CKE Restaurants (CKR)

pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), under which we were allowed to repurchase $5,000 of our common stock in the open market each fiscal quarter. This plan expired on January 28, 2008. Rule 10b5-1 allows companies to repurchase their common stock when they might otherwise be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. As of January 31, 2008, we have repurchased common stock totaling $357,253, with $266,640 of these repurchases occurring during fiscal 2008. Based on the Board of Directors’ authorization and the amount of cumulative repurchase of our common stock that we have already made thereunder, we are permitted to make additional repurchases of our common stock up to $42,747 under the Stock Repurchase Plan as of January 31, 2008.

 

Refranchising Program.  During fiscal 2008, we launched a refranchising program that is expected to involve approximately 200 Hardee’s restaurant locations in a number of markets across the Midwestern and Southeastern United States. During fiscal 2008, we sold 136 company-operated Hardee’s restaurants and other real property with net book values totaling $46,328 to seven franchisees. In connection with these transactions, we received aggregate consideration of $53,009 and recognized net gains of $2,457, which is included in facility action charges, net and $2,735 in initial franchisee fees, which is included in franchised and licensed restaurants and other revenue in our accompanying Consolidated Statement of Income for fiscal 2008 in our Hardee’s segment. As part of these transactions, the franchisees acquired the real property and/or subleasehold interest in the real property related to the restaurant locations.

 

Discontinued Operations.  On July 16, 2007, we sold our La Salsa Fresh Mexican Grill (“La Salsa”) restaurants and the related franchise operations to LAS Acquisition, LLC (“Buyer”). Under the agreement, Santa Barbara Restaurant Group, Inc. (“SBRG”), our wholly-owned subsidiary, sold its 100 percent equity interest in La Salsa, Inc. and La Salsa of Nevada, Inc. for adjusted consideration of $15,889. The loss on disposal of $1,389 has been included in the loss from discontinued operations in our accompanying Consolidated Statement of Income for fiscal 2008. Pursuant to the agreement, we have retained contingent liabilities related to tax matters and certain litigation matters arising prior to the completion of the sale of La Salsa. In accordance with Statement of Financial Accounting Standards (“SFAS”) 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the divestiture of La Salsa qualifies as discontinued operations, and accordingly, we have reported the results of operations and financial position of this segment in discontinued operations in our accompanying Consolidated Financial Statements for all periods presented.

 

Interest Rate Swap Agreements.  During fiscal 2008, we entered into interest rate swap agreements with various counterparties to effectively fix future interest payments on $200,000 of our term loan debt at 6.2159%. The agreements were not designated as cash flow hedges under the terms of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Accordingly, the change in the fair value of the interest rate swap agreements is recognized in interest expense in our Consolidated Statements of Income. We recorded interest expense under the swaps of $11,380 during fiscal 2008 to adjust the carrying value of the interest rate swap agreements to the fair value.

 

Adoption of New Accounting Pronouncements.  See Note 3 of Notes to Consolidated Financial Statements.

 

 

Seventh Amended and Restated Credit Facility
(“Facility”) and Amendments Thereto.  On
March 27, 2007, we amended and restated our senior credit
facility. As amended, our Facility provides for a $470,000
senior secured credit facility consisting of a $200,000
revolving credit facility and a $270,000 term loan. The
revolving credit facility matures on March 27, 2012. The
principal amount of the term loan is scheduled to be repaid in
quarterly installments through January 1, 2013. On
March 7, 2008, we amended our Facility to modify one of our
restrictive covenants for each of the quarters in fiscal 2009
through 2012.

 

Repurchase of Common Stock.  Pursuant to a
program (“Stock Repurchase Plan”) authorized by our
Board of Directors, as modified during fiscal 2008, we are
allowed to repurchase up to an aggregate of $400,000 of our
common stock in the open market. As part of our Stock Repurchase
Plan, we implemented a stock repurchase plan

pursuant to
Rule 10b5-1
of the Securities Exchange Act of 1934, as amended
(“Exchange Act”), under which we were allowed to
repurchase $5,000 of our common stock in the open market each
fiscal quarter. This plan expired on January 28, 2008.
Rule 10b5-1
allows companies to repurchase their common stock when they
might otherwise be prevented from doing so under insider trading
laws or because of self-imposed trading blackout periods. As of
January 31, 2008, we have repurchased common stock totaling
$357,253, with $266,640 of these repurchases occurring during
fiscal 2008. Based on the Board of Directors’ authorization
and the amount of cumulative repurchase of our common stock that
we have already made thereunder, we are permitted to make
additional repurchases of our common stock up to $42,747 under
the Stock Repurchase Plan as of January 31, 2008.

 

Refranchising Program.  During fiscal 2008, we
launched a refranchising program that is expected to involve
approximately 200 Hardee’s restaurant locations in a number
of markets across the Midwestern and Southeastern United States.
During fiscal 2008, we sold 136 company-operated
Hardee’s restaurants and other real property with net book
values totaling $46,328 to seven franchisees. In connection with
these transactions, we received aggregate consideration of
$53,009 and recognized net gains of $2,457, which is included in
facility action charges, net and $2,735 in initial franchisee
fees, which is included in franchised and licensed restaurants
and other revenue in our accompanying Consolidated Statement of
Income for fiscal 2008 in our Hardee’s segment. As part of
these transactions, the franchisees acquired the real property
and/or
subleasehold interest in the real property related to the
restaurant locations.

 

Discontinued Operations.  On July 16,
2007, we sold our La Salsa Fresh Mexican Grill
(“La Salsa”) restaurants and the related
franchise operations to LAS Acquisition, LLC
(“Buyer”). Under the agreement, Santa Barbara
Restaurant Group, Inc. (“SBRG”), our wholly-owned
subsidiary, sold its 100 percent equity interest in
La Salsa, Inc. and La Salsa of Nevada, Inc. for
adjusted consideration of $15,889. The loss on disposal of
$1,389 has been included in the loss from discontinued
operations in our accompanying Consolidated Statement of Income
for fiscal 2008. Pursuant to the agreement, we have retained
contingent liabilities related to tax matters and certain
litigation matters arising prior to the completion of the sale
of La Salsa. In accordance with Statement of Financial
Accounting Standards (“SFAS”) 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
divestiture of La Salsa qualifies as discontinued
operations, and accordingly, we have reported the results of
operations and financial position of this segment in
discontinued operations in our accompanying Consolidated
Financial Statements for all periods presented.

 

Interest Rate Swap Agreements.  During fiscal
2008, we entered into interest rate swap agreements with various
counterparties to effectively fix future interest payments on
$200,000 of our term loan debt at 6.2159%. The agreements were
not designated as cash flow hedges under the terms of
SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. Accordingly, the change in
the fair value of the interest rate swap agreements is
recognized in interest expense in our Consolidated Statements of
Income. We recorded interest expense under the swaps of $11,380
during fiscal 2008 to adjust the carrying value of the interest
rate swap agreements to the fair value.

 

Adoption of New Accounting Pronouncements.  See
Note 3 of Notes to Consolidated Financial Statements.

 

should be relied upon in their place. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Restatement of Previously Issued Financial Statements and Notes to Consolidated Financial Statements — Note 1 — Significant Accounting Policies — Restatement of Previously Issued Financial Statements” for additional information.

 

Amendment to Sixth Amended and Restated Credit Facility (“Facility”).  On January 22, 2007, we entered into an amendment of our existing senior credit facility, increasing the aggregate amount that we are permitted to expend for stock repurchases and dividend payments by $130,000, and increasing the total amount available to us for revolving loans under the Facility by $100,000 to $250,000. As a result of the increased capacity for stock repurchases under the Facility, our Board of Directors authorized a further expansion of our stock repurchase program, as discussed below.

 

Seventh Amended and Restated Credit Facility (“Amended Facility”). On March 27, 2007, we amended and restated the Facility by entering into the Amended Facility, which provides for a $320,000 senior secured credit facility consisting of a $200,000 revolving credit facility and a $120,000 term loan. The revolving credit facility matures on March 27, 2012. The principal amount of the term loan is scheduled to be repaid in quarterly installments, with the remaining principal balance scheduled to mature on March 27, 2013.

 

Repurchase of Common Stock.  Pursuant to a program (“Stock Repurchase Plan”) authorized by our Board of Directors, as modified during fiscal 2007, we are allowed to repurchase up to an aggregate of $200,000 of our common stock in the open market. As part of our Stock Repurchase Plan, we have implemented a stock repurchase plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), under which we are allowed to repurchase $5,000 of our common stock in the open market each fiscal quarter through the quarter ending January 28, 2008. Rule 10b5-1 allows us to repurchase our common stock when we might otherwise be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. As of January 31, 2007, we have repurchased common stock totaling $90,613, with $81,057 of these repurchases occurring during fiscal 2007. Based on the Board of Directors’ authorization and the amount of cumulative repurchase of our common stock that we have already made thereunder, we are permitted to make additional repurchases of our common stock up to $109,387 under the Stock Repurchase Plan as of January 31, 2007.

 

Expiration of Stockholder Rights Plan.  During fiscal 2006, our Board of Directors approved the adoption of a Stockholder Rights Plan (“Rights Plan”) pursuant to a Rights Agreement between us and Mellon Investor Services, LLC, dated October 10, 2005 (“Rights Agreement”). On December 31, 2006, the Rights expired pursuant to the terms of the Rights Plan. The Rights expired because our Board of Directors determined not to solicit the requisite stockholder approval of the Rights Agreement by December 31, 2006. As a result, the Rights have no further force or effect and the Rights Plan has effectively terminated.

 

Purchase of Restaurant Assets.  During March 2006, we purchased, for aggregate consideration of $15,762, a total of 36 restaurant locations that we had previously leased from a commercial lessor.

 

Termination of Franchise Agreement.  During February 2006, we terminated our franchise agreement with a Hardee’s franchisee that operated 90 franchised restaurants as a result of its inability to remedy, on a timely basis, certain defaults under the terms of the agreement. At that time, ten of the affected restaurants were located on property that we owned and leased to the franchisee, and 51 of the affected restaurants were located on leased premises that we sublet to the franchisee. During March 2006, we purchased five additional parcels that we had previously leased from a commercial lessor and sublet to the franchisee. The franchisee continued to operate the affected restaurants pursuant to a temporary license agreement until May 18, 2006, when we terminated the license agreement, leases and subleases and assumed full operational control of the aforementioned 61 restaurants. Since the termination of the license agreement, we have purchased $2,400 of existing equipment, closed 19 of the 61 restaurants and recorded facility action charges of $1,959 related to closing these restaurants. We currently operate the remaining 42 restaurants as company-operated restaurants. The former franchisee’s lenders (through a receiver) kept the remaining 29 restaurant locations, of which they subsequently closed 15. During October 2006, we purchased 11 of these restaurants for $6,538 and an existing franchisee, under a franchise agreement, purchased the remaining three restaurants. The total purchase price included land, buildings and existing equipment.

 

Adoption of New Accounting Pronouncements. See Note 3 of Notes to Consolidated Financial Statements.