Carrols Restaurant Group Annual Report 2021

FY2021 Annual Report · Carrols Restaurant Group

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Carrols Restaurant Group, Inc.

2021 Annual Report

April 29, 2022

Dear Fellow Stockholders,

I am excited to have been recently appointed the new President and Chief Executive Officer of
Carrols Restaurant Group, Inc. While it has been less than a month since I joined the Company, I am
already working closely with our dedicated Board of Directors and talented management and
restaurant teams to drive improved financial performance. Together, we are unified in our commitment
I am excited to have been recently appointed the new President and Chief Executive Officer of Carrols
to create meaningful long-term value for our stockholders.
Restaurant Group, Inc. While it has been less than a month since I joined the Company, I am already
working closely with our dedicated Board of Directors and talented management and restaurant teams
My predecessor, Dan Accordino, spent his entire 50-year career at Carrols, helping transform the
to drive improved financial performance. Together, we are unified in our commitment to create
Company from a regional quick service restaurant chain into one of the largest restaurant franchisees
in the United States. He left an indelible mark on this organization from which we will continue to
meaningful long-term value for our stockholders.
benefit for many years to come. We all wish him well in his retirement.

My predecessor, Dan Accordino, spent his entire 50-year career at Carrols, helping transform the
In 2021, we grew annual restaurant sales to $1.65 billion from $1.55 billion in 2020, despite one less
Company from a regional quick service restaurant chain into one of the largest restaurant franchisees
operating week in the fiscal year. We also extended our track record of outperforming the U.S. Burger
in the United States. He left an indelible mark on this organization from which we will continue to benefit
King system in comparable restaurant sales to 22 of the past 24 quarters, which we attribute to our
for many years to come. We all wish him well in his retirement.
disciplined restaurant operations. Nevertheless, 2021 was a challenging year despite our top-line
growth as commodity and labor inflation negatively impacted our profitability. Our Adjusted EBITDA1
totaled $81.6 million in 2021, as compared to $107.9 million in 2020.
In 2021, we grew annual restaurant sales to $1.65 billion from $1.55 billion in 2020, despite one less
operating week in the fiscal year. We also extended our track record of outperforming the U.S. Burger
While the cost headwinds affecting our profitability have been significant, we have been making
King system in comparable restaurant sales to 22 of the past 24 quarters, which we attribute to our
adjustments to our menu pricing and promotional strategies to combat ongoing inflationary cost
disciplined restaurant operations. Nevertheless, 2021 was a challenging year despite our top-line
pressures. We are also benefitting from growing consumer interest in having our food delivered to
growth as commodity and labor inflation negatively impacted our profitability. Our Adjusted EBITDA1
them, as the contribution from this ancillary channel rose to 4.8% of our total restaurant sales in 2021,
doubling the contribution from the prior year and augmenting our overall average check. Furthermore,
totaled $81.6 million in 2021, as compared to $107.9 million in 2020.
Burger King launched its “Royal Perks” loyalty program in 2021 which is now available to our dining
room and drive-through guests as well as through the BK mobile app. This program will be promoted
While the cost headwinds affecting our profitability have been significant, we have been making
more heavily this year and we believe our flagship brand has a significant opportunity to increase
adjustments to our menu pricing and promotional strategies to combat ongoing inflationary cost
one-on-one customer engagement through this digital channel while reducing the use of paper
pressures. We are also benefitting from growing consumer interest in having our food delivered to them,
coupons.
as the contribution from this ancillary channel rose to 4.8% of our total restaurant sales in 2021, doubling
the contribution from the prior year and augmenting our overall average check. Furthermore, Burger
King launched its “Royal Perks” loyalty program in 2021 which is now available to our dining room and
drive-through guests as well as through the BK mobile app. This program will be promoted more heavily
this year and we believe our flagship brand has a significant opportunity to increase one-on-one
customer engagement through this digital channel while reducing the use of paper coupons.

(loss) set forth in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

1 Adjusted EBITDA is a non-GAAP financial measure. Please refer to the definition and reconciliation of this measure to net income (loss) set
forth in the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022.

We remain committed to generating consistent free cash flow and allocating capital in a disciplined
manner while reducing our outstanding indebtedness and maintaining substantial liquidity. With this in
mind, we strengthened our balance sheet in 2021 by replacing $300 million of secured debt maturing
in the near-term with unsecured long-term capital at an attractive rate and increasing the borrowing
capacity under our revolving credit facility to over $200 million. In addition, we have reduced our capital
expenditure spending as we carefully assess our return on investment prospects from restaurant
development activities in the current operating environment.

We are also committed to returning capital to our stockholders when appropriate and paid a $25 million
special cash dividend in 2021. This payment constituted a tangible step to enhance shareholder value
by returning excess cash we generated in 2020 due to our strong performance during the first year of
the pandemic. Looking ahead, we intend to allocate free cash flow towards reducing net indebtedness
until our total net debt leverage ratio falls below four times.

Finally, we are deeply appreciative of our customers and are committed to earning and retaining their
loyalty by consistently providing them with great food and service. Food and service are the foundations
of our business and we are passionate about serving guests the food they love, each and every day.

We remain committed to generating consistent free cash flow and allocating capital in a disciplined
We remain committed to generating consistent free cash flow and allocating capital in a disciplined
manner while reducing our outstanding indebtedness and maintaining substantial liquidity. With this in
manner while reducing our outstanding indebtedness and maintaining substantial liquidity. With this in
mind, we strengthened our balance sheet in 2021 by replacing $300 million of secured debt maturing
mind, we strengthened our balance sheet in 2021 by replacing $300 million of secured debt maturing
in the near-term with unsecured long-term capital at an attractive rate and increasing the borrowing
in the near-term with unsecured long-term capital at an attractive rate and increasing the borrowing
capacity under our revolving credit facility to over $200 million. In addition, we have reduced our
capacity under our revolving credit facility to over $200 million. In addition, we have reduced our
capital expenditure spending as we carefully assess our return on investment prospects from
capital expenditure spending as we carefully assess our return on investment prospects from
restaurant development activities in the current operating environment.
restaurant development activities in the current operating environment.

We are also committed to returning capital to our stockholders when appropriate and paid a $25
We are also committed to returning capital to our stockholders when appropriate and paid a $25
million special cash dividend in 2021. This payment constituted a tangible step to enhance
million special cash dividend in 2021. This payment constituted a tangible step to enhance
shareholder value by returning excess cash we generated in 2020 due to our strong performance
shareholder value by returning excess cash we generated in 2020 due to our strong performance
during the first year of the pandemic. Looking ahead, we intend to allocate free cash flow towards
during the first year of the pandemic. Looking ahead, we intend to allocate free cash flow towards
reducing net indebtedness until our total net debt leverage ratio falls below four times.
reducing net indebtedness until our total net debt leverage ratio falls below four times.

During my first 60 days as CEO, I am conducting a “listening and learning tour” by visiting our
restaurants and meeting with team members across all levels of our organization. I am welcoming
everyone in our organization to share with me their ideas and suggestions for strengthening our
Company. I have been extremely impressed with our team, their thoughtful insights and, most of all,
their dedication to Carrols under exceptionally challenging circumstances. Given their dedication and
commitment and our strong operating foundation, I am extremely confident in the future of the Company.

Finally, we are deeply appreciative of our customers and are committed to earning and retaining their
Finally, we are deeply appreciative of our customers and are committed to earning and retaining their
loyalty by consistently providing them with great food and service. Food and service are the
loyalty by consistently providing them with great food and service. Food and service are the
foundations of our business and we are passionate about serving guests the food they love, each and
foundations of our business and we are passionate about serving guests the food they love, each and
every day.
every day.

During my first 60 days as CEO, I am conducting a “listening and learning tour” by visiting our
During my first 60 days as CEO, I am conducting a “listening and learning tour” by visiting our
restaurants and meeting with team members across all levels of our organization. I am welcoming
restaurants and meeting with team members across all levels of our organization. I am welcoming
everyone in our organization to share with me their ideas and suggestions for strengthening our
everyone in our organization to share with me their ideas and suggestions for strengthening our
Company. I have been extremely impressed with our team, their thoughtful insights and, most of all,
Company. I have been extremely impressed with our team, their thoughtful insights and, most of all,
their dedication to Carrols under exceptionally challenging circumstances. Given their dedication and
their dedication to Carrols under exceptionally challenging circumstances. Given their dedication and
commitment and our strong operating foundation, I am extremely confident in the future of the
commitment and our strong operating foundation, I am extremely confident in the future of the
Company.
Company.

Thank you for your investment in Carrols. I look forward to sharing with you further updates in the near
future.

Thank you for your investment in Carrols. I look forward to sharing with you further updates in the
Thank you for your investment in Carrols. I look forward to sharing with you further updates in the
near future.
near future.

Sincerely yours,

Sincerely yours,
Sincerely yours,

Paulo Pena
Paulo Pena
Chief Executive Officer and President
Chief Executive Officer and President

Paulo A. Pena
President and Chief Executive Officer

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 2, 2022
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

Accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

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

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

Indicate by check mark whether the registrant 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 2, 2022, Carrols Restaurant Group, Inc. had 54,564,994 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 4, 2021 of Carrols Restaurant Group, Inc. was
$203,157,199.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for Carrols Restaurant Group, Inc's 2022 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 2, 2022, are incorporated by reference into Part III of this annual report.

CARROLS RESTAURANT GROUP, INC.
FORM 10-K

YEAR ENDED JANUARY 2, 2022

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections . . . . . . . . . . . . . . . . . . . .
Item 9C

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 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART I—FINANCIAL INFORMATION

PART I

Throughout this Annual Report on Form 10-K we refer to Carrols Restaurant Group, Inc. as “Carrols
Restaurant Group” and, together with its direct and indirect consolidated subsidiaries, as “we”, “our”, “us” and the
"Company" unless otherwise indicated or the context otherwise requires. Carrols Restaurant Group, Inc. is a holding
company and conducts all of its operations through its wholly-owned subsidiaries Carrols Corporation and New
CFH, LLC and their wholly-owned subsidiaries. Carrols Corporation's material direct and indirect wholly-owned
subsidiaries include its wholly-owned subsidiary, Carrols LLC, a Delaware limited liability company. 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"). 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
December 31, 2017, December 30, 2018, December 29, 2019 and January 2, 2022 each contained 52 weeks. Our
fiscal year ended January 3, 2021 contained 53 weeks.

At January 2, 2022 we operated, as franchisee, 1,026 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 The National Restaurant Association 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 2021 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 and Popeyes brands;

Increases in food costs and other commodity costs;

• Our ability to hire and retain employees at current or increased wage rates;

• Competitive conditions, including pricing pressures, discounting, aggressive marketing, the potential
impact of competitors’ new unit openings and promotions on sales of our restaurants, and competition
impacting the cost and availability of labor;

• Our ability to integrate any restaurants we acquire;

• Regulatory factors;

•

Environmental conditions and regulations;

• General economic conditions, particularly in the retail sector;

• Weather conditions;

•

Fuel prices;

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

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

•

Labor and employment benefit costs, including the effects of minimum wage increases, healthcare
reform and changes in the Fair Labor Standards Act;

The outcome of pending or future legal claims or proceedings;

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

• Our 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 operate two distinct quick service restaurant brands, Burger King and Popeyes, with 1,091
restaurants located in 23 Northeastern, Midwestern, Southcentral and Southeastern states as of January 2, 2022.

For the fiscal year ended January 2, 2022, our restaurants generated total revenues of $1,652.4 million and our
average annual restaurant sales for all restaurants was approximately $1.5 million per restaurant. We served an
average of approximately 490,000 guests per day at our restaurants. In fiscal 2021, comparable restaurant sales at
our Burger King restaurants increased 9.1% and at our Popeyes restaurants decreased 1.9%.

During 2021, we acquired 19 Burger King restaurants in two separate transactions. During 2019, we acquired

234 restaurants in three separate transactions, of which 55 were Popeyes.

Our Burger King Restaurants. We are the largest Burger King franchisee in the United States, based on
number of restaurants, and have operated Burger King restaurants since 1976. Burger King restaurants are fast food
hamburger restaurants that 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
more. We believe that the competitive attributes of Burger King restaurants include significant brand recognition,
convenience of location, quality, speed of service and price.

As of January 2, 2022, we operated 1,026 Burger King restaurants located in restaurants located in 23
Northeastern, Midwestern, Southcentral and Southeastern states. For the fiscal year ended January 2, 2022, the
average weekly sales at our Burger King restaurants was $29,687 per restaurant.

We operate our Burger King 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 11:00 pm, with
later hours in certain markets or on weekends.

Our existing Burger King 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. Almost all of our restaurants are freestanding.

Popeyes. In 2019, we added a second concept to our restaurant portfolio when we acquired 55 Popeyes
restaurants. Popeyes restaurants are quick service chicken restaurants that feature a “Louisiana” style menu
including fried chicken, chicken tenders, fried shrimp and other seafood, red beans and rice and other regional
offerings.

As of January 2, 2022, we operated 65 Popeyes restaurants in seven Southeastern states. For the fiscal year

ended January 2, 2022, the average weekly sales at our Popeyes restaurants was $24,983 per restaurant.

We operate our Popeyes restaurants under franchise agreements with PLK. Our Popeyes restaurants are
typically open seven days per week with operating hours of 10:00 am to 10:00 pm with later hours on weekends.
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.

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
14.8 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. 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 Corporation, Carrols LLC, and BKC entered into an
Area Development Agreement (the “ADA”) which commenced on April 30, 2019, 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”). 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 (“ADA
ROFR”). The ADA ROFR was terminated in connection with the Amended ADA.

Under 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. There is a 90-day cure period to meet the required restaurant
development each development year.

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.

In connection with an acquisition of restaurants in 2019, the Company assumed a development agreement for
Popeyes, which included 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. This development agreement with PLK was terminated
on March 17, 2021, with certain covenants applicable to the Company surviving the termination. PLK reserved the
right to charge the Company a $0.6 million fee if PLK and the Company are not able to come to a mutually
agreeable solution with respect to such fee within a six-month period after March 17, 2021.

We believe we have the following competitive strengths:

Our Competitive Strengths

Two Distinct Brands with Global Recognition, Innovative Marketing and New Product Development. As a
franchisee of the Burger King and Popeyes brands, we benefit from, and rely on, RBI's extensive marketing,
advertising and product development capabilities to drive sales and generate increased restaurant traffic. RBI has
historically launched innovative and creative multimedia advertising campaigns and products that highlight the
relevance of the Burger King and Popeyes brands. Additionally, in 2020, RBI supported the launch of digital
ordering and delivery options for our guests. RBI has negotiated distribution and operational agreements for BKC
and PLK with major delivery platform providers, such as DoorDash, UberEats and GrubHub, and introduced its
own white label mobile applications for each brand that has allowed us to quickly offer this service option to our
guests. In 2021, BKC and PLK launched loyalty programs that can be used on their respective mobile apps. In the
fourth quarter of 2021, BKC extended its loyalty program to in-restaurant transactions. We believe as this program
expands it will reduce coupon clutter and provide incentives for guests to visit our restaurants with greater
frequency and during lower traffic periods.

As the largest Burger King franchisee in the United States based on number of restaurants, we operate
approximately 14% of the Burger King restaurants in the United States and believe that we are well positioned to
leverage the scale and marketing of one of the most recognized brands in the restaurant industry. We believe that 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 image and awareness of the Burger King brand in certain markets through the
implementation of promotional advertising, remodeling initiatives and operational expertise.

Over the years, BKC has introduced promotional campaigns that leverage both value and premium menu
offerings and has provided 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. For the Popeyes brand, the successful
development and launch of a new chicken sandwich in 2019 has not only driven higher sales but has also attracted a
new demographic of guests to the existing customer base which we believe will enhance restaurant sales and new
restaurant development opportunities.

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. We believe that our
focus on leveraging our operational expertise, infrastructure and systems helps us optimize the performance of our
current restaurants and restaurants that we may acquire or open in the future. We also believe that our size and
history with the Burger King brand and quick service restaurant operations enables us to effectively track operating
metrics and leverage best practices across our organization. It is our belief that our experienced management team,
operating culture, effective operating systems and infrastructure enable us to operate more efficiently than many
other Burger King operators. Finally, we believe that we will be able to leverage our operational expertise to help
improve the performance of our Popeyes restaurants.

Resilient Business Model and Financial Strength of our Business. 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 historically outperformed the Burger King system in the United States overall, including in
22 of the last 24 fiscal quarters. We also 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 quick service restaurant operators. After navigating through the challenges brought on with the
COVID-19 pandemic, we believe we have demonstrated the strength and resiliency of our business model and our
ability to respond quickly to unprecedented business disruption. It is also our belief that our strong restaurant-level
operations coupled with our disciplined approach to financial management will continue to allow us to maintain
restaurant profitability under a wide variety of economic environments.

Over the past twelve months, we believe we have demonstrated our commitment to maintaining ample
liquidity, managing leverage, generating free cash flow, and applying a disciplined approach to capital expenditures
and acquisitions. We renegotiated our area development agreement with BKC and terminated our development
agreement with PLK in order to allow for more disciplined capital allocation, which we believe will allow us to
selectively acquire, develop and/or remodel restaurants offering promising expected returns on our investments.

We believe we have also demonstrated our ability to prudently manage our capital structure and financial
leverage through a variety of economic circumstances. It is our belief that our cash flow from operations, cash
balances and the availability of revolving credit borrowings under our Senior Credit Facilities (as defined below) are
sufficient to fund our ongoing operations and capital expenditures.

Multiple Sources of Growth. We believe our 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 increased restaurant-level profitability and improved
operating metrics at the restaurants we have acquired in the last five years.

Strategic Relationship with RBI and Burger King Corporation. We have been a franchisee of Burger King
restaurants for 45 years and operate approximately 14.4% of the total Burger King restaurants in the United States.
Since 2012, two of BKC’s or RBI’s senior executives have served on our board of directors. Currently, Matthew
Dunnigan, Chief Financial Officer of RBI, the indirect parent company of BKC, and Tom Curtis, President of BKC,
Americas, serve on our board. BKC holds, through certain of its affiliated entities, a preferred stock equity interest
in Carrols Restaurant Group that is convertible into approximately 15.5% of the outstanding shares of our common
stock (after giving effect to the conversion of such preferred stock and excluding shares held in treasury). We
believe we have a well-established relationship with RBI and BKC and our acquisitions, restaurant remodeling and
new restaurant development over the years has further aligned our common interests to grow our business. We
intend to continue to expand our restaurant base over the long term by investing in new restaurant development and
making selective acquisitions utilizing our pre-approval rights under the Amended ADA. We believe that the
combination of our rights under the Amended ADA and RBI's equity interest in our Company and its board level
representation will continue to reinforce the alignment of our common interests with RBI, BKC and PLK 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 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. Paulo Pena will be our Chief Executive Officer upon Mr.
Accordino's retirement in April of 2022. Mr. Pena has 20 years of operations and finance experience in the
hospitality, quick-service restaurant and beverage industries, including experience overseeing over 800 McDonald's-
owned locations in the United States.

Additionally, we have one Burger King Divisional Vice President and 14 Regional Directors that had an
average of 20 years of Burger King restaurant experience collectively as of January 2, 2022. Our 144 Burger King
district managers, who have an average tenure of over 17 years in the Burger King system as of January 2, 2022,
support our Regional Directors. Our operations management is further supported by our infrastructure of financial,
information systems, real estate, human resources and legal professionals.

Our primary business strategies are as follows:

Our Business Strategies

Balanced Approach to Capital Allocation and Generation of Free Cash Flow. In response to the challenges the
COVID-19 pandemic brought to our industry, we have substantially improved our liquidity position, reduced our
near-term capital expenditure requirements and deleveraged our balance sheet as further discussed below. As a
result, we believe we have the flexibility to grow our business – both organically and through selective acquisitions
– in a manner that will optimize our growth potential while generating consistent free cash flow and managing our
leverage levels.

In 2021, we renegotiated our area development agreement with BKC and terminated our development
agreement with PLK in order to allow for more disciplined capital allocation, which we believe will allow us to
selectively acquire, develop and/or remodel restaurants that will offer attractive expected returns on our
investments. Specifically, the Amended ADA reduced our new Burger King restaurant development requirement
with BKC over the next five years from 193 to 50 newly developed restaurants and eliminated a remodel obligation
for 658 restaurants. We are now only obligated to remodel restaurants as they come due for franchise renewal under
the terms of our franchise agreements. The Amended ADA also eliminated a requirement to prepay $8.1 million in
franchise fees that were previously required to be prepaid in tranches through 2023. For Popeyes, we terminated a
development agreement we inherited in a 2019 acquisition that required us to develop approximately 80 new
Popeyes restaurants over six years. We expect to enter into a new development agreement with PLK this year,
although there can be no assurance that we will enter into a development agreement with PLK on terms acceptable
to us or at all.

As a result of these efforts, we reduced capital expenditures from $134.9 million in 2019 and $75.7 million
in 2018 to $56.9 million in 2020 and $51.8 million in 2021. In 2022 and annually thereafter we expect capital
expenditure spending to be similar levels as in 2021 as we remain committed to applying a disciplined and focused
approach to restaurant remodeling and new restaurant development, which is now more in our control given the
modifications under the Amended ADA. We believe our restaurant portfolio has been well-maintained and, as of
January 2, 2022, 902 of our 1,026 Burger King restaurants have been remodeled or newly built since 2012. Of our
65 Popeyes restaurants, 20 have been newly built in the last three years as of January 2, 2022.

Target Total Net Leverage Ratio to 4.0 times or less. Over the past two years, we significantly increased our
available liquidity (defined as cash and cash equivalents plus available borrowings under our Senior Credit
Facilities) to approximately $235.1 million as of January 2, 2022 from $60.6 million as of December 29, 2019. We
also reduced our Senior Secured Net Debt Leverage Ratio to 1.67 times as of January 2, 2022 from 4.11 times as of
December 29, 2019. The Senior Secured Net Debt Leverage Ratio represents our First Lien Net Leverage Ratio as
calculated in accordance with our Senior Credit Facilities. Although inflationary pressures experienced in 2021 have
increased our Total Net Leverage Ratio (as defined in our Senior Credit Facilities) above our target to 5.02 times at
January 2, 2022, our capital allocation strategy is driven by targeting Total Net Leverage Ratio levels to 4.0 times or
less. While driving growth through building and acquiring restaurants in both brands remains a strategic objective of
ours over the long-term, our primary focus is on generating free cash flow and further deleveraging our balance
sheet to maintain our Total Net Leverage Ratio below our targeted level of 4.0 times. Our Total Net Leverage Ratio
level is subject to a number of factors which may be difficult to predict and there can be no assurance about our
ability to maintain any specific Total Net Leverage Ratio.

Selectively Acquire and Develop Additional Burger King and 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 meaningful opportunity for future growth through selective 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 current 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 believe that we have demonstrated our
ability to increase the profitability of acquired restaurants and 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. RBI 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.

• 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 RBI'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.

• 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. With respect to PLK, the
successful development and launch of its 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.

• 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 also believe the customer experience will be further
enhanced from 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 outdoor 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 its food offerings
and balances value promotions and premium limited time offerings to drive profitable restaurant sales and
traffic.

• Digital. In 2020, RBI implemented digital order modes and delivery services with major delivery providers
as well as through each brands' own mobile apps. By the end of 2021, we were providing fully integrated
delivery services at 916 of our Burger King restaurants and 59 of our Popeyes restaurants, based on
geographic availability of delivery services. In 2021, RBI introduced the Royal Perks loyalty program for
Burger King and the Popeyes Rewards loyalty program for Popeyes on their respective mobile apps to
entice guests to visit more often and receive personalized offers. Burger King's Royal Perks program was
extended to in-restaurant transactions in the fourth quarter of 2021. We believe these new platforms,
combined with recent quality improvements, support RBI's strategy to appeal to a broader consumer base
and to increase restaurant sales.

Selected restaurant operating data for our restaurants is as follows:

Restaurant Economics

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

Breakfast
Lunch
Dinner
Afternoon
Late night

Year Ended

December 29, 2019
$
$

1,454,698
7.62
68.2 %
— %

$
$

January 3, 2021
1,435,531
8.63
86.1 %
2.4 %

$
$

January 2, 2022
1,529,123
9.27
81.2 %
4.8 %

13.0 %
31.7 %
21.5 %
20.1 %
13.7 %

11.5 %
32.6 %
22.6 %
22.0 %
11.3 %

12.3 %
31.6 %
22.5 %
21.4 %
12.2 %

(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 29, 2019 and January 2, 2022 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
$300,000 to $1,000,000 for Burger King restaurants and $300,000 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.

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 $700,000 to $1,800,000 per restaurant with an average cost of approximately $1.2
million per restaurant in 2021. The total cost of a remodel has increased over time due to construction cost
increases, the addition of a second drive-thru lane at certain locations and the replacement of certain kitchen
equipment at the time of the remodel which is incremental to the cost to upgrade to the BKC current image design.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent and Future
Events Affecting our Results of Operations".

Site Selection

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

The following table details the locations of our 1,026 Burger King restaurants as of January 2, 2022:

Restaurant Locations

Total
Restaurants
6
9
2
16
103
41
17
15
29
1
56
33
1
10
125
157
115
61
43
110
6
66
4
1,026

Total
Restaurants
2
3
3
5
33
18
1
65

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 2, 2022:

State
Arkansas
Indiana
Kentucky
Louisiana
Mississippi
Tennessee
Virginia
Total

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
Chairman, Chief Executive Officer and President, Daniel T. Accordino, who has over 45 years of Burger King and
quick-service restaurant experience at our company. Paulo Pena will be our Chief Executive Officer and President
upon Mr. Accordino's retirement in April of 2022. Mr Pena has 20 years of operations and finance experience in
the hospitality, quick-service restaurant and beverage industries, including experience overseeing over 800
McDonald's-owned locations in the United States.

Operations for our Burger King restaurants are overseen by one Divisional Vice President and 14 Regional
Directors that had an average of 20 years of Burger King restaurant experience collectively as of January 2,
2022. Our 144 district managers support the Regional Directors in the management of our Burger King restaurants
and as of January 2, 2022 had an average tenure of over 17 years in the Burger King system as of January 2, 2022.
Operations for our Popeyes restaurants are overseen by two Regional Directors and eleven district managers.

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

We believe that 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 POS systems that are designed to facilitate
accuracy and speed of order taking. These systems are user-friendly, require limited employee training and improve
speed-of-service through the use of conversational order-taking techniques. The POS systems are integrated with
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 data center manages
systems that support all of our accounting, operating and reporting systems. We also operate a 24-hour, seven-day
help desk 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;

• take advantage of e-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 analytics and reporting 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. We have not been notified of any events of 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 2, 2022, we had 16 Burger King franchise

agreements due to expire in 2022, three Burger King franchise agreements due to expire in 2023 and eight Burger
King franchise agreements due to expire in 2024, as well as 45 that expired prior to the end of 2021. At January 2,
2022 we had five Popeyes franchise agreements set to expire in 2022, one Popeyes franchise agreement set to expire
in 2023 and four Popeyes franchise agreements set to expire in 2024, as well as eight Popeyes franchise agreements
that expired prior to the end of 2021.

As of January 2, 2022, we have certain franchise agreements that have expired. We continue ongoing
discussions with BKC and PLK towards an agreement on mutually beneficial remodeling requirements and
franchise extensions for those franchise agreements, although there is no assurance we will be able to do so. The
expiration of certain franchise agreements prior to January 2, 2022 has not and is not expected to impact our
continued operation of these restaurants. 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 by
BKC and PLK at the expiration of our existing franchise agreements. Historically, BKC has not denied 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, excluding scrape and rebuild projects, generally have ranged from $400,000 to $1,200,000 per restaurant.
The average cost of our remodels in 2021 was approximately $1.2 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 2021, we closed six Burger King
restaurants, including one offset location. We currently expect to close less than five Burger King restaurants in
2022, 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 4.4% in 2021 and 4.3% in both 2020
and 2019. We anticipate our Burger King and Popeyes royalties, as a percentage of restaurant sales, will be
approximately 4.4% in 2022 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.

BKC's and PLK's advertising programs consist of national campaigns supplemented by local advertising.
BKC's and PLK's advertising campaigns are generally carried on television, radio and in circulated print media
(national and regional newspapers and magazines). As a percentage of our restaurant sales advertising expense was
4.0% in 2021, 3.9% in 2020 and 4.0% in 2019. For 2022, 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 6.1% of our
restaurant sales in 2021 and 3.1% of our sales in 2020. We are also installing outdoor digital menu boards in all
drive thru locations. Through the end of fiscal 2021, we installed outdoor digital menu boards at 838 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 digital menu boards integrate with the POS system and
utilize artificial intelligence to help optimize the guest experience. BKC and PLK continue to invest in their digital
platforms. In 2021, BKC launched its Royal Perks loyalty program and PLK launched its Popeyes Rewards
program on their respective mobile apps to encourage guests to visit more often and receive personalized offers. In
the fourth quarter of 2021, BKC extended its Royal Perks program to in-restaurant transactions.

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, McLane Company Inc., Lineage Foodservice Solutions, LLC, Reinhart
Food Service L.L.C and Performance Foodservice, to supply our Burger King restaurants with the majority of our
foodstuffs. As of January 2, 2022, such distributors supplied 31%, 30% 29% 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, Customized Distribution Services, supplies 69% of our poultry products and 91% of our 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
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 12% of our approximately 3,400 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.
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.
Historically, unemployment has been inversely related to restaurant sales and, as the unemployment rate decreases
and disposable income increases, restaurant sales have increased. During 2020 and 2021, government support
provided in response to the COVID-19 pandemic, through both direct stimulus payments as well as unemployment
and child credits, boosted consumer spending in many areas, including restaurants. While the restaurant industry
overall had a very challenging year in 2020, restaurants that withstood the pandemic are expected to be well-
positioned to grow as the economy normalizes. We believe that restaurants with established methods for
convenience and low-contact service not only performed well during the COVID-19 environment, but are also well
positioned to sustain that performance as the broader economy opens up. According to the U.S. Department of
Agriculture, through October 2021 food away from home dollars were 49.9% of nominal food dollars, with total
expenditures increasing 30.9% from the same period in 2020.

Limited-Service Restaurants. We operate in the hamburger and chicken categories of the limited service
restaurant segment of the restaurant industry. Limited service restaurants are distinguished by high speed of service
and efficiency, convenience, limited menu and service, and value pricing. We believe that limited service
restaurants are well-positioned to increase their sales in the current environment. According to the National
Restaurant Association, the limited service segment is projected to grow from $329 billion in 2021 to $355 billion
in 2022, representing a projected 8% increase in sales and 40% of total restaurant and food industry sales, up from
36% in 2019.

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 2, 2022, we employed approximately 25,500 persons, of which approximately 200 were
administrative personnel and approximately 25,300 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 2, 2022, 51% of our employees were female and approximately 55%
of our employees self-identified as belonging to a racial or ethnic minority group.

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 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 adapted 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 mandated, among
other things, the use of masks, sanitizers and contactless procedures in our restaurants, and required team
members' temperatures be taken at the beginning of each shift.

•

We 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 initially suspended all non-essential travel for our employees and implemented a work-from-
home policy for all non-restaurant personnel. As the vaccines became widespread and readily available in
2021, these restrictions were eased.

•

We 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 ongoing 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 were impacted during 2020 and
2021 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
spread significantly, the perceived risk of infection or significant health risk may adversely affect our
business. During the pandemic, we have seen frequent changes to our restaurants' operating hours, as a
result of shifting consumer behavior, public safety measures mandated by local jurisdictions, and
employment challenges. 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. We re-opened our
dining rooms as individual states and local governments allowed reopenings.

•

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 pandemic, 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 years ended January 2, 2022 and January 3, 2021, we incurred $0.5 million and
$2.7 million, respectively, in expenses directly related to COVID-19 related supplies, including face masks,
thermometers, sneeze guards and sanitizers.

•

The uncertain economic environment 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 (as defined below) by $30.8 million to a total of
$145.8 million, and incurred Incremental Term B-1 Loans of $75 million in 2020. In 2021, we further
increased our revolving credit borrowing capacity by a total of $69.2 million to a total of $215.0 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 to limit, 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
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;
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;
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;
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 systems 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
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
our results of operations, 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 events such as a disease outbreak 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.

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.

If we do not meet our obligations under the Amended ADA, our franchise pre-approval could be suspended,
which could have a material adverse effect on our results of operations and financial condition.

Under the Amended ADA, Carrols LLC has agreed to open, build and operate a total of 50 new Burger King
restaurants. 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.
There is a 90-day cure period to meet the required restaurant development each development year. If we do not meet
this obligation to build new restaurants under the Amended ADA, BKC could suspend our franchise pre-approval to
build or acquire Burger King restaurants and/or suspend certain reduced royalty and advertising contribution rates
for restaurants we have opened under the Amended ADA. Among other things, this could impact our ability to
compete for acquisition candidates or delay the opening of new restaurants or increase the cost of our royalty and
advertising contributions, which could have a material adverse effect on our results.

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.

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 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.

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., 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, McLane Company Inc., Lineage Foodservice Solutions, LLC, Reinhart Food Service LLC
and Performance Foodservice, to supply our Burger King restaurants with the majority of our foodstuffs. As of
January 2, 2022, such distributors supplied 31%, 30% 29% 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 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,
Customized Distribution Services, Inc, supplies 69% of our poultry products and 91% of our, 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.

Supply shortages and price increases could delay or increase the cost of construction, which could have a
material adverse effect on our results of operations and financial condition.

Our continued growth and financial performance is dependent, in part, on our ability to open new restaurants
and remodel restaurants to comply with criteria established by BKC and PLK. During 2021, COVID-19 related
disruptions in the global supply chain have significantly increased the cost, and decreased the availability, of both
labor and construction materials and we expect this to continue into 2022. The scarcity of construction materials and
associated price increases could delay the opening of restaurants and increase the cost of construction for our new

and existing restaurants, which could have a material adverse effect on our results of operations and financial
condition.

Increases in fuel costs and transportation costs could adversely affect our results of operations and financial
condition.

The price and supply of fuel are unpredictable and fluctuate based on circumstances outside of our control.
Increases in fuel costs could lead to reductions in the frequency of consumers dining out or the amount spent in our
restaurants. In addition, increases in fuel costs could result in higher production and transportation costs for our
distributors and suppliers, which may be passed on to us through higher costs for the goods they supply. Any such
decrease in consumers dining out or the amount spent in our restaurants or increase in costs could have an adverse
effect on our results of operations and financial condition, to the extent occurring over an extended period of time
and we are not able to offset through an increase in our prices.

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
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.

If we are not able to hire and retain qualified restaurant personnel it could create disruptions in the operation of
our restaurants and lead to increases in labor costs which could have a material adverse effect on our results of
operation and financial condition.

We rely on our restaurant-level employees to provide outstanding service and quality food for the thousands of
guests we serve every day. We believe that our continued success depends, in part, on our ability to attract and
retain the services of qualified restaurant personnel, and we devote significant resources to recruiting, training and
retaining our restaurant managers and hourly team members.

The COVID-19 pandemic has increased the difficulty and cost of maintaining adequate staffing levels for us
and other restaurant operators. There is active competition for quality management personnel and hourly team
members. We are experiencing and may continue to experience increased turnover and challenges in recruiting and

retaining restaurant managers and team members at various locations. These challenges have resulted in increased
labor costs and caused us to limit operating hours or dine-in services at some of our restaurants due to employee
shortages. If new vaccination and testing rules are established by Federal, State or other regulatory authorities, these
challenges could potentially be exacerbated.

If we are unable to hire and retain qualified restaurant personnel sufficient to staff our restaurants, it could
create disruptions in the operation of our restaurants which could have a material adverse effect on our results of
operation and financial condition. Increases in labor costs resulting from employee shortages in the labor market
could also have a material adverse effect on our results of operation 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 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’, it could have 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 2, 2022, 14% of our restaurants were located in North Carolina, 11% were located in New York,
12% were located in Tennessee, and 25% were located in Indiana, Ohio and Michigan. Therefore, the economic
conditions, state and local government regulations, weather or other conditions affecting North Carolina, New York,
Tennessee, Indiana, Ohio and Michigan, 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 the 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 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, without limitation, 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 could 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.

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.

Carrols Corporation is currently a guarantor under 17 restaurant property leases from the time when Fiesta
Restaurant Group, Inc. ("Fiesta") was its subsidiary 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 Corporation currently is a guarantor under 17 Fiesta restaurant property leases, of which all
except for one is still operating as of January 2, 2022. Eight of these guarantees are for leases with Pollo Operations,
Inc, a wholly owned subsidiary of Fiesta, and nine of these guarantees are for leases with Texas Taco Cabana, L.P.,
an indirect subsidiary of Taco Cabana, Inc. (together with all direct and indirect subsidiaries, “Taco”). Taco was a
wholly owned subsidiary of Fiesta until August 17, 2021 when Fiesta sold all of its outstanding capital stock of
Taco Cabana, Inc. to YTC Enterprises, LLC, an affiliate of Yadav Enterprises, Inc. 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 Corporation 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.

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

At January 2, 2022, our executive officers, directors, BKC and Blue Holdco 1, LLC (collectively, the "BKC
Stockholders"), and Cambridge together beneficially owned approximately 45.6% 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.

Although a special cash dividend was declared and paid in 2021, 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 and the indenture governing our $300.0 million of
5.875% Senior Notes due 2029 (the "Notes") limit, and the debt instruments that we may enter into in the future
may limit, our ability to pay dividends to our stockholders.

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

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

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

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

•

require that special meetings of our stockholders be called only by our Board of Directors or certain of our
officers, thus prohibiting our stockholders from calling special meetings;

•

•
•

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

Risks Related to Our Indebtedness

Our substantial indebtedness could have a material adverse effect on our financial condition.

As of January 2, 2022 we had $478.2 million of total indebtedness outstanding consisting of $300.0 million of
Notes, $171.9 million term loan B borrowings under our Senior Credit Facilities and $6.3 million of finance lease
liabilities. As of January 2, 2022 we had $206.0 million of revolving borrowing availability under our Senior Credit
Facilities (after reserving $9.0 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 outstanding term loan B borrowings and the Notes, 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, the Notes

•
•

•
•
•

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, and the Notes, 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, and the indenture governing the Notes, may limit our ability to pursue any of these alternatives.

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

We and our subsidiaries may be able to incur additional debt in the future, including debt that may be secured
on a first or second lien basis. Although our Senior Credit Facilities contain restrictions on our ability to incur
indebtedness, those restrictions are subject to a number of exceptions. In addition, if we are able to designate some
of our restricted subsidiaries under the indenture governing the Notes as unrestricted subsidiaries, these unrestricted
subsidiaries would be permitted to borrow beyond the limitations specified in the indenture governing the Notes and
engage in other activities in which restricted subsidiaries may not engage. We could also consider investments in
joint ventures or acquisitions, which may increase our indebtedness. Moreover, although our Senior Credit Facilities
and the indenture governing our Notes 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.

The agreements governing our debt restrict our ability to engage in some business and financial transactions and
contain certain other restrictive terms.

Our debt agreements, such as our Senior Credit Facilities and the indenture governing the Notes restrict our ability
in certain circumstances to, among other things:

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

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

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

These covenants limit our operational flexibility and could prevent us from taking advantage of business
opportunities as they arise, growing our business or competing effectively. In addition, our Senior Credit Facilities
require us to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) if revolving credit
borrowings exceed 35% of our aggregate borrowing capacity (as defined in the First Amendment to the Senior
Credit Facilities). 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. As there were no borrowings under the Revolving
Credit Facility at January 2, 2022, no First Lien Leverage Ratio calculation was required. However, if the Company
had been subject to the First Lien Leverage Ratio, the Company's First Lien Leverage Ratio was 1.67 to 1.00 as of
January 2, 2022 which was below the required First Lien Leverage Ratio of 5.75 to 1.00.

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, the
Notes 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.

In addition, upon the occurrence of specific kinds of change of control events, the indenture governing the
Notes will require us to make an offer to repurchase all Notes that are then outstanding at 101% of the principal
amount thereof, plus accrued and unpaid interest (and additional interest, if any) to the date of repurchase. However,
it is possible that we will not have sufficient funds, or the ability to raise sufficient funds, at the time of the change
of control to make the required repurchase of the Notes. In addition, restrictions under our Senior Credit Facilities
may not allow us to repurchase the Notes upon a change of control. If we cannot refinance such debt or otherwise
obtain a waiver from the holders of such debt, we will be prohibited from repurchasing the Notes, which will
constitute an event of default under the indenture governing the Notes. Certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness, will not constitute a ‘‘Change of
Control’’ under the indenture governing the Notes.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of January 2, 2022, we owned nine and leased 1,082 restaurant properties including 29 co-branded
locations. In addition, we owned five and leased 17 non-operating properties as of January 2, 2022, not including
three properties under construction that are expected to open as new restaurants in 2022.

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 2, 2022. 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 2, 2022,
there were 54,564,994 shares of our common stock outstanding held by 484 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.

Effective August 12, 2021, the Board declared a special cash dividend amounting to $0.41 per share on all
issued and outstanding shares of common stock, including common stock issuable on the conversion of our Series B
Convertible Preferred Stock. The special cash dividend of $24.9 million was paid on October 5, 2021 to
stockholders of record as of the close of business on August 25, 2021. We did not pay any cash dividends during
fiscal year 2020.

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 and the indenture governing the Notes limit, and debt instruments that we and our
subsidiaries may enter into in the future may limit, our ability to pay dividends to our stockholders.

Stock Performance Graph

The following graph compares from December 31, 2016 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, 2016.

* $100 invested on 12/31/2016 in stock or index, including reinvestment of dividends.

12/31/2021
Carrols Restaurant Group, Inc. . . . . . . $ 100.00 $
23.56
NASDAQ Composite . . . . . . . . . . . . . $ 100.00 $ 129.64 $ 125.96 $ 172.17 $ 249.51 $ 304.85
95.50
S&P SmallCap 600 Restaurants . . . . . $ 100.00 $

12/31/2016 12/31/2017

12/31/2018

12/31/2020

12/31/2019

64.52 $

99.67 $

46.23 $

96.53 $

79.67 $

91.35 $

41.18 $

92.96 $

Purchases of Equity Securities by the Issuer

On August 2, 2019, the Company's Board of Directors approved a stock repurchase plan (the "Repurchase
Program") under which the Company may purchase up to $25 million of its outstanding common stock. On August
10, 2021, the Company's Board of Directors approved an extension of the Company's Repurchase Program with
approximately $11.0 million of its original $25 million in capacity remaining. The authorization will expire on
August 2, 2023, 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. 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.

ITEM 6. [RESERVED]

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 Restaurants12/31/1612/31/1712/31/1812/31/1912/31/2012/31/21$0$100$200$300$400
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 2, 2022 contained 52 weeks and the fiscal year ended January 3, 2021 contained 53 weeks.

Introduction

We are a holding company and conduct all of our operations through our direct and indirect wholly-owned
subsidiaries Carrols Corporation and New CFH, LLC and their wholly-owned subsidiaries, and have no assets other
than the shares of capital stock of Carrols Holdco, Inc. and New CFH, LLC, our direct wholly-owned subsidiaries.
following “Management’s Discussion and Analysis of Financial Condition and Results of
The
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 2,
2022, and January 3, 2021, including a review of the material items and known trends and uncertainties. See Item 7
of our 2020 Annual Report on Form 10-K for an analysis of our consolidated results of operations for the years
ended January 3, 2021 and December 29, 2019.

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

capital resources and known trends that may impact liquidity.

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

and estimates.

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

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

Company Overview

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 2, 2022 we
operated, as a franchisee, a total of 1,091 restaurants in 23 states under the trade names of Burger King and Popeyes.
This included 1,026 Burger King restaurants in 23 Northeastern, Midwestern, Southcentral and Southeastern states
and 65 Popeyes restaurants in seven Southeastern states.

During the year ended January 2, 2022, we acquired 19 Burger King restaurants in two separate transactions,
which we refer to as the "2021 acquired restaurants". 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".

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 consists of food and beverage sales at our restaurants, net of sales discounts and refunds
and excluding sales tax. Restaurant sales are influenced by changes in comparable restaurant sales, menu
price increases, new restaurant development, acquisitions of restaurants, franchisor promotions and 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 newly developed restaurants are included in comparable restaurant sales after
they have been open for 15 months. Restaurants are excluded from comparable restaurant sales during
extended periods of closure, which primarily occur due to restaurant remodeling activity. 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 and compares against the respective 52-week prior period.

• 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.

•

Food, beverage and packaging costs consists of food, beverage and packaging costs and delivery
commissions, less purchase discounts and vendor rebates. Food, beverage and packaging costs are 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, food, beverage and packaging costs also included fuel costs for the six convenience
stores acquired as part of the Cambridge Acquisition, which contributed lower margins relative to our food,
beverage and packaging costs.

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 as well as competitive wage increase required to
adequately staff our restaurants and increased costs for health insurance, workers’ compensation insurance
and federal and state unemployment insurance.

Restaurant rent expense includes straight-lined lease costs and variable rent on our restaurant leases
characterized as operating leases.

• 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,
operating supplies, 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 local marketing and promotional
expenses.

• 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) 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, stock-based compensation expense, certain abandoned
development costs, pre-opening costs, non-recurring litigation and other professional expenses, loss on
extinguishment of debt and other income or expense. Adjusted Restaurant-Level EBITDA represents
income (loss) from operations as adjusted to exclude general and administrative expenses, depreciation and
amortization, impairment and other lease charges, pre-opening costs and other income and expense.
Adjusted Net Income (Loss) represents net income (loss) as adjusted, net of tax, to exclude impairment and
other lease charges, acquisition costs, certain abandoned development costs, restaurant pre-opening costs,
non-recurring litigation and other professional expenses, other income and expense, loss on extinguishment
of debt and the valuation allowance charge on our deferred 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 (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 restaurant pre-opening costs, other income
and expense, and the impact of general and administrative expenses, such as salaries and expenses
associated with corporate and administrative functions that support the development and operations of our
restaurants, legal, auditing and other professional fees. Although these costs are not directly related to

restaurant-level operations, these costs are necessary for the profitability of our restaurants. Management
believes that Adjusted EBITDA, Adjusted Restaurant-Level EBITDA, and Adjusted Net Income (Loss),
when viewed with our results of operations in accordance with U.S. GAAP and the accompanying
reconciliations on page 49, 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 U.S. 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 (Loss) to
EBITDA, Adjusted EBITDA and Adjusted Net Income (Loss) and the reconciliation of income from
operations to Adjusted Restaurant-Level EBITDA, see page 49.

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, acquisition costs and litigation costs) have recurred and may
reoccur.

• Depreciation and amortization primarily includes the depreciation of fixed assets, including equipment,
owned buildings and leasehold improvements utilized in our restaurants, the amortization of franchise rights
from our acquisitions of 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 the following: our Term B and Term B-1 Loans
under our Senior Credit Facilities, our 5.875% Senior Notes Due 2029 (the "Notes"), our revolving credit
borrowings under our Senior Credit Facilities, finance lease liabilities, amortization of deferred financing
costs, amortization of original issue discount, 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

Restaurant Acquisitions

From the beginning of 2019 through January 2, 2022, we acquired 253 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
2019 Acquisitions:

April 30, 2019 (2)
June 11, 2019

August 20, 2019 (1)

2021 Acquisitions:
June 17, 2021
June 23, 2021

Total

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

27,603
14
3,216
5
19
30,819
253 $ 306,798

14 Southeastern states, primarily TN, MS, LA
— Baltimore, Maryland
— Pennsylvania
14

12 Fort Wayne, Indiana
1 Battle Creek, Michigan
13
27

(1) Acquisitions resulting from the exercise of our right of first refusal on acquisitions in certain markets.
(2) The Cambridge Acquisition included 165 Burger King restaurants and 55 Popeyes restaurants.

The 2021 acquisitions included the purchase of 13 fee-owned restaurants, of which 12 were sold in sale-

leaseback transactions during the year ended January 2, 2022 for net proceeds of approximately $20.2 million.

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.

The 2019 acquisitions include our April 30, 2019 merger with New CFH, LLC, a former subsidiary of
Cambridge Franchise Holdings, LLC ("Cambridge") and acquisition of 165 Burger King restaurants, 55 Popeyes
restaurants and six convenience stores (the "Cambridge Acquisition"). Cambridge received a total of approximately
14.8 million shares of our common stock after conversion of all preferred stock initially issued to Cambridge in the
Cambridge Acquisition.

The unaudited pro forma impact on the results of operations for the 2021 acquisitions is included below. The
unaudited 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 2021 acquired restaurants.
The following table summarizes certain pro forma financial information related to our operating results for the year
ended January 2, 2022 (in thousands):

Year Ended
January 2, 2022

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

1,663,860
(9,215)
82,983

Area Development and Remodeling Agreement

The Company, Carrols Corporation, Carrols LLC, and BKC entered into an 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”). 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 (“ADA ROFR”). The ADA ROFR
was terminated in connection with the Amended ADA.

In connection with an acquisition of restaurants in 2019 we assumed a development agreement for Popeyes,
which included 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. This development agreement with PLK was terminated
on March 17, 2021, with certain covenants applicable to us surviving the termination. PLK reserved the right to
charge us a $0.6 million fee if the parties to the termination agreement are not able to come to a mutually agreeable
solution with respect to such fee within a six-month period.

Impact of the COVID-19 Pandemic

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 through 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. In 2020, we re-opened dining rooms as individual states
and local governments have rolled back restrictions. By the end of the second quarter of 2021, most of our
dining rooms had reopened. However, in most cases, guests have continued to rely on our drive-thru, carry-
out and delivery service modes. During the fourth quarter of 2021, we saw take-out and dine-in representing
approximately 14% of net sales as compared with 11% in the fourth quarter of 2020 and a pre-COVID 30%
for all of 2019.

• We launched delivery services in March of 2020 at approximately 800 of our restaurants. Since then, we
have added additional third-party delivery partners as well as expanded the number of restaurants where
delivery service is offered as new locations were covered by our delivery partners. For the fourth quarter of
2021, delivery comprised approximately 5.2% of total restaurant sales. For all of 2021 and 2020 delivery
was approximately 4.8% and 2.4% of net sales, respectively.

• We temporarily closed 46 restaurants in late March 2020 and early April 2020 that were geographically
close to one of our other restaurants. 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 of 2020.

• 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 of 2020, we reduced operating
capital expenditures from $134.9 million in 2019 to $56.9 million. Capital expenditures in 2021 were $51.8
million.
In the second quarter of 2020, we reduced regional and corporate overhead through reductions in travel and
training as well as a 10% temporary reduction in all non-restaurant wages for the second quarter of 2020.
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, with 50% of the deferred
amount due December 31, 2021 (which was subsequently deferred to January 3, 2022) and the remaining
50% due December 31, 2022 (which was subsequently deferred to January 3, 2023). As of January 2, 2022,
$21.2 million of this deferral remained to be repaid, of which $10.4 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.

• 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 which
began in the third quarter of 2020. We had repaid $4.6 million related to these deferrals by the end of 2021.
• During the second quarter of 2020, we extended 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 2020 and 2021, we have experienced a number of minor and/or temporary supply chain issues
which we continue to monitor as the communities we operate in reopen.
In 2021, we have experienced inflationary cost pressures in labor and commodity costs given challenges in
the overall labor force impacting our restaurants and our supply chains. The COVID-19 pandemic has
increased the difficulty and cost of maintaining adequate staffing levels for us and our supply chain.

•

While significant uncertainty remains as to when or the manner in which the negative effects of the
COVID-19 pandemic will change, including, but not limited to stock price volatility, commodity inflation,
competitive wage pressures, lower customer traffic, governmental restrictions on restaurant businesses and the

unpredictable economic environment, we believe our business model and world-class brands are well positioned to
serve value and convenience-seeking customers as the communities we operate in are reopening and customers are
returning to pre-pandemic behaviors and activities. With our 60-year history of operating restaurants, we also
believe that we are well positioned to navigate these challenges as illustrated by the fact that our comparable sales in
2021 outpaced the overall US BKC system by 440 basis points.

Capital Expenditures

We expect that our capital expenditures in 2022 will remain at levels similar to our capital expenditures in
2021 and 2020. We continue to review on an ongoing basis our future development and remodel plans in relation to
our available capital resources, supply chain availability and our return on investment.

Issuance of Notes and Amendments to our Senior Credit Facilities

On April 30, 2019, we entered into a senior secured credit facility which provided for senior secured credit
facilities in an aggregate principal amount of $550.0 million (as amended, 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”). Prior to the entry into the amendments described below, borrowings under the Term
Loan B Facility and the Revolving Credit Facility bore interest at a rate per annum, at our option, of (i) the Alternate
Base Rate (such definition and all other definitions used herein and otherwise not defined herein shall have the
meanings set forth in the Senior Credit Facilities) 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 originally matured on April 30, 2024.

On December 13, 2019, we entered into the First Amendment to our Senior Credit Facilities (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 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 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.

On March 25, 2020, we entered into the Second Amendment to our Senior Credit Facilities (the “Second
Amendment”). The Second Amendment, among other things, (i) 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, (ii) 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), (iii) provided for a commitment fee (the “Ticking Fee”)
beginning on the 180th day after the Second Amendment Effective Date and for so long as the Revolving
Committed Amount remained greater than###, and (iv) provided 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. The terms
outlined as (ii), (iii) and (iv) were modified in the Sixth Amendment described below.

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, 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 the Fourth 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 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 constituted 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 had 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 bore 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 would
be 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 amortized in an aggregate annual amount equal to 1% of the original
principal amount of the Incremental Term B-1 Loans and were repayable in consecutive quarterly installments on
the last day of our fiscal quarters beginning on the third fiscal quarter of 2020. 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 would have been due on April 30, 2026, which was 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 Term B-1 Loans were repaid in full on June 28, 2021.

On April 6, 2021, we entered into the Sixth Amendment to our Senior Credit Facilities (the “Sixth
Amendment”) which increased the aggregate maximum commitments available for revolving credit borrowings
(including standby letters of credit) under our Revolving Credit Facility by $29.2 million to a total of $175.0
million. The Sixth Amendment also amended the definitions in the Senior Credit Facilities of (i) Applicable Margin,
to provide that the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit
Fees) shall be at a rate per annum equal to 3.25% for LIBOR Rate Loans and 2.25% for Alternate Base Rate Loans,
and (ii) Revolving Maturity Date, to provide that the Revolving Maturity Date is extended to January 29, 2026. In
addition, the Sixth Amendment amended the Senior Credit Facilities to remove our obligation to (i) pay a Ticking
Fee pursuant to the Ticking Fee Rate and (ii) 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 not to hold as cash on the
balance sheet.

On June 28, 2021, we entered into the Seventh Amendment to our Senior Credit Facilities (the “Seventh
Amendment”). The Seventh Amendment revised (a) the initial amount for calculating the Available Amount (as
defined in the Senior Credit Facilities) from $27.0 million to $50.0 million which is utilized, among other items, in
determining the amount of Restricted Payments (as defined in the Senior Credit Facilities) and Permitted
Investments (as defined in the Senior Credit Facilities), (b) the calculation of the Company's ability to incur an
Incremental Term Loan (as defined in the Senior Credit Facilities) or an increase to the Revolving Committed
Amount from $135.0 million to $180.0 million, and (c) the general basket for Restricted Payments, Permitted
Investments and Restricted Junior Debt Payment (as defined in the Senior Credit Facilities) from an aggregate
amount not to exceed the greater of (i) $27.0 million and (ii) 20% of Consolidated EBITDA (as defined in the
Senior Credit Facilities) as of the most recently completed Reference Period (as defined in the Senior Credit
Facilities) to (i) $50.0 million and (ii) 40% of Consolidated EBITDA as of the most recently completed Reference
Period. In addition, the Seventh Amendment revises the Total Net Leverage Ratio required for the Company to

make Restricted Payments or prepay Junior Debt (as defined in the Senior Credit Facilities) with unutilized
Available Amount from 3.00 to 1.00 to 4.00 to 1.00. The Seventh Amendment also provided for affiliates of the
Company to acquire up to 20% of the outstanding term loans pursuant to certain transactions.

On June 28, 2021, we issued $300.0 million principal amount of Notes in a private placement. The proceeds of
the offering, together with $46.0 million of revolving credit borrowings under our Senior Credit Facilities, were
used to (i) repay $74.4 million of outstanding term B-1 loans and $243.6 million of outstanding term B loans under
our Senior Credit Facilities (which included scheduled principal payments), (ii) to pay fees and expenses related to
the offering of the Notes and the Seventh Amendment and (iii) for working capital and general corporate purposes,
including for possible future repurchases of its common stock and/or a dividend payment and/or payments on its
common stock.

Carrols Restaurant Group and certain of its subsidiaries (the "Guarantors") entered into the Indenture (the
“Indenture”) dated as of June 28, 2021 with the Bank of New York Mellon Trust Company governing the Notes.
The Indenture provides that the Notes will mature on July 1, 2029 and will bear interest at the rate of 5.875% per
annum, payable semi-annually on July 1 and January 1 of each year, beginning on January 1, 2022. The entire
principal amount of the Notes will be due and payable in full on the maturity date. The Indenture further provides
that we (i) may redeem some or all of the Notes at any time after July 1, 2024 at the redemption prices described
therein, (ii) may redeem up to 40% of the Notes using the proceeds of certain equity offerings completed before July
1, 2024 and (iii) must offer to purchase the Notes if it sells certain of its assets or if specific kinds of changes in
control occur, all as set forth in the Indenture. The Notes are senior unsecured obligations of Carrols Restaurant
Group and are guaranteed on an unsecured basis by the Guarantors. The Indenture contains certain covenants that
limit the ability of Carrols Restaurant Group and the Guarantors to, among other things: incur indebtedness or issue
preferred stock; incur liens; pay dividends or make distributions in respect of capital stock or make certain other
restricted payments or investments; sell assets; agree to payment restrictions affecting Restricted Subsidiaries (as
defined in the Indenture); enter into transactions with affiliates; or merge, consolidate or sell substantially all of the
assets. Such restrictions are subject to certain exceptions and qualifications all as set forth in the Indenture.

On September 30, 2021, we entered into the Eighth Amendment to our Senior Credit Facilities (the “Eighth
Amendment”). The Eighth Amendment increased the aggregate maximum commitments available for revolving
credit borrowings under the revolving credit facility by $40.0 million to a total of $215.0 million.

As of January 2, 2022, there were no revolving credit borrowings outstanding and $9.0 million of letters of
credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and outstanding
revolving credit borrowings, $206.0 million was available for revolving credit borrowings under the Revolving
Credit Facility at January 2, 2022. As of March 9, 2022, after reserving for issued letters of credit and $20.0 million
in revolving credit borrowings, $186.0 million was available for revolving credit borrowings.

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. On November 12, 2021, we partially terminated this
interest rate swap to reduce the notional amount hedged from $220.0 million to $120.0 million. which settled with
net proceeds to us of $0.2 million, leaves the fixed rate and other terms of the swap arrangement unchanged and
provides the flexibility to repay borrowings under the Senior Credit Facilities which previously needed to be
maintained at the hedged $220.0 million notional amount.

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.

On August 10, 2021, the Company's Board of Directors approved an extension of the Company's Repurchase
Program with approximately $11.0 million of its original $25 million in capacity remaining. The authorization will
expire on August 2, 2023, 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. 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.

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
regard to franchise agreement renewals, the cost of required capital improvements. We may elect to close
restaurants based on these evaluations.

In 2021, we closed five restaurants, excluding one restaurant relocated within its trade area. We currently
anticipate less than five restaurant closures in 2022 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
2021 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 $15.00 an hour on July 1, 2021, from $14.50 an hour
as of January 1, 2021, $13.75 an hour in 2020 and $12.75 per hour in 2019. 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 2, 2022. As of such date, we also had 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.

In the current labor market we have seen competitive pressure on wage rates that well outpaces statutory
minimums as the re-opening of the economy from COVID-19 pandemic restrictions has increased demand for labor
at all levels in the workforce.

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.

Results of Operations

Fiscal 2021 compared to Fiscal 2020

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

years ended January 2, 2022 and January 3, 2021:

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 (1)
Restaurants acquired
Restaurants closed, including relocations (1)

Restaurants operating at end of year

Restaurants operating at beginning and end of year

Year ended

January 2, 2022
(52 weeks)

January 3, 2021
(53 weeks)

(in thousands of dollars)

1,568,431
83,939
1,652,370

1,459,016
88,486
1,547,502

9.1 %
(1.9) %

1,009
4
19
(6)
1,026

(2.8) %
(0.1) %

1,036
7
—
(34)
1,009

(1) New restaurants opened in both 2021 and 2020 each included one restaurant that was closed and relocated within its market

areas.

Restaurant Sales. Total restaurant sales in 2021 increased 6.8% to $1,652.4 million from $1,547.5 million in
2020. Comparable restaurant sales increased 8.5% due to an increase in average check of 7.4% and an increase in
customer traffic of 1.0%. The effect of menu price increases in 2021 was approximately 4.1%. Restaurant sales in
fiscal 2020 included $28.4 million in the 53rd week.

Restaurant sales overall increased $104.9 million, which included the impact of comparable sales increases

partially offset by the prior year including sales from its extra 53rd week of $28.4 million.

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 2, 2022 and January 3,

2021:

Costs and expenses (all restaurants):

Food, beverage and packaging costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2, 2022

January 3, 2021

(52 weeks)

(53 weeks)

30.2 %
33.3 %
7.4 %
15.6 %
4.0 %
5.1 %

29.3 %
32.2 %
7.7 %
15.3 %
3.9 %
5.4 %

Food, beverage and packaging costs increased as a percentage of restaurant sales to 30.2% in 2021 from
29.3% in 2020. This increase reflected increased commodity costs at our Burger King restaurants (2.1%, including a
9.7% increase in ground beef prices compared to 2020), increased commodity costs at our Popeyes restaurants
(0.1%) and higher delivery sales in 2021 (0.4%). These cost increases were offset in part by the impact of menu
price increases taken since the end of 2020 at our Burger King restaurants (1.3%) and the impact of lower
promotional discounting in 2021 (0.7%). Food, beverage and packaging costs at our Popeyes restaurants increased
approximately 180 basis points in fiscal 2021 from fiscal 2020 due to primarily to commodity cost increases (0.1%).

Restaurant wages and related expenses increased to 33.3% in 2021 from 32.2% in 2020. We benefited in 2020
from labor adjustments we made at the onset of the COVID-19 pandemic to restrict overtime and reduce staffing
levels. The efficiencies we gained due to labor adjustments we made during the second quarter of 2020 in response
to the COVID-19 environment benefited the year-over-year comparison in the first quarter of 2021, and partially
offset the year-over-year increase we saw in the beginning late in the second quarter of 2021 from restoring labor
hours and competitive labor rate pressures. The impact of hourly labor rate increases in 2021, inclusive of minimum
wage increases, was 11.0% when compared to the prior year period.

Restaurant rent expense decreased to 7.4% in 2021 from 7.7% in 2020 due to the impact of higher sales

volumes on fixed rental costs.

Other restaurant operating expenses increased to 15.6% in 2021 from 15.3% in 2020. The second and third
quarters of 2020 reflected cost savings realized from the constrained pandemic operating environment. As our
dining rooms have reopened and restaurants have resumed pre-pandemic operations, we saw higher spending on
security costs (0.2%, including investments in smart safe technology), repair and maintenance (0.1%) and
equipment rental (0.1%).

Advertising expense increased to 4.0% in 2021 from 3.9% in 2020 due to expiration of 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 decreased $24.6 million to $157.0 million in 2021
from $181.6 million in 2020. For a reconciliation between Adjusted Restaurant-Level EBITDA and income from
operations see page 49.

General and Administrative Expenses. General and administrative expenses decreased to $83.7 million in
2021 from $84.1 million in 2020, and, as a percentage of total revenue, to 5.1% from 5.4%. The decrease was
driven by $3.5 million lower incentive compensation accruals in 2021 and a reduction in abandoned site
development costs of $2.8 million. These reductions were partially offset by 2020 including short-term salary and
travel reductions ($2.4 million) as well as executive severance costs incurred in 2021 ($0.7 million) and higher
stock-based compensation expense in 2021 ($1.0 million).

We incurred $1.7 million and $1.4 million in 2021 and 2020, 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. General and administrative expenses excluding the
non-recurring costs described above decreased as a percentage of total revenues to 5.3% in 2021 from 5.4% in 2020.

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 decreased $26.2 million to $81.6 million in 2021 from $107.9 million in 2020.

For a reconciliation between net income and EBITDA and Adjusted EBITDA see page 49.

Depreciation and Amortization. The decrease in depreciation and amortization expense to $80.8 million in

2021 from $81.7 million in 2020 was primarily due to lower remodeling and restaurant development activity.

Impairment and Other Lease Charges. We recorded impairment and other lease charges of $4.5 million in
2021 consisting of $1.5 million related to initial impairment charges for nine underperforming restaurants, $0.5

million of capital expenditures at previously impaired restaurants, other lease charges of $0.6 million and $1.9
million related to impairment of certain owned non-operating properties.

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.

Other Income, net. In 2021, we recorded other income, net, of $1.2 million which consisted of a $1.1 million
gain from the sale of a litigation claim, gains related to insurance recoveries from property damage at two of our
restaurants of $1.3 million and a loss on disposal of assets of $1.2 million.

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.

Interest Expense. Interest expense increased to $28.8 million in 2021 from $27.3 million in 2020. The
weighted average interest rate on our long-term debt, excluding lease financing obligations, was 4.8% in 2021 and
4.6% in 2020.

Loss on Extinguishment of Debt. We recognized a loss on extinguishment of debt of $8.5 million in 2021 in
connection with the early extinguishment of our term B-1 loans and partial extinguishment of our term B loans
under our Senior Credit Facilities. The loss consisted of the proportional write-off of unamortized debt issuance
costs and unamortized original issuance discount.

Provision (Benefit) for Income Taxes. In 2021, we recorded income tax benefit of $5.2 million and our
effective income tax rate was 32% prior to the impact of a tax valuation allowance charge. The difference to the
Federal statutory rate for 2021 of 21% is primarily due to the tax benefit of employment tax credits which are not
directly related to the amount of pre-tax loss and the tax benefit of state income taxes. There was a charge in the
period of $11.3 million to establish additional valuation allowance reserves against our deferred income tax assets
for general business tax credits that may expire unused.

In 2020, we recorded income tax expense of $6.3 million and our effective income tax rate was 27.2% prior to
the impact of a tax valuation allowance charge. The difference to the Federal statutory rate for 2020 of 21% is
primarily due to the tax benefit of employment tax credits which are not directly related to the amount of pre-tax
loss and the tax benefit of state income taxes. We incurred a charge in 2020 of $13.1 million to establish an
incremental tax valuation allowance for certain general business tax credits as they may expire prior to utilization.

Net Income (Loss). As a result of the above, our net loss was $43.0 million in 2021, or $0.86 per diluted share,

compared to net loss of $29.5 million in 2020, or $0.58 per diluted share.

Reconciliations of net loss to EBITDA, Adjusted EBITDA and Adjusted net loss and income (loss) from
operations to Adjusted Restaurant-Level EBITDA for the years ended January 2, 2022 and January 3, 2021 are as
follows (in thousands):

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

EBITDA

Impairment and other lease charges
Acquisition 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
Pre-opening costs (3)
Depreciation and amortization
Impairment and other lease charges
Other income, net (5)(6)

Adjusted Restaurant-Level EBITDA

Year Ended

January 2, 2022

January 3, 2021

(43,029) $
(5,159)
28,791
80,798
61,401
4,470
398
—
75
1,678
(1,186)
6,234
8,538
81,608

(29,463)
6,294
27,283
81,727
85,841
12,778
273
3,464
163
1,384
(1,271)
5,223
—
107,855

Year Ended

January 2, 2022

January 3, 2021

(10,859) $

4,114

83,660
75
80,798
4,470
(1,186)
156,958 $

84,051
163
81,727
12,778
(1,271)
181,562

Reconciliation of Adjusted net loss:
Net loss
Add:

Impairment and other lease charges
Acquisition 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 2, 2022

January 3, 2021

(43,029) $

(29,463)

4,470
398
—
75
1,678
(1,186)
8,538
(3,494)
11,272
(21,278) $
(0.43) $

49,899

12,778
273
3,464
163
1,384
(1,271)

—
(4,199)
13,138
(3,733)
(0.07)
50,751

Adjusted net loss
Adjusted diluted net loss per share (9)
Diluted weighted average common shares outstanding

$
$

(1) Acquisition costs for twelve months ended January 2, 2022 mostly include integration, travel, legal and professional fees
incurred in connection with restaurants acquired during the second quarter of 2021, which were included in general and
administrative expenses. Acquisition costs for the twelve months ended January 3, 2021 mostly 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.

(2) Abandoned development costs for the twelve months ended January 2, 2022 represents the write-off of capitalized costs

due to revisions of the our development plans in 2020.

(3) Pre-opening costs for the twelve months ended January 2, 2022 and January 3, 2021 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 2, 2022 and January 3, 2021 include
executive recruiting and severance costs, costs pertaining to an ongoing lawsuit with one of the Company's former vendors
and other non-recurring professional service expenses.

(5) Other income, net for the twelve months ended January 2, 2022 included a gain of $1.1 million from the sale of a litigation
claim during the period, a gain from insurance recoveries of $1.3 million from property damage at two of our restaurants
and a loss on disposal of assets of $1.2 million.

(6) Other income, net for the twelve months ended January 3, 2021 included a included a gain of $2.1 million related to
insurance recoveries from property damage at four of our restaurants, a net gain on sale-leaseback transactions of $0.2
million, and loss on disposal of assets of $1.0 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 twelve months ended January 2, 2022 and January 3, 2021, respectively.
(8) Reflects the removal of the income tax provision recorded during the years ended January 2, 2022 and January 3, 2021 for
the establishment of a valuation allowance on certain federal income tax credits that may expire prior to their utilization.

(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.

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 2, 2022 and
January 3, 2021 was $70.9 million and $103.9 million, respectively. Net cash provided by operating activities in
2021 decreased by $33.1 million compared to 2020 due primarily to a decrease of Adjusted EBITDA of $26.2
million and a change in working capital components of $9.9 million. Our changes in working capital components in
2021 included favorable timing of required interest payments as well as 2020 including our deferral of the employer
portion of social security taxes through the end of 2020 of $21.6 million (which did not recur in 2021).

Net cash provided from operating activities in 2020 increased by $55.2 million compared to 2019 due
primarily to an increase in 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.

Investing activities. Net cash used for investing activities for the years ended January 2, 2022 and January 3,
2021 was $58.6 million and $47.9 million, respectively. In 2021, in addition to our capital expenditures of $51.8
million, we acquired 19 Burger King restaurants from other franchisees for $30.8 million, received net proceeds of
$22.3 million from sale-leaseback transactions (including $20.2 million from properties purchased in the 2021
acquisitions), and received $1.5 million from property insurance recoveries.

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.

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

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

Year Ended January 2, 2022:

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 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

9,000
16,712
17,045
9,006
51,763
4

17,824
15,317
13,064
10,685
56,890
7

Financing activities. Net cash provided by financing activities in 2021 was $48.1 million and included
issuance of $300.0 million principal amount of the Notes, principal payments of $321.4 million of outstanding term
B and B-1 loans under our Senior Credit Facilities, payment of a special dividend of $24.9 million, $5.4 million in
financing costs paid in connection with the debt issuance and amendments to our Senior Credit Facilities, and
proceeds from lease financing obligations of $4.6 million. We also made principal payments on finance leases of
$1.0 million.

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, and made principal
payments on finance leases of $1.6 million.

Senior Notes due 2029. On June 28, 2021, we issued $300.0 million principal amount of the Notes in a private
placement as described above under “—Recent and Future Events Affecting our Results of Operations-Issuance of
Notes and Amendments to our Senior Credit Facilities”. The proceeds of the offering, together with $46.0 million of
revolving credit borrowings under our Senior Credit Facilities, were used to (i) repay $74.4 million of outstanding
term B-1 loans and $243.6 million of outstanding term B loans under our Senior Credit Facilities (which included
scheduled principal payments), (ii) to pay fees and expenses related to the offering of the Notes and the Seventh
Amendment and (iii) for working capital and general corporate purposes, including for possible future repurchases
of its common stock and/or a dividend payment and/or payments on its common stock.

Senior Credit Facilities. As described above under “—Recent and Future Events Affecting Our Results of
Operations—Issuance of Notes and Amendments to our Senior Credit Facilities”, we entered into the Senior Credit
Facilities and subsequent amendments to the Senior Credit Facilities. Our obligations under the Senior Credit
Facilities are guaranteed by our subsidiaries and are secured by first priority liens on substantially all of our assets
and our subsidiaries, including a pledge of all of the capital stock and equity interests of our subsidiaries. Under the
Senior Credit Facilities, we are required to make mandatory prepayments of borrowings following dispositions of
assets, debt issuances and the receipt of insurance and condemnation proceeds (all subject to certain exceptions).

At January 2, 2022, 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%.

The weighted average interest rate for borrowings on long-term debt balances were 4.8% and 4.6% the years

ended January 2, 2022 and January 3, 2021, respectively.

The Term loan B borrowings are due and payable in quarterly installments, which began on September 30,

2019. Amounts outstanding at January 2, 2022 are due and payable as follows:

(i) seventeen quarterly installments of $1.1 million;

(ii) one final payment of $153.8 million on April 30, 2026.

The Revolving Credit Facility matures on January 29, 2026. As of January 2, 2022, there were no revolving
credit borrowings outstanding and $9.0 million of letters of credit issued under the Revolving Credit Facility. After
reserving for issued letters of credit and outstanding revolving credit borrowings, $206.0 million was available for
revolving credit borrowings at January 2, 2022 under the Revolving Credit Facility. As of March 9, 2022, after
reserving for issued letters of credit and $20.0 million in revolving credit borrowings, $186.0 million was available
for revolving credit borrowings.

The Senior Credit Facilities contain certain covenants, including without limitation, those limiting our and our
subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses,
change the character of its business in any material respect, engage in transactions with related parties, make certain
investments, make certain restricted payments or pay dividends. In addition, the Senior Credit Facilities require us
to meet 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, 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. As there were no borrowings under the Revolving
Credit Facility at January 2, 2022, no First Lien Leverage Ratio calculation was required. However, if the Company
had been subject to the First Lien Leverage Ratio, the Company's First Lien Leverage Ratio was 1.67 to 1.00 as of
January 2, 2022 which was below the required First Lien Leverage Ratio of 5.75 to 1.00. As a result, the Company
does not expect to have to reduce its term loan borrowings mandatorily with Excess Cash Flow (as defined in the
Senior Credit Facilities). We were in compliance with the financial covenants under our Senior Credit Facilities
at January 2, 2022.

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 events of default which include, without
limitation, payment default, covenant default, bankruptcy default, cross-default on other indebtedness, judgment
default and the occurrence of a change of control.

In March 2020, we entered into an interest rate swap agreement certain of our lenders under the Senior Credit
Facilities 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 fixed the interest rate on $220.0 million of outstanding borrowings under the
Senior Credit Facilities at 0.915% plus the applicable margin in its Senior Credit Facilities. The agreement matures
on February 28, 2025. On November 12, 2021, we partially terminated this interest rate swap to reduce the notional
amount hedged from $220.0 million to $120.0 million. which settled with net proceeds to us of $0.2 million, leaves
the fixed rate and other terms of the swap arrangement unchanged and provides the flexibility to repay borrowings
under the Senior Credit Facilities which previously needed to be maintained at the hedged $220.0 million notional
amount.

The differences between the variable LIBOR rate and the interest rate swap rate of 0.915% are settled
monthly. We made payments of $1.7 million and $1.0 million to settle the interest rate swap during the twelve
months ended January 2, 2022 and January 3, 2021, respectively. The fair value of our interest rate swap agreement
was an asset of $0.6 million as of January 2, 2022 which is included in other assets in the accompanying
consolidated balance sheets. Changes in the valuation of our interest rate swap were included as a component of
other comprehensive income, and will be reclassified to earnings as the losses are realized. We expect to reclassify
net losses totaling $0.9 million into earnings in the next twelve months.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of January 2, 2022 (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
$ 647,436 $ 32,070 $ 63,420 $ 207,149 $ 344,797
53
839,158
—
$ 1,996,800 $ 140,587 $ 268,601 $ 403,604 $ 1,184,008

7,114
1,336,100
6,150

2,252
194,203
—

1,840
101,758
4,919

2,969
200,981
1,231

More than
5 Years

(1) Our long term debt at January 2, 2022 included $171.9 million of term B loans under our Senior Credit Facilities and
$300.0 million of Notes. Total interest payments on our Notes of $134.3 million for all years presented are included at
the coupon rate of 5.875% per annum. Interest on our term B loans under our Senior Credit Facilities
of $124.8 million for all years presented are included at a rate of 5.74% per annum.

(2) Includes total interest of $0.8 million for all years presented.
(3) Includes total interest of $488.5 million for all years presented.
(4) Includes total interest of $0.2 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 $9.3 million at January 2, 2022.

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 9 of our consolidated financial statements for details of our long-

term debt.

Lease Guarantees. Fiesta Restaurant Group, Inc. ("Fiesta"), our former wholly-owned subsidiary, was spun-
off in 2012 to our stockholders. As of January 2, 2022, we are a guarantor under 17 Fiesta restaurant property
leases, of which all except for one are still operating, with lease terms expiring on various dates through 2030. Eight
of these guarantees are for leases with Pollo Operations, Inc, a wholly owned subsidiary of Fiesta, and nine of these
guarantees are for leases with Texas Taco Cabana, L.P., an indirect subsidiary of Taco Cabana, Inc. (together with
all direct and indirect subsidiaries, “Taco”). Taco was a wholly owned subsidiary of Fiesta until August 17, 2021
when Fiesta sold all of its outstanding capital stock of Taco Cabana, Inc. to YTC Enterprises, LLC, an affiliate of
Yadav Enterprises, Inc. We are fully liable for all obligations under the terms of the leases in the event that a tenant
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 2, 2022 was $9.0 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.

In the current labor market, we have seen competitive pressure on wage rates that have significantly outpaced
statutory minimums as the re-opening of the economy has increased demand for labor at all levels in the workforce.
In 2021, we have experienced inflationary cost pressures in labor and commodity costs as a result of challenges in
the overall labor force impacting our restaurants and our supply chains. The COVID-19 pandemic has increased the
difficulty and cost of maintaining adequate staffing levels at our restaurants as well as for businesses in our supply
chain that we depend on for commodities. At this point, there is no indication as to when these pressures will abate.

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
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 2, 2022, we had $9.3
million accrued for these insurance claims.

Franchise Rights. To determine the fair value attributable to franchise rights of restaurant acquisitions, we
estimate the acquired restaurants' future earnings, discount those earnings using an appropriate market discount rate
and subtract a contributory charge for net working capital, property and equipment and assembled workforce.
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. We assess the
potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying
value may not be recoverable, which include consideration of the impact of a decline in the Company's market
value. If an indicator of impairment exists, an estimate of the aggregate undiscounted cash flows from the acquired
restaurants is compared to the respective carrying value of franchise rights for each acquisition. 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.

We determined the initial decline in market value below net asset value during the third quarter of 2021 was a
sufficient indicator to trigger an interim goodwill impairment analysis as of the end of the eighth month of our fiscal
year. Based on the results of our goodwill impairment analysis, the fair value of each reporting unit exceeded
carrying value and goodwill was not impaired.

In addition, due to the proximity of the third quarter 2021 interim goodwill impairment analysis date to the
annual assessment date, and to allow for a greater amount of time to analyze the assessment of goodwill in advance
of our annual report filing deadline in future years, we updated our accounting policy to shift the annual impairment
test from the last day of the fiscal year to the last day of the eighth month of the fiscal year in 2021 and future fiscal
years. This change in date of the annual impairment test is not deemed material as the new measurement date of the
eighth month of the fiscal year is in relative close proximity to the previous measurement date and the year-end
balance sheet date, is not expected to materially impact the goodwill analysis, and allows for more timely financial
reporting on these estimates.

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. Impairment indicators at the restaurant level include low operating cash flows, declining sales, 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 and consideration of the impact of a decline in the Company's market value. 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 sheets. Finance leases are included in property and equipment and other current and long term
liabilities on our consolidated balance sheets. 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 2, 2022, 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 2, 2022 and January 3, 2021 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 2, 2022 we determined that a valuation allowance was
needed for certain income tax credits in the amount of $24.4 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.

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 in excess of the amounts covered by our interest rate swap. At January 2, 2022,
there were outstanding borrowings of $171.9 million under our Senior Credit Facilities of which $120 million was
fixed according to the terms of our interest rate swap. A 1% change in interest rates would have resulted in a $2.8
million change to interest expense for the year ended January 2, 2022 and a $3.3 million change to interest expense
for the year ended January 3, 2021.

At January 2, 2022, 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 (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 Facility 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%.

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. We are dependent on our national purchasing
cooperatives, RSI for the Burger King system and SMS for the Popeyes system, for sourcing our products and
related supplies and managing relationships with approved distributors. In many cases, we believe we will be able to
address commodity cost increases that are significant and appear to be long-term in nature by adjusting our menu
pricing. However, long-term increases in commodity prices may result in lower restaurant-level operating margins.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as
well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective as of January 2, 2022.

Changes in Internal Control over Financial Reporting. No changes occurred in our internal control over
financial reporting during the fourth quarter of 2021 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 2,
2022 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 2, 2022, our internal control over financial reporting was effective based on those
criteria.

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders 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 2, 2022, 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 2, 2022, 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 and consolidated financial statement schedule listed in the Index at Item 15(a)2
as of and for the year ended January 2, 2022 of the Company and our report dated March 10, 2022 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 10, 2022

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE