CKE RESTAURANTS INC - 10-K Annual Report

Back to GetFilings.com

1

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K

------------------------

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 26, 1998

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 1-13192

CKE RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

------------------------

DELAWARE 33-0602639
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1200 NORTH HARBOR BOULEVARD
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED:
--------------------- ------------------------------------------

COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1998 was $1,394,174,828.

The number of shares outstanding of the registrant's common stock was
46,587,830 as of March 31, 1998.

DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after January 26, 1998,
are incorporated by reference into Part III of this Report.

The Exhibit Index is contained in Part IV herein on Page E-1.

================================================================================
2

CKE RESTAURANTS, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 26, 1998

PAGE
----

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 15

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial and Operating Data....................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13. Certain Relationships and Related Transactions.............. 26

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 28

i
3

PART I

ITEM 1. BUSINESS

OVERVIEW

CKE Restaurants, Inc., a Delaware corporation ("CKE" or the "Company"), is
a leading nationwide owner, operator and franchisor of quick-service restaurants
with 3,981 branded restaurant units operating as of January 26, 1998, primarily
under the Carl's Jr. and Hardee's brand names. Based on domestic system-wide
sales, the Company's Hardee's and Carl's Jr. chains are the fourth and seventh
largest quick-service hamburger restaurant chains in the United States,
respectively. The Company also owns and operates quick-service Mexican
restaurants under the Taco Bueno brand name.

O Carl's Jr.(R) -- Carl's Jr. was founded in 1956 and is located primarily
in the Western United States, with a leading market presence in
California. The Carl's Jr. menu features several charbroiled hamburgers,
chicken sandwiches, steak sandwiches and other signature items, including
the Famous Star, Western Bacon Cheeseburger(R), Super Star(R),
Charbroiler Chicken Sandwiches(R), Crispy Chicken Sandwiches(R) and the
Charbroiled Sirloin Steak Sandwich. The Company believes that Carl's Jr.
maintains a strong price-value image with its customers because its menu
items are generally made-to-order, meet exacting quality standards, are
offered in generous portions and have a strong reputation for quality and
taste. As of January 26, 1998, the Carl's Jr. system included 708
restaurants, of which 443 were operated by the Company and 265 were
operated by the Company's franchisees and licensees.

O Hardee's(R) -- Hardee's, which was acquired by the Company in July 1997,
was founded in 1961 and has a leading market presence in the Southeastern
and Midwestern United States. Hardee's strength is its breakfast menu,
generating approximately 30% of its overall revenues, which is one of the
highest percentages in the quick-service hamburger restaurant industry.
Hardee's breakfast menu features made-from-scratch biscuits, biscuit
breakfast sandwiches and other items such as hash rounds and breakfast
platters. The current Hardee's lunch and dinner menu includes hamburgers
and fried chicken. Since its acquisition of Hardee's, the Company's
management has implemented certain improvements to the Hardee's menu by
streamlining its product offerings and is in the process of adding in
selected markets certain Carl's Jr. lunch and dinner menu items to
complement Hardee's strong breakfast menu. As of January 26, 1998, the
Hardee's system included 3,038 restaurants, of which 863 were operated by
the Company and 2,175 were operated by the Company's franchisees and
licensees. As a result of the acquisition of Flagstar Enterprises, Inc.
("FEI"), 1,420 of the 3,038 Hardee's restaurants operated as of January
26, 1998 are presently operated by the Company and 1,618 are operated by
the Company's franchises and licensees. (See "Recent Developments").

O Taco Bueno(R) -- The Company owns and operates 109 Taco Bueno
quick-service Mexican restaurants located in Texas and Oklahoma. Taco
Bueno seeks to differentiate itself from its principal competitors by
offering a diverse menu featuring generous portions of freshly prepared,
high quality food items. In addition to typical quick-service Mexican
offerings, such as burritos, tacos, tostadas and combination meals, Taco
Bueno features a number of signature menu items, such as its MexiDips &
Chips and Bueno Chilada Platter.

BUSINESS STRATEGY

The Company's strategy is to increase the profitability and sales of its
existing and newly acquired restaurants by applying its customer-focused,
disciplined operating strategy. The Company believes that its ability to deliver
high quality food to customers with superior service in a clean and friendly
environment is central to its operating success. The Company has developed food,
labor and customer service management practices that allow management to
effectively monitor restaurant-level operations, benchmark restaurant
performance statistics and communicate system-wide best practices across its
restaurant concepts. In addition, the Company aggressively promotes and enhances
brand awareness through innovative advertising and is committed to controlling
costs at each level of operations. A key element to the Company's strategy is to

1
4

acquire underperforming restaurants and increase the profitability and sales of
the acquired restaurants by applying its successful operating strategy.

In October 1994, the Company's new management team began implementing a
variety of operating initiatives designed to revitalize the Carl's Jr. brand and
improve its financial results. These initiatives included, among others, a
renewed focus on offering superior products, the elimination of most
lower-priced menu items, a new advertising campaign, a dual-branding program
with The Green Burrito and the commencement of a remodeling program for Carl's
Jr. restaurants. Since then, the Company has experienced significant increases
in revenues, restaurant-level margins and net income. From fiscal 1994 to fiscal
1998, Company-operated Carl's Jr. restaurant-level margins increased from 17.8%
to 24.2% and average unit sales increased from $992,000 to $1,157,000. In
addition, for the past 11 quarters, Carl's Jr. has reported increases in
Company-operated Carl's Jr. restaurant revenues and restaurant-level margins as
compared to the same periods in prior years. Based upon publicly available data,
Company-operated Carl's Jr. restaurants generate restaurant-level margins and
average unit sales which the Company believes are among the highest of the major
quick-service hamburger restaurant chains. The Company believes these results
are directly related to the implementation of its operating initiatives,
management practices and disciplined operating strategy.

In July 1997, the Company acquired Hardee's, which allowed it to
significantly expand the scope of its operations and become one of the leading
nationwide operators of quick-service hamburger restaurants. Despite Hardee's
poor recent historical performance, the Company believes there is significant
value in Hardee's and Carl's Jr.'s complementary geographic markets and relative
menu strengths, Hardee's established brand name and Hardee's significant market
presence in many of its existing markets. The Company has begun implementing a
plan to meaningfully improve the profitability and sales of Hardee's in an
effort to improve Hardee's poor recent historical performance. The Company's
plan includes many of the strategic and operating initiatives which it used to
improve the operations of its Carl's Jr. restaurants including implementing
CKE's management practices, improving the quality of food, enhancing the quality
of service, updating restaurant facilities and managing costs more effectively.

The Company is in the early stages of its plan to improve Hardee's
operations and has focused its efforts initially on managing costs more
effectively and realizing purchasing synergies. Hardee's Company-operated
restaurant-level margins in the fourth quarter of fiscal 1998 increased to 12.8%
compared with 1.5% for the comparable period in the prior year for restaurants
open and operating as of December 31, 1996. The Company has accomplished this
initial margin improvement by streamlining the Hardee's menu, introducing the
Carl's Jr. labor matrix to refine labor usage, focusing on safety and accident
prevention as a way to reduce workers' compensation costs, reducing food waste
and theft tolerance levels, decreasing food and paper costs through the
realization of certain purchasing synergies and conforming Hardee's depreciation
policies with those of the Company.

RECENT DEVELOPMENTS

On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group,
Inc. ("Advantica") for a purchase price of $380.8 million plus the assumption of
$45.6 million in capital lease obligations, subject to adjustment ("the FEI
Acquisition"). FEI was the largest franchisee of the Hardee's system, previously
operating 557 Hardee's restaurants, located primarily in the Southeastern United
States.

The Company believes that the FEI Acquisition provides it with an
opportunity to continue to expand the scope of its operations and to exercise
further control over its Hardee's restaurant system. As a result of the FEI
Acquisition, 1,420 of the 3,038 Hardee's restaurants operated as of January 26,
1998 are presently operated by the Company, representing 46.7% of the Hardee's
system, and giving the Company control of 48 of Hardee's 98 broadcast
cooperative advertising markets. The Company believes it can meaningfully
improve the same-store sales trends and profitability levels at FEI's Hardee's
restaurants by implementing the strategies which it has used to improve the
operations of its Carl's Jr. restaurants and is beginning to implement at its
Company-operated Hardee's restaurants. In addition, with a greater percentage of
Company-operated restaurants, the Company believes it will be better positioned
to promote a consistent

2
5

Hardee's brand image as it attempts to revamp the menu offerings, cooking
methods and overall customer satisfaction at Hardee's.

GROWTH STRATEGY

The Company is currently pursuing a strategy of growth and expansion
through increasing profitability and sales at its existing and newly-acquired
underperforming restaurants. The key elements of the Company's growth strategy
are as follows:

Drive Hardee's Sales. The Company is in the early stages of its plan to
revitalize the Hardee's brand and has focused its efforts initially on
increasing restaurant margins by managing costs more effectively and realizing
purchasing synergies. The Company believes it can improve Hardee's sales by
further implementing its plan which includes introducing Carl's Jr.'s
charbroiling cooking methods, accelerating the remodeling of Company-operated
restaurants, and launching an advertising campaign through its recently selected
advertising firm, Angotti, Thomas, Hedge, Inc., which targets the frequent
fast-food user (males, age 16-34) as well as Hardee's existing customer base
which consists equally of males and females.

Leverage Carl's Jr. and Hardee's Strengths. Carl's Jr. and Hardee's have
complementary geographic markets and menu strengths. Carl's Jr.'s strength is
its lunch and dinner menu, which features charbroiled hamburgers and chicken
sandwiches that have a strong reputation for quality and taste. Hardee's
strength is its breakfast menu, which has historically generated approximately
30% of its overall revenues. The Company is in the process of adding in selected
markets Carl's Jr. lunch and dinner menu items, including the introduction of
the Carl's Jr. brand name, to complement Hardee's strong breakfast menu. The
Company will evaluate the potential for dual-branding the Carl's Jr. and
Hardee's brands in a focused fashion on a market-by-market basis.

Continue to Grow Successful Carl's Jr. Chain. The Company intends to
continue its Carl's Jr. expansion program by opening new restaurants, continuing
its innovative advertising campaign and making selected opportunistic
conversions of existing Hardee's restaurants. For fiscal 1999, the Company
currently anticipates that it will open up to 30, and its franchisees will open
up to 30, new Carl's Jr. restaurants. In addition, the Company plans to continue
its successful dual-branding of its Carl's Jr. restaurants with The Green
Burrito. The Company plans to convert at least 60 restaurants per year to
dual-brand locations in each of the next three years.

Opportunistically Pursue Strategic Acquisitions. While the Company is not
currently contemplating any significant additional acquisitions or investments,
it will continue to evaluate opportunities to expand its operations by making
strategic acquisitions of, or investments in, underperforming restaurant
companies. Since the Company's acquisition of Hardee's, it has purchased an
additional 85 Hardee's restaurants from its franchisees in fiscal 1998,
primarily in the St. Louis, Missouri and Green Bay, Wisconsin areas. The Company
will continue to consider opportunities to acquire additional Hardee's
restaurants, if appropriately priced, in areas the Company believes may
strengthen Hardee's position in the market.

RESTAURANT OPERATIONS

CARL'S JR.

Concept. The Company believes that its Carl's Jr. restaurants' superior
food quality, diverse menu and attentive customer service differentiate the
Company from its competitors and are critical to its success. Unlike many
quick-service restaurants which emphasize lower prices, Carl's Jr. restaurants
focus on offering customers a higher quality dining experience at a reasonable
price. Carl's Jr. charbroiled hamburgers, chicken sandwiches and signature items
are generally made-to-order, meet exacting quality standards and are offered in
generous portions. Carl's Jr.'s menu features freshly prepared food items that
appeal to a broad audience. By providing partial table service, unlimited drink
refills and an attractive restaurant decor, Carl's Jr. restaurants offer a
pleasant, customer-friendly environment. The Company believes that its focus on
customers and customer service, superior food quality and generous portions
enables the Carl's Jr. restaurants to maintain a strong price-value image with
its customers.

3
6

Menu and Restaurant Design. Carl's Jr. restaurants offer a variety of
products that have a strong reputation for quality and taste. The Carl's Jr.
menu is relatively uniform throughout the chain and features several charbroiled
hamburgers and chicken sandwiches, including the Famous Star, Western Bacon
Cheeseburger, Super Star, Charbroiler Chicken Sandwiches, Crispy Chicken
Sandwiches and the Charbroiled Sirloin Steak Sandwich. Other entrees include a
fish sandwich, baked potatoes and prepackaged salads. Side orders, such as
french fries, onion rings and fried zucchini, are also offered. Most restaurants
also have a breakfast menu including eggs, bacon, sausage, French Toast Dips(R),
the Sunrise Sandwich(R) and a breakfast burrito. In addition, the restaurants
sell a variety of promotional products on a limited basis. The Company was also
among the first to offer self-service salad bars and all-you-can-drink beverage
bars.

Most Carl's Jr. restaurants are freestanding, ranging in size from 2,500 to
4,000 square feet, with a seating capacity of 65 to 115 persons and drive-thru
facilities. Some restaurants are located in shopping malls and other in-line
facilities. Currently, several building designs and floor plans are in use
system-wide, depending upon operational needs, local zoning requirements and
real estate availability.

The Company has completed remodeling substantially all of its Carl's Jr.
restaurants to provide them with a fresh, contemporary look. Exterior
improvements include brighter colors, red awnings and a large, tilted Happy
Star(R) logo. The new interiors feature the same bright colors, food murals,
display cases for salads and desserts and accent lighting throughout the dining
area. The Company believes that its new restaurant design will further increase
the consumers' awareness of the Carl's Jr. brand.

Operations. The Company strives to maintain high standards in all materials
used by its restaurants, as well as the operations related to food preparation,
service and cleanliness. Hamburgers and chicken and steak sandwiches at Carl's
Jr. restaurants are generally prepared or assembled after the customer has
placed an order and are served promptly. Hamburger patties, chicken breasts and
sirloin steaks are charbroiled in a gas-fired double broiler that sears the meat
on both sides. The meat is conveyed through the broiler automatically to
maintain uniform heating and cooking time.

Each Company-operated Carl's Jr. restaurant is operated by a manager who
has received nine to 13 weeks of management training. This training program
involves a combination of classroom instruction and on-the-job training in
specially designated training restaurants. Other restaurant employees are
trained by the restaurant manager in accordance with Company guidelines.
Restaurant managers are supervised by district managers, each of whom is
responsible for 11 to 14 restaurants. Approximately 35 district managers are
under the supervision of four regional vice presidents, all of whom regularly
inspect the operations in their respective districts and regions.

Green Burrito Dual-Branding. Dual-branding allows a single restaurant to
offer consumers two distinct brand menus. In May 1995, the Company entered into
a five-year agreement with GB Foods Corporation ("GB Foods"), the operator and
franchisor of The Green Burrito quick-service Mexican food concept, to offer The
Green Burrito menu at selected Carl's Jr. locations. The Company believes that
The Green Burrito's position in the popular Mexican food segment and its dinner
menu orientation complement the Carl's Jr. menu. Customers of the Carl's
Jr./Green Burrito dual-brand restaurants are able to order items from both the
Carl's Jr. menu board and The Green Burrito menu board from the same counter and
both menus are available to customers utilizing the drive-thru. The Green
Burrito menu offered at the dual-brand restaurants features a broad range of
traditional Mexican food items, including burritos, tostadas, enchiladas,
taquitos and nachos. A variety of condiments such as jalapeno peppers, hot sauce
and mild and hot salsa are available at self-serve salsa bars so that customers
can spice and garnish their meals according to individual taste. The Company
believes that this dual-branding program has attracted new customers, while
increasing the frequency of customer visits at converted restaurants.

In order to convert an existing Carl's Jr. restaurant to a Carl's Jr./Green
Burrito restaurant, the additional equipment necessary to offer The Green
Burrito menu is added to the Carl's Jr. restaurant, as well as new menu boards
and new signage, both inside and outside, indicating the offering of both
brands. In most cases, changes to the seating area or other parts of the
physical structure of the restaurant are unnecessary.

4
7

The Company's agreement with GB Foods initially provided for the conversion
of 140 Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants
by July 2000. The original agreement was modified in February 1997 to provide
for the conversion of at least 60 restaurants per year to dual-brand locations
for each of the next three years. The Company is required to pay an initial
franchise fee for each restaurant opened and remit royalties on The Green
Burrito food sales to GB Foods. At the end of fiscal 1996, the Company elected
to sub-franchise, and shortly thereafter began offering, the Carl's Jr./Green
Burrito dual-brand to its franchise community. As of January 26, 1998, 12
franchised Carl's Jr. restaurants have been converted to the Carl's Jr./Green
Burrito concept. The Company receives a portion of the fee for each franchise
conversion and royalties from its franchisees' Green Burrito food sales.

Franchised and Licensed Operations. The Company's franchise strategy is
designed to further the development of the Carl's Jr. chain and reduce the total
capital required of the Company for development of new Carl's Jr. restaurants.
Franchise arrangements with Carl's Jr. franchisees, who operate in Arizona,
California, Colorado, Hawaii, Nevada, Oregon and Utah, generally provide for
initial fees and continuing royalty payments to the Company based upon a
percentage of sales. Additionally, most franchisees purchase food, paper and
other supplies from the Company. Franchisees may also be obligated to remit
lease payments for the use of Company-owned or leased restaurant facilities and
to pay related occupancy costs, which include maintenance, insurance and
property taxes. The Company also plans to continue to pursue non-traditional
franchise development opportunities through innovative formats, including
gasoline stations, convenience stores and institutional food service outlets.

The Company's franchising philosophy is such that only candidates with
appropriate experience are considered for the program. Specific net worth and
liquidity requirements must also be satisfied. Area development agreements
generally require franchisees to open a specified number of Carl's Jr.
restaurants in a designated geographic area within a specified time period.

As of January 26, 1998, 265 Carl's Jr. restaurants were operated by the
Company's franchisees and licensees. The majority of the Company's franchisees
own more than one restaurant, with 12 franchisees owning seven or more
restaurants. The Company presently anticipates that its franchisees and
licensees will open up to 30 new Carl's Jr. restaurants during fiscal 1999.

To expand the Carl's Jr. presence internationally, the Company entered into
nine exclusive licensing agreements that allow the Carl's Jr. licensees to use
the Carl's Jr. name and trademarks and provide for initial fees and continuing
royalties based upon a percentage of sales. As of January 26, 1998, there were
22 licensed restaurants in operation, most of which are located in Mexico and
the Pacific Rim. Royalties from the Company's licensing agreements were not
material in fiscal 1998, 1997 or 1996.

HARDEE'S

Concept. The Hardee's restaurant chain offers a variety of menu items
targeted at a broad audience in a quick-service, uniform format. Hardee's
restaurants emphasize hometown values by providing generous portions at
reasonable prices in a friendly environment. Hardee's restaurant promotions
often include "two-for-two" campaigns, which offer two menu items for two
dollars. Unlike many quick-service hamburger restaurants, Hardee's strength has
been in the breakfast menu, which features made-from-scratch biscuits. Hardee's
breakfast menu generates approximately 30% of its overall operating revenue, one
of the highest in the quick-service hamburger industry. The Company has begun
implementing certain improvements to its Hardee's restaurants to offer higher
quality food and service in a clean and pleasant environment. These improvements
include introducing partial table service, unlimited drink refills and
charbroiling cooking methods. Hardee's has a leading market presence in the
Southeastern and Midwestern United States.

Menu and Restaurant Design. The restaurants currently offer hamburgers,
chicken, roast beef and fish sandwiches, hot dogs and low-fat yogurt for lunch
and dinner. Hardee's breakfast menu features made-from-scratch biscuits, biscuit
breakfast sandwiches and other items such as hash rounds and breakfast platters.
Since its acquisition of Hardee's, the Company's management has implemented
certain improvements to the Hardee's menu by streamlining its product offerings
to improve guest service and food quality. The Company

5
8

also is in the process of adding certain Carl's Jr. lunch and dinner menu items
to Hardee's strong breakfast menu.

Substantially all of Hardee's restaurants have drive-thru facilities and
selected restaurants are open 24 hours a day, primarily on weekends. Most
Hardee's restaurants are freestanding, ranging in size from 3,000 to 3,500
square feet, with a seating capacity of 75 to 100 persons. Currently, several
building designs and floor plans are in use system-wide, depending upon
operational needs, local zoning requirements and real estate availability.

The Company is currently in the process of remodeling certain of its
Hardee's restaurants to provide them with a fresh appearance. Improvements
include new menu boards, kitchen upgrades, new roofs, paint, trim and wallpaper,
as well as minor landscaping and parking lot repairs. The Company plans to
remodel all of Hardee's Company-operated restaurants over the next three to five
years.

Operations. The Company strives to maintain high standards in all materials
used by its Hardee's restaurants, as well as the operations related to food
preparation, service and cleanliness. As part of its plan to implement its
Carl's Jr. operating strategy at Hardee's, the Company is in the process of
installing gas-fired double charbroilers in each existing Company-owned Hardee's
restaurant. In addition, the Company is also in the process of implementing its
Carl's Jr. management practices, including its extensive management training
program, at Hardee's.

Franchised and Licensed Operations. Franchise agreements with Hardee's
franchisees, who operate in the Southeastern and Midwestern United States,
generally provide for initial fees and continuing royalty payments to the
Company based upon a percentage of sales. Most franchisees are required to
purchase certain inventory and supplies from approved suppliers and are required
to spend a minimum percentage of sales each month on advertising. In addition,
most franchisees are required to purchase and install all fixtures, furnishings,
signs and equipment specified in the approved site layout and plan. Prior to the
opening of each franchised restaurant, the general manager of each franchise is
required to attend and complete a training program sponsored by the Company.
Franchisees may also be required to remit lease payments for the use of
Company-owned or leased restaurant facilities and to pay related occupancy
costs.

As of January 26, 1998, 1,618 Hardee's restaurants were operated by the
Company's franchisees and licensees (other than FEI, which was acquired by the
Company on April 1, 1998). The majority of the Company's franchisees own more
than one restaurant, with 35 franchisees owning 10 or more restaurants. Prior to
the FEI Acquisition, FEI was the largest franchisee of Hardee's restaurants,
operating 557 restaurants located primarily in the Southeastern United States.
The Company presently anticipates that its franchisees and licensees will open
up to 30 new Hardee's restaurants during fiscal 1999.

TACO BUENO

The Company owns and operates 109 Taco Bueno quick-service Mexican
restaurants located in Texas and Oklahoma. The Taco Bueno restaurants were
acquired by the Company in October 1996 in connection with the acquisition of
Casa Bonita Incorporated. Taco Bueno seeks to differentiate itself from its
principal competitors by offering a diverse menu featuring generous portions of
freshly prepared, high quality food items. In addition to typical quick-service
Mexican offerings, such as burritos, tacos, tostadas and combination meals, Taco
Bueno features a number of signature menu items such as its MexiDips & Chips and
Bueno Chilada Platter. Taco Bueno's Mexican platters include taco and burrito
platters, beef and chicken taco salads and nacho platters, each of which are
accompanied by rice, beans, freshly prepared guacamole and chips. The
restaurants also feature a salsa bar which includes sliced jalapenos, diced
onions, pico de gallo, and hot sauce.

Taco Bueno restaurants generally feature a "Santa Fe/Pueblo" architecture
and exterior decor, which is designed to increase visibility and consumer
recognition, and generally range in size from 2,400 square feet to 3,200 square
feet. Restaurant interiors include wooden tables and chairs, booth seating,
stucco walls, warm colors and a southwestern theme, all of which are intended to
create a distinctive atmosphere. The Company is also in the process of enhancing
the Taco Bueno brand image with new signage and menu boards and is considering a
more extensive remodeling program.

6
9

The Company's strategy with respect to its Taco Bueno concept is to
increase its market share and competitive presence in existing markets. The
Company believes that the growing popularity of Mexican food and the relatively
few national or regional Mexican quick-service restaurant chains provide a
significant opportunity to expand the Taco Bueno concept within its core markets
in the areas of Dallas/Ft. Worth, Tulsa and Oklahoma City and to enter into new
markets. The Company anticipates it will open up to five Taco Bueno restaurants
in its existing markets during fiscal 1999.

INVESTMENTS IN OTHER RESTAURANT CONCEPTS

The Company has selectively acquired or invested in other restaurant
concepts as follows:

GB Foods and JB's Restaurants. The Company owns, operates and franchises
the JB's Restaurant family dining restaurant concept and owns and operates six
Galaxy Diner "50's-style" casual theme restaurants. As of January 26, 1998, the
JB's Restaurant system consisted of 94 restaurants, of which 74 were owned and
operated by the Company. The JB's Restaurant system and the Galaxy Diner
restaurants were purchased by the Company in connection with its acquisition of
Summit Family Restaurants Inc. ("Summit") during fiscal 1997. In February 1998,
the Company sold 12 Company-operated JB's Restaurants to Star Buffet, Inc.
("Star Buffet"). As a result of such sale, the Company received approximately
$4.8 million in cash. In addition, the Company has recently announced two
additional transactions which will result in the disposition of the entire JB's
Restaurant system and Galaxy Diner restaurants. First, the Company has agreed to
sell 14 Company-operated JB's Restaurants and two Galaxy Diner restaurants to
Timber Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed
merger of Timber Lodge and GB Foods. Second, the Company has agreed to sell 48
Company-operated JB's Restaurants and the JB's Restaurant franchise system,
together with four Galaxy Diner restaurants, to GB Foods. If the above
transactions are completed, the Company expects to receive approximately 1.6
million shares of GB Foods, which would represent approximately 10% of GB Foods'
outstanding shares after giving effect to such transactions. There can be no
assurance that these transactions will be completed. The foregoing transactions,
together with the Company's reorganization and the initial public offering of
Star Buffet will complete the Company's previously announced plans to sell or
otherwise dispose of all or a portion of the restaurant businesses of Summit.

Rally's and Checkers. Rally's Hamburgers, Inc. ("Rally's") operates and
franchises the Rally's Hamburgers double drive-thru quick-service hamburger
restaurant concept. As of January 9, 1998, there were 473 Rally's restaurants
operating in 18 states, primarily in the Midwest and the Sunbelt, of which 26
were operated by the Company in California and Arizona. The Company and Rally's
entered into an operating agreement, effective in July 1996, pursuant to which
Rally's retains ownership of the assets of such restaurants and receives a
percentage of the restaurants' sales.

The Company has invested $21.3 million in Rally's for a 27% interest in
Rally's outstanding shares, and has the right to acquire an additional 4%
interest. Rally's owns a 27% interest in Checkers Drive-In Restaurants, Inc.
("Checkers").

Checkers operates and franchises the Checkers Drive-In Restaurants double
drive-through quick-service hamburger restaurant concept. As of January 9, 1998,
there were 473 Checkers restaurants operating in 23 states. The Company has the
right to acquire shares of common stock representing 10% of Checkers'
outstanding shares. The Company also holds $7.6 million aggregate principal
amount of Checkers' senior secured debt, net of related discount.

Star Buffet. Star Buffet is an operator of 33 buffet-style restaurants and
11 franchised, family-style JB's Restaurants. The Company formed Star Buffet in
connection with a reorganization of its buffet-style restaurant operations and
with Star Buffet's initial public offering in September 1997, and continues to
hold a 37% interest in Star Buffet.

Boston Market. The Company continues to hold a minority interest in Boston
West, L.L.C. ("Boston West"), which acquired the Company's Boston Market
restaurant assets and operations in fiscal 1995 and is developing Boston Market
stores in designated markets in California under an area development agreement

7
10

with Boston Chicken, Inc., the franchisor of the Boston Market restaurant
concept. As of January 26, 1998, Boston West operated 98 Boston Market stores
located in Southern California.

The Company intends to continuously review its investments in other
restaurant concepts. Although the Company has no present intention to dispose of
or acquire additional interests in other restaurant concepts, the Company may do
so in the future. When deciding to dispose of or acquire additional interests,
the Company may take into consideration various factors, including, but not
limited to, business prospects of the restaurant concept, alternative business
opportunities available to the Company and general economic conditions.

PURCHASING AND DISTRIBUTION

The Company purchases most of the primary food products and packaging
supplies used in the Carl's Jr. restaurant system and warehouses and distributes
such items to both Company-operated and franchised Carl's Jr. restaurants.
Although not required to do so, substantially all of the Company's Carl's Jr.
franchisees purchase most of their supplies from the Company. The Company's
Carl's Jr. restaurant chain is one of the few businesses in the quick-service
restaurant industry that has elected not to outsource all of its distribution
activities.

The Company currently purchases substantially all of the food products and
cleaning products sold or used in its Hardee's restaurants from Fast Food
Merchandisers, Inc. ("FFM"), certain of which are manufactured by FFM for the
Company according to the Company's food product formulations. FFM currently
distributes such products, together with most food and other products sold or
used by Hardee's restaurants, to restaurants operated by the Company, excluding
those acquired in the FEI Acquisition, and to many of the Hardee's restaurants
operated by the Company's franchisees. Pursuant to the terms of product supply
and distribution agreements entered into between the Company and FFM in
connection with the Company's acquisition of Hardee's in July 1997, the Company
is obligated to purchase substantially all of its requirements for certain
specified products from FFM for a five-year term, and FFM will provide exclusive
distribution services to Company-operated Hardee's restaurants, excluding those
acquired in the FEI Acquisition, with respect to such products, as well as
products purchased from other vendors, for a seven-year term. The prices to be
paid by the Company for FFM products, and delivery fees to be paid by the
Company to FFM for distribution services, will be subject to adjustment in
certain circumstances, which may include increases resulting from changes in
FFM's cost structure. Although the Company believes the prices anticipated to be
paid to FFM will remain competitive, there can be no assurance that the prices
and fees paid by the Company to FFM will not increase, perhaps substantially,
which could have a material adverse effect on the Company.

FEI has benefited from participating in Advantica's centralized purchasing
program. Advantica's size provided it with significant purchasing power, which
often enabled it to obtain products at more favorable prices from several
nationally recognized manufacturers. Food and packaging for FEI's Hardee's
restaurants are purchased from independent suppliers approved by Hardee's. After
the FEI Acquisition, FEI will continue to operate under existing arrangements
with its suppliers. The Company obtained from FFM a waiver of the exclusivity
provisions of its supply agreements with FFM to permit the continuation of FEI's
existing arrangements with suppliers. A substantial portion of products for
FEI's Hardee's restaurants is obtained from MBM Corporation ("MBM"), an
independent supplier and distributor of food and other products. In connection
with Advantica's sale of its distribution subsidiary to MBM in 1995, FEI entered
into a ten year distribution agreement under which MBM distributes and supplies
certain products and supplies to FEI. There are no volume requirements relative
to this agreement; however, the products named therein must be purchased through
MBM unless they are unable to make delivery within a reasonable period.

The Company believes its mature procurement process allows it to
effectively manage food costs, provide adequate quantities of food and supplies
at competitive prices, and generate revenues from franchisees by adding a
nominal mark-up to cover direct costs and provide better overall service to its
restaurants. The Company seeks competitive bids from suppliers on many of its
food products, approves suppliers of those products and requires them to adhere
to product specifications established by the Company. Whenever

8
11

possible, the Company negotiates sole source contracts for particular products
which tend to produce deeper discounts.

COMPETITION

The food service industry is intensely competitive with respect to the
quality and value of food products offered, concept, service, pace, dining
experience and location. The Company primarily competes with major restaurant
chains, some of which dominate the quick-service restaurant industry, and also
competes with a variety of other take-out food service companies and fast-food
restaurants. The Company's competitors also include a variety of mid-price,
full-service casual dining restaurants, health and nutrition-oriented
restaurants, delicatessens and prepared food stores, as well as supermarkets and
convenience stores. Many of the Company's competitors have substantially greater
financial, marketing and other resources than the Company, which may give them
certain competitive advantages. Certain of the major quick-service restaurant
chains have increasingly offered selected food items and combination meals at
discounted prices. In recent years, the Company's restaurant sales were
adversely affected by aggressive promotions and price reductions by its
competitors. Future changes in the pricing or other marketing strategies of one
or more of the Company's competitors could have a material adverse effect on the
Company's financial condition and results of operations. As the Company's
competitors expand operations, competition can be expected to intensify. Such
increased competition could have a material adverse effect on the Company's
financial condition and results of operations. The Company also faces
competition from other quick-service operators, retail chains, other companies
and developers for desirable site locations, which may adversely affect the
cost, implementation and timing of the Company's expansion plans.

TRADEMARKS AND SERVICE MARKS

The Company owns numerous trademarks and service marks. The Company has
registered many of those marks, including Carl's Jr., the Happy Star logo,
Hardee's and proprietary names for a number of the Carl's Jr., Hardee's and Taco
Bueno menu items, with the United States Patent and Trademark Office. The
Company believes that its trademarks and service marks have significant value
and play an important role in its marketing efforts. The Green Burrito(R) is a
registered trademark of GB Foods.

SEASONALITY

The Company's business is moderately seasonal. Average restaurant sales are
normally higher in the summer months than during the winter months for each of
the Company's restaurant concepts. Seasons have a greater impact on average
restaurant sales at Hardee's restaurants in comparison with the Company's other
restaurant concepts.

GOVERNMENT REGULATIONS

Each Company-operated and franchised restaurant must comply with
regulations adopted by federal agencies and with licensing and other regulations
enforced by state and local health, sanitation, safety, fire and other
departments. In addition, these restaurants also must comply with federal and
state environmental regulations, but those regulations have not had a material
effect on the restaurants' operations. More stringent and varied requirements of
local governmental bodies with respect to zoning, land use and environmental
factors can delay and sometimes prevent development of new restaurants and
remodeling of existing restaurants in particular locations.

The Company is also subject to federal laws and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee, including limitations on the ability of franchisors
to terminate franchisees and alter franchise arrangements. The Company believes
it is operating in substantial compliance with applicable laws and regulations
governing its operations.

9
12

The Company and its franchisees must comply with the Fair Labor Standards
Act and various federal and state laws governing employment matters, such as
minimum wages, overtime and other working conditions and citizenship
requirements. Many of the Company's employees are paid hourly rates related to
the federal and state minimum wage laws and, accordingly, increases in the
minimum wage increase the Company's labor cost.

EMPLOYEES

As of January 26, 1998, the Company employed approximately 46,500 persons,
of whom approximately 42,700 were hourly restaurant, distribution or clerical
employees and the remainder were managerial, salaried employees engaged in
administrative and supervisory capacities. A majority of the hourly employees
are employed on a part-time basis to provide service necessary during peak
periods of restaurant operations. As of December 31, 1997, FEI employed
approximately 19,400 persons, approximately 17,600 of which were employed at the
restaurant level. None of the Company's employees is currently covered by a
collective bargaining agreement. The Company has never experienced a work
stoppage attributable to labor disputes and believes its employee relations are
good.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

The Company wishes to caution readers that the information contained and
incorporated by reference herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors could cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by any forward-looking statements made by or on behalf of the Company.
These factors include, but are not limited to, the competitive environment in
the quick-service restaurant industry in general and in the Company's specific
market areas, changes in prevailing interest rates and the availability of
financing, inflation, changes in costs of goods and services, economic
conditions in general and in the Company's specific market areas, and
uncertainties related to the acquisition of Hardee's and FEI. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included or incorporated by reference herein do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks" or "anticipates," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategies, plans or
intentions. The accompanying information contained in this Form 10-K, including
without limitation the information set forth under "Item 1. Business," and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations," identifies important factors that could cause such differences.

The acquisition of Hardee's significantly increased the size of the
Company. Managing the Company and integrating the acquired business operations
of Hardee's will continue to present a significant challenge to the Company's
management. Historically, Hardee's has been a well-established but
underperforming brand which has recently experienced declining system-wide
same-store sales and a declining market share in the quick-service hamburger
restaurant industry. The Company continues to evaluate the restaurant operations
of Hardee's and various short- and long-term strategic considerations in the
process of assessing the extent to which Hardee's restaurant operations will be
integrated, restructured or otherwise modified by the Company. One of the
objectives of the Company's turnaround strategies for Hardee's is to stem the
recent negative operating trends experienced by Hardee's. However, there can be
no assurance that these strategies will be successful. If the Company is unable
to achieve anticipated improvements in restaurant-level operating margins or
reductions in corporate overhead costs in its Hardee's operations on a timely
basis, cash flows generated from Hardee's operations may not be adequate to
support the Company's turnaround strategies for Hardee's, some of which require
significant capital expenditures. The Company's success will also depend, in
part, on its Hardee's franchisees. Hardee's franchisees are not required to
participate in implementing the Company's strategies and there can be no
assurance that Hardee's franchisees will participate. Lack of participation by
Hardee's franchisees in implementing the Company's strategies could delay or
limit the

10
13

success of the Company's strategies. Restructuring and integrating the
restaurant operations of Hardee's will require the dedication of significant
capital and management resources, which may cause an interruption of, or a loss
of momentum in, the activities of the Company. The difficulties of such
restructuring and integration may be increased by the necessity of coordinating
geographically separate organizations and selectively introducing the Carl's Jr.
brand into markets in which Carl's Jr. restaurants have never operated, all of
which, together with other factors beyond the Company's control, may adversely
affect the cost, implementation, execution and timing of the Company's
turnaround strategies for Hardee's. Failure to effectively accomplish the
integration of the Company's operations or to improve Hardee's results of
operations could have a material adverse effect on the Company's financial
condition and results of operations.

The FEI Acquisition results in another significant increase in the size of
the Company. Integrating the acquired business operations of FEI also presents a
significant challenge to the Company's management, and may affect the
implementation and timing of the Company's turnaround strategies for Hardee's.
The Company believes that the FEI Acquisition will help the Company achieve a
greater degree of control over the entire Hardee's system as well as its
advertising and marketing strategies; however, no assurances can be given that
the Company will realize the benefits it anticipates from the FEI Acquisition,
or that the FEI Acquisition will not adversely affect the Company's financial
condition or results of operations.

In order to finance the Hardee's acquisition and to make borrowings
available to the Company for working capital and other corporate purposes, in
July 1997, the Company entered into a term loan facility of $75.0 million (the
"Term Loan Facility") and a $225.0 million revolving credit facility (the
"Revolving Credit Facility" and, collectively with the Term Loan Facility, the
"Senior Credit Facility"). As of January 26, 1998, borrowings of $67.5 million
remained outstanding under the Term Loan Facility and borrowings of $71.0
million remained outstanding under the Revolving Credit Facility. On April 1,
1998, the Company amended the Senior Credit Facility to increase the aggregate
principal amounts of the lenders' commitments under the Term Loan Facility to
$250.0 million and under the Revolving Credit Facility to $250.0 million. The
Company incurred borrowings of $213.2 million thereunder to finance a portion of
the purchase price of the FEI Acquisition. In connection with the completion of
the Company's convertible subordinated notes ("the Notes") on March 13, 1998,
the Company incurred $197.2 million in additional indebtedness which, when
combined with the amount the Company has outstanding under its Senior Credit
Facility, will increase the ratio of its long-term debt to its total
capitalization from 28.2% at January 26, 1998 to 56.5%, as adjusted to give pro
forma effect to the FEI Acquisition and the sale of the Notes. (See Note 9 of
Notes to Consolidated Financial Statements.) The Company's increased degree of
leverage could have important consequences to investors, including the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate purposes may
be decreased in the future; (ii) an increased portion of the Company's cash flow
from operations will be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) most of the Company's borrowings are and will continue to be at
variable rates of interest (including borrowings under the Senior Credit
Facility), which exposes the Company to the risk of increased interest rates;
(iv) the Company may be substantially more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage; and (v)
the Company's substantial degree of leverage may limit its flexibility to adjust
to changing market conditions, reduce its ability to withstand competitive
pressures and make it more vulnerable to a downturn in general economic
conditions or its businesses. The Company's ability to make scheduled payments
or to refinance its obligations with respect to its indebtedness, and to comply
with the financial covenants and other obligations under its debt instruments,
will depend on its financial and operating performance, which in turn will be
subject to economic conditions and to financial, business and other factors
beyond its control. There can be no assurance that the Company's operating
results, cash flow and capital resources will be sufficient for payment of its
indebtedness in the future.

The Company's growth strategy includes, among other things, opening
additional Company-operated and franchised restaurants, dual-branding its
restaurant concepts and remodeling its restaurants. The success of the Company's
growth strategy will depend on numerous factors, many of which are beyond the
control of the Company and its franchisees, including the hiring, training and
retention of qualified management and other restaurant personnel, the ability to
obtain necessary governmental permits and approvals, the availability of

11
14

appropriate financing and general economic conditions. The Company and its
franchisees face competition from other restaurant operators, retail chains,
companies and developers for desirable site locations, which may adversely
affect the cost, implementation and timing of the Company's expansion plans. To
manage its planned expansion, the Company must ensure the continuing adequacy of
its existing systems and procedures, including its supply and distribution
arrangements, restaurant management, financial controls and information systems.

The Company's growth will also depend in part on its ability to increase
sales at existing restaurants. In addition to its turnaround strategies for
Hardee's, the Company expects to continue remodeling and upgrading equipment at
its Hardee's restaurants. The Company has substantially completed its remodeling
program for its Company-operated Carl's Jr. restaurants and plans to convert at
least 60 of its Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand
restaurants in each of the next three years. The Company will incur significant
capital expenditures in remodeling and converting restaurants and will
experience a loss of revenues during the brief periods of time that restaurants
are closed for remodeling or conversion. There can be no assurance that such
remodels and conversions will increase the revenues generated by these
restaurants or, even if revenues are increased, that such increases will be
sustainable. In addition, although the sales results experienced by the
Company-operated Carl's Jr. restaurants that have been remodeled or converted to
dual-brand restaurants have generally been favorable to date, there can be no
assurance that such favorable sales results are sustainable or that they are
indicative of sales results that will be achieved by restaurants to be remodeled
or converted in the future. There can also be no assurance that the Company will
be able to achieve same-store sales increases in its Company-operated
restaurants.

Although the Company is not currently contemplating any significant
additional acquisitions of other restaurant companies, it will continue to
evaluate investment opportunities in other restaurant companies. Acquisitions
involve a number of risks that could adversely affect the Company's operating
results, including the diversion of management's attention, the assimilation of
the operations and personnel of the acquired companies, the amortization of
acquired intangible assets and the potential loss of key employees. No assurance
can be given that any acquisition or investment by the Company will not
materially and adversely affect the Company or that any such acquisition or
investment will enhance the Company's business. If the Company determines to
make any significant acquisitions of, or investments in, other businesses, the
Company may be required to sell additional equity or debt securities or obtain
additional credit facilities. The sales, if any, of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

NAME AGE POSITION
---- --- --------

William P. Foley II.................. 53 Chairman of the Board, Chief Executive Officer
C. Thomas Thompson................... 48 President and Chief Operating Officer
Rory J. Murphy....................... 50 President, Hardee's Food Systems, Inc.
Carl A. Strunk....................... 60 Executive Vice President, Chief Financial
Officer
Andrew F. Puzder..................... 47 Executive Vice President, General Counsel and
Secretary
Robert E. Wheaton.................... 45 Executive Vice President
Robert W. Wisely..................... 52 Executive Vice President, Marketing
Loren C. Pannier..................... 56 Senior Vice President, Investor Relations
Edward J. Dewey...................... 52 Senior Vice President, Chief of Staff, Office of
the Chairman

William P. Foley II became Chief Executive Officer in October 1994,
Chairman of the Board of Directors in March 1994, and has served as a director
since December 1993. Since 1981, Mr. Foley has been Chairman of the Board,
President (until January 1995) and Chief Executive Officer of Fidelity National
Financial, Inc. ("Fidelity"), a company engaged in title insurance and related
services. Mr. Foley also serves

12
15

as the Chairman of the Board of Star Buffet, GB Foods and Checkers and as a
member of the Boards of Directors of Rally's, DataWorks Corporation and Micro
General Corporation.

C. Thomas Thompson was appointed President and Chief Operating Officer in
October 1994. Mr. Thompson has been a franchisee of the Company since 1984, and
currently operates 15 Carl's Jr. restaurants in the San Francisco Bay Area. Mr.
Thompson also currently serves as Vice Chairman of the Board of Checkers and as
a member of the Board of Directors of Rally's and Star Buffet. Mr. Thompson has
more than 25 years of experience in the restaurant industry. He previously held
various positions with Jack-in-the-Box.

Rory J. Murphy was appointed President of Hardee's immediately following
the Company's acquisition of Hardee's in July 1997. Mr. Murphy served as
Executive Vice President, Restaurant Operations of the Company from June 1996
until July 1997, and served as Senior Vice President, Restaurant Operations of
the Company from February 1993 until June 1996. Mr. Murphy has been employed by
the Company in various positions for 19 years.

Carl A. Strunk was appointed Executive Vice President and Chief Financial
Officer in February 1997. Mr. Strunk also serves as Executive Vice
President/Finance for Fidelity and GB Foods and has been with Fidelity since
1992 and GB Foods since December 1997. Mr. Strunk previously served as President
of Land Resources Corporation from 1986 to 1991. Mr. Strunk is a Certified
Public Accountant and is also a member of the Board of Directors of Micro
General Corporation.

Andrew F. Puzder became Executive Vice President, General Counsel and
Secretary in February 1997. Mr. Puzder also serves as Chief Executive Officer of
GB Foods and Executive Vice President of Fidelity, where he has been since
January 1995. From March 1994 to December 1994, he was a partner with the law
firm of Stradling, Yocca, Carlson & Rauth. Prior to that, he was a partner with
the law firm of Lewis, D'Amato, Brisbois & Bisgard, from September 1991 through
March 1994, and he was a partner of the Stolar Partnership from February 1984
through September 1991. Mr. Puzder has been Chief Executive Officer and a
Director of GB Foods since August 1997 and is a member of the Board of Directors
of Javelin Systems, Inc. and Rally's.

Robert E. Wheaton became Executive Vice President of the Company in January
1996. Mr. Wheaton also serves as the President and Chief Executive Officer, and
is a member of the Board of Directors, of Star Buffet. Mr. Wheaton served as
Vice President and Chief Financial Officer of Denny's Inc., a subsidiary of
Advantica, from April 1995 to January 1996. From 1991 to 1995, Mr. Wheaton
served as President and Chief Executive Officer, and from 1989 to 1991 as Vice
President and Chief Financial Officer, of The Bekins Company.

Robert W. Wisely was appointed Executive Vice President, Marketing in
August 1997. Prior to that, he served as Senior Vice President, Marketing from
January 1995. Mr. Wisely has been a franchisee of the Company since 1990. Prior
to 1990, Mr. Wisely served as Senior Vice President, Marketing from 1985 to 1990
and as Group Vice President, Marketing from 1974 to 1979.

Loren C. Pannier was appointed Senior Vice President, Investor Relations in
September 1996 and served as Senior Vice President, Purchasing/Distribution from
January 1996 to September 1996. Mr. Pannier also served as Chief Financial
Officer of the Company from 1980 to May 1995. Mr. Pannier has been a Senior Vice
President since 1980, and he has been employed by the Company for over 25 years.

Edward J. Dewey became Senior Vice President, Chief of Staff, Office of the
Chairman in December 1997. Mr. Dewey has been Senior Vice President, Chief of
Staff, Office of the Chairman for Fidelity since December 1997. Prior to that,
from May 1993 to November 1997, he was a Vice President with Fidelity National
Title Insurance Company. From 1967 through 1993, Mr. Dewey was in the U.S. Army,
leaving the service with the rank of Colonel.

13
16

ITEM 2. PROPERTIES

The following table sets forth information regarding the Company's
restaurant properties at January 26, 1998, including the FEI restaurant
properties acquired on April 1, 1998:

LAND LAND
AND LAND LEASED AND
BUILDING AND BUILDING BUILDING
OWNED OWNED LEASED TOTAL
-------- ------------ -------- -----

Carl's Jr.:
Company-operated........................... 45 50 348 443
Franchisee-operated(1)..................... 12 8 -- 20
Third party-operated/vacant(1)............. 7 2 -- 9
--- --- --- -----
Subtotal................................ 64 60 348 472
--- --- --- -----
Hardee's:
Company-operated........................... 355 167 341 863
Franchisee-operated(1)..................... 42 36 -- 78
Third party-operated/vacant(1)............. 45 16 -- 61
--- --- --- -----
Subtotal................................ 442 219 341 1,002
--- --- --- -----
Taco Bueno:
Company-operated........................... 72 10 27 109
--- --- --- -----
Subtotal................................ 578 289 716 1,583
FEI:
Company-operated........................... 283 95 179 557
--- --- --- -----
Total.............................. 861 384 895 2,140
=== === === =====

- ---------------
(1) "Franchisee-operated" properties are those which are owned by the Company
and subleased to franchisee operators. "Third party-operated/vacant" are
properties owned by the Company that are either operated by unaffiliated
entities or are currently vacant.

The terms of the Company's leases or subleases vary in length expiring on
various dates through 2023. The expiration of these leases is not expected to
have a material impact on the Company's operations in any particular year as the
expiration dates are staggered over a number of years and many of the leases
contain renewal options. The Company's corporate headquarters and primary
distribution center, located in Anaheim, California, are leased and contain
approximately 78,000 and 102,000 square feet, respectively. The Company owns its
Hardee's corporate facility in Rocky Mount, North Carolina.

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time the subject of complaints or litigation
from customers alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from employees and franchisees
from time to time. The Company believes that the lawsuits, claims and other
legal matters to which it has become subject in the course of its business are
not material to the Company's financial condition or results of operations, but
an existing or future lawsuit or claim could result in an adverse decision
against the Company that could have a material adverse effect on the Company's
financial condition and results of operations.

14
17

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A special meeting of stockholders of the Company was held on December 9,
1997 for the purpose of voting on a proposal to amend the Company's certificate
of incorporation to increase the authorized number of shares of common stock
from 50,000,000 to 100,000,000. The proposal was duly passed with 38,079,710
shares voting for the proposal, 857,420 shares voting against the proposal,
81,514 shares abstaining from the vote and no broker non-votes. There were
39,018,644 shares represented and entitled to vote of the 41,988,018 shares
outstanding as of the November 7, 1997 record date.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock is listed on the New York Stock Exchange under
the symbol "CKR". As of March 31, 1998, there were approximately 1,800 record
holders of the Company's common stock. The following table sets forth, for the
periods indicated, the high and low closing sales prices of the Company's common
stock, as reported on the New York Stock Exchange Composite Tape:

HIGH LOW
------ ------

FISCAL 1997
First Quarter............................................. $14.62 $ 9.02
Second Quarter............................................ 16.97 12.42
Third Quarter............................................. 20.76 14.02
Fourth Quarter............................................ 21.82 17.35

FISCAL 1998
First Quarter............................................. $23.18 $16.70
Second Quarter............................................ 32.95 20.34
Third Quarter............................................. 40.85 28.64
Fourth Quarter............................................ 42.19 31.25

The foregoing prices have been adjusted to give retroactive effect to a
three-for-two stock split effected as a stock dividend in January 1997 and a 10%
stock dividend in February 1998.

The Company has followed a policy of paying semi-annual cash dividends, at
the annual rate of $0.05 per share (adjusted to give retroactive effect to the
stock split and stock dividend), during fiscal 1996 and fiscal 1997. During
fiscal 1998, the Company increased the annual rate to $0.07 per share (adjusted
to give retroactive effect to the stock dividend). On March 31, 1998, the
Company's Board of Directors increased the semi-annual dividend rate to $0.04
per share and declared a $0.04 cash dividend, which is payable on April 30, 1998
to holders of record on April 15, 1998. Continued payment of dividends on the
Company's common stock will depend upon the Company's operating results,
business requirements and financial condition, and such other factors that the
Company's Board of Directors considers relevant. The Company's Senior Credit
Facility imposes limitations on the amount of dividends or other distributions
on its common stock that the Company may make.

15
18

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

The information set forth below should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K. Per share data has been retroactively adjusted for
stock splits and stock dividends since the Company's inception.

SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, RESTAURANT COUNT, AND PERCENTAGES)

FISCAL YEAR ENDED OR AS OF JANUARY 31, (1)
------------------------------------------------------
1998(2) 1997(3) 1996 1995 1994(4)
---------- -------- -------- -------- --------

CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenues........................... $1,149,659 $613,380 $464,667 $442,942 $462,708
Operating income......................... 86,191 44,139 27,000 9,741 11,110
Interest expense......................... 16,914 9,877 10,004 9,202 10,387
Net income............................... 46,757 22,302 10,952 1,264 3,665
Net income per common and common
equivalent share -- diluted(5)........ $ 1.07 $ 0.67 $ 0.36 $ 0.04 $ 0.12
Common and common equivalent shares used
in computing per share
amounts -- diluted.................... 43,747 33,276 30,555 30,882 30,118
Cash dividends paid per common share..... $ 0.07 $ 0.05 $ 0.05 $ 0.05 $ 0.05
Ratio of earnings to fixed charges(6).... 5.5x 4.7x 2.8x 1.3x 1.6x
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................. $ 957,368 $410,367 $248,009 $244,361 $242,135
Total debt, including current portion.... 216,905 86,993 82,423 81,618 79,861
Stockholders' equity..................... $ 498,512 $214,804 $101,189 $ 88,474 $ 92,076

- ---------------

(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in
January. For clarity of presentation, all years are presented as if the
fiscal year ended January 31.

(2) Fiscal 1998 includes operating results of Hardee's from and after July 15,
1997. Share and per share data were also affected during fiscal 1998 by a
public offering of 9,171,250 shares of common stock, completed in July 1997.

(3) Fiscal 1997 includes $94.3 million of revenues generated from other
restaurant concepts acquired by the Company during fiscal 1997. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Share and per share data were also affected during fiscal 1997
by a public offering of 4,743,750 shares of common stock, completed in
November 1996.

(4) Fiscal 1994 includes 53 weeks.

(5) Fiscal 1994 includes the cumulative effect of a change in accounting
principle of $(0.03) per share. In the fourth quarter of fiscal 1998, the
Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share." Prior year amounts have been restated in
accordance with SFAS 128.

(6) For purposes of calculating the ratio of earnings to fixed charges (i)
earnings represent income before income taxes and fixed charges and (ii)
fixed charges consist of interest on all indebtedness, interest related to
capital lease obligations and amortization of debt issuance costs.

16
19

FISCAL YEAR ENDED JANUARY 31, (1)
--------------------------------------------------------------
1998 1997 1996 1995 1994(2)
---------- ---------- ---------- ---------- ----------

CARL'S JR. RESTAURANT OPERATING
DATA:
System-wide restaurant revenues:
Company-operated
restaurants................ $ 488,495 $ 443,304 $ 389,214 $ 364,278 $ 384,859
Franchised and licensed
restaurants................ 214,534 204,700 193,984 201,170 209,214
---------- ---------- ---------- ---------- ----------
Total system-wide
revenues.............. $ 703,029 $ 648,004 $ 583,198 $ 565,448 $ 594,073
========== ========== ========== ========== ==========
Restaurants open (at end of
fiscal year):
Company-operated............. 443 415 394 383 376
Franchised and licensed...... 265 258 273 277 272
---------- ---------- ---------- ---------- ----------
Total................... 708 673 667 660 648
========== ========== ========== ========== ==========
Average annual sales per
Company-operated
restaurant(3)................ $ 1,157 $ 1,114 $ 1,006 $ 966 $ 992
Percentage increase (decrease)
in comparable
Company-operated restaurant
sales(4)..................... 4.8% 10.7% 4.4% (3.8)% (6.5)%

PERIOD FROM PERIOD FROM FISCAL YEAR ENDED DECEMBER 31, (7)
7/16/97 TO 1/1/97 TO ------------------------------------
1/31/98(5) 7/15/97(6) 1996 1995 1994
----------- ----------- ---------- ---------- ----------

HARDEE'S RESTAURANT OPERATING
DATA:
System-wide restaurant revenues:
Company-operated
restaurants................ $ 339,942 $ 346,481 $ 645,409 $ 596,593 $ 593,391
Franchised and licensed
restaurants................ 1,123,034 1,152,442 2,350,733 2,582,514 2,760,588
---------- ---------- ---------- ---------- ----------
Total system-wide
revenues.............. $1,462,976 $1,498,923 $2,996,142 $3,179,107 $3,353,979
========== ========== ========== ========== ==========
Restaurants open (at end of
fiscal year):
Company-operated............. 863 782 808 733 692
Franchised and licensed...... 2,175 2,329 2,417 2,600 2,711
---------- ---------- ---------- ---------- ----------
Total................... 3,038 3,111 3,225 3,333 3,403
========== ========== ========== ========== ==========
Average annual sales per
Company-operated
restaurant(3)................ $ 803 $ 831 $ 848 $ 888 $ 968
Percentage decrease in
comparable Company-operated
restaurant sales(4).......... (7.2)% (0.4)% (4.4)% (6.8)% (3.5)%

- ---------------

(1) The Company's fiscal year is 52 or 53 weeks, ending the last Monday in
January. For clarity of presentation, all years are presented as if the
fiscal year ended January 31.

(2) Fiscal 1994 includes 53 weeks.

(3) Calculated on a 52- or 53-week trailing basis for all years presented.

(4) Includes only restaurants open throughout the full years being compared.

(5) Includes results of operations for Hardee's from and after July 15, 1997,
the date of acquisition.

(6) Hardee's restaurant operating data for the period from January 1, 1997 to
July 15, 1997 excludes the results of Hardee's restaurants sold or closed
prior to July 15, 1997.

(7) Hardee's restaurant operating data for the three fiscal years ending
December 31, 1996 excludes the results of Hardee's restaurants sold or
closed prior to December 31, 1996.

17
20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements and related notes and "Selected Financial and
Operating Data" included elsewhere in this Form 10-K.

OVERVIEW

The Company is a leading nationwide owner, operator and franchisor of
quick-service restaurants, operating principally under the Carl's Jr. and
Hardee's brand names. Based on domestic system-wide sales, the Company's
Hardee's and Carl's Jr. chains are the fourth and seventh largest quick-service
hamburger restaurant chains in the United States, respectively. As of January
26, 1998, the Carl's Jr. system included 708 restaurants, of which 443 were
operated by the Company and 265 were operated by its franchisees and licensees.
Carl's Jr. restaurants are located in the Western United States, predominantly
in California. In July 1997, the Company completed its acquisition of Hardee's,
and as of January 26, 1998, the Hardee's system consisted of 3,038 restaurants,
of which 863 were operated by the Company and 2,175 were operated by the
Company's franchisees and licensees. Hardee's restaurants are located throughout
the Eastern and Midwestern United States, predominantly in the Southeast. As of
January 26, 1998, the Company also operated a total of 235 other restaurants,
including 109 Taco Bueno quick-service Mexican food restaurants located in Texas
and Oklahoma.

The first Carl's Jr. restaurant was opened in 1956 by Carl N. Karcher, the
Company's founder, in Anaheim, California. After an extended period of growth,
the Company made certain strategic decisions and experienced operational
difficulties in the early 1990s which adversely impacted the Company's sales and
profitability. At that time, in response to the introduction of value pricing by
its quick-service restaurant competitors, the Company reduced prices and
initiated an extensive value-priced menu advertising campaign. Beginning in
October 1994, the Company hired a new management team that began implementing a
variety of strategic and operational programs designed to revitalize the Carl's
Jr. brand and improve financial results. These programs included, among others,
a renewed focus on offering superior products, the elimination of most
lower-priced menu items, a new advertising campaign, a dual-branding program
with The Green Burrito and the commencement of a remodeling program for Carl's
Jr. restaurants. As a result of these strategies, together with the Company's
successful efforts to reduce expenses at both the corporate and operating
levels, the Company experienced significant improvements in sales and operating
results in fiscal 1996, 1997 and 1998. The Company substantially completed its
remodeling program in January 1998 and is continuing to implement its
dual-branding conversions and focus on reducing expenses. The Company believes
it will continue to benefit from such activities in the future.

The Company believes that its acquisition of Hardee's in July 1997 allowed
it to significantly expand the scope of its operations and to become one of the
leading nationwide operators of quick-service hamburger restaurants. The Company
has begun implementing a plan to meaningfully improve the profitability and
sales of Hardee's in an effort to improve Hardee's poor recent historical
performance. The Company's plan includes many of the operating initiatives which
it used to improve the operations of its Carl's Jr. restaurants, including
implementing CKE's management practices, improving the quality of food,
enhancing the quality of service, updating restaurant facilities and managing
costs more effectively.

The Company believes that the FEI Acquisition will enable it to continue to
expand the scope of its operations and to exercise further control over its
Hardee's restaurant system. As a result of the FEI Acquisition, 1,420 of the
3,038 Hardee's restaurants operated as of January 26, 1998 are presently
operated by the Company, representing 46.7% of the Hardee's system, and giving
the Company control of 48 of Hardee's 98 broadcast cooperative advertising
markets. The Company believes it can meaningfully improve the same-store sales
trends and profitability levels at FEI's Hardee's restaurants by implementing
the strategies that it has used to improve the operations of its Carl's Jr.
restaurants and is beginning to implement at its other Company-operated Hardee's
restaurants.

The Company's revenues are derived primarily from sales by Company-operated
restaurants and revenues from franchisees, including franchise and royalty fees,
sales to Carl's Jr. franchisees and licensees of food and packaging products,
rentals under real property leases and revenues from the sale of equipment.

18
21

Restaurant operating expenses consist primarily of food and packaging costs,
payroll and other employee benefits and occupancy and other operating expenses
of Company-operated restaurants. Operating costs of the Company's franchised and
licensed restaurants include the cost of food and packaging products sold to
Carl's Jr.'s franchisees and licensees and lease payments on properties
subleased to the Company's franchisees. Other operating expenses, including
advertising expenses and general and administrative expenses, relate to
Company-operated restaurants as well as franchisee and licensee operations. The
Company's revenues and expenses are directly affected by the number and sales
volumes of Company-operated restaurants and, to a lesser extent, franchised and
licensed restaurants.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the Company's
consolidated statements of income for the years indicated:

FISCAL YEAR ENDED JANUARY 31,
------------------------------
1998(1) 1997(2) 1996
-------- -------- ------

Revenues:
Company-operated restaurants............................ 88.9% 87.5% 84.7%
Franchised and licensed restaurants and other........... 11.1 12.5 15.3
----- ----- -----
Total revenues....................................... 100.0% 100.0% 100.0%
===== ===== =====
Operating costs and expenses:
Restaurant operations(3):
Food and packaging................................... 30.7% 30.6% 30.1%
Payroll and other employee benefits.................. 30.5 27.9 27.9
Occupancy and other operating expenses............... 20.2 20.6 20.8
----- ----- -----
81.4 79.1 78.8
Franchised and licensed restaurants and other(4)........ 73.7 94.9 97.3
Advertising expenses(3)................................. 5.7 5.9 5.8
General and administrative expenses..................... 6.9 6.5 7.6
Operating income.......................................... 7.5 7.2 5.8
Interest expense.......................................... (1.5) (1.6) (2.1)
Other income, net......................................... 0.7 0.4 0.2
----- ----- -----
Income before income taxes................................ 6.7 6.0 3.9
Income tax expense........................................ 2.6 2.4 1.5
----- ----- -----
Net income................................................ 4.1% 3.6% 2.4%
===== ===== =====

- ---------------
(1) Fiscal 1998 includes operating results of Hardee's from and after July 15,
1997.

(2) Fiscal 1997 includes $94.3 million of revenues generated from other
restaurant concepts acquired by the Company during fiscal 1997.

(3) As a percentage of revenues from Company-operated restaurants.

(4) As a percentage of revenues from franchised and licensed restaurants and
other.

REVENUES

Company-operated Restaurants. Revenues from Company-operated restaurants
increased $485.6 million or 90.5% to $1.022 billion in fiscal 1998 as compared
with fiscal 1997. Carl's Jr. Company-operated revenues for the year accounted
for sales increases of $45.2 million. Additionally, the Company's Hardee's and
Taco Bueno restaurants contributed $339.9 million and $51.8 million,
respectively, to the increase. Offsetting these increases is the loss of
revenues from the Company's HomeTown Buffet and Casa Bonita restaurants that
were disposed of in connection with the initial public offering of Star Buffet
in September 1997. On a same-store sales basis, the Company's Carl's Jr. sales,
which are calculated using only restaurants in operation

19
22

for the full years being compared, increased 4.8%, marking the third consecutive
annual increase in same-store sales for the Carl's Jr. chain. Same-store sales
for the Company-operated Taco Bueno restaurants increased 6.2%, while same-store
sales from Company-operated Hardee's restaurants decreased 7.2% since the date
of acquisition. The decrease in same-store sales for Hardee's can be attributed
to several factors, including the paring down of Hardee's oversized menu and the
discontinuation of monthly new product introductions. The increase in revenues
from Company-operated Carl's Jr. restaurants is primarily the result of
continued momentum in the Company's various sales enhancement programs,
including the continuation of conversion of its existing Carl's Jr. locations
into Carl's Jr./Green Burrito dual-brand restaurants, the continued focus on
promoting great-tasting new and existing food products through increased
innovative advertising, and the image enhancement of its restaurants through a
chain-wide remodeling program. Also contributing to the increase in sales at the
Carl's Jr. restaurants was the introduction of the Charbroiled Sirloin Steak
Sandwich in the fourth quarter of fiscal 1998 which has recorded the highest
sales levels for a new product offering in the past 11 years. Average unit
volumes in Company-operated Carl's Jr. restaurants continue to rise and reached
$1,157,000 for the trailing 52-week period while average unit volumes at
Company-operated Hardee's and Taco Bueno restaurants ended the fiscal year at
$803,000 and $685,000 for the trailing 52-week period, respectively.

The Company's revenues from Company-operated restaurants increased $143.3
million or 36.4% to $536.8 million in fiscal 1997 compared with $393.5 million
in fiscal 1996. Company-operated Carl's Jr. restaurants accounted for $54.1
million of the increase, while the Company's other restaurant concepts acquired
in fiscal 1997 contributed an additional $93.5 million to revenues, with the
Company's Taco Bueno restaurants accounting for $22.1 million of the additional
revenues. Fiscal 1996 revenues included approximately $4.3 million from the
Company's Boston Market operations. The increase in revenues from Company-
operated Carl's Jr. restaurants was largely due to the continued effect of the
various sales enhancement programs that were implemented in fiscal 1996. The
10.7% same-store sales increase in fiscal 1997 was the second consecutive annual
same-store sales increase and the highest same-store sales increase reported by
the Company's Carl's Jr. chain in nearly a decade. An increase in the number of
Company-operated restaurants operating in fiscal 1997 as compared with the prior
year also contributed to the increase in revenues from Company-operated Carl's
Jr. restaurants.

Franchised and Licensed Restaurants and Other. The Company's revenues from
franchised and licensed restaurants for fiscal 1998 increased $50.6 million or
66.1% to $127.2 million over fiscal 1997. This increase is principally due to
the royalties earned by Hardee's franchise system, equipment sales to Hardee's
franchisees and to increased royalties from, and food purchases by, franchisees
and licensees of Carl's Jr. as a result of higher sales volume at franchised and
licensed Carl's Jr. restaurants. Fiscal 1997 revenues from franchised and
licensed restaurants increased $5.4 million, or 7.6%, to $76.6 million over
fiscal 1996. The fiscal 1997 increase was primarily due to increased royalties
from, and food purchases by, franchisees as they experienced increased sales
trends similar to those the Company experienced in its Company-operated
restaurants. This increase in sales was offset by a decrease in the number of
franchised and licensed Carl's Jr. restaurants in operation during fiscal 1997
as compared with fiscal 1996.

OPERATING COSTS AND EXPENSES

Restaurant Operations. Restaurant-level margins of the Company's
consolidated restaurant operations decreased in fiscal 1998 by 2.3% as compared
with fiscal 1997, primarily reflecting the impact of typically higher operating
costs at the Company's family-style restaurant concepts, which were acquired in
the second quarter of fiscal 1997 and at Hardee's quick-service hamburger
restaurants, which were acquired in the second quarter of fiscal 1998. The
family-style segment of the restaurant industry typically has lower margins than
the quick-service segment of the industry, mainly due to increased labor and
food costs. Although Hardee's restaurant-level margins are substantially lower
than the Company's other quick-service restaurant concepts, the Company has
increased Hardee's Company-operated restaurant-level margins in the fourth
quarter of fiscal 1998 to 12.8% compared with 1.5% for the comparable period of
the prior year for restaurants open and operating as of December 31, 1996. The
Company has accomplished this reduction of costs through many of the same
cost-saving measures it implemented at its Carl's Jr. restaurants over the past
three to four years,

20
23

including: the introduction of the Carl's Jr. labor matrix to refine labor
usage; a focus on safety and accident prevention as a method of lowering
workers' compensation costs; the reduction of food waste and theft tolerance
levels; and the use of substantial purchasing synergies to lower food and paper
costs. Also contributing to the increase in restaurant-level margins since
acquisition is the simplification of the Hardee's menu and conforming Hardee's
depreciation policies with those of the Company.

While the Company's consolidated restaurant-level margins decreased in
fiscal 1998, continued cost-saving strategies at the Company's Carl's Jr.
restaurants have caused restaurant-level margins for the Carl's Jr. restaurant
chain to continue to increase. These margins, as a percentage of revenues from
Company-operated Carl's Jr. restaurants, were 24.2%, 23.1% and 21.3% in fiscal
1998, 1997, and 1996, respectively. These improved results in the Company's
Carl's Jr. restaurant-level operating margins reflect the Company's continued
commitment to improve the cost structure of its Carl's Jr. restaurants,
particularly in the areas of increased purchasing synergies for food and paper,
improved labor productivity and reduced workers' compensation costs.

The Company's Carl's Jr. food and packaging costs have remained relatively
consistent at 29.9%, 30.2% and 30.0% of revenues from Company-operated Carl's
Jr. restaurants for fiscal 1998, 1997 and 1996, respectively. During fiscal
1998, food costs decreased marginally due to the purchasing economies the Carl's
Jr. chain has achieved as a result of the consolidated buying power directly
resulting from the addition of its other restaurant concepts. Partially
offsetting these purchasing economies realized in fiscal 1998, and contributing
to the slight increase in food costs in fiscal 1997, was increased pressure from
commodity prices and a change in the product mix as a result of the promotion of
larger, more expensive sandwiches such as the Charbroiled Sirloin Steak
Sandwich, which was introduced in the fourth quarter of fiscal 1998, and the
Crispy Chicken Sandwiches, which were introduced in the third quarter of fiscal
1996.

Payroll and other employee benefits for the Company's Carl's Jr. restaurant
chain as a percentage of revenues from Company-operated Carl's Jr. restaurants
decreased 0.8% in fiscal 1998 to 25.7% and decreased 1.4% in fiscal 1997 to
26.5%. These reductions in payroll and employee benefits were achieved despite
the October 1996 and September 1997 increases in the federal minimum wage and
the additional March 1997 increase in California minimum wage levels. The cost
reductions came primarily as a result of labor productivity programs implemented
during fiscal 1996 to further decrease costs and improve direct labor
efficiencies. Further, the new safety and other programs added by the Company
during fiscal 1994, in conjunction with changes in state regulations, have
resulted in a decrease in work-related injuries and reduced the Company's
workers' compensation claims and losses during fiscal 1998 and 1997.

Many of the Company's employees are paid hourly rates related to the
federal and state minimum wage laws. Legislation increasing the minimum wage in
October 1996 and September 1997 has resulted in higher labor costs to the
Company and its franchisees. Moreover, as a result of recent legislation in
California, the California state minimum wage was increased effective March
1997. The Company anticipates that any future increases in the minimum wage may
be offset through pricing and other cost-control efforts; however, there can be
no assurance that the Company or its franchisees will be able to pass such
additional costs on to customers in whole or in part.

Carl's Jr. occupancy and other operating expenses, as a percentage of
revenues from Company-operated Carl's Jr. restaurants, were 20.2%, 20.2% and
20.8% in fiscal 1998, 1997 and 1996, respectively. A portion of occupancy and
other operating expenses are fixed in nature, and thus as a percentage of
Company-operated revenues, they fall as revenues rise. These costs increased in
fiscal 1998 as compared with fiscal 1997 primarily due to increased equipment
costs as the Company implements updated data technology at its restaurants and
increased utility and depreciation expenses in connection with the image
enhancement of the Company's Carl's Jr. restaurants. The decrease as a
percentage of Company-operated restaurants in fiscal 1997 as compared with
fiscal 1996 is largely due to the Company's efforts to maintain costs at the
prior fiscal year levels in conjunction with the fixed nature of the expenses
and the increase in revenues in fiscal 1997.

Franchised and Licensed Restaurants and Other. Franchised and licensed
restaurant costs increased 29.0% in fiscal 1998 to $93.8 million as compared
with fiscal 1997. This increase is primarily due to the additional costs
associated with the Hardee's franchise operations in addition to increased food
purchases by

21
24

Carl's Jr. franchisees and licensees. As a percentage of revenues from
franchised and licensed restaurants, these costs decreased 21.2% in fiscal 1998
over fiscal 1997. This decrease is mainly due to the nature of the Hardee's
franchise revenues, which principally arise from royalties paid by its
franchisees, in contrast with the revenues from Carl's Jr. franchisees and
licensees, which are primarily derived from both royalties paid and food
purchases by franchisees. As a result, the cost structure associated with
Hardee's revenue from franchised and licensed restaurants is substantially lower
than that associated with the Carl's Jr. franchise operations. Franchised and
licensed restaurant costs in fiscal 1997 increased 5.0% to $72.7 million. These
costs followed a similar trend to the revenues from franchise and licensed
restaurants, with the overall increase in fiscal 1997 primarily due to increased
food purchases by Carl's Jr. franchisees, partially offset by a decrease in the
number of franchised and licensed restaurants in operation in fiscal 1997 as
compared with the prior year.

Advertising Expenses. Advertising expenses increased $26.6 million in
fiscal 1998 over fiscal 1997, and $8.8 million in fiscal 1997 as compared with
fiscal 1996, while remaining relatively consistent as a percentage of revenues
from Company-operated restaurants. The increase in advertising expenses in
fiscal 1998 is principally due to the additional advertising support for the
newly acquired concepts. In fiscal 1997, as compared with fiscal 1996, the
Company spent more on advertising production and increased the number of weeks
on electronic media. The Company has experienced positive same-store sales
growth in its Carl's Jr. restaurants in 11 consecutive quarters since the
Company hired a new advertising agency and began its innovative advertising
campaign in May 1995, which focuses on Carl's Jr. superior quality products.

General and Administrative Expenses. General and administrative expenses
increased $38.9 million and $4.7 million in fiscal 1998 and 1997 to $78.9
million and $40.0 million, respectively. As a percentage of total revenues,
general and administrative expenses were 6.9%, 6.5% and 7.6% in fiscal 1998,
1997 and 1996, respectively. The increase in fiscal 1998 is primarily the result
of adding the expenses associated with the support of the Hardee's restaurant
operations. Hardee's general and administrative expenses as a percentage of
total revenues were approximately 7.6% for fiscal 1998 as compared with 10.7% of
Hardee's total revenues at the end of calendar year 1996 under previous
ownership. General and administrative expenses have also increased in both
fiscal 1998 and fiscal 1997 due to recording incentive compensation accruals for
regional restaurant management and selected corporate employees as a result of
improved operating performance. Also contributing to the increase in fiscal 1997
were increased amortization expenses and various corporate legal expenses. The
decrease in general and administrative expenses as a percentage of total
revenues in fiscal 1997 over fiscal 1996 was primarily attributable to the
economies of scale the Company achieved by collapsing certain costs from
acquired businesses into the Company's existing infrastructure.

INTEREST EXPENSE

Interest expense for fiscal 1998 increased $7.0 million to $16.9 million as
compared with fiscal 1997 primarily as a result of additional borrowings
required to complete the Hardee's acquisition and the write-off of certain loan
fees associated with the termination or repayment of the Company's previous
credit agreements, partially offset by a reduction in interest rates. Interest
expense in fiscal 1997 decreased 1.3% to $9.9 million as compared with fiscal
1996 as a result of lower levels of borrowings outstanding during fiscal 1997,
the prepayment of certain indebtedness early in fiscal 1997 and lower interest
rates.

OTHER INCOME, NET

Other income, net, is mainly comprised of interest income, lease income,
dividend income, gains and losses on sales of restaurants, income and loss on
long-term investments, property management expenses and other non-recurring
income and expenses. Other income, net, increased $4.9 million and $1.5 million
in fiscal 1998 and fiscal 1997, respectively, as compared with the prior years.
This increase in fiscal 1998 generally resulted from interest income earned on
the Company's note receivable from Checkers and amortization of the related
discount along with lease and dividend income recorded from the Company's
long-term investment in Boston West. The fiscal 1997 increase was primarily due
to increased property management expenses and a gain on the sale of restaurants
in fiscal 1997 as compared with a loss in the prior year. Moreover, included in
fiscal 1996 was a $1.9 million decrease in the Company's Boston Market
investment which resulted from the

22
25

Company recording its pro-rata share of the losses from Boston West. (See Note 6
of Notes to Consolidated Financial Statements.)

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased $15.9 million to $30.4 million in
fiscal 1998. Total cash provided by operating activities increased $17.3 million
to $74.3 million, which was primarily due to increased revenues from the
Company's newly acquired concepts and increased revenues and improved operating
margins from the Company's Carl's Jr. operations.

Investing activities required the Company to use $428.5 million in cash to
fund capital additions of $89.2 million, to fund the Company's investment in
Checkers of $14.1 million, to complete the acquisition of Hardee's for $320.6
million (net of cash acquired) and to complete the acquisitions of certain
Hardee's franchised restaurants. The cash required for these investing
activities was partially funded by cash proceeds of $16.3 million (net of cash
surrendered) from the sale of shares by the Company and the disposition of its
HomeTown Buffet and Casa Bonita restaurants in connection with the initial
public offering of Star Buffet and $11.9 million from the sale of property and
equipment and from the collection on and sale of notes receivable, related party
receivables and leases receivable.

Financing activities provided the Company with $338.2 million, primarily
through cash proceeds of $222.3 million from the Company's common stock
offering. (See Note 11 of Notes to Consolidated Financial Statements.) The
increase in total borrowings of $151.5 million, together with cash flows from
operations and cash proceeds from the common stock offering were used primarily
to complete the acquisition of Hardee's, to repay existing indebtedness, to fund
the Company's capital expenditures for the conversion of certain of its Hardee's
restaurants to dual-brand Carl's Jr./Hardee's restaurants in selected markets,
to repurchase certain Hardee's franchised restaurants, to make $7.5 million in
required principal repayments under the term loan portion of the Company's
credit facility and to repay $5.0 million under its revolving credit facility.
Additionally, the Company generated cash from the exercise of stock options of
approximately $3.8 million and used cash to repay capital lease obligations of
$5.0 million and pay dividends of $3.0 million.

Effective July 15, 1997, the Company entered into a new Senior Credit
Facility which replaced an unsecured bank credit facility arranged for the
Company in July 1996. On July 15, 1997, the Company incurred $75.0 million of
borrowings under the Term Loan Facility and $58.9 million of borrowings under
the Revolving Credit Facility to fund a portion of the consideration needed to
acquire Hardee's. As of January 26, 1998, $67.5 million of borrowings remained
outstanding under the Term Loan Facility and $71.0 million of borrowings
remained outstanding under the Revolving Credit Facility.

On April 1, 1998, the Company amended the Senior Credit Facility to
increase the aggregate principal amounts of the lenders' commitments under the
Term Loan Facility to $250.0 million and under the Revolving Credit Facility to
$250.0 million, which includes a $65.0 million letter of credit subfacility, and
to extend the final maturity to April 2003. On April 1, 1998, the Company
incurred borrowings of $213.2 million under the Senior Credit Facility to
finance a portion of the purchase price of the FEI Acquisition. Principal
repayments under the Term Loan Facility are due in quarterly installments
commencing in June 1998 and continuing thereafter until the final maturity of
the Senior Credit Facility in April 2003, resulting in annual reductions of
$20.0 million in the first year of the Term Loan Facility and annual reductions
thereafter ranging from $40.0 million to $70.0 million. Additional borrowings
under the Revolving Credit Facility may be used for working capital and other
general corporate purposes, including permitted investments and acquisitions,
and any outstanding amounts thereunder will become due in April 2003. The
Company will be required to repay borrowings under the Senior Credit Facility
with the proceeds from certain asset sales (unless the net proceeds of such
sales are reinvested in the Company's business), from the issuance of certain
equity securities or from the issuance of additional indebtedness. Of the
various options the Company has regarding interest rates, it has selected LIBOR
plus a margin, with future margin adjustments dependent on certain financial
ratios from time to time.

23
26

Borrowings and other obligations of the Company under the Senior Credit
Facility are general unsubordinated obligations of the Company and secured by a
pledge of the capital stock of certain of the Company's present and future
subsidiaries, which subsidiaries guarantee such borrowings and other
obligations, and are secured by certain franchise rights, accounts receivable,
contract rights, general intangibles (including trademarks) and other assets of
the Company and such subsidiaries. The Senior Credit Facility contains a number
of significant covenants that, among other things, (i) restrict the ability of
the Company and its subsidiaries to incur additional indebtedness and incur
liens on their assets, in each case subject to specified exceptions, (ii) impose
specified financial tests as a precondition to the Company's and its
subsidiaries' acquisition of other businesses and (iii) limit the Company and
its subsidiaries from making capital expenditures and certain restricted
payments (including dividends and repurchases of stock), subject in certain
circumstances to specified financial tests. In addition, the Company is required
to comply with specified financial ratios and tests, including minimum EBITDA
requirements, minimum interest coverage and fixed charge coverage ratios,
minimum consolidated tangible net worth requirements and maximum leverage
ratios.

On March 13, 1998, the Company completed a private placement of $197.2
million aggregate principal amount of convertible subordinated notes, in which
the Company received net proceeds of approximately $192.3 million, of which
$24.1 million was used to repay indebtedness under the Term Loan Facility. The
Notes, which represent unsecured general obligations of the Company subordinate
in right of payment to certain other obligations, are due in 2004, are
convertible into the Company's common stock at an initial conversion price of
$48.204 and carry a 4.25% coupon. The remaining net proceeds from the Notes,
together with borrowings under the Senior Credit Facility were used to fund the
acquisition of FEI on April 1, 1998.

The Company's primary source of liquidity is its revenues from
Company-operated restaurants, which are generated in cash. Future capital needs
will arise primarily for the construction of new restaurants, the remodeling of
existing restaurants, the repurchase of certain Hardee's restaurants from
franchisees, the conversion of certain restaurants to the Carl's Jr./Green
Burrito and Carl's Jr./serving Hardee's breakfast dual-brand concepts and
capital expenditures to be incurred in connection with the Company's integration
of Hardee's and FEI. During fiscal 1999, the Company expects to incur
approximately $160.0 million in capital expenditures. In addition, the Company
and Imasco Holdings continue to discuss certain post-closing purchase price
adjustments arising from the Hardee's acquisition. The Company believes that any
payments required as a result of such purchase price adjustments will not
materially affect the Company's financial condition.

The Company typically maintains current liabilities in excess of current
assets, because the quick-service restaurant business generally receives
immediate payment for sales, while inventories and other current liabilities
normally carry longer payment terms (usually 15 to 30 days).

The Company believes that cash generated from its various restaurant
operations, along with cash and cash equivalents on hand as of January 26, 1998,
and amounts available under the Senior Credit Facility will provide the Company
with the funds necessary to meet all of its capital spending and working capital
requirements for the foreseeable future. If those sources of capital are
insufficient to satisfy the Company's capital spending and working capital
requirements, or if the Company determines to make any significant acquisition
of or investments in other businesses, the Company may be required to sell
additional equity or debt securities or obtain additional credit facilities. In
addition, substantially all of the real properties owned by the Company and used
for its restaurant operations are unencumbered and could be used by the Company
as collateral for additional debt financing; however, there can be no assurance
that real estate financing or other financing can be obtained on terms
acceptable to the Company. Sales, if any, of additional equity or debt
securities could result in additional dilution to the Company's stockholders.

YEAR 2000

The Company is currently working to resolve the potential impact of the
year 2000 on the processing of data-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year.

24
27

Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. Based on preliminary information, costs
of addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. However, the inability of the Company or its
suppliers or distributors and other vendors to resolve such processing issues in
a timely manner could have a material adverse impact on the Company.
Accordingly, the Company plans to devote the necessary resources to resolve all
significant year 2000 issues in a timely manner.

IMPACT OF INFLATION

Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect the Company's
operations. Historically, the Company has been able to pass any associated
higher costs due to these inflationary factors along to its customers because
those factors have impacted nearly all restaurant companies. During fiscal 1998
and fiscal 1997, however, management has emphasized cost controls rather than
price increases, given the competitive pressure within the quick-service
restaurant industry.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income to be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period covered by that financial statement. SFAS 130 requires an enterprise
to (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Management has
determined that SFAS 130 will not have a material impact on the Company's
reporting of its consolidated financial position or results of operations and
requires only additional disclosure.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets, information about the revenues derived from the enterprise's
products or services, and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's segment reporting.

25
28

In December 1997, the American Institute of Certified Public Accountants
approved for issuance the Statement of Position ("SOP"), Reporting on the Costs
of Start-Up Activities. The SOP requires that costs incurred during a start-up
activity (including organization costs) be expensed as incurred. The SOP is
effective for fiscal years beginning after December 15, 1998. The Company
currently amortizes pre-opening costs over one year from the time they are
incurred. Management does not believe the impact of the adoption of this SOP on
the Company's consolidated financial position or results of operations will be
material.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index included at "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information pertaining to directors and executive officers of the
registrant is hereby incorporated by reference to the Company's Proxy Statement
to be used in connection with the Company's 1998 Annual Meeting of Stockholders,
to be filed with the Commission within 120 days of January 26, 1998. Information
concerning the current executive officers of the Company is contained in Item 1
of Part I of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information pertaining to executive compensation is hereby incorporated
by reference to the Company's Proxy Statement to be used in connection with the
Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission
within 120 days of January 26, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information pertaining to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the Company's Proxy
Statement to be used in connection with the Company's 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information pertaining to certain relationships and related
transactions is hereby incorporated by reference to the Company's Proxy
Statement to be used in connection with the Company's 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.

26
29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By: /s/ WILLIAM P. FOLEY II
------------------------------------
William P. Foley II
Chairman of the Board and
Chief Executive Officer

Date: April 22, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ WILLIAM P. FOLEY II Chairman of the Board and Chief Executive April 22, 1998
- ------------------------------------ Officer (Principal Executive Office)
William P. Foley II

/s/ CARL A. STRUNK Executive Vice President, Chief Financial April 22, 1998
- ------------------------------------ Officer (Principal Financial and
Carl A. Strunk Accounting Officer)

/s/ BYRON ALLUMBAUGH Director April 22, 1998
- ------------------------------------
Byron Allumbaugh

/s/ PETER CHURM Director April 22, 1998
- ------------------------------------
Peter Churm

/s/ CARL L. KARCHER Director April 22, 1998
- ------------------------------------
Carl L. Karcher

/s/ CARL N. KARCHER Director April 22, 1998
- ------------------------------------
Carl N. Karcher

/s/ DANIEL D. LANE Vice Chairman of the Board April 22, 1998
- ------------------------------------
Daniel D. Lane

/s/ W. HOWARD LESTER Director April 22, 1998
- ------------------------------------
W. Howard Lester

/s/ FRANK P. WILLEY Director April 22, 1998
- ------------------------------------
Frank P. Willey

27
30

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PAGE
NUMBER
------

(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets -- as of January 31, 1998 and F-2
1997........................................................
Consolidated Statements of Income -- for the years ended F-3
January 31, 1998, 1997 and 1996.............................
Consolidated Statements of Stockholders' Equity -- for the F-4
years ended January 31, 1998, 1997 and 1996.................
Consolidated Statements of Cash Flows -- for the years ended F-5
January 31, 1998, 1997 and 1996.............................
Notes to Consolidated Financial Statements.................. F-6

(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted since the required information is
not present in amounts sufficient to require submission of
the schedule, or because the information required is
included in the consolidated financial statements or the
notes thereto.

(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form
10-K beginning on page E-1 hereof and is incorporated herein
by reference.

(B) CURRENT REPORTS ON FORM 8-K:
None.

28
31

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
CKE Restaurants, Inc. and Subsidiaries:

We have audited the accompanying consolidated financial statements of CKE
Restaurants, Inc. and Subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CKE
Restaurants, Inc. and Subsidiaries as of January 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1998 in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

Orange County, California
March 17, 1998, except for Note 9 and
Note 22, relating to the amendment to the
Company's Senior Credit Facility and acquisition
of Flagstar Enterprises, Inc., which are as of
April 1, 1998.

F-1
32

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

JANUARY 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Current assets:
Cash and cash equivalents................................. $ 30,382 $ 46,330
Accounts receivable....................................... 27,317 7,942
Related party receivables................................. 1,171 2,088
Inventories............................................... 17,024 9,223
Deferred income taxes, net................................ -- 7,214
Prepaid expenses.......................................... 13,045 6,232
Other current assets...................................... 3,217 1,168
-------- --------
Total current assets.............................. 92,156 80,197
Property and equipment, net................................. 627,026 208,099
Property under capital leases, net.......................... 47,528 37,115
Long-term investments....................................... 48,089 33,268
Notes receivable............................................ 11,162 6,210
Related party receivables................................... 7,626 9,325
Costs in excess of net assets acquired, net................. 95,744 25,560
Other assets................................................ 28,037 10,593
-------- --------
$957,368 $410,367
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 15,812 $ 735
Current portion of capital lease obligations.............. 5,499 4,347
Accounts payable.......................................... 60,303 41,515
Deferred income taxes, net................................ 5,675 --
Other current liabilities................................. 89,195 36,527
-------- --------
Total current liabilities......................... 176,484 83,124
-------- --------
Long-term debt.............................................. 138,793 33,770
Capital lease obligations................................... 56,801 48,141
Other long-term liabilities................................. 86,778 30,528
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued or outstanding..................... -- --
Common stock, $.01 par value; authorized 100,000,000
shares; issued and outstanding 46,523,179 shares and
36,540,626 shares...................................... 465 365
Additional paid-in capital................................ 366,110 126,246
Retained earnings......................................... 131,937 88,193
-------- --------
Total stockholders' equity........................ 498,512 214,804
-------- --------
$957,368 $410,367
======== ========

See accompanying notes to consolidated financial statements.

F-2
33

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FISCAL YEAR ENDED JANUARY 31,
----------------------------------------
1998 1997 1996
------------ ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Revenues:
Company-operated restaurants:
Carl's Jr............................................ $ 488,495 $443,304 $389,214
Hardee's............................................. 339,942 -- --
Taco Bueno........................................... 73,982 22,146 --
JB's Restaurants..................................... 64,820 33,517 --
HomeTown Buffet...................................... 27,496 20,590 --
Other................................................ 27,718 17,251 4,272
---------- -------- --------
1,022,453 536,808 393,486
---------- -------- --------
Franchised and licensed restaurants and other:
Carl's Jr............................................ 80,730 75,785 71,181
Hardee's............................................. 45,295 -- --
Other................................................ 1,181 787 --
---------- -------- --------
127,206 76,572 71,181
---------- -------- --------
Total revenues.................................. 1,149,659 613,380 464,667
---------- -------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging................................... 314,412 164,120 118,244
Payroll and other employee benefits.................. 311,612 149,846 109,943
Occupancy and other operating expenses............... 206,436 110,828 82,004
---------- -------- --------
832,460 424,794 310,191
Franchised and licensed restaurants and other........... 93,773 72,696 69,263
Advertising expenses.................................... 58,383 31,795 22,975
General and administrative expenses..................... 78,852 39,956 35,238
---------- -------- --------
Total operating costs and expenses.............. 1,063,468 569,241 437,667
---------- -------- --------
Operating income.......................................... 86,191 44,139 27,000
Interest expense.......................................... (16,914) (9,877) (10,004)
Other income, net......................................... 7,363 2,448 957
---------- -------- --------
Income before income taxes................................ 76,640 36,710 17,953
Income tax expense........................................ 29,883 14,408 7,001
---------- -------- --------
Net income................................................ $ 46,757 $ 22,302 $ 10,952
========== ======== ========
Net income per share -- basic............................. $ 1.10 $ 0.69 $ 0.36
========== ======== ========
Weighted average shares outstanding -- basic.............. 42,394 32,399 30,211
========== ======== ========
Net income per common and common equivalent
share -- diluted........................................ $ 1.07 $ 0.67 $ 0.36
========== ======== ========
Common and common equivalent shares used in computing per
share amounts -- diluted................................ 43,747 33,276 30,555
========== ======== ========

See accompanying notes to consolidated financial statements.

F-3
34

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK TREASURY STOCK
------------------ ------------------- ADDITIONAL TOTAL
NUMBER OF NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ --------- ------- ---------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

BALANCE AT JANUARY 31, 1995.... 31,094 $311 974 $(4,558) $ 34,996 $ 57,725 $ 88,474
Cash dividends
($.05 per share).......... -- -- -- -- -- (1,460) (1,460)
Exercise of stock options.... 586 6 -- -- 2,744 -- 2,750
Purchase of treasury stock... -- -- 132 (551) -- -- (551)
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 848 -- 848
Net unrealized gain on
investment securities..... -- -- -- -- -- 176 176
Net income................... -- -- -- -- -- 10,952 10,952
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1996.... 31,680 317 1,106 (5,109) 38,588 67,393 101,189
Cash dividends
($.05 per share).......... -- -- -- -- -- (1,514) (1,514)
Exercise of stock options.... 396 4 -- -- 2,226 -- 2,230
Purchase of Summit........... 827 8 -- -- 11,403 -- 11,411
Common stock offering, net... 4,744 47 -- -- 77,568 -- 77,615
Retirement of treasury
stock..................... (1,106) (11) (1,106) 5,109 (5,098) -- --
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 1,559 -- 1,559
Net unrealized gain on
investment securities..... -- -- -- -- -- 12 12
Net income................... -- -- -- -- -- 22,302 22,302
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1997.... 36,541 365 -- -- 126,246 88,193 214,804
Cash dividends
($.07 per share).......... -- -- -- -- -- (3,013) (3,013)
Exercise of stock options.... 540 5 -- -- 3,787 -- 3,792
Purchase of Hardee's Green
Bay, Inc.................. 271 3 -- -- 9,402 -- 9,405
Common stock offering, net... 9,171 92 -- -- 222,252 -- 222,344
Tax benefit associated with
exercise of stock
options................... -- -- -- -- 4,423 -- 4,423
Net income................... -- -- -- -- -- 46,757 46,757
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1998.... 46,523 $465 -- $ -- $366,110 $131,937 $498,512
====== ==== ====== ======= ======== ======== ========

See accompanying notes to consolidated financial statements.

F-4
35

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED JANUARY 31,
--------------------------------
1998 1997 1996
--------- --------- --------
(DOLLARS IN THOUSANDS)

Net cash flows from operating activities:
Net income................................................ $ 46,757 $ 22,302 $ 10,952
Adjustments to reconcile net income to net cash provided
by operating activities, excluding the effect of
acquisitions and dispositions:
Depreciation and amortization.......................... 46,402 27,002 21,372
Provision for losses on accounts and notes
receivable........................................... 2,729 300 313
Loss on sale of property and equipment and capital
leases............................................... 4,657 1,520 1,850
Net non-cash investment and dividend income............ (3,029) (1,257) 1,047
Deferred income taxes.................................. 12,889 7,637 2,197
(Gain) loss on non-current asset and liability
transactions......................................... (5,632) 151 209
Write-down of long-lived assets........................ -- 1,250 --
Net change in receivables, inventories and other
current assets....................................... (13,682) (6,178) (288)
Net change in accounts payable and other current
liabilities.......................................... (16,754) 4,261 (4,781)
--------- --------- --------
Net cash provided by operating activities......... 74,337 56,988 32,871
--------- --------- --------
Cash flows from investing activities:
Purchases of:
Marketable securities.................................. (393) (760) (921)
Property and equipment................................. (89,210) (49,223) (27,234)
Long-term investments.................................. (14,294) (7,905) (1,670)
Proceeds from sale of:
Marketable securities and long-term investments........ 393 5,418 1,972
Property and equipment................................. 5,952 7,816 905
Increases in notes receivable and related party
receivables............................................ (200) (14,020) (2,640)
Collections on and sale of notes receivable, related party
receivables and leases receivable...................... 5,946 3,842 9,901
Net change in other assets................................ (1,674) (6,109) (189)
Acquisitions, net of cash acquired........................ (351,294) (52,123) --
Dispositions, net of cash surrendered..................... 16,286 -- --
--------- --------- --------
Net cash used in investing activities............. (428,488) (113,064) (19,876)
--------- --------- --------
Cash flows from financing activities:
Net proceeds from common stock offering................... 222,344 77,615 --
Net change in bank overdraft.............................. 4,325 12,690 (9,909)
Short-term borrowings..................................... 20,000 1,200 57,060
Repayments of short-term debt............................. (12,500) (1,200) (57,060)
Long-term borrowings...................................... 131,489 78,000 14,573
Repayments of long-term debt.............................. (20,570) (86,274) (11,151)
Repayments of capital lease obligations................... (4,956) (3,363) (3,129)
Deferred financing costs.................................. (4,426) (657) (141)
Net change in other long-term liabilities................. (2,705) (1,943) 3,384
Purchase of treasury stock................................ -- -- (551)
Payment of dividends...................................... (3,013) (1,514) (1,460)
Exercise of stock options................................. 3,792 2,230 2,750
Tax benefit associated with the exercise of stock
options................................................ 4,423 1,559 848
--------- --------- --------
Net cash provided by (used in) financing
activities...................................... 338,203 78,343 (4,786)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents...... $ (15,948) $ 22,267 $ 8,209
========= ========= ========

See accompanying notes to consolidated financial statements.

F-5
36

CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

A summary of certain significant accounting policies not disclosed
elsewhere in the footnotes to the consolidated financial statements is set forth
below.

Description of Business

CKE Restaurants, Inc. ("CKE" or the "Company") owns, operates, franchises
and licenses the Carl's Jr., and Hardee's quick-service restaurant concepts. As
of January 31, 1998, the Carl's Jr. system included 708 restaurants, of which
443 were operated by the Company and 265 were operated by the Company's
franchisees and licensees. Carl's Jr. restaurants are located in the Western
United States, predominantly in California. As of January 31, 1998, the
Company's Hardee's system included 3,038 restaurants, of which 863 were operated
by the Company and 2,175 were operated by the Company's franchises and licenses.
Hardee's restaurants are located throughout the Eastern and Midwestern United
States, predominantly in the Southeast. As of January 31, 1998, the Company also
operated a total of 235 other restaurants, including 109 Taco Bueno
quick-service Mexican food restaurants located in Texas and Oklahoma.

Basis of Presentation and Fiscal Year

In June 1994, a plan of reorganization and merger (the "Merger") was
approved by the stockholders of Carl Karcher Enterprises, Inc. ("Enterprises"),
whereby Enterprises, the predecessor entity of the Company that was a publicly
held corporation, and Boston Pacific, Inc. ("Boston Pacific") became wholly
owned subsidiaries of the Company, a Delaware corporation organized during
fiscal 1995. In fiscal 1997, the Company made two restaurant acquisitions.
Summit Family Restaurants Inc. ("Summit") was acquired in July 1996 and Taco
Bueno Restaurants, Inc. ("Taco Bueno") was acquired in October 1996 (see Note
2).

In July 1997, the Company acquired Hardee's Food Systems, Inc. ("Hardee's")
(see Note 2). In September 1997, the Company transferred Summit's JB's
Restaurants and Galaxy Diner assets to a newly formed subsidiary, JB's Family
Restaurants, Inc. ("JB's"). The Company then contributed its remaining interest
in Summit and transferred its two Casa Bonita Mexican-themed restaurants to Star
Buffet, Inc. ("Star Buffet"). The Company subsequently participated in the
initial public offering of Star Buffet, leaving it with an approximate 37%
interest in Star Buffet (see Note 6). Hardee's, Taco Bueno and JB's remain
wholly owned subsidiaries of the Company.

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions are
eliminated. The Company's fiscal year is 52 or 53 weeks, ending the last Monday
in January each year. Fiscal years 1998, 1997 and 1996 each included 52 weeks of
operations. For clarity of presentation, the Company has described all years
presented as if the fiscal year ended January 31.

Cash Equivalents

For purposes of reporting cash flows, highly liquid investments purchased
with original maturities of three months or less are considered cash
equivalents. The carrying amounts reported in the consolidated balance sheets
for these instruments approximate their fair value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market, and consist primarily of restaurant food items and paper supplies.

F-6
37
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred Financing Costs

Costs related to the issuance of debt are deferred and amortized on a
straight-line basis as a component of interest expense over the terms of the
respective debt issues.

Deferred Lease Costs

Deferred lease costs arising from an acquisition represent the excess of
actual rent payments on an operating lease over the current market rate on the
date of the acquisition. Deferred lease costs are amortized over the remaining
lives of the related leases.

Investment in Joint Ventures

In fiscal 1994, the Company entered into a joint venture agreement with a
Mexican company to operate a Carl's Jr. restaurant in Baja California. The
Company owns a 50% interest in this joint venture. In fiscal 1996, the Company
entered into another joint venture agreement, in which the Company owns a 30%
interest with one of its licensees to operate 130 Carl's Jr. restaurants in 16
Asian countries over the next five years. Both joint venture agreements, which
are accounted for under the equity method, are not considered material to the
Company's consolidated financial statements.

Restaurant Operating Agreement

The Company and Rally's Hamburgers, Inc. ("Rally's") entered into an
operating agreement, effective in July 1996, whereby the Company began operating
28 Rally's-owned restaurants located in California and Arizona. Rally's retains
ownership of the restaurants' assets and receives a percentage of the
restaurants' sales. One of the Rally's restaurants operated by the Company has
been converted into a Carl's Jr. "Jr." restaurant, which offers a limited Carl's
Jr. menu in a double drive-thru and walk-up service format. The Company has also
added a dining room to one of these restaurants and is now operating it as a
Carl's Jr. restaurant. The Company's results of operations include the revenue
and expenses of these 26 Rally's restaurants from July 2, 1996.

Property and Equipment

Property and equipment are recorded at cost, less depreciation and
amortization. Depreciation is computed using the straight-line method based on
the assets' estimated useful lives, which range from three to 40 years.
Leasehold improvements are amortized on a straight-line basis over the lesser of
the estimated useful lives of the assets or the related lease terms.

Impairment of Long-Lived Assets

In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires the
assessment of certain long-lived assets for possible impairment when events or
circumstances indicate their carrying amounts may not be recoverable. Losses are
recognized when the carrying value of these assets exceeds the total estimated
undiscounted cash flows expected to be generated over the assets' estimated
life. The Company adopted SFAS 121 in the first quarter of fiscal 1997 and
recorded a $1.3 million non-cash pretax charge, equivalent to $0.02 per share,
to adjust the carrying value of those assets identified as impaired.

The costs in excess of net assets acquired are amortized on a straight-line
basis, principally over 40 years. The Company periodically reviews the costs in
excess of net assets acquired in accordance with SFAS 121. Accumulated
amortization of costs in excess of net assets acquired was $4.7 million and $2.6
million at January 31, 1998 and 1997, respectively.

F-7
38
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Advertising

Production costs of commercials and programming are charged to operations
in the fiscal year first aired. The costs of other advertising, promotion and
marketing programs are charged to operations in the fiscal year incurred.

Income Taxes

The Company accounts for income taxes using the asset and liability method
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, income tax assets and liabilities are recognized
using enacted tax rates for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A change in tax
rates is recognized in income in the period that includes the enactment date.

Estimations

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Share and Per Share Restatement

On January 6, 1998, the Company declared a 10% stock dividend to
stockholders of record on January 20, 1998, distributed on February 4, 1998. On
December 19, 1996, the Company declared a three-for-two stock split, payable in
the form of a stock dividend, to stockholders of record on January 2, 1997,
distributed on January 22, 1997.

All data with respect to earnings per share, dividends per share and share
information, including price per share where applicable, in the consolidated
financial statements and notes to consolidated financial statements have been
retroactively adjusted to reflect the stock dividend and stock split.

Earnings per Share

The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128") in fiscal 1998. SFAS 128 requires the
presentation of "basic" earnings per share which represents net earnings divided
by the weighted average shares outstanding excluding all common stock
equivalents. Dual presentation of "diluted" earnings per share reflecting the
dilutive effect of all common stock equivalents is also required.

Reclassifications

Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform with the fiscal 1998 presentation.
In addition, as a result of the acquisition of Hardee's, reclassifications of
certain operating costs and expenses were made to conform with financial
classification policies of acquired entities.

F-8
39
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- ACQUISITIONS

On July 15, 1997, the Company acquired Hardee's, the operator and
franchisor of the Hardee's(R) quick-service hamburger restaurant concept. In
connection with the acquisition, which was accounted for as a purchase, the
Company acquired all of the issued and outstanding shares of Hardee's for cash
consideration of $327.0 million. The purchase price remains subject to
adjustment to an amount to be agreed upon by the Company and Imasco Holdings,
Inc., which represents the net asset value of Hardee's as of July 15, 1997. The
Company used the net proceeds from the sale of 9,171,250 shares of the Company's
common stock to the public for net proceeds of $222.3 million (see Note 11) in
conjunction with borrowings of $133.9 million under the Company's Senior Credit
Facility (see Note 9) to finance the acquisition.

On July 15, 1996, the Company acquired Summit, which was accounted for as a
purchase. In connection with the acquisition, each of the 4,809,446 outstanding
shares of Summit common stock was converted into the right to receive 0.172095
shares of the Company's common stock (and cash in lieu of fractional shares) and
cash in the amount of $2.63. Accordingly, the aggregate number of shares of
common stock of the Company issued in the acquisition was 827,290. The source of
funds for the cash portion of the consideration was cash on hand and borrowings
under the Company's then existing revolving credit facility.

On October 1, 1996, the Company acquired Taco Bueno, which was accounted
for as a purchase. The acquisition was completed by CBI Restaurants, Inc.
("CBI"), a newly-formed corporation in which the Company originally held an 80%
equity interest. CBI paid $42.0 million in cash, which was financed by short-
term loans of $9.0 million from the Company, $8.0 million from Fidelity National
Financial, Inc. ("Fidelity"), and $5.0 million from Giant Group, Ltd. ("Giant").
The balance of the purchase price, $20.0 million, was financed through the
Company's investment of $16.0 million in cash for an 80% equity interest in CBI
and Fidelity's investment of $4.0 million in cash for the remaining 20% equity
interest in CBI. The Company's investment in CBI was funded out of borrowings
under the Company's then existing revolving acquisition facility. On December 3,
1996, the Company purchased Fidelity's 20% equity interest in CBI for $4.5
million, giving the Company 100% ownership of CBI and Taco Bueno. CBI also
repaid the short-term loans of $8.0 million to Fidelity and $5.0 million to
Giant. The purchase of Fidelity's equity interest and the repayment of
short-term loans were provided by the net proceeds of the Company's common stock
offering (see Note 11).

When the Company acquired Summit, it was the operator of three restaurant
concepts: JB's Restaurants, a family dining chain; HomeTown Buffet restaurants,
which were operated by Summit as a franchisee; and Galaxy Diner, a "50's-style"
casual theme restaurant. Taco Bueno, when acquired by the Company, was an
operator of three restaurant concepts: Taco Bueno, a quick-service Mexican
restaurant chain; Casa Bonita, a Mexican-themed restaurant; and Crystal's, a
pizzeria. The three Crystal's were closed by the Company in the first quarter of
fiscal 1998.

After the acquisition of Summit, the Company determined that its principal
focus was on the quick-service segment of the restaurant industry as opposed to
the family-dining segment. As such, in September 1997, the Company transferred
Summit's JB's Restaurants and Galaxy Diner assets to a newly formed subsidiary,
JB's. The Company then contributed its remaining interest in Summit, which
consisted of 16 HomeTown Buffet restaurants, and its two Casa Bonita restaurants
to Star Buffet. The Company subsequently participated in the initial public
offering of Star Buffet, leaving it with an approximate 37% interest in Star
Buffet (see Note 6). Taco Bueno (formerly Casa Bonita) and JB's remain wholly
owned subsidiaries of the Company.

F-9
40
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The assets acquired, including the costs in excess of net assets acquired,
and liabilities assumed in the acquisitions of Hardee's, Summit and Taco Bueno
are as follows:

HARDEE'S SUMMIT TACO BUENO
--------- -------- ----------
(DOLLARS IN THOUSANDS)

Tangible assets acquired at fair value........... $ 424,739 $ 59,772 $40,672
Costs in excess of net assets acquired........... 57,339 -- 9,860
Liabilities assumed at fair value................ (155,078) (30,716) (8,532)
--------- -------- -------
Total purchase price................... $ 327,000 $ 29,056 $42,000
========= ======== =======

Selected unaudited pro forma combined results of operations for the years
ended January 31, 1998 and 1997, assuming the Hardee's acquisition occurred on
February 1, 1997 and 1996 and assuming the Summit and Taco Bueno acquisitions
occurred on February 1, 1996, using actual restaurant-level margins and general
and administrative expenses prior to the acquisition of each entity, are
presented as follows:

1998 1997
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Total revenues.............................................. $1,494,069 $1,552,930
Net income (loss)........................................... $ 51,583 $ (7,742)
Net income (loss) per share -- basic........................ $ 1.12 $ ( 0.18)
Net income (loss) per share -- diluted...................... $ 1.09 $ (0.18)

NOTE 3 -- ACCOUNTS RECEIVABLE

Details of accounts receivables are as follows:

1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)

Trade receivables, net...................................... $19,595 $5,982
Notes receivable, current................................... 3,572 1,022
Income tax receivable....................................... 964 714
Other....................................................... 3,186 224
------- ------
$27,317 $7,942
======= ======

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

ESTIMATED
USEFUL LIFE 1998 1997
----------- --------- ---------
(DOLLARS IN THOUSANDS)

Land.............................................. $180,961 $ 50,487
Leasehold improvements............................ 4-25 years 129,910 91,227
Buildings and improvements........................ 7-40 years 230,637 70,023
Equipment, furniture and fixtures................. 3-10 years 255,714 147,488
-------- --------
797,222 359,225
Less: Accumulated depreciation and amortization... 170,196 151,126
-------- --------
$627,026 $208,099
======== ========

F-10
41
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- LEASES

The Company occupies land and buildings under terms of numerous lease
agreements expiring on various dates through 2023. Many leases provide for
future rent escalations and renewal options. In addition, contingent rentals,
determined as a percentage of sales in excess of specified levels, are often
stipulated. Most of these leases obligate the Company to pay costs of
maintenance, insurance and property taxes.

Property under capital leases is comprised of the following:

1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Building.................................................... $84,718 $74,667
Less: Accumulated amortization.............................. 37,190 37,552
------- -------
$47,528 $37,115
======= =======

Amortization is calculated on a straight-line basis over the shorter of the
respective lease terms or the estimated useful lives of the related assets.

Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 31, 1998 are as follows:

CAPITAL OPERATING
-------- ----------
(DOLLARS IN THOUSANDS)

Fiscal Year:
1999...................................................... $12,473 $ 70,999
2000...................................................... 11,920 65,658
2001...................................................... 11,531 60,078
2002...................................................... 10,997 55,347
2003...................................................... 10,316 50,244
Thereafter................................................ 57,896 249,660
------- --------
Total minimum lease payments...................... 115,133 $551,986
========
Less: Amount representing interest.......................... 52,833
-------
Present value of minimum lease payments..................... 62,300
Less: Current portion....................................... 5,499
-------
Capital lease obligations, excluding current portion........ $56,801
=======

Total minimum lease payments have not been reduced by minimum sublease
rentals of $84.5 million due in the future under certain operating subleases.

The Company has leased and subleased land and buildings to others,
primarily as a result of the franchising of certain restaurants. Many of these
leases provide for fixed payments with contingent rent when sales exceed certain
levels, while others provide for monthly rentals based on a percentage of sales.
Lessees generally bear the cost of maintenance, insurance and property taxes.
Components of the net investment in leases receivable, included in other current
assets and other assets, are as follows:

1998 1997
-------- --------
(DOLLARS IN THOUSANDS)

Net minimum lease payments receivable....................... $4,891 $6,680
Less: Unearned income....................................... 2,028 2,721
------ ------
Net investment.............................................. $2,863 $3,959
====== ======

F-11
42
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Minimum future rentals to be received as of January 31, 1998 are as
follows:

CAPITAL OPERATING
LEASES OR LESSOR
SUBLEASES LEASES
--------- ---------
(DOLLARS IN THOUSANDS)

Fiscal Year:
1999...................................................... $ 568 $ 2,767
2000...................................................... 567 2,805
2001...................................................... 560 2,873
2002...................................................... 565 2,867
2003...................................................... 540 2,745
Thereafter................................................ 2,091 12,526
------ -------
Total minimum future rentals...................... $4,891 $26,583
====== =======

Total minimum future rentals do not include contingent rentals which may be
received under certain leases.

Aggregate rents under noncancelable operating leases during fiscal 1998,
1997 and 1996 are as follows:

1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)

Minimum rentals....................................... $49,984 $33,597 $29,225
Contingent rentals.................................... 4,002 1,937 1,384
Less: Sublease rentals................................ 6,025 5,644 5,058
------- ------- -------
$47,961 $29,890 $25,551
======= ======= =======

NOTE 6 -- LONG-TERM INVESTMENTS

GB Foods Corporation and JB's Restaurants

The Company owns, operates and franchises the JB's Restaurant family dining
restaurant concept and owns and operates six Galaxy Diner "50's-style" casual
theme restaurants. As of January 31, 1998, the JB's Restaurant system consisted
of 94 restaurants, of which 74 were owned and operated by the Company. The JB's
Restaurant system and the Galaxy Diner restaurants were purchased by the Company
in connection with its acquisition of Summit during fiscal 1997 (see Note 2). In
February 1998, the Company sold 12 Company-operated JB's Restaurants to Star
Buffet. As a result of such sale the Company received approximately $4.8 million
in cash. In addition, the Company has recently announced two additional
transactions which will result in the disposition of the entire JB's Restaurant
system and Galaxy Diner restaurants. First, the Company has agreed to sell 14
Company-operated JB's Restaurants and two Galaxy Diner restaurants to Timber
Lodge Steakhouse, Inc. ("Timber Lodge") in connection with the proposed merger
of Timber Lodge and GB Foods Corporation ("GB Foods"). Second, the Company has
agreed to sell JB's, which consists of the remaining 48 Company-operated JB's
Restaurants and the JB's Restaurant franchise system, together with four Galaxy
Diner restaurants, to GB Foods. If the above transactions are completed, the
Company expects to receive approximately 1.6 million shares of common stock of
GB Foods, which would represent approximately 10% of GB Foods' outstanding
shares after giving effect to such transactions. There can be no assurance that
these transactions will be completed. The foregoing transactions, together with
the Company's reorganization and the initial public offering of Star Buffet,
will complete the Company's previously announced plans to sell or otherwise
dispose of all or a portion of the restaurant businesses of Summit.

F-12
43
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Star Buffet, Inc.

Star Buffet is an operator of 33 buffet-style restaurants and 11
franchised, family-style JB's Restaurants. On September 30, 1997, the Company
participated in an initial public offering of its buffet-style restaurant
operations. Prior to the offering, the Company formed Star Buffet to continue to
operate its 16 HomeTown Buffet franchised restaurants and two Casa Bonita theme
restaurants. Star Buffet then completed an initial public offering of 3,450,000
shares of its common stock, of which 600,000 shares were sold by the Company as
a selling shareholder. The Company received net proceeds of $6.7 million in
connection with such sale, and retained an approximate 37% interest in Star
Buffet which the Company accounts for under the equity method of accounting. The
Company also received dividend income of $9.3 million in the transaction, and
sold the net assets of two Casa Bonita restaurants to Star Buffet for their net
book value of $1.1 million. The Company continues to own and operate the JB's
Restaurants and Galaxy Diner restaurant concepts in its new subsidiary, JB's.
Operating results for fiscal 1998 include 35 weeks of operations for the 16
HomeTown Buffet franchised restaurants and two Casa Bonita restaurants.

Rally's Hamburgers, Inc.

On April 20, 1996, the Company purchased from Giant, in settlement of
certain litigation, 2,350,432 shares of Rally's common stock for $4.1 million,
representing approximately 15% of Rally's outstanding shares. In connection with
this settlement, the Company also received options to purchase Rally's common
stock from Giant over the next two years.

Effective August 31, 1996, the Company participated in Rally's rights
offering, pursuant to which the Company received one right for each of the
2,350,432 shares of Rally's common stock the Company already owned. In
accordance with the terms of the rights offering, holders of rights were
entitled to purchase one unit for each 3.25 rights surrendered for a cash
payment of $2.25 per unit. Each unit consists of one share of Rally's common
stock and one warrant to purchase an additional share of Rally's common stock
upon payment of a $2.25 exercise price. The Company contributed approximately
$1.7 million in cash and acquired 775,488 shares of Rally's common stock in
connection with the rights offering, with warrants to acquire another 775,488
shares.

Additionally, on November 29, 1996, the Company elected to exercise options
to purchase 626,607 shares of common stock of Rally's from Giant for a total of
approximately $1.9 million.

On December 20, 1996, Rally's issued the Company warrants to purchase
750,000 restricted shares of Rally's common stock at an exercise price of $4.375
per share. The warrants have a three-year term and are exercisable after
December 20, 1997.

On December 18, 1997, the Company and certain other investors exchanged
their shares of Checkers Drive-In Restaurants, Inc. ("Checkers") common stock
for newly issued shares of Rally's common stock and Rally's Series A preferred
stock. In exchange for the Company's 12,754,885 shares of Checkers' common
stock, the Company received 2,798,080 shares of Rally's common stock and 28,619
shares of Rally's Series A preferred stock. The shares of Series A preferred
stock acquired by the Company are convertible into an aggregate of 2,861,900
additional shares of common stock; provided, however, that such conversion is
subject to the approval of Rally's stockholders at its next annual meeting.
Primarily as a result of the above transactions, as of January 31, 1998, the
Company's investment in Rally's was $21.3 million, representing an approximate
27% ownership interest of Rally's, which the Company accounts for under the
equity method of accounting. Assuming full exercise of all the warrants and the
conversion of the Series A preferred stock into Rally's common stock, the
Company would beneficially own approximately 31% of Rally's outstanding shares.
Further, as a result of this transaction, Rally's owns approximately 27% of
Checkers' outstanding shares.

F-13
44
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Checkers Drive-In Restaurants, Inc.

On November 14, 1996, the Company, together with a group of investors,
purchased $35.8 million aggregate principal amount of Checkers' 13.75% senior
secured debt, due on July 31, 1998. The aggregate purchase price for this senior
secured debt was $35.1 million. In addition to the Company, the investors
included KCC Delaware, a wholly owned subsidiary of Giant, Fidelity, The
Travelers Indemnity Company and certain affiliated individual investors. The
Company paid $12.9 million in cash for $13.2 million, or a 36.75% share of the
debt.

On November 22, 1996, the investors restructured Checkers' indebtedness
under its existing credit agreement. Pursuant to the restructuring, the term of
the credit agreement was extended by one year until July 31, 1999 and the fixed
interest rate on such indebtedness was reduced to 13.0%. The investors modified
certain financial covenants and the timing and amount of principal payments due
under the credit agreement. In connection with the restructuring, the Company
received warrants to purchase 7,350,423 shares of Checkers' common stock at an
exercise price of $0.75 per share ("the Checkers Warrants"). The Company
recorded the difference between the fair market value of Checkers' common stock
and the exercise price of the Checkers Warrants on the date of grant as a
reduction, or discount, to the note receivable from Checkers. This discount is
amortized on a straight-line basis into interest income over the life of the
note. As of January 31, 1998, the Company's note receivable from Checkers, net
of the related discount, was $7.6 million and is included in related party
receivables.

On February 19, 1997, the Company purchased 6,162,299 shares of Checkers'
common stock at $1.14 per share and 61,636 shares of Checkers' Series A
preferred stock at $114.00 per share for an aggregate purchase price of $14.1
million in connection with a private placement of Checkers' securities to the
Company and other investors, including certain related parties. During fiscal
1998, the shares of Series A preferred stock acquired by the Company were
converted into 6,592,586 additional shares of Checkers' common stock.

On December 18, 1997, as discussed above, the Company exchanged 12,754,885
shares of Checkers' common stock for 2,798,080 shares of Rally's common stock
and 28,619 shares of Rally's Series A preferred stock. The Company continues to
hold the Checkers Warrants, which, if exercised, would represent approximately
10% of Checkers' outstanding shares.

Boston Market

In January 1994, the Company acquired from Boston Chicken, Inc. ("BCI") the
rights to develop, own and operate up to 300 Boston Market stores throughout
designated markets in California. Boston Pacific was formed during fiscal 1995
to conduct the Company's Boston Market franchise operations.

In April 1995, the Company's overall strategic plans were revised and the
Company determined that its available cash should be used to fund the expansion
and image enhancement of its Carl's Jr. restaurants. As such, management
determined it would opt for a more passive investment role and eliminate its
control and significant influence in the Boston Market concept. The Company
formed a new privately owned company, Boston West, LLC ("Boston West"), which
assumed the operations of all of the Company's 25 existing Boston Market stores
and agreed to fulfill the Company's remaining obligation to develop an
additional 175 Boston Market stores under its January 1994 area development
agreement with BCI. In connection with this transaction, the Company received
preferred units and all the outstanding common equity units in Boston West, for
a cost of approximately $19.7 million and $620,000, respectively, in exchange
for a majority of its existing Boston Market restaurant assets.

On May 30, 1995, Boston West issued an additional $2.5 million of common
equity units to an independent investor group in return for cash and certain
notes receivable, which are secured by $1.2 million of Boston West common equity
units. As of this date, the Company ceased consolidating the operations of

F-14
45
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Boston West into its financial statements and commenced realizing a pro-rata
share of the losses of Boston West.

On September 12, 1995, Boston West formally agreed to repurchase one half
of the Company's outstanding common equity units in Boston West, at a purchase
price of $10.00 per unit, or $310,000. As of this date, the Company began
accounting for its interest in Boston West under the cost method of accounting
for investments.

The Company is entitled to receive dividends on its preferred units at
rates ranging from 8.6% to 9.0%. The dividends earned through June 1997 will be
paid in cash upon conversion of the Company's preferred units into common equity
units. In addition, this transaction provided for the leasing of approximately
$12.0 million of equipment and real property retained by the Company to Boston
West at current market rates. An affiliate of BCI has an option to purchase all
the equipment and real property leased by the Company to Boston West. In fiscal
1997, the Company received $2.5 million in cash and $2.5 million in additional
preferred units in exchange for real property that the Company was leasing to
Boston West. In addition, pursuant to this agreement, the Company has an option
to co-fund, along with BCI loan proceeds, the capital requirements of Boston
West up to a maximum of $15.0 million, of which the Company funded approximately
$1.7 million in fiscal 1996 through the purchase of additional preferred units.
In March 1996, the Company's Board of Directors elected to cease participation
in the option to co-fund the capital requirements of Boston West. With the
amounts co-funded to date, the Company's interest in Boston West may be
increased to up to approximately 26% upon conversion of the preferred units.

As of January 31, 1998 and 1997, the Company's total long-term investment
in Boston West was $22.3 million, which approximates fair value. The Company's
estimate of fair value of its long-term investment was based on a number of
factors including the discounted estimated future cash flows of Boston West and
the present value of expected future preferred dividend distributions. A total
of 98 Boston Market stores were opened under the area development agreement with
BCI as of the end of fiscal 1998.

NOTE 7 -- OTHER ASSETS

Other assets are comprised of the following:

1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Deferred lease costs........................................ $12,931 $ 1,761
Deferred financing costs.................................... 4,093 1,443
Leases receivable........................................... 2,623 3,735
Other assets................................................ 8,390 3,654
------- -------
$28,037 $10,593
======= =======

NOTE 8 -- OTHER CURRENT LIABILITIES

Other current liabilities are comprised of the following:

1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Salaries, wages and other benefits.......................... $33,258 $15,899
State sales taxes........................................... 11,350 7,685
Other self-insurance reserves............................... 12,457 3,103
Self-insured workers' compensation reserve.................. 5,436 4,781
Other accrued liabilities................................... 26,694 5,059
------- -------
$89,195 $36,527
======= =======

F-15
46
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- LONG-TERM DEBT

Long-term debt is comprised of the following:

1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)

Secured notes payable, principal payments in specified
amounts quarterly through July 2002, interest based on
LIBOR plus 0.50%.......................................... $138,500 $ --
Secured note payable, principal payments in specified
amounts monthly through 2001, interest at 8.17%........... 4,851 5,111
Industrial Revenue Bonds, payable in 1999, variable interest
rate averaging 3.52% in fiscal 1998....................... 3,600 3,600
Secured notes payable, principal payments in varying amounts
monthly through July 2017, interest based on LIBOR plus
2.75%..................................................... -- 20,000
Other....................................................... 7,654 5,794
-------- -------
154,605 34,505
Less: Current portion....................................... 15,812 735
-------- -------
$138,793 $33,770
======== =======

Effective July 15, 1997, the Company entered into a new credit facility
(the "Senior Credit Facility") with a group of financial institutions, which
replaced an unsecured bank credit facility arranged for the Company in July
1996. The Senior Credit Facility, which matures in July 2002, consists of a
$75.0 million term loan facility (the "Term Loan Facility") and a $225.0 million
revolving credit facility (the "Revolving Credit Facility") which includes a
$55.0 million letter of credit subfacility. On July 15, 1997, the Company
incurred $75.0 million of borrowings under the Term Loan Facility and $58.9
million of borrowings under the Revolving Credit Facility to fund a portion of
the consideration needed to acquire Hardee's and to repay $20.0 million in
existing indebtedness. The Company also borrowed an additional $17.1 million
under the Revolving Credit Facility during the year primarily to fund capital
expenditures in connection with the conversion of certain of the Hardee's
restaurants to Carl's Jr./Hardee's dual-brand restaurants in certain test
markets and to repurchase certain Hardee's franchised restaurants. As of January
31, 1998, $67.5 million of borrowings remained outstanding under the Term Loan
Facility and $71.0 million remained outstanding under the Revolving Credit
Facility.

On April 1, 1998, the Company amended the Senior Credit Facility to
increase the aggregate principal amounts of the lenders' commitments under the
Term Loan Facility to $250.0 million and under the Revolving Credit Facility to
$250.0 million, which includes a $65.0 million letter of credit subfacility, and
to extend the final maturity. The Company incurred borrowings of $213.2 million
thereunder to finance a portion of the purchase price of the Flagstar
Enterprises, Inc. ("FEI") acquisition (see Note 22). Principal repayments under
the Term Loan Facility are due in quarterly installments commencing in June 1998
and continuing thereafter until the final maturity of the Senior Credit Facility
in April 2003, resulting in annual reductions of $20.0 million in the first year
of the Term Loan Facility and annual reductions thereafter ranging from $40.0
million to $70.0 million. Additional borrowings under the Revolving Credit
Facility may be used for working capital and other general corporate purposes,
including permitted investments and acquisitions, and any outstanding amounts
thereunder will become due in April 2003. The Company will be required to repay
borrowings under the Senior Credit Facility with the proceeds from certain asset
sales (unless the net proceeds of such sales are reinvested in the Company's
business), from the issuance of certain equity securities or from the issuance
of additional indebtedness. Of the various options the Company has regarding
interest rates, it has selected LIBOR plus a margin, with future margin
adjustments dependent on certain financial ratios from time to time.

Borrowings and other obligations of the Company under the Senior Credit
Facility are general unsubordinated obligations of the Company and secured by a
pledge of the capital stock of certain of the

F-16
47
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company's present and future subsidiaries, which subsidiaries guarantee such
borrowings and other obligations, and are secured by certain franchise rights,
accounts receivable, contract rights, general intangibles (including trademarks)
and other assets of the Company and such subsidiaries. The Senior Credit
Facility contains a number of significant covenants that, among other things,
(i) restrict the ability of the Company and its subsidiaries to incur additional
indebtedness and incur liens on their assets, in each case subject to specified
exceptions, (ii) impose specified financial tests as a precondition to the
Company's and its subsidiaries' acquisition of other businesses and (iii) limit
the Company and its subsidiaries from making capital expenditures and certain
restricted payments (including dividends and repurchases of stock), subject in
certain circumstances to specified financial tests. In addition, the Company is
required to comply with specified financial ratios and tests, including minimum
EBITDA requirements, minimum interest coverage and fixed charge coverage ratios,
minimum consolidated tangible net worth requirements and maximum leverage
ratios. As of fiscal year end, the Company was in compliance with all of its
covenants governing its Senior Credit Facility.

On March 13, 1998, the Company completed a private placement of $197.2
million aggregate principal amount of convertible subordinated notes (the
"Notes"), in which the Company received net proceeds of approximately $192.3
million, of which $24.1 million was used to repay indebtedness under the Term
Loan Facility. The Notes, which represent unsecured general obligations of the
Company subordinate in right of payment to certain other obligations are due in
2004, are convertible into the Company's common stock at an initial conversion
price of $48.204 and carry a 4.25% coupon. The remaining net proceeds from the
Notes, together with borrowings under the Senior Credit Facility, were used to
fund the acquisition of FEI on April 1, 1998 (see Note 22).

Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value of $10.4 million as of January 31, 1998.

Long-term debt (excluding $410.4 million principal amount of indebtedness
incurred subsequent to January 31, 1998) matures in fiscal years ending after
January 31, 1998 as follows:

(DOLLARS IN THOUSANDS)
----------------------

Fiscal Year:
1999.................................................... $ 15,812
2000.................................................... 19,328
2001.................................................... 20,561
2002.................................................... 15,735
2003.................................................... 78,836
Thereafter.............................................. 4,333
--------
$154,605
========

NOTE 10 -- OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the following:

1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Self-insured workers' compensation reserve.................. $18,049 $ 9,283
Closure reserves............................................ 32,448 5,263
Other....................................................... 36,281 15,982
------- -------
$86,778 $30,528
======= =======

F-17
48
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company presently self-insures for group insurance, workers'
compensation and fire and comprehensive protection on most equipment and certain
other assets. A total of $23.5 million and $14.1 million was accrued as of
January 31, 1998 and 1997, respectively, representing the current and long-term
portions of the net present value of an independent actuarial valuation of the
Company's workers' compensation claims. These amounts are net of a discount of
$4.0 million and $2.0 million in fiscal 1998 and 1997, respectively.

The closure reserves primarily consist of amounts provided for in the
acquisition of Hardee's for the closure of certain restaurants and corporate
facilities. In prior years, the Company initiated programs to dispose of or
franchise its Arizona and Texas operations. As of January 31, 1998 and 1997,
$5.5 million and $6.0 million, respectively, were accrued for these costs,
including the current portion. These balances are mainly comprised of estimated
lease subsidies which represent the net present value of the excess of future
lease payments over estimated sublease income. The remaining unamortized
discount to present value these lease subsidies at January 31, 1998 was $4.2
million and will be amortized to operations over the remaining sublease terms,
which range up to 17 years.

NOTE 11 -- STOCKHOLDERS' EQUITY

In July 1994, the Board of Directors authorized the repurchase of up to
three million shares of the Company's common stock. A total of 1,105,995 shares
of stock were repurchased to date, which includes the purchase of 103,125 shares
in fiscal 1995 from the Chairman Emeritus at the then market price of $5.53 per
share. The balance of these shares was purchased in a series of open market
transactions, at an average price of approximately $4.53 per share, for an
aggregate purchase price of approximately $4.5 million. On October 28, 1996, the
Board of Directors of the Company retired 1,105,995 shares of the Company's
common stock which were previously held as treasury stock.

During the fourth quarter of fiscal 1997, the Company issued 4,743,750
shares of its common stock at a public offering price of $17.35 per share.
Proceeds from the offering, net of underwriting discounts and commissions and
other related expenses, were $77.6 million. The net proceeds were used to reduce
the Company's existing indebtedness and for working capital and other general
corporate purposes, including the Company's investments in Checkers and
additional investments in Rally's (see Note 6).

During the second quarter of fiscal 1998, the Company issued 9,171,250
shares of its common stock at a public offering price of $25.45 per share.
Proceeds from the offering, net of underwriting discounts and commissions and
other related expenses, were $222.3 million. The net proceeds were primarily
used to finance the acquisition of Hardee's (see Note 2).

A special meeting of stockholders of the Company was held on December 9,
1997 for the primary purpose of voting on a proposal to amend the Company's
certificate of incorporation to increase the authorized number of shares of
common stock from 50,000,000 to 100,000,000. The proposal was approved by the
Company's stockholders.

F-18
49
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents information on the Company's financial
instruments:

1998 1997
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)

Financial assets:
Cash and cash equivalents............... $ 30,382 $ 30,382 $46,330 $46,330
Notes receivable........................ 22,707 22,611 17,761 18,344
Financial liabilities:
Long-term debt, including current
portion.............................. 154,605 154,948 34,505 34,310

The fair value of cash and cash equivalents approximates their carrying
amount due to their short maturity. The estimated fair values of notes
receivable were determined by discounting future cash flows using current rates
at which similar loans would be made to borrowers with similar credit ratings.
The estimated fair value of long-term debt was determined by discounting future
cash flows using rates currently available to the Company for debt with similar
terms and remaining maturities.

NOTE 13 -- RELATED PARTY TRANSACTIONS

Certain members of management and the Karcher family are franchisees of the
Company. A total of 41 restaurants have been sold to these individuals.
Additionally, these franchisees regularly purchase food and other products from
the Company on the same terms and conditions as other franchisees.

During fiscal 1995, the Company made a salary advance to the Chairman
Emeritus totaling $715,000, a majority of which is non-interest bearing and is
to be repaid through payroll deductions. As of January 31, 1998 and 1997,
$116,000 and $220,000, respectively, remained outstanding. The entire amount is
scheduled to be repaid by December 1998.

In fiscal 1994, the Chairman Emeritus was granted future retirement
benefits for past services consisting principally of payments of $200,000 per
year for life and supplemental health benefits, which had a net present value of
$1.7 million as of that date. This amount was computed using certain actuarial
assumptions, including a discount rate of 7%. A total of $1.2 million remained
accrued in other long-term liabilities as of January 31, 1998. The Company
anticipates funding these obligations as they become due.

The Company leases various properties, including its corporate
headquarters, one of its distribution facilities and three of its restaurants,
from the Chairman Emeritus. Included in capital lease obligations were $3.6
million and $4.0 million, representing the present value of lease obligations
related to these various properties at January 31, 1998 and 1997, respectively.
Lease payments under these leases for fiscal 1998, 1997 and 1996 amounted to
$1.3, $1.3, and $1.4 million, respectively. This was net of sublease rentals of
$157,000 in fiscal 1998 and $148,000 in fiscal 1997 and 1996. In September 1996,
the Company purchased a restaurant from the Chairman Emeritus for a purchase
price of $1.1 million.

NOTE 14 -- FRANCHISE AND LICENSE OPERATIONS

Franchise arrangements, with franchisees who operate in various states,
generally provide for initial fees and continuing royalty payments to the
Company based upon a percent of sales. The Company generally charges an initial
franchise fee for each new franchised restaurant that is added to its system,
and in some cases, an area development fee, which grants exclusive rights to
develop a specified number of restaurants in a designated geographic area within
a specified time period. Similar fees are charged in connection with the
Company's international licensing operations. These fees are recognized ratably
when substantially all the

F-19
50
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

services required of the Company are complete and the restaurants covered by
these agreements commence operations.

Certain franchisees may also purchase food, paper, supplies and equipment
from the Company. Additionally, franchisees may be obligated to remit lease
payments for the use of restaurant facilities owned or leased by the Company,
generally for a period of 20 years. Under the terms of these leases, they are
required to pay related occupancy costs which include maintenance, insurance and
property taxes.

The Company receives notes from franchisees in connection with the sales of
Company-operated restaurants. During fiscal 1996, the Company sold certain of
its Carl's Jr. franchise notes receivable, with partial recourse, to an
independent third party for cash proceeds of approximately $8.4 million. The
remaining notes bear interest from 7.0% to 12.5%, mature in five to 15 years and
are secured by an interest in the restaurant equipment sold.

Revenues from franchised and licensed restaurants consist of the following:

1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)

Food service........................................ $ 63,890 $60,035 $ 56,015
Royalties........................................... 42,929 7,006 5,704
Equipment sales..................................... 9,989 -- --
Rental income....................................... 9,854 9,226 9,346
Initial fees........................................ 544 305 116
-------- ------- --------
$127,206 $76,572 $ 71,181
======== ======= ========

Operating costs and expenses for franchised and licensed restaurants
consist of the following:

1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)

Food service........................................ $ 62,801 $59,606 $ 56,590
Occupancy and other operating expenses.............. 21,067 13,090 12,673
Equipment purchases................................. 9,905 -- --
-------- ------- --------
$ 93,773 $72,696 $ 69,263
======== ======= ========

NOTE 15 -- INTEREST EXPENSE

Interest expense consists of the following:

1998 1997 1996
-------- ------- --------
(DOLLARS IN THOUSANDS)

Notes payable and revolving credit facility......... $ (9,689) $(3,059) $ (3,585)
Capital lease obligations........................... (6,578) (6,083) (5,898)
Other............................................... (647) (735) (521)
-------- ------- --------
$(16,914) $(9,877) $(10,004)
======== ======= ========

F-20
51
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16 -- OTHER INCOME, NET

Other income, net consists of the following:

1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)

Interest income....................................... $ 4,955 $ 2,393 $ 2,494
Lease income.......................................... 1,819 1,153 1,291
Dividend income....................................... 1,800 853 854
Net gain (loss) on sale of restaurants................ (141) 491 (374)
Income (loss) from long-term investments.............. (366) 140 (1,898)
Property management................................... (1,167) (1,286) (409)
Net gain (loss) on sale of investments................ -- 121 (144)
Other................................................. 463 (1,417) (857)
------- ------- -------
$ 7,363 $ 2,448 $ 957
======= ======= =======

NOTE 17 -- INCOME TAXES

Income tax expense consists of the following:

1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)

Current:
Federal............................................. $19,031 $ 5,963 $ 2,018
State............................................... 5,160 2,065 772
------- ------- -------
24,191 8,028 2,790
------- ------- -------
Deferred:
Federal............................................. 3,468 5,529 3,878
State............................................... 2,224 851 333
------- ------- -------
5,692 6,380 4,211
------- ------- -------
$29,883 $14,408 $ 7,001
======= ======= =======

A reconciliation of income tax expense at the federal statutory rate to the
Company's provision for taxes on income is as follows:

1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)

Income taxes at statutory rate........................ $26,824 $12,849 $ 6,104
State income taxes, net of federal income tax
benefit............................................. 4,153 2,822 738
Targeted jobs tax credits............................. (1,508) (1,528) (243)
Increase (decrease) in valuation allowance............ (515) (76) 152
Alternative minimum tax credit........................ -- (19) --
Other, net............................................ 929 360 250
------- ------- -------
$29,883 $14,408 $ 7,001
======= ======= =======

F-21
52
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Temporary differences and carryforwards gave rise to a significant amount
of deferred tax assets and liabilities as follows:

1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)

Deferred tax assets:
Capitalized leases........................................ $10,923 $ 6,801
Workers' compensation reserve............................. 6,768 5,908
Closure reserves.......................................... 3,968 4,135
Insurance reserves........................................ 2,644 1,076
Accrued payroll........................................... 1,430 1,055
State taxes............................................... 1,967 --
Targeted jobs tax credit carry forward.................... -- 3,654
Alternative minimum tax credits........................... -- 1,647
Other..................................................... 4,364 5,668
------- -------
32,064 29,944
Less: Valuation allowance................................... 1,356 4,917
------- -------
Total deferred tax assets................................... 30,708 25,027
======= =======
Deferred tax liabilities:
Depreciation.............................................. 20,798 7,088
Long-term investments..................................... 12,747 8,271
Other..................................................... 2,838 2,454
------- -------
Total deferred tax liabilities.............................. 36,383 17,813
------- -------
Net deferred tax assets (liabilities)....................... $(5,675) $ 7,214
======= =======

While there can be no assurance that the Company will generate any earnings
or any specific level of earnings in future years, management believes it is
more likely than not that the Company will realize the majority of the benefit
of the existing deferred tax assets at January 31, 1998, based on the Company's
current, historical and future pre-tax earnings.

NOTE 18 -- EMPLOYEE BENEFIT AND RETIREMENT PLANS

Profit Sharing and Savings Plan

The Company maintains a voluntary contributory profit sharing and savings
investment plan for all eligible employees other than operations hourly
employees. Annual contributions under the profit sharing portion of the plan are
determined at the discretion of the Company's Board of Directors. Under the
savings investment portion of the plan, participants may elect to contribute up
to 15% of their annual salaries to the plan.

Pension Plan

On January 1, 1996, the Company's pension plan, covering substantially all
operations employees qualified as to age and service, was amended to limit
participation in the plan only to those employees who had become participants in
the plan on or before December 31, 1995. Future contributions of plan benefits
discontinued after this date.

During fiscal year 1997, the plan was terminated and approximately $2.6
million of the accumulated benefit obligation was settled. As a result of the
termination, the Company recorded approximately $500,000

F-22
53
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

and $1.3 million in pension plan expense in fiscal 1998 and 1997, respectively,
which was based upon an independent actuarial valuation study. During fiscal
1996, pension contributions were $512,000.

Post Retirement Benefits Other Than Pensions

The Company provides an unfunded retiree medical benefit plan for
substantially all Hardee's employees (except restaurant hourly employees) who
retire on or after age 55 with at least five years of service. The retiree pays
the actual costs of the plan with a Company subsidy provided for retirees with
10 or more years of credited service. The dollar amount of this subsidy will be
capped in 2003. Such benefits provided by the Company are immaterial and do not
require any additional accrual.

Stock Purchase Plan

In fiscal 1995, the Board of Directors adopted, and stockholders
subsequently approved in fiscal 1996, an Employee Stock Purchase Plan ("ESPP").
Under the terms of the ESPP and subsequent amendments, eligible employees may
voluntarily purchase, at current market prices, up to 825,000 shares of the
Company's common stock through payroll deductions. Pursuant to the ESPP,
employees may contribute an amount between 3% and 15% of their base salaries.
The Company contributes varying amounts as specified in the ESPP. During fiscal
1998, 1997 and 1996, 54,053, 46,679 and 42,540 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $31.02, $15.98 and $7.70 per share, respectively. The Company
contributed $296,000 or an equivalent of 10,086 shares for the year ended
January 31, 1998, $116,000 or an equivalent of 6,785 shares for the year ended
January 31, 1997 and $8,000 or an equivalent of 759 shares for the year ended
January 31, 1996.

Stock Incentive Plans

The Company's 1994 stock incentive plan was approved by stockholders in
June 1994. The 1994 plan is substantially similar to the 1993 plan under which,
as a result of the Merger, no further options may be granted. Awards granted to
eligible employees under the 1994 plan are not restricted as to any specified
form or structure, with such form, vesting and pricing provisions determined by
the compensation committee of the Board of Directors. The 1994 plan also
provides for the automatic annual award of stock options to nonemployee
directors and nonemployee director members of the executive committee. Options
generally have a term of five years from the date of grant for the nonemployee
directors and 10 years from the date of grant for employees, become exercisable
at a rate of 33 1/3% per year following the grant date and are priced at the
fair market value of the shares on the date of grant. A total of 5,775,000
shares are available for grants of options or other awards under this plan, of
which 4,045,033 stock options were outstanding as of January 31, 1998 with
exercise prices ranging from $4.09 per share to $39.09 per share.

The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1998, 388,216 stock options, with exercise
prices ranging from $4.39 per share to $8.11 per share, were outstanding under
the plan. No further awards may be granted under this plan.

The Company's 1982 stock option plan expired in September 1992. Under this
plan, stock options were granted to key employees to purchase up to 4,950,000
shares of its common stock at a price equal to or greater than the fair market
value at the date of grant. The options generally had a term of 10 years from
the grant date and became exercisable at a rate of 25%, 35% and 40% per year
following the grant date. The exercise prices of the 112,466 stock options
outstanding as of January 31, 1998 under this plan range from $3.64 per share to
$8.11 per share.

In connection with the acquisition of Summit, the Company assumed the
options outstanding under Summit's existing option plans: the 1984 Incentive
Stock Option Plan, the 1987 Nonqualified Stock Option Plan, the 1987 Employee
Incentive Stock Option Plan and the 1992 Stock Option Plan. Pursuant to the
terms

F-23
54
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

of the acquisition, options under these plans became fully vested on July 15,
1996. The options granted in accordance with these four plans generally had a
term of five to 10 years. Under these plans, there were 21,983 stock options
outstanding at January 31, 1998 with exercise prices ranging from $12.10 to
$23.83 per share. No further shares may be granted under these plans.

Transactions under all plans are as follows:

WEIGHTED
AVERAGE
SHARES EXERCISE PRICE EXERCISABLE
--------- -------------- -----------

Balance, January 31, 1995....................... 1,960,238 $ 5.42
Granted....................................... 1,479,069 6.96
Canceled...................................... (194,115) 5.53
Exercised..................................... (585,738) 4.69
---------
Balance, January 31, 1996....................... 2,659,454 $ 6.43 1,028,126
Options assumed in Summit acquisition......... 84,832 17.18
Granted....................................... 1,243,919 16.36
Canceled...................................... (23,993) 8.80
Exercised..................................... (395,574) 5.64
---------
Balance, January 31, 1997....................... 3,568,638 $10.22 1,359,068
Granted....................................... 1,762,750 26.51
Canceled...................................... (223,325) 22.59
Exercised..................................... (540,365) 6.95
---------
Balance, January 31, 1998....................... 4,567,698 $16.29 1,874,704
=========

The following table summarizes information related to stock options
outstanding and exercisable at January 31, 1998:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF SHARES AVERAGE REMAINING SHARES AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- --------------- ----------- -------------- ---------------- ----------- --------------

$ 3.64 to $ 5.45 675,054 $ 4.46 6.26 537,004 $ 4.53
5.61 8.11 295,823 7.55 5.36 288,948 7.60
8.94 13.24 1,058,535 9.51 7.60 622,465 9.19
13.62 20.45 1,015,428 18.02 8.52 333,428 17.84
20.81 29.43 1,494,258 26.57 9.19 92,859 25.61
37.78 39.09 28,600 37.83 9.68 0 0.00
--------- ---------
$ 3.64 $39.09 4,567,698 $16.29 7.99 1,874,704 $ 9.96
========= =========

For purposes of the following pro forma disclosures required by Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") the fair value of each option granted after fiscal
1995 has been estimated on the date of grant using the Black-Scholes
option-pricing model, with the following assumptions used for grants in fiscal
1998, 1997 and 1996: annual dividends consistent with the Company's current
dividend policy, which resulted in payments of $0.07 per share in fiscal 1998
and $0.05 per share in fiscal 1997 and 1996; expected volatility of 25% in
fiscal 1998 and 1997 and 29% in fiscal 1996; risk-free interest rates of 5.51%
in fiscal 1998, 6.25% in fiscal 1997 and 5.25% in fiscal 1996; and an expected
life of 5.50 years in fiscal 1998 and 5.45 years for fiscal 1997 and 1996. The
weighted average fair value of each option granted during fiscal 1998, 1997 and
1996 was $9.13, $6.80 and $2.51, respectively. Had compensation expense been
recognized for fiscal 1998, 1997 and 1996 grants for stock-based compensation
plans in accordance with provisions of SFAS 123, the Company would have recorded
net income and earnings

F-24
55
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

per share of $39.9 million, or $0.94 per basic share and $0.91 per diluted share
in fiscal 1998; $20.5 million, or $0.63 per basic share and $0.62 per diluted
share in fiscal 1997; and $10.7 million, or $0.35 per basic and diluted share in
fiscal 1996. Since the pro forma compensation expense for stock-based
compensation plans is recognized over a three-year vesting period, the foregoing
pro forma reductions in the Company's net income are not representative of
anticipated amounts in future years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the value of an estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION

1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)

Cash paid for interest and income taxes are as follows:
Interest (net of amount capitalized).................... $14,448 $ 9,549 $10,198
Income taxes............................................ 18,938 2,778 2,156
Non-cash investing and financing activities are as
follows:
Sale of property and equipment.......................... $ -- $ 2,469 $ --
Increase in long-term investments....................... -- (2,469) --
Transfer of inventory, current assets and property and
equipment to long-term investments................... -- -- 20,352
Common stock issued in connection with Summit
acquisition.......................................... -- 11,411 --
Common stock issued in connection with Hardee's Green
Bay, Inc. acquisition................................ 9,405 -- --

NOTE 20 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized quarterly results:

QUARTER
-------------------------------------------------
1ST 2ND 3RD 4TH
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FISCAL 1998
Total revenues................................ $235,356 $242,102 $347,455 $324,746
Operating income.............................. 18,406 18,954 25,121 23,710
Net income.................................... 10,586 10,545 13,102 12,524
Net income per share -- basic................. $ 0.29 $ 0.26 $ 0.28 $ 0.27
======== ======== ======== ========
Net income per share -- diluted............... $ 0.28 $ 0.25 $ 0.27 $ 0.26
======== ======== ======== ========
FISCAL 1997
Total revenues................................ $152,737 $127,925 $162,093 $170,625
Operating income.............................. 11,242 10,140 11,530 11,227
Net income.................................... 5,333 5,192 5,588 6,189
Net income per share -- basic................. $ 0.17 $ 0.17 $ 0.18 $ 0.17
======== ======== ======== ========
Net income per share -- diluted............... $ 0.17 $ 0.16 $ 0.17 $ 0.17
======== ======== ======== ========

F-25
56
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Quarterly operating results are not necessarily representative of
operations for a full year for various reasons, including the seasonal nature of
the quick-service restaurant industry and unpredictable adverse weather
conditions which may affect sales volume and food costs. In addition, all
quarters have 12-week accounting periods, except the first quarters of fiscal
1998 and 1997, which have 16-week accounting periods.

NOTE 21 -- COMMITMENTS AND CONTINGENT LIABILITIES

In conjunction with the Senior Credit Facility established during fiscal
1998, a letter of credit subfacility in the amount of $55.0 million was
established (see Note 9). Several letters of credit are outstanding under this
facility which secure the Company's potential workers' compensation claims. The
Company is required to provide a letter of credit each year based on its
existing workers' compensation claims experience, or set aside a comparable
amount of cash or investment securities in a trust account. Additionally there
is a $3.9 million letter of credit outstanding under the subfacility which
secures the Industrial Revenue Bonds issued in connection with the construction
of the Company's Northern California distribution facility.

The Company's standby letter of credit agreements with various banks expire
as follows:

(DOLLARS IN THOUSANDS)
----------------------

July 1998................................................. $37,881
October 1998.............................................. 883
November 1998............................................. 345
January 1999.............................................. 3,852
April 2000................................................ 275
-------
$43,236
=======

In fiscal 1996, the Company sold certain of its Carl's Jr. franchise notes
receivable, with recourse, to an independent third party (see Note 14). In
addition, the Company entered into two limited term guarantees with an
independent third party during fiscal 1997 on behalf of certain of its Carl's
Jr. franchisees and an additional limited term guarantee in fiscal 1998 with an
independent third party on behalf of its Hardee's franchisees. The Company is
contingently liable for an aggregate of approximately $4.5 million under these
guarantees as of January 31, 1998.

NOTE 22 -- SUBSEQUENT EVENTS

On April 1, 1998, the Company acquired FEI from Advantica Restaurant Group,
Inc. for a purchase price of $380.8 million plus the assumption of $45.6 million
in capital lease obligations, subject to adjustment ("the FEI Acquisition"). FEI
was the largest franchisee of the Hardee's system, previously operating 557
Hardee's restaurants, located primarily in the Southeastern United States. As a
result of the FEI Acquisition, 1,420 of the 3,038 Hardee's restaurants operated
as of January 31, 1998 are presently operated by the Company, representing 46.7%
of the Hardee's system.

The Company used the majority of the net proceeds from a private placement
of $197.2 million aggregate principal amount of convertible subordinated notes
for which the Company received net cash proceeds of $192.3 million together with
borrowings of $213.2 million under the Company's Senior Credit Facility to
finance the FEI Acquisition, which was accounted for as a purchase (see Note 9).

F-26
57

EXHIBIT INDEX

EXHIBITS
- --------

3-1 Certificate of Incorporation of the Registrant, incorporated
herein by reference to exhibit 3-1 to the Registrant's Form
S-4 Registration Statement Number 333-05305.
3-2 Certificate of Amendment of Certificate of Incorporation, as
filed with the Delaware Secretary of State on December 9,
1997.(1)
3-3 Bylaws of the Registrant, incorporated herein by reference
to exhibit 3-2 to the Registrant's Form S-4 Registration
Statement Number 333-05305.
4-1 Indenture, dated as of March 13, 1998 for 4.25% Convertible
Subordinated Notes due 2004 by and between CKE Restaurants,
Inc. and Chase Manhattan Bank and Trust Company, National
Association, as Trustee.(1)
4-2 Form of Note (included in Exhibit 4.1).
4-3 Registration Rights Agreement dated as of March 13, 1998
between the Company and Morgan Stanley & Co. Incorporated,
BT Alex Brown Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Schroder & Co. Inc.(1)
10-1 Carl Karcher Enterprises, Inc. Profit Sharing Plan, as
amended, filed as exhibit 10-21 to the Company's
Registration Statement on Form S-1, file No. 2-73695, and is
hereby incorporated by reference.(2)
10-2 Carl Karcher Enterprises, Inc. Key Employee Stock Option
Plan, filed as exhibit 10-24 to the Company's Registration
Statement on Form S-1, file No. 2-80283, and is hereby
incorporated by reference.(2)
10-3 Carl Karcher Enterprises, Inc. 1993 Employee Stock Incentive
Plan, filed as exhibit 10-123 to the Company's Form 10-K
Annual Report for fiscal year ended January 25, 1993, and is
hereby incorporated by reference.(2)
10-4 CKE Restaurants, Inc. 1994 Stock Incentive Plan, as amended,
incorporated herein by reference to exhibit 4-1 to the
Registrant's Form S-8 Registration Statement Number
333-12399.(2)
10-5 CKE Restaurants, Inc. 1994 Employee Stock Purchase Plan, as
amended.(2)
10-6 Summit Family Restaurants Inc. 1992 Stock Option Plan; 1987
Employee Incentive Stock Option Plan; 1987 Non Qualified
Stock Option Plan; and the 1984 Incentive Stock Option Plan,
incorporated herein by reference to exhibits 4-1, 4-2, 4-3
and 4-4 to CKE Restaurants, Inc. Form S-8 Registration
Statement Number 333-12404.(2)
10-7 Employment Agreement dated January 1, 1994, by and between
Carl Karcher Enterprises, Inc. and Carl N. Karcher, filed as
exhibit 10-89 to the Company's Form 10-K Annual Report for
fiscal year ended January 31, 1994, and is hereby
incorporated by reference.(2)
10-8 First Amendment to Employment Agreement dated November 1,
1997, by and between Carl N. Karcher and Carl Karcher
Enterprises, Inc.(1)(2)
10-9 Employment Agreement dated November 8, 1994, by and between
Carl Karcher Enterprises, Inc. and C. Thomas Thompson, filed
as exhibit 10-83 to the Company's Form 10-K Annual Report
for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.(2)
10-10 First Amendment to Employment Agreement dated March 31,
1996, by and between Carl Karcher Enterprises, Inc. and C.
Thomas Thompson, filed as exhibit 10-44 to the Company's
Form 10-Q Quarterly Report for the quarterly period ended
May 20, 1996, and is hereby incorporated by reference.(2)
10-11 Employment Agreement dated January 24, 1996, by and between
CKE Restaurants, Inc. and Robert E. Wheaton, filed as
exhibit 10-45 to the Company's Form 10-Q Quarterly Report
for the quarterly period ended May 20, 1996, and is hereby
incorporated by reference.(2)

E-1
58

EXHIBITS
- --------

10-12 First Amendment to Employment Agreement dated September 30,
1997, by and between CKE Restaurants, Inc. and Robert E.
Wheaton.(1)(2)
10-13 Employment Agreement dated July 15, 1997, by and between
Hardee's Food Systems, Inc. and Rory J. Murphy, filed as
exhibit 10-46 to the Company's Form 10-Q Quarterly Report
for the quarterly period ended August 11, 1997, and is
hereby incorporated by reference.(2)
10-14 Settlement Agreement and Release dated as of April 26, 1996,
by and between Giant Group, Ltd; William P. Foley II; CKE
Restaurants, Inc.; Fidelity National Financial, Inc.; and
other parties, filed as exhibit 10-42 to the Company's Form
10-Q Quarterly Report for the quarterly period ended May 20,
1996, and is hereby incorporated by reference.
10-15 Operating Agreement by and between Rally's Hamburgers, Inc.
and Carl Karcher Enterprises, Inc. dated May 26, 1996, filed
as exhibit 10-43 to the Company's Form 10-Q Quarterly Report
for the quarterly period ended May 20, 1996, and is hereby
incorporated by reference.*
10-16 Settlement and Development Agreement by and between Carl
Karcher Enterprises, Inc., CKE Restaurants, Inc. and GB
Foods Corporation dated as of May 1995, filed as exhibit
10-31 to the Company's Form 10-K Annual Report for the
fiscal year ended January 29, 1996, and is hereby
incorporated by reference.
10-17 First Amendment to Settlement and Development Agreement by
and between Carl Karcher Enterprises, Inc., CKE Restaurants,
Inc. and GB Foods Corporation dated as of February 20, 1997.
10-18 Agreement to Contribute Assets dated April 17, 1995 by and
between Boston West, L.L.C. and Boston Pacific, Inc., filed
as exhibit 10-84 to the Company's Form 10-K Annual Report
for fiscal year ended January 30, 1995, and is hereby
incorporated by reference.
10-19 Amended and Restated Limited Liability Company Agreement of
Boston West, L.L.C. (a Delaware Limited Liability Company)
dated April 16, 1995, filed as exhibit 10-85 to the
Company's Form 10-K Annual Report for fiscal year ended
January 30, 1995, and is hereby incorporated by reference.
10-20 First Amendment to the Amended and Restated Limited
Liability Company Agreement of Boston West, L.L.C. dated May
15, 1995, filed as exhibit 10-34 to the Company's Form 10-K
Annual Report for the fiscal year ended January 29, 1996,
and is hereby incorporated by reference.
10-21 Second Amendment to the Amended and Restated Limited
Liability Company Agreement of Boston West, L.L.C. dated May
30, 1995, filed as exhibit 10-35 to the Company's Form 10-K
Annual Report for the fiscal year ended January 29, 1996,
and is hereby incorporated by reference.
10-22 Third Amendment to the Amended and Restated Limited
Liability Company Agreement of Boston West, L.L.C. dated
September 12, 1995, filed as exhibit 10-36 to the Company's
Form 10-K Annual Report for the fiscal year ended January
29, 1996, and is hereby incorporated by reference.
10-23 Fourth Amendment to the Amended and Restated Limited
Liability Company Agreement of Boston West, L.L.C. dated
January 31, 1996, filed as exhibit 10-37 to the Company's
Form 10-K Annual Report for the fiscal year ended January
29, 1996, and is hereby incorporated by reference.
10-24 Unit Option Agreement by and between Boston West, L.L.C. and
Boston Pacific, Inc., dated as of September 12, 1995, filed
as exhibit 10-38 to the Company's Form 10-K Annual Report
for the fiscal year ended January 29, 1996, and is hereby
incorporated by reference.
10-25 Unit Repurchase Agreement by and between Boston West, L.L.C.
and Boston Pacific, Inc. dated as of September 12, 1995,
filed as exhibit 10-39 to the Company's Form 10-K Annual
Report for the fiscal year ended January 29, 1996, and is
hereby incorporated by reference.
10-26 Term Loan and Security Agreement between Carl Karcher
Enterprises, Inc. and Heller Financial, Inc., dated December
19, 1995, filed as exhibit 10-40 to the Company's Form 10-K
Annual Report for the fiscal year ended January 29, 1996,
and is hereby incorporated by reference.

E-2
59

EXHIBITS
- --------

10-27 Amendment No. One to Term Loan and Security Agreement dated
as of January 22, 1996, by and between Carl Karcher
Enterprises, Inc. and Heller Financial, Inc. filed as
exhibit 10-41 to the Company's Form 10-K Annual Report for
the fiscal year ended January 29, 1996, and is hereby
incorporated by reference.
10-28 Amendment No. Two to Term Loan and Security Agreement dated
as of January 14, 1997, by and between Carl Karcher
Enterprises, Inc. and Heller Financial, Inc.
10-29 Stock Purchase Agreement, dated as of August 27, 1996, by
and between CKE Restaurants, Inc. and Casa Bonita Holdings,
Inc., filed as exhibit 10-1 to the Company's Current Report
on Form 8-K dated August 27, 1996, and is hereby
incorporated by reference.*
10-30 Stock Purchase Agreement, dated as of April 27, 1997, by and
among CKE Restaurants Inc., Imasco Holdings, Inc. and
Hardee's Food Systems, Inc., filed as exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-31 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and Fast Food Merchandisers,
Inc. (Forest City Division), filed as exhibit 99.3 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-32 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and Fast Food Merchandisers,
Inc. (Monterey Division), filed as exhibit 99.4 to the
Company's Current Report on Form 8-K dated April 27, 1997,
and is hereby incorporated by reference.*
10-33 Supply Agreement, dated as of July 14, 1997, by and between
Hardee's Food Systems, Inc. and QVS, Inc., filed as exhibit
99.5 to the Company's Current Report on Form 8-K dated April
27, 1997, and is hereby incorporated by reference.*
10-34 Distribution Agreement, dated as of July 14, 1997, by and
among the Company, Hardee's Food Systems, Inc. and Fast Food
Merchandisers, Inc., filed as exhibit 99.6 to the Company's
Current Report on Form 8-K dated April 27, 1997, as is
hereby incorporated by reference.*
10-35 Exchange Agreement, dated as of December 8, 1997, by and
between Rally's Hamburgers, Inc., CKE Restaurants, Inc.,
Fidelity National Financial, Inc., Giant Group, LTD and
others.*(1)
10-36 Stock Purchase Agreement dated February 18, 1998, among CKE
Restaurants, Inc., Advantica Restaurant Group, Inc., Spartan
Holdings, Inc. and Flagstar Enterprises, Inc., filed as
exhibit 99.2 to the Company's Current Report on Form 8-K
dated February 19, 1998, and is hereby incorporated by
reference.*
10-37 Amended and Restated Credit Agreement, dated as of April 1,
1998, by and between the CKE Restaurants, Inc. and Banque
Paribas, as agent.*(1)
11-1 Computation of Earnings Per Share.(1)
12-1 Computation of Ratios.(1)
21-1 Subsidiaries of Registrant.(1)
23-1 Consent of KPMG Peat Marwick LLP.(1)
27-1 Financial Data Schedule (included only with electronic
filing).
27-2 Financial Data Schedule restated for fiscal year 1997
(included only with electronic filing).
27-3 Financial Data Schedule restated for fiscal year 1996
(included only with electronic filing).

- ---------------
* Schedules omitted. The Registrant shall furnish supplementally to the
Securities and Exchange Commission a copy of any omitted schedule upon
request.

(1) Filed herewith.

(2) A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.

E-3