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FORM 10-K

Securities And Exchange Commission Washington, D.C. 20549

(Mark One)

l Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 27, 2003

or

O Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-11313

CKE RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

3916 State Street, Suite 300,

Santa Barbara, California 93105

(Address of principal executive offices)

(805) 898-8408

Registrant’s telephone number, including area code

Securities Registered Pursuant to Section 12(b) of the Act:

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 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.  x

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of August 12, 2002 was $283,950,137.

The number of outstanding shares of the registrant’s common stock was 57,350,133 as of March 17, 2003.

Documents Incorporated By Reference: Portions of the registrant’s Proxy Statement for the 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission on May 2, 2003, are incorporated by reference into Part III of this Report.

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Index To Annual Report On Form 10-K

For the Fiscal Year Ended January 27, 2003

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Part I

Item 1. Business

We own, operate, franchise and license more than 3,300 quick-service restaurants (“QSR’s”), primarily under the brand names Carl’s Jr.^®, Hardee’s^®, and La Salsa Fresh Mexican Grill (“La Salsa”). Carl’s Jr. and La Salsa restaurants are predominantly located in California. Hardee’s restaurants are located primarily in the Midwest and Southeast. According to the June 24, 2002 issue of Nation’s Restaurant News, CKE Restaurants, Inc.’s (“CKE”, “Management” or the “Company”) Hardee’s and Carl’s Jr. chains are the ninth and eleventh largest sandwich restaurant chains in the United States of America, respectively, based on U.S. system-wide foodservice sales. Our system-wide restaurant portfolio at January 31, 2003 consisted of:

We acquired Hardee’s in 1997. At that time, we had just completed a turnaround of operations at Carl’s Jr. We were aware of Hardee’s operational difficulties, including a trend of declining same-store sales; however, we believed that we could implement a strategy to counter the operational difficulties Hardee’s was experiencing. We also believed this acquisition would enable us to expand the scope of our operations and become one of the leading nationwide operators of quick-service hamburger restaurants. We believed that there was significant value in the complimentary geographic markets and relative menu strengths of Hardee’s and Carl’s Jr.

Following the initial acquisition, we acquired an additional 691 Hardee’s restaurants from franchisees in key markets, including 557 restaurants operated by Flagstar Enterprises, Inc. (“FEI”), then the largest Hardee’s franchisee, acquired on April 1, 1998. We believed these additional acquisitions would enable us to exercise further control over, and strengthen, the Hardee’s brand. Additionally, we were advised that FEI planned to sell their restaurants to a competitor, and we believed the loss of these restaurants in Hardee’s prime territory would negatively impact Hardee’s long-term success.

In conjunction with the two-step acquisition of Hardee’s, we assumed a substantial amount of long-term debt and became a highly-leveraged company after the acquisition. We were unable to materially alter the declining same-store sales trend at Hardee’s after the acquisition. In fact, the decline in same-store sales continued. Beginning with fiscal year 2000, Hardee’s operating losses and increased interest expense resulted in our operating at a loss. When those Hardee’s operating losses arose, we had approximately $280 million outstanding under our bank facility. Furthermore, although we were not declared in default, we were not in compliance with all of the financial covenants under our bank facility. As a result of these circumstances and other factors, we embarked upon a program to sell restaurants with the objectives of reducing bank debt and shifting our restaurant system mix to one that was more franchise-based than company-operated. We also identified unprofitable restaurants and closed them. We incurred net losses on the sales of Hardee’s restaurants and recorded charges to establish an estimated liability for closing restaurants. Additionally, we reduced our operating costs to a level more commensurate with the revenue mix resulting from the rebalancing of our system-wide restaurant portfolio. We also were required to write down the carrying value of certain properties with a charge to operations, as their expected performance did not support their carrying values. These types of activities are classified as facility action charges in our Consolidated Statements of Operations.

During fiscal 2003, we acquired Santa Barbara Restaurant Group, Inc. (“SBRG”) in a stock-for-stock transaction. The acquisition was completed for strategic purposes, which included gaining control of The Green Burrito^® brand, investing in the fast-casual segment (an emerging competitor to the QSR segment) and providing a growth opportunity in the “Fresh Mexican” segment. Additionally, as part of the acquisition, we acquired the Timber Lodge Steakhouse^® brand (“Timber Lodge”). As that concept did not fit with our core concepts of QSR and fast-casual restaurants, we decided to sell Timber Lodge.

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In accordance with Statement of Financial Accounting Standard No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, we completed our initial SFAS 142 transitional impairment test of goodwill, including an assessment of the Hardee’s brand provided by an outside party which resulted in recording an impairment charge of $175,780, representing the write-off of all of the goodwill related to the Hardee’s brand.

During the last fiscal year, the major QSR companies initiated a campaign of heavy competitive discounting, which has resulted in a loss of business, impacting our ability to raise prices, which, in turn, has impacted our margins and profitability. The timing of this price competition has detrimentally impacted our business turnaround.

Our Carl’s Jr. brand has operated profitably for the past five years. Currently, our objective is to complete the turnaround of Hardee’s operations such that we operate profitably on a consolidated basis.

In various places throughout this Annual Report on Form 10-K we use certain non-GAAP financial measures when describing our performance which we believe are informative. An example of such non-GAAP financial measures would be EBITDA. Please see discussion of these non-GAAP financial measures contained in Item 7 of this Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Presentation of Non-GAAP Measurements.”

All numbers used in the text of this Annual Report on Form 10-K are in thousands, unless otherwise noted.

Our internet address is www.ckr.com. Electronic copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are available free of charge by visiting the “Investors” section of www.ckr.com. These reports are posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission. In addition, print copies may be obtained free of charge by contacting Investor Relations at ir@ckr.com or by phone at (805) 898-8408.

Business Turnaround

As discussed above, we are attempting to complete a business turnaround of our operations. To achieve this objective we have taken the following actions:

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The results of our business turnaround activities have been:

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See discussion regarding results of operations excluding facility action charges and effect of accounting change under Factors Affecting Comparability in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Information about Industry Segments

We are engaged in the development, operation and franchising of quick-service and fast-casual restaurants, primarily under the brand names Carl’s Jr., Hardee’s, and La Salsa, principally in the United States of America. Information about our revenues, operating profits and assets is contained in Part II, Item 6 of this Annual Report on Form 10-K.

Our Strategies

As shown in the segment quarterly net income (loss) table above, as well as the information contained in the Consolidated Financial Statements and notes thereto, Carl’s Jr. operates profitably while Hardee’s operates at a loss. In viewing the segments, we allocate much of our general and administrative expenses and all of our interest to each of the segments. On that basis, Hardee’s has been operating at a loss, excluding facility action charges, of approximately $3,000 per month during the last fiscal year. Revitalizing Hardee’s remains the primary focus for our management team.

Our success will depend on the successful execution of our strategy, which includes:

The key success factor in operating Hardee’s profitably is increasing sales. At the end of the fiscal year, the average-unit volume (“AUV”) at our company-owned Hardee’s restaurants was approximately $769, while franchise-operated AUV was $812. We estimate that for the concept to operate profitably, the AUV must be in the range of $850 to $900. We can provide no assurance that we will be successful in improving Hardee’s AUV’s to those levels.

Narrative Description of Business

Carl’s Jr.

Concept.    Carl’s Jr. restaurants offer superior food quality, a diverse menu, premium dining selections at reasonable prices, and attentive customer service to create a quality dining experience for its customers. We believe that these features differentiate Carl’s Jr. from its competitors and are critical to its success. The menu at Carl’s Jr. features freshly prepared food items that appeal to a broad audience. We generally make Carl’s Jr. charbroiled hamburgers, chicken sandwiches and signature items at the time of the customer’s order, applying exacting quality standards and offering them in generous portions. By providing partial table service, unlimited drink refills and an attractive restaurant decor, Carl’s Jr. restaurants offer a pleasant, customer-friendly environment. We believe that our focus on our customers and customer service, superior food quality and generous portions enables Carl’s Jr. restaurants to maintain a strong price-value image with customers that has met with relative success. Our Carl’s Jr. AUV’s were $1,153 for the trailing twelve months ended January 31, 2003.

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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 Six Dollar Burger^™, Famous Star, Western Bacon Cheeseburger^®, Super Star^®, Charbroiler Chicken Sandwich^®, Chili Burger^™, Crispy Chicken Sandwich, the Sourdough Bacon Cheeseburger and the Spicy Chicken Sandwich. We also offer a fish sandwich, stuffed baked potatoes, prepackaged salads, french fries, chili fries, onion rings and fried zucchini. Most Carl’s Jr. restaurants also have a breakfast menu including French Toast Dips^®, Sunrise Sandwich^®, Croissant Sunrise Sandwich^™ and a breakfast burrito. In addition, the restaurants sell a variety of promotional products on a limited basis.

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 floorplans are in use system-wide, depending upon operational needs, local zoning requirements and real estate availability.

Substantially all of our Carl’s Jr. restaurants have bright colored exteriors, red awnings and a large, tilted Happy Star^® logo. The interiors feature the same bright colors, food murals, display cases for salads and desserts and accent lighting throughout the dining area. We believe that Carl’s Jr.’s restaurant design further increases consumer awareness of the Carl’s Jr. brand.

We recently introduced a new prototype building marking a significant shift in the design of Carl’s Jr. restaurants. The design was conceived to improve the drive-thru experience and features dynamic lighting, extensive landscaping, and a fluid traffic flow. The interior of the restaurant has an open, contemporary look. We believe the new building design signifies that Carl’s Jr. is not a typical fast-food restaurant.

Dual-Branding.    Dual-branding allows a single restaurant to offer consumers two distinct brand menus. In May 1995, we entered into an agreement with Green Burrito, the predecessor of SBRG, to offer the Green Burrito menu at selected Carl’s Jr. locations. We believe 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 menu boards located at the same counter. Both menus are also available to customers utilizing the drive-thru. The Green Burrito menu offered at the dual-brand restaurants features a wide variety of traditional Mexican food items, including burritos, enchiladas, tacos, taquitos and nachos, as well as combination meals which are served with rice and beans. 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. In order to convert an existing Carl’s Jr. restaurant to a dual-brand 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. We believe that this dual-branding program has attracted new customers, while increasing the frequency of customer visits at converted restaurants. Our dual-branded Carl’s Jr./Green Burrito restaurants have the highest average unit volumes in the system, at $1,283 for the trailing twelve months ended January 31, 2003. In general, the cost to convert an existing Carl’s Jr. restaurant to a dual-brand Carl’s Jr./Green Burrito restaurant is approximately $60.

On March 1, 2002, we acquired SBRG, which owns the Green Burrito brand. This acquisition provided us with control of the menu and of the ability to develop the brand, and eliminated our franchise fee and royalty expense. We receive a franchise fee for each franchise conversion and royalties from our franchisees’ Green Burrito food sales. As of January 31, 2003, 113 Carl’s Jr. company-operated locations have been converted to Carl’s Jr./Green Burrito dual concept restaurants. As of January 31, 2003, 88 franchised Carl’s Jr. restaurants have been converted to the Carl’s Jr./Green Burrito concept.

Hardee’s

Concept.    Hardee’s has a market presence in the Southeastern and Midwestern United States. The Hardee’s restaurant chain offers a variety of menu items, including breakfast and certain made-to-order lunch and dinner offerings (including charbroiled hamburgers in those restaurants that have been remodeled). Currently, Hardee’s is changing its focus from discount, variety products to premium products, such as The Six Dollar Burger^™ and premium Angus beef Thickburgers^™.

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Menu and Restaurant Design.    Hardee’s restaurants currently offer primarily hamburgers and chicken sandwiches. A significant portion of Hardee’s day part is breakfast. Breakfast generates approximately 40% of Hardee’s overall operating revenue. Hardee’s breakfast menu features Made From Scratch^™ biscuits, biscuit breakfast sandwiches and other items such as hash rounds and breakfast platters. Substantially all of Hardee’s restaurants have drive-thru facilities, and selected restaurants are open 24 hours a day, primarily on the 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.

Since our acquisition of Hardee’s, we introduced certain made-to-order lunch and dinner menu items that are currently served in our Carl’s Jr. restaurants, such as The Six Dollar Burger^™, Chicken Breast Strips and other signature products from Carl’s Jr. We recently introduced a line of premium  ¹/3-pound,  ¹/2-pound, and  ²/3-pound Thickburgers^™ in certain Hardee’s markets. We expect to offer Thickburgers at all of our Hardee’s restaurants within the next several months. We have implemented the Carl’s Jr.-style limited table service and added “all-you-can-drink” beverage bars in all of our company-operated Hardee’s restaurants, and some of our franchise restaurants. We expect to implement these changes at all franchised Hardee’s by the third quarter of fiscal 2004. Additionally, we are remodeling our Hardee’s restaurants to the “Star Hardee’s” format, which we designed to update and revitalize the Hardee’s brand with the menu and operating qualities of Carl’s Jr. A Star Hardee’s remodel involves installing charbroilers in the kitchens, remodeling the interior and exterior of the restaurant and installing new signage that accents the Hardee’s name with a Star logo. Over the past year, we, along with some franchisees, have been able to revise the remodel, and thus have been able to significantly reduce the cost. We believe that the revised remodels offer consumers the same quality dining experience as the original Star Hardee’s conversion.

As of January 31, 2003, we had remodeled 567, or approximately 78%, of our company-operated Hardee’s restaurants. The approximate cost to remodel a restaurant to the Star Hardee’s format is approximately $75.

La Salsa Fresh Mexican Grill

Concept.    La Salsa restaurants are located primarily in California. La Salsa restaurants are quality, fast-casual restaurants featuring traditional Mexican food items. The restaurants, modeled after “taquerias” of Mexico, primarily cater to the lunch and dinner segment and feature freshly prepared items.

Menu and Restaurant Design.    La Salsa restaurants emphasize generous portions and quality ingredients including Grade “A” skinless chicken, USDA lean steak, Mahi Mahi, shrimp, real cheddar and Monterey Jack cheese, long-grain rice and both black and pinto beans. All ingredients are prepared fresh as there are no can openers or microwave ovens in the restaurants. Food is prepared to order, so that each item served will be fresh and hot. The restaurants also offer a self-service salsa bar featuring a variety of condiments and freshly made salsas. Most La Salsa restaurants are in-line, ranging in size from 1,700 to 2,000 square feet with a seating capacity of 40 to 50 persons. Currently, several floor plans are in use system-wide, depending on operational needs, local zoning requirements and real estate availability.

Investments in Other Restaurant Concepts

In the past, we have invested in other restaurant concepts, as described below (see also Note 9 of Notes to the Consolidated Financial Statements).

Rally’s and Checkers.    Through a series of transactions, the Company had an investment in Checkers Drive-In Restaurants, Inc. (“Checkers”). Checkers operates and franchises approximately 402 Checkers and 387 Rally’s double drive-thru quick-service hamburger restaurants, primarily in the Southeastern and Midwestern United States. Through fiscal 2002, we accounted for our investment in Checkers under the equity method of accounting, as our Chairman of the Board was the Chairman of Checkers. Our Chairman is no longer a member of the Board of Directors of Checkers. During the fourth quarter of fiscal 2000, we wrote-down our investment in Checkers by $16,620 to its fair market value upon our evaluation that the investment had experienced an other than temporary decline in value. Further, as a result of recognizing our share of the net losses of Checkers, our investment in Checkers was zero as of January 31, 2000. During fiscal 2003 and 2002, we sold 977,000 and 358,000 shares of Checkers stock, respectively, and generated net proceeds of $9,200 and $1,900, respectively. As of January 31, 2003, we have divested our entire investment in Checkers.

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Boston Market.    We held a minority interest in Boston West, LLC (“Boston West”), which operated Boston Market restaurants in designated markets in Southern California as a franchise area developer of Boston Chicken, Inc. (“BCI”), the franchisor of the Boston Market restaurant concept. BCI and its subsidiaries filed for protection under Chapter 11 of the Federal Bankruptcy Code on October 5, 1998. In a separate action, on November 9, 1998, Boston West filed a voluntary petition under Chapter 11 of the Federal Bankruptcy Code in order to restructure its overall operations. In April 2000, Boston Market Corporation (“BMC”), a wholly-owned subsidiary of McDonald’s Corp., acquired BCI’s rights, claims and interests relating to Boston West. As a result, Boston West and BMC filed a joint plan of reorganization that was approved by the bankruptcy court. Under this plan, we no longer have an ownership interest in Boston West or any of the Boston Market restaurants formerly operated by Boston West. Additionally, under the plan, Boston West was dissolved.

Taco Bueno.    On June 10, 2001, we sold the Taco Bueno concept. The net proceeds from the sale were approximately $62.4 million and were used to permanently reduce our bank debt (see Note 6 of Notes to the Consolidated Financial Statements).

Santa Barbara Restaurant Group.    On March 1, 2002, we acquired Santa Barbara Restaurant Group, Inc. and its La Salsa, Green Burrito and Timber Lodge Steakhouse restaurant brands (See Note 2 of Notes to the Consolidated Financial Statements). Because the Timber Lodge brand does not fit our core concept of fast-casual restaurants, it is classified as an asset held for sale as of January 31, 2003. An independent committee of members of the Board of Directors engaged an investment banking firm (Roth Capital Partners) to solicit bids to acquire Timber Lodge Steakhouse.

Although we have no present intention to acquire additional interests in other restaurant concepts, we may do so in the future depending on the business prospects of the restaurant concept, the availability of financing at attractive terms, alternative business opportunities available to us, the consent of our senior lenders, if required, and general economic conditions.

Restaurant Development

We perform extensive due diligence for new restaurant site selections before we commit to opening, or permitting a franchise to open, a restaurant at a location. We intend to continue to open new company-operated restaurants primarily in established markets. In fiscal 2003, we developed nine new restaurants, and our franchisees and licensees developed 40 new restaurants. The average development cost, including capitalizing ground and equipment leases at 10%, for owned restaurants was as follows ⁽¹⁾:

Franchising

Carl’s Jr.    Our franchise strategy is designed to further the development of the Carl’s Jr. chain and reduce the total capital we need to develop new Carl’s Jr. restaurants. Franchise arrangements with Carl’s Jr. franchisees, which operate in Alaska, Arizona, California, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah and Washington, generally provide for initial fees and continuing royalty payments and advertising fees to us based upon a percentage of gross sales (generally 4% for royalties and 5% to 7% for advertising). Additionally, most Carl’s Jr. franchisees purchase food, paper and other supplies from us. 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.

As of January 31, 2003, our Carl’s Jr. franchisees and licensees operated 547 Carl’s Jr. restaurants, or approximately 55% of the system. Our franchising and licensing philosophy is premised on our franchisees’ active involvement in and management of operations. Only candidates with appropriate operational experience and financial stability are considered for the

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program, and specific net worth and liquidity requirements must be satisfied. In addition, 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.

The majority of our Carl’s Jr. franchisees own more than one restaurant, with 26 franchisees owning seven or more restaurants. We presently anticipate that our Carl’s Jr. franchisees and licensees will open approximately 50 new Carl’s Jr. restaurants during fiscal 2004.

Hardee’s.    Franchise agreements with Hardee’s franchisees, who operate restaurants in the Southeastern and Midwestern United States, generally provide for initial fees and continuing royalty payments to us based upon a percentage of gross sales (generally 4% for royalties and 3.5% for advertising). Franchisees are required to purchase certain inventory and supplies from approved suppliers and are required to spend a minimum percentage of gross 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 a franchised restaurant, the general manager of each franchise is required to attend and complete Hardee’s company-sponsored training program. Franchisees may also be required to remit lease payments for the use of our company-owned or leased restaurant facilities and to pay related occupancy costs.

As of January 31, 2003, our Hardee’s franchisees and licensees operated 1,499 Hardee’s restaurants, approximately 67% of the system. Our franchising and licensing operations are premised on the active involvement of franchisees in restaurant management and operations. Candidates are reviewed for appropriate operational experience and financial stability, including specific net worth and liquidity requirements. Generally, area development agreements require franchisees to open a specified number of restaurants in a designated geographic area within a specified period of time.

At Hardee’s, average unit volumes for our international licensed restaurants were $739 in fiscal 2003 and total sales at Hardee’s international restaurants exceeded $9,800.

Since our acquisition of Hardee’s, we have worked to develop and enhance a productive relationship with our Hardee’s franchisees. We have been supportive of Hardee’s franchise association and we believe we have improved communications with franchisees. Our Hardee’s franchisees are joining us in our Star Hardee’s remodel program and, as of January 31, 2003, operated 633 franchised Star Hardee’s restaurants.

As of January 31, 2003, franchisees and licensees operated 1,499 Hardee’s restaurants. The majority of our Hardee’s franchisees own more than one restaurant, with 31 franchisees owning 10 or more restaurants.

Restaurant Operations and Support

We strive to maintain high standards in all products and equipment used by our restaurants, as well as our operations related to food preparation, service and cleanliness. We generally prepare our hamburgers and chicken sandwiches after the customer has placed an order with the goal of serving them promptly. In addition, we charbroil hamburger patties and chicken breasts in a gas-fired double broiler that sears the meat on both sides in a uniform heating and cooking time. At our Hardee’s restaurants, we have focused on the fundamentals of restaurant operations: quality, service and cleanliness. We believe our renewed focus on these factors, as well as our ongoing remodel program, which includes the installation of gas-fired charbroilers, are necessary for improved restaurant operations. At our La Salsa restaurants, we prepare our fresh-Mex menu items after the customer has placed an order with the goal of serving them promptly.

Our commitment to quality in both our products and our operations is supported by our training program. Each company-operated restaurant is operated by a general manager who has received a minimum of nine weeks of management training. This training program involves a combination of classroom instruction and on-the-job training in specially designated training restaurants. The general manager trains other employees in accordance with our guidelines. District managers, who are responsible for 7 to 9 restaurants, also supervise general managers. Approximately 150 district managers are under the supervision of regional vice presidents, who regularly inspect the operations in their respective districts and regions.

Marketing and Advertising

The Company’s marketing and advertising initiatives focus on building brand awareness through the balanced use of television, radio and print advertising. These activities are supported by contributions from all restaurants of approximately 4.0% of sales for both franchise and company-operated Carl’s Jr. restaurants.

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Hardee’s franchise and company-operated restaurants contribute approximately 3.5% of their sales to advertising co-operatives which use the funds to purchase television and radio advertising time. In addition, Hardee’s restaurants contribute approximately 1.5% of their sales to purchase merchandising materials, print coupons, and execute outdoor and local restaurant marketing efforts.

La Salsa franchise and company-operated restaurants contribute approximately 1.0% of their sales for the production of print and broadcast advertising and marketing material.

See discussion of advertising in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Purchasing

We purchase most of the food products and packaging supplies used in our Carl’s Jr. restaurant system and warehouse and distribute such items to both company-operated and franchised Carl’s Jr. restaurants. Although not required to do so, our Carl’s Jr. franchisees in California and some adjacent states purchase most of their food, packaging and supplies from us. We have elected not to outsource all of our distribution activities because we believe our mature procurement process allows us to effectively manage our food costs, provide adequate quantities of food and supplies at competitive prices, and generate revenue from Carl’s Jr. franchisees by adding a nominal mark-up to cover direct costs and provide better overall service to our restaurants in California. We seek competitive bids from suppliers on many of our products, approve suppliers of those products and require them to adhere to our established product specifications.

We currently purchase substantially all of the food, packaging and supplies sold or used in our Hardee’s restaurants from MBM Corporation (“MBM”). MBM currently distributes products to company-operated restaurants and to many of the Hardee’s restaurants operated by our franchisees. Pursuant to the terms of our recently completed distribution agreements, we are obligated to purchase substantially all of our specified product requirements from MBM for a remaining term of seven years. The prices we pay for MBM products, and the delivery fees we pay, are subject to adjustment in certain circumstances, which may include increases or decreases resulting from changes in the distributor’s cost structure.

We purchase most of the food, packaging and supplies used in our La Salsa restaurants from McCabe’s Quality Foods. We have distribution agreements with both McCabe’s Quality Foods, who services restaurants in California, Nevada and Arizona, and Sysco, who distributes to our outer market franchise restaurants. The agreements with McCabe’s and Sysco expire in fiscal 2004 and 2006, respectively.

Competition and Markets

The restaurant business is intensely competitive and affected by changes in a geographic area, changes in the public’s eating habits and preferences, local and national economic conditions affecting consumer spending habits, population trends and local traffic patterns. Key elements of competition in the industry are the price, quality and value of food products offered, quality and speed of service, advertising effectiveness, brand name identification, restaurant locations and attractiveness of facilities.

We primarily compete with major restaurant chains, some of whom dominate the QSR industry, and also compete with a variety of other take-out foodservice companies and fast-food restaurants. Our competitors also include a variety of mid-price, full-service casual-dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food restaurants, as well as supermarkets and convenience stores. In selling franchises, we compete with many other restaurant franchisors, some of whom have substantially greater financial resources and higher franchise AUV’s.

Trademarks and Service Marks

We own numerous trademarks and service marks, and have registered many of those marks, including Carl’s Jr., the Happy Star logo, Hardee’s, La Salsa Fresh Mexican Grill and proprietary names for a number of the Carl’s Jr. and Hardee’s menu items, with the United States Patent and Trademark Office. We believe our trademarks and service marks have value and play an important role in our marketing efforts.

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Government Regulation

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 must comply with federal and state environmental regulations, but those regulations have not had a material effect on the restaurants’ operations. 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.

We are 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 include substantive standards regarding the relationship between franchisor and franchisee, including limitations on the ability of franchisors to terminate franchise agreements or otherwise alter franchise arrangements. We believe we are operating in substantial compliance with applicable laws and regulations governing our franchise operations.

We, and our franchisees, must comply with the Fair Labor Standards Act and various federal and state laws governing employment matters, such as minimum wages, overtime pay practices, child labor laws and other working conditions and citizenship requirements. Many of our employees are paid hourly rates related to the federal and state minimum wage laws and, accordingly, increases in the minimum wage increase our labor costs.

The Company monitors its facilities for compliance with the Americans with Disabilities Act (“ADA”) in order to conform to its requirements. Under the ADA, the Company could be required to expend funds to modify its restaurants to better provide service to, or make reasonable accommodation for the employment of, disabled persons. We believe that such expenditures, if required, would not have a material adverse effect on the Company’s operations.

Environmental Matters

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water from our restaurants, as well as handling and disposal practices for solid and hazardous wastes. These laws may impose liability for damages from and the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurants or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant.

We cannot provide assurance that all such environmental conditions have been identified by us. These conditions include the presence of asbestos-containing materials, leaking underground storage tanks and on-site spills. Further, certain properties formerly had landfills, historic industrial use, gasoline stations and/or dry cleaning businesses located on or near the premises. Corrective action, as required by the regulatory agencies, has been undertaken at some of the sites, although the majority of these sites are being remediated by former landowners or tenants. The enforcement of our rights against third parties for environmental conditions, such as off-site sources of contamination, may result in additional transaction costs for us.

Seasonality

We operate on a retail accounting calendar. Our fiscal year has 13 four-week accounting periods and ends the last Monday in January. The first quarter of our fiscal year has four periods, or 16 weeks. All other quarters have three periods, or 12 weeks.

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

Government Contracts

No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.

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Research and Development

We operate research and development facilities in California and Missouri. While research and development activities are important to our business, these expenditures are not material.

Employees

We employ approximately 30,000 persons, primarily in restaurants we own and operate and also in our corporate offices and distribution facilities. Only those employees working at the La Salsa restaurant located in the Luxor Hotel in Las Vegas, Nevada are covered by a collective bargaining agreement. We have never experienced a work stoppage attributable to labor disputes. Past attempts to unionize our distribution center employees have been rejected by employee votes. We believe our employee relations are good.

Working Capital Practices

Information about our liquidity is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended January 31, 2003, 2002 and 2001 in Part II, Item 7, pages 43 through 48, and the Consolidated Statement of Cash Flows for the years ended January 31, 2003, 2002 and 2001 in Part II, Item 8, page 62 of this Form 10-K.

Recent Developments

Competitive Discount Pricing

During recent months, major QSR companies with whom we compete have implemented strategies that rely on heavy use of competitive discount pricing in an attempt to bolster sales.

Hardee’s Premium Burger Menu

On January 21, 2003, we announced plans to convert all of our Hardee’s restaurants to a new menu focused on 1/3-pound, 1/2-pound, and 2/3-pound Angus beef burgers. This plan is intended to establish a new identity for Hardee’s and distinguish the concept from other quick-service restaurants.

Divestiture of Timber Lodge

As discussed in Note 6 of Notes to Consolidated Financial Statements, Timber Lodge is accounted for as a discontinued operation. The operations of Timber Lodge, a loss of approximately $53 for the period March 1, 2002 (the “Acquisition Date”) through January 31, 2003, are included in the Consolidated Financial Statements for fiscal 2003 as discontinued operations.

Adoption of New Accounting Pronouncements

See Note 1 of Notes to Consolidated Financial Statements.

Disclosure Regarding Forward-Looking Statements

Matters discussed in this Form 10-K contain forward-looking statements relating to future plans and developments, financial goals, and operating performance that are based on management’s current beliefs and assumptions. Such statements are subject to risks and uncertainties. Factors that could cause the Company’s results to differ materially from those described include, but are not limited to, anticipated and unanticipated restaurant closures for the Company and its franchisees, whether or not restaurants will be closed and the number of restaurant closures, consumers’ concerns or adverse publicity regarding the Company’s products, effectiveness of operating initiatives and advertising and promotional efforts (particularly at the Hardee’s brand), changes in economic conditions, changes in the price or availability of commodities, availability and cost of energy, workers’ compensation and general liability premiums and claims experience, changes in the Company’s suppliers’ ability to provide quality and timely products to the Company, delays in opening new restaurants or completing remodels, severe weather conditions, the operational and financial success of the Company’s franchisees, franchisees’ willingness to participate in our strategy, availability of financing for the Company and its franchisees, unfavorable outcomes on litigation, changes in accounting policies and practices, new legislation or government regulation (including environmental laws), the availability of suitable locations and terms for the sites designed for development, and other factors as discussed in the Company’s filings with the Securities and Exchange Commission.

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Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law or the rules of the New York Stock Exchange.

Risk Factors

We are engaged in a business turnaround. The success of a business turnaround, by its very nature, involves a significant number of risks, many of which are discussed below:

Our ability to pursue new business opportunities, remodel older restaurants and open new restaurants, which are necessary in order to remain competitive and grow, may be impacted by the fact that we are a highly leveraged company.

As of the end of the fiscal year, our outstanding indebtedness, including capital leases, was $419,619. Our debt level may restrict the pursuit of new opportunities such as business acquisitions. Our substantial indebtedness requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which may prevent us from pursuing plans to open new restaurants and make other capital expenditures necessary to remain competitive in the QSR segment. For instance, the principal measure of success in the QSR segment is same-store sales. Remodeling older restaurants is an effective way to stimulate sales. If we are required to divert cash flow to repayment of debt from the remodeling of older restaurants, as well as opening new restaurants, our future profitability would be adversely affected. Failure to maintain certain financial ratios could cause us to violate the terms of our credit facility and thereby result in acceleration of our indebtedness, impair our liquidity and limit our ability to operate. Our failure to make required debt payments could result in an acceleration of our indebtedness, in which case the lenders would be entitled to exercise their remedies. Our highly-leveraged status may prevent us from accessing credit or equity markets at favorable terms to address future financing needs. The lack of availability of financing may prevent us from implementing growth plans or proceeding with operational improvement initiatives, which may place us at a disadvantage compared to our competitors and increase our vulnerability to general adverse economic and industry conditions. Additionally, because we are highly leveraged, it may be more difficult for us to satisfy our obligations with respect to our outstanding public debt, senior credit facility and other indebtedness.

Our future success may be affected by our ability to revitalize Hardee’s.

We have been challenged in our efforts to reestablish the connection between Hardee’s and consumers. Our efforts have included new marketing strategies, remodeling restaurants, refranchising restaurants, product variety, use of discounting and a focus on the fundamentals (quality, service and cleanliness). Hardee’s is an under-performing brand. Failure to revitalize the brand may have a significant negative effect on our success.

Our success may be dependent on our franchisees’ participation in our strategy.

Our franchisees are an integral part of our business. We may be unable to successfully implement our brand strategies if our franchisees do not participate in that implementation. A failure by our franchisees to focus on the fundamentals of restaurant operations (quality, service and cleanliness) may have a negative impact on our success.

Our financial results may be affected by our franchisees.

We receive revenue from our franchisees. Our financial results are somewhat contingent upon the operational and financial success of our franchisees, including implementation of our strategic plans, as well as their ability to secure adequate financing. If sales trends/economic conditions worsen for our franchisees, their financial health may worsen, our collection rates may decline and we may be required to assume the responsibility for additional lease payments on franchised restaurants. Additionally, refusal on the part of franchisees to renew their franchise agreements may result in decreased revenues. Entering into restructured franchise agreements may result in reduced franchise royalty rates in the future.

Our business may be adversely affected by unfavorable economic conditions and increased operating costs that may adversely affect our results of operations and financial condition.

When the American consumer has more to spend, restaurant trends are, in general, positively impacted. The QSR segment has historically attracted consumers that are either lower income and/or pressed for time. Due to the low average check, the QSR segment is relatively recession resistant. However, if the national trend were to be a severe economic downturn, the resulting impact on our customers’ disposable incomes would have a negative impact on our sales. Our profitability could also be negatively impacted if we face increased costs for food, fuel, utilities, wages, clothing and equipment, that we are unable to recover through price increases.

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Unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), increases in the number of locations of competing quick-service restaurants, regional weather conditions and the availability of experienced management and hourly employees may also adversely affect our financial condition and results of operations.

Our business depends on our ability to obtain commodities.

Operation of our restaurants requires the purchase of energy and agricultural products. Occasionally, the availability of such commodities is limited due to circumstances beyond our control. If we are unable to obtain such products we may be unable to offer certain products which would impact our profitability. Also, if the cost of such commodities increases we may be unable to implement appropriate price increases.

Our success depends on our ability to judge the impact of competitive products and pricing.

Successful operation of our restaurants requires the ability to identify the effects of product and pricing trends. If we are unable to effectively evaluate the impact of product or pricing trends, we may fail to implement strategies allowing us to capitalize on those trends, which may result in decreased sales or increased costs.

Our success depends on our ability to compete with our competitors.

The foodservice industry is intensely competitive with respect to the quality and value of food products offered, concept, service, price, dining experience and location. We compete with major restaurant chains, some of whom dominate the QSR segment. Our competitors also include a variety of mid-price, full-service casual dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food restaurants, as well as supermarkets and convenience stores. Many of our competitors have substantially greater brand recognition and financial, marketing, operating and other resources than we have, which may give them competitive advantages. Our competitors also make changes to their pricing or other marketing strategies that may detrimentally impact us, as discussed under Recent Developments above. As our competitors expand operations, we expect competition to intensify. Such increased competition could have a material adverse effect on our financial condition and results of operations.

Our business depends on our suppliers’ abilities to provide quality products to us timely.

Our profitability is dependent upon, among other things, our ability to offer fresh, high-quality food at moderate prices. While we continue to operate our own distribution business for most of our Carl’s Jr. system, we rely upon independent distributors for our Hardee’s restaurants. In particular, our Hardee’s restaurants depend on the distribution services of MBM (see discussion under Purchasing above). MBM is responsible for delivering food, packaging and other products from our vendors to our Hardee’s restaurants on a regular basis. MBM also provides distribution services to most of our Hardee’s franchisees. Any disruption in these distribution services could have a material adverse effect on our business. In addition, our dependence on frequent deliveries of food and packaging products subjects our restaurants to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients.

Our business may be significantly impacted by consumer preferences and perceptions.

Foodservice businesses often are affected by changes in consumer tastes and perceptions. Traffic patterns and demographics, as well as the type, number and locations of competing restaurants, may adversely affect the performance of individual restaurants. Multi-unit foodservice businesses such as ours can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one or a limited number of restaurants. We can be similarly affected by consumer concerns with respect to the nutritional value of quick-service food.

Our business may suffer due to our ability to hire and retain qualified personnel or if labor costs continue to increase.

Until recently, the United States has experienced reduced levels of unemployment. Given that our restaurant-level workforce requires large numbers of both entry level and skilled employees, future low levels of unemployment could compromise our ability to provide quality service in our restaurants. From time to time, we have had difficulty hiring and maintaining qualified restaurant management personnel. Increases in the minimum wage have impacted our labor costs. Due to the labor-intensive nature of our business, a continuing shortage of labor or increases in wage levels could have a negative effect on our results of operations.

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Our sales and profits may be materially and adversely affected by our ability to successfully integrate acquisitions or mergers or derive the benefits we expect.

Our future results of operations and cash flow may depend in part upon our ability to integrate acquisitions and mergers such as the acquisition of SBRG. If we are unable to achieve the strategic operating objectives we anticipate from such acquisitions, we may experience increased costs or decreased sales which would have a negative impact on our results from operations. Strategic operating initiatives that we may be unable to achieve include opening a sufficient number of new restaurants, achieving economies of scale in operations, cost reduction, sales increases or marketing initiatives. The recoverability of the $44,729 of goodwill that arose from the acquisition is dependent upon the ability of SBRG to operate profitably and to develop new La Salsa restaurant sites. The market for potentially successful sites is highly competitive.

Our business may be impacted by increased insurance costs.

In the past we have been negatively affected by increases in both workers’ compensation insurance and general liability insurance due to our claims experience and rising healthcare costs. Although we seek to manage our claims to prevent increases, such increases can occur unexpectedly and without regard to our efforts to limit them. If such increases occur, we may be unable to pass them along to the consumer through product price increases, resulting in decreased operating results.

Our operations are seasonal and heavily influenced by weather conditions.

Weather, which is unpredictable, can adversely impact our sales. Harsh weather conditions that keep customers from dining out result in lost opportunities for our restaurants. A heavy snowstorm can leave an entire metropolitan area snowbound, resulting in a reduction in sales. Our first and fourth quarters, notably the fourth quarter, include winter months when there is historically a lower level of sales. Because a significant portion of our restaurant operating costs is fixed or semi-fixed in nature, the loss of sales during these periods adversely impacts our operating margins, resulting in restaurant operating losses. These adverse, weather-driven events principally arise at our Hardee’s, and to a lesser extent, La Salsa restaurants. For these reasons, a quarter-to-quarter comparison is not a good indication of our performance or how we may perform in the future.

Our financial results may be impacted by our ability to select appropriate restaurant locations, construct new restaurants or complete remodels.

In recent years, we have not opened a significant number of new restaurants as all available cash was used to repay bank indebtedness. Our strategic plan, and a component of our business turnaround, includes the construction of new restaurants and the remodeling of existing restaurants, including the installation of charbroilers. 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. If we experience delays in the construction process we may be unable to complete such construction activities at the planned cost, thereby adversely affecting our future results from operations. Additionally, there can be no assurance that such remodels and conversions will increase the revenues generated by these restaurants or, even if revenues are initially increased, that such increases will be sustainable. Likewise, we cannot be sure that the sites we select for new restaurants will indeed result in restaurants whose sales results meet our expectations.

Our business may be affected by unfavorable outcomes on litigation.

As discussed below under the heading Item 3 – Legal Proceedings, we have thousands of interactions and transactions each day with vendors, franchisees, customers, employees and others. In the ordinary course of business, disputes may arise for a number of reasons. We cannot be certain that we will prevail in every action brought against us.

Our business is subject to requirements imposed by governmental regulations or interpretation of governmental regulations may change and require us to incur substantial expenditures to comply.

We are subject to governmental regulation at the federal, state and local level in many areas of our business, such as food safety and sanitation, the sale of alcoholic beverages, environmental issues and minimum wage. While we endeavor to comply with all applicable laws and regulations, governmental units may make changes in the regulatory frameworks that we operate in that may require us to incur substantial cost increases in order to comply with such laws and regulations. While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full compliance with all laws and regulations at all times or that we will be able to comply with any future laws or regulations. If we fail to comply with applicable laws and regulations, we may be subject to sanctions or civil remedies, including fines and injunctions. The cost of compliance or the consequences of non-compliance could have a material adverse effect on our business and results of operations.

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Our operations are regulated by environmental laws.

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes. These laws may also impose liability for damages from and the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions relating to our restaurants and the land on which our restaurants are located, regardless of whether we lease or own the restaurant or land in question and regardless of whether such environmental conditions were created by us or by a prior owner or tenant. Although we are not aware of any such conditions, the costs of such cleanup could be significant and have a material adverse effect on our financial results.

Our financial results may be impacted by changes in accounting policies and practices.

Future changes to accounting principles generally accepted in the United States of America may impact our financial results if we are required to change our method of accounting for transactions.

Executive Officers of the Registrant

Our executive officers are as follows:

Andrew F. Puzder became Chief Executive Officer and President in September 2000. Since June 2000 he served as President of Hardee’s and since February 1997 he served as Executive Vice President, General Counsel and Secretary of the Company. Mr. Puzder also served as Chief Executive Officer of SBRG from August 1997 to June 2000 and Executive Vice President of Fidelity National Financial, Inc. from January 1995 to June 2000. From March 1994 to December 1994, he was a shareholder 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 is a member of the Board of Directors.

Theodore Abajian was appointed Executive Vice President and Chief Administrative Officer upon our acquisition of SBRG in March 2002. Mr. Abajian was appointed President and Chief Executive Officer of SBRG in November 2000. Previously, he served as Executive Vice President and Chief Financial Officer of SBRG beginning in May 1998. Mr. Abajian has also held positions with several other restaurant companies during his career.

Dennis J. Lacey was appointed Executive Vice President and Chief Financial Officer in April 2001. From April 1998 to April 2001, he was employed by Imperial Bank Corporation where his last position was Chief Financial Officer. Prior to that, he served as Chief Executive Officer of Capital Associates Inc., and prior to that he was a partner with Coopers and Lybrand.

E. Michael Murphy became Executive Vice President, General Counsel and Secretary in February 2001. Since August 1998, he served as Senior Vice President, General Counsel of Hardee’s. From March 1987 to August 1998, Mr. Murphy was a partner of the Stolar Partnership.

John J. Dunion was appointed Executive Vice President, Supply Chain Management in July 2001. Prior to that, he held the position of Executive Vice President and Chief Administrative Officer. Before joining CKE in 1996, Mr. Dunion held various management positions with Black-Eyed Pea Management Corporation, Jack-in-the Box Restaurants and Taco Bell Restaurants.

Renea S. Hutchings was appointed Executive Vice President, Development in February 2001. Ms. Hutchings began her career with CKE in 1982, and has held various positions with us, most recently as Vice President, Franchising.

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Item 2. Properties

The following table sets forth information regarding our restaurant properties at January 31, 2003:

The terms of our leases or subleases vary in length expiring on various dates through 2062. We do not expect the expiration of these leases to have a material impact on our operations in any particular year, as the expiration dates are staggered over a number of years and many of the leases contain renewal options. Our corporate headquarters, located in Santa Barbara, California, our primary distribution center and Carl’s Jr. brand headquarters, both located in Anaheim, California, and Hardee’s corporate facility, located in St. Louis, Missouri, are leased and contain approximately 21,000, 102,000, 78,000 and 39,000 square feet, respectively.

Item 3. Legal Proceedings

There are currently a number of lawsuits pending against us. These lawsuits cover a variety of allegations spanning our entire business. The following is a brief description of the more significant of these categories of lawsuits. In addition, we are subject to various federal, state and local regulations that affect our business. We do not believe that any such claims, lawsuits or regulations will have a material adverse effect on the financial condition or results of operations of the Company.

Employees

We employ many thousands of persons, both by us and in restaurants owned and operated by subsidiaries of ours. In addition, thousands of persons from time to time seek employment in such restaurants. In the ordinary course of business, disputes arise regarding hiring, firing and promotion practices.

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Customers

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

Suppliers

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

Franchising

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

Summary of Significant Pending Litigation

On October 3, 2001, an action was filed by Adam Huizar and Michael Bolden, individually and on behalf of all others similarly situated, in the Superior Court of the State of California, Los Angeles County, seeking class action status and alleging violations of California wage and hour laws. Similar actions were filed by Mary Jane Amberson and James Bolin, individually and on behalf of others similarly situated, in the Superior Court of the State of California, Los Angeles County, on April 5, 2002 and November 26, 2002, respectively. The complaints allege that salaried restaurant management personnel at our Carl’s Jr. restaurants in California were improperly classified as exempt from California overtime laws, thereby depriving them of overtime pay. The complaints seek damages in an unspecified amount, injunctive relief, prejudgment interest, costs and attorneys’ fees. We believe our employee classifications are appropriate, that we comply with state and federal wage and hour laws and plan to vigorously defend these actions.

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

None.

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Part II

Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange under the symbol “CKR”. As of February 10, 2003, there were approximately 1,994 record holders of our common stock. The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock, as reported on the New York Stock Exchange Composite Tape:

During fiscal 1999, we paid dividends at the annual rate of $0.07 per share (adjusted to give retroactive effect to 10% stock dividends in February 1998 and January 1999) and at a semi-annual rate of $0.04 per share during fiscal 2000. In fiscal 2001, we paid a semi-annual cash dividend of $0.04 per share in May 2000. Under our Senior Credit Facility, we are prohibited from making any cash dividend payments to our shareholders and, accordingly, did not declare any cash dividends for fiscal 2002 or fiscal 2003.

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Item 6. Selected Financial 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.

Selected Financial and Operating Data

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Selected Financial and Operating Data by Segment

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

(Dollars in thousands)

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

We are a nationwide owner, operator and franchisor of quick-service restaurants, operating principally under the Carl’s Jr. and Hardee’s brand names. Based on United States system-wide sales, our Hardee’s and Carl’s Jr. chains are the ninth and eleventh largest quick-service hamburger restaurant chains in the United States of America, respectively (according to the June 24, 2002 issue of Nation’s Restaurant News). As of January 31, 2003, the Carl’s Jr. system included 987 restaurants, of which we operated 440 restaurants and our franchisees and licensees operated 547 restaurants. The Carl’s Jr. restaurants are located in the Western United States, predominantly in California. As of January 31, 2003, the Hardee’s system consisted of 2,229 restaurants, of which we operated 730 restaurants and our franchisees and licensees operated 1,499 restaurants. Hardee’s restaurants are located primarily throughout the Southeastern and Midwestern United States.

We derive our revenue primarily from sales at company-operated restaurants and revenue 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 revenue from the sale of equipment to our franchisees. 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. Franchise operating costs include the cost of food and packaging products sold to Carl’s Jr. franchisees and licensees, lease payments on properties subleased to our franchisees and the costs of equipment purchases. Our revenue and expenses are directly affected by the number and sales volume of company-operated restaurants and, to a lesser extent, franchised and licensed restaurants.

During periods in which we have reported positive same-store sales, those increases were achieved by our strategy that emphasizes premium products, as well as routine price increases prompted by increases in labor, food or utility costs. The impact of this strategy is evidenced by the increase in average guest check as shown in the tables on pages 36-38. However, a possible consequence of this strategy has been a decrease in transaction counts, also shown in the same table, as some customers show a preference for lower priced fare. Many of our competitors’ strategies are to offer lower prices or discounted fare and those competitors have recently increased their efforts in this regard, which we believe has affected our transaction counts. Although difficult to quantify, we have generally experienced negative transaction counts at Hardee’s, at least since our acquisition of the brand, and at Carl’s Jr. for nearly two years, which we believe is due in part to increased competition from fast casual dining and other QSR companies offering products at discounted prices. Further, we note that others in the industry also are experiencing negative same-store sales trends. In addition, the fast-food sector has been impacted by the economic downturn and potentially due to shifts in customer food preferences. Accordingly, we cannot quantify how much of our declines are related to our business segment and how much are related to circumstances involving our own brands. Nonetheless, we can make the observations below.

For the current year, Carl’s Jr. same-store sales percentage increase was negatively impacted, vis-à-vis prior year sales, by the fact that, in the prior year, our restaurant sales benefited significantly from the introduction of The Six Dollar Burger.^™ Beginning in the second quarter, we offered new products, chiefly the Grilled Onion Cheeseburger, the Jalapeno Cheeseburger and the Chili Burger, along with advertising and media, to maintain and continue to grow same-store sales. These new products and advertising did not produce the intended results. As a result, our same-store sales for Carl’s Jr. were only slightly positive this fiscal year.

The Six Dollar Burger^™ was not introduced at Hardee’s until the third and fourth quarters of last fiscal year. We experienced similar difficulties as described above for our Hardee’s concept. We also believe that Hardee’s same-store sales percentage

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis (Continued)

(Dollars in thousands)

was impacted by our decision to change Hardee’s from a brand that extensively offered discounted fare to one that used discounting to a more limited extent. This decision was made in conjunction with our strategic shift to premium products, such as The Six Dollar Burger, that has a higher profit percentage. We realized that offering higher priced fare could adversely impact transaction counts and sales. However, we felt that the strategy would improve operating margins (see discussion below on Hardee’s operating margins).

As shown in the tables on pages 36-38, the operating margins for each brand have improved over the prior year. For each brand, positive components of the comparative margins are the impact of lower food commodity prices and the change in menu mix to premium products, which have higher margins than discounted food offerings, as described above. The Company is currently experiencing an increase in the costs of business (workers’ compensation and general liability insurance premiums, utilities, workers’ compensation claims costs in California as a result of Assembly Bill No. 749, and food costs). In the past, we have been successful at passing on such price increases, but it has likely had an impact on transaction counts as described above. Given that the QSR burger segment is experiencing a prolonged period of heavy discounting, we may be unable to institute price increases for several periods.

The sensitivity analysis for the recoverability of restaurants (see Impairment of Property, Equipment, Property Held and Used and Property Held for Sale or To Be Disposed of Other Than By Sale) assumes that our same-store sales in the future grow at the same rate as the rate of inflation for our costs for delivering our products of food, labor, utilities, etc. If we were unable to pass along such price increases, and at the same time could not increase our transaction counts, the recoverability of the carrying value of our restaurants would be impacted. Due to the current competitive discounting by major QSR companies, we are not raising prices at this time. However, we believe that, in the long-term, we will be able to raise prices to recover cost increases.

Critical Accounting Policies

Our reported results are impacted by the application of certain accounting policies that require us to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations and financial condition. We discuss the development, selection and disclosure of such estimates with our audit committee each quarter. Specific risks associated with these critical accounting policies are described in the following paragraphs.

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