CKE RESTAURANTS INC, 10-K, 1999-04-26

CKE RESTAURANTS INC
10-K, 1999-04-26
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 25, 1999

[ ] 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)

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

401 W. CARL KARCHER WAY
ANAHEIM, CALIFORNIA 92801
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 774-5796

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

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(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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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, 1999 was $861,656,516.

The number of outstanding shares of the registrant's common stock was
51,860,081 as of March 31, 1999.

DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's Proxy
Statement for the 1999 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days after January 25, 1999,
are incorporated by reference into Part III of this Report.

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

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CKE RESTAURANTS, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 25, 1999

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PAGE
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PART I

Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Financial and Operating Data....................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 27
Item 8. Financial Statements and Supplementary Data................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 28

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 28
Item 11. Executive Compensation...................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 28
Item 13. Certain Relationships and Related Transactions.............. 28

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 30
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PART I

ITEM 1. BUSINESS

OVERVIEW

CKE Restaurants, Inc. (the "Company") owns, operates and franchises 3,801
quick-service restaurants primarily under the Carl's Jr., Hardee's and Taco
Bueno brand names. Our Hardee's and Carl's Jr. chains are the fourth and seventh
largest quick-service hamburger restaurant chains in the United States,
respectively, based on domestic systemwide sales. Based on publicly available
data, our company-operated Carl's Jr. and Taco Bueno restaurants generate
restaurant-level operating margins that are among the highest of the major
quick-service restaurant chains.

- 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. Carl's Jr. differentiates itself from
its competitors by offering menu items that are generally made-to-order,
meet exacting quality standards and have a strong reputation for quality
and taste. As of January 25, 1999, our Carl's Jr. system included 861
restaurants, of which we operated 539 restaurants and our franchisees and
licensees operated 322 restaurants.

- Hardee's(R) -- We acquired Hardee's in July 1997. This acquisition
enabled us to expand the scope of our operations and become one of the
leading nationwide operators of quick-service hamburger restaurants.
Hardee's was founded in 1961 and has significant market presence in the
Southeastern and Midwestern United States. We believe there is
significant value in Hardee's and Carl's Jr.'s complementary geographic
markets and relative menu strengths. Hardee's strength is in its
breakfast menu, which generates approximately 30% of its overall
revenues. This represents one of the highest percentages in the
quick-service hamburger restaurant industry. Since we acquired Hardee's,
we have acquired an additional 697 Hardee's restaurants from franchisees
in key markets, including 557 restaurants operated by Flagstar
Enterprises, Inc. ("FEI"), then the largest Hardee's franchisee. These
additional acquisitions have enabled us to exercise further control over
and strengthen the Hardee's brand. As of January 25, 1999, our Hardee's
system included 2,804 restaurants, of which we operated 1,403 restaurants
and our franchisees and licensees operated 1,401 restaurants.

- Taco Bueno(R) -- As of January 25, 1999, we owned and operated 111 Taco
Bueno quick-service Mexican restaurants located in Texas and Oklahoma.
Taco Bueno differentiates itself from its 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, Muchaco and Bueno Chilada Platter.

STRATEGY

Our strategy is to improve the operations of underperforming restaurant
assets. We believe that our ability to deliver high-quality food with superior
service in a clean and friendly environment is critical to our operating
success. We have developed food, labor and customer service management practices
that allow us to effectively monitor restaurant-level operations, control costs,
benchmark restaurant performance statistics and communicate systemwide best
practices across restaurant concepts. As a result of our strategies, we have
dramatically improved the operating results of Carl's Jr. and Taco Bueno. From
fiscal 1994 through fiscal 1999, company-operated Carl's Jr. average unit sales
increased from $992,000 to $1,185,000, while we improved restaurant-level
operating margins from 17.8% to 25.9%. Since we acquired Taco Bueno in October
1996, we have increased average unit sales of our Taco Bueno restaurants from
$600,000 to $744,000. In addition, we aggressively promote and enhance awareness
of each of our brands through innovative advertising and remodeling programs.
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The revitalization of Hardee's is the most important element of our growth
strategy. We believe that we can successfully turn around Hardee's based on the
success we have experienced at Carl's Jr. and Taco Bueno. Through our
disciplined approach, we believe that Hardee's profitability will continue to
improve and that we will be successful in increasing same-store sales. The key
elements of our growth strategy are to:

- Revitalize the Hardee's Brand to Grow Same-Store Sales. We are continuing
our focus on revitalizing the Hardee's brand to generate same-store sales
growth. Same-store sales growth has improved consistently over the last
12 months principally as a result of enhancements we have made to the
Hardee's menu. We introduced certain made-to-order lunch and dinner menu
items that are currently served in our Carl's Jr. restaurants, such as
the Famous Star, and eliminated unprofitable product offerings. In order
to accelerate this same-store sales growth momentum, we are converting
our Hardee's restaurants into a new "Star Hardee's" format, which we
designed to revitalize the Hardee's brand with the menu and operating
qualities of Carl's Jr. In addition to the menu enhancements, a Star
Hardee's conversion involves installing charbroilers in the kitchens,
remodeling the interior and exterior of the restaurant, introducing
Carl's Jr.-style limited table service, adding "all-you-can-drink"
beverage bars and installing new signage that accents the Hardee's name
with the Carl's Jr. Star logo. We intend to accelerate our Star Hardee's
conversion program and build new restaurant units in this format. In
addition, our franchisees have begun converting restaurants to the Star
Hardee's format and continue to support our initiatives. We also plan to
enhance brand awareness through new advertising campaigns that promote
Hardee's to our target audience of high-volume lunch and dinner
customers. As of January 25, 1999, 120 Hardee's had been converted to
Star Hardee's, and results to date have been positive, with sales
averaging more than 10% above pre-conversion levels. We plan to convert
another 300 to 400 restaurants in fiscal 2000, and our Hardee's
franchisees advise us that they plan to convert up to 100 restaurants to
the Star Hardee's format during that period.

- Continue to Increase Hardee's Profitability. We have dramatically
improved restaurant-level operating margins and reduced corporate
overhead by implementing the operating initiatives, management practices
and disciplined operating strategy that we employ at Carl's Jr.
Restaurant-level operating margins of our company-operated Hardee's
restaurants increased to 16.7% in fiscal 1999, compared with 6.2% for the
year ended December 31, 1996. We expect to improve further the
profitability of our Hardee's restaurants by installing and upgrading
point of sale and back office management information systems, as well as
continuing the implementation of our customer-focused, disciplined
operating strategy.

- Expand Successful Carl's Jr. and Taco Bueno Chains. We intend to continue
expanding our Carl's Jr. and Taco Bueno chains by opening new restaurants
and continuing our innovative advertising campaigns. In fiscal 1999,
combined system growth of Carl's Jr. restaurants totaled 80, the highest
in the history of the brand. In fiscal 2000, we plan to open 75 to 100
new Carl's Jr. restaurants in established markets. In addition, we plan
to continue dual-branding our Carl's Jr. restaurants with The Green
Burrito, a strategy which is intended to attract Mexican food customers
to Carl's Jr. restaurants. We also intend to open 15 to 30 Taco Bueno
restaurants per year over the next three fiscal years.

- Pursue Strategic Joint Venture Arrangements. We may pursue joint venture
agreements with compatible retailers, such as superstores, convenience
stores and service stations, to further expand Carl's Jr., Taco Bueno and
Hardee's. This strategy will allow us to partner with other entities that
own or have access to more real estate sites than we do, therefore
allowing us to expand at a faster pace than if we had to negotiate for
sites on an individual basis. These joint venture agreements may require
us to contribute cash for development and to provide operational and
management support services.

- Opportunistically Pursue Strategic Acquisitions. While we are not
currently contemplating any significant additional acquisitions or
investments, we will continue to evaluate opportunities to expand our
operations by making strategic acquisitions of, or investments in,
underperforming restaurant companies.

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RESTAURANT OPERATIONS

CARL'S JR.

Concept. We believe that our Carl's Jr. restaurants' superior food quality,
diverse menu and attentive customer service differentiate Carl's Jr. from its
competitors and are critical to its success. Unlike many quick-service
restaurants that emphasize lower prices, Carl's Jr. restaurants focus on
offering customers a higher quality dining experience at a reasonable price.
Carl's Jr.'s menu 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 Carl's Jr.'s focus on customers and customer service, superior
food quality and generous portions enables Carl's Jr. restaurants to maintain a
strong price-value image with customers.

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. We also offer a fish
sandwich, stuffed baked potatoes, prepackaged salads, french fries, onion rings
and fried zucchini. Most restaurants also have self-service salad bars and 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. Carl's Jr. 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.

We have completed remodeling substantially all of our 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. We believe that Carl's Jr.'s new restaurant design will further increase
consumer awareness of the Carl's Jr. brand.

Operations. 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 or assemble
hamburgers and chicken and steak sandwiches at Carl's Jr. restaurants after the
customer has placed an order and serve them promptly. We charbroil hamburger
patties, chicken breasts and sirloin steaks in a gas-fired double broiler that
sears the meat on both sides in a uniform heating and cooking time.

Each company-operated Carl's Jr. restaurant is operated by a general
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. The restaurant manager trains
other employees in accordance with our guidelines. District managers, who are
responsible for 11 to 14 restaurants, also supervise restaurant managers.
Approximately 51 district managers are under the supervision of six regional
vice presidents, all of whom regularly inspect the operations in their
respective districts and regions.

Dual-Branding. Dual-branding allows a single restaurant to offer consumers
two distinct brand menus. In May 1995, we entered into an agreement with Santa
Barbara Restaurant Group, Inc. ("SBRG") to offer The Green Burrito menu at
selected Carl's Jr. locations. We believe 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 Carl's Jr.'s and The Green
Burrito's 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

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traditional Mexican food items, including burritos, tostadas, 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. We believe 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.

Our agreement with SBRG provides for the conversion of a total of 192
Carl's Jr. restaurants to Carl's Jr./Green Burrito dual-brand restaurants by
calendar 2002. We are required to pay an initial franchise fee for each
restaurant opened and remit royalties on The Green Burrito food sales to SBRG.
At the end of fiscal 1996, we elected to sub-franchise, and shortly thereafter
began offering, the Carl's Jr./Green Burrito dual-brand to our franchise
community. As of January 25, 1999, 27 franchised Carl's Jr. restaurants have
been converted to the Carl's Jr./Green Burrito concept. We receive a portion of
the fee for each franchise conversion and royalties from our franchisees' Green
Burrito food sales.

Franchised and Licensed Operations. 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, who operate in Arizona, California, Colorado, Hawaii, Idaho,
Nevada, Oklahoma, Oregon and Utah, generally provide for initial fees and
continuing royalty payments to us based upon a percentage of sales and provide
for a minimum percentage of sales each month for advertising. Additionally, most
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. We also plan to continue to pursue
non-traditional franchise development opportunities through innovative formats,
including gasoline stations, convenience stores and institutional food service
outlets.

Our franchising philosophy is 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 25, 1999, 322 Carl's Jr. restaurants were operated by our
Carl's Jr. franchisees and licensees. The majority of our Carl's Jr. franchisees
own more than one restaurant, with 15 franchisees owning seven or more
restaurants. We presently anticipate that our Carl's Jr. franchisees and
licensees will open 50 to 60 new Carl's Jr. restaurants during fiscal 2000.

HARDEE'S

Concept. Hardee's has a leading market presence in the Southeastern and
Midwestern United States. 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 hospitality 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.

Menu and Restaurant Design. Hardee's restaurants currently offer
hamburgers, chicken sandwiches, roast beef sandwiches and fish sandwiches for
lunch and dinner, as well as fried chicken in our restaurants located in the
Southeastern markets. Unlike many quick-service hamburger restaurants, Hardee's
strength has been in its breakfast sales, which generate approximately 30% of
its overall operating revenue, one of the highest in the quick-service hamburger
industry. 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 weekends. Most
Hardee's restaurants are freestanding, ranging in size from 3,000 to 3,500
square

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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 Famous Star, and eliminated unprofitable product
offerings. We are continuing our focus on revitalizing the brand to generate
same-store sales growth. We are converting our Hardee's restaurants into a new
"Star Hardee's" format, which we designed to accent the Hardee's brand strength
with the menu and operating qualities of Carl's Jr. Star Hardee's is designed to
showcase the new and improved Hardee's menu and to bring customers back to
Hardee's. After testing various combinations of both brands in certain markets,
we are now converting Hardee's restaurants to the new Star Hardee's format by:

- installing charbroilers in the kitchens;

- adding "all-you-can-drink" beverage bars;

- remodeling the interior and exterior of the restaurants;

- introducing Carl's Jr.-style limited table service; and

- installing new signage that retains the Hardee's name but shares space
with Carl's Jr.'s Star logo.

As of January 25, 1999, we had converted 120 restaurants. We plan to
convert another 300 to 400 restaurants in fiscal 2000.

Operations. We strive to maintain high standards in all products and
equipment used by our Hardee's restaurants, as well as the operations related to
food preparation, service and cleanliness. As part of our plan to implement our
Carl's Jr. operating strategy at Hardee's, we are in the process of installing
gas-fired double charbroilers in each existing company-owned Hardee's
restaurant. In addition, we are in the process of implementing our Carl's Jr.
management practices, including our 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 us 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 our 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.

Since our acquisition of Hardee's, we have worked to restore Hardee's
relationships with its franchisees. We have assisted in establishing a
franchisee association and improved communications with franchisees. As a
result, our Hardee's franchisees have collectively increased their level of
compliance, as royalty payments and advertising contributions have increased
from before the acquisition. Our largest Hardee's franchisee, Boddie-Noell
Enterprises, Inc., has joined us in our Star Hardee's conversion program and, as
of January 25, 1999, had completed the conversion of 13 of its Hardee's
restaurants.

As of January 25, 1999, 1,401 Hardee's restaurants were operated by our
franchisees and licensees. The majority of our Hardee's franchisees own more
than one restaurant, with 33 franchisees owning 10 or more restaurants. We
presently anticipate that our Hardee's franchisees and licensees will open up to
25 new Hardee's restaurants during fiscal 2000.

TACO BUENO

Taco Bueno differentiates 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, Muchaco and Bueno Chilada
Platter. Taco Bueno's Mexican
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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 was designed for high 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. In November 1998, we opened a new, prototype
Taco Bueno restaurant in Weatherford, Texas. The new design features
contemporary Mexican architecture, bright, eye-catching colors, serpentine
stainless-steel counters and black slate tile. Taco Bueno restaurant remodels,
which will roll out beginning in fiscal 2000, will incorporate elements of this
new prototype.

Our strategy with respect to our Taco Bueno concept is to increase its
market share and competitive presence in existing markets. We believe that the
growing popularity of Mexican food and the relatively few national or regional
Mexican quick-service restaurant chains provide us with a significant
opportunity to expand the Taco Bueno concept within our core markets in
Dallas/Ft. Worth, Tulsa and Oklahoma City and to enter into new markets. Since
we acquired Taco Bueno in October 1996, we have opened four Taco Bueno
restaurants and we anticipate opening up to 15 new restaurants in fiscal 2000.

INVESTMENTS IN OTHER RESTAURANT CONCEPTS

We have selectively invested in other restaurant concepts, as follows:

Santa Barbara Restaurant Group, Inc. SBRG owns, operates and franchises The
Green Burrito quick-service Mexican food restaurants. SBRG recently acquired
three other restaurant concepts, including acquiring the JB's Restaurants and
Galaxy Diner concepts from us in September 1998. Through our dual-branding
relationship with The Green Burrito, we are SBRG's largest franchisee. As of
January 25, 1999, we owned approximately 11% of SBRG's outstanding shares.

Rally's and Checkers. Rally's Hamburgers, Inc. ("Rally's") operates and
franchises 475 double drive-thru quick-service hamburger restaurants in 18
states, primarily in the Midwest and the Sunbelt, of which we operate 25 in
California and Arizona. We currently have a 32% ownership interest in Rally's
and the right to acquire shares representing an additional 3% of Rally's.
Rally's owns a 26% interest in Checkers Drive-In Restaurants, Inc. ("Checkers"),
which operates and franchises 462 double drive-thru quick-service hamburger
restaurants in 23 states, the District of Columbia, Puerto Rico and the Middle
East. We have the right to acquire 9% of Checkers' outstanding common stock, and
hold $7.0 million aggregate principal amount of Checkers' senior secured debt,
net of related discount. On January 29, 1999, Rally's and Checkers announced the
merger of the two companies on a stock-for-stock basis. If the merger is
completed, we will own approximately 17% and we will have the right to acquire
an additional 7% of the combined company.

Boston Market. We hold a minority interest in Boston West, LLC ("Boston
West"), which operates Boston Market stores in designated markets in Southern
California as a franchised area developer of Boston Chicken, Inc. ("BCI"), the
franchisor of the Boston Market restaurant concept. BCI and its Boston Market
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. Since then, Boston West has closed
or sold 42 Boston Market stores. During the third quarter of fiscal 1999, we
signed an agreement with Boston West to provide administrative and management
services to the Boston Market franchises operated by Boston West, and we
recorded a $15.0 million charge to our Boston West investment to reflect its
remaining value. As of March 18, 1999, Boston West operated 56 Boston Market
stores.

We intend to continue to review our investments in other restaurant
concepts. Although we have no present intention to dispose of or acquire
additional interests in other restaurant concepts, we may do so in the future,
depending on the business prospects of the restaurant concept, alternative
business opportunities available to us and general economic conditions.

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PURCHASING AND DISTRIBUTION

We purchase most of the primary 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, substantially all of our Carl's Jr. franchisees in California
purchase most of their supplies from us. Our 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.

We currently purchase substantially all of the food, packaging and cleaning
products sold or used in our Hardee's restaurants from Fast Food Merchandisers,
Inc. ("FFM") and MBM Corporation ("MBM"). MBM, which was the primary distributor
for FEI, acquired FFM in 1998, and consequently consolidated substantially all
of Hardee's distribution requirements. FFM and MBM currently distribute such
products to company-operated restaurants and to many of the Hardee's restaurants
operated by our Hardee's franchisees. Pursuant to the terms of the distribution
agreements, we are obligated to purchase substantially all of our specified
product requirements from FFM and MBM for remaining terms of five years and six
years, respectively. The prices we pay for FFM and MBM products, and the
delivery fees we pay each distribution service, are subject to adjustment in
certain circumstances, which may include increases resulting from changes in the
distributor's cost structure.

We believe our mature procurement process allows us to effectively manage
food costs, provide adequate quantities of food and supplies at competitive
prices, and generate revenues from Carl's Jr. franchisees by adding a nominal
mark-up to cover direct costs and provide better overall service to our
restaurants. 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.

COMPETITION

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 primarily compete with major restaurant chains, some
of which dominate the quick-service restaurant 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 stores, as well as supermarkets and convenience stores. We believe
we possess the competitive strength to succeed in the markets in which we have
restaurants. However, many of our competitors have substantially greater
financial, marketing and other resources than we do, which may give them
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, our restaurant sales were adversely affected
by aggressive promotions and price reductions by our competitors. Future changes
in the pricing or other marketing strategies of one or more of our competitors
could have a material adverse effect on our financial condition and results of
operations. 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. We also face competition from
other quick-service operators, retail chains and other companies and developers
for desirable site locations, which may adversely affect the cost,
implementation and timing of our expansion plans.

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 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. We believe our trademarks and
service marks have significant value and play an important role in our marketing
efforts. Green Burrito(R) is a registered trademark of SBRG.

7
<PAGE> 10

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.

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 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. We believe we are operating in
substantial compliance with applicable laws and regulations governing our
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 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
cost.

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.

Although we cannot assure you that all such environmental conditions have
been identified, 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.

We are not aware of any environmental conditions that would have a material
adverse effect on our businesses, assets or results of operations taken as a
whole. Although environmental site assessments prepared for certain properties
recommend limited further investigations or minor repairs, based on the
information currently available to us, we do not believe any of these other
issues would have a material adverse effect on these properties. Nevertheless,
we cannot assure you that environmental conditions relating to prior, existing
or future restaurants or restaurant sites will not have a material adverse
effect on us. Moreover, there is no assurance that: (1) future laws, ordinances
or regulations will not impose any material environmental liability; or (2) the
current environmental condition of the properties will not be adversely affected
by tenants or other third parties or by the condition of land or operations in
the vicinity of the properties.

EMPLOYEES

As of January 25, 1999, we employed approximately 67,000 persons, of whom
approximately 63,000 were hourly restaurant, distribution or clerical employees
and the remainder were managerial salaried employees engaged in administrative
and supervisory capacities. A majority of our hourly employees are employed on a
part-time basis to provide service necessary during peak periods of restaurant
operations. None of our

8
<PAGE> 11

employees is currently covered by a collective bargaining agreement. We have
never experienced a work stoppage attributable to labor disputes, and we believe
our employee relations are good.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Form 10-K contains forward-looking
statements that involve a number of risks and uncertainties. Forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "pro forma" or
"anticipates," or other variations thereof (including their use in the
negative), or by discussions of strategies, plans or intentions. A number of
factors could cause results to differ materially from those anticipated by such
forward-looking statements. Among these factors are the Risk Factors described
below and:

- our ability to grow and implement cost-saving strategies;

- increases in our food, labor and occupancy and other operating costs;

- our ability to compete in the quick-service restaurant industry;

- our ability to pay principal and interest on our substantial debt;

- our ability to borrow in the future;

- our ability and the ability of our franchisees, suppliers and vendors to
implement an effective Year 2000 readiness program;

- adverse legislation or regulation;

- adverse weather conditions;

- our ability to sustain or increase historical revenues and profit
margins; and

- continuation of certain trends and general economic conditions in our
industry.

In addition, such forward-looking statements are necessarily dependent upon
assumptions and estimates that may prove to be incorrect. Accordingly, while we
believe that the plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
plans, intentions or expectations will be achieved. The information contained in
this Form 10-K, including the Risk Factors section hereof, identifies important
factors that could cause such differences.

RISK FACTORS

LEVERAGE AND ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL
REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON
MANY FACTORS BEYOND OUR CONTROL.

We have a significant amount of indebtedness. As of January 25, 1999, we
had a total of $625.4 million of long-term debt and capital lease obligations,
including current portion, and our debt to capitalization ratio was .52x. We may
be able to incur substantial additional indebtedness in the future. While we
have been able to generate sufficient earnings to satisfy our debt service
obligations and other fixed charges, our substantial indebtedness could have
important consequences to holders of our common stock and other securities. For
example, it could:

- make it more difficult for us to satisfy our obligations under our debt
securities and other indebtedness;

- increase our vulnerability to general adverse economic and industry
conditions;

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, and other general corporate purposes;

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- place us at a competitive disadvantage compared to our competitors that
have less debt; and

9
<PAGE> 12

- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Failure to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.

Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures will depend on our ability to generate cash in
the future. Our ability to generate cash from our operations is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.

Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our senior credit
facility will be adequate to meet our future liquidity needs for at least the
next few years. We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated cost savings
and operating improvements will be realized on schedule or that future
borrowings will be available to us under our senior credit facility in an amount
sufficient to enable us to pay our indebtedness or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness on or
before maturity. We cannot assure you that we will be able to refinance any of
our indebtedness on commercially reasonable terms or at all.

UNCERTAINTIES RELATED TO THE REVITALIZATION OF HARDEE'S -- WE WILL CONTINUE TO
FACE CHALLENGES IN OUR ATTEMPT TO IMPROVE OUR HARDEE'S OPERATIONS.

Revitalizing Hardee's will continue to challenge our management team.
Hardee's is a well-established but underperforming brand. When we acquired
Hardee's, it was experiencing declining system-wide same-store sales and a
declining market share in the quick-service hamburger restaurant industry. Our
initial turnaround strategy for Hardee's focused on managing costs and realizing
purchasing strategies. While we have been able to improve our Hardee's
restaurant-level operating margins, we are continuing our focus on increasing
sales by revitalizing the Hardee's brand. Specifically, we are investing large
amounts of capital into reconfiguring our Hardee's restaurants' kitchens,
replacing equipment, and remodeling restaurants to the Star Hardee's format. We
cannot assure you that these strategies will be successful. If we are unable to
achieve anticipated sales improvements and further improvements in
restaurant-level operating margins in our Hardee's restaurants on a timely
basis, cash flows generated from Hardee's operations may not be adequate to
support our turnaround strategies for Hardee's. Our success will also depend, in
part, on our Hardee's franchisees. Hardee's franchisees are not required to
participate in implementing our strategies and we cannot assure you that all
Hardee's franchisees will participate. If Hardee's franchisees do not implement
our strategies we may not achieve our goals in the desired timeframe or at all.
Failure to accomplish our goals could have a material adverse effect on our
financial condition and results of operations.

GROWTH STRATEGY -- OUR ABILITY TO EXPAND OUR RESTAURANT CHAINS DEPENDS ON
FACTORS BEYOND OUR CONTROL.

Our growth strategy includes, among other things, opening additional
company-operated and franchised restaurants, remodeling our restaurants and
dual-branding our restaurant concepts. The success of our growth strategy will
depend on numerous factors, many of which are beyond our control and the control
of our franchisees, including:

- the hiring, training and retention of qualified management and other
restaurant personnel;

- the ability to obtain necessary governmental permits and approvals;

- competition for desirable site locations;

- the availability of appropriate financing; and

- general economic conditions.

To manage our planned expansion, we must ensure the continuing adequacy of
our existing systems and procedures, including our supply and distribution
arrangements, restaurant management, financial controls and information systems.

10
<PAGE> 13

Given the improvements we have realized in recent years in the same-store
sales growth in our company-operated Carl's Jr. restaurants, we cannot assure
you that we will be able to maintain the current level of same-store sales
growth. We experienced a same-store sales decline of 1.3% at our
company-operated Carl's Jr. restaurants for the quarter ended January 25, 1999.

ACQUISITION STRATEGY -- ACQUIRING AND INVESTING IN UNDERPERFORMING RESTAURANT
BUSINESSES INVOLVES SPECIAL RISKS.

We have a record of acquiring underperforming restaurant companies and
improving their operations. We are not currently contemplating any significant
acquisitions of other restaurant companies. However, we will continue to
evaluate investment opportunities in other restaurant companies. Acquisitions
involve the following risks that could adversely affect our operating results:

- the diversion of management's attention;

- the assimilation of the operations and personnel of the acquired
companies; and

- the potential loss of key employees.

We cannot assure you that any of our acquisitions or investments will not
materially or adversely affect us or that any such acquisition or investment
will enhance our business.

COMPETITION -- OUR SUCCESS DEPENDS ON OUR ABILITY TO COMPETE WITH OUR MAJOR
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 which
dominate the quick-service restaurant industry. Our 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 our competitors have
substantially greater financial, marketing and other resources than we have,
which may give them competitive advantages. Our competitors could also make
changes to pricing or other marketing strategies. 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.

THE FOODSERVICE INDUSTRY -- CONSUMER PREFERENCES AND PERCEPTIONS, SEASONALITY
AND GENERAL ECONOMIC CONDITIONS MAY HAVE SIGNIFICANT EFFECTS ON OUR BUSINESS.

Foodservice businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic trends. The
performance of individual restaurants may be adversely affected by traffic
patterns, demographics and the type, number and locations of competing
restaurants. Restaurant performance may also be affected by adverse weather
conditions, particularly in our Hardee's restaurants, because a significant
number of them are located in areas which experience severe winter conditions.
Multiunit 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. In addition, our
dependence on frequent deliveries of food and paper 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. 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 and 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. Changes in economic conditions affecting our customers could reduce
traffic in some or all of our restaurants or impose practical limits on pricing,
either of which could have a material adverse effect on our financial condition
and results of operations. Our continued success will depend in part on our
management's ability to anticipate, identify and respond to changing conditions.

11
<PAGE> 14

GOVERNMENT REGULATIONS -- WE MUST DEVOTE SIGNIFICANT RESOURCES TO COMPLY WITH
EXTENSIVE LEGAL REQUIREMENTS APPLICABLE TO OUR FRANCHISE AND OTHER BUSINESS
OPERATIONS.

We are subject to federal regulation and certain state laws which govern
the offer and sale of franchises. Many state franchise laws impose substantive
requirements on franchise agreements, including limitations on noncompetition
provisions and on provisions concerning the termination or nonrenewal of a
franchise. Some states require that certain materials be registered before
franchises can be offered or sold in that state. The failure to obtain or retain
licenses or approvals to sell franchises could adversely affect us or our
franchisees. The restaurant industry is also subject to extensive federal, state
and local governmental regulations, including those relating to the preparation
and sale of food and those relating to building and zoning requirements. We and
our franchisees are also subject to laws governing relationships with employees,
including minimum wage requirements, overtime, working and safety conditions and
citizenship requirements. Many of our employees are paid hourly rates based upon
the federal and state minimum wage laws. Recent legislation increasing the
minimum wage has resulted in higher labor costs to us and our franchisees. We
anticipate that increases in the minimum wage may be offset through pricing and
other cost-control efforts; however, we cannot assure you that we or our
franchisees will be able to pass such additional costs on to customers in whole
or in part.

KEY DISTRIBUTORS -- DISRUPTION IN DELIVERIES MAY ADVERSELY AFFECT OUR
RESTAURANTS.

Our profitability is dependent on, among other things, our continuing
ability to offer fresh, high quality food at moderate prices. While we continue
to operate our own distribution business for our Carl's Jr. system, we rely upon
independent distributors for our Hardee's and Taco Bueno restaurants. In
particular, our Hardee's restaurants depend on the distribution services of two
distributors, MBM, an independent supplier and distributor of food and other
products, and FFM, which was recently acquired by MBM. MBM and FFM are
responsible for delivering food, paper and other products from our vendors to
our Hardee's restaurants on a regular basis. MBM and FFM also provide
distribution services to a large number of our Hardee's franchisees. Any
disruption in these distribution services could have a material adverse effect
on our business. See "Business -- Purchasing and Distribution."

YEAR 2000 ISSUES -- THE EFFICIENT OPERATION OF OUR RESTAURANTS RELIES ON OUR
INFORMATION SYSTEMS, WHICH MAY BE DISRUPTED UNDER CERTAIN CIRCUMSTANCES.

We rely on various information systems to manage our restaurant operations,
and regularly make investments to upgrade, enhance or replace such systems. We
are aware that some significant portion of existing electronic equipment,
including computers, software and embedded technology, was not designed to
correctly process dates after December 31, 1999. These systems store dates as
having two-digit, rather than four-digit, years, which could potentially cause
erroneous data results or program failures in the year 2000. We continue to
review the impact of such Year 2000 ("Y2K") issues on our internal computer and
non-computer systems as well as on our vendors and service providers.

Internally, we have nearly completed the process of making the information
systems used by our company-operated Carl's Jr. and Taco Bueno restaurants Y2K
compatible, and will complete the process before the turn of the century. With
respect to our company-operated Hardee's restaurants, our review found a number
of potential Y2K compatibility problems, and we are in the process of replacing
suspect systems with Y2K compatible systems. We expect to complete the
replacement of our company-operated Hardee's restaurants' financial information
systems in November 1999, complete equipment purchasing information systems in
August 1999 and purchase back-office management information systems in November
1999. We have not identified any other significant areas of non-compliance in
our internal computer or non-computer systems.

We believe our greatest risk with respect to Y2K issues relates to
third-party failure to appropriately address their Y2K non-compliance. Y2K
failures in key suppliers' systems, or in their respective suppliers' systems,
could affect their ability to supply us with material or services, and therefore
affect our ability to operate our restaurants. External Y2K failures could
therefore have a material adverse effect on our revenues and financial
condition. We are in the process of confirming the Y2K compliance of our
important suppliers

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<PAGE> 15

and have been assured that MBM's, as well as our less important vendors and
service providers', Y2K compliance efforts are on schedule. We plan to secure
alternative suppliers for those who cannot assure us of their Y2K readiness. In
addition, the inability of our multiunit franchisees to become Y2K compliant may
materially adversely affect our ability to receive royalties from them. External
Y2K risks will be addressed as our survey of suppliers is completed. Although we
expect cooperation from the suppliers we are surveying, we also rely on services
such as telephones and utilities, whose Y2K compliance is outside of our
control. Therefore, we may be unable to accurately assess the Y2K readiness of
some third parties, and the impact of such third-party non-compliance on our
operations.

We plan to continue to identify, assess and to resolve all material Y2K
issues by the end of calendar 1999. We have developed or are in the process of
developing contingency plans to address significant internal and external Y2K
issues as they are identified. These contingency plans are expected to be
completed by July 1999. However, the Y2K problem involves pervasive complex
interrelationships, both internally and externally. As a result, we cannot
assure you that we will identify and successfully resolve all Y2K issues, and
the possibility exists that Y2K-related disruptions could have a material
adverse effect on us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."

ENVIRONMENTAL MATTERS -- COMPLIANCE WITH ENVIRONMENTAL LAWS MAY ADVERSELY AFFECT
OUR FINANCIAL HEALTH.

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 restaurants or land in
question and regardless of whether such environmental conditions were created by
us or by a prior owner or tenant. Although we cannot assure you that all such
environmental conditions have been identified, these conditions include the
presence of asbestos containing materials, leaks from chemical storage tanks and
on-site spills.

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<PAGE> 16

EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William P. Foley II........ 54 Chairman of the Board and Chief Executive Officer
C. Thomas Thompson......... 49 President and Chief Operating Officer
Rory J. Murphy............. 51 President and Chief Operating Officer, Hardee's Food Systems, Inc.
Carl A. Strunk............. 61 Executive Vice President, Chief Financial Officer
Andrew F. Puzder........... 48 Executive Vice President, General Counsel and Secretary
Robert W. Wisely........... 53 Executive Vice President, Marketing
John J. Dunion............. 41 Executive Vice President, Chief Administrative Officer
Loren C. Pannier........... 57 Senior Vice President, Investor Relations
</TABLE>

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 national title insurance underwriter and
provider of diversified real estate services. Mr. Foley also serves as the
Chairman of the Board of SBRG, Rally's, Checkers and American National
Financial, Inc. ("ANF") and as a member of the Board of Directors of Micro
General Corporation, Fresh Foods, Inc. and Miravant Medical Technologies.

C. Thomas Thompson was appointed President and Chief Operating Officer in
October 1994. Mr. Thompson has been with Carl's Jr. since 1984, and currently
operates 17 Carl's Jr. restaurants in the San Francisco Bay Area. Mr. Thompson
also serves as a member of the Board of Directors of Rally's and Checkers. Mr.
Thompson has more than 25 years of experience in the restaurant industry.

Rory J. Murphy was appointed President and Chief Operating Officer of
Hardee's immediately following our acquisition of Hardee's in July 1997. Mr.
Murphy served as Executive Vice President, Restaurant Operations from June 1996
until July 1997, and served as our Senior Vice President, Restaurant Operations
from February 1993 until June 1996. Mr. Murphy has been employed by the Company
in various positions for 20 years.

Carl A. Strunk was appointed Executive Vice President and Chief Financial
Officer in February 1997. Mr. Strunk also serves as Executive Vice President of
Fidelity, where he has been since 1992, and SBRG since December 1997, and as
Executive Vice President and Chief Financial Officer of ANF since August 1998.
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 and ANF.

Andrew F. Puzder became Executive Vice President, General Counsel and
Secretary in February 1997. Mr. Puzder also serves as Chief Executive Officer of
SBRG, where he has been since August 1997 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 is a
member of the Board of Directors of SBRG, Fresh Foods, Inc., Javelin Systems,
Inc. and Rally's.

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 Carl's Jr. franchisee 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.

John J. Dunion was appointed Executive Vice President, Chief Administrative
Officer in February 1999. Mr. Dunion served as Senior Vice President, Purchasing
since April 1998 and Vice President, Purchasing

14
<PAGE> 17

since September 1996. Prior to that, he served as Vice President, Purchasing at
Unigate Restaurants, Inc. from 1993 to September 1996.

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 26 years.

ITEM 2. PROPERTIES

The following table sets forth information regarding the Company's
restaurant properties at January 25, 1999:

<TABLE>
<CAPTION>
LAND AND LAND LEASED LAND AND
BUILDING AND BUILDING BUILDING
OWNED OWNED LEASED TOTAL
-------- ------------ -------- -----
<S> <C> <C> <C> <C>
Carl's Jr.:
Company-operated............................... 89 83 367 539
Franchisee-operated(1)......................... 10 6 97 113
Third party-operated/vacant(2)................. 7 2 39 48
--- --- ----- -----
Subtotal............................... 106 91 503 700
--- --- ----- -----
Hardee's:
Company-operated............................... 629 239 535 1,403
Franchisee-operated(1)......................... 36 32 56 124
Third party-operated/vacant(2)................. 32 13 93 138
--- --- ----- -----
Subtotal............................... 697 284 684 1,665
--- --- ----- -----
Taco Bueno:
Company-operated............................... 73 10 28 111
--- --- ----- -----
Total.................................. 876 385 1,215 2,476
=== === ===== =====
</TABLE>

- ---------------
(1) "Franchisee-operated" properties are those which we own or lease and lease
or sublease to franchisee operators.

(2) "Third party-operated/vacant" are properties we own that are either operated
by unaffiliated entities or are currently vacant.

The terms of our leases or subleases vary in length expiring on various
dates through 2023. 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 and primary distribution center,
located in Anaheim, California, are leased and contain approximately 78,000 and
102,000 square feet, respectively. We own Hardee's corporate facility in Rocky
Mount, North Carolina.

ITEM 3. LEGAL PROCEEDINGS

We are 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 us and our restaurants, regardless of whether such allegations
are valid or whether we are liable. We are also the subject of complaints or
allegations from employees and franchisees from time to time. We believe that
the lawsuits, claims and other legal matters to which we have become subject in
the course of our business are not material to our financial condition or
results of operations, but an existing or future lawsuit or claim could result
in an adverse decision against us that could have a material adverse effect on
our financial condition and results of operations.

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<PAGE> 18

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

None.

PART II

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

Our common stock is listed on the New York Stock Exchange under the symbol
"CKR". As of March 31, 1999, there were approximately 1,800 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:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1999
First Quarter...................................... $41.65 $28.07
Second Quarter..................................... 40.00 27.10
Third Quarter...................................... 35.85 15.63
Fourth Quarter..................................... 30.25 18.64
FISCAL 1998
First Quarter...................................... $21.07 $15.19
Second Quarter..................................... 29.96 18.49
Third Quarter...................................... 37.14 26.03
Fourth Quarter..................................... 38.35 28.41
</TABLE>

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 10%
stock dividends in February 1998 and January 1999.

We have followed a policy of paying semiannual cash dividends, at the
annual rate of $0.04 per share (adjusted to give retroactive effect to the stock
split and stock dividends), during fiscal 1997. During fiscal 1998, we increased
the annual rate to $0.07 per share (adjusted to give retroactive effect to the
stock dividends). On March 16, 1999, our 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, 1999 to holders of record on April 9, 1999.
Continued payment of dividends on our common stock will depend upon our
operating results, business requirements and financial condition, and such other
factors that our Board of Directors considers relevant. Our senior credit
facility and certain of our debt instruments impose limitations on the amount of
dividends or other distributions that we may make on our common stock.

16
<PAGE> 19

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 our inception.

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OR AS OF JANUARY 31,(1)
------------------------------------------------------------
1999(2) 1998(3) 1997(4) 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME
DATA:
Total revenues(5).............. $1,892,044 $1,149,659 $613,380 $464,667 $442,942
Operating income............... 168,220 86,191 44,139 27,000 9,741
Interest expense............... 43,453 16,914 9,877 10,004 9,202
Net income(6).................. 77,712 46,757 22,302 10,952 1,264
Net income per
share -- diluted............ $ 1.45 $ 0.97 $ 0.61 $ 0.33 $ 0.04
Weighted average shares
outstanding -- diluted...... 56,714 48,121 36,603 33,611 33,971
Cash dividends paid per common
share....................... $ 0.07 $ 0.07 $ 0.04 $ 0.04 $ 0.04
Ratio of earnings to fixed
charges(7).................. 2.9x 3.3x 2.9x 2.0x 1.1x
CONSOLIDATED BALANCE SHEET DATA:
Total assets................... $1,496,914 $ 957,144 $410,367 $248,009 $244,361
Total long-term debt and
capital lease obligations,
including current portion... 625,393 216,905 86,993 82,423 81,618
Stockholders' equity........... $ 586,842 $ 498,512 $214,804 $101,189 $ 88,474
</TABLE>

- ---------------
(1) Our 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 1999 includes operating results of FEI from and after April 1, 1998.

(3) 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 10,088,375 shares of common stock, completed in July
1997.

(4) Share and per share data were affected during fiscal 1997 by a public
offering of 5,218,125 shares of common stock, completed in November 1996.

(5) Fiscal 1999, 1998 and 1997 include $135.1 million, $195.2 million and $94.3
million, respectively, of revenues generated from other restaurant concepts
we acquired during fiscal 1997. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

(6) Net income for fiscal 1999 includes an extraordinary gain of $3.3 million,
net of applicable income tax expense, on early retirement of debt.

(7) For purposes of calculating the ratio of earnings to fixed charges (a)
earnings represent income before income taxes and extraordinary item and
fixed charges, and (b) fixed charges consist of interest on all
indebtedness, interest related to capital lease obligations, amortization of
debt issuance costs and a portion of rental expense that is representative
of the interest factor (deemed by us to be one-third).

17
<PAGE> 20

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,(1)
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CARL'S JR. RESTAURANTS
Restaurants open (at end of fiscal
year):
Company-operated(2).............. 539 443 415 394 383
Franchised and licensed.......... 322 265 258 273 277
---------- ---------- ---------- ---------- ----------
Total.................... 861 708 673 667 660
========== ========== ========== ========== ==========
Systemwide restaurant revenues:
Company-operated restaurants..... $ 535,038 $ 488,495 $ 443,304 $ 389,214 $ 364,278
Franchised and licensed
restaurants................... 261,341 214,534 204,700 193,984 201,170
---------- ---------- ---------- ---------- ----------
Total systemwide
revenues............... $ 796,379 $ 703,029 $ 648,004 $ 583,198 $ 565,448
========== ========== ========== ========== ==========
Average annual sales per company-
operated restaurant(3)........... $ 1,185 $ 1,157 $ 1,114 $ 1,006 $ 966
Percentage increase (decrease) in
comparable company-operated
restaurant sales(4).............. 3.0% 4.8% 10.7% 4.4% (3.8)%
Company-operated restaurant-level
operating margins................ 25.9% 24.2% 23.1% 21.3% 18.4%
</TABLE>

<TABLE>
<CAPTION>
FISCAL 28 WEEKS 28 WEEKS FISCAL YEAR ENDED
YEAR ENDED ENDED ENDED DECEMBER 31,
JANUARY 31, JANUARY 31, JULY 15, -----------------------
1999(1)(2)(6) 1998(2)(7) 1997(2) 1996(2) 1995(2)
------------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HARDEE'S RESTAURANTS(5)
Restaurants open (at end of
period):
Company-operated(8).............. 1,403 863 782 808 733
Franchised and licensed.......... 1,401 2,175 2,329 2,417 2,600
---------- ---------- ---------- ---------- ----------
Total.................... 2,804 3,038 3,111 3,225 3,333
========== ========== ========== ========== ==========
Systemwide restaurant revenues:
Company-operated restaurants..... $1,063,075 $ 339,942 $ 346,481 $ 645,409 $ 596,593
Franchised and licensed
restaurants................... 1,412,929 1,123,034 1,152,442 2,350,733 2,582,514
---------- ---------- ---------- ---------- ----------
Total systemwide
revenues............... $2,476,004 $1,462,976 $1,498,923 $2,996,142 $3,179,107
========== ========== ========== ========== ==========
Average annual sales per company-
operated restaurant(3)........... $ 793 $ 803 $ 831 $ 848 $ 888
Percentage decrease in comparable
company-operated restaurant
sales(4)......................... (7.5)% (7.2)% (0.4)% (4.4)% (6.8)%
Company-operated restaurant-level
operating margins................ 16.7% 12.9% 7.8% 6.2% 8.4%
</TABLE>

- ---------------
(1) Our 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) The 63 company-operated Carl's Jr./Hardee's dual-brand restaurants operating
in Oklahoma, Kansas and Texas and the nine franchised Carl's Jr./Hardee's
dual-brand restaurants operating in Oklahoma and Colorado are included in
the number of Carl's Jr. restaurants open at January 31, 1999. The operating
results of these restaurants, however, are included in the Hardee's
financial information.

(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.

18
<PAGE> 21

(5) Except as otherwise noted, company-operated Hardee's restaurant data for the
two fiscal years ending December 31, 1996 and for the 28 weeks ended July
15, 1997 excludes the results of Hardee's restaurants sold or closed prior
to December 31, 1996 and July 15, 1997, respectively.

(6) Fiscal 1999 includes operating results of FEI from and after April 1, 1998.

(7) Includes results of operations for Hardee's from and after July 15, 1997.

(8) The number of company-operated restaurants open at December 31, 1995
excludes 131 restaurants that were closed on or prior to December 31, 1996.

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 leading nationwide owner, operator and franchisor of quick-service
restaurants, operating principally under the Carl's Jr., Taco Bueno and Hardee's
brand names. Based on domestic systemwide sales, our 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 31, 1999, the Carl's
Jr. system included 861 restaurants, of which we operated 539 restaurants and
our franchisees and licensees operated 322 restaurants. The Carl's Jr.
restaurants are located in the Western United States, predominantly in
California with 63 company-operated Carl's Jr./Hardee's dual-brand restaurants
operating in Texas, Kansas and Oklahoma and nine franchised Carl's Jr./Hardee's
dual-brand restaurants operating in Oklahoma and Colorado. Operating results for
these Carl's Jr./Hardee's dual-brand restaurants for fiscal 1999 and 1998 are
included in the Hardee's financial information. Beginning in fiscal 2000, the
operating results of these restaurants will be included in the Carl's Jr.
financial information. As of January 31, 1999, the Hardee's system consisted of
2,804 restaurants, of which we operated 1,403 restaurants and our franchisees
and licensees operated 1,401 restaurants. Hardee's are located throughout the
Eastern and Midwestern United States, predominantly in the Southeast. As of
January 31, 1999, we also operated 111 Taco Bueno quick-service Mexican
restaurants in Texas and Oklahoma.

Carl N. Karcher, our founder, opened the first Carl's Jr. restaurant in
1956 in Anaheim, California. After an extended period of growth, we made
strategic decisions and experienced operational difficulties in the early 1990s,
which adversely impacted our sales and profitability. At that time, in response
to the introduction of value pricing by our quick-service restaurant
competitors, we reduced prices and initiated an extensive value-priced menu
advertising campaign. Beginning in October 1994, we hired a new management team,
which began implementing a variety of strategic and operational programs
designed to revitalize the Carl's Jr. brand and improve financial results. We
renewed our focus on offering superior products, eliminated most value-priced
menu items, launched a new advertising campaign, began a dual-branding program
with The Green Burrito and started a remodeling program for Carl's Jr.
restaurants. We also were successful in reducing expenses at both the corporate
and restaurant operating levels. As a result of these strategies, we experienced
significant improvements in sales and operating results in fiscal 1996, 1997,
1998 and 1999. We completed this remodeling program in December 1997 and
continue to implement our dual-branding program and focus on reducing expenses.
We believe we will continue to benefit from such activities in the future.

We believe our acquisitions of Hardee's in July 1997 and FEI in April 1998
allowed us to significantly expand the scope of our operations and to become one
of the leading nationwide operators of quick-service hamburger restaurants.
Because of the significant effect of the acquisitions of Hardee's and FEI on our
results of operations, our historical results of operations and year-to-year
comparisons will not be indicative of future results and may not be meaningful.
Operating results of Hardee's and FEI are included in our results of operations
from July 15, 1997 and April 1, 1998, respectively. We acquired Taco Bueno and
certain other restaurant concepts in fiscal 1997, and our results of operations
for fiscal 1999, 1998 and 1997 include $135.1 million, $195.2 million and $94.3
million, respectively, of revenues generated by these restaurants.

19
<PAGE> 22

We derive our revenues 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 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. Operating costs of our
franchised and licensed restaurants include the cost of food and packaging
products sold to Carl's Jr.'s franchisees and licensees, lease payments on
properties subleased to our franchisees and the costs of equipment purchases.
Hardee's had previously established allowances for certain franchisee notes
receivable based upon the historical collection rates experienced by them. Since
our acquisition, we have worked to restore Hardee's relationships with its
franchisees. As a result of the improved relations with our franchisees and
their improved operating performance, the collection rate on notes receivable
has improved. As such, in fiscal 1999, we have reversed approximately $9.7
million of allowances as the previously established amounts proved to be
unnecessary. Other operating expenses, including advertising expenses and
general and administrative expenses, relate to company-operated restaurants as
well as franchisee and licensee operations. Our revenues and expenses are
directly affected by the number and sales volume of company-operated restaurants
and, to a lesser extent, of 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 our
consolidated statements of income for the years indicated:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Company-operated restaurants.............................. 91.6% 88.9% 87.5%
Franchised and licensed restaurants and other............. 8.4 11.1 12.5
----- ----- -----
Total revenues.................................... 100.0% 100.0% 100.0%
===== ===== =====
Operating costs and expenses:
Restaurant operations(1):
Food and packaging..................................... 30.0% 30.7% 30.6%
Payroll and other employee benefits.................... 30.9 30.5 27.9
Occupancy and other operating expenses................. 19.5 20.2 20.6
----- ----- -----
80.4 81.4 79.1
Franchised and licensed restaurants and other(2).......... 67.0 73.7 94.9
Advertising expenses(1)................................... 6.1 5.7 5.9
General and administrative expenses....................... 6.3 6.9 6.5
Operating income............................................ 8.9 7.5 7.2
Interest expense............................................ (2.3) (1.5) (1.6)
Other income (expense), net................................. -- 0.7 0.4
----- ----- -----
Income before income taxes and extraordinary item........... 6.6 6.7 6.0
Income tax expense.......................................... 2.7 2.6 2.4
----- ----- -----
Income before extraordinary item............................ 3.9 4.1 3.6
Extraordinary item -- gain on early retirement of debt...... 0.2 -- --
----- ----- -----
Net income.................................................. 4.1% 4.1% 3.6%
===== ===== =====
</TABLE>

- ---------------
(1) As a percentage of revenues from company-operated restaurants.

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

20
<PAGE> 23

FISCAL 1999 COMPARED WITH FISCAL 1998 AND FISCAL 1998 COMPARED WITH FISCAL 1997

REVENUES

Company-operated Restaurants. Revenues from company-operated restaurants
increased $709.8 million or 69.4% to $1.732 billion in fiscal 1999 as compared
with fiscal 1998. Carl's Jr., Hardee's and Taco Bueno company-operated
restaurant revenues for the year accounted for sales increases of $46.5 million,
$723.1 million and $7.2 million, respectively, offset in part by the decrease in
revenues from our HomeTown Buffet and Casa Bonita concepts, which were disposed
of in connection with the initial public offering of Star Buffet, Inc. ("Star
Buffet") in September 1997, and our JB's Restaurants and Galaxy Diner
restaurants which were sold to SBRG in September 1998. On a same-store sales
basis, our Carl's Jr. sales increased 3.0%, marking the fourth consecutive
annual increase in same-store sales for the Carl's Jr. chain. Same-store sales
for our company-operated Taco Bueno restaurants increased 7.3%, while same-store
sales for our company-operated Hardee's restaurants decreased 7.5%. We believe
that the overall increase in revenues from company-operated Carl's Jr.
restaurants can be primarily attributed to our continued focus on promoting
great-tasting new and existing food products through increased advertising, the
continuation of our conversion of existing Carl's Jr. locations into Carl's
Jr./Green Burrito dual-brand restaurants, the image enhancement of our
restaurants through a chain-wide remodeling program which was completed in
December 1997 and an increase in the number of company-operated restaurants in
operation in fiscal 1999 as compared with fiscal 1998. Taco Bueno's increase in
revenues is due in part to a new advertising campaign, which also focuses on
great-tasting food products, and the systemwide installation of new menu boards
and all-you-can-drink beverage bars. We also began an image enhancement program
for our Taco Bueno restaurants and are focusing on real estate that is better
located and more heavily trafficked than the properties previously targeted for
new Taco Bueno restaurants. The four Taco Bueno restaurants that have opened
since October 1997 have average unit volumes significantly higher than the rest
of the system. The revenue increase from our Hardee's restaurants was also
driven by including a full year of operations of the restaurants initially
acquired in July 1997 and by our acquisitions of FEI and other franchised
restaurants during fiscal 1999. We attribute much of the decrease in same-store
sales at Hardee's to menu deletions made, as well as our discontinuation of
promotional discounting and monthly new product introductions. The particularly
harsh weather experienced in the Southeast and Midwest during the fourth quarter
of fiscal 1999 was also a contributing factor. Average unit volumes at our
company-operated Carl's Jr. and Taco Bueno restaurants continue to rise and
increased 2% to $1,185,000 and 9% to $744,000, respectively, as of January 31,
1999 for the trailing 52-week period as compared with the prior year. Average
unit volumes at our company-operated Hardee's restaurants ended the fiscal year
at $793,000.

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 restaurant revenues for the year accounted for sales increases
of $45.2 million. Our 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 our 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, our Carl's Jr.
sales increased 4.8%, marking the third consecutive annual increase in
same-store sales for the Carl's Jr. chain. Same-store sales for 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 increase
in revenues from company-operated Carl's Jr. restaurants was primarily the
result of continued momentum in our various sales enhancement programs,
including the continuation of conversion of existing Carl's Jr. locations into
Carl's Jr./Green Burrito dual-brand restaurants, continued focus on promoting
great-tasting new and existing food products through increased innovative
advertising and the image enhancement of our restaurants through a chain-wide
remodeling program. Also contributing to the increase in sales at our Carl's Jr.
restaurants was our introduction of the Charbroiled Sirloin Steak Sandwich in
the fourth quarter of fiscal 1998, which has recorded the highest sales levels
for any new product offering in the past 11 years. 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.

21
<PAGE> 24

Franchised and Licensed Restaurants. Our revenues from franchised and
licensed restaurants for fiscal 1999 increased $32.6 million, or 25.6%, to
$159.8 million over fiscal 1998. This increase is mainly due to the addition of
a full year of royalties earned by Hardee's franchise system and a full year of
equipment sales to Hardee's franchisees, offset in part by the conversion of
certain Hardee's franchised restaurants into company-operated restaurants,
including our purchase of FEI in April 1998. A large part of the increase can
also be attributed to increased royalties from, and food purchases by, Carl's
Jr. franchisees and licensees as a result of higher sales volume at franchised
and licensed Carl's Jr. restaurants and the increase in the number of Carl's Jr.
franchised restaurants operating in fiscal 1999 as compared with fiscal 1998.
Our revenues from franchised and licensed restaurants in fiscal 1998 increased
$50.6 million, or 66.1%, to $127.2 million over fiscal 1997. This increase is
principally due to royalties earned by Hardee's franchise system, equipment
sales to Hardee's franchisees and to increased royalties from, and food
purchases by, Carl's Jr. franchisees and licensees as a result of higher sales
volume at franchised and licensed Carl's Jr. restaurants.

OPERATING COSTS AND EXPENSES

Restaurant Operations. Restaurant-level operating margins of our
consolidated restaurant operations increased in fiscal 1999 by 1.0% to 19.6% as
compared with fiscal 1998, primarily reflecting the improvement in operating
margins at each of the Company's three core concepts and the disposal of our
remaining higher-cost family-style restaurant concepts in the third quarter of
fiscal 1999. Consolidated restaurant-level operating margins decreased in fiscal
1998 by 2.3% as compared with fiscal 1997, primarily reflecting the impact of
typically higher operating costs at our family-style restaurant concepts, which
we acquired in the second quarter of fiscal 1997, and at Hardee's, which we
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 operating margins are substantially lower than our Carl's Jr.
and Taco Bueno quick-service restaurant concepts, we have increased Hardee's
company-operated restaurant-level operating margins to 16.7% for fiscal 1999, as
compared with 12.9% for the 28 weeks ended January 31, 1998 and 6.2% for those
restaurants open and operating as of December 31, 1996. We have accomplished
this reduction of costs through the following cost-saving measures, each of
which we implemented at our Carl's Jr. restaurants over the past four to five
years:

- 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 purchasing synergies to lower food and paper costs.

The simplification of the Hardee's menu and conforming Hardee's depreciation
policies also contributed to the increase in restaurant-level operating margins
since we acquired it.

Continued cost-saving strategies at our company-operated Carl's Jr.
restaurants have caused restaurant-level operating margins for our Carl's Jr.
chain to continue to increase. These margins, as a percentage of revenues from
company-operated Carl's Jr. restaurants, were 25.9%, 24.2% and 23.1% in fiscal
1999, 1998 and 1997, respectively. These improved results in our Carl's Jr.
restaurant-level operating margins reflect our continued commitment to improve
the cost structure of our Carl's Jr. restaurants, particularly in the areas of
increased purchasing synergies for food and paper, improved labor productivity
and reduced workers' compensation costs.

Our Carl's Jr. food and packaging costs continued to decrease during fiscal
1999, down 1.1% to 28.8% of revenues from company-operated Carl's Jr.
restaurants in fiscal 1999, as compared with 29.9% in fiscal 1998, and 30.2% in
fiscal 1997. During fiscal 1999 and 1998, food costs decreased due to the
purchasing economies our Carl's Jr. chain achieved as a result of the
consolidated buying power directly realized from our addition of other
restaurant concepts. Partially offsetting these purchasing economies realized in
fiscal 1999 and fiscal 1998, were 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.

22
<PAGE> 25

Payroll and other employee benefits for our Carl's Jr. restaurant chain, as
a percentage of revenues from company-operated Carl's Jr. restaurants, have
remained relatively consistent at 25.8%, 25.7% and 26.5% for fiscal 1999, 1998
and 1997, respectively. The October 1996 and September 1997 federal and March
1997 and 1998 California minimum wage increases contributed to the rise in
payroll and employee benefit costs. Offsetting the impact of these partial year
increases was the savings resulting from labor productivity programs implemented
during fiscal 1996 to decrease costs further and improve direct labor
efficiencies.

Carl's Jr. occupancy and other operating expenses, as a percentage of
revenues from company-operated Carl's Jr. restaurants, were 19.5%, 20.2%, and
20.2% in fiscal 1999, 1998 and 1997, respectively. A portion of occupancy and
other operating expenses is fixed in nature, and thus falls as a percentage of
company-operated revenues as revenues rise. The decrease in occupancy and other
operating expenses as a percentage of company-operated restaurants in fiscal
1999, as compared with fiscal 1998, is largely due to our 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 1999. These costs increased
in fiscal 1998 as compared with fiscal 1997, primarily due to increased
equipment costs as we implemented updated data technology at our restaurants and
increased utility and depreciation expenses in connection with the remodeling of
our Carl's Jr. restaurants.

Taco Bueno's restaurant-level operating margins increased 0.6% to 25.2% of
revenues in fiscal 1999 as compared with fiscal 1998 restaurant-level operating
margins of 24.6%. This increase was primarily due to the fixed nature of
occupancy and other operating expenses combined with an increase in revenues, as
well as the savings achieved from implementing some of the same labor
productivity programs successfully implemented at our Carl's Jr. restaurants in
the past four to five years. Offsetting these benefits was the negative impact
of the increased commodity costs for cheese and tomatoes and increased lease
expense for the new point of sale equipment installed in all of our Taco Bueno
restaurants.

Franchised and Licensed Restaurants. Franchised and licensed restaurant and
other costs increased 14.1% to $107.0 million in fiscal 1999 over fiscal 1998
and 29.0% to $93.8 million in fiscal 1998 over fiscal 1997. These increases are
primarily due to increased food and other products purchased from us by Carl's
Jr. franchisees and licensees as well as the costs associated with administering
the Hardee's franchise system. As a percentage of revenues from franchised and
licensed restaurants, these costs decreased 6.8% in fiscal 1999 and 21.2% in
fiscal 1998, as compared with fiscal 1998 and 1997, respectively. The cost
structure associated with the Hardee's franchise operations is substantially
lower than that associated with the Carl's Jr. franchise operations. While
Carl's Jr. earns its income from both royalties paid and food purchases by
franchisees, Hardee's earns substantially all of its franchised restaurant
revenue from royalties paid because its franchisees purchase food, supplies and
other products from independent vendors and distributors.

Advertising Expenses. Advertising expenses increased $47.0 million in
fiscal 1999 over fiscal 1998, and $26.6 million in fiscal 1998 over fiscal 1997,
principally due to increased advertising support for Hardee's. Advertising has
become increasingly important in the current competitive environment, and, as a
result, advertising expenses have increased in terms of dollars spent in fiscal
1999 and 1998 as compared with the prior fiscal years.

General and Administrative Expenses. General and administrative expenses
increased $39.8 million to $118.7 million in fiscal 1999 over fiscal 1998 and
$38.9 million to $78.9 million in fiscal 1998 over fiscal 1997. General and
administrative expenses were 6.3%, 6.9% and 6.5% of total revenues in fiscal
1999, 1998 and 1997, respectively. The increases in fiscal 1999 and 1998 in
terms of dollars spent are primarily the result of the added expense of
supporting Hardee's restaurant operations. Hardee's general and administrative
expenses as a percentage of total revenues were approximately 5.9% for fiscal
1999 as compared with 7.6% for the period of fiscal 1998 under our ownership and
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 1999 and fiscal 1998 due to recording incentive compensation accruals for
regional restaurant management and selected corporate employees for improved
operating performance. The decrease in general and administrative expenses as a
percentage of total revenues in fiscal 1999 over fiscal 1998 also reflects the
economies of scale we are realizing by absorbing certain costs associated with
FEI into our existing infrastructure.

23
<PAGE> 26

INTEREST EXPENSE

Interest expense for fiscal 1999 increased $26.5 million to $43.5 million
as compared with fiscal 1998 due to higher levels of borrowings outstanding and
the assumption of capital lease obligations as a result of the acquisitions of
Hardee's in July 1997 and FEI in April 1998. 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 our previous credit agreements, partially offset by
a reduction in interest rates. As a result of the refinancing of the term loan
under our senior credit facility in March 1999 with the proceeds of senior
subordinated notes bearing interest at 9.125%, as well as other changes to our
senior credit facility, we expect our overall average interest rate to increase
in fiscal 2000.

OTHER INCOME (EXPENSE), NET

Other income (expense), net, mainly consists 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 (expense), net, decreased $8.0
million in fiscal 1999 and increased $4.9 million in fiscal 1998, as compared
with the respective prior fiscal years. The decrease in fiscal 1999 was
primarily due to a $15.0 million charge to our investment in Boston West, offset
in part by a non-recurring gain of $10.3 million resulting from the disposition
of our investment in Star Buffet. Decreases in lease, dividend and interest
income, as well as larger losses recorded from our investment in Rally's have
also contributed to the overall decrease. The increase in fiscal 1998 generally
resulted from interest income earned on our note receivable from Checkers and
amortization of the related discount along with lease and dividend income
recorded from our long-term investment in Boston West.

EXTRAORDINARY ITEM

During the third quarter of fiscal 1999, our Board of Directors approved
the buyback of up to $50.0 million aggregate principal amount of convertible
subordinated notes. In fiscal 1999, we repurchased $35.0 million of convertible
subordinated notes for $28.8 million in cash, including accrued interest
thereon. In connection with this repurchase, we recognized an extraordinary gain
on the early retirement of debt of $3.3 million, net of applicable taxes of $2.1
million.

IMPACT OF INFLATION

Inflation has an impact on food, construction, occupancy, labor and benefit
costs, all of which can significantly affect our operations. Historically, we
have been able to pass any higher costs due to these inflationary factors along
to our customers because those factors have affected nearly all restaurant
companies. During fiscal 1999, 1998 and 1997, however, we have emphasized cost
controls rather than price increases, given the price competitiveness of the
quick-service restaurant industry.

SEASONALITY

Our business is affected by seasonality. Average restaurant sales are
normally higher in the summer months than during the winter months for each of
our restaurant concepts. In comparison with our other restaurant concepts, the
weather has a greater impact on average restaurant sales at our Hardee's
restaurants, because a significant number of them are located in rural areas
that experience severe winter conditions without the benefit of municipal storm
services typical of more urban areas.

24
<PAGE> 27

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased $10.1 million to $40.3 million in
fiscal 1999. In fiscal 1999, we generated cash flows from operating activities
of $172.7 million, compared with $72.1 million in fiscal 1998. This increase was
mainly due to the added operations of our Hardee's restaurants and increased
revenues and improved operating margins at our Carl's Jr. and Taco Bueno
restaurants.

Investing activities absorbed $499.7 million of our cash to fund capital
additions of $124.3 million and to complete the acquisition of FEI and other
Hardee's franchised restaurants for $406.4 million, net of cash acquired.
Partially generating some of the funds necessary for these investments were the
proceeds of $12.5 million from the sale of our investment in Star Buffet, $10.7
million from the sale of property and equipment to our franchisees, and $8.5
million from collections on and sale of notes receivable, related party
receivables and leases receivable.

Financing activities provided us with $337.2 million in cash, primarily
from the net proceeds of $197.2 million principal amount of convertible
subordinated notes and additional borrowings under our senior credit facility.
Cash flows from operating and financing activities were mainly used to acquire
FEI and certain other Hardee's franchised restaurants, to repay existing
indebtedness of $151.7 million, to fund the remodeling of our Hardee's
restaurants to the new Star Hardee's format and convert certain Carl's Jr.
restaurants to the Carl's Jr./Green Burrito dual-brand concepts, to pay $10.4
million of deferred financing costs associated with our acquisition of FEI, to
repay $8.7 million in capital lease obligations and to pay dividends of $3.7
million. Exercises of stock options and the related tax benefit provided us with
an additional $12.7 million.

On March 4, 1999, we completed a private placement of $200.0 million
aggregate principal amount of 9.125% senior subordinated notes due 2009. We
received net proceeds of $194.8 million, of which $190.0 million was used to
repay outstanding term loan balances under our senior credit facility. The
indenture relating to the senior subordinated notes imposes certain restrictions
on our ability (and the ability of our subsidiaries) to incur indebtedness, pay
dividends on, redeem or repurchase our capital stock, make investments, incur
liens on our assets, sell assets other than in the ordinary course of business,
and enter into certain transactions with our affiliates. The senior subordinated
notes represent unsecured general obligations subordinate in right of payment to
our senior indebtedness, including our senior credit facility.

In connection with our private placement of senior subordinated notes, we
also amended and restated our senior credit facility to increase the lenders'
commitments under our revolving credit facility to $500.0 million from $250.0
million. Commitments under the amended senior credit facility will be reduced
after two years by at least $50.0 million each year. We also increased our
letter of credit sub-facility to $75.0 million from $65.0 million, and changed
the maturity date of the senior credit facility to February 2004. The term loan
component of the senior credit facility was eliminated as a result of these
transactions. Additional borrowings under the senior credit facility may be used
for working capital and other general corporate purposes, including permitted
investments and acquisitions. We will be required to repay borrowings under the
senior credit facility with the proceeds from (1) certain asset sales (unless
the net proceeds of such sales are reinvested in our business), (2) the issuance
of certain equity securities or (3) the issuance of additional indebtedness. Of
the various options we have regarding interest rates, we have selected LIBOR
plus a margin, with future margin adjustments dependent on certain financial
ratios from time to time.

Our senior credit facility contains the following significant covenants:

- restrictions on our ability to incur additional indebtedness and incur
liens on our assets, subject to specified exceptions;

- requirements that we satisfy specified financial tests as a precondition
to our acquisition of other businesses; and

- limitations on making capital expenditures and certain restricted
payments (including dividends and repurchases of stock) subject in
certain circumstances to specified financial tests.

25
<PAGE> 28

In addition, we are required to comply with minimum EBITDA requirements,
minimum interest coverage and fixed charge coverage ratios, minimum consolidated
tangible net worth requirements and maximum leverage ratios. As of January 31,
1999, we were in compliance with all of our debt covenants.

On March 13, 1998, we completed a private placement of $197.2 million
aggregate principal amount of convertible subordinated notes. Net proceeds from
this offering were $192.3 million, of which we used $24.1 million to repay
indebtedness under the senior credit facility. The convertible subordinated
notes, which represent unsecured general obligations subordinate in right of
payment to our other obligations, including our senior credit facility and our
senior subordinated notes, are due in 2004, are convertible into our common
stock at a conversion price of $43.82 (adjusted for the 10% stock dividend paid
on January 11, 1999) and carry a 4.25% coupon. The remaining net proceeds from
the convertible subordinated notes, together with borrowings under our senior
credit facility, were used to fund the acquisition of FEI on April 1, 1998 (see
Note 2 of Notes to Consolidated Financial Statements). As of January 31, 1999,
we have repurchased $35.0 million aggregate principal amount of convertible
subordinated notes for $28.8 million in cash, including accrued interest
thereon. Subsequent to fiscal 1999, we repurchased an additional $3.0 million
aggregate principal amount of convertible subordinated notes for $2.5 million in
cash, including accrued interest thereon. The repurchase of the convertible
subordinated notes was funded by a combination of cash flows from operations and
borrowings under our senior credit facility.

Our primary source of liquidity is our 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 our
Hardee's restaurants to the Star Hardee's format, the remodeling of existing
Taco Bueno restaurants, purchases of Hardee's franchised restaurants, the
conversion of restaurants to the Carl's Jr./Green Burrito dual-brand concepts
and capital expenditures to be incurred in connection with our integration of
Hardee's. In addition, we continue to discuss certain post-closing purchase
price adjustments arising from the Hardee's acquisition with Imasco Holdings,
Inc. We believe that any payments required or to be received as a result of such
purchase price adjustments would not materially affect our financial condition.

In light of the success of the Carl's Jr. and Taco Bueno chains and the
progress of the turnaround at Hardee's, we have established new goals for our
future development. We intend to open 75 to 100 company-operated Carl's Jr.
restaurants in fiscal 2000, 125 to 150 restaurants in fiscal 2001 and 200
restaurants in fiscal 2002. Taco Bueno anticipates opening up to 15, 25 and 35
new company-operated restaurants in fiscal 2000, 2001 and 2002, respectively. We
intend to open 25, 50 and 100 new company-operated Star Hardee's restaurants
over the next three fiscal years, respectively.

The quick-service restaurant business generally receives simultaneous cash
payment for sales. We presently reinvest the majority of the net cash flow from
operations in long-term assets, primarily for the remodeling and construction of
restaurants. Normal operating expenses for inventories and current liabilities
normally carry longer payment terms (usually 15 to 30 days). As a result, we
typically maintain current liabilities in excess of current assets.

We believe that cash generated from our various restaurant concept
operations, along with cash and cash equivalents on hand as of January 31, 1999
and amounts available under our senior credit facility, will provide the funds
necessary to meet all of our capital spending and working capital requirements
for the foreseeable future. Including the effect of the issuance of the senior
subordinated notes and related transactions, we had $291.3 million of borrowings
available to us under our senior credit facility at January 31, 1999. If those
sources of capital are insufficient to satisfy our capital spending and working
capital requirements, or if we determine to make any significant acquisitions of
or investments in other businesses, we may be required to sell additional equity
or debt securities or obtain additional credit facilities. In addition,
substantially all of the real properties we own and use for our restaurant
operations are unencumbered and could be used by us as collateral for additional
debt financing or could be sold and subsequently leased back to us. We have had
discussions with respect to such transactions with prospective financing sources
from time to time. We cannot assure you, however, that real estate financing or
other financing could be obtained on acceptable terms. Any sales of additional
equity or debt securities could result in additional dilution to our
stockholders.

26
<PAGE> 29

YEAR 2000

We are currently working to resolve the potential impact of the Y2K on the
processing of data-sensitive information by our computerized information
systems. Y2K problems are the result of computer programs being written using
two-digits (rather than four) to define the applicable year. Any of our 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.

We have investigated the impact of a Y2K problem on our business, including
our operational, information and financial systems. Based on this investigation,
we do not expect a Y2K problem, including the cost of making our computerized
information systems Y2K compliant, to have a material adverse impact on our
financial position or results of operations in future periods. However, our
inability to resolve all potential Y2K problems in a timely manner could have a
material adverse impact on us.

We have also initiated communications with significant suppliers and
vendors on which we rely in an effort to determine the extent to which our
business is vulnerable to the failure by these third parties to remediate their
Y2K problems. While we have not been informed of any material risks associated
with a Y2K problem for these entities, we cannot assure you that the
computerized information systems of these third parties will be Y2K compliant on
a timely basis. The inability of these third parties to remediate their Y2K
problems could have a material adverse impact on us.

We have completed a review of our information systems and are involved in a
comprehensive program to upgrade computer systems and applications in connection
with our effort to fully integrate our recent restaurant acquisitions. In
conjunction with this computer upgrade process, we believe we will have
addressed any potential Y2K issues. Total expenditures related to the upgrade of
the information systems are expected to range from $18.0 million to $20.0
million and will be capitalized or expensed in accordance with generally
accepted accounting principles. Through January 31, 1999, we have incurred
approximately $13.5 million of expenditures consisting of hardware and software
purchases, internal staff costs and outside consulting and other expenditures
related to this upgrade process. These costs are being funded through operating
cash flows.

We have developed or are in the process of developing contingency plans to
handle our most reasonably likely worst case Y2K scenarios, which we have not
yet identified fully. We intend to complete our determination of worst case
scenarios after we have received and analyzed responses to substantially all of
the inquiries we have made of third-parties. Following this analysis, which we
expect to have completed by July 1999, we intend to develop a timetable for
completing our contingency plans.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our principal exposure to financial market risks is the impact that
interest rate changes could have on our $500.0 million senior credit facility,
of which $349.1 million remained outstanding as of January 31, 1999. Borrowings
under our senior credit facility bear interest at the prime rate or at LIBOR
plus an applicable margin based on certain financial ratios (averaging 6.82% in
fiscal 1999). A hypothetical increase of 100 basis points in short-term interest
rates would result in a reduction of approximately $1.6 million in annual
pre-tax earnings. The estimated reduction is based upon the outstanding balance
of our senior credit facility, and, except for the repayment of $190.0 million
in March 1999 with the proceeds of our fixed-rate senior subordinated notes,
assumes no change in the volume, index or composition of debt at January 31,
1999. Substantially all of our business is transacted in U.S. dollars.
Accordingly, foreign exchange rate fluctuations have never had a significant
impact on us and are not expected to in the foreseeable future.

Commodity Price Risk

We purchase certain products which are affected by commodity prices and
are, therefore, subject to price volatility caused by weather, market conditions
and other factors which are not considered predictable or within our control.
Although many of the products purchased are subject to changes in commodity
prices, certain purchasing contracts or pricing arrangements contain risk
management techniques designed to

27
<PAGE> 30

minimize price volatility. Typically we use these types of purchasing techniques
to control costs as an alternative to directly managing financial instruments to
hedge commodity prices. In many cases, we believe we will be able to address
commodity cost increases which are significant and appear to be long-term in
nature by adjusting our menu pricing or changing our product delivery strategy.
However, increases in commodity prices could result in lower restaurant-level
operating margins for our restaurant concepts.

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 1999 Annual Meeting of Stockholders,
to be filed with the Commission within 120 days of January 25, 1999. 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 1999 Annual Meeting of Stockholders, to be filed with the Commission
within 120 days of January 25, 1999.

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 1999 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 25,
1999.

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 1999 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 25,
1999.

28
<PAGE> 31

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 23, 1999

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ WILLIAM P. FOLEY II Chairman of the Board and Chief April 23, 1999
- ----------------------------------------------------- Executive Officer
William P. Foley II (Principal Executive Office)

/s/ CARL A. STRUNK Executive Vice President, Chief April 23, 1999
- ----------------------------------------------------- Financial Officer (Principal
Carl A. Strunk Financial and Accounting
Officer)

/s/ BYRON ALLUMBAUGH Director April 23, 1999
- -----------------------------------------------------
Byron Allumbaugh

/s/ PETER CHURM Director April 23, 1999
- -----------------------------------------------------
Peter Churm

/s/ CARL L. KARCHER Director April 23, 1999
- -----------------------------------------------------
Carl L. Karcher

/s/ CARL N. KARCHER Director April 23, 1999
- -----------------------------------------------------
Carl N. Karcher

/s/ DANIEL D. LANE Vice Chairman of the Board April 23, 1999
- -----------------------------------------------------
Daniel D. Lane

/s/ W. HOWARD LESTER Director April 23, 1999
- -----------------------------------------------------
W. Howard Lester

/s/ FRANK P. WILLEY Director April 23, 1999
- -----------------------------------------------------
Frank P. Willey
</TABLE>

29
<PAGE> 32

PART IV

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

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(a)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets -- as of January 31, 1999 and
1998........................................................ F-2
Consolidated Statements of Income -- for the years ended
January 31, 1999, 1998
and 1997.................................................... F-3
Consolidated Statements of Stockholders' Equity -- for the
years ended January 31,
1999, 1998 and 1997......................................... F-4
Consolidated Statements of Cash Flows -- for the years ended
January 31, 1999, 1998
and 1997.................................................... F-5
Notes to Consolidated Financial Statements.................. F-6

(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts............ S-1
All other 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.
</TABLE>

30
<PAGE> 33

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 consolidated
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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 31, 1999 in conformity with generally accepted
accounting principles.

KPMG LLP

Orange County, California
March 18, 1999

F-1
<PAGE> 34

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JANUARY 31,
----------------------
1999 1998
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 40,297 $ 30,158
Accounts receivable, net.................................. 46,820 27,317
Related party receivables................................. 1,474 1,171
Inventories............................................... 22,507 17,024
Prepaid expenses.......................................... 12,349 13,045
Other current assets...................................... 10,845 3,217
---------- --------
Total current assets.............................. 134,292 91,932
Property and equipment, net................................. 940,178 627,026
Property under capital leases, net.......................... 81,895 47,528
Long-term investments....................................... 34,119 48,089
Notes receivable............................................ 7,898 11,162
Related party receivables................................... 7,020 7,626
Costs in excess of net assets acquired, net................. 252,035 95,744
Other assets................................................ 39,477 28,037
---------- --------
$1,496,914 $957,144
========== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt......................... $ 4,273 $ 15,812
Current portion of capital lease obligations.............. 7,838 5,499
Accounts payable.......................................... 88,462 57,991
Other current liabilities................................. 101,074 88,297
---------- --------
Total current liabilities......................... 201,647 167,599
---------- --------
Long-term debt.............................................. 360,684 138,793
Convertible subordinated debt............................... 162,225 --
Capital lease obligations................................... 90,373 56,801
Deferred income taxes, net.................................. 15,029 5,675
Other long-term liabilities................................. 80,114 89,764

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 51,850,249 shares and
51,175,496 shares...................................... 519 512
Additional paid-in capital................................ 380,423 366,063
Retained earnings......................................... 205,900 131,937
---------- --------
Total stockholders' equity........................ 586,842 498,512
---------- --------
$1,496,914 $957,144
========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE> 35

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Company-operated restaurants.......................... $1,732,221 $1,022,453 $536,808
Franchised and licensed restaurants and other......... 159,823 127,206 76,572
---------- ---------- --------
Total revenues................................ 1,892,044 1,149,659 613,380
---------- ---------- --------
Operating costs and expenses:
Restaurant operations:
Food and packaging................................. 519,443 314,412 164,120
Payroll and other employee benefits................ 535,638 311,612 149,846
Occupancy and other operating expenses............. 337,668 206,436 110,828
---------- ---------- --------
1,392,749 832,460 424,794
Franchised and licensed restaurants and other......... 107,019 93,773 72,696
Advertising expenses.................................. 105,397 58,383 31,795
General and administrative expenses................... 118,659 78,852 39,956
---------- ---------- --------
Total operating costs and expenses............ 1,723,824 1,063,468 569,241
---------- ---------- --------
Operating income........................................ 168,220 86,191 44,139
Interest expense........................................ (43,453) (16,914) (9,877)
Other income (expense), net............................. (670) 7,363 2,448
---------- ---------- --------
Income before income taxes and extraordinary item....... 124,097 76,640 36,710
Income tax expense...................................... 49,645 29,883 14,408
---------- ---------- --------
Income before extraordinary item........................ 74,452 46,757 22,302
Extraordinary item -- gain on early retirement of debt,
net of applicable income taxes of $2,084.............. 3,260 -- --
---------- ---------- --------
Net income.............................................. $ 77,712 $ 46,757 $ 22,302
========== ========== ========
Basic income per share before extraordinary item........ $ 1.44 $ 1.00 $ 0.63
Extraordinary item -- gain on early retirement of debt,
net of applicable income taxes -- basic............... 0.07 -- --
---------- ---------- --------
Net income per share -- basic........................... $ 1.51 $ 1.00 $ 0.63
========== ========== ========
Weighted average shares outstanding -- basic............ 51,599 46,634 35,639
========== ========== ========
Diluted income per share before extraordinary item...... $ 1.39 $ 0.97 $ 0.61
Extraordinary item -- gain on early retirement of debt,
net of applicable income taxes -- diluted............. 0.06 -- --
---------- ---------- --------
Net income per share -- diluted......................... $ 1.45 $ 0.97 $ 0.61
========== ========== ========
Weighted average shares outstanding -- diluted.......... 56,714 48,121 36,603
========== ========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 36

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
NUMBER OF TREASURY STOCK
------------------ ------------------- ADDITIONAL TOTAL
NUMBER NUMBER PAID-IN RETAINED STOCKHOLDERS'
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ --------- ------- ---------- -------- -------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1996..... 34,848 $348 1,217 $(5,109) $ 38,557 $ 67,393 $101,189
Cash dividends ($.04 per
share)..................... -- -- -- -- -- (1,514) (1,514)
Exercise of stock options..... 436 5 -- -- 2,225 -- 2,230
Purchase of Summit............ 910 9 -- -- 11,402 -- 11,411
Common stock offering, net.... 5,218 52 -- -- 77,563 -- 77,615
Retirement of treasury
stock...................... (1,217) (12) (1,217) 5,109 (5,097) -- --
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..... 40,195 402 -- -- 126,209 88,193 214,804
Cash dividends ($.07 per
share)..................... -- -- -- -- -- (3,013) (3,013)
Exercise of stock options..... 594 6 -- -- 3,786 -- 3,792
Purchase of Hardee's Green
Bay, Inc................... 298 3 -- -- 9,402 -- 9,405
Common stock offering, net.... 10,088 101 -- -- 222,243 -- 222,344
Tax benefit associated with
exercise of stock
options.................... -- -- -- -- 4,423 -- 4,423
Net income.................... -- -- -- -- -- 46,757 46,757
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1998..... 51,175 512 -- -- 366,063 131,937 498,512
Cash dividends ($.07 per
share)..................... -- -- -- -- -- (3,749) (3,749)
Exercise of stock options..... 624 6 -- -- 6,068 -- 6,074
Repurchase of Hardee's
franchised restaurants..... 51 1 -- -- 1,662 -- 1,663
Tax benefit associated with
exercise of stock
options.................... -- -- -- -- 6,630 -- 6,630
Net income.................... -- -- -- -- -- 77,712 77,712
------ ---- ------ ------- -------- -------- --------
BALANCE AT JANUARY 31, 1999..... 51,850 $519 -- $ -- $380,423 $205,900 $586,842
====== ==== ====== ======= ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 37

CKE RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income............................................ $ 77,712 $ 46,757 $ 22,302
Adjustments to reconcile net income to net cash
provided by operating activities, excluding the
effect of acquisitions and dispositions:
Extraordinary gain on early retirement of debt..... (5,344) -- --
Depreciation and amortization...................... 77,119 46,402 27,002
Provision for losses on accounts and notes
receivable....................................... (5,497) 5,636 1,274
Loss on sale of property and equipment and capital
leases........................................... 1,941 4,657 1,520
Net non-cash investment and dividend income........ (1,259) (3,029) (1,257)
Deferred income taxes.............................. 9,038 12,889 7,637
(Gain) loss on non-current asset and liability
transactions..................................... 6,182 (5,632) 151
Write-down of long-lived assets.................... -- -- 1,250
Net change in receivables, inventories, prepaid
expenses and other current assets................ (22,009) (16,589) (7,152)
Net change in accounts payable and other current
liabilities...................................... 34,787 (18,955) 4,261
--------- --------- ---------
Net cash provided by operating activities........ 172,670 72,136 56,988
--------- --------- ---------
Cash flows from investing activities:
Purchases of:
Marketable securities.............................. -- (393) (760)
Property and equipment............................. (124,288) (89,210) (49,223)
Long-term investments.............................. (27) (14,294) (7,905)
Proceeds from sale of:
Marketable securities and long-term investments.... 12,500 393 5,418
Property and equipment............................. 10,723 5,952 7,816
Increases in notes receivable and related party
receivables........................................ (2,930) (200) (14,020)
Collections on and sale of notes receivable, related
party receivables and leases receivable............ 8,457 5,946 3,842
Net change in other assets............................ 1,295 (1,674) (6,109)
Acquisitions, net of cash acquired.................... (406,376) (351,294) (52,123)
Dispositions, net of cash surrendered................. 940 16,286 --
--------- --------- ---------
Net cash used in investing activities............ (499,706) (428,488) (113,064)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from common stock offering............... -- 222,344 77,615
Net change in bank overdraft.......................... (13,809) 3,316 12,690
Short-term borrowings................................. -- 20,000 1,200
Repayments of short-term debt......................... (433) (12,500) (1,200)
Long-term borrowings.................................. 530,095 131,489 78,000
Repayments of long-term debt.......................... (151,650) (20,570) (86,274)
Repayments of capital lease obligations............... (8,698) (4,956) (3,363)
Deferred financing costs.............................. (10,384) (4,426) (657)
Net change in other long-term liabilities............. (16,901) 281 (1,943)
Payment of dividends.................................. (3,749) (3,013) (1,514)
Exercise of stock options............................. 6,074 3,792 2,230
Tax benefit associated with the exercise of stock
options............................................ 6,630 4,423 1,559
--------- --------- ---------
Net cash provided by financing activities........ 337,175 340,180 78,343
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 10,139 (16,172) 22,267
Cash and cash equivalents at beginning of year........ 30,158 46,330 24,063
--------- --------- ---------
Cash and cash equivalents at end of year.............. $ 40,297 $ 30,158 $ 46,330
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.
F-5
<PAGE> 38

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., Hardee's and Taco Bueno quick-service restaurant
concepts. As of January 31, 1999, the Carl's Jr. system included 861
restaurants, of which 539 were operated by the Company and 322 were operated by
the Company's franchisees and licensees. Carl's Jr. restaurants are located in
the Western United States, predominantly in California with 63 company-operated
Carl's Jr./Hardee's dual-brand restaurants operating in Texas, Kansas and
Oklahoma and nine franchised Carl's Jr./Hardee's dual-brand restaurants
operating in Oklahoma and Colorado. Operating results for these Carl's
Jr./Hardee's dual-brand restaurants for fiscal 1999 and 1998 are included in the
Hardee's financial information. Beginning in fiscal 2000, the operating results
of these restaurants will be included in the Carl's Jr. financial information.
As of January 31, 1999, the Company's Hardee's system included 2,804
restaurants, of which 1,403 were operated by the Company and 1,401 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 31, 1999, the Company also operated a total of 136
other restaurants, including 111 Taco Bueno quick-service Mexican restaurants in
Texas and Oklahoma.

Basis of Presentation and Fiscal Year

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 1999, 1998 and 1997 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.

The equity method of accounting is used for investments in which the
Company has the ability to exercise significant influence. Under the equity
method, the Company recognizes its share of the net earnings or losses of these
entities and adjusts the carrying value of its investment by the amount of net
earnings or losses recognized and by the amount of contributions made or
distributions received. The Company's share of net earnings or losses is
calculated based on the Company's expected share of the investment's estimated
profit or loss.

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.

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.

F-6
<PAGE> 39
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Deferred Pre-opening Costs

The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") in fiscal 1999. SOP 98-5 requires that costs
incurred during a start-up activity (including organization costs) be expensed
as incurred. The impact of the adoption of SOP 98-5 on the Company's
consolidated financial position and results of operations was not material.

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. The Company's results of operations include the revenue and
expenses of these Rally's restaurants from July 2, 1996. As of January 31, 1999,
the Company operated 25 Rally's restaurants under this operating agreement.

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

The Company assesses 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 this principle in the first quarter of
fiscal 1997 and recorded a $1.3 million non-cash pretax charge 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 for impairment. Accumulated amortization of costs
in excess of net assets acquired was $9.8 million and $4.7 million at January
31, 1999 and 1998, respectively.

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.
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

F-7
<PAGE> 40
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 December 17, 1998, the Company declared a 10% stock dividend to
stockholders of record on December 28, 1998, distributed on January 11, 1999. 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 dividends and stock split.

Earnings per Share

The Company presents "basic" earnings per share which represents net
earnings divided by the weighted average shares outstanding excluding all common
stock equivalents and "diluted" earnings per share reflecting the dilutive
effect of all common stock equivalents.

Comprehensive Income

The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in fiscal 1999. SFAS 130 requires
that other comprehensive income items be displayed in financial statements and
that the accumulated balance of other comprehensive income be displayed
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company did not have any other
comprehensive income items that were required to be disclosed under SFAS 130.

Segment Information

The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in fiscal 1999. SFAS 131 establishes standards for the reporting of
information about operating segments in annual and interim financial statements
and requires restatement of prior year information. Operating segments are
defined as components of an enterprise for which separate financial information
is available that is evaluated regularly by the chief operating decision
maker(s) in deciding how to allocate resources and in assessing performance.
SFAS 131 also requires disclosures about products and services, geographic areas
and major customers. The adoption of SFAS 131 did not affect the Company's
consolidated financial position or results of operations but did change the
disclosure of segment information, as presented in Note 18.

F-8
<PAGE> 41
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reclassifications

Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform with the fiscal 1999 presentation.

NOTE 2 -- ACQUISITIONS

On April 1, 1998, the Company acquired Flagstar Enterprises, Inc. ("FEI"),
the largest franchisee in the Hardee's system, previously operating 557 Hardee's
restaurants located primarily in the Southeastern United States. In connection
with the acquisition, which was accounted for as a purchase, the Company
acquired all of the issued and outstanding shares of common stock of FEI from
Advantica Restaurant Group, Inc. ("Advantica") for cash consideration of $380.6
million (which includes miscellaneous expenses paid to Advantica) and the
assumption of approximately $45.6 million in capital lease obligations. The
Company used the majority of the net proceeds from the issuance of $197.2
million of convertible subordinated notes together with borrowings of $213.2
million under its senior credit facility to finance the acquisition (see Note
9).

On July 15, 1997, the Company acquired Hardee's, the operator and
franchisor of the Hardee's 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 10,088,375 shares of the
Company's common stock to the public 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 October 1, 1996, the Company acquired Taco Bueno Restaurants, Inc.
("Taco Bueno") which operated 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. The acquisition, which was
accounted for as a purchase, was completed by CBI Restaurants, Inc. ("CBI"), a
newly-formed corporation of the Company. CBI paid $42.0 million for Taco Bueno,
which was financed by short-term loans and borrowings under the Company's then
existing revolving credit facility.

On July 15, 1996, the Company acquired Summit Family Restaurants, Inc.
("Summit") which operated 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. In
connection with the acquisition, which was accounted for as a purchase, each of
the 4,809,446 outstanding shares of Summit common stock was converted into the
right to receive 0.1893045 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 910,019. 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.

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 Family Restaurants, Inc. ("JB's"). The Company then contributed its
remaining interest in Summit, whose principal remaining asset was a subsidiary
which operated 16 HomeTown Buffet restaurants, and its two Casa Bonita
restaurants to Star Buffet, Inc. ("Star Buffet"). The Company subsequently
participated in the initial public offering of Star Buffet (see Note 6). In
September 1998, the Company completed two additional transactions which resulted
in the disposition of JB's (see Note 6).

F-9
<PAGE> 42
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 FEI, Hardee's, Summit and Taco
Bueno are as follows:

<TABLE>
<CAPTION>
FEI HARDEE'S SUMMIT TACO BUENO
-------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tangible assets acquired at fair
value............................... $317,056 $ 417,665 $ 59,772 $40,672
Costs in excess of net assets
acquired............................ 152,989 61,471 -- 9,860
Liabilities assumed at fair value..... (89,408) (152,136) (30,716) (8,532)
-------- --------- -------- -------
Total purchase price........ $380,637 $ 327,000 $ 29,056 $42,000
======== ========= ======== =======
</TABLE>

Selected unaudited pro forma combined results of operations for the years
ended January 31, 1999 and 1998, assuming the FEI and Hardee's acquisitions
occurred on February 1, 1997, using actual restaurant-level margins and general
and administrative expenses prior to the acquisition of each entity, are
presented as follows:

<TABLE>
<CAPTION>
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Total revenues........................................ $2,013,241 $2,066,267
Income before extraordinary item...................... $ 74,897 $ 37,048
Net income............................................ $ 78,157 $ 37,048
Net income per share -- basic......................... $ 1.51 $ 0.73
Net income per share -- diluted....................... $ 1.45 $ 0.71
</TABLE>

NOTE 3 -- ACCOUNTS RECEIVABLE, NET

Details of accounts receivables, net are as follows:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Trade receivables, net................................ $ 38,971 $ 22,542
Income tax receivable................................. 5,024 964
Notes receivable, current............................. 2,555 3,572
Other................................................. 270 239
---------- ----------
$ 46,820 $ 27,317
========== ==========
</TABLE>

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999 1998
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 267,287 $ 180,961
Leasehold improvements................... 4-25 years 186,369 129,910
Buildings and improvements............... 7-40 years 400,366 230,637
Equipment, furniture and fixtures........ 3-10 years 343,827 255,714
---------- ----------
1,197,849 797,222
Less: Accumulated depreciation and amortization....... 257,671 170,196
---------- ----------
$ 940,178 $ 627,026
========== ==========
</TABLE>

F-10
<PAGE> 43
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 consists of the following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Buildings.............................................. $124,215 $ 84,718
Less: Accumulated amortization......................... 42,320 37,190
-------- --------
$ 81,895 $ 47,528
======== ========
</TABLE>

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, 1999 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fiscal Year:
2000................................................. $ 18,730 $ 70,566
2001................................................. 17,493 65,984
2002................................................. 16,581 61,622
2003................................................. 16,352 55,770
2004................................................. 14,606 48,887
Thereafter........................................... 98,975 248,880
-------- --------
Total minimum lease payments................. 182,737 $551,709
========
Less: Amount representing interest..................... 84,526
--------
Present value of minimum lease payments................ 98,211
Less: Current portion.................................. 7,838
--------
Capital lease obligations, excluding current portion... $ 90,373
========
</TABLE>

Total minimum lease payments have not been reduced by minimum sublease
rentals of $70.3 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:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net minimum lease payments receivable.................. $ 4,323 $ 4,891
Less: Unearned income.................................. 1,690 2,028
-------- --------
Net investment......................................... $ 2,633 $ 2,863
======== ========
</TABLE>

F-11
<PAGE> 44
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Minimum future rentals to be received as of January 31, 1999 are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES OR LESSOR
SUBLEASES LEASES
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fiscal Year:
2000................................................... $ 567 $ 2,124
2001................................................... 560 2,191
2002................................................... 565 2,186
2003................................................... 540 1,896
2004................................................... 496 976
Thereafter............................................. 1,595 6,064
------- -------
Total minimum future rentals................. $ 4,323 $15,437
======= =======
</TABLE>

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

Aggregate rents under noncancelable operating leases during fiscal 1999,
1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals............................... $69,431 $49,984 $33,597
Contingent rentals............................ 6,393 4,002 1,937
Less: Sublease rentals........................ 8,621 6,025 5,644
------- ------- -------
$67,203 $47,961 $29,890
======= ======= =======
</TABLE>

NOTE 6 -- LONG-TERM INVESTMENTS

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

Santa Barbara Restaurant Group, Inc. ("SBRG")

SBRG (formerly GB Foods Corporation) owns, operates and franchises The
Green Burrito quick-service Mexican food restaurants. Through the Company's
dual-branding relationship with The Green Burrito, the Company is SBRG's largest
franchisee. SBRG recently acquired three other restaurant concepts, including
the JB's Restaurants and Galaxy Diner concepts acquired from the Company.

On September 1, 1998, the Company sold 14 company-operated JB's Restaurants
and two Galaxy Diner restaurants to Timber Lodge Steakhouse, Inc. ("Timber
Lodge") for 687,890 shares of Timber Lodge common stock, which was converted
into SBRG common stock in connection with the merger of Timber Lodge and SBRG.
The Company also sold its wholly owned subsidiary, JB's, which consisted of the
remaining 48 company-operated JB's Restaurants and the JB's franchise system
together with four Galaxy Diner restaurants, to SBRG for one million shares of
SBRG common stock. As of January 31, 1999, the Company owned approximately 11%
of SBRG's outstanding shares and accounts for its investment in SBRG under the
equity method of accounting.

Star Buffet, Inc.

Star Buffet is an operator of approximately 35 buffet-style restaurants and
nine 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

F-12
<PAGE> 45
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. The
Company also received a cash dividend 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.

On November 2, 1998, the Company sold its remaining two million shares of
Star Buffet common stock to Star Buffet, for a cash sales price of $12.5
million. In connection with the sale, the Company recognized a non-recurring
gain of $10.3 million in the third quarter of fiscal 1999, which is included in
other income (expense), net (see Note 16).

Rally's Hamburgers, Inc.

Rally's operates and franchises 475 double drive-thru quick-service
hamburger restaurants in 18 states, primarily in the Midwest and the Sunbelt, of
which the Company operates 25 in California and Arizona.

On April 20, 1996, the Company purchased from Giant Group, Ltd. ("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, which were converted into an
aggregate of 2,861,900 additional shares of Rally's common stock subsequent to
the approval of Rally's stockholders at its 1998 annual meeting. Primarily as a
result of the above transactions, as of January 31, 1999, the Company's
investment in Rally's was $18.7 million, representing an approximate 32%
ownership interest of Rally's, which the Company accounts for under the equity
method of accounting. Assuming full exercise of all the warrants, the Company
would beneficially own approximately 35% of Rally's outstanding shares. Further,
as a result of this transaction, Rally's owns a 26% interest in Checkers.

Checkers Drive-In Restaurants, Inc.

Checkers operates and franchises 462 double drive-thru quick-service
hamburger restaurants in 23 states, the District of Columbia, Puerto Rico and
the Middle East.

F-13
<PAGE> 46
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In November 1996, the Company, together with a group of investors,
purchased $35.8 million of Checkers senior secured debt. The Company paid $12.9
million in cash for $13.2 million of the debt. In connection with the debt,
which was originally due July 31, 1999 and bears interest at 13%, 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. In March 1999, the investors extended the due date of the Checkers debt to
April 30, 2000 and modified certain financial covenants. As of January 31, 1999,
the Company's note receivable from Checkers, net of the related discount, was
$7.0 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
9% of Checkers' outstanding shares.

On January 29, 1999, Rally's and Checkers announced the merger of the two
companies on a stock-for-stock basis. If the merger is completed, the Company
will own approximately 17% and will have the right to acquire an additional 7%
of the combined company.

Boston Market

The Company, through its wholly owned subsidiary, Boston Pacific, Inc.
("BPI"), owns an 11% interest in Boston West, LLC ("Boston West"), which
operates Boston Market stores in designated markets in Southern California as a
franchised area developer of Boston Chicken, Inc. ("BCI"), the franchisor of the
Boston Market restaurant concept. BCI and its Boston Market 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 to restructure its
overall operations. Since then, Boston West has closed or sold 42 Boston Market
stores. The Company recorded a $15.0 million charge to its Boston West
investment during the third quarter of fiscal 1999 to reflect its remaining
value. The charge is reflected in other income (expense), net (see Note 16). As
of January 31, 1999, the Company's total investment in Boston West was $9.2
million.

During the third quarter of fiscal 1999, the Company signed an agreement
with Boston West to provide administrative and management services to the Boston
Market franchises operated by Boston West. As of March 18, 1999, Boston West
operated 56 Boston Market stores.

F-14
<PAGE> 47
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred lease costs................................... $ 14,275 $ 12,931
Deferred financing costs............................... 11,632 4,093
Other intangibles...................................... 3,366 1,542
Leases receivable...................................... 2,365 2,623
Other assets........................................... 7,839 6,848
-------- --------
$ 39,477 $ 28,037
======== ========
</TABLE>

NOTE 8 -- OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other benefits..................... $ 38,503 $ 34,535
State sales taxes...................................... 14,236 11,350
Property taxes......................................... 5,288 5,561
Self-insured workers' compensation reserve............. 5,230 5,436
Other self-insurance reserves.......................... 5,044 2,750
Accrued interest....................................... 4,217 763
Other accrued liabilities.............................. 28,556 27,902
-------- --------
$101,074 $ 88,297
======== ========
</TABLE>

NOTE 9 -- LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior Credit Facility, interest based on LIBOR plus
applicable margin, averaging 6.82% in fiscal 1999.... $349,113 $138,500
Convertible subordinated notes due 2004, interest at
4.25%................................................ 162,225 --
Secured note payable, principal payments in specified
amounts monthly through 2001, interest at 8.17%...... 4,568 4,851
Industrial Revenue Bonds, payable in 1999, variable
interest rate averaging 3.38% in fiscal 1999......... 3,600 3,600
Other.................................................. 7,676 7,654
-------- --------
527,182 154,605
Less: Current portion.................................. 4,273 15,812
-------- --------
$522,909 $138,793
======== ========
</TABLE>

On July 15, 1997, the Company entered into a new $300.0 million credit
facility (the "Senior Credit Facility") with a group of financial institutions.
The Senior Credit Facility initially consisted of a $75.0 million term loan
facility ("Term Loan Facility") and a $225.0 million revolving credit facility
("Revolving Credit Facility"), which included a $55.0 million letter of credit
sub-facility. 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

F-15
<PAGE> 48
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revolving Credit Facility to fund a portion of the consideration needed to
acquire Hardee's (see Note 2). The Senior Credit Facility was amended on April
1, 1998 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 included a $65.0 million letter of credit
sub-facility, and to extend the final maturity date until April 2003. The
Company incurred borrowings of $213.2 million thereunder to finance a portion of
the purchase price of FEI (see Note 2).

On March 4, 1999, the Company further amended its Senior Credit Facility.
The $250.0 million Term Loan Facility was eliminated and the Senior Credit
Facility, as amended, consists of a $500.0 million Revolving Credit Facility,
which includes a $75.0 million letter of credit sub-facility. The Senior Credit
Facility will be reduced beginning in March 2001 by at least $50.0 million each
year, for the next three years. Additional borrowings under the Senior Credit
Facility may be used for working capital and other general corporate purposes,
including permitted investments and acquisitions, and any amounts outstanding
thereunder will become due in February 2004. As of January 31, 1999, the Company
had borrowings of $349.1 million under the Revolving Credit Facility. Including
the effect of the amended Senior Credit Facility and the net proceeds received
from the issuance of senior subordinated notes, described below, the Company had
$291.3 million of borrowings available under its Senior Credit Facility as of
January 31, 1999.

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, contract rights,
general intangibles (including trademarks) and other assets of the Company and
such subsidiaries. The Company is 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.

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
"Convertible 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 Senior Credit Facility. The Convertible Notes, which
represent unsecured general obligations subordinate in right of payment to
certain other obligations, including the Senior Credit Facility and the senior
subordinated notes described below, are due in 2004, are convertible into the
Company's common stock at a conversion price of $43.82 (adjusted for the 10%
stock dividend paid on January 11, 1999) and carry a 4.25% coupon. The remaining
net proceeds from the Convertible Notes, together with borrowings under the
Senior Credit Facility, were used to fund the acquisition of FEI on April 1,
1998 (see Note 2). As of January 31, 1999, the Company had repurchased $35.0
million aggregate principal amount of Convertible Notes for $28.8 million in
cash, including accrued interest thereon. The Company recognized an
extraordinary gain in fiscal 1999 on the early retirement of debt of $3.3
million, net of applicable taxes of $2.1 million. Subsequent to fiscal 1999, the

F-16
<PAGE> 49
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company repurchased an additional $3.0 million aggregate principal amount of
Convertible Notes for $2.5 million in cash, including accrued interest thereon.

On March 4, 1999, the Company completed a private placement of $200.0
million aggregate principal amount of senior subordinated notes ("Senior
Subordinated Notes"), in which the Company received net proceeds of
approximately $194.8 million, of which $190.0 million was used to repay
indebtedness under the Senior Credit Facility. The Senior Subordinated Notes are
due in May 2009, carry a 9.125% coupon rate and are redeemable by the Company
beginning on May 1, 2004. The indenture relating to the Senior Subordinated
Notes impose restrictions on the Company's ability (and the ability of its
subsidiaries) to incur additional indebtedness, pay dividends on, redeem or
repurchase its capital stock, make investments, incur liens on its assets, sell
assets other than in the ordinary course of business, and enter into certain
transactions with its affiliates. The Senior Subordinated Notes represent
unsecured general obligations subordinate in right of payment to the Company's
senior indebtedness including its Senior Credit Facility.

Secured notes payable are collateralized by certain restaurant property
deeds of trust, with a carrying value of $11.1 million as of January 31, 1999.

Long-term debt (excluding the $200.0 Senior Notes and the $190.0 million of
borrowings repaid under the Senior Credit Facility subsequent to January 31,
1999) matures in fiscal years ending after January 31, 1999 as follows:

<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C> <C>
Fiscal Year:
2000.................................................. $ 4,273
2001.................................................. 5,581
2002.................................................. 341
2003.................................................. 371
2004.................................................. 511,752
Thereafter............................................ 4,864
--------
$527,182
========
</TABLE>

NOTE 10 -- OTHER LONG-TERM LIABILITIES

Other long-term liabilities consist of the following:

<TABLE>
<CAPTION>
1999 1998
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Closure reserves........................................ $ 29,294 $32,448
Self-insured workers' compensation reserve.............. 21,068 18,049
Other self-insurance reserves........................... 10,302 9,707
Deferred lease costs.................................... 5,277 3,813
Deferred revenues....................................... 4,674 3,999
Other................................................... 9,499 21,748
-------- -------
$ 80,114 $89,764
======== =======
</TABLE>

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 $26.3 million and $23.5 million was accrued as of
January 31, 1999 and 1998, 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
$4.9 million and $4.0 million in fiscal 1999 and 1998, respectively.

F-17
<PAGE> 50
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 1999 and 1998,
$5.1 million and $5.5 million, respectively, were accrued for these costs,
including the current portion. These balances consist mainly 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, 1999 was $3.5 million and
will be amortized to operations over the remaining sublease terms, which range
up to 16 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 1,216,594 shares
of stock were repurchased to date, which includes the purchase of 113,437 shares
in fiscal 1995 from the Chairman Emeritus at the then market price of $5.03 per
share. The balance of these shares was purchased in a series of open market
transactions, at an average price of approximately $4.12 per share, for an
aggregate purchase price of approximately $4.5 million. On October 28, 1996, the
Board of Directors of the Company retired 1,216,594 shares of the Company's
common stock which were previously held as treasury stock.

During the fourth quarter of fiscal 1997, the Company issued 5,218,125
shares of its common stock at a public offering price of $15.77 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 10,088,375
shares of its common stock at a public offering price of $23.14 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).

NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents..... $ 40,297 $ 40,297 $ 30,158 $ 30,158
Notes receivable.............. 17,473 20,618 22,468 28,134
Financial liabilities:
Long-term debt, including
current portion............ $527,182 $518,048 $154,605 $154,948
</TABLE>

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.

F-18
<PAGE> 51
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 -- RELATED PARTY TRANSACTIONS

Certain members of management and the Karcher family are franchisees of the
Company. A total of 43 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 was
to be repaid through payroll deductions. The entire amount was repaid by the end
of fiscal 1999.

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 $1.1 million remained
accrued in other long-term liabilities as of January 31, 1999. 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 $3.0
million and $3.6 million, representing the present value of lease obligations
related to these various properties at January 31, 1999 and 1998, respectively.
Lease payments under these leases for fiscal 1999, 1998 and 1997 amounted to
$1.2, $1.3, and $1.3 million, respectively. This was net of sublease rentals of
$157,000 in fiscal 1999 and 1998. 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 percentage 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 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.

Revenues from franchised and licensed restaurants consist of the following:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Foodservice................................. $ 75,895 $ 63,890 $60,035
Royalties................................... 56,316 42,929 7,006
Equipment sales............................. 14,038 9,989 --
Rental income............................... 11,644 9,854 9,226
Initial fees................................ 1,930 544 305
-------- -------- -------
$159,823 $127,206 $76,572
======== ======== =======
</TABLE>

F-19
<PAGE> 52
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Foodservice................................. $ 74,230 $ 62,801 $59,606
Occupancy and other operating expenses...... 22,113 23,588 13,090
Equipment purchases......................... 10,676 7,384 --
-------- -------- -------
$107,019 $ 93,773 $72,696
======== ======== =======
</TABLE>

NOTE 15 -- INTEREST EXPENSE

Interest expense consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and Senior Credit Facility.... $(23,013) $ (9,689) $(3,059)
Capital lease obligations................... (12,030) (6,578) (6,083)
Convertible subordinated notes.............. (7,725) -- --
Other....................................... (685) (647) (735)
-------- -------- -------
$(43,453) $(16,914) $(9,877)
======== ======== =======
</TABLE>

NOTE 16 -- OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................. $ 4,916 $ 4,955 $ 2,393
Lease income................................ 1,101 1,819 1,153
Net gain (loss) on sale of restaurants...... (71) (141) 491
Property management......................... (792) (1,167) (1,286)
Income (loss) from long-term investments.... (6,246) (366) 140
Dividend income............................. -- 1,800 853
Other....................................... 422 463 (1,296)
-------- -------- -------
$ (670) $ 7,363 $ 2,448
======== ======== =======
</TABLE>

NOTE 17 -- INCOME TAXES

Income tax expense consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $ 34,433 $ 19,031 $ 5,963
State..................................... 6,289 5,160 2,065
-------- -------- -------
40,722 24,191 8,028
-------- -------- -------
Deferred:
Federal................................... 8,607 3,468 5,529
State..................................... 2,400 2,224 851
-------- -------- -------
11,007 5,692 6,380
-------- -------- -------
$ 51,729 $ 29,883 $14,408
======== ======== =======
</TABLE>

F-20
<PAGE> 53
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total income tax expense for the years ended January 31, 1999, 1998 and
1997 was allocated as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Income from continuing operations............ $49,645 $ 29,883 $14,408
Extraordinary gain........................... 2,084 -- --
------- -------- -------
$51,729 $ 29,883 $14,408
======= ======== =======
</TABLE>

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

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at statutory rate............... $45,305 $ 26,824 $12,849
State income taxes, net of federal income tax
benefit.................................... 5,637 4,153 2,822
Targeted jobs tax credits.................... (1,048) (1,508) (1,528)
Increase (decrease) in valuation allowance... 664 (515) (76)
Other, net................................... 1,171 929 341
------- -------- -------
$51,729 $ 29,883 $14,408
======= ======== =======
</TABLE>

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

<TABLE>
<CAPTION>
1999 1998
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Workers' compensation reserve......................... $ 10,353 $ 6,768
Capitalized leases.................................... 8,424 10,923
Insurance reserves.................................... 5,126 2,644
State taxes........................................... 3,888 2,992
Closure reserves...................................... 1,982 3,968
Accrued payroll....................................... 1,478 1,430
Other................................................. 2,543 3,339
-------- -------
33,794 32,064
Less: Valuation allowance............................... 2,020 1,356
-------- -------
Total deferred tax assets............................... 31,774 30,708
======== =======
Deferred tax liabilities:
Depreciation.......................................... 35,293 20,798
Long-term investments................................. 5,392 12,747
Intangibles........................................... 4,802 1,375
Other................................................. 1,316 1,463
-------- -------
Total deferred tax liabilities.......................... 46,803 36,383
-------- -------
Net deferred tax liabilities............................ $(15,029) $(5,675)
======== =======
</TABLE>

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, 1999, based on the Company's
current, historical and future pre-tax earnings.

F-21
<PAGE> 54
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- SEGMENT INFORMATION

The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131") in its fiscal year ending January 31, 1999.

The Company is engaged principally in developing, operating and franchising
its Carl's Jr., Hardee's and Taco Bueno quick-service restaurants, each of which
are considered strategic businesses that are managed and evaluated separately.
As such, the Company considers its Carl's Jr., Hardee's and Taco Bueno chains to
each be a reportable segment. Management evaluates the performance of its
segments and allocates resources to them based on several factors, of which the
primary financial measure is segment profit before taxes. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies in Note 1.

Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "other" column includes corporate
related items, results of insignificant operations and, as it relates to segment
profit or loss, income and expense not allocated to reportable segments. The
amounts reported for Hardee's reflect only the periods subsequent to the
acquisition date of April 1, 1998 for FEI and July 15, 1997 for Hardee's. The
amounts reported for Taco Bueno reflect only the periods subsequent to the
acquisition date of October 1, 1996.

<TABLE>
<CAPTION>
CARL'S JR. HARDEE'S TACO BUENO OTHER TOTAL
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
1999
Revenues...................... $629,837 $1,127,130 $81,200 $ 53,877 $1,892,044
Segment profit (loss)......... 71,157 61,838 7,768 (16,666) 124,097
Total assets.................. 280,201 1,072,594 62,539 81,580 1,496,914
Capital expenditures.......... 46,527 56,424 7,077 14,260 124,288
Depreciation and
amortization............... 22,869 43,835 3,031 7,384 77,119
1998
Revenues...................... $569,225 $ 385,237 $73,993 $121,204 $1,149,659
Segment profit (loss)......... 54,904 17,486 4,615 (365) 76,640
Total assets.................. 241,644 527,312 52,034 136,154 957,144
Capital expenditures.......... 55,902 17,035 4,822 11,451 89,210
Depreciation and
amortization............... 21,749 12,566 3,028 9,059 46,402
1997
Revenues...................... $519,089 $ -- $22,152 $ 72,139 $ 613,380
Segment profit (loss)......... 40,561 -- 1,102 (4,953) 36,710
Total assets.................. 191,752 -- 54,720 163,895 410,367
Capital expenditures.......... 44,919 -- 846 3,458 49,223
Depreciation and
amortization............... 20,062 -- 833 6,107 27,002
</TABLE>

NOTE 19 -- 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.

F-22
<PAGE> 55
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 and $1.3 million in
pension plan expense in fiscal 1998 and 1997, respectively, which was based upon
an independent actuarial valuation study.

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.

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 907,500 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
1999, 1998 and 1997, 128,477, 59,458 and 51,346 shares, respectively, were
purchased and allocated to employees, based upon their contributions, at an
average price of $28.43, $28.20 and $14.53 per share, respectively. The Company
contributed $586,203 or an equivalent of 22,496 shares for the year ended
January 31, 1999, $296,000 or an equivalent of 11,095 shares for the year ended
January 31, 1998 and $116,000 or an equivalent of 7,463 shares for the year
ended January 31, 1997.

Stock Incentive Plans

The Company's 1994 stock incentive plan was approved by stockholders in
June 1994. 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 6,352,500 shares are available for grants of options or other awards
under this plan, of which 5,075,836 stock options were outstanding as of January
31, 1999 with exercise prices ranging from $3.72 per share to $36.65 per share.

The Company's 1993 stock incentive plan was superseded by the 1994 plan, as
discussed above. As of January 31, 1999, 202,053 stock options, with exercise
prices ranging from $3.99 per share to $6.27 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 5,445,000
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
F-23
<PAGE> 56
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

date and became exercisable at a rate of 25%, 35% and 40% per year following the
grant date. The exercise prices of the 60,801 stock options outstanding as of
January 31, 1999 under this plan range from $3.31 per share to $4.27 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 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 14,912 stock options
outstanding at January 31, 1999 with exercise prices ranging from $12.03 to
$21.32 per share. No further shares may be granted under these plans.

Transactions under all plans are as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE EXERCISABLE
--------- -------------- -----------
<S> <C> <C> <C>
Balance, January 31, 1996............... 2,925,438 $ 5.85 1,130,949
Options assumed in Summit
acquisition........................ 93,328 15.62
Granted............................... 1,368,357 14.87
Canceled.............................. (26,398) 8.00
Exercised............................. (435,140) 5.12
---------
Balance, January 31, 1997............... 3,925,585 $ 9.29 1,495,005
Granted............................... 1,947,495 24.13
Canceled.............................. (246,810) 20.50
Exercised............................. (594,410) 6.32
---------
Balance, January 31, 1998............... 5,031,860 $14.83 2,062,031
Granted............................... 1,144,230 35.41
Canceled.............................. (197,986) 25.82
Exercised............................. (624,502) 9.41
---------
Balance, January 31, 1999............... 5,353,602 $19.46 3,061,910
=========
</TABLE>

The following table summarizes information related to stock options
outstanding and exercisable at January 31, 1999:

<TABLE>
<CAPTION>
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
- --------------- ----------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.31 to $ 4.96 644,601 $ 4.07 5.34 644,601 $ 4.07
5.10 6.27 78,145 6.02 4.59 78,145 6.02
8.13 12.03 998,173 8.58 6.52 905,963 8.43
13.24 19.28 1,030,655 16.41 7.55 634,795 16.32
21.32 30.99 1,562,528 24.41 8.29 659,988 24.71
33.64 36.65 1,039,500 36.03 9.09 138,418 36.48
--------- ---------
$ 3.31 $36.65 5,353,602 $19.46 7.56 3,061,910 $13.86
========= =========
</TABLE>

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

F-24
<PAGE> 57
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

model, with the following assumptions used for grants in fiscal 1999, 1998 and
1997: annual dividends consistent with the Company's current dividend policy,
which resulted in payments of $0.07 per share in fiscal 1999 and 1998 and $0.04
per share in fiscal 1997; expected volatility of 30% in fiscal 1999 and 25% in
fiscal 1998 and 1997; risk-free interest rates of 4.55% in fiscal 1999, 5.51% in
fiscal 1998, and 6.25% in fiscal 1997; and an expected life of 5.45 years in
fiscal 1999, 5.50 years in fiscal 1998 and 5.45 years for fiscal 1997. The
weighted average fair value of each option granted during fiscal 1999, 1998 and
1997 was $12.50, $8.30 and $6.18, respectively. Had compensation expense been
recognized for fiscal 1999, 1998 and 1997 grants for stock-based compensation
plans in accordance with provisions of SFAS 123, the Company would have recorded
net income and earnings per share of $61.6 million, or $1.19 per basic share and
$1.17 per diluted share in fiscal 1999; $39.9 million, or $0.85 per basic share
and $0.83 per diluted share in fiscal 1998; and $20.5 million, or $0.57 per
basic share and $0.56 per diluted share in fiscal 1997. 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 20 -- SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest and income taxes are as
follows:
Interest (net of amount capitalized)............. $ 37,501 $ 14,448 $ 9,549
Income taxes..................................... 39,400 18,938 2,778
Non-cash investing and financing activities are as
follows:
Sale of property and equipment................... $ -- $ -- $ 2,469
Increase in long-term investments................ -- -- (2,469)
Common stock issued in connection with Summit
acquisition................................... -- -- 11,411
Common stock issued in connection with Hardee's
franchisee acquisitions....................... 1,663 9,405 --
</TABLE>

F-25
<PAGE> 58
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 21 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized quarterly results:

<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 1999
Total revenues........................ $528,211 $474,841 $457,605 $431,387
Operating income...................... 45,634 49,138 40,894 32,554
Income before extraordinary item...... 22,732 22,604 16,146 12,970
Extraordinary item.................... -- -- 2,738 522
Net income............................ 22,732 22,604 18,884 13,492
Net income per share -- basic......... $ 0.44 $ 0.44 $ 0.36 $ 0.26
======== ======== ======== ========
Net income per share -- diluted....... $ 0.43 $ 0.42 $ 0.35 $ 0.25
======== ======== ======== ========

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......... $ 0.26 $ 0.24 $ 0.25 $ 0.25
======== ======== ======== ========
Net income per share -- diluted....... $ 0.25 $ 0.23 $ 0.25 $ 0.24
======== ======== ======== ========
</TABLE>

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
1999 and 1998, which have 16-week accounting periods.

NOTE 22 -- COMMITMENTS AND CONTINGENT LIABILITIES

In conjunction with the Senior Credit Facility which was amended in March
1999, a letter of credit sub-facility in the amount of $75.0 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 sub-facility 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:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
July 1999.................................................. $36,386
August 1999................................................ 7,704
November 1999.............................................. 345
February 2000.............................................. 1,676
April 2000................................................. 7,575
-------
$53,686
=======
</TABLE>

In fiscal 1996, the Company sold certain of its Carl's Jr. franchise notes
receivable, with recourse, to an independent third party. 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.
F-26
<PAGE> 59
CKE RESTAURANTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company is contingently liable for an aggregate of approximately $4.2
million under these guarantees as of January 31, 1999.

The Company's Senior Credit Facility is guaranteed on a secured basis by
the Company's direct and indirect subsidiaries (the "Subsidiary Guarantors"),
other than non-guarantor subsidiaries which conduct no material operations, have
no significant assets on a consolidated basis and account for only an
insignificant share of the Company's consolidated revenues. Each of the
Subsidiary Guarantors also fully and unconditionally guarantee the Company's
9.125% Senior Subordinated Notes due 2009 on a joint and several basis. Separate
financial statements and other disclosures concerning the Subsidiary Guarantors
are not presented because management has determined that such information is not
material to investors.

F-27
<PAGE> 60

CKE RESTAURANTS, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Balance at January 31, 1996................................. $ 1,071
Charges to operations..................................... 1,274
Deductions................................................ (1,547)
Adjustments............................................... --
Acquired through acquisitions............................. 582
--------
Balance at January 31, 1997................................. 1,380
Charges to operations..................................... 7,155
Deductions................................................ (3,989)
Adjustments............................................... (1,519)
Acquired through acquisitions............................. 29,884
--------
Balance at January 31, 1998................................. 32,911
Charges to operations..................................... 4,192
Deductions................................................ (11,389)
Adjustments............................................... (9,689)
Write-off from dispositions............................... (471)
--------
Balance at January 31, 1999................................. $ 15,554
========
</TABLE>

S-1
<PAGE> 61

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
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, filed as exhibit 3-2 to the Company's Form 10-K Annual
Report for the fiscal year ending January 26, 1998, and is
hereby incorporated by reference.
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 14, 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, filed as exhibit 4.1 to the
Company's Form 10-K Annual Report for fiscal year ended
January 26, 1998, and is hereby incorporated by reference.
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., filed as an
exhibit 4.3 to the Company's Form 10-K Annual Report for
fiscal year ended January 26, 1998, and is hereby
incorporated by reference.
4-4 Indenture, dated as of March 4, 1999, by and among the
Company, its subsidiary guarantors and Chase Manhattan Bank
and Trust Company, N.A., as Trustee, filed as exhibit 4.1 to
the Company's Current Report on Form 8-K dated February 25,
1999, and is hereby incorporated by reference.
4-5 Form of Note (included in exhibit 4.4).
4-6 Registration Rights Agreement, dated as of March 4, 1999, by
and among the Company, the Subsidiary Guarantors and the
Initial Purchasers, filed as exhibit 4.3 to the Company's
Registration Statement on Form S-4, file No. 333-76377, and
is hereby incorporated by reference.
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, filed as exhibit 10-22 to the Company's Form 10-K
Annual Report for fiscal year ended January 27, 1997, and is
hereby incorporated by reference.(2)
10-6 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)
10-7 First Amendment to Employment Agreement dated November 1,
1997, by and between Carl N. Karcher and Carl Karcher
Enterprises, Inc., filed as exhibit 10-8 to the Company's
Form 10-K Annual Report for fiscal year ended January 26,
1998, and is hereby incorporated by reference.(2)
</TABLE>

E-1
<PAGE> 62

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10-8 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)
10-9 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)
10-10 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)
10-11 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.
10-12 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.*
10-13 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.
10-14 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,
filed as exhibit 10-31 to the Company's Form 10-K Annual
Report for the fiscal year ended January 27, 1997, and is
hereby incorporated by reference.
10-15 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.
10-16 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.
10-17 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., filed as
exhibit 10-42 to the Company's Form 10-K Annual Report for
the fiscal year ended January 27, 1997, and is hereby
incorporated by reference.
10-18 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.*
10-19 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.*
10-20 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.*
10-21 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.*
</TABLE>

E-2
<PAGE> 63

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
10-22 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.*
10-23 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.*
10-24 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, filed as exhibit 10-35 to the Company's Form 10-K
Annual Report for the fiscal year ended January 26, 1998,
and is hereby incorporated by reference.*
10-25 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.*
10-26 Second Amended and Restated Credit Agreement, dated as of
March 4, 1999, by and between the Company and Paribas, as
agent, and the Lenders party thereto, filed as exhibit 10.1
to the Company's Current Report on Form 8-K dated February
25, 1999, and is hereby incorporated by reference.*
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 LLP.(1)
27-1 Financial Data Schedule (included only with electronic
filing).
</TABLE>

- ---------------
* 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

<PAGE> 1

EXHIBIT 11-1

CKE RESTAURANTS, INC. AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:

Income before extraordinary item......... $74,452 $46,757 $22,302 $10,952 $ 1,264
Extraordinary item -- gain on early
retirement of debt, net of applicable
income taxes of $2,084................. 3,260 -- -- -- --
------- ------- ------- ------- -------
Net income............................... $77,712 $46,757 $22,302 $10,952 $ 1,264
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding during the year............ 51,599 46,634 35,639 33,363 34,083
Purchase of treasury shares......... -- -- -- (131) (261)
------- ------- ------- ------- -------
51,599 46,634 35,639 33,232 33,822
======= ======= ======= ======= =======
Basic income per share before
extraordinary item..................... $ 1.44 $ 1.00 $ 0.63 $ 0.33 $ 0.04
Extraordinary item -- gain on early
retirement of debt, net of applicable
income taxes -- basic.................. 0.07 -- -- -- --
------- ------- ------- ------- -------
Basic net income per share............... $ 1.51 $ 1.00 $ 0.63 $ 0.33 $ 0.04
======= ======= ======= ======= =======
</TABLE>

Income before extraordinary item......... $74,452 $46,757 $22,302 $10,952 $ 1,264
Interest expense and amortization of debt
issuance costs, net of income tax
effect, applicable to convertible
subordinated notes..................... 4,635 -- -- -- --
------- ------- ------- ------- -------
Income before extraordinary item......... 79,087 46,757 22,302 10,952 1,264
Extraordinary item -- gain on early
retirement of debt, net of applicable
income taxes of $2,084................. 3,260 -- -- -- --
------- ------- ------- ------- -------
Net income............................... $82,347 $46,757 $22,302 $10,952 $ 1,264
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding during the year............ 51,599 46,634 35,639 33,363 34,083
Incremental common shares attributable
to:
Exercise of stock options........... 1,336 1,487 964 379 149
Issuance of convertible subordinated
notes............................. 3,779 -- -- -- --
Purchase of treasury shares......... -- -- -- (131) (261)
------- ------- ------- ------- -------
56,714 48,121 36,603 33,611 33,971
======= ======= ======= ======= =======
Diluted income per common share before
extraordinary item..................... $ 1.39 $ 0.97 $ 0.61 $ 0.33 $ 0.04
Extraordinary item -- gain on early
retirement of debt, net of applicable
income taxes -- diluted................ 0.06 -- -- -- --
------- ------- ------- ------- -------
Diluted net income per share............. $ 1.45 $ 0.97 $ 0.61 $ 0.33 $ 0.04
======= ======= ======= ======= =======
</TABLE>

<PAGE> 1

EXHIBIT 12-1

CKE RESTAURANTS, INC. AND SUBSIDIARIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings before fixed charges:
Income before income taxes and
extraordinary item................ $124,097 $ 76,640 $36,710 $17,953 $ 2,398
Fixed charges........................ 65,854 32,901 19,840 18,521 17,736
-------- -------- ------- ------- -------
$189,951 $109,541 $56,550 $36,474 $20,134
======== ======== ======= ======= =======
Fixed charges:
Interest expense..................... $ 43,453 $ 16,914 $ 9,877 $10,004 $ 9,202
Interest component of rent
expense(1)........................ 22,401 15,987 9,963 8,517 8,534
-------- -------- ------- ------- -------
$ 65,854 $ 32,901 $19,840 $18,521 $17,736
======== ======== ======= ======= =======

Ratio of earnings to fixed charges..... 2.9x 3.3x 2.9x 2.0x 1.1x
======== ======== ======= ======= =======
</TABLE>

- ---------------
(1) Calculated as one-third of total rent expense.

<PAGE> 1
EXHIBIT 21-1

CKE RESTAURANTS, INC.

LIST OF SUBSIDIARIES

Set forth below is a list of the Registrant's subsidiaries as of January 25,
1999:

<TABLE>
<CAPTION>
Control by
Jurisdiction of --------------------------
Name of Subsidiary Organization Registrant Subsidiary
- ----------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Carl Karcher Enterprises, Inc. California 100%
Boston Pacific, Inc. California 100%
CBI Restaurants, Inc. Delaware 100%
Taco Bueno Restaurants, Inc. Texas 100%
Taco Bueno Equipment Company Texas 100%
Taco Bueno West, Inc. Delaware 100%
Taco Bueno Texas, L.P. Texas 100%
Hardee's Food Systems, Inc. North Carolina 100%
Flagstar Enterprises, Inc. Alabama 100%
Spardee's Realty, Inc. Alabama 100%
Fast Food Restaurants, Inc. Pennsylvania 100%
HFS Ventures, Inc. North Carolina 100%
HED, Inc. North Carolina 100%
HFS Georgia, Inc. Georgia 100%
Central Iowa Food Systems, Inc. Iowa 100%
Hardee's at Onslow Mall, Inc. North Carolina 100%
Burger Chef Systems, Inc. North Carolina 100%
1233 Corporation Ohio 100%
Hardee's Food Systems LTD, Switzerland 98%
Fribourg
Hardee's REIT I Delaware 100%
Hardee's REIT II Delaware 100%
CKE REIT I, Inc. Delaware 100%
CKE REIT II, Inc. Delaware 100%
Carl's Jr. Region VIII, Inc. Delaware 100%
</TABLE>

<PAGE> 1

EXHIBIT 23-1

CONSENT OF INDEPENDENT AUDITORS

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

We consent to incorporation by reference in the Registration Statements
(Nos. 333-76377, 333-51103, 333-52633, 333-62421, 33-56313, 33-55337, 333-12399,
33-53089-01, 2-86142-01, 33-31190-01 and 333-12401) of CKE Restaurants, Inc. and
Subsidiaries of our report dated March 18, 1999, relating to the consolidated
balance sheets of CKE Restaurants, Inc. and Subsidiaries as of January 31, 1999
and 1998 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended January 31,
1999, which report appears in the January 31, 1999 Annual Report on Form 10-K of
CKE Restaurants, Inc. and Subsidiaries.

KPMG LLP

Orange County, California
April 26, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CKE
RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
INCOME AS OF AND FOR THE YEARS ENDED JANUARY 25, 1999, JANUARY 26, 1998 AND
JANUARY 27, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K FOR THE YEARS ENDED JANUARY 25, 1999, JANUARY 26, 1998 AND JANUARY 27,
1997.
</LEGEND>

<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-25-1999 JAN-26-1998 JAN-27-1997
<PERIOD-START> JAN-27-1998 JAN-28-1997 JAN-30-1996
<PERIOD-END> JAN-25-1999 JAN-26-1998 JAN-27-1997
<CASH> 40,297 30,158 46,330
<SECURITIES> 0 0 0
<RECEIVABLES> 63,212 47,276 25,565
<ALLOWANCES> 0 0 0
<INVENTORY> 22,507 17,024 9,223
<CURRENT-ASSETS> 134,292 91,932 80,197
<PP&E> 1,197,849 797,222 359,225
<DEPRECIATION> 257,671 170,196 151,126
<TOTAL-ASSETS> 1,496,914 957,144 410,367
<CURRENT-LIABILITIES> 201,647 167,599 83,124
<BONDS> 162,225 0 0
0 0 0
0 0 0
<COMMON> 519 512 402
<OTHER-SE> 586,323 498,000 214,402
<TOTAL-LIABILITY-AND-EQUITY> 1,496,914 957,144 410,367
<SALES> 1,732,221 1,022,453 536,808
<TOTAL-REVENUES> 1,892,044 1,149,659 613,380
<CGS> 1,392,749 832,460 424,794
<TOTAL-COSTS> 1,723,824 1,063,468 569,241
<OTHER-EXPENSES> 670 (7,363) (2,448)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 43,453 16,914 9,877
<INCOME-PRETAX> 124,097 76,640 36,710
<INCOME-TAX> 49,645 29,883 14,408
<INCOME-CONTINUING> 74,452 46,757 22,302
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 3,260 0 0
<CHANGES> 0 0 0
<NET-INCOME> 77,712 46,757 22,302
<EPS-PRIMARY> 1.51 1.00 .63
<EPS-DILUTED> 1.45 0.97 .61

</TABLE>