Carrols Restaurant Group Annual Report 2019

FY2019 Annual Report · Carrols Restaurant Group

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Carrols Restaurant Group, Inc.
2019 Annual Report

April 24, 2020

Dear Fellow Stockholders:

2019 was a busy and productive year at Carrols, characterized by significant accomplishments and challenges. We increased our
restaurant sales by 24% to $1.5 billion, including 2.2% growth in comparable restaurant sales and substantially expanded our
footprint size by 30% to 1,036 Burger King® and 65 Popeyes® restaurants in 23 states. Our portfolio growth stemmed primarily
through our acquisition of 165 Burger King and 55 Popeyes restaurants from Cambridge Franchise Holdings, LLC (“Cambridge”)
that was completed on April 30, 2019. In addition, we successfully built 21 Burger King and 10 Popeyes restaurants and remodeled
74 Burger King and four Popeyes restaurants over the course of the year.

However, compared to 2018, Restaurant-level EBITDA declined to $156.1 million from $162.1 million and Adjusted EBITDA
decreased to $86.1 million from $103.0 million. Adjusted net loss was $15.5 million, or $0.36 per diluted share in 2019, compared
to adjusted net income of $14.1 million, or $0.31 per diluted share, in 2018(1). These profitability measures were adversely affected
by the persistent pressure in commodity costs and labor costs, the excess sales discounts to certain customers last summer and the
impact of the integration of the Cambridge restaurants.

While we began 2020 with renewed optimism, the Company, along with the rest of the country, was faced with a whole new set
of challenges beginning in March due to the worldwide pandemic caused by COVID-19. Carrols management reacted quickly and
decisively to align its operations with the realities of the new marketplace. More importantly, to comply with national, state, and
local guidelines and for the safety and well-being of our team members and guests, we closed our dining rooms across the system
and ramped up our off-premise capabilities, including take-out, drive-thru, and delivery. As approximately 75% of our 2019
restaurant sales were generated from take-out and drive-thru orders, we were fortunate to be able to continue generating a consistent
level of base revenue. To address near term financial flexibility, we have put on hold any non-essential operating expenses and
capital expenditures other than those necessary to maintain restaurant operations. In addition, we have also shored up liquidity by
increasing our revolving credit capacity under our senior credit facility and we have taken other actions to improve working capital.
As a result of these measures, we are positioned to continue providing needed services to our guests.

In closing, we believe that Carrols will come out of 2020 with a cost and capital foundation that will enable us to realize the full
potential of our restaurant portfolio over the next several years. We are fortunate to have a supportive franchisor in RBI who is
working constructively with us during these difficult times. Let me thank the entire Carrols team for their tireless work as well as
our dedicated stockholders for their ongoing support.

Sincerely,

Daniel T. Accordino
Chief Executive Officer and President

(1) Restaurant-level EBITDA, Adjusted EBITDA and Adjusted net income (loss) are non-GAAP financial measures. Refer to the
definitions and reconciliations of these measures to net income (loss) set forth in the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 2019.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2019
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: 001-33174

CARROLS RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

83-3804854
(I.R.S. Employer Identification No.)

968 James Street, Syracuse, New York
(Address of principal executive offices)

13203
(Zip Code)

Registrant’s telephone number, including area code: (315) 424-0513

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

TAST

The NASDAQ Global Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth
company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with

any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes

As of March 3, 2020 Carrols Restaurant Group, Inc. had 52,694,010 shares of its common stock, $.01 par value, outstanding. The aggregate

market value of the common stock held by non-affiliates as of July 1, 2019 of Carrols Restaurant Group, Inc. was $323,744,096.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for Carrols Restaurant Group, Inc's 2020 Annual Meeting of Stockholders, which is

expected to be filed pursuant to Regulation 14A no later than 120 days after the conclusion of Carrols Restaurant Group, Inc.'s fiscal year ended
December 29, 2019, are incorporated by reference into Part III of this annual report.

CARROLS RESTAURANT GROUP, INC.
FORM 10-K

YEAR ENDED DECEMBER 29, 2019

PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4

PART II
Item 5

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Item 9
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B

PART III
Item 10
Item 11
Item 12

Item 13
Item 14

PART IV
Item 15
Item 16

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibits and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART I—FINANCIAL INFORMATION

PART I

Throughout this Annual Report on Form 10-K we refer to Carrols Restaurant Group, Inc. as “Carrols Restaurant
Group” and, together with its direct and indirect consolidated subsidiaries, as “we”, “our”, “us” and the "Company"
unless otherwise indicated or the context otherwise requires. Carrols Restaurant Group, Inc. is a holding company and
conducts all of our operations through our wholly-owned subsidiaries Carrols Corporation (“Carrols”) and Carrols'
wholly-owned subsidiary, Carrols LLC, a Delaware limited liability company, and Carrols LLC's wholly-owned
subsidiary Republic Foods, Inc., a Maryland corporation ("Republic Foods"), and effective on April 30, 2019, New
CFH, LLC and its wholly-owned subsidiaries. New CFH LLC's material direct and indirect wholly-owned subsidiaries
include Alabama Quality, LLC, Carolina Quality, LLC, Frayser Quality, LLC, Nashville Quality, LLC, Frayser
Holdings, LLC, Louisiana Quality, LLC, CFH Real Estate, LLC, Tennessee Quality, LLC, TQ Real Estate, LLC and
Mirabile Investment Corporation (together with New CFH LLC's immaterial subsidiaries, collectively, "New
CFH") . Unless the context otherwise requires, Carrols Restaurant Group and its direct and indirect wholly-owned
subsidiaries are collectively referred to as the “Company.” All intercompany transactions have been eliminated in
consolidation.

We use a 52 or 53 week fiscal year ending on the Sunday closest to December 31. Our fiscal years ended January
1, 2017, December 31, 2017, December 30, 2018, and December 29, 2019 each contained 52 weeks. Our fiscal year
ended January 3, 2016 contained 53 weeks.

At December 29, 2019 we operated, as franchisee, 1,036 Burger King® restaurants in 23 Northeastern,

Midwestern and Southeastern states and 65 Popeyes® restaurants in 7 Southeastern states.

In this Annual Report on Form 10-K, we refer to information, forecasts and statistics regarding the restaurant
industry and to information, forecasts and statistics from Nation's Restaurant News, the U.S. Census Bureau and the
U.S. Department of Agriculture. We operate our Burger King® restaurants under franchise agreements with Burger
King Corporation ("BKC") and our Popeyes® restaurants under franchise agreements with Popeyes Louisiana Kitchen,
Inc. ("PLK"). Any reference to BKC in this Annual Report on Form 10-K refers to Burger King Worldwide, Inc. and
its wholly-owned subsidiaries, including Burger King Corporation, and its parent company Restaurant Brands
International, Inc., which is sometimes referred to as "RBI." Unless otherwise indicated, information regarding Burger
King, BKC, Popeyes and PLK in this Annual Report on Form 10-K has been made publicly available by RBI.

This 2019 Annual Report on Form 10-K contains statements which constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are predictive in nature or that
depend upon or refer to future events or conditions are forward-looking statements. Words such as “may”, “might”,
“will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope”, “plan” or similar expressions are
intended to identify such forward-looking statements. In addition, expressions of our strategies, intentions; plans or
guidance are also forward-looking statements. These statements reflect management's best judgment based on current
views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. Actual
results could differ materially from those stated or implied in these forward-looking statements as a result of a number
of factors, included but not limited to, the factors discussed in Item 1A-Risk Factors. We believe important factors
that could cause actual results to differ materially from our expectations include the following, in addition to other
risks and uncertainties discussed herein:

• Effectiveness of the Burger King® advertising programs and the overall success of the Burger King®

brand;

•

Increases in food costs and other commodity costs;

• Competitive conditions, including pricing pressures, discounting, aggressive marketing and the potential

impact of competitors’ new unit openings and promotions on sales of our restaurants;

• Our ability to integrate any restaurants we acquire;

• Regulatory factors;

• Environmental conditions and regulations;

• General economic conditions, particularly in the retail sector;

• Weather conditions;

• Fuel prices;

• Significant disruptions in service or supply by any of our suppliers or distributors;

• Changes in consumer perception of dietary health and food safety;

• Labor and employment benefit costs, including the effects of minimum wage increases, healthcare reform

and changes in the Fair Labor Standards Act;

• The outcome of pending or future legal claims or proceedings;

• Our ability to manage our growth and successfully implement our business strategy;

• Our inability to service our indebtedness;

• Our borrowing costs and credit ratings, which may be influenced by the credit ratings of our competitors;

• The availability and terms of necessary or desirable financing or refinancing and other related risks and

uncertainties;

• Factors that affect the restaurant industry generally, including recalls if products become adulterated or
misbranded, liability if our products cause injury, ingredient disclosure and labeling laws and regulations,
reports of cases of food borne illnesses such as “mad cow” disease, and the possibility that consumers
could lose confidence in the safety and quality of certain food products, as well as negative publicity
regarding food quality, illness, injury or other health concerns (such as the current outbreak of the
coronavirus (COVID-19); and

• Other factors discussed under Item 1A - "Risk Factors" and elsewhere herein.

ITEM 1. BUSINESS

Our Company

Overview

We are one of the largest restaurant companies in the United States and have been operating restaurants for more
than 55 years. We are the largest Burger King® franchisee in the United States, based on number of restaurants, and
have operated Burger King restaurants since 1976. As of December 29, 2019, we operated 1,036 Burger King®
restaurants located in 23 Northeastern, Midwestern and Southeastern states and 65 Popeyes® restaurants in seven
Southeastern states.

Burger King. Burger King restaurants feature the popular flame-broiled Whopper® sandwich, as well as a variety
of hamburgers, chicken and other specialty sandwiches, french fries, salads, breakfast items, snacks, soft drinks and
other offerings. We believe that our size, seasoned management team, extensive operating infrastructure, experience
and proven operating disciplines differentiate us from many of our competitors as well as many other Burger King
operators.

According to RBI, as of December 31, 2019 there were a total of 18,838 Burger King restaurants, of which almost
all were franchised and 7,346 were located in the United States. Burger King is the second largest quick service
hamburger restaurant chain in the world (as measured by number of restaurants) and we believe that the Burger King
brand is one of the world's most recognized consumer brands. Burger King restaurants have a distinctive image and
are generally located in high-traffic areas throughout the United States. Burger King restaurants are designed to appeal
to a broad spectrum of consumers, with multiple day-part meal segments targeted to different groups of consumers.
We believe that the competitive attributes of Burger King restaurants include significant brand recognition, convenience
of location, quality, speed of service and price.

We operate our restaurants under franchise agreements with BKC. Our Burger King restaurants are typically
open seven days per week and generally have operating hours ranging from 6:00 am to midnight on Sunday to
Wednesday and to 2:00 am on Thursday to Saturday.

Our existing restaurants consist of one of several building types with various seating capacities. Our typical
freestanding restaurant contains approximately 2,600 square feet with seating capacity for 60 to 70 guests, has drive-
thru service windows and adjacent parking areas. As of December 29, 2019, almost all of our restaurants were
freestanding.

Popeyes. Popeyes Restaurants are quick-service restaurants offering primarily a limited menu of lunch and
dinner products, and in certain restaurants breakfast products. Popeyes distinguishes itself with a unique
“Louisiana” style menu that features a fried chicken sandwich, spicy chicken, chicken tenders, biscuits, fried shrimp
and other seafood, red beans and rice and other quick-service menu items. According to RBI, as of December 31,
2019, there were 3,316 Popeyes restaurants worldwide and 2,476 Popeyes restaurants in the United States.

Our Popeyes restaurants are generally freestanding locations with approximately 2,500 to 3,200 square feet

with seating capacity for 50 to 60 guests and a drive-thru. Our Popeyes restaurants are typically open seven days
per week with operating hours of 10:00 am to 10:00 pm Sunday through Thursday and 10:00 am to 11:00 pm on
Friday and Saturday.

During 2019, we acquired 234 restaurants in three separate transactions. During 2018, we acquired a total of 44
restaurants from other franchisees in four separate transactions. During 2017, we acquired a total of 64 restaurants in
three separate transactions and in 2016, we acquired 56 restaurants in seven separate transactions.

For the fiscal year ended December 29, 2019, our restaurants generated total restaurant sales of $1,452.5 million
and our Burger King comparable restaurant sales increased 2.2%. Our average annual restaurant sales for all restaurants
were approximately $1.4 million per restaurant.

2019 Cambridge Acquisition. On April 30, 2019, we completed the merger with New CFH, a former subsidiary
of Cambridge Franchise Holdings, LLC ("Cambridge") and acquired 165 Burger King® restaurants, 55 Popeyes®
restaurants and six convenience stores (the "Cambridge Acquisition"). Cambridge received a total of approximately
14.9 million shares of our common stock, after the automatic conversion of 10,000 shares of Series C Convertible
Preferred Stock that Cambridge initially received in the Cambridge Acquisition. All shares of common stock issued
to Cambridge are subject to a two year restriction on sale or transfer subject to certain limited exceptions. As part of
the transaction, Cambridge designated two Cambridge executives who joined the Company's Board of Directors upon
completion of the Cambridge Acquisition.

Area Development Agreements. The Company, Carrols, Carrols LLC, and BKC entered into a new Area
Development Agreement (the "ADA") which commenced on April 30, 2019 and ends on September 30, 2024 and
which superseded the Operating Agreement dated as of May 30, 2012, as amended, between Carrols LLC and BKC.
Pursuant to the ADA, BKC assigned to Carrols LLC, for a cost of $3.0 million, the right of first refusal on the sale of
franchisee-operated restaurants in 16 states and a limited number of counties in four additional states, and granted
franchise pre-approval to acquire Burger King restaurants until the date that we have acquired more than an aggregate
of an additional 500 Burger King restaurants excluding those restaurants we acquired in the Cambridge Acquisition
("ADA ROFR").

Carrols LLC agreed to open, build and operate a total of 200 new Burger King restaurants including 32 additional
Burger King restaurants by September 30, 2020, 41 additional Burger King restaurants by September 30, 2021, 41
additional Burger King restaurants by September 30, 2022, 40 additional Burger King restaurants by September 30,
2023 and 39 additional Burger King restaurants by September 30, 2024, subject to and in accordance with the terms
of the ADA. In addition, Carrols LLC agreed to remodel or upgrade a total of 748 Burger King restaurants to BKC’s
Burger King of Tomorrow restaurant image, including 130 additional Burger King restaurants by September 30, 2020,
118 additional Burger King restaurants by September 30, 2021, 131 additional Burger King restaurants by September
30, 2022, 138 additional Burger King restaurants by September 30, 2023 and 141 additional Burger King restaurants
by September 30, 2024, subject to and in accordance with the terms of the ADA.

BKC agreed to contribute $10 million to $12 million for upgrades of approximately 50 to 60 Burger King
restaurants in 2019 and 2020, most of which have already been remodeled to the 20/20 image and where BKC is the
landlord on the lease for such Burger King restaurants operated by Carrols LLC or an affiliate. In 2019 we received
$10.0 million from BKC under this arrangement.

The continued assignment of the ADA ROFR is subject to suspension at the discretion of BKC in the event of
non-compliance by Carrols LLC with the new restaurant development and restaurant remodel obligations and certain
other terms in the ADA. For 2020, we have reduced our planned spending for new restaurant development and the
remodeling of restaurants below the requirements in the ADA. In the event we do not meet our new restaurant
development and/or restaurant remodel requirements in the ADA, BKC may elect to suspend the ADA ROFR. In the
case of a suspension of the ADA ROFR by BKC, any benefits available to us from the ADA may be suspended until
such time that we are in compliance with the terms of the ADA.

On October 1 of each year following the commencement date of the ADA, Carrols LLC paid or will pay BKC
pre-paid franchise fees in the following amounts which will be applied to new Burger King restaurants opened and
operated by Carrols LLC: (a) $350,000 on the commencement date of the Area Development Agreement, (b) $1,600,000
on October 1, 2019, (c) $2,050,000 on October 1, 2020, (d) $2,050,000 on October 1, 2021, (e) $2,000,000 on October
1, 2022 and (f) $1,950,000 on October 1, 2023.

Through the Cambridge Acquisition, we have also assumed a development agreement for Popeyes, which includes
an assignment by PLK of its right of first refusal under its franchise agreements with its franchisees for acquisitions
in two southern states, as well as a development commitment to open, build and operate approximately 80 new Popeyes®
restaurants over six years.

We believe we have the following competitive strengths:

Our Competitive Strengths

Largest Burger King Franchisee in the United States. We are the largest Burger King franchisee in the United States
based on number of restaurants, and are well positioned to leverage the scale and marketing of one of the most recognized
brands in the restaurant industry. We believe the geographic dispersion of our restaurants provides us with stability
and enhanced growth opportunities in many of the markets in which we operate. We also believe that our large number
of restaurants increases our ability to effectively manage the awareness of the Burger King brand in certain markets
through our ability to influence local advertising and promotional activities.

Operational Expertise. We have been operating Burger King restaurants since 1976 and have developed sophisticated
information and operating systems that enable us to measure and monitor key metrics for operational performance,
sales and profitability that may not be available to other restaurant operators. Our focus on leveraging our operational
expertise, infrastructure and systems allows us to optimize the performance of our restaurants and restaurants that we
may acquire or open. Our size and history with the Burger King brand enable us to effectively track operating metrics
and leverage best practices across our organization. We believe that our experienced management team, operating
culture, effective operating systems and infrastructure enable us to operate more efficiently than many other Burger
King operators. We also believe we will be able to leverage our operational expertise to the Popeyes restaurants acquired
in 2019.

Consistent Operating History and Financial Strength. We believe that the quality and sophistication of our restaurant
operations have helped drive our strong restaurant level performance. Comparable restaurant sales for our restaurants
have generally outperformed the Burger King system. Our strong restaurant level operations coupled with our financial
management capabilities have resulted in consistent and stable cash flows under most economic circumstances. We
have demonstrated our ability to prudently manage our capital structure and financial leverage through a variety of
economic cycles. We believe that our cash flow from operations, cash balances and the availability of revolving credit
borrowings under our Senior Credit Facilities are sufficient to fund our ongoing operations and capital expenditures.

Two Distinct Brands with Global Recognition, Innovative Marketing and New Product Development. As a Burger
King franchisee, we benefit from, and rely on, BKC's extensive marketing, advertising and product development
capabilities to drive sales and generate increased restaurant traffic. Over the years, BKC has launched innovative and
creative multimedia advertising campaigns and products that highlight the relevance of the Burger King brand. BKC
has also introduced promotions that leverage both value and premium menu offerings as well as providing a platform
for new premium sandwich offerings. We believe these campaigns continue to positively impact the brand today as
BKC focuses on well-balanced value menu and premium sandwich promotional mix and remains committed to focusing

on new product launches, including the Impossible Whopper, and limited time offers both of which continue to show
positive trends. BKC is also aggressively working with franchisees throughout the system to encourage the renovation
and remodeling of restaurants to BKC's current image, which we believe will continue to increase customer traffic
and restaurant sales. With regard to the Popeyes brand, which is also owned by PLK, a subsidiary of RBI, the successful
development and launch of a new chicken sandwich in the second half of 2019 has not only driven higher sales but
we believe has also attracted a new demographic of guests to the existing customer base which will enhance restaurant
sales and new restaurant development opportunities.

Strategic Relationship with Burger King Corporation and RBI. We believe that the structure of the 2012 acquisition
and the 2019 Cambridge Acquisition strengthened our well-established relationship with BKC and RBI and has further
aligned our common interests to grow our business. Although at a reduced pace in 2020, we intend to continue to
expand our restaurant base long term by making selective acquisitions under our pre-approval rights. The consideration
to BKC associated with the 2012 acquisition included a preferred stock equity interest in Carrols Restaurant Group,
which is held by BKC Stockholders (as defined below) and convertible into approximately 15.2% of the outstanding
shares of our common stock (after giving effect to such conversion). Since the 2012 acquisition, two of BKC's or RBI's
senior executives have served on our Board of Directors. Christopher Finazzo, President of BKC, Americas and
Matthew Dunnigan, Chief Financial Officer of Restaurant Brands International Inc., the indirect parent company of
BKC, currently serve on our board of directors. Our restaurants represented approximately 14.1% of the Burger King
locations in the United States as of December 29, 2019. We believe that the combination of our rights under the ADA,
RBI's equity interest and its board level representation will continue to reinforce the alignment of our common interests
with BKC and Popeyes for the long term.

Experienced Burger King Management Team with a Proven Track Record. We believe that our senior management
team's extensive experience in the restaurant industry and its long and successful history of developing, acquiring,
integrating and operating quick-service restaurants provide us with a competitive advantage. Our management team
has a successful history of integrating acquired restaurants, and over the past 20 years, we have significantly increased
the number of Burger King restaurants we own and operate, largely through acquisitions. Our operations are overseen
by our Chief Executive Officer, Dan Accordino, who has over 45 years of Burger King and quick-service restaurant
experience, two Burger King Divisional Vice Presidents and 15 Regional Directors that collectively have an average
of 22 years of Burger King restaurant experience. Our 151 Burger King district managers that have an average tenure
of over 16 years in the Burger King system support the Regional Directors. Our operations management is further
supported by our infrastructure of financial, information systems, real estate, human resources and legal professionals.

Multiple Growth Levers. We believe our historical track record of acquiring and integrating restaurants and our long-
term strategy to remodel, upgrade and open new restaurants provide multiple avenues to grow our business. With more
than 55 years of restaurant operating experience, we have successfully grown our business through acquisitions and
integrated the restaurants we acquired. We have experienced increases in comparable restaurant sales, increased
restaurant-level profitability and improved operating metrics at the restaurants we have acquired in the last five years.

Our primary business strategies are as follows:

Our Business Strategies

Improve Profitability of Restaurants We Acquire by Leveraging Our Existing Infrastructure and Best-
Practices. Our focus in the near term is to increase profitability for the restaurants we acquired in 2019, particularly
the acquired Cambridge restaurants. We believe that our skilled management team, sophisticated information
technology, operating systems and training and development programs support our ability to enhance operating margins
at these restaurants. For restaurants we acquire, we also believe we can realize benefits from economies of scale,
including leveraging our existing infrastructure across a larger number of restaurants. We have demonstrated our ability
to increase the profitability of acquired restaurants and we believe, over time, that we will improve profitability and
operational efficiency at the restaurants we have acquired and may acquire in the future.

Increase Restaurant Sales and Customer Traffic. BKC has identified and implemented a number of strategies to
increase brand awareness, increase market share, improve overall operations and drive sales. These strategies are
central to our strategic objectives to deliver profitable growth.

• Products. The strength of the BKC menu has been built on a distinct flame-grilled cooking platform to make
better tasting hamburgers. We believe that BKC intends to continue to optimize the menu by focusing on core
products, such as the flagship Whopper® sandwich, while maintaining a balance between value promotions
and premium limited time offerings to drive sales and traffic. Recent product innovation has included the
Impossible Whopper, a vegetable based product that is attracting new customers. In addition, BKC has
implemented a multi-tier balanced marketing approach with value and premium offerings, pairing value
promotions, such as the $1.00 10-piece chicken nugget promotion with premium sandwich offerings, such as
the Sourdough King sandwiches and Crispy Chicken. Promotional initiatives in 2019 included the 2 for $6
Mix and Match, the 5 for $4 bundled product promotion and 2 for $10 Meal Deal featuring the Whopper and
Crispy Chicken sandwich. There have also been a number of enhancements to food preparation procedures to
improve the quality of BKC's existing products. These new menu platforms and quality improvements support
BKC's strategy to appeal to a broader consumer base and to increase restaurant sales.

• Image. We believe that re-imaged restaurants increase curb appeal and result in increased restaurant sales.
BKC's current restaurant image features a fresh, sleek, eye-catching design which incorporates easy-to-navigate
digital menu boards in the dining room, streamlined merchandising at the drive-thru and flat screen televisions
in the dining area. We believe that restaurant remodeling has improved our guests' dining experience and
increased customer traffic. We believe the customer experience will be further enhanced from the upgrades
to the Burger King of Tomorrow image that include a double drive-thru (where applicable), certain
modifications to the exterior image and the installation of exterior digital menu boards.

• Advertising and Promotion. We believe that we will benefit from BKC's advertising support of its menu items,
product enhancement and re-imaging initiatives. BKC has established a data driven marketing process which
has focused on driving restaurant sales and traffic, while targeting a broad consumer base with inclusive
messaging. This strategy uses multiple touch points to advertise our products, including digital advertising,
social media and on-line video in addition to traditional television advertising. BKC has a food-centric
marketing strategy which focuses consumers on the food offerings, the core asset, and balances value
promotions and premium limited time offerings to drive profitable restaurant sales and traffic.

• Operations. We believe that improving restaurant operations and enhancing the customer experience are key
components to increasing the profitability of our restaurants. We believe we will benefit from BKC's ongoing
initiatives to improve food quality, simplify restaurant level execution, including opportunities to reduce
restaurant labor costs and monitor operational performance, all of which are designed to improve the customer
experience and increase customer traffic.

Selectively Acquire and Develop Additional Burger King and Popeyes Restaurants. As of December 29, 2019, we
operated 1,036 Burger King restaurants, making us the largest Burger King franchisee in the United States. In 2020
the majority of our near term growth will be organic growth coming from continued integration of the restaurants
acquired in 2019 and the full year impact of the Cambridge Acquisition. In future years the Company may use
acquisitions to further stimulate growth in part through the ADA that granted certain right of first refusal and pre-
approval rights to acquire additional franchised Burger King restaurants.

Due to the number of restaurants and franchisees in the Burger King system and our historical success in acquiring
and integrating restaurants, we believe that there is considerable opportunity for future growth through acquisitions.
There are more than 2,000 Burger King restaurants we do not own in states in which we have the ADA ROFR and
pre-approval rights. The continued assignment of the ADA ROFR is subject to suspension at the discretion of BKC in
the event of non-compliance by Carrols LLC with the new restaurant development and restaurant remodel obligations
and certain other terms in the ADA. For 2020, we have reduced our planned spending for new restaurant development
and the remodeling of restaurants below the requirements in the ADA. In the event we do not meet our new restaurant
development and/or restaurant remodel requirements in the ADA, BKC may elect to suspend the ADA ROFR. In the
case of a suspension of the ADA ROFR by BKC, the ADA ROFR will be suspended until such time that we are in
compliance with the terms of the ADA.

Furthermore, we believe there are additional Burger King restaurants in states not subject to the ADA ROFR that could
be attractive acquisition candidates, subject to BKC's approval.

Through the Cambridge Acquisition, we have also assumed a development agreement for Popeyes®, which includes
an assignment by PLK of its right of first refusal under its franchise agreements with its franchisees for acquisitions
in two southern states, as well as a development commitment to open, build and operate approximately 80 new Popeyes®
restaurants over six years.

While we may evaluate and discuss potential acquisitions of additional restaurants from time to time, we currently
have no understandings, commitments or agreements with respect to any material acquisitions. We may be required
to obtain additional financing to fund future acquisitions. There can be no assurance that we will be able to obtain
additional financing, if necessary, on acceptable terms or at all.

Selected restaurant operating data for our restaurants is as follows:

Restaurant Economics

Average annual sales per restaurant (1)
Average sales transaction
Drive-through sales as a percentage of total sales
Day-part sales percentages:

Breakfast
Lunch
Dinner
Afternoon and late night

Year Ended

December 31, 2017
1,387,850
$
7.15
$
67.9%

December 30, 2018
1,449,047
$
7.37
$
68.4%

December 29, 2019
1,427,815
$
7.62
$
68.2%

13.7%
32.3%
20.6%
33.4%

13.5%
31.9%
20.9%
33.6%

13.0%
31.7%
21.5%
33.8%

(1) Average annual sales per restaurant are derived by dividing restaurant sales by the average number of restaurants operating

during the period on a 52-week basis.

Restaurant Capital Costs

The initial cost of the franchise fee, equipment, seating, signage and other interior costs of a standard new Burger
King and Popeyes restaurant currently is approximately $500,000 (which excludes the cost of the land, building and
site improvements). In the markets in which we operate, the cost of land generally ranges from $500,000 to $1,200,000
for Burger King restaurants and $500,000 to $1,000,000 for Popeyes restaurants and the cost of building and site
improvements generally ranges from $1,000,000 to $1,400,000 for both Burger King and Popeyes restaurants.

With respect to development of freestanding restaurants, if we acquire the land to construct the building, we
typically seek to thereafter enter into an arrangement to sell and leaseback the land and building under a long-term
lease. Historically, we have been able to acquire and finance many of our locations under such leasing arrangements.
Where we are unable to purchase the underlying land, we enter into a long-term lease for the land followed by
construction of the building using cash generated from our operations or with borrowings under our Senior Credit
Facilities (as defined below).

The cost of securing real estate and developing and equipping new restaurants can vary significantly and depends
on a number of factors, including the local economic conditions and the characteristics of a particular site. Accordingly,
the cost of opening new restaurants in the future may differ substantially from the historical cost of restaurants previously
opened and the estimated costs above.

BKC's current image restaurant design draws inspiration from its signature flame-grilled cooking process and
incorporates a variety of innovative elements to a backdrop that evokes the warm and welcoming look of the outdoors
including corrugated metal, brick, wood and concrete. The cost of remodeling a restaurant to the BKC current image
varies depending upon the age and condition of the restaurant and the amount of new equipment needed and can range
from $400,000 to $800,000 per restaurant with an average cost of approximately $650,000 per restaurant in 2019. The
total cost of a remodel has increased over time due to construction cost increases, the addition of a second drive-thru
lane at certain locations and the replacement of certain kitchen equipment at the time of the remodel which is incremental
to the cost to upgrade to the BKC current image design. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent and Future Events Affecting our Results of Operations".

Site Selection

We believe that the location of our restaurants is a critical component of each restaurant's success. We evaluate
potential new sites on many critical criteria including accessibility, visibility, costs, surrounding traffic patterns,
competition and demographic characteristics. Our senior management approves the viability of all acquisition prospects
and new sites, based upon analyses prepared by our real estate, financial and operations professionals and to our
established return on investment requirement policies.

Our business is moderately seasonal due to regional weather conditions. Due to the location of our restaurants,

sales are generally higher during the summer months than during the winter months.

Seasonality

The following table details the locations of our 1,036 Burger King restaurants as of December 29, 2019:

Restaurant Locations

State
Alabama
Arkansas
Georgia
Illinois
Indiana
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
New Jersey
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Vermont
Virginia
West Virginia

Total

Total
Restaurants
7
9
2
17
93
43
18
15
30
1
53
33
1
10
128
161
121
62
42
109
6
71
4
1,036

The following table details the locations of our 65 Popeyes restaurants as of December 29, 2019:

State
Arkansas
Indiana
Kentucky
Louisiana
Mississippi
Tennessee
Virginia
Total

Total
Restaurants
2
3
3
5
33
18
1
65

Management Structure

Operations

We conduct substantially all of our executive management, finance, marketing and operations support functions
from our corporate headquarters in Syracuse, New York. Carrols Restaurant Group is led by our Chief Executive

Officer and President, Daniel T. Accordino, who has over 45 years of Burger King and quick-service restaurant
experience at our company.

Operations for our Burger King restaurants are overseen by two Division Vice Presidents and 15 Regional
Directors that have an average of over 22 years of Burger King restaurant experience. Our 151 district managers support
the Regional Directors in the management of our Burger King restaurants. Operations for our Popeyes restaurants are
overseen by a Regional Director and eleven district managers.

A district manager is responsible for the direct oversight of the day-to-day operations of an average of
approximately seven to eight restaurants. Typically, district managers have previously served as restaurant managers
at one of our restaurants. Regional directors, district managers and restaurant managers are compensated with a fixed
salary plus an incentive bonus based upon the performance of the restaurants under their supervision, and for our
regional directors and district managers, the combined performance of all of our restaurants. Typically, our restaurants
are staffed with hourly employees who are supervised by a salaried general manager and one to three assistant managers.

Training

We maintain a comprehensive training and development program for all of our personnel and provide both
classroom and in-restaurant training for our salaried and hourly restaurant personnel. The program emphasizes system-
wide operating procedures, food preparation methods, food safety and customer service standards. BKC's and Popeyes
training and development programs are also available to us as a franchisee through web access in all of our restaurants.

Management Information Systems

Our sophisticated management information systems provide us the ability to efficiently and effectively manage
our restaurants and to ensure consistent application of operating controls at our restaurants. Our size affords us the
ability to maintain an in-house staff of information technology and restaurant systems professionals dedicated to
continuously enhancing our systems. In addition, these capabilities allow us to quickly integrate restaurants that we
acquire and achieve greater economies of scale and operating efficiencies.

We typically replace the POS systems at restaurants we acquire shortly after acquisition and implement our POS,
labor and inventory management systems. Our restaurants employ touch-screen POS systems that are designed to
facilitate accuracy and speed of order taking. These systems are user-friendly, require limited cashier training and
improve speed-of-service through the use of conversational order-taking techniques. The POS systems are integrated
with PC-based applications at the restaurant and hosted systems at our corporate office that are designed to facilitate
financial and management control of our restaurant operations.

Our restaurant systems provide daily tracking and reporting of traffic counts, menu item sales, labor and food
data including costs and inventories, and other key operating metrics for each restaurant. We communicate electronically
with our restaurants on a continuous basis via a high-speed data network, which enables us to collect this information
for use in our corporate management systems in near real-time. Our corporate headquarters manages systems that
support all of our accounting, operating and reporting systems. We also operate a 24-hour, seven-day help desk at our
corporate headquarters that enables us to provide systems and operational support to our restaurant operations as
required. Among other things, our restaurant information systems provide us with the ability to:

• monitor labor utilization and sales trends on a real-time basis at each restaurant, enabling the restaurant manager

to effectively manage to our established labor standards on a timely basis;

• reduce inventory shrinkage using restaurant-level inventory management systems and daily reporting of

inventory variances;

• analyze sales and product mix data to help restaurant managers forecast production levels throughout the day;

• monitor day-part drive-thru speed of service at each of our restaurants;

• allow the restaurant manager to produce day-part labor schedules based on the restaurant's historical sales

patterns;

• systematically communicate human resource and payroll data to our administrative offices for efficient

centralized management of labor costs and payroll processing;

• employ centralized control over pricing, menu and inventory management activities at the restaurant utilizing

the remote management capabilities of our systems;

•

take advantage of electronic commerce including our ability to place orders with suppliers and to integrate
detailed invoice, receiving and product data with our inventory and accounting systems;

• provide analyses, reporting and tools to enable all levels of management to review a wide-range of financial,

product mix and operational data; and

• systematically analyze and report on detailed transactional data to help detect and identify potential theft.

Critical information from our systems is available in near real-time to our restaurant managers, who are expected
to react quickly to trends or situations in their restaurant. Our district managers also receive near real-time information
for their respective restaurants and have access to key operating data on a remote basis using our corporate intranet-
based reporting. Management personnel at all levels, from the restaurant manager through senior management, utilize
and monitor key restaurant performance indicators that are also included in our restaurant-level incentive bonus plans.

Burger King and Popeyes Franchise Agreements

Each of our Burger King restaurants operates under a separate franchise agreement with BKC. Each of our
Popeyes restaurants operates under a separate franchise agreement with PLK. Our franchise agreements with BKC
and PLK generally require, among other things, that all restaurants comply with specified design criteria and operate
in a prescribed manner, including utilization of a standard menu. In addition, our Burger King franchise agreements
generally require that our restaurants conform to BKC's current image and may provide for updating our restaurants
during the tenth year of the agreements to conform to such current image, which may require significant expenditures.

These franchise agreements with BKC and PLK generally provide for an initial term of 20 years and currently
have an initial franchise fee of $50,000. In the event that we terminate any franchise agreement and close the related
BKC restaurant prior to the expiration of its term, we generally are required to pay BKC an amount based on the net
present value of the royalty stream that would have been realized by BKC had such franchise agreement not been
terminated. Any franchise agreement, including renewals, can be extended at our discretion for an additional 20-year
term, with BKC's approval, provided that, among other things, the restaurant meets the current Burger King operating
and image standards and that we are not in default under the terms of the franchise agreement. The franchise agreement
fee for subsequent renewals is currently $50,000. BKC may terminate any of the franchise agreements if an act of
default is committed by us under these agreements and such default is not cured. Defaults under the franchise agreements
include, among other things, our failure to operate such Burger King restaurant in accordance with the operating
standards and specifications established by BKC (including failure to use equipment, uniforms or decor approved by
BKC), our failure to sell products approved or designated by BKC, our failure to pay royalties or advertising and sales
promotion contributions as required, our unauthorized sale, transfer or assignment of such franchise agreement or the
related restaurant, certain events of bankruptcy or insolvency with respect to us, conduct by us or our employees that
has a harmful effect on the Burger King restaurant system, conviction of us or our executive officers for certain
indictable offenses, our failure to maintain a responsible credit rating or our acquisition of an interest in any other
hamburger restaurant business. At December 29, 2019, we were not in default under any of our franchise agreements
with BKC or PLK.

In order to obtain a successor franchise agreement with BKC and PLK, a franchisee is typically required to make
capital improvements to the restaurant to bring it up to BKC's or PLK's current image standards. The cost of these
improvements may vary widely depending upon the magnitude of the required changes and the degree to which we
have made interim improvements to the restaurant. At December 29, 2019, we had 61 Burger King franchise agreements
due to expire in 2020, 15 Burger King franchise agreements due to expire in 2021 and 18 Burger King franchise
agreements due to expire in 2022. In recent years, the historical costs of improving our Burger King restaurants in
connection with franchise renewals generally have ranged from $400,000 to $800,000 per restaurant. The average cost
of our remodels in 2019 was approximately $650,000 per restaurant. The cost of remodels can vary depending upon
the age and condition of the restaurant and the amount of new equipment needed. The cost of capital improvements
made in connection with future franchise agreement renewals may differ substantially from past franchise renewals
depending on the current image requirements established from time to time by BKC or PLK.

At December 29, 2019 we had six Popeyes franchise agreements set to expire in 2020, two Popeyes franchise

agreements set to expire in 2021 and four Popeyes franchise agreements set to expire in 2022.

We believe that we will be able to satisfy BKC's and PLK's normal franchise agreement renewal criteria.
Accordingly, we believe that renewal franchise agreements will be granted on a timely basis by BKC and PLK at the
expiration of our existing franchise agreements. Historically, BKC has granted all of our requests for successor franchise
agreements. However, there can be no assurance that BKC and PLK will grant these requests in the future.

We evaluate the performance of our Burger King and Popeyes restaurants on an ongoing basis. With respect to
franchise renewals, such evaluation depends on many factors, including our assessment of the anticipated future
operating results of the subject restaurants and the cost of required capital improvements that we would need to commit
for such restaurants. If we determine that a Burger King or Popeyes restaurant is under-performing, or that we do not
anticipate an adequate return on the capital investment required to renew the franchise agreement, we may elect to
close such restaurant. We may also relocate (offset) a restaurant within its trade area and build a new Burger King or
Popeyes restaurant as part of the franchise renewal process. In 2019, we closed 13 Burger King restaurants, including
two offset locations. We currently expect to close between 7 to 9 Burger King restaurants in 2020, excluding any
relocations of existing restaurants. Our determination to close these restaurants is subject to further evaluation and
may change. We may also elect to close additional restaurants in the future.

In addition to the initial franchise fee, we generally pay BKC and PLK a monthly royalty. The royalty rate for
new Burger King restaurants and for successor franchise agreements is 4.5% of sales. The royalty rate for new Popeyes
restaurants and for successor franchise agreements is 5.0% of sales. Royalty payments for restaurants acquired from
other franchisees are based on the terms of existing franchise agreements being acquired, and may be less than 4.5%.
Burger King royalties, as a percentage of restaurant sales, was 4.2% in 2019 and 4.3% in both 2018 and 2017. We
anticipate our Burger King and Popeyes royalties, as a percentage of restaurant sales, will be approximately 4.3% in
2020 as a result of the terms outlined above. Under the ADA, newly constructed Burger King restaurants will receive
a 1% royalty rate reduction for a four year period and certain remodeled restaurants will generally receive a 0.75%
royalty rate reduction for a five year period.

We also generally contribute 4% of restaurant sales from our Burger King and Popeyes restaurants to fund BKC's
and PLK's national and regional advertising. Under the ADA, newly constructed Burger King restaurants will receive
a 3% advertising contribution deduction for four years and on certain remodeled restaurants, excluding upgrades, will
generally receive a 0.75% advertising contribution reduction for a five year period. BKC and PLK engage in substantial
national and regional advertising and promotional activities and other efforts to maintain and enhance both brands.
From time to time we supplement BKC's marketing with our own local advertising and promotional campaigns. See
“Advertising, Products and Promotion” below.

Our franchise agreements with BKC and PLK do not give us exclusive rights to operate Burger King restaurants
in any defined territory. Although we believe that BKC generally seeks to ensure that newly granted franchises do not
materially adversely affect the operations of existing Burger King restaurants, we cannot assure you that franchises
granted by BKC to third parties will not adversely affect any Burger King restaurants that we operate.

Advertising, Products and Promotion

BKC's marketing strategy is characterized by its HAVE IT YOUR WAY® service, TASTE IS KING® tag line,
flame grilling, generous portions and competitive prices. Burger King restaurants feature flame-grilled hamburgers,
the most popular of which is the Whopper® sandwich, a large, flame-grilled hamburger garnished with mayonnaise,
lettuce, onions, pickles and tomatoes. The basic menu of all Burger King restaurants also includes a variety of
hamburgers, chicken and other specialty sandwiches, french fries, onion rings, soft drinks, salads, breakfast items,
snacks, and other offerings. BKC and its franchisees have historically spent between 4% and 5% of their respective
sales on marketing, advertising and promotion to sustain high brand awareness. BKC's marketing initiatives are designed
to reach a diverse consumer base and BKC has continued to introduce a number of new and enhanced products to
broaden menu offerings and drive customer traffic in all day parts.

BKC's and PLK's advertising programs consist of national campaigns supplemented by local advertising. BKC's
and PLK's advertising campaigns are generally carried on television, radio and in circulated print media (national and
regional newspapers and magazines). As a percentage of our restaurant sales advertising expense was 4.0% in 2019,
4.1% in 2018 and 4.1% in 2017. For 2020 we expect total advertising expense to be approximately 3.9% of total
restaurant sales.

The efficiency and quality of advertising and promotional programs can significantly affect the quick-service
restaurant businesses. We believe that one of the major advantages of being a Burger King franchisee is the value of
the extensive national and regional advertising and promotional programs conducted by BKC. In addition to the benefits
derived from BKC's advertising spending, we sometimes supplement BKC's advertising and promotional activities
with our own local advertising and promotions, including the purchase of additional television, radio and print
advertising. The concentration of our Burger King restaurants in many of our markets permits us to leverage advertising
in those markets. We also utilize promotional programs, such as combination value meals and discounted prices,
targeted to our customers, in order to create a flexible and directed marketing program.

Suppliers

We are a member of a national purchasing cooperative, Restaurant Services, Inc., which we refer to as "RSI",
created for the Burger King system. RSI is a non-profit independent purchasing cooperative that is responsible for
sourcing our products and related supplies and managing relationships with approved distributors for the Burger King
system. We use our purchasing power to negotiate directly with certain other vendors, to obtain favorable pricing and
terms for supplying our restaurants. For our Burger King restaurants, we are required to purchase all of our foodstuffs,
paper goods and packaging materials from BKC-approved suppliers at prices negotiated by RSI. We currently utilize
mostly three distributors, Maines Paper & Food Service, Inc., McLane Company Inc., and Reinhart Food Service
L.L.C., to supply our Burger King restaurants with the majority of our foodstuffs. As of December 29, 2019, such
distributors supplied 39%, 28% and 28%, respectively, of our Burger King restaurants.

For our Popeyes restaurants we are a member of a national purchasing cooperative, Supply Management Services,
Inc. ("SMS"). SMS is a non-profit independent purchasing cooperative that is responsible for sourcing certain of our
products and managing relationships with approved distributors for the Popeyes system. Popeyes utilizes five
distributors, two for poultry products and three for all other products. For our Popeyes restaurants, one distributor,
Tyson Foods, supplies 75% of our poultry products. One distributor, Customized Distribution Services, Inc. supplies
61 of our Popeyes restaurants with all non- poultry products.

We may purchase non-food items, such as kitchen utensils, equipment maintenance tools and other supplies,
from any suitable source so long as such items meet BKC and PLK product uniformity standards. All BKC-approved
and PLK-approved distributors are required to purchase foodstuffs and supplies from BKC-approved and PLK-
approved manufacturers and purveyors. BKC and PLK are each responsible for monitoring quality control and
supervision of the applicable manufacturers and conducts regular visits to observe the preparation of foodstuffs, and
to perform various tests to ensure that only quality foodstuffs are sold to its approved suppliers. In addition, BKC and
PLK coordinate and supervise audits of approved suppliers and distributors to determine continuing product
specification compliance and to ensure that manufacturing plant and distribution center standards are met. Although
we believe that we have alternative sources of supply available to our restaurants, in the event any distributor or supplier
for our restaurants was unable to service us, this could lead to a disruption of service or supply at our restaurants until
a new distributor or supplier is engaged, which could have an adverse effect on our business.

Quality Assurance

Our operational focus is closely monitored to achieve a high level of customer satisfaction based on product
quality, speed of service, order accuracy and quality of service. Our senior management and restaurant management
staffs are principally responsible for ensuring compliance with BKC's and Popeyes required operating procedures. We
have uniform operating standards and specifications relating to the quality, preparation and selection of menu items,
maintenance and cleanliness of the premises and employee conduct. In order to maintain compliance with these
operating standards and specifications, we distribute detailed reports measuring compliance with various customer
service standards and objectives to our restaurant operations management team, including feedback obtained directly
from our customers through instructions given to them at the point of sale. The customer feedback is monitored by an
independent agency and us and consists of evaluations of speed of service, quality of service, quality of our menu
items and other operational objectives including the cleanliness of our restaurants. We also have our own staff that
handle customer inquiries and complaints. The level of customer satisfaction is a key metric in our restaurant-level
incentive bonus plans.

We operate in accordance with quality assurance and health standards mandated by federal, state and local
governmental laws and regulations. These standards include food preparation rules regarding, among other things,

minimum cooking times and temperatures, maximum time standards for holding prepared food, food handling
guidelines and cleanliness. To maintain these standards, under BKC's oversight third-party firms conduct unscheduled
inspections and follow-up inspections of our restaurants and report their findings to us. In addition, restaurant managers
conduct internal inspections for taste, quality, cleanliness and food safety on a regular basis.

Trademarks

As a franchisee of Burger King and Popeyes, we also have contractual rights to use certain trademarks, service
marks and other intellectual property relating to the Burger King and Popeyes concepts. We have no proprietary
intellectual property other than the Carrols logo and trademark.

Government Regulation

Various federal, state and local laws affect our business, including various health, sanitation, fire and safety
standards. Restaurants to be constructed or remodeled are subject to state and local building code and zoning
requirements. In connection with the development and remodeling of our restaurants, we may incur costs to meet
certain federal, state and local regulations, including regulations promulgated under the Americans with Disabilities
Act.

We are subject to the federal Fair Labor Standards Act and various other federal and state laws governing such
matters as the handling, preparation and sale of food and beverages; the provision of nutritional information on menu
boards; minimum wage requirements; unemployment compensation; overtime; and other working conditions and
citizenship requirements.

A significant number of our food service personnel are paid at rates related to the federal, and where applicable,
state minimum wage and, accordingly, increases in the minimum wage have increased and in the future will increase
wage rates at our restaurants.

The Patient Protection and Affordable Care Act (the “Act”) required businesses employing fifty or more full-
time equivalent employees to offer health care benefits to those full-time employees or be subject to an annual penalty.
Those benefits must be provided under a health care plan which provides a certain minimum scope of health care
services. The Act also limits the portion of the cost of the benefits which we can require employees to pay. Based on
our enrollment history to date, approximately 14% of our approximately 3,500 eligible hourly employees have opted
for coverage under our medical plan.

We are also subject to various federal, state and local environmental laws, rules and regulations. We believe that
we conduct our operations in substantial compliance with applicable environmental laws and regulations. Our costs
for compliance with environmental laws or regulations have not had a material adverse effect on our results of operations,
cash flows or financial condition in the past.

Industry and Competition

The Restaurant Market. Restaurant sales historically have closely tracked several macroeconomic indicators
and we believe that “away-from-home” food consumption will increase due to these trends in recent years. Historically,
unemployment has been inversely related to restaurant sales and, as the unemployment rate decreases and disposable
income increases, restaurant sales have increased. According to the U.S. Department of Agriculture, through October
2019 food away from home dollars exceeded at-home dining, with 51.9% of nominal food dollars spent on food away
from home and with total expenditures increasing 4.6% from the same period in 2018.

Quick-Service Restaurants. We operate in the hamburger and chicken categories of the quick-service restaurant
segments of the restaurant industry. Quick-service restaurants are distinguished by high speed of service and efficiency,
convenience, limited menu and service, and value pricing. According to Nation's Restaurant News, 2018 U.S.
foodservice sales for the Top 200 restaurant chains increased 3.6% from 2017 to $302.2 billion. Of this amount, the
hamburger category represented $85.4 billion, or 28.3%, making it the largest category of the quick-service segment.

The restaurant industry is highly competitive with respect to price, service, location and food quality. In each of
our markets, our restaurants compete with a large number of national and regional restaurant chains, as well as locally
owned restaurants, offering low and medium-priced fare. We also compete with operators outside the restaurant
industry such as convenience stores, delicatessens and prepared food counters in supermarkets, grocery stores, cafeterias

and other purveyors offering moderately priced and quickly prepared foods. Our competitors may also employ
marketing strategies such as frequent use of price discounting, frequent promotions and emphasis on value menus.

We believe that:

• product quality and taste;

• brand recognition;

• convenience of location;

• speed of service;

• menu variety;

• price; and

• ambiance

are the most important competitive factors in the quick-service restaurant segment and that our restaurants effectively
compete in each category. We believe our largest competitors for our Burger King restaurants are McDonald's and
Wendy's and the largest competitors for our Popeyes restaurants are KFC and Chik-fil-A.

As of December 29, 2019, we employed approximately 31,500 persons of which approximately 200 were
administrative personnel and approximately 31,300 were restaurant operations personnel. None of our employees are
unionized or covered by collective bargaining agreements. We believe that our overall relations with our employees
are good.

Employees

Availability of Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission
(the “SEC”). The SEC also maintains a website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC at www.sec.gov.

We make available at no cost through our internet website at www.carrols.com, our annual report on Form 10-
K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other
reports relating to us that are filed or furnished to the SEC, as soon as reasonably practicable after electronically filing
or furnishing such material with the SEC. The reference to our website address and the SEC website address do not
constitute incorporation by reference of the information contained on the website and should not be considered part
of this document.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below, as well as other information and data included in this
Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, consolidated
financial condition or results of operations.

Risks Related to Our Business

Intense competition in the restaurant industry could make it more difficult to profitably expand our business and
could also have a negative impact on our operating results if customers favor our competitors or we are forced to
change our pricing and other marketing strategies.

The restaurant industry is highly competitive. In each of our markets, our restaurants compete with a large number
of national and regional restaurant chains, as well as locally owned restaurants, offering low and medium-priced fare.
We also compete with other convenience stores, delicatessens and prepared food counters in grocery stores,
supermarkets, cafeterias and other purveyors of moderately priced and quickly prepared food. We believe our largest
competitors for our Burger King restaurants are McDonald’s and Wendy’s restaurants and the largest competitors for
our Popeyes restaurants are KFC and Chick-fil-A.

Due to competitive conditions, we, as well as certain of the other major quick-service restaurant chains, have
offered select food items and combination meals at discounted prices. These pricing and marketing strategies have
had, and in the future may have, a negative impact on our sales discounts and earnings.

Factors applicable to the quick-service restaurant segment may adversely affect our results of operations, which
may cause a decrease in earnings and revenues.

The quick-service restaurant segment can be materially adversely affected by many factors, including:

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changes in local, regional or national economic conditions;
changes in demographic trends;
changes in consumer tastes;
changes in traffic patterns;
increases in fuel prices and utility costs;
consumer concerns about health, diet and nutrition;
increases in the number of, and particular locations of, competing restaurants;
changes in discretionary consumer spending;
inflation;
increases in the cost of food, such as beef, chicken, produce and packaging;
increased labor costs, including healthcare, unemployment insurance and minimum wage requirements;
the availability of experienced management and hourly-paid employees;
health concerns such as the recent outbreak of the coronavirus (COVID-19); and
regional weather conditions.

We are highly dependent on the Burger King and Popeyes systems and our ability to renew our franchise agreements
with BKC and PLK. The failure to renew our franchise agreements or Burger King's or Popeyes' failure to compete
effectively would materially adversely affect our results of operations.

Due to the nature of franchising and our agreements with BKC and PLK, our success is, to a large extent, directly
related to the success of the Burger King and Popeyes system including their financial condition, advertising programs,
product development, overall quality of operations and the successful and consistent operation of Burger King and
Popeyes restaurants owned by other franchisees. We cannot assure you that Burger King or Popeyes restaurants will
be able to compete effectively with other restaurants. As a result, any failure of the Burger King or Popeyes franchise
systems to compete effectively would likely have a material adverse effect on our operating results.

Under each of our franchise agreements, we are required to comply with operational programs established by
BKC or PLK. For example, our franchise agreements with BKC and PLK require that our restaurants comply with
specified design criteria. In addition, BKC generally has the right to require us during the tenth year of a franchise
agreement to remodel our restaurants to conform to the then-current image of Burger King restaurants, and PLK
generally has the right to require us to remodel our restaurants to conform to the then-current image of the Popeyes
restaurants every six years, all of which may require the expenditure of considerable funds. We may not be able to
avoid adopting menu price discount promotions or permanent menu price decreases instituted by BKC or PLK that
may be unprofitable.

Our BKC franchise agreements typically have a 20-year term after which BKC’s consent is required to receive
a successor franchise agreement. Our PLK franchise agreements typically have a 20-year term after which we have
the options to (a) renew for a 10 year renewal term and (b) renew for a second supplemental renewal term of 10 years
provided that we meet certain conditions as set forth in the PLK franchise agreements.

We cannot assure you that BKC will grant each of our future requests for successor franchise agreements or that
we will exercise any of the options to renew the PLK franchise agreements. Any failure of BKC to renew our franchise
agreements could adversely affect our operating results. In addition, as a condition of approval of a successor franchise
agreement, BKC may require us to make capital improvements to particular restaurants to bring them up to current
image standards established by Burger King, which may require us to incur substantial costs. Additionally, one of the
conditions to our exercise of the options to renew our PLK franchise agreements is that we must make capital

improvements to particular restaurants to bring them up to current image standards established by Popeyes, which
may require us to incur substantial costs.

In addition, our franchise agreements with BKC and PLK do not give us exclusive rights to operate Burger King
or Popeyes restaurants in any defined territory. We cannot assure you that franchises granted by BKC or PLK to third
parties will not adversely affect any restaurants that we operate.

Additionally, as a franchisee, we have no control over the Burger King brand or the Popeyes brand. If BKC and
PLK do not adequately protect the Burger King and Popeyes brands and other intellectual property, our competitive
position and operating results could be harmed.

Our strategy includes pursuing acquisitions of additional Burger King and Popeyes restaurants and we may not
find Burger King restaurants or Popeyes restaurants that are suitable acquisition candidates or successfully operate
or integrate any Burger King restaurants or Popeyes restaurants that we may acquire.

As part of our strategy, we intend to selectively pursue the acquisition of additional Burger King and Popeyes
restaurants. Pursuant to the ADA, BKC assigned to us its right of first refusal under its franchise agreements with its
franchisees to purchase all of the assets of a Burger King restaurant or all or substantially all of the voting stock of the
franchisee, whether direct or indirect, on the same terms proposed between such franchisee and a third party purchaser
in 16 states as follows: Arkansas, Indiana, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, North
Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont and Virginia (subject to certain
exceptions for certain limited geographic areas within certain states) and a limited number of counties in four additional
states and granted us franchise pre-approval to acquire Burger King restaurants from Burger King franchisees until
we acquire more than 500 Burger King restaurants. In addition, we assumed a development agreement for Popeyes®,
which includes a right of first refusal for acquisitions in two southern states.

Competition for acquisition candidates may exist or increase in the future. Consequently, there may be fewer
acquisition opportunities available to us at an attractive acquisition price. There can be no assurance that we will be
able to identify, acquire, manage or successfully integrate additional restaurants without substantial costs, delays or
operational or financial problems. In the event we are able to acquire additional restaurants, the integration and operation
of the acquired restaurants may place significant demands on our management, which could adversely affect our ability
to manage our existing restaurants. We may be required to obtain additional financing to fund future acquisitions.
There can be no assurance that we will be able to obtain additional financing, if necessary, on acceptable terms or at
all. Our Senior Credit Facilities contain restrictive covenants that may prevent us from incurring additional debt to
acquire additional Burger King or Popeyes restaurants.

We could be adversely affected by health concerns such as the current outbreak of the coronavirus(COVID-19),
food-borne illnesses, as well as widespread negative publicity regarding food quality, illness, injury or other health
concerns.

Negative publicity about food quality, illness and injury or other health concerns (including health implications
of obesity) or similar issues stemming from one restaurant or a number of restaurants could materially adversely affect
us, regardless of whether they pertain to our own restaurants, other Burger King and Popeyes restaurants or to restaurants
owned or operated by other companies. For example, health concerns about the consumption of beef, chicken or eggs
or by specific events such as the outbreak of “mad cow” or “swine flu” diseases either domestically or internationally
could lead to changes in consumer preferences, reduce consumption of our products and adversely affect our financial
performance. These events could also reduce available supply or significantly raise the price of beef, chicken or eggs.

In addition, we cannot guarantee that our operational controls and employee training will be effective in preventing
food-borne illnesses, food tampering and other food safety issues that may affect our restaurants. Food-borne illness
or food tampering incidents could be caused by customers, employees or food suppliers and transporters and, therefore,
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could be outside of our control. Any publicity relating to health concerns or the perceived or specific outbreaks of
food-borne illnesses, food tampering or other food safety issues attributed to one or more of our restaurants, could
result in a significant decrease in guest traffic in all of our restaurants and could have a material adverse effect on our
results of operations. In addition, similar publicity or occurrences with respect to other restaurants or restaurant chains
could also decrease our guest traffic and have a similar material adverse effect on our business.

Additionally, the United States and other countries have experienced, or may experience in the future, outbreaks
of viruses, such as the current outbreak of the coronavirus(COVID-19), norovirus, Avian Flu or “SARS,” or H1N1. If
a virus is transmitted by human contact, our employees or customers may become infected, or may choose, or be
advised, to avoid gathering in public places, any of which may adversely affect our restaurant customer traffic and our
ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate
level. We also may be adversely affected if jurisdictions in which we have restaurants impose mandatory closures,
seek voluntary closures or impose restrictions on operations. Even if such measures are not implemented and a virus
or other disease does not spread significantly, the perceived risk of infection or significant health risk may adversely
affect our business.

A health pandemic (such as the coronavirus(COVID-19)) is a disease outbreak that spreads rapidly and
widely by infection and affects many individuals in an area or population at the same time. Our restaurants are
places where people can gather together for human connection. Customers might avoid public gathering places in
the event of a health pandemic, and local, regional or national governments might limit or ban public gatherings to
halt or delay the spread of disease. The impact of a health pandemic on us might be disproportionately greater than
on other quick-service concepts that have lower customer traffic and that depend less on the gathering of people.

We may experience difficulties in integrating restaurants acquired by us into our existing business.

The acquisition of a significant number of restaurants involves the integration of those acquired restaurants with our
existing business. The difficulties of integration include:

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coordinating and consolidating geographically separated systems and facilities;

integrating the management and personnel of the acquired restaurants, maintaining employee morale and
retaining key employees;

implementing our management information systems; and

implementing operational procedures and disciplines to control costs and increase profitability.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of
our business and the loss of key personnel. The diversion of management’s attention and any delays or difficulties
encountered in connection with the acquisition of restaurants and integration of acquired restaurants’ operations could
have an adverse effect on our business, results of operations and financial condition.

Achieving the anticipated benefits of the acquisition of additional restaurants will depend in part upon whether
we can integrate any acquired restaurants in an efficient and effective manner. We may not accomplish this integration
process smoothly or successfully. If management is unable to successfully integrate acquired restaurants, the anticipated
financial contribution of the acquisition may not be realized.

In our evaluation of our recent and potential acquisitions, assumptions are made as to our ability to increase sales
as well as improve restaurant-level profitability particularly in the areas of food, labor and cash controls as well as
other operating expenses. If we are not able to make such improvements in these operational areas as planned, the
acquired restaurants’ targeted profitability levels will be affected which could cause an adverse effect on our overall
financial results and financial condition.

The combined companies may not realize the anticipated benefits from the Cambridge Acquisition.

The Cambridge Acquisition involved the integration of two companies that have previously operated
independently. We expect the combined companies to result in financial and operational benefits, including increased
cost savings and other financial and operating benefits. There can be no assurance, however, regarding when or the
extent to which the combined companies will be able to realize these increased cost savings or benefits. The companies
have integrated or, in some cases, replaced numerous systems, including those involving restaurant-level operational
data, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance

information, many of which were dissimilar. In 2020, the management of the restaurants acquired in 2019 will continue
to include training for restaurant-level managers and team members to best utilize these integrated systems to improve
operating results. The lack of effectiveness of utilizing the integrated systems and processes could have a material
adverse effect on the combined companies and the market price of our common stock.

We may incur significant liability or reputational harm if claims are brought against us or the Burger King and
Popeyes brands.

We may be subject to complaints, regulatory proceedings or litigation from guests or other persons alleging food-
related illness, injuries suffered in our premises or other food quality, health or operational concerns, including
environmental claims. In addition, in recent years a number of restaurant companies have been subject to lawsuits,
including class action lawsuits, alleging, among other things, violations of federal and state law regarding workplace
and employment matters, discrimination, harassment, wrongful termination and wage, rest break, meal break and
overtime compensation issues and, in the case of quick-service restaurants, alleging that they have failed to disclose
the health risks associated with high fat or high sodium foods and that their marketing practices have encouraged
obesity. We may also be subject to litigation or other actions initiated by governmental authorities or our employees,
among others, based upon these and other matters. Adverse publicity resulting from such allegations or occurrences
or alleged discrimination or other operating issues stemming from one or a number of our locations could adversely
affect our business, regardless of whether the allegations are true, or whether we are ultimately held liable. Any cases
filed against us could materially adversely affect us if we lose such cases and have to pay substantial damages or if
we settle such cases. In addition, any such cases may materially and adversely affect our operations by increasing our
litigation costs and diverting our attention and resources to address such actions. In addition, if a claim is successful,
our insurance coverage may not cover or be adequate to cover all liabilities or losses and we may not be able to continue
to maintain such insurance, or to obtain comparable insurance at a reasonable cost, if at all. If we suffer losses, liabilities
or loss of income in excess of our insurance coverage or if our insurance does not cover such loss, liability or loss of
income, there could be a material adverse effect on our results of operations.

Changes in consumer taste could negatively impact our business.

We obtain a significant portion of our revenues from the sale of hamburgers, fried chicken and various types of
sandwiches. If consumer preferences for these types of foods change, it could have a material adverse effect on our
operating results. The quick-service restaurant segment is characterized by the frequent introduction of new products,
often supported by substantial promotional campaigns, and is subject to changing consumer preferences, tastes, and
eating and purchasing habits. Our success depends on BKC’s and PLK's ability to anticipate and respond to changing
consumer preferences, tastes and dining and purchasing habits, as well as other factors affecting the restaurant industry,
including new market entrants and demographic changes. BKC or PLK may be forced to make changes to our menu
items in order to respond to changes in consumer tastes or dining patterns, and we may lose customers who do not
prefer the new menu items. In recent years, numerous companies in the quick-service restaurant segments have
introduced products positioned to capitalize on the growing consumer preference for food products that are, or are
perceived to be, promoting good health, nutritious, low in calories, low in fat content or plant-based. If BKC or PLK
does not continually develop and successfully introduce new menu offerings that appeal to changing consumer
preferences or if the Burger King and Popeyes franchise systems do not timely develop new products, our operating
results could suffer. In addition, any significant event that adversely affects consumption of our products, such as cost,
changing tastes or health concerns, could adversely affect our financial performance.

If a significant disruption in service or supply by any of our suppliers or distributors were to occur, it could create
disruptions in the operations of our restaurants, which could have a material adverse effect on our business.

Our financial performance depends on our continuing ability to offer fresh, quality food at competitive prices.
If a significant disruption in service or supply by our suppliers or distributors were to occur, it could create disruptions
in the operations of our restaurants, which could have a material adverse effect on us.

paper goods and packaging materials from BKC-approved suppliers at prices negotiated by RSI. We currently utilize
mostly three distributors, Maines Paper & Food Service, Inc., McLane Company Inc., and Reinhart Food Service
L.L.C., to supply our Burger King restaurants with the majority of our foodstuffs. As of December 29, 2019, such
distributors supplied 39%, 28% and 28%, respectively, of our Burger King restaurants.

For our Popeyes restaurants we are a member of a national purchasing cooperative, Supply Management Services,
Inc. ("SMS"). SMS is a non-profit independent purchasing cooperative that is responsible for sourcing certain of our
products and and managing relationships with approved distributors for the Popeyes system. Popeyes utilizes five
distributors, two for poultry products and three for all other products. For our Popeyes restaurants, one distributor,
Tyson Foods, supplies 75% of our poultry products. One distributor, Customized Distribution Services, Inc. supplies
61 of our Popeyes restaurants with all non-poultry products.

In the event any of our distributors or suppliers are unable to service us and we are unable to timely secure
alternative sources for product this could lead to a disruption of service until a new distributor or supplier is engaged,
which could have an adverse effect on our business and the market price of our common stock.

If labor costs increase, we may not be able to make a corresponding increase in our prices and our operating results
may be adversely affected.

Wage rates for a number of our employees are either at or slightly above the federal and or state minimum wage
rates. As federal and/or state minimum wage rates increase, we may need to increase not only the wage rates of our
minimum wage employees but also the wages paid to the employees at wage rates which are above the minimum wage,
which will increase our costs. The extent to which we are not able to raise our prices to compensate for increases in
wage rates, including increases in state unemployment insurance costs or other costs including mandated health
insurance, this could have a material adverse effect on our operating results. In addition, even if minimum wage rates
do not increase, we may still be required to raise wage rates in order to compete for an adequate supply of labor for
our restaurants.

Higher labor costs due to statutory and regulatory changes could have a material adverse effect on our business
and financial results.

We are subject to the federal labor laws, including the Fair Labor Standards Act, as well as various state and local
laws governing such matters as minimum wages, labor relations, workplace safety, citizenship requirements and other
working conditions for employees. Federal, state and local laws may also require us to provide paid and unpaid leave,
healthcare, sick time or other benefits to our employees. Changes in the law, or penalties associated with any failure
on our part to comply with legal requirements, could increase our labor costs or result in additional expense.

Beginning in 2018, certain workers were able to take up to eight weeks (increasing in New York and other areas
to twelve weeks in 2021) of employer-provided paid leave for childbirth, care for a seriously ill family member or
needs related to a family member’s military deployment. These additional expenses may cause us to raise our prices.
In certain geographic areas which cannot absorb such increases, this could have a material adverse effect on our
business, financial condition and results of operations. We provide unpaid leave for employees for covered family and
medical reasons, including childbirth, to the extent required by the Family and Medical Leave Act of 1993, as amended,
and applicable state laws. To the extent we need to hire additional employees or pay overtime to replace such employees
on leave, this would be an added expense which could adversely affect our results of operations.

Increases in income tax rates or changes in income tax laws could adversely affect our business, financial condition
or results of operations.

Increases in income tax rates in the United States or other changes in income tax laws in any particular jurisdiction
could reduce our after-tax income from such jurisdiction and could adversely affect our business, financial condition
or results of operations. The United States recently made changes to existing tax laws in the Tax Cuts and Jobs Act
(the "Tax Act") which was signed into law on December 22, 2017. Among its many provisions, the Tax Act reduced
the U.S. Federal corporate income tax rate from 35% to 21% and imposed limitations on the deductibility of interest
and certain other corporate deductions. Additional changes in the U.S. tax regime, including changes in how existing
tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations.

The efficiency and quality of our competitors’ advertising and promotional programs and the extent and cost of
our advertising could have a material adverse effect on our results of operations and financial condition.

The success of our restaurants depends in part upon the effectiveness of the advertising campaigns and promotions
by BKC or PLK. If our competitors increase spending on advertising and promotion, or the cost of television or radio
advertising increases, or BKC’s, PLK's, or our advertising and promotions are less effective than our competitors’,
there could be a material adverse effect on our results of operations and financial condition.

Our business is regional and we therefore face risks related to reliance on certain markets as well as risks for other
unforeseen events.

At December 29, 2019, 15% of our restaurants were located in North Carolina, 12% were located in New York,
12% were located in Tennessee, and 25% were located in Indiana, Ohio and Michigan. Therefore, the economic
conditions, state and local government regulations, weather conditions or other conditions affecting New York,
Tennessee, Indiana, Ohio, Michigan, and North Carolina and other unforeseen events, including terrorism and other
regional issues may have a material impact on the success of our restaurants in those locations.

Many of our restaurants are located in regions that may be susceptible to severe weather conditions such as harsh
winter weather and hurricanes. As a result, adverse weather conditions in any of these areas could damage these
restaurants, result in fewer guest visits to these restaurants and otherwise have a material adverse impact on our business.

We cannot assure you that the current locations of our restaurants will continue to be economically viable or that
additional locations will be acquired at reasonable costs.

The location of our restaurants has significant influence on their success. We cannot assure you that current
locations will continue to be economically viable or that additional locations can be acquired at reasonable costs. In
addition, the economic environment where restaurants are located could decline in the future, which could result in
reduced sales for those locations. We cannot assure you that new sites will be profitable or as profitable as existing
sites.

Economic downturns may adversely impact consumer spending patterns.

The U.S. economy has in the past experienced significant slowdown and volatility due to uncertainties related
to availability of credit, difficulties in the banking and financial services sectors, softness in the housing market,
diminished market liquidity, falling consumer confidence and high unemployment rates. Our business is dependent to
a significant extent on national, regional and local economic conditions, particularly those that affect our guests that
frequently patronize our restaurants and the health of surrounding businesses who employ a significant amount of
workers. In particular, where our customers’ disposable income is reduced (such as by job losses, credit constraints
and higher housing, tax, energy, interest or other costs) or where the perceived wealth of customers has decreased
(because of circumstances such as lower residential real estate values, increased foreclosure rates, increased tax rates
or other economic disruptions), our restaurants have in the past experienced, and may in the future experience, lower
sales and customer traffic as customers choose lower-cost alternatives or other alternatives to dining out. The resulting
decrease in our customer traffic or average sales per transaction has had an adverse effect in the past, and could in the
future have a material adverse effect, on our business.

The loss of the services of our senior management could have a material adverse effect on our business, financial
condition or results of operations.

Our success depends to a large extent upon the continued services of our senior management who have substantial
experience in the restaurant industry. We believe that it could be difficult to replace our senior management with
individuals having comparable experience. Consequently, the loss of the services of members of our senior management
could have a material adverse effect on our business, financial condition or results of operations.

Government regulation could adversely affect our financial condition and results of operations.

We are subject to extensive laws and regulations relating to the development and operation of restaurants, including

regulations relating to the following:

• zoning;

• requirements relating to labeling of caloric and other nutritional information on menu boards, advertising and

food packaging;

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the preparation and sale of food;

• employer/employee relationships, including minimum wage requirements, overtime, mandatory paid and

unpaid leave, working and safety conditions, and citizenship requirements;

• health care; and

• federal and state laws that prohibit discrimination and laws regulating design and operation of, and access to,

facilities, such as the Americans With Disabilities Act of 1990.

In the event that legislation having a negative impact on our business is adopted, it could have a material adverse
impact on us. For example, substantial increases in the minimum wage or state or Federal unemployment taxes could
adversely affect our financial condition and results of operations. Local zoning or building codes or regulations can
cause substantial delays in our ability to build and open new restaurants. Any failure to obtain and maintain required
licenses, permits and approvals could also adversely affect our operating results.

Federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials could expose us to liabilities, which could adversely affect our results of operations.

We are subject to a variety of federal, state and local environmental regulations relating to the use, storage,
discharge, emission and disposal of hazardous substances or other regulated materials, release of pollutants into the
air, soil and water, and the remediation of contaminated sites.

Failure to comply with environmental laws could result in the imposition of fines or penalties, restrictions on
operations by governmental agencies or courts of law, as well as investigatory or remedial liabilities and claims for
alleged personal injury or damages to property or natural resources. Some environmental laws impose strict, and under
some circumstances joint and several, liability for costs of investigation and remediation of contaminated sites on
current and prior owners or operators of the sites, as well as those entities that send regulated materials to the sites.
We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations
and permits. Therefore, our costs of complying with current and future environmental, health and safety laws could
adversely affect our results of operations.

We are subject to all of the risks associated with leasing property subject to long-term non-cancelable leases.

The leases for our restaurant locations (except for certain acquired restaurants which have an underlying lease
term of less than 20 years) generally have initial terms of 20 years, and typically provide for renewal options in five
year increments as well as for rent escalations. Generally, our leases are “net” leases, which require us to pay all of
the costs of insurance, taxes, maintenance and utilities. Additional sites that we lease are likely to be subject to similar
long-term non-cancelable leases. We generally cannot cancel our leases. If an existing or future restaurant is not
profitable, and we decide to close it, we may nonetheless be obligated to perform our monetary obligations under the
applicable lease including, among other things, paying all amounts due for the balance of the lease term. In addition,
as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or any terms
at all, which could cause us to close restaurants in desirable locations.

An increase in food costs could adversely affect our operating results.

Our profitability and operating margins are dependent in part on our ability to anticipate and react to changes in
food costs. Changes in the price or availability of certain food products could affect our ability to offer broad menu
and price offerings to guests and could materially adversely affect our profitability and reputation. The type, variety,
quality, source and price of beef, chicken, produce and cheese can be subject to change and also due to factors beyond
our control, including weather, governmental regulation, availability and seasonality, each of which may affect our
food costs or cause a disruption in our supply. Our food distributors or suppliers may also be affected by higher costs
to produce and transport commodities used in our restaurants, higher minimum wage and benefit costs and other
expenses that they pass through to their customers, which could result in higher costs for goods and services supplied
to us. Although RSI is able to contract for certain food commodities for periods up to one year, the pricing and availability
of some commodities used in our operations are not locked in for periods of longer than one week or at all. We do not
currently use financial instruments to hedge our risk to market fluctuations in the price of beef, produce and other food
products. We may not be able to anticipate and react to changing food costs through menu price adjustments in the
future, which could negatively impact our results of operations.

Security breaches of confidential guest information in connection with our electronic processing of credit and debit
card transactions may adversely affect our business.

Approximately half of our restaurant sales are by credit or debit cards. Other restaurants and retailers have
experienced security breaches in which credit and debit card information of their customers was compromised. We
may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out
of the actual or alleged theft of our guests’ credit or debit card information. Any such claim or proceeding, or any
adverse publicity resulting from these allegations, may have a material adverse effect on us and our restaurants.

We depend on information technology and any material failure of that technology could impair our ability to
efficiently operate our business.

We rely on information systems across our operations, including, for example, point-of-sale processing in our
restaurants, procurement and payment to significant suppliers, collection of cash, and payment of payroll and other
financial obligations and various other processes and procedures. Our ability to efficiently manage our business depends
significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems
with maintenance, upgrading or transitioning to replacement systems or a breach in security of these systems could
cause delays in customer service and reduce efficiency in our operations. Significant capital investments might be
required to remediate any problems.

Carrols is currently a guarantor under 27 Fiesta Restaurant Group, Inc. ("Fiesta") restaurant property leases and
the primary lessee on five Fiesta restaurant property leases, and any default under such property leases by Fiesta
may result in substantial liabilities to us.

Fiesta, a former wholly-owned subsidiary of the Company, was spun-off in 2012 to the Company's stockholders.
Carrols currently is a guarantor under 27 Fiesta restaurant property leases, of which all except for one are still operating
as of December 29, 2019. The Separation and Distribution Agreement, which we refer to as the "separation agreement",
dated as of April 24, 2012 and entered into in connection with the spin-off among Carrols, Fiesta and us provides that
the parties will cooperate and use their commercially reasonable efforts to obtain the release of such guarantees. Unless
and until any such guarantees are released, Fiesta agrees to indemnify Carrols for any losses or liabilities or expenses
that it may incur arising from or in connection with any such lease guarantees.

Carrols is currently a primary lessee of five Fiesta restaurants which it subleases to Fiesta. The separation
agreement provides that the parties will cooperate and use their commercially reasonable efforts to cause Fiesta or a
subsidiary of Fiesta to enter into a new master lease or individual leases with the lessor with respect to the Fiesta
restaurants where Carrols is currently a lessee. The separation agreement provides that until such new master lease or
such individual leases are entered into, (i) Carrols will perform its obligations under the master lease for the five Fiesta
restaurants where it is a lessee and (ii) the parties will cooperate and use their commercially reasonable efforts to enter
into a non-disturbance agreement or similar agreement with the lessor which shall provide that Fiesta or one of its
subsidiaries shall become the lessee under such master lease with respect to such Fiesta restaurants and perform Carrols'
obligations under such master lease in the event of a breach or default by Carrols.

Such guarantees may never be released and a new master lease with respect to the five Fiesta properties where
Carrols is the primary lessee may never be entered into by Fiesta. Any losses or liabilities that may arise in connection
with such guarantees or the master lease where Carrols is not able to receive indemnification from Fiesta may result
in substantial liabilities to us and could have a material adverse effect on our business.

Risks Related to Our Common Stock

The market price of our common stock may be highly volatile or may decline regardless of our operating
performance.

The trading price of our common stock may fluctuate substantially. The price of our common stock that will
prevail in the market may be higher or lower than the price when you acquired our stock, depending on many factors,
some of which are beyond our control. Broad market and industry factors may adversely affect the market price of our
common stock, regardless of our actual operating performance. The fluctuations could cause a loss of all or part of an
investment in our common stock. Factors that could cause fluctuation in the trading price of our common stock may
include, but are not limited to the following:

• price and volume fluctuations in the overall stock market from time to time;

• significant volatility in the market price and trading volume of companies generally or restaurant companies;

• actual or anticipated variations in the earnings or operating results of our company or our competitors;

• actual or anticipated changes in financial estimates by us or by any securities analysts who might cover our

stock or the stock of other companies in our industry;

• market conditions or trends in our industry and the economy as a whole;

• announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures and

our ability to complete any such transaction;

• announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

• capital commitments;

• changes in accounting principles;

• additions or departures of key personnel;

• sales of our common stock, including sales of large blocks of our common stock or sales by our directors and

officers; and

• events that affect BKC, PLK or any of our significant suppliers discussed above.

In addition, if the market for restaurant company stocks or the stock market in general experiences loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of
operations or financial condition. The trading price of our common stock might also decline in reaction to events that
affect other companies in our industry or related industries even if these events do not directly affect us.

In the past, following periods of volatility in the market price of a company's securities, class action securities
litigation has often been brought against that company. Due to the potential volatility of our stock price, we may
therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and
divert management's attention and resources from our business, and could also require us to make substantial payments
to satisfy judgments or to settle litigation.

The concentrated ownership of our capital stock by insiders will likely limit our stockholders' ability to influence
corporate matters.

At December 29, 2019, our executive officers, directors, BKC and Blue Holdco 1, LLC (collectively the "BKC
Stockholders"), and Cambridge together beneficially own approximately 43.7% of our common stock, giving effect
to the conversion of the Series B Convertible Preferred Stock issued to BKC Stockholders. As a result, our executive
officers, directors, affiliates of RBI and Cambridge, if they act as a group, will be able to significantly influence matters
that require approval by our stockholders, including the election of directors and approval of significant corporate
transactions such as mergers and acquisitions. The directors will have the authority to make decisions affecting our
capital structure, including the issuance of additional debt and the declaration of dividends. Each of the BKC
Stockholders and Cambridge may also have interests that differ from yours and may vote in a way with which you
disagree and which may be adverse to your interests. Corporate action might be taken even if other stockholders oppose
them. This concentration of ownership might also have the effect of delaying or preventing a change of control of us
that other stockholders may view as beneficial, could deprive our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of our company and might ultimately depress the market price of our common
stock.

We do not expect to pay any cash dividends for the foreseeable future, and our Senior Credit Facilities limit our
ability to pay dividends to our stockholders.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable
future. The absence of a dividend on our common stock may increase the volatility of the market price of our common
stock or make it more likely that the market price of our common stock will decrease in the event of adverse economic

conditions or adverse developments affecting our company. Additionally, our Senior Credit Facilities limit, and the
debt instruments that we may enter into in the future may limit our ability to pay dividends to our stockholders.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price
of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial
analysts publish about us or our business. We cannot assure you that these analysts will publish research or reports
about us or that any analysts that do so will not discontinue publishing research or reports about us in the future. If
one or more analysts who cover us downgrade our stock, our stock price could decline rapidly. If analysts do not
publish reports about us or if one or more analysts cease coverage of our stock, we could lose visibility in the market,
which in turn could cause our stock price to decline.

Provisions in our restated certificate of incorporation and amended and restated bylaws, as amended, or Delaware
law might discourage, delay or prevent a change of control of our company or changes in our management and,
therefore, depress the trading price of our common stock.

Delaware corporate law and our restated certificate of incorporation and amended and restated bylaws, as amended,
contain provisions that could discourage, delay or prevent a change in control of our company or changes in our
management that the stockholders of our company may deem advantageous. These provisions:

•

•
•

require that special meetings of our stockholders be called only by our board of directors or certain of our
officers, thus prohibiting our stockholders from calling special meetings;
deny holders of our common stock cumulative voting rights in the election of directors, meaning that
stockholders owning a majority of our outstanding shares of common stock will be able to elect all of our
directors;
authorize the issuance of “blank check” preferred stock that our board could issue to dilute the voting and
economic rights of our common stock and to discourage a takeover attempt;
provide that approval of our board of directors or a supermajority of stockholders is necessary to make, alter
or repeal our amended and restated bylaws and that approval of a supermajority of stockholders is necessary
to amend, alter or change certain provisions of our restated certificate of incorporation;
establish advance notice requirements for stockholder nominations for election to our board or for proposing
matters that can be acted upon by stockholders at stockholder meetings;
divide our board into three classes of directors, with each class serving a staggered 3-year term, which generally
increases the difficulty of replacing a majority of the directors;
provide that directors only may be removed for cause by a supermajority of our stockholders; and
require that any action required or permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of stockholders and may not be effected by any consent in writing.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial condition.

As of December 29, 2019 we had $472.3 million of total indebtedness outstanding consisting of $422.9 million
Term Loan B borrowings under our Senior Credit Facilities, $45.8 million of revolving credit borrowings under our
Senior Credit Facilities, $1.2 million of lease financing obligations and $2.5 million of finance lease liabilities. As of
December 29, 2019 we had $57.6 million of revolving borrowing availability under our Senior Credit Facilities (after
reserving $11.6 million for letters of credit issued under the Senior Credit Facilities, which included amounts for
anticipated claims from our renewals of workers' compensation and other insurance policies). On February 24, 2020,
$70.8 million of revolving credit borrowings and $11.7 million of letters of credit were outstanding on our Revolving
Credit Facility and we had revolving borrowing availability of $32.5 million.

As a result of our substantial indebtedness, a significant portion of our operating cash flow will be required to
make payments of interest and principal on our outstanding indebtedness, and we may not generate sufficient cash
flow from operations, or have future borrowings available under our Senior Credit Facilities, to enable us to repay our
indebtedness, including the Term Loan B borrowings, or to fund other liquidity needs.

Our substantial indebtedness could have important consequences to our stockholders. For example, it could:
• make it more difficult for us to satisfy our obligations with respect to the Senior Credit Facilities and our other

•
•

•
•
•
•
•

debt;
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
and related interest, including indebtedness we may incur in the future, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures and other general corporate purposes;
restrict our ability to acquire additional restaurants;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
increase our cost of borrowing;
place us at a competitive disadvantage compared to our competitors that may have less debt; and
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt
service requirements or general corporate purposes.

We expect to use cash flow from operations, our cash balances and revolving credit borrowings under our Senior
Credit Facilities to meet our current and future financial obligations, including funding our operations, debt service,
possible future acquisitions and capital expenditures (including restaurant remodeling and new restaurant
development). Our ability to make these payments depends on our future performance, which will be affected by
financial, business, economic and other factors, many of which we cannot control. Our business may not generate
sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness, or to
fund other liquidity needs. If we do not have sufficient liquidity, we may be forced to reduce or delay capital expenditures
and restaurant acquisitions, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion
of our debt, including our Senior Credit Facilities, on or before maturity. We cannot make any assurances that we will
be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing
or future indebtedness, including the agreements for our Senior Credit Facilities, may limit our ability to pursue any
of these alternatives.

Despite current indebtedness levels and restrictive covenants, we may still be able to incur more debt or make certain
restricted payments, which could further exacerbate the risks described above.

Although our Senior Credit Facilities contain restrictions on our ability to incur indebtedness, those restrictions
are subject to a number of exceptions. We could also consider investments in joint ventures or acquisitions, which may
increase our indebtedness. Moreover, although our Senior Credit Facilities contain restrictions on our ability to make
restricted payments, including the declaration and payment of dividends, we are able to make such restricted payments
under certain circumstances. Adding new debt to current debt levels or making restricted payments could intensify the
related risks that we and our subsidiaries now face.

Our Senior Credit Facilities restrict our ability to engage in some business and financial transactions and contain
certain other restrictive terms.

Our Senior Credit Facilities restrict our ability in certain circumstances to, among other things:

incur additional debt;
pay dividends and make other distributions on, redeem or repurchase, capital stock;

•
•
• make investments or other restricted payments;
•
•
•
•
•

enter into transactions with affiliates;
engage in sale and leaseback transactions;
sell all, or substantially all, of our assets;
create liens on assets to secure debt; or
effect a consolidation or merger.

These covenants limit our operational flexibility and could prevent us from taking advantage of business
opportunities as they arise, growing our business or competing effectively. In addition, our Senior Credit Facilities
may require us to maintain a First Lien Net Ratio (as defined in the Senior Credit Facilities) and satisfy other financial

tests. At December 29, 2019, we were in compliance with such covenants. Our ability to meet these such financial
ratio and tests can be affected by events beyond our control, and we cannot assure you that we will meet these tests.

A breach of any of these covenants or other provisions in our debt agreements could result in an event of default,
which if not cured or waived, could result in such debt becoming immediately due and payable. This, in turn, could
cause our other debt to become due and payable as a result of cross-acceleration provisions contained in the agreements
governing such other debt. In the event that some or all of our debt is accelerated and becomes immediately due and
payable, we may not have the funds to repay, or the ability to refinance, such debt.

We may not have the funds necessary to satisfy all of our obligations under our Senior Credit Facilities or other
indebtedness in connection with certain change of control events.

Our Senior Credit Facilities provide that certain change of control events constitute an event of default. Such an
event of default entitles the lenders thereunder to, among other things, cause all outstanding debt obligations under
the Senior Credit Facilities to become due and payable and to proceed against the collateral securing such Senior Credit
Facilities. Any event of default or acceleration of the Senior Credit Facilities will likely also cause a default under the
terms of our other indebtedness.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 29, 2019, we owned 13 and leased 1,088 restaurant properties including one restaurant located
in a mall shopping center and 31 co-branded locations. In addition, we owned three and leased six non-operating
properties as of December 29, 2019, not including six properties under construction that are expected to open as new
restaurants in 2020.

We typically enter into leases (including renewal options) ranging from 20 to 40 years. The average remaining
term for all leases, including options, was approximately 25.4 years at December 29, 2019. Generally, we have been
able to renew leases, upon or prior to their expiration, at the prevailing market rates, although there can be no assurance
that this will continue to occur.

Most of our Burger King® restaurant leases are coterminous with the related franchise agreements. We believe
that we generally will be able to renew at commercially reasonable rates the leases whose terms expire prior to the
expiration of that location's Burger King® franchise agreement, although there can be no assurance that this will occur.

Most leases require us to pay utility and water charges and real estate taxes. Certain leases also require contingent
rentals based upon a percentage of gross sales of the particular restaurant that exceed specified minimums. In some
of our mall locations, we are also required to pay certain other charges such as a pro rata share of the mall's common
area maintenance costs, insurance and security costs.

In addition to the restaurant locations set forth under Item 1. “Business-Restaurant Locations”, we own a building
with approximately 25,300 square feet at 968 James Street, Syracuse, New York, which houses our executive offices,
most of our administrative operations for our Burger King® restaurants and one of our regional support offices. We
also lease eight small regional offices that support the management of our Burger King® restaurants, two offices in
Tennessee acquired in the Cambridge Acquisition, and one small administrative office in Syracuse, NY that supports
administrative operations.

ITEM 3. LEGAL PROCEEDINGS

Litigation. We are involved in various litigation matters and claims that arise in the ordinary course of business.
Based on our currently available information, we do not believe that the ultimate resolution of any of these matters
will have a material adverse effect on our consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Market under the symbol “TAST”. On March 3, 2020,
there were 52,694,010 shares of our common stock outstanding held by 483 holders of record. The number of record
holders was determined from the records of our transfer agent and does not include beneficial owners of our common
stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies.

We did not pay any cash dividends during the fiscal years 2019 or 2018. We currently intend to continue to retain
all available funds to reduce our indebtedness and fund the development and growth of our business and do not anticipate
paying any cash dividends on our common stock in the foreseeable future. In addition, we are a holding company and
conduct all of our operations through our direct and indirect subsidiaries. As a result, for us to pay dividends, we need
to rely on dividends or distributions to us from our direct and indirect subsidiaries. Our Senior Credit Facilities limit,
and debt instruments that we and our subsidiaries may enter into in the future may limit, our ability to pay dividends
to our stockholders.

Stock Performance Graph

The following graph compares from December 31, 2014 the cumulative total stockholder return on our common
stock relative to the cumulative total returns of The NASDAQ Composite Index and a peer group, The S&P SmallCap
600 Restaurants Index. We have elected to use the S&P SmallCap 600 Restaurant Index in compiling our stock
performance graph because we believe the S&P SmallCap 600 Restaurant Index represents a comparison to competitors
with similar market capitalization as us. The graph assumes an investment of $100 in our common stock and each
index on December 31, 2014.

* $100 invested on 12/31/2014 in stock or index, including reinvestment of dividends.

12/31/2014 12/31/2015

12/31/2016

12/31/2017

12/31/2018

Carrols Restaurant Group, Inc.. . . . . . . $
NASDAQ Composite . . . . . . . . . . . . . . $
S&P SmallCap 600 Restaurants . . . . . . $

100.00 $
100.00 $
100.00 $

153.87 $
106.96 $
84.35 $

199.87 $
116.45 $
90.08 $

159.24 $
150.96 $
90.09 $

12/31/2019
92.40
200.49
107.21

128.96 $
146.67 $
94.75 $

Purchases of Equity Securities by the Issuer

On August 2, 2019, our Board of Directors approved a repurchase program under which we may repurchase up
to $25 million of our outstanding common stock (the "Repurchase Program"). The authorization became effective on
August 2, 2019, and will expire 24 months thereafter, unless terminated earlier by our Board of Directors. Purchases
under the Repurchase Program may be made from time to time in open market transactions at prevailing market prices
or in privately negotiated transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with
applicable federal securities laws, including Rule 10b-18 under the Exchange Act. We have no obligation to repurchase
stock under the Repurchase Program, and the timing, actual number and value of shares purchased will depend on our
stock price, trading volume, general market and economic conditions, and other factors.

The table below reflects shares of common stock we repurchased in fourth quarter of 2019.

Total
Number of
Shares
Purchased

Average
Price Paid
Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)

Approximate Dollar
Value of Shares that
May Yet to Be
Purchased Under
the Plans or
Programs

November

Purchased 11/4 through 12/1. . .

270,043

7.44

270,043 $

20,983,417

(1) Shares were repurchased in open market transactions pursuant to the Repurchase Program.

ITEM 6. SELECTED FINANCIAL DATA

Our fiscal years ended January 3, 2016, January 1, 2017, December 31, 2017, December 30, 2018 and
December 29, 2019 presented below each include 52 weeks. The fiscal year ended January 3, 2016 presented below
includes 53 weeks.

The information in the following table should be read together with our audited consolidated financial statements
and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this Annual Report on Form 10-K.

In 2015, we acquired 55 restaurants from other franchisees in eight separate transactions. During 2016, we
acquired 56 restaurants from other franchisees in seven separate transactions and in 2017 we acquired 64 restaurants
from other franchisees in three separate transactions. During 2018, we acquired 44 restaurants in four separate
transactions. In 2019, we acquired 234 restaurants in three separate transactions. Our consolidated financial information
may not be indicative of our future performance.

Statements of operations data:

Revenue:

Restaurant sales

Other revenue

Total revenue

Costs and expenses:

Cost of sales

Restaurant wages and related expenses

Restaurant rent expense

Other restaurant operating expenses

Advertising expense

General and administrative (1)(2)

Depreciation and amortization

Impairment and other lease charges

Other expense (income) (3)

Total operating expenses

Income (loss) from operations

Interest expense

Loss on extinguishment of debt

Gain on bargain purchase

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Per share data:

Basic and diluted net income (loss) per share:

Weighted average shares used in computing net
income (loss) per share:

Basic

Diluted

Year Ended

January 3,
2016

January 1,
2017

December 31,
2017

December 30,
2018

December 29,
2019

(In thousands, except share and per share data)

859,004

—

859,004

240,322

267,950

58,096

135,874

32,242

50,515

39,845

3,078

(126)

827,796

31,208

18,569

12,635

—

0.00

943,583

1,088,532

1,179,307

—

943,583

1,088,532

1,179,307

1,452,516

10,249

1,462,765

250,112

297,766

64,814

148,946

41,299

54,956

47,295

2,355

338

907,881

35,702

18,315

—

17,387

(28,085)

45,472

1.01

304,593

350,054

75,948

166,786

44,677

60,348

54,159

2,827

(333)

326,308

382,829

81,409

178,750

48,340

66,587

58,468

3,685

(424)

431,969

485,278

107,147

227,364

58,689

84,734

74,674

3,564

(1,911)

1,059,059

1,145,952

1,471,508

29,473

21,710

—

7,763

604

7,159

0.16

33,355

23,638

—

(230)

9,947

(157)

10,104

0.22

(8,743)

27,856

7,443

—

(44,042)

(12,123)

(31,919)

(0.74)

34,958,847

44,623,251

35,178,329

44,851,345

35,416,531

44,976,514

35,715,372

45,319,971

43,421,715

Year Ended

January 3,
2016

January 1,
2017

December 31,
2017

December 30,
2018

December 29,
2019

(In thousands, except restaurant weekly sales data)

Other financial data:

Net cash provided by operating activities . . . . . . . . . . . . . $

Total capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used for investing activities . . . . . . . . . . . . . . . . .

Net cash provided by financing activities . . . . . . . . . . . . .

Operating Data:

Restaurants (at end of period) . . . . . . . . . . . . . . . . . .

Average number of restaurants . . . . . . . . . . . . . . . . .

70,702

56,548

103,429

33,780

705

662.1

62,288

94,099

96,221

13,661

753

719.5

72,783

73,516

108,105

62,732

807

784.3

80,769

75,735

106,894

727

849

813.9

Average annual sales per restaurant (4). . . . . . . . . . .

1,274,372

1,311,516

1,387,850

1,449,047

Adjusted EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . .

Adjusted net income (loss) (5) . . . . . . . . . . . . . . . . .

Adjusted Restaurant-Level EBITDA (5). . . . . . . . . .

76,737

13,429

124,520

89,505

17,860

140,646

91,771

9,262

146,837

102,990

14,091

162,133

Change in comparable restaurant sales (6) . . . . . . . .

7.4%

2.3%

5.2%

3.8%

48,708

145,601

218,045

168,297

1,101

1,017.3

1,427,815

86,115

(15,514)

156,131

2.2%

Balance sheet data (at end of period):

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

427,256

490,115

581,514

600,251

1,751,460

Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(26,259)

(39,231)

(19,514)

(47,461)

(109,540)

Debt: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Senior and senior subordinated debt . . . . . . . . . .

Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lease financing obligations. . . . . . . . . . . . . . . . .

Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . $

200,000

8,006

1,203

209,209

107,999

213,500

7,039

3,020

223,559

154,656

275,000

5,681

1,203

281,884

169,060

275,000

3,941

1,201

280,142

185,540

468,625

2,524

1,198

472,347

309,462

Reconciliation of EBITDA and Adjusted EBITDA (5):

Net income (loss)

Provision (benefit) for income taxes

Interest expense

Depreciation and amortization

EBITDA

Impairment and other lease charges

Acquisition and integration costs (7)

Pre-opening costs

Other income, net (3)

Litigation settlement (3)

Litigation costs (8)

Stock compensation expense

Gain on bargain purchase

Loss on extinguishment of debt

Adjusted EBITDA

Year Ended

January 3,
2016

January 1,
2017

December 31,
2017

December 30,
2018

December 29,
2019

(In thousands, except per share data)

—

18,569

39,845

58,418

3,078

1,168

—

1,438

—

12,635

45,472

7,159

10,104

(28,085)

18,315

47,295

82,997

2,355

1,853

—

(1,603)

1,850

—

2,053

—

604

21,710

54,159

83,632

2,827

1,793

363

(362)

—

3,518

—

(157)

23,638

58,468

92,053

3,685

1,445

462

(424)

—

187

5,812

(230)

—

76,737

89,505

91,771

102,990

(31,919)

(12,123)

27,856

74,674

58,488

3,564

10,827

1,449

(1,911)

—

502

5,753

—

7,443

86,115

January 3,
2016

January 1,
2017

December 31,
2017

December 30,
2018

December 29,
2019

Year Ended

Reconciliation of Adjusted Restaurant-Level EBITDA (5):

Income (loss) from operations

31,208

35,702

29,473

33,355

(8,743)

Add:

General and administrative expenses

50,515

54,956

60,348

Restaurant integration costs

Pre-opening costs

Depreciation and amortization

Impairment and other lease charges

Other expense (income), net (3)

—

39,845

3,078

(126)

—

47,295

2,355

338

—

363

54,159

2,827

(333)

66,587

—

462

58,468

3,685

(424)

84,734

2,364

1,449

74,674

3,564

(1,911)

Adjusted Restaurant-Level EBITDA

124,520

140,646

146,837

162,133

156,131

Reconciliation of Adjusted net income (loss) (5):

Net income (loss)

Add:

Loss on extinguishment of debt

Impairment and other lease charges

Acquisition and integration costs (7)

Pre-opening costs

Other income, net (3)

Gain on bargain purchase

Litigation settlement (3)

Litigation costs (8)

Income tax effect of above adjustments (9)

Adjustments to income tax benefit (10)

Adjusted net income (loss)

Adjusted diluted net income (loss) per share (11)

January 3,
2016

January 1,
2017

December 31,
2017

December 30,
2018

December 29,
2019

Year Ended

45,472

7,159

10,104

(31,919)

12,635

3,078

1,168

—

(6,415)

2,959

13,429

0.30

—

2,355

1,853

—

(1,603)

—

1,850

—

(1,693)

(30,374)

17,860

0.40

—

2,827

1,793

363

(362)

—

(1,756)

(762)

9,262

0.21

—

3,685

1,445

462

(424)

(230)

—

187

(1,138)

—

14,091

0.31

7,443

3,564

10,827

1,449

(1,911)

—

502

(5,469)

—

(15,514)

(0.36)

(1) Acquisition costs of $1.2 million, $1.9 million, $1.8 million, $1.4 million and $8.5 million were included in general and

administrative expense for the years ended January 3, 2016, January 1, 2017, December 31, 2017, December 30, 2018 and
December 29, 2019, respectively.

(2) General and administrative expenses include stock-based compensation expense for the years ended January 3, 2016,
January 1, 2017, December 31, 2017, December 30, 2018 and December 29, 2019 of $1.4 million, $2.1 million, $3.5 million,
$5.8 million and $5.8 million respectively.

(3) In fiscal 2019, the Company recorded, among other things, a $1.9 million gain related to a settlement with BKC for the
approval of new restaurant development by other franchisees which unfavorably impacted our restaurants. In
fiscal 2018 and 2017, the Company recorded net gains of $0.4 million and $0.3 million, respectively, primarily related to
insurance recoveries from fires at two restaurants. In fiscal 2016, the Company recorded gains of $1.2 million related to
property insurance recoveries from fires at two restaurants, a gain of $0.5 million related to a settlement for a partial
condemnation on one of its operating restaurant properties and expense of $1.85 million related to a settlement of litigation.

(4) Average annual sales per restaurant are derived by dividing restaurant sales by the average number of restaurants operating

during the period.

(5) EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income (loss) are non-GAAP financial measures.
EBITDA represents net income or loss before income taxes, interest expense and depreciation and amortization. Adjusted
EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition and integration costs,
stock compensation expense, pre-opening costs, gain on bargain purchase, loss on extinguishment of debt and other income
or expense. Adjusted Restaurant-Level EBITDA represents income or loss from operations adjusted to exclude general and
administrative expenses, restaurant integration costs, pre-opening costs, depreciation and amortization, impairment and other
lease charges, and other income or expense. Adjusted net income (loss) represents net income or loss as adjusted to exclude
loss on extinguishment of debt, impairment and other lease charges, acquisition and integration costs, pre-opening expense

gain on bargain purchase, litigation costs, legal settlement gains and other income or expense, the related income tax effect
of these adjustments and the establishment or reversal of a valuation allowance on our net deferred income tax assets.

We are presenting Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income (loss) because we believe
that they provide a more meaningful comparison than EBITDA and net income or loss of our core business operating results,
as well as with those of other similar companies. Additionally, we present Adjusted Restaurant-Level EBITDA because it
excludes the impact of general and administrative expenses and other income or expense, which are not directly related to
restaurant-level operations. Management believes that Adjusted EBITDA and Adjusted Restaurant-Level EBITDA, when
viewed with our results of operations in accordance with GAAP and the accompanying reconciliations, provide useful
information about operating performance and period-over-period growth, and provide additional information that is useful
for evaluating the operating performance of our core business without regard to potential distortions. Additionally, management
believes that Adjusted EBITDA and Adjusted Restaurant-Level EBITDA permit investors to gain an understanding of the
factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced.

However, EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income (loss) are not measures
of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income
or loss, income or loss from operations or cash flow from operating activities as indicators of operating performance or
liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.

EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income (loss) have important limitations
as analytical tools. These limitations include the following:

• EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect our capital expenditures, future

requirements for capital expenditures or contractual commitments to purchase capital equipment;

• EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect the interest expense or the cash

requirements necessary to service principal or interest payments on our debt;

• Although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize
will likely have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA
do not reflect the cash required to fund such replacements; and

• EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income (loss) do not reflect the
effect of earnings or charges resulting from matters that our management does not consider to be indicative of our
ongoing operations. However, some of these charges (such as impairment and other lease charges and acquisition
and integration costs) have recurred and may reoccur.

(6) Restaurants we acquire are included in comparable restaurant sales after they have been operated by us for 12 months. Sales
from restaurants we develop are included in comparable sales after they have been open for 15 months. Comparable restaurant
sales are on a 53-week basis for the year ended January 3, 2016.

(7) Acquisition and integration costs for the periods presented include certain legal and professional fees, corporate payroll, and
other costs related to the integration of acquisitions and one-time repair and other operating costs which are included in
Adjusted Restaurant-Level EBITDA.

(8) Litigation costs in fiscal 2019 and fiscal 2018 are legal costs pertaining to an ongoing lawsuit with one of our former vendors.

(9) The income tax effect related to all adjustments, other than the deferred income tax valuation allowance provision (benefit),
was calculated using an incremental income tax rate of 25% in fiscal 2019, 22.2% in fiscal 2018 and 38% in all other years
presented.

(10) The benefit for income taxes in fiscal 2019 contains discrete tax adjustments of $0.5 million of income tax expense. The
benefit for income taxes in fiscal 2018 contains net discrete tax adjustments of $0.1 million of income tax expense. The
provision for income taxes in fiscal 2017 contains a $0.8 million discrete tax benefit recorded in the fourth quarter to remeasure
our net deferred taxes due to the lowering of the Federal income tax rate to 21% under the Tax Cuts and Jobs Act signed into
law in the fourth quarter of 2017. The benefit for income taxes in fiscal 2016 reflects a $30.4 million income tax benefit
recorded in the fourth quarter of 2016 to reverse the previously recorded valuation allowance on net deferred income tax
assets as well as the full year deferred income tax provision of $2.3 million which was recorded in the fourth quarter of 2016.
For comparability, when presenting 2016 Adjusted net income, the provision (benefit) for income taxes for each respective
period is adjusted as if such valuation allowance had been reversed prior to 2016.

(11) Adjusted diluted net income (loss) per share is calculated based on Adjusted net income (loss) and the dilutive weighted

average common shares outstanding for each respective period.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Our fiscal years consist of 52 or 53 weeks ending on the Sunday closest to December 31. The fiscal years ended

December 29, 2019, December 30, 2018 and December 31, 2017 each contained 52 weeks.

Introduction

We are a holding company and conduct all of our operations through our direct and indirect subsidiaries, Carrols,
Carrols LLC, New CFH, LLC and its direct and indirect subsidiaries and Republic Foods, Inc., and have no assets
other than the shares of capital stock of Carrols and New CFH, LLC, our direct wholly-owned subsidiaries. The
following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) is
written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in
conjunction with, our Consolidated Financial Statements and the accompanying consolidated financial statement
footnotes appearing elsewhere in this Annual Report on Form 10-K. The overview provides our perspective on the
individual sections of MD&A, which include the following:

Company Overview—a general description of our business and our key financial measures.

Recent and Future Events Affecting Our Results of Operations—a description of recent events that affect, and

future events that may affect, our results of operations.

Results of Operations—an analysis of our consolidated results of operations for the years ended December 29,
2019, December 30, 2018 and December 31, 2017 including a review of the material items and known trends and
uncertainties.

Liquidity and Capital Resources—an analysis of our cash flows, including capital expenditures, changes in capital

resources and known trends that may impact liquidity.

Application of Critical Accounting Policies—an overview of accounting policies requiring critical judgments

and estimates.

New accounting pronouncements — a discussion of new accounting pronouncements, dates of implementation,

and the impact on our consolidated financial position or results of operations, if any.

Company Overview

We are one of the largest restaurant companies in the United States and have been operating restaurants for more
than 55 years. We are the largest Burger King® franchisee in the United States, based on number of restaurants, and
have operated Burger King restaurants since 1976. As of December 29, 2019, our restaurant operations consisted of
1,036 franchised Burger King restaurants in 23 states and 65 Popeyes restaurants in 7 states that were acquired in 2019.

During the year ended December 29, 2019, we acquired 179 Burger King® restaurants and 55 Popeyes restaurants
in three separate transactions which we refer to as the "2019 acquired restaurants". During the year ended December 30,
2018, we acquired 44 Burger King® restaurants in four separate transactions, which we refer to as the "2018 acquired
restaurants," and during the year ended December 31, 2017, we acquired 64 Burger King® restaurants in three separate
transactions.

The following is an overview of the key financial measures discussed in our results of operations:

• Restaurant sales consist of food and beverage sales at our restaurants, net of sales discounts and excluding
sales tax collected. Restaurant sales are influenced by changes in comparable restaurant sales, menu price
increases, new restaurant development, acquisition of restaurants and the closures of restaurants. Comparable
restaurant sales reflect the change in year-over-year sales for a comparable restaurant base. Restaurants we
acquire are included in comparable restaurant sales after they have been owned for 12 months and immediately
after they re-open following a remodel. Newly developed restaurants are included in comparable restaurant
sales after they have been open for 15 months. For comparative purposes, where applicable, the calculation
of the changes in comparable restaurant sales is based either on a 53-week or 52-week year.

• Other revenue consists of fuel sales, food sales and sales of other convenience merchandise and services from
the six convenience stores acquired as part of the Cambridge Acquisition. The six convenience stores were
closed in the fourth quarter of 2019.

• Cost of sales consists of food, paper and beverage costs including packaging costs, less purchase discounts
and vendor rebates. Cost of sales is generally influenced by changes in commodity costs, the mix of items
sold and the level of promotional discounting and the effectiveness of our restaurant-level controls to manage
food and paper costs. In 2019 cost of sales also includes lower margin fuel costs, relative to our restaurant cost
of sales for the six convenience stores acquired as part of the Cambridge Acquisition.

• Restaurant wages and related expenses include all restaurant management and hourly productive labor costs
and related benefits, employer payroll taxes and restaurant-level bonuses. Payroll and related benefits are
subject to inflation, including minimum wage increases and increased costs for health insurance, workers’
compensation insurance and federal and state unemployment insurance.

• Restaurant rent expense includes base rent and variable rent on our leases characterized as operating leases
and, in 2018 and 2017, the amortization of favorable and unfavorable leases, reduced by the amortization of
deferred gains on sale-leaseback transactions.

• Other restaurant operating expenses include all other restaurant-level operating costs, the major components
of which are royalty expenses paid to BKC and PLK, utilities, repairs and maintenance, real estate taxes and
credit card fees.

• Advertising expense includes advertising payments to BKC and PLK based on a percentage of sales as required
under our franchise and operating agreements and additional marketing and promotional expenses in certain
of our markets.

• General and administrative expenses are comprised primarily of salaries and expenses associated with
corporate and administrative functions that support the development and operations of our restaurants, legal,
auditing and other professional fees, acquisition costs and stock-based compensation expense.

• EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income. EBITDA, Adjusted
EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income are non-GAAP financial measures.
EBITDA represents net income (loss) before income taxes, interest expense and depreciation and amortization.
Adjusted EBITDA represents EBITDA adjusted to exclude impairment and other lease charges, acquisition
costs, loss on extinguishment of debt, stock compensation expense and other income or expense. Adjusted
Restaurant-Level EBITDA represents income (loss) from operations adjusted to exclude general and
administrative expenses, depreciation and amortization, impairment and other lease charges and other income
or expense. Adjusted net income represents net income (loss) adjusted to exclude loss on extinguishment of
debt, impairment and other lease charges, acquisition costs, pre-opening and litigation costs, legal settlement
gains and other income and expense and the related income tax effect of these adjustments.

• We are presenting Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income because
we believe that they provide a more meaningful comparison than EBITDA and net income of our core business
operating results, as well as with those of other similar companies. Additionally, we present Adjusted
Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and other
income or expense, which are not directly related to restaurant-level operations. Management believes that
Adjusted EBITDA and Adjusted Restaurant-Level EBITDA, when viewed with our results of operations in
accordance with GAAP and the accompanying reconciliations on page 48, provide useful information about
operating performance and period-over-period growth, and provide additional information that is useful for
evaluating the operating performance of our core business without regard to potential distortions. Additionally,
management believes that Adjusted EBITDA and Adjusted Restaurant-Level EBITDA permit investors to gain
an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments
are made and debt is serviced.

However, EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income are not
measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as
alternatives to net income, income from operations or cash flow from operating activities as indicators of
operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions

of other companies. For the reconciliation between net income to EBITDA, Adjusted EBITDA and Adjusted
net income and the reconciliation of income from operations to Adjusted Restaurant-Level EBITDA, see page
48.

EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income have important
limitations as analytical tools. These limitations include the following:

• EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect our capital
expenditures, future requirements for capital expenditures or contractual commitments to purchase capital
equipment;

• EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect the interest expense

or the cash requirements necessary to service principal or interest payments on our debt;

• Although depreciation and amortization are non-cash charges, the assets that we currently depreciate and
amortize will likely have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted
Restaurant-Level EBITDA do not reflect the cash required to fund such replacements; and

• EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted net income do not reflect
the effect of earnings or charges resulting from matters that our management does not consider to be
indicative of our ongoing operations. However, some of these charges (such as impairment and other lease
charges and acquisition costs) have recurred and may reoccur.

• Depreciation and amortization primarily includes the depreciation of fixed assets, including equipment, owned
buildings and leasehold improvements utilized in our restaurants, the amortization of franchise rights from
our acquisitions of Burger King® restaurants and the amortization of franchise fees paid to BKC.

•

Impairment and other lease charges are determined through our assessment of the recoverability of property
and equipment and intangible assets by determining whether the carrying value of these assets can be recovered
over their respective remaining lives through undiscounted future operating cash flows. A potential impairment
charge is evaluated whenever events or changes in circumstances indicate that the carrying amounts of these
assets may not be fully recoverable. Lease charges are recorded for our obligations under the related leases
for closed locations net of estimated sublease recoveries.

Interest expense consists of interest expense associated with our $425.0 million Term Loan B Facility,
amortization of deferred financing costs, amortization of original issue discount, interest on revolving credit
borrowings and, through April 30, 2019, interest on the $275.0 million of 8% Senior Secured Second Lien
Notes due 2022 (the "8% Notes") and unamortized bond premium.

Recent and Future Events Affecting our Results of Operations

Cambridge Acquisition

On April 30, 2019, we completed the merger with New CFH, LLC, a former subsidiary of Cambridge Franchise
Holdings, LLC ("Cambridge") and acquired 165 Burger King® restaurants, 55 Popeyes® restaurants and six
convenience stores (the "Cambridge Acquisition"). Cambridge received a total of approximately 14.9 million shares
of our common stock, after conversion of the 10,000 shares of Series C Convertible Preferred Stock, initially issued
to Cambridge in the Cambridge Acquisition. All shares of common stock issued to Cambridge are subject to a two year
restriction on sale or transfer subject to certain limited exceptions.

Area Development and Remodeling Agreement

The Company, Carrols, Carrols LLC, and BKC entered into the ADA which commenced on April 30, 2019 and
ends on September 30, 2024, and which superseded the Operating Agreement dated as of May 30, 2012, as amended,
between Carrols LLC and BKC. Pursuant to the ADA, BKC assigned to Carrols LLC, for a cost of $3.0 million, the
right of first refusal on the sale of franchisee-operated restaurants in 16 states and a limited number of counties in four
additional states, and granted franchise pre-approval to acquire Burger King restaurants until the date that we have
acquired more than an aggregate of an additional 500 Burger King restaurants excluding those restaurants we acquired
in the Cambridge Acquisition ("ADA ROFR").

On October 1 of each year following the commencement date of the Area Development Agreement, Carrols
LLC will pay BKC pre-paid franchise fees in the following remaining amounts which will be applied to new Burger
King restaurants opened and operated by Carrols LLC; (a) $2,050,000 on October 1, 2020, (b) $2,050,000 on October
1, 2021, (c) $2,000,000 on October 1, 2022 and (d) $1,950,000 on October 1, 2023.

Through the Cambridge Acquisition, we have also assumed a development agreement for Popeyes®, which
includes an assignment by PLK of its right of first refusal under its franchise agreements with its franchisees for
acquisitions in two southern states, as well as a development commitment to open, build and operate approximately
80 new Popeyes® restaurants over six years.

Restaurant Acquisitions

From the beginning of 2017 through December 29, 2019, we have acquired 342 restaurants from other Burger

King and Popeyes franchisees, in the following transactions ($ in thousands):

Closing Date
2017 Acquisitions:
February 28, 2017

June 5, 2017 (2)

November 28, 2017

2018 Acquisitions:
February 13, 2018 (1)
August 21, 2018 (2)
September 5, 2018 (2)
October 2, 2018

2019 Acquisitions:

April 30, 2019 (3)
June 11, 2019
August 20, 2019 (2)

Total

Number of
Restaurants

Purchase
Price

Number of
Fee-Owned
Restaurants

Market Location

43 $
17
4
64

1
2
31
10
44

20,366
16,355
1,202
37,923

—
1,666
25,930
10,506
38,102

259,083
220
15,788
13
1,108
1
234
275,979
342 $ 352,004

Cincinnati, Ohio
Baltimore, Maryland and Washington, DC
Maine

—

New York
Detroit, Michigan
Western Virginia
South Carolina and Georgia

14 Southeastern states, primarily TN, MS, LA

Baltimore, Maryland
Pennsylvania

14
14

(1) We recorded a bargain purchase gain because the fair value of assets acquired, largely representing a franchise right asset

of $0.3 million, exceeded the total fair value of consideration paid by $0.2 million.

(2) Acquisitions resulting from the exercise of our ROFR.
(3) We completed the Cambridge Acquisition and acquired 165 Burger King restaurants and 55 Popeyes restaurants.

The 2019 acquired restaurants included 14 fee-owned properties, of which 6 were subsequently sold in sale-
leaseback transactions in 2019 for net proceeds of $8.3 million. All of the 2018 and 2017 acquired restaurants were
leased properties.

The pro forma impact on the results of operations for the 2019 acquired restaurants is included below. The pro
forma results of operations are not necessarily indicative of the results that would have occurred had the acquisitions
been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future
consolidated operating results. This pro forma financial information does not give effect to any anticipated synergies,
operating efficiencies or cost savings or any transaction costs related to the 2019 acquired restaurants. The following
table summarizes certain pro forma financial information related to our 2019 operating results (in thousands):

Year Ended
December 29,
2019

Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Pro Forma Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

1,568,533
(299)
94,139

Capital Expenditures

We expect that our capital expenditures in 2020 will be approximately $70 million to $75 million, which includes
approximately 40% for the construction of approximately 12 new restaurants, 35% for required ongoing capital
maintenance expenditures and 15% for remodeling existing restaurants.

Proceeds from sale/leaseback transactions related to new restaurant development are expected to be approximately
$10 million to $15 million. We will review on an ongoing basis our future development and remodel plans in relation
to our available capital resources.

Refinancing of Indebtedness and our Senior Credit Facilities

On April 30, 2019, we entered into a new senior secured credit facility which provides for senior secured credit
facilities in an aggregate principal amount of $550.0 million (the "Senior Credit Facilities"), consisting of (i) a term
loan B facility in an aggregate principal amount of $425.0 million (the “Term Loan B Facility”), the entire amount of
which was borrowed by us on April 30, 2019 and (ii) a revolving credit facility (including a sub-facility of $35.0
million for standby letters of credit) in an aggregate principal amount of $125.0 million (the "Revolving Credit
Facility"). Borrowings under the Term Loan B Facility and the Revolving Credit Facility bear interest at a rate per
annum, at our option, of (i) the Alternate Base Rate plus the applicable margin of 2.25% or (ii) the LIBOR Rate plus
a margin of 3.25% (as defined in the Senior Credit Facilities).

The Term Loan B Facility matures on April 30, 2026 and the Revolving Credit Facility matures on April 30,
2024. We used borrowings under the Term Loan B Facility to (i) refinance our existing indebtedness including
redemption of the $275.0 million 8% Notes at a redemption price equal to 102% of the principal amount of such notes
plus accrued interest, and (ii) to pay Cambridge's indebtedness at the time of the Cambridge Acquisition and (iii) to
pay fees and expenses in connection with the transactions. The proceeds of the Revolving Credit Facility will be used
to finance ongoing working capital and for other general corporate purposes of the Company and its subsidiaries,
including permitted acquisitions and required expenditures under development agreements.

On December 13, 2019, the Company entered into the First Amendment to Credit Agreement which amended a
financial covenant under the Senior Credit Facilities applicable solely with respect to the Revolving Credit Facility
that previously required the Company to maintain quarterly a Total Net Leverage Ratio (as defined in the Senior Credit
Facilities) of not greater than 4.75 to 1.00 (measured on a most recent four quarter basis), to now require that the
Company maintain only a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 5.75
to 1.00 (as measured on a most recent four quarter basis) if, and only if, on the last day of any fiscal quarter (beginning
with the fiscal quarter ended December 29, 2019), the sum of the aggregate principal amount of outstanding revolving
credit borrowings under the Revolving Credit Facility and the aggregate face amount of letters of credit issued under
the Revolving Credit Facility (excluding undrawn letters of credit in an aggregate face amount up to $12.0 million)
exceeds 35% of the aggregate amount of the maximum revolving credit borrowings under the Revolving Credit Facility.

The First Amendment also reduced the aggregate maximum revolving credit borrowings under the Revolving Credit
Facility by $10.0 million to a total of $115.0 million.

As of December 29, 2019, there were $45.8 million of revolving credit borrowings outstanding and $11.6 million
of letters of credit were issued under the Revolving Credit Facility. After reserving for issued letters of credit and
outstanding revolving credit borrowings, $57.6 million was available for revolving credit borrowings under the Senior
Credit Facilities at December 29, 2019.

Future Restaurant Closures

We evaluate the performance of our restaurants on an ongoing basis including an assessment of the current and
future operating results of the restaurant in relation to its cash flow and future occupancy costs, and with regard to
franchise agreement renewals, the cost of required capital improvements. We may elect to close restaurants based on
these evaluations.

In 2019, excluding two restaurants relocated within its trade area, we closed eleven restaurants. We currently
anticipate closing 7 to 9 Burger King restaurants in 2020, excluding any restaurants being relocated within their trade
area, at the end of their respective lease term.

Our determination of whether to close restaurants in the future is subject to further evaluation and may change.
We may incur lease charges in the future from closures of underperforming restaurants prior to the expiration of their
contractual lease term. We do not believe that the future impact on our results of operations due to restaurant closures
will be material, although there can be no assurance in this regard.

Effect of Minimum Wage Increases

Certain of the states and municipalities in which we operate have increased their minimum wage rates for 2020
and in many cases have also approved additional increases for future periods. Most notably, New York State has
increased the minimum wage applicable to our business to $13.75 an hour in 2020 from $12.75 per hour in 2019 and
$11.75 per hour in 2018, with subsequent annual increases reaching $15.00 per hour by July 1, 2021. New York State
does have an Urban Youth Credit through 2022 which we have receiving approximately $500,000 per year since 2016.
We had 128 restaurants in New York State at December 30, 2019. We also have 46 total restaurants in Illinois and
Maryland that also have annual minimum wage increases reaching $15.00 per hour in 2025. We typically attempt to
offset the effects of wage inflation, at least in part, through periodic menu price increases. However, no assurance can
be given that we will be able to offset these wage increases in the future.

Stock Repurchase Program

On August 2, 2019, our Board of Directors approved a stock repurchase plan (the "Repurchase Program") under
which we may repurchase up to $25 million of our outstanding common stock. The authorization became effective
August 2, 2019, and will expire 24 months thereafter, unless terminated earlier by the Board of Directors. Purchases
under the Repurchase Program may be made from time to time in open market transactions at prevailing market prices
or in privately negotiated transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with
applicable federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

During the year ended December 29, 2019, we repurchased in open market transactions 553,112 shares at an
average share price of $7.26 for a total cost of $4.0 million under the Repurchase Program. We have no obligation to
repurchase additional shares of stock under the Repurchase Program, and the timing, actual number and value of shares
purchased will depend on our stock price, trading volume, general market and economic conditions and other factors.

Subsequent Event

We entered into a five year interest rate swap agreement commencing March 3, 2020 and ending February 28,
2025 with a notional amount of $220.0 million to swap variable rate interest payments (one-month LIBOR plus the

applicable margin) under our Senior Credit Facilities for fixed interest payments bearing an interest rate of 0.915%
plus the applicable margin in our Senior Credit Facilities.

Results of Operations

Fiscal 2019 compared to Fiscal 2018 and to Fiscal 2017

The following table highlights the key components of sales and the number of restaurants in operation for the

years ended December 29, 2019, December 30, 2018, and December 31, 2017 (dollars in thousands):

Restaurant Sales
Change in Comparable Restaurant Sales %

Burger King Restaurants operating at beginning of year

New restaurants opened, including relocations
Restaurants acquired
Restaurants closed, including relocations

Restaurants operating at end of year

(1)

Popeyes Restaurants operating at beginning of year
New restaurants opened, including relocations
Restaurants acquired

Restaurants operating at end of year

December 29,
2019

December 31,
2017

Year ended
December 30,
2018
(in thousands of dollars)
$ 1,179,307

$ 1,452,516

$ 1,088,532

2.2%

3.8%

5.2%

849
21
179
(13)
1,036

—
10
55
65

807
8
44
(10)
849

—
—
—
—

753
11
64
(21)
807

—
—
—
—

(1) New restaurants opened in 2019 and 2018 included two and one restaurant, respectively, that were closed and relocated

within their market areas.

Restaurant Sales and Other Revenue. Total restaurant sales in 2019 increased 23.2% to $1,452.5 million from
$1,179.3 million in 2018. Comparable restaurant sales increased 2.2% due to an increase in average check
of 2.7% partially offset by a decrease in customer traffic of 0.5%. The effect of menu price increases in 2019 was
approximately 1.4%. Restaurant sales also increased due to restaurants acquired in 2019 that were not included in our
comparable restaurant base which added sales of $153.2 million from acquired Burger King restaurants and $53.9
million from acquired and newly constructed Popeyes restaurants. We also had revenue of $10.2 million from six
convenience stores acquired in the Cambridge Acquisition during 2019, not included in restaurant sales above. These
stores were closed at the end of 2019. The Company recorded additional sales discounts as a result of combining
separate Whopper value meal promotions that reduced restaurant sales by approximately $12.4 million in 2019.

Total restaurant sales in 2018 increased 8.3% to $1,179.3 million from $1,088.5 million in 2017. Comparable
restaurant sales increased 3.8% due to an increase in average check of 2.8% and an increase in customer traffic of 1.0%.
The effect of menu price increases in 2018 was approximately 2.5%. Restaurant sales also increased $25.4 million
from the full year impact of restaurants acquired in 2017, restaurant sales of $16.9 million from the acquisition of 44
restaurants during 2018 and sales of $18.8 million from the opening of new restaurants since the end of 2017.

Operating Costs and Expenses (percentages stated as a percentage of total restaurant sales unless otherwise

noted).

The following table sets forth, for the years ended December 29, 2019, December 30, 2018, and December 31,

2017 selected operating results:

December 29, 2019 December 30, 2018 December 31, 2017

Year Ended

Costs and expenses (all restaurants):

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses . . . . . . .
Restaurant rent expense . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . .

29.7%
33.4%
7.4%
15.7%
4.0%
5.8%

27.7%
32.5%
6.9%
15.2%
4.1%
5.6%

28.0%
32.2%
7.0%
15.3%
4.1%
5.5%

Cost of sales increased to 29.7% in 2019 from 27.7% in 2018 due primarily to higher commodity costs at our
Burger King restaurants (1.1%) which included an 8.4% increase in ground beef costs, and higher food costs at the
acquired Burger King and Popeyes restaurants acquired in the Cambridge Acquisition, partially offset the favorable
impact of menu price increases (0.4%).

Cost of sales decreased to 27.7% in 2018 from 28.0% in 2017 due primarily to the favorable impact of menu
price increases (0.8%) and lower commodity costs (0.3%), which included a 4.9% decrease in beef prices compared
to the prior year, offset in part by the effect of higher promotional discounting (0.8%).

Restaurant wages and related expenses increased to 33.4% in 2019 from 32.5% in 2018 due primarily to an
increase of 5.3% in team member wages at our comparable Burger King restaurants due to minimum wage increases,
partially offset by the lower average hourly wage rates at the acquired Burger King restaurants from Cambridge.

Restaurant wages and related expenses increased to 32.5% in 2018 from 32.2% in 2017 due to wage inflation

increasing hourly labor rates, including the effect of minimum wage increases.

Restaurant rent expense increased to 7.4% in 2019 from 6.9% in 2018 due to higher rent as a percentage of sales
for the Cambridge restaurants acquired in 2019 (0.3%) and elimination in 2019 of the amortization of deferred gains
from sale-leaseback transactions as a result of the adoption in 2019 of the new lease accounting standard.

Restaurant rent expense decreased to 6.9% in 2018 from 7.0% in 2017 due primarily to leveraging fixed rentals

on the increase in restaurant sales.

Other restaurant operating expenses increased to 15.7% in 2019 from 15.2% in 2018 due primarily to higher
credit card fees (0.1%) and higher repair and maintenance and operating supplies at the restaurants acquired from
Cambridge (0.2%).

Other restaurant operating expenses decreased slightly to 15.2% in 2018 from 15.3% in 2017 and due primarily
to leveraging our fixed operating costs, including utilities and repair and maintenance expense, on higher comparable
restaurant sales volumes.

Advertising expense decreased to 4.0% in 2019 from 4.1% in 2018 and 2017 due to advertising incentives received

for certain remodeled Burger King restaurants including restaurants acquired from Cambridge.

Adjusted Restaurant-Level EBITDA. As a result of the factors above, Adjusted Restaurant-Level EBITDA
decreased $6.0 million to $156.1 million in 2019 from $162.1 million in 2018. Adjusted Restaurant-Level EBITDA
was $146.8 million in 2017. For a reconciliation between Adjusted Restaurant-Level EBITDA and income from
operations see page 48.

General and Administrative Expenses. General and administrative expenses increased to $84.7 million in 2019
from $66.6 million in 2018 due to additional field management salaries, restaurant manager training and other restaurant
oversight costs related to the 2019 acquisitions, and to a lesser extent, the full year effect of restaurants acquired during
2018. We also incurred additional administrative acquisition and integration costs of $7.0 million compared to 2018,
primarily related to the Cambridge Acquisition, offset in part by lower administrative bonus accruals of $4.3 million.
General and administrative expenses, excluding the additional $7.0 million of administrative acquisition and integration
costs above, decreased as a percentage of total restaurant sales, from 5.5% in 2018 to 5.3% in 2019.

General and administrative expenses were $66.6 million in 2018 compared to $60.3 million in 2017 and increased,
as a percentage of total restaurant sales, from 5.5% in 2017 to 5.6% in 2018. General and administrative expenses
increased in dollars during 2018 from additional field management and restaurant manager training costs related to
our acquisitions, growth to support our restaurant development and technology initiatives, an increase in stock-based
compensation expense of $2.3 million primarily from stock awards granted in 2018 and an increase of $2.2 million in
incentive compensation accruals based on our operating results in relation to our plan in 2018.

Adjusted EBITDA. As a result of the factors above, Adjusted EBITDA decreased to $86.1 million in 2019 from

$103.0 million in 2018. Adjusted EBITDA in 2017 was $91.8 million.

For a reconciliation between net income and EBITDA and Adjusted EBITDA see page 48.

Depreciation and Amortization. The increase in depreciation and amortization expense to $74.7 million in 2019
from $58.5 million in 2018 was primarily due to our ongoing new restaurant development, restaurant remodeling
initiatives and depreciation and amortization expense related to our acquisitions of restaurants in 2019 and 2018.

Depreciation and amortization expense increased $4.3 million in 2018 from $54.2 in 2017 due to our ongoing
new restaurant development, restaurant remodeling initiatives and depreciation and amortization expense related to
our acquisitions of restaurants in 2018 and 2017.

Impairment and Other Lease Charges. We recorded impairment and other lease charges of $3.6 million in 2019
consisting of $0.3 million of capital expenditures at previously impaired restaurants, $1.3 million related to initial
impairment charges for seven underperforming restaurants, and other lease charges of $1.9 million mostly related to
the closing of the six convenience stores acquired in 2019 from Cambridge.

We recorded impairment and other lease charges of $3.7 million in 2018 and included $0.4 million of capital
expenditures at previously impaired restaurants, $0.4 million related to initial impairment charges for
six underperforming restaurants, $1.9 million related to the write-off of defective product holding unit kitchen
equipment that was replaced, losses of $0.8 million associated with sale-leaseback transactions of four restaurant
properties, and other lease charges of $0.2 million.

We recorded impairment and other lease charges of $2.8 million in 2017 and included $0.7 million of capital
impairment charges
expenditures at previously
restaurants, $1.1 million related
for five underperforming restaurants, $0.9 million of other lease charges primarily due to four restaurants and an
administrative office closed during the period and losses of $0.1 million associated with the sale-leaseback
of one restaurant property.

impaired

initial

Other Income and Expense. In 2019, we recorded other income of $1.9 million which consisted of a $1.9 million
gain from a settlement with BKC for their approval of new restaurant development by other franchisees which
unfavorably impacted our restaurants, a $0.6 million gain on sale-leaseback transactions, a $0.2 million gain related
to insurance recoveries from fire at two of its restaurants and a loss on a disposal of restaurant equipment of $0.8
million.

In 2018 and 2017, we recorded gains of $0.4 million and $0.3 million, respectively, related to insurance recoveries

from fires at two restaurants.

Interest Expense. The increase in interest expense to $27.9 million in 2019 from $23.6 million in 2018 and $21.7
million in 2017 is due to a $150.0 million increase in outstanding borrowings under the new Term Loan B Facility
from the outstanding amount of the 8.0% Notes and revolving credit borrowings under the new Revolving Credit

Facility in 2019. This increase in the level of indebtedness was offset in part by lower interest rates on borrowings
under the Senior Credit Facilities.

The weighted average interest rate on our long-term debt, excluding lease financing obligations, was 6.1% in

2019, 7.9% in 2018 and 7.7% in 2017.

Gain on Bargain Purchase. In 2018, we recorded a $0.2 million gain related to our acquisition of one restaurant

as the fair value of assets acquired exceeded the total fair value of consideration paid.

Loss on Extinguishment of Debt. We recognized a loss on extinguishment of debt of $7.4 million in 2019 in
connection with the refinancing of 8% Notes. The loss consisted of the write-off of unamortized debt costs, unamortized
bond premium and additional redemption fees.

Provision (Benefit) for Income Taxes. The benefit for income taxes for 2019 of $12.1 million is at an effective
tax rate of 27.5%, including discrete tax expense items of $0.5 million. The difference compared to the Federal statutory
rate for 2019 of 21% is primarily due to the tax benefit of employment tax credits which are not directly related to the
amount of pre-tax loss and the tax benefit of state income taxes.

In 2018, we recorded an income tax benefit as the effect of wage tax credits, which are a large component of
offsetting deferred tax assets, more than offset the federal income tax provision at the statutory rate as these credits
are not directly related to the amount of pretax income reported for the year.

The effective tax rate for 2017, excluding discrete items, was 8.2% and is lower than the statutory rate due to the
effect of fixed tax credits relative to our 2017 pretax income as the benefits of these credits are not directly related to
the amount of pretax income reported in the period. We also recorded a $0.8 million discrete tax benefit in the fourth
quarter to remeasure our net deferred taxes due to the lowering of the Federal statutory income tax rate to 21% under
the Tax Cuts and Jobs Act.

Net Income (Loss). As a result of the above, net loss was $31.9 million in 2019, or $0.74 per diluted share,
compared to net income of $10.1 million in 2018, or $0.22 per diluted share and net income of $7.2 million in 2017,
or $0.16 per diluted share.

Reconciliations of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted net income (loss) and income
(loss) from operations to Adjusted Restaurant-Level EBITDA for the years ended December 29, 2019, December 30,
2018, and December 31, 2017 are as follows (in thousands):

Reconciliation of EBITDA and Adjusted EBITDA:
Net income (loss)
Provision (benefit) for income taxes
Interest expense
Depreciation and amortization

EBITDA

Impairment and other lease charges
Acquisition and integration costs (1)
Pre-opening costs (2)
Litigation costs (3)
Other income, net (4)
Gain on bargain purchase
Stock compensation expense
Loss on extinguishment of debt

Adjusted EBITDA

Reconciliation of Adjusted Restaurant-Level
EBITDA:
Income (loss) from operations

Add:
General and administrative expenses
Restaurant integration costs (1)
Pre-opening costs (2)
Depreciation and amortization
Impairment and other lease charges
Other income, net (4)

Adjusted Restaurant-Level EBITDA

December 29,
2019

Year Ended
December 30,
2018

December 31,
2017

(31,919) $
(12,123)
27,856
74,674
58,488
3,564
10,827
1,449
502
(1,911)
—
5,753
7,443
86,115

10,104
(157)
23,638
58,468
92,053
3,685
1,445
462
187
(424)
(230)
5,812
—
102,990

7,159
604
21,710
54,159
83,632
2,827
1,793
363
—
(362)
—
3,518
—
91,771

(8,743) $

33,355 $

29,473

84,734
2,364
1,449
74,674
3,564
(1,911)
156,131 $

66,587
—
462
58,468
3,685
(424)
162,133 $

60,348
—
363
54,159
2,827
(333)
146,837

Reconciliation of Adjusted net income (loss):
Net income (loss)
Add:

Impairment and other lease charges
Acquisition and integration costs (1)
Pre-opening costs (2)
Litigation costs (3)
Gain on bargain purchase
Other income, net (4)
Loss on extinguishment of debt
Income tax effect on above adjustments (5)
Adjustments to income tax benefit (6)

Adjusted net income (loss)
Adjusted diluted net income (loss) per share (7)
Diluted weighted average common shares outstanding

$
$

(31,919) $

10,104 $

7,159

3,564
10,827
1,449
502
—
(1,911)
7,443
(5,469)
—
(15,514) $
(0.36) $

43,422

3,685
1,445
462
187
(230)
(424)
—
(1,138)
—
14,091 $
0.31 $

45,320

2,827
1,793
363
—
—
(362)
—
(1,756)
(762)
9,262
0.21
44,977

(1) Acquisition and integration costs for the twelve months ended December 29, 2019 of $10.8 million include certain legal and
professional fees; corporate payroll, and other costs related to the integration of the Cambridge Acquisition and one-time
repair and other operating costs which are included in Adjusted Restaurant-Level EBITDA.

(2) Pre-opening costs for the twelve months ended December 29, 2019, December 30, 2018 and December 31, 2017 include

training, labor and occupancy costs incurred during the construction of new restaurants.

(3) Legal costs for the twelve months ended December 29, 2019 and December 30, 2018 include litigation expenses pertaining

to an ongoing lawsuit with one of the Company's former vendors.

(4) Other income, net, for the twelve months ended December 29, 2019, included a $1.9 million gain related to a settlement with
BKC for the approval of new restaurant development by other franchisees which unfavorably impacted our restaurants. Other
income, net, for the twelve months ended December 30, 2018 and December 31, 2017 each included a $0.4 million gain
related to insurance recoveries from fires at our restaurants.

(5) The income tax effect related to the adjustments to net income (loss) during the periods presented was calculated using an
incremental income tax rate of 25% for the twelve months ended December 29, 2019, 22.2% for the twelve months
ended December 30, 2018 and 38% for the year ended December 31, 2017.

(6) The provision (benefit) for income taxes in 2017 reflects a $0.8 million discrete tax benefit recorded in the fourth quarter to
to remeasure our net deferred taxes due to the lowering of the Federal income tax rate to 21% under the Tax Cuts and Jobs
Act signed into law in the fourth quarter of 2017.

(7) Adjusted diluted net income (loss) per share is calculated based on Adjusted net income and the diluted weighted average

common shares outstanding for the respective periods.

Liquidity and Capital Resources

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories
and receive trade credit based upon negotiated terms for purchasing food products and other supplies. As a result, we
may at times maintain current liabilities in excess of current assets, which results in a working capital deficit. We are
able to operate with a substantial working capital deficit because:

•

restaurant operations are primarily conducted on a cash basis;

rapid turnover results in a limited investment in inventories; and

cash from sales is usually received before related liabilities for food, supplies and payroll become due.

Interest payments under our debt obligations, capital expenditures including our remodeling initiatives, payments
of royalties and advertising to BKC and Popeyes and payments related to our lease obligations represent significant
liquidity requirements for us, as well as any discretionary expenditures for the acquisition or development of additional
Burger King and Popeyes restaurants. We believe our cash balances, cash generated from our operations and availability
of revolving credit borrowings under our Senior Credit Facilities will provide sufficient cash availability to cover our
anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

Operating activities. Net cash provided from operating activities for the years ended December 29, 2019,
December 30, 2018 and December 31, 2017 was $48.7 million, $80.8 million and $72.8 million, respectively. Net
cash provided by operating activities in 2019 decreased by $32.1 million compared to 2018 due primarily to a reduction
of Adjusted EBITDA of $16.9 million, an increase in deferred income tax liabilities of $11.5 million and a change in
operating right-of use assets and operating lease liabilities of $4.0 million.

Net cash provided from operating activities in 2018 increased by $8.0 million compared to 2017 due primarily

to higher net income and an increase in depreciation expense.

Investing activities. Net cash used for investing activities from continuing operations for the years ended
December 29, 2019, December 30, 2018 and December 31, 2017 was $218.0 million, $106.9 million and $108.1
million, respectively. In 2019, in addition to our capital expenditures of $145.6 million, we completed the Cambridge
Acquisition which included approximately $113.8 million for retirement of the Cambridge indebtedness net of cash,
acquired fourteen Burger King restaurants from other franchisees for $16.9 million, received net proceeds of $47.2
million from sale-leaseback transactions, including properties purchased for sale-leaseback, and received lease
incentives of $10.0 million from BKC related to remodeling certain of our Burger King restaurants in accordance with
the ADA.

Net cash used for investing activities decreased $1.2 million during 2018 compared to 2017 primarily due to

higher proceeds from sale-leaseback transactions.

Capital expenditures are a large component of our investing activities and include: (1) new restaurant
development, which may include the purchase of real estate; (2) restaurant remodeling, which includes the renovation
or rebuilding of the interior and exterior of our existing restaurants including expenses associated with our franchise
agreement renewals and certain restaurants that we acquire; (3) other restaurant capital expenditures, which include
capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants, and from time to
time, to support BKC’s initiatives; and (4) corporate and restaurant information systems, including expenditures for
our point-of-sale software for restaurants that we acquire.

The following table sets forth our capital expenditures for the periods presented (dollar amounts in thousands):

Year Ended December 29, 2019:

New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures

Number of new restaurant openings including relocations
Year Ended December 30, 2018:

New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures

Number of new restaurant openings including relocations
Year Ended December 31, 2017:

New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures

Number of new restaurant openings including relocations

53,596
61,105
18,922
11,978
145,601
31

23,171
31,951
15,726
4,887
75,735
8

14,759
33,504
18,926
6,327
73,516
11

Investing activities also included sale-leaseback transactions related to our restaurant properties. The proceeds
were $48.4 million in 2019, $8.4 million in 2018 and $4.3 million in 2017 and were used to fund our new development
and remodeling initiatives, acquisition of restaurants, reduce our outstanding indebtedness and other cash requirements.

We also had expenditures related to the purchase of restaurant properties to be sold in sale-leaseback transactions

of $1.2 million in 2019, $2.1 million in 2018 and $1.4 million in 2017.

Financing activities. Net cash provided by financing activities in 2019 was $168.3 million due primarily to
proceeds from the Term Loan B Facility of $422.9 million combined with net revolving credit borrowings of $45.8
million under the Revolving Credit Facility and the redemption of the 8.0% Notes including premium and fees of
$280.5 million. We also incurred $11.5 million of costs associated with the Senior Credit Facilities, made principal
payments on finance leases of $2.2 million, and repurchased shares of our common stock for $4.0 million.

Net cash provided from financing activities in 2018 was $0.7 million due primarily to proceeds from lease

financing obligations of $2.7 million and principal payments on capital leases of $1.8 million.

Senior Credit Facilities. On April 30, 2019, we entered into the Senior Credit Facilities in an aggregate principal
amount of $550.0 million, consisting of (i) a Term Loan B Facility in an aggregate principal amount of $425.0
million maturing on April 30, 2026 and (ii) a Revolving Credit Facility (including a sub-facility of $35.0 million for
standby letters of credit) in an aggregate principal amount of $125.0 million maturing on April 30, 2024.

The net proceeds from borrowings under the Term Loan B Facility were $422.9 million after original issue
discount and were used to (i) refinance the indebtedness of Carrols Restaurant Group, including redemption of $275.0
million of 8.0% Notes and accrued interest thereon at a redemption price of 102%, (ii) the retirement of outstanding
Cambridge indebtedness and (iii) the payment of fees and expenses in connection with the Cambridge Acquisition and
the Senior Credit Facilities. The proceeds of the Revolving Credit Facility will finance ongoing working capital and
other general corporate purposes, including permitted acquisitions and required expenditures under development
agreements. In connection with these transactions, we recognized a loss of $7.4 million on the extinguishment of debt.

On December 13, 2019, we entered into the First Amendment to Credit Agreement which amended a financial
covenant under the Senior Credit Facilities applicable solely with respect to the Revolving Credit Facility that previously
required the Company to maintain quarterly a Total Net Leverage Ratio (as defined in the Senior Credit Facilities) of

not greater than 4.75 to 1.00 (measured on a most recent four quarter basis), to now require that the Company maintain
only a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 5.75 to 1.00 (as measured
on a most recent four quarter basis) if, and only if, on the last day of any fiscal quarter (beginning with the fiscal quarter
ended December 29, 2019), the sum of the aggregate principal amount of outstanding revolving credit borrowings
under the Revolving Credit Facility and the aggregate face amount of letters of credit issued under the Revolving
Credit Facility (excluding undrawn letters of credit in an aggregate face amount up to $12.0 million) exceeds 35% of
the aggregate amount of the maximum revolving credit borrowings under the Revolving Credit Facility. The First
Amendment also reduced the aggregate maximum revolving credit borrowings under the Revolving Credit Facility
by $10.0 million to a total of $115.0 million.

Borrowings under the Senior Credit Facilities bear interest, at a rate per annum equal to (i) the Alternate Base
Rate (as defined in the Senior Credit Facilities) plus 2.25% or (b) LIBOR Rate (as defined in the Senior Credit Facilities)
plus 3.25%. Borrowings under the Senior Credit Facilities at December 29, 2019 were at an effective interest rate of
4.5% per annum.

The Term Loan B Facility borrowings are due and payable in quarterly installments, which began on September

30, 2019. Amounts outstanding at December 29, 2019 are due and payable as follows:

(i) twenty-five quarterly installments of $1.1 million;

(ii) one final payment of $396.3 million on April 30, 2026.

Our obligations under the Senior Credit Facilities are secured by first priority liens on substantially all of the
assets of the Company and subsidiary guarantors (including a pledge of all of the capital stock and equity interests of
certain subsidiary guarantors).

Under the Senior Credit Facilities, we will be required to make mandatory prepayments of borrowings with
excess cash flow (as defined in the Senior Credit Facilities) and in the event of dispositions of assets, debt issuances
and insurance and condemnation proceeds (all subject to certain exceptions).

The Senior Credit Facilities contain certain covenants, including, without limitation, those limiting the Company's
and the subsidiary guarantors’ ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or
businesses, change the character of its business in any material respects, engage in transactions with related parties,
make certain investments, make certain restricted payments or pay dividends.

Under the Senior Credit Facilities, the lenders may terminate their obligation to advance and may declare the
unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the
continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy
type defaults, defaults on other indebtedness, judgments or upon the occurrence of a change of control (as specified
therein).

As of December 29, 2019, there were $45.8 million of revolving credit borrowings outstanding and $11.6
million of letters of credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and
outstanding revolving credit borrowings, $57.6 million was available for revolving credit borrowings at December 29,
2019 under the Revolving Credit Facility. On February 24, 2020, $70.8 million of revolving credit borrowings and
$11.7 million of letters of credit were outstanding on our Revolving Credit Facility and we had revolving borrowing
availability of $32.5 million.

We were in compliance with the financial covenants under our Senior Credit Facilities at December 29, 2019.

Prior Senior Credit Facility. On May 30, 2012, we entered into a senior credit facility (the "prior senior credit
facility"), which was most recently amended on June 20, 2017 to increase the permitted indebtedness of our second
lien notes to a principal amount not to exceed $300.0 million in order to provide for the additional $75 million principal
amount of the 8% Notes issued on June 23, 2017. Previously, on January 13, 2017, we entered into an amendment to
our prior senior credit facility to, among other things, increase maximum revolving credit borrowings to $125.0
million (including $20.0 million available for letters of credit). The prior senior credit facility also provided for potential
incremental borrowing increases of up to $25.0 million, in the aggregate.

Borrowings under the prior senior credit facility bore interest at a rate per annum, at our option, of:

(i) the Alternate Base Rate plus the applicable margin of 1.75% to 2.75% based on our Adjusted Leverage Ratio,

(ii) the LIBOR Rate plus the applicable margin of 2.75% to 3.75% based on our Adjusted Leverage Ratio (all

terms as defined under the prior senior credit facility).

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 29, 2019 (in

thousands):

Contractual Obligations
Long-term debt obligations, including interest (1)
Finance lease obligations, including interest (2)
Operating lease obligations (3)
Lease financing obligations, including interest (4)

Total

Less than
1 Year

Payments due by period
1 – 3
Years
$ 633,012 $ 31,977 $ 63,217 $ 59,883 $ 477,935
87
892,944
—

2,766
1,371,985
1,560

110
188,734
1,231

823
192,357
220

1,746
97,950
109

More than
5 Years

3 – 5
Years

Total contractual obligations

$2,009,323 $ 131,782 $256,617 $ 249,958 $1,370,966

(1) Our long term debt at December 29, 2019 included $422.9 million of borrowings under the Term Loan B Facility and
$45.8 million of borrowings under the Revolving Credit Facility. Total interest payments on the Term Loan B Facility
of $149.0 million for all years presented are included at the coupon rate of 5.74% per annum. Interest payments on our
outstanding revolving credit borrowings are variable in nature and have been calculated using an assumed interest rate of
7.75% for each year.

(2) Includes total interest of $0.2 million for all years presented.
(3) Includes total interest of $522.9 million for all years presented.
(4) Includes total interest of $0.4 million for all years presented.

We have not included obligations under our postretirement medical benefit plans in the contractual obligations
table as our postretirement plan is not required to be funded in advance, but is funded as retiree medical claims are
paid. Also excluded from the contractual obligations table are payments we may make for workers' compensation,
general liability and employee healthcare claims for which we pay all claims, subject to annual stop-loss limitations
both for individual claims and claims in the aggregate. The majority of our recorded liabilities related to self-insured
employee health and insurance plans represent estimated reserves for incurred claims that have yet to be filed or settled.
The total of these liabilities was $9.8 million at December 29, 2019.

Future restaurant remodeling obligations to BKC have also been excluded from the table above as well as

contractual obligations related to royalties and advertising payable to BKC.

Long-Term Debt Obligations. Refer to Note 8 of our consolidated financial statements for details of our long-

term debt.

Lease Guarantees. Fiesta Restaurant Group, Inc. ("Fiesta"), our former wholly-owned subsidiary, was spun-off
in 2012 to our stockholders. As of December 29, 2019, we are a guarantor under 27 Fiesta restaurant property leases,
of which all except for one are still operating, with lease terms expiring on various dates through 2030. We are the
primary lessee on five Fiesta restaurant property leases, which we sublease to Fiesta. We are fully liable for all obligations
under the terms of the leases in the event that Fiesta fails to pay any sums due under the lease, subject to indemnification
provisions of the separation and distribution agreement entered into in connection with the spin-off.

The maximum potential liability for future rental payments we could be required to make under these leases at
December 29, 2019 was $11.4 million. The obligations under these leases will generally continue to decrease over
time as these operating leases expire. No payments have been made to date and none are expected to be required to
be made in the future. We have not recorded a liability for those guarantees in accordance with ASC 460 - Guarantees
as Fiesta has indemnified us for all such obligations and we did not believe it was probable we would be required to
perform under any of the guarantees or direct obligations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than our operating leases, which are primarily for our restaurant

properties and not recorded on our consolidated balance sheet.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and
paper costs, labor and other operating expenses, the cost of providing medical and prescription drug insurance to our
employees and energy costs. Wages paid in our restaurants are impacted by changes in the federal and state hourly
minimum wage rates and the Fair Labor Standards Act. Accordingly, changes in the federal and state hourly minimum
wage rates directly affect our labor costs. We typically attempt to offset the effect of inflation, at least in part, through
periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will
be able to offset such inflationary cost increases in the future.

Application of Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting
principles generally accepted in the United States of America. Preparing consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These
estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies
are described in the “Significant Accounting Policies” footnote in the notes to our consolidated financial statements.
Critical accounting estimates are those that require application of management’s most difficult, subjective or complex
judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods.

Effective December 31, 2018, the first day of fiscal 2019, we adopted ASC Topic 842, "Leases", coinciding with
the standard's effective date, which resulted in changes to our critical accounting policy relating to lease accounting.
Refer to Item 1. Financial Statements - Note 1 - Basis of Presentation for additional information regarding the new
and updated policies as a result of the adoption of ASC Topic 842.

Sales recognition at our restaurants is straightforward as customers pay for products at the time of sale and
inventory turns over very quickly. Payments to vendors for products sold in the restaurants are generally settled within
30 days. The earnings reporting process is covered by our system of internal controls and generally does not require
significant management estimates and judgments. However, critical accounting estimates and judgments, as noted
below, are inherent in the assessment and recording of the fair market values of acquired restaurant assets and liabilities,
insurance liabilities, the valuation of deferred income tax assets, assessing impairment of long-lived assets and lease
accounting matters. While we apply our judgment based on assumptions believed to be reasonable under the
circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would
be reported using different assumptions.

Acquisition Accounting. We account for business combinations under the acquisition method of accounting in
accordance with ASC 805, "Business Combinations" ("ASC 805"). As required by ASC 805, assets acquired and
liabilities assumed in a business combination are recorded at their respective fair values as of the business combination
date. The most difficult estimations of individual fair values are those involving long-lived assets, such as property,
equipment, favorable and unfavorable leases and intangible assets. We use available information to make these fair
value determinations and, when necessary, engage an independent valuation specialist to assist in the fair value
determination of favorable or unfavorable leases and intangible assets.

Insurance Liabilities. The amount of liability we record for claims related to insurance requires us to make
judgments about the amount of expenses that will ultimately be incurred. We are insured for certain losses related to
workers’ compensation, general liability and medical insurance claims under policies where we pay all claims, subject
to annual stop-loss insurance limitations both for individual claims and claims in the aggregate. We record insurance
liabilities based on historical trends, which are continually monitored, and adjust accruals as warranted by changing
circumstances. Since there are estimates and assumptions inherent in recording these insurance liabilities, including
the ability to estimate the future development of incurred claims based on historical claims experience and loss reserves,
current claim data, and the severity of the claims, differences between actual future events and prior estimates and
assumptions could result in adjustments to these liabilities. As of December 29, 2019, we had $9.8 million accrued for
these insurance claims.

Impairment of Long-lived Assets. We assess the potential impairment of long-lived assets, principally property
and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. We determine if there is an impairment by comparing the carrying amount of the asset to the future
undiscounted cash flows expected to be generated by our restaurants. If assets are determined to be impaired, the

impairment charge is measured by calculating the amount by which the asset's carrying amount exceeds its fair value.
In determining future cash flows, significant estimates are made by us with respect to future operating results of each
restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost
assumptions which can be impacted by changes in the business or economic conditions. Our fair value estimates are
also subject to a high degree of judgment, including our ability to sell the related assets and changing market conditions.
Should actual cash flows and our future estimates vary from those estimates used, we may be required to record
impairment charges for these assets in the future.

Lease Accounting. We adopted Accounting Standards Codification (“ASC”) 842, Leases, as of December 31,
2018, coinciding with the standard’s effective date. We have operating and finance leases related to our restaurants.
In accordance with ASC 842, we determine if an arrangement is a lease at inception. Operating leases are included in
operating lease right-of-use (“ROU”) assets and current and long term operating lease liabilities on our consolidated
balance sheet. Finance leases are included in property and equipment and other current and long term liabilities on our
consolidated balance sheet. Lease liabilities are calculated using the effective interest method and recognized at the
commencement date based on the present value of lease payments over the reasonably certain lease term, regardless
of classification, while the amortization of ROU assets varies depending upon classification. As our leases generally
do not provide an implicit rate, we use a collateralized incremental borrowing rate (“IBR”) to determine the present
value of lease payments. This analysis considers qualitative and quantitative factors. We adjust our selected IBR
quarterly with a company-specific yield curve that approximates our market risk profile. The collateralized IBR is also
based upon the estimated impact that the collateral has on the IBR.

Our adoption of ASC 842 resulted in the initial recognition of operating lease liabilities and ROU assets of

$542.9 million and $517.6 million, respectively, as of December 31, 2018.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risk associated with fluctuations in interest rates, primarily limited to borrowings under
our Senior Credit Facilities. At December 29, 2019, there were outstanding borrowings of $468.6 million under our
Senior Credit Facilities. A 1% change in interest rates would have resulted in a $3.2 million change to interest expense
for the year ended December 29, 2019 and a nominal change to interest expense for the year ended December 30,
2018.

Borrowings under the Senior Credit Facilities bear interest at a rate per annum, at our option, based on (all terms

as defined in our Senior Credit Facilities):

(i) the Alternate Base Rate plus 2.25%, or

(ii) the LIBOR Rate plus 3.25%

Commodity Price Risk

We are exposed to market price fluctuations in beef and other food product prices caused by weather, market
conditions, including sourcing of various products internationally, and other factors which are not considered
predictable or within our control. Given the historical volatility of beef and other food product prices, this exposure
can impact our food and beverage costs. Although many of the products purchased are subject to changes in commodity
prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to minimize price
volatility. Where possible, these types of purchasing techniques to control costs are used as an alternative to using
financial instruments to hedge commodity prices. In many cases, we believe we will be able to address commodity
cost increases that are significant and appear to be long-term in nature by adjusting our menu pricing. However, long-
term increases in commodity prices may result in lower restaurant-level operating margins.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data of Carrols Restaurant Group, Inc. required by this Item are

described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act), designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer's management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as
other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of December 29, 2019.

Changes in Internal Control over Financial Reporting. No changes occurred in our internal control over financial
reporting during the fourth quarter of 2019 that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

Our senior management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act), designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules and forms.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 29,
2019 based on the criteria set forth in a report entitled Internal Control-Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have
concluded that, as of December 29, 2019, our internal control over financial reporting was effective based on those
criteria.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the

effectiveness of our internal control over financial reporting and their report is included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Carrols Restaurant Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Carrols Restaurant Group, Inc. and subsidiaries (the
“Company”) as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 29, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 29, 2019 of the Company and our
report dated March 13, 2020 expressed an unqualified opinion on those consolidated financial statements and included an
explanatory paragraph regarding the Company’s adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), as
amended.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Rochester, New York
March 13, 2020

ITEM 9B. OTHER INFORMATION

Our Board of Directors has determined that our 2020 Annual Meeting of Stockholders will be held on June
12, 2020 at the time and place set forth in the definitive proxy statement. We currently contemplate that our annual
report and definitive proxy materials will be made available to our stockholders beginning on or about April 24, 2020.
As a result of the 2020 Annual Meeting of Stockholders being advanced by more than 30 days before the anniversary
date of our 2019 Annual Meeting of Stockholders, stockholder proposals intended for inclusion in our proxy statement
relating to the 2020 Annual Meeting of Stockholders must be received by us by April 3, 2020 which we believe is a
reasonable time before we begin to print and mail our proxy materials for the 2020 Annual Meeting of Stockholders.
Any such proposal must comply with Rule 14a-8 of Regulation 14A of the proxy rules of the SEC. Under our bylaws,
proposals of stockholders not intended for inclusion in the proxy statement, but intended to be raised at our 2020
Annual Meeting of Stockholders, including nominations for election as directors of persons other than nominees of
the board of directors, must be received by March 23, 2020 which is the 10th day following the day on which public
announcement of the date of the 2020 Annual Meeting of Stockholders is first made by us. Such proposals must
comply with the procedures outlined in our bylaws.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE