assurance as to the number of transactions we will be able to complete, the amount of proceeds we will generate or whether we will be able to complete additional sale-leaseback transactions at all. See Note 5 of Notes to Condensed Consolidated Financial Statements included herein for further discussion.

Fiscal Year and Seasonality

We operate on a retail accounting calendar. Our fiscal year ends the last Monday in January and typically has 13 four-week accounting periods. 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 upon school vacations and improved weather conditions, which affect the public’s dining habits.

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

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

Presentation of Non-GAAP Measures

We have included in this report measures of financial performance that are not defined by accounting principles generally accepted in the United States (“GAAP”). Company-operated restaurant-level adjusted EBITDA, company-operated restaurant-level adjusted EBITDA margin and franchise restaurant adjusted EBITDA are non-GAAP measures utilized by management internally to evaluate and compare our operating performance for company-operated restaurants and franchised restaurants between periods. In addition, management believes that these financial measures provide useful information to potential investors and analysts because they provide insight into management’s evaluation of our results of operations. Each of these non-GAAP financial measures is derived from amounts reported within our Condensed Consolidated Financial Statements, and the computations of each of these measures have been included within our “Operating Review” section of MD&A.

These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures. These non-GAAP measures have certain limitations including the following:


•	Because not all companies calculate these measures identically, our presentation of such measures may not be comparable to similarly titled measures of other companies;


•	These measures exclude certain general and administrative and other operating costs, which should also be considered when assessing our operating performance; and


•	These measures exclude depreciation and amortization, and although they are non-cash charges, the assets being depreciated or amortized will often have to be replaced and new investments made to support the operations of our restaurant portfolio.

Company-Operated Restaurant-Level Non-GAAP Measures

We define company-operated restaurant-level adjusted EBITDA, which is expressed in dollars, as company-operated restaurants revenue (i) less restaurant operating costs excluding depreciation and amortization expense and ~~including~~(ii) less advertising expense. Restaurant operating costs are the expenses incurred directly by our company-operated restaurants in generating revenues and do not include advertising costs, general and administrative expenses or facility action charges. We define company-operated restaurant-level adjusted EBITDA margin, which is expressed as a percentage, as company-operated restaurant-level adjusted EBITDA divided by company-operated restaurants revenue.

Franchise Restaurant Adjusted EBITDA

We define franchise restaurant adjusted EBITDA, which is expressed in dollars, as franchised restaurants and other revenue less franchised restaurants and other expense excluding depreciation and amortization expense.

Certain Financial Information of CKE Inc.

During fiscal 2012, CKE Inc. issued $200,000 aggregate principal amount of Toggle Notes. CKE Inc. paid ~~the September~~March 15, ~~2011~~2012 and ~~March~~ September 15, 2012 interest payments entirely in PIK Interest. ~~CKE~~and ~~Inc.~~ will ~~also~~ pay the ~~September~~ March 15, ~~2012~~2013 interest payment entirely in ~~PIK~~Cash Interest. During fiscal 2012, CKE Restaurants purchased $9,948 principal amount of Toggle Notes for $8,362. As of ~~May 21~~August 13, 2012, CKE held a total of $10,508 principal amount of Toggle Notes (the "Purchased Toggle Notes") including PIK Interest payments after the initial purchase.

We have not guaranteed the obligations of CKE Inc. under the Toggle Notes, nor have we pledged any of our assets or stock as collateral for the Toggle Notes. The covenants included within the indenture governing our Senior Secured Notes and our Credit Facility are not directly impacted by the obligations of CKE Inc.

As of May 21, 2012, the principal amount of CKE Inc.’s total long-term debt on a stand-alone basis was $223,199, including the $10,508 principal amount of the Purchased Toggle Notes. As of May 21, 2012, the carrying amount of CKE Inc.’s total long-term debt on a stand-alone basis, including the current portion and the Purchased Toggle Notes, was $219,908 which is presented net of the unamortized portion of the original issue discount of 34

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSIONS AND ANALYSIS

(Dollars in thousands)

As of August 13, 2012, the principal amount of CKE Inc.’s total long-term debt on a stand-alone basis was $223,199, including the $10,508 principal amount of the Purchased Toggle Notes and the PIK Interest payments that have been added to the principal amount of the Toggle Notes. As of August 13, 2012, the carrying value of CKE Inc.’s total long-term debt on a stand-alone basis, including the current portion and the Purchased Toggle Notes, was $220,022 which is presented net of the unamortized portion of the original issue discount of $3,~~291~~177. During the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012 and ~~May~~August 15, 232011, and the twenty-eight weeks ended August 13, 2012 and August 15, 2011, CKE Inc. incurred interest expense of $76,~~881~~025, $5,346, $13,906, and $49,~~572~~801, respectively, on a stand-alone basis. CKE Inc.’s consolidated interest expense was $3123,~~310~~576, $23,162, $54,886 and $2852,~~967~~012 during the ~~sixteen~~twelve weeks ended ~~May 21~~August 13, 2012 and ~~May~~August 15, 232011, and the twenty-eight weeks ended August 13, 2012 and August 15, 2011, respectively. Since the Purchased Toggle Notes continue to be held by CKE Restaurants, $~~370~~283 and $653 of CKE Inc.’s stand-alone interest expense, which is associated with the Purchased Toggle Notes, has been eliminated in CKE Inc.’s consolidated interest expense during the ~~sixteen~~twelve and twenty-eight weeks ended ~~May 21~~August 13, 2012, respectively.

Forward Looking Statements

This Quarterly Report on Form 10-Q includes statements relating to our future plans and developments, financial goals and operating performance that are based on our current beliefs and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. 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, our ability to compete with other restaurants, supermarkets and convenience stores for customers, employees, restaurant locations and franchisees; changes in consumer preferences, perceptions and spending patterns; changes in food, packaging and supply costs; the ability of our key suppliers to continue to deliver premium-quality products to us at moderate prices; our ability to successfully enter new markets, complete construction of new restaurants and complete remodels of existing restaurants; changes in general economic conditions and the geographic concentration of our restaurants, which may affect our business; our ability to attract and retain key personnel; our franchisees' willingness to participate in our strategy; risks associated with implementing our growth strategy; the operational and financial success of our franchisees; the willingness of our vendors and service providers to supply us with goods and services pursuant to customary credit arrangements; risks associated with operating in international locations; the effect of the media's reports regarding food-borne illnesses, food tampering and other health-related issues on our reputation and our ability to procure or sell food products; the seasonality of our operations; the effect of increasing labor costs including health care related costs; increased insurance and/or self-insurance costs; our ability to comply with existing and future health, employment, environmental and other government regulations; our ability to adequately protect our intellectual property; the adverse affect of litigation in the ordinary course of business; a significant failure, interruption or security breach of our computer systems or information technology; catastrophic events including war, terrorism and other international conflicts, public health issues or natural causes; the potentially conflicting interests of our controlling stockholder and our creditors; our substantial leverage, which could limit our ability to raise capital, react to economic changes or meet obligations under our indebtedness; the effect of restrictive covenants in our indenture and credit facility on our business; and other factors as discussed ~~under~~in ~~the heading~~ "Risk Factors" included in Item 1A of Part II of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, which was filed with the SEC on April 11, 2012, and in our other filings with the SEC.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or circumstances arising after the date of this report, except as required by law.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of interest rate changes, foreign currency fluctuations and changes in commodity prices. In the normal course of business, we may employ policies and procedures to manage our exposure to these changes.

Interest Rate Risk

Our principal exposures to financial market risks relate to the impact that interest rate changes could have on our Credit Facility, which bears interest at a floating interest rate and, therefore, our results of operations and cash flows will be exposed to changes in interest rates. As of ~~May 21~~August 13, 2012, our Credit Facility remained undrawn. Accordingly, a hypothetical increase of 100 basis points in short-term interest rates in our floating rate would not have an impact on our interest expense. This sensitivity analysis assumes all other variables will remain constant in future periods.

Foreign Currency Risk

Our objective in managing our exposure to foreign currency fluctuations is to limit the impact of such fluctuations on earnings and cash flows. Our business at company-operated restaurants is transacted in U.S. dollars. Exposure outside of the United States relates primarily to the effect of foreign currency rate fluctuations on royalties paid to us by our international franchisees. As of ~~May 21~~August 13, 2012, our most significant exposure related to the Mexican Peso. Foreign exchange rate fluctuations have not historically had a significant impact on our results of operations. During the ~~sixteen~~twenty-eight weeks ended ~~May 21~~August 13, 2012, if all foreign currencies had uniformly weakened 10% relative to the U.S. dollar, our franchised restaurants and other revenue would have decreased $~~591~~1,031.

Commodity Price Risk

We, along with our franchisees, purchase large quantities of food, packaging and supplies. The predominant food commodities purchased by our restaurants include beef, chicken, potatoes, pork, dairy, cheese, produce, wheat flour and soybean oil. The cost of food commodities has increased markedly over the last two years, resulting in upward pricing pressure on many of our raw ingredients. ~~Furthermore~~We expect this trend to be exacerbated by the severe drought currently affecting the U.S. Midwest, which we expect, ~~that~~along ~~there~~with ~~may~~other befactors, to impose additional inflationary pricing pressure on ~~beef~~the ~~costs~~cost ~~during~~of ~~the~~beef ~~remainder~~and many of our other key ingredients during fiscal ~~2013~~2014.

Like all restaurant companies, we are susceptible to commodity price risks as a result of factors beyond our control, such as general economic conditions, significant variations in supply and demand, seasonal fluctuations, weather conditions, food safety concerns, food-borne diseases, fluctuations in the value of the U.S. dollar, commodity market speculation and government regulations. For example, the cost of beef, our largest commodity expenditure and the only commodity that accounts for more than twenty percent of our total food and packaging costs, has increased over the past year as a result of a reduction in U.S. cattle supply, a trend which we expect to continue for several years, and an increase in world demand. We expect the cost of beef to be further impacted by the severe drought in the U.S. Midwest. To mitigate ~~these~~commodity price risks, we routinely enter into purchasing contracts or pricing arrangements for certain commodities that contain commodity risk management techniques designed to minimize price volatility. The purchasing contracts and pricing arrangements we use for certain commodities set in advance the price of a given commodity for a fixed period of time, which helps to mitigate the effects of commodities price volatility. These purchasing contracts and pricing arrangements may result in unconditional purchase obligations, which are not reflected in our 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, including with respect to the increase in beef costs, we believe we will be able to address material commodity cost increases by adjusting our menu pricing, or changing our product delivery strategy. However, increases in commodity prices, without adjustments to our menu prices, could increase restaurant operating costs as a percentage of company-operated restaurants revenue, which could negatively impact our operating results.

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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that material information required to be disclosed in reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. 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 ~~May 21~~August 13, 2012, 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. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended ~~May 21~~August 13, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to legal proceedings and claims in the ordinary course of our business. These claims potentially cover a variety of allegations spanning our entire business. The following is a brief discussion of the most significant categories of claims that have been brought or that we believe are likely to be brought against us in the operation of our business. To the extent applicable, we also discuss the nature of any currently pending claims relating to each category. We are currently vigorously defending these pending claims. See Note 7 of Notes to Condensed Consolidated Financial Statements included herein for additional discussion of legal matters.

Employees

We employ many thousands of persons in our company-operated restaurants and corporate offices, both by us and in restaurants owned and operated by our subsidiaries. In addition, thousands of persons from time to time seek employment in such restaurants. In the ordinary course of business, disputes arise regarding hiring, firing, harassment, rest breaks, promotion practices and other employee related matters. With respect to employment matters, our most significant legal disputes relate to employee meal and rest breaks, and wage and hour disputes. Several potential class action lawsuits have been filed in the State of California, each of which is seeking injunctive relief and monetary compensation on behalf of current and former employees.

Customers

Our restaurants serve a large cross-section of the public and, in the course of serving that many people, disputes arise as to products, services, accidents and other matters typical of an extensive restaurant business such as ours.

Suppliers

We rely on large numbers of suppliers who are required to meet and maintain our high standards. On occasion, disputes may arise with our suppliers on a number of issues including, but not limited to, compliance with product specifications and certain business concerns. Additionally, disputes may arise on a number of issues between us and individuals or entities who claim they should have been granted the approval or opportunity to supply products or provide services to our restaurants.

Franchising

A substantial number of our restaurants are franchised to independent entrepreneurs operating under contractual arrangements with us. In the course of the franchise relationship, disputes occasionally arise between us and our franchisees relating to a broad range of subjects including, without limitation, quality, service and cleanliness issues, contentions regarding terminations of franchises, and delinquent payments. Additionally, occasional disputes arise between us and individuals who claim they should have been granted a franchise.

Intellectual Property

We have registered trademarks and service marks, patents and copyrights, some of which are of material importance to our business. From time to time, we may become involved in litigation to defend and protect our use of our intellectual property.

Real Property

We have various leasing arrangements related to our company-operated restaurants, franchised restaurants and other properties. In the course of managing these various leasing arrangements, disputes occasionally arise with respect to rental payments, property improvements, abandonment of property and the interpretation of lease provisions.

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ITEM 1A. RISK FACTORS

Item 1A Part I of our 2012 Annual Report includes a detailed discussion of the risk factors that we believe could materially affect our business, financial condition or results of operations. There have been no material changes in our risk factors from those disclosed in our 2012 Annual Report, except as set forth below. The risk factors discussed in the 2012 Annual Report (as updated by the information below) are not the only risks we face. Other factors that we do not anticipate or that we do not consider significant based on currently available information, may also have an adverse effect on our business, financial condition or results of operations. The information below updates, and should be read in conjunction with, the risk factors in our 2012 Annual Report.

Risk Factors Relating to our Company

Changes in interest rates, commodity prices, labor costs, energy costs and other expenses could adversely affect our operating results.

Increases in interest rates, gasoline prices, commodity costs, labor and benefits costs, legal claims, as well as inflation and the availability of management and hourly employees affect our restaurant operations and administrative expenses.

In particular, increases in interest rates may impact land and construction costs and the cost and availability of borrowed funds, and thereby adversely affect our ability and our franchisees’ ability to finance new restaurant development and improve existing restaurants. In addition, inflation can cause increased commodity and labor and benefits costs and can increase our operating expenses.

Increases in energy costs for our company-operated restaurants, principally electricity for lighting restaurants and natural gas for our broilers, could reduce our operating margins and financial results if we choose not, or are unable, to pass the increased costs to our customers. In addition, our distributors purchase gasoline needed to transport food and other supplies to us. These distributors may charge fuel surcharges if energy costs significantly increase, which could reduce our operating margins and financial results if we choose not, or are unable, to pass the increased costs to our customers.

Changes in food, packaging and supply costs could adversely affect our results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food, packaging and supply costs. We, along with our franchisees, purchase large quantities of food, packaging and supplies; and like all restaurant companies, we are susceptible to increases in food, packaging and supply costs as a result of factors beyond our control, such as general economic conditions, significant variations in supply and demand, seasonal fluctuations, weather conditions, food safety concerns, food-borne diseases, fluctuations in the value of the U.S. dollar, commodity market speculation and government regulations. Since we have a higher concentration of company-operated restaurants than many of our competitors, we may have greater volatility in our operating costs than those competitors who are more heavily franchised.

The predominant food commodities purchased by our restaurants include beef, chicken, potatoes, pork, dairy, cheese, produce, wheat flour and soybean oil. The cost of food commodities has increased markedly over the last two years, resulting in upward pricing pressure on many of our raw ingredients, and thereby increasing our food costs. For example, the cost of beef, our largest commodity expenditure and the only commodity that accounts for more than twenty percent of our total food and packaging costs, has increased over the past year as a result of a reduction in U.S. cattle supply, a trend which we expect to continue for several years, and an increase in world demand. This trend is being exacerbated by the severe drought affecting the U.S. Midwest, which has reduced the available supply of corn, the primary feedstock for livestock. The U.S. Department of Agriculture recently estimated that, as a result of the drought, which it said is the worst drought to affect the United States since the 1950’s, the price of beef may rise as much as five percent, and retail food costs may increase between three and four percent, in 2013. For these reasons, we expect that there may be additional inflationary pricing pressure on some of our key ingredients, most notably beef, during fiscal 2014. Material increases in the prices of the ingredients most critical to our menu, particularly beef, could adversely affect our operating results or cause us to consider changes to our product delivery strategy and adjustments to our menu pricing.

Our business may be adversely impacted by economic conditions and the geographic concentration of our restaurants.

Our financial condition and results of operations are dependent upon consumer confidence and discretionary spending, which are influenced by general economic conditions and other factors, including the ongoing macroeconomic challenges in the U.S. and elsewhere in the world. Negative consumer sentiment in the wake of the recent economic recession has been widely reported over the past three years and, according to some economic forecasts, may continue during fiscal 2013. Our sales may decline during this period of economic uncertainty, or during future economic downturns, which can be caused by various factors such as high gasoline prices, increasing commodity prices, high unemployment rates, declining home prices or tight credit markets. Any material decline in consumer confidence or discretionary spending could cause our financial results to decline.

In addition, unfavorable macroeconomic trends or developments concerning factors such as increased food, commodity, fuel, utilities, labor and benefits costs may also adversely affect our financial condition and results of operations. Current or future economic conditions may prevent us from increasing prices to address increased costs without negatively impacting our sales or market share. If we were unable to raise prices or alter our product mix in order to recover increased costs for food, packaging, fuel, utilities, wages, clothing and equipment, our profitability would be negatively affected.

We have a geographic concentration of restaurants in certain states and regions, which can cause economic conditions in particular areas to have a disproportionate impact on our overall results of operations. As of August 13, 2012, we and our franchisees operated restaurants in 42 states and 26 foreign countries. By number of restaurants, our domestic operations are most concentrated in California, North Carolina and Virginia, and our international franchisees are most concentrated in Mexico, the Middle East and Central Asia. Adverse economic conditions in states or regions that contain a high concentration of Carl’s Jr. and Hardee’s restaurants could have a material adverse impact on our results of operations in the future. In particular, continuing high unemployment rates in California, especially among our core customer demographic of young men, has had, and may continue to have, a negative impact on our results of operations. In addition, economic, political, legal and other conditions in Mexico, the Middle East and Central Asia, where a significant number of our international franchisees are located, could have an adverse impact on the operations of such international franchisees and, accordingly, could negatively impact our ability to execute our international growth strategy.

If our franchisees do not participate in our strategy, our business would be harmed.

Our franchisees are an integral part of our business. We may be unable to successfully implement our brand strategies if our franchisees do not actively participate in such implementation. The failure of our franchisees to focus on the fundamentals of restaurant operations, such as quality, service and cleanliness, would have a negative impact on our success. It may be more difficult for us to monitor our international franchisees’ implementation of our brand strategies due to our lack of personnel in the markets served by such franchisees. One of our strategies is to increase the ratio of franchise restaurants to company-operated restaurants, which could further reduce our influence over the operations of our total restaurant base.

If we fail to successfully implement our growth strategy, which includes opening new domestic and international restaurants, our ability to increase our revenues and operating profits could be adversely affected.

Our growth strategy relies in part upon new restaurant development by existing and new franchisees, or by us. We and our franchisees face many challenges in opening new restaurants, including:


•	availability of financing;


•	selection and availability of suitable restaurant locations;


•	competition for restaurant sites;


•	negotiation of acceptable lease and financing terms;


•	securing required domestic or foreign governmental permits and approvals;


•	consumer tastes in new geographic regions and acceptance of our products;


•	employment and training of qualified personnel;


•	impact of inclement weather, natural disasters and other acts of nature; and


•	general economic and business conditions.

In particular, because the majority of our new restaurant development is likely to be funded by franchisee investment, our growth strategy is dependent on our franchisees’ (or prospective franchisees’) ability to access funds to finance such development. We do not provide our franchisees with direct financing and therefore their ability to access borrowed funds generally depends on their independent relationships with various financial institutions. If our franchisees (or prospective franchisees) are not able to obtain financing at commercially reasonable rates, or at all, they may be unwilling or unable to invest in the development of new restaurants, and our future growth could be adversely affected.

To the extent we or our franchisees are unable to open new stores as we anticipate, our revenue growth would come primarily from growth in comparable store sales. Our failure to add a significant number of new restaurants or grow comparable store sales would adversely affect our ability to increase our revenues and operating income and could materially and adversely impact our business and operating results.

36Recent public and private concerns about the health risks associated with fast food may adversely affect our

financial results.

Recently, class action lawsuits have been filed, and may continue to be filed, against various QSRs alleging, among other things, that QSRs have failed to disclose the health risks associated with high-fat or high-sodium foods and have encouraged obesity. Adverse publicity about these allegations may discourage customers from buying our products, even if we are not the subject of a class action lawsuit.

Our success depends on the effectiveness of our marketing and advertising programs.

Brand marketing and advertising significantly affect our revenues. Our marketing and advertising programs

may not be successful, which may prevent us from attracting new customers and retaining existing customers.

Also, because franchisees contribute to our advertising fund based on a percentage of their gross sales, our

advertising budget depends on sales volumes at these franchised restaurants. If sales decline, we will have less

funds available for marketing and advertising, which will harm our business.

We may not be able to adequately protect our intellectual property, which could decrease the value of our brands and products.

The success of our business depends on the continued ability to use existing trademarks, service marks, trade secrets and other intellectual property rights in order to increase brand awareness and further develop branded products. All of the steps we have taken to protect our intellectual property may not be adequate. The loss of our intellectual property, or our inability to enforce it, may harm the value of our brands and products. Also, third parties may assert infringement claims against us, and we may be unable to successfully defend against these claims. Any litigation, regardless of whether we prevail, could result in substantial costs and a diversion of our resources, which may harm our business.

Risks Relating to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Senior Secured Notes and the Credit Facility. Our high degree of leverage could have important consequences for our creditors, including:


•	increasing our vulnerability to adverse economic, industry or competitive developments;


•	requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;


•	exposing us to the risk of increased interest rates because certain of our borrowings, including borrowings under our Credit Facility, will be at variable rates of interest;

•

making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the Senior Secured Notes, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the indenture governing the Senior Secured Notes and the agreements governing such other indebtedness;


•	restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;


•	limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and


•	limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who therefore, may be able to take advantage of opportunities that our leverage prevents us from exploiting.

If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with any of the covenants in the indenture governing the Senior Secured Notes or the Credit Facility, we could be in default under one or both of these agreements. In the event of such a default:


•	the lenders under our Credit Facility could elect to terminate their commitments thereunder and cease making further loans to us;


•	the holders of such indebtedness could elect to declare all the indebtedness thereunder to be immediately due and payable, together with accrued and unpaid interest, which would prevent us from using our cash flows for other purposes;


•	if we are unable to pay amounts outstanding and declared immediately due and payable, the holders of such indebtedness could proceed against the collateral granted to them to secure the indebtedness; and


•	we could ultimately be forced into bankruptcy or liquidation.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our Credit Facility and the indenture governing the Senior Secured Notes contain various covenants that limit our ability to engage in specified types of transactions. For example, the indenture contains covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our restricted subsidiaries to:


•	incur or guarantee additional debt or issue certain preferred equity;


•	pay dividends on or make distributions to holders of our common stock or make other restricted payments;


•	sell certain assets;


•	create or incur liens on certain assets to secure debt;


•	make certain investments;


•	designate subsidiaries as unrestricted subsidiaries;


•	consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; or


•	enter into certain transactions with affiliates.

The terms of the Credit Facility also include financial performance covenants, which include a maximum secured leverage ratio and a minimum interest coverage ratio. A breach of these or other covenants could allow the lenders to accelerate all amounts due under the Credit Agreement.

Substantially all our material assets and our common stock are subject to liens to secure obligations under the Credit Facility and the Senior Secured Notes.

Obligations under our Credit Facility and the Senior Secured Notes are secured by substantially all our material owned assets and by our common stock. If we are unable to repay all secured borrowings when due, whether at maturity or if declared due and payable following a default, the lenders or the noteholders, as the case may be, would have the right to proceed against the assets securing the indebtedness and may sell these assets in order to repay those borrowings, which could materially harm our business, financial condition and results of operations. If the lenders proceed against our common stock, then the change in the ownership interests in CKE Restaurants may significantly harm our business, financial condition and results of operations.

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ITEM 6. EXHIBITS

Exhibit No.	~~Description~~	Description
10.1	Amended and Restated Limited Partnership Agreement of Apollo CKE Holdings, L.P., dated as of January 13, 2012, among Apollo CKE GP, LLC, as the General Partner, Apollo CKE Investors, L.P., as a Limited Partner, and the Management Limited Partners, each as a Limited Partner
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
10.2	Form of Carl's Jr. Restaurant Franchise Agreement
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
10.3	Form of Hardee's Restaurant Franchise Agreement
32.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
101.INS*		XBRL Instance Document
32.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.SCH*		XBRL Taxonomy Extension Schema Document
32.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.INS*	XBRL Instance Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

__________________


*	The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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SIGNATURES

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

		CKE RESTAURANTS, INC.
Date:	~~June~~September 2719, 2012	/s/ Reese Stewart
		Reese Stewart
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	~~Description~~	Description
10.1	Amended and Restated Limited Partnership Agreement of Apollo CKE Holdings, L.P., dated as of January 13, 2012, among Apollo CKE GP, LLC, as the General Partner, Apollo CKE Investors, L.P., as a Limited Partner, and the Management Limited Partners, each as a Limited Partner
31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
10.2	Form of Carl's Jr. Restaurant Franchise Agreement
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
10.3	Form of Hardee's Restaurant Franchise Agreement
32.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
101.INS*		XBRL Instance Document
32.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.SCH*		XBRL Taxonomy Extension Schema Document
32.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.INS*	XBRL Instance Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

__________________


*	The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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