Carrols Restaurant Group, Inc. 2007 Annual Report April 25, 2008 Dear Stockholders, Given the multitude of challenges facing restaurant operators and our industry, we were reasonably satisfied with our results for the 2007 fiscal year. Significant increases in both commodity and labor costs, shrinking consumer dollars available for discretionary spending and a pervasive loss of consumer confidence have, however, created the proverbial “perfect storm”. Despite this, the Company achieved solid earnings growth for the year and continued to lay the groundwork for sustainable future growth. All three of our brands have demonstrated their resilience and their potential for contributing to future appreciation in shareholder value. For the year ended December 31, 2007, total revenues increased 5.1% to $789.4 million from $751.4 million in 2006, while comparable restaurant sales increased 1.4% at Pollo Tropical, 0.2% at Taco Cabana, and 4.6% at Burger King. We generated net income of $15.1 million in 2007, including non-recurring after-tax losses of $1.7 million, compared to $13.4 million in the prior year, including non-recurring after-tax gains of $1.9 million. We believe that the strong unit economics of our Pollo Tropical and Taco Cabana restaurants will support continued expansion, while enabling us to further leverage our corporate infrastructure. Given the current economic climate, however, and our inability to assess the duration of this challenging environment, for the 2008 fiscal year we have moderated both our rate of new unit growth and our anticipated earnings somewhat. We anticipate building between 17 and 23 new Hispanic Brand restaurants in 2008. We believe that our two Hispanic Brands are well-positioned to continue to benefit from certain trends; specifically, population growth rates in Florida and Texas as well as the influence of the growing Hispanic population in the United States and their impact upon consumer eating trends. We have continued to aggressively expand our Pollo Tropical Brand within Florida, including a number of flagship restaurant units on the west coast of Florida, while also continuing to build new Pollo Tropical restaurants in South and Central Florida. We opened our first free-standing restaurant in New Jersey on August 10, 2007 which was our third successful opening in that state. Aggressively growing the Pollo Tropical Brand throughout the Northeast portion of the United States continues as one of our highest priorities. We also have continued to build Taco Cabana restaurants throughout Texas. Despite our concentration of Taco Cabana restaurants in that State we believe the Brand is under- penetrated in a number of markets, including both Dallas and Houston, and that we continue to have opportunities to build new restaurants in Texas. Burger King continues to win back market share and is keenly focused on courting its core consumer, namely males between the ages of 18 to 34. We believe that certain trends within the QSR segment, specifically upgraded menu offerings combined with improved marketing, bode well for the performance of our Burger King restaurants going forward, and we have a high degree of confidence in the management of Burger King Corporation given their successful revitalization of the brand. Our Burger King brand can best be viewed as a stable source of cash flow that will facilitate the growth of our Hispanic brands and provide stability and support to our capital structure. While we are certainly not immune to the broader trends affecting our industry, we are heartened by our strategic positioning in these less certain times. We benefit from brand diversification with our multi-concept portfolio, commodity diversification through our numerous menu offerings, and geographic diversification. Moreover, while we are somewhat hurt by shrinking disposable income, we are also benefiting from a trade-down as casual dinners elect not to eat out, and instead order food from quick-casual and quick-service restaurants like ours. We know our best course of action in today’s challenging environment is to remain focused on what we do best, namely product innovation, ensuring a consistent and quality customer experience, and communicating our value proposition through effective advertising. We believe that the underlying fundamentals of our business remain strong and with our long history as a restaurant operating company, we have the experience to manage through the current business cycle. Thank you for your interest and support of Carrols Restaurant Group, Inc. On Behalf of our Directors, Officers, and Employees, Alan Vituli Chairman of the Board and Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2007 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 CARROLS RESTAURANT GROUP, INC. (Exact name of Registrant as specified in its charter) Commission File Number: 001-33174 Delaware 16-1287774 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 968 James Street Syracuse, New York 13203 (Address of principal executive office) (Zip Code) Registrant’s telephone number, including area code: (315) 424-0513 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name on each exchange on which registered: Common Stock, Carrols Restaurant Group, Inc., The NASDAQ Global Market par value $.01 per share Securities registered pursuant to Section 12(g) of the Act: None CARROLS CORPORATION (Exact name of Registrant as specified in its charter) Commission File Number: 0-25629 Delaware 16-0958146 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 968 James Street Syracuse, New York 13203 (Address of principal executive office) (Zip Code) Registrant’s telephone number, including area code: (315) 424-0513 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Carrols Corporation meets the conditions set forth in General Instruction I(1)(A) and (B) and is therefore filing this form with reduced disclosure format pursuant to General Instruction I(2). Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Carrols Restaurant Group, Inc. Yes ‘ No È Carrols Corporation Yes È No ‘ Indicate by check mark whether either of the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act, (Check one): Carrols Restaurant Group, Inc. Large accelerated filer ‘ Accelerated filer È Non-accelerated filer (Do not check if a smaller reporting company) ‘ Smaller reporting company ‘ Carrols Corporation Large accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer (Do not check if a smaller reporting company) È Smaller reporting company ‘ Indicate by check mark whether either of the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes ‘ No È As of March 3, 2008, Carrols Restaurant Group, Inc. had 21,571,565 shares of its common stock, $.01 par value, outstanding and the aggregate market value of the common stock held by non-affiliates of Carrols Restaurant Group, Inc. was $92,844,842. As of March 3, 2008, all outstanding equity securities of Carrols Corporation, which consisted of 10 shares of its common stock, were owned by Carrols Restaurant Group, Inc. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement for Carrols Restaurant Group, Inc.’s 2008 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A no later than 120 days after conclusion of Carrols Restaurant Group, Inc.’s fiscal year ended December 30, 2007, are incorporated by reference into Part III of this report. CARROLS RESTAURANT GROUP, INC. FORM 10-K YEAR ENDED DECEMBER 30, 2007 Page PART I Item 1 Business .................................................................... 4 Item 1A Risk Factors ................................................................. 24 Item 1B Unresolved Staff Comments .................................................... 38 Item 2 Properties ................................................................... 39 Item 3 Legal Proceedings ............................................................ 39 Item 4 Submission of Matters to a Vote of Security