UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



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

For the quarterly period ended ~~March 29, 2020~~April 4, 2021



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

Commission File Number: 001-33174

CARROLS RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)




Delaware		83-3804854
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

968 James Street ~~Syracuse, New York~~		~~13203~~
Syracuse,	New York	13203
(Address of principal executive office)		(Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

TAST

The NASDAQ Global Market

Indicate by check mark 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 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, 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

☐

Accelerated filer

☒

~~Large accelerated filer~~

~~Accelerated filer~~

Non-accelerated filer

o☐

Smaller reporting company

o☒

Emerging growth company

o☐

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of May ~~6, 2020,~~7, 2021, Carrols Restaurant Group, Inc. had ~~52,723,814~~51,502,109 shares of its common stock, $.01 par value, outstanding.

Table of Contents

CARROLS RESTAURANT GROUP, INC.

FORM 10-Q

QUARTER ENDED ~~MARCH 29, 2020~~APRIL 4, 2021


				Page
PART I FINANCIAL INFORMATION

			~~Page~~
~~PART I FINANCIAL INFORMATION~~

Item 1	Interim Condensed Consolidated Financial Statements (Unaudited):

		Consolidated Balance Sheets		3

		Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss		4

		Consolidated Statements of Changes in Stockholders' Equity		5

		Consolidated Statements of Cash Flows		6

		Notes to Unaudited Interim Condensed Consolidated Financial Statements		7

Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2224

Item 3		Quantitative and Qualitative Disclosures About Market Risk		3941

Item 4		Controls and Procedures		3941

PART II OTHER INFORMATION

Item 1		Legal Proceedings		4042

Item 1A		Risk Factors		4042

Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		4142

Item 3		Defaults Upon Senior Securities		4142

Item 4		Mine Safety Disclosures		4142

Item 5		Other Information		4142

Item 6		Exhibits		4143

PART I—FINANCIAL INFORMATION

ITEM 1—INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CARROLS RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	April 4, 2021		January 3, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	59,929	$	64,964
Trade and other receivables	19,524		19,862
Inventories	11,983		11,595
Prepaid rent	8,207		8,046
Prepaid expenses and other current assets	13,328		7,309
Refundable income taxes	169		169

Total current assets	113,140		111,945

Property and equipment, net of accumulated depreciation of $448,904 and $434,328, respectively	345,206		349,555
Franchise rights, net of accumulated amortization of $137,069 and $133,632, respectively (Note 2)	331,160		334,597
Goodwill (Note 2)	122,619		122,619
Franchise agreements, at cost less accumulated amortization of $13,165 and $14,653, respectively	31,139		31,584

Operating right-of-use assets, net (Note 5)	795,157		799,962


Other assets	6,769		6,823
Total assets	$	1,745,190	$	1,757,085
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease liabilities (Notes 5 and 6)	$	5,668	$	5,525
Current portion of operating lease liabilities (Note 5)	42,495		41,815
Accounts payable	33,931		27,596


Accrued payroll, related taxes and benefits	41,582		49,417
Accrued real estate taxes	6,430		7,774
Other liabilities	28,671		24,214
Total current liabilities	158,777		156,341
Long-term debt and finance lease liabilities, net of current portion (Notes 5 and 6)	475,281		475,695
Lease financing obligations	1,190		1,191
Operating lease liabilities (Note 5)	805,008		809,969

Deferred income taxes, net (Note 7)	9,747		11,362
Accrued postretirement benefits	1,453		1,523

Other liabilities (Note 4)	24,799		29,472
Total liabilities	1,476,255		1,485,553
Commitments and contingencies (Note 9)	0		0
Stockholders’ equity:
Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstanding—100 shares	0		0
Voting common stock, par value $.01; authorized—100,000,000 shares, issued—53,607,062 and 52,653,964 shares, respectively, and outstanding—49,903,569 and 49,389,382 shares, respectively	520		515
Additional paid-in capital	307,933		306,469
Accumulated deficit	(25,535)		(18,367)
Accumulated other comprehensive income (loss)	144		(3,015)
Treasury stock, at cost	(14,127)		(14,070)
Total stockholders’ equity	268,935		271,532
Total liabilities and stockholders’ equity	$	1,745,190	$	1,757,085

See notes to unaudited condensed consolidated financial statements.

March 29, 2020 December 29, 2019
ASSETS
Current assets:
Cash and cash equivalents $ 41,272
$ 2,974
Trade and other receivables 11,701
13,445
Inventories 11,486
13,334
Prepaid expenses and other current assets 10,329
9,748
Refundable income taxes 278
284
Total current assets 75,066
39,785
Property and equipment, net of accumulated depreciation of $391,764 and $377,810, respectively 380,230
385,578
Franchise rights, net of accumulated amortization of $123,256 and $119,288, respectively (Note 3) 344,974
348,941
Goodwill (Note 3) 122,619
122,619
Franchise agreements, at cost less accumulated amortization of $13,875 and $13,365, respectively 33,211
32,690
Operating right-of-use assets, net (Note 6) 810,585
811,016
Other assets 11,449
10,831
Total assets $ 1,778,134
$ 1,751,460
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease liabilities (Notes 6 and 7) $ 5,437
$ 5,866
Current portion of operating lease liabilities (Note 6) 41,027
40,805
Accounts payable 32,201
45,780
Accrued interest 761
901
Accrued payroll, related taxes and benefits 25,538
31,314
Accrued real estate taxes 6,964
8,139
Other liabilities 27,721
16,520
Total current liabilities 139,649
149,325
Long-term debt and finance lease liabilities, net of current portion (Notes 6 and 7) 520,806
455,565
Lease financing obligations 1,193
1,194
Operating lease liabilities (Note 6) 808,795
808,292
Deferred income taxes, net (Note 8) —
6,983
Accrued postretirement benefits 2,493
2,555
Other liabilities (Note 5) 22,076
18,084
Total liabilities 1,495,012
1,441,998
Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstanding—100 shares —
—
Voting common stock, par value $.01; authorized—100,000,000 shares, issued—52,723,814 and 51,840,200 shares, respectively, and outstanding—51,474,340 and 51,049,377 shares, respectively 515
510
Additional paid-in capital 302,378
301,251
Retained earnings (accumulated deficit) (11,113 ) 11,096
Accumulated other comprehensive income (loss) (4,587 ) 622
Treasury stock, at cost (4,071 ) (4,017 )
Total stockholders’ equity 283,122
309,462
Total liabilities and stockholders’ equity $ 1,778,134
$ 1,751,460

Table of Contents

CARROLS RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended
		April 4, 2021		March 29, 2020
Restaurant sales		$	389,993	$	351,518
Operating expenses:
Cost of sales		113,790		102,927
Restaurant wages and related expenses		129,646		124,575
Restaurant rent expense		30,314		29,454
Other restaurant operating expenses		61,419		57,978
Advertising expense		15,369		13,876
General and administrative expenses (including stock-based compensation of $1,469 and $1,132, respectively)		21,369		20,787
Depreciation and amortization		20,609		21,031
Impairment and other lease charges (Note 3)		353		2,881
Other expense, net		227		56
Total operating expenses		393,096		373,565
Loss from operations		(3,103)		(22,047)
Interest expense		6,726		7,140

Loss before income taxes		(9,829)		(29,187)
Benefit for income taxes (Note 7)		(2,661)		(6,978)
Net loss		$	(7,168)	$	(22,209)
Basic and diluted net loss per share (Note 12)		$	(0.14)	$	(0.44)
Shares used in computing net loss per share:

Basic and diluted weighted average common shares outstanding		49,824,140		50,821,101

Comprehensive loss, net of tax:
Net loss		$	(7,168)	$	(22,209)
Change in valuation of interest rate swap (Note 6)		3,159		(5,209)
Comprehensive loss		$	(4,009)	$	(27,418)

See notes to unaudited condensed consolidated financial statements.

Three Months Ended
March 29, 2020 March 31, 2019
Revenue
Restaurant sales $ 351,518
$ 290,789
Operating expenses:
Cost of sales 102,927
82,575
Restaurant wages and related expenses 124,575
100,192
Restaurant rent expense 29,454
21,916
Other restaurant operating expenses 57,978
45,605
Advertising expense 13,876
11,872
General and administrative (including stock-based compensation expense of $1,132 and $1,526 respectively) 20,787
19,724
Depreciation and amortization 21,031
15,292
Impairment and other lease charges (Note 4) 2,881
910
Other expense (income), net 56
(2,129 )
Total operating expenses 373,565
295,957
Loss from operations (22,047 ) (5,168 )
Interest expense 7,140
5,947
Loss before income taxes (29,187 ) (11,115 )
Provision (benefit) for income taxes (Note 8) (6,978 ) 354
Net loss $ (22,209 ) $ (11,469 )
Basic and diluted net loss per share (Note 13) $ (0.44 ) $ (0.32 )
Shares used in computing net loss per share:
Basic and diluted weighted average common shares outstanding 50,821,101
36,045,137
Comprehensive loss, net of tax:
Net loss $ (22,209 ) $ (11,469 )
Change in valuation of interest rate swap (Note 7) (5,209 ) —
Comprehensive loss $ (27,418 ) $ (11,469 )

Table of Contents

CARROLS RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share and per share amounts)

(Unaudited)


											Accumulated
							Additional		Retained		Other					Total
	Common Stock			Preferred Stock			Paid-In		Earnings		Comprehensive		Treasury Stock			Stockholders'
	Shares	Amount		Shares	Amount		Capital		(Deficit)		Income (Loss)		Shares	Amount		Equity
Balance, January 3, 2021	51,486,116	$	515	100	$	0	$	306,469	$	(18,367)	$	(3,015)	(2,096,734)	$	(14,070)	$	271,532
Stock-based compensation	—	—		—	—		1,469		—		—		—	—		1,469
Vesting of non-vested shares and RSUs	522,406	5		—	—		(5)		—		—		—	—		0
Net loss	—	—		—	—		—		(7,168)		—		—	—		(7,168)
Purchase of treasury stock	—	—		—	—		—		—		—		(8,219)	(57)		(57)
Change in valuation of interest rate swap, net of income taxes of $1,046 (Note 6)	—	—		—	—		—		—		3,159		—	—		3,159
Balance, April 4, 2021	52,008,522	$	520	100	$	0	$	307,933	$	(25,535)	$	144	(2,104,953)	$	(14,127)	$	268,935














Balance, December 29, 2019	51,049,377	$	510	100	$	—	$	301,251	$	11,096	$	622	(553,112)	$	(4,017)	$	309,462
Stock-based compensation	—	—		—	—		1,132		—		—		—	—		1,132
Vesting of non-vested shares and RSUs	424,963	5		—	—		(5)		—		—		—	—		0
Net loss	—	—		—	—		—		(22,209)		—		—	—		(22,209)
Purchase of treasury stock	—	—		—	—		—		—		—		(9,318)	(54)		(54)
Change in valuation of interest rate swap (Note 6)	—	—		—	—		—		—		(5,209)		—	—		(5,209)
Balance, March 29, 2020	51,474,340	$	515	100	$	0	$	302,378	$	(11,113)	$	(4,587)	(562,430)	$	(4,071)	$	283,122

Accumulated
Additional Retained Other Total
Common Stock Preferred Stock Paid-In Earnings Comprehensive Treasury Stockholders'
Shares Amount Shares Amount Capital (Deficit) Income (Loss) Stock Equity
Balance, December 29, 2019 51,049,377
$ 510
100
$ —
$ 301,251
$ 11,096
$ 622
$ (4,017 ) $ 309,462
Stock-based compensation —
—
—
—
1,132
—
—
—
1,132
Vesting of non-vested shares 424,963
5
—
—
(5 ) —
—
—
—
Net loss —
—
—
—
—
(22,209 ) —
—
(22,209 )
Repurchase of treasury stock —
—
—
—
—
—
—
(54 ) (54 )
Change in valuation of interest rate swap (Note 7) —
—
—
—
—
—
(5,209 ) —
(5,209 )
Balance, March 29, 2020 51,474,340
$ 515
100
$ —
$ 302,378
$ (11,113 ) $ (4,587 ) $ (4,071 ) $ 283,122

Balance, December 30, 2018 35,742,427
$ 357
100
$ —
$ 150,459
$ 35,511
$ (646 ) $ (141 ) $ 185,540
Stock-based compensation —
—
—
—
1,526
—
—
—
1,526
Vesting of non-vested shares 371,824
4
—
—
(4 ) —
—
—
—
Net loss —
—
—
—
—
(11,469 ) —
—
(11,469 )
Adoption of ASC 842, net of taxes (Note 6) —
—
—
—
—
7,504
—
—
7,504
Balance, March 31, 2019 36,114.251
$ 361
100
$ —
$ 151,981
$ 31,546
$ (646 ) $ (141 ) $ 183,101

See ~~accompanying~~ notes to unaudited condensed consolidated financial statements.

See notes to unaudited condensed consolidated financial statements.

Table of Contents

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except share and per share amounts)

~~CARROLS RESTAURANT GROUP, INC.~~

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Table of Contents~~

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

1. Basis of Presentation

Business Description. At ~~March 29, 2020~~April 4, 2021, Carrols Restaurant Group, Inc. ("Carrols Restaurant Group") operated as a franchisee ~~1,028~~1,010 Burger King^®restaurants in 23 Northeastern, Midwestern, Southcentral and Southeastern states and 65 Popeyes^® restaurants in ~~seven~~7 Southeastern states.

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has significantly impacted the communities the Company's restaurants operate in as federal, state and local governments have taken a series of actions to contain its spread. In March 2020, the Company closed its dining rooms in all restaurants and modified operating hours in line with local ordinances and day-part sales trends. Over the course of the pandemic, each restaurant has operated according to its respective local governmental guidelines as well as safety procedures developed by Burger King and Popeyes. The COVID-19 pandemic and restaurant reopenings in communities the Company operates in continue to evolve. As of the first quarter of 2021, the dining rooms in most of the Company's restaurants were open although not widely used as guests continue to rely on our drive-thru, carry-out and delivery service modes.

Basis of Consolidation. Carrols Restaurant Group, Inc. is a holding company and conducts all of its operations through its direct and indirect wholly-owned subsidiaries Carrols Corporation and New CFH, LLC and their wholly-owned subsidiaries. Carrols Corporation's material direct and indirect wholly-owned ~~subsidiaries~~subsidiary (collectively, "Carrols") ~~include its wholly-owned subsidiary~~is Carrols LLC, a Delaware limited liability ~~company, Carrols LLC's wholly-owned subsidiary Republic Foods, Inc., a Maryland corporation ("Republic Foods").~~company. New CFH LLC's material direct and indirect wholly-owned subsidiaries include ~~Alabama Quality, LLC, Carolina Quality, LLC,~~ Frayser Quality, LLC and Nashville Quality, LLC ~~Frayser Holdings, LLC, Louisiana Quality, LLC, CFH Real Estate, LLC, Tennessee Quality, LLC, TQ Real Estate, LLC and Mirabile Investment Corporation~~ (and together with New CFH, LLC's immaterial direct and indirect subsidiaries, collectively, "New CFH"). Unless the context otherwise requires, Carrols Restaurant Group and its direct and indirect wholly-owned subsidiaries are collectively referred to as the “Company.” All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ each contained thirteen ~~weeks.~~weeks, respectively. The ~~2020~~2021 fiscal year will end January ~~3, 2021~~2, 2022 and will contain 5352 weeks.

Basis of Presentation. The ~~accompanying~~ unaudited condensed consolidated financial statements as of and for the three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain of the information and ~~the~~ footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. The results of operations for the three months ended ~~March 29, 2020 and March 31, 2019~~April 4, 2021 are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements ~~and notes thereto~~ contained in the Company’s Annual Report on Form 10-K for the year ended ~~December 29, 2019.~~January 3, 2021. The ~~December 29, 2019~~January 3, 2021 consolidated balance sheet data is derived from those audited consolidated financial statements.

Use of Estimates. The preparation of the ~~accompanying~~ unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates ~~include:~~include accrued occupancy costs, insurance liabilities, ~~evaluation for impairment of long-lived assets and franchise rights,~~ lease accounting matters, the valuation of acquired assets and liabilities, valuation of ~~interest-rate~~interest rate swap, ~~and~~ the valuation of deferred income tax ~~assets.~~assets and the evaluation for impairment of goodwill, long-lived assets and franchise rights. Actual results could differ from those estimates.

Segment Information. Operating segments are components of an entity for which ~~separate~~discrete financial information is available and is regularly reviewed by the chief operating decision maker in order to allocate

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

resources and assess performance. The Company's chief operating decision maker, our CEO, currently evaluates the Company's operations from a number of different operational perspectives; however, resource allocation decisions are determined based on the chief operating decision maker's evaluation of the total Company operations. The Company derives all significant revenues from a single operating segment. Accordingly, the Company views the operating results of its restaurants as ~~one~~1 reportable segment.

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

Business Combinations. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its net identifiable assets and liabilities based on the estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price, if any, is recorded as a bargain purchase gain. The Company uses all available information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company ~~sometimes engages~~may engage an independent third party valuation specialist to assist with the valuation of certain leasehold improvements, franchise rights and favorable and unfavorable leases.

The Company estimates that the seller's carrying value of acquired restaurant equipment, subject to certain adjustments, is equivalent to fair value of this equipment at the date of the acquisition. The fair values of assumed franchise agreements are valued as if the remaining term of the agreement is at the market rate. The fair values of acquired land, buildings, certain leasehold improvements and restaurant equipment subject to finance leases are determined using both the cost approach and market approach. The fair value of the favorable and unfavorable leases acquired, right-of-use assets, right-of-use liabilities, as well as the fair value of land, buildings, leasehold improvements and restaurant equipment subject to finance leases acquired is measuredapproach using significant inputs observable in the open market. The Company categorizes ~~all such~~these inputs as Level 2 inputs under ASC 820. The fair value of acquired franchise rights ~~is primarily~~and favorable or unfavorable leases positions are determined using the income approach and include unobservable inputs. The Company categorizes these inputs ~~classified~~ as Level 3 inputs under ASC 820.

Cash and Cash Equivalents.The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At both ~~March 29, 2020~~April 4, 2021 and ~~December 29, 2019,~~January 3, 2021, the Company did not have any cash invested in money market funds ~~which are~~ classified as cash equivalents on the condensed consolidated balance ~~sheet.~~sheets.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect the Company's own assumptions. Financial instruments include cash and cash equivalents, trade and other receivables, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, trade and other receivables and accounts payable approximate fair value because of the short-term nature of these financial instruments. The carrying amount of the Term Loan B ~~Facility~~and Incremental Term B-1 Loan borrowings at ~~March 29, 2020 and outstanding borrowings on our Revolving Credit Facility~~April 4, 2021 approximate fair value because of their variable rates.

The Company recognizes ~~derivatives~~its derivative arrangements on the balance sheet at fair value, which is considered Level 2. The Company’s only derivative is an interest rate swap which is designated as a cash flow ~~hedge; therefore,~~hedge. Accordingly, the effective portion of the changes in the fair value of this arrangement are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of the changes in the fair value of this arrangement are immediately recognized in earnings as interest expense. The Company classifies cash inflows and outflows from derivatives within operating activities on the ~~statement~~statements of cash flows.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of long-lived assets, goodwill and intangible assets. Long-lived assets and definite-lived intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs. As described in Note 4,3, the ~~Company recorded long-lived asset impairment charges of $1.7 million during the three months ended March 29, 2020, and $0.9 million during the three months ended March 31, 2019, respectively.~~

~~Recently Issued Accounting Pronouncements.~~ In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

Company recorded long-lived asset impairment charges of $0.3 million during the three months ended April 4, 2021 and $1.7 million during the three months ended March 29, 2020, respectively.

~~assets with credit deterioration.~~Recently Issued Accounting Pronouncements. In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”). This ~~update was~~ASU is effective for ~~fiscal years beginning after~~all entities as of March 12, 2020 through December ~~15, 2019, including interim periods within those fiscal years, with early adoption permitted.~~31, 2022. The Company ~~adopted~~is currently evaluating the effect adoption of this ~~ASU in the first quarter of 2020 and there was no impact~~guidance will have on its consolidated financial ~~statements and related disclosures.~~statements.

In ~~January 2017,~~April 2020, the FASB staff issued ~~ASU 2017-04, Intangibles - Goodwill~~interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the COVID-19 pandemic consistent with how those concessions would be accounted for under ACS Topic 842, Leases ("ASC 842"), as though enforceable rights and ~~Other (Topic 350): Simplifying the Test~~obligations for ~~Goodwill Impairment. This ASU simplifies the accounting for goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount~~those concessions existed (regardless of ~~a reporting unit exceeds its fair value, an impairment loss will be recognized~~whether those enforceable rights and obligations for the ~~amount by which~~concessions explicitly exist in the ~~carrying amount exceeds its fair value.~~contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This ~~update was effective~~election is available for ~~fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.~~concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company ~~adopted~~made the policy election to apply this ~~ASU~~interpretive guidance to certain rent relief received in 2020 resulting directly from COVID-19, and has assumed that enforceable rights and obligations for those concessions exist in the ~~first quarter~~lease contract. Accordingly, the Company recognized abatements that did not result in an extension of ~~2020~~lease term as reductions in variable lease payments, and ~~there was no impact on its consolidated financial statements and related disclosures.~~deferrals that did not result in an extension of lease term as an increase in other current liabilities. This election will continue while these abatements or deferrals are in effect.

Subsequent events. The Company reviewed and evaluated subsequent events through the issuance date of the Company’s unaudited condensed consolidated financial statements.

In 2012, as part of an acquisition of restaurants from Burger King Corporation ("BKC"), the Company was assigned BKC's right of first refusal on the sale of franchisee-operated restaurants in 20 states (the "ROFR"). Since the beginning of 2019 through the end of the first quarter of 2020, the Company has acquired an aggregate of 179 Burger King restaurants and 55 Popeyes restaurants from other franchisees in the following transactions, some of which were acquired pursuant to the exercise of the ROFR (in thousands, except number of restaurants):

Closing Date Number of Restaurants Purchase Price Market Location
April 30, 2019 (1) 220
259,083
Southeastern states, primarily TN, MS, LA
June 11, 2019 13
15,788
Baltimore, Maryland
August 20, 2019 (2) 1
1,108
Pennsylvania

234
275,979

On April 30, 2019 the Company completed a merger with Cambridge ("the Cambridge Merger") for a purchase price of $259.1 million through the issuance of shares of stock which consisted of (i) approximately 7.4 million shares of common stock, (ii) 10,000 shares of the Company's newly designated Series C Convertible Preferred Stock, which were converted into approximately 7.5 million shares of common stock on August 29, 2019, and (iii) the retirement of approximately $113.8 million of the indebtedness of Cambridge, net of cash acquired. All shares issued are subject to a two year restriction on sale or transfer subject to certain limited exceptions. As part of the transaction, Cambridge Franchise Holdings LLC ("Cambridge Holdings") has the right to designate up to two director nominees and two Cambridge Holdings executives joined the Company's Board of Directors on April 30, 2019.

Under the purchase method of accounting, the aggregate purchase price is allocated to the net tangible and intangible assets based on their estimated fair values on the acquisition date. The purchase price allocation values the common stock at $145.3 million based on the $9.81 closing price of the Company's stock on the date of acquisition.

The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the Cambridge Merger at their estimated fair values. The Company engaged a third party valuation specialist to assist with the valuation of franchise rights, leasehold improvements and favorable and unfavorable leases included in the operating right-to-use assets acquired. The fair value of other property and equipment and franchise agreements was based on the assets carrying value due to recent valuations completed by Cambridge on the acquisition of 132 restaurants and

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

construction of 33 new restaurants in the last three years. The fair value of the right-of-use liability is based upon the lease payments over the remaining lease term discounted by the Company's incremental borrowing rate.

Goodwill recorded in connection with the Cambridge Merger represents the excess of the purchase price over the aggregate fair value of net assets acquired and is related to the benefits expected as a result of the merger, including sales, operating synergies, development and growth opportunities. We believe that Cambridge's existing Burger King and Popeyes restaurant portfolios provide the Company with significant growth and development opportunities and due to the geographic location of the restaurants mitigate the dependence on the economic performance of any one particular geographic location or restaurant concept. A deferred income tax liability of approximately $44.3 million was recorded representing book and tax differences primarily related to the fair value of the acquired franchise rights.

~~The following table summarizes the final allocation of the aggregate purchase price for the Cambridge Merger reflected in the condensed consolidated balance sheets as of December 29, 2019.~~

Inventory $ 2,839
Prepaid expenses 2,947
Other assets 1,846
Land and buildings 21,257
Restaurant equipment 25,358
Restaurant equipment - subject to finance leases 488
Right-of-use assets 251,431
Leasehold improvements 3,498
Franchise fees 7,300
Franchise rights 174,500
Deferred income taxes (44,292 )
Goodwill 84,060
Finance lease obligations for restaurant equipment (568 )
Operating lease liabilities (255,897 )
Accounts payable (8,014 )
Accrued payroll, related taxes and benefits (3,133 )
Other liabilities (4,537 )
Net assets acquired $ 259,083

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

The Company allocated the aggregate purchase price for the 2019 acquisitions other than the Cambridge Merger at their estimated fair values. The following table summarizes the preliminary allocation of the aggregate purchase price for the 2019 acquisitions reflected in the condensed consolidated balance sheets as of March 29, 2020.

Inventory $ 158
Restaurant equipment 743
Restaurant equipment - subject to finance leases 150
Right-of-use assets 9,515
Leasehold improvements 6,205
Franchise fees 394
Franchise rights 9,809
Deferred income taxes 29
Goodwill 86
Operating lease liabilities (9,968 )
Finance lease liabilities for restaurant equipment (185 )
Accounts payable (40 )
Net assets acquired $ 16,896

Goodwill recorded in connection with the 2019 acquisitions represents costs in excess of fair values assigned to the underlying net assets of acquired restaurants. Acquired goodwill that is expected to be deductible for income tax purposes was $47.2 million in 2019. Deferred income tax assets and liabilities are due primarily to the book and tax bases differences of franchise rights, property and equipment, net favorable and unfavorable leases.

The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2019 acquired restaurants contributed restaurant sales of $68.7 million in the three months ended March 29, 2020. It is impracticable to disclose net earnings for the post-acquisition period for the acquired restaurants as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision.

The unaudited pro forma impact on the results of operations for the restaurants acquired in 2019 for the three months ended March 31, 2019 is included below. The unaudited pro forma results of operations are not necessarily indicative of the results that would have occurred had the acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes the Company's unaudited pro forma operating results:

Three Months Ended
March 31, 2019
Total revenue $ 367,189
Net loss $ (7,686 )
Basic and diluted net loss per share $ (0.21 )

~~This unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies, cost savings or any integration costs related to the acquired restaurants.~~

~~The unaudited pro forma financial results exclude transaction costs recorded as general and administrative expenses of $2.7 million during the three months ended March 31, 2019.~~

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

3. Intangible Assets

Goodwill. The Company is required to review goodwill for impairment annually, or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of the last day of its fiscal year and does not believe circumstances have changed since the last assessment date which would make it necessary to reassess the value of its goodwill. There were no0 recorded goodwill impairment losses during the three months ended April 4, 2021 or March 29, ~~2020 or March 31, 2019.~~2020.

Franchise Rights. Amounts allocated to franchise rights for each acquisition of Burger King^® and Popeyes^®restaurants are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus ~~one twenty-year~~1 twenty-year renewal period.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

The Company assesses the potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 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. NoNaN impairment charges were recorded related to the Company’s franchise rights for the three months ended April 4, 2021 and March 29, ~~2020 and March 31, 2019.~~2020. The change in franchise rights for the three months ended~~March 29, 2020~~April 4, 2021 is summarized below:

Balance at December 29, 2019 $ 348,941
Amortization expense (3,967 )
Balance at March 29, 2020 $ 344,974


Balance at January 3, 2021	$	334,597

Amortization expense	(3,437)
Balance at April 4, 2021	$	331,160

Amortization expense related to franchise rights was ~~$4.0~~$3.4 million and ~~$2.0~~$4.0 million for the three months ended April 4, 2021 and March 29, 2020, ~~and March 31, 2019,~~ respectively. The Company expects annual amortization expense to be ~~$14.3~~$13.7 million in ~~2020~~2021 and ~~$13.7 million~~ in each of the following five years.

4.3. Impairment of Long-Lived Assets and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.

The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions. The Company determines the fair value of right-of-use lease assets based on an assessment of market rents and a discounted future cash flow model. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy.

During the three months ended April 4, 2021, the Company recorded impairment and other lease charges of $0.4 million due primarily to assets at a restaurant location closed during the quarter.

During the three months ended March 29, 2020, the Company recorded impairment and other lease charges of $2.9 million consisting of $1.5 million of initial impairment charges for ~~three~~3 underperforming restaurants, capital expenditures of $0.2 million at underperforming restaurants, and $1.2 million of other lease charges primarily from ~~nine~~9 restaurants permanently closed during the first quarter of 2020.

During the three months ended March 31, 2019, the Company recorded impairment and other lease charges of $0.9 million consisting of $0.7 million related to initial impairment charges for two underperforming restaurants, capital expenditures of $0.1 million at previously impaired restaurants, and $0.1 million of other lease charges primarily due to the de-imaging of six restaurants closed during the first quarter of 2019.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

5.4. Other Liabilities, Long-Term

Other liabilities, long-term, at ~~March 29, 2020~~April 4, 2021 and ~~December 29, 2019~~January 3, 2021 consisted of the following:


	April 4, 2021		January 3, 2021
Accrued occupancy costs	$	2,345	$	2,394
Accrued workers’ compensation and general liability claims	4,967		5,499
Interest rate swap	1,858		6,062
Deferred compensation	4,528		4,419
Deferred federal payroll taxes	10,808		10,808
Other	293		290
	$	24,799	$	29,472

On March 27, 2020, the United States enacted the CARES Act as a response to the economic uncertainty resulting from COVID-19. The CARES Act provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. In 2020, the Company deferred $21.6 million related to this provision. As of April 4, 2021, $10.8 million was recorded in accrued payroll, related taxes and benefits and $10.8 million was recorded in other liabilities, long-term in the consolidated balance sheets.

March 29, 2020 December 29, 2019
Accrued occupancy costs $ 8,054
$ 8,523
Accrued workers’ compensation and general liability claims 4,620
5,370
Accrued interest rate swap 5,209
—
Deferred compensation 3,905
3,902
Other 288
289
$ 22,076
$ 18,084

The Company utilizes land and buildings in its operations under various lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for twenty years and, in many cases, provide for renewal options and in most cases rent escalations. The exercise of such renewal options are generally at the Company’s sole discretion. The Company evaluates renewal options at lease commencement and upon any lease amendments or remodeling activity to determine if such options are reasonably certain to be exercised based on economic factors. Certain leases also require ~~contingent~~variable rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities.

~~The right-of-use~~Right-of-use (“ROU”) lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. As the rate implicit within our leases is not readily determinable, the Company uses ~~its~~market and term-specific incremental borrowing rates which consider the rate ~~which considers~~of interest it expects to pay on a collateralized basis to borrow an amount equal to the ~~Company's debt issuances and~~ lease ~~term in determining the present value of future payments. The~~payments under similar terms. ROU ~~asset is~~assets are also reduced by lease incentives, ~~and~~ initial direct costs and is adjusted by favorable lease assets and unfavorable lease liabilities.

Variable lease components represent amounts that are contractually fixed as a percentage of sales and are recognized in expense as incurred. Leases with an initial term of 12 months or less are not recorded on the consolidated balance ~~sheet~~sheets and are recognized as lease expense on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including ~~rent, real estate taxes and insurance costs)~~rent) separately from ~~the~~ non-lease ~~components.~~components (e.g. common area maintenance).

~~In addition, the~~The Company also utilizes certain restaurant equipment under various finance lease agreements with initial terms of generallythree to eight years. The Company does not consider any one of these individual leases material to the Company's operations.

For certain leases where rent escalates based upon a change in a financial index, such as the Consumer Price Index, the difference between the ~~rate~~index at lease inception and the subsequent fluctuations in that ~~rate~~index are included in variable lease costs. Additionally, because the Company has elected to not separate lease and non-lease components, in limited instances variable costs also include payments to the landlord for common area maintenance, real estate taxes, insurance and other operating expenses. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

As a result of the COVID-19 pandemic and the resulting economic uncertainty in the restaurant industry in 2020, the Company contacted each of its landlords to potentially negotiate accommodations to preserve cash. For certain leases the Company was able to modify existing payment terms, in some cases through deferral of existing payments until future periods and in some cases through a reduction in payments that would otherwise have been due. The Company elected the practical expedient to not evaluate whether a deferral of rent within the current term is a lease modification. Any concessions which resulted in an extension of the existing lease term were accounted for as a lease modification under the current GAAP guidance. The total rent that was or will be deferred as a result of requests for pandemic-related relief from our landlords other than BKC (see Note 10) was $5.8 million, of which $4.8 million was or is expected to be repaid over various periods beginning in the third quarter of 2020. As of April 4, 2021, $2.1 million remains to be repaid to landlords related to these deferrals.

The components and classification of lease expense for the three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ are as follows:


		Three Months Ended
Lease cost	Classification	April 4, 2021		March 29, 2020
Operating lease cost (1)	Restaurant rent expense	$	25,742	$	25,471
Operating lease cost (2)	General and administrative	256		98
Variable lease cost	Restaurant rent expense	4,598		4,105
Sublease income	Restaurant rent expense	(26)		(122)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	132		445
Interest on lease liabilities	Interest expense	22		46
Total lease cost		$	30,724	$	30,043

Three Months Ended
Lease cost Classification March 29, 2020 March 31, 2019
Operating lease cost (1) Restaurant rent expense $ 25,471
$ 18,294
Operating lease cost General and administrative 98
74
Variable lease cost Restaurant rent expense 4,105
3,800
Sublease income Restaurant rent expense (122 ) (178 )
Finance lease cost:
Amortization of right-of-use assets Depreciation and amortization 445
476
Interest on lease liabilities Interest expense 46
71
Total lease cost $ 30,043
$ 22,537
(1)Includes short-term leases which are not material.

(2)Represents operating lease costs for property and equipment not directly related to restaurant operations.

Supplemental cash flow information related to leases for the three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ are as follows:


	Three Months Ended
	April 4, 2021		March 29, 2020
Gain (loss) on sale-leaseback transactions	$	(4)	$	(244)
Operating lease assets and liabilities resulting from lease modifications and new leases	$	6,882	$	16,759
Finance lease assets acquired through finance lease obligations	$	546	$	0
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	25,354	$	24,733
Operating cash flows related to finance leases	$	22	$	46
Financing cash flows related to finance leases	$	137	$	567

Three Months Ended
March 29, 2020 March 31, 2019
Gain (loss) on sale-leaseback transactions $ (244 ) $ 93
Lease assets and liabilities resulting from lease modifications and new leases $ 16,759
$ 15,952
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 24,733
$ 17,366
Operating cash flows from finance leases $ 46
$ 71
Financing cash flows from finance leases $ 567
$ 476

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

Long-term debt at ~~March 29, 2020~~April 4, 2021 and ~~December 29, 2019~~January 3, 2021 consisted of the following:

On April 30, 2019, the Company entered into a senior secured credit ~~facility~~facilities in an aggregate principal amount of $550.0 million, consisting of (i) a Term Loan B Facility in an aggregate principal amount of $425.0 million (the “Term Loan B Facility”) maturing on April 30, 2026 and (ii) a revolving credit facility (including a sub-facility of $35.0 million for standby letters of credit) in an aggregate principal amount of $125.0 million maturing on April 30, 2024 (the “Revolving Credit Facility” and, together with the Term Loan B Facility, ~~(as amended,~~ the “Senior Credit Facilities”).

On December 13, 2019, the Company entered into the First Amendment to Credit Agreement (the "First Amendment") which amended a financial covenant under the Senior Credit Facilities applicable solely with respect to the Revolving Credit Facility that previously required the Company to maintain quarterly a Total Net Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 4.75 to 1.00 (measured on a most recent four quarter basis), to now require that the Company maintain only a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 5.75 to 1.00 (as measured on a most recent four quarter basis) if, and only if, on the last day of any fiscal quarter (beginning with the fiscal quarter ended December 29, 2019), the sum of the aggregate principal amount of outstanding revolving credit borrowings under the Revolving Credit Facility and the aggregate face amount of letters of credit issued under the Revolving Credit Facility (excluding undrawn letters of credit in an aggregate face amount up to $12.0 million) exceeds 35% of the aggregate amount of the maximum revolving credit borrowings under the Revolving Credit Facility. The First Amendment also reduced the aggregate maximum revolving credit borrowings under the Revolving Credit Facility by $10.0 million to a total of $115.0 million.

On March 25, 2020, the Company entered into the Second Amendment to its Senior Credit Facilities (the "Second Amendment"). The Second Amendment increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility (the "Revolving Committed Amount") by $15.4 million to a total of $130.4 million.

The Second Amendment also amended the definition of Applicable Margin (such definition and all other definitions used herein and otherwise not defined herein shall have the meanings set forth in the Senior Credit Facilities) to provide that on and after the date of the Second Amendment (the "Second Amendment Effective Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit Fees) shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is greater than $115.0 million, (i) for the period commencing on the Second Amendment Effective Date and including the date that is 179 days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans, (ii) for the period commencing on the date that is 180 days after the Second Amendment Effective Date, through and including the date that is 269 days after the Second Amendment Effective Date, 4.25% for LIBOR Rate Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is 270 days after

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

the Second Amendment Effective Date, through and including the date that is 364 days after the Second Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv) for the period commencing on the date that is 365 days after the Second

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

Amendment Effective Date and thereafter, 4.75% for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving Committed Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans.

The Second Amendment ~~also~~ provides that beginning on the 180th day after the Second Amendment Effective Date and for so long as the Revolving Committed Amount is greater than $115.0 million, the Company shall pay to the Administrative Agent, for the ratable benefit of the Revolving Facility Lenders, a commitment fee (the "Ticking Fee") on the average daily amount of the Revolving Committed Amount at a rate per annum equal to (a) 0.125% for the 180th day after the Second Amendment Effective Date through and including the 269th day after the Second Amendment Effective Date, (b) 0.25% for the 270th day after the Second Amendment Effective Date through and including the 364th day after the Second Amendment Effective Date and (c) 1.00% for the 365th day after the Second Amendment Effective Date and thereafter. The Second Amendment provides that the Ticking Fee will be due and payable quarterly in arrears (calculated on a 360-day basis) on the last Business Day of each calendar quarter and will accrue from the 180th day after the Second Amendment Effective Date for so long as the Revolving Committed Amount is greater than $115.0 million. The Company recorded expense of $0.1 million related to these ticking fees in the three months ended April 4, 2021. The Second Amendment also provides that the Company shall use the proceeds of an Extension of Credit which results in the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate amount of LOC Obligations equaling an amount in excess of $115.0 million, solely for ongoing operations of the Company and its subsidiaries and shall not be held as cash on the balance sheet. Pursuant to the Letter Agreement dated as of March 25, 2020 among the Company, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association and Truist Bank, the Company agreed to defer rent payments totaling approximately $2.4 million per month under certain real property leases for the period between April 1, 2020 through and including June 30, 2020. The Company and the lessor under each of such leases has agreed to the deferral of rent payments under such leases for such period and that any such deferred rent under such leases shall be due and payable by the Company on July 1, 2020.

On April 8, 2020, the Company entered into the Third Amendment to its Senior Credit Facilities which increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility by $15.4 million to a total of $145.8 million.

On April 16, 2020, the Company entered into the Fourth Amendment to ~~our~~its Senior Credit Facilities (the "Fourth Amendment"). The Fourth Amendment permits the Company to incur and, if necessary, repay indebtedness incurred pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic Security Act, as amended (the "CARES Act"). Subsequent to this amendment, the Company withdrew its application for relief under the PPP and returned the funds upon receipt.

On June 23, 2020 (the "Fifth Amendment Effective Date"), the Company entered into the Fifth Amendment to its Senior Credit Facilities (the "Fifth Amendment"). The ~~Company has determined~~Fifth Amendment increased the Term Loan (as defined in the Senior Credit Facilities) borrowings in the aggregate principal amount of $75 million of Incremental Term B-1 Loans (as defined in the Senior Credit Facilities). The Incremental Term B-1 Loans constitute a new tranche of Term Loans ranking pari passu in right of payment and security with the Initial Term Loans for all purposes under the Senior Credit Facilities. The Incremental Term B-1 Loans have the same terms as outstanding borrowings under the Company's existing term loan B facility pursuant to and in accordance with the Senior Credit Facilities, provided that it(i) borrowings under the Incremental Term B-1 Loans will bear interest at a rate per annum, at the Company’s option, of (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus the applicable margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior Credit Facilities) (which shall not be ~~borrowing under~~less than 1% for Incremental Term B-1 Loans) plus the ~~PPP.~~applicable margin of 6.25% and (ii) certain prepayments of the Incremental Term B-1 Loans by the Company prior to the first anniversary of the Fifth Amendment Effective Date are subject to a premium to the Administrative Agent (as defined in the Senior Credit Facilities), for the ratable account of each applicable Term Loan Lender (as defined in the Senior Credit Facilities) holding Incremental Term B-1 Loans on the date of such prepayment equal to the Applicable Make-Whole Amount (as defined in the Senior Credit Facilities) with respect to the principal amount of the Incremental Term B-1 Loans so prepaid. The principal amount of the Incremental Term B-1 Loans will amortize in an aggregate annual amount equal to 1% of the original principal amount of the Incremental Term B-1 Loans and shall be repayable in consecutive quarterly installments on the last day of the Company's fiscal quarters beginning on the third fiscal quarter of 2020. The remaining

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

outstanding principal amount of the Incremental Term B-1 Loan and all accrued but unpaid interest and other amounts payable with respect to the Incremental Term B-1 Loan due on April 30, 2026, which is the Term Loan Maturity Date (as defined in the Senior Credit Facilities). The net proceeds of the Incremental Term B-1 Loans were $71.3 million after original issue discount and were used for general corporate purposes, including repayment of the outstanding balance of the Revolving Credit Facility.

The Company’s obligations under the Senior Credit Facilities are guaranteed by its subsidiaries and are secured by first priority liens on substantially all of the assets of the Company and its subsidiaries, including a pledge of all of the capital stock and equity interests of its subsidiaries.

Under the Senior Credit Facilities, the Company is required to make mandatory prepayments of borrowings in the event of dispositions of assets, debt issuances and insurance and condemnation proceeds (all subject to certain exceptions).

The Senior Credit Facilities contain certain covenants, including without limitation, those limiting the Company’s and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in all material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends. In addition, the Senior Credit Facilities require the Company to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities). if revolving credit borrowings exceed 35% of the aggregate borrowing capacity, as described under the First Amendment above. As there were 0 borrowings under the Revolving Credit Facility at April 4, 2021, no First Lien Leverage Ratio calculation was required. The Company was in compliance with the covenants under its Senior Credit Facilities at ~~March 29, 2020.~~April 4, 2021.

The Senior Credit Facilities contain customary default provisions, including that the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary ~~defaults~~events of default which include, without limitation, payment default, covenant ~~defaults,~~default, bankruptcy ~~type defaults, cross-defaults~~default, cross-default on other indebtedness, ~~judgments or upon~~judgment default and the occurrence of a change of control.

The Term Loan B and B-1 borrowings are due and payable in quarterly installments, which began on September 30, 2019. Amounts outstanding at April 4, 2021 are due and payable as follows:

(i) 20 remaining quarterly installments of $1.3 million;

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

(ii) one final payment of $467.0 million on April 30, 2026.

At ~~March 29, 2020~~April 4, 2021, borrowings under the Senior Credit Facilities bore interest as follows:

(i) Revolving Credit ~~Facility bore interest,~~Facility: at a rate per annum equal to ~~(i)~~(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%.

~~At March 29, 2020 borrowings under the~~(ii) Term Loan B ~~Facility bore interest,~~borrowings: at a rate per annum equal to ~~(i)~~(a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus 2.25% or (b) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.25%.

(iii) Term Loan B-1 borrowings: at a rate per annum, at the Company’s option, of (a) the Alternate Base Rate plus the applicable margin of 5.25% or (b) the LIBOR Rate (which shall not be less than 1% for Incremental Term B-1 Loans) plus the applicable margin of 6.25%.

The weighted average interest rate for borrowings under the Senior Credit Facilities was 4.4% for the three months ended April 4, 2021 and 4.9% for the three months ended March 29, 2020, respectively.

As of April 4, 2021, there were 0 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, $136.8 million was ~~4.9% and~~available for ~~the Notes and~~revolving credit borrowings under ~~our prior senior credit facility for three months ended March 31, 2019 was 7.9%.~~the Senior Credit Facilities at April 4, 2021.

~~The weighted average interest rate on long-term debt, excluding lease financing obligations, for the three months ended March 29, 2020~~

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and ~~March 31, 2019 as 4.9% and 7.9%, respectively.~~per share amounts)

Interest Rate Swap. In March 2020, ~~The~~the Company entered into an interest rate swap agreement with its lenders to mitigate the risk of increases in the variable interest rate related to term loan borrowings under the Term Loan B Facility. The interest rate swap fixes the interest rate on 50% of the outstanding term loan borrowings under the Term Loan B Facility at 0.915% plus the applicable margin in its Senior Credit Facilities. The agreement matures on February 28, 2025 and has a notional amount of $220.0 ~~million at March 29, 2020.~~million. The differences between the variable LIBOR rate and the interest rate swap rate of 0.915% are settled monthly. The Company ~~has not~~ made ~~any~~ payments of $0.4 million to settle the interest rate swap during the three months ended ~~March 29, 2020.~~April 4, 2021. The fair value of the Company's interest rate swap agreement was a liability of ~~$5.2~~$1.9 million as of ~~March 29, 2020~~April 4, 2021 and is included in long-term other liabilities in the accompanying consolidated balance sheets. Changes in the valuation of the Company's interest rate swap were included as a component of other comprehensive income and will be reclassified to earnings as the losses are realized. The Company expects to reclassify net losses totaling ~~$1.5~~$1.7 million into earnings in the next twelve months.

The Company's counterparties under this arrangement provided the Company with quarterly statements of the market values of these instruments based on significant inputs that were observable or could be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability. The Company classified this within Level 2 of the valuation hierarchy described in Note 1. The impact on the derivative liabilities for the Company and the counterparties' non-performance risk to the derivative trades was considered when measuring the fair value of derivative liabilities.

~~The Term Loan B Facility borrowings are due and payable in quarterly installments, which began on September 30, 2019. Amounts outstanding at March 29, 2020 are due and payable as follows:~~

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

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

As of March 29, 2020, there were $111.8 million of revolving credit borrowings outstanding and $9.7 million of letters of credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and outstanding revolving credit borrowings, $9.0 million was available for revolving credit borrowings under the Senior Credit Facilities at March 29, 2020.

~~8% Senior Secured Second Lien Notes due 2022.~~ On April 29, 2015, the Company issued $200.0 million principal amount of 8.0% Notes and on June 23, 2017, the Company issued an additional $75.0 million principal amount of 8.0% Notes. The 8% Notes were to mature and were payable on May 1, 2022. Interest was payable semi-annually on May 1 and November 1. The 8% Notes were guaranteed by the Company's subsidiaries and were secured by second-priority liens on substantially all of the Company's and its subsidiaries' assets (including a pledge of all of the capital stock and equity interests of its subsidiaries). The 8% notes were redeemed as part of the refinancing related to the Cambridge Acquisition on April 30, 2019.

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

~~Prior Senior Credit Facility.~~ The Company's prior senior credit facility provided for maximum revolving credit borrowings of up to $73.0 million (including $20.0 million available for letters of credit). Borrowings under the prior senior credit facility bore interest at a rate per annum, at the Company’s option, of:

~~(i) the Alternate Base Rate plus the applicable margin of 1.75% to 2.75% based on the Company’s Adjusted Leverage Ratio, or~~

~~(ii) the LIBOR Rate plus the applicable margin of 2.75% to 3.75% based on the Company’s Adjusted Leverage Ratio (all terms as defined under the prior senior credit facility).~~

~~All amounts outstanding under the prior senior credit facility were repaid as part of the refinancing related to the Cambridge Acquisition on April 30, 2019.~~

The ~~provision (benefit)~~benefit for income taxes for the three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ was comprised of the following:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The Company has performed an assessment of positive and negative evidence regarding the realization of its deferred income tax assets at ~~March 29, 2020~~April 4, 2021 as required by ASC 740. Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 also prescribes that objective evidence, in particular the Company’s three-year cumulative loss position at ~~March 29, 2020,~~April 4, 2021, be given greater weight than subjective evidence, ~~including~~such as the Company’s forecasts of future taxable income, which include assumptions that cannot be objectively verified. The Company considers all available positive and negative evidence regarding the estimated future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, historical taxable income in prior carryback periods if carryback is permitted, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused, and determines, based on the required weight of the evidence under ASC 740, whether a valuation allowance is necessary for any of its deferred tax assets at each reporting period. ~~During~~The future reversals of existing temporary differences and the ~~first quarter of 2020, due~~ability to ~~forecasted losses for 2020,~~carryback are considered verifiable evidence. At January 4, 2021, the Company determined that ~~an incremental~~a valuation allowance was needed for certain federal income tax credits in the amount of $13.1 million as they may expire prior to their utilization by the Company. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during 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. As of April 4, 2021, the Company has a valuation allowance recorded as a component of its ~~net~~ deferred income taxes in the amount of $13.1 million.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

The benefit for income taxes for the three months ended April 4, 2021 was derived using an estimated effective annual income tax ~~assets at March 29, 2020.~~rate for all of 2021 of 21.3%, which excludes any discrete tax adjustments. The difference compared to the statutory rate for 2021 is attributed to various nondeductible tax expenses. The income tax benefit for the three months ended April 4, 2021 contains net discrete tax adjustments of $0.7 million of tax benefit.

The benefit for income taxes for the three months ended March 29, 2020 was derived using an estimated effective annual income tax rate for all of 2020 of 31.3%, which excludes any discrete tax ~~adjustments. The difference compared to~~adjustments and was higher than the statutory rate ~~for 2020 is attributed~~due to the effect of fixed employment tax credits on the taxable loss. The benefits of federal employment credits ~~which~~ are not directly related to the amount of pre-tax ~~loss~~income recorded in a period. Accordingly, in periods where recorded pre-tax income ~~(loss)~~ is relatively small, the proportional effect of these items on the effective tax rate may be significant. The Company also recorded a valuation allowance of $2.4 million as of March 29, 2020 against all of its net deferred income tax assets due to forecasted losses for 2020, of which $2.1 million was included in deferred tax expense during the three months ended March 29, 2020. There were no discrete adjustments for the three months ended March 29, 2020.

On March 27, 2020, the United States enacted the CARES Act as a response to the economic uncertainty resulting from ~~COVID-19.~~the COVID-19 pandemic. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense for tax, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the Tax Cuts and Jobs Act of 2017, referred to herein as the U.S. Tax Act, for qualified improvement property. The CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of ~~March 31, 2020,~~April 4, 2021, the Company expects that the carryback of NOL's will not have an impact on its current tax attributes.

~~CARROLS RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(Tabular amounts in thousands, except share and per share amounts)~~

The provision for income taxes for the three months ended March 31, 2019 was derived using an estimated effective annual income tax rate for all of 2019 of (3.1)%, which excludes any discrete tax adjustments and was below the statutory rate due to the effect of fixed employment tax credits on taxable income. The benefits of federal employment credits are not directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where recorded pre-tax income is relatively small, the proportional effect of these items on the effective tax rate may be significant. There were no discrete adjustments for the three months ended March 31, 2019.

As of ~~March 29, 2020,~~April 4, 2021, the Company had federal net operating loss carryforwards of approximately ~~$145.0~~$136.7 million which expire beginning in 2033. The Company's state net operating loss carryforwards expire beginning in 2021 through 2038.

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At ~~March 29, 2020~~April 4, 2021 and ~~December 29, 2019,~~January 3, 2021, the Company had no0 unrecognized tax benefits and no0 accrued interest related to uncertain tax positions. The tax years ~~2014~~2015 - ~~2019~~2020 remain open to examination by the major taxing jurisdictions to which the Company is subject.Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to the uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.

9.8. Stock-Based Compensation

Stock-based compensation expense for the three months ended April 4, 2021 and March 29, 2020 was $1.5 million and ~~March 31, 2019 was~~ $1.1 million, respectively.

As of April 4, 2021, the total unrecognized stock-based compensation expense relating to non-vested shares and ~~$1.5~~stock options was approximately $12.8 million ~~respectively.~~ and the Company expects to record an additional $4.6 million in stock-based compensation expense related to the vesting of these awards in the remainder of 2021. The remaining weighted average vesting period for stock options and non-vested shares was 2.3 years.

During the three months ended ~~March 29, 2020,~~ April 4, 2021, the Company granted ~~790,000~~880,000 non-vested restricted shares to certain employees and officers of the Company and ~~73,128~~58,140 non-vested restricted shares to outside directors of the Company. These shares vest, become non-forfeitable and are being expensed over their three-year vesting period.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

The following is a summary of all non-vested shares activity for the three months ended ~~March 29, 2020 was as follows:~~April 4, 2021:

The fair value of non-vested shares is based on the closing price on the date of grant. ~~As of March 29,~~

In 2020, the ~~total non-vested unrecognized stock-based compensation expense was approximately $8.0 million~~Company granted in the aggregate options to purchase 1,075,000 shares of its common stock, consisting of 739,340 shares of non-qualified stock options and 335,660 shares of incentive stock options (“ISOs”) to certain employees and officers of the Company, of which 25,000 were forfeited in 2020. These options become exercisable and are being expensed over their three-year vesting period. The options expire seven years from the date of the grant and were issued with an exercise price equal to the fair market value of the stock price, on the date of grant, or $7.12 per share.

The following is a summary of all stock option activity for the three months ended April 4, 2021:


	Options	Weighted Average Exercise Price	Average Remaining Contractual Life	Aggregate Intrinsic Value (1)
Options outstanding at January 3, 2021	1,050,000	$7.12
Granted	0	$0


Options Outstanding at April 4, 2021	1,050,000	$7.12	6.4	$0
Vested or expected to vest at April 4, 2021	1,050,000	$7.12	6.4	$0
Options exercisable at April 4, 2021	0

(1) The aggregate intrinsic value is calculated using the difference between the market price of the Company's common stock at April 4, 2021 of $6.12 and the ~~remaining weighted average vesting period~~grant price for ~~non-vested shares was 2.4 years. The Company expects to record an additional $3.2 million in stock-based compensation expense related to~~only those awards that have a grant price that is less than the ~~vesting~~market price of ~~these~~the Company's common stock at April 4, 2021. There were no awards ~~for~~having a grant price less than the ~~remainder~~market price of ~~2020.~~the Company's common stock at April 4, 2021.

Restricted Stock Units

The Company has issued restricted stock units (“RSUs”) on shares of the Company's common shares to certain eligible employees. During the three months ended ~~March 29, 2020, 20,486~~April 4, 2021, the Company issued 99,317 RSUs which will vest in equal installments over three years. During the three months ended April 4, 2021, 19,958 RSUs vested into shares of the Company's common stock at a weighted average price of ~~$2.92~~$6.68 per ~~share into shares of the Company's common stock.~~share.

AThe following is a summary of all RSU activity for the three months ended ~~March 29, 2020 was as follows:~~

April 4, 2021:



	Units
Non-vested at ~~December 29, 2019~~January 3, 2021	~~57,942~~37,456
~~Vested~~Granted	~~(20,486~~99,317	)
Vested	(19,958)

Non-vested at ~~March 29, 2020~~April 4, 2021	~~37,456~~116,815

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

9. Commitments and Contingencies

Lease Guarantees.Fiesta Restaurant Group, Inc. ("Fiesta"), a former wholly-owned subsidiary of the Company, was spun-off in 2012 to the Company's stockholders. As of ~~March 29, 2020,~~April 4, 2021, the Company is a guarantor under 2718 Fiesta restaurant property leases ~~of which all except for one is still operating,~~ with lease terms expiring on various dates through ~~2030.~~2030, of which all but 2 are still operating. The Company is fully liable for all obligations under the terms of the leases in the event that Fiesta fails to pay any sums due under the lease, subject to indemnification provisions of a Separation and Distribution Agreement entered into in connection with the spin-off of Fiesta.

The maximum potential amount of future undiscounted rental payments the Company could be required to make under these leases at ~~March 29, 2020~~April 4, 2021 was ~~$10.3~~$12.9 million. The obligations under these leases will generally continue to decrease over time as these operating leases ~~expire. No~~expire, except for any execution of renewal options that exist under the original leases. NaN payments related to these guarantees have been made by the Company to date and ~~none~~NaN are expected to be required to be made in the future. The Company has not recorded a liability for ~~$10.3~~$12.9 million of these guarantees in accordance with ASC 460 - Guarantees as Fiesta has indemnified the Company for all such obligations and the Company did not believe it was probable it would be required to perform under any of the guarantees or direct obligations.

Litigation. The Company is a party to various litigation matters that arise in the ordinary course of business. The Company does not believe that the outcome of any of these ~~other~~ matters ~~meet the disclosure or recognition standards, nor~~ will ~~they~~ have a material adverse effect on its consolidated financial statements.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

10. Transactions with Related Parties

In connection with an acquisition of restaurants from BKC in 2012, ~~the Company~~Carrols Restaurant Group issued to BKC 100 shares of Series A Convertible Preferred Stock, which ~~was~~Carrols Restaurant Group, BKC and Blue Holdco 1, LLC ("Blue Holdco" and together with BKC, the "BKC Stockholders") exchanged for 100 shares of newly issued Series B Convertible Preferred Stock ("Series B Preferred Stock") in ~~2018, and~~2018. These preferred shares are convertible into 9,414,580 shares of common stock, which as of ~~March 29, 2020 is convertible into~~April 4, 2021 represents approximately ~~15.2%~~15.5% of the outstanding shares of the Company's common stock after giving effect to the conversion of the Series B Preferred ~~Stock.~~Stock and excluding shares held in treasury. Pursuant to the terms of the Series B Preferred Stock, the BKC ~~together with certain other entities that are both affiliates of BKC and either Restaurant Brands International or Restaurant Brands International Limited Partnership (collectively "RBI")~~Stockholders are entitled to elect ~~two~~2 representatives on the Company's ~~board~~Board of ~~directors.~~Directors.

The Company operates its Burger King® restaurants under franchise agreements with BKC and its Popeyes® restaurants under franchise agreements with Popeyes Louisiana Kitchen, Inc. ("PLK")., a subsidiary of RBI. These franchise agreements generally provide for an initial term of twenty years and currently have an initial franchise fee of ~~fifty thousand dollars. Any~~$50,000. With BKC's and PLK's respective approval, the Company can elect to extend franchise ~~agreement, including renewals, can be extended at the Company's discretion~~agreements for an additional 20 year ~~term, with BKC's and PLK's approval,~~terms, provided that ~~among other things,~~ the restaurant meets the current restaurant image standard and the Company is not in default under terms of the franchise agreement. In addition to the initial franchise fee, the Company generally pays BKC a monthly royalty at a rate of 4.5% of Burger King restaurant sales and PLK a weekly royalty at a rate of 5.0% of Popeyes restaurant sales. Royalty expense was ~~$15.1~~$17.1 million and ~~$12.4~~$15.1 million in the three months ended April 4, 2021 and March 29, 2020, ~~and March 31, 2019,~~ respectively.

The Company is also generally required to contribute 4% of restaurant sales from its restaurants to an advertising fund utilized by BKC and PLK for its advertising, promotional programs and public relations activities, and additional amounts for additional local advertising in markets that approve such advertising. Advertising expense associated with these expenditures was ~~$13.4~~$15.1 million and ~~$11.5~~$13.4 million in the three months ended April 4, 2021 and March 29, 2020, ~~and March 31, 2019,~~ respectively.

As of ~~March 29, 2020,~~April 4, 2021, the Company leased ~~244~~230 of its restaurant locations from BKC and ~~111~~100 of these locations are subleased by BKC from various third party lessors. Aggregate rent under these BKC leases was $6.7 million ~~and $6.8 million~~ for each of the three months ended April 4, 2021 and March 29, 2020, ~~and March 31, 2019,~~ respectively. The Company does not believe that such lease terms have been significantly affected by the fact that the Company and BKC are deemed to be related parties.

As of April 4, 2021 and January 3, 2021, the Company owed BKC and PLK $18.4 million and $14.7 million, respectively, related to the payment of advertising, royalties, rent and real estate taxes, which is normally remitted on a monthly basis.

The Company, Carrols, 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 4 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 4 Burger King restaurants by September 30, 2021, 10 additional Burger King restaurants by September 30, 2022, 12 additional Burger King restaurants by September 30, 2023, 12 additional Burger King restaurants by September 30, 2024 and 12 additional Burger King restaurants by September 30, 2025.

In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise pre-approval to build new Burger King restaurants or acquire Burger King restaurants from Burger King franchisees with respect to 500 Burger King restaurants in the aggregate in (i) Kentucky, Tennessee and Indiana (excluding certain geographic areas in Indiana) and (ii) (a) 16 states, which include Arkansas, Indiana, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont and

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

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.

AsIn connection with an acquisition of ~~March 29, 2020 and December 29,~~restaurants from in 2019, the Company ~~owed BKC and~~assumed a development agreement for Popeyes®, which included an assignment by PLK ~~$12.7 million and $14.0 million, respectively, related to the payment~~ of ~~advertising, royalties, rent and real estate taxes, which is remitted on a monthly basis.~~

The Company and BKC have entered into an Area Development and Remodeling Agreement ("Area Development Agreement") commencing on April 30, 2019 and ending on September 30, 2024, which supersedes the Operating Agreement dated as of May 30, 2012, as amended, between Carrols LLC and BKC. Pursuant to the Area Development Agreement, BKC assigned its right of first refusal under its franchise agreements with its franchisees to purchase all of the assets of a Burger King restaurant on the same terms proposed between such franchisee and a third party purchaser (the “ADA ROFR”), in 16 states and a limited number of counties in four additional states, and granted franchise pre-approval to acquire Burger King restaurants until the date that Carrols LLC has acquired more than an aggregate of an additional 500 Burger King restaurants excluding those restaurants the Company acquired in the Cambridge Merger. The continued assignment of the ADA ROFR is potentially subject to suspension at BKC's discretion in the event of non-compliance by Carrols LLC with certain terms as set forth in the Area Development Agreement. In 2019 Carrols LLC paid to BKC the total consideration of $3.0 million for the ADA ROFR.

~~The Company has assumed Cambridge's development agreement for Popeyes~~^®, ~~which includes a right of first refusal~~ for acquisitions in ~~two~~2 southern states, as well as a development commitment to open, build and operate approximately 80 new ~~Popeyes~~^®Popeyes® restaurants over six years.

~~In the first quarter of 2019,~~ This development agreement with PLK was terminated on March 17, 2021, with certain covenants applicable to the Company ~~received $1.9~~surviving the termination. PLK reserved the right to charge the Company a $0.6 million ~~recorded as other income, related~~fee if PLK and the Company are not able to come to a ~~settlement~~mutually agreeable solution with ~~BKC for their approval of new restaurant development by other franchisees which unfavorably impacted the Company's restaurants.~~respect to such fee within a six month period.

11. Stockholders' Equity

Stock Repurchase Program

On August 2, 2019, the Company's Board of Directors approved a stock repurchase plan ("Repurchase Program") under which the Company may repurchase up to $25 million of its outstanding common stock. The authorization became effective August 2, 2019, and will expire 24 months thereafter, unless terminated earlier by the Company's Board of Directors. Purchases under the Repurchase Program may be made from time to time in open market transactions at prevailing market prices or in privately negotiated transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with applicable federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company has no obligation to repurchase stock under the Repurchase Program, and the timing, actual number and value of shares purchased will depend on the Company's stock price, trading volume, general market and economic conditions, and other factors.

At ~~March 29, 2020, $21.0~~April 4, 2021, $11.0 million was available to repurchase shares under the Repurchase Program. Shares repurchased are being held in treasury until they are retired at the discretion of the Board of Directors.

~~13.~~12. Net Loss per Share

The Company applies the two-class method to calculate and present net ~~loss~~income (loss) per share. The Company's non-vested restricted share awards and Series B Convertible Preferred Stock contain non-forfeitable rights to dividends and are considered participating securities for purposes of computing net ~~loss~~income (loss) per share pursuant to the two-class method. Under the two-class method, net earnings are reduced by the amount of dividends declared (whether paid or unpaid) and the remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends. As the Company incurred a net loss for the three months ended April 4, 2021 and the three months ended March 29, 2020, and losses are not allocated to participating securities under the two-class method, such method is not applicable for the aforementioned interim reporting periods.

Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted net income (loss) per share reflects additional shares of common stock outstanding, where applicable, calculated using the treasury stock method or the two-class method.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted net loss per share reflects additional shares of common stock outstanding, where applicable, calculated using the treasury stock method or the two-class method.

The following table sets forth the calculation of basic and diluted net loss per share:

Three Months Ended
March 29, 2020 March 31, 2019
Basic net loss per share:
Net loss $ (22,209 ) $ (11,469 )
Weighted average common shares outstanding 50,821,101
36,045,137
Basic net loss per share $ (0.44 ) $ (0.32 )
Diluted net loss per share:
Net loss $ (22,209 ) $ (11,469 )
Shares used in computing diluted net loss per share 50,821,101
36,045,137
Diluted net loss per share $ (0.44 ) $ (0.32 )
Shares excluded from diluted net loss per share computations (1) 10,664,054
10,307,431

(1)Shares issuable upon conversion of preferred stock and non-vested shares were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive.

~~14. Other Expense (Income)~~

In the three months ended March 31, 2019, the Company recorded other income of $1.9 million related to a settlement with BKC for their approval of new restaurant development by other franchisees which unfavorably impacted the Company's restaurants, a gain on a sale-leaseback transaction of $0.1 million, and a gain related to an insurance recovery from a fire at one of its restaurants in the prior year of $0.1 million.

~~15. Subsequent Events~~

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. The COVID-19 has significantly impacted the communities the Company's restaurants operate in as federal, state and local governments have taken a series of actions to contain its spread. Customer traffic declined at our restaurants as social distancing policies have impacted consumer behavior. In March 2020, the Company closed its dining rooms in all restaurants, temporarily closed 46 restaurants that were geographically close to other restaurants, and modified operating hours in line with local ordinances and day-part sales trends.

Throughout the course of this evolving COVID-19 outbreak, the Company has been adapting its business in order continue operating safely. To support the health and safety of our employees and customers, the Company mandated the use of masks and contactless procedures in its restaurants, the use of sanitizers and requiring team members' temperatures be taken at the beginning of each shift. The Company also implemented a work-from-home policy for all non-restaurant personnel.

Additionally, the Company has strengthened and preserved its liquidity in light of the emerging economic conditions. The Company has been in contact with its major suppliers and at this point, has not experienced any material disruption in its supply chains. The Company has contacted each of its landlords to potentially negotiate accommodations to preserve cash. Further, the Company increased the borrowing capacity under its Senior Credit Facilities as described in Note 7.

CARROLS RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Tabular amounts in thousands, except share and per share amounts)

13. Subsequent Events

~~While~~On April 6, 2021, the ~~COVID-19 pandemic has negatively impacted~~Company entered into the ~~Company's customer traffic~~Sixth Amendment to Credit Agreement (the "Sixth Amendment"). The Sixth Amendment increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility by $29.2 million to a total of $175.0 million. The Sixth Amendment also amended the definitions in ~~March~~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 ~~April~~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 the obligation by the Company to (i) pay a Ticking Fee pursuant to the Ticking Fee Rate and (ii) use the proceeds of ~~2020,~~an Extension of Credit which results in the ~~immediate actions taken~~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 not to ~~continue drive-thru and carry-out business operations and secure liquidity have minimized the financial impact~~hold as cash on the ~~Company's results~~balance sheet.

Table of ~~operations, financial condition and cash flows.~~Contents

However, given the uncertainty as to when or the manner in which the conditions surrounding the COVID-19 pandemic will change and the related continued economic uncertainty, including but not limited to stock price volatility, lower customer traffic and governmental restrictions on restaurant businesses, in the future the Company may determine that non-cash impairment adjustments to the carrying value of its assets, including goodwill and other intangible assets, could be required. The likelihood or the amount of an impairment charge cannot be reasonably estimated at this time.

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We operate on a 52 or 53 week fiscal year ending on the Sunday closest to December 31. Our fiscal quarters are comprised of 13 weeks, with the exception of the fourth quarter of a 53 week year, which contains 14 weeks. Our fiscal year ended ~~December 29, 2019~~January 3, 2021 contained 5253 weeks and our fiscal year ending January ~~3, 2021~~2, 2022 will contain 5352 weeks.

Introduction

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (or "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 unaudited Condensed Consolidated Financial Statements ~~and the accompanying financial statement notes~~ appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended ~~December 29, 2019.~~January 3, 2021. 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 from Operations—an analysis of our results of operations for the three months ended ~~March 29, 2020~~April 4, 2021 compared to the three months endedMarch ~~31, 2019~~29, 2020 including a review of material items and known trends and uncertainties.

Liquidity and Capital Resources—an analysis of historical information regarding our sources of cash and capital expenditures, the existence and timing of commitments and contingencies, changes in capital resources and a discussion of cash flow items affecting liquidity.

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

~~Effects of New Accounting Standards—a discussion of new accounting standards and any implications related to our financial statements.~~

Forward Looking Statements—cautionary information about forward-looking statements and a description of certain risks and projections.

Company Overview

~~We are one of the largest restaurant companies in the United States and have been operating restaurants for more than 55 years. We are the largest Burger King~~^® ~~franchisee in the United States, based on number of restaurants.~~ Carrols Restaurant Group, Inc. and ~~our~~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. As of April 4, 2021 we operated, as franchisee, ~~excluding restaurants temporarily closed at March 29, 2019 due to COVID-19,~~ a total of ~~1,093~~1,075 restaurants in 23 states ~~as of March 29, 2020~~ under the trade names of Burger ~~King~~^®King® and ~~Popeyes~~^®Popeyes®. ~~As of March 29, 2020, we operated, as franchisee, 1,028~~This included 1,010 Burger King restaurants in 23 Northeastern, Midwestern, Southcentral and Southeastern states and ~~operated, as franchisee,~~ 65 Popeyes restaurants in 7seven Southeastern states.

Any reference to “BKC” refers to Burger King Corporation and its indirect parent company, Restaurant Brands International Inc. (“RBI”). Any reference to “PLK” refers to Popeyes Louisiana Kitchen, Inc. and its indirect parent company, RBI.

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

•Restaurant sales ~~consist~~ consists of food and beverage sales at our restaurants, net of sales discounts and excluding sales tax collected. Restaurant sales are influenced by changes in comparable restaurant sales, menu price increases, new restaurant development, ~~and~~ acquisitions of restaurants and closures ~~of restaurants~~ of restaurants. Comparable restaurant sales reflect the change in year-over-year sales for a comparable restaurant base. Restaurants we acquire are included in comparable restaurant sales after they have been owned for 12 months and ~~immediately after they re-open following a remodel. Newly~~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

Table of Contents

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.~~

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. The six convenience stores were closed in the fourth quarter of 2019.

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

delivery sales.

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

•Restaurant rent expense includes ~~base rent~~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, real estate taxes and credit card fees.

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

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

•EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net ~~Income (Loss)~~Loss. EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net ~~Income (Loss)~~Loss are non-GAAP financial measures. EBITDA represents net ~~income (loss)~~loss before income taxes, interest expense, and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude impairment and other lease charges, acquisition and integration costs, ~~loss on extinguishment of debt, stock~~stock-based compensation expense, abandoned development costs, restaurant pre-opening costs, non-recurring litigation and other professional expenses and other income orand expense. Adjusted Restaurant-Level EBITDA represents ~~income (loss)~~loss from operations as adjusted to exclude general and administrative expenses, depreciation and amortization, impairment and other lease

charges, restaurant-level integration costs, pre-opening costs and other income orand expense. Adjusted Net ~~Income (Loss)~~Loss represents net ~~income (loss)~~loss as adjusted, net of tax, to exclude ~~loss on extinguishment of debt,~~ impairment and other lease charges, acquisition costs and integration costs, abandoned development costs, pre-opening costs, non-recurring litigation and ~~litigation costs, legal settlement gains~~other professional expenses and other income and ~~expense and the related income tax effect of these adjustments.~~expense.

We are presenting Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net ~~Income (Loss)~~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 integration costs, 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 ~~income or expense, which~~professional fees. Although these costs are not directly related to restaurant-level ~~operations.~~operations, these costs are necessary for the profitability of our restaurants. Management believes that Adjusted EBITDA, ~~and~~ Adjusted Restaurant-Level EBITDA and Adjusted Net Loss, when viewed with ~~our~~the Company's results of operations in accordance with GAAP and the accompanying reconciliations on page ~~34,~~36, 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)~~Loss are not measures of financial performance or liquidity under GAAP and, accordingly, should not be

Table of Contents

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~~Net Loss to EBITDA, Adjusted EBITDA and Adjusted Net ~~Income (Loss)~~Loss and the reconciliation of income from operations to Adjusted Restaurant-Level EBITDA, see page ~~34.~~36.

EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net ~~Income (Loss)~~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)~~Loss do not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges (such as impairment and other lease charges and acquisition 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 our ~~$425.0 million~~ Term Loan B ~~Facility,~~borrowings, Term Loan B-1 borrowings, finance lease liabilities, amortization of deferred financing costs, amortization of original issue ~~discount,~~discounts and interest on revolving credit ~~borrowings and, through April 30, 2019, interest on the $275.0 million of 8% Senior Secured Second Lien Notes due 2022 (the "8% Notes") and unamortized bond premium.~~

borrowings.

Recent and Future Events Affecting our Results of Operations

Impact of the COVID-19 Pandemic

In response to the COVID-19 pandemic and the impact it has had on significantly reducing restaurant sales beginning in March 2020 and to the deterioration of the economy in general, we have taken several steps to adapt our business and strengthen and preserve our liquidity:

The impact of the COVID-19 pandemic on restaurant sales at our Burger King restaurants began during the week ended March 15, ~~2020 and during~~2020. During the week ended March 29, 2020, comparable restaurant sales decreased 33.8% compared to the prior year week. Comparable restaurant sales declines at our Burger King restaurants ~~have improved since~~began easing mid-April of 2020 and for the month of June of 2020 the change in comparable restaurant sales was positive. For our Popeyes restaurants, the impact of the COVID-19 pandemic on restaurant sales started during the week ended March ~~29,~~22, 2020 and ~~decreased 6.4% for the week ended May 3, 2020 compared~~began easing mid-April of 2020.

In response to the ~~prior year week.~~ 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 ~~general our restaurant sales declined at~~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. As individual states and local governments have allowed reopenings, we have continually evaluated the ~~various states~~opportunity to re-open dining

Table of Contents

rooms. By the end of the first quarter of 2021, most of our dining rooms have reopened, however, in most cases, guests have continued to rely on our drive-thru, carry-out and delivery service modes.

•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 they became available as well as expanded the number of restaurants where ~~we operate issued shelter-at -home orders.~~delivery service is offered as new locations were covered by our delivery partners. For the first quarter of 2021, delivery comprised approximately 4.8% of total restaurant sales.

~~Operationally we~~•We temporarily closed 46 restaurants in late March 2020 and early April 2020 that were geographically close to ~~another of our restaurants. All~~one of our other restaurants, ~~are open~~ and these closures were in effect for most of the second quarter of 2020. By the end of 2020, we ~~are continuing to serve~~had reopened all of ~~our drive-thru and take-out customers, which comprised 75%~~these restaurants with the exception of ~~our restaurant sales~~two Burger King restaurants we permanently closed in ~~2019, and we launched delivery services in March and April at a majority~~the third quarter of ~~our restaurants. We also modified our operating hours and appropriate levels of labor in line with local ordinances and based on day-part sales trends.~~2020.

•As discussed below, we increased revolving credit borrowing capacity under our Revolving Credit Facility (as defined below) by $30.8 million to a total of $145.8 million in March and April of 2020, and again in April of 2021 to $175.0 million. In ~~the first quarter~~June of 2020, we borrowed onIncremental Term B-1 Loans (as defined below) under our~~Revolving~~ Senior Credit ~~Facility~~Facilities for net proceeds of $71.3 million after original issue discount to increase our liquidity and protect against the ~~potential for~~uncertainty of a prolonged ~~pandemic coupled with financial market illiquidity.~~

pandemic.

•We ~~have also~~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 ~~our planned~~operating capital expenditures to ~~only the completion~~$56.9 million from $134.9 million in 2019. We expect capital expenditures in 2021 to be approximately $60 million, net of ~~restaurant development previously started in the fourth quarter of 2019, of which approximately $25 million was incurred in the first quarter of 2020, and to critical restaurant maintenance issues.~~estimated proceeds from sale-leaseback activity.

•We ~~have taken steps to reduce~~reduced regional and corporate overhead ~~by $5 million to $7 million annually~~ by streamlining our regional management and support structure, ~~instituting~~improving our training process and instituted a 10% temporary reduction in all non-restaurant wages ~~and enacting a company-wide hiring freeze.~~for the second quarter of 2020. Given our improved business trajectory, this reduction in wages was restored as of July 1, 2020.

•As allowed under the Coronavirus Aid, Relief and Economic Security Act, as amended (the "CARES Act"),we ~~are deferring~~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 ~~is currently estimated to be $17 million to $19~~was approximately $21.6 million, of which 50% is payable on each of December 31, 2021 and December 31, 2022.

This remains unpaid as of April 4, 2021, with $10.8 million included in accrued payroll, related taxes and benefits and $10.8 million included in other liabilities, long-term in the accompanying consolidated balance sheets.

•We ~~are working~~negotiated with our landlords other than BKC to ~~negotiate reduced~~secure $5.8 million in deferral or ~~deferred~~abatement of 2020 cash rent ~~obligations.~~

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 have repaid $2.1 million related to these deferrals through the first quarter of 2021.

•During the second quarter of 2020, we optimized ~~ongoing~~ payment terms with our key vendors and suppliers and ~~have~~ utilized deferral opportunities with our utility ~~vendors~~vendors. These reverted to normal payment terms in July of 2020. During the ~~short term.~~year, 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.

•We suspended any acquisition activity and share ~~repurchases.~~repurchases during the first quarter of 2020, which we subsequently reinstated during the fourth quarter of 2020.

Throughout the course of the evolving pandemic, we have been adapting our business in order to continue operating safely. To support the health and safety of our employees, beginning in March 2020 we ~~have~~ mandated, among other things, the use of masks, ~~and contactless procedures in our restaurants, the use of~~ sanitizers and ~~requiring team members' temperatures be taken~~temperature checks at the beginning of each ~~shift.~~shift for our team members as well as instituted contactless procedures in our restaurants. We also suspended all non-essential travel for our employees and implemented a work-from-home policy for all non-restaurant ~~personnel.~~

~~Cambridge Merger~~

~~On April 30, 2019, we completed~~personnel effective through the ~~merger~~second quarter of 2020. During the third quarter of 2020, administrative employees returned to the office on a voluntary basis in compliance with New ~~CFH, LLC, a former subsidiary~~York's phased re-opening.

Although the COVID-19 pandemic has negatively impacted the Company's customer traffic, the immediate actions taken to continue drive-thru and carry-out business operations and secure additional liquidity have minimized the financial impact on the Company's results of ~~Cambridge Franchise Holdings, LLC ("Cambridge")~~operations, financial condition and ~~acquired 165 Burger King® restaurants, 55 Popeyes® restaurants~~cash flows. We believe our business model and ~~six convenience stores (the "Cambridge Acquisition"). Cambridge received a total~~world-class brands are ideally positioned to serve value and convenience-seeking

Table of ~~approximately 14.9 million shares~~Contents

customers as the communities we operate in are reopening and customers are returning to pre-pandemic behaviors and activities. As of the first quarter of 2021, the dining rooms in most of our ~~common~~restaurants were open although not widely used as guests continue to rely on our drive-thru, carry-out and delivery service modes.

We are currently working through a challenging labor environment that is impacting the quick-serve and casual dining business. We believe that this may ease in the coming months as the communities we operate in continue to reopen, with younger people gaining more access to the vaccine, the supply of potential high school and college-aged hourly team members seasonally increasing in the summer months, and schools returning to more stable pre-pandemic schedules.

While significant uncertainty remains as to when or the manner in which the circumstances surrounding the COVID-19 pandemic will change, including but not limited to stock ~~after conversion of all~~price volatility, lower customer traffic, governmental restrictions on restaurant businesses and the unpredictable economic environment, we have been nimble in adapting our operations to the realities of the ~~preferred stock initially issued to Cambridge~~marketplace. We saw the results of these efforts in 2020 which have continued into 2021. Our Burger King restaurant sales in the ~~Cambridge Acquisition. All shares~~first quarter of ~~common stock issued to Cambridge are subject to a two year restriction on sale or transfer subject to certain limited exceptions.~~2021 were 4.3% higher than restaurant sales in the comparable period of 2019, which includes the impact from the severe winter weather we experienced in February of 2021.

Area Development and Remodeling Agreement

The Company, Carrols, ~~Corporation,~~ Carrols LLC, and BKC entered into ~~the~~a new Area Development ~~and Remodeling~~ Agreement (the "ADA") which commenced on April 30, 2019 and ~~ends~~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 ~~BKC assigned to Carrols LLC,~~and for a cost of $3.0 million, BKC had assigned to Carrols LLC the right of first refusal on the sale of franchisee-operated restaurants in 16 states and a limited number of counties in four additional states and granted franchise pre-approval to acquire Burger King restaurants until the date that we have acquired more than an aggregate of an additional 500 Burger King restaurants excluding those restaurants we acquired in the Cambridge Acquisition ("ADA ROFR"). The ADA ROFR was terminated in connection with the Amended ADA.

Under the Amended ADA, Carrols LLC has agreed to open, build and operate a total of ~~200~~50 new Burger King restaurants, ~~including 32 additional Burger King restaurants by September 30, 2020 (which has been extended by 90 days), 41 additional~~80% of which must be in Kentucky, Tennessee and Indiana. This includes four Burger King restaurants by September 30, 2021, 4110 additional Burger King restaurants by September 30, 2022, 4012 additional Burger King restaurants by September 30, 2023, ~~and 39~~12 additional Burger King restaurants by September 30, 2024 ~~subject to~~ and ~~in accordance with the terms of the ADA. In addition, Carrols LLC agreed to remodel or upgrade a total of 748 Burger King restaurants to BKC’s Burger King of Tomorrow restaurant image, including 130~~12 additional Burger King restaurants by September 30, ~~2020 (which has been extended by 90 days), 118 additional~~2025.

In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise pre-approval to build new Burger King restaurants ~~by September 30, 2021, 131 additional~~or acquire Burger King restaurants ~~by September 30, 2022, 138 additional~~from Burger King ~~restaurants by September 30, 2023 and 141 additional Burger King restaurants by September 30, 2024, subject~~franchisees with respect to ~~and in accordance with the terms of the ADA.~~

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

~~BKC agreed to contribute $10 million to $12 million for upgrades of approximately 50 to 60~~500 Burger King restaurants in ~~2019~~the aggregate in (i) Kentucky, Tennessee and ~~2020, most of~~Indiana (excluding certain geographic areas in Indiana) and (ii) (a) 16 states, which ~~have already been remodeled~~include Arkansas, Indiana, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont and Virginia (subject to ~~the 20/20 image~~certain exceptions for certain limited geographic areas within certain states) and ~~where BKC is the landlord on the lease for such Burger King restaurants operated by~~(b) any other geographic locations that Carrols LLC ~~or an affiliate. In 2019 we received $10.0 million from BKC under this arrangement.~~

~~On October 1 of each year following~~enters after the commencement date of the Amended ADA ~~Carrols LLC will pay~~pursuant to BKC ~~pre-paid franchise fees~~procedures subject to certain limitations.

Table of Contents

In connection with an acquisition of restaurants from in the following remaining amounts which will be applied to new Burger King restaurants opened and operated by Carrols LLC; (a) $2,050,000 on October 1, 2020, (b) $2,050,000 on October 1, 2021, (c) $2,000,000 on October 1, 2022 and (d) $1,950,000 on October 1, 2023.

~~Through the Cambridge Acquisition,~~2019, we ~~have~~ also assumed a development agreement for Popeyes®, which ~~includes~~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.

~~Restaurant Acquisitions~~

~~From~~ This development agreement with PLK was terminated on March 17, 2021, with certain covenants applicable to us surviving the ~~beginning of 2019 through March 29, 2020, we acquired 234 restaurants (including~~termination. PLK reserved the ~~Cambridge Acquisition) from other franchisees in~~right to charge the ~~following transactions (in thousands, except number of restaurants):~~


~~(1)~~	~~During the second quarter of 2019, the Company completed the Cambridge Acquisition and acquired 165 Burger King restaurants and 55 Popeyes restaurants.~~


~~(2)~~	~~Acquisitions resulting from the exercise of our ROFR.~~

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

~~The pro forma impact on the results of operations for the three months ended March 31, 2019 from the 2019 acquired restaurants is included below. The pro forma results of operations~~us a $0.6 million fee if PLK and Carrols 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 effectable to ~~any anticipated synergies, operating efficiencies or cost savings or any transaction costs related~~come to ~~the 2019 acquired restaurants.~~

~~The following table summarizes certain pro forma financial information related~~a mutually agreeable solution with respect to ~~our operating results for the three months ended March 31, 2019 (in thousands):~~

Three Months Ended
March 31, 2019
Total revenue $ 367,189
Loss from operations $ (124 )
Adjusted EBITDA $ 18,310
such fee within a six month period.

Capital Expenditures

In light of the economic conditions resulting from the COVID-19 pandemic as discussed above, we are managing our levels of capital expenditures and delaying the start of new projects other than critical restaurant capital and maintenance needs. We estimate our capital expenditures in ~~2020~~2021 will be approximately ~~$35 million to $40~~$60 million, net of estimated sale-leaseback ~~proceeds.~~activity. We incurred ~~$24.8~~$10.6 million of capital expenditures in the first ~~quarter~~three months of ~~2020.~~2021, net of sale-leaseback proceeds, properties purchased for sale-leaseback, and insurance proceeds.

We ~~have~~ opened ~~five~~two Burger King ~~restaurants as of May 1, 2020 where construction was started in 2019, including three~~ restaurants in the first ~~quarter~~three months of ~~2020.~~2021. We expect to complete development of eight new Burger King restaurants in 2021 and to remodel 14 Burger King restaurants and seven Popeyes restaurants.

Refinancing of Indebtedness and Amendments to our Senior Credit Facilities

On April 30, 2019, we entered into a new senior secured credit facility which provides for senior secured credit facilities in an aggregate principal amount of $550.0 million (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"). ~~Borrowings~~Prior to the entry into the Second Amendment (as defined below), borrowings under the Term Loan B Facility and the Revolving Credit Facility ~~bear~~initially 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 matures on April 30, 2024.

On December 13, 2019, we entered into the First Amendment to our Senior Credit Facilities 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 increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the revolving credit facility (the "Revolving Committed Amount") by $15.4 million to a total of $130.4 million.

The Second Amendment also amended the definition of Applicable Margin (such definition and all other definitions used herein and otherwise not defined herein shall be the meanings set forth in the Senior Credit ~~Agreement~~Facilities) in the Senior Credit Facilities to provide that on and after the date of the Second Amendment (the "Second Amendment Effective Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit Fees) shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is greater than $115.0 million, (i) for the period commencing on the Second Amendment Effective Date and including the date that is 179 days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans, (ii) for the period commencing on the date that is 180 days after the

Table of Contents

Second Amendment Effective Date, through and including the date that is 269 days after the Second Amendment Effective Date, 4.25% for LIBOR Rate Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is 270 days after the Second Amendment Effective Date, through and including the date that is 364 days after the Second Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv) for the period commencing on the date that is 365 days after the Second Amendment Effective Date and thereafter, 4.75% for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving Committed Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans.

The Second Amendment also provides that beginning on the 180th day after the Second Amendment Effective Date and for so long as the Revolving Committed Amount is greater than $115.0 million, we shall pay to the Administrative Agent, for the ratable benefit of the Revolving Facility Lenders, a commitment fee (the "Ticking Fee") on the average daily amount of the Revolving Committed Amount at a rate per annum equal to (a) 0.125% for the 180th day after the Second Amendment Effective Date through and including the 269th day after the Second Amendment Effective Date, (b) 0.25% for the 270th day after the Second Amendment Effective Date through and including the 364th day after the Second Amendment Effective Date and (c) 1.00% for the 365th day after the Second Amendment Effective Date and thereafter. The Second Amendment provides that the Ticking Fee will be due and payable quarterly in arrears (calculated on a 360-day basis) on the last Business Day of each calendar quarter and will accrue from the 180th day after the Second Amendment Effective Date for so long as the Revolving Committed Amount is greater than $115.0 million. The Second Amendment also provides that we shall use the proceeds of an Extension of Credit which results in the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate amount of LOC Obligations equaling an amount in excess of $115.0 million, solely for our ongoing operations and our subsidiaries and shall not be held as cash on the balance sheet. Pursuant to the Letter Agreement, (the "Letter Agreement") dated as of March 25, 2020 among the Company, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association and Truist Bank, we agreed to defer rent payments totaling approximately $2.4 million per month under certain real property leases for the period between April 1, 2020 through and including June 30, 2020. We ~~and the lessor under each of such leases has agreed~~paid these amounts in full according to ~~the deferral of rent payments under such leases for such period and that any such deferred rent under such leases shall be due and payable by the Company~~these terms on July 1, 2020.

On April 8, 2020, we entered into the Third Amendment to our Senior Credit Facilities which increased the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the Revolving Credit Facility by $15.4 million to a total of $145.8 million.

On April 16, 2020, we entered into the Fourth Amendment to our Senior Credit Facilities (the "Fourth Amendment"). The Fourth Amendment permits us to incur and, if necessary, repay indebtedness incurred pursuant to the Paycheck Protection Program (the "PPP") under the CARES Act. We have decided that we will not be borrowing under the PPP.

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 constitute a new tranche of Term Loans ranking pari passu in right of payment and security with the Initial Term Loans (as defined in the Senior Credit Facilities) for all purposes under the Senior Credit Facilities. The Incremental Term B-1 Loans have the same terms as outstanding borrowings under the Company's existing Term Loan B facility pursuant to and in accordance with the Senior Credit Facilities, provided that (i) borrowings under the Incremental Term B-1 Loans will bear interest at a rate per annum, at our option, of (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus the applicable margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior Credit Facilities) (which shall not be less than 1% for Incremental Term B-1 Loans) plus the applicable margin of 6.25% and (ii) certain prepayments of the Incremental Term B-1 Loans by us prior to the first anniversary of the Fifth Amendment Effective Date are subject to a premium to the Administrative Agent (as defined in the Senior Credit Facilities), for the ratable account of each applicable Term Loan Lender (as defined in the Senior Credit Facilities) holding Incremental Term B-1 Loans on the date of such prepayment equal to the Applicable Make-Whole Amount (as defined in the Senior Credit Facilities) with respect to the principal amount of the Incremental Term B-1 Loans so prepaid. The principal amount of the Incremental Term B-1 Loans will amortize in an aggregate annual amount equal to 1% of the original principal amount of the Incremental Term B-1 Loans and shall be repayable in consecutive quarterly installments on the last day of our fiscal quarters beginning on the third fiscal quarter of 2020

Table of Contents

with the remaining outstanding principal amount of the Incremental Term B-1 Loan and all accrued but unpaid interest and other amounts payable with respect to the Incremental Term B-1 Loan due on April 30, 2026 which is the Term Loan Maturity Date (as defined in the Senior Credit Facilities).

On April 6, 2021, we entered into the Sixth Amendment to Credit Agreement (the "Sixth Amendment"). The Sixth Amendment 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.

As of ~~March 29, 2020,~~April 4, 2021, there were ~~$111.8 million of~~no revolving credit borrowings outstanding and ~~$9.7~~$9.0 million of letters of credit were issued under ~~the~~our Revolving Credit Facility. After reserving for issued letters of credit, ~~and outstanding revolving credit borrowings, $9.0~~$136.8 million was available for revolving credit borrowings under our Senior Credit Facilities at ~~March 29, 2020.~~April 4, 2021.

~~Restaurant Closures~~Interest Rate Swap Agreement

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

In 2019, excluding two restaurants relocated within their trade area, we closed eleven Burger King restaurants. In the first quarter of 2020, we permanently closed eleven Burger King restaurants and we currently anticipate closing an additional 10 to 12 Burger King restaurants in 2020, excluding any restaurants being relocated within their trade area.

~~In response to restaurant sales declines resulting from the COVID-19 pandemic we temporarily closed, in the last week of~~commencing March 3, 2020 and ~~first week~~ending February 28, 2025 with a notional amount of ~~April 2020, 42 Burger King restaurants and four Popeyes Restaurants that were geographically close~~$220.0 million to ~~another~~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 ~~restaurants. As of May 6, two Burger King restaurants temporarily closed have reopened and all four Popeyes temporarily closed have reopened.~~

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

~~Effect of Minimum Wage Increases~~

Certain of the states and municipalities in which we operate have increased their minimum wage rates for 2020 and in many cases have also approved additional increases for future periods. Most notably, New York State has increased the minimum wage applicable to our business to $13.75 an hour in 2020 from $12.75 per hour in 2019 and $11.75 per hour in 2018, with subsequent annual increases reaching $15.00 per hour by July 1, 2021. New York State does have an Urban YouthSenior Credit through 2022 which we have receiving approximately $500,000 per year since 2016. We had 126 restaurants in New York State at December 30, 2019. We also have 46 total restaurants in Illinois and Maryland that also have annual minimum wage increases reaching $15.00 per hour in 2025. We typically attempt to offset the effects of wage inflation, at least in part, through periodic menu price increases. However, no assurance can be given that we will be able to offset these wage increases in the future.Facilities.

Stock Repurchase Program

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

During the year ended ~~December 29, 2019,~~January 3, 2021, we repurchased in open market transactions ~~553,112~~1,534,304 shares at an average share price of ~~$7.26~~$6.52 for a total cost of ~~$4.0~~$10.0 million under the Repurchase ~~Program. There were no repurchases~~Program, all during the fourth quarter of 2020. We have not repurchased any shares in the ~~first quarter~~three months ended April 4, 2021.

As of ~~2020.~~April 4, 2021, $11.0 million was available to repurchase shares 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. ~~Due~~

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 2020, excluding one restaurant relocated within its trade area, we closed 33 Burger King restaurants which included eleven Burger King restaurants permanently closed in the first quarter of 2020. In the first three months of 2021, we permanently closed one Burger King restaurant. We currently anticipate less than five restaurant closures in 2021 outside of any restaurants being relocated within their trade area at the end of their respective lease term.

Table of Contents

Effect of Minimum Wage Increases

Certain of the ~~COVID-19 pandemic~~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 $13.75 an hour in 2020, $12.75 per hour in 2019 and $11.75 per hour in 2018. New York State has an Urban Youth Credit through 2022 for which we have ~~suspended any repurchases under the Repurchase Program.~~

~~Interest Rate Swap Agreement~~been receiving approximately $500,000 per year since 2016. We had 125 restaurants in New York State at April 4, 2021. 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 have annual minimum wage increases reaching $15.00 per hour in 2025.

We ~~entered into a five year interest rate swap agreement commencing March 3, 2020 and ending February 28, 2025 with a notional amount~~typically attempt to offset the effects of ~~$220.0 million~~wage inflation, at least in part, through periodic menu price increases. However, no assurance can be given that we will be able to ~~swap variable rate interest payments (one-month LIBOR plus~~offset these wage increases in the ~~applicable margin) under our Senior Credit Facilities for fixed interest payments bearing an interest rate~~future.

Table of ~~0.915% plus the applicable margin in our Senior Credit Facilities.~~Contents

Results of Operations

Three Months Ended ~~March 29, 2020~~April 4, 2021 Compared to Three Months Ended March ~~31, 2019~~

29, 2020

The following table highlights the key components of sales and the number of restaurants in operation for our first quarter ended April 4, 2021 as compared to the first quarter ended March 29, 2020 (inclusive of restaurants that were temporarily closed due to COVID-19 ~~at March 29, 2020) as compared to~~during the ~~quarter ended March 31, 2019:~~period):


	Three Months Ended
	April 4, 2021		March 29, 2020
Restaurant Sales	389,993		351,518
Burger King	368,488		329,637
Popeyes	21,505		21,881

Change in Comparable Restaurant Sales % (a)	13.8	%	(5.7)	%
Change in Comparable Burger King Restaurant Sales (a)	14.7	%	(5.7)	%
Change in Comparable Popeyes Restaurant Sales (a)	0.5	%

Burger King Restaurants operating at beginning of period:	1,009		1,036
New restaurants opened, including relocations	2		3

Restaurants closed, including relocations	(1)		(11)
Burger King Restaurants at end of period	1,010		1,028
Average number of operating Burger King restaurants	1,009.0		1,030.2

Popeyes Restaurants operating at beginning and end of period:	65		65



Average number of operating Popeyes restaurants	65.0		64.8

Three Months Ended
March 29, 2020 March 31, 2019
Restaurant Sales 351,518
290,789
Change in Comparable Restaurant Sales % (5.7 )% 2.4 %

Burger King Restaurants operating at beginning of year 1,036
849
New restaurants opened, including relocations 3
2
Restaurants closed (11 ) (6 )
Restaurants operating at end of period 1,028
845

Popeyes Restaurants operating at beginning of year 65
—
New restaurants opened, including relocations —
—
Restaurants acquired —
—
Restaurants closed —
—
Restaurants operating at end of period 65
—
a.Restaurants we acquire are included in comparable restaurant sales after they have been operated by us for 12 months. Sales from restaurants we develop are included in comparable restaurant sales after they have been open for 15 months. The calculation of changes in comparable restaurant sales is based on the comparable 13-week period.

Restaurant Sales. Total restaurant sales in the first quarter of ~~2020~~2021 increased ~~20.9%~~$38.5 million to ~~$351.5~~$390.0 million from ~~$290.8 million in~~ the first quarter of ~~2019.~~2020. Our comparable restaurant sales ~~decreased 5.7% over~~increased 13.8% compared to the first quarter of ~~2019 from a decrease in customer traffic of 11.1% partially offset by~~2020 which reflected an increase in average check of ~~5.4%, which~~11.2% and an increase in customer traffic of 2.4%. The change in average check included a ~~2.2%~~0.7% effective price increase compared to the first quarter of ~~2019. Our comparable restaurant sales~~2020. The decrease in ~~March 2020 decreased 16.8% compared to~~customer traffic and increase in average check realized during the ~~prior year period which included the impact~~first quarter of 2021 reflects changing consumer behavior as a result of the COVID-19 pandemic. ~~Restaurant~~Promotional sales ~~also increased due to restaurants acquired since the end of the first quarter of 2019 which added $68.7 million of restaurant sales~~discounts in the first quarter of 2021 were 23.0% of restaurant sales at our Burger King restaurants compared to 22.3% in the first quarter of 2020.

Table of Contents

Operating Costs and Expenses (percentages stated as a percentage of total ~~restaurant sales)~~revenue). The following table sets forth, for the three months ended April 4, 2021 and March 29, 2020, ~~and March 31, 2019,~~ selected operating results as a percentage of total ~~restaurant sales:~~revenue:


	Three Months Ended					Three Months Ended
	March 29, 2020		March 31, 2019			April 4, 2021		March 29, 2020
Costs and expenses (all restaurants):					Costs and expenses (all restaurants):
Cost of sales	29.3	%	28.4	%	Cost of sales	29.2	%	29.3	%
Restaurant wages and related expenses	35.4	%	34.5	%	Restaurant wages and related expenses	33.2	%	35.4	%
Restaurant rent expense	8.4	%	7.5	%	Restaurant rent expense	7.8	%	8.4	%
Other restaurant operating expenses	16.5	%	15.7	%	Other restaurant operating expenses	15.7	%	16.5	%
Advertising expense	3.9	%	4.1	%	Advertising expense	3.9	%	3.9	%
General and administrative	5.9	%	6.8	%	General and administrative	5.5	%	5.9	%

Cost of sales ~~increased~~decreased to ~~29.3%~~29.2% of restaurant sales in the first quarter of ~~2020~~2021 from ~~28.4%~~29.3% of restaurant sales in the first quarter of ~~2019 due primarily to an increase~~2020. This decrease reflected the positive impacts of improved operational efficiencies at our Burger King restaurants (0.6%) and menu price increases taken at our Burger King restaurants since the end of the first quarter of 2020 (0.3%). These positive impacts were offset by the inclusion of delivery costs in 2021 (0.8%) as well as increased commodity costs ~~(1.6%) which included a 10.9% increase~~at our Burger King restaurants (0.4%, with other commodities and case cost increases more than offsetting the 7.2% decrease in ground beef prices compared to the first quarter of ~~2019~~2020). The impact on cost of sales from lower promotions (0.2%) was partially offset by ~~the impact~~an unfavorable sales mix (0.1%). Cost of ~~menu price increases taken since the end of the first quarter of 2019~~

~~and~~sales at our Popeyes restaurants improved approximately 260 basis points over last year due to ~~a lesser extent a lower level of promotional discounting. Promotional sales discounts in the first quarter of 2020 were 21.2% of total~~improved restaurant ~~sales compared to 23.3% in the first quarter of 2019.~~operations.

Restaurant wages and related expenses ~~increased~~decreased to 33.2% of restaurant sales in the first quarter of 2021 from 35.4% in the first quarter of 2020 ~~from 34.5%~~due to labor adjustments we made during 2020 in response to the COVID-19 pandemic. We were able to adjust our labor requirements and hours based on operating day part sales trends and in response to dining room closures. The impact of hourly labor rate increases in the first quarter of ~~2019 due primarily~~2021, inclusive of minimum wage increases, was 6.5% when compared to the ~~effect~~prior year period. This was more than offset through effective labor hour management in the first quarter of ~~lower comparable restaurant sales on fixed labor costs (0.8%). The impact,~~2021.

Restaurant rent expense increased $0.9 million, but decreased as a percentage of restaurant sales ~~of hourly labor rate increases of 3.8% compared~~ to 7.8% in the first quarter of ~~2019, including minimum wage increases, was substantially offset through effective labor hour management during the decline in restaurant sales in the first quarter due to COVID-19.~~

~~Restaurant rent expense increased to~~2021 from 8.4% in the first quarter of 2020 ~~from 7.5%~~due primarily to the impact of higher sales on fixed rent expense.

Other restaurant operating expenses decreased as a percentage of restaurant sales to 15.7% in the first quarter of ~~2019 due to higher rent as a percentage~~2021 from 16.5% of ~~sales for the 220 Cambridge restaurants acquired in 2019 and the effect of lower sales volumes on fixed rental costs.~~

~~Other~~ restaurant ~~operating expenses increased to 16.5%~~sales in the first quarter of 2020 as a result of efficiencies realized from ~~15.7%~~reduced dining room activity, primarily from utility costs (0.4%) and lower repair and maintenance spending (0.1%). Reduced levels of operating supply costs were offset by $0.2 million in expenses directly related to COVID-19, including face masks, thermometers, sneeze guards, and sanitizers.

Advertising expense was 3.9% of restaurant sales in both the first quarter of 2021 and the first quarter of 2020.

Adjusted Restaurant-Level EBITDA. As a result of the factorsdiscussed above, Adjusted Restaurant-Level EBITDA increased $16.7 million, or 73.2%, to $39.5 million in the first quarter of ~~2019 due primarily to the effect of lower sales volumes on fixed operating costs (0.4%) and higher utility and credit card costs.~~

Advertising expense decreased to 3.9% in the first quarter of 2020 from 4.1% in the first quarter of 2019 due to advertising incentives received for certain remodeled Burger King restaurants including restaurants acquired from Cambridge in 2019.

~~Adjusted Restaurant-Level EBITDA.~~ ~~As a result of the factorsdiscussed above, Adjusted Restaurant-Level EBITDA decreased $5.9 million, or 20.6%,~~2021 compared to $22.8 million in the first quarter of ~~2020, and as~~2020. As a percentage of total restaurant sales, ~~decreased~~Adjusted Restaurant-Level EBITDA increased to 10.1% in the first quarter of 2021 from 6.5% in the first quarter of ~~2020 from 9.9% in the first quarter of 2019.~~2020. For a reconciliation between Adjusted Restaurant-Level EBITDA and loss from operations see page ~~34.~~36.

General and Administrative Expenses. General and administrative expenses increased ~~$1.1~~$0.6 million in the first quarter of ~~2020~~2021 to ~~$20.8~~$21.4 million, ~~however,~~and decreased as a percentage of total restaurant sales ~~decreased~~ to 5.5% in the first quarter of 2021 from 5.9% in the first quarter of ~~2020~~2020. The $0.6 million increase included $2.4 million higher administrative bonus accruals in 2021 as a result of favorable restaurant-level profitability in the period which was partially offset by reduced overhead costs in 2021. This increase was offset by our reduction in regional and

Table of Contents

corporate overhead costs of $1.6 million from ~~6.8%~~streamlining our regional management structure, improving our training process and reducing travel.

Adjusted EBITDA. As a result of the factorsabove, Adjusted EBITDA increased to $19.9 million in the first quarter of 2019. The $1.1 million increase was due to incremental field management salaries and other restaurant oversight costs related to the 2019 acquisitions partially offset by $2.6 million of higher acquisition costs due to the Cambridge acquisition in 2019 and $1.4 million of lower administrative bonus accruals in the first quarter of 2020.

~~Adjusted EBITDA.~~ ~~As a result of the factorsabove, Adjusted EBITDA decreased to~~2021 from $4.0 million in the first quarter of ~~2020 from $13.3 million in the first quarter of 2019, and as~~2020. As a percentage of total restaurant sales, ~~decreased~~Adjusted EBITDA increased to 5.1% in the first quarter of 2021 from 1.1% in the first quarter of ~~2020 from 4.6% in the first quarter of 2019.~~2020. For a reconciliation between net loss and EBITDA and Adjusted EBITDA see page ~~34.~~36.

Depreciation and Amortization Expense. Depreciation and amortization expense ~~increased~~decreased$~~5.7~~0.4 million to $20.6 million in the first quarter of 2021 from $21.0 million in the first quarter of ~~2020 from $15.3 million in the first quarter of 2019 due primarily to our new restaurant development, remodeling initiatives and acquisition of restaurants in 2019.~~2020.

Impairment and Other Lease Charges. Impairment and other lease charges were ~~$2.9~~$0.4 million indue primarily to assets at a restaurant location closed during the quarter. During the first quarter of 2020, impairment and other lease charges were $2.9 million, consisting of $1.5 million ~~related to~~of initial impairment charges for three underperforming restaurants, capital expenditures of $0.2 million at previously impaired restaurants, and $1.2 million of other lease charges primarily due to nine restaurants closed during the first quarter of 2020.

During the first quarter of 2019, Impairment and other lease charges were $0.9 million which consisted primarily of $0.7 million related to initial impairment charges for two underperforming restaurants and $0.1 million of capital expenditures at previously impaired restaurants, and $0.1 million of other lease charges primarily due to the de-imaging of six restaurants closed during the first quarter.

Other Expense, ~~(Income),~~ net. Other ~~income~~expense, net in the first quarter of ~~2019~~2021 was $0.2 million which consisted of a loss on disposal of assets of $0.2 million. Other expense, net for the three months ended March 29, 2020 included ~~income~~a loss on disposal of ~~$1.9~~assets of $0.1 million, ~~related to~~loss on sale-leaseback transactions of $0.2 million and a ~~settlement with BKC for their approval~~gain on insurance recoveries from property damage at our restaurants of ~~new restaurant development by other franchisees which unfavorably impacted the Company's restaurants.~~$0.3 million.

Interest Expense. Interest expense ~~increased~~decreased to $6.7 million in the first quarter of 2021 from $7.1 million in the first quarter of ~~2020 from $5.9 million~~2020. Our weighted average interest rate for borrowings under the Senior Credit Facilities decreased to 4.4% in the first quarter of 2019 due to higher debt levels attributable to our 2019 acquisitions (including the Cambridge Acquisition) and 2019 capital expenditures. The weighted average interest rate on our long-term debt, excluding lease financing obligations, decreased to2021 from 4.9% in the first quarter of 2020, ~~from 7.9%~~as the variable rates on our borrowings decreased according to reduced LIBOR rates.

Benefit for Income Taxes. For the three months ended April 4, 2021 the benefit for income taxes was derived using an estimated effective annual income tax rate for all of 2021 of 21.3%. The difference compared to the statutory rate for 2021 is attributable to various permanent non-deductible expenses which are not directly related to the amount of pre-tax loss recorded in a period. The income tax benefit for the first quarter of ~~2019 due primarily to the refinancing in the second quarter~~2021 included net discrete tax expense of ~~2019 which included the redemption of our 8% Senior Secured Second Lien Notes.~~$0.7 million.

~~Provision (benefit) for Income Taxes.~~For the three months ended March 29, 2020 the provision for income taxes was derived using an estimated effective annual income tax rate for all of 2020 of 31.3%. There were no discrete tax adjustments in the first quarter of 2020. We performed an assessment of positive and negative evidence regarding the realization of our deferred income tax assets at March 29, 2020. ASC 740 prescribes that objective evidence, in particular our three-year cumulative loss position at March 29, 2020, be given greater weight than subjective evidence, including our forecasts of future taxable income. As a result duringDuring the first quarter of 2020, ~~we determined that~~an expense of $2.1 million was recognized to record an incremental valuation allowance ~~of $2.1 million was needed~~ for all of our net deferred income tax assets at March 29, 2020. There were no other discrete tax adjustments in the first quarter of 2020.

Net Loss. As a result of the above, ~~the~~ net loss for the first quarter of ~~2020~~2021 was ~~$22.2~~$7.2 million, or ~~$0.44~~$0.14 per diluted share, compared to ~~the~~a net loss in the first quarter of ~~2019~~2020 of ~~$11.5~~$22.2 million, or ~~$0.32~~$0.44 per diluted share.

Table of Contents

Reconciliations of net loss to EBITDA, Adjusted EBITDA and Adjusted ~~net loss,~~Net Loss, and ~~loss~~Loss from operations to Adjusted Restaurant-Level EBITDA for the three months ended April 4, 2021 and March 29, 2020 ~~and March 31, 2019~~ are as follows (in thousands, except for per share data):


	Three Months Ended
Reconciliation of EBITDA and Adjusted EBITDA:	April 4, 2021		March 29, 2020
Net loss	$	(7,168)	$	(22,209)
Benefit from income taxes	(2,661)		(6,978)
Interest expense	6,726		7,140
Depreciation and amortization	20,609		21,031
EBITDA	17,506		(1,016)
Impairment and other lease charges	353		2,881
Acquisition and integration costs (1)	—		81
Abandoned development costs (2)	—		688
Pre-opening costs (3)	29		89
Litigation and other professional expenses (4)	282		61
Other expense, net (5)	227		56
Stock-based compensation expense	1,469		1,132
Adjusted EBITDA	$	19,866	$	3,972


Reconciliation of Adjusted Restaurant-Level EBITDA:
Loss from operations	$	(3,103)	$	(22,047)
Add:
General and administrative expenses	21,369		20,787

Pre-opening costs (3)	29		89
Depreciation and amortization	20,609		21,031
Impairment and other lease charges	353		2,881
Other expense, net (5)	227		56
Adjusted Restaurant-Level EBITDA	$	39,484	$	22,797


Reconciliation of Adjusted Net Loss:
Net loss	$	(7,168)	$	(22,209)
Add:
Impairment and other lease charges	353		2,881
Acquisition and integration costs (1)	—		81
Abandoned development costs (2)	—		688
Pre-opening costs (3)	29		89
Litigation and other professional expenses (4)	282		61
Other expense, net (5)	227		56
Income tax effect on above adjustments (6)	(223)		(964)
Adjusted Net Loss	$	(6,500)	$	(19,317)
Adjusted diluted net loss per share (7)	$	(0.13)	$	(0.38)
Adjusted diluted weighted average common shares outstanding (in thousands of shares)	49,824		50,821

(1)Acquisition and integration costs for the three months ended March 29, 2020 primarily include legal and professional fees incurred in connection with the acquisition of 165 Burger King and 55 Popeyes restaurants from Cambridge Franchise Holdings, LLC in 2019 which were included in general and administrative expense.

Table of Contents

Three Months Ended
Reconciliation of EBITDA and Adjusted EBITDA: March 29, 2020 March 31, 2019
Net loss $ (22,209 ) $ (11,469 )
Provision (benefit) for income taxes (6,978 ) 354
Interest expense 7,140
5,947
Depreciation and amortization 21,031
15,292
EBITDA (1,016 ) 10,124
Impairment and other lease charges 2,881
910
Acquisition and integration costs (1) 81
2,656
Abandoned development costs (2) 688
57
Pre-opening costs (3) 89
68
Litigation costs (4) 61
136
Other expense (income), net (5) 56
(2,129 )
Stock-based compensation expense 1,132
1,526
Adjusted EBITDA $ 3,972
$ 13,348
(2)Abandoned development costs for the three months ended March 29, 2020 represents the write-off of capitalized costs due to the abandoned development in 2020 of previously planned new restaurant locations.

(3)Pre-opening costs for the three months ended April 4, 2021 and March 29, 2020 include training, labor and occupancy costs incurred during the construction of new restaurants.

Reconciliation of Restaurant-Level EBITDA:
Loss from operations $ (22,047 ) $ (5,168 )
Add:
General and administrative expenses 20,787
19,724
Pre-opening costs (3) 89
68
Depreciation and amortization 21,031
15,292
Impairment and other lease charges 2,881
910
Other expense (income), net (5) 56
(2,129 )
Restaurant-Level EBITDA $ 22,797
$ 28,697
(4)Litigation and other professional expenses for the three months ended April 4, 2021 and March 29, 2020 includes litigation expenses pertaining to an ongoing lawsuit with one of the Company's former vendors and other non-recurring professional service expenses.

(5)Other expense, net, for the three months ended April 4, 2021, included a loss on disposal of assets of $0.2 million. Other expense, net, for the three months ended March 29, 2020 included a loss on disposal of assets of $0.1 million, loss on sale-leaseback transactions of $0.2 million and a gain on insurance recoveries from property damage at our restaurants of $0.3 million.

Reconciliation of Adjusted net loss:
Net loss $ (22,209 ) $ (11,469 )
Add:
Impairment and other lease charges 2,881
910
Acquisition and integration costs (1) 81
2,656
Abandoned development costs (2) 688
57
Pre-opening costs (3) 89
68
Litigation costs (4) 61
136
Other expense (income), net (5) 56
(2,129 )
Income tax effect on above adjustments (6) (964 ) (425 )
Adjusted Net Loss $ (19,317 ) $ (10,196 )
Adjusted diluted net loss per share (7) $ (0.38 ) $ (0.28 )
(6)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% for the three months ended April 4, 2021 and March 29, 2020.


~~(1)~~	Acquisition and integration costs for the three months ended March 31, 2019 of $2.7 million mostly include legal and professional fees incurred in connection with restaurant acquisitions and corporate payroll, and other costs related to the integration of the Cambridge Acquisition and one-time repair costs which are included in Restaurant-Level EBITDA.


~~(2)~~	~~Abandoned development costs for the three months ended March 29, 2020 and March 31, 2019 represent the write off capitalized costs due to the abandoned development of future restaurant locations.~~

(7)Adjusted diluted net loss per share is calculated based on Adjusted net loss and the dilutive weighted average common shares outstanding for the respective periods.


~~(3)~~	~~Pre-opening costs for the three months ended March 29, 2020 and March 31, 2019 include training, labor and occupancy costs incurred during the construction of new restaurants prior to their opening.~~


~~(4)~~	~~Litigation costs for the three months ended March 29, 2020 and March 31, 2019 include litigation expenses pertaining to an ongoing lawsuit with one of the Company's former vendors.~~


~~(5)~~	Other income, net for the three months ended March 31, 2019 included a $1.9 million gain related to a settlement with BKC for the approval of new restaurant development by other franchisees which unfavorably impacted our restaurants.


~~(6)~~	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% for the three months ended March 29, 2020 and March 31, 2019.


~~(7)~~	~~Adjusted diluted net loss per share is calculated based on Adjusted net loss and the dilutive 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 PLK and payments related to our lease obligations represent significant liquidity requirements for us, ~~as well as~~not including any discretionary expenditures for the acquisition or development of additional Burger King and Popeyes restaurants.

In response to the COVID-19 pandemic and the impact it is having on restaurant sales beginning in March 2020 and to the economy in general, we have taken several steps to adapt our business and strengthen and preserve our liquidity during these uncertain times as follows:

Operationally we temporarily closed 46 restaurants in late March 2020 and early April 2020 that were geographically close to another of our restaurants. All of our other restaurants are open and we are continuing to serve all of our drive-thru and take-out customers, which comprised 75% of our restaurant sales in 2019, and we have launched delivery services in March and April at a majority of our restaurants. We also have modified our operating hours and appropriate levels of labor in line with local ordinances and based on day-part sales trends.

As discussed above we have increased revolving credit borrowing capacity under our Revolving Credit Facility by $30.8 million to a total of $145.8 million. 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 have also reduced our planned capital expenditures to only the completion of restaurant development previously started in the fourth quarter of 2019, of which approximately $25 million was incurred in the first quarter, and to critical restaurant maintenance issues.

We have taken steps to reduce regional and corporate overhead by $5 million to $7 million annually by streamlining our regional management and support structure, a 10% reduction in all non-restaurant wages and instituting a company-wide hiring freeze.

As allowed under the CARES Act we are deferring payment of the employer portion of Social Security taxes through the end of 2020. The amount of the cumulative deferral is currently estimated to be $17 million to $19 million, of which 50% is payable on each of December 31, 2021 and December 31, 2022.

~~We are working with our landlords to negotiate reduced or deferred 2020 cash rent obligations.~~

~~We have optimized ongoing payment terms with our key vendors and suppliers as well as utilizing deferral opportunities with our utility vendors in the short term.~~

~~We also have suspended any acquisition activity and share repurchases.~~

Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents and borrowings under our Revolving Credit Facility are sufficient to meet our working capital, debt service and capital expenditure requirements for the next twelve months. If our future financing needs increase, we may need to arrange additional debt or equity financing. We continually evaluate and consider various financing alternatives to enhance or supplement our existing financial resources, including our Senior Credit Facilities. However, there can be no assurance that we will be able to enter into any such arrangements on acceptable terms or at all. ~~In addition, the recent COVID-19 pandemic, which has caused disruption in the capital markets, could make any such financing more difficult and/or expensive.~~

~~In additions to the items outlined above, we~~We believe our cash balances, cash generated from our operations and availability of revolving credit borrowings under our Senior Credit Facilities ~~will~~ provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

Operating Activities. Net cash ~~used for~~provided by operating activities was $7.0 million in the first three months of 2021 compared to net cash used in operating activities of $3.8 million in the first ~~quarter~~three months of ~~2020 compared to net cash provided by operating activities of $8.0 million in the first quarter of 2019.~~2020. The ~~decrease~~increase was due primarily to ~~a reduction~~an increase of ~~$9.4~~$18.5 million in ~~Adjusted~~ EBITDA ~~combined with~~offset by a decrease in cash provided by working capital components of ~~$3.4~~$6.3 million.

Investing Activities. Net cash used for investing activities in the first ~~quarter~~three months of 2021 and 2020 was $10.6 million and ~~2019 was~~ $22.0 million, ~~and $15.8 million,~~ respectively. In the first quarter of 2020, we purchased certain restaurant properties to be sold in sale-leaseback transactions for $12.4 million and completed sale-leaseback transactions of seven restaurant properties with proceeds of $13.7 million. Investing activities in the first quarter of 2020 also included the receipt of insurance proceeds of $1.4 million for fires at four of our restaurants.

In the first quarter of 2019 we received net proceeds of $2.3 million from one sale-leaseback transaction and received $0.1 million of proceeds from an insurance recovery related to a fire at one of our restaurants in 2019.

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 expenditures 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 and PLK's initiatives; and (4) corporate and restaurant information systems, including expenditures for our point-of-sale systems for restaurants that we acquire.

Table of Contents

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


	Three Months Ended
	April 4, 2021		March 29, 2020
New restaurant development	$	1,643	$	10,517
Restaurant remodeling	1,758		5,651
Other restaurant capital expenditures	5,831		3,475
Corporate and restaurant information systems	1,395		4,954
Total capital expenditures	$	10,627	$	24,597
Number of new restaurant openings, including relocations	2		3

Three Months Ended March 29, 2020
New restaurant development $ 10,517
Restaurant remodeling 5,885
Other restaurant capital expenditures 3,475
Corporate and restaurant information systems 4,954
Total capital expenditures $ 24,831
Three Months Ended March 31, 2019
New restaurant development $ 5,507
Restaurant remodeling 7,607
Other restaurant capital expenditures 4,474
Corporate and restaurant information systems 587
Total capital expenditures $ 18,175
In the first three months of 2020, investing activities also included net proceeds of $13.7 million from seven sale-leaseback transaction and $1.4 million of insurance recoveries related to property damage at four of our restaurants.

Financing Activities. Net cash used in financing activities in the first three months of 2021 was $1.4 million and included principal payments of $1.3 million on the Term Loan B Facility. We also made principal payments on finance leases of $0.1 million.

Net cash provided by financing activities in the ~~first quarter~~three months of 2020 was $64.1 million and included net revolving credit borrowings of $66.0 million ~~and~~under our Revolving Credit Facility, principal payments of $1.1 million on the Term Loan B ~~Facility. We also incurred $0.3 million of~~Facility, financing costs associated with ~~amendments of~~ our Senior Credit Facilities of $0.3 million and ~~made~~ principal payments on finance leases of $0.6 million.

Net cash provided by financing activities in the first quarter of 2019 was $5.4 million and included net revolving credit borrowings of $6.3 million, principal payments on finance leases of $0.5 million and costs associated with the new Senior Credit Facilities of $0.4 million.

~~New~~ Senior Credit Facility.~~On April 30, 2019, we entered into a senior secured credit facility in an aggregate principal amount~~ As described above under "—Recent and Future Events Affecting Our Results of ~~$550.0 million, consisting~~Operations—Refinancing of ~~(i) a Term Loan B Facility in an aggregate principal amount of $425.0 million (the “Term Loan B Facility”) maturing on April 30, 2026~~Indebtedness and (ii) a revolving credit facility (including a sub-facility of $35.0 million for standby letters of credit) in an aggregate principal amount of $125.0 million maturing on April 30, 2024 (the “Revolving Credit Facility” and, together with the Term Loan B Facility, the (“Amendments to our Senior Credit ~~Facilities”). On December 13, 2019,~~Facilities", we entered into the ~~First Amendment~~Senior Credit Facilities and subsequent amendments to ~~Credit Agreement (the "First Amendment") which amended a financial covenant under~~ the Senior Credit Facilities applicable solely with respect to the Revolving Credit Facility that previously required us to maintain quarterly a Total Net Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 4.75 to 1.00 (measured on a most recent four quarter basis), to now require that we maintain only a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 5.75 to 1.00 (as measured on a most recent four quarter basis) if, and only if, on the last day of any fiscal quarter (beginning with the fiscal quarter ended December 29, 2019), the sum of the aggregate principal amount of outstanding revolving credit borrowings under the Revolving Credit Facility and the aggregate face amount of letters of credit issued under the Revolving Credit Facility (excluding undrawn letters of credit in an aggregate face amount up to $12.0 million) exceeds 35% of the aggregate amount of the maximum revolving credit borrowings under the Revolving Credit Facility. The First Amendment also reduced the aggregate maximum revolving credit borrowings under the Revolving Credit Facility by $10.0 million to a total of $115.0 million.

The Second Amendment also amended the definition of Applicable Margin in the Credit Agreement to provide that on and after the date of the Second Amendment (the "Second Amendment Effective Date"), the Applicable Margin for borrowings under the Revolving Credit Facility (including Letter of Credit Fees) shall be at a rate per annum equal to (a) for so long as the Revolving Committed Amount is greater than $115.0 million, (i) for the period commencing on the Second Amendment Effective Date and including the date that is 179 days after the Second Amendment Effective Date, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans, (ii) for the period commencing on the date that is 180 days after the Second Amendment Effective Date, through and including the date that is 269 days after the Second Amendment Effective Date, 4.25% for LIBOR Rate Loans and 3.25% for Alternate Base Rate Loans, (iii) for the period commencing on the date that is 270 days after the Second Amendment Effective Date, through and including the date that is 364 days after the Second Amendment Effective Date, 4.5% for LIBOR Rate Loans and 3.5% for Alternate Base Rate Loans and (iv) for the period commencing on the date that is 365 days after the Second Amendment Effective Date and thereafter, 4.75% for LIBOR Rate Loans and 3.75% for Alternate Base Rate Loans and (b) for so long as the Revolving Committed Amount is equal to or less than $115.0 million, 3.5% for LIBOR Rate Loans and 2.5% for Alternate Base Rate Loans.

Company and its subsidiaries and shall not be held as cash on the balance sheet. Pursuant to the Letter Agreement, the Company agreed to defer rent payments totaling approximately $2.4 million per month under certain real property leases for the period between April 1, 2020 through and including June 30, 2020. We and the lessor under each of such leases have agreed to the deferral of rent payments under such leases for such period and that any such deferred rent under such leases shall be due and payable by us on July 1, 2020.

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 PPP under the CARES Act. We have determined that we will not be borrowing under the PPP.

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 ~~its~~our subsidiaries.

Under the Senior Credit Facilities, we are required to make mandatory prepayments of borrowings ~~in the event of~~following dispositions of assets, debt issuances and the receipt of insurance and condemnation proceeds (all subject to certain exceptions).

At April 4, 2021, borrowings under our Senior Credit Facilities bore interest as follows:

(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus 2.50% or (b) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.50%.

(ii) Term Loan B borrowings: at a rate per annum equal to (a) the Alternate Base Rate (as defined plus 2.25% or (b) LIBOR Rate plus 3.25%.

(iii) Term Loan B-1 borrowings: at a rate per annum, at our option, of (a) the Alternate Base Rate plus the applicable margin of 5.25% or (b) the LIBOR Rate (which shall not be less than 1% for Incremental Term B-1 Loans) plus the applicable margin of 6.25%.

The weighted average interest rate on borrowings under our Senior Credit Facilities was 4.4% and 4.9% for the three months ended April 4, 2021 and March 29, 2020, respectively.

The Term Loan B and B-1 borrowings are due and payable in quarterly installments, which began on September 30, 2019. Amounts outstanding at April 4, 2021 are due and payable as follows:

(i) twenty quarterly installments of $1.3 million;

(ii) one final payment of $467.0 million on April 30, 2026.

As of April 4, 2021, 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, $136.8 million was available for revolving credit borrowings under the Senior Credit Facilities at April 4, 2021.

Table of Contents

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 ~~all~~any material ~~respects,~~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). As there were no borrowings under the Revolving Credit Facility at April 4, 2021, no First Lien Leverage Ratio calculation was required. We were in compliance with the covenants under our Senior Credit Facilities at ~~March 29, 2020.~~April 4, 2021.

At March 29, 2020 borrowings under the Revolving Credit Facility bore interest, at a rate per annum equal to (i) the Alternate Base Rate (as defined in the Senior Credit Facilities, as amended) plus 2.50% or (b) LIBOR Rate (as defined in the Senior Credit Facilities, as amended) plus 3.50%.

At March 29, 2020 borrowings under the Term Loan B Facility bore interest, at a rate per annum equal to (i) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus 2.25% or (b) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.25%.

~~The weighted average interest rate on long-term debt, excluding lease financing obligations, for the three months ended March 29, 2020 and March 31, 2019 as 4.9% and 7.9%, respectively.~~

In March 2020, we entered into an interest rate swap agreement with our lenders to mitigate the risk of increases in the variable interest rate related to term loan borrowings under the Term Loan B Facility. The interest rate swap fixes the interest rate on 50% of the outstanding term loan borrowings under the Term Loan B Facility at 0.915% plus the applicable margin in its Senior Credit Facilities. The agreement matures on February 28, 2025 and has a notional amount of $220.0 million at ~~March 29, 2020.~~April 4, 2021. The differences between the variable LIBOR rate and the interest rate swap rate of 0.915% are settled monthly. We ~~have not~~ made ~~any~~ payments of $0.4 million to settle the interest rate swap during the three months ended ~~March 29, 2020.~~April 4, 2021. The fair value of our interest rate swap agreement was a liability of ~~$5.2~~$1.9 million as of ~~March 29, 2020~~April 4, 2021 and is included in long-term other liabilities 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 ~~$1.5~~$1.7 million into earnings in the next twelve months.

~~The Term Loan B Facility borrowings are due and payable in quarterly installments, which began on September 30, 2019. Amounts outstanding at March 29, 2020 are due and payable as follows:~~

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

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

Contractual Obligations

A table of our contractual obligations as of ~~December 29, 2019~~January 3, 2021 was included in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021. There have been no significant changes to our contractual obligations during the three months ended ~~March 29, 2020 other than an increase in revolving credit borrowings under our Revolving Credit Facility in the first quarter of 2020 of $66.0 million.~~April 4, 2021.

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 and increases in the wage level to not be considered an hourly employee will directly affect our labor costs. We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

Application of Critical Accounting Policies

Our unaudited condensed consolidated financial statements ~~and accompanying notes~~ are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the ~~“Significant Accounting Policies”~~“Basis of Presentation” footnote in the notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021. 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. There have been no material changes affecting our critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended ~~December 29, 2019.~~January 3, 2021.

Table of Contents

Forward Looking Statements

This Quarterly Report on Form 10-Q 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. These statements are often identified by the words “may”, “might", “will”, “should”, “anticipate”, “believe”, “expect”, “intend”, “estimate”, “hope”, “plan” or similar expressions. In addition, expressions of our strategies, intentions or plans are also forward looking statements. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected or implied in the forward-looking statements. We have identified significant factors that could cause actual results to differ materially from those stated or implied in the forward-looking statements. 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 and in our Annual Report on Form 10-K for the period ended ~~December 29, 2019:~~January 3, 2021:

•The impact of the COVID-19 pandemic;

~~Negative publicity regarding food quality, illness, injury or other health concerns (such as the current COVID-19 pandemic);~~

•Effectiveness of the Burger King® and Popeyes® advertising programs and the overall success of the Burger King® ~~brand;~~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 and the potential impact of competitors’ new unit openings and promotions on sales of our restaurants;

•Our ability to integrate any restaurants we acquire;

•Regulatory factors;

•Environmental conditions and regulations;

•General economic conditions, particularly in the retail sector;

•Weather conditions;

•Fuel prices;

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

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

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

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

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

•Our inability to service our indebtedness;

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

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

•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.~~products as well as negative publicity regarding food quality, illness, injury, or other health concerns.

Table of Contents

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes from the information presented in Item 7A included in our Annual Report on Form 10-K for the year ended ~~December 29, 2019~~January 3, 2021 with respect to our market risk sensitive instruments.

A 1% change in interest rates would have resulted in a $0.7 million and $1.4 million change to interest expense for the three months ended April 4, 2021 and March 29, 2020, ~~and a nominal change to the three months ended March 31, 2019.~~respectively.

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Controls and ~~Procedures~~. Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 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 Securities and Exchange Commission’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 ~~March 29, 2020.~~April 4, 2021.

Changes in Internal Control. During the three months ended ~~March 29, 2020,~~April 4, 2021, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

All of our administrative employees and employees of our outsourcing partners and other service providers worked remotely beginning in March 2020 as our corporate office was closed in response to the COVID-19 outbreak. Although we have reopened the office on a volunteer basis, many employees continue to work remotely on a full or part-time basis. Despite the hybrid working ~~remotely,~~environment, there were no material changes in our internal control over financial reporting as we were able to continue to maintain our existing controls and procedures over our financial reporting during the quarter ended ~~March 29, 2020.~~April 4, 2021. We are continually monitoring and assessing the effect of the COVID-19 pandemic on our internal controls and hybrid working environment to minimize the impact on its design and operating effectiveness.

Table of Contents

PART II—OTHERINFORMATION

Item 1. Legal Proceedings

We are a party to various litigation matters that arise in the ordinary course of business. We do not believe that the outcome of any of these other matters meet the disclosure or recognition standards, nor will they have a material adverse effect on our consolidated financial statements.

Item 1A. Risk Factors

Part I - Item 1A of the Annual Report on Form 10-K for the period ended ~~December 29, 2019~~January 3, 2021 describes important risk factors that could materially affect our business, consolidated financial condition or results of operationsor cause our operating results to differ materially from the indicated or cause our operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time to time. Our risk factor disclosure has been updated to add the following:

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

~~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.~~ If a virus is transmitted by human contact, our employees or customers may become infected, or may choose, or be advised, to avoid gathering in public places, any of which may adversely affect our restaurant customer traffic and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. We also may be adversely affected if jurisdictions in which we ~~have restaurants impose 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~~able to hire and ~~a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may adversely affect our business.~~

A health pandemic such as COVID-19 is a disease outbreak that has spread rapidly and widely by infection and has affected many individuals in an areas of population density. Our restaurants are places where people can gather together for human connection. Customers might avoid or be advised to not gather in public places in the event of a health pandemic, and local, regional or national governments might continue or further limit or ban public gatherings to halt or delay the spread of disease. The impact of a health pandemic on us might be disproportionately greater than on other quick-service concepts that have lower customer traffic and that depend less on the gathering of people. In addition, we 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.

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

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 due to employees at these facilities contracting the COVID-19 virus,personnel it could create disruptions in the ~~operations~~operation of our restaurants, which could have a material adverse effect on our ~~business.~~results of operation and financial condition.

~~In addition,~~We rely on our restaurant-level employees to provide outstanding service and quality food for the thousands of guests we ~~cannot guarantee~~serve every day. We believe that ~~changes~~our continued success depends, in part, on our ability to ~~our operational policies~~attract and retain the services of qualified restaurant personnel, and we devote significant resources to recruiting and training ~~will be effective to keep~~ our ~~employees~~restaurant managers and ~~customers safe from~~hourly employees.

The COVID-19 pandemic has increased the ~~COVID-19 virus as well as being effective in preventing food-borne illnesses, food tampering~~difficulty of maintaining adequate staffing levels for us and other ~~food safety issues that may affect our restaurants. Food-borne illness~~restaurant operators. It has also caused us to limit operating hours 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 moredine-in services at some of our restaurants due to employee shortages. If we are unable to hire and retain qualified restaurant personnel sufficient to staff our restaurants, it could ~~result~~create disruptions in ~~a significant decrease in guest traffic in all~~the operation of our restaurants ~~and~~which could have a material adverse effect on our results of ~~operations. In addition, similar publicity or occurrences with respect to other restaurants or restaurant chains could also decrease our guest traffic~~operation and ~~have a similar material adverse effect on our business.~~financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 15, ~~2020,~~2021, the Company accepted the surrender of ~~9,318~~8,219 shares of the ~~Company~~Company's common stock in connection with the payment of taxes upon the vesting of restricted stock.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None

Table of Contents

Item 6. Exhibits

(a)The following exhibits are filed as part of this report.



Exhibit No.
~~10.1~~4.1		~~Second~~Amendment No.1 to Registration Rights and Stockholders' Agreement dated as of April 1, 2021 between Carrols Restaurant Group, Inc. and Cambridge Franchise Holdings, LLC
10.1		Sixth Amendment to Credit Agreement dated as of ~~March 25, 2020~~April 6, 2021 among Carrols Restaurant Group, Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders party ~~thereto.~~thereto
10.2		~~Third Amendment to Credit Agreement~~Offer Letter dated ~~as of April 8, 2020 among~~October 4, 2018 between Carrols Restaurant Group, Inc.~~, certain subsidiaries party thereto, Wells Fargo Bank, National Association~~ and ~~the lenders party thereto.~~Nathan Mucher+
~~10.3~~31.1		Form of Fourth Amendment to Credit Agreement dated as of April 16, 2020 among Carrols Restaurant Group, Inc., certain subsidiaries party thereto, Wells Fargo Bank, National Association and the lenders party thereto.
~~10.4~~	~~Letter Agreement dated as of March 25, 2020 among Carrols Restaurant Group, Inc., Wells Fargo Securities LLC, Wells Fargo Bank, National Association and Trust Bank.~~
~~31.1~~	Chief Executive Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.
31.2		Chief Financial Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.
32.1		Chief Executive Officer’s Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.
32.2		Chief Financial Officer’s Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Carrols Restaurant Group, Inc.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ compensatory plan or arrangement

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	CARROLS RESTAURANT GROUP, INC.

Date: May ~~7, 2020~~13, 2021		/s/ Daniel T. Accordino
		(Signature)
		Daniel T. Accordino Chief Executive Officer

Date: May ~~7, 2020~~13, 2021		/s/ Anthony E. Hull
		(Signature)
		Anthony E. Hull Vice President, Chief Financial Officer and Treasurer

4244


	Three Months Ended
	April 4, 2021		March 29, 2020
Cash flows provided by (used in) operating activities:
Net loss	$	(7,168)	$	(22,209)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on disposals of property and equipment	220		50
Stock-based compensation	1,469		1,132
Impairment and other lease charges	353		2,881
Depreciation and amortization	20,609		21,031
Amortization of deferred financing costs	549		482
Amortization of discount on debt	200		67
Deferred income taxes	(2,661)		(6,983)
Change in refundable income taxes	0		6
Changes in other operating assets and liabilities	(6,535)		(247)
Net cash provided by (used in) operating activities	7,036		(3,790)
Cash flows used for investing activities:
Capital expenditures:
New restaurant development	(1,643)		(10,517)
Restaurant remodeling	(1,758)		(5,651)
Other restaurant capital expenditures	(5,831)		(3,475)
Corporate and restaurant information systems	(1,395)		(4,954)
Total capital expenditures	(10,627)		(24,597)


Properties purchased for sale-leaseback	0		(12,441)
Proceeds from sale-leaseback transactions	0		13,685
Proceeds from insurance recoveries	0		1,385
Net cash used for investing activities	(10,627)		(21,968)
Cash flows provided by (used in) financing activities:

Repayments of Term Loan B Facility	(1,250)		(1,063)
Borrowings under revolving credit facility	0		190,000
Repayments under revolving credit facility	0		(124,000)

Payments on finance lease liabilities	(137)		(567)
Costs associated with financing long-term debt	0		(314)
Purchase of treasury shares	(57)		0
Net cash provided by (used in) financing activities	(1,444)		64,056
Net increase (decrease) in cash and cash equivalents	(5,035)		38,298
Cash and cash equivalents, beginning of period	64,964		2,974
Cash and cash equivalents, end of period	$	59,929	$	41,272
Supplemental disclosures:
Interest paid on long-term debt	$	5,960	$	6,705
Interest paid on lease financing obligations	$	26	$	26
Accruals for capital expenditures	$	2,989	$	5,528
Finance lease obligations incurred	$	546	$	0



	Three Months Ended
	March 29, 2020			March 31, 2019
Cash flows provided by (used for) operating activities:
Net loss	$	(22,209	)	$	(11,469	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Loss on disposals of property and equipment	50			146
Stock-based compensation	1,132			1,526
Gain on settlement agreement (Note 11)	—			(1,913		)
Impairment and other lease charges	2,881			910
Depreciation and amortization	21,031			15,292
Amortization of deferred financing costs	482			299
Amortization of bond premium and discount on debt	67			(238		)
Deferred income taxes	(6,983		)	346
Change in refundable income taxes	6			(32		)
Changes in other operating assets and liabilities	(247		)	3,121
Net cash provided by (used for) operating activities	(3,790		)	7,988
Cash flows used for investing activities:
Capital expenditures:
New restaurant development	(10,517		)	(5,507		)
Restaurant remodeling	(5,885		)	(7,607		)
Other restaurant capital expenditures	(3,475		)	(4,474		)
Corporate and restaurant information systems	(4,954		)	(587		)
Total capital expenditures	(24,831		)	(18,175		)
Properties purchased for sale-leaseback	(12,441		)	—
Proceeds from sale-leaseback transactions	13,685			2,302
Proceeds from insurance recoveries	1,385			123
Proceeds from lease incentives	234			—
Net cash used for investing activities	(21,968		)	(15,750		)
Cash flows provided by financing activities:
Repayments of Term Loan B Facility	(1,063		)	—
Borrowings under prior revolving credit facility	—			89,250
Repayments under prior revolving credit facility	—			(83,000		)
Borrowings under new revolving credit facility	190,000			—
Repayments under new revolving credit facility	(124,000		)	—
Payments on finance lease liabilities	(567		)	(476		)
Costs associated with financing long-term debt	(314		)	(358		)
Net cash provided by financing activities	64,056			5,416
Net increase (decrease) in cash and cash equivalents	38,298			(2,346		)
Cash and cash equivalents, beginning of period	2,974			4,014
Cash and cash equivalents, end of period	$	41,272		$	1,668
Supplemental disclosures:
Interest paid on long-term debt	$	6,705		$	503
Interest paid on lease financing obligations	$	26		$	26
Accruals for capital expenditures	$	5,528		$	5,161
Income taxes paid	$	—		$	(45	)


	March 29, 2020			December 29, 2019				April 4, 2021		January 3, 2021
Collateralized:							Collateralized:
Senior Credit Facility:							Senior Credit Facility:
Term Loan B Facility	$	421,813		$	422,875
Revolving credit borrowings	111,750			45,750
Term Loan B borrowings							Term Loan B borrowings	$	418,312	$	419,375
Term Loan B-1 borrowings							Term Loan B-1 borrowings	73,688		73,875

Finance lease liabilities	1,958			2,524			Finance lease liabilities	1,315		908
	535,521			471,149				493,315		494,158
Less: current portion of long-term debt and finance lease liabilities	(5,437		)	(5,866		)	Less: current portion of long-term debt and finance lease liabilities	(5,668)		(5,525)
Less: unamortized debt issuance costs	(7,395		)	(7,768		)	Less: unamortized debt issuance costs	(7,405)		(7,777)
Less: unamortized original issue discount	(1,883		)	(1,950		)	Less: unamortized original issue discount	(4,961)		(5,161)
Total Long-term debt	$	520,806		$	455,565		Total Long-term debt	$	475,281	$	475,695


						Shares	Weighted Average Grant Date Price
	Shares		Weighted Average Grant Date Price
Non-vested at December 29, 2019	790,823		$	11.35
Non-vested at January 3, 2021					Non-vested at January 3, 2021	1,167,848	$	7.02
Granted	863,128		$	5.42	Granted	938,140	$	6.99
Vested	(404,477	)	$	12.16	Vested	(502,448)	$	8.04
Non-vested at March 29, 2020	1,249,474		$	6.99
Forfeited					Forfeited	(5,000)	$	5.47
Non-vested at April 4, 2021					Non-vested at April 4, 2021	1,598,540	$	6.69



Closing Date		Number of Restaurants	Purchase Price	Market Location
April 30, 2019	(1)	220	259,083	Southeastern states, primarily TN, MS, LA
June 11, 2019		13	15,788	Baltimore, Maryland
August 20, 2019	(2)	1	1,108	Pennsylvania
		234	275,979


~~(1)~~	During the second quarter of 2019, the Company completed the merger with New CFH, LLC (“Cambridge”) and acquired 165 Burger King restaurants and 55 Popeyes restaurants. See further discussion below.



Inventory	$	2,839
Prepaid expenses	2,947
Other assets	1,846
Land and buildings	21,257
Restaurant equipment	25,358
Restaurant equipment - subject to finance leases	488
Right-of-use assets	251,431
Leasehold improvements	3,498
Franchise fees	7,300
Franchise rights	174,500
Deferred income taxes	(44,292		)
Goodwill	84,060
Finance lease obligations for restaurant equipment	(568		)
Operating lease liabilities	(255,897		)
Accounts payable	(8,014		)
Accrued payroll, related taxes and benefits	(3,133		)
Other liabilities	(4,537		)
Net assets acquired	$	259,083



	Three Months Ended
	March 31, 2019
Total revenue	$	367,189
Net loss	$	(7,686	)
Basic and diluted net loss per share	$	(0.21	)



Balance at December 29, 2019	$	348,941
Amortization expense	(3,967		)
Balance at March 29, 2020	$	344,974


~~(1)~~	~~Includes short-term leases which are not material.~~



Reconciliation of Restaurant-Level EBITDA:
Loss from operations	$	(22,047	)	$	(5,168	)
Add:
General and administrative expenses	20,787			19,724
Pre-opening costs (3)	89			68
Depreciation and amortization	21,031			15,292
Impairment and other lease charges	2,881			910
Other expense (income), net (5)	56			(2,129		)
Restaurant-Level EBITDA	$	22,797		$	28,697



Three Months Ended March 29, 2020
New restaurant development	$	10,517
Restaurant remodeling	5,885
Other restaurant capital expenditures	3,475
Corporate and restaurant information systems	4,954
Total capital expenditures	$	24,831
Three Months Ended March 31, 2019
New restaurant development	$	5,507
Restaurant remodeling	7,607
Other restaurant capital expenditures	4,474
Corporate and restaurant information systems	587
Total capital expenditures	$	18,175