CARROLS RESTAURANT GROUP, INC.

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CARROLS RESTAURANT GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/12/2022 | 01:17pm EDT
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
years ended January 2, 2022 and January 1, 2023 each contain 52 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
appearing elsewhere in this report and our Annual Report on Form 10-K for the
year ended January 2, 2022. 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 April 3, 2022 compared to the three months ended April 4, 2021,
including a review of material items and known trends and uncertainties.

Liquidity and Capital Resources-an analysis of our cash flows, including capital
expenditures, the existence and timing of commitments and contingencies, changes
in capital resources and a discussion of known trends that may impact liquidity.

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

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

Company Overview


Carrols Restaurant Group, Inc. and its consolidated subsidiaries (collectively,
"Carrols Restaurant Group", the "Company", "we", "our" or "us") is one of the
largest restaurant companies in the United States and has been operating
restaurants for more than 60 years. We are the largest Burger King franchisee in
the United States based on number of restaurants, and have operated Burger King
restaurants since 1976. As of April 3, 2022 we operated, as franchisee, a total
of 1,091 restaurants in 23 states under the trade names of Burger King and
Popeyes. This included 1,026 Burger King restaurants in 23 Northeastern,
Midwestern, Southcentral and Southeastern states and 65 Popeyes restaurants in
seven Southeastern states. During the second quarter of 2021, we acquired 19
Burger King® restaurants in two separate transactions, which we refer to as the
"2021 acquired restaurants."

Any reference to "BKC" refers to Burger King Corporation and its indirect parent
company, Restaurant Brands International Inc. ("RBI"). Any reference to "PLK"
refers to Popeyes Louisiana Kitchen, Inc. and its indirect parent company, RBI.
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The following is an overview of the key financial measures discussed in our results of operations:


•Restaurant sales consists of food and beverage sales at our restaurants, net of
sales discounts and refunds and excluding sales tax. Restaurant sales are
influenced by changes in comparable restaurant sales, menu price increases, new
restaurant development, acquisitions of restaurants, franchisor promotions and
closures of restaurants. Comparable restaurant sales reflect the change in
year-over-year sales for a comparable restaurant base. Restaurants we acquire
are included in comparable restaurant sales after they have been owned for 12
months and newly developed restaurants are included in comparable restaurant
sales after they have been open for 15 months. Restaurants are excluded from
comparable restaurant sales during extended periods of closure, which primarily
occur due to restaurant remodeling activity. For comparative purposes, where
applicable, the calculation of the changes in comparable restaurant sales is
based either on a 53-week or 52-week year and compares against the respective
52-week prior period.

•Food, beverage, and packaging costs consists of food, beverage and packaging
costs and delivery commissions, less purchase discounts and vendor rebates.
Food, beverage, and packaging costs are generally influenced by changes in
commodity costs, the mix of items sold, the level of promotional discounting,
the effectiveness of our restaurant-level controls to manage food and paper
costs, and the relative contribution of delivery sales.

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

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


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

•Advertising expense includes advertising payments to BKC and PLK based on a
percentage of sales as required under our franchise and operating agreements and
additional local marketing and promotional expenses 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 Loss
are non-GAAP financial measures. EBITDA represents net loss before income taxes,
interest expense, and depreciation and amortization. Adjusted EBITDA represents
EBITDA adjusted to exclude impairment and other lease charges, stock-based
compensation expense, restaurant pre-opening costs, executive transition,
non-recurring litigation and other professional expenses, and other income and
expense. Adjusted Restaurant-Level EBITDA represents loss from operations as
adjusted to exclude general and administrative expenses, depreciation and
amortization, impairment and other lease charges, pre-opening costs and other
income and expense. Adjusted Net Loss represents net loss as adjusted, net of
tax, to exclude impairment and other lease charges, restaurant pre-opening
costs, executive transistion, non-recurring litigation and other professional
expenses and other income and expense.

We are presenting Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted
Net Loss because we believe that they provide a more meaningful comparison than
EBITDA and net loss of our core business operating results, as well as with
those of other similar companies. Additionally, we present Adjusted
Restaurant-Level EBITDA because it excludes restaurant pre-opening costs, other
income and expense, and the impact of general and administrative expenses such
as salaries and expenses associated with corporate and administrative functions
that support the development and operations of our restaurants, legal, auditing
and other professional fees. Although these costs are not directly related to
restaurant-level operations, these costs are necessary for the profitability of
our restaurants. Management believes that Adjusted EBITDA, Adjusted
Restaurant-Level EBITDA and
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Adjusted Net Loss, when viewed with our results of operations in accordance with
U.S. GAAP and the accompanying reconciliations on page 34, 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 Loss are not measures of financial performance or liquidity under U.S. GAAP
and, accordingly, should not be considered as alternatives to net loss, loss
from operations or cash flow from operating activities as indicators of
operating performance or liquidity. Also, these measures may not be comparable
to similarly titled captions of other companies. For the reconciliation between
Net Loss to EBITDA, Adjusted EBITDA and Adjusted Net Loss and the reconciliation
of income from operations to Adjusted Restaurant-Level EBITDA, see page 34.

EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net 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 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 Term B and
Term B-1 Loans under our Senior Credit Facilities, our 5.875% Senior Notes Due
2029 (the "Notes"), our revolving credit borrowings under our Senior Credit
Facilities, finance lease liabilities, amortization of deferred financing costs,
amortization of original issue discount, and payments required under our
interest rate swap arrangement.
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Recent and Future Events Affecting our Results of Operations

Burger King Restaurant Acquisitions

In 2021, we acquired 19 restaurants from other franchisees in the following transactions ($ in thousands):

       Closing Date               Number of Restaurants           Purchase
Price             Fee-Owned(1)             Market Location
June 17, 2021                                          14       $        27,603                      12       Fort Wayne, Indiana
June 23, 2021                                           5                 3,216                       1       Battle Creek, Michigan
                                              19                $        30,819                      13


(1) The 2021 acquisitions included the purchase of 13 fee-owned restaurants, of
which 12 were sold in sale-leaseback transactions during the third quarter of
2021 for net proceeds of approximately $20.2 million.

The unaudited pro forma impact on the results of operations for the 2021
acquisitions 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. This
unaudited pro forma financial information does not give effect to any
anticipated synergies, operating efficiencies or cost savings or any transaction
costs related to the 2021 acquired restaurants. The following table summarizes
certain unaudited pro forma financial information related to our operating
results for the three months ended April 4, 2021:

                               Three Months Ended
                                 April 4, 2021
Total revenue                 $          396,006
Loss from operations          $           (2,483)
Adjusted EBITDA               $           20,486

Area Development and Remodeling Agreement


The Company, Carrols Corporation, Carrols LLC, and BKC entered into an Amended
Area Development on January 4, 2021 (the "Amended ADA"). Under the Amended ADA,
Carrols LLC has agreed to open, build and operate a total of 50 new Burger King
restaurants, 80% of which must be in Kentucky, Tennessee and Indiana. This
includes four Burger King restaurants by September 30, 2021, 10 additional
Burger King restaurants by September 30, 2022, 12 additional Burger King
restaurants by September 30, 2023, 12 additional Burger King restaurants by
September 30, 2024 and 12 additional Burger King restaurants by September 30,
2025. There is a 90-day cure period to meet the required restaurant development
each development year. We are in ongoing discussions with BKC regarding our
development plans, and do not believe the penalties, if any, associated with not
meeting these commitments will be material.

In addition, pursuant to the Amended ADA, BKC granted Carrols LLC franchise
pre-approval to build new Burger King restaurants or acquire Burger King
restaurants from Burger King franchisees with respect to 500 Burger King
restaurants in the aggregate in (i) Kentucky, Tennessee and Indiana (excluding
certain geographic areas in Indiana) and (ii) (a) 16 states, which include
Arkansas, Indiana, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi,
North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Vermont and Virginia (subject to certain exceptions for certain limited
geographic areas within certain states) and (b) any other geographic locations
that Carrols LLC enters after the commencement date of the Amended ADA pursuant
to BKC procedures subject to certain limitations.


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In connection with an acquisition of restaurants in 2019 we assumed a
development agreement for Popeyes, which included an assignment by PLK of its
right of first refusal under its franchise agreements with its franchisees for
acquisitions in two southern states, as well as a development commitment to
open, build and operate approximately 80 new Popeyes restaurants over six years.
This development agreement with PLK was terminated on March 17, 2021, with
certain covenants applicable to us surviving the termination. PLK reserved the
right to charge us a $0.6 million fee if the parties to the termination
agreement were not able to come to a mutually agreeable solution with respect to
such fee within a six-month period. We have not recorded a liability for such
amount as the risk of loss is only considered reasonably possible at this time.

Capital Expenditures


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

We incurred $12.6 million of capital expenditures in the first three months of
2022, net of proceeds from sale of other assets in the quarter. We opened two
Burger King restaurants and completed remodels of five Burger King restaurants
in the first three months of 2022. In all of 2022, we expect to complete
development of six new Burger King restaurants and to remodel nine Burger King
restaurants and three Popeyes restaurants.

Issuance of Notes and Amendments to our Senior Credit Facilities


On April 30, 2019, we entered into a senior secured credit facility which
provided for senior secured credit facilities in an aggregate principal amount
of $550.0 million (as amended, the "Senior Credit Facilities"), consisting of
(i) a term loan B facility in an aggregate principal amount of $425.0 million
(the "Term Loan B Facility"), the entire amount of which was borrowed by us on
April 30, 2019 and (ii) a revolving credit facility (including a sub-facility of
$35.0 million for standby letters of credit) in an aggregate principal amount of
$125.0 million (the "Revolving Credit Facility"). Prior to the entry into the
amendments described below, borrowings under the Term Loan B Facility and the
Revolving Credit Facility bore interest at a rate per annum, at our option, of
(i) the Alternate Base Rate (such definition and all other definitions used
herein and otherwise not defined herein shall have the meanings set forth in the
Senior Credit Facilities) plus the applicable margin of 2.25% or (ii) the LIBOR
Rate plus a margin of 3.25% (as defined in the Senior Credit Facilities). The
Term Loan B Facility matures on April 30, 2026 and the Revolving Credit Facility
originally matured on April 30, 2024.

On December 13, 2019, we entered into the First Amendment to our Senior Credit
Facilities (the "First Amendment") which amended a financial covenant under the
Senior Credit Facilities applicable solely with respect to the Revolving Credit
Facility that previously required the Company to maintain quarterly a Total Net
Leverage Ratio (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.
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On March 25, 2020, we entered into the Second Amendment to our Senior Credit
Facilities (the "Second Amendment"). The Second Amendment, among other things,
(i) increased the aggregate maximum commitments available for revolving credit
borrowings (including standby letters of credit) under the Revolving Credit
Facility (the "Revolving Committed Amount") by $15.4 million to a total of
$130.4 million, (ii) amended the definition of Applicable Margin (such
definition and all other definitions used herein and otherwise not defined
herein shall be the meanings set forth in the Senior Credit Facilities), (iii)
provided for a commitment fee (the "Ticking Fee") beginning on the 180th day
after the Second Amendment Effective Date and for so long as the Revolving
Committed Amount remained greater than $115.0 million, and (iv) provided that
the Company shall use the proceeds of an Extension of Credit which results in
the sum of the aggregate principal amount of outstanding Revolving Loans plus
the aggregate amount of LOC Obligations equaling an amount in excess of $115.0
million solely for ongoing operations of the Company and its subsidiaries and
shall not be held as cash on the balance sheet. The terms outlined as (ii),
(iii) and (iv) were modified in the Sixth Amendment described below.

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


On April 16, 2020, we entered into the Fourth Amendment to our Senior Credit
Facilities (the "Fourth Amendment"). The Fourth Amendment permits us to incur
and, if necessary, repay indebtedness incurred pursuant to the Paycheck
Protection Program (the "PPP") under the CARES Act. Subsequent to the Fourth
Amendment, we withdrew our application for relief under the PPP and returned the
funds upon receipt.

On June 23, 2020 (the "Fifth Amendment Effective Date"), we entered into the
Fifth Amendment to our Senior Credit Facilities (the "Fifth Amendment"). The
Fifth Amendment increased the Term Loan (as defined in the Senior Credit
Facilities) borrowings in the aggregate principal amount of $75 million of
Incremental Term B-1 Loans (as defined in the Senior Credit Facilities). The
Incremental Term B-1 Loans constituted a new tranche of Term Loans ranking pari
passu in right of payment and security with the Initial Term Loans (as defined
in the Senior Credit Facilities) for all purposes under the Senior Credit
Facilities. The Incremental Term B-1 Loans had the same terms as outstanding
borrowings under the Company's existing Term Loan B facility pursuant to and in
accordance with the Senior Credit Facilities, provided that (i) borrowings under
the Incremental Term B-1 Loans bore interest at a rate per annum, at our option,
of (a) the Alternate Base Rate (as defined in the Senior Credit Facilities) plus
the applicable margin of 5.25% or (b) the LIBOR Rate (as defined in the Senior
Credit Facilities) (which shall not be less than 1% for Incremental Term B-1
Loans) plus the applicable margin of 6.25% and (ii) certain prepayments of the
Incremental Term B-1 Loans by us prior to the first anniversary of the Fifth
Amendment Effective Date would be subject to a premium to the Administrative
Agent (as defined in the Senior Credit Facilities), for the ratable account of
each applicable Term Loan Lender (as defined in the Senior Credit Facilities)
holding Incremental Term B-1 Loans on the date of such prepayment equal to the
Applicable Make-Whole Amount (as defined in the Senior Credit Facilities) with
respect to the principal amount of the Incremental Term B-1 Loans so prepaid.
The principal amount of the Incremental Term B-1 Loans amortized in an aggregate
annual amount equal to 1% of the original principal amount of the Incremental
Term B-1 Loans and were repayable in consecutive quarterly installments on the
last day of our fiscal quarters beginning on the third fiscal quarter of 2020.
The remaining outstanding principal amount of the Incremental Term B-1 Loan and
all accrued but unpaid interest and other amounts payable with respect to the
Incremental Term B-1 Loan would have been due on April 30, 2026, which was the
Term Loan Maturity Date (as defined in the Senior Credit Facilities). The Term
B-1 Loans were repaid in full on June 28, 2021.
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On April 6, 2021, we entered into the Sixth Amendment to our Senior Credit
Facilities (the "Sixth Amendment"), which increased the aggregate maximum
commitments available for revolving credit borrowings (including standby letters
of credit) under our Revolving Credit Facility by $29.2 million to a total of
$175.0 million. The Sixth Amendment also amended the definitions in the Senior
Credit Facilities of (i) Applicable Margin, to provide that the Applicable
Margin for borrowings under the Revolving Credit Facility (including Letter of
Credit Fees) shall be at a rate per annum equal to 3.25% for LIBOR Rate Loans
and 2.25% for Alternate Base Rate Loans, and (ii) Revolving Maturity Date, to
provide that the Revolving Maturity Date is extended to January 29, 2026. In
addition, the Sixth Amendment amended the Senior Credit Facilities to remove our
obligation to (i) pay a Ticking Fee pursuant to the Ticking Fee Rate and (ii)
use the proceeds of an Extension of Credit which results in the sum of the
aggregate principal amount of outstanding Revolving Loans plus the aggregate
amount of LOC Obligations equaling an amount in excess of $115.0 million solely
for our ongoing operations and not to hold as cash on the balance sheet.

On June 28, 2021, we entered into the Seventh Amendment to our Senior Credit
Facilities (the "Seventh Amendment"). The Seventh Amendment revised (a) the
initial amount for calculating the Available Amount (as defined in the Senior
Credit Facilities) from $27.0 million to $50.0 million which is utilized, among
other items, in determining the amount of Restricted Payments (as defined in the
Senior Credit Facilities) and Permitted Investments (as defined in the Senior
Credit Facilities), (b) the calculation of the Company's ability to incur an
Incremental Term Loan (as defined in the Senior Credit Facilities) or an
increase to the Revolving Committed Amount from $135.0 million to
$180.0 million, and (c) the general basket for Restricted Payments, Permitted
Investments and Restricted Junior Debt Payment (as defined in the Senior Credit
Facilities) from an aggregate amount not to exceed the greater of (i)
$27.0 million and (ii) 20% of Consolidated EBITDA (as defined in the Senior
Credit Facilities) as of the most recently completed Reference Period (as
defined in the Senior Credit Facilities) to (i) $50.0 million and (ii) 40% of
Consolidated EBITDA as of the most recently completed Reference Period. In
addition, the Seventh Amendment revises the Total Net Leverage Ratio required
for the Company to make Restricted Payments or prepay Junior Debt (as defined in
the Senior Credit Facilities) with unutilized Available Amount from 3.00 to 1.00
to 4.00 to 1.00. The Seventh Amendment also provided for affiliates of the
Company to acquire up to 20% of the outstanding term loans pursuant to certain
transactions.

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

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

On September 30, 2021, we entered into the Eighth Amendment to our Senior Credit
Facilities (the "Eighth Amendment"). The Eighth Amendment increased the
aggregate maximum commitments available for revolving credit borrowings under
the revolving credit facility by $40.0 million to a total of $215.0 million.
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As of April 3, 2022, there were $20.0 million revolving credit borrowings outstanding and $9.0 million of letters of credit were issued under our Revolving Credit Facility. After reserving for issued letters of credit and outstanding revolving credit borrowings, $186.0 million was available for revolving credit borrowings under our Senior Credit Facilities at April 3, 2022.



Interest Rate Swap Agreement

We entered into a five-year interest rate swap agreement commencing March 3,
2020 and ending February 28, 2025 with a notional amount of $220.0 million to
swap variable rate interest payments (one-month LIBOR plus the applicable
margin) under our Senior Credit Facilities for fixed interest payments bearing
an interest rate of 0.915% plus the applicable margin in our Senior Credit
Facilities. On November 12, 2021, we partially terminated this interest rate
swap to reduce the notional amount hedged from $220.0 million to $120.0 million,
and obtain the flexibility to repay borrowings under the Senior Credit
Facilities which previously needed to be maintained at the hedged $220.0 million
notional amount. The fixed rate and other terms of the swap arrangement remained
unchanged as a result of the partial termination, which settled with net
proceeds to us of $0.2 million.

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
on August 10, 2021, was extended through August 2, 2023. Purchases under the
Repurchase Program may be made from time to time in open market transactions at
prevailing market prices or in privately negotiated transactions (including,
without limitation, the use of Rule 10b5-1 plans) in compliance with applicable
federal securities laws, including Rule 10b-18 under the Securities Exchange Act
of 1934, as amended.

During the year ended January 3, 2021, we repurchased in open market transactions 1,534,304 shares at an average share price of $6.52 for a total cost of $10.0 million under the Repurchase Program, all during the fourth quarter of 2020. We did not repurchase any shares in the three months ended April 3, 2022.


As of April 3, 2022, $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.

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 all of 2021 we closed five Burger King restaurants, excluding one restaurant
relocated within its trade area. In the first three months of 2022, we
permanently closed two Burger King restaurants. We currently anticipate
approximately 15 to 20 restaurant closures in 2022, outside of any restaurants
being relocated within their trade area.

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.

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Effect of Minimum Wage Increases


Certain of the states and municipalities in which we operate have increased
their minimum wage rates for 2021 and in many cases have also approved
additional increases for future periods. Most notably, New York State increased
the minimum wage applicable to our business to $14.50 an hour on January 1, 2021
and then to 15.00 an hour on July 1, 2021, from $13.75 an hour in 2020 and
$12.75 per hour in 2019. New York State has a Youth Jobs Program tax credit
through 2027 for which we have been receiving approximately $500,000 per year
since 2016. We had 124 restaurants in New York State at April 3, 2022. As of
such date, we also had one restaurant in Massachusetts that has annual minimum
wage increases reaching $15.00 per hour in 2023, 10 restaurants in New Jersey
that have annual minimum wage increases reaching $15.00 per hour in 2024, and 45
total restaurants in Illinois and Maryland that have annual minimum wage
increases reaching $15.00 per hour in 2025.

In the current labor market, we have seen competitive pressure on wage rates
that have significantly outpaced statutory minimums as the re-opening of the
economy has increased demand for labor at all levels of the workforce.

We typically attempt to offset the effects of wage inflation, at least in part,
through periodic menu price increases. However, no assurance can be given that
we will be able to offset these wage increases in the future.


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Results of Operations

Reconciliations of Net loss to EBITDA, Adjusted EBITDA and Adjusted Net Loss, and Loss from operations to Adjusted Restaurant-Level EBITDA for the three months ended April 3, 2022 and April 4, 2021 are as follows (in thousands, except for per share data):


                                                                          Three Months Ended
Reconciliation of EBITDA and Adjusted EBITDA:                    April 3, 2022           April 4, 2021
Net loss                                                       $      (21,269)         $       (7,168)
Benefit from income taxes                                              (6,009)                 (2,661)
Interest expense                                                        7,436                   6,726
Depreciation and amortization                                          19,542                  20,609
EBITDA                                                                   (300)                 17,506
Impairment and other lease charges                                        496                     353

Stock-based compensation expense                                        1,941                   1,469

Pre-opening costs(1)                                                       45                      29
Executive transition, litigation and other professional
expenses(2)                                                             1,918                     282
Other expense, net(3)(4)                                                  202                     227

Adjusted EBITDA                                                $        4,302          $       19,866

Reconciliation of Adjusted Restaurant-Level EBITDA:

      Loss from operations                                  $ (19,842)    

$ (3,103)

Add:

      General and administrative expenses                      22,017      

21,369

      Pre-opening costs(1)                                         45      

29

      Depreciation and amortization                            19,542      

20,609

      Impairment and other lease charges                          496           353
      Other expense, net(3)(4)                                    202           227
      Adjusted Restaurant-Level EBITDA                      $  22,460     

$ 39,484



Reconciliation of Adjusted Net Loss:
Net loss                                                       $   (21,269)         $    (7,168)
Add:
Impairment and other lease charges                                     496                  353

Pre-opening costs(1)                                                    45                   29
Executive transition, litigation and other professional
expenses(2)                                                          1,918                  282
Other expense, net(3)(4)                                               202                  227

Income tax effect on above adjustments(5)                             (665)                (223)
Valuation allowance for deferred taxes(6)                            2,207                    -
Adjusted Net Loss                                              $   (17,066)         $    (6,500)
Adjusted diluted net loss per share(7)                         $     (0.34)         $     (0.13)
Adjusted diluted weighted average common shares outstanding            50,460               49,824


(1)Pre-opening costs for the three months ended April 3, 2022 and April 4, 2021
include training, labor and occupancy costs incurred during the construction of
new restaurants.

(2)Executive transition, litigation and other professional expenses for the
three months ended April 3, 2022 and April 4, 2021 include executive recruiting
and transistion costs, costs pertaining to an ongoing lawsuit with one of the
Company's former vendors and other non-recurring professional service expenses.

(3)Other expense, net, for the three months ended April 3, 2022 included a loss on disposal of assets of $0.3 million.

(4)Other expense, net, for the three months ended April 4, 2021 included a loss on disposal of assets of $0.2 million.

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(5)The income tax effect related to the adjustments to Adjusted Net Loss was calculated using an incremental income tax rate of 25% for the three months ended April 3, 2022 and April 4, 2021.


(6)Reflects the removal of the income tax expense recorded in connection with an
increase to our valuation allowance on deferred income tax assets during the
three months ended April 3, 2022.

(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.

Three Months Ended April 3, 2022 Compared to Three Months Ended April 4, 2021


The following table highlights the key components of sales and the number of
restaurants in operation for our first quarter ended April 3, 2022 as compared
to the first quarter ended April 4, 2021:

                                                                      Three Months Ended
                                                             April 3, 2022           April 4, 2021
Restaurant Sales                                           $      399,476          $      389,993
Burger King                                                       377,828                 368,488
Popeyes                                                            21,648                  21,505

Change in Comparable Restaurant Sales(a)                              1.7  %                 13.8  %
Change in Comparable Burger King Restaurant Sales(a)                  1.6  %                 14.7  %
Change in Comparable Popeyes Restaurant Sales(a)                      2.2  %                  0.5  %

Burger King Restaurants operating at beginning of period:           1,026                   1,009
New restaurants opened, including relocations(b)                        2                       2

Restaurants closed, including relocations(b)                           (2)                     (1)
Burger King Restaurants at end of period                            1,026                   1,010
Average number of operating Burger King restaurants               1,023.7                 1,009.0

Popeyes Restaurants operating at beginning and end of period:

                                                                65                      65

Average number of operating Popeyes restaurants                      65.0                    65.0


a.Restaurants we acquire are included in comparable restaurant sales after they
have been operated by us for 12 months. Sales from restaurants that 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 a
comparison to the comparable 13-week period 52 weeks prior.

b.There were no restaurant relocations during the periods presented.


Restaurant Sales. Total restaurant sales in the first quarter of 2022 increased
$9.5 million to $399.5 million from the first quarter of 2021. Our comparable
restaurant sales increased 1.7% compared to the first quarter of 2021 which
reflected an increase in average check of 9.6% and a decrease in customer
traffic of 7.2%. The change in average check included a 7.7% effective price
increase compared to the first quarter of 2021 for our Burger King restaurants.
Promotional sales discounts in the first quarter of 2022 were 18.4% of
restaurant sales at our Burger King restaurants compared to 23.0% in the first
quarter of 2021. Restaurant sales were also impacted by the inclusion of sales
in 2022 from the 19 restaurants acquired in the second quarter of 2021, four new
Burger King restaurants built since the end of the first quarter of 2021 and six
restaurants closed since the end of the first quarter of 2021.
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Operating Costs and Expenses (percentages stated as a percentage of total revenue). The following table sets forth, for the three months ended April 3, 2022, April 4, 2021 and January 2, 2022, selected operating results as a percentage of total revenue:


                                                                     Three Months Ended (13 weeks)
                                                  April 3, 2022            April 4, 2021              January 2, 2022
Costs and expenses (all restaurants):
Food, beverage and packaging costs                        30.8  %                    29.2  %                     30.8  %
Restaurant wages and related expenses                     35.5  %                    33.2  %                     34.0  %
Restaurant rent expense                                    7.8  %                     7.8  %                      7.5  %
Other restaurant operating expenses                       16.4  %                    15.7  %                     15.5  %
Advertising expense                                        4.0  %                     3.9  %                      4.0  %
General and administrative                                 5.5  %                     5.5  %                      5.4  %


Food, beverage and packaging costs increased to 30.8% of restaurant sales in the
first quarter of 2022 from 29.2% of restaurant sales in the first quarter of
2021, but were consistent as a percentage of sales sequentially from our fourth
quarter of 2021. This increase compared to last year reflects increased
commodity pricing at our Burger King restaurants (4.4%), increased commodities
pricing at our Popeyes restaurants (0.3%) and increased delivery commissions
(0.2%). These cost pressures were offset in part by the impact of menu price
increases taken at our Burger King restaurants since the end of the first
quarter of 2021 (2.3%) and lower promotional discounting in the first quarter of
2022 at our Burger King restaurants (1.2%).

Restaurant wages and related expenses increased to 35.5% of restaurant sales in
the first quarter of 2022 from 33.2% in the first quarter of 2021 and 34.0% in
the fourth quarter of 2021. We benefited in the first quarter of 2021 from labor
adjustments we made at the onset of the COVID-19 pandemic to restrict overtime
and reduce staffing levels. Beginning late in the second quarter of 2021, we
have seen competitive pressure on wage rates that has significantly outpaced
statutory minimums as the re-opening of the economy increased demand for labor
at all levels of the workforce. The impact of base hourly labor rate increases
in the first quarter of 2022, inclusive of minimum wage increases, was 13.6%
when compared to the prior year period. Sequentially, restaurant wages and
related expenses were higher as a percentage of sales in the first quarter of
2022 than in the fourth quarter of 2021 due to seasonally lower sales volumes in
the first quarter.

Restaurant rent expense as a percentage of restaurant sales was 7.8% in both the
first quarter of 2022 and the first quarter of 2021. Sequentially, restaurant
rent expense as a percentage of restaurant sales increased due primarily to the
impact of seasonally lower sales on fixed rent expense.

Other restaurant operating expenses increased as a percentage of restaurant
sales to 16.4% in the first quarter of 2022 from 15.7% of restaurant sales in
the first quarter of 2021 and 15.5% in the fourth quarter of 2021. Our first
quarter of 2021 results reflected cost savings realized from the constrained
pandemic operating environment. As our dining rooms have reopened and
restaurants have resumed pre-pandemic operations, we saw higher spending on
utilities (0.3%), security costs (0.3%, including investments in smart safe
technology) and repair and maintenance (0.1%) as well as increased insurance
costs (0.2%). Sequentially, we saw higher expenses as a percentages of sales
from utilities (0.2%) and repair and maintenance (0.3%) due to seasonally lower
sales in the first quarter as well as increased insurance costs (0.2%).

Advertising expense was 4.0% of restaurant sales the first quarter of 2022 and 3.9% in the first quarter of 2021.


Adjusted Restaurant-Level EBITDA. As a result of the factors discussed above,
Adjusted Restaurant-Level EBITDA decreased $17.0 million, or 43.1%, to $22.5
million in the first quarter of 2022 compared to $39.5 million in the first
quarter of 2021. As a percentage of total restaurant sales, Adjusted
Restaurant-Level EBITDA decreased to 5.6% in the first quarter of 2022 from
10.1% in the first quarter of 2021. For a reconciliation between Adjusted
Restaurant-Level EBITDA and loss from operations see page 34.
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General and Administrative Expenses. General and administrative expenses
increased $0.6 million in the first quarter of 2022 to $22.0 million, and was
5.5% as a percentage of total restaurant sales in both the first quarter of 2022
and the first quarter of 2021. The $0.6 million increase was due to lower
performance bonus accruals of $2.3 million, which was partially offset by
executive transition costs of $1.1 million, increased travel costs of $0.3
million and higher training costs of $0.3 million.

Adjusted EBITDA. As a result of the factors above, Adjusted EBITDA decreased to
$4.3 million in the first quarter of 2022 from $19.9 million in the first
quarter of 2021. As a percentage of total restaurant sales, Adjusted EBITDA
decreased to 1.1% in the first quarter of 2022 from 5.1% in the first quarter of
2021. For a reconciliation between net loss and EBITDA and Adjusted EBITDA see
page 34.

Depreciation and Amortization Expense. Depreciation and amortization expense
decreased $1.1 million to $19.5 million in the first quarter of 2022 from $20.6
million in the first quarter of 2021.

Impairment and Other Lease Charges. Impairment and other lease charges were $0.5
million consisting of $0.1 million of initial impairment charges for one
underperforming restaurant, capital expenditures at previously impaired
restaurants of $0.1 million and $0.3 million of other lease charges primarily
from one location closed in the period. During the first quarter of 2021, we
recorded impairment and other lease charges of $0.4 million due primarily to a
restaurant closed during the quarter.

Other Expense, net. Other expense, net was $0.2 million in the first quarter of 2022 and 2021, both primarily representing losses on disposal of assets.


Interest Expense. Interest expense increased to $7.4 million in the first
quarter of 2022 from $6.7 million in the first quarter of 2021. Our weighted
average interest rate for long-term borrowings increased to 4.9% in the first
quarter of 2022 from 4.4% in the first quarter of 2021, due to the impact of the
5.875% interest rate on our new Senior Notes issued in June of 2021.

Benefit for Income Taxes. For the three months ended April 3, 2022, the benefit
for income taxes was derived using an estimated effective annual income tax rate
for all of 2022 of 22.0%. The difference compared to the statutory rate for 2022
is attributable to various permanent non-deductible expenses and non-refundable
business credits which are not directly related to the amount of pre-tax loss
recorded in the period as well as the impact of increases to our valuation
allowance on our deferred income tax assets. During the three months ended
April 3, 2022, our benefit for income taxes from continuing operations was
reduced by $2.2 million due to an increase in our valuation allowance on our
deferred income tax assets. There were no discrete tax expenses in the first
quarter of 2022.

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 2020 of
21.3%. The difference compared to the statutory rate for 2021 was attributable
to various permanent non-deductible expenses which are not directly related to
the amount of pre-tax loss recorded in a period. There was $0.7 million in net
discrete tax benefit in the first quarter of 2021.

Net Loss. As a result of the above, net loss for the first quarter of 2022 was
$21.3 million, or $0.42 per diluted share, compared to net loss in the first
quarter of 2021 of $7.2 million, or $0.14 per diluted share.

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.

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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 each represent significant
liquidity requirements for us, not including any discretionary expenditures for
the acquisition or development of additional Burger King and Popeyes
restaurants.

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.

We believe our cash balances, cash generated from our operations and
availability of revolving credit borrowings under our Senior Credit Facilities
provide sufficient cash availability to cover our anticipated working capital
needs, capital expenditures and debt service requirements for at least the next
twelve months.

Operating Activities. Net cash used for operating activities was $26.6 million
in the first three months of 2022 compared to net cash provided by operating
activities of $7.0 million in the first three months of 2021. The decrease was
due primarily to a decrease of $17.8 million in EBITDA and a decrease in cash
provided by working capital components of $15.5 million. Working capital changes
in the first three months of 2022 included the repayment of $10.8 million of
employer payroll taxes deferred in 2020 under the CARES Act as well as a net
reduction in accrued interest of $4.4 million.

Investing Activities. Net cash used for investing activities in the first three months of 2022 and 2021 was $12.6 million and $10.6 million, respectively.


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.

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

                                                                         Three Months Ended
                                                               April 3, 2022            April 4, 2021
New restaurant development                                  $          2,622          $         1,643
Restaurant remodeling                                                  5,319                    1,758
Other restaurant capital expenditures                                  4,151                    5,831
Corporate and restaurant information systems                           1,097                    1,395
Total capital expenditures                                  $         13,189          $        10,627
Number of new restaurant openings, including
relocations                                                                2                        2


In the first three months of 2022, investing activities also included proceeds from the sale of other assets of $0.6 million.


Financing Activities. Net cash provided by financing activities in the first
three months of 2022 was $18.5 million and included $20.0 million of net
revolving credit borrowings under our Senior Credit Facilities, principal
payments of $1.1 million of outstanding term B loans under our Senior Credit
Facilities, and principal payments on finance leases of $0.5 million.

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

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

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

At April 3, 2022, borrowings under our Senior Credit Facilities bore interest as follows:


(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate
Base Rate (as defined in the Senior Credit Facilities) plus 2.50% or (b) LIBOR
Rate (as defined in the Senior Credit Facilities) plus 3.50%.
(ii) Term B loans: at a rate per annum equal to (a) the Alternate Base Rate (as
defined in the Senior Credit Facilities) plus 2.25% or (b) LIBOR Rate (as
defined in the Senior Credit Facilities) plus 3.25%.

The weighted average interest rate for borrowings on long-term debt balances
were 4.9% for the three months ended April 3, 2022 and 4.4% for the three months
ended April 4, 2021.

The Term Loan B Facility is due and payable in quarterly installments which began on September 30, 2019. Amounts outstanding at April 3, 2022 are due and payable as follows:

(i) sixteen quarterly installments of $1.1 million;

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


The Revolving Credit Facility matures on January 29, 2026. As of April 3, 2022,
there were $20.0 million 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, $186.0 million was available for revolving credit borrowings under
the Senior Credit Facilities at April 3, 2022.

The Senior Credit Facilities contain certain covenants, including without
limitation, those limiting our and our subsidiaries' ability to, among other
things, incur indebtedness, incur liens, sell or acquire assets or businesses,
change the character of its business in any material respect, engage in
transactions with related parties, make certain investments, make certain
restricted payments or pay dividends. In addition, the Senior Credit Facilities
require us to meet a First Lien Leverage Ratio (as defined in the Senior Credit
Facilities) of not greater than 5.75 to 1.00 (as measured on a most recent four
quarter basis) if, and only if, on the last day of any fiscal quarter, the sum
of the aggregate principal amount of outstanding revolving credit borrowings
under the Revolving Credit Facility and the aggregate face amount of letters of
credit issued under the Revolving Credit Facility (excluding undrawn letters of
credit in an aggregate face amount up to $12.0 million) exceeds 35% of the
aggregate amount of the maximum revolving credit borrowings under the Revolving
Credit Facility. As the $20.0 million borrowings under the Revolving Credit
Facility at April 3, 2022 did not exceed 35% of the aggregate borrowing
capacity, no First Lien Leverage Ratio calculation was required. However, if we
had been subject to the First Lien Leverage Ratio, the Company's First Lien
Leverage Ratio was 2.59 to 1.00 as of April 3, 2022 which was below the required
First Lien Leverage Ratio of 5.75 to 1.00. As a result, we do not expect to have
to reduce our term loan borrowings mandatorily with Excess Cash Flow (as defined
in the Senior Credit Facilities). We were in compliance with the financial
covenants under our Senior Credit Facilities at April 3, 2022.
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The Senior Credit Facilities contain customary default provisions, including
that the lenders may terminate their obligation to advance and may declare the
unpaid balance of borrowings, or any part thereof, immediately due and payable
upon the occurrence and during the continuance of customary events of default
which include, without limitation, payment default, covenant default, bankruptcy
default, cross-default on other indebtedness, judgment default and the
occurrence of a change of control.

In March 2020, we entered into an interest rate swap agreement certain of our
lenders under the Senior Credit Facilities to mitigate the risk of increases in
the variable interest rate related to term loan borrowings under the Term Loan B
Facility. The interest rate swap fixed the interest rate on $220.0 million of
outstanding borrowings under the Senior Credit Facilities at 0.915% plus the
applicable margin in its Senior Credit Facilities. The agreement matures on
February 28, 2025. On November 12, 2021, we partially terminated this interest
rate swap to reduce the notional amount hedged from $220.0 million to $120.0
million and obtain the flexibility to repay borrowings under the Senior Credit
Facilities which previously needed to be maintained at the hedged $220.0 million
notional amount. The fixed rate and other terms of the swap arrangement remained
unchanged as a result of the partial termination, which settled with net
proceeds to us of $0.2 million.

The differences between the variable LIBOR rate and the interest rate swap rate
of 0.915% are settled monthly. We made payments of $0.2 million and $0.4 million
to settle the interest rate swap during the three months ended April 3, 2022 and
April 4, 2021, respectively. The fair value of our interest rate swap agreement
was an asset of $5.7 million as of April 3, 2022 and is included in long-term
other assets in the accompanying condensed consolidated balance sheets. Changes
in the valuation of our interest rate swap were included as a component of other
comprehensive loss, and will be reclassified to earnings as the losses are
realized. We expect to reclassify net gains totaling $0.9 million into earnings
in the next twelve months.
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A table of our contractual obligations as of January 2, 2022 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 January 2, 2022. There have been no significant changes to our contractual
obligations during the three months ended April 3, 2022 other than as described
under "-Recent and Future Events Affecting Our Results of Operations-Issuance of
Notes and Amendments to our Senior Credit Facilities".

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 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.

In the current labor market, we have seen competitive pressure on wage rates
that have significantly outpaced statutory minimums as the re-opening of the
economy has increased demand for labor at all levels in the workforce. In 2021
and 2022, we have experienced inflationary cost pressures in labor and commodity
costs as a result of challenges impacting our restaurants and our supply chains.
The COVID-19 pandemic has increased the difficulty and cost of maintaining
adequate staffing levels at our restaurants as well as for businesses in our
supply chain that we depend on for commodities. At this point, there is limited
visibility as to when these inflationary pressures may abate.

We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

Application of Critical Accounting Policies


Our unaudited condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America. Preparing consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. These estimates and assumptions are affected
by the application of our accounting policies. Our significant accounting
policies are described in the "Significant Accounting Policies" footnote in the
notes to the Consolidated Financial Statements included in our Annual Report on
Form 10-K for the fiscal year ended January 2, 2022. 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 January 2, 2022.


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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 January 2, 2022:

•The impact of the COVID-19 pandemic;
•Effectiveness of the Burger King and Popeyes advertising programs and the
overall success of the Burger King and Popeyes brands;
•Increases in food costs and other commodity costs;
•Our ability to hire and retain employees at current or increased wage rates;
•Competitive conditions, including pricing pressures, discounting, aggressive
marketing, the potential impact of competitors' new unit openings and promotions
on sales of our restaurants, and competition impacting the cost and availability
of labor;
•Our ability to integrate any restaurants we acquire;
•Regulatory factors;
•Environmental conditions and regulations;
•General economic conditions, particularly in the retail sector;
•Weather conditions;
•Fuel prices;
•Significant disruptions in service or supply by any of our suppliers or
distributors;
•Changes in consumer perception of dietary health and food safety;
•Labor and employment benefit costs, including the effects of minimum wage
increases, healthcare reform and changes in the Fair Labor Standards Act;
•The outcome of pending or future legal claims or proceedings;
•Our ability to manage our growth and successfully implement our business
strategy;
•Our ability to service our indebtedness;
•Our borrowing costs and credit ratings, which may be influenced by the credit
ratings of our competitors;
•The availability and terms of necessary or desirable financing or refinancing
and other related risks and uncertainties; 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 foodborne illnesses such as "mad cow" disease, and the possibility that
consumers could lose confidence in the safety and quality of certain food
products as well as negative publicity regarding food quality, illness, injury,
or other health concerns.

                                       42

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