In our last annual report to you, we outlined a five-point plan to return the Company to profitability and improve our brands. Focused on financial re-engineering and operational improvements, our plan included the retirement of nearly $300 million in debt, a 20 percent reduction in corporate general and administrative costs, an intensified effort at each of our brands on the customer experience and restaurant fundamentals, and a product strategy focused on quality versus price. This plan was designed to position the Company to operate profitably. This fiscal year, we reported a profit before the cumulative effect of the accounting change for goodwill—our first reported profit on any basis since 1999.

FINANCIAL RE-ENGINEERING
In fiscal 2003, we continued to make strides in bettering our financial picture. As the year began, we emerged from bank workout and obtained a new $100 million senior credit facility. We were able to further amend this facility in order to repurchase convertible debt through cash flows as well as proceeds generated from the sale of Checkers Drive-In Restaurants, Inc. stock. During the year, we reduced our convertible notes outstanding from $159 million to $122 million and reduced interest expense by approximately $11 million. We are currently evaluating various scenarios to refinance our convertible debt which matures in March of 2004. We will select the means that are most favorable to shareholder value among the alternatives available to us. With a healthier financial outlook, we invested nearly $80 million this year in capital expenditures—including the opening of several new Carl's Jr.® and Hardee's® restaurants, the installation of charbroilers in nearly 100 percent of company-operated Hardee's restaurants, and the conversion of nearly 80 percent of company-operated Hardee's to the Star Hardee's format.

INCREASING PROFITABILITY BY IMPROVING OUR BRANDS
The past year was a difficult one for the restaurant industry. Slackened consumer confidence and, in turn, lower consumer spending, hurt overall sales for the industry. Aggressive industry-wide discounting triggered by competitive national quick-service brands intensified already fierce competition in our sector and further undermined industry economics—impacting those engaged in the battle most of all. Despite the challenges of the past year, we remained staunchly focused on our strategic planand, in particular, our strategy of quality versus price.

Severe winter weather conditions in the Midwest and Southeast that befell us in the latter half of the year impacted sales in our industry. Rising insurance-related and utility costs also impacted margins. Although we have historically been able to offset these pressures by implementing price increases, the competitive climate made this practice difficult. Nonetheless, we were successful in operating the Company at a profit during the year and increasing gross margins. We should note that we benefited from several non-recurring transactions, including a $9.2 million one-time income tax refund and gains of $9.2 million from sales of Checkers Drive-In Restaurants, Inc. stock, in addition to approximately $3 million in gains on the retirement of convertible debt.

We believe that we are resetting consumer expectations for quality and price at each of our brands by offering such premium products as the award-winning Six Dollar Burger®—the only quick-service burger to receive the 2002 Silver Skillet award from Restaurant Business magazine—and the new Thickburger™ menu at Hardee's. We believe this strategy will allow us to improve both sales and profitability over the long-run at each of our brands.

CARL'S JR.®
The Carl's Jr. brand remains strong and was once again a significant contributor to our overall financial performance this year. Our formula for success at Carl's Jr. stems from the loyalty we derive by listening to our customers and offering innovative and craveable products that set the brand apart from other quick-service fare. Importantly, higher quality menu items allow us to command a premium in the marketplace, translating into gross margins that are on average 20 percent of net sales.

In the face of the circumstances previously described, same-store sales for the year increased nearly one percent on top of a prior year increase of three percent. End of year product introductions—including our Chili Burgers™—helped us to improve last year's sales gains. Average unit volumes (AUVs) at company-operated restaurants were strong at $1.15 million, gross margins were approximately 22 percent, and operating income for the brand, excluding facility action charges, was $57 million.

HARDEE'S®
Since our acquisition of the Hardee's brand in 1997, we've been focused on how to bring customers back into the stores and attract new customers to the brand. Our program to improve quality, service and cleanliness was successful in improving our image—but was not enough. This year, we spent significant time evaluating how to change perceptions and make the brand more relevant to today's consumers. At the end of this fiscal year, we announced a new menu and strategy for Hardee's that we believe will help us achieve our objectives. Our plan—which we're calling the "Hardee's Revolution"—will be a primary driver of our results over the next several years.

The strategy behind the Revolution was to address Hardee's market position as the discount, variety brand. At the heart of the Revolution is our new Thickburger menu. This streamlined menu focuses on premium quality 1/3-pound, 1/2-pound, and 2/3-pound Angus beef burgers. In addition to using Angus beef for the burgers, virtually all of the ingredients in our sandwiches have been improved. The conversion process includes substantial menu deletions of up to 40 products. In part because explanatory media is only rolled-out once an entire market is converted to the new menu, the menu deletions have had an initial impact on our sales.

Our Thickburger strategy was developed with our franchisees input and tested in the field and is intended to improve performance at the brand by attracting consumers who are willing to pay more for exceptional quality and taste. We are finding that the new strategy at Hardee's has become more than the sum of its parts. By offering a product our crew is proud to serve, morale has improved, and with that, the overall customer experience.

Much was accomplished in fiscal 2003 toward repositioning Hardee's. By the end of the year, we successfully installed charbroilers in nearly 100 percent of company-operated stores and converted nearly 80 percent of company-operated stores to the Star-Hardee's format. During the year, we also continued to transition the Hardee's brand from one that relied heavily on variety and discounting to one that focused on a select number of premium products. Implementing our new menu strategy by deleting many menu items likely contributed to negative same-store sales of 2.2 percent for the year. However, we believe it also allowed us to realize an improvement in gross margins. Margins also benefited from our past decisions to close unprofitable restaurants. For the year, Hardee's reported gross margins of 11.1 percent, versus 9.6 percent in the prior year.

ACQUISITION OF SANTA BARBARA RESTAURANT GROUP (SBRG)
On March 1, 2002, we acquired Santa Barbara Restaurant Group for 6,352,000 shares of the Company's common stock valued at $78.8 million plus transaction costs of approximately $1.5 million. The acquisition gave us control of the Green Burrito® menu and further development of the brand, and eliminated our franchise fee and royalty expense related to Green Burrito's dual-branding relationship with Carl's Jr. We continue to see good things coming out of the dual-branding program—including AUVs at company-operated dual-branded stores that are more than 10 percent higher, or approximately $1.3 million, than stand-alone company-operated units. Dual-branding will remain an important theme for our company in the year to come.

Our acquisition of SBRG also gave us the opportunity to enter the emerging fresh-Mex, fast-casual segment through the La Salsa Fresh Mexican Grill® brand. Although La Salsa was not our core focus during the year, we expect the concept to be an important area of growth for us in the future.

LOOKING AHEAD
In 45 U.S. states and 14 countries, our customers turn to one of CKE's restaurants for the tastes they crave and the service and convenience they demand. In every transaction, our performance, quality and value are judged relative to other competing brands. When we live up to our customers' expectations, we have the opportunity to earn the loyalty that is so critical to success in our business. In the year ahead, we are committed to executing a plan that will allow us to continue to improve our operational performance and, in turn, enhance shareholder value. To do this, we must continuously improve the Carl's Jr. brand, successfully execute our brand and media strategy at Hardee's, manage our business efficiently, refinance our convertible debt, and invest for future growth. Success will no doubt require a lot of hard work. You can be assured that we will draw upon the pioneering spirit, operating discipline, and tenacious commitment that have always characterized our company to help us achieve our goals.

William P. Foley, II
Chairman of the Board

Andrew F. Puzder
President and CEO