Carrols Restaurant Group, Inc.
2020 Annual Report
April 28, 2021
Dear Fellow Stockholders:
2020 was an unprecedented year for Carrols, our customers and the communities we serve. Nevertheless,
in the face of significant pandemic-related challenges, we demonstrated that our 24,000 employees,
resilient business model and world-class Burger King® and Popeyes® brands were well-positioned to
serve customers seeking value and convenience through our drive-thru, take-out and delivery service
channels.
For the full year of fiscal 2020, we grew our top-line restaurant sales by 6.5% to $1,547.5 million as we
benefitted from an incremental 53rd operating week and additional restaurants in our portfolio due to our
2019 acquisition activities. Despite significant sales declines experienced at the onset of the COVID-19
pandemic, year-over-year comparable restaurant sales declined only modestly at our Burger King®
restaurants by 2.8% and only slightly at our Popeyes® restaurants by 0.1%. The introduction of delivery
platforms at our restaurants provided a new revenue source that in one year went from no contribution to
approximately 5% of restaurant sales by December 2020. Our geographically diverse restaurant portfolio
of approximately 1,075 restaurants across 23 states also helped us by cushioning the shifting impact of the
pandemic, as short-term staffing or supply issues generally were limited to only a portion of our
restaurants at any one time.
From a profitability standpoint, in fiscal 2020 we increased our full year Adjusted Restaurant-Level
EBITDA by $25.4 million to $181.6 million and Adjusted EBITDA by $21.5 million to $107.9 million
compared to fiscal 2019.1 We also improved our margins by managing food costs, optimizing labor hours
despite higher wage rates, and controlling other restaurant-level and corporate overhead expenses. We
believe that Carrols is a stronger company as a result of the actions taken last year, particularly with the
addition of delivery sales and the implementation of cost-saving initiatives that we expect will continue to
benefit us going forward.
One of the recurring concerns we hear from investors regarding franchisees – including the largest ones,
like ourselves – is that we are perpetually hampered by onerous capital requirements imposed by
franchisors. Any free cash flow generated by the business is required to go toward seemingly endless new
restaurant construction, refurbishments and renovations, some of which will inevitably have low returns
on invested capital. Over the course of 2020, we believe we have demonstrated that the franchisee/
franchisor relationship can, in fact, be equitable, and that even as a franchisee, we can generate significant
free cash flow and direct a thoughtful capital allocation program.
1 Adjusted Restaurant-Level EBITDA and Adjusted EBITDA are non-GAAP financial measures. Please refer to the definitions and
reconciliations of these measures to income from operations and net income (loss), respectively, set forth in the Company's Annual Report on
Form 10-K for the fiscal year ended January 3, 2021.
Specifically, we generated free cash flow2 of $56.1 million last year, which was more than double our
original pre-pandemic expectations. We also utilized $10 million of cash to repurchase 1.5 million shares
after we reinstated our share repurchase program. We believe that growing free cash flow while buying
back shares on an opportunistic basis will be beneficial to stockholders over time.
Our liquidity position also improved substantially as we ended 2020 with cash and cash equivalents of
$65.0 million and long-term debt (including current portion) and finance lease liabilities of $494.2 million.
In April 2021, we upsized our revolving credit facility to $175.0 million and extended its maturity to 2026.
Other than $9.0 million in issued letters of credit, we had no outstanding borrowings under our revolving
credit facility as of April 26, 2021. At the end of fiscal 2020, our Adjusted Leverage Ratio (as defined in
our senior credit facility) was 3.82 times, down from 4.11 times at the end of fiscal 2019.
In January 2021, we amended and restated our Area Development Agreement with Burger King
Corporation, dramatically reducing our ongoing capital expenditure requirements. Under our new
arrangement, we believe we have the flexibility we need to grow our business organically and through
acquisitions in a manner that will optimize our profit growth potential while generating consistent free
cash flow and keeping our leverage in check. Moreover, it also allows us to meaningfully reduce our
multi-year capital obligations with regard to remodeling and building new restaurants. While we forfeited
our right of first refusal on Burger King® franchise sales in portions of our geographic footprint, we do
not believe that it will hinder our ability to opportunistically acquire Burger King® restaurants. We are
similarly seeking to enter in a new development agreement with Popeyes Louisiana Kitchen Inc., after it
agreed in March 2021 to our request to terminate the development agreement we inherited in connection
with our 2019 acquisition. While acquiring restaurants in both brands remains a strategic objective, we
will only do so if compelling restaurant-level returns are available. When they are not, we will simply
build free cash flow, further de-lever our balance sheet and return cash to stockholders through the
repurchase of our own shares.
We are optimistic about the promotional calendar in 2021 with its emphasis on value and new product
offerings. We are particularly excited by what we view to be a best-in-class chicken sandwich offering at
Burger King® and the launch of a new customer loyalty program. In 2020, only 1% of our restaurant sales
came from mobile ordering and we are confident that the new Burger King® loyalty program will
accelerate its use over time. We are also pursuing a number of acquisition opportunities now that we are
close to completing the integration of the large number of restaurants we acquired in 2019, and see white-
space in our geographies for high-value/high-return new restaurant development.
Moving forward, we are taking an elevated stance on our responsibility to conduct our business in a
manner that creates long-term value for our stockholders through sustainable practices that support our
employees, customers and the communities we serve. To that end, we established a "Carrols Cares" fund
at the outset of the COVID-19 pandemic to provide relief to our team members in need. We also
implemented comprehensive protocols in response to the pandemic to help ensure the health and safety of
our employees and the thousands of guests we serve every day. In addition, we have begun working more
closely with our franchisor, Restaurant Brands International Inc., to support their efforts on sustainability.
Our Board of Directors also recently implemented measures to support stockholder interests, including an
incentive compensation clawback policy and a minimum stock ownership guidelines policy, and we are in
the process of taking additional steps to improve our corporate governance and enhance the disclosure of
sustainability and other initiatives relevant to our business.
2 Free cash flow is a non-GAAP financial measure and is defined as Net cash provided by operating activities less Net cash used for investing
activities adjusted to add back cash paid for acquisitions. Please refer to the definition and reconciliation of this measure in the tables on
Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 3, 2021.
In closing, after enduring one of the most challenging periods in our country’s history, we believe that the
fundamentals of our business and the health of our Company are strong. We further believe that the
combination of vaccinations, recent stimulus aiding our core consumer base and easier year-ago sales
comparisons will all add to the momentum we have generated. As of today, all of our restaurants are open
for business and most are operating at normal hours providing both drive-thru and dine-in service.
Finally, I would like to express my sincere appreciation to the entire Carrols team. Whether they have
been in our restaurants serving customers while adhering to our strict safety and sanitation protocols, in
the field overseeing operations and our support center, or working remotely helping our restaurants
succeed, their perseverance, dedication and hard work over the past year has been extraordinary.
Sincerely,
Daniel T. Accordino
Chief Executive Officer and President
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 January 3, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
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)
968 James Street
Syracuse, New York
(Address of principal executive office)
83-3804854
(I.R.S. Employer
Identification No.)
13203
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (315) 424-0513
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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 ý No ¨
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 ý No ¨
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
o
o
Accelerated filer
Smaller reporting company
Emerging growth company
x
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
As of March 3, 2021, Carrols Restaurant Group, Inc. had 53,337,104 shares of its common stock, $.01 par value, outstanding. The aggregate
market value of the voting and non-voting common stock held by non-affiliates as of July 1, 2020 of Carrols Restaurant Group, Inc. was
$178,742,600.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for Carrols Restaurant Group, Inc's 2021 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
January 3, 2021, are incorporated by reference into Part III of this annual report.
CARROLS RESTAURANT GROUP, INC.
FORM 10-K
YEAR ENDED JANUARY 3, 2021
PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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1
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 Frayser Quality, LLC and Nashville Quality, LLC (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, 2021 contained 53 weeks.
At January 3, 2021 we operated, as franchisee, 1,009 Burger King® restaurants in 23 Northeastern,
Midwestern, Southcentral and Southeastern states and 65 Popeyes® restaurants in seven 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
Corporation and its parent company Restaurant Brands International, Inc., which is sometimes referred to as "RBI."
Any reference to PLK refers to Popeyes Louisiana Kitchen, Inc. and its indirect parent company, 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 2020 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:
•
•
•
The impact of the COVID-19 pandemic;
Effectiveness of the Burger King® and Popeyes® 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;
2
• 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 ability 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; 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 60 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 January 3, 2021, we operated 1,009
Burger King® restaurants located in 23 Northeastern, Midwestern, Southcentral and Southeastern states and 65
Popeyes® restaurants in seven Southeastern states.
For a discussion of the impact of the COVID-19 pandemic on our business, please refer to "Management’s
Discussion and Analysis of Financial Condition and Results of Operations".
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, 2020 there were a total of 18,625 Burger King restaurants, of which
almost all were franchised and 7,081 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.
3
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 1:00AM on Thursday to Saturday. In response to the COVID-19 pandemic during 2020, we
reduced operating hours at many of our Burger King restaurants, primarily breakfast and late night. By the end of
2020, we had restored operating hours at our Burger King restaurants with the exception of late night, where we are
closing a few hours earlier than pre-pandemic operations due to decreased local demand.
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 January 3, 2021, 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,
2020, there were 3,451 Popeyes restaurants worldwide and 2,608 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. In response to the COVID-19 pandemic during 2020, we reduced operating hours at many of our
Popeyes restaurants, primarily late night. By the end of 2020, we had restored operating hours at our Popeyes
restaurants with the exception of a few locations where we are still closing a few hours earlier than pre-pandemic
operations due to decreased local demand.
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.
For the fiscal year ended January 3, 2021, our restaurants generated total restaurant sales of $1,547.5 million,
which included $28.4 million from the 53rd week in 2020 and was impacted by significant sales declines we
experienced in March (-16.8%) and April (-21.7%) of 2020 during the onset of the COVID-19 pandemic. In fiscal
2020, comparable restaurant sales at our Burger King restaurants decreased 2.8% and at our Popeyes restaurants
decreased 0.1%. Our average annual restaurant sales for all restaurants were approximately $1.4 million per
restaurant in fiscal 2020.
2019 Cambridge Acquisition. On April 30, 2019, we completed a 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 was to end on September 30, 2024
and which superseded the Operating Agreement dated as of May 30, 2012, as amended, between Carrols LLC and
BKC. The ADA was amended and restated by all parties on January 4, 2021 (the "Amended ADA").
Under the ADA, Carrols LLC had 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. Carrols LLC had also agreed under the ADA 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
4
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.
These development commitments were substantially reduced in the Amended ADA. Pursuant to the Amended
ADA, Carrols LLC agreed to open, build and operate a total of 50 new Burger King restaurants, 80% of which must
be in Kentucky, Tennessee and Indiana. This includes four Burger King restaurants by September 30, 2021, 10
additional Burger King restaurants by September 30, 2022, 12 additional Burger King restaurants by September 30,
2023, 12 additional Burger King restaurants by September 30, 2024 and 12 additional Burger King restaurants by
September 30, 2025.
In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise pre-approval to build new
Burger King restaurants or acquire Burger King restaurants from Burger King franchisees with respect to 500
Burger King restaurants in the aggregate in (i) Kentucky, Tennessee and Indiana (excluding certain geographic
areas in Indiana) and (ii) (a) 16 states, which include 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 (b) any other
geographic locations that Carrols LLC enters after the commencement date of the Amended ADA pursuant to BKC
procedures subject to certain limitations.
Pursuant to the ADA and for a cost of $3.0 million, BKC had assigned to Carrols LLC 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"). The ADA ROFR was terminated in connection with the Amended ADA
and an impairment charge of $2.0 million for the unamortized value remaining from the payment for the ADA
ROFR was recorded in 2020.
BKC agreed to contribute $10 million to $12 million for upgrades of approximately 50 to 60 Burger King
restaurants in 2019 and 2020 where BKC is the landlord on the lease for such Burger King restaurants operated by
Carrols LLC or an affiliate. Most of these restaurants had already been remodeled to the 20/20 image. We received
$10.0 million from BKC under this arrangement in 2019.
On October 1 of each year following the commencement date of the ADA, Carrols LLC was required to pay
BKC pre-paid franchise fees in the following amounts to be applied to new Burger King restaurants opened and
operated by Carrols LLC: (a) $350,000 on the commencement date of the ADA, (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. The Amended ADA eliminated the requirement for any prepayments due and
payable on and after October 1, 2020, and the $0.6 million balance of prepaid franchise fees paid under the ADA
that had not yet been applied to new restaurant development was forfeited.
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 believe we 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.
5
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 offering a well-balanced value menu and premium sandwich
promotional mix and remains committed to new product launches, including a new hand-breaded crispy chicken
sandwich and limited time offers, both of which continue to show positive trends. BKC is also 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. In 2020, BKC assisted with
the Company’s launch of delivery options for our guests. BKC negotiated distribution and operational agreements
with major delivery platform providers and introduced its own white label mobile application that allowed us to
quickly provide this option to our guests. In 2021, BKC is launching a loyalty program for use by its franchisees
that we believe will reduce coupon clutter and provide incentives for guests to visit our restaurants with greater
frequency and during lower traffic periods.
With regard to the Popeyes brand, which is owned by PLK, a subsidiary of RBI, the successful development
and launch of a new chicken sandwich in 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 of 278 restaurants from BKC 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. In 2021, we
intend to continue to expand our restaurant base over the 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 15.0% 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 14.2% of the Burger King locations in the United States as of January 3, 2021. We
believe that the combination of our rights under the Amended ADA, RBI's equity interest and its board level
6
representation will continue to reinforce the alignment of our common interests with BKC and Popeyes over 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, and our new Chief Operating Officer, Carl Hauch, who joined
us in February of 2021 and has over 20 years of experience in restaurant and retail operations, most recently in the
Wendy's system. Additionally, we have two Burger King Divisional Vice Presidents and 13 Regional Directors that
collectively have an average of 22 years of Burger King restaurant experience. Our 148 Burger King district
managers, who 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 60 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
Selectively Acquire and Develop Additional Burger King and Popeyes Restaurants. After enduring the challenges
2020 brought to our industry as a result of the COVID-19 pandemic, we have substantially improved our liquidity
position, we have reduced our near-term capital expenditure requirements and we continue to deleverage. As a
result, we believe we have the flexibility to grow our business organically and through acquisitions in a manner that
will optimize our growth potential while generating consistent and enhanced free cash flow and keeping our
leverage in check.
As of January 3, 2021, we operated 1,009 Burger King restaurants, making us the largest Burger King franchisee in
the United States, and 65 Popeyes® restaurants. Under our Amended ADA with BKC, we are pre-approved to
acquire up to 500 Burger King restaurants in territories where we currently operate and have agreed to build 50 new
restaurants over the next five years. 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 pre-approval rights. Furthermore, we believe there are additional Burger King restaurants in states
beyond our territories that could be attractive acquisition candidates, subject to BKC's approval.
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.
Improve Profitability of Restaurants We Acquire by Leveraging Our Existing Infrastructure and Best-
Practices. For acquired restaurants, we believe we can realize benefits from economies of scale, including
leveraging our existing infrastructure across a larger number of restaurants. Additionally, 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. We have demonstrated our ability to increase
7
the profitability of acquired restaurants and we believe that, over time, 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 new hand-breaded Chicken Sandwich and the Impossible Whopper, a vegetable based product
that has attracted new customers. The new hand-breaded Chicken Sandwich is one of the largest anticipated
product introductions to our menu. In addition, BKC has implemented a multi-tier balanced marketing
approach with value and premium offerings, pairing value promotions with premium sandwich offerings.
Promotional initiatives in 2020 included the 2 for $6 Mix and Match, the 2 for $5 Mix and Match, and the 2
for $4 and 2 for $5 Biscuit/Croissan'wich. In 2021, we are looking forward to a new Value Menu featuring
the $1.00 Bacon Cheeseburger as well as the Sourdough platform which includes the Sourdough KING and
a new Sourdough Breakfast Sandwich. BKC intends to accelerate the breakfast daypart with a new French
Toast Sandwich. In 2021, BKC also intends to introduce a new loyalty program entitled “Royal Perks” to
entice guests to visit more often and receive personalized offers. These new platforms in addition to recent
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 mobile display, in addition to traditional television advertising and
streaming audio. 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, reduce restaurant labor
costs and monitor operational performance, all of which are designed to improve the customer experience
and increase customer traffic. In 2020, BKC implemented delivery services with major delivery providers
as well as through its own mobile app. By the end of 2020, we were providing fully integrated delivery
services at approximately 890 of our Burger King restaurants, based on the geographic availability of
delivery services.
8
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
Late night
Year Ended
December 30, 2018
$
$
1,449,047
7.37
68.4 %
December 29, 2019
1,454,654
$
7.62
$
68.2 %
$
$
January 3, 2021
1,435,531
8.63
86.1 %
13.5 %
31.9 %
20.9 %
19.9 %
13.8 %
13.0 %
31.7 %
21.5 %
20.1 %
13.7 %
11.5 %
32.6 %
22.6 %
22.0 %
11.3 %
(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 for the years ended December 30, 2018 and December 29, 2019 or 53-
week basis for the year ended January 3, 2021.
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 land, the
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 $1,800,000 for both Burger King and
Popeyes restaurants.
With respect to the development of freestanding restaurants, if we acquire land and 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 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 $600,000 to $1,400,000 per restaurant with an average cost of approximately $1.1
million per restaurant in 2020. 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".
9
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
our return on investment requirements.
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
10
The following table details the locations of our 1,009 Burger King restaurants as of January 3, 2021:
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
The following table details the locations of our 65 Popeyes restaurants as of January 3, 2021:
State
Arkansas
Indiana
Kentucky
Louisiana
Mississippi
Tennessee
Virginia
Total
Total
Restaurants
6
9
2
16
92
41
17
15
29
1
51
33
1
10
125
157
116
61
42
109
6
66
4
1,009
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.
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Operations for our Burger King restaurants are overseen by our new Chief Operating Officer, Carl Hauch,
who joined us in February of 2021 and has over 20 years of experience in restaurant and retail operations, most
recently in the Wendy's system, as well as two Division Vice Presidents and 13 Regional Directors that have an
average of 22 years of Burger King restaurant experience. Our 148 district managers support the Regional Directors
in the management of our Burger King restaurants. Operations for our Popeyes restaurants are overseen by two
Regional Directors and nine 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. Most often,
our restaurants are staffed with hourly employees who are supervised by a salaried general manager and one to three
assistant managers.
Management Information Systems
Our management information systems provide us with the ability to efficiently and effectively manage our
restaurants and to ensure the 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;
• allow customers to place mobile and third-party delivery orders that integrate directly with the point-of-sale
system;
• employ centralized control over pricing, menu and inventory management activities at the restaurant
utilizing the remote management capabilities of our systems;
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• take advantage of electronic commerce including the 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 restaurants. 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 a 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. With BKC's and PLK's respective approval, we can elect to extend franchise agreements for additional
20 year terms, provided that the restaurant meets the current restaurant image standard and we are not in default
under terms of the franchise agreement. The franchise agreement fee for subsequent renewals for our Burger King
and Popeyes restaurants is currently $50,000. BKC or PLK 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 for our Burger King and Popeyes restaurants include, among other things, our failure to operate such
restaurant in accordance with the operating standards and specifications established by BKC or PLK (including
failure to use equipment, uniforms or decor approved by the respective franchisor), our failure to sell products
approved or designated by BKC or PLK, 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 or Popeyes 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 January 3, 2021, 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 January 3, 2021, we had 12 Burger King franchise
agreements due to expire in 2021, 14 Burger King franchise agreements due to expire in 2022 and 3 Burger King
franchise agreements due to expire in 2023, as well as 32 that expired prior to the end of 2020. At January 3, 2021
we had two Popeyes franchise agreements set to expire in 2021, four Popeyes franchise agreements set to expire in
2022 and one Popeyes franchise agreement set to expire in 2023, as well as six Popeyes franchise agreements that
expired prior to the end of 2020.
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
13
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.
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
2020 was approximately $1.1 million 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.
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 2020, we closed 34 Burger King
restaurants, including one offset location. We currently expect to close less than five Burger King restaurants in
2021, 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, were 4.3% in 2020, 2019 and 2018,
respectively. We anticipate our Burger King and Popeyes royalties, as a percentage of restaurant sales, will be
approximately 4.4% in 2021 as a result of the terms outlined above. Newly constructed Burger King restaurants
developed pursuant to the ADA as well as the Amended ADA received and will receive a 1% royalty rate reduction
for a four year period and certain remodeled restaurants under the ADA generally received and will 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. Pursuant to the ADA and Amended ADA, newly constructed
Burger King restaurants will receive a 3% advertising contribution reduction for four years and certain remodeled
restaurants, excluding upgrades, will 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.
14
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
3.9% in 2020, 4.0% in 2019 and 4.1% in 2018. For 2021, we expect total advertising expense to be approximately
4.0% 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 targeted to our customers, such as combination
value meals and discounted prices in order to create a flexible and directed marketing program.
Digital
BKC and PLK have invested heavily in launching a digital platform that integrates with major third-party
delivery service providers and provides a seamless ordering, payment, delivery and drive thru experience for our
guests. In the BKC and PLK platforms, guests can place orders through a website or mobile app and have the
product ready for pickup or delivered by a third-party partner. Digital sales, including sales through the delivery
platforms plus mobile order and pay, have been a strong growth driver and represented approximately 4.4% of our
restaurant sales in the fourth quarter of 2020 and 3.1% of our sales for all of 2020. We are also installing outdoor
digital menu boards in all drive thru locations. In 2020, we installed outdoor digital menu boards at 359 Burger
King restaurants and expect to complete the remaining installation of outdoor digital menu boards at all of our
Burger King and Popeyes restaurants by the first half of 2022. The menu boards integrate with the POS system and
allow for artificial intelligence to help optimize the guest experience. BKC and PLK continue to invest in the digital
platform and BKC intends to launch its Royal Perks loyalty program in 2021, which will be driven from its mobile
app.
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 help 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 primarily utilize four distributors, Lineage Foodservice Solutions, LLC, Reinhart Food Service L.L.C,
McLane Company Inc., and Performance Foodservice, to supply our Burger King restaurants with the majority of
our foodstuffs. As of January 3, 2021, such distributors supplied 34%, 28%, 28% and 10%, 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. Another distributor, Customized Distribution
Services, Inc. supplies 60 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. Each 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
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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, the failure of a
distributor or supplier for our restaurants to service us, 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 PLK's 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. 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, rules and regulations.
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Our costs for compliance with environmental laws, rules and regulations has 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 November 2020 food away from home dollars were 44.8% of nominal food dollars, with total expenditures
decreasing 18.3% from the same period in 2019. This reflects changes in the overall restaurant industry as a result
of the ongoing COVID-19 pandemic, but not the quick-service segment. Our sales stabilized in May 2020 as guests
have relied on our take-out and delivery service modes.
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,
2019 U.S. foodservice sales for the Top 200 restaurant chains increased 3.8% from 2018 to $313.5 billion. Of this
amount, the hamburger category represented $88.8 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 an 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.
Human Capital Management
As of January 3, 2021, we employed approximately 26,500 persons, of which approximately 200 were
administrative personnel and approximately 26,300 were restaurant operations personnel. Approximately 75% of
our employees are part-time and 80% have been employed by the Company for less than one year. None of our
employees are unionized or covered by collective bargaining agreements. We believe that our overall relations with
our employees are good and that our efforts to manage our workforce have been effective.
Diversity
We are committed to fostering a culture that encourages diversity and inclusion, and having diverse
representation in our workforce. As of January 3, 2021, 56% of our employee base was female and approximately
56% of our employee base was comprised of racial and ethnic minorities.
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. Our program emphasizes,
among other things, system-wide operating procedures, food preparation methods, food safety and customer service
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standards. BKC's and PLK's training and development programs are also available to us as a franchisee through web
access in all of our restaurants.
COVID-19 Response
Throughout the course of the ongoing COVID-19 pandemic, we have been adapting our business in order to
continue operating safely, including, among other things, by doing the following:
•
To support the health and safety of our employees, beginning in March 2020 we have mandated,
among other things, the use of masks, sanitizers and contactless procedures in our restaurants, and have
required team members' temperatures be taken at the beginning of each shift.
•
We have increased the use of low contact procedures for food delivery, including installation of
plexiglass barriers at the front counter and drive thru and the implementation of delivery services.
•
We have suspended all non-essential travel for our employees and implemented a work-from-home
policy for all non-restaurant personnel.
•
We have established a "Carrols Cares" fund to provide immediate relief to employees in need.
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 references to our website address and the SEC website address
do not constitute incorporation by reference of the information contained on these websites 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
We could be materially adversely affected by health concerns such as the current COVID-19 pandemic.
The United States and most other countries have experienced the widespread outbreak of the COVID-19
pandemic and in the past the Avian Flu or “SARS,” or H1N1. As we have experienced and are experiencing in the
current COVID-19 environment:
•
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. These are all areas that have been impacted during the
second quarter of 2020 and continue to be challenges in the near-term for our business. The COVID-19
pandemic has negatively impacted our customer traffic, and we have had to take immediate actions to shift
focus to our drive-thru, carry-out and delivery service modes. We have also experienced significant staffing
challenges, both as a result of employee exposure to COVID-19 as well as the hourly workforce being
disincentivized by federal, state and local unemployment benefits and fearful of the workplace.
•
We also may be adversely affected if jurisdictions in which we have restaurants impose or continue
to impose mandatory closures, seek or continue to seek voluntary closures or impose or continue to impose
restrictions on operations. Even if such measures are not implemented and a virus or other disease does not
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spread significantly, the perceived risk of infection or significant health risk may adversely affect our
business. During the second quarter of 2020, we did see frequent changes to our restaurants' operating
hours, as a result of shifting consumer behavior as well as public safety measures mandated by local
jurisdictions. In March 2020, we closed the dining rooms in all our restaurants and modified operating hours
in line with local ordinances and day-part sales trends. These closures were in effect for most of the second
quarter of 2020, with each restaurant operating according to their respective local governmental guidelines
as well as safety procedures developed by BKC and PLK. As individual states and local governments have
allowed reopenings, we have continually evaluated the opportunity to re-open dining rooms. In most cases,
consumers have not been eager to return to dining rooms, and restaurant sales in the third quarter of 2020
included approximately 1% of eat-in traffic.
•
Lower customer traffic as experienced in the immediate onset of the COVID-19 pandemic in our
markets may not provide enough revenue to cover the fixed operating costs of our restaurants. We
temporarily closed 46 restaurants in late March 2020 and early April 2020 that were geographically close to
one of our other restaurants, and these closures were in effect for most of the second quarter of 2020. Due to
restaurant sales improvements after the initial months of the COVID-19 pandemic, we had reopened all of
the temporarily closed restaurants by the end of 2020 except for two restaurants which were permanently
closed in the third quarter. While most of these closures were temporary, our business remains sensitive to
operating in environments with prolonged sales declines of the magnitude we saw in the first weeks of the
pandemic.
•
We will incur incremental costs for an indefinite period of time to provide safety to our guests and
our employees in the form of masks, sanitizers and thermometers as well as additional labor to continuously
sanitize our restaurants. Throughout the course of this evolving COVID-19 outbreak, we have been
adapting our business in order to continue operating safely. To support the health and safety of our
employees and customers, among other things, we mandated the use of masks, sanitizers and contactless
procedures in our restaurants, and have required temperature checks at the beginning of each shift for our
team members. During the year ended January 3, 2021, we incurred $2.7 million in expenses directly
related to COVID-19 related supplies, including face masks, thermometers, sneeze guards and sanitizers.
•
The uncertain economic environment that we are operating in now has required us to enhance our
liquidity and bolster our balance sheet. In the first quarter of 2020 we borrowed on our Revolving Credit
Facility to protect against a prolonged pandemic coupled with financial market illiquidity. We also
increased our revolving credit borrowing capacity under our Revolving Credit Facility by $30.8 million to a
total of $145.8 million, and incurred Incremental Term B-1 Loans of $75 million.
•
Our financial performance depends on our continuing ability to offer fresh, quality food at
competitive prices. A significant disruption in service or supply by our suppliers or distributors could create
disruptions in the operations of our restaurants and adversely affect our business. During the second quarter
of 2020, we were subject to a limited menu in some markets due to limited product available from one of
our suppliers and in some instances, deliveries were delayed due to the conditions of the COVID-19
pandemic. A more significant disruption in service or supply by our suppliers or distributors due to the
impact of COVID-19 on their businesses, whether from employees at these facilities contracting the
COVID-19 virus, their own business suffering due to their inability to operate in the COVID-19 economic
environment, or their own financial instability could have a material adverse effect on our business.
A health pandemic such as COVID-19 is a disease outbreak that has spread rapidly and widely by infection
and has affected many individuals in areas of population density. Our restaurants are places where people can gather
together for human connection. Customers might avoid or be advised to not gather in public places in the event of a
health pandemic, and local, regional or national governments might continue or further 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.
In addition, we cannot guarantee that changes to our operational policies and training will be effective to keep
our employees and customers safe from the COVID-19 virus. Any publicity relating to health concerns or perceived
or specific outbreaks of COVID-19 attributed to one or more of our restaurants, could result in a significant
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decrease in guest traffic in all of our restaurants and could have a material adverse effect on our results of
operations. Furthermore, 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.
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 earnings.
Factors applicable to the quick-service restaurant segment may have a material adverse effect on 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
health concerns such as the ongoing coronavirus pandemic (COVID-19);
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; 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
results of operations and financial condition.
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
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generally has the right to require us to remodel our restaurants to conform to the then-current image of Popeyes
restaurants every six years, all of which may require the expenditure of considerable funds. We also 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 also 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 be able to exercise any of the options to renew the PLK franchise agreements. Any failure of BKC to
renew our franchise agreements would materially adversely affect our results of operations and financial condition.
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. Similarly, one of the conditions to our ability to exercise the option
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 results of operations could be harmed.
We could be materially adversely affected by food-borne illnesses, as well as widespread negative publicity
regarding food quality, illness, injury or other health concerns.
Negative publicity about food quality, illness, 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 or 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” disease could lead to changes in consumer
preferences, reduce consumption of our products and have a material adverse effect on our results of operations and
financial condition. 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, 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. Furthermore, 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 results of operations and financial condition.
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 and retained in the Amended ADA, BKC has granted us franchise pre-approval to
acquire Burger King restaurants from Burger King franchisees until we acquire more than 500 Burger King
restaurants. The right of first refusal assigned to us from BKC pursuant to the ADA was forfeited by us as a result of
entering into the Amended ADA in January 2021.
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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 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:
•
•
•
•
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 a material adverse effect on our 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.
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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 results of operations and financial condition, regardless of whether the allegations are
true, or whether we are ultimately held liable. Any cases filed against us could materially adversely affect our
results of operations and financial condition 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 results of operations and
financial condition by increasing our litigation costs and diverting our attention and resources to address such
actions. Furthermore, 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 and financial condition.
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 results of operations and financial condition. 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 results of operations and financial condition 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 results of operations and financial condition.
We could be adversely affected by our failure to acknowledge and sufficiently respond to the fast-moving
influence of social media.
The widespread use of social media platforms can provide individuals with access to a broad audience at any
time of day. The content shared by users on these platforms may be published without consideration of accuracy or
its potential impact. Such content may be factually inaccurate, but nonetheless negatively impact our customer
engagement, business operations, brand reputation or financial performance. This damage could be fast-moving and
not allow us or our franchisors a chance to address the situation.
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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 results
of operations and financial condition.
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 our results of
operations and financial condition.
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 primarily utilize four distributors, Lineage Foodservice Solutions, LLC, Reinhart Food Service L.L.C,
McLane Company Inc. and Performance Foodservice, to supply our Burger King restaurants with the majority of
our foodstuffs. As of January 3, 2021, such distributors supplied 34%, 28%, 28% and 10%, 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. Another distributor, Customized Distribution
Services, Inc. supplies 60 of our Popeyes restaurants with all non-poultry products.
In the event that any of our distributors or suppliers are unable to service us and we are unable to timely secure
alternative sources for product, we could suffer a disruption of service until a new distributor or supplier is engaged,
which could have a material adverse effect on our results of operations and financial condition.
If labor costs increase, we may not be able to make a corresponding increase in our prices and our results of
operations and financial condition may be materially 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, could have a material adverse effect on our results of operations and financial condition.
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 results of
operations and financial condition.
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. We have considered these labor costs in our
price changes, and additional labor costs may require us to raise our prices in the future. In certain geographic areas
which cannot absorb such increases, this could have a material adverse effect on our results of operations and
financial condition. We provide unpaid leave for employees for covered family and medical reasons, including
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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 have a material adverse affect on our results of operations and financial
condition.
Increases in income tax rates or changes in income tax laws could adversely affect our results of operations and
financial condition.
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 results of operations and
financial condition.
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 January 3, 2021, 15% of our restaurants were located in North Carolina, 12% were located in New York,
12% were located in Tennessee, and 24% were located in Indiana, Ohio and Michigan. Therefore, the economic
conditions, state and local government regulations, weather 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 results of operations and financial condition.
We could be materially adversely affected by external events such as extreme weather, natural disasters, terrorist
actions, pandemics and civil unrest, among others.
External events such as extreme weather, natural disasters, terrorist actions, pandemics and civil unrest, and
anticipation of such events, can adversely affect consumer spending, supply availability and costs, and our ability to
operate our business in any impacted market.
We cannot assure you that the current locations of our restaurants will continue to be economically viable or
that additional locations can 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 is experiencing and 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 including
25
as a result of the COVID-19 pandemic. 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 our customer's actual or perceived wealth 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 results of operations and financial condition.
The loss of the services of our senior management could have a material adverse effect on our results of
operations and financial condition.
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 results of operations and financial condition.
Government regulation could adversely affect our results of operations and financial condition.
We are subject to extensive laws and regulations relating to the development and operation of restaurants,
including regulations relating to the following:
• zoning;
• labeling of caloric and other nutritional information on menu boards, advertising and food packaging;
• 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 the 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 our results of operations and financial condition. 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 results of operations and financial condition.
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 have a material adverse effect on our results of
operations and financial condition.
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 have a material adverse effect our results of operations and financial condition.
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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 have a material adverse effect on our results of operations and financial
condition.
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, including as a result of the COVID-19
pandemic, 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 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 of 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 and financial condition.
Security breaches of confidential credit card, consumer, employee and other material information as well as
other threats to our technical systems may have a material adverse effect on our results of operations and
financial condition.
Approximately half of our restaurant sales are by credit or debit cards. Other restaurants and retailers have
experienced security breaches in which confidential or material information has been compromised. The Company
devotes significant resources to data encryption, network security and other measures to protect its systems and
data, but these security measures cannot provide absolute security. We may become subject to lawsuits, fines or
other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests’
credit or debit card or any other material information. Any such claim or proceeding, or any adverse publicity
resulting from these allegations, may have a material adverse effect on our results of operations and financial
condition.
The Company’s results of operations, financial condition and reputation may be impacted by information
technology system failures or network disruptions.
We rely on information systems across our operations for point-of-sale processing in our restaurants,
collection of cash, procurement and payment to suppliers, payment of payroll, financial reporting and other
processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and
capacity of these systems. The Company may be subject to information technology system failures and network
disruptions caused by natural disasters, accidents, pandemics, power disruptions, telecommunications failures, acts
of terrorism or war, computer viruses, physical or electronic break-ins, ransomware or other events or disruptions.
System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be
sufficient for all eventualities which may have a material adverse effect on our results of operations and financial
condition. While the Company maintains dedicated insurance coverage that, subject to policy terms and conditions
and subject to a deductible, is designed to address certain aspects of cyber risks, such insurance coverage may be
insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.
27
Carrols is currently a guarantor under 18 Fiesta Restaurant Group, Inc. ("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 18 Fiesta restaurant property leases, of which all except for two
are still operating as of January 3, 2021. The Separation and Distribution Agreement 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.
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
specifically;
• 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 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.
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The concentrated ownership of our capital stock by insiders may limit our stockholders' ability to influence
corporate matters.
At January 3, 2021, our executive officers, directors, BKC and Blue Holdco 1, LLC (collectively the "BKC
Stockholders"), and Cambridge together beneficially owned approximately 45.1% of our common stock, giving
effect to the conversion of the Series B Convertible Preferred Stock issued to the BKC Stockholders. As a result,
our executive officers, directors, affiliates of the BKC Stockholders 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 BKC Stockholders and
Cambridge each has two representatives on our Board of Directors, which has the authority to make decisions
affecting our company and its capital structure, including the issuance of additional debt and the declaration of
dividends. Each of the BKC Stockholders and Cambridge may have interests that differ from those of other
stockholders and may vote in a way with which other stockholders disagree and which may be adverse to their
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 the Company that other stockholders
may view as beneficial, which 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 currently 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 currently do not expect to 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;
29
•
•
•
•
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 have a material adverse effect on our financial condition.
As of January 3, 2021 we had $494.2 million of total indebtedness outstanding consisting of $419.4 million
Term Loan B borrowings and $73.9 million Term Loan B-1 borrowings under our Senior Credit Facilities and $0.9
million of finance lease liabilities. As of January 3, 2021 we had $136.1 million of revolving borrowing availability
under our Senior Credit Facilities (after reserving $9.7 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).
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 and B-1 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.
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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;
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•
•
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•
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. Our ability to meet this financial ratio and other tests can be affected by events beyond our control,
and we cannot assure you that we will meet these tests. At January 3, 2021, we were in compliance with such
covenants.
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.
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ITEM 2. PROPERTIES
As of January 3, 2021, we owned nine and leased 1,065 restaurant properties including 28 co-branded
locations. In addition, we owned five and leased 19 non-operating properties as of January 3, 2021, not including
two properties under construction that are expected to open as new restaurants in 2021.
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 25.8 years at January 3, 2021. 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 shopping center locations, we are also required to pay certain other charges such as a pro
rata share of the shopping center'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 two smaller administrative offices
in Syracuse, NY that support 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, 2021,
there were 53,337,104 shares of our common stock outstanding held by 482 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 2020 or 2019. We currently do not expect to pay
any cash dividends on our common stock in the foreseeable future. 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.
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Stock Performance Graph
The following graph compares from December 31, 2015 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, 2015.
* $100 invested on 12/31/2015 in stock or index, including reinvestment of dividends.
12/31/2020
Carrols Restaurant Group, Inc. . . . . . . $ 100.00 $ 129.90 $ 103.49 $
53.49
NASDAQ Composite . . . . . . . . . . . . . $ 100.00 $ 108.87 $ 141.13 $ 137.12 $ 187.44 $ 271.64
98.61 $ 103.52 $ 106.19
S&P SmallCap 600 Restaurants . . . . . $ 100.00 $ 108.78 $ 100.34 $
12/31/2015 12/31/2016
12/31/2019
12/31/2017
12/31/2018
60.05 $
83.82 $
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.
33
COMPARISON OF 5 YEAR CUMULATIVE TOTALRETURN*Among Carrols Restaurant Group, Inc., the NASDAQComposite Index, and S&P SmallCap 600 RestaurantsCarrols Restaurant Group, Inc.NASDAQ CompositeS&P SmallCap 600 Restaurants12/31/1512/31/1612/31/1712/31/1812/31/1912/31/20$0$50$100$150$200$250$300
The table below reflects shares of common stock we repurchased in the fourth quarter of 2020:
September Purchased 9/28 through 9/30 . .
Purchased 10/1 through 10/31 .
October
Purchased 11/1 through 11/30 .
November
Purchased 12/1 through 12/31 .
December
Purchased 1/1 through 1/3 . . . .
January
Total
Number of
Shares
Purchased
Average
Price Paid
Per Share
—
—
6.11
6.92
—
— $
— $
762,512 $
771,792 $
— $
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
— $
— $
762,512 $
771,792 $
— $
—
—
16,326,820
10,983,543
—
(1) Shares were repurchased in open market transactions pursuant to the Repurchase Program.
34
ITEM 6. SELECTED FINANCIAL DATA
Our fiscal years ended 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, 2021 presented below includes 53 weeks.
The information in the following tables should be read together with our audited consolidated financial
statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this Annual Report on Form 10-K. Our consolidated financial information may not be
indicative of our future performance.
Acquisition Activity:
Restaurants acquired
Transactions
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 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
56
7
64
3
44
4
234
3
—
—
Year Ended
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
(In thousands, except share and per share data)
943,583
1,088,532
1,179,307
—
—
—
943,583
1,088,532
1,179,307
1,452,516
10,249
1,462,765
1,547,502
—
1,547,502
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)
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)
452,738
498,127
118,444
236,059
60,735
84,051
81,727
12,778
(1,271)
1,059,059
1,145,952
1,471,508
1,543,388
29,473
21,710
—
—
7,763
604
33,355
23,638
—
(230)
9,947
(157)
(8,743)
27,856
7,443
—
(44,042)
(12,123)
4,114
27,283
—
—
(23,169)
6,294
(29,463)
45,472 $
7,159 $
10,104 $
(31,919) $
1.01 $
0.16 $
0.22 $
(0.74) $
(0.58)
35,178,329
44,851,345
35,416,531
35,715,372
44,976,514
45,319,971
43,421,715
43,421,715
50,751,185
50,751,185
35
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 . . . . . . . . . . . . . . . . .
Average annual sales per restaurant (4) . . . . . . . . . .
Adjusted EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net income (loss) (5) . . . . . . . . . . . . . . . . .
Adjusted Restaurant-Level EBITDA (5) . . . . . . . . .
Change in comparable restaurant sales (6) . . . . . . . .
Balance sheet data (at end of period):
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior and senior subordinated debt . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease financing obligations . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . $
Year Ended
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
(In thousands, except restaurant weekly sales data)
$
62,288
94,099
96,221
13,661
753
719.5
1,311
89,505
17,860
140,646
72,783
73,516
108,105
62,372
807
784.3
1,388
91,771
9,262
146,837
$
80,769
75,735
106,894
727
849
813.9
1,449
102,990
14,091
162,133
$
48,708
$
103,945
134,879
218,045
168,297
1,101
998.5
1,455
86,371
(15,323)
156,131
56,890
47,857
5,902
1,074
1,078.0
1,436
107,855
(3,733)
181,562
2.3 %
5.2 %
3.8 %
2.2 %
(2.7) %
490,115
$
581,514
$
600,251
$
1,751,460
$
1,757,085
(39,231)
(19,514)
(47,461)
(109,540)
(44,396)
213,500
7,039
3,020
223,559
154,656
275,000
275,000
5,681
1,203
281,884
169,060
$
$
3,941
1,201
$
$
280,142
185,540
$
$
Year Ended
468,625
2,524
1,198
472,347
309,462
$
$
493,250
908
1,189
495,347
271,532
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
(In thousands, except per share data)
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)
Abandoned development costs
Pre-opening costs
Other income, net (3)
Litigation and other professional expenses (8)
Stock compensation expense
Gain on bargain purchase
Loss on extinguishment of debt
Adjusted EBITDA
$
45,742 $
7,159 $
10,104 $
(31,919) $
(29,463)
(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)
(12,123)
23,638
58,468
92,053
3,685
1,445
—
462
(424)
187
5,812
(230)
—
27,856
74,674
58,488
3,564
10,827
256
1,449
(1,911)
502
5,753
—
7,443
6,294
27,283
81,727
85,841
12,778
273
3,464
163
(1,271)
1,384
5,223
—
—
$
89,505 $
91,771 $
102,990 $
86,371 $
107,855
36
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
Year Ended
Reconciliation of Adjusted Restaurant-Level EBITDA (5):
Income (loss) from operations
$
35,702 $
29,473 $
33,355 $
(8,743) $
4,114
Add:
General and administrative expenses
54,956
60,348
66,587
Restaurant integration costs
Pre-opening costs
Depreciation and amortization
Impairment and other lease charges
Other expense (income), net (3)
—
—
47,295
2,355
338
—
363
54,159
2,827
(333)
—
462
58,468
3,685
(424)
84,734
2,364
1,449
74,674
3,564
(1,911)
84,051
—
163
81,727
12,778
(1,271)
Adjusted Restaurant-Level EBITDA
$
140,646 $
146,837 $
162,133 $
156,131 $
181,562
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)
Abandoned development costs
Pre-opening costs
Other income, net (3)
Gain on bargain purchase
Litigation and other professional expenses (8)
Income tax effect of above adjustments (9)
Adjustments to income tax benefit (10)
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3, 2021
Year Ended
$
45,472 $
7,159 $
10,104 $
(31,919) $
(29,463)
—
2,355
1,853
—
—
(1,603)
—
1,850
(1,693)
(30,374)
—
2,827
1,793
—
363
(362)
—
—
(1,756)
(762)
—
3,685
1,445
—
462
(424)
(230)
187
(1,138)
—
7,443
3,564
10,827
256
1,449
(1,911)
—
502
(5,534)
—
—
12,778
273
3,464
163
(1,271)
—
1,384
(4,199)
13,138
(3,733)
(0.07)
Adjusted net income (loss)
Adjusted diluted net income (loss) per share (11)
$
$
17,860 $
9,262 $
14,091 $
(15,323) $
0.40 $
0.21 $
0.31 $
(0.35) $
(1) Acquisition costs of $1.9 million, $1.8 million, $1.4 million, $8.5 million and $0.3 million were included in general and
administrative expense for the years ended January 1, 2017, December 31, 2017, December 30, 2018, December 29, 2019
and January 3, 2021, respectively.
(2) General and administrative expenses include stock-based compensation expense for the years ended January 1, 2017,
December 31, 2017, December 30, 2018, December 29, 2019 and January 3, 2021 of $2.1 million, $3.5 million, $5.8
million, $5.8 million and $5.2 million, respectively.
(3) In 2020, we recorded gains related to insurance recoveries from property damage at four of the Company's restaurants of
$2.1 million, a net gain on twelve sale-leaseback transactions of $0.2 million and a loss on disposal of assets of $1.0
million. In fiscal 2019, we 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, we 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, we 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 financial measures not in
accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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
37
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, 2021.
38
(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 and other professional expenses in fiscal 2020 include legal costs pertaining to an ongoing lawsuit with one of
our vendors, costs to settle a class action claim and other non-recurring professional service expenses. In fiscal 2019 and
2018, this included legal costs pertaining to an ongoing lawsuit with one of our vendors and for fiscal 2016, represents
costs for settlement of certain litigation.
(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 2020 and fiscal 2019, 22.2% in fiscal 2018 and 38%
in all other years presented.
(10) Fiscal 2020 includes tax expense of $13.1 million to record an incremental tax valuation allowance for certain income tax
credits as they may expire prior to their utilization. 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 a
previously recorded valuation allowance on net deferred income tax assets.
(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 year
ended January 3, 2021 contained 53 weeks and the fiscal year ended December 29, 2019 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 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 January 3,
2021, and December 29, 2019, including a review of the material items and known trends and uncertainties. See
Item 7 of our 2019 Annual Report on Form 10-K for an analysis of our consolidated results of operations for the
years ended December 29, 2019 and December 30, 2018.
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.
39
Company Overview
Carrols Restaurant Group, Inc. and its consolidated subsidiaries (collectively, "Carrols Restaurant Group", the
"Company", "we", "our" or "us") is one of the largest restaurant companies in the United States and has been
operating restaurants for more than 60 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 January 3, 2021 we
operated, as a franchisee, a total of 1,074 restaurants in 23 states under the trade names of Burger King® and
Popeyes®. This included 1,009 Burger King® restaurants in 23 Northeastern, Midwestern, Southcentral and
Southeastern states and 65 Popeyes® restaurants in seven Southeastern states.
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".
Any reference to "BKC" refers to Burger King Corporation and its indirect parent company, Restaurant
Brands International Inc. ("RBI"). Any reference to "PLK" refers to Popeyes Louisiana Kitchen, Inc. and its indirect
parent company, RBI.
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 (as defined in this MD&A).
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) and delivery charges,
less purchase discounts and vendor rebates. Cost of sales is generally influenced by changes in commodity
costs, the mix of items sold, the level of promotional discounting, the effectiveness of our restaurant-level
controls to manage food and paper costs and the relative contribution of delivery sales. In 2019, cost of
sales also included fuel costs for the six convenience stores acquired as part of the Cambridge Acquisition,
which contributed lower margins relative to our restaurant cost of sales.
•
•
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.
In 2018, restaurant rent expense also included the amortization of favorable and unfavorable leases and was
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.
40
• 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 (Loss).
EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Income (Loss) 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 and integration costs, loss on extinguishment of debt, stock
compensation expense, other income or expense, abandoned site development costs, pre-opening expenses
and certain other non-recurring expenses. 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 (loss) 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 (loss)
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 54, 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, 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 54.
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, other lease charges, acquisition costs and litigation costs) have recurred and may reoccur.
41
• 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 restaurants and the amortization of franchise fees paid to BKC and PLK.
•
•
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 borrowings
and $75.0 million Term Loan B-1 borrowings, amortization of deferred financing costs, amortization of
original issue discount, interest on revolving credit borrowings, ticking fees, payments required under our
interest rate swap arrangement, 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
Impact of the COVID-19 Pandemic
The impact of the COVID-19 pandemic on restaurant sales at our Burger King restaurants began during the
week ended March 15, 2020. During the week ended March 29, 2020, comparable restaurant sales decreased 33.8%
compared to the prior year week. Comparable restaurant sales declines at our Burger King restaurants began easing
mid-April, and for the month of June the change in comparable restaurant sales was positive. For our Popeyes
restaurants, the impact of the COVID-19 pandemic on restaurant sales started during the week ended March 22,
2020, and began easing mid-April.
In response to the impact that the COVID-19 pandemic has had on our business operations and the continuing
uncertainty in the economy in general, we have taken steps to adapt our business and strengthen and preserve our
liquidity, including the following:
•
In March 2020, we closed the dining rooms in all our restaurants and modified operating hours in line with
local ordinances and day-part sales trends. These closures were in effect for most of the second quarter of
2020, with each restaurant operating according to their respective local governmental guidelines as well as
safety procedures developed by BKC and PLK. As individual states and local governments have allowed
reopenings, we have continually evaluated the opportunity to re-open dining rooms. By the end of the year,
approximately 35% of dining rooms have reopened, however, in most cases, guests have continued to rely
on our drive-thru, carry-out and delivery service modes. Restaurant sales in the fourth quarter of 2020
included approximately 1% of eat-in traffic at our Burger King restaurants and 7% of eat-in traffic at our
Popeyes restaurants, which are the highest we've seen since the onset of the pandemic.
• We launched delivery services in March of 2020 at approximately 800 of our restaurants and have added
additional third-party delivery partners as well as restaurant coverage over the course of the year. For the
fourth quarter of 2020, delivery comprised approximately 3.5% of total restaurant sales and for all of 2020
delivery was approximately 2.4% of all sales.
• We temporarily closed 46 restaurants in late March 2020 and early April 2020 that were geographically
close to one of our other restaurants, and these closures were in effect for most of the second quarter of
2020. By the end of 2020, we had reopened all of these restaurants with the exception of two Burger King
restaurants we permanently closed in the third quarter.
• As discussed below, we increased revolving credit borrowing capacity under our Revolving Credit Facility
(as defined below) by $30.8 million to a total of $145.8 million and borrowed Incremental Term B-1 Loans
(as defined below) for net proceeds of $71.3 million after original issue discount to increase our liquidity
and protect against the uncertainty of a prolonged pandemic.
• We remain committed to active management of our expenditures and for the second quarter of 2020 limited
spending mainly to necessary restaurant maintenance issues. For the full year, we reduced operating capital
expenditures to $56.9 million from $134.9 million in 2019.
42
• We reduced regional and corporate overhead by streamlining our regional management and support
structure, improving our training process and instituted a 10% temporary reduction in all non-restaurant
wages for the second quarter of 2020. Given our improved business trajectory, this reduction in wages was
restored as of July 1, 2020.
• As allowed under the Coronavirus Aid, Relief and Economic Security Act, as amended (the "CARES Act"),
we deferred payment of the employer portion of Social Security taxes through the end of 2020. The amount
of the cumulative deferral at the end of 2020 was approximately $21.6 million, of which 50% is payable on
each of December 31, 2021 and December 31, 2022.
• We negotiated with our landlords other than BKC to secure $5.8 million in deferral or abatement of 2020
cash rent obligations, of which $4.8 million was or is expected to be repaid over various periods beginning
in the third quarter of 2020. We repaid $1.6 million related to these deferrals by the end of 2020.
• During the second quarter of 2020, we optimized payment terms with our key vendors and suppliers and
utilized deferral opportunities with our utility vendors. These reverted to normal payment terms in July of
2020. During the year, we experienced a number of minor and/or temporary supply chain issues. All such
issues have been resolved.
• We suspended any acquisition activity and share repurchases during the first quarter, which we
subsequently reinstated during the fourth quarter.
Throughout the course of this evolving COVID-19 outbreak, we have been adapting our business in order to
continue operating safely. To support the health and safety of our employees, beginning in March 2020 we
mandated, among other things, the use of masks, sanitizers and temperature checks at the beginning of each shift for
our team members as well as instituted contactless procedures in our restaurants. We also suspended all non-
essential travel for our employees and implemented a work-from-home policy for all non-restaurant personnel
effective through the second quarter of 2020. During the third quarter of 2020, administrative employees returned to
the office on a voluntary basis in compliance with New York's phased re-opening.
Although the COVID-19 pandemic has negatively impacted the Company's customer traffic, the immediate
actions taken to continue drive-thru and carry-out business operations and secure additional liquidity have
minimized the financial impact on the Company's results of operations, financial condition and cash flows. We
believe our business model and world-class brands are ideally positioned to serve value and convenience-seeking
customers through our drive-thru, at-the-counter for take-out, and delivery channels.
43
While significant uncertainty remains as to when or the manner in which the circumstances surrounding the
COVID-19 pandemic will change, including but not limited to stock price volatility, lower customer traffic,
governmental restrictions on restaurant businesses and the unpredictable economic environment, we have been
nimble in adapting our operations to the realities of the marketplace and saw the results of these efforts in 2020. In
2020, we were able to increase our full year Adjusted Restaurant-Level EBITDA and Adjusted EBITDA by $25.4
million and $21.5 million, respectively, by managing food costs, optimizing labor hours despite higher wage rates,
and controlling other restaurant-level and corporate overhead expenses.
Cambridge Acquisition
On April 30, 2019, we completed a 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 all 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 a new Area Development Agreement (the
"ADA") which commenced on April 30, 2019 and was set to end on September 30, 2024 and which superseded the
Operating Agreement dated as of May 30, 2012, as amended, between Carrols LLC and BKC. The ADA was
amended and restated by all parties on January 4, 2021 (the "Amended ADA").
Under the ADA, Carrols LLC had 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. Carrols LLC also had agreed under the ADA 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.
These development commitments were substantially reduced in the Amended ADA. Pursuant to the Amended
ADA, Carrols LLC agreed to open, build and operate a total of 50 new Burger King restaurants, 80% of which must
be in Kentucky, Tennessee and Indiana. This includes four Burger King restaurants by September 30, 2021, 10
additional Burger King restaurants by September 30, 2022, 12 additional Burger King restaurants by September 30,
2023, 12 additional Burger King restaurants by September 30, 2024 and 12 additional Burger King restaurants by
September 30, 2025.
In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise pre-approval to build new
Burger King restaurants or acquire Burger King restaurants from Burger King franchisees with respect to 500
Burger King restaurants in the aggregate in (i) Kentucky, Tennessee and Indiana (excluding certain geographic
areas in Indiana) and (ii) (a) 16 states, which include 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 (b) any other
geographic locations that Carrols LLC enters after the commencement date of the Amended ADA pursuant to BKC
procedures subject to certain limitations.
Pursuant to the ADA and for a cost of $3.0 million, BKC had assigned to Carrols LLC 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
44
Cambridge Acquisition ("ADA ROFR"). The ADA ROFR was terminated in connection with the Amended ADA
and an impairment charge of $2.0 million for the unamortized value remaining from the payment for the ADA
ROFR was recorded in 2020.
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.
On October 1 of each year following the commencement date of the ADA, Carrols LLC was required to pay
BKC pre-paid franchise fees in the following amounts to be applied to new Burger King restaurants opened and
operated by Carrols LLC: (a) $350,000 on the commencement date of the ADA, (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. The Amended ADA eliminated the requirement for any prepayments due and
payable on and after October 1, 2020, and the $0.6 million balance of prepaid franchise fees paid under the ADA
that had not yet been applied to new restaurant development was forfeited.
Through the Cambridge Acquisition, we have also assumed a development agreement for Popeyes®, which
includes an assignment by PLK of its right of first refusal under its franchise agreements with its franchisees for
acquisitions in two southern states, as well as a development commitment to open, build and operate approximately
80 new Popeyes® restaurants over six years.
Restaurant Acquisitions
From the beginning of 2018 through January 3, 2021, we acquired 278 restaurants from other Burger King and
Popeyes franchisees in the following transactions ($ in thousands):
Number of
Restaurants
Purchase
Price
Number of
Fee-Owned
Restaurants
Market Location
Closing Date
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
1 $
2
31
10
44
—
1,666
25,930
10,506
38,102
259,083
220
15,788
13
1,108
1
234
275,979
278 $ 314,081
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 right of first refusal on acquisitions in certain markets.
(3) The Cambridge Acquisition included 165 Burger King restaurants and 55 Popeyes restaurants.
The 2019 acquired restaurants included 14 fee-owned properties, of which six were subsequently sold in sale-
leaseback transactions in 2019 for net proceeds of $8.3 million and two were subsequently sold in sale leaseback
transactions in 2020 for net proceeds of $3.4 million. All of the 2018 acquired restaurants were leased properties.
45
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 2021 will be approximately $65 million to $75 million, which
includes approximately 35% for remodeling existing restaurants, 25% for the construction of eight new restaurants,
and 20% for required ongoing capital maintenance expenditures.
In 2021, proceeds from sale/leaseback transactions related to new restaurant development are expected to be
approximately $8 million to $13 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.
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.
46
On March 25, 2020, we entered into the Second Amendment to our Senior Credit Facilities (the "Second
Amendment"). The Second Amendment increased the aggregate maximum commitments available for revolving
credit borrowings (including standby letters of credit) under the revolving credit facility (the "Revolving Committed
Amount") by $15.4 million to a total of $130.4 million.
The Second Amendment also amended the definition of Applicable Margin (such definition and all other
definitions used herein and otherwise not defined herein shall be the meanings set forth in the Senior Credit
Facilities) in the Credit Agreement to provide that on and after the date of the Second Amendment (the "Second
Amendment Effective Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including
Letter of Credit Fees) shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is
greater than $115.0 million, (i) for the period commencing on the Second Amendment Effective Date and including
the date that is 179 days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for
Alternate Base Rate Loans, (ii) for the period commencing on the date that is 180 days after the Second Amendment
Effective Date, through and including the date that is 269 days after the Second Amendment Effective Date, 4.25%
for LIBOR Rate Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is
270 days after the Second Amendment Effective Date, through and including the date that is 364 days after the
Second Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv)
for the period commencing on the date that is 365 days after the Second Amendment Effective Date and thereafter,
4.75% for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving
Committed Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate
Base Rate Loans.
The Second Amendment provides that beginning on the 180th day after the Second Amendment Effective
Date and for so long as the Revolving Committed Amount is greater than $115.0 million, we shall pay to the
Administrative Agent, for the ratable benefit of the Revolving Facility Lenders, a commitment fee (the "Ticking
Fee") on the average daily amount of the Revolving Committed Amount at a rate per annum equal to (a) 0.125% for
the 180th day after the Second Amendment Effective Date through and including the 269th day after the Second
Amendment Effective Date, (b) 0.25% for the 270th day after the Second Amendment Effective Date through and
including the 364th day after the Second Amendment Effective Date and (c) 1.00% for the 365th day after the
Second Amendment Effective Date and thereafter. The Second Amendment provides that the Ticking Fee will be
due and payable quarterly in arrears (calculated on a 360-day basis) on the last Business Day of each calendar
quarter and will accrue from the 180th day after the Second Amendment Effective Date for so long as the Revolving
Committed Amount is greater than $115.0 million. We recorded expense of $0.1 million related to these ticking fees
in the year ended January 3, 2021.
The Second Amendment further provides that we shall use the proceeds of an Extension of Credit which
results in the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate amount of
LOC Obligations equaling an amount in excess of $115.0 million, solely for our ongoing operations and our
subsidiaries and shall not be held as cash on the balance sheet. Pursuant to the Letter Agreement, (the "Letter
Agreement") dated as of March 25, 2020 among the Company, Wells Fargo Securities, LLC, Wells Fargo Bank,
National Association and Truist Bank, we agreed to defer rent payments totaling approximately $2.4 million per
month under certain real property leases for the period between April 1, 2020 through and including June 30, 2020.
We paid these amounts in full according to these terms on July 1, 2020.
On April 8, 2020, we entered into the Third Amendment to our Senior Credit Facilities which increased the
aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit)
under the Revolving Credit Facility by $15.4 million to a total of $145.8 million.
On April 16, 2020, we entered into the Fourth Amendment to our Senior Credit Facilities (the "Fourth
Amendment"). The Fourth Amendment permits us to incur and, if necessary, repay indebtedness incurred pursuant
to the Paycheck Protection Program (the "PPP") under the CARES Act. Subsequent to this amendment, we
withdrew our application for relief under the PPP and returned the funds upon receipt.
On June 23, 2020 (the "Fifth Amendment Effective Date"), we entered into the Fifth Amendment to our
Senior Credit Facilities (the "Fifth Amendment"). The Fifth Amendment increased the Term Loan (as defined in the
47
Senior Credit Facilities) borrowings in the aggregate principal amount of $75 million of Incremental Term B-1
Loans (as defined in the Senior Credit Facilities). The Incremental Term B-1 Loans constitute a new tranche of
Term Loans ranking pari passu in right of payment and security with the Initial Term Loans (as defined in the
Senior Credit Facilities) for all purposes under the Senior Credit Facilities. The Incremental Term B-1 Loans have
the same terms as outstanding borrowings under the Company's existing term loan B facility pursuant to and in
accordance with the Senior Credit Facilities, provided that (i) borrowings under the Incremental Term B-1 Loans
will bear interest at a rate per annum, at our option, of (a) the Alternate Base Rate (as defined in the Senior Credit
Facilities) plus the applicable margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior Credit Facilities)
(which shall not be less than 1% for Incremental Term B-1 Loans) plus the applicable margin of 6.25% and (ii)
certain prepayments of the Incremental Term B-1 Loans by us prior to the first anniversary of the Fifth Amendment
Effective Date are subject to a premium to the Administrative Agent (as defined in the Senior Credit Facilities), for
the ratable account of each applicable Term Loan Lender (as defined in the Senior Credit Facilities) holding
Incremental Term B-1 Loans on the date of such prepayment equal to the Applicable Make-Whole Amount (as
defined in the Senior Credit Facilities) with respect to the principal amount of the Incremental Term B-1 Loans so
prepaid. The principal amount of the Incremental Term B-1 Loans will amortize in an aggregate annual amount
equal to 1% of the original principal amount of the Incremental Term B-1 Loans and shall be repayable in
consecutive quarterly installments on the last day of our fiscal quarters beginning on the third fiscal quarter of 2020
with the remaining outstanding principal amount of the Incremental Term B-1 Loan and all accrued but unpaid
interest and other amounts payable with respect to the Incremental Term B-1 Loan due on April 30, 2026 which is
the Term Loan Maturity Date (as defined in the Senior Credit Facilities).
As of January 3, 2021, there were no revolving credit borrowings outstanding and $9.7 million of letters of
credit were issued under our Revolving Credit Facility. After reserving for issued letters of credit, $136.1 million
was available for revolving credit borrowings under our Senior Credit Facilities at January 3, 2021.
Interest Rate Swap Agreement
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.
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 January 3, 2021, we repurchased 1,534,304 shares in open market transactions of our
common stock at an average share price of $6.52 for a total cost of $10.0 million under the Repurchase Program.
During the year ended December 29, 2019, we repurchased 553,112 shares in open market transactions 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.
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 each restaurant in relation to its cash flow and future occupancy costs and, with
48
regard to franchise agreement renewals, the cost of required capital improvements. We may elect to close
restaurants based on these evaluations.
In 2020, excluding one restaurant relocated within its trade area, we closed 33 restaurants. We currently
anticipate less than five restaurant closures in 2021 outside of 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 has an Urban Youth Credit through 2022 from which we have been receiving approximately $500,000 per
year since 2016. We had 125 restaurants in New York State as of January 3, 2021. We also have one restaurant in
Massachusetts that has annual minimum wage increases reaching $15.00 per hour in 2023, 10 restaurants in New
Jersey that have annual minimum wage increases reaching $15.00 per hour in 2024, and 45 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.
49
Results of Operations
Fiscal 2020 compared to Fiscal 2019
The following table highlights the key components of sales and the number of restaurants in operation for the
years ended January 3, 2021 and December 29, 2019 (dollars in thousands):
Burger King restaurant sales
Popeyes restaurant sales
Total restaurant sales
Change in comparable Burger King restaurant sales %
Change in comparable Popeyes 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
Popeyes restaurants operating at beginning of year
New restaurants opened, including relocations
Restaurants acquired
Restaurants operating at end of year
Year ended
January 3, 2021
December 29, 2019
(in thousands of dollars)
$
$
1,459,016
88,486
1,547,502
$
$
(1)
(1)
(2.8) %
(0.1) %
1,036
7
—
(34)
1,009
65
—
—
65
1,398,660
53,856
1,452,516
2.2 %
849
21
179
(13)
1,036
—
10
55
65
(1) New restaurants opened in 2020 and 2019 included one and two restaurants, respectively, that were closed and
relocated within their market areas.
Restaurant Sales and Other Revenue. Total restaurant sales in 2020 increased 6.5% to $1,547.5 million from
$1,452.5 million in 2019. Comparable restaurant sales decreased 2.7% due to an increase in average check
of 13.1% which was more than offset by a decrease in customer traffic of 13.9%. The comparable restaurant sales
decline includes the significant sales declines we experienced in March (-16.8%) and April (-21.7%) of 2020 during
the onset of the COVID-19 pandemic. The effect of menu price increases in 2020 was approximately 1.6%.
Restaurant sales overall increased $95.0 million, which included $28.4 million from the impact of a 53rd week
in fiscal 2020 and $95.7 million from including a full year of operations for the 200 restaurants acquired in 2019 as
compared with eight months of operations in fiscal 2019. In fiscal 2019, we had other revenue of $10.2 million from
six convenience stores acquired in the Cambridge Acquisition that are not included in restaurant sales above. These
stores were closed at the end of 2019.
50
Operating Costs and Expenses (percentages stated as a percentage of total restaurant sales unless otherwise
noted).
The following table sets forth selected operating results for the years ended January 3, 2021 and December 29,
2019:
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
January 3, 2021
December 29, 2019
29.3 %
32.2 %
7.7 %
15.3 %
3.9 %
5.4 %
29.7 %
33.4 %
7.4 %
15.7 %
4.0 %
5.8 %
Cost of sales decreased as a percentage of restaurant sales to 29.3% in 2020 from 29.7% in 2019. This
decrease reflected the positive impacts of improved operational efficiencies at our Burger King restaurants (0.8%),
menu price increases taken since the end of 2019 at our Burger King restaurants (0.5%), and the inclusion of
convenience stores in the prior year which had a higher cost of sales (0.6%). These positive impacts were offset by
increased commodity costs at our Burger King restaurants (1.1%, including a 3.2% increase in ground beef prices
compared to 2019) and the inclusion of delivery costs in 2020 (0.4%). The impact of higher promotional
discounting during 2020 was offset by a favorable sales mix.
Cost of sales at our Popeyes restaurants improved approximately 160 basis points over last year due to
improved operations at those restaurants (0.1%). Cost of sales in the prior year related to the convenience stores we
closed in the fourth quarter of 2019 was $9.2 million, or 0.6% of revenue in 2020.
Restaurant wages and related expenses decreased to 32.2% in 2020 from 33.4% in 2019 due to labor
adjustments we made during 2020 in response to the COVID-19 pandemic. We were able to adjust our labor
requirements and hours based on operating day part sales trends and in response to dining room closures. The
impact of hourly labor rate increases in 2020, inclusive of minimum wage increases, was 5.6% at our legacy
restaurants when compared to the prior year period. This was more than offset through effective labor hour
management in 2020.
Restaurant rent expense increased to 7.7% in 2020 from 7.4% in 2019 due to the sale-leaseback of 36
restaurant locations from the fourth quarter of 2019 through the end of 2020 which either previously did not incur
rent costs or resulted in higher rent on the property.
Other restaurant operating expenses decreased to 15.3% in 2020 from 15.7% in 2019 due primarily to lower
repair and maintenance costs (0.2%) and lower utility costs (0.2%).
Advertising expense decreased to 3.9% in 2020 from 4.0% in 2019 due to advertising incentives received for
certain remodeled Burger King restaurants.
Adjusted Restaurant-Level EBITDA. As a result of the factors above, as well as the impact of the 53rd week in
fiscal 2020 of $6.3 million, Adjusted Restaurant-Level EBITDA increased $25.4 million to $181.6 million in 2020
from $156.1 million in 2019. For a reconciliation between Adjusted Restaurant-Level EBITDA and income from
operations see page 54.
General and Administrative Expenses. General and administrative expenses decreased to $84.1 million in
2020 from $84.7 million in 2019. We reduced regional and corporate overhead in 2020 by streamlining our regional
management structure and making improvements to our training process, which offset the impact of increased
overhead from the Cambridge Acquisition, as well as reducing travel by $1.4 million in 2020 compared to 2019. We
instituted a 10% temporary reduction in non-restaurant wages for the second quarter of 2020, which reduced general
51
and administrative expenses by $1.0 million. This 10% temporary reduction in non-restaurant wages was restored as
of July 1, 2020. The full impact of these administrative cost reductions was offset by $3.4 million higher
administrative bonus accruals in 2020 as a result of favorable profitability in the period.
We incurred $1.4 million and $0.5 million in 2020 and 2019, respectively, in administrative costs pertaining to
non-recurring litigation and professional fees. In connection with our pause on new development in 2020, we
recorded $3.5 million in expense for abandoned site development costs, including $0.6 million related to forfeiting
prepaid franchise fees in connection with the Amended ADA. Administrative expenses in 2019 included $8.2
million more of acquisition and integration costs. General and administrative expenses excluding the non-recurring
costs described above decreased as a percentage of total revenues to 5.1% in 2020 from 5.2% in 2019.
Adjusted EBITDA. As a result of the factors above, as well as an impact from the 53rd week in fiscal 2020 of
$5.3 million, Adjusted EBITDA increased $21.5 million to $107.9 million in 2020 from $86.4 million in 2019.
For a reconciliation between net income and EBITDA and Adjusted EBITDA see page 54.
Depreciation and Amortization. The increase in depreciation and amortization expense to $81.7 million in
2020 from $74.7 million in 2019 was primarily due to our acquisitions of restaurants in 2019 being included for a
full year in 2020.
Impairment and Other Lease Charges. We recorded impairment and other lease charges of $12.8 million in
2020 consisting of $2.0 million related to the impairment of the remaining unamortized value of our right of first
refusal under our ADA with BKC, $5.0 million related to initial impairment charges for fifteen underperforming
restaurants, $1.2 million of capital expenditures at previously impaired restaurants, and other lease charges of $4.6
million primarily related to the closure of 23 of our underperforming restaurant locations during 2020.
We recorded impairment and other lease charges of $3.6 million in 2019 and included $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.
Other Income, Net. In 2020, we recorded other income, net, of $1.3 million which consisted of gains related to
insurance recoveries from property damage at four of our restaurants of $2.1 million, a net gain on 12 sale-leaseback
transactions of $0.2 million and a loss on disposal of assets of $1.0 million.
In 2019, we recorded other income, net, 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 net gain on sale-leaseback transactions, a $0.2 million gain related to
insurance recoveries from fire at two of our restaurants and a loss on a disposal of restaurant equipment of $0.8
million.
Interest Expense. Interest expense decreased to $27.3 million in 2020 from $27.9 million in 2019. The
weighted average interest rate on our long-term debt, excluding lease financing obligations, was 4.6% in 2020 and
6.1% in 2019.
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 the 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. In 2020, we recorded income tax expense of $6.3 million and our
effective income tax rate was 27.2%. The difference to the Federal statutory rate for 2020 of 21% is primarily due to
a charge in the period of $13.1 million to establish an incremental tax valuation allowance for certain income tax
credits as they may expire prior to utilization, the tax benefit of state income taxes, and other discrete tax items.
The benefit for income taxes in 2019 of $12.1 million was 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
52
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.
Net Income (Loss). As a result of the above, our net loss was $29.5 million in 2020, or $0.58 per diluted share,
compared to net loss of $31.9 million in 2019, or $0.74 per diluted share.
53
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 January 3, 2021 and
December 29, 2019 are as follows (in thousands):
Year Ended
January 3, 2021
December 29, 2019
$
$
(29,463) $
6,294
27,283
81,727
85,841
12,778
273
3,464
163
1,384
(1,271)
5,223
—
107,855
$
(31,919)
(12,123)
27,856
74,674
58,488
3,564
10,827
256
1,449
502
(1,911)
5,753
7,443
86,371
Year Ended
January 3, 2021
December 29, 2019
$
4,114 $
(8,743)
84,051
—
163
81,727
12,778
(1,271)
181,562 $
84,734
2,364
1,449
74,674
3,564
(1,911)
156,131
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)
Abandoned development costs (2)
Pre-opening costs (3)
Litigation costs and other professional expenses (4)
Other income, net (5)(6)
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
Acquisition and integration costs (1)
Pre-opening costs (3)
Depreciation and amortization
Impairment and other lease charges
Other income, net (5)(6)
Adjusted Restaurant-Level EBITDA
$
54
Reconciliation of Adjusted net loss:
Net loss
Add:
Impairment and other lease charges
Acquisition and integration costs (1)
Abandoned development costs (2)
Pre-opening costs (3)
Litigation and other professional expenses (4)
Other income, net (5)(6)
Loss on extinguishment of debt
Income tax effect on above adjustments (7)
Valuation allowance for deferred taxes (8)
Year Ended
January 3, 2021
December 29, 2019
$
(29,463) $
(31,919)
12,778
273
3,464
163
1,384
(1,271)
—
(4,199)
13,138
(3,733) $
(0.07) $
50,751
3,564
10,827
256
1,449
502
(1,911)
7,443
(5,534)
—
(15,323)
(0.35)
43,422
Adjusted net loss
Adjusted diluted net loss per share (9)
Diluted weighted average common shares outstanding
$
$
(1) Acquisition and integration costs for twelve months ended January 3, 2021 primarily include legal and professional fees
incurred in connection with the acquisition of 165 Burger King and 55 Popeyes restaurants from Cambridge Franchise
Holdings, LLC in 2019, which were included in general and administrative expense. 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 merger and one-time repair costs which are included in Adjusted
Restaurant-Level EBITDA.
(2) Abandoned development costs for the twelve months ended January 3, 2021 and December 29, 2019 represent the write-off
of capitalized costs due to the abandoned development of future restaurant locations.
(3) Pre-opening costs for the twelve months ended January 3, 2021 and December 29, 2019 include training, labor and
occupancy costs incurred during the construction of new restaurants.
(4) Litigation and other professional expenses for the twelve months ended January 3, 2021 and December 29, 2019 include
costs pertaining to an ongoing lawsuit with one of the Company's former vendors, costs to settle a class action claim and
other non-recurring professional service expenses.
(5) Other income, net for the twelve months ended January 3, 2021 included gains related to insurance recoveries from
property damage at four of the Company's restaurants of $2.1 million, a net gain on 12 sale-leaseback transactions of $0.2
million and a loss on disposal of assets of $1.0 million.
(6) Other income, net for the twelve months ended December 29, 2019 included a $1.9 million gain related to a settlement with
Burger King Corporation for the approval of new restaurant development by other franchisees which unfavorably impacted
the Company's restaurants, net gains on sale-leaseback transactions of $0.6 million, a gain related to an insurance recovery
from property damage at two of the Company's restaurants of $0.2 million and a loss on a disposal of restaurant equipment
of $0.8 million.
(7) The income tax effect related to the adjustments to Adjusted Net Loss during the periods presented was calculated using an
incremental income tax rate of 25.0% for the three and twelve months ended January 3, 2021 and December 29, 2019,
respectively.
(8) Reflects the removal of the income tax provision recorded during the year ended January 3, 2021 for the establishment of a
valuation allowance on certain federal income tax credits as they may expire prior to their utilization by the Company.
(9) Adjusted diluted net loss per share is calculated based on Adjusted net loss and the diluted weighted average common
shares outstanding for the respective periods, where applicable.
55
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 for 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, not including 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 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 January 3, 2021 and
December 29, 2019 was $103.9 million and $48.7 million, respectively. Net cash provided by operating activities in
2020 increased by $55.2 million compared to 2019 due primarily to an increase of Adjusted EBITDA of $21.5
million and a change in working capital of $19.0 million, primarily related to our deferral of the employer portion of
social security taxes through the end of 2020 of $21.6 million.
Net cash provided from operating activities in 2019 decreased by $32.1 million compared to 2018 due
primarily to a reduction of Adjusted EBITDA of $16.6 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.
Investing activities. Net cash used for investing activities from continuing operations for the years ended
January 3, 2021 and December 29, 2019 was $47.9 million and $218.0 million, respectively. In 2020, in addition to
our capital expenditures of $56.9 million, we received net proceeds of $7.0 million from sale-leaseback transactions,
including properties purchased for sale-leaseback, and received $2.1 million from property insurance recoveries.
In 2019, in addition to our capital expenditures of $134.9 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, and received net proceeds of $47.2
million from sale-leaseback transactions, including properties purchased for sale-leaseback.
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.
56
The following table sets forth our capital expenditures for the periods presented (dollar amounts in thousands):
Year Ended January 3, 2021:
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 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
$
$
$
$
17,824
15,317
13,064
10,685
56,890
7
53,596
50,383
18,922
11,978
134,879
31
Financing activities. Net cash provided by financing activities in 2020 was $5.9 million and included $71.3
million in net proceeds from issuance of the Incremental Term B-1 Loans, net repayments of our revolving credit
borrowings of $45.8 million, and purchases of treasury shares of $10.1 million. We also incurred $3.3 million of
costs associated with the financing long-term debt, made principal payments on term loan facilities of $4.6 million,
made principal payments on finance leases of $1.6 million, and repurchased shares of our common stock for $10.0
million.
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.
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
57
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.
On March 25, 2020, the Company entered into the Second Amendment to its Senior Credit Facilities (the
"Second Amendment"). The Second Amendment increased the aggregate maximum commitments available for
revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility (the "Revolving
Committed Amount") by $15.4 million to a total of $130.4 million.
The Second Amendment also amended the definition of Applicable Margin (such definition and all other
definitions used herein and otherwise not defined herein shall have the meanings set forth in the Senior Credit
Facilities) to provide that on and after the date of the Second Amendment (the "Second Amendment Effective
Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit Fees)
shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is greater than $115.0
million, (i) for the period commencing on the Second Amendment Effective Date and including the date that is 179
days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate
Loans, (ii) for the period commencing on the date that is 180 days after the Second Amendment Effective Date,
through and including the date that is 269 days after the Second Amendment Effective Date, 4.25% for LIBOR Rate
Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is 270 days after
the Second Amendment Effective Date, through and including the date that is 364 days after the Second
Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv) for the
period commencing on the date that is 365 days after the Second Amendment Effective Date and thereafter, 4.75%
for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving Committed
Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate
Loans.
The Second Amendment also provides that beginning on the 180th day after the Second Amendment Effective
Date and for so long as the Revolving Committed Amount is greater than $115.0 million, the Company shall pay to
the Administrative Agent, for the ratable benefit of the Revolving Facility Lenders, a commitment fee (the "Ticking
Fee") on the average daily amount of the Revolving Committed Amount at a rate per annum equal to (a) 0.125% for
the 180th day after the Second Amendment Effective Date through and including the 269th day after the Second
Amendment Effective Date, (b) 0.25% for the 270th day after the Second Amendment Effective Date through and
including the 364th day after the Second Amendment Effective Date and (c) 1.00% for the 365th day after the
Second Amendment Effective Date and thereafter. The Second Amendment provides that the Ticking Fee will be
due and payable quarterly in arrears (calculated on a 360-day basis) on the last Business Day of each calendar
quarter and will accrue from the 180th day after the Second Amendment Effective Date for so long as the Revolving
Committed Amount is greater than $115.0 million. The Second Amendment also provides that the Company shall
use the proceeds of an Extension of Credit which results in the sum of the aggregate principal amount of
outstanding Revolving Loans plus the aggregate amount of LOC Obligations equaling an amount in excess of
$115.0 million, solely for ongoing operations of the Company and its subsidiaries and shall not be held as cash on
the balance sheet. Pursuant to the Letter Agreement dated as of March 25, 2020 among the Company, Wells Fargo
Securities, LLC, Wells Fargo Bank, National Association and Truist Bank, the Company agreed to defer rent
payments totaling approximately $2.4 million per month under certain real property leases for the period between
April 1, 2020 through and including June 30, 2020. The Company paid these amounts in full according to these
terms on July 1, 2020.
On April 8, 2020, the Company entered into the Third Amendment to its Senior Credit Facilities which
increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters
of credit) under the Revolving Credit Facility by $15.4 million to a total of $145.8 million.
On April 16, 2020, the Company entered into the Fourth Amendment to its Senior Credit Facilities (the
"Fourth Amendment"). The Fourth Amendment permits the Company to incur and, if necessary, repay indebtedness
incurred pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic
Security Act, as amended (the "CARES Act"). Subsequent to this amendment, the Company withdrew its
application for relief under the PPP and returned the funds upon receipt.
On June 23, 2020 (the "Fifth Amendment Effective Date"), the Company entered into the Fifth Amendment to
its Senior Credit Facilities (the "Fifth Amendment"). The Fifth Amendment increased the Term Loan (as defined in
58
the Senior Credit Facilities) borrowings in the aggregate principal amount of $75 million of Incremental Term B-1
Loans (as defined in the Senior Credit Facilities). The Incremental Term B-1 Loans constitute a new tranche of
Term Loans ranking pari passu in right of payment and security with the Initial Term Loans for all purposes under
the Senior Credit Facilities. The Incremental Term B-1 Loans have the same terms as outstanding borrowings under
the Company's existing term loan B facility pursuant to and in accordance with the Senior Credit Facilities,
provided that (i) borrowings under the Incremental Term B-1 Loans will bear interest at a rate per annum, at the
Company’s option, of (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus the applicable
margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior Credit Facilities) (which shall not be less than 1%
for Incremental Term B-1 Loans) plus the applicable margin of 6.25% and (ii) certain prepayments of the
Incremental Term B-1 Loans by the Company prior to the first anniversary of the Fifth Amendment Effective Date
are subject to a premium to the Administrative Agent (as defined in the Senior Credit Facilities), for the ratable
account of each applicable Term Loan Lender (as defined in the Senior Credit Facilities) holding Incremental Term
B-1 Loans on the date of such prepayment equal to the Applicable Make-Whole Amount (as defined in the Senior
Credit Facilities) with respect to the principal amount of the Incremental Term B-1 Loans so prepaid. The principal
amount of the Incremental Term B-1 Loans will amortize in an aggregate annual amount equal to 1% of the original
principal amount of the Incremental Term B-1 Loans and shall be repayable in consecutive quarterly installments on
the last day of the Company's fiscal quarters beginning on the third fiscal quarter of 2020 with the remaining
outstanding principal amount of the Incremental Term B-1 Loan and all accrued but unpaid interest and other
amounts payable with respect to the Incremental Term B-1 Loan due on April 30, 2026 which is the Term Loan
Maturity Date (as defined in the Senior Credit Facilities).
The net proceeds of the Incremental Term B-1 Loans were $71.3 million after original issue discount and were
used for general corporate purposes, including repayment of the outstanding balance of the Revolving Credit
Facility.
At January 3, 2021, borrowings under our Senior Credit Facilities bore interest as follows:
(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior
Credit Facilities) plus 2.50% or (b) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.50%.
(ii) Term Loan B borrowings: at a rate per annum equal to (a) 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%.
(iii) Term Loan B-1 borrowings: at a rate per annum, at our option, of (a) the Alternate Base Rate plus the
applicable margin of 5.25% or (b) the LIBOR Rate (which shall not be less than 1% for Incremental Term B-1
Loans) plus the applicable margin of 6.25%.
The Term Loan B and B-1 borrowings are due and payable in quarterly installments, which began on
September 30, 2019. Amounts outstanding at January 3, 2021 are due and payable as follows:
(i) twenty-one quarterly installments of $1.3 million;
(ii) one final payment of $467.0 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,
59
bankruptcy type defaults, defaults on other indebtedness, judgments or upon the occurrence of a change of control
(as specified therein).
As of January 3, 2021, there were no revolving credit borrowings outstanding and $9.7 million of letters of
credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and outstanding
revolving credit borrowings, $136.1 million was available for revolving credit borrowings at January 3, 2021 under
the Revolving Credit Facility. We were in compliance with the financial covenants under our Senior Credit
Facilities at January 3, 2021.
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 8%
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, or
(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 January 3, 2021 (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 contractual obligations
Total
3 – 5
Years
Less than
1 Year
Payments due by period
1 – 3
Years
$ 618,092 $ 28,938 $ 57,138 $ 56,168 $ 475,848
59
877,150
—
$ 1,985,225 $ 128,822 $ 255,642 $ 247,704 $ 1,353,057
1,020
1,364,662
1,451
70
191,466
—
583
99,191
110
308
196,855
1,341
More than
5 Years
(1) Our long term debt at January 3, 2021 included $493.3 million of Term Loan B and B-1 borrowings under our Senior
Credit Facilities and no borrowings under our Revolving Credit Facility. Total interest payments on term loan
borrowings under our Senior Credit Facilities of $124.8 million for all years presented are included at the coupon rate of
5.74% per annum.
(2) Includes total interest of $0.1 million for all years presented.
(3) Includes total interest of $512.9 million for all years presented.
(4) Includes total interest of $0.3 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 $9.9 million at January 3, 2021.
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.
60
Lease Guarantees. Fiesta Restaurant Group, Inc. ("Fiesta"), our former wholly-owned subsidiary, was spun-
off in 2012 to our stockholders. As of January 3, 2021, we are a guarantor under 18 Fiesta restaurant property
leases, of which all except for two are still operating, with lease terms expiring on various dates through 2030. 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
January 3, 2021 was $13.6 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.
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 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.
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, assessing impairment of long-lived assets, lease accounting matters and the valuation
of deferred income tax assets. 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
61
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 January 3, 2021, we had $9.9
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.
Valuation of Deferred Income Tax Assets. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to the years in which those differences are expected to be recovered or settled. Deferred tax
assets are recognized to the extent we believe these assets will more likely than not be realized. In evaluating the
realizability of our net deferred tax assets, we perform an assessment of positive and negative evidence, as required
by ASC 740. ASC 740 prescribes that objective historical evidence, in particular our three-year cumulative loss
position at January 3, 2021, be given a greater weight than subjective evidence, including our forecast of future
taxable income, which include assumptions that cannot be objectively verified. In determining the likelihood of
future realization of the deferred income tax assets as of January 3, 2021 and December 29, 2019 we considered
both positive and negative evidence and weighted the effect of such evidence based upon its objectivity. Based on
the required weight of evidence under ASC 740, as of January 3, 2021 we determined that a valuation allowance
was needed for certain income tax credits in the amount of $13.1 million as they may expire prior to their
utilization. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of
future taxable income during the carryforward period are reduced or increased or if objective negative evidence in
the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such
as projections for growth. We will continue to monitor and evaluate the positive and negative evidence considered
in arriving at the above conclusion, in order to assess whether such conclusion remains appropriate in future
periods.
We must also make estimates of certain items that relate to current and deferred tax liabilities. These estimates
include employer tax credits for items such as the Work Opportunity Tax Credit, as well as estimates of tax
depreciation based on methods anticipated to be used on our tax returns. These estimates are made based on the best
available information at the time of the estimate and historical experience.
62
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 January 3, 2021, there were outstanding borrowings of $493.3 million under
our Senior Credit Facilities. A 1% change in interest rates would have resulted in a $3.3 million change to interest
expense for the year ended January 3, 2021 and a $3.2 million change to interest expense for the year ended
December 29, 2019.
At January 3, 2021, borrowings under the Senior Credit Facilities bore interest as follows (all terms as defined
in our Senior Credit Facilities):
(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate plus 2.50% or (b)
LIBOR Rate plus 3.50%.
(ii) Term Loan B borrowings: at a rate per annum equal to (a) the Alternate Base Rate plus 2.25% or (b)
LIBOR Rate plus 3.25%.
(iii) Term Loan B-1 borrowings: at a rate per annum, at our option, of (a) the Alternate Base Rate plus the
applicable margin of 5.25% or (b) the LIBOR Rate (which shall not be less than 1% for Incremental Term B-1
Loans) plus the applicable margin of 6.25%.
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
63
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 January 3, 2021.
Changes in Internal Control over Financial Reporting. No changes occurred in our internal control over
financial reporting during the fourth quarter of 2020 that materially affected, or are 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 January 3,
2021 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 January 3, 2021, 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.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors 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 January 3, 2021, 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
January 3, 2021, 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 January 3, 2021 of the
Company and our report dated March 11, 2021 expressed an unqualified opinion on those consolidated financial
statements.
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 11, 2021
65
ITEM 9B. OTHER INFORMATION
None.
66
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference from our Definitive Proxy Statement to be filed in connection with the 2021 Annual
Meeting of Stockholders.
We have adopted a written code of ethics applicable to our directors, officers and employees in accordance with the
rules of The NASDAQ Stock Market and the SEC. We make our code of ethics available free of charge through our
internet website, www.carrols.com. We will disclose on our website amendments to or waivers from our code of
ethics in accordance with all applicable laws and regulations.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from our Definitive Proxy Statement to be filed in connection with the 2021 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference from our Definitive Proxy Statement to be filed in connection with the 2021 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
Incorporated by reference from our Definitive Proxy Statement to be filed in connection with the 2021 Annual
Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from our Definitive Proxy Statement to be filed in connection with the 2021 Annual
Meeting of Stockholders.
67
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) (1) Financial Statements - Carrols Restaurant Group, Inc. and Subsidiary
PART IV
CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) (2) Financial Statement Schedule
Schedule Description
Page
F- 1
F- 3
F- 4
F- 5
F- 6
F- 8
Page
None . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedules other than those listed are omitted for the reason that they are not required, not applicable, or the
required information is shown in the financial statements or notes thereto.
(a) (3) Exhibits
Exhibit
Number Description
EXHIBIT INDEX
2.1
2.2
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Asset Purchase Agreement, dated as of March 26, 2012, among Carrols Restaurant Group, Inc., Carrols
LLC and Burger King Corporation (incorporated by reference to Exhibit 2.1 to Carrols Restaurant
Group, Inc.'s Current Report on Form 8-K filed on March 28, 2012)
Agreement and Plan of Merger, dated as of February 19, 2019 among Carrols Restaurant Group, Inc.,
Carrols Holdco Inc., GRC MergerSub Inc., GRC MergerSub LLC, Cambridge Franchise Partners,
LLC, Cambridge Franchise Holdings, LLC and New CFH, LLC (incorporated by reference to Exhibit
2.1 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on February 25, 2019)
Amended and Restated Certificate of Incorporation of Carrols Restaurant Group, Inc. (incorporated by
reference to Exhibit 3.1 to Carrols Restaurant Group Inc.'s Current Report on Form 8-K filed on May 6,
2019)
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Carrols Restaurant
Group, Inc. (incorporated by reference to Exhibit 3.2 to Carrols Restaurant Group, Inc.'s Current Report
on Form 8-K filed on May 6, 2019)
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Carrols Restaurant
Group, Inc. (incorporated by reference to Exhibit 3.3 to Carrols Restaurant Group, Inc's Annual Report
on Form 10-K filed on March 13, 2020)
Amended and Restated Bylaws of Carrols Restaurant Group, Inc. (incorporated by reference to Exhibit
3.3 to Carrols Restaurant Group Inc.'s Current Report on Form 8-K filed on May 6, 2019)
Amendment to Carrols Restaurant Group, Inc. Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.4 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on May
6, 2019)
Second Amendment to Amended and Restated Bylaws of Carrols Restaurant Group, Inc.
(incorporated by reference to Exhibit 3.3 to Carrols Restaurant Group, Inc's Annual Report on Form
10-K filed on March 13, 2020)
Carrols Restaurant Group, Inc. Certificate of Designation of Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 3.1 to Carrols Restaurant Group, Inc.'s Current Report on Form
8-K filed on June 1, 2012)
68
3.8
3.9
3.10
3.11
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
Carrols Restaurant Group, Inc. Certificate of Designation of Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 4.1 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-
K filed on May 6, 2019)
Certificate of Amendment to Certificate of Designation of Series B Convertible Preferred Stock of
Carrols Restaurant Group, Inc. (incorporated by reference to Exhibit 3.3 to Carrols Restaurant Group,
Inc's Annual Report on Form 10-K filed on March 13, 2020)
Form of Carrols Restaurant Group, Inc. Certificate of Retirement of Series A Convertible Preferred
Stock (incorporated by reference to Exhibit 3.2 to Carrols Restaurant Group, Inc.'s Current Report on
Form 8-K filed on December 3, 2018)
Certificate of Designations of Series C Convertible Preferred Stock of Carrols Restaurant Group, Inc.
(incorporated by reference to Exhibit 4.2 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-
K filed on May 6, 2019)
Form of Registration Agreement by and among Carrols Restaurant Group, Inc., Atlantic Restaurants,
Inc., Madison Dearborn Capital Partners, L.P., Madison Dearborn Capital Partners II, L.P., Alan Vituli,
Daniel T. Accordino and Joseph A. Zirkman (incorporated by reference to Exhibit 10.24 to Carrols
Corporation's 1996 Annual Report on Form 10-K)
Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Carrols
Restaurant Group, Inc.'s Quarterly Report on Form 10-Q filed on May 10, 2012)
Form of Registration Rights Agreement between Carrols Restaurant Group Inc. and Burger King
Corporation (incorporated by reference to Exhibit 4.2 to Carrols Restaurant Group, Inc.'s Current
Report on Form 8-K filed on March 28, 2012)
Indenture governing the 8% Senior Secured Second Lien Notes due 2022, dated as of April 29, 2015,
among Carrols Restaurant Group, Inc., the guarantors named therein and The Bank of New York
Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Carrols Restaurant
Group, Inc.'s Quarterly Report on Form 10-Q filed on May 6, 2015)
Form of 8% Senior Secured Second Lien Notes due 2022 (incorporated by reference to Exhibit 4.8)
Registration Rights Agreement, dated as of April 29, 2015, among Carrols Restaurant Group, Inc., the
guarantors named therein and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 4.3 to
Carrols Restaurant Group, Inc.'s Quarterly Report on Form 10-Q filed on May 6, 2015)
Registration Rights Agreement, dated as of June 23, 2017, among Carrols Restaurant Group, Inc., the
guarantors named therein and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.2
to Carrols Restaurant Group, Inc.'s Quarterly Report on Form 10-Q filed on August 9, 2017)
Supplemental Indenture, dated as of July 6, 2017, among Carrols Restaurant Group, Inc., Republic
Foods, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by
reference to Exhibit 10.3 to Carrols Restaurant Group, Inc.'s Quarterly Report on Form 10-Q filed on
August 9, 2017)
Registration Rights Agreement between Carrols Holdco Inc. and Cambridge Franchise Holdings, LLC
(incorporated by reference to Exhibit 4.3 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-
K filed on May 6, 2019)
Description of Capital Stock #
Carrols Corporation Retirement Savings Plan dated April 1, 1999 (incorporated by reference to Exhibit
10.29 to Carrols Corporation's 1999 Annual Report on Form 10-K) †
Carrols Corporation Retirement Savings plan July 1, 2002 Restatement (incorporated by reference to
Exhibit 10.29 to Carrols Corporation's September 29, 2002 Quarterly Report on Form 10-Q) †
Addendum incorporating EGTRRA Compliance Amendment to Carrols Corporation Retirement
Savings Plan dated September 12, 2002 (incorporated by reference to Exhibit 10.30 to Carrols
Corporation's September 29, 2002 Quarterly Report on Form 10-Q) †
First Amendment, dated as of January 1, 2004, to Carrols Corporation Retirement Savings Plan
(incorporated by reference to Exhibit 10.35 to Carrols Corporation's December 31, 2003 Annual Report
on Form 10-K) †
2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.27 to Carrols Restaurant Group
Inc.'s Registration Statement on Form S-1, as amended (Registration No. 333-137524)) †
Amendment to Carrols Restaurant Group, Inc. 2006 Stock Incentive Plan, dated as of March 24, 2010
(incorporated by reference to Appendix A of Carrols Restaurant Group, Inc.'s Definitive Proxy
Statement filed on April 28, 2011) †
69
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Amendment to Carrols Restaurant Group, Inc. 2006 Stock Incentive Plan, dated as of April 11, 2011
(incorporated by reference to Appendix A of Carrols Restaurant Group, Inc.'s Definitive Proxy
Statement filed on April 28, 2011) †
2016 Stock Incentive Plan (incorporated by reference to Appendix A to Carrols Restaurant Group,
Inc.'s Definitive Proxy Statement on Schedule 14A filed on April 29, 2016) †
Form of Change of Control/Severance Agreement (incorporated by reference to Exhibit 10.1 to Carrols
Restaurant Group Inc.'s Current Report on Form 8-K filed on June 7, 2013) †
Form of Change of Control and Severance Agreement (incorporated by reference to Exhibit 10.2 to
Carrols Restaurant Group Inc.'s Current Report on Form 8-K filed on June 7, 2013) †
Form of Agreement, by and among Carrols Restaurant Group, Inc., Madison Dearborn Capital Partners,
L.P., Madison Dearborn Capital Partners, II, L.P., BIB Holdings (Bermuda) Ltd., Alan Vituli, Daniel T.
Accordino and Joseph A. Zirkman (incorporated by reference to Exhibit 10.31 to Carrols Restaurant
Group Inc.'s Registration Statement on Form S-1, as amended (Registration No. 333-137524))
Form of Amendment No. 1 to Registration Agreement, by and among Carrols Restaurant Group, Inc.,
Madison Dearborn Capital Partners, L.P., Madison Dearborn Capital Partners, II, L.P., BIB Holdings
(Bermuda) Ltd., Alan Vituli, Daniel T. Accordino and Joseph A. Zirkman (incorporated by reference to
Exhibit 10.32 to Carrols Restaurant Group Inc.'s Registration Statement on Form S-1, as amended
(Registration No. 333-137524))
Employment Agreement dated as of December 22, 2011 among Carrols Restaurant Group, Inc., Carrols
LLC and Daniel T. Accordino (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group,
Inc.'s Current Report on Form 8-K filed on December 27, 2011) †
First Amendment to Employment Agreement, dated as of September 6, 2013, among Carrols
Restaurant Group, Inc., Carrols LLC and Daniel T. Accordino (incorporated by reference to Exhibit
10.1 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on September 11, 2013) †
10.16
10.17
10.15 Amended and Restated Carrols Corporation and Subsidiaries Deferred Compensation Plan dated
December 1, 2008 (incorporated by reference to Exhibit 10.23 to Carrols Restaurant Group's and
Carrols Corporation's 2008 Annual Report on Form 10-K) †
Separation and Distribution Agreement dated as of April 24, 2012 among Carrols Restaurant Group,
Inc., Carrols Corporation, Carrols LLC and Fiesta Restaurant Group, Inc. (incorporated by reference to
Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on April 26, 2012)
Tax Matters Agreement dated as of April 24, 2012 among Carrols Restaurant Group, Inc., Carrols
Corporation, Carrols LLC and Fiesta Restaurant Group, Inc. (incorporated by reference to Exhibit 10.2
to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on April 26, 2012)
Employee Matters Agreement dated as of April 24, 2012 among Carrols Restaurant Group, Inc.,
Carrols Corporation, Carrols LLC and Fiesta Restaurant Group, Inc. (incorporated by reference to
Exhibit 10.3 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on April 26, 2012)
Transition Services Agreement dated as of April 24, 2012 among Carrols Restaurant Group, Inc.,
Carrols Corporation, Carrols LLC and Fiesta Restaurant Group, Inc. (incorporated by reference to
Exhibit 10.4 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on April 26, 2012)
First Lien Security Agreement, dated as of May 30, 2012, between Carrols Restaurant Group, Inc., the
guarantors named therein, and Wells Fargo Bank, National Association, as administrative agent
(incorporated by reference to Exhibit 10.2 to Carrols Restaurant Group, Inc.'s Current Report on Form
8-K filed on June 1, 2012)
10.19
10.20
10.18
10.21 Amendment No. 1 to Asset Purchase Agreement, dated as of May 30, 2012, among Carrols Restaurant
Group, Inc., Carrols LLC and Burger King Corporation (incorporated by reference to Exhibit 10.3 to
Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on June 1, 2012)
10.22 Operating Agreement, dated as of May 30, 2012, between Carrols LLC and Burger King Corporation
(incorporated by reference to Exhibit 10.4 to Carrols Restaurant Group, Inc.'s Current Report on Form
8-K filed on June 1, 2012)
10.23 Credit Agreement, dated as of May 30, 2012, between Carrols Restaurant Group, Inc., the guarantors
named therein, the lenders named therein and Wells Fargo Bank, National Association, as
administrative agent (incorporated by reference to Exhibit 10.6 to Carrols Restaurant Group, Inc.'s
Current Report on Form 8-K filed on June 1, 2012)
70
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
First Amendment to Credit Agreement dated as of December 19, 2014 among Carrols Restaurant
Group, Inc., the guarantors named therein, the lenders named therein and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 to Carrols Restaurant
Group, Inc.'s Current Report on Form 8-K filed on December 22, 2014)
First Amendment to Operating Agreement dated as of January 26, 2015, between Carrols LLC and
Burger King Corporation (incorporated by reference to Exhibit 10.25 to Carrols Restaurant Group,
Inc.'s Annual Report on Form 10-K filed on March 4, 2015)
Second Lien Security Agreement, dated as of April 29, 2015, among Carrols Restaurant Group, Inc.,
the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as collateral
agent (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Quarterly Report
on Form 10-Q filed on May 6, 2015)
Second Amendment to Credit Agreement and First Amendment to Security Agreement, dated as of
April 29, 2015, among Carrols Restaurant Group, Inc., the guarantors named therein, the lenders named
therein and Wells Fargo Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2
to Carrols Restaurant Group, Inc.'s Quarterly Report on Form 10-Q filed on May 6, 2015)
Third Amendment to Credit Agreement dated as of February 12, 2016 among Carrols Restaurant
Group, Inc., the guarantors named therein, the lenders named therein and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 to Carrols Restaurant
Group, Inc.'s Current Report on Form 8-K filed on February 17, 2016)
Second Amendment to Operating Agreement dated as of December 17, 2015 between Carrols LLC and
Burger King Corporation # (incorporated by reference to Exhibit 10.29 to Carrols Restaurant Group,
Inc.'s Annual Report on Form 10-K filed on March 9, 2016)
Fourth Amendment to Credit Agreement dated as of January 13, 2017 among Carrols Restaurant
Group, Inc., the guarantors named therein, the lenders named therein and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 to Carrols Restaurant
Group, Inc.'s Current Report on Form 8-K filed on January 20, 2017)
Fifth Amendment to Credit Agreement dated as of June 20, 2017 among Carrols Restaurant Group,
Inc., the guarantors named therein, the lenders named therein and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 to Carrols Restaurant
Group, Inc.'s Quarterly Report on Form 10-Q filed on August 9, 2017)
Preferred Stock Exchange Agreement between Carrols Restaurant Group, Inc. and Burger King
Corporation, dated as of November 30, 2018 (incorporated by reference to Exhibit 10.1 to Carrols
Restaurant Group, Inc.'s Current Report on Form 8-K filed on December 3, 2018)
Form of Area Development and Remodeling Agreement between Carrols LLC, Carrols Restaurant
Group, Inc. and Burger King Corporation (incorporated by reference to Exhibit 10.1 to Carrols
Restaurant Group, Inc.'s Current Report on Form 8-K filed on February 25, 2019)
10.34 Voting Agreement, dated as of February 19, 2019, between Cambridge Franchise Holdings, LLC and
Daniel T. Accordino (incorporated by reference to Exhibit 10.3 to Carrols Restaurant Group, Inc.'s
Current Report on Form 8-K filed on February 25, 2019)
10.35 Voting Agreement, dated as of February 19, 2019, between Cambridge Franchise Holdings, LLC and
Paul R. Flanders (incorporated by reference to Exhibit 10.4 to Carrols Restaurant Group, Inc.'s Current
Report on Form 8-K filed on February 25, 2019)
10.36 Voting Agreement, dated as of February 19, 2019, between Cambridge Franchise Holdings, LLC and
Richard G. Cross (incorporated by reference to Exhibit 10.5 to Carrols Restaurant Group, Inc.'s Current
Report on Form 8-K filed on February 25, 2019)
10.37 Voting Agreement, dated as of February 19, 2019, between Cambridge Franchise Holdings, LLC and
William E. Myers (incorporated by reference to Exhibit 10.6 to Carrols Restaurant Group, Inc.'s
Current Report on Form 8-K filed on February 25, 2019)
10.38 Credit Agreement dated as of April 30, 2019 among Carrols Restaurant Group, Inc., the guarantors
named therein, Wells Fargo Bank, National Association, as administrative agent, and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Current Report on
Form 8-K filed on May 6, 2019)
10.39
First Amendment to Credit Agreement dated as of December 13, 2019 among Carrols Restaurant
Group, Inc., the guarantors named therein, Wells Fargo Bank, National Association, as administrative
agent and the lenders party thereto (incorporated by reference to Carrols Restaurant Group, Inc.'s
Current Report on Form 8-K filed on December 18, 2019)
71
10.40
Security Agreement dated as of April 30, 2019 among Carrols Restaurant Group, Inc., the guarantors
named therein, and Wells Fargo Bank, National Association, as administrative agent (incorporated by
reference to Exhibit 10.2 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on May
6, 2019)
10.41 Voting Agreement dated as of April 30, 2019 among Carrols Restaurant Group, Inc., Burger King
Corporation, Blue Holdco 1, LLC and Cambridge Franchise Holdings, LLC (incorporated by reference
to Exhibit 10.3 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on May 6, 2019)
10.42 Consent Agreement dated as of April 30, 2019 among Carrols Restaurant Group, Inc., Carrols Holdco
Inc., Carrols Corporation, Burger King Corporation and Blue Holdco 1, LLC (incorporated by
reference to Exhibit 10.4 to Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on May
6, 2019)
10.43 Development Agreement dated as of October 9, 2017 between Popeyes Louisiana Kitchen Inc. and
Cambridge Quality Chicken LLC (incorporated by reference to Exhibit 10.1 to Carrols Restaurant
Group, Inc.'s Quarterly Report on Form 10-Q filed on May 10, 2019)
First Amendment to Development Agreement dated as of June 27, 2018 among Popeyes Louisiana
Kitchen Inc., Cambridge Quality Chicken, LLC, Frayser Quality, LLC, Cambridge Chicken Holdings,
LLC, Matt Perelman and Alex Sloane (incorporated by reference to Exhibit 10.2 to Carrols Restaurant
Group, Inc.'s Quarterly Report on Form 10-Q filed on May 10, 2019)
10.44
10.45 Offer Letter dated as of November 20, 2019 between Carrols Restaurant Group, Inc. and Anthony
10.46
10.47
10.48
10.49
10.50
Hull+(incorporated by reference to Exhibit 3.3 to Carrols Restaurant Group, Inc's Annual Report on
Form 10-K filed on March 13, 2020)
Second Amendment to Credit Agreement dated as of March 25, 2020 among Carrols Restaurant Group,
Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Quarter Report on
Form 10-Q filed on May 7, 2020)
Third Amendment to Credit Agreement dated as of April 8, 2020 among Carrols Restaurant Group,
Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders party
thereto (incorporated by reference to Exhibit 10.2 to Carrols Restaurant Group, Inc.'s Quarter Report on
Form 10-Q filed on May 7, 2020)
Form of Fourth Amendment to Credit Agreement dated as of April 16, 2020 among Carrols Restaurant
Group, Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders
party thereto (incorporated by reference to Exhibit 10.3 to Carrols Restaurant Group, Inc.'s Quarter
Report on Form 10-Q filed on May 7, 2020)
Letter Agreement dated as of March 25, 2020 among Carrols Restaurant Group, Inc., Wells Fargo
Securities LLC, Wells Fargo Bank, National Association and Trust Bank (incorporated by reference to
Exhibit 10.4 to Carrols Restaurant Group, Inc.'s Quarter Report on Form 10-Q filed on May 7, 2020)
Fifth Amendment to Credit Agreement dated as of June 23, 2020 among Carrols Restaurant Group,
Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Quarter Report on
Form 10-Q filed on August 6, 2020)
10.51 Amendment to Carrols Restaurant Group, Inc. 2016 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Quarter Report on Form 10-Q filed on November 5,
2020)+
10.52 Amended and Restated Area Development Agreement dated as of January 4, 2021 among Carrols
Restaurant Group, Inc., Carrols Holdco Inc., Carrols Corporation, Carrols LLC and Burger King
Corporation (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Current
Report on Form 8-K filed on January 8, 2021)
Employment Agreement dated as of February 9, 2021 between Carrols Restaurant Group, Inc. and Carl
Hauch (incorporated by reference to Exhibit 10.1 to Carrols Restaurant Group, Inc.'s Current Report on
Form 8-K filed on February 9, 2021)+
Form of Restricted Stock Inducement Award Agreement (incorporated by reference to Exhibit 10.2 to
Carrols Restaurant Group, Inc.'s Current Report on Form 8-K filed on February 9, 2021)+
Form of Offer Letter dated as of January 14, 2020 between Carrols Restaurant Group, Inc. and Markus
Hartmann#+
10.53
10.54
10.55
72
10.56
14.1
21.1
23.1
31.1
31.2
32.1
32.2
Separation and Release of Claims entered into on September 18, 2020 between Carrols Corporation and
Markus Hartmann#+
Carrols Restaurant Group, Inc. and Carrols Corporation Code of Ethics (incorporated by reference to
Exhibit 14.1 to Carrols Restaurant Group Inc.’s and Carrols Corporation’s 2006 Annual Report on
Form 10-K)
List of Subsidiaries #
Consent of Deloitte & Touche LLP #
Chief Executive Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
Carrols Restaurant Group, Inc.#
Chief Financial Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for
Carrols Restaurant Group, Inc.#
Chief Executive Officer's Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.#
Chief Financial Officer's Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.#
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
#
†
Filed herewith.
Compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Carrols Restaurant Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Carrols Restaurant Group, Inc. and subsidiaries
(the "Company") as of January 3, 2021 and December 29, 2019, the related consolidated statements of
comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the three years in the
period ended January 3, 2021, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
January 3, 2021 and December 29, 2019, and the results of its operations and its cash flows for each of the three
years in the period ended January 3, 2021, in conformity with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of January 3, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 11, 2021 expressed an unqualified opinion
on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases in
fiscal year 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), as
amended, using the option to not restate comparative periods and apply the standard as of the date of initial
application.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of this critical audit matter does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Long-Lived Assets and Other Lease Charges – Refer to Notes 1 and 5 to the financial statements
Critical Audit Matter Description
As disclosed in the consolidated financial statements property and equipment, net were $349.6 million as of January
3, 2021. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of
these assets may not be fully recoverable. As discussed in Note 5 to the financial statements, the Company
recognized impairment and other lease charges for long-lived assets of $12.8 million during the year ended January
3, 2021.
If an indicator of impairment exists for any restaurant assets, an estimate of the undiscounted future cash flows over
the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value.
The determination of whether an impairment indicator has occurred involves the evaluation of subjective factors by
management to assess what constitutes an event or change in circumstance that indicates a restaurant should be
tested for recoverability, and therefore auditing the valuation of property and equipment involved especially
subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit:
Subjective auditor judgment was required to evaluate the completeness of management’s assessment as to whether
an event or change in circumstance indicates a restaurant’s assets should be tested for recoverability. The primary
procedures we performed to address this critical audit matter included the following:
We tested the effectiveness of controls over management’s long-lived impairment process, including controls
related to determining the completeness of management’s assessment as to which events or changes in circumstance
indicates a restaurant’s assets should be tested for recoverability, most notably; low operating cash flows, declining
sales and if the ratio of trailing twelve months cash flows extended over the remaining lease term does not exceed
the net book value of the asset group, which are all utilized to identify a triggering event at the restaurant level.
We evaluated management’s process for determining whether all potential indicators of impairment were
appropriately identified, including:
•
•
•
•
comparing the consistency and precision of the methodology used to determine the proper impairment
indicators by management to the relevant requirements of generally accepted accounting principles
(“GAAP”);
considering current industry events, Company specific events, macroeconomic conditions through review of
relevant industry publications, current news publications, analyst reports and Board of Directors’ meeting
minutes, in order to evaluate the completeness of events or changes in circumstances identified by
management as indicators that the restaurant’s asset should be tested for recoverability;
assessing the completeness of the impairment indicators identified by the Company by reviewing historical
performance of previously impaired restaurants before an impairment charge was recorded, and comparing
such restaurants that exhibited such triggers to the restaurants identified by management for the current year
impairment indicator test;
for restaurants that are nearing the expiration of their original-lease end date, comparing the trailing twelve
months cash flows extended over the remaining lease term to net book value of the asset group.
/s/ Deloitte & Touche LLP
Rochester, New York
March 11, 2021
We have served as the Company's auditor since 2005.
F- 2
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 3, 2021 AND DECEMBER 29, 2019
(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid rent
Prepaid expenses and other current assets
Refundable income taxes
Total current assets
Property and equipment, net (Note 3)
Franchise rights, net (Note 4)
Goodwill (Note 4)
Franchise agreements, at cost less accumulated amortization of $14,653 and $13,365, respectively
Operating right-of-use assets, net (Note 7)
January 3, 2021 December 29, 2019
$
64,964 $
19,862
11,595
8,046
7,309
169
111,945
349,555
334,597
122,619
31,584
799,962
6,823
2,974
13,445
13,334
1,986
7,762
284
39,785
385,578
348,941
122,619
32,690
811,016
10,831
Other assets
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,757,085 $
1,751,460
Current portion of long-term debt and finance lease liabilities (Note 8)
Current portion of operating lease liabilities (Note 7)
Accounts payable
Accrued interest
Accrued payroll, related taxes and benefits
Accrued real estate taxes
Other current liabilities
Total current liabilities
Long-term debt and finance lease liabilities, net of current portion (Note 8)
Lease financing obligations
Operating lease liabilities (Note 7)
Deferred income taxes, net (Note 10)
Accrued postretirement benefits
Other liabilities (Note 6)
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity (Note 12):
Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstanding—100 shares
Voting common stock, par value $.01; authorized—100,000,000 shares, issued—52,653,964 and
51,840,200 shares, respectively, and outstanding—49,389,382 and 50,496,265 shares, respectively
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income (loss)
Treasury stock, at cost
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
5,525 $
41,815
27,596
656
49,417
7,774
23,558
156,341
475,695
1,191
809,969
11,362
1,523
29,472
5,866
40,805
45,780
901
31,314
8,139
16,520
149,325
455,565
1,194
808,292
6,983
2,555
18,084
1,485,553
1,441,998
—
515
306,469
(18,367)
(3,015)
(14,070)
271,532
$
1,757,085 $
—
510
301,251
11,096
622
(4,017)
309,462
1,751,460
See accompanying notes to consolidated financial statements.
F- 3
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(In thousands, except share and per share amounts)
January 3,
2021
December 29,
2019
December 30,
2018
Revenue:
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,547,502 $
1,452,516 $
1,179,307
—
10,249
—
1,547,502
1,462,765
1,179,307
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant rent expense (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative (including stock-based compensation expense of $5,223,
$5,753 and $5,812, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and other lease charges (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
452,738
498,127
118,444
236,059
60,735
84,051
81,727
12,778
(1,271)
431,969
485,278
107,147
227,364
58,689
84,734
74,674
3,564
(1,911)
326,308
382,829
81,409
178,750
48,340
66,587
58,468
3,685
(424)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,543,388
1,471,508
1,145,952
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic and diluted net income (loss) per share (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average common shares outstanding:
4,114
27,283
—
—
(23,169)
6,294
(8,743)
27,856
—
7,443
(44,042)
(12,123)
33,355
23,638
(230)
—
9,947
(157)
(29,463) $
(31,919) $
10,104
(0.58) $
(0.74) $
0.22
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,751,185
43,421,715
35,715,372
50,751,185
43,421,715
45,319,971
Comprehensive income (loss), net of tax:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(29,463) $
(31,919) $
10,104
(5,284)
1,268
564
(34,747) $
(30,651) $
10,668
See accompanying notes to consolidated financial statements.
F- 4
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(In thousands, except share and per share amounts)
Additional
Retained
Other
Total
Accumulated
Common Stock
Preferred Stock
Paid-In
Earnings
Comprehensive
Treasury Stock
Stockholders'
Shares
Amount
Shares
Amount
Capital
(Deficit)
Income (Loss)
Shares
Amount
Equity
Balance at December 31, 2017 35,436,252 $
354
100 $ — $ 144,650 $ 25,407 $
(1,210)
— $
(141) $
169,060
—
3
—
—
357
—
4
—
—
—
510
—
5
—
—
Stock-based compensation
Vesting of non-vested shares
and excess tax benefits
—
306,175
Net income
Change in postretirement
benefit obligations, net of
income tax of $186
—
—
—
—
—
—
492,135
7,450,402
7,364,413
Balance at December 30, 2018 35,742,427 $
Stock-based compensation
Vesting of non-vested shares
Issuance of common and
preferred stock
Purchase of treasury stock
Retirement of treasury stock
Conversion of preferred stock
to common stock
Net loss
Adoption of ASC 842, net of
taxes (Note 1)
Change in postretirement
benefit obligations, net of
income tax of $420
Balance at December 29, 2019 51,049,377 $
Stock-based compensation
Vesting of non-vested shares
Purchase of treasury stock
Net loss
Change in valuation of interest
rate swap, net of income tax of
$1,841 (Note 8)
Change in postretirement
benefit obligation, net of
income tax of $194
436,739
—
—
—
—
—
—
—
—
—
—
—
—
—
5,812
(3)
—
—
—
10,104
—
—
—
—
100 $ — $ 150,459 $ 35,511 $
—
—
—
—
5,753
(4)
—
—
—
—
—
—
—
(141)
(75)
—
(31,919)
—
7,504
74
10,000
—
145,259
—
—
—
—
75
(10,000)
—
—
—
—
—
—
—
—
—
—
564
(646)
—
—
—
—
—
—
—
—
—
5,812
—
10,104
—
—
564
— $
(141) $
185,540
—
—
—
—
—
—
5,753
—
145,333
—
553,112
(4,017)
(4,017)
—
—
—
—
—
—
—
—
141
—
—
—
—
—
(31,919)
7,504
—
—
—
—
1,268
—
—
1,268
100 $ — $ 301,251 $ 11,096 $
622
553,112 $ (4,017) $
309,462
—
—
—
—
—
—
—
—
5,223
(5)
—
—
—
—
—
—
—
—
—
—
5,223
—
—
1,543,622 (10,053)
(10,053)
—
(29,463)
—
—
—
(29,463)
—
—
—
—
—
(4,221)
—
—
(4,221)
—
—
—
—
—
584
—
—
584
Balance at January 3, 2021
51,486,116 $
515
100 $ — $ 306,469 $ (18,367) $
(3,015)
2,096,734 $ (14,070) $
271,532
See accompanying notes to consolidated financial statements.
F- 5
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(In thousands)
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(29,463) $
(31,919) $
10,104
January 3,
2021
December 29,
2019
December 30,
2018
Loss (gain) on disposals of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of bond premium and discount on debt . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred gains from sale-leaseback transactions . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other operating assets and liabilities:
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll, related taxes and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in operating right-of-use assets and operating lease liabilities, net . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows used for investing activities:
Capital expenditures: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New restaurant development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant remodeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and restaurant information systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of restaurants, net of cash acquired (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties purchased for sale-leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale-leaseback transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from issuance of Term Loan B and B-1 Facilities . . . . . . . . . . . . . . . . . . . . . . .
Repayments of Term Loan B and B-1 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement of 8% Senior Secured Second Lien Notes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under prior revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under prior revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from lease financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(994)
5,223
—
12,778
81,727
2,170
539
—
6,026
—
115
(6,417)
(5,927)
(245)
18,103
10,993
10,906
(1,589)
103,945
(17,824)
(15,317)
(13,064)
(10,685)
(56,890)
—
2,071
(15,537)
22,499
(47,857)
71,250
(4,625)
—
—
—
See accompanying notes to consolidated financial statements.
F- 6
(74)
5,753
—
3,564
74,674
1,694
(80)
—
(11,982)
129
(284)
(523)
1,196
(2,917)
(538)
238
3,980
5,797
48,708
(53,596)
(50,383)
(18,922)
(11,978)
(134,879)
(130,646)
323
(1,207)
48,364
312
5,812
(230)
3,685
58,468
1,202
(913)
(1,584)
(483)
—
55
(2,275)
(926)
146
2,084
3,998
—
1,314
80,769
(23,171)
(31,951)
(15,726)
(4,887)
(75,735)
(38,102)
642
(2,123)
8,424
(218,045)
(106,894)
422,875
(2,125)
(280,500)
—
—
150,000
436,000
(195,750)
(390,250)
(1,617)
—
(2,170)
—
—
—
—
17,000
(17,000)
—
—
(1,811)
2,692
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(In thousands of dollars)
January 3,
2021
December 29,
2019
December 30,
2018
Costs associated with financing long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(3,303)
(10,053)
5,902
61,990
2,974
(11,516)
(4,017)
168,297
(1,040)
4,014
64,964 $
2,974 $
(154)
—
727
(25,398)
29,412
4,014
Supplemental disclosures: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest paid on lease financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accruals for capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Common stock issued for consideration in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-cash reduction of lease financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid (refunded), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
24,714 $
29,055 $
23,098
104 $
104 $
1,241 $
15,062 $
— $
— $
153 $
145,333 $
— $
144 $
105
7,605
—
2,538
(270)
See accompanying notes to consolidated financial statements.
F- 7
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
1. Basis of Presentation
Business Description. At January 3, 2021 Carrols Restaurant Group, Inc. ("Carrols Restaurant Group")
operated, as franchisee, 1,009 Burger King® restaurants in 23 Northeastern, Midwestern and Southeastern states
and 65 Popeyes® restaurants in seven Southeastern states.
In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic,
which continues to spread throughout the United States. The COVID-19 pandemic has significantly impacted the
communities the Company's restaurants operate in as federal, state and local governments have taken a series of
actions to contain its spread. In March 2020, the Company closed its dining rooms in all restaurants and modified
operating hours in line with local ordinances and day-part sales trends, and over the course of March and April of
2020, temporarily closed 46 restaurants that were geographically close to one of its other restaurants. Given sales
improvements after the initial months of the pandemic, 44 of the temporarily closed restaurants had reopened by the
end of 2020. Two of the restaurants temporarily closed in March were permanently closed in 2020.
Each restaurant operated according to their respective local governmental guidelines as well as safety
procedures developed by Burger King and Popeyes. As individual states and local governments have allowed
reopenings, the Company has evaluated opportunities to re-open dining rooms. Approximately 35% of dining rooms
had reopened by the end of 2020, however, eat-in sales represented only approximately 1% of our total restaurant
sales as guests continue to rely on our drive-thru, carry-out and delivery service modes.
Basis of Consolidation. Carrols Restaurant Group, Inc. is a holding company and conducts all of its operations
through its direct and indirect wholly-owned subsidiaries Carrols Corporation and New CFH, LLC and their wholly-
owned subsidiaries. Carrols Corporation's material direct and indirect wholly-owned subsidiaries (collectively,
"Carrols") include its 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"). New CFH
LLC's material direct and indirect wholly-owned subsidiaries include Frayser Quality, LLC and Nashville Quality,
LLC (and together with New CFH, LLC's immaterial direct and indirect 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.
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The
fiscal year ended January 3, 2021 contained 53 weeks and the fiscal years ended December 29, 2019 and December
30, 2018 each contained 52 weeks.
Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant items subject to such estimates include: other lease charges related to
closed locations, insurance liabilities, evaluation for impairment of long-lived assets and franchise rights, lease
accounting matters, the valuation of acquired assets and liabilities, valuation of interest rate swap and the valuation
of deferred income tax assets. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. At both January 3, 2021 and December 29, 2019, the
Company did not have any cash invested in money market funds which are classified as cash equivalents on the
consolidated balance sheets.
F- 8
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Inventories. Inventories, consisting primarily of food, beverages, and paper supplies, are stated at the lower of
cost determined on the first-in, first-out method or net realizable value. Net realizable value is determined as the
estimated selling price in the normal course of business minus the cost of disposal and transportation.
Property and Equipment. Property and equipment is recorded at cost. The Company capitalizes all direct costs
incurred to develop, construct and substantially improve its restaurants. These costs are depreciated and charged to
expense based upon their property classification when placed in service. Repairs and maintenance expenditures are
expensed as incurred.
Depreciation and amortization is provided using the straight-line method over the following estimated useful
lives:
Owned buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 to 30 years
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 7 years
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 7 years
Assets subject to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shorter of useful life or lease term
Building costs incurred for new restaurants on leased land are amortized over the lease term, which is
generally a period of twenty years. Leasehold improvements are amortized over the shorter of their estimated useful
lives or the underlying expected lease term. The Company includes renewal option periods when determining the
expected lease term in circumstances where the non-exercise of one or more renewal options under the lease would
result in an economic penalty.
Business Combinations. In accordance with ASC 805, the Company allocates the purchase price of an
acquired business to its identifiable assets and liabilities based on the estimated fair values. The excess of the
purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess
value of the net identifiable assets and liabilities acquired over the purchase price, if any, is recorded as a bargain
purchase gain. The Company uses all available information to estimate fair values of identifiable intangible assets
and property acquired. In making these determinations, the Company may engage an independent third party
valuation specialist to assist with the valuation of certain leasehold improvements, franchise rights and favorable
and unfavorable leases.
The Company estimates that the seller's carrying value of acquired restaurant equipment, subject to certain
adjustments, is equivalent to fair value of this equipment at the date of the acquisition. The fair values of assumed
franchise agreements are valued as if the remaining term of the agreement is at the market rate. The fair values of
acquired land, buildings, certain leasehold improvements, and restaurant equipment subject to finance leases are
determined using both the cost approach and market approach using significant inputs observable in the open
market. The Company categorizes these inputs as Level 2 inputs under ASC 820. The fair value of acquired
franchise rights and favorable or unfavorable lease positions are determined using the income approach and includes
unobservable inputs. The Company categorizes these inputs as Level 3 inputs under ASC 820.
Franchise Rights. The Company determines the fair value of franchise rights based upon the acquired
restaurants' future earnings, discounting those earnings using an appropriate market discount rate and subtracting a
contributory charge for net working capital, property and equipment and assembled workforce to determine the fair
value attributable to these franchise rights. Amounts allocated to franchise rights for each acquisition are amortized
using the straight-line method over the average remaining term of the acquired franchise agreements plus one
twenty-year renewal period.
Franchise Agreements. Fees for initial franchises and renewals are amortized using the straight-line method
over the term of the agreement, which is generally twenty years.
F- 9
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Goodwill. Goodwill represents the excess of purchase price over the value assigned to the net tangible and
identifiable intangible assets of the businesses acquired. Goodwill is not amortized but is tested for impairment at
least annually as of the fiscal year end.
Impairment of Long-Lived Assets. The Company assesses the potential impairment of property and equipment,
franchise rights and other definite-lived intangible assets by determining whether the carrying value of these assets
can be recovered over their respective remaining useful lives through undiscounted future operating cash flows.
Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these
assets may not be fully recoverable. Impairment indicators at the restaurant level include low operating cash flows,
declining sales and if the ratio of trailing twelve months cash flows extended over the remaining lease term does not
exceed the net book value of the asset group.
Deferred Financing Costs. Financing costs incurred in obtaining long-term debt and lease financing
obligations are capitalized and amortized over the life of the related obligation as interest expense using the
effective interest method. Long-term debt on the consolidated balance sheets is presented net of the unamortized
amount of the financing costs related to long-term borrowings.
Leases. The Company utilizes land and buildings in its operations under various lease agreements. The
Company does not consider any one of these individual leases material to the Company's operations. Initial lease
terms are generally for twenty years and provide for renewal options with rent escalations. The exercise of such
renewal options are generally at the Company’s sole discretion. The Company evaluates renewal options at lease
commencement to determine if such options are reasonably certain to be exercised based on economic factors.
Certain leases also require contingent rent, determined as a percentage of sales as defined by the terms of the
applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including
payment of property taxes, insurance and utilities.
Right-of-use (“ROU”) lease assets represent the Company’s right to use an underlying asset for the lease term
and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. As the
rate implicit within our leases is not readily determinable, the Company uses market and term specific incremental
borrowing rates which consider the rate of interest it expects to pay on a collateralized basis to borrow an amount
equal to the lease payments under similar terms. ROU assets are also reduced by lease incentives, initial direct costs
and adjusted by favorable lease assets and unfavorable lease liabilities.
Variable lease components represent amounts that are contractually fixed as a percentage of sales and are
recognized in expense as incurred. Leases with an initial term of 12 months or less are not recorded on the
consolidated balance sheet and are recognized as lease expense on a straight-line basis over the lease term. The
Company does not account for lease components (e.g., fixed payments including rent, real estate taxes and
insurance costs) separately from the non-lease components.
The Company also utilizes certain restaurant equipment under various finance lease agreements with initial
terms of generally eight years. The Company does not consider any one of these individual leases material to the
Company's operations.
For certain leases where rent escalates based upon a change in a financial index, such as the Consumer Price
Index, the difference between the rate at lease inception and the subsequent fluctuations in that rate are included in
variable lease costs. Additionally, because the Company has elected to not separate lease and non-lease components,
in limited instances variable costs also include payments to the landlord for common area maintenance, real estate
taxes, insurance and other operating expenses. Lease expense is recognized on a straight-line basis over the lease
term, with variable lease payments recognized in the period those payments are incurred.
Lease Financing Obligations. Lease financing obligations pertain to real estate sale-leaseback transactions
accounted for under the financing method. The land and building assets subject to these obligations remain on the
Company’s consolidated balance sheets at their historical costs and the building assets continue to be depreciated
F- 10
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
over their remaining useful lives. The proceeds received by the Company from these transactions are recorded as
lease financing obligations and the lease payments are applied as payments of principal and interest. The selection
of the interest rate on lease financing obligations is evaluated at inception of the lease based on the Company’s
incremental borrowing rate adjusted to the rate required to prevent recognition of a non-cash loss or negative
amortization of the obligation through the end of the primary lease term.
Revenue Recognition. Revenues from Company restaurants and other revenue from convenience store sales,
net of sales discounts, are recognized when payment is tendered at the time of sale or upon fulfillment of delivery
orders. Revenues are reported net of sales tax collected from customers and remitted to governmental taxing
authorities.
Gift cards. The Company sells gift cards in its restaurants that are issued under the gift card program of
Restaurant Brands International, Inc. ("RBI"). Proceeds from the sale of Burger King® and Popeyes® gift cards at
the Company’s restaurants are remitted to RBI, and RBI reimburses the Company for any gift card redemptions at
its restaurants. The Company recognizes revenue for restaurant sales upon redemption of gift cards by the customer.
Cost of Sales. The Company includes food, beverage and paper costs and delivery charges, net of any vendor
purchase discounts and rebates, in cost of sales.
Income Taxes. Deferred income tax assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the tax rates that are anticipated to be in effect when
those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and
liabilities during the period including any changes in valuation allowances. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment
date. A valuation allowance is established when it is necessary to reduce deferred tax assets to an amount for which
realization is likely. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The Company and its subsidiaries file a consolidated federal income tax return.
Advertising Costs. All advertising costs are expensed as incurred. For the years ended January 3, 2021,
December 29, 2019 and December 30, 2018, advertising costs were $60.7 million, $58.7 million and $48.3 million,
respectively.
Pre-opening Costs. The Company’s pre-opening costs generally include payroll costs and travel associated
with the opening of a new restaurant, rent and promotional costs. For the years ended January 3, 2021, December
29, 2019 and December 30, 2018, pre-opening costs were $0.2 million, $1.4 million and $0.6 million, respectively.
These costs are expensed as incurred prior to a restaurant opening and are included in other restaurant operating
expenses in the accompanying consolidated statements of comprehensive income (loss).
Insurance. The Company is self-insured for general liability, medical insurance and most workers’
compensation claims under policies where it pays all claims, subject to stop-loss limitations both for individual
claims and in certain cases claims in the aggregate. Losses are accrued based upon the Company’s estimates of the
aggregate liability for claims based on Company experience and other methods used to measure such estimates. The
Company does not discount any of its self-insurance obligations.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In
determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair
value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs
are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for
similar assets or liabilities; and Level 3 inputs are unobservable and reflect the Company's own assumptions.
Financial instruments include cash and cash equivalents, trade and other receivables, accounts payable and long-
term debt. The carrying amounts of cash and cash equivalents, trade and other receivables and accounts payable
F- 11
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
approximate fair value because of the short-term nature of these financial instruments. The carrying amount of the
Term Loan B and Incremental Term B-1 Loan borrowings at January 3, 2021 approximate fair value because of
their variable rates. The Carrols Restaurant Group 8.0% Senior Secured Second Lien Notes due 2022 (the "8%
Notes") were redeemed in full as of December 29, 2019.
Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the
impairment analysis of long-lived assets, goodwill and intangible assets. Long-lived assets and definite-lived
intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs. As described in Note 5, the
Company recorded long-lived asset impairment charges of $8.2 million, $1.7 million and $2.7 million during the
years ended January 3, 2021, December 29, 2019 and December 30, 2018, respectively.
Stock-Based Compensation. The Company has an incentive stock plan under which incentive stock options,
non-qualified stock options, restricted stock units (RSU) and non-vested shares may be granted to employees and
non-employee directors. The Company has granted non-vested shares under this plan annually as well as granted
non-vested shares, stock options, and RSU's to corporate employees for performance. Non-vested shares, options,
and RSUs granted to corporate employees and non-employee directors generally vest on a straight-line basis over
three years.
For non-vested stock awards, the fair market value of the award, determined based upon the closing value of
the Company’s stock price on the grant date, is recorded to compensation expense on a straight-line basis over the
requisite service period. For stock options, the fair-value of the options is estimated using the Black-Scholes option
pricing model based on assumptions for the risk-free rate of interest, expected dividend yield, expected volatility,
and the expected term of the award. Compensation expense is recognized over the three-year vesting period. See
Note 11 to the consolidated financial statements.
Concentrations of Credit Risk. Financial instruments that potentially subject the Company to a concentration
of credit risk consist primarily of cash and cash equivalents. The Company maintains its day-to-day operating cash
balances in interest-bearing transaction accounts at financial institutions, which are insured by the Federal Deposit
Insurance Corporation up to $250,000. Although the Company maintains balances that exceed the federally insured
limit, it has not experienced any losses related to these balances and believes its credit risk to be minimal.
Segment Information. Operating segments are components of an entity for which separate financial
information is available and is regularly reviewed by the chief operating decision maker in order to allocate
resources and assess performance. The Company's chief operating decision maker currently evaluates the
Company's operations from a number of different operational perspectives; however resource allocation decisions
are made based on the chief operating decision maker's evaluation of the total Company operations. The Company
derives all significant revenues from a single operating segment. Accordingly, the Company views the operating
results of its restaurants as one reportable segment.
Recently Issued Accounting Pronouncements Not Yet Adopted. In March 2020, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2020-04 (“ASU 2020-04”), Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU
2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships,
and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”). This ASU
is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating
the effect adoption of this guidance will have on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) ("ASU No. 2019-12").
This ASU simplifies the accounting for income taxes by removing certain exceptions, including an exception to the
general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the
anticipated loss for the full year. The guidance is effective for interim and annual periods beginning after December
15, 2020, with early adoption permitted and amendments applied on a prospective basis. The impact of the standard
F- 12
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
will depend on interim and anticipated profit or loss in a given period, however the Company does not expect ASU
No. 2019-12 to have a material impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements Adopted. In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses, to introduce new guidance for the accounting for credit losses on instruments
within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for
financial assets held at the reporting date based on historical experience, current conditions, and reasonable
supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt
securities and purchased financial assets with credit deterioration. This update was effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption
permitted. The Company implemented this for the year beginning December 30, 2019 and the implementation had
no impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for
goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying
amount exceeds its fair value. This update was effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years, with early adoption permitted. The Company implemented this
for the year ended January 3, 2021 and the implementation had no impact on its consolidated financial statements
and related disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20). This
ASU amends ASC 715 to add certain relevant disclosures, remove certain disclosures no longer considered to be
cost beneficial, and clarify specific disclosure requirements related to defined benefit pension and other
postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020 and requires application
on a retrospective basis. The Company implemented this for the year ended January 3, 2021 and there was no
impact on its consolidated financial statements.
In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to
make an election to account for lease concessions related to the COVID-19 pandemic consistent with how those
concessions would be accounted for under ACS Topic 842, Leases ("ASC 842"), as though enforceable rights and
obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the
concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19
pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations
for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842
to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that
do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company has
made the policy election to apply this interpretive guidance to certain rent relief resulting directly from COVID-19,
and has assumed that enforceable rights and obligations for those concessions exist in the lease contract.
Accordingly, the Company recognized abatements that did not result in an extension of lease term as reductions in
variable lease payments, and deferrals that did not result in an extension of lease term as an increase in other current
liabilities. This election will continue while these abatements or deferrals are in effect.
F- 13
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
2. Acquisitions
2019 Acquisitions
During the year ended December 29, 2019, the Company acquired a total of 234 restaurants from other
franchisees, which are referred to as the "2019 acquired restaurants", in the following transactions:
Closing Date
April 30, 2019 (1)
June 11, 2019
August 20, 2019 (2)
Number of
Restaurants
Purchase
Price
220 $ 259,083 Southeastern states, primarily TN, MS, LA
13
1
15,788 Baltimore, Maryland
1,108 Pennsylvania
234 $ 275,979
(1) During the second quarter of 2019, the Company completed the merger with New CFH, LLC ("Cambridge") and
acquired 165 Burger King restaurants and 55 Popeyes restaurants.
(2) Acquisitions resulting from the exercise of the Company's right of first refusal on acquisitions in certain markets (see note
15).
On April 30, 2019 the Company completed a merger with Cambridge ("the Cambridge Merger") for a purchase
price of $259.1 million through the issuance of shares of stock which consisted of (i) approximately 7.4 million
shares of common stock, (ii) 10,000 shares of the Company's newly designated Series C Convertible Preferred
Stock, which were converted into approximately 7.5 million shares of common stock on August 29, 2019, and (iii)
the retirement of approximately $113.8 million of the indebtedness of Cambridge, net of cash acquired. All shares
issued are subject to a two year restriction on sale or transfer subject to certain limited exceptions. As part of the
transaction, Cambridge Franchise Holdings LLC ("Cambridge Holdings") has the right to designate up to two
director nominees and two Cambridge Holdings executives joined the Company's Board of Directors on April 30,
2019.
Under the purchase method of accounting, the aggregate purchase price is allocated to the net tangible and
intangible assets based on their estimated fair values on the acquisition date. The purchase price allocation valued
the common stock at $145.3 million based on the $9.81 closing price of the Company's stock on the date of
acquisition.
The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the
Cambridge Merger at their estimated fair values. The Company engaged a third party valuation specialist to assist
with the valuation of franchise rights, leasehold improvements and favorable and unfavorable leases included in the
operating right-to-use assets acquired. The fair value of other property and equipment and franchise agreements was
based on the carrying value of the respective assets given that in the three years prior to the Cambridge Merger,
Cambridge had completed valuations in connection with its own acquisition of 132 restaurants and also recently
constructed 33 new restaurants. The fair value of the operating lease liability is based upon the lease payments over
the remaining lease term discounted by the Company's incremental borrowing rate. The deferred income tax
liability allocated from the purchase price represents book and tax differences primarily related to the fair value of
the acquired franchise rights.
Goodwill recorded in connection with the Cambridge Merger represents the excess of the purchase price over
the aggregate fair value of net assets acquired and is related to the benefits expected as a result of the merger,
including sales, operating synergies, development and growth opportunities. The Company believes that
Cambridge's existing Burger King and Popeyes restaurant portfolios provide it with significant growth and
development opportunities and due to the geographic location of the restaurants mitigate the dependence on the
economic performance of any one particular geographic location or restaurant concept.
F- 14
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The following table summarizes the final allocation of the aggregate purchase price for the Cambridge Merger:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant equipment - subject to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligations for restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll, related taxes and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2,839
2,947
1,846
21,257
25,358
488
251,431
3,498
7,300
174,500
(44,292)
84,060
(568)
(255,897)
(8,014)
(3,133)
(4,537)
259,083
The Company allocated the aggregate purchase price for the 2019 acquisitions other than the Cambridge
Merger at their estimated fair values. The following table summarizes the final allocation of the aggregate purchase
price for these other 2019 acquisitions:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant equipment - subject to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligations for restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
158
743
150
9,515
6,205
394
9,809
29
86
(9,968)
(185)
(40)
16,896
The results of operations for the restaurants acquired are included from the closing date of the respective
acquisition. The 2019 acquired restaurants contributed restaurant sales of $288.9 million during the year ended
January 3, 2021 and $201.9 million and other revenue of $10.2 million during the year ended December 29, 2019. It
is impracticable to disclose net earnings for the post-acquisition periods as net earnings of these restaurants were not
tracked on a collective basis due to the integration of administrative functions, including field supervision.
The pro forma impact on the results of operations for restaurants acquired in 2019 and 2018 is included below.
The pro forma results of operations are not necessarily indicative of the results that would have occurred had the
F- 15
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
restaurants acquired in 2019 and 2018 been consummated at the beginning of the periods presented, nor are they
necessarily indicative of any future consolidated operating results. The following table summarizes the Company's
unaudited proforma operating results:
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net income (loss) per share . . . . . . . . . . . . . . . . . .
1,568,533
(25,586)
(0.59)
December 29, 2019
December 30, 2018
1,518,841
$
27,730
0.60
Year Ended
This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies
or cost savings or any integration costs related to the 2019 acquired restaurants. The proforma results exclude
transaction costs recorded as general and administrative expenses of $4.1 million and $1.4 million during the years
ended December 29, 2019 and December 30, 2018, respectively.
2018 Acquisitions
During the year ended December 30, 2018 the Company acquired a total of 44 restaurants from other
franchisees, which are referred to as the "2018 acquired restaurants", in the following transactions:
Closing Date
February 13, 2018 (1)
August 21, 2018 (2)
September 5, 2018 (2)
October 2, 2018
Number of
Restaurants
Purchase
Price
Market Location
1 $
2
31
10
44 $
— New York
1,666 Detroit, Michigan
25,930 Western Virginia
10,506 South Carolina and Georgia
38,102
(1) This acquisition resulted in a bargain purchase gain because the fair value of net assets acquired, largely representing a
franchise right asset of $0.3 million, exceeded the total fair value of consideration paid by $0.2 million. The Company
recognized this gain and recorded it as "Gain on bargain purchase" in the consolidated statements of comprehensive
income (loss).
(2) Acquisitions resulting from the exercise of the Company's right of first refusal on acquisitions in certain markets (see note
15).
F- 16
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the
acquisitions at their estimated fair values. The following table summarizes the final allocation of the aggregate
purchase price for the four 2018 acquisitions:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant equipment - subject to capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations for restaurant equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfavorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
401
2,092
43
1,329
1,264
31,275
587
346
1,677
(49)
(624)
(9)
38,332
The results of operations for the restaurants acquired are included from the closing date of the respective
acquisition. The 2018 acquired restaurants contributed restaurant sales of $52.9 million and $16.9 million during the
years ended December 29, 2019 and December 28, 2018, respectively. It is impracticable to disclose net earnings
for the post-acquisition periods as net earnings of these restaurants were not tracked on a collective basis due to the
integration of administrative functions, including field supervision.
The pro forma impact on the results of operations for restaurants acquired in 2018 is included below. The pro
forma results of operations are not necessarily indicative of the results that would have occurred had the restaurants
acquired in 2018 been consummated at the beginning of the periods presented, nor are they necessarily indicative of
any future consolidated operating results. The following table summarizes the Company's unaudited proforma
operating results:
Year Ended
December 30, 2018
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,217,891
13,684
0.30
This pro forma financial information does not give effect to any anticipated synergies, operating efficiencies
or cost savings or any integration costs related to the 2018 acquired restaurants. The proforma results exclude
acquisition costs recorded as general and administrative expenses of $1.4 million during the year ended December
30, 2018.
Acquired Intangible Assets
Goodwill recorded in connection with the acquisitions in 2019 and 2018 represents costs in excess of fair
values assigned to the underlying net assets of acquired restaurants. Acquired goodwill that is expected to be
deductible for income tax purposes was $47.2 million in 2019 and $0.5 million in 2018.
F- 17
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The weighted average amortization period of the intangible assets acquired is as follows:
Favorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfavorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
Acquisitions
—
—
32.7
2018
Acquisitions
17.2
18.3
31.6
Beginning in 2019, favorable and unfavorable leases are now included as a component of the Company's
operating right-of-use assets.
3. Property and Equipment
Property and equipment at January 3, 2021 and December 29, 2019 consisted of the following:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets subject to finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . .
$
$
January 3, 2021
8,301 $
13,325
424,685
320,909
16,663
783,883
(434,328)
349,555 $
December 29, 2019
8,800
12,490
413,543
311,423
17,132
763,388
(377,810)
385,578
Assets subject to finance leases primarily represents buildings leased for certain restaurant locations and
certain leases of restaurant equipment and had accumulated amortization at January 3, 2021 and December 29, 2019
of $16.0 million and $15.2 million, respectively. Depreciation expense for all property and equipment for the years
ended January 3, 2021, December 29, 2019 and December 30, 2018 was $64.4 million, $60.8 million and $49.3
million, respectively.
4. Intangible Assets
Goodwill. The Company is required to test goodwill for impairment annually, or more frequently, when events
and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is
less than the related carrying amount, an impairment loss is recognized. The Company performs its annual
impairment assessment as of the last day of the fiscal year. In performing its goodwill impairment test, the Company
compared the net book value of its reporting unit to its estimated fair value, the latter determined by employing a
combination of a discounted cash flow analysis and a market-based approach. There have been no recorded
goodwill impairment losses during the years ended January 3, 2021, December 29, 2019 and December 30, 2018.
Goodwill at December 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,469
84,150
Acquisitions of restaurants (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
122,619
Goodwill at December 29, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of restaurants (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Goodwill at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,619
F- 18
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Franchise Rights. Amounts allocated to franchise rights for each acquisition of Burger King® and Popeyes®
restaurants are amortized using the straight-line method over the average remaining term of the acquired franchise
agreements plus one twenty-year renewal period. The following is a summary of the Company’s franchise rights as
of the respective balance sheet dates:
Balance at December 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175,897
184,309
Acquisitions of restaurants (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,265)
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348,941
Balance at December 29, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,344)
Balance at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 334,597
Amortization expense related to franchise rights for the year ended December 30, 2018 was $7.4 million. The
Company expects annual amortization to be $13.7 million in each of the next five fiscal years. No impairment
charges were recorded related to the Company’s franchise rights during the years ended January 3, 2021, December
29, 2019 and December 30, 2018.
5. Impairment of Long-Lived Assets and Other Lease Charges
The Company reviews its long-lived assets, principally property and equipment, for impairment at the
restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash
flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If
the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the
asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the
asset over its fair value. For closed restaurant locations, the Company reviews the future minimum lease payments
and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records
a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.
For restaurants reviewed for impairment the Company determined the fair value of restaurant equipment,
based on current economic conditions. These fair value asset measurements rely on significant unobservable inputs
and are considered Level 3 in the fair value hierarchy.
During the year ended January 3, 2021, the Company recorded impairment and other lease charges of $12.8
million consisting of $1.2 million of capital expenditures at previously impaired restaurants, $5.0 million related to
initial impairment charges for fifteen underperforming restaurants, other lease charges of $4.6 million primarily
from 22 restaurant closures, and $2.0 million related to impairment of its right of first refusal under its Area
Development and Remodeling Agreement with BKC (see Note 15)
During the year ended December 29, 2019, the Company recorded impairment and other lease charges of $3.6
million including $0.3 million for 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.
During the year ended December 30, 2018, the Company recorded impairment and other lease charges of $3.7
million including $0.4 million for 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 the sale-leaseback
of four restaurant properties, and other lease charges of $0.2 million.
F- 19
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
6. Other Liabilities, Long-Term
Other liabilities, long-term, at January 3, 2021 and December 29, 2019 consisted of the following:
Accrued occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued workers’ compensation and general liability claims . . . . . . . . . . .
Interest rate swap liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred federal payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
January 3, 2021
December 29, 2019
8,523
5,370
—
3,902
—
289
18,084
2,394 $
5,499
6,062
4,419
10,808
290
29,472 $
On March 27, 2020, the United States enacted the CARES Act as a response to the economic uncertainty
resulting from COVID-19. The CARES Act provided for deferred payment of the employer portion of social
security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining
50% due December 31, 2022. As of January 3, 2021, the Company deferred $21.6 million related to this provision,
of which $10.8 million was recorded in accrued payroll, related taxes and benefits and $10.8 million was recorded
in other liabilities, long-term in the accompanying consolidated balance sheets.
7. Leases
As a result of the COVID-19 pandemic and the resulting economic uncertainty in the restaurant industry, the
Company contacted each of its landlords to potentially negotiate accommodations to preserve cash. For certain
leases the Company was able to modify existing payment terms, in some cases through deferral of existing
payments until future periods and in some cases through a reduction in payments due during this period. The
Company elected the practical expedient to not evaluate whether a deferral of rent within the current term is a lease
modification. Any concessions which resulted in extension of the existing lease term were accounted for as a lease
modification under the current GAAP guidance. The total rent that was or will be deferred as a result of requests for
relief from our landlords other than BKC was $5.8 million, of which $4.8 million was or is expected to be repaid
over various periods that began in the third quarter of 2020. Additionally, the Company received $0.4 million in
2020 from BKC for concessions related to leases the Company subleases from BKC with third party landlords (see
Note 15). As of January 3, 2021, $3.2 million remains to be repaid to landlords related to these deferrals.
During the years ended January 3, 2021, December 29, 2019 and December 30, 2018, the Company sold
twelve, twenty-seven and five restaurant properties, respectively, in sale-leaseback transactions for net proceeds of
$22.5 million, $48.4 million and $8.4 million, respectively. These leases have been classified as operating leases
and generally contain a twenty-year initial term plus renewal options.
F- 20
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Rent commitments under finance and non-cancelable operating leases at January 3, 2021 were as follows:
Fiscal year ending:
January 2, 2022
January 1, 2023
December 31, 2023
December 29, 2024
December 28, 2025
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
Less: current portion
Total long-term lease liabilities
Lease Cost
Operating Leases
$
Finance Leases
99,191 $
98,850
98,005
96,853
94,613
877,149
1,364,661
(512,877)
851,784
(41,815)
809,969 $
$
583
240
68
42
28
59
1,020
(112)
908
(525)
383
The components and classification of lease expense for the years ended January 3, 2021 and December 29,
2019 are as follows:
Lease cost
Operating lease cost (1)
Operating lease cost
Variable lease cost - variable
rent
Variable lease cost - common
area maintenance
Sublease income
Finance lease cost:
Amortization of right-of-use
assets
Interest on lease liabilities
Total lease cost
Classification
Restaurant rent expense
General and administrative
Restaurant rent expense
Year ended
January 3, 2021 December 29, 2019
90,718
$
579
16,454
102,651 $
606 $
16,245 $
Other restaurant operating expenses
Restaurant rent expense
521 $
(452) $
617
(25)
Depreciation and amortization
1,233 $
1,778
Interest expense
130 $
120,934 $
$
256
110,377
(1) Includes short-term leases which are not material.
F- 21
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Total rent expense for the year ended December 30, 2018 on operating leases, including contingent rent on
both operating and finance leases, was as follows:
Year ended
Minimum rent on real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contingent rent on real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative and equipment rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 30, 2018
72,206
9,203
81,409
273
81,682
$
Lease Position
Supplemental balance sheet information related to leases was as follows as of January 3, 2021 and December
Classification
January 3, 2021
December 29, 2019
Operating right-of-use assets, net
Property and equipment, net
29, 2019:
Leases
Assets
Operating leases
Finance leases
Total leased assets
Liabilities
Current
$
$
$
$
799,962
644
800,606
41,815
525
809,969
383
852,692
$
$
$
$
811,016
1,882
812,898
40,805
1,616
808,292
908
851,621
14.0 years
2.4 years
14.5 years
2.0 years
7.0 %
8.9 %
7.0 %
7.9 %
Operating leases
Finance leases
Current portion of operating lease liabilities
Current portion of long-term debt and finance
lease liabilities
Long-term
Operating leases
Finance leases
Total lease liabilities
Operating lease liabilities
Long-term debt and finance lease liabilities
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
F- 22
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
Other Information
Supplemental cash flow information related to leases for the years ended January 3, 2021 and December 29,
2019 are as follows:
Year ended
January 3, 2021
December 29, 2019
Gain on sale-leaseback transactions
Lease assets and liabilities resulting from lease modifications
and new leases
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance lease obligations
$
189 $
50,978
98,561
130
1,617
636
76,878
87,220
256
2,170
8. Long-term Debt
Long-term debt at January 3, 2021 and December 29, 2019 consisted of the following:
January 3, 2021
December 29, 2019
Collateralized:
Senior Credit Facility: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term Loan B borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Term Loan B-1 borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of long-term debt and finance lease liabilities . . . . .
Less: unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-term Debt
$
419,375 $
73,875
—
908
494,158
(5,525)
(7,777)
(5,161)
475,695 $
422,875
—
45,750
2,524
471,149
(5,866)
(7,768)
(1,950)
455,565
On April 30, 2019, the Company entered into new senior secured 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 (the “Term Loan B Facility”) maturing on April 30, 2026 and (ii) a new 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 “Revolving Credit Facility” and, together with the Term Loan B Facility,
the (“New Senior Credit Facilities”).
On December 13, 2019, the Company entered into the First Amendment to Credit Agreement (the "First
Amendment") 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
F- 23
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
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.
On March 25, 2020, the Company entered into the Second Amendment to its Senior Credit Facilities (the
"Second Amendment"). The Second Amendment increased the aggregate maximum commitments available for
revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility (the "Revolving
Committed Amount") by $15.4 million to a total of $130.4 million.
The Second Amendment amended the definition of Applicable Margin (such definition and all other
definitions used herein and otherwise not defined herein shall have the meanings set forth in the Senior Credit
Facilities) to provide that on and after the date of the Second Amendment (the "Second Amendment Effective
Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit Fees)
shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is greater than
$115.0 million, (i) for the period commencing on the Second Amendment Effective Date and including the date that
is 179 days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base
Rate Loans, (ii) for the period commencing on the date that is 180 days after the Second Amendment Effective
Date, through and including the date that is 269 days after the Second Amendment Effective Date, 4.25% for
LIBOR Rate Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is
270 days after the Second Amendment Effective Date, through and including the date that is 364 days after the
Second Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv)
for the period commencing on the date that is 365 days after the Second Amendment Effective Date and thereafter,
4.75% for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving
Committed Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate
Base Rate Loans.
The Second Amendment provides that beginning on the 180th day after the Second Amendment Effective Date
and for so long as the Revolving Committed Amount is greater than $115.0 million, the Company shall pay to the
Administrative Agent, for the ratable benefit of the Revolving Facility Lenders, a commitment fee (the "Ticking
Fee") on the average daily amount of the Revolving Committed Amount at a rate per annum equal to (a) 0.125% for
the 180th day after the Second Amendment Effective Date through and including the 269th day after the Second
Amendment Effective Date, (b) 0.25% for the 270th day after the Second Amendment Effective Date through and
including the 364th day after the Second Amendment Effective Date and (c) 1.00% for the 365th day after the
Second Amendment Effective Date and thereafter. The Second Amendment provides that the Ticking Fee will be
due and payable quarterly in arrears (calculated on a 360-day basis) on the last Business Day of each calendar
quarter and will accrue from the 180th day after the Second Amendment Effective Date for so long as the Revolving
Committed Amount is greater than $115.0 million. The Company recorded expense of $0.1 million related to these
ticking fees in the year ended January 3, 2021. The Second Amendment also provides that the Company shall use
the proceeds of an Extension of Credit which results in the sum of the aggregate principal amount of outstanding
Revolving Loans plus the aggregate amount of LOC Obligations equaling an amount in excess of $115.0 million,
solely for ongoing operations of the Company and its subsidiaries and shall not be held as cash on the balance sheet.
On April 8, 2020, the Company entered into the Third Amendment to its Senior Credit Facilities which
increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters
of credit) under the Revolving Credit Facility by $15.4 million to a total of $145.8 million.
On April 16, 2020, the Company entered into the Fourth Amendment to its Senior Credit Facilities (the
"Fourth Amendment"). The Fourth Amendment permits the Company to incur and, if necessary, repay indebtedness
incurred pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic
Security Act, as amended (the "CARES Act"). Subsequent to this amendment, the Company withdrew its
application for relief under the PPP and returned the funds upon receipt.
F- 24
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
On June 23, 2020 (the "Fifth Amendment Effective Date"), the Company entered into the Fifth Amendment to
its Senior Credit Facilities (the "Fifth Amendment"). The Fifth Amendment increased the Term Loan (as defined in
the Senior Credit Facilities) borrowings in the aggregate principal amount of $75 million of Incremental Term B-1
Loans (as defined in the Senior Credit Facilities). The Incremental Term B-1 Loans constitute a new tranche of
Term Loans ranking pari passu in right of payment and security with the Initial Term Loans for all purposes under
the Senior Credit Facilities. The Incremental Term B-1 Loans have the same terms as outstanding borrowings under
the Company's existing term loan B facility pursuant to and in accordance with the Senior Credit Facilities,
provided that (i) borrowings under the Incremental Term B-1 Loans will bear interest at a rate per annum, at the
Company’s option, of (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus the applicable
margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior Credit Facilities) (which shall not be less than 1%
for Incremental Term B-1 Loans) plus the applicable margin of 6.25% and (ii) certain prepayments of the
Incremental Term B-1 Loans by the Company prior to the first anniversary of the Fifth Amendment Effective Date
are subject to a premium to the Administrative Agent (as defined in the Senior Credit Facilities), for the ratable
account of each applicable Term Loan Lender (as defined in the Senior Credit Facilities) holding Incremental Term
B-1 Loans on the date of such prepayment equal to the Applicable Make-Whole Amount (as defined in the Senior
Credit Facilities) with respect to the principal amount of the Incremental Term B-1 Loans so prepaid. The principal
amount of the Incremental Term B-1 Loans will amortize in an aggregate annual amount equal to 1% of the original
principal amount of the Incremental Term B-1 Loans and shall be repayable in consecutive quarterly installments on
the last day of the Company's fiscal quarters beginning on the third fiscal quarter of 2020 with the remaining
outstanding principal amount of the Incremental Term B-1 Loan and all accrued but unpaid interest and other
amounts payable with respect to the Incremental Term B-1 Loan due on April 30, 2026 which is the Term Loan
Maturity Date (as defined in the Senior Credit Facilities).
The net proceeds of the Incremental Term B-1 Loans were $71.3 million after original issue discount and were
used for general corporate purposes, including repayment of the outstanding balance of the Revolving Credit
Facility.
The Company’s obligations under the Senior Credit Facilities are guaranteed by its subsidiaries and are
secured by first priority liens on substantially all of the assets of the Company and its subsidiaries, including a
pledge of all of the capital stock and equity interests of its subsidiaries.
Under the Senior Credit Facilities, the Company is required to make mandatory prepayments of borrowings 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 its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets
or businesses, change the character of its business in all material respects, engage in transactions with related
parties, make certain investments, make certain restricted payments or pay dividends. In addition, the Senior Credit
Facilities require the Company to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) if
revolving credit borrowings exceed 35% of the aggregate borrowing capacity, as described under the First
Amendment above. As there were no borrowings under the Revolving Credit Facility at January 3, 2021, no First
Lien Leverage Ratio calculation was required. The Company was in compliance with the covenants under its Senior
Credit Facilities at January 3, 2021.
The Senior Credit Facilities contain customary default provisions, including that 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, cross-defaults on other indebtedness,
judgments or upon the occurrence of a change of control.
F- 25
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The Term Loan B and B-1 borrowings are due and payable in quarterly installments, which began on
September 30, 2019. Amounts outstanding at January 3, 2021 are due and payable as follows:
(i) twenty-one quarterly installments of $1.3 million;
(ii) one final payment of $467.0 million on April 30, 2026.
At January 3, 2021, borrowings under the Senior Credit Facilities bore interest as follows:
(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior
Credit Facilities) plus 2.50% or (b) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.50%.
(ii) Term Loan B borrowings: at a rate per annum equal to (a) 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%.
(iii) Term Loan B-1 borrowings: at a rate per annum, at the Company’s option, of (a) the Alternate Base Rate
plus the applicable margin of 5.25% or (b) the LIBOR Rate (which shall not be less than 1% for Incremental Term
B-1 Loans) plus the applicable margin of 6.25%.
As of January 3, 2021, there were no revolving credit borrowings outstanding and $9.7 million of letters of
credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and outstanding
revolving credit borrowings, $136.1 million was available for revolving credit borrowings under the Revolving
Credit Facility at January 3, 2021.
At January 3, 2021, principal payments required on long-term debt, including finance leases, were as follows:
Fiscal year ending: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
January 1, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 29, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 28, 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,525
5,218
5,055
5,034
5,023
468,303
494,158
The weighted average interest rate on all debt, excluding lease financing obligations, for the years ended
January 3, 2021, December 29, 2019 and December 30, 2018 was 4.6%, 6.1% and 7.9%, respectively. Interest
expense on the Company’s long-term debt, excluding lease financing obligations, was $27.2 million, $27.8 million
and $23.5 million for the years ended January 3, 2021, December 29, 2019 and December 30, 2018, respectively.
Interest Rate Swap. In March 2020, the Company entered into an interest rate swap agreement with its lenders
to mitigate the risk of increases in the variable interest rate related to term loan borrowings under the Term Loan B
Facility. The interest rate swap fixes the interest rate on 50% of the outstanding term loan borrowings under the
Term Loan B Facility at 0.915% plus the applicable margin in its Senior Credit Facilities. The agreement matures
on February 28, 2025 and has a notional amount of $220.0 million at January 3, 2021. The differences between the
variable LIBOR rate and the interest rate swap rate of 0.915% are settled monthly. The Company made payments of
$1.0 million to settle the interest rate swap during the twelve months ended January 3, 2021. The fair value of the
Company's interest rate swap agreement was a liability of $6.1 million as of January 3, 2021 and is included in
long-term other liabilities in the accompanying consolidated balance sheets. Changes in the valuation of the
Company's interest rate swap were included as a component of other comprehensive income and will be reclassified
to earnings as the losses are realized. The Company expects to reclassify net losses totaling $1.7 million into
earnings in the next twelve months.
F- 26
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The Company's counterparties under this arrangement provided the Company with quarterly statements of the
market values of these instruments based on significant inputs that were observable or could be derived principally
from, or corroborated by, observable market data for substantially the full term of the asset or liability. The
Company classified this within Level 2 of the valuation hierarchy described in Note 1. The impact on the derivative
liabilities for the Company and the counterparties' non-performance risk to the derivative trades was considered
when measuring the fair value of derivative liabilities.
9. Other Income
In 2020, the Company recorded other income, net of $1.3 million, which consisted of gains related to
insurance recoveries from property damage at four of its restaurants of $2.1 million, net gain on twelve sale-
leaseback transactions of $0.2 million and a loss on disposal of assets of $1.0 million.
In 2019, the Company recorded other income, net of $1.9 million which consisted of a $1.9 million gain from
a settlement with RBI for their approval of new restaurant development by other franchisees which unfavorably
impacted the Company's restaurants, $0.6 million net gains 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 the Company recorded other income of $0.4 million, primarily related to insurance recoveries from
fires at two restaurants.
10. Income Taxes
The provision (benefit) for income taxes was comprised of the following:
January 3, 2021
December 29, 2019 December 30, 2018
Year ended
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in valuation allowance . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . $
— $
268
268
(6,039)
(1,073)
(7,112)
13,138
6,294 $
(260) $
119
(141)
(9,768)
(2,214)
(11,982)
—
(12,123) $
—
326
326
(598)
115
(483)
—
(157)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amount used for income tax purposes.
F- 27
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The components of deferred income tax assets and liabilities at January 3, 2021 and December 29, 2019 were
as follows:
January 3, 2021
December 29, 2019
Deferred income tax assets:
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Federal net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense limitation under section 163 (j) . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred income tax liabilities:
Operating right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income-postretirement benefits . . . .
Other deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net long-term deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . $
219,096 $
28,880
35,650
6,032
—
1,323
2,684
1,841
853
4,345
300,704
(13,138)
287,566 $
(205,897)
(26,056)
(65,329)
(474)
(1,172)
(298,928)
(11,362) $
218,503
30,588
32,378
5,388
2,558
1,274
2,440
—
944
4,690
298,763
—
298,763
(208,804)
(29,685)
(66,725)
(280)
(252)
(305,746)
(6,983)
The Company's federal net operating loss carryforwards generated prior to December 31, 2017 expire
beginning in 2033. Federal net operating losses generated subsequent to 2017 have no expiration date. As of
January 3, 2021, the Company had federal net operating loss carryforwards of approximately $136.7 million and
approximately $7.6 million in state net operating loss carryforwards. The Company's state net operating loss
carryforwards expire beginning in 2021 through 2038.
The Company has performed the required assessment of positive and negative evidence regarding the
realization of deferred income tax assets in accordance with ASC 740 at January 3, 2021 and December 29, 2019.
Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such
evidence can be objectively verified. ASC 740 prescribes that objective historical evidence, in particular the
Company’s three-year cumulative loss position at January 3, 2021, be given a greater weight than subjective
evidence, including the Company’s forecast of future taxable income, which include assumptions that cannot be
objectively verified. In determining the likelihood of future realization of the deferred income tax assets as of
January 3, 2021 and December 29, 2019 the Company considered both positive and negative evidence and weighted
the effect of such evidence based upon its objectivity. Based on the required weight of evidence under ASC 740, as
of January 3, 2021 the Company determined that a valuation allowance was needed for certain federal income tax
credits in the amount of $13.1 million as they may expire prior to their utilization by the Company. The amount of
the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during
F- 28
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses
is no longer present and additional weight may be given to subjective evidence such as projections for growth. The
company recorded income tax expense of $13.1 million in fiscal 2020 relative to this valuation reserve.
A reconciliation of the statutory federal income tax provision to the income tax provision (benefit) for the
years ended January 3, 2021, December 29, 2019, and December 30, 2018 was as follows:
Year ended
Statutory federal income tax provision (benefit) . . . . $
State income taxes, net of federal benefit . . . . . . . . . .
Employment tax credits . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowances . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . .
Rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . $
January 3, 2021
(4,865) $
(726)
(2,585)
13,138
214
525
312
281
6,294 $
December 29, 2019 December 30, 2018
2,089
325
(3,059)
—
415
(53)
—
126
(157)
(9,249) $
(1,655)
(2,938)
—
1,374
308
—
37
(12,123) $
The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax
expense. At January 3, 2021 and December 29, 2019, the Company had no unrecognized tax benefits and no
accrued interest related to uncertain tax positions. The tax years 2014 - 2020 remain open to examination by the
major taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the
amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties
regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly
change in the next twelve months.
On March 27, 2020, the United States enacted the CARES Act as a response to the economic uncertainty
resulting from COVID-19. The CARES Act includes modifications for net operating loss carryovers and
carrybacks, limitations of business interest expense for tax, immediate refund of alternative minimum tax (AMT)
credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the
U.S. Tax Act, for qualified improvement property. As of January 3, 2021, the Company expects that the carryback
of net operating losses will not have an impact on its current tax attributes.
11. Stock-Based Compensation
2016 Stock Incentive Plan. In 2016, the Company adopted a stock plan entitled the 2016 Stock Incentive Plan
(the “2016 Plan”) and reserved and authorized a total of 4,000,000 shares of common stock for grant thereunder. As
of January 3, 2021, 887,171 shares were available for future grant or issuance.
Stock-based compensation expense for the years ended January 3, 2021, December 29, 2019, and December
30, 2018 was $5.2 million, $5.8 million and $5.8 million, respectively. As of January 3, 2021, the total remaining
stock-based compensation expense relating to non-vested shares and stock options was approximately $7.7 million
and the remaining weighted average vesting period for non-vested shares and stock options was 4.0 years.
Non-vested Shares
During the year ended January 3, 2021, the Company granted 790,000 non-vested shares of common stock to
certain employees and officers of the Company and 73,128 non-vested shares to outside directors of the Company.
These shares vest over their three-year vesting period, provided the participant has continuously remained an
employee, officer, or director of the Company.
F- 29
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
On January 15, 2019, the Company granted 417,500 non-vested shares of common stock to certain employees
and officers of the Company and 47,470 non-vested shares to outside directors of the Company. These shares vest
over their three-year vesting period, provided the participant has continuously remained an employee, officer, or
director of the Company. In September of 2019, the Company granted 10,000 non-vested shares of common stock
to an interim officer of the Company, which vested in May 2020.
On January 15, 2018, the Company granted 350,000 non-vested shares of common stock to officers of the
Company. These shares vest over their three-year vesting period. During 2018 the Company also issued an
aggregate of 30,192 non-vested shares of common stock to non-employee directors. The non-vested share awards
vest over three years, provided that the participant has continuously remained a director of the Company.
A summary of all non-vested common share activity for the year ended January 3, 2021 was as follows:
Shares
Weighted Average
Grant Date Price
Non-vested at December 29, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
790,823 $
863,128 $
(416,253) $
(69,850) $
1,167,848 $
11.35
5.42
12.07
6.24
7.02
The fair value of the non-vested shares is based on the closing price of the Company's common stock on the
date of grant. As of January 3, 2021, the total non-vested stock-based compensation expense relating to non-vested
shares and stock options was approximately $7.7 million and the remaining weighted average vesting period for
non-vested shares and stock options was 4.0 years.
Stock Options
During the twelve months ended January 3, 2021, the Company granted in the aggregate options to purchase
1,075,000 shares of its common stock, consisting of 739,340 shares of non-qualified stock options and 335,660
shares of incentive stock options (“ISOs”) to certain employees and officers of the Company. These options become
exercisable and are being expensed over their three-year vesting period. The options expire seven years from the
date of the grant and were issued with an exercise price equal to the fair market value of the stock price, or $7.12
per share of common stock, on the date of grant.
The following assumptions were used in the Black-Scholes option-pricing model to determine the fair value of
stock option awards at the grant date:
Risk-free interest rate.................................................................................................................................
Expected term (in years)............................................................................................................................
Expected volatility.....................................................................................................................................
Expected dividend yield.............................................................................................................................
Fair Value................................................................................................................................................... $
2020
0.21 %
4.5
65.10 %
— %
3.65
Expected term represents the period that the stock option awards were expected to be outstanding. Given the
Company has not issued stock options since 2010, it concluded that its stock option exercise history did not provide
a reasonable basis upon which to estimate expected term and therefore used the simplified method to determine the
expected term of this stock option grant. This method bases the expected term calculation on the average of the
vesting term and the contractual term of the awards. The risk-free interest rate was based on the yield of constant
maturity U.S. treasury bonds with a remaining term equal to the expected term of the awards. There was no
F- 30
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
expected dividend yield. The Company estimated the stock price volatility using weekly price observations over the
most recent historical period equal to the expected life of the awards.
A summary of all stock option activity for the year ended January 3, 2021 was as follows:
Options outstanding at December 29, 2019 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding at January 3, 2021 . . . . . . . . . . .
Vested or expected to vest at January 3, 2021 . . . . . . .
Options exercisable at January 3, 2021 . . . . . . . . . . . .
1,075,000 $
(25,000) $
1,050,000 $
1,050,000 $
—
Weighted
Average
Exercise Price
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value (1)
Options
—
7.12
7.12
7.12
7.12
6.6 $
6.6 $
—
—
(1) The aggregate intrinsic value is calculated using the difference between the market price of the Company's common stock at
January 3, 2021 of $6.28 and the grant date exercise price for only those awards that have a grant date exercise price that is less
than the market price of the Company's common stock at January 3, 2021. There were no awards having a grant date exercise
price less than the market price of the Company's common stock at January 3, 2021.
Restricted Stock Units
The Company has issued restricted stock units (“RSUs”) on shares of the Company's common shares to
certain eligible employees. The RSUs generally vest in equal installments over three years. During the twelve
months ended January 3, 2021, 20,486 RSUs vested into shares of the Company's common stock at a weighted
average price of $2.92 per share.
A summary of all RSU activity for the year ended January 3, 2021 was as follows:
Non-vested at December 29, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at January 3, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Units
57,942
(20,486)
37,456
12. Stockholders' Equity
Preferred Stock. In 2012, Carrols Restaurant Group issued to BKC 100 shares of the Company's Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") pursuant to a certificate of designation.
These shares were convertible into 9,414,580 shares of Carrols Restaurant Group Common Stock ("Carrols
Common Stock"). In 2018, Carrols Restaurant Group, BKC and Blue Holdco 1, LLC ("Blue Holdco" and together
with BKC, the "BKC Stockholders") exchanged the Series A Convertible Preferred Stock for Series B Convertible
Preferred Stock (the "Series B Convertible Preferred Stock"), with substantially the same powers, preferences and
rights of the shares of Series A Convertible Preferred Stock, except to provide that such shares will be transferable
by the BKC Stockholders solely to certain of its affiliates or subsidiaries.
The Series B Convertible Preferred Stock ranks senior to Carrols Common Stock with respect to rights on
liquidation, winding-up and dissolution of Carrols Restaurant Group. The Series B Convertible Preferred Stock is
perpetual, will receive any dividends and amounts upon a liquidation event on an as converted basis, does not pay
interest and has no mandatory prepayment features.
The BKC Stockholders also have certain approval and voting rights as set forth in the certificate of designation
for the Series B Convertible Preferred Stock so long as they own greater than 7.5% of the outstanding shares of
Carrols Common Stock (on an as-converted basis). The Series B Convertible Preferred Stock will vote with the
Company's Common Stock on an as converted basis and provides for the right of the BKC Stockholders to elect (a)
F- 31
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
two members to the Company's Board of Directors until the date on which the number of shares of common stock
into which the outstanding shares of Series B Convertible Preferred Stock held by the BKC stockholders are then
convertible constitutes less than 11.5% of the total number of outstanding shares of the Company's Common Stock
and (b) one member to the Company's Board of Directors until the BKC Stockholders own Series B Convertible
Preferred Stock (on an as converted basis) of less than 7.5% of the total number of outstanding shares of the
Company's Common Stock.
In connection with the Cambridge Merger, Cambridge Holdings was issued 10,000 shares of the Company's
Series C Convertible Preferred Stock (the " Series C Convertible Preferred Stock") that was automatically converted
during the third quarter of 2019 into approximately 7.5 million shares of the Company's Common Stock when such
conversion was approved by the Company's stockholders at the Company's annual stockholders meeting on August
29, 2019. With the conversion of the Series C Convertible Preferred Stock in the third quarter of 2019, as of January
3, 2021 Cambridge Holdings beneficially owns approximately 23.9% of the Company's Common Stock after giving
effect to the conversion of the Series B Convertible Preferred Stock.
Stock Repurchase Program. On August 2, 2019, the Company's Board of Directors approved a stock repurchase
plan ("Repurchase Program") under which the Company may repurchase up to $25.0 million of its outstanding
common stock. The authorization became effective August 2, 2019, and will expire 24 months thereafter, unless
terminated earlier by the Company's 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. The Company has no obligation to
repurchase stock under the Repurchase Program, and the timing, actual number and value of shares purchased will
depend on the Company's stock price, trading volume, general market and economic conditions, and other factors.
the
During
in open market
transactions 1,534,304 shares of the Company's Common Stock at an average share price of $6.52 for a total cost
of $10.0 million under the Repurchase Program.
twelve months ended January 3, 2021,
the Company repurchased
During the twelve months ended December 29, 2019, the Company repurchased in open market
transactions 553,112 shares of the Company's Common Stock at an average share price of $7.26 for a total cost
of $4.0 million under the Repurchase Program.
At January 3, 2021, $11.0 million was available to repurchase shares under the Repurchase Program. Shares
repurchased are being held in treasury until they are retired at the discretion of the Board of Directors.
13. Net Income (Loss) per Share
The Company applies the two-class method to calculate and present net income (loss) per share. The
Company's non-vested restricted share awards and Series B Convertible Preferred Stock held by the BKC
Stockholders contain non-forfeitable rights to dividends and are considered participating securities for purposes of
computing net income per share pursuant to the two-class method. Under the two-class method, net earnings are
reduced by the amount of dividends declared (whether paid or unpaid) and the remaining undistributed earnings are
then allocated to common stock and participating securities, based on their respective rights to receive dividends.
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders
by the weighted average number of shares of common stock outstanding for the reporting period. Diluted net
income (loss) per share reflects additional shares of common stock outstanding, where applicable, calculated using
the treasury stock method or the two-class method.
F- 32
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
The following table sets forth the calculation of basic and diluted net income (loss) per share:
Basic net income (loss) per share:
Net income (loss)
Less: Income attributable to non-vested shares
Less: Income attributable to preferred stock
Net income (loss) available to common stockholders
Weighted average common shares outstanding
Basic net income (loss) per share
Diluted net income (loss) per share:
Net income (loss)
Weighted average common shares outstanding
Dilutive effect of preferred stock and non-vested shares
Dilutive weighted average common shares outstanding
Diluted net income (loss) per share (1)
Shares excluded from diluted net income (loss) per share
computations (2)
$
$
$
$
January 3,
2021
Year ended
December 29,
2019
December 30,
2018
(29,463) $
—
—
(29,463) $
(31,919) $
—
—
(31,919) $
10,104
(178)
(2,071)
7,855
50,751,185
43,421,715
(0.58) $
(0.74) $
35,715,372
0.22
(29,463) $
(31,919) $
50,751,185
—
50,751,185
43,421,715
—
43,421,715
$
(0.58) $
(0.74) $
10,104
35,715,372
9,604,599
45,319,971
0.22
9,615,435
11,484,159
—
(1) Diluted net income (loss) per share is equal to basic net income (loss) per share for the periods presented due
to the allocation of earnings to participating securities under the two-class method of calculating basic net
income (loss) per share causing basic net income (loss) per share to be lower than diluted net income (loss) per
share calculated under the treasury-stock method.
(2) Shares issuable upon conversion of preferred stock and non-vested shares were excluded from the
computation of diluted net loss per share because their effect would have been anti-dilutive.
14. Commitments and Contingencies
Lease Guarantees. Fiesta Restaurant Group, Inc ("Fiesta"), a former wholly-owned subsidiary of the
Company, was spun-off in 2012 to the Company's stockholders. As of January 3, 2021, the Company is a guarantor
under 18 Fiesta restaurant property leases, of which all but two of those restaurants are still operating with lease
terms expiring on various dates through 2030. The Company is 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 of Fiesta.
The maximum potential amount of future undiscounted rental payments the Company could be required to
make under these leases at January 3, 2021 was $13.6 million. The obligations under these leases will generally
continue to decrease over time as these operating leases expire, other than execution of option renewals that exist
under the original leases. No payments related to these guarantees have been made by the Company to date and
none are expected to be required to be made in the future. The Company has not recorded a liability for these
guarantees in accordance with ASC 460 - Guarantees as Fiesta has indemnified the Company for all such
obligations and the Company did not believe it was probable it would be required to perform under any of the
guarantees or direct obligations.
Litigation. The Company is a party to various litigation matters that arise in the ordinary course of
business. The Company does not believe that the ultimate resolution of any of these other matters will have a
material adverse effect on its consolidated financial statements.
F- 33
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
15. Transactions with Related Parties
In connection with an acquisition of restaurants from BKC in 2012, the Company issued to BKC 100 shares of
Series A Convertible Preferred Stock, which was exchanged for 100 shares of newly issued Series B Convertible
Preferred Stock in 2018, and as of January 3, 2021 is convertible into approximately 15.2% of the outstanding
shares of the Company's common stock after giving effect to the conversion of the Series B Convertible Preferred
Stock. See Note 12—Stockholder's Equity for further information. Pursuant to the terms of the Series B Convertible
Preferred Stock, the BKC Stockholders are entitled to elect two representatives on the Company's Board of
Directors.
The Company operates its Burger King® restaurants under franchise agreements with BKC and its Popeyes®
restaurants under franchise agreements with Popeyes Louisiana Kitchen, Inc. ("PLK"), a subsidiary of RBI. These
franchise agreements generally provide for an initial term of twenty years and currently have an initial franchise fee
of $50,000. With BKC's and PLK's respective approval, the Company can elect to extend franchise agreements for
additional 20 year terms, provided that the restaurant meets the current restaurant image standard and the Company
is not in default under terms of the franchise agreement. In addition to the initial franchise fee, the Company
generally pays BKC a monthly royalty at a rate of 4.5% of Burger King sales and Popeyes a weekly royalty at a rate
of 5.0% of Popeyes sales. Royalty expense was $67.2 million, $62.0 million, and $50.5 million for the years ended
January 3, 2021, December 29, 2019 and December 30, 2018, respectively.
The Company is also generally required to contribute 4% of restaurant sales from the Company's restaurants
to the advertising funds utilized by BKC and PLK for their advertising, promotional programs and public relations
activities, and amounts for additional local advertising in markets that approve such advertising. Advertising
expense associated with these expenditures was $59.3 million, $56.7 million and $47.0 million for the years ended
January 3, 2021, December 29, 2019 and December 30, 2018, respectively.
As of January 3, 2021, December 29, 2019, and December 30, 2018, the Company leased 232, 248 and 244 of
its restaurant locations from BKC, respectively. As of January 3, 2021, the terms and conditions of the leases with
BKC are identical to those between BKC and their third-party lessor for 101 of the restaurants. Aggregate rent
under these BKC leases for the years ended January 3, 2021, December 29, 2019 and December 30, 2018 was $25.9
million, $27.4 million, and $27.2 million, respectively. The Company does not believe that such lease terms have
been significantly affected by the fact that the Company and BKC are deemed to be related parties.
As of January 3, 2021 and December 29, 2019, the Company owed BKC $14.7 million and $11.5 million
respectively, related to the payment of advertising, royalties, rent and real estate taxes, which is normally remitted
on a monthly basis. These costs are included in accounts payable, other current liabilities, prepaid rent and accrued
real estate taxes on the accompanying consolidated balance sheets.
The Company and BKC entered into an Area Development and Remodeling Agreement ("Area Development
Agreement") commencing on April 30, 2019 and ending on September 30, 2024, which superseded the Operating
Agreement dated as of May 30, 2012, as amended, between Carrols LLC and BKC. Pursuant to the Area
Development Agreement, BKC assigned its right of first refusal under its franchise agreements with its franchisees
to purchase all of the assets of a Burger King restaurant on the same terms proposed between such franchisee and a
third party purchaser (the “ADA ROFR”), 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 Carrols LLC has acquired
more than an aggregate of an additional 500 Burger King restaurants excluding those restaurants the Company
acquired in the Cambridge Merger. Carrols LLC agreed to pay BKC $3.0 million for the ADA ROFR in four equal
installment payments over the course of one year. The ADA was amended and restated on January 4, 2021 (see
Note 18) and an impairment charge was recorded during the year ended January 3, 2021 for the remaining value of
the ADA ROFR (see Note 5).
The Company assumed Cambridge's development agreement for Popeyes®, which includes a right of first
refusal 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. The continued assignment of this Popeyes® right of
F- 34
CARROLS RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 2021, DECEMBER 29, 2019 AND DECEMBER 30, 2018
(Tabular amounts in thousands, except share and per share amounts)
first refusal is subject to suspension at Popeyes® discretion in the event of non-compliance by the Company with
certain terms set forth in this development agreement.
The Company received $1.9 million related to a settlement with BKC for their approval of new restaurant
development by other franchisees which unfavorably impacted the Company's restaurants which was recorded as
other income in 2019 (see Note 9).
16. Retirement Plans
The Company offers its salaried employees the option to participate in the Carrols Corporation Retirement
Savings Plan (the “Retirement Plan”). The Retirement Plan includes a savings option pursuant to section 401(k) of
the Internal Revenue Code in addition to a post-tax savings option. Participating employees may contribute up to
50% of their salary annually to either of the savings options, subject to other limitations. The employees may
allocate their contributions to various investment options available under a trust established by the Retirement Plan.
The Company may elect to contribute to the Retirement Plan on an annual basis. The Company's contribution is
equal to 50% of the employee's contribution subject to a maximum annual amount and begins to vest after one year
of service and fully vests after five years of service. A year of service is defined as a plan year during which an
employee completes at least 1,000 hours of service. Expense recognized for the Company's contributions to the
Retirement Plan was $1.9 million, $1.4 million and $0.7 million for the years ended January 3, 2021, December 29,
2019 and December 30, 2018, respectively.
The Company also has an Amended and Restated Deferred Compensation Plan which permits employees not
eligible to participate in the Retirement Plan because they have been excluded as “highly compensated” employees
(as so defined in the Retirement Plan) to voluntarily defer portions of their base salary and annual bonus. All
amounts deferred by the participants earn interest at 8% per annum. There is no Company matching on any portion
of the funds. At January 3, 2021 and December 29, 2019, a total of $4.4 million and $3.9 million, respectively, was
deferred under this plan, including accrued interest, which is included in long-term other liabilities on the
accompanying consolidated balance sheets.
17. Selected Quarterly Financial Data (Unaudited)
First
Quarter
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . $ 351,518 (2)
(22,047) (3)
Income (loss) from operations . . . . . . . . . . .
(22,209)
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
(0.44)
Basic and diluted net loss per share . . . . . . .
1,093
Restaurants open at end of period . . . . . . . . .
First
Quarter
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . $ 290,789 (5)
Income (loss) from operations . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per share . . . . . . .
Restaurants open at end of period . . . . . . . . .
(5,168) (5)(6)
(11,469)
(0.32)
845
Year Ended January 3, 2021
Second
Quarter
$ 368,418 (2)
14,302 (3)
7,842
0.13
1,092
Third
Quarter
$ 407,036
Fourth
Quarter (1)
$ 420,530
10,228 (3)
3,531
0.06
1,088
1,631 (3)
(18,627) (4)
(0.37)
1,074
Year Ended December 29, 2019
Second
Quarter
$ 365,674 (5)
Third
Quarter
$ 398,414
Fourth
Quarter
$ 397,639
2,103 (5)(6)
(3,732)
(0.09)
1,081
(1,115) (5)(6)
(6,812)
(0.15)
1,088
(4,563) (5)(6)
(9,906)
(0.20)
1,101
(1) The fourth quarter of 2020 includes an extra week (see footnote 1)
(2)
In the first and second quarters of 2020, the Company's sales were impacted by the onset of the COVID-19 pandemic.
Restaurant sales during the last two weeks of March and first two weeks of April showed approximately 30% declines in
F- 35
comparable sales. The declines began easing mid-April and throughout May, with a return to positive changes in
comparable restaurant sales for the month of June.
In fiscal 2020, the Company recorded impairment and other lease charges of $2.9 million in the first quarter, $2.9 million
in the second quarter, $2.0 million in the third quarter and $5.0 million in the fourth quarter. The fourth quarter of 2020
included a $2.0 million charge related to the ROFR termination (See Note 5).
In the fourth quarter of 2020, the Company recorded a valuation allowance on certain of its tax credits of $12.9 million
(see Note 10).
In fiscal 2019, the Company acquired 233 restaurants in the second quarter in two separate transactions and one
restaurant in the third quarter (See Note 2). In fiscal 2019 the Company recorded acquisition and integration costs related
to the 2019 acquisitions of $2.6 million in the first quarter, $2.6 million in the second quarter, $2.8 million in the third
quarter and $2.8 million in the fourth quarter (See Note 2).
In fiscal 2019, the Company recorded impairment and other lease charges of $0.9 million in the first quarter, $0.4 million
in the second quarter, $0.5 million in the third quarter and $1.8 million in the fourth quarter (See Note 5).
(3)
(4)
(5)
(6)
18. Subsequent Events
Subsequent Events. On January 4, 2021, the Company amended and restated its existing Area Development
Agreement (See Note 15).
Pursuant to the ADA and for a cost of $3.0 million, BKC had assigned to Carrols LLC 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"). The ADA ROFR was terminated in connection with the Amended ADA.
On October 1 of each year following the commencement date of the ADA, Carrols LLC had been required to
pay BKC certain pre-paid franchise fees to be applied to new Burger King restaurants opened and operated by
Carrols LLC. The Amended ADA eliminated the requirement for any prepayments due and payable on and after
October 1, 2020, and the $0.6 million balance of prepaid franchise fees paid under the ADA that had not yet been
applied to new restaurant development was forfeited.
Pursuant to the Amended ADA, Carrols LLC has agreed to open, build and operate a total of 50 new Burger
King restaurants, 80% of which must be in Kentucky, Tennessee and Indiana. This includes four Burger King
restaurants by September 30, 2021, 10 additional Burger King restaurants by September 30, 2022, 12 additional
Burger King restaurants by September 30, 2023, 12 additional Burger King restaurants by September 30, 2024 and
12 additional Burger King restaurants by September 30, 2025.
In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise pre-approval to build new
Burger King restaurants or acquire Burger King restaurants from Burger King franchisees with respect to 500
Burger King restaurants in the aggregate in (i) Kentucky, Tennessee and Indiana (excluding certain geographic
areas in Indiana) and (ii) (a) 16 states, which include 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 (b) any other
geographic locations that Carrols LLC enters after the commencement date of the Amended ADA pursuant to BKC
procedures subject to certain limitations.
F- 36
Pursuant to the requirements of the Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 11th day
of March 2021.
SIGNATURES
CARROLS RESTAURANT GROUP, INC.
/s/ Daniel T. Accordino
(Signature)
Daniel T. Accordino
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities on the dates indicated.
Signature
/s/ Daniel T. Accordino
Daniel T. Accordino
/s/ Anthony E. Hull
Anthony E. Hull
/s/ Hannah S. Craven
Hannah S. Craven
/s/ Deborah M. Derby
Deborah M. Derby
/s/ Matthew Dunnigan
Matthew Dunnigan
/s/ Christopher L. Finazzo
Christopher L. Finazzo
/s/ Lawrence E. Hyatt
Lawrence E. Hyatt
/s/ David S. Harris
David S. Harris
/s/ Matthew Terker Perelman
Matthew Terker Perelman
/s/ Alexander R. Sloane
Alexander R. Sloane
Title
President, Chief Executive Officer and
Chairman of the Board of Directors
Date
March 11, 2021
Vice President, Chief Financial Officer and
March 11, 2021
Treasurer
Director
Director
Director
Director
Director
Director
Director
Director
March 11, 2021
March 11, 2021
March 11, 2021
March 11, 2021
March 11, 2021
March 11, 2021
March 11, 2021
March 11, 2021
STOCKHOLDER INFORMATION
EXECUTIVE OFFICERS
Carrols Restaurant Group, Inc.’s common stock is
traded on the NASDAQ Global Market under the
symbol “TAST”.
Daniel T. Accordino
Chairman of the Board, Chief Executive Officer and
President
Anthony E. Hull
Vice President, Chief Financial Officer and Treasurer
Carl S. Hauch
Vice President, Chief Operating Officer
Jared L. Landaw
Vice President, General Counsel and Secretary
Richard G. Cross
Vice President, Real Estate
Gerald J. DiGenova
Vice President, Human Resources
Nathan B. Mucher
Vice President, Chief Information Officer
INDEPENDENT AUDITORS
Deloitte & Touche, LLP
Rochester, New York
OUTSIDE GENERAL COUNSEL
Akerman LLP
New York, New York
STOCK TRANSFER AGENT
American Stock Transfer & Trust Co.
6201 15th Ave
Brooklyn, NY 10038
FORM 10-K REPORT
The Company’s 2020 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on
March 11, 2021 is reproduced in this annual report.
You may obtain additional copies of this report by
writing to Investor Relations, Carrols Restaurant
Group, Inc., 968 James Street, Syracuse, New York
13203.
Except for the historical information contained herein,
the matters addressed are forward-looking statements.
Forward-looking statements, written, oral or otherwise
made, represent our expectations or beliefs concerning
future events. Without limiting the foregoing, these
statements are often identified by the words "may",
"might", "will", "should", "anticipate", "believe",
"expect", “intend”, “estimate”, “hope”, “plan” or
similar expressions. In addition, expressions of our
strategies, intentions, plans or guidance are also
forward-looking statements. Such statements reflect
management's 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 as
there are important factors that could cause actual
results to differ materially from those in forward-
looking statements, many of which are beyond our
control. Investors are referred to the full discussion of
risks and uncertainties, including without limitation the
impact of COVID-19 on our business, as included in
Carrols Restaurant Group, Inc.’s filings with the
Securities and Exchange Commission.
DIRECTORS
Daniel T. Accordino, Chairman
Hannah S. Craven
Deborah M. Derby
Matthew Dunnigan
Christopher Finazzo
David S. Harris
Lawrence E. Hyatt
Matthew Perelman
Alexander Sloane