Carrols Restaurant Group Annual Report 2014

FY2014 Annual Report · Carrols Restaurant Group

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Carrols Restaurant Group, Inc.
2014 Annual Report

April 24, 2015

Dear Stockholders:

2014 was a busy but productive year at Carrols Restaurant Group, Inc. In April, we completed an equity offering in
which we sold a total of 11.5 million shares of our common stock, resulting in net proceeds of nearly $68 million.
This capital infusion allowed us to opportunistically and selectively acquire additional BURGER KING®
restaurants as well as to accelerate our 20/20 remodeling program.

Through five separate transactions, we expanded our ownership of BURGER KING® restaurants and acquired 123
locations from other franchisees during 2014. These acquisitions included both directly negotiated transactions and
acquisition opportunities created by our having the right of first refusal assigned to us by Burger King Corporation
for a 20-state territory. We believe that our operational and financial disciplines along with an ability to leverage
our infrastructure, positions us to further enhance shareholder value through our acquisition based expansion
strategy. At the end of 2014, we owned and operated 674 BURGER KING® restaurants across 15 Northeastern,
Midwestern, and Southeastern states.

We also upgraded 101 BURGER KING® restaurants to the 20/20 design image in 2014 and have now completed
the reimaging of more than 300 restaurants since mid-2012. We are committed to improving the quality of our asset
base as part of the brand’s ongoing transformation initiatives and have been pleased with the positive customer
feedback and returns on our investment at these reimaged locations.

As the largest BURGER KING® franchisee in the United States, Carrols is benefitting from the brand’s menu
strategy of launching fewer but more impactful products, while limiting added operational complexity to our
kitchens. Together with BURGER KING®’s balanced marketing approach, these strategies have broadened the
brand’s consumer appeal and have helped us drive increases in both customer traffic and average customer check.

For 2014, we increased total revenues by 4.4% to $692.8 million and achieved comparable restaurant sales growth
of 0.6%. We also increased restaurant-level EBITDA by $2.7 million to $73 million, and increased adjusted
EBITDA by $1.7 million to $36 million. Although sales early in 2014 were negatively affected by severe weather
conditions in many of our markets, sales momentum picked up throughout the year. Sales trends were strong in the
second half of 2014 and have continued to accelerate in early 2015. Our 2014 financial results were also impacted
by a significant increase in beef costs, however, we were able to maintain overall restaurant-level profitability due to
the continued progress we made improving the financial and operational performance at the restaurants acquired in
2012.

In 2015, we will be focused on making financial performance improvements at the BURGER KING® restaurants
acquired last year while looking for opportunities to acquire additional restaurants. We believe that we are well
positioned to build value for our shareholders as we continue to execute our growth strategy.

In closing, we would like to recognize our more than 20,000 employees for all of their accomplishments this past
year and thank our shareholders for your ongoing support.

Sincerely,

Daniel T. Accordino
Chief Executive Officer and President

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2014
OR

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

Commission File Number: 001-33174

CARROLS RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

968 James Street, Syracuse, New York
(Address of principal executive office)

16-1287774
(I.R.S. Employer Identification No.)

13203
(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:
Common Stock, par value $.01 per share

Name on each exchange on which registered:
The NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes

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 registrant's 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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

As of February 27, 2015 Carrols Restaurant Group, Inc. had 35,487,161 shares of its common stock, $.01 par value, outstanding. The
aggregate market value of the common stock held by non-affiliates as of June 29, 2014 of Carrols Restaurant Group, Inc. was $241,946,698.

Portions of the registrant's definitive Proxy Statement for Carrols Restaurant Group, Inc's 2015 Annual Meeting of Stockholders, which is
expected to be filed pursuant to Regulation 14A no later than 120 days after the conclusion of Carrols Restaurant Group, Inc.'s fiscal year ended
December 28, 2014 are incorporated by reference into Part III of this annual report.

DOCUMENTS INCORPORATED BY REFERENCE

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CARROLS RESTAURANT GROUP, INC.
FORM 10-K

YEAR ENDED DECEMBER 28, 2014

PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4

PART II
Item 5

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Item 9
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B

PART III
Item 10
Item 11
Item 12

Item 13
Item 14

PART IV
Item 15

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibits and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART I—FINANCIAL INFORMATION

PART I

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

We use a 52 or 53 week fiscal year ending on the Sunday closest to December 31. Our fiscal years ended January 2,

2011, January 1, 2012, December 30, 2012, December 29, 2013 and December 28, 2014 each contained 52 weeks.

In this Annual Report on Form 10-K, we refer to information, forecasts and statistics regarding the restaurant
industry and to information, forecasts and statistics from Nation's Restaurant News, the U.S. Census Bureau and the
U.S. Department of Agriculture. Any reference to BKC in this Annual Report on Form 10-K refers to Burger King
Worldwide, Inc. and its wholly-owned subsidiaries, including Burger King Corporation, and its parent company
Restaurant Brands International, Inc. Unless otherwise indicated, information regarding BKC in this Annual Report
on Form 10-K has been made publicly available by BKC.

Forward-Looking Statements

This 2014 Annual Report on Form 10-K contains statements which constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are predictive in nature or that
depend upon or refer to future events or conditions are forward-looking statements. 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. For more information, please see Item 1A-Risk Factors. We believe important factors
that could cause actual results to differ materially from our expectations include the following, in addition to other
risks and uncertainties discussed herein:

• The effect of our tax-free spin-off of Fiesta, including any potential tax liability that may arise;

• Effectiveness of the Burger King® advertising programs and the overall success of the Burger King brand;

•

Increases in food costs and other commodity costs;

• Competitive conditions;

• 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 healthcare reform;

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

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

• Our inability to service our indebtedness;

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

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

uncertainties;

• Factors that affect the restaurant industry generally, including recalls if products become adulterated or
misbranded, liability if our products cause injury, ingredient disclosure and labeling laws and regulations,
reports of cases of food borne illnesses such as “mad cow” disease, and the possibility that consumers
could lose confidence in the safety and quality of certain food products, as well as negative publicity
regarding food quality, illness, injury or other health concerns; and

• Other factors discussed under Item 1A - "Risk Factors" and elsewhere herein.

ITEM 1. BUSINESS

Our Company

Overview

We are one of the largest restaurant companies in the United States and have been operating restaurants for more
than 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 December 28, 2014, we owned and operated 674 Burger
King restaurants located in 15 Northeastern, Midwestern and Southeastern states. Burger King restaurants feature the
popular flame-broiled Whopper® sandwich, as well as a variety of hamburgers, chicken and other specialty sandwiches,
french fries, salads, breakfast items, snacks, smoothies, frappes and other offerings. We believe that our size, seasoned
management team, extensive operating infrastructure, experience and proven operating disciplines differentiate us
from many of our competitors as well as many other Burger King operators.

According to BKC, as of December 31, 2014 there were a total of 14,372 Burger King restaurants, of which
14,320 were franchised and 7,354 were located in the United States and Canada. Burger King is the second largest
hamburger restaurant chain in the world (as measured by number of restaurants) and we believe that the Burger King
brand is one of the world's most recognized consumer brands. Burger King restaurants have a distinctive image and
are generally located in high-traffic areas throughout the United States. Burger King restaurants are designed to appeal
to a broad spectrum of consumers, with multiple day-part meal segments targeted to different groups of consumers.
We believe that the competitive attributes of Burger King restaurants include significant brand recognition, convenience
of location, quality, speed of service and price.

Our Burger King restaurants are typically open seven days per week and generally have operating hours ranging

from 6:00 am to midnight on Sunday to Wednesday and to 2:00 am on Thursday to Saturday.

Our existing restaurants consist of one of several building types with various seating capacities. Our typical
freestanding restaurant contains approximately 2,800 to 3,200 square feet with seating capacity for 90 to 100 customers,
has drive-thru service windows and has adjacent parking areas. The building types for recently constructed or remodeled
Burger King restaurants utilize 2,600 square feet and typically have seating capacity for 60 to 70 customers. As of
December 28, 2014, almost all of our restaurants were freestanding. We operate our restaurants under franchise
agreements with BKC.

On May 7, 2012, we completed the spin-off of Fiesta Restaurant Group, which included the Pollo Tropical and

Taco Cabana restaurant businesses which we refer to as the "spin-off".

On May 30, 2012, we acquired 278 Burger King restaurants from BKC, which we refer to as the "2012 acquisition",
including BKC's assignment of its right of first refusal on franchise restaurant transfers in 20 states as follows:
Connecticut (except Hartford county), Delaware, Indiana, Kentucky, Maine, Maryland, Massachusetts (except for
Middlesex, Norfolk and Suffolk counties), Michigan, New Hampshire, New Jersey, New York (except for Bronx,
Kings, Nassau, New York, Queens, Richmond, Suffolk and Westchester counties), North Carolina, Ohio, Pennsylvania,
Rhode Island, South Carolina, Vermont, Virginia, Washington DC and West Virginia, (the "ROFR") pursuant to an
operating agreement with BKC as amended on January 26, 2015, which we refer to as the "operating agreement",
dated as of May 30, 2012. In addition, pursuant to the operating agreement, BKC granted us, on a non-exclusive basis,
franchise pre-approval to acquire restaurants from Burger King franchisees in the 20 states covered by the ROFR until
we operate 1,000 Burger King restaurants. Newly constructed or acquired restaurants beyond 1,000, or acquisitions
in states not subject to the ROFR would be subject to BKC's customary approval process. We also agreed to remodel
455 Burger King restaurants to BKC's "20/20" restaurant image.

We refer to the restaurants acquired from BKC in the 2012 transaction as our "2012 acquired restaurants". As
of December 28, 2014, we were operating 263 of such acquired restaurants. Additionally, in 2014 we acquired an
additional 123 restaurants from other franchisees in five separate transactions, which we refer to as the "2014 acquired
restaurants". All of our other Burger King restaurants are referred to as our "legacy restaurants".

For the fiscal year ended December 28, 2014, our restaurants generated total revenues of $692.8 million and our
comparable restaurant sales increased 0.6%. Our average annual restaurant sales for all restaurants were approximately
$1,210,000 per restaurant.

We believe we have the following competitive strengths:

Our Competitive Strengths

Largest Burger King Franchisee in the United States. We are the largest Burger King franchisee in the United States
based on number of restaurants, and are well positioned to leverage the scale and marketing of one of the most recognized
brands in the restaurant industry. We believe the geographic dispersion of our restaurants provides us with stability
and enhanced growth opportunities in many of the markets in which we operate. We also believe that our large number
of restaurants increases our ability to effectively manage the awareness of the Burger King brand in certain markets
through our ability to influence local advertising and promotional activities.

Operational Expertise. We have been operating Burger King restaurants since 1976 and have developed sophisticated
information and operating systems that enable us to measure and monitor key metrics for operational performance,
sales and profitability that may not be available to other restaurant operators. Our focus on leveraging our operational
expertise, infrastructure and systems allows us to optimize the performance of our restaurants and any restaurants that
we may acquire. Our size and history with the Burger King brand enable us to effectively track operating metrics and
leverage best practices across our organization. We believe that our experienced management team, operating culture,
effective operating systems and infrastructure enable us to operate more efficiently than many other Burger King
operators, resulting in higher restaurant margins and overall performance.

Consistent Operating History and Financial Strength. We believe that the quality and sophistication of our restaurant
operations have driven our strong restaurant level performance. Our restaurants have generally outperformed the
Burger King system from a comparable sales perspective over time. Our strong restaurant level operations coupled
with our financial management capabilities have resulted in consistent and stable cash flows. We have demonstrated
our ability to prudently manage financial leverage through a variety of economic cycles. We believe that our cash
flow from operations, availability of revolving credit borrowings under our senior credit facility and availability to the
capital markets will be used to fund our ongoing operations and strategic capital expenditure needs.

Distinct Brand with Global Recognition, Innovative Marketing and New Product Development. As a Burger King
franchisee, we benefit from, and rely on, BKC's extensive marketing, advertising and product development capabilities
to drive sales and generate increased restaurant traffic. Over the years, BKC has launched innovative and creative
multimedia advertising campaigns that highlight the popular relevance of the Burger King brand. In 2012, BKC
launched an extensive campaign of new product introductions and innovative marketing that drove system-wide sales
growth. We believe these campaigns continue to positively impact the brand today as BKC focuses on a well-balanced

promotional mix and remains committed to focusing on fewer but more impactful new product launches and limited
time offers, both of which continue to show positive trends. BKC is also aggressively working with franchisees
throughout the system to encourage the renovation and remodeling of restaurants to BKC's 20/20 image, which we
believe will increase customer traffic and restaurant sales.

Strategic Relationship with Burger King Corporation. We believe that the structure of the 2012 acquisition
strengthens our well-established relationship with BKC and further aligns our common interests to grow our business.
We intend to continue to expand by making acquisitions, including acquisitions resulting from the exercise of the
ROFR obtained in the 2012 acquisition as well as other acquisition pre-approval rights. The consideration to BKC
included an equity interest in Carrols Restaurant Group, which is now approximately 21.0%. Since the 2012 acquisition,
two of BKC's senior executives have served on our Board of Directors. Jose Cil, Executive Vice President and President,
Burger King, of Restaurant Brands International Inc., the indirect parent company of BKC, and Alexandre Macedo,
BKC's President of North America, currently serve on our board of directors. Our restaurants represent approximately
9.2% of the Burger King locations in North America as of December 28, 2014. We believe that the combination of our
rights under the operating agreement, BKC's equity interest and its board level representation will continue to reinforce
the alignment of our common interests with BKC for the long term.

Multiple Growth Levers. We believe our historical track record of acquiring and integrating restaurants and our
commitment to remodel our restaurants provides multiple avenues to grow our business. With more than 50 years of
restaurant operating experience, we have successfully grown our business through acquisitions, including our
acquisitions in 2014 of a total of 123 restaurants from other franchisees in five separate transactions and our acquisition
in May 2012 of 278 restaurants from BKC. Since the 2012 acquisition, we have experienced increases in comparable
restaurant sales, increased restaurant-level profitability and improved operating metrics at the 2012 acquired restaurants.
In addition, we have remodeled a total of 302 restaurants over the past two years to BKC’s 20/20 restaurant image
which we believe has improved the guests’ overall experience and increased customer traffic.

Experienced Management Team with a Proven Track Record. We believe that our senior management team's
extensive experience in the restaurant industry and its long and successful history of developing, acquiring, integrating
and operating quick-service restaurants provide us with a competitive advantage. Our management team has a successful
history of integrating acquired restaurants, and over the past 20 years, we have significantly increased the number of
Burger King restaurants we own and operate, largely through acquisitions. In addition, we successfully acquired,
integrated and expanded the Pollo Tropical and Taco Cabana brands during 1998 to 2012 prior to our spin-off of Fiesta.
Our operations are overseen by our Chief Executive Officer, Dan Accordino, who has over 40 years of Burger King
and quick-service restaurant experience and eight Regional Directors that have an average of 27 years of Burger King
restaurant experience. Eighty-nine district managers support the Regional Directors of which 49 have over 15 years
of restaurant management experience in the Burger King system. Our operations management is further supported by
our infrastructure of financial, information systems, real estate, human resources and legal professionals.

Our primary business strategies are as follows:

Our Business Strategies

Increase Restaurant Sales and Customer Traffic. BKC has identified and implemented a number of strategies to
increase brand awareness, increase market share, improve overall operations and drive future growth. These strategies
are central to our strategic objectives to deliver profitable growth.

• Products. The strength of the BKC menu has been built on a distinct flame-grilled cooking platform to make
better tasting hamburgers. We believe that BKC intends to continue to optimize the menu by focusing on core
products, such as the flagship Whopper® sandwich, while maintaining a balance between value promotions
and premium limited time offerings to drive sales and traffic. In April 2012, BKC launched one of the broadest
expansions of food offerings in its 58-year history, including the introduction of Garden Fresh Salads, Wraps,
Real Fruit Smoothies and Frappes. Product innovation has continued since then with a multi-tier balanced
approach to value and premium offerings, pairing value promotions, such as the 2 for $5 mix and match product
offerings, with premium limited time offerings. There have also been a number of enhancements to food
preparation procedures to improve the quality of BKC's existing products. These new menu platforms and

quality improvements form the backbone of BKC's strategy to appeal to a broader consumer base and to
increase restaurant sales.

• Image. We believe that re-imaged restaurants increase curb appeal and result in increased restaurant sales.
We agreed to remodel 455 restaurants beginning in 2012 and 46 restaurants acquired in 2014 to BKC's 20/20
restaurant image which features a fresh, sleek, eye-catching design. The restaurant redesign incorporates easy-
to-navigate digital menu boards in the dining room, streamlined merchandising at the drive-thru and flat screen
televisions in the dining area. We believe the restaurant remodeling plan has improved our guests' dining
experience and increased customer traffic. As of December 28, 2014, we have remodeled a total of 302
restaurants to the 20/20 restaurant image and have a total of 325 restaurants with that image, which includes
restaurants converted prior to our acquisition.

• Advertising and Promotion. We believe that we will continue to benefit from BKC's advertising support of its
menu items, product enhancement and reimaging initiatives. BKC has established a data driven marketing
process which has focused on driving restaurant sales and traffic, while targeting a broad consumer base with
more inclusive messaging. This strategy uses multiple touch points to advertise our products, including digital
advertising, social media and on-line video in addition to traditional television advertising. BKC has a food-
centric marketing strategy which focuses consumers on the food offerings, the core asset, and balances value
promotions and premium limited time offerings to drive profitable restaurant sales and traffic. In 2013, BKC
initiated a 2 for $5 premium sandwich promotion which features a selection of premium sandwiches which
vary from time to time and also serves as a platform for the promotion of new premium sandwiches as they
are introduced.

• Operations. We believe that improving restaurant operations and enhancing the customer experience are key
components to increasing the profitability of our restaurants. We believe we will benefit from BKC's ongoing
initiatives to improve food quality, simplify restaurant level execution and monitor operational performance,
all of which are designed to improve the customer experience and increase customer traffic.

Strategically Remodel to Elevate Brand Profile and Increase Profit Potential. As of December 28, 2014 we have
remodeled a total of 302 restaurants to BKC's 20/20 restaurant image which we believe has improved the customer
experience, increased traffic and led to a higher average check size. Over the next two years, we plan to strategically
remodel an additional 150 or more locations to BKC's 20/20 image. Based on our recent experience, our restaurants
remodeled to BKC's 20/20 image have generated an average sales lift of approximately 10% and have resulted in an
attractive return on investment. We believe there are opportunities to increase profitability by remodeling additional
restaurants including restaurants that we have acquired or may acquire in the future.

Selectively Acquire and Develop Additional Burger King Restaurants. As of December 28, 2014, we operated 674
Burger King restaurants, making us one of the largest Burger King franchisees in the world. In addition, as a part of
the 2012 acquisition, we acquired the ROFR and were granted certain pre-approval rights to acquire additional
franchised restaurants and to develop new restaurants. Due to the number of restaurants and franchisees in the Burger
King franchise system and our historical success in acquiring and integrating restaurants, we believe that there is
considerable opportunity for future growth. There are more than 2,000 Burger King restaurants we do not own in
states in which we have the ROFR and pre-approval rights. Furthermore, we believe there are additional Burger King
restaurants in states not subject to the ROFR that could be attractive acquisition candidates, subject to BKC's customary
approval. While our primary focus in 2015 will be improving the profitability of the 2014 acquired restaurants and
executing our remodeling strategy discussed above, we believe that the assignment of the ROFR and the pre-approval
to acquire and develop additional restaurants provide us with the opportunity to significantly expand our ownership
of Burger King restaurants in the future. While we may evaluate and discuss potential acquisitions of additional
restaurants from time to time, we currently have no understandings, commitments or agreements with respect to any
material acquisitions. We may be required to obtain additional financing to fund future acquisitions. There can be no
assurance that we will be able to obtain additional financing, if necessary, on acceptable terms or at all.

Improve Profitability of Restaurants We Acquire by Leveraging Our Existing Infrastructure and Best-
Practices. For acquired restaurants, we believe we can realize benefits from economies of scale, including leveraging
our existing infrastructure across a larger number of restaurants. Additionally, we believe that our skilled management
team, sophisticated information technology, operating systems and training and development programs support our

ability to enhance operating efficiencies at any restaurants we may acquire. We have demonstrated our ability to increase
the profitability of acquired restaurants and we believe, over time, that we will improve profitability and operational
efficiency at the restaurants we have and will acquire.

Selected restaurant operating data for our restaurants is as follows:

Restaurant Economics

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

December 30, 2012
1,180,761
6.00
64.9%

Year Ended

December 29, 2013
1,176,806
$
6.11
$
65.0%

December 28, 2014
1,210,264
$
6.40
$
65.3%

Breakfast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dinner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Afternoon and late night . . . . . . . . . . . . . . . . . . . . . . .

14.3%
31.5%
26.6%
27.6%

14.8%
31.3%
26.6%
27.3%

14.4%
31.5%
27.4%
26.7%

(1) Average annual sales per restaurant are derived by dividing restaurant sales by the average number of restaurants operating

during the period.

Restaurant Capital Costs

The initial cost of the franchise fee, equipment, seating, signage and other interior costs of a standard new Burger
King restaurant currently is approximately $350,000 (excluding the cost of the land, building and site improvements).
In the markets in which we primarily operate, the cost of land generally ranges from $600,000 to $800,000 and the
cost of building and site improvements generally ranges from $650,000 to $700,000.

With respect to development of freestanding restaurants, we generally seek to acquire the land to construct the
building, and thereafter enter into an arrangement to sell and leaseback the land and building under a long-term lease.
Historically, we have been able to acquire and finance many of our locations under such leasing arrangements. Where
we are unable to purchase the underlying land, we enter into a long-term lease for the land and fund the construction
of the building from cash generated from our operations or with borrowings under our senior credit facility rather than
through long-term leasing arrangements.

The cost of developing and equipping new restaurants can vary significantly and depends on a number of factors,
including the local economic conditions and the characteristics of a particular site. Accordingly, the cost of opening
new restaurants in the future may differ substantially from, and may be significantly higher than, both the historical
cost of restaurants previously opened and the estimated costs above.

BKC's 20/20 restaurant design draws inspiration from its signature flame-grilled cooking process and incorporates
a variety of innovative elements to a backdrop that evokes the industrial look of corrugated metal, brick, wood and
concrete. The cost of remodeling a restaurant to the 20/20 image varies depending upon the age and condition of the
restaurant and the amount of new equipment needed and can range from $200,000 to $500,000 per restaurant with an
average projected cost of approximately $400,000 per restaurant in 2015. The average cost of these remodels over last
three years was approximately $330,000. The total cost of a remodel has increased over time due to the replacement
of certain kitchen equipment at the time of the remodel which is incremental to the cost to upgrade to the 20/20 design.
Pursuant to the operating agreement, as amended, we agreed to remodel 455 Burger King restaurants to BKC's 20/20
restaurant image. In connection with the acquisition of 64 Burger King restaurants in 2014, we entered into an agreement
with BKC to remodel 46 of the restaurants acquired over a five-year period beginning in 2014. We have remodeled a
total of 302 restaurants as of December 28, 2014 and we plan to remodel approximately 60 to 70 additional restaurants
in 2015. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent and
Future Events Affecting our Results of Operations".

We believe that the location of our restaurants is a critical component of each restaurant's success. We evaluate

Site Selection

potential new sites on many critical criteria including accessibility, visibility, costs, surrounding traffic patterns,
competition and demographic characteristics. Our senior management determines the acceptability of all acquisition
prospects and new sites, based upon analyses prepared by our real estate, financial and operations professionals.

Seasonality

Our business is moderately seasonal due to regional weather conditions. Due to the location of our restaurants,
sales are generally higher during the summer months than during the winter months. The 2012 acquired restaurants
have somewhat moderated the seasonal impact on our business due to the increased concentration of 2012 acquired
restaurants in the Southeast.

The following table details the locations of our 674 Burger King restaurants as of December 28, 2014:

Restaurant Locations

State
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vermont. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total
Restaurants
19
92
17
4
1
21
1
136
164
85
37
28
27
1
41
674

Management Structure

Operations

We conduct substantially all of our executive management, finance, marketing and operations support functions
from our corporate headquarters in Syracuse, New York. Carrols Restaurant Group is led by our Chief Executive
Officer and President, Daniel T. Accordino, who has over 40 years of Burger King and quick-service restaurant
experience at our company.

Our operations for our restaurants are overseen by eight Regional Directors that have an average of over 27 years
of Burger King restaurant experience. Eighty-nine district managers support the Regional Directors for our restaurants.

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

Training

We maintain a comprehensive training and development program for all of our personnel and provide both
classroom and in-restaurant training for our salaried and hourly personnel. The program emphasizes system-wide

operating procedures, food preparation methods and customer service standards. BKC's training and development
programs are also available to us as a franchisee.

Management Information Systems

Our sophisticated management information systems provide us with the ability to efficiently and effectively
manage our restaurants and to ensure consistent application of operating controls at our restaurants. Our size affords
us the ability to maintain an in-house staff of information technology and restaurant systems professionals dedicated
to continuously enhancing our systems. In addition, these capabilities allow us to integrate restaurants that we acquire
and achieve greater economies of scale and operating efficiencies.

We completed the installation of new point-of-sale (POS) systems at our legacy restaurants in 2012. We also
typically replace the POS systems at restaurants we acquire shortly after acquisition and implement our POS, labor
and inventory management systems. Our restaurants employ touch-screen POS systems that are designed to facilitate
accuracy and speed of order taking. These systems are user-friendly, require limited cashier training and improve
speed-of-service through the use of conversational order-taking techniques. The POS systems are integrated with PC-
based applications at the restaurant and hosted systems at our corporate office that are designed to facilitate financial
and management control of our restaurant operations.

Our restaurant systems provide daily tracking and reporting of traffic counts, menu item sales, labor and food
data including costs and inventories, and other key operating metrics for each restaurant. We communicate electronically
with our restaurants on a continuous basis via a high-speed data network, which enables us to collect this information
for use in our corporate management systems in near real-time. Our corporate headquarters manages systems that
support all of our accounting, operating and reporting systems. We also operate a 24-hour, seven-day help desk at our
corporate headquarters that enables us to provide systems and operational support to our restaurant operations as
required. Among other things, our restaurant information systems provide us with the ability to:

• monitor labor utilization and sales trends on a real-time basis at each restaurant, enabling the restaurant manager

to effectively manage to our established labor standards on a timely basis;

• reduce inventory shrinkage using restaurant-level inventory management and centralized standard costing

systems;

• analyze sales and product mix data to help restaurant managers forecast production levels;

• monitor day-part drive-thru speed of service at each of our restaurants;

• systematically communicate human resource and payroll data to our administrative offices for efficient

centralized management of labor costs and payroll processing;

• employ centralized control over price, menu and inventory management activities at the restaurant utilizing

the remote management capabilities of our systems;

•

take advantage of electronic commerce including our ability to place orders with suppliers and to integrate
detailed invoice, receiving and product data with our inventory and accounting systems;

• provide analyses, reporting and tools to enable all levels of management to review a wide-range of financial,

product mix and operational data; and

• systematically analyze and report on detailed transactional data to help detect and identify potential theft.

Critical information from our systems is available in near real-time to our restaurant managers, who are expected
to react quickly to trends or situations in their restaurant. Our district managers also receive near real-time information
from all restaurants under their control and have computer access to key operating data on a remote basis using our
corporate intranet-based reporting. Management personnel at all levels, from the restaurant manager through senior
management, utilize key restaurant performance indicators to manage our business.

Burger King Franchise Agreements

Each of our Burger King restaurants operates under a separate franchise agreement with BKC. Our franchise
agreements with BKC generally require, among other things, that all restaurants comply with specified design criteria
and operate in a prescribed manner, including utilization of the standard Burger King menu. In addition, our Burger
King franchise agreements generally require that our restaurants conform to BKC's current image and provide for

remodeling of our restaurants during the tenth year of the agreements to conform to such current image, which may
require the expenditure of considerable funds. These franchise agreements with BKC generally provide for an initial
term of 20 years and currently have an initial franchise fee of $50,000. In the event that we terminate any franchise
agreement and close the related BKC restaurant prior to the expiration of its term, we may be required to pay BKC an
amount based on the net present value of the royalty stream that would have been realized by BKC had such franchise
agreement not been terminated. Any franchise agreement, including renewals, can be extended at our discretion for
an additional 20-year term, with BKC's approval, provided that, among other things, the restaurant meets the current
Burger King operating and image standards and that we are not in default under the terms of the franchise agreement.
The franchise agreement fee for subsequent renewals is currently $50,000. BKC may terminate any of the franchise
agreements if an act of default is committed by us under these agreements and such default is not cured. Defaults under
the franchise agreements include, among other things, our failure to operate such Burger King restaurant in accordance
with the operating standards and specifications established by BKC (including failure to use equipment, uniforms or
decor approved by BKC), our failure to sell products approved or designated by BKC, our failure to pay royalties or
advertising and sales promotion contributions as required, our unauthorized sale, transfer or assignment of such
franchise agreement or the related restaurant, certain events of bankruptcy or insolvency with respect to us, conduct
by us or our employees that has a harmful effect on the Burger King restaurant system, conviction of us or our executive
officers for certain indictable offenses, our failure to maintain a responsible credit rating or the acquisition by us of an
interest in any other hamburger restaurant business. We are not in default under any of the franchise agreements with
BKC.

In order to obtain a successor franchise agreement with BKC, a franchisee is typically required to make capital
improvements to the restaurant to bring it up to BKC's current image standards. The cost of these improvements may
vary widely depending upon the magnitude of the required changes and the degree to which we have made interim
improvements to the restaurant. At December 28, 2014, we had 30 franchise agreements due to expire in 2015, 34
franchise agreements due to expire in 2016 and 50 franchise agreements due to expire in 2017. The majority of the
restaurants where franchise agreements expire in the next three years have either previously been remodeled to the
20/20 image or the franchise agreement will not be renewed due to the operating performance of the restaurant. In
recent years, the historical costs of improving our Burger King restaurants in connection with franchise renewals
generally have ranged from $200,000 to $500,000 per restaurant. The average cost of our remodels to the 20/20 image
in the past three years was approximately $330,000 per restaurant. The cost of remodels can vary depending upon the
age and condition of the restaurant and the amount of new equipment needed. The cost of capital improvements made
in connection with future franchise agreement renewals may differ substantially from past franchise renewals depending
on the current image requirements established from time to time by BKC.

We believe that we will be able to satisfy BKC's normal franchise agreement renewal criteria. Accordingly, we
believe that renewal franchise agreements will be granted on a timely basis by BKC at the expiration of our existing
franchise agreements. Historically, BKC has granted all of our requests for successor franchise agreements. However,
there can be no assurance that BKC will grant these requests in the future.

We evaluate the performance of our Burger King restaurants on an ongoing basis. Such evaluation depends on
many factors, among other things, including our assessment of the anticipated future operating results of the subject
restaurants and the cost of required capital improvements that we would need to commit for such restaurants. If we
determine that a Burger King restaurant is under-performing, or that we do not anticipate an adequate return on the
capital required to renew the franchise agreement, we may elect to close such restaurant. We may also relocate (offset)
a restaurant within its trade area and build a new Burger King restaurant as part of the franchise renewal process. In
2014, we closed ten restaurants, excluding one restaurant that was relocated within its trade area. We currently expect
to close 15 to 20 restaurants in 2015, excluding any relocation of existing restaurants. However, based on the current
operating results of these restaurants, we believe that the impact on our results of operations as a result of such restaurant
closures will not be material, although there can be no assurance in this regard. Our determination to close these
restaurants is subject to further evaluation and may change. We may also elect to close additional restaurants in the
future.

In addition to the initial franchise fee, we generally pay BKC a monthly royalty. The royalty rate for new
restaurants and for successor franchise agreements is 4.5% of sales. Royalty payments for restaurants acquired from
other franchisees are based on the terms of existing franchise agreements being acquired, which are generally less than
4.5%. Royalty payments to BKC under new franchise agreements for the 2012 acquired restaurants are at a contractual

rate of 4.5%. The royalty rate was increased from 3.5% to 4.5% of sales in 2000, and generally for restaurants in
existence in 2000, becomes effective upon the renewal of the franchise agreement. Burger King royalties, as a percentage
of our restaurant sales, were 4.2% in 2014, 2013 and 2012. We anticipate our Burger King royalties, as a percentage
of our restaurant sales, will be 4.2% in 2015 as a result of the terms outlined above.

We also generally contribute 4% of restaurant sales from our Burger King restaurants to fund BKC's national
and regional advertising. BKC engages in substantial national and regional advertising and promotional activities and
other efforts to maintain and enhance the Burger King brand. From time to time we supplement BKC's marketing
with our own local advertising and promotional campaigns. See “- Advertising, Products and Promotion” below.

Our franchise agreements with BKC do not give us exclusive rights to operate Burger King restaurants in any
defined territory. Although we believe that BKC generally seeks to ensure that newly granted franchises do not
materially adversely affect the operations of existing Burger King restaurants, we cannot assure you that franchises
granted by BKC to third parties will not adversely affect any Burger King restaurants that we operate.

Except as permitted by the operating agreement, we are required to obtain BKC's consent before we acquire
existing Burger King restaurants from other franchisees or develop new Burger King restaurants. BKC also has the
right of first refusal to purchase any Burger King restaurant that is being offered for sale by a franchisee. However,
pursuant to the operating agreement, BKC assigned the ROFR to us in 20 states and granted us franchise pre-approval
to build new restaurants or acquire restaurants from franchisees until the date that we operate 1,000 restaurants.
Historically, BKC has approved substantially all of our acquisitions of restaurants from other franchisees.

Advertising, Products and Promotion

BKC's marketing strategy is characterized by its HAVE IT YOUR WAY® service, TASTE IS KING® tag line,
flame grilling, generous portions and competitive prices. Burger King restaurants feature flame-grilled hamburgers,
the most popular of which is the Whopper® sandwich, a large, flame-grilled hamburger garnished with mayonnaise,
lettuce, onions, pickles and tomatoes. The basic menu of all Burger King restaurants also includes a variety of
hamburgers, chicken and other specialty sandwiches, french fries, soft drinks, salads, breakfast items, snacks, and
other offerings. BKC and its franchisees have historically spent between 4% and 5% of their respective sales on
marketing, advertising and promotion to sustain high brand awareness. In 2012, BKC launched marketing initiatives
to reach a more diverse consumer base and has continued to introduce a number of new and enhanced products to
broaden menu offerings and drive customer traffic in all day parts.

We are generally required to contribute 4% of restaurant sales to an advertising fund utilized by BKC for its
advertising, promotional programs and public relations activities. For the restaurants acquired from BKC in 2012, the
franchise agreements provide for an advertising contribution of 4% of restaurant sales and local advertising investment
spending of no less than 0.75% of restaurant sales in the designated market areas where the franchised restaurants are
located, subject to certain other conditions and limitations. BKC's advertising programs consist of national campaigns
supplemented by local advertising. BKC's advertising campaigns are generally carried on television, radio and in
circulated print media (national and regional newspapers and magazines). As a percentage of our restaurant sales
advertising expense was 4.0% in 2014, 4.5% in 2013 and 4.1% in 2012. For 2015 we anticipate advertising expense
to range between 4.0% and 4.2% of restaurant sales.

The efficiency and quality of advertising and promotional programs can significantly affect the quick-service
restaurant businesses. We believe that one of the major advantages of being a Burger King franchisee is the value of
the extensive national and regional advertising and promotional programs conducted by BKC. In addition to the
benefits derived from BKC's advertising spending, we sometimes supplement BKC's advertising and promotional
activities with our own local advertising and promotions, including the purchase of additional television, radio and
print advertising. The concentration of our Burger King restaurants in many of our markets permits us to leverage
advertising in those markets. We also utilize promotional programs, such as combination value meals and discounted
prices, targeted to our customers, in order to create a flexible and directed marketing program.

In connection with BKC's 2011 initiatives to support the installation of digital menu boards, the introduction of
new menu items and enhancements to the quality of our food preparation, we made expenditures in our restaurants of
approximately $9.0 million in 2011 and $0.5 million in 2012. Beginning in 2012, BKC reduced the required advertising
contribution by $5,400 per restaurant per year through 2015, for those restaurants whose expenditures included a digital
menu board, and $3,000 per restaurant per year through 2015, for those restaurants whose expenditures excluded a

digital menu board. At December 28, 2014 we had 374 restaurants qualifying for the $5,400 per year advertising
reduction and 8 restaurants qualifying for the $3,000 per year advertising reduction. To receive the advertising
reductions prospectively we must be in full compliance with our franchise agreements including being current on all
payments to BKC for royalties, advertising and occupancy related charges. As of December 28, 2014 we were in
compliance with our franchise agreements.

Suppliers

We are a member of a national purchasing cooperative, Restaurant Services, Inc., which we refer to as "RSI",
created for the Burger King system. RSI is a non-profit independent cooperative that acts as the purchasing agent for
approved distributors to the Burger King system and serves to negotiate the lowest cost for the system. We use our
purchasing power to negotiate directly with certain other vendors, to obtain favorable pricing and terms for supplying
our restaurants. For our restaurants, we are required to purchase all of our foodstuffs, paper goods and packaging
materials from BKC-approved suppliers. We currently utilize three distributors, Maines Paper & Food Service, Inc.,
Reinhart Food Service L.L.C. and MBM Food Service Inc., to supply our restaurants with the majority of our foodstuffs
and, as of December 28, 2014, such distributors supplied 35%, 34% and 31%, respectively, of our restaurants. We
may purchase non-food items, such as kitchen utensils, equipment maintenance tools and other supplies, from any
suitable source so long as such items meet BKC product uniformity standards. All BKC-approved distributors are
required to purchase foodstuffs and supplies from BKC-approved manufacturers and purveyors. BKC is responsible
for monitoring quality control and supervision of these manufacturers and conducts regular visits to observe the
preparation of foodstuffs, and to run various tests to ensure that only quality foodstuffs are sold to its approved suppliers.
In addition, BKC coordinates and supervises audits of approved suppliers and distributors to determine continuing
product specification compliance and to ensure that manufacturing plant and distribution center standards are met.
Although we believe that we have alternative sources of supply available to our restaurants, in the event any distributor
or supplier for our restaurants was unable to service us, this could lead to a disruption of service or supply at our
restaurants until a new distributor or supplier is engaged, which could have an adverse effect on our business.

Quality Assurance

Our operational focus is closely monitored to achieve a high level of customer satisfaction via speed of service,
order accuracy and quality of service. Our senior management and restaurant management staffs are principally
responsible for ensuring compliance with BKC's required operating procedures. We have uniform operating standards
and specifications relating to the quality, preparation and selection of menu items, maintenance and cleanliness of the
premises and employee conduct. In order to maintain compliance with these operating standards and specifications,
we distribute to our restaurant operations management team detailed reports measuring compliance with various
customer service standards and objectives, including feedback obtained directly from our customers through
instructions given to them at the point of sale. The customer feedback is monitored by an independent agency and us
and consists of evaluations of speed of service, quality of service, quality of our menu items and other operational
objectives including the cleanliness of our restaurants. We also have our own staff that handle customer inquiries and
complaints.

We operate in accordance with quality assurance and health standards mandated by federal, state and local
governmental laws and regulations. These standards include food preparation rules regarding, among other things,
minimum cooking times and temperatures, maximum time standards for holding prepared food, food handling
guidelines and cleanliness. To maintain these standards, under BKC's oversight third-party firms conduct unscheduled
inspections and follow-up inspections of our restaurants and report their findings to us. In addition, restaurant managers
conduct internal inspections for taste, quality, cleanliness and food safety on a regular basis.

Trademarks

As a franchisee of Burger King, we also have contractual rights to use certain BKC-owned trademarks, service
marks and other intellectual property relating to the Burger King concept. We have no proprietary intellectual property
other than the Carrols logo and trademark.

Government Regulation

Various federal, state and local laws affect our business, including various health, sanitation, fire and safety
standards. Restaurants to be constructed or remodeled are subject to state and local building code and zoning

requirements. In connection with the development and remodeling of our restaurants, we may incur costs to meet
certain federal, state and local regulations, including regulations promulgated under the Americans with Disabilities
Act.

We are subject to the federal Fair Labor Standards Act and various other federal and state laws governing such

matters as:

• minimum wage requirements;

• unemployment compensation;

• overtime; and

• other working conditions and citizenship requirements.

A significant number of our food service personnel are paid at rates related to the federal, and where applicable,
state minimum wage and, accordingly, increases in the minimum wage have increased and in the future will increase
wage rates at our restaurants.

The Patient Protection and Affordable Care Act (the “Act”) required businesses employing fifty or more full-
time equivalent employees to offer health care benefits to those full-time employees 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 at the beginning of 2015, we estimate 10% to 15% of our approximately 1,300
eligible hourly employees will opt for coverage under our medical plan. We estimate that our additional cost for health
care coverage for our hourly employees, solely from the eligibility provisions of the Act, will range between $0.5
million and $0.6 million in 2015. In addition for 2015, we anticipate additional fee assessments under the Act of $1.5
million associated with our current health care coverage of our employees. There are no assurances that a combination
of cost management and menu price increases can accommodate all of the potential increased costs associated with
these regulations.

We are also subject to various federal, state and local environmental laws, rules and regulations. We believe that
we conduct our operations in substantial compliance with applicable environmental laws and regulations. Our costs
for compliance with environmental laws or regulations have not had a material adverse effect on our results of operations,
cash flows or financial condition in the past.

Industry and Competition

The Restaurant Market

Restaurant sales historically have closely tracked several macroeconomic indicators and we believe that “away-
from-home” food consumption will increase as the economy continues to improve. Historically, unemployment has
been inversely related to restaurant sales and, as the unemployment rate decreases and disposable income increases,
restaurant sales have increased. In 2013, 49.6% of food dollars were spent on food away from home and is projected
to surpass at-home dining in 2015 according to the U.S. Department of Agriculture.

Quick-Service Restaurants. We operate in the hamburger category of the quick-service restaurant segment of
the restaurant industry. Quick-service restaurants are distinguished by high speed of service and efficiency, convenience,
limited menu and service, and value pricing. According to Nation's Restaurant News, 2013 U.S. foodservice sales for
the Top 100 restaurant chains increased 3.2% from 2012 to $222.1 billion. Of this amount, the hamburger category
represented $72.7 billion, or 32.7%, making it the largest category of the quick-service segment.

The restaurant industry is highly competitive with respect to price, service, location and food quality. In each of
our markets, our restaurants compete with a large number of national and regional restaurant chains, as well as locally
owned restaurants, offering low and medium-priced fare. We also compete with convenience stores, delicatessens and
prepared food counters in supermarkets, grocery stores, cafeterias and other purveyors of moderately priced and quickly
prepared foods.

We believe that:

• product quality and taste;

• brand recognition;

• convenience of location;

• speed of service;

• menu variety;

• price; and

• ambiance

are the most important competitive factors in the quick-service restaurant segment and that our restaurants effectively
compete in each category. We believe our largest competitors are McDonald's and Wendy's.

Employees

As of December 28, 2014, we employed approximately 20,400 persons of which approximately 150 were
administrative personnel and approximately 20,250 were restaurant operations personnel. None of our employees are
are unionized or covered by collective bargaining agreements. We believe that our overall relations with our employees
are good.

Availability of Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission
(the “SEC”). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room
at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

We make available at no cost through our website (www.carrols.com) our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating
to us that are filed or furnished to the SEC, as soon as reasonably practicable after electronically filing such material
with the SEC. The reference to our website address is a textual reference only, meaning that it does not constitute
incorporation by reference of the information contained on the website and should not be considered part of this
document.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below, as well as other information and data included in this

Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business,
consolidated financial condition or results of operations.

Risks Related to Our Business

Intense competition in the restaurant industry could make it more difficult to profitably expand our business and
could also have a negative impact on our operating results if customers favor our competitors or we are forced to
change our pricing and other marketing strategies.

The restaurant industry is highly competitive. In each of our markets, our restaurants compete with a large number
of national and regional restaurant chains, as well as locally owned restaurants, offering low and medium-priced fare.
We also compete with convenience stores, delicatessens and prepared food counters in grocery stores, supermarkets,
cafeterias and other purveyors of moderately priced and quickly prepared food. Our largest competitors are McDonald's
and Wendy's restaurants.

Due to competitive conditions, we, as well as certain of the other major quick-service restaurant chains, have
offered select food items and combination meals at discounted prices. These pricing and marketing strategies have
had, and in the future may have, a negative impact on our sales and earnings.

Factors applicable to the quick-service restaurant segment may adversely affect our results of operations, which
may cause a decrease in earnings and revenues.

The quick-service restaurant segment is highly competitive and can be materially adversely affected by many

factors, including:

• changes in local, regional or national economic conditions;

• changes in demographic trends;

• changes in consumer tastes;

• changes in traffic patterns;

•

increases in fuel prices and utility costs;

• consumer concerns about health, diet and nutrition;

•

increases in the number of, and particular locations of, competing restaurants;

• changes in discretionary consumer spending;

•

inflation;

increases in the cost of food, such as beef, chicken, produce and packaging;

increased labor costs, including healthcare, unemployment insurance and minimum wage requirements;

the availability of experienced management and hourly-paid employees; and

• regional weather conditions.

We are highly dependent on the Burger King system and our ability to renew our franchise agreements with BKC.
The failure to renew our franchise agreements or Burger King's failure to compete effectively would materially
adversely affect our results of operations.

Due to the nature of franchising and our agreements with BKC, our success is, to a large extent, directly related
to the success of the Burger King system including its financial condition, advertising programs, new products, overall
quality of operations and the successful and consistent operation of Burger King restaurants owned by other franchisees.
We cannot assure you that Burger King will be able to compete effectively with other restaurants. As a result, any
failure of Burger King to compete effectively would likely have a material adverse effect on our operating results.

Under each of our franchise agreements with BKC, we are required to comply with operational programs
established by BKC. For example, our franchise agreements with BKC require that our restaurants comply with
specified design criteria. In addition, BKC generally has the right to require us during the tenth year of a franchise
agreement to remodel our restaurants to conform to the then-current image of Burger King, which may require the
expenditure of considerable funds. In addition we may not be able to avoid adopting menu price discount promotions
or permanent menu price decreases instituted by BKC that may be unprofitable.

Our franchise agreements typically have a 20-year term after which BKC's consent is required to receive a
successor franchise agreement. Our franchise agreements with BKC that are set to expire over the next three years are
as follows: 30 in 2015, 34 in 2016 and 50 in 2017.

We cannot assure you that BKC will grant each of our future requests for successor franchise agreements, and
any failure of BKC to renew our franchise agreements could adversely affect our operating results. In addition, as a
condition of approval of a successor franchise agreement, BKC may require us to make capital improvements to
particular restaurants to bring them up to Burger King current image standards, which may require us to incur substantial
costs.

In addition, our franchise agreements with BKC do not give us exclusive rights to operate Burger King restaurants
in any defined territory. Although we believe that BKC generally seeks to ensure that newly granted franchises do not
materially adversely affect the operations of existing restaurants, we cannot assure you that franchises granted by BKC
to third parties will not adversely affect any restaurants that we operate.

Additionally, as a franchisee, we have no control over the Burger King brand. If BKC does not adequately protect
the Burger King brand and other intellectual property, our competitive position and operating results could be harmed.

Our strategy includes pursuing acquisitions of additional Burger King restaurants and we may not find Burger
King restaurants that are suitable acquisition candidates or successfully operate or integrate any Burger King
restaurants we may acquire.

As part of our strategy, we intend to pursue the acquisition of additional Burger King restaurants. Pursuant to the
operating agreement, dated as of May 30, 2012, as amended on January 26, 2015, between BKC and Carrols LLC,
BKC assigned to us its ROFR under its franchise agreements with its franchisees to purchase all of the assets of a
restaurant or all or substantially all of the voting stock of the franchisee, whether direct or indirect, on the same terms
proposed between such franchisee and a third party purchaser in 20 states as follows: Connecticut (except Hartford
county), Delaware, Indiana, Kentucky, Maine, Maryland, Massachusetts (except for Middlesex, Norfolk and Suffolk
counties), Michigan, New Hampshire, New Jersey, New York (except for Bronx, Kings, Nassau, New York, Queens,
Richmond, Suffolk and Westchester counties), North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina,
Vermont, Virginia, Washington DC, and West Virginia. In addition, pursuant to the operating agreement, BKC granted
us, on a non-exclusive basis, franchise pre-approval to, among other things, acquire restaurants from Burger King
franchisees in the DMAs until the date that we operate 1,000 Burger King restaurants. As part of the franchise pre-
approval, BKC granted us pre-approval for acquisitions of restaurants from franchisees in the 20 states where we have
an existing Burger King restaurant, subject to and in accordance with the terms of the operating agreement. Although
we believe that opportunities for future acquisitions may be available from time to time, competition for acquisition
candidates may exist or increase in the future. Consequently, there may be fewer acquisition opportunities available
to us at an attractive acquisition price. There can be no assurance that we will be able to identify, acquire, manage or
successfully integrate additional restaurants without substantial costs, delays or operational or financial problems. In
the event we are able to acquire additional restaurants, the integration and operation of the acquired BKC restaurants
may place significant demands on our management, which could adversely affect our ability to manage our existing
restaurants. We may be required to obtain additional financing to fund future acquisitions. There can be no assurance
that we will be able to obtain additional financing, if necessary, on acceptable terms or at all. Both our senior credit
facility and the indenture governing the $150 million of 11.25% Senior Secured Second Lien Notes due 2018 (the
"Notes") contain restrictive covenants that may prevent us from incurring additional debt to acquire additional Burger
King restaurants.

We are required to make substantial capital expenditures in connection with the remodeling of our restaurants.

The remodeling of our Burger King restaurants pursuant to the agreed upon remodel plan set forth in the amended
operating agreement as well as other remodeling commitments we have made to BKC in connection with our
acquisitions may be substantially costlier than we currently anticipate. We may also incur substantial capital
expenditures as a result of acquiring restaurants, including restaurants acquired by exercising the ROFR. If we are
required to make greater than anticipated capital expenditures in connection with either or both of these activities, our
business, financial condition and cash flows could be adversely affected. In addition, if we do not complete the required
number of restaurant remodels contemplated in the amended operating plan, a suspension of our ROFR could occur.
In addition, we currently will be required to obtain additional financing to the fund the remodeling of our Burger King
restaurants pursuant to the agreed upon remodel plan. Although we are currently considering a potential refinancing
of our Notes and our senior credit facility, there can be no assurance that such refinancing will be completed, or that
we will be able to obtain additional financing to fund our remodel plan and capital expenditures, on acceptable terms
or at all.

We may experience difficulties in integrating restaurants acquired by us into our existing business.

The acquisition of a significant number of restaurants will involve the integration of those acquired restaurants

with our existing business. The difficulties of integration include:

• coordinating and consolidating geographically separated systems and facilities;

•

integrating the management and personnel of the acquired restaurants, maintaining employee morale and
retaining key employees;

implementing our management information systems; and

implementing operational procedures and disciplines to control costs and increase profitability.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of
our business and the loss of key personnel. The diversion of management's attention and any delays or difficulties
encountered in connection with the acquisition of restaurants and integration of acquired restaurants' operations could
have an adverse effect on our business, results of operations and financial condition.

Achieving the anticipated benefits of the acquisition of additional restaurants will depend in part upon whether
we can integrate any acquired restaurants in an efficient and effective manner. We may not accomplish this integration
process smoothly or successfully. If management is unable to successfully integrate acquired restaurants, the anticipated
benefits of the acquisition may not be realized.

In our evaluation of our recent and potential acquisitions, assumptions are made as to our ability to increase sales
as well as improve restaurant-level profitability particularly in the areas of food, labor and cash controls as well as
other operating expenses. If we are not able to make such improvements in these operational areas as planned, the
acquired restaurants' targeted profitability levels will be affected which could cause an adverse effect on our overall
financial results and financial condition.

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

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

In addition, we cannot guarantee that our operational controls and employee training will be effective in preventing
food-borne illnesses, food tampering and other food safety issues that may affect our restaurants. Food-borne illness
or food tampering incidents could be caused by customers, employees or food suppliers and transporters and, therefore,
could be outside of our control. Any publicity relating to health concerns or the perceived or specific outbreaks of
food-borne illnesses, food tampering or other food safety issues attributed to one or more of our restaurants, could
result in a significant decrease in guest traffic in all of our restaurants and could have a material adverse effect on our
results of operations. In addition, similar publicity or occurrences with respect to other restaurants or restaurant chains
could also decrease our guest traffic and have a similar material adverse effect on our business.

We may incur significant liability or reputational harm if claims are brought against us or the Burger King brand.

We may be subject to complaints, regulatory proceedings or litigation from guests or other persons alleging food-
related illness, injuries suffered in our premises or other food quality, health or operational concerns, including
environmental claims. In addition, in recent years a number of restaurant companies have been subject to lawsuits,
including class action lawsuits, alleging, among other things, violations of federal and state law regarding workplace
and employment matters, discrimination, harassment, wrongful termination and wage, rest break, meal break and
overtime compensation issues and, in the case of quick service restaurants, alleging that they have failed to disclose
the health risks associated with high fat or high sodium foods and that their marketing practices have encouraged
obesity. We may also be subject to litigation or other actions initiated by governmental authorities, our employees,
among others, based upon these and other matters. Adverse publicity resulting from such allegations or occurrences
or alleged discrimination or other operating issues stemming from one or a number of our locations could adversely
affect our business, regardless of whether the allegations are true, or whether we are ultimately held liable. Any cases
filed against us could materially adversely affect us if we lose such cases and have to pay substantial damages or if
we settle such cases. In addition, any such cases may materially and adversely affect our operations by increasing our
litigation costs and diverting our attention and resources to address such actions. In addition, if a claim is successful,
our insurance coverage may not cover or be adequate to cover all liabilities or losses and we may not be able to continue
to maintain such insurance, or to obtain comparable insurance at a reasonable cost, if at all. If we suffer losses, liabilities
or loss of income in excess of our insurance coverage or if our insurance does not cover such loss, liability or loss of
income, there could be a material adverse effect on our results of operations.

Changes in consumer taste could negatively impact our business.

We obtain a significant portion of our revenues from the sale of hamburgers and various types of sandwiches. If
consumer preferences for these types of foods change, it could have a material adverse effect on our operating results.
The quick-service restaurant segment is characterized by the frequent introduction of new products, often supported
by substantial promotional campaigns, and is subject to changing consumer preferences, tastes, and eating and
purchasing habits. Our success depends on BKC's ability to anticipate and respond to changing consumer preferences,
tastes and dining and purchasing habits, as well as other factors affecting the restaurant industry, including new market
entrants and demographic changes. BKC may be forced to make changes to our menu items in order to respond to
changes in consumer tastes or dining patterns, and we may lose customers who do not prefer the new menu items. In
recent years, numerous companies in the quick-service restaurant segments have introduced products positioned to
capitalize on the growing consumer preference for food products that are, or are perceived to be, promoting good
health, nutritious, low in calories and low in fat content. If BKC does not continually develop and successfully introduce
new menu offerings that appeal to changing consumer preferences or if the Burger King system does not timely
capitalize on new products, our operating results could suffer. In addition, any significant event that adversely affects
consumption of our products, such as cost, changing tastes or health concerns, could adversely affect our financial
performance.

If a significant disruption in service or supply by any of our suppliers or distributors were to occur, it could create
disruptions in the operations of our restaurants, which could have a material adverse effect on our business.

Our financial performance depends on our continuing ability to offer fresh, quality food at competitive prices.
If a significant disruption in service or supply by our suppliers or distributors were to occur, it could create disruptions
in the operations of our restaurants, which could have a material adverse effect on us.

We are a member of a national purchasing cooperative, Restaurant Services, Inc., or “RSI,” which serves as the
purchasing agent for approved distributors to the Burger King system. We are required to purchase all of our foodstuffs,
paper goods and packaging materials from BKC-approved suppliers. We currently utilize three distributors for our
restaurants, Maines Paper & Food Service, Inc., Reinhart Food Service L.L.C. and MBM Food Service Inc., to supply
our restaurants in various geographical areas. As of December 28, 2014, such distributors supplied 35%, 34% and
31%, respectively of our restaurants. Although we believe that we have alternative sources of supply, in the event any
distributors or suppliers are unable to service us, this could lead to a disruption of service or supply until a new distributor
or supplier is engaged, which could have an adverse effect on our business.

If labor costs increase, we may not be able to make a corresponding increase in our prices and our operating results
may be adversely affected.

Wage rates for a number of our employees are at or above the federal and or state minimum wage rates. As federal
and/or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage
employees but also the wages paid to the employees at wage rates which are above the minimum wage, which will
increase our costs. To the extent that we are not able to raise our prices to compensate for increases in wage rates,
including increases in state unemployment insurance costs or other costs including mandated health insurance, this
could have a material adverse effect on our operating results. In addition, even if minimum wage rates do not increase,
we may still be required to raise wage rates in order to compete for an adequate supply of labor for our restaurants.

The efficiency and quality of our competitors' advertising and promotional programs and the extent and cost of
our advertising could have a material adverse effect on our results of operations and financial condition.

The success of our restaurants depends in part upon the effectiveness of the advertising campaigns and promotions
by BKC. If our competitors increase spending on advertising and promotion, or the cost of television or radio advertising
increases, or BKC's or our advertising and promotions are less effective than our competitors', there could be a material
adverse effect on our results of operations and financial condition.

Our business is regional and we therefore face risks related to reliance on certain markets as well as risks for other
unforeseen events.

At December 28, 2014, 20% of our restaurants were located in New York, 26% were located in Indiana and Ohio
and 28% of our restaurants were located in North Carolina and South Carolina. Therefore, the economic conditions,
state and local government regulations, weather conditions or other conditions affecting New York, Indiana, Ohio,
North Carolina and South Carolina and other unforeseen events, including terrorism and other international conflicts
may have a material impact on the success of our restaurants in those locations.

Many of our restaurants are located in regions that may be susceptible to severe weather conditions such as harsh
winter weather. As a result, adverse weather conditions in any of these areas could damage these restaurants, result in
fewer guest visits to these restaurants and otherwise have a material adverse impact on our business.

We cannot assure you that the current locations of our restaurants will continue to be economically viable or that
additional locations will be acquired at reasonable costs.

The location of our restaurants has significant influence on their success. We cannot assure you that current
locations will continue to be economically viable or that additional locations can be acquired at reasonable costs. In
addition, the economic environment where restaurants are located could decline in the future, which could result in
reduced sales in those locations. We cannot assure you that new sites will be profitable or as profitable as existing
sites.

Economic downturns may adversely impact consumer spending patterns.

The U.S. economy has in the past experienced significant slowdown and volatility due to uncertainties related
to availability of credit, difficulties in the banking and financial services sectors, softness in the housing market,
diminished market liquidity, falling consumer confidence and high unemployment rates. Our business is dependent to
a significant extent on national, regional and local economic conditions, particularly those that affect our guests that
frequently patronize our restaurants. In particular, where our customers' disposable income is reduced (such as by job
losses, credit constraints and higher housing, tax, energy, interest or other costs) or where the perceived wealth of
customers has decreased (because of circumstances such as lower residential real estate values, increased foreclosure
rates, increased tax rates or other economic disruptions), our restaurants have in the past experienced, and may in the
future experience, lower sales and customer traffic as customers choose lower-cost alternatives or other alternatives
to dining out. The resulting decrease in our customer traffic or average sales per transaction has had an adverse effect
in the past, and could in the future have a material adverse effect, on our business.

The loss of the services of our senior management could have a material adverse effect on our business, financial
condition or results of operations.

Our success depends to a large extent upon the continued services of our senior management who have substantial
experience in the restaurant industry. We believe that it could be difficult to replace our senior management with
individuals having comparable experience. Consequently, the loss of the services of members of our senior management
could have a material adverse effect on our business, financial condition or results of operations.

Government regulation could adversely affect our financial condition and results of operations.

We are subject to extensive laws and regulations relating to the development and operation of restaurants, including

regulations relating to the following:

• zoning;

• requirements relating to labeling of caloric and other nutritional information on menu boards, advertising and

food packaging;

•

the preparation and sale of food;

• employer/employee relationships, including minimum wage requirements, overtime, working and safety

conditions, and citizenship requirements;

• health care; and

• federal and state laws that prohibit discrimination and laws regulating design and operation of, and access to,

facilities, such as the Americans With Disabilities Act of 1990.

In the event that legislation having a negative impact on our business is adopted, it could have a material adverse
impact on us. For example, substantial increases in the minimum wage or state or Federal unemployment taxes could
adversely affect our financial condition and results of operations. Local zoning or building codes or regulations can
cause substantial delays in our ability to build and open new restaurants. Any failure to obtain and maintain required
licenses, permits and approvals could also adversely affect our operating results.

We are continuing to assess the various provisions of the comprehensive federal health care reform law enacted
in 2010, including its estimated impact on our business as provisions becomes effective. There are no assurances that
a combination of cost management and menu price increases can offset all of the potential increased costs associated
with these regulations.

Federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials could expose us to liabilities, which could adversely affect our results of operations.

We are subject to a variety of federal, state and local environmental regulations relating to the use, storage,
discharge, emission and disposal of hazardous substances or other regulated materials, release of pollutants into the
air, soil and water, and the remediation of contaminated sites.

Failure to comply with environmental laws could result in the imposition of fines or penalties, restrictions on
operations by governmental agencies or courts of law, as well as investigatory or remedial liabilities and claims for
alleged personal injury or damages to property or natural resources. Some environmental laws impose strict, and under
some circumstances joint and several, liability for costs of investigation and remediation of contaminated sites on
current and prior owners or operators of the sites, as well as those entities that send regulated materials to the sites.
We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations
and permits. Therefore, our costs of complying with current and future environmental, health and safety laws could
adversely affect our results of operations.

We are subject to all of the risks associated with leasing property subject to long-term non-cancelable leases.

The leases for our restaurant locations (except for certain acquired restaurants which have an underlying lease
term of less than 20 years) generally have initial terms of 20 years, and typically provide for renewal options in five
year increments as well as for rent escalations. Generally, our leases are “net” leases, which require us to pay all of
the costs of insurance, taxes, maintenance and utilities. Additional sites that we lease are likely to be subject to similar
long-term non-cancelable leases. We generally cannot cancel our leases. If an existing or future restaurant is not
profitable, and we decide to close it, we may nonetheless be obligated to perform our monetary obligations under the
applicable lease including, among other things, paying all amounts due for the balance of the lease term. In addition,
as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or any terms
at all, which could cause us to close restaurants in desirable locations.

An increase in food costs could adversely affect our operating results.

Our profitability and operating margins are dependent in part on our ability to anticipate and react to changes in
food costs. Changes in the price or availability of certain food products could affect our ability to offer broad menu
and price offerings to guests and could materially adversely affect our profitability and reputation. The type, variety,
quality and price of beef, chicken, produce and cheese can be subject to change and to factors beyond our control,
including weather, governmental regulation, availability and seasonality, each of which may affect our food costs or
cause a disruption in our supply. In 2014, our beef costs increased significantly compared to 2013 due to a reduction
of supply and other factors. Additionally, weather patterns in recent years have resulted in lower than normal levels
of rainfall in key agricultural states such as California, impacting the price of water and the corresponding prices of
food commodities grown in states facing drought conditions. Our food distributors or suppliers also may be affected
by higher costs to produce and transport commodities used in our restaurants, higher minimum wage and benefit costs
and other expenses that they pass through to their customers, which could result in higher costs for goods and services
supplied to us. Although RSI is able to contract for certain food commodities for periods up to one year, the pricing
and availability of some commodities used in our operations are not locked in for periods of longer than one week or
at all. We do not currently use financial instruments to hedge our risk to market fluctuations in the price of beef, produce

and other food products. We may not be able to anticipate and react to changing food costs (including anticipated
increases in food costs in 2015) through menu price adjustments in the future, which could negatively impact our
results of operations.

Security breaches of confidential guest information in connection with our electronic processing of credit and debit
card transactions may adversely affect our business.

A significant amount of our restaurant sales are by credit or debit cards. Other restaurants and retailers have
recently experienced security breaches in which credit and debit card information of their customers was compromised.
We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising
out of the actual or alleged theft of our guests' credit or debit card information. Any such claim or proceeding, or any
adverse publicity resulting from these allegations, may have a material adverse effect on us and our restaurants.

We depend on information technology and any material failure of that technology could impair our ability to
efficiently operate our business.

We rely on information systems across our operations, including, for example, point-of-sale processing in our
restaurants, procurement and payment to other significant suppliers, collection of cash, and payment of other financial
obligations and various other processes and procedures. Our ability to efficiently manage our business depends
significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems
with maintenance, upgrading or transitioning to replacement systems or a breach in security of these systems could
cause delays in customer service and reduce efficiency in our operations. Significant capital investments might be
required to remediate any problems.

Carrols is currently a guarantor under 31 Fiesta restaurant property leases and the primary lessee on five Fiesta
restaurant property leases, and any default under such property leases by Fiesta may result in substantial liabilities
to us.

Carrols currently is a guarantor under 31 Fiesta restaurant property leases. The Separation and Distribution
Agreement, which we refer to as the "separation agreement", dated as of April 24, 2012 and entered into in connection
with the spin-off among Carrols, Fiesta and us provides that the parties will cooperate and use their commercially
reasonable efforts to obtain the release of such guarantees. Unless and until any such guarantees are released, Fiesta
agrees to indemnify Carrols for any losses or liabilities or expenses that it may incur arising from or in connection
with any such lease guarantees.

Carrols is currently a primary lessee of five Fiesta restaurants which it subleases to Fiesta. The separation
agreement provides that the parties will cooperate and use their commercially reasonable efforts to cause Fiesta or a
subsidiary of Fiesta to enter into a new master lease or individual leases with the lessor with respect to the Fiesta
restaurants where Carrols is currently a lessee. The separation agreement provides that until such new master lease or
such individual leases are entered into, (i) Carrols will perform its obligations under the master lease for the five Fiesta
restaurants where it is a lessee and (ii) the parties will cooperate and use their commercially reasonable efforts to enter
into with the lessor a non-disturbance agreement or similar agreement which shall provide that Fiesta or one of its
subsidiaries shall become the lessee under such master lease with respect to such Fiesta restaurants and perform Carrols'
obligations under such master lease in the event of a breach or default by Carrols.

Such guarantees may never be released and a new master lease with respect to the five Fiesta properties where
Carrols is the primary lessee may never be entered into by Fiesta. Any losses or liabilities that may arise in connection
such guarantees or the master lease where Carrols is not able to receive indemnification from Fiesta may result in
substantial liabilities to us and could have a material adverse effect on our business.

We and our stockholders may be subject to substantial liabilities if the spin-off is treated as a taxable transaction.

We have received a private letter ruling from the Internal Revenue Service, which we refer to as the "IRS" to the
effect that, among other things, the spin-off will qualify as a tax-free distribution for U.S. federal income tax purposes
under Section 355 of the Internal Revenue Code of 1986, as amended, which we refer to as the "Code", and as part of
a tax-free reorganization under Section 368(a)(1)(D) of the Code, and the transfer to Fiesta of assets and the assumption
by Fiesta of liabilities in connection with the spin-off will not result in the recognition of any gain or loss for U.S.

federal income tax purposes to us. Our tax advisor provided a tax opinion covering certain matters not covered in the
private letter ruling. The tax opinion is not binding on the IRS or the courts.

Although a private letter ruling is generally binding on the IRS, the continuing validity of the ruling will be
subject to the accuracy of factual representations and assumptions made in connection with obtaining such private
letter ruling, including with respect to post-spin-off operations and conduct of the parties. Also, as part of the IRS's
general policy with respect to rulings on spin-off transactions under Section 355 of the Code, the private letter ruling
we obtained is based upon representations by us that certain conditions which are necessary to obtain tax-free treatment
under the Code have been satisfied, rather than a determination by the IRS that these conditions have been satisfied.
Failure to satisfy such necessary conditions, or any inaccuracy in any representations made by us in connection with
the ruling, could invalidate the ruling.

If the spin-off does not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we
would be subject to tax as if we had sold the common stock of Fiesta in a taxable sale for its fair market value, and
our stockholders would be subject to tax as if they had received a taxable distribution in an amount equal to the fair
market value of Fiesta common stock distributed to them. If the transfer to Fiesta of assets and the assumption by
Fiesta of liabilities in connection with the spin-off do not qualify for tax-free treatment, then, in general, we would
be subject to tax as if we had sold assets to Fiesta in exchange for the financing proceeds distributed from Fiesta to us
and the assumption of liabilities by Fiesta. It is expected that the amount of any such taxes to our stockholders and to
us would be substantial.

The Tax Matters Agreement, which we refer to as the "tax matters agreement", dated as of April 24, 2012 and
entered into by Fiesta with us in connection with the spin-off (1) governs the allocation of the tax assets and liabilities
between Fiesta, and us, (2) provides for certain restrictions and indemnities in connection with the tax treatment of
the spin-off and (3) addresses certain other tax related matters including, without limitation, those relating to (a) the
obligations of Fiesta and us with respect to the preparation of filing of tax returns for all periods, and (b) the control
of any income tax audits and any indemnities with respect thereto. In the tax matters agreement, we have agreed to
indemnify Fiesta for losses and taxes imposed on Fiesta and its affiliates resulting from our breach of our representations
or covenants or our undertaking not to take certain post-spin-off actions, including with respect to our stock or assets,
that would be inconsistent with or cause to be untrue any material information, covenant, or representation made in
connection with the private letter ruling obtained by us from the IRS or otherwise cause the spin-off or the transfer
to Fiesta of assets and the assumption by Fiesta of liabilities in connection with the spin-off to be subject to tax. Further,
the tax matters agreement provides that we will be responsible for 50% of the losses and taxes of Carrols Restaurant
Group and our affiliates and Fiesta and its affiliates resulting from the spin-off or the related transfer of assets and
assumption of liabilities that are not attributable to any such action of ours or an equivalent action by Fiesta and its
affiliates.

The tax matters agreement also provides that Fiesta will indemnify us for losses and taxes imposed on Carrols
Restaurant Group and our affiliates resulting from the spin-off or the related transfer of assets and assumption of
liabilities that are attributable to any such action by Fiesta and its affiliates. However, in such a case, we would be
directly liable to the IRS for any such resulting taxes and would need to seek indemnification from Fiesta.

Risks Related to Our Common Stock

The market price of our common stock may be highly volatile or may decline regardless of our operating
performance.

The trading price of our common stock may fluctuate substantially. The price of our common stock that will
prevail in the market may be higher or lower than the price you pay, depending on many factors, some of which are
beyond our control. Broad market and industry factors may adversely affect the market price of our common stock,
regardless of our actual operating performance. The fluctuations could cause a loss of all or part of an investment in
our common stock. Factors that could cause fluctuation in the trading price of our common stock may include, but are
not limited to the following:

• price and volume fluctuations in the overall stock market from time to time;

• significant volatility in the market price and trading volume of companies generally or restaurant companies;

• actual or anticipated variations in the earnings or operating results of our company or our competitors;

• actual or anticipated changes in financial estimates by us or by any securities analysts who might cover our

stock or the stock of other companies in our industry;

• market conditions or trends in our industry and the economy as a whole;

• announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures and

our ability to complete any such transaction;

• announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

• capital commitments;

• changes in accounting principles;

• additions or departures of key personnel;

• sales of our common stock, including sales of large blocks of our common stock or sales by our directors and

officers; and

• events that affect BKC.

In addition, if the market for restaurant company stocks or the stock market in general experiences loss of investor
confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of
operations or financial condition. The trading price of our common stock might also decline in reaction to events that
affect other companies in our industry or related industries even if these events do not directly affect us.

In the past, following periods of volatility in the market price of a company's securities, class action securities
litigation has often been brought against that company. Due to the potential volatility of our stock price, we may
therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and
divert management's attention and resources from our business, and could also require us to make substantial payments
to satisfy judgments or to settle litigation.

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

Our executive officers, directors and BKC together beneficially own approximately 24.8% of our outstanding
common stock as of February 27, 2015 (assuming conversion of the Series A Preferred Stock). Due to the issuance of
Series A Preferred Stock to BKC in connection with our 2012 acquisition, BKC beneficially owns approximately
21.0% of our common stock as of February 27, 2015 (assuming conversion of the Series A Preferred Stock). Our
executive officers and directors (excluding directors affiliated with BKC) together beneficially own approximately
4.9% of our common stock outstanding as of February 27, 2015 (excluding conversion of the Series A Preferred Stock).
As a result, our executive officers, directors and BKC, if they act as a group, will be able to significantly influence
matters that require approval by our stockholders, including the election of directors and approval of significant
corporate transactions such as mergers and acquisitions. The directors will have the authority to make decisions affecting
our capital structure, including the issuance of additional debt and the declaration of dividends. BKC may also have
interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your
interests. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership
might also have the effect of delaying or preventing a change of control of us that other stockholders may view as
beneficial, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of
a sale of our company and might ultimately depress the market price of our common stock.

We do not expect to pay any cash dividends for the foreseeable future, and the indenture governing the Notes and
the senior credit facility limit our ability to pay dividends to our stockholders.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable
future. The absence of a dividend on our common stock may increase the volatility of the market price of our common
stock or make it more likely that the market price of our common stock will decrease in the event of adverse economic
conditions or adverse developments affecting our company. Additionally, the indenture governing the Notes and our
senior credit facility limit, and the debt instruments that we may enter into in the future may limit our ability to pay
dividends to our stockholders.

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

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

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

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

• require that special meetings of our stockholders be called only by our board of directors or certain of our

officers, thus prohibiting our stockholders from calling special meetings;

• deny holders of our common stock cumulative voting rights in the election of directors, meaning that
stockholders owning a majority of our outstanding shares of common stock will be able to elect all of our
directors;

• authorize the issuance of “blank check” preferred stock that our board could issue to dilute the voting and

economic rights of our common stock and to discourage a takeover attempt;

• provide that approval of our board of directors or a supermajority of stockholders is necessary to make, alter
or repeal our amended and restated bylaws and that approval of a supermajority of stockholders is necessary
to amend, alter or change certain provisions of our restated certificate of incorporation;

• establish advance notice requirements for stockholder nominations for election to our board or for proposing

matters that can be acted upon by stockholders at stockholder meetings;

• divide our board into three classes of directors, with each class serving a staggered 3-year term, which generally

increases the difficulty of replacing a majority of the directors;

• provide that directors only may be removed for cause by a majority of the board or by a supermajority of our

stockholders; and

• require that any action required or permitted to be taken by our stockholders must be effected at a duly called

annual or special meeting of stockholders and may not be effected by any consent in writing.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our financial condition.

As a result of our substantial indebtedness, a significant portion of our cash flow will be required to pay interest
and principal on our outstanding indebtedness, and we may not generate sufficient cash flow from operations, or have
future borrowings available under our senior credit facility, to enable us to repay our indebtedness, including the Notes,
or to fund other liquidity needs. As of December 28, 2014, we had approximately $159.9 million of total indebtedness
outstanding consisting of $150.0 million of Notes, $1.2 million of lease financing obligations and $8.7 million of
capital leases and other debt). At January 1, 2015 we had $8.0 million of borrowing availability under our senior credit
facility (after reserving $12.0 million for letters of credit issued under our senior credit facility, which included amounts
for anticipated claims from our renewals of workers' compensation and other insurance policies), which would
effectively rank senior to the Notes.

Our substantial indebtedness could have important consequences to our stockholders. For example, it could:

• make it more difficult for us to satisfy our obligations with respect to the Notes and our other debt;

•

increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness
and related interest, including indebtedness we may incur in the future, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures (including restaurant remodeling obligations under
the operating agreement) and other general corporate purposes;

• restrict our ability to acquire additional restaurants;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

increase our cost of borrowing;

• place us at a competitive disadvantage compared to our competitors that may have less debt; and

•

limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt
service requirements or general corporate purposes.

We expect to use cash flow from operations and revolving credit borrowings under our senior credit facility to
meet our current and future financial obligations, including funding our operations, debt service and capital
expenditures. Our ability to make these payments depends on our future performance, which will be affected by
financial, business, economic and other factors, many of which we cannot control. Our business may not generate
sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness, or to
fund other liquidity needs. If we do not have enough money, we may be forced to reduce or delay our business activities
and capital expenditures (including our restaurant remodeling obligations), sell assets, obtain additional debt or equity
capital or restructure or refinance all or a portion of our debt, including our senior credit facility and the Notes, on or
before maturity. We cannot make any assurances that we will be able to accomplish any of these alternatives on terms
acceptable to us, or at all. In addition, the terms of existing or future indebtedness, including the agreements for our
senior credit facility, may limit our ability to pursue any of these alternatives.

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

We and our subsidiaries may be able to incur additional debt in the future, including debt that may be secured
on a first lien basis or pari passu with the Notes. Although our senior credit facility and the indenture governing the
Notes contain restrictions on our ability to incur indebtedness, those restrictions are subject to a number of exceptions.
In addition, if we are able to designate some of our restricted subsidiaries under the indenture governing the Notes as
unrestricted subsidiaries, those unrestricted subsidiaries would be permitted to borrow beyond the limitations specified
in the indenture governing the Notes and engage in other activities in which restricted subsidiaries may not engage.
We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. Moreover,
although our senior credit facility and the indenture governing the Notes contain restrictions on our ability to make
restricted payments, including the declaration and payment of dividends, we are able to make such restricted payments
under certain circumstances. Adding new debt to current debt levels or making restricted payments could intensify the
related risks that we and our subsidiaries now face.

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

Our debt agreements, such as the indenture governing the Notes and our senior credit facility, restrict our ability

in certain circumstances to, among other things:

•

incur additional debt;

• pay dividends and make other distributions on, redeem or repurchase, capital stock;

• make investments or other restricted payments;

• enter into transactions with affiliates;

• engage in sale and leaseback transactions;

• sell all, or substantially all, of our assets;

• create liens on assets to secure debt; or

• effect a consolidation or merger.

On December 19, 2014 the Company entered into an amendment to the senior credit facility to provide for the
release of $20.0 million of cash collateral, originally deposited on May 30, 2012 in an account with the Administrative
Agent, and revised certain financial ratios, including the Fixed Charge Coverage Ratio and Adjusted Leverage Ratio
(all as defined under the first amendment to the senior credit facility). Additionally, the amendment requires the
Company to have no outstanding borrowings for a consecutive 30-day period during each trailing twelve month period.
At December 28, 2014, we were in compliance with such covenants under our senior credit facility. Our ability to
meet these financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we
will meet these tests.

These covenants limit our operational flexibility and could prevent us from taking advantage of business

opportunities as they arise, growing our business or competing effectively.

A breach of any of these covenants or other provisions in our debt agreements could result in an event of default,
which if not cured or waived, could result in such debt becoming immediately due and payable. This, in turn, could
cause our other debt to become due and payable as a result of cross-acceleration provisions contained in the agreements
governing such other debt. In the event that some or all of our debt is accelerated and becomes immediately due and
payable, we may not have the funds to repay, or the ability to refinance, such debt. In addition, in the event that the
Notes become immediately due and payable, the holders of the Notes would not be entitled to receive any payment in
respect of the Notes until all of our senior debt has been paid in full.

We may not have the funds necessary to satisfy all of our obligations under our senior credit facility, the Notes or
other indebtedness in connection with certain change of control events.

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

In addition, our senior credit facility provides that certain change of control events constitute an event of default
under such senior credit facility. Such an event of default entitles the lenders thereunder to, among other things, cause
all outstanding debt obligations under the senior credit facility to become due and payable and to proceed against the
collateral securing such senior credit facility. Any event of default or acceleration of the senior credit facility will likely
also cause a default under the terms of our other indebtedness.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 28, 2014, we owned ten and leased 664 Burger King restaurant properties including seven
restaurants located in mall shopping centers, two restaurants located on military bases and twenty-one co-branded
locations.

We typically enter into leases (including renewal options) ranging from 20 to 40 years. The average remaining
term for all leases, including options, was approximately 21.3 years at December 28, 2014. Generally, we have been
able to renew leases, upon or prior to their expiration, at the prevailing market rates, although there can be no assurance
that this will continue to occur.

Most of our Burger King restaurant leases are coterminous with the related franchise agreements. We believe
that we generally will be able to renew at commercially reasonable rates the leases whose terms expire prior to the
expiration of that location's Burger King franchise agreement, although there can be no assurance that this will occur.

Most leases require us to pay utility and water charges and real estate taxes. Certain leases also require contingent
rentals based upon a percentage of gross sales of the particular restaurant that exceed specified minimums. In some
of our mall locations, we are also required to pay certain other charges such as a pro rata share of the mall's common
area maintenance costs, insurance and security costs.

In addition to the restaurant locations set forth under Item 1. “Business-Restaurant Locations”, we own a building
with approximately 25,300 square feet at 968 James Street, Syracuse, New York, which houses our executive offices
and most of our administrative operations for our Burger King restaurants. We also lease seven small regional offices
that support the management of our Burger King restaurants.

ITEM 3. LEGAL PROCEEDINGS

On August 21, 2012 Alan Vituli, our former chairman and chief executive officer, filed an action in the Superior
Court of the State of Delaware against us and Carrols. On October 1, 2013 Mr. Vituli filed an amended and supplemental
complaint (the "Amended Complaint") which, among other things, added Fiesta Restaurant Group, now an independent
public company, but our indirect wholly-owned subsidiary for the time period at issue in the Amended Complaint, as
a defendant. The Amended Complaint alleges, among other things, breach of Mr. Vituli's employment agreement with
us, fraud, and fraudulent inducement in connection with Mr. Vituli’s departure as chief executive officer, chairman,
and director of Carrols Restaurant Group and Carrols and as non-executive chairman and director of Fiesta Restaurant
Group, that he was wrongfully deprived of observer rights on the board of directors of Carrols Restaurant Group after
his departure from such board and that he was underpaid a portion of his bonus for fiscal 2011. The relief sought by
Mr. Vituli includes damages in excess of $3.55 million in the aggregate, unspecified consequential and punitive
damages, attorney’s fees and costs and various requests for declaratory judgment. We filed a Motion for Summary
Judgment seeking to dismiss the claims raised by Mr. Vituli and we are awaiting the Court’s decision on our Motion
for Summary Judgment. It is not possible to predict the outcome of that motion at this time. We believe that that all
of the claims raised by Mr. Vituli are without merit. We will vigorously contest and defend against this action and Mr.
Vituli’s claims.

We are a party to various other litigation matters incidental to the conduct of our business. We do not believe that
the outcome of any of these other matters will have a material adverse effect on our consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The NASDAQ Global Market under the symbol “TAST”. On February 27, 2015,
there were 35,487,161 shares of our common stock outstanding held by 675 holders of record. The number of record
holders was determined from the records of our transfer agent and does not include beneficial owners of our common
stock whose shares are held in the names of various securities brokers, dealers, and registered clearing agencies. The
closing price of our common stock on February 27, 2015 was $7.85.

The following table sets forth the range of high and low closing prices of our common stock for the periods

indicated, as reported by The NASDAQ Global Market:

Year Ended December 28, 2014

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 29, 2013

Common Stock Price
Low
High

7.95
7.56
7.68
7.86

6.40
6.64
6.89
6.70

5.75
6.26
6.56
6.97

5.00
4.71
6.01
5.34

Dividends

We did not pay any cash dividends during the fiscal years 2014 or 2013.We currently intend to continue to retain
all available funds to fund the development and growth of our business and do not anticipate paying any cash dividends
on our common stock in the foreseeable future. In addition, we are a holding company and conduct all of our operations
through our direct and indirect subsidiaries. As a result, for us to pay dividends, we need to rely on dividends or
distributions to us from Carrols and indirectly from subsidiaries of Carrols. The indenture governing the Notes and
our senior credit facility limit, and debt instruments that we and our subsidiaries may enter into in the future may limit,
our ability to pay dividends to our stockholders.

Stock Performance Graph

The following graph compares from December 31, 2009 the cumulative total stockholder return on our common
stock over the cumulative total returns of The NASDAQ Composite Index and a peer group, The S&P SmallCap 600
Restaurants Index. We have elected to use the S&P SmallCap 600 Restaurant Index in compiling our stock performance
graph because we believe the S&P SmallCap 600 Restaurant Index represents a comparison to competitors with similar
market capitalization as us. The following graph is based on the closing price of our common stock from December 31,
2009 through December 31, 2014.

* $100 invested on 12/31/2009 in stock or index, including reinvestment of dividends.

Carrols Restaurant Group, Inc. . . . . . . . . $
NASDAQ Composite. . . . . . . . . . . . . . . . $
S&P SmallCap 600 Restaurants. . . . . . . . $

12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014
387.45
223.17
335.20

104.95 $ 163.65 $
117.43 $ 118.27 $
135.18 $ 136.39 $

303.66 $
138.47 $
165.89 $

100.00 $
100.00 $
100.00 $

335.65 $
196.27 $
264.53 $

ITEM 6. SELECTED FINANCIAL DATA

The information in the following table should be read together with "Financial Statements and Supplementary
Data," and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included
elsewhere in this Annual Report on Form 10-K. Reported amounts below present the historical operating results and
cash flows of Fiesta for periods prior to May 7, 2012 as discontinued operations. On May 30, 2012, we acquired 278
restaurants from BKC. In 2014, we acquired an aggregate of 123 restaurants from other franchisees in five separate
transactions. The results of operations of the acquired restaurants are included in our consolidated operating results
beginning the day following the closing of the respective acquisitions. These historical results are not necessarily
indicative of the results to be expected in the future. Our fiscal years ended January 2, 2011, January 1, 2012,
December 30, 2012, December 29, 2013 and December 28, 2014 each contained 52 weeks.

Statements of operations data:

Restaurant sales

Costs and expenses:

Cost of sales

Restaurant wages and related expenses (1)

Restaurant rent expense

Other restaurant operating expenses (1)

Advertising expense

General and administrative (1)(2)

Depreciation and amortization

Impairment and other lease charges

Other expense (income) (3)

Total operating expenses

Income (loss) from operations

Interest expense

Loss on extinguishment of debt

Income (loss) from continuing operations
before income taxes

Provision (benefit) for income taxes

Net income (loss) from continuing operations

Income (loss) from discontinued operations, net
of income taxes

Net income (loss)

Per share data:

Basic net income (loss) per share:

Continuing operations

Discontinued operations

Diluted net income (loss) per share:

Continuing operations

Discontinued operations

Weighted average shares used in computing
net income (loss) per share:

Basic

Diluted

January 2, 2011

January 1, 2012 December 30, 2012 December 29, 2013 December 28, 2014

(In thousands of dollars, except share and per share data)

Year Ended

357,073

347,518

539,608

663,483

692,755

105,399

112,534

23,169

54,602

14,966

19,210

15,354

709

(444)

345,499

11,574

8,957

—

2,617

807

1,810

103,860

109,155

22,665

53,389

14,424

20,982

16,058

1,293

(720)

341,106

6,412

7,353

1,244

(2,185)

(1,661)

(524)

172,698

169,857

37,883

88,883

22,257

36,085

26,321

977

(717)

554,244

(14,636)

12,764

1,509

(28,909)

(10,093)

(18,816)

201,532

208,404

47,198

106,508

29,615

37,228

33,594

4,462

668,558

(5,075)

18,841

—

(23,916)

(10,397)

(13,519)

209,664

219,718

48,865

113,586

27,961

40,001

36,923

3,541

700,306

(7,551)

18,801

—

(26,352)

11,765

(38,117)

10,106

11,742

(72)

—

11,916

11,218

(18,888) $

(13,519)

(38,117)

0.08

0.47

0.08

0.46

(0.02) $

0.54

(0.02) $

0.54

(0.83) $

— $

(0.83) $

— $

(0.59)

— $

(0.59)

— $

(1.23)

—

(1.23)

—

21,620,550

21,835,417

21,677,837

22,580,468

22,958,963

30,885,275

Year Ended

January 2,
2011

January 1,
2012

December 30,
2012

December 29,
2013

December 28,
2014

(In thousands of dollars, except restaurant weekly sales data)

Other financial data:

Net cash provided from operating activities . . . . . . . . . . . . . . . . . . . . $

Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided from (used for) financing activities . . . . . . . . . . . .

32,260

13,649

12,626

(19,621)

Operating Data:

Restaurants (at end of period) . . . . . . . . . . . . . . . . . . . . . . . . . .

305

Average number of restaurants. . . . . . . . . . . . . . . . . . . . . . . . . .

307.3

33,448

27,771

25,961

2,943

298

301.2

18,207

37,642

65,908

69,301

572

457.0

21,581

50,486

(1,083)

564

563.8

14,707

52,010

68,003

66,215

674

572.4

Average annual sales per restaurant (4) . . . . . . . . . . . . . . . . . . .

1,161,969

1,153,778

1,180,761

1,176,806

1,210,264

Adjusted EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restaurant-Level EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . . . .

28,537

46,403

25,448

44,025

24,972

52,415

34,271

70,226

36,008

72,961

Change in comparable restaurant sales (6). . . . . . . . . . . . . . . . .

(4.3)%

(1.4)%

7.1%

1.0%

0.6%

Balance sheet data (at end of period):

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

426,302

458,392

346,256

329,481

369,397

Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(39,646)

(11,620)

7,478

(21,974)

(11,912)

Debt: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Senior and senior subordinated debt . . . . . . . . . . . . . . . . . .

Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lease financing obligations . . . . . . . . . . . . . . . . . . . . . . . . .

252,250

1,202

10,061

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

263,513

Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

44,907

267,375

1,144

10,064

278,583

59,157

150,000

10,295

1,197

161,492

90,173

150,000

9,336

1,200

160,536

77,204

150,000

8,694

1,202

159,896

106,535

(1) The year ended January 1, 2012 included $458 of acquisition expenses in general and administrative expenses. For the year
ended December 30, 2012 acquisition and integration expenses were included as follows: $1,800 in restaurant wages and
related expenses, $2,585 in other restaurant operating expenses and $1,657 in general and administrative expenses. Acquisition
and integration expenses of $1,915 were included in general and administrative expense for the year ended December 28,
2014.

(2) General and administrative expenses include stock-based compensation expense for the year ended January 2, 2011, January 1,
2012, December 30, 2012, December 29, 2013 and December 28, 2014 of $884, $1,037, $925, $1,205 and $1,180, respectively.
(3) Other income in fiscal 2010 was related to a property insurance recovery from a fire at a Burger King restaurant. In fiscal
2011, we recorded other income of $0.7 million which included a gain of $0.3 million related to the sale of a non-operating
Burger King property, gains of $0.3 million related to property insurance recoveries from fires at two Burger King restaurants
and a gain of $0.1 million related to a business interruption insurance recovery from storm damage at a Burger King restaurant.
In fiscal 2012, we recorded net gains of $0.7 million related to property insurance recoveries from fires at two restaurants.
See Note 11 to the consolidated financial statements.

(4) Average annual sales per restaurant are derived by dividing restaurant sales by the average number of restaurants operating

during the period.

(5) EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA are non-GAAP financial measures. EBITDA represents net
income (loss) from continuing operations, before provision (benefit) for income taxes, interest expense and depreciation and
amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition
and integration costs, EEOC litigation and settlement costs, stock compensation expense and gains and losses on
extinguishment of debt. Restaurant-Level EBITDA represents income (loss) from operations as adjusted to exclude restaurant-
level integration costs, general and administrative expenses, depreciation and amortization, impairment and other lease charges,
and other expense (income).

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, restaurant-
level integration costs, and other expense (income), 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 in the table above, 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 income (loss) from continuing operations,
income (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.

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

• EBITDA, Adjusted EBITDA and 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 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 Restaurant-Level EBITDA do not
reflect the cash required to fund such replacements; and

• EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA 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 and integration costs) have recurred and
may reoccur.

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

Year Ended

Reconciliation of EBITDA and Adjusted EBITDA:

January 2,
2011

January 1,
2012

December 30,
2012

December 29,
2013

December 28,
2014

Net income (loss) from continuing operations................................ $

1,810

(524) $

(18,816) $

(13,519) $

(38,117)

Provision (benefit) for income taxes...............................................

Interest expense...............................................................................

Depreciation and amortization........................................................

EBITDA ......................................................................................

Impairment and other lease charges................................................

Acquisition and integration costs....................................................

EEOC litigation and settlement costs .............................................

Stock compensation expense ..........................................................

Loss on extinguishment of debt ......................................................

807

8,957

15,354

26,928

709

—

884

—

(1,661)

7,353

16,058

21,226

1,293

458

190

1,037

1,244

(10,093)

(10,397)

12,764

26,321

10,176

977

6,042

5,343

925

1,509

18,841

33,594

28,519

4,462

—

1,205

—

11,765

18,801

36,923

29,372

3,541

1,915

—

1,180

—

Adjusted EBITDA...................................................................... $

28,537

25,448

24,972

34,271

36,008

Reconciliation of Restaurant-Level EBITDA:

Restaurant-Level EBITDA.............................................................. $

46,403

44,025

52,415

70,226

72,961

Less:

Restaurant-level integration costs .............................................

General and administrative expenses........................................

Depreciation and amortization..................................................

Impairment and other lease charges..........................................

Other expense (income) ............................................................

—

19,210

15,354

709

(444)

—

20,982

16,058

1,293

(720)

4,385

36,085

26,321

977

(717)

—

37,228

33,594

4,462

—

40,001

36,923

3,541

Income (loss) from operations ........................................................ $

11,574

6,412

(14,636) $

(5,075) $

(7,551)

(6) Restaurants are included in comparable restaurant sales after they have been open or owned for 12 months. Sales from our

2012 acquired restaurants are included in changes in our comparable restaurant sales beginning in June 2013.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

We use a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended

December 28, 2014, December 29, 2013 and December 30, 2012 each contained 52 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” (“MD&A”) is written to
help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction
with our Consolidated Financial Statements and the accompanying financial statement footnotes appearing elsewhere
in this Annual Report on Form 10-K. The overview provides our perspective on the individual sections of MD&A,
which include the following:

Company Overview—a general description of our business and our key financial measures.

Recent and Future Events Affecting Our Results of Operations—a description of recent events that affect, and

future events that may affect, our results of operations.

Operating Results from Continuing Operations—an analysis of our results of operations for the years ended
December 28, 2014, December 29, 2013 and December 30, 2012 including a review of the 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.

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 one of the largest Burger King® franchisees in the world and have operated Burger King
restaurants since 1976. As of December 28, 2014, we operated 674 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 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 (“ROFR”). As of December 28, 2014 we were operating 263 of the 2012 acquired restaurants. All of our
other Burger King restaurants are referred to as our "legacy restaurants".

Our former indirect wholly-owned subsidiary, Fiesta Restaurant Group, Inc., which we refer to as “Fiesta”, was
spun off by us to our stockholders on May 7, 2012. The historical operating results of Fiesta are included in our operating
results for 2012 as discontinued operations. Amounts earned by Carrols under the Transition Services Agreement
(“TSA”), entered into with Fiesta in connection with the spin-off were $3.4 million and $3.8 million for the years
ended December 29, 2013 and December 30, 2012, respectively. As of December 29, 2013, Fiesta had terminated
substantially all of the services provided by us under the TSA.

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

• Restaurant sales consist of food and beverage sales at our restaurants, net of discounts and excluding sales
tax collected. Restaurant sales are influenced by changes in comparable restaurant sales, menu price increases,
new restaurant openings and closures of restaurants. Restaurants, including restaurants we acquire, are included
in comparable restaurant sales after they have been open or owned for 12 months. For comparative purposes,
the calculation of the changes in comparable restaurant sales is based on a 52-week year.

• Cost of sales consists of food, paper and beverage costs including packaging costs, less purchase discounts.
Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the
effectiveness of our restaurant-level controls to manage food and paper costs.

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

• Restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases
and the amortization of favorable and unfavorable leases, reduced by the amortization of deferred gains on
sale-leaseback transactions.

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

• Advertising expense includes all marketing and promotional expenses including advertising payments to BKC

based on a percentage of sales as required under our franchise agreements.

• General and administrative expenses are comprised primarily of (1) salaries and expenses associated with
corporate and administrative functions that support the development and operations of our restaurants, (2) legal,
auditing and other professional fees, (3) acquisition and integration costs and (4) stock-based compensation
expense. Historical general and administrative expenses exclude all amounts associated with Fiesta as those
amounts are included in income (loss) from discontinued operations and include an offset to general
administrative expenses as if the TSA with Fiesta was in place for all periods presented.

• EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA. EBITDA, Adjusted EBITDA and Restaurant-
Level EBITDA are non-GAAP financial measures. EBITDA represents net loss from continuing operations,
before provision (benefit) for income taxes, interest expense and depreciation and amortization. Adjusted
EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition and
integration costs, EEOC litigation and settlement costs, stock compensation expense and loss on
extinguishment of debt. Restaurant-Level EBITDA represents loss from operations as adjusted to exclude
restaurant-level integration costs, general and administrative expenses, depreciation and amortization,
impairment and other lease charges, and other expense (income).

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 expense (income), which are not directly related to restaurant-
level 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 42,
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
from continuing operations, 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 from continuing operations and EBITDA and Adjusted
EBITDA and between Restaurant-Level EBITDA and loss from operations see page 42.

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

• EBITDA, Adjusted EBITDA and 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 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 Restaurant-
Level EBITDA do not reflect the cash required to fund such replacements; and

• EBITDA, Adjusted EBITDA and Restaurant-Level EBITDA 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) 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 Burger King restaurants and the amortization of franchise fees paid to BKC.

•

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. At December 28, 2014, there are $1.7 million of
lease charges accrued for closed locations.

Interest expense consists primarily of interest expense associated with our 11.25% Senior Secured Second
Lien Notes due 2018 (the "Notes"), amortization of deferred financing costs and borrowings under our senior
credit facility.

Recent and Future Events Affecting our Results of Operations

Acquisitions of Burger King Restaurants

2014 Acquisitions

In the second quarter of 2014 we exercised our ROFR 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 fee-owned properties acquired were sold in sale-
leaseback transactions during the fourth quarter of 2014. 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 proforma operating results:

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

December 28, 2014
793,521
(798)
43,200

Year Ended

Remodeling Commitment with BKC

On January 26, 2015, we and BKC entered into the First Amendment to Operating Agreement (the "Amendment"),
which amended the operating agreement entered into between us and BKC in connection with our acquisition of 278
Burger King restaurants from BKC in 2012. The Amendment requires that we will have remodeled to BKC's current
20/20 image a cumulative total of 329 Burger King restaurants by June 30, 2015, 410 restaurants by December 31,
2015 and 455 Burger King restaurants by December 31, 2016. In addition, we have agreed to remodel 46 restaurants
acquired in 2014 over the next five years beginning in 2014. As of December 28, 2014 we had remodeled a total of
302 restaurants to the 20/20 restaurant image.

In 2015, we anticipate that total capital expenditures will range from $37 million to $44 million, although the
actual amount of capital expenditures may differ from these estimates. Capital expenditures in 2015 are expected to
include approximately $25 million to $30 million for remodeling a total of 60 to 70 restaurants to the BKC 20/20
image standard at an approximate average cost of $400,000 per restaurant. An increase in the number of restaurants
to be remodeled may be considered if we complete a potential refinancing of our debt in 2015, but there can be no
assurance in this regard. We will review our remodel plans in relation to our available capital resources and alternate
investment opportunities.

Public Equity Offering

On April 30, 2014, we completed an underwritten public offering of 10.0 million shares of common stock at a
price of $6.20 per share (the "Public Offering"). We also issued and sold an additional 1.5 million shares of common
stock pursuant to the underwriters' exercise of their option to purchase additional shares at the same terms and conditions
as offered in the Public Offering, for a total share issuance of 11.5 million shares. All shares were issued and sold by
us and our net proceeds were approximately $67.3 million after deducting underwriting discounts and commissions
and offering expenses.

We used the net proceeds of the Public Offering to accelerate the remodeling of our restaurants to BKC's 20/20
restaurant image and acquire additional Burger King restaurants. A shelf registration statement (including a prospectus)
relating to these securities was filed by us with the Securities and Exchange Commission (“SEC”) and was declared
effective by the SEC on April 9, 2014.

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 thirteen restaurants, excluding one restaurant relocated within its market area. We may incur
lease charges in the future from closures of underperforming restaurants prior to the expiration of their contractual
lease term.

We currently anticipate closing approximately 15 to 20 restaurants in 2015, excluding any restaurants relocated
within their market area, which includes six restaurants closed in the beginning of fiscal 2015 on December 31, 2014.
Our determination of whether to close restaurants in the future is subject to further evaluation and may change.

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.

Valuation of Deferred Income Tax Assets

We performed an assessment of positive and negative evidence regarding the realization of our deferred income
tax assets at December 28, 2014 as required by ASC 740. Under ASC 740, the weight given to negative and positive
evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 also prescribes
that objective historical evidence, in particular our three-year cumulative loss position at December 28, 2014, be given
greater weight than subjective evidence, including our forecast of future taxable income, which includes assumptions
that cannot be objectively verified. We considered all available positive and negative evidence and determined, based
on the required weight of that evidence under ASC 740, that a valuation allowance was needed for all of our net deferred
income tax assets at December 28, 2014. As a result, we recorded income tax expense of $24.3 million in the fourth
quarter of 2014 relative to this valuation reserve.

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 was 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 December 28, 2014, we had federal net operating loss carryforwards of approximately $31.7 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.

Spin-off of Fiesta Restaurant Group, Inc.

On April 16, 2012, our board of directors approved the spin-off of Fiesta, which through its subsidiaries, owned,
operated and franchised the Pollo Tropical and Taco Cabana restaurant brands. In connection with the spin-off, on
April 24, 2012, we and Carrols entered into several agreements that govern our post spin-off relationship with Fiesta,
including a Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement and TSA.

The historical operating results of Fiesta are included in our operating results for 2012 as discontinued operations.

Amounts earned by Carrols under the TSA were $3.4 million and $3.8 million for the years ended December 29,
2013 and December 30, 2012, respectively. As of December 29, 2013, Fiesta had terminated all of the services provided
by us under the TSA.

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.

Operating Results from Continuing Operations

The following table sets forth, for the years ended December 28, 2014, December 29, 2013, and December 30,

2012 selected operating results as a percentage of total restaurant sales:

Costs and expenses (all restaurants):

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses. . . . . . . . . . . . . . .
Restaurant rent expense. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . .

Fiscal 2014 compared to Fiscal 2013

December 28,
2014

Year Ended
December 29,
2013

December 30,
2012

30.3%
31.7%
7.1%
16.4%
4.0%
5.8%

30.4%
31.4%
7.1%
16.1%
4.5%
5.6%

32.0%
31.5%
7.0%
16.5%
4.1%
6.7%

In 2014, we acquired 123 restaurants from other franchisees and opened one new restaurant which was relocated

within its market area and closed thirteen restaurants, excluding the relocated restaurant.

Restaurant Sales. Total restaurant sales in 2014 increased 4.4% to $692.8 million from $663.5 million in 2013.
Comparable restaurant sales increased 0.6% due to an increase in average check of 4.5%, which was partially offset
by a decrease in customer traffic of 3.9%. The effect of menu price increases in 2014 was approximately 2.1%.
Comparable restaurant sales increased 0.7% at our legacy restaurants and increased 0.5% at our 2012 acquired
restaurants. Sales from the restaurants we acquired in 2014 were $34.0 million in 2014.

Operating Costs and Expenses (percentages stated as a percentage of total restaurant sales unless otherwise
noted). Cost of sales decreased to 30.3% in 2014 from 30.4% in 2013 due primarily to the effect of menu price increases
(0.7%), improvement in restaurant-level food and cash controls at our 2012 acquired restaurants (0.5%), and higher
vendor rebates, substantially offset by higher beef commodity costs (1.4%). Cost of sales, as a percentage of restaurant
sales for our 2012 acquired restaurants, decreased to 30.5% in 2014 from 31.4% in 2013 in spite of a 22% increase in
beef commodity costs.

Restaurant wages and related expenses increased to 31.7% in 2014 from 31.4% in 2013 due primarily to labor
rate increases on relatively flat comparable restaurant sales and, to a lesser extent, higher restaurant wages, as a
percentage of restaurant sales, at the 2014 acquired restaurants.

Restaurant rent expense was 7.1% in 2014 and 2013 due primarily to relatively flat restaurant sales.

Other restaurant operating expenses increased to 16.4% in 2014 from 16.1% in 2013 due primarily to higher

general liability insurance claims (0.2%) and higher utility costs (0.1%).

Advertising expense decreased to 4.0% in 2014 from 4.5% in 2013 due primarily to reduced spending for additional

local advertising in certain markets.

Restaurant-Level EBITDA. As a result of the factors above and the acquisition of 123 restaurants in 2014,
Restaurant-Level EBITDA increased to $73.0 million in 2014 compared to $70.2 million in 2013. For a reconciliation
between Restaurant-Level EBITDA and loss from operations see page 42.

Year ended

December 28, 2014 % (1)

December 29, 2013 % (1)

(in thousands of dollars)

Restaurant Sales:

Legacy restaurants
2012 acquired restaurants
2014 acquired restaurants

Total

Restaurant-Level EBITDA and Margin:

Legacy restaurants
2012 acquired restaurants
2014 acquired restaurants

Total

367,828
290,945
33,982
692,755

368,081
295,402
—
663,483

48,701
22,022
2,238
72,961

13.2% $
7.6%
6.6%
10.5% $

52,894
17,332
—
70,226

14.4%
5.9%
—%
10.6%

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

Restaurant-Level EBITDA margin decreased 1.2% at our legacy restaurants due primarily to higher beef costs
and higher labor rates and unemployment taxes. Restaurant-level EBITDA margin increased 1.7% at our 2012 acquired
restaurants due primarily to improvements in food and cash controls noted above and the closure of fourteen lower-
volume restaurants since the beginning of 2013, partially offset by higher beef costs.

General and Administrative Expenses. General and administrative expenses increased $2.8 million in 2014 to
$40.0 million and, as a percentage of total restaurant sales, increased to 5.8% in 2014 from 5.6% in 2013. The increase
in general and administrative expenses was due primarily to $1.9 million of acquisition and integration costs related
to the 2014 acquisitions, higher district manager salaries and related training and travel costs of $1.0 million primarily
related to the acquisition of 123 restaurants in 2014, offset by lower administrative bonuses of $2.7 million. General
and administrative expenses in 2014 also were higher than 2013 due to amounts earned under the TSA of $3.4 million
in 2013 for transitional services to Fiesta which ended in the fourth quarter of 2013.

Adjusted EBITDA. As a result of the factors above Adjusted EBITDA was $36.0 million in 2014 compared to
$34.3 million in 2013. For a reconciliation between net loss from continuing operations and EBITDA and Adjusted
EBITDA see page 42.

Depreciation and Amortization. Depreciation and amortization expense increased to $36.9 million in 2014 from
$33.6 million in 2013 due primarily our restaurant remodeling initiatives in 2014 and 2013 and our restaurant
acquisitions in 2014.

Impairment and Other Lease Charges. Impairment and other lease charges were $3.5 million in 2014 and were
comprised of $1.0 million of estimated future rent payments and other lease related charges due to the closure
of underperforming restaurants, $1.4 million of initial impairment charges associated with nine underperforming
restaurants and $1.1 million of impairment charges associated with capital expenditures at previously impaired
restaurants.

Interest Expense. Interest expense was $18.8 million in both 2014 and 2013. The weighted average interest rate

on our long-term debt, excluding lease financing obligations, was 11.2% in 2014 compared to 11.3% in 2013.

Provision (Benefit) for Income Taxes. Although we had a pretax loss, we recorded income tax expense of $11.8
million due to the establishment of a valuation allowance on our net deferred tax assets of $24.3 million, as discussed
above.

Net Loss from Continuing Operations. As a result of the foregoing, net loss from continuing operations was $38.1
million in 2014, or $1.23 per diluted share, compared to a net loss from continuing operations of $13.5 million in 2013,
or $0.59 per diluted share.

Fiscal 2013 Compared to Fiscal 2012

In 2013, we opened two new restaurants, including one restaurant relocated within its market area, and acquired

one restaurant. During the same period we closed ten restaurants, excluding the relocated restaurant.

Restaurant Sales. Restaurant sales in 2013 increased 23.0% to $663.5 million from $539.6 million in 2012, due
to the inclusion of a full year of sales at the 2012 acquired restaurants and an increase in comparable restaurant sales
of 1.0%, partially offset by the net reduction of twelve restaurants from closures since the beginning of 2012. The 2012
acquired restaurants are included in comparable restaurant sales beginning in June 2013. The increase in comparable
restaurant sales was due to an increase in average check of 2.0%, primarily from menu price increases of 1.9%, offset
by a decline in customer traffic.

Operating Costs and Expenses (percentages stated as a percentage of restaurant sales for the restaurants being
discussed). Cost of sales for all restaurants decreased to 30.4% in 2013 from 32.0% in 2012. Cost of sales at our legacy
restaurants decreased to 29.6% in 2013 from 30.6% in 2012 due primarily to a favorable sales mix compared to 2012,
reduced shrinkage from increased food and cash controls and the effect of menu price increases partially offset by
higher promotional sales discounts. Cost of sales for our 2012 acquired restaurants decreased to 31.4% in 2013 from
34.9% in 2012 due primarily to reduced shrinkage from improved food and cash controls (1.6%) and other factors
similar to the above for our legacy restaurants partially offset by higher promotional sales discounts.

Restaurant wages and related expenses for all restaurants decreased to 31.4% in 2013 from 31.5% in 2012.
Restaurant wages and related expenses for our legacy restaurants were 30.6% in both 2013 and 2012 as increased
productive labor efficiencies were offset by higher worker’s compensation claims. Restaurant wages and related
expenses for our 2012 acquired restaurants decreased to 32.4% in 2013 from 33.3% in 2012 due to the implementation
of labor scheduling processes in these restaurants in the last half of 2012 (1.3%) and the effect of menu price increases
on fixed labor costs, partially offset by higher worker’s compensation claims.

Other restaurant operating expenses for all restaurants decreased to 16.1% in 2013 from 16.5% in 2012 due
primarily to lower security costs at the 2012 acquired restaurants (0.2%) and lower utility costs (0.1%). Other restaurant
operating expenses at the 2012 acquired restaurants decreased to 17.4% in 2013 from 19.5% in 2012 due to to lower
security costs (0.6%), lower repairs and maintenance expenses (0.7%), lower utility costs (0.4%), reduced cash shortages
and lower operating supply costs.

Advertising expense for all restaurants increased to 4.5% in 2013 from 4.1% in 2012 due primarily to higher
spending for additional local advertising in a number of markets in connection with the 2012 acquisition. Advertising
expense as a percentage of sales is lower at our legacy restaurants compared to our 2012 acquired restaurants due to
advertising credits received from BKC that are associated with 2012 menu enhancement initiatives and our installation
of digital menu boards at our legacy restaurants. These expenditures at the 2012 acquired restaurants were made prior
to the 2012 acquisition.

Restaurant rent expense for all restaurants increased to 7.1% in 2013 from 7.0% in 2012 due primarily to higher
rent, as a percentage of restaurant sales, associated with the 2012 acquired restaurants. Rent expense at the 2012
acquired restaurants was 8.2% in 2013 and 8.5% in 2012 in part reflecting the lower sales volumes at the 2012 acquired
restaurants. Rent expense for our legacy restaurants decreased to 6.2% in 2013 from 6.3% in 2012 due to the effect of
higher sales volumes on fixed rental costs.

Restaurant-Level EBITDA. As a result of the factors above, Restaurant-Level EBITDA was $70.2 million in
2013 compared to $52.4 million in 2012. For a reconciliation between Restaurant-Level EBITDA and loss from
operations see page 42.

General and Administrative Expenses. General and administrative expenses increased $1.1 million in 2013 to
$37.2 million and, as a percentage of total restaurant sales, decreased to 5.6% in 2013 from 6.7% in 2012. The increase
in general and administrative expenses was due primarily to the full year effect of costs for the additional ongoing
operational oversight, and, to a much lesser extent, additional corporate support associated with the 2012 acquired
restaurants and higher performance-based administrative bonus accruals of $1.0 million in 2013. The increases in 2013

were partially offset as 2012 included $5.3 million in legal and settlement costs related to the conclusion and settlement
of our litigation with the EEOC and $1.2 million of legal and other costs related to the 2012 acquisition.

Adjusted EBITDA. As a result of the factors above Adjusted EBITDA was $34.3 million in 2013 compared to
$25.0 million in 2012. Adjusted EBITDA in 2012 excludes a total of $6.0 million of acquisition and integration costs
and legal and other transaction costs related to the 2012 acquisition, $5.3 million of costs incurred in connection with
our litigation with the EEOC which was settled in the first quarter of 2013 and a $1.5 million loss on extinguishment
of debt related to our refinancing in the second quarter of 2012. For a reconciliation between net loss from continuing
operations and EBITDA and Adjusted EBITDA see page 42.

Depreciation and Amortization. Depreciation and amortization expense increased to $33.6 million in 2013 from
$26.3 million in 2012 due primarily to the addition of the 2012 acquired restaurants in May of 2012 and our restaurant
remodeling initiatives in 2013 and 2012.

Impairment and Other Lease Charges. Impairment and other lease charges were $4.5 million in 2013 and were
comprised of $1.6 million of estimated future rent payments and other lease related charges due to the closure of four
underperforming restaurants, $1.9 million of initial impairment charges associated with underperforming restaurants
and $0.9 million of impairment charges associated with capital expenditures at previously impaired restaurants.

Interest Expense. Interest expense increased $6.1 million to $18.8 million in 2013 due to the impact of our
refinancing and issuance of the Notes in May of 2012 associated with the 2012 acquisition. The weighted average
interest rate on our long-term debt, excluding lease financing obligations, was 11.25% in 2013 compared to 9.6% in
2012 due to the issuance of the Notes in 2012.

Benefit for Income Taxes. The benefit for income taxes for 2013 was at an effective annual income tax rate of
43.5%. In 2013, we recorded a valuation allowance of $0.6 million against deferred tax assets associated with certain
state net operating loss carryforwards which reduced the benefit for income taxes. Legislation which reinstated the
Work Opportunity Tax Credit ("WOTC") for 2012 was passed after the end of our 2012 fiscal year. As a result, we
recognized the benefit of the 2012 WOTC tax credits in 2013. The benefit for income taxes for 2012 was at an effective
annual income tax rate of 34.9%. In 2012, we recorded a valuation allowance of $2.1 million against deferred tax
assets associated with certain state net operating loss carryforwards which reduced the benefit for income taxes.

Net Loss from Continuing Operations. As a result of the foregoing, net loss from continuing operations was $13.5
million in 2013, or $0.59 per diluted share, compared to a net loss from continuing operations of $18.8 million in 2012,
or $0.83 per diluted share. Net loss from continuing operations in 2012 included charges of $12.9 million, or $0.35
per diluted share after tax, related to acquisition and integration-related costs, the conclusion and settlement of the
EEOC litigation and a loss on our 2012 refinancing.

Reconciliations of EBITDA and Adjusted EBITDA to net loss from continuing operations and Restaurant-Level
EBITDA to loss from operations for the years ended December 28, 2014, December 29, 2013, and December 30, 2012
are as follows (in thousands):

Year Ended
December 28, 2014 December 29, 2013 December 30, 2012

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

EBITDA

Impairment and other lease charges
Acquisition and integration costs (1)
EEOC litigation and settlement costs
Stock compensation expense
Loss on extinguishment of debt

Adjusted EBITDA

Reconciliation of Restaurant-Level EBITDA:
Restaurant-Level EBITDA
Less:

Restaurant-level integration costs (1)
General and administrative expenses
Depreciation and amortization
Impairment and other lease charges
Other expense (income)

Loss from operations

(38,117) $
11,765
18,801
36,923
29,372
3,541
1,915
—
1,180
—
36,008 $

(13,519) $
(10,397)
18,841
33,594
28,519
4,462
—
85
1,205
—
34,271 $

(18,816)
(10,093)
12,764
26,321
10,176
977
6,042
5,343
925
1,509
24,972

72,961 $

70,226 $

52,415

—
40,001
36,923
3,541
47
(7,551) $

—
37,228
33,594
4,462
17
(5,075) $

4,385
36,085
26,321
977
(717)
(14,636)

(1) Acquisition and integration costs in 2014 and 2012 included legal and professional fees incurred in connection with the 2014
and 2012 acquisitions of $1.9 million and $1.7 million, respectively, and in 2012, $1.8 million of restaurant wages and related
expenses and $2.6 million in other restaurant operating expenses.

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:

•

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.

On April 30, 2014, we completed a Public Offering of 10.0 million shares of our common stock at a price of
$6.20 per share. We also issued an additional 1.5 million shares of our common stock pursuant to the underwriters’
exercise of their option to purchase additional shares at the same terms and conditions as offered in the Public Offering,
for a total share issuance of 11.5 million shares. All shares were issued and sold by us and the net proceeds were
approximately $67.3 million in the aggregate after deducting underwriting discounts and commissions and offering
expenses.

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. We believe cash generated from our operations and availability of
revolving credit borrowings under our senior credit facility 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 from continuing operations for the years ended
December 28, 2014, December 29, 2013 and December 30, 2012 was $14.7 million, $21.6 million and $18.2 million,
respectively. Net cash provided by operating activities in 2014 decreased by $6.9 million compared to 2013 due
primarily to payments of $6.3 million related to the TSA received from Fiesta in 2013 and $1.7 million of net income
tax refunds received in 2013.

Net cash provided from operating activities in 2013 increased $3.4 million compared to 2012 due primarily to
an increase in net loss from continuing operations, excluding depreciation and amortization and impairment and other
lease charges of $16.1 million and a smaller increase in deferred income taxes of $3.1 million partially offset by a
reduction of cash from changes in the components of net working capital of $15.3 million.

Investing activities. Net cash used for investing activities from continuing operations for the years ended
December 28, 2014, December 29, 2013 and December 30, 2012 was $68.0 million, $50.5 million and $65.9 million,
respectively.

In 2014 we acquired 123 Burger King® restaurants from other franchisees in five separate acquisitions for an

aggregate cash purchase price of $52.2 million as discussed above.

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 and expenditures to support BKC’s ongoing menu enhancement initiatives; and (4) corporate and
restaurant information systems, including expenditures for point-of-sale software for restaurants that we acquire.

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

Year Ended December 28, 2014:
New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures
Number of new restaurant openings (1)

Year Ended December 29, 2013:
New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures
Number of new restaurant openings (1)

Year Ended December 30, 2012:
New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems
Total capital expenditures
Number of new restaurant openings

_____________

(1) Includes one restaurant which was relocated under a new franchise agreement in the same market area.

1,696
38,197
6,720
5,397
52,010
1

3,166
37,450
7,203
2,667
50,486
2

—
21,342
6,247
10,053
37,642
—

Investing activities also included sale-leaseback transactions related to our restaurant properties, the net proceeds
from which were $19.6 million in 2014, which included the sale-leaseback of ten of the fee-owned properties acquired
in the 2014 acquisitions, $3.1 million in 2013 and $1.2 million in 2012. We also had expenditures related to the purchase
of restaurant properties to be sold in future sale-leaseback transactions of $3.4 million in 2014 and $3.1 million in
2013. In 2012 we also sold one non-operating restaurant property for net proceeds of $2.1 million. The net proceeds
from these sales were used to fund our remodeling initiatives and other cash requirements or to reduce outstanding
borrowings under our senior credit facility.

Investing activities in 2014 also included the release of $20.0 million of restricted cash held as collateral for our
obligations under our senior credit facility that was established in 2012. Investing activities in 2012 also included $12.1
million of payments related to the cash purchase price of the 2012 acquired restaurants.

Financing activities. Net cash provided from financing activities for the year ended December 28, 2014 was
$66.2 million, due primarily from a Public Offering of our common stock completed in the second quarter which
generated net cash proceeds of $67.3 million, net of related expenses.

Net cash used for financing activities for the year ended December 29, 2013 was $1.1 million primarily related

to principal payments on capital leases.

Net cash provided by financing activities from continuing operations in 2012 was $69.3 million and included
proceeds from the sale of the Notes, net of related fees and expenses, of $144.1 million. Total payments on the prior
Carrols LLC senior credit facility including amounts paid in connection with the issuance of the Notes totaled $67.4
million in 2012. Proceeds from stock option exercises and related income tax benefits, including tax benefits from the
conversion of vested stock options to shares of our common stock, in connection with the spin-off, were $1.2 million
in 2012. Cash of Fiesta that was deconsolidated as a result of the spin-off included in our 2012 financing activities
was $5.5 million.

Senior Secured Second Lien Notes. On May 30, 2012, we issued $150.0 million of Notes pursuant to an indenture
governing such Notes. The Notes mature and are payable on May 15, 2018. Interest is payable semi-annually on May 15
and November 15. The Notes are guaranteed by our subsidiaries and are secured by second-priority liens on substantially
all of ours and our subsidiaries' assets (including a pledge of all of the capital stock and equity interests of our
subsidiaries).

The Notes are redeemable at our option in whole or in part at any time after May 15, 2015 at a price of 105.625%
of the principal amount plus accrued and unpaid interest, if any, if redeemed before May 15, 2016, 102.813% of the
principal amount plus accrued and unpaid interest, if any, if redeemed after May 15, 2016 but before May 15, 2017
and 100% of the principal amount plus accrued and unpaid interest, if any, if redeemed after May 15, 2017. Prior to
May 15, 2015, we may redeem some or all of the Notes at a redemption price of 100% of the principal amount of each
Note plus accrued and unpaid interest, if any, and a make-whole premium. In addition, the indenture governing the
Notes also provides that we may redeem up to 35% of the Notes using the proceeds of certain equity offerings completed
before May 15, 2015.

The Notes are jointly and severally guaranteed, unconditionally and in full by our subsidiaries which are directly
or indirectly 100% owned by us. There are no significant restrictions on our ability or any of the guarantor subsidiaries
to obtain funds from its respective subsidiaries. All consolidated amounts in our consolidated financial statements are
representative of the combined guarantors.

The indenture governing the Notes includes certain covenants, including limitations and restrictions on our and
our subsidiaries who are guarantors under the 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 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 Notes then
outstanding.

The indenture governing the Notes contains customary default provisions, including without limitation, a cross
default provision pursuant to which it is an event of default under the Notes and the indenture governing the Notes if

there is a default under any of our indebtedness having an outstanding principal amount of $15.0 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. We were in compliance as of December 28, 2014 with the restrictive covenants of the indenture governing
the Notes.

Senior Credit Facility. On May 30, 2012, we entered into a senior credit facility, which provides for aggregate
revolving credit borrowings of up to $20.0 million (including $15.0 million available for letters of credit) maturing on
May 30, 2017. The senior credit facility also provides for incremental borrowing increases of up to $25.0 million, in
the aggregate. At December 28, 2014, there were no outstanding borrowings under the senior credit facility.

On December 19, 2014 we entered into an amendment to the senior credit facility to provide for the release of
$20.0 million of cash collateral, originally deposited on May 30, 2012 in an account with the Administrative Agent,
and revised certain financial ratios, including the Fixed Charge Coverage Ratio and Adjusted Leverage Ratio (all as
defined under the senior credit facility, as amended). Additionally, the amendment requires us to have no outstanding
borrowings for a consecutive 30-day period during each trailing twelve month period. The deposit of cash collateral
was classified as restricted cash on our consolidated balance sheet at December 29, 2013.

Effective December 19, 2014, borrowings under the senior credit facility bear interest at a rate per annum, at our

option, of

(i) the Alternate Base Rate plus the applicable margin of 2.50% to 3.25% based on our Adjusted Leverage Ratio,

(ii) the LIBOR Rate plus the applicable margin of 3.50% to 4.25% based on our Adjusted Leverage Ratio.

At December 28, 2014 our LIBOR rate margin was 4.25% based on our Adjusted Leverage Ratio at that date.

Prior to the amendment of the senior credit facility, revolving credit borrowings under the senior credit facility

bore interest at a rate per annum, at our option, of:

(i) the Alternate Base Rate plus the applicable margin of 0.75% or

(ii) the LIBOR Rate plus the applicable margin of 1.75%.

Our obligations under the senior credit facility 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 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 requires us to meet certain
financial ratios, including the Fixed Charge Coverage Ratio and the Adjusted Leverage Ratio (both as defined under
the senior credit facility, as amended). We were in compliance with the covenants under the senior credit facility at
December 28, 2014.

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.

After reserving $12.0 million for letters of credit issued under the senior credit facility at January 1, 2015, which
included amounts for anticipated claims from our 2015 renewals of workers’ compensation and other insurance policies,
$8.0 million was available for borrowing under the senior credit facility at January 1, 2015.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of December 28, 2014 (in

thousands):

Contractual Obligations
Long-term debt obligations, including interest (1)
Capital lease obligations, including interest (2)
Operating lease obligations (3)
Lease financing obligations, including interest (4)

Total contractual obligations

Payments due by period
1 – 3
Years

3 – 5
Years

Less than
1 Year

Total

More than
5 Years

$ 209,063 $ 16,875 $ 33,750 $ 158,438 $

10,573
641,490
2,087

3,624
102,352
209
$ 863,213 $ 72,657 $139,935 $ 256,322 $ 394,299

3,637
94,033
214

1,812
53,867
103

—
1,500
391,238
1,561

(1) Our long term debt at December 28, 2014 included $150.0 million of Notes. Total interest payments on our Notes of $59.1

million for all years presented are included at the coupon rate of 11.25%.

(2) Includes total interest of $1.9 million for all years presented.
(3) Represents the aggregate minimum lease payments under operating leases. Many of our leases also require contingent rent
based on a percentage of sales in addition to the minimum base rent and require expenses incidental to the use of the
property all of which have been excluded from this table.
(4) Includes total interest of $0.9 million for all years presented.

We have not included obligations under our postretirement medical benefit plans in the contractual obligations
table as our postretirement plan is not required to be funded in advance, but is funded as retiree medical claims are
paid. Also excluded from the contractual obligations table are payments we may make for workers' compensation,
general liability and employee healthcare claims for which we pay all claims, subject to annual stop-loss limitations
both for individual claims and claims in the aggregate. The majority of our recorded liabilities related to self-insured
employee health and insurance plans represent estimated reserves for incurred claims that have yet to be filed or settled.

Future restaurant remodeling obligations to BKC have also been excluded from the table above as well as

contractual obligations related to royalties and advertising payable to BKC.

Long-Term Debt Obligations. Refer to Note 9 of our consolidated financial statements for details of our long-

term debt.

Lease Guarantees. As of December 28, 2014, we are a guarantor under 32 Fiesta restaurant property leases, with
lease terms expiring on various dates through 2030, and we are the primary lessee on five Fiesta restaurant property
leases, which we sublease to Fiesta. We are fully liable for all obligations under the terms of the leases in the event
that Fiesta fails to pay any sums due under the lease, subject to indemnification provisions of the separation and
distribution agreement entered into in connection with the spin-off.

The maximum potential liability for future rental payments we could be required to make under these leases at
December 28, 2014 was $37.8 million. The obligations under these leases will generally continue to decrease over
time as these operating leases expire. No payments have been made to date and none are expected to be required to
be made in the future. We have not recorded a liability for those guarantees in accordance with ASC 460 - Guarantees
as Fiesta has indemnified us for all such obligations and we did not believe it was probable we would be required to
perform under any of the guarantees or direct obligations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements 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 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 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 our consolidated financial statements.
Critical accounting estimates are those that require application of management’s most difficult, subjective or complex
judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods.

Sales recognition at our restaurants is straightforward as customers pay for products at the time of sale and
inventory turns over very quickly. Payments to vendors for products sold in the restaurants are generally settled within
30 days. The earnings reporting process is covered by our system of internal controls and generally does not require
significant management estimates and judgments. However, critical accounting estimates and judgments, as noted
below, are inherent in the assessment and recording of the fair market values of acquired restaurant assets and liabilities,
insurance liabilities, the valuation of deferred income tax assets, the valuation of goodwill and intangible assets for
impairment, assessing impairment of long-lived assets, accrued occupancy costs and lease accounting matters. While
we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could
vary from these assumptions. It is possible that materially different amounts would be reported using different
assumptions.

Acquisition Accounting. We account for business combinations under the acquisition method of accounting in
accordance with ASC 805, "Business Combinations" ("ASC 805"). As required by ASC 805, assets acquired and
liabilities assumed in a business combination are recorded at their respective fair values as of the business combination
date. The most difficult estimations of individual fair values are those involving long-lived assets, such as property,
equipment, favorable and unfavorable leases and intangible assets. We use available information to make these fair
value determinations and, when necessary, engage an independent valuation specialist to assist in the fair value
determination of favorable or unfavorable leases and intangible assets.

Insurance liabilities. The amount of liability we record for claims related to insurance requires us to make
judgments about the amount of expenses that will ultimately be incurred. We are insured for certain losses related to
workers’ compensation, general liability and medical insurance claims under policies where we pay all claims, subject
to annual stop-loss insurance limitations both for individual claims and claims in the aggregate. We record insurance
liabilities based on historical trends, which are continually monitored, and adjust accruals as warranted by changing
circumstances. Since there are estimates and assumptions inherent in recording these insurance liabilities, including
the ability to estimate the future development of incurred claims based on historical claims experience and loss reserves,
current claim data, and the severity of the claims, differences between actual future events and prior estimates and
assumptions could result in adjustments to these liabilities. As of December 28, 2014, we had $8.2 million accrued for
these insurance claims.

Evaluation of Goodwill. We must evaluate our recorded goodwill for impairment on an ongoing basis. We have
elected to conduct our annual impairment review of goodwill at our fiscal year end and we have determined that we
currently have one reporting unit at our most recent measurement date. We may first assess the qualitative factors to
determine whether it is necessary to perform the quantitative goodwill impairment test. In reviewing goodwill for
impairment, we compare the net book value of the reporting unit to its estimated fair value. In determining the estimated
fair value of the reporting unit, we employ a combination of a discounted cash flow analysis and a market-based
approach. Assumptions include our anticipated growth rates and the weighted average cost of capital. The results of
these analyses are corroborated with other value indicators where available, such as comparable company earnings
multiples. This annual evaluation of goodwill requires us to make estimates and assumptions to determine the fair
value of our reporting units including projections regarding future operating results and market values. Our impairment
test at December 28, 2014 indicated the estimated fair value of our reporting unit exceeded the carrying value by
approximately $184 million. This estimate may differ from actual future events and if this estimate or related projections
change in the future, we may be required to record impairment charges for this asset.

Impairment of Long-lived Assets. We assess the potential impairment of long-lived assets, principally property
and equipment, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the
related long-lived assets to their respective carrying values. In determining future cash flows, significant estimates are
made by us with respect to future operating results of each restaurant over its remaining lease term, including sales
trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the
impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value.
This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell the
related assets and market conditions, which are subject to a high degree of judgment. If these assumptions change in
the future, we may be required to record impairment charges for these assets.

Impairment of Burger King Franchise Rights. We assess the potential impairment of Burger King franchise rights
associated with our Burger King restaurant acquisitions on an ongoing basis and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. We determine if there is impairment by comparing
the aggregate undiscounted future cash flows from those acquired restaurants with the respective carrying value of the
aggregate franchise rights for each Burger King acquisition. In determining future cash flows, significant estimates
are made by us with respect to future operating results of the acquired restaurants including sales trends, labor rates,
commodity costs and other operating cost assumptions over their remaining franchise life. If acquired franchise rights
are determined to be impaired, the impairment charge is measured by calculating the amount by which the franchise
rights carrying amount exceeds its fair value. This process requires the use of estimates and assumptions, which are
subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment
charges for these assets. We did not record any Burger King franchise rights impairment charges during the years ended
December 28, 2014, December 29, 2013 or December 30, 2012.

Accrued occupancy costs. We make estimates of accrued occupancy costs pertaining to closed restaurant locations
on an ongoing basis. Changes in accrued occupancy costs pertaining to closed restaurant locations will be included in
Impairment and Other Lease Charges in our statements of comprehensive income (loss). These estimates require
assessment and continuous evaluation of a number of factors such as the remaining contractual period under our lease
obligations, the amount of sublease income we are able to realize on a particular property and estimates of other costs
such as property taxes. Differences between actual future events and prior estimates could result in adjustments to
these accrued costs.

Lease Accounting. Judgments made by management for our lease obligations include the length of the lease term,
which includes the determination of renewal options that are reasonably assured. The lease term can affect the
classification of a lease as capital or operating for accounting purposes, the term over which related leasehold
improvements for each restaurant are amortized, and any rent holidays and/or changes in rental amounts for recognizing
rent expense over the term of the lease. These judgments may produce materially different amounts of depreciation,
amortization and rent expense than would be reported if different assumed lease terms were used.

We also must evaluate sales of our restaurants which occur in sale-leaseback transactions to determine the proper
accounting for the proceeds of such sales either as a sale or a financing. This evaluation requires certain judgments in
determining whether clauses in the lease or any related agreements constitute continuing involvement. For those sale-
leasebacks that are accounted for as financing transactions, we must estimate our incremental borrowing rate, or another
rate in cases where the incremental borrowing rate is not appropriate to utilize, for purposes of determining interest
expense and the resulting amortization of the lease financing obligation. Changes in the determination of the incremental
borrowing rates or other rates utilized in connection with the accounting for lease financing transactions could have a
significant effect on the interest expense and underlying balance of the lease financing obligations.

Income Taxes. We performed an assessment of positive and negative evidence regarding the realization of our
deferred income tax assets at December 28, 2014 as required by ASC 740. Judgment is used in considering the relative
impact of negative and positive evidence. Under ASC 740, the weight given to negative and positive evidence is
commensurate only to the extent that such evidence can be objectively verified. ASC 740 also prescribes that objective
historical evidence, in particular our three-year cumulative loss position at December 28, 2014, be given greater weight
than subjective evidence, including our forecast of future taxable income, which include assumptions that cannot be
objectively verified. We considered all available positive and negative evidence and determined, based on the required
weight of that evidence under ASC 740, that a valuation allowance was needed for all of our net deferred income tax

assets at December 28, 2014. As a result, we recorded income tax expense of $24.3 million in the fourth quarter of
2014 relative to this valuation reserve.

We will continue to monitor and evaluate the positive and negative evidence considered in arriving at the above

conclusion, in order to assess whether such conclusion remains appropriate in future periods.

We must also make estimates of certain items that relate to current and deferred tax liabilities. These estimates
include employer tax credits for items such as the Work Opportunity Tax Credit, as well as estimates of tax depreciation
based on methods anticipated to be used on our tax returns. These estimates are made based on the best available
information at the time of the estimate and historical experience.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risk associated with fluctuations in interest rates, primarily limited to the senior credit
facility. At December 28, 2014, there were no outstanding revolving credit borrowings under the senior credit facility.
A 1% change in interest rates would have resulted in a nominal change to interest expense for the year ended
December 28, 2014.

The Company entered into an amendment to the senior credit facility to provide for the release of cash collateral
previously deposited in an account with the Administrative Agent on December 19, 2014 and revised certain financial
ratios, including the Fixed Charge Coverage Ratio and Adjusted Leverage Ratio (all as defined under the the senior
credit facility, as amended).

Effective December 19, 2014, borrowings under the senior credit facility bear interest at a rate per annum, at the

Company’s option, of

(i) the Alternate Base Rate plus the applicable margin of 2.50% to 3.25% based on the Company’s Adjusted

Leverage Ratio, or

(ii) the LIBOR Rate plus the applicable margin of 3.50% to 4.25% based on the Company’s Adjusted Leverage

Ratio.

At December 28, 2014 the Company's LIBOR rate margin was 4.25% based on the Company's Adjusted Leverage

Ratio at that date.

Commodity Price Risk

We are exposed to market price fluctuations in beef and other food product prices caused by weather, market
conditions and other factors which are not considered predictable or within our control. Given the historical volatility
of beef and other food product prices, this exposure can impact our food and beverage costs. Although many of the
products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements
have been negotiated in advance to minimize price volatility. Where possible, we use these types of purchasing
techniques to control costs as an alternative to using financial instruments to hedge commodity prices. In many cases,
we believe we will be able to address commodity cost increases that are significant and appear to be long-term in
nature by adjusting our menu pricing. However, long-term increases in commodity prices may result in lower restaurant-
level operating margins.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as
other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of December 28, 2014.

Changes in Internal Control over Financial Reporting. No changes occurred in our internal control over financial
reporting during the fourth quarter of 2014 that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

Our senior management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act), designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules and forms.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of December 28,
2014 based on the criteria set forth in a report entitled Internal Control-Integrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have
concluded that, as of December 28, 2014, our internal control over financial reporting was effective based on those
criteria.

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Carrols Restaurant Group, Inc.
Syracuse, NY

We have audited the internal control over financial reporting of Carrols Restaurant Group, Inc. and subsidiary (the
"Company") as of December 28, 2014, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 28, 2014, based on the criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and consolidated financial statement schedule as of and for
the year ended December 28, 2014 of the Company and our report dated March 4, 2015 expressed an unqualified
opinion on those consolidated financial statements and consolidated financial statement schedule.

/s/ Deloitte & Touche LLP

Rochester, NY
March 4, 2015

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE