3 Diluted earnings per share excluding mark-to-market adjustments andrelated income tax

(3) Diluted earnings per share, excluding mark-to-market adjustments (andrelated income tax effect at our marginal tax rate of 38.3%) related to ourinterest rate swap agreements. Executive Commentary”I am pleased with our achievements given the daunting hurdles this managementteam faced in delivering our first quarter results,” said Andrew F Puzder,chief executive officer. “We held company-operated restaurant-level margin flatto the prior year and increased operating income despite a 1.8% decrease incompany-operated same-store sales during the quarter. We delivered these resultsin the face of a challenging economy and a difficult competitive environment.Not only did we hold restaurant-level margin steady from the year ago period,but at 19.9%, our margin remains among the highest in the industry, validatingthe strategic importance of our focus on profitability as well as sales ratherthan simply `sales at any cost`. “Quarterly net income declined by $2.2 million to $14.4 million. This decreaseresulted primarily from increases in interest and income tax expenses.

Interestexpense increased by $1.8 million due to charges related to our interest rateswap agreements, partially offset by a reduction in interest expense related toour credit facility. Our mark-to-market adjustment on our interest rate swapagreements increased interest expense by $2.4 million this quarter, as opposedto the prior year quarter when the swap agreement adjustments reduced interestexpense by $2.4 million. As expected, lower outstanding debt balances and lowerinterest rates have caused our cash obligations for interest to decrease duringthe first quarter as compared to the prior year quarter. “Quarterly income tax expense increased by $0.4 million to $9.8 million, and oureffective income tax rate increased to 40.5% from 36.2% in the prior yearquarter. The increase in our effective income tax rate resulted from favorabletax law changes we recognized in the prior year quarter that did not recur thisyear. This 4.3 percentage point increase in our effective tax rate equates to a$1.0 million negative impact to net income based on our $24.2 million pre-taxincome. “We improved Adjusted EBITDA to $54.7 million for the first quarter of fiscal2010 despite the net impact of our Hardee`s refranchising program that reducedAdjusted EBITDA by $2.7 million from last year.

Since the beginning of fiscal2009, we sold 102 company-operated Hardee`s restaurants and threecompany-operated Carl`s Jr restaurants to franchisees who now operate theserestaurants. “On a diluted per share basis, earnings were $0.26 for the first fiscal quarterof 2010, which compares to $0.31 for the same period last year. Excluding theimpact of the mark-to-market adjustments, fully diluted earnings per share were$0.29 for the first quarter of fiscal 2010, which compares to $0.28 last year. “Hardee`s improved both its same-store sales and margin during the quarter.Hardee`s improved its company-operated restaurant-level margin 60 basis pointsto 17.5% of company-operated restaurants revenue. Hardee`s reduced food andpackaging costs as well as labor expense for the quarter.

Our ongoing remodelprogram resulted in increased depreciation expense, which was the primary driverof increased occupancy expense for the quarter, partially offsetting ourimprovements in food and paper costs and labor expense. “Hardee`s increased its same-store sales 2.5% in the first quarter. Our premiumproduct strategy, our successful execution of Hardee`s remodeling program, andour aggressive customer service improvement campaign drove this increase.Hardee`s also increased its average unit volume for the trailing-13 periods to$1,010,000 as of May 18, 2009. This new record for the brand compares to$959,000 in the prior year and is up 41.1% from $716,000 in fiscal 2001 when ourcurrent management team took over.

During the quarter, Hardee`s introduced theChicken Parmesan sandwich, the Western Bacon Thickburger, Beer-battered OnionRings and Texas Toast Breakfast Sandwiches “Carl`s Jr. company-operated restaurant-level margin was 21.9% ofcompany-operated restaurants revenue for the quarter, which compares to 22.5% ayear earlier. An increase in depreciation expense related to our ongoing remodelprogram and a 5.1% decline in same-store sales were the primary drivers of the60 basis point decline in restaurant-level margin. In addition to the negativeimpact from California`s economy, Carl`s Jr. rolled over successful productpromotions from last year which yielded a 3.9% increase in same-store sales.Carl`s Jr. improved its food and packaging cost versus the prior year quarter.