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

Throughout this Quarterly Report on Form 10-Q, we refer to Carrols Restaurant Group, Inc. as “Carrols Restaurant Group” and, together with its consolidated subsidiaries, as “we”, “our” and “us” unless otherwise indicated or the context otherwise requires. Any reference to “Carrols” refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires. Any reference to "Carrols LLC" refers to Carrols' wholly-owned subsidiary, Carrols LLC, a Delaware limited liability company.

We use a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 28, 2014 contained 52 weeks and the three months ended March 29, 2015 and March 30, 2014 each contained thirteen weeks. The current fiscal year will end January 3, 2016 and will contain 53 weeks.

Introduction

We are a holding company and conduct all of our operations through our direct and indirect subsidiaries and have no assets other than the shares of capital stock of Carrols, our direct wholly-owned subsidiary. 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 interim 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 28, 2014 . 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.

Operating Results from Operations —an analysis of our results of operations for the three months ended March 29, 2015 compared to the three months ended March 30, 2014 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 Statement s—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 50 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 March 29, 2015 , we operated 659 Burger King restaurants in 15 states. During the year ended December 28, 2014 we acquired 123 Burger King restaurants in five separate transactions, which we refer to as the “2014 acquired restaurants”. On May 30, 2012, we acquired 278 restaurants from Burger King Corporation ("BKC"), which we refer to as the "2012 acquired restaurants", including BKC's assignment of its right of first refusal on franchisee restaurant sales in 20 states (the "ROFR"). As of March 29, 2015 we were operating all of the restaurants acquired in 2014 and 252 of the 2012 acquired restaurants. All of our other Burger King restaurants are referred to as our "legacy restaurants".

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

We are presenting Adjusted EBITDA and Restaurant-Level EBITDA because we believe that they provide a more meaningful comparison than EBITDA of our core business operating results, as well as with those of other similar companies. Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and other income and expense which are not directly related to restaurant operations. Management believes that Adjusted EBITDA and Restaurant-Level EBITDA, when viewed with

our results of operations in accordance with GAAP and the accompanying reconciliations on page 23 , 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 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 and Restaurant-Level EBITDA are not measures of financial performance or liquidity under 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 a reconciliation between net loss and EBITDA and Adjusted EBITDA and between Restaurant-Level EBITDA and loss from operations see page 23 .

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

Recent and Future Events Affecting our Results of Operations

Refinancing of Indebtedness

On April 29, 2015, we issued $200 million of 8% senior secured second lien notes due 2022 (the "New Notes") and used a portion of the net proceeds to repurchase all of our outstanding Notes tendered pursuant to a cash tender offer and related consent solicitation (or through a redemption of any such Notes that were not purchased in the tender offer) and to pay related fees and expenses. We expect the net proceeds of approximately $35 million will be used for working capital and general corporate purposes, including any potential acquisitions and capital expenditures to remodel our restaurants.

In connection with these transactions, on April 15, 2015 we commenced a cash tender offer and consent solicitation for all of our outstanding Notes. On April 29, 2015, $145.5 million of the Notes were accepted for payment and paid by us. On April 29, 2015, we called for the redemption of the $4.5 million of the Notes that were not tendered in the tender offer and irrevocably deposited with the trustee for the Notes an amount of funds sufficient to redeem such outstanding Notes. On April 29, 2015, we and the guarantors terminated our obligations under the Notes and under the indenture governing the Notes.

On April 29, 2015, we entered into an amendment to our senior credit facility to increase aggregate revolving credit borrowings by $10 million to $30.0 million (including an increase of $5.0 million to $20.0 million available for letters of credit). The amended senior credit facility has a five-year maturity, permits potential incremental increases in revolving borrowings of up to $25.0 million, subject to approval of the lenders, amends certain financial ratios which we must maintain and reduces the interest rate for revolving credit borrowings to, at our option, (i) the alternate base rate plus the applicable margin of 2.0% to 2.75% based on our total lease adjusted leverage ratio, or (ii) the LIBOR rate plus the applicable margin of 3.0% to 3.75% based on our total lease adjusted leverage ratio (all as defined under the amended senior credit facility).

As a result of the refinancing in the second quarter of 2015, we expect interest expense for the remaining three quarters of 2015 to be approximately $0.7 million lower than in the last nine months of 2014.

See —"Liquidity and Capital Resources" for a discussion of the New Notes and our senior credit facility, as amended.

2014 Burger King Restaurant Acquisitions

In the second quarter of 2014 we exercised our ROFR on April 30, 2014 and acquired four Burger King® restaurants in the Fort Wayne, Indiana market for a cash purchase price of $0.7 million . In the third quarter we exercised our ROFR on June 30, 2014 and acquired four Burger King® restaurants in the Pittsburgh, Pennsylvania market for a cash purchase price of $3.8 million which included one fee-owned property. Additionally, on July 22, 2014 , we acquired in a negotiated transaction 21 Burger King® restaurants located in the Rochester, NY market and in the Southern Tier region of western New York State for a cash purchase price of $8.6 million .

In the fourth quarter of 2014 we exercised our ROFR on October 8, 2014 and purchased 30 Burger King® restaurants in the Wilmington, North Carolina and Greenville, North Carolina markets for a cash purchase price of approximately $20.3 million , which included 12 fee-owned properties. Also on November 4, 2014 , we acquired in a negotiated transaction 64 Burger King® restaurants in or around the Nashville, TN, Springfield, IL, Terre Haute, IN, and Evansville, IN markets for a cash purchase price of $18.8 million . Ten of the thirteen fee-owned properties acquired in the 2014 acquisitions were sold in sale-leaseback transactions during the fourth quarter of 2014 and one in the first quarter of 2015 for total net proceeds of $14.1 million . The total fair value of fee-owned properties acquired in the five 2014 acquisitions was $16.0 million .

The pro forma impact on the results of operations for the 2014 acquisitions is included below. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes our unaudited pro forma operating results:

2015 Capital Expenditures and Remodeling Commitment with BKC

On January 26, 2015, we entered into the First Amendment to Operating Agreement with BKC, in which we agreed to remodel to BKC's current 20/20 image a cumulative total of 329 restaurants by June 30, 2015, 410 restaurants by December 31, 2015 and 455 restaurants by December 31, 2016. In addition, in connection with our acquisition of 64 Burger King restaurants on November 4, 2014 we agreed to remodel 46 of these restaurants over the next five years beginning in 2014. As of March 29, 2015  we had remodeled a total of  312  restaurants to the 20/20 restaurant image.

In 2015, we anticipate that total capital expenditures will range from  $45 million to $50 million , although the actual amount of capital expenditures may differ from these estimates. Capital expenditures in 2015 are expected to include approximately  $32 million to $36 million  for remodeling a total of  80 to 90 restaurants to the BKC 20/20 image at an approximate average cost of $400,000 per restaurant, which includes $28,000 of discretionary investments in new kitchen equipment. We will continue to assess the number of restaurants we will remodel in 2015 in relation to our available capital resources and acquisition opportunities.

Future Restaurant Closures

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

In 2014 , we closed 13 restaurants excluding one restaurant relocated within its market area. In the first quarter of 2015 we closed 15 restaurants.

We currently anticipate that in 2015 we will close a total of 20 to 25 restaurants. Our determination of whether to close restaurants in the future is subject to further evaluation and may change.

We may incur impairment and other lease charges in the future from additional closures of underperforming restaurants. However, we do not believe that the future impact on Adjusted EBITDA from restaurant closures will be material, although there can be no assurance in this regard.

Valuation of Deferred Income Tax Assets

We performed an assessment of positive and negative evidence, including our three-year cumulative loss position, regarding the realization of our deferred income tax assets at December 28, 2014 and determined that a valuation allowance was needed for all of our net deferred income tax assets at December 28, 2014. As a result, we recorded a valuation reserve of $24.3 million in the fourth quarter of 2014.

For the three months ended March 29, 2015 we increased our valuation reserve by $3.7 million for our incremental net deferred income tax assets in the period. Consequently, we recorded no benefit from income taxes in the first quarter of 2015. At March 29, 2015 , our valuation allowance on all of our net deferred tax assets was $31.2 million , which included $3.5 million related to certain state net operating loss carryforwards.

We believe that it is likely that our Federal net operating loss carryforwards, included in our deferred tax assets, will be utilized in the future as they do not begin to expire until 2033, although no assurance of this can be provided. However, the valuation allowance on our net deferred tax assets is required based on the relevant accounting literature which does not permit us to consider our projection of future taxable income as more persuasive evidence than our recent operating losses when assessing recoverability.

As of March 29, 2015 , we had federal net operating loss carryforwards of approximately $40.8 million . As a result of the net deferred tax asset valuation allowance established in 2014, we do not anticipate recognizing any income tax expense or benefit in 2015.

We will continue to monitor and evaluate the positive and negative evidence considered in arriving at the above conclusion, in order to assess whether such conclusion remains appropriate in future periods.

Health Care Reform

The Patient Protection and Affordable Care Act (the “Act”) required businesses employing fifty or more full-time equivalent employees to offer health care benefits to those full-time employees beginning in January 2015, or be subject to an annual penalty. Those benefits must be provided under a health care plan which provides a certain minimum scope of health care services. The Act also limits the portion of the cost of the benefits which we can require employees to pay. Based on our initial enrollment experience in 2015, approximately 10% of our approximately 1,600 currently eligible hourly employees have opted for coverage under our medical plan. We estimate that our additional cost for health care coverage for our hourly employees, from the eligibility provisions of the Act, will range between $0.4 million and $0.5 million in 2015. In addition for 2015, we anticipate additional fee assessments under the Act of $0.9 million associated with our current health care coverage.

Results of Operations

Three Months Ended March 29, 2015 Compared to Three Months Ended March 30, 2014

The following table sets forth, for the three months ended March 29, 2015 and March 30, 2014 , selected operating results as a percentage of total restaurant sales:

Since the beginning of 2014 , we acquired 123 restaurants from other franchisees in five separate acquisitions and opened one new restaurant which was relocated within its market area. During the same period we closed 28 restaurants, excluding the relocated restaurant.

Restaurant Sales. Total restaurant sales in the first quarter of 2015 increased 27.5% to $193.2 million from $151.5 million in the first quarter of 2014 which included $32.5 million of sales from the 2014 acquired restaurants. Comparable restaurant sales in the first quarter of 2015 increased 8.4% due to an increase in customer traffic of 6.3% driven in part from effective promotions and favorable weather comparisons relative to the first quarter of 2014 in certain of our markets. Average check increased 2.1% due to year over year menu price increases in the first quarter of 2015 of approximately 2.3% . Comparable restaurant sales increased 6.8% at our legacy restaurants and increased 10.5% at our 2012 acquired restaurants.

Operating Costs and Expenses (percentages stated as a percentage of total restaurant sales). Cost of sales increased to 29.4% in the first quarter of 2015 from 28.6% in the first quarter of 2014 due primarily to an 11% increase in beef commodity costs (0.8%) and increased promotional discounting (0.8%) partially offset by the effect of menu price increases and improvements in restaurant-level food and cash controls at our legacy and 2012 acquired restaurants.

Restaurant wages and related expenses decreased to 32.8% in the first quarter of 2015 from 33.6% in the first quarter of 2014 due primarily to leveraging fixed labor costs on higher sales volumes (0.6%) and lower workers compensation claims.

Other restaurant operating expenses decreased to 16.8% in the first quarter of 2015 from 17.2% in the first quarter of 2014 due primarily to lower utility costs (0.2%), lower general liability claims (0.1%) and the effect of higher sales volumes on fixed operating costs.

Advertising expense decreased to 3.8% in the first quarter of 2015 from 4.3% in the first quarter of 2014 due to reduced spending for additional local advertising in many of our markets.

Restaurant rent expense decreased to 7.5% in the first quarter of 2015 from 7.6% in the first quarter of 2014 due primarily to the closure of 28 restaurants with lower sales volumes since the beginning of the first quarter of 2014 and the effect of higher sales volumes in the first quarter of 2015 on fixed rental costs.

Restaurant-Level EBITDA. As a result of the factors above and the acquisition of 123 restaurants in 2014, Restaurant-Level EBITDA increased 42.9% , or $5.6 million , to $18.8 million in the first quarter of 2015 . For a reconciliation between Restaurant-Level EBITDA and loss from operations see page 23 .

(1) Restaurant-Level EBITDA margin is calculated as a percentage of restaurant sales for each respective group of restaurants.

Restaurant-Level EBITDA margin increased for our legacy restaurants due primarily to a comparable restaurant sales increase in the first quarter of 2015 of 6.8% partially offset by higher beef costs. Restaurant-Level EBITDA margin increased 3.6% for our 2012 acquired restaurants due to a comparable restaurant sales increase of 10.5% in the first quarter of 2015 and improvements in food and cash controls, which helped mitigate higher beef costs. Cost of sales, as a percentage of restaurant sales, was 29.3% in the first quarter of 2015 at both our legacy and 2012 acquired restaurants. In addition we have closed 19 underperforming 2012 acquired restaurants since the beginning of the first quarter of 2014. Restaurant-Level EBITDA margin for our 2014 acquired restaurants was lower in the first quarter of 2015 than our other restaurants due primarily to lower average restaurant sales volumes, higher costs of sales, as a percentage of restaurant sales, of 30.2% and higher repairs and maintenance expenses related to deferred maintenance prior to our ownership.

General and Administrative Expenses. General and administrative expenses increased $1.3 million in the first quarter of 2015 to $11.6 million , however, as a percentage of total restaurant sales, decreased to 6.0% compared to

6.8% in the first quarter of 2014 . The increase in total general and administrative expenses was due primarily to additional district manager salaries, travel costs and restaurant manager training costs related to the 2014 acquisitions partially offset by lower legal and professional fees and an insurance gain.

Adjusted EBITDA. As a result of the factors above, Adjusted EBITDA increased to $7.7 million in the first quarter of 2015 from $3.3 million in the first quarter of 2014 . For a reconciliation between net loss and EBITDA and Adjusted EBITDA see page 23 .

Depreciation and Amortization Expense . Depreciation and amortization expense increased to $10.0 million in the first quarter of 2015 from $8.8 million in the first quarter of 2014 due primarily to our remodeling initiatives in 2014 and 2015 and the 2014 acquisitions.

Impairment and Other Lease Charges . Impairment and other lease charges were $1.6 million in the first quarter of 2015 and were comprised of other lease charges of $1.2 million associated with the closure of eight restaurants in the first quarter of 2015 and asset impairment charges of $0.5 million , which included $0.3 million of capital expenditures at previously impaired restaurants.

Interest Expense. Interest expense was $4.8 million in the first quarter of 2015 compared to $4.7 million in the first quarter of 2014 . The weighted average interest rate on our long-term debt, excluding lease financing obligations, was 11.25% in the first quarter of 2015 and 11.20% in the first quarter of 2014 .

Benefit for Income Taxes. Due to the valuation allowance on all of our deferred income tax assets discussed above, we did not record any benefit for income taxes in the first quarter of 2015. The benefit for income taxes for the first quarter of 2014 was derived using an estimated effective annual income tax rate for 2014 of 33.9% as we recorded a valuation allowance on our all of our deferred income tax assets in the fourth quarter of 2014.

Net Loss. As a result of the above, net loss for the first quarter of 2015 was $9.3 million , or $0.27 per diluted share, compared to a net loss in the first quarter of 2014 of $7.4 million , or $0.32 per diluted share.

Reconciliations of EBITDA and Adjusted EBITDA to net loss and Restaurant-Level EBITDA to loss from operations are as follows:

Liquidity and Capital Resources

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:

On April 29, 2015, we issued $200 million of New Notes and used a portion of the proceeds to repurchase all of the Notes tendered pursuant to a cash tender offer and the related consent solicitation (or through a redemption, repurchase or retirement of any such Notes that were not purchased in the tender offer) and to pay related fees and expenses. We will use the net proceeds from the sale of the New Notes of approximately $35 million for working capital and general corporate purposes, including potential acquisitions and capital expenditures to remodel restaurants.

On April 29, 2015, we entered into an amendment to our senior credit facility to increase aggregate revolving credit borrowings by $10 million to $30.0 million (including an increase of $5.0 million to $20.0 million available for letters of credit). The amended senior credit facility has a five-year maturity, permits potential incremental increases in revolving credit borrowings of up to $25.0 million, subject to approval by the lenders, amends certain financial ratios which we must maintain and reduces the interest rate for revolving credit borrowings to, at our option, (i) the alternate base rate plus the applicable margin of 2.0% to 2.75% based on our total lease adjusted leverage ratio, or (ii) the LIBOR rate plus the applicable margin of 3.0% to 3.75% based on our total lease adjusted leverage ratio (all as defined under the amended senior credit facility).

Interest payments under our debt obligations, capital expenditures, including our commitment to BKC to remodel restaurants in 2015, payments of royalties and advertising to BKC and payments related to our lease obligations represent significant liquidity requirements for us as well as any discretionary expenditures for the acquisition of additional Burger King® restaurants. We believe that cash generated from the sale of the New Notes on April 29, 2015, cash generated from our operations and availability of revolving credit borrowings under our senior credit facility, as amended, will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

Operating Activities . Net cash provided from operating activities in the first three months of 2015 increased to $14.5 million from $0.4 million in the first three months of 2014 . The increase was due primarily to an increase in cash from changes in the components of net working capital of $9.8 million and an increase in Adjusted EBITDA of $4.4 million .

Investing Activities. Net cash used for investing activities in the first three months of 2015 and 2014 was $ 11.0 million and $ 8.8 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 commitment to BKC to remodel restaurants to the 20/20 image and franchise agreement renewals; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants including expenditures, from time to time, to support BKC’s initiatives; and (4) corporate and restaurant information systems, including expenditures for our point-of-sale software for restaurants that we acquire.

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

(1) Represents a restaurant which was relocated within the same market area under a new franchise agreement.

Investing activities in the first three months of 2015 also included $0.7 million for the purchase of an existing restaurant property that was sold in a sale-leaseback transaction in the first three months of 2015 and proceeds from sale-leaseback transactions of two restaurant properties of $1.8 million .

Financing Activities. Net cash used in financing activities in the first three months of 2015 was $0.5 million due primarily to principal payments on capital leases. Net cash provided by financing activities in the first three months of 2014 was $1.5 million which primarily related to revolving credit borrowings under our senior credit facility.

8% Senior Secured Second Lien Notes. The New Notes mature on May 1, 2022. Interest is payable semi-annually on May 1 and November 1 commencing November 1, 2015. The New Notes are guaranteed by our material subsidiaries

and are secured by second-priority liens on substantially all of our and our subsidiaries' assets (including a pledge of all of the capital stock and equity interests of our subsidiaries).

The New Notes are redeemable at our option in whole or in part at any time after May 1, 2018 at a price of 104% of the principal amount plus accrued and unpaid interest, if any, if redeemed before May 1, 2019, 102% of the principal amount plus accrued and unpaid interest, if any, if redeemed after May 1, 2019 but before May 1, 2020 and 100% of the principal amount plus accrued and unpaid interest, if any, if redeemed after May 1, 2020. Prior to May 1, 2018, we may redeem some or all of the New Notes at a redemption price of 100% of the principal amount of each New Note plus accrued and unpaid interest, if any, and a make-whole premium. In addition, the indenture governing the New Notes also provides that we may redeem up to 35% of the New Notes using the proceeds of certain equity offerings completed before May 1, 2018.

The New Notes are jointly and severally guaranteed, unconditionally and in full by our material subsidiaries which are directly or indirectly 100% owned by us. Separate condensed consolidating information is not included because Carrols Restaurant Group is a holding company that has no independent assets or operations. There are no significant restrictions on our ability or any of the guarantor subsidiaries' ability to obtain funds from its respective subsidiaries. All consolidated amounts in our financial statements are representative of the combined guarantors.

The indenture governing the New Notes includes certain covenants, including limitations and restrictions on our and our subsidiaries who are guarantors under such indenture 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 certain subsidiaries; enter into transaction with affiliates; or merge, consolidate or sell substantially all of our assets.

The indenture governing the New Notes and the security agreement provide that any capital stock and equity interests of any of our subsidiaries will be excluded from the collateral to the extent that the par value, book value or market value of such capital stock or equity interests exceeds 20% of the aggregate principal amount of the New Notes then outstanding.

The indenture governing the New Notes contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under the New Notes and the indenture governing the New Notes if there is a default under any of our indebtedness having an outstanding principal amount of $20.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

Senior Credit Facility. Our obligations under the senior credit facility, as amended, 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 the subsidiaries.

Under the senior credit facility, we will be 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 facility contains 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 material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends. In addition, the senior credit facility, as amended, requires us to meet certain financial ratios, including the Fixed Charge Coverage Ratio, the Adjusted Leverage Ratio and the First Lien Coverage Ratio, all as defined under the amended senior credit facility.

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

At March 29, 2015 there were no revolving credit borrowings outstanding under the senior credit facility. After reserving $12.0 million for letters of credit issued under the senior credit facility for workers’ compensation and other

insurance policies, $8.0 million was available for revolving credit borrowings under the senior credit facility at March 29, 2015 . Giving effect to the amendment of the senior credit facility on April 29, 2015, $18.0 million would have been available for revolving credit borrowings at the end of the first quarter of 2015.

Contractual Obligations

A table of our contractual obligations as of December 28, 2014 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 28, 2014 . There have been no significant changes to our contractual obligations during the three months ended March 29, 2015 .

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements other than our operating leases, which are primarily for our restaurant properties and not recorded on our consolidated balance sheet.

Inflation

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

Application of Critical Accounting Policies

Our unaudited interim consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the “Significant Accounting Policies” footnote in the notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014 . 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 28, 2014 .

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 fiscal year ended December 28, 2014 :