Carrols Restaurant Group Annual Report 2022

FY2022 Annual Report · Carrols Restaurant Group

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Carrols Restaurant Group, Inc.

2022 Annual Report

April 27, 2023

Dear Fellow Stockholders,

I am pleased to report that in 2022 we made meaningful progress offsetting the challenging headwinds
brought on by commodity and labor inflation. We have focused on several key initiatives to drive
improved operating and financial results and help build long-term value for all our stakeholders. These
initiatives include raising the bar on operational excellence and guest satisfaction at our restaurants;
improving productivity and stemming turnover by motivating and engaging our restaurant team
members; and moving quickly to turn around our bottom performing restaurants using proven practices
that are already in place at a majority of our locations. While there is still work to be done to capture
what we believe are immense opportunities ahead of us, we are excited by the tangible benefits these
initiatives have had to date on sales growth and profitability.

For the year, we grew our restaurant sales by 4.7% to $1.73 billion, including comparable restaurant
sales growth of 3.9% and 4.9% at our Burger King® and Popeyes® restaurants, respectively. Moreover,
the profitability initiatives we implemented throughout the year along with returning to operational
disciplines we had in place prior to the COVID-19 pandemic have allowed us to sequentially improve
profitability each quarter despite the impact of persistent labor and commodity cost pressures. Our
efforts culminated in strong Adjusted Restaurant-Level EBITDA and Adjusted EBITDA1 improvements
during the fourth quarter of 2022, both on a dollar and margin basis.

In conjunction with our own profitability initiatives, we also benefited from growth drivers including pricing
and value menu innovation and Burger King’s Reclaim the Flame initiative. During 2022, Carrols was a
part of a group of franchisees working hand-in-hand with Burger King to help develop the Reclaim the
Flame initiative, a comprehensive plan to drive traffic and improve franchisee economics. In terms of
the benefits to Carrols, we believe there will be many. First, Burger King’s increased marketing spend
and menu innovation should serve to boost brand awareness, traffic and sales. Second, refocusing the
brand on customer and crew experience should have a positive impact on guest satisfaction, speed of
service and employee retention. Finally, we expect that a renewed focus on franchisee economics will
help ensure that Burger King franchisees and our franchisor are aligned on restaurant profitability goals.
We are encouraged by what we’ve seen thus far on the marketing side and are optimistic about the
impact it can have on our business. All in all, we believe the Reclaim the Flame initiative should enhance
the financial footing of franchisees and allow the Burger King brand to grow from a position of strength.

As we look into the new year, we are thrilled with what we believe it has in store for Carrols. First, we
are excited by the momentum we have seen through January and February and are optimistic about

1 Adjusted Restaurant-Level EBITDA and Adjusted EBITDA are non-GAAP financial measures. Please refer to the definition and reconciliation
of these measures to net income (loss) set forth in this Annual Report.

the positive impact Burger King’s Reclaim the Flame initiative can have on our traffic as we move
through the year. Second, we are expecting to see continued moderation of both commodity and labor
inflation over the course of the year relative to the elevated levels seen in 2022. Finally, we have a
number of initiatives underway on controllable operational levers that we expect will have a positive
impact on revenue growth, margins and efficiency. Our only wish is that Paulo Pena, our friend,
colleague and former leader, was here with us to see this. Paulo is deeply missed, but his strategic
vision for Carrols remains ingrained in all of us and will continue to shape how we run the business
going forward.

In closing, it has been a pleasure working closely with our talented management and restaurant
operations team for the first four months of 2023 as Interim President and CEO and I am proud of the
progress we have made together. I look forward to welcoming Deborah Derby as our new President
and CEO on May 1st and supporting her efforts to continue to build on the positive momentum we have
generated over the past 12 months.

Sincerely yours,

Anthony E. Hull
Interim President and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 January 1, 2023
OR

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

For the transition period from ___________ to ____________
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)

83-3804854
(I.R.S. Employer
Identification No.)

13203
(Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

TAST

The NASDAQ Global Market

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 ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and
"emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer

o
o

Accelerated filer
Smaller reporting company
Emerging growth company

☒
☒
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ý

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant

included in the filing reflect the correction of an error to previously issued financial statements. ¨

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based

compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨

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

As of March 1, 2023, Carrols Restaurant Group, Inc. had 56,314,947 shares of its common stock, $.01 par value, outstanding. The aggregate market

value of the voting and non-voting common stock held by non-affiliates as of July 3, 2022 of Carrols Restaurant Group, Inc. was $74,884,305.

Portions of the registrant's definitive Proxy Statement for Carrols Restaurant Group, Inc's 2023 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
January 1, 2023, are incorporated by reference into Part III of this annual report.

DOCUMENTS INCORPORATED BY REFERENCE

CARROLS RESTAURANT GROUP, INC.
FORM 10-K

YEAR ENDED JANUARY 1, 2023

PART I
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9
Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections . . . . . . . . . . . . . . . . . . . .
Item 9C

PART III
Item 10
Item 11
Item 12

Item 13
Item 14

PART IV
Item 15
Item 16

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 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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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 direct and indirect consolidated subsidiaries, as "we", "our", "us" and the
"Company" unless otherwise indicated or the context otherwise requires. Carrols Restaurant Group, Inc. is a holding
company and conducts all of its operations through its wholly-owned subsidiaries Carrols Corporation and New
CFH, LLC and their wholly-owned subsidiaries. Carrols Corporation's material direct and indirect wholly-owned
subsidiaries include its wholly-owned subsidiary, Carrols LLC, a Delaware limited liability company. New CFH
LLC's material direct and indirect wholly-owned subsidiaries include Frayser Quality, LLC and Nashville Quality,
LLC (and together with New CFH LLC's immaterial direct and indirect subsidiaries, collectively, "New CFH"). All
intercompany transactions have been eliminated in consolidation.

We use a 52 or 53 week fiscal year ending on the Sunday closest to December 31. Our fiscal years ended
December 31, 2017, December 30, 2018, December 29, 2019 and January 2, 2022 each contained 52 weeks. Our
fiscal year ended January 3, 2021 contained 53 weeks.

At January 1, 2023 we operated, as franchisee, 1,022 Burger King® restaurants in 23 Northeastern,

Midwestern, Southcentral and Southeastern states and 65 Popeyes® restaurants in seven Southeastern states.

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 The National Restaurant Association and the U.S.
Department of Agriculture. We operate our Burger King restaurants under franchise agreements with Burger King
Company LLC ("BKC") and our Popeyes restaurants under franchise agreements with Popeyes Louisiana Kitchen,
Inc. ("PLK"). Any reference to "BKC" in this Annual Report on Form 10-K refers to Burger King Company LLC
(previously Burger King Corporation) and its parent company Restaurant Brands International, Inc., which is
sometimes referred to as "RBI." Any reference to PLK refers to Popeyes Louisiana Kitchen, Inc. and its indirect
parent company, RBI. Unless otherwise indicated, information regarding Burger King, BKC, Popeyes and PLK in
this Annual Report on Form 10-K has been made publicly available by RBI.

This 2022 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.
Words such as "may", "might", "will", "should", "anticipate", "believe", "expect", "intend", "estimate", "hope",
"plan" or similar expressions are intended to identify such forward-looking statements. In addition, expressions of
our strategies, intentions; plans or guidance are also forward-looking statements. These statements reflect
management's best judgment based on 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. Actual results could differ materially from those stated or implied in
these forward-looking statements as a result of a number of factors, included but not limited to, the factors discussed
in 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 impact of health concerns such as the COVID-19 pandemic or 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;

Effectiveness of the Burger King and Popeyes advertising programs and the overall success of the
Burger King and Popeyes brands;

Increases in food costs and other commodity costs;

• Our ability to hire and retain employees at current or increased wage rates;

• Competitive conditions, including pricing pressures, discounting, aggressive marketing, the potential
impact of competitors' new unit openings and promotions on sales of our restaurants, and competition
impacting the cost and availability of labor;

• Regulatory factors;

•

Environmental conditions and regulations;

• General economic conditions, particularly in the retail sector;

• Weather conditions;

•

Fuel prices;

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

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

•

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

The outcome of pending or future legal claims or proceedings;

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

• Our ability to service our indebtedness;

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

competitors;

•

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

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; 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 60 years. We operate two distinct quick service restaurant brands, Burger King and Popeyes, with 1,087
restaurants located in 23 Northeastern, Midwestern, Southcentral and Southeastern states as of January 1, 2023.

For the fiscal year ended January 1, 2023, our restaurants generated total revenues of $1,730.4 million and our
average annual restaurant sales for all restaurants was approximately $1.6 million per restaurant. We served an
average of approximately 460,000 guests per day at our restaurants. In fiscal 2022, comparable restaurant sales at
our Burger King restaurants increased 3.9% and at our Popeyes restaurants increased 4.9%.

Our Burger King Restaurants. We are the largest Burger King franchisee in the United States, based on
number of restaurants, and have operated Burger King restaurants since 1976. Burger King restaurants are quick
service sandwich restaurants that feature the popular flame-grilled Whopper® sandwich, as well as a variety of
hamburgers, chicken and other specialty sandwiches, french fries, breakfast items, snacks, soft drinks and more. We
believe that the competitive attributes of Burger King restaurants include significant brand recognition, convenience
of location, quality, speed of service and value.

As of January 1, 2023, we operated 1,022 Burger King restaurants located in restaurants located in 23
Northeastern, Midwestern, Southcentral and Southeastern states. For the fiscal year ended January 1, 2023, the
average weekly sales at our Burger King restaurants was $30,870 per restaurant.

We operate our Burger King restaurants under franchise agreements with BKC. Our Burger King restaurants
are typically open seven days per week and generally have operating hours ranging from 6:00 am to 11:00 pm, with
later hours in certain markets or on weekends.

Our existing Burger King restaurants consist of one of several building types with various seating capacities.
Our typical freestanding restaurant is approximately 2,800 to 3,100 square feet with seating capacity for 45 to 65
guests, drive-thru service windows and adjacent parking areas. Almost all of our restaurants are freestanding.

Our Popeyes Restaurants. We are the eighth largest Popeyes franchisee in the United States based on number
of restaurants. Popeyes restaurants are quick service chicken restaurants that feature a Louisiana-inspired home
cooking styled menu including fried chicken, chicken sandwiches, chicken tenders, fried shrimp and other seafood,
red beans and rice and other regional offerings.

As of January 1, 2023, we operated 65 Popeyes restaurants in seven Southeastern states. For the fiscal year

ended January 1, 2023, the average weekly sales at our Popeyes restaurants was $26,036 per restaurant.

We operate our Popeyes restaurants under franchise agreements with PLK. Our Popeyes restaurants are
typically open seven days per week with operating hours of 10:00 am to 10:00 pm with later hours on weekends.
Our Popeyes restaurants are generally freestanding locations with approximately 2,000 to 2,300 square feet with
seating capacity for 40 to 50 guests and a drive-thru.

We believe we have the following competitive strengths:

Our Competitive Strengths

Two Distinct Brands with Global Recognition, Innovative Marketing and New Product Development. As a
franchisee of the Burger King and Popeyes brands, we benefit from, and rely on, RBI's extensive marketing,
advertising and product development capabilities to drive sales and generate increased restaurant traffic. RBI has
historically launched innovative and creative multimedia advertising campaigns and products that highlight the
relevance of the Burger King and Popeyes brands. Additionally, in 2020, RBI supported the launch of digital
ordering and delivery options for our guests. RBI has negotiated distribution and operational agreements for BKC
and PLK with major delivery platform providers, such as DoorDash, UberEats and GrubHub, and introduced its
own white label mobile apps for each brand which has allowed us to quickly offer this service option to our guests.
In 2021, RBI introduced the Royal Perks loyalty program for Burger King and the Popeyes Rewards loyalty
program for Popeyes to entice guests to visit more often as well as receive personalized offers on their respective
mobile apps.

As the largest Burger King franchisee in the United States based on number of restaurants, we operate
approximately 15% of the Burger King restaurants in the United States and believe that we are well positioned to
leverage the scale and marketing of one of the most recognized brands in the restaurant industry. We believe that
our large number of restaurants increases our ability to take advantage of our size and scale to effectively manage
the image and awareness of the Burger King brand in certain markets through promotional advertising, remodeling
initiatives and our operational expertise. Further, we also believe that the geographic footprint of our restaurants
provides our business with stability while also providing opportunities for growth within existing markets.

Over the years, BKC has introduced promotional campaigns that leverage both value and premium menu
offerings and has provided a platform for new premium sandwich offerings. We believe these campaigns continue
to positively impact the brand today as BKC focuses on offering a balanced value menu and premium sandwich
promotional mix and remains committed to new product launches. For the Popeyes brand, the successful launch of
the Classic Chicken Sandwich has driven product innovation to continue the brand's appeal to a broader consumer
base, which we expect will continue to enhance sales and restaurant traffic.

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, food quality, sales and profitability that may not be available to other restaurant operators. We believe
that our focus on leveraging our operational expertise, infrastructure and systems helps us optimize the performance
of our current restaurants and restaurants that we may acquire or open in the future. We also believe that our size
and history with the Burger King brand and quick service restaurant operations enables us to effectively track
operating metrics and leverage best practices across our organization. It is our belief that our experienced

management team, operating culture, effective operating systems and infrastructure enable us to operate more
efficiently than many other Burger King operators. Finally, we believe that we will be able to leverage our
operational expertise to improve the performance of our Popeyes restaurants.

Resilient Business Model and Financial Strength of our Business. We believe that the quality and sophistication
of our restaurant operations have helped drive our strong restaurant-level performance. Comparable restaurant sales
for our restaurants have historically outperformed the Burger King system in the United States overall, including in
22 of the last 24 fiscal quarters (after adjusting for periods where our fiscal year did not materially align with their
calendar). We also believe that our size, seasoned management team, extensive operating infrastructure, experience
and proven operating disciplines differentiate us from many competing quick service restaurant operators. After
navigating through the challenges brought on with the COVID-19 pandemic, including labor shortages and
increased commodity costs, we believe we have demonstrated the strength and resiliency of our business model and
our ability to respond quickly to unprecedented business disruption. It is also our belief that our strong restaurant-
level operations coupled with our disciplined approach to financial management will continue to allow us to
maintain restaurant profitability under a wide variety of economic environments.

Over the past three years, we believe we have demonstrated our commitment to maintaining ample liquidity,
managing leverage, generating free cash flow, and applying a disciplined approach to capital expenditures and
restaurant development. We renegotiated our area development agreement with BKC and terminated our
development agreement with PLK, which we believe facilitates our ability to be more disciplined in our allocation
of capital by enhancing our ability to more selectively develop and remodel restaurants offering the most promising
expected returns on our investments.

We believe we have also demonstrated our ability to prudently manage our capital structure and financial
leverage, including through a variety of challenging economic circumstances. It is our belief that our cash flow from
operations, cash balances and the availability of revolving credit borrowings under our Senior Credit Facilities (as
defined below) are sufficient to fund our ongoing operations and capital expenditures.

Strategic Relationship with RBI and BKC. We have been a franchisee of Burger King restaurants for over 45 years
and operate approximately 15% of the total Burger King restaurants in the United States. Since 2012, two of BKC's
or RBI's senior executives have served on the Company's Board of Directors (the "Board"). Currently, Matthew
Dunnigan, Chief Financial Officer of RBI, the indirect parent company of BKC, and Tom Curtis, President of BKC,
Americas, serve on our Board. BKC holds, through certain of its affiliated entities, a preferred stock equity interest
in Carrols Restaurant Group that is convertible into approximately 15.1% of the outstanding shares of our common
stock (after giving effect to the conversion of such preferred stock and excluding shares held in treasury). We
believe we have a well-established relationship with RBI and BKC and our acquisitions, restaurant remodeling and
new restaurant development over the years has further aligned our common interests to grow our business. We
believe that the combination of our rights under the Amended and Restated Area Development Agreement dated as
of January 4, 2021 among the Company, Carrols Corporation, Carrols LLC and BKC (the "Amended ADA") and
RBI's equity interest in our Company and its representation on our Board of Directors will continue to reinforce the
alignment of our common interests with RBI, BKC and PLK over the long term.

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 restaurant operations are overseen by our Chief Restaurant Officer, Joseph Hoffman, who has worked in
Burger King restaurants for over 30 years. As of January 1, 2023, operations for our Burger King restaurants are
overseen by our four Senior Division Directors and nine Region Directors who collectively had an average of 18
years of Burger King restaurant experience. We also have 148 district managers who support the Regional Directors
in the management of our Burger King restaurants and had an average tenure of over 11 years in the Burger King
system as of January 1, 2023. 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 Improve Guest Traffic. RBI has identified and implemented a number of strategies
to increase brand awareness, enhance the guest experience, improve overall operations, invest in digital and
technology and drive sales. These strategies are central to our strategic objectives to deliver profitable growth.

• "Reclaim the Flame." BKC announced its "Reclaim the Flame" plan in September 2022 which includes an
investment by BKC of $400 million over two years to accelerate sales growth and drive franchisee
profitability. The investment includes $150 million in advertising and digital investments ("Fuel the
Flame") and $250 million for restaurant technology, kitchen equipment, building enhancements and high-
quality remodels and relocations ("Royal Reset").

◦ "Fuel the Flame." BKC will invest $120 million in its U.S. advertising fund over the two years to
grow traffic, accelerate sales growth and improve the guest experience. The BKC advertising
investment is expected to be an annual increase of approximately 30% to the brand's media
purchasing. Following BKC's increased investment in 2023 and 2024, participating franchisees,
including Carrols, have agreed to increase their advertising fund contributions by 50 basis points
through 2028 if certain profitability thresholds are met, which would continue the increased level of
advertising spend for the brand. BKC will also invest $30 million through 2024 to improve the
Burger King app guest experience, including through integrated payment processing, enhancing the
Royal Perks loyalty program, digital personalized offers, and improving the overall convenience of
delivery and pick up options. We believe these investments and this elevated advertising spend will
benefit our sales and guest traffic in our restaurants.

◦ "Royal Reset." This $250 million investment by our franchisor will work in combination with the
ongoing restaurant maintenance spending and remodeling activity of its franchisees to increase the
restaurant technology deployment to the Burger King system and accelerate the modernization of
the Burger King restaurant portfolio. We expect to take full advantage of the restaurant refresh
program, which represents $50 million for the whole brand and which will allow us to deploy
restaurant equipment and technology upgrades in an accelerated fashion. This investment also
includes $200 million in system-wide subsidies and cash advances for restaurant remodel projects
over the next two years. This funding will allow us to complete more remodel projects within our
existing capital allocation strategy than we otherwise could have.

• Advertising and Promotion. We believe that we will benefit from BKC's advertising support of its menu
items, product innovation and re-imaging initiatives. In 2022, BKC announced their new brand positioning
strategy, called "You Rule.", intended to establish an emotional connection with consumers and drive
everyday relevance of the Burger King brand in consumers' lives. You Rule is intended to be the new way
to say "Have it Your Way," where our consumers are the real royalty. BKC continues to prioritize a data
driven marketing process which has focused on driving restaurant sales and traffic while targeting a broad
consumer base with inclusive messaging. This strategy uses a multi-channel advertising plan inclusive of
traditional media, such as broadcast television, and digital, such as social media.

• Operations. We believe that improving restaurant operations and enhancing the guest experience are key
components to increasing the profitability of our restaurants. We have operational action plans in place to
continue to improve guest satisfaction scores and increase hours of operations, both of which we believe
will increase restaurant sales. We are also actively involved in and believe we will benefit from RBI's

ongoing initiatives to improve guest experience, increase food quality, simplify restaurant-level execution,
improve team member training and engagement, and monitor operational performance.

• 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. With respect to PLK, the launch
of the Classic Chicken Sandwich has driven product innovation to continue the brand's appeal to a broader
consumer base, which we expect will continue to enhance sales and restaurant traffic.

• Image. We believe that re-imaged restaurants increase curb appeal and result in increased restaurant sales.
BKC's current restaurant image features a fresh, sleek, eye-catching design which incorporates easy-to-
navigate digital menu boards in the dining room and streamlined merchandising at the drive-thru. The
restaurants also offer guests the opportunity to connect to free Wi-Fi within the dining room. We believe
that restaurant remodeling has improved our guest experience and contributed to incremental sales. We also
believe the guest experience will be further enhanced from upgrades to BKC's current restaurant image
which include a double drive-thru (where applicable), modifications to the exterior image and the
deployment of restaurant technology in connection with Burger Kings "Royal Reset".

• Digital. In 2020, RBI implemented digital order modes and delivery services with major delivery providers
as well as through each brands' own mobile apps. At the end of 2022, 1,017 of our Burger King restaurants
and 65 of our Popeyes restaurants were providing fully integrated delivery services, based on geographic
availability of delivery services. In 2021, RBI introduced the Royal Perks loyalty program for Burger King
and the Popeyes Rewards loyalty program for Popeyes, both designed to entice guests to visit more often as
well as to provide personalized offers on the brands' respective mobile apps. We believe these new
platforms support RBI's strategy to appeal to a broader consumer base and to increase restaurant sales and
expect that their "Fuel the Flame" investment will drive further penetration to the digital market.

Improve Profitability of Restaurants. In 2021 and 2022, overall U.S. inflation rates have escalated to levels the U.S
economy had not experienced recently. For our business specifically, we have been heavily impacted by commodity
and labor inflation beginning in second quarter 2021 and extending into most of 2022. Commodity inflation for our
Burger King restaurants was 8.3% and 15.3% in 2021 and 2022, respectively, and for our Popeyes restaurants was
4.7% and 17.6% in 2021 and 2022, respectively. Average hourly rate inflation at all of our restaurants was 12.0%
and 9.1% in 2021 and 2022, respectively.

•

Pricing. In response to elevated input costs, we have further developed our pricing practices and strategy,
resulting in effective selling price increases at our Burger King restaurants of 4.1% for all of 2021 and 9.4%
for all of 2022. The effective selling price is impacted for twelve months after the pricing action is
instituted.

Promotions. We have also worked closely with BKC on multi-faceted restaurant profitability initiatives,
including their promotional pricing practices. Promotional sales discounts at all of our restaurants in 2022
were 15.8% of restaurant sales compared to 19.8% in 2021. BKC has identified improving restaurant-level
profitability as a focus closely tied to their "Reclaim the Flame" investments. We believe this alignment in
interests with our franchisor will further augment our actions to increase restaurant margins after this period
of input cost inflation.

• Operations. We believe that improving restaurant operations and enhancing the guest experience are key
components to increasing the profitability of our restaurants. We have operational action plans in place to
continue to improve our guest satisfaction scores and increase hours of operations, both of which we believe
will help increase restaurant sales. Further, we have ongoing initiatives to enhance labor efficiency which
we believe will drive continued profitability improvements.

We believe that our skilled management team, proven technology systems, and training and development programs
support our ability to enhance operating margins at our restaurants and position us well to respond to the changing
economic environment we are in. We believe that we have demonstrated our ability to operate profitable and
operationally efficient restaurants and we believe that our expertise and scale positions us favorably to combat
ongoing macro-economic challenges.

Balanced Approach to Capital Allocation and Generation of Free Cash Flow. We believe our balance sheet
provides us with significant liquidity, a long runway in terms of debt maturities and stable and manageable debt
service obligations. Over the past three years, we have significantly increased our available liquidity (defined as
cash and cash equivalents plus available borrowings under our Senior Credit Facilities) to approximately $211.3
million as of January 1, 2023 from $60.6 million as of December 29, 2019. We believe we have the flexibility to
grow our business - both organically and through selective new restaurant development and remodeling initiatives –
in a manner that will optimize our growth potential while generating consistent free cash flow and managing our
leverage levels.

We have reduced capital expenditures from $134.9 million in 2019 and $75.7 million in 2018 to $56.9 million in
2020, $51.8 million in 2021 and $38.2 million in 2022. In 2023 and for the foreseeable future, we expect our capital
expenditure spending to be at levels similar to 2022 as we remain committed to applying a disciplined and focused
approach to restaurant remodeling and new restaurant development. We believe our restaurant portfolio has been
well-maintained and, as of January 1, 2023, 890 of our 1,022 Burger King restaurants have been remodeled or
newly built since 2012. Of our 65 Popeyes restaurants, 20 have been newly built in the last five years as of
January 1, 2023.

Target Total Net Leverage Ratio of 4.0 times or less. Our capital allocation strategy is driven by targeting a Total
Net Leverage Ratio of 4.0 times or less. While driving growth through building and remodeling restaurants in both
brands remains a strategic objective of ours over the long-term, our primary focus is on generating free cash flow
and further deleveraging our balance sheet to maintain our Total Net Leverage Ratio at or below our target level of
4.0 times. Achieving our Total Net Leverage Ratio level is subject to a number of factors which may be difficult to
predict and there can be no assurance that we will be able to maintain any specific Total Net Leverage Ratio.

Inflationary pressures experienced in 2021 and 2022 have increased our Total Net Leverage Ratio above our target
to 5.02 times at January 2, 2022 and 7.14 times at January 1, 2023 as increased labor and commodity costs
negatively impacted our covenant EBITDA. Over time, we believe we will reduce our Net Leverage Ratio to our
targeted levels through organic growth as inflationary pressures subside and our margins improve although there is
no assurance we will do so.

Selected restaurant operating data for our restaurants is as follows:

Restaurant Operating Data

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

Breakfast
Lunch
Dinner
Afternoon
Late night

Year Ended

$
$

January 3, 2021
1,435,531
8.63
86.1 %
2.4 %

$
$

January 2, 2022
1,529,123
9.27
81.2 %
4.8 %

11.5 %
32.6 %
22.6 %
22.0 %
11.3 %

12.3 %
31.6 %
22.5 %
21.4 %
12.2 %

January 1, 2023
1,590,288
10.26

$
$

75.5 %
5.5 %

11.9 %
31.8 %
22.6 %
21.3 %
12.4 %

(1)

Average annual sales per restaurant are derived by dividing restaurant sales by the average number of restaurants
operating during the period on a 52-week basis for the years ended January 1, 2023 and January 2, 2022 or 53-week basis
for the year ended January 3, 2021.

Restaurant Capital Costs

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

$300,000 to $1,000,000 for Burger King restaurants and $300,000 to $1,000,000 for Popeyes restaurants and the
cost of building and site improvements generally ranges from $1,000,000 to $1,800,000 for both Burger King and
Popeyes restaurants.

With respect to the development of freestanding restaurants, if we acquire land and construct the building, we
typically seek to 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
followed by construction of the building using cash generated from our operations or with borrowings under our
Senior Credit Facilities.

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

BKC's current image restaurant design draws inspiration from its signature flame-grilled cooking process and
incorporates a variety of innovative elements to a backdrop that evokes the warm and welcoming look of the
outdoors including corrugated metal, brick, wood and concrete. The cost of remodeling a restaurant to the BKC
current image varies depending upon the age and condition of the restaurant and the amount of new equipment
needed and can range from $700,000 to $1,800,000 per restaurant with an average cost of approximately $1.2
million per restaurant in 2022. The total cost of a remodel has increased over time due to construction cost
increases, the addition of a second drive-thru lane at certain locations and the replacement of certain kitchen
equipment at the time of the remodel which is incremental to the cost to upgrade to the BKC current image design.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent and Future
Events Affecting our Results of Operations".

Under BKC's "Royal Reset" program, BKC will make certain contributions towards franchisee remodel costs,
which increase in value if BKC owns the property and/or if the franchisee agrees to pay a 1% higher royalty rate
over the 20-year franchise term renewal. At this time, we do not expect participation in the "Royal Reset" program
to materially impact our levels of capital expenditures. It may, however, allow us to complete more projects with the
same level of capital expenditure.

Site Selection

We believe that the location of our restaurants is a critical component of each restaurant's success. We evaluate
potential new sites on many critical criteria including accessibility, visibility, costs, surrounding traffic patterns,
competition and demographic characteristics. Our senior management approves the viability of all new sites,
remodel and acquisition prospects based upon analyses prepared by our real estate, financial and operations
professionals and our return on investment requirements.

Our business is moderately seasonal due to a number of factors such as regional weather conditions and the
timing of holidays. Due to the location of our restaurants, sales are generally higher during the summer months than
during the winter months.

Seasonality

The following table details the locations of our 1,022 Burger King restaurants as of January 1, 2023:

Restaurant Locations

State
North Carolina
New York
Ohio
Tennessee
Indiana
Virginia
Pennsylvania
Michigan
South Carolina
Kentucky
Mississippi
Maryland
Louisiana
Illinois
Maine
New Jersey
Arkansas
Alabama
Vermont
West Virginia
Georgia
Massachusetts
Missouri
Total

The following table details the locations of our 65 Popeyes restaurants as of January 1, 2023:

State
Mississippi
Tennessee
Louisiana
Indiana
Kentucky
Arkansas
Virginia
Total

Total
Restaurants
156
124
114
111
102
66
61
56
43
41
33
29
17
16
14
10
9
6
6
4
2
1
1
1,022

Total
Restaurants
33
18
5
3
3
2
1
65

Operations

Management Structure

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 Interim
President and Chief Executive Officer, Anthony Hull who is continuing to serve as our Chief Financial Officer
while serving as Interim President and CEO. Mr. Hull, who has helped lead the Company through a variety of
challenging circumstances over the past three years, has over 35 years of operations and finance experience in both
public and private companies with domestic and international operations in a broad range of industries.

Our restaurant operations are overseen by our Chief Restaurant Officer, Joseph Hoffman, who has worked in
Burger King restaurants for over 30 years. As of January 1, 2023, operations for our Burger King restaurants are
overseen by our four Senior Division Directors and nine Regional Directors who collectively had an average of 18
years of Burger King restaurant experience. We also have 148 district managers who support the Regional Directors
in the management of our Burger King restaurants and had an average tenure of over 11 years in the Burger King
system as of January 1, 2023. As of January 1, 2023, operations for our Popeyes restaurants are overseen by one
Senior Division Director, two Regional Directors and eleven district managers.

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. Most often,
our restaurants are staffed with hourly employees who are supervised by a salaried general manager and one to three
assistant managers.

Management Information Systems

We believe that our management information systems provide us with the ability to efficiently and effectively
manage our restaurants and to ensure the 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. We believe these capabilities allow us to quickly integrate
restaurants that we acquire and achieve greater economies of scale and operating efficiencies.

Our restaurants employ POS systems that are designed to facilitate accuracy and speed of order taking. These
systems are user-friendly, require limited employee training and improve speed-of-service through the use of
conversational order-taking techniques. The POS systems are integrated with 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 data center manages
systems that support all of our accounting, operating and reporting systems. We also operate a 24-hour, seven-day
help desk that enables us to provide systems and operational support to our restaurant operations. Among other
things, our restaurant information systems provide us with the ability to:

• monitor labor utilization and sales trends 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 systems and daily reporting of

inventory variances;

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

day;

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

• allow the restaurant manager to produce day-part labor schedules based on the restaurant's historical sales

patterns;

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

centralized management of labor costs and payroll processing;

• allow guests to place mobile and third-party delivery orders that integrate directly with the point-of-sale

system;

• employ centralized control over pricing, menu and inventory management activities at each restaurant;

• place orders with suppliers and to integrate detailed invoice, receiving and product data with our inventory

and accounting systems;

• provide analytics and reporting 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 restaurants. Our district managers also receive near real-time
information for their respective restaurants and have access to key operating data on a remote basis using our
corporate intranet-based reporting. Management personnel at all levels, from restaurant managers through senior
management, utilize and monitor key restaurant performance indicators that are also included in our restaurant-level
incentive bonus plans.

Burger King and Popeyes Franchise Agreements

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

These franchise agreements with BKC and PLK 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 a franchise agreement and close the related
BKC restaurant prior to the expiration of its term, we generally are 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. With BKC's and PLK's respective approval, we can elect to extend franchise agreements for additional
20-year terms, provided that the restaurant meets the current restaurant image standard and we are not in default
under terms of the franchise agreement. The franchise agreement fee for subsequent renewals for our Burger King
and Popeyes restaurants is currently $50,000. BKC or PLK 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 for our Burger King and Popeyes restaurants include, among other things, our failure to operate such
restaurant in accordance with the operating standards and specifications established by BKC or PLK (including
failure to use equipment, uniforms or decor approved by the respective franchisor), our failure to sell products
approved or designated by BKC or PLK, 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 or Popeyes restaurant system, or conviction of us or our executive officers for
certain indictable offenses. We have not been notified of any events of default under any of our franchise
agreements with BKC or PLK.

In order to obtain a successor franchise agreement with BKC and PLK, a franchisee is typically required to
make capital improvements to the restaurant to bring it up to BKC's or PLK'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 January 1, 2023, we had four Burger King
franchise agreements due to expire in 2023, eight Burger King franchise agreements due to expire in 2024 and nine
Burger King franchise agreements due to expire in 2025, as well as 52 that expired prior to the end of 2022. At
January 1, 2023 we had one Popeyes franchise agreement set to expire in 2023, four Popeyes franchise agreement

set to expire in 2024 and 12 Popeyes franchise agreements set to expire in 2025, as well as 13 Popeyes franchise
agreements that expired prior to the end of 2022.

As of January 1, 2023, we have certain franchise agreements that have expired. We are in ongoing discussions
with BKC and PLK to establish mutually acceptable remodeling requirements and franchise extensions for those
franchise agreements, although there can be no assurance we will be able to do so. The expiration of certain
franchise agreements prior to January 1, 2023 has not and is not expected to impact our continued operation of these
restaurants. We believe that we will be able to satisfy BKC's and PLK's normal franchise agreement renewal
criteria. Accordingly, we believe that renewal franchise agreements will be granted by BKC and PLK at the
expiration of our existing franchise agreements. Historically, BKC has not denied our requests for successor
franchise agreements. However, there can be no assurance that BKC and PLK will grant these requests in the future.

In recent years, the historical costs of improving our Burger King restaurants in connection with franchise
renewals, excluding scrape and rebuild projects, generally have ranged from $500,000 to $1,200,000 per restaurant.
The average cost of our remodels in 2022 was approximately $1.2 million 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 or
PLK.

We evaluate the performance of our Burger King and Popeyes restaurants on an ongoing basis. With respect to
franchise renewals, such evaluation depends on many factors, 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 or Popeyes restaurant is under-performing, or that
we do not anticipate an adequate return on the capital investment 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 or Popeyes restaurant as part of the franchise renewal process. In 2022, we closed ten Burger King
restaurants, which did not include any offset locations. We currently expect to close between ten and fifteen
restaurants in 2023, excluding any relocations of existing restaurants. 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 and PLK a monthly royalty. The royalty rate for
new Burger King restaurants and for successor franchise agreements is 4.5% of sales. The royalty rate for new
Popeyes restaurants and for successor franchise agreements is 5.0% of sales. Royalty payments for restaurants
acquired from other franchisees are based on the terms of existing franchise agreements being acquired, and may be
less than 4.5%. Burger King royalties, as a percentage of restaurant sales, were 4.4% in 2022, 4.4% in 2021 and
4.3% in 2020. We anticipate our Burger King and Popeyes royalties, as a percentage of restaurant sales, will be
approximately 4.5% in 2023 as a result of the terms outlined above. Newly constructed Burger King restaurants
developed pursuant to the Area Development Agreement (the "ADA") dated May 1, 2019 among the Company,
BKC and parties thereto as well as the Amended ADA received and will receive a 1% royalty rate reduction for a
four year period and certain remodeled restaurants under the ADA generally received and will receive a 0.75%
royalty rate reduction for a five year period.

We also generally contribute 4% of restaurant sales from our Burger King and Popeyes restaurants to fund
BKC's and PLK's national and regional advertising. Pursuant to the Amended ADA, newly constructed Burger King
restaurants will receive a 3% advertising contribution reduction for four years and certain remodeled restaurants,
excluding upgrades, will receive a 0.75% advertising contribution reduction for a five year period. BKC and PLK
engage in substantial national and regional advertising and promotional activities and other efforts to maintain and
enhance both brands. 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 and PLK 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.

Advertising, Products and Promotion

BKC's marketing strategy is characterized by its HAVE IT YOUR WAY® service, "You Rule.™" 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 topped with tomatoes, lettuce,
mayonnaise, ketchup, pickles, and sliced onions on a toasted sesame seed bun. The basic menu of all Burger King
restaurants also includes a variety of hamburgers, chicken and other specialty sandwiches, including plant-based
options, in addition to french fries, onion rings, soft drinks, 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. BKC's marketing initiatives are designed to reach a diverse consumer
base and BKC has continued to introduce several new and enhanced products to broaden menu offerings and drive
guest traffic in all day parts.

PLK's marketing strategy is defined by its "It takes love" philosophy and "Love That Chicken®" from
Popeyes' tagline. Popeyes restaurants feature a Louisiana-inspired home cooking styled menu including fried
chicken, chicken sandwiches, chicken tenders, fried shrimp and other seafood, red beans and rice and other regional
offerings.

BKC's and PLK's advertising programs consist of national campaigns supplemented by local advertising.
BKC's and PLK's advertising campaigns are generally carried on television, digital and social media, 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 2022, 4.0% in 2021 and 3.9% in 2020. For 2023, we expect total advertising
expense to be approximately 4.0% of total 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 are able to supplement BKC's advertising and promotional
activities with our own local advertising and promotions, including the purchase of geo-targeted digital display,
radio and out-of-home 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 targeted to our guests,
such as combination value meals and discounted prices in order to create a flexible and directed marketing program.

In September 2022, BKC announced its "Reclaim the Flame" plan, which was developed in collaboration with
its franchisees to accelerate sales growth and drive restaurant-level profitability. The plan includes Burger King
investing $400 million through 2024, comprised of $150 million in advertising and digital investments to "Fuel the
Flame" and $250 million for a "Royal Reset" involving investments in restaurant technology, kitchen equipment,
building enhancements and high-quality remodels and relocations.

In 2022, we entered into an agreement with BKC in connection with their "Reclaim the Flame" investment
plan. Pursuant to this initiative, BKC has agreed to fund $120 million in additional advertising expenditures over the
period October 1, 2022 through December 31, 2024. Following the investment period in 2023 and 2024,
participating franchisees, including us, have agreed to increase our advertising fund contributions by 50 basis points
through 2026 if a profitability threshold for the Burger King system is met for the full fiscal year 2026, and further
through 2028 if a secondary profitability threshold is met for the full fiscal year 2028, in order to continue the
brand's elevated advertising spend.

Digital

BKC and PLK have invested heavily in launching a digital platform that integrates with major third-party
delivery service providers and provides a seamless ordering, payment, delivery and drive-thru experience for our
guests. In the BKC and PLK platforms, guests can place orders through a website or mobile app and have the
product ready for pickup or delivered by a third-party partner. Digital sales, including sales through the delivery
platforms plus mobile order and pay, have been a strong growth driver and represented approximately 7.5% of our
restaurant sales in 2022 and 6.1% of our sales in 2021. As of January 1, 2023, we have installed outdoor digital
menu boards at all Burger King and Popeyes restaurants. The digital menu boards integrate with the POS system
and utilize artificial intelligence to help optimize the guest experience. BKC and PLK continue to invest in their
digital platforms. In 2021, RBI introduced the Royal Perks loyalty program for Burger King and the Popeyes
Rewards loyalty program for Popeyes to entice guests to visit more often as well as receive personalized offers on
their respective mobile apps.

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 purchasing cooperative that is responsible for
sourcing our products and related supplies and managing relationships with approved distributors for the Burger
King system. We use our purchasing power to negotiate directly with certain other vendors, to help obtain favorable
pricing and terms for supplying our restaurants. For our Burger King restaurants, we are required to purchase all of
our foodstuffs, paper goods and packaging materials from BKC-approved suppliers at prices negotiated by RSI. We
currently primarily utilize four distributors, McLane Company Inc., Lineage Foodservice Solutions, LLC, Reinhart
Food Service L.L.C and Performance Foodservice, to supply our Burger King restaurants with the majority of our
foodstuffs. As of January 1, 2023, such distributors supplied 31%, 30% 29% and 10%, respectively, of our Burger
King restaurants. Additionally, one bakery supplies the rolls used in approximately 50% of the Company's Burger
King restaurants.

For our Popeyes restaurants, we are a member of a national purchasing cooperative, Supply Management
Services, Inc. ("SMS"). SMS is a non-profit independent purchasing cooperative that is responsible for sourcing
certain of our products and managing relationships with approved distributors for the Popeyes system. Popeyes
utilizes five distributors, five for poultry products and two for all other products. For our Popeyes restaurants, one
distributor, Customized Distribution Services, supplies 69% of our poultry products and 91% of our non-poultry
products.

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 and PLK product uniformity standards. All BKC-
approved and PLK-approved distributors are required to purchase foodstuffs and supplies from BKC-approved and
PLK-approved manufacturers and purveyors. BKC and PLK are each responsible for monitoring quality control and
supervision of the applicable manufacturers. Each conducts regular visits to observe the preparation of foodstuffs
and to perform various tests to ensure that only quality foodstuffs are sold to its approved suppliers. In addition,
BKC and PLK coordinate and supervise 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, the failure of a
distributor or supplier for our restaurants to service us 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 guest satisfaction based on product
quality, 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 and PLK'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 detailed reports measuring compliance with various guest
service standards and objectives to our restaurant operations management team, including feedback obtained
directly from our guests through instructions given to them at the point of sale. The guest 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 guest inquiries and complaints. The level of guest satisfaction is a key metric in our restaurant-level
incentive bonus plans.

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, third-party firms under BKC's oversight 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 and Popeyes, we also have contractual rights to use certain trademarks, service
marks and other intellectual property relating to the Burger King and Popeyes concepts. 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 the handling, preparation and sale of food and beverages; the provision of nutritional information on
menu boards; 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. 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 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 enrollment history to date, approximately 12% of our approximately 3,400 eligible hourly
employees have opted for coverage under our medical plan.

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, rules and regulations.
Our costs for compliance with environmental laws, rules and regulations has not had a material adverse effect on
our results of operations or financial condition in the past.

Industry and Competition

Limited-Service Restaurants. We operate in the hamburger and chicken categories of the limited-service
restaurant segment of the restaurant industry. Limited-service restaurants are distinguished by high speed of service
and efficiency, convenience, limited menu and service, and value pricing. We believe that limited-service
restaurants are well-positioned to increase their sales in the current environment. According to the National
Restaurant Association, the limited-service segment is projected to grow from $370 billion in 2022 to $395 billion
in 2023, representing a projected 7% increase in sales and 40% of total restaurant and food industry sales.

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 operators outside the
restaurant industry such as convenience stores, delicatessens and prepared food counters in supermarkets, grocery
stores, cafeterias and other purveyors offering moderately priced and quickly prepared foods. Our competitors may
also employ marketing strategies such as frequent use of price discounting, frequent promotions and an emphasis on
value menus.

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 for our Burger King
restaurants are McDonald's and Wendy's and the largest competitors for our Popeyes restaurants are KFC and
Chick-fil-A.

Human Capital Management

As of January 1, 2023, we employed approximately 24,300 persons, of which approximately 200 were
administrative personnel and approximately 24,100 were restaurant operations personnel. Approximately 75% of
our employees are part-time and 75% have been employed by the Company for less than one year. None of our
employees are unionized or covered by collective bargaining agreements. We believe that our overall relations with
our employees are good and that our efforts to manage our workforce have been effective.

Diversity. We are committed to fostering a culture that encourages diversity and inclusion, and having diverse
representation in our workforce. As of January 1, 2023, 55% of our employees were female and approximately 55%
of our employees self-identified as belonging to a racial or ethnic minority group.

Training and Education. 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 restaurant personnel.
Our program emphasizes, among other things, system-wide operating procedures, food preparation methods, food
safety and guest service standards. BKC's and PLK's training and development programs are also available to us as
a franchisee through web access in all of our restaurants. We also offer an educational assistance plan that provides
full-time corporate staff, salaried employees and assistant managers up to $4,000 per year to take advantage of after-
hour educational opportunities to improve their skills in their present position or prepare them to assume greater
responsibilities within the Company.

Resources and Support. In response to the economic challenges caused by the COVID-19 pandemic, we
established the Carrols Cares Fund in April 2020 to provide financial assistance to employees in need. Since its
launch, the Fund has evolved into a corporate-level initiative that provides assistance to more than just employees
who have experienced hardship as a result of the pandemic, providing employees with support such as of
bereavement expenses and financial relief after a house fire. During 2022, the fund provided more than $150,000 to
support over 200 employees. We also support community-based organizations through our Matching Gift Program
and our "Dollars for Doers" volunteer program.

Availability of Information

We file annual, quarterly and current reports and other information with the Securities and Exchange
Commission (the "SEC"). 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 internet website at 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 or furnishing such material with the SEC. The references to our website address and the SEC website address
do not constitute incorporation by reference of the information contained on these websites 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

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

The United States and other countries have experienced, or may experience in the future, outbreaks of viruses,
such as the current outbreak of the COVID-19 pandemic, norovirus, Avian Flu or "SARS," or H1N1. If a virus is
transmitted by human contact, our employees or customers may become infected, or may choose, or be advised, to
avoid gathering in public places, any of which may adversely affect our restaurant customer traffic and our ability to
adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level. We
also may be adversely affected if jurisdictions in which we have restaurants impose mandatory closures, seek
voluntary closures or impose restrictions on operations. Even if such measures are not implemented and a virus or
other disease does not spread significantly, the perceived risk of infection or significant health risk may adversely
affect our business.

A health pandemic (such as the COVID-19 pandemic) is a disease outbreak that spreads rapidly and widely by
infection and affects many individuals in an area or population at the same time. Our restaurants are places where
people can gather together for human connection. Customers might avoid public gathering places in the event of a
health pandemic, and local, regional or national governments might limit or ban public gatherings to halt or delay
the spread of disease. The impact of a health pandemic on us might be disproportionately greater than on other
quick-service concepts that have lower customer traffic and that depend less on the gathering of people

Additionally, 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 our results of operations, regardless of whether they pertain to our own restaurants, other Burger
King or Popeyes restaurants, or to restaurants owned or operated by other companies. For example, health concerns
about the consumption of beef, chicken or eggs or events such as a disease outbreak could lead to changes in
consumer preferences, reduce consumption of our products and have a material adverse effect on our results of
operations and financial condition. These events could also reduce available supply or significantly raise the price of
beef, chicken or eggs.

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 negative 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. Furthermore, 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 results of operations and financial condition.

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 other convenience stores, delicatessens and prepared food counters in grocery
stores, supermarkets, cafeterias and other purveyors of moderately priced and quickly prepared food. We believe
our largest competitors for our Burger King restaurants are McDonald's and Wendy's restaurants and the largest
competitors for our Popeyes restaurants are KFC and Chick-fil-A.

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 earnings.

Factors applicable to the quick-service restaurant segment may have a material adverse effect on our results of
operations and financial condition, which may cause a decrease in earnings and revenues.

The quick-service restaurant segment can be materially adversely affected by many factors, including:

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health concerns such as the ongoing coronavirus pandemic (COVID-19);
changes in local, regional or national economic conditions;
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;
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;
the availability of experienced management and hourly-paid employees; and
regional weather conditions.

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

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

Under each of our franchise agreements, we are required to comply with operational programs established by
BKC or PLK. For example, our franchise agreements with BKC and PLK 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 restaurants, and PLK
generally has the right to require us to remodel our restaurants to conform to the then-current image of Popeyes
restaurants every six years, all of which may require the expenditure of considerable funds. We also may not be able
to avoid adopting menu price discount promotions or permanent menu price decreases instituted by BKC or PLK
that may be unprofitable.

Our BKC franchise agreements typically have a 20-year term after which BKC's consent is required to receive
a successor franchise agreement. Our PLK franchise agreements typically also have a 20-year term after which we
have the options to (a) renew for a 10-year renewal term and (b) renew for a second supplemental renewal term of
10 years provided that we meet certain conditions as set forth in the PLK franchise agreements.

We cannot assure you that BKC will grant each of our future requests for successor franchise agreements or
that we will be able to exercise any of the options to renew the PLK franchise agreements. Any failure of BKC to
renew our franchise agreements would materially adversely affect our results of operations and financial condition.
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 current image standards established by Burger King,
which may require us to incur substantial costs. Similarly, one of the conditions to our ability to exercise the option
to renew our PLK franchise agreements is that we must make capital improvements to particular restaurants to bring
them up to current image standards established by Popeyes, which may require us to incur substantial costs.

In addition, our franchise agreements with BKC and PLK do not give us exclusive rights to operate Burger
King or Popeyes restaurants in any defined territory. We cannot assure you that franchises granted by BKC or PLK
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 or the Popeyes brand. If BKC
and PLK do not adequately protect the Burger King and Popeyes brands and other intellectual property, our
competitive position and results of operations could be harmed.

An increase in food costs could have a material adverse effect on our results of operations and financial

condition.

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, including as a result of the COVID-19
pandemic, 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, source and price of beef, chicken, produce and
cheese can be subject to change due 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. Our food
distributors or suppliers may also 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 of 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 through menu price adjustments in the future, which could
negatively impact our results of operations and financial condition.

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 or PLK. If our competitors increase spending on advertising and promotion, or the cost of
television or radio advertising increases, or BKC's, PLK's or our advertising and promotions are less effective than
our competitors', it could have a material adverse effect on our results of operations and financial condition.

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

As part of our strategy, we may selectively pursue the acquisition of additional Burger King and Popeyes
restaurants. Pursuant to the ADA and retained in the Amended ADA, BKC has granted us franchise pre-approval to
acquire Burger King restaurants from Burger King franchisees until we acquire more than 500 Burger King
restaurants. The right of first refusal assigned to us from BKC pursuant to the ADA was forfeited by us as a result of
entering into the Amended ADA in January 2021.

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 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. Our Senior Credit Facilities contain restrictive covenants that may prevent us from
incurring additional debt to acquire additional Burger King or Popeyes restaurants.

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

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 or 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 results of operations and financial condition, regardless of whether the allegations are
true, or whether we are ultimately held liable. Any cases filed against us could materially adversely affect our
results of operations and financial condition if we lose such cases and have to pay substantial damages or if we
settle such cases. In addition, any such cases may materially adversely affect our results of operations and financial
condition by increasing our litigation costs and diverting our attention and resources to address such actions.
Furthermore, 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 and financial condition.

Changes in consumer taste could negatively impact our business.

We obtain a significant portion of our revenues from the sale of hamburgers, fried chicken and various types
of sandwiches. If consumer preferences for these types of foods change, it could have a material adverse effect on
our results of operations and financial condition. 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 and PLK'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 or
PLK 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, low
in fat content or plant-based. If BKC or PLK does not continually develop and successfully introduce new menu
offerings that appeal to changing consumer preferences or if the Burger King and Popeyes franchise systems do not
timely develop new products, our results of operations and financial condition 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 results of operations and financial condition.

We could be adversely affected by our failure to acknowledge and sufficiently respond to the fast-moving
influence of social media.

The widespread use of social media platforms can provide individuals with access to a broad audience at any
time of day. The content shared by users on these platforms may be published without consideration of accuracy or
its potential impact. Such content may be factually inaccurate, but nonetheless negatively impact our customer
engagement, business operations, brand reputation or financial performance. This damage could be fast-moving and
not allow us or our franchisors a chance to address the situation.

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 results
of operations and financial condition.

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 our results of
operations and financial condition.

We are a member of a national purchasing cooperative, Restaurant Services, Inc., created for the Burger King
system. RSI is a non-profit independent purchasing cooperative that is responsible for sourcing our products and
related supplies and managing relationships with approved distributors for the Burger King 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 Burger King restaurants, we are required to purchase all of our foodstuffs, paper
goods and packaging materials from BKC-approved suppliers at prices negotiated by RSI. We currently primarily
utilize four distributors, McLane Company Inc., Lineage Foodservice Solutions, LLC, Reinhart Food Service LLC
and Performance Foodservice, to supply our Burger King restaurants with the majority of our foodstuffs. As of
January 1, 2023, such distributors supplied 31%, 30% 29% and 10%, respectively, of our Burger King restaurants.
Additionally, one bakery supplies the rolls used in approximately 50% of the Company's Burger King restaurants.

For our Popeyes restaurants we are a member of a national purchasing cooperative, Supply Management
Services, Inc. SMS is a non-profit independent purchasing cooperative that is responsible for sourcing certain of our
products and managing relationships with approved distributors for the Popeyes system. Popeyes utilizes five
distributors, two for poultry products and three for all other products. For our Popeyes restaurants, one distributor,
Customized Distribution Services, Inc, supplies 69% of our poultry products and 91% of our, non-poultry products.

In the event that any of our distributors or suppliers are unable to service us and we are unable to timely secure
alternative sources for product, we could suffer a disruption of service until a new distributor or supplier is engaged,
which could have a material adverse effect on our results of operations and financial condition.

Supply shortages and price increases could delay or increase the cost of construction, which could have a
material adverse effect on our results of operations and financial condition.

Our continued growth and financial performance is dependent, in part, on our ability to open new restaurants
and remodel restaurants to comply with criteria established by BKC and PLK. During 2021, pandemic-related
disruptions in the global supply chain have significantly increased the cost, and decreased the availability, of both
labor and construction materials and we expect this to continue into 2023. The scarcity of construction materials and
associated price increases could delay the opening of restaurants and increase the cost of construction for our new
and existing restaurants, which could have a material adverse effect on our results of operations and financial
condition.

Increases in fuel costs and transportation costs could adversely affect our results of operations and financial
condition.

The price and supply of fuel are unpredictable and fluctuate based on circumstances outside of our control.
Increases in fuel costs could lead to reductions in the frequency of consumers dining out or the amount spent in our
restaurants. In addition, increases in fuel costs could result in higher production and transportation costs for our
distributors and suppliers, which may be passed on to us through higher costs for the goods they supply. Any such
decrease in consumers dining out or the amount spent in our restaurants or increase in costs could have an adverse
effect on our results of operations and financial condition, to the extent occurring over an extended period of time
and we are not able to offset through an increase in our prices.

If labor costs increase, we may not be able to make a corresponding increase in our prices and our results of
operations and financial condition may be materially adversely affected.

Wage rates for a number of our employees are either at or slightly 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. The extent to which 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, could have a material adverse effect on our results of operations and financial condition.
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.

Higher labor costs due to statutory and regulatory changes could have a material adverse effect on our results of
operations and financial condition.

We are subject to the federal labor laws, including the Fair Labor Standards Act, as well as various state and
local laws governing such matters as minimum wages, labor relations, workplace safety, citizenship requirements
and other working conditions for employees. Federal, state and local laws may also require us to provide paid and
unpaid leave, healthcare, sick time or other benefits to our employees. Changes in the law, or penalties associated
with any failure on our part to comply with legal requirements, could increase our labor costs or result in additional
expense.

Beginning in 2018, certain workers were able to take up to eight weeks (increasing in New York and other
areas to twelve weeks in 2021) of employer-provided paid leave for childbirth, care for a seriously ill family
member or needs related to a family member's military deployment. We have considered these labor costs in our
price changes, and additional labor costs may require us to raise our prices in the future. In certain geographic areas
which cannot absorb such increases, this could have a material adverse effect on our results of operations and
financial condition. We provide unpaid leave for employees for covered family and medical reasons, including
childbirth, to the extent required by the Family and Medical Leave Act of 1993, as amended, and applicable state
laws. To the extent we need to hire additional employees or pay overtime to replace such employees on leave, this
would be an added expense which could have a material adverse effect on our results of operations and financial
condition.

If we are not able to hire and retain qualified restaurant personnel it could create disruptions in the operation of
our restaurants and lead to increases in labor costs which could have a material adverse effect on our results of
operation and financial condition.

We rely on our restaurant-level employees to provide outstanding service and quality food for the thousands of
guests we serve every day. We believe that our continued success depends, in part, on our ability to attract and
retain the services of qualified restaurant personnel, and we devote significant resources to recruiting, training and
retaining our restaurant managers and hourly team members.

The COVID-19 pandemic has increased the difficulty and cost of maintaining adequate staffing levels for us
and other restaurant operators. There is active competition for quality management personnel and hourly team
members. We are experiencing and may continue to experience increased turnover and challenges in recruiting and
retaining restaurant managers and team members at various locations. These challenges have resulted in increased
labor costs and caused us to limit operating hours or dine-in services at some of our restaurants due to employee
shortages. If new vaccination and testing rules are established by federal, state or other regulatory authorities, these
challenges could potentially be exacerbated.

If we are unable to hire and retain qualified restaurant personnel sufficient to staff our restaurants, it could
create disruptions in the operation of our restaurants which could have a material adverse effect on our results of
operation and financial condition. Increases in labor costs resulting from employee shortages in the labor market
could also have a material adverse effect on our results of operation and financial condition.

Increases in income tax rates or changes in income tax laws could adversely affect our results of operations and
financial condition.

Increases in income tax rates in the United States or other changes in income tax laws in any particular
jurisdiction could reduce our after-tax income from such jurisdiction and could adversely affect our business,
financial condition or results of operations. The United States made changes to existing tax laws in the Tax Cuts
and Jobs Act (the "Tax Act"), which was signed into law on December 22, 2017. Among its many provisions, the
Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% and imposed limitations on the
deductibility of interest and certain other corporate deductions. Additional changes in the U.S. tax regime, including
changes in how existing tax laws are interpreted or enforced, could adversely affect 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 January 1, 2023, 14% of our restaurants were located in North Carolina, 11% were located in New York,
12% were located in Tennessee, and 25% were located in Indiana, Ohio and Michigan. Therefore, the economic
conditions, state and local government regulations, weather or other conditions affecting North Carolina, New York,
Tennessee, Indiana, Ohio and Michigan, and other unforeseen events, including terrorism and other regional issues,
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 and hurricanes. 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 effect on our
results of operations and financial condition.

We could be materially adversely affected by external events such as extreme weather, natural disasters, terrorist
actions, pandemics and civil unrest, among others.

External events such as extreme weather, natural disasters, terrorist actions, pandemics and civil unrest, and
anticipation of such events, can adversely affect consumer spending, supply availability and costs, and our ability to
operate our business in any impacted market.

We cannot assure you that the current locations of our restaurants will continue to be economically viable or
that additional locations can 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 for 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 the 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 including as a result of the
COVID-19 pandemic. 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 and the health of
surrounding businesses who employ a significant amount of workers. 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 our customer's actual or perceived wealth 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 results of operations and financial condition.

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

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 results of operations and financial condition.

On April 1, 2022, our long-time CEO, Daniel T. Accordino, who had over 45 years of Burger King and quick-
service restaurant experience at our Company, retired, and we appointed a new CEO, Paulo A. Pena, who joined us
with over 20 years of operations and finance experience in the hospitality, quick-service restaurant and beverage
industries. Paulo A. Pena died unexpectedly in the hospital on December 31, 2022. Our Board of Directors
appointed our Chief Financial Officer, Anthony E. Hull, to serve as Interim CEO until a qualified replacement is
found. We have retained a recruiting firm and are currently conducting a search for a new CEO. Although we intend
to hire a qualified candidate for CEO, no assurance can be given that we will be able to attract and retain a suitable
CEO. An extended period of time without a permanent CEO could potentially have an adverse effect on our
operations or financial condition. Furthermore, in the event we are unable to effect a seamless transition from our
Interim CEO to a new CEO, or if a new CEO should unexpectedly prove to be unsuitable for our Company, the
resulting disruption could have an adverse effect on our operations or financial condition or impede our ability to
execute our strategic plan.

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

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

including, without limitation, regulations relating to the following:

• zoning;

• 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, mandatory paid and

unpaid leave, working and safety conditions, and citizenship requirements;

• health care; and

• federal and state laws that prohibit discrimination and laws regulating the 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 effect on our results of operations and financial condition. 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 could 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 results of operations and financial condition.

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 have a material adverse effect on our results of
operations and financial condition.

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 have a material adverse effect our results of operations and financial condition.

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.

Security breaches of confidential credit card, consumer, employee and other material information as well as
other threats to our technical systems may have a material adverse effect on our results of operations and
financial condition.

Approximately half of our restaurant sales are by credit or debit cards. Other restaurants and retailers have
experienced security breaches in which confidential or material information has been compromised. The Company
devotes significant resources to data encryption, network security and other measures to protect its systems and
data, but these security measures cannot provide absolute security. We may become subject to lawsuits, fines or
other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests'
credit or debit card or any other material information. Any such claim or proceeding, or any adverse publicity
resulting from these allegations, may have a material adverse effect on our results of operations and financial
condition.

The Company's results of operations, financial condition and reputation may be impacted by information
technology system failures or network disruptions.

We rely on information systems across our operations for point-of-sale processing in our restaurants,
collection of cash, procurement and payment to suppliers, payment of payroll, financial reporting and other
processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and
capacity of these systems. The Company may be subject to information technology system failures and network
disruptions caused by natural disasters, accidents, pandemics, power disruptions, telecommunications failures, acts
of terrorism or war, computer viruses, physical or electronic break-ins, ransomware or other events or disruptions.
System redundancy may be ineffective or inadequate, and the Company's disaster recovery planning may not be
sufficient for all eventualities which may have a material adverse effect on our results of operations and financial
condition. While the Company maintains dedicated insurance coverage that, subject to policy terms and conditions
and subject to a deductible, is designed to address certain aspects of cyber risks, such insurance coverage may be
insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

Carrols Corporation is currently a guarantor under 17 restaurant property leases from the time when Fiesta
Restaurant Group, Inc. ("Fiesta") was its subsidiary and any default under such property leases by Fiesta may
result in substantial liabilities to us.

Fiesta, a former wholly-owned subsidiary of the Company, was spun-off in 2012 to the Company's
stockholders. Carrols Corporation currently is a guarantor under 17 Fiesta restaurant property leases, of which all
except for one is still operating as of January 1, 2023. Eight of these guarantees are for leases with Pollo Operations,
Inc, a wholly owned subsidiary of Fiesta, and nine of these guarantees are for leases with Texas Taco Cabana, L.P.,
an indirect subsidiary of Taco Cabana, Inc. (together with all direct and indirect subsidiaries, "Taco"). Taco was a
wholly owned subsidiary of Fiesta until August 16, 2021 when Fiesta sold all of its outstanding capital stock of
Taco Cabana, Inc. to YTC Enterprises, LLC, an affiliate of Yadav Enterprises, Inc. The Separation and Distribution
Agreement 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 Corporation for any losses or liabilities or
expenses that it may incur arising from or in connection with any such lease guarantees.

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 when you acquired our stock, 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

specifically;

• 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, PLK or any of our significant suppliers discussed above.

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 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 may limit our stockholders' ability to influence
corporate matters.

At January 1, 2023, our executive officers, directors, BKC and Blue Finance Holding 1, LLC (collectively, the
"BKC Stockholders"), and Cambridge together beneficially owned approximately 42.6% of our common stock,
giving effect to the conversion of the Series D Convertible Preferred Stock issued to the BKC Stockholders. As a
result, our executive officers, directors, affiliates of the BKC Stockholders and Cambridge, 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 BKC
Stockholders and Cambridge each has two representatives on our Board of Directors, which has the authority to
make decisions affecting our company and its capital structure, including the issuance of additional debt and the
declaration of dividends. Each of the BKC Stockholders and Cambridge may have interests that differ from those of
other stockholders and may vote in a way with which other stockholders disagree and which may be adverse to their
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 the Company that other stockholders
may view as beneficial, which 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 currently do not expect to pay any cash dividends for the foreseeable future, and our Senior Credit Facilities
limit our ability to pay dividends to our stockholders.

Although a special cash dividend was declared and paid in 2021, we currently do not expect to 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, our Senior Credit Facilities and the indenture governing our $300.0 million of
5.875% Senior Notes due 2029 (the "Notes") 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 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 have a material adverse effect on our financial condition.

As of January 1, 2023 we had $493.0 million of total indebtedness outstanding consisting of $300.0 million of
Notes, $167.6 million term loan B borrowings under our Senior Credit Facilities and $12.8 million of finance lease
liabilities. As of January 1, 2023 we had $192.9 million of revolving borrowing availability under our Senior Credit
Facilities (after reserving $9.6 million for letters of credit issued under the Senior Credit Facilities, which included
amounts for anticipated claims from our renewals of workers' compensation and other insurance policies).

As a result of our substantial indebtedness, a significant portion of our operating cash flow will be required to
make payments of 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 Facilities, to enable us to repay
our indebtedness, including the outstanding term loan B borrowings and the Notes, or to fund other liquidity needs.

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 Senior Credit Facilities, 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 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, our cash balances and revolving credit borrowings under our
Senior Credit Facilities to meet our current and future financial obligations, including funding our operations, debt
service, possible future acquisitions and capital expenditures (including restaurant remodeling and new restaurant
development). 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 sufficient liquidity, we may be forced to reduce or delay capital
expenditures and restaurant acquisitions, sell assets, obtain additional debt or equity capital or restructure or
refinance all or a portion of our debt, including our Senior Credit Facilities, 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
Facilities, and the indenture governing the Notes, 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 or second lien basis. Although our Senior Credit Facilities 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, these 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 could also consider investments in
joint ventures or acquisitions, which may increase our indebtedness. Moreover, although our Senior Credit Facilities
and the indenture governing our 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 restrict our ability to engage in some business and financial transactions and
contain certain other restrictive terms.

Our debt agreements, such as our Senior Credit Facilities and the indenture governing the Notes 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.

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. In addition, our Senior Credit Facilities
require us to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) if revolving credit
borrowings exceed 35% of our aggregate borrowing capacity (as defined in the First Amendment to the Senior
Credit Facilities). Our ability to meet this financial ratio and other tests can be affected by events beyond our
control, and we cannot assure you that we will meet these tests. As of January 1, 2023 there were $12.5 million
borrowings outstanding and $9.6 million of letters of credit issued under the Revolving Credit Facility. As this did
not exceed 35% of the aggregate amount of the maximum borrowings under the Revolving Credit Facility, no First
Lien Leverage Ratio calculation was required. However, if the Company had been subject to the First Lien
Leverage Ratio, the Company's First Lien Leverage Ratio was 2.63 to 1.00 as of January 1, 2023 which was below
the required First Lien Leverage Ratio of 5.75 to 1.00.

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.

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

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

In addition, upon the occurrence of specific kinds of change of control events, the indenture governing the
Notes will require us to make an offer to repurchase all Notes that are then outstanding 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 Facilities
may not allow us to repurchase the Notes upon a change of control. If we cannot refinance such debt or otherwise
obtain a waiver from the holders of such debt, we will be prohibited from repurchasing the Notes, which will
constitute an event of default under the indenture governing the Notes. Certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness, will not constitute a "Change of
Control" under the indenture governing the Notes.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of January 1, 2023, we owned nine and leased 1,078 restaurant properties, including 29 co-branded

locations. In addition, we owned four and leased ten non-operating properties as of January 1, 2023.

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 25.3 years at January 1, 2023. Generally, we have been
able to renew leases upon or prior to their expiration at prevailing market rates, although there can be no assurance
that this will continue to occur.

We believe that we generally will be able to renew at commercially reasonable rates a lease whose term
expires prior to the expiration of the Burger King franchise agreement associated with the location, 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 shopping center locations, we are also required to pay certain other charges such as a pro
rata share of the shopping center'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, most of our administrative operations for our Burger King restaurants and one of our regional
support offices. We also lease nine small regional offices that support the management of our Burger King
restaurants, two offices in Tennessee, and two smaller administrative offices in Syracuse, NY that support
administrative operations.

ITEM 3. LEGAL PROCEEDINGS

Litigation. We are involved in various litigation matters and claims that arise in the ordinary course of
business. Based on our currently available information, we do not believe that the ultimate resolution of any of these
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 is traded on The NASDAQ Global Market under the symbol "TAST". On March 1, 2023,
there were 56,314,947 shares of our common stock outstanding held by 487 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.

Effective August 12, 2021, the Board declared a special cash dividend amounting to $0.41 per share on all
issued and outstanding shares of common stock, including common stock issuable on the conversion of our Series B
Convertible Preferred Stock. The special cash dividend of $24.9 million was paid on October 5, 2021 to
stockholders of record as of the close of business on August 25, 2021. We did not pay any cash dividends during
fiscal year 2022.

We currently do not expect to pay any cash dividends on our common stock in the foreseeable future. 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 our direct and indirect subsidiaries. Our
Senior Credit Facilities and the indenture governing the Notes 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, 2017 the cumulative total stockholder return on our
common stock relative to 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 graph assumes an investment of $100 in our common
stock and each index on December 31, 2017.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*
Among Carrols Restaurant Group, Inc., the NASDAQ
Composite Index, and S&P SmallCap 600 Restaurants

$250

$200

$150

$100

$50

$0
12/31/17

12/31/18

12/31/19

12/31/20

12/31/21

12/31/22

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

NASDAQ Composite

* $100 invested on 12/31/2017 in stock or index, including reinvestment of dividends.

12/31/2022
Carrols Restaurant Group, Inc. . . . . . . $ 100.00 $
80.99 $
13.59
NASDAQ Composite . . . . . . . . . . . . . $ 100.00 $
97.16 $ 132.81 $ 192.47 $ 235.15 $ 158.65
S&P SmallCap 600 Restaurants . . . . . $ 100.00 $ 110.09 $ 123.74 $ 156.99 $ 150.35 $ 119.82

12/31/2017

12/31/2018

12/31/2019

12/31/2020

12/31/2021

51.69 $

58.02 $

29.57 $

Purchases of Equity Securities by the Issuer

On August 2, 2019, the Company's Board of Directors approved a stock repurchase plan (the "Repurchase
Program") under which the Company may purchase up to $25 million of its outstanding common stock. On August
10, 2021, the Company's Board of Directors approved an extension of the Company's Repurchase Program with
approximately $11.0 million of its original $25 million in capacity remaining. The authorization will expire on
August 2, 2023, unless terminated earlier by the Board of Directors. Purchases under the Repurchase Program may
be made from time to time in open market transactions at prevailing market prices or in privately negotiated
transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with applicable federal
securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company has
no obligation to repurchase stock under the Repurchase Program, and the timing, actual number and value of shares
purchased will depend on the Company's stock price, trading volume, general market and economic conditions, and
other factors.

The table below reflects the shares of common stock we repurchased during the fourth quarter of 2022.

Total
Number of
Shares
Purchased
(1)

Average
Price Paid
Per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Plans or
Programs

October . . . . . . . . .

November . . . . . . .

December . . . . . . .

Purchased October 3, 2022 to
November 6, 2022
Purchased November 7, 2022
to December 4, 2022
Purchased December 5, 2022
to January 1, 2023

Total

—

— $

10,983,543

— $

10,983,543

2,350 $
2,350 $

1.36
1.36

— $
—

10,983,543

(1) Represents shares withheld through net share settlements in order to meet individual tax withholding liability related to the
vesting of restricted stock awards

ITEM 6. [RESERVED]

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

Our fiscal years consist of 52 or 53 weeks ending on the Sunday closest to December 31. The fiscal years

ended January 1, 2023 and January 2, 2022 both contained 52 weeks.

Introduction

following

We are a holding company and conduct all of our operations through our direct and indirect wholly-owned
subsidiaries Carrols Corporation and New CFH, LLC and their wholly-owned subsidiaries, and have no assets other
than the shares of capital stock of Carrols Holdco, Inc. and New CFH, LLC, our direct wholly-owned subsidiaries.
"Management's Discussion and Analysis of Financial Condition and Results of
The
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 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.

Results of Operations—an analysis of our consolidated results of operations for the years ended January 1,
2023, and January 2, 2022, including a review of the material items and known trends and uncertainties. See Item 7
of our 2021 Annual Report on Form 10-K for an analysis of our consolidated results of operations for the years
ended January 2, 2022 and January 3, 2021.

Liquidity and Capital Resources—an analysis of our cash flows, including capital expenditures, changes in

capital resources and known trends that may impact liquidity.

Application of Critical Accounting Estimates—an overview of accounting policies requiring critical judgments

and estimates.

New accounting pronouncements—a discussion of new accounting pronouncements, dates of implementation,

and the impact on our consolidated financial position or results of operations, if any.

Company Overview

Carrols Restaurant Group, Inc. and its consolidated subsidiaries (collectively, "Carrols Restaurant Group", the
"Company", "we", "our" or "us") is one of the largest restaurant companies in the United States and has been
operating restaurants for more than 60 years. We are the largest Burger King franchisee in the United States, based
on number of restaurants, and have operated Burger King restaurants since 1976. As of January 1, 2023 we
operated, as a franchisee, a total of 1,087 restaurants in 23 states under the trade names of Burger King and Popeyes.
This included 1,022 Burger King restaurants in 23 Northeastern, Midwestern, Southcentral and Southeastern states
and 65 Popeyes restaurants in seven Southeastern states.

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

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

•

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

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

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

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

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

•

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

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

•

EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Loss are non-GAAP
financial measures. EBITDA represents net loss before income taxes, interest expense and depreciation and
amortization. Adjusted EBITDA represents EBITDA adjusted to exclude impairment and other lease
charges, acquisition costs, stock-based compensation expense, restaurant pre-opening costs, executive
transition, non-recurring litigation and other professional expenses, loss on extinguishment of debt and

other income, net. Adjusted Restaurant-Level EBITDA represents loss from operations as adjusted to
exclude general and administrative expenses, depreciation and amortization, impairment and other lease
charges, restaurant pre-opening costs and other income, net. Adjusted Net Loss represents net loss as
adjusted, net of tax, to exclude impairment and other lease charges, acquisition costs, restaurant pre-opening
costs, executive transition, non-recurring litigation and other professional expenses, other income, net, loss
on extinguishment of debt and the valuation charge on our deferred tax assets.

• We are presenting Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Loss because
we believe that they provide a more meaningful comparison than EBITDA and net loss of our core business
operating results, as well as with those of other similar companies. We present Adjusted Restaurant-Level
EBITDA as a measure of restaurant-level profitability excluding the impact of restaurant pre-opening costs,
other income, net, and the impact of general and administrative expenses such as salaries and expenses
associated with corporate and administrative functions that support the development and operations of our
restaurants, legal, auditing and other professional fees. Although these costs are not directly related to
restaurant-level operations, these costs are necessary for the profitability of our restaurants.

Management believes that Adjusted EBITDA, Adjusted Restaurant-Level EBITDA, and Adjusted Net Loss,
when viewed with our results of operations in accordance with U.S. GAAP and the accompanying
reconciliations on page 45, provide useful information about operating performance and period-over-period
growth, and provide additional information that is useful for evaluating the operating performance of our
core business without regard to potential distortions. Additionally, management believes that Adjusted
EBITDA and Adjusted Restaurant-Level EBITDA permit investors to gain an understanding of the factors
and trends affecting our ongoing cash earnings, from which capital investments are made and debt is
serviced.

However, EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Loss are
not measures of financial performance or liquidity under U.S. GAAP and, accordingly, should not be
considered as alternatives to net loss, loss from operations or cash flow from operating activities as
indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly
titled captions of other companies. For the reconciliation between Net Loss to EBITDA, Adjusted EBITDA
and Adjusted Net Loss and the reconciliation of loss from operations to Adjusted Restaurant-Level
EBITDA, see page 45.

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

◦

EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect our capital
expenditures, future requirements for capital expenditures or contractual commitments to purchase
capital equipment.
EBITDA, Adjusted EBITDA and Adjusted Restaurant-Level EBITDA do not reflect the interest
expense or the cash requirements necessary to service principal or interest payments on our debt.
Although depreciation and amortization are non-cash charges, the assets that we currently
depreciate and amortize will likely have to be replaced in the future, and EBITDA, Adjusted
EBITDA and Adjusted Restaurant-Level EBITDA do not reflect the cash required to fund such
replacements.
EBITDA, Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Loss do not
reflect the effect of earnings or charges resulting from matters that our management does not
consider to be indicative of our ongoing operations. However, some of these charges (such as
impairment and other lease charges, acquisition costs, valuation allowance for deferred taxes and
litigation costs) have recurred and may reoccur.

• Depreciation and amortization primarily includes the depreciation of fixed assets, including equipment,
owned buildings and leasehold improvements utilized in our restaurants, the amortization of franchise rights
from our restaurant acquisitions and the amortization of franchise fees paid to BKC and PLK.

•

Impairment and other lease charges include non-operating charges resulting from the following
circumstances:

◦

For property and equipment and finite-lived intangible assets, 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. If an indicator of impairment exists, an estimate of the
aggregate undiscounted cash flows from the acquired restaurants is compared to the respective
carrying value of franchise rights for each acquisition. If an asset is determined to be impaired, the
loss is measured by the excess of the carrying amount of the asset over its fair value.
For infinite lived intangible assets including goodwill, a potential impairment charge is evaluated
whenever events or changes in circumstances indicate that the carrying amount may be impaired.
Impairment charges are determined by a comparison of the carrying value of a reporting unit to its
fair value.
For restaurant closures prior to their lease or franchise end dates, lease charges are recorded for our
obligations under the related leases and franchise agreements for closed locations that are not
otherwise recoverable.

•

Interest expense consists of interest expense associated with our Term B and Term B-1 Loans under our
Senior Credit Facilities, our 5.875% Senior Notes Due 2029 (the "Notes"), our revolving credit borrowings
under our Senior Credit Facilities, finance lease liabilities, amortization of deferred financing costs,
amortization of original issue discount, and payments and receipts made in connection with our interest rate
swap arrangement.

Recent and Future Events Affecting our Results of Operations

Capital Expenditures

During 2022, we completed the development for and opened six new Burger King restaurants and remodeled
nine Burger King restaurants. In 2021, we opened four new Burger King restaurants and remodeled seven Burger
King restaurants and one Popeyes restaurant. We expect that our capital expenditures in 2023 will remain at levels
similar to our capital expenditures in 2022 and 2021. We continue to review on an ongoing basis our future
development and remodel plans in relation to our available capital resources, supply chain availability and our
return on investment.

BKC's "Reclaim the Flame" Plan

In the third quarter of 2022, we entered into an agreement with BKC in connection with their "Reclaim the
Flame" investment plan. Pursuant to this initiative, BKC has agreed to fund $120 million in additional advertising
expenditures over the period October 1, 2022 through December 31, 2024. Following the investment period in 2023
and 2024, participating franchisees, including us, have agreed to increase our advertising fund contributions by 50
basis points through 2026 if a profitability threshold for the Burger King system is met for the full fiscal year 2024,
and further through 2028 if a secondary profitability threshold is met for the full fiscal year 2026.

Area Development and Remodeling Agreement

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

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

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

Restaurant Acquisitions

In 2021, we acquired 19 restaurants in two separate transactions, which we refer to as the "2021 acquired

restaurants" from other franchisees in the following transactions ($ in thousands):

Closing Date

June 17, 2021
June 23, 2021

Number of
Restaurants

Purchase
Price

Fee-Owned
(1)(2)

Market Location

14 $ 27,603
5
3,216
19 $ 30,819

12 Fort Wayne, Indiana
1 Battle Creek, Michigan
13

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

(2) One of the fee-owned properties was closed at the end of 2021, and subsequently sold in the second quarter of 2022 for
proceeds of $0.2 million.

The unaudited pro forma impact on the results of operations for the 2021 acquisitions is included below. The
unaudited results of operations are not necessarily indicative of the results that would have occurred had the
acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any
future consolidated operating results. This pro forma financial information does not give effect to any anticipated
synergies, operating efficiencies or cost savings or any transaction costs related to the 2021 acquired restaurants.
The following table summarizes certain pro forma financial information related to our operating results for the year
ended January 2, 2022 (in thousands):

Year Ended
January 2, 2022

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

1,663,860
(9,215)
82,983

Issuance of Notes and Amendments to our Senior Credit Facilities

Senior Credit Facilities. On April 30, 2019, we entered into senior secured credit facilities in an aggregate
principal amount of $550.0 million, consisting of (i) a term loan B facility in an aggregate principal amount
of $425.0 million (the "Term Loan B Facility") maturing on April 30, 2026 and (ii) a revolving credit facility
(including a sub-facility of $35.0 million for standby letters of credit) in an aggregate principal amount of $125.0
million maturing on April 30, 2024 (the "Revolving Credit Facility" and, together with the Term Loan B Facility,
the "Senior Credit Facilities"). On December 15, 2022 we executed an amendment to our Senior Credit Facilities to
transition from LIBOR to SOFR as the benchmark rate for purposes of calculating interest. No other changes were
made to the Senior Credit Facilities. As of January 1, 2023 the Senior Credit Facilities, as amended, provide for an
aggregate maximum commitment available for borrowings under the Revolving Credit Facility of $215.0 million
and the Revolving Credit Facility matures on January 29, 2026.

Under the Senior Credit Facilities, we are 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).

In addition, the Senior Credit Facilities require us to meet a First Lien Leverage Ratio (as defined in the Senior
Credit Facilities) under certain circumstances. We are only required to maintain a First Lien Leverage Ratio (as
defined in the Senior Credit Facilities) of not greater than 5.75 to 1.00 (as measured on a most recent four quarter
basis) if, and only if, on the last day of any fiscal quarter, the sum of the aggregate principal amount of outstanding
revolving credit borrowings under the Revolving Credit Facility and the aggregate face amount of letters of credit
issued under the Revolving Credit Facility (excluding undrawn letters of credit in an aggregate face amount up to
$12.0 million) exceed 35% of the aggregate borrowing capacity under the Revolving Credit Facility.

Senior Notes due 2029. On June 28, 2021, we issued $300.0 million principal amount of 5.875% Senior Notes
due 2029 (the "Notes") in a private placement. The proceeds of the offering, together with $46.0 million of
revolving credit borrowings under our Senior Credit Facilities, were used (i) to repay $74.4 million of outstanding
term B-1 loans and $243.6 million of outstanding term B loans under our Senior Credit Facilities (which included
scheduled principal payments), (ii) to pay fees and expenses related to the offering of the Notes and the Seventh
Amendment and (iii) for working capital and general corporate purposes.

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

As of January 1, 2023, there were $12.5 million revolving credit borrowings outstanding and $9.6 million of
letters of credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and
outstanding revolving credit borrowings, $192.9 million was available for revolving credit borrowings under the
Revolving Credit Facility at January 1, 2023.

Interest Rate Swap Agreement

We entered into a five year interest rate swap agreement commencing March 3, 2020 and ending February 28,
2025 with a notional amount of $220.0 million to swap variable rate interest payments under our Senior Credit
Facilities for fixed interest payments bearing an interest rate of 0.915% plus the applicable margin in our Senior
Credit Facilities. On November 12, 2021, we partially terminated this interest rate swap to reduce the notional
amount hedged from $220.0 million to $120.0 million, and obtain the flexibility to repay borrowings under the
Senior Credit Facilities which previously needed to be maintained at the hedged $220.0 million notional amount.
The fixed rate and other terms of the swap arrangement remained unchanged as a result of the partial termination,
which settled with net proceeds to us of $0.2 million. On December 15, 2022, we executed an amendment to the
interest rate swap agreement to transition from LIBOR to SOFR as the benchmark rate for purposes of calculating
interest, which also changed the fixed rate of interest from 0.915% plus the applicable margin to 0.847% plus the
applicable margin. No other changes were made to the terms of the interest rate swap.

Stock Repurchase Program

On August 2, 2019, our Board of Directors approved a stock repurchase plan (the "Repurchase Program")
under which we may repurchase up to $25 million of our outstanding common stock. The authorization became
effective August 2, 2019, and on August 10, 2021, was extended through August 2, 2023. Purchases under the
Repurchase Program may be made from time to time in open market transactions at prevailing market prices or in
privately negotiated transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with
applicable federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

We did not repurchase any shares in the year ended January 1, 2023. During the year ended January 3, 2021,
we repurchased 1,534,304 shares in open market transactions of our common stock at an average share price
of $6.52 for a total cost of $10.0 million under the Repurchase Program. As of January 1, 2023, $11.0 million was
available to repurchase shares under the Repurchase Program. We have no obligation to repurchase additional
shares of stock under the Repurchase Program, and the timing, actual number and value of shares purchased will
depend on our stock price, trading volume, general market and economic conditions and other factors.

Restaurant Closures

We evaluate the performance of our restaurants on an ongoing basis including an assessment of the current
and future operating results of each restaurant in relation to its cash flow and future occupancy costs and, with

regard to franchise agreement renewals, the cost of required capital improvements. We may elect to close
restaurants based on these evaluations.

In 2022, we permanently closed ten Burger King restaurants. We currently anticipate between ten and fifteen

restaurant closures in 2023, outside of any restaurants being relocated within their trade area.

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

Effect of Minimum Wage Increases

A certain number of the states and municipalities in which we operate have increased their minimum wage
rates for 2021 and in many cases have also approved additional increases for future periods. Most notably, New
York State has increased the minimum wage applicable to our business to $15.00 an hour on July 1, 2021, from
$14.50 an hour as of January 1, 2021, $13.75 an hour in 2020 and $12.75 per hour in 2019. New York State has a
Youth Jobs Program which we have received tax credits from annually since 2016 that currently extends through
2027. We received $1.0 million from New York State related to these credits for 2021 and expect to receive
approximately $0.7 million for 2022. We had 124 restaurants in New York State as of January 1, 2023. We also had
one restaurant in Massachusetts that has annual minimum wage increases reaching $15.00 per hour in 2023, 10
restaurants in New Jersey that have annual minimum wage increases reaching $15.00 per hour in 2024, and 45 total
restaurants in Illinois and Maryland that also have annual minimum wage increases reaching $15.00 per hour in
2025, all as of January 1, 2023.

In the current labor market we have seen competitive pressure on wage rates that have well outpaced statutory

minimums as the re-opening of the economy has increased demand for labor at all levels in the workforce.

We typically attempt to offset the effects of wage inflation, at least in part, through periodic menu price

increases. However, no assurance can be given that we will be able to offset these wage increases in the future.

Inflation Reduction Act

The Inflation Reduction Act of 2022 implements, among other things, a 15% minimum tax on book income of
certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean
energy. The alternative minimum tax and excise tax are effective in taxable years beginning after December 31,
2022. The alternative minimum tax would not be applicable in our next fiscal year since it is based on a three-year
average annual adjusted financial statement income in excess of $1 billion. We will evaluate any impact related to
the excise tax on net stock repurchases based on our relative activity.

Results of Operations

Fiscal 2022 compared to Fiscal 2021

The following table highlights the key components of sales and the number of restaurants in operation for the

years ended January 1, 2023 and January 2, 2022:

Restaurant Sales
Burger King
Popeyes

Change in Comparable Restaurant Sales (a)
Change in Comparable Burger King Restaurant Sales (a)
Change in Comparable Popeyes Restaurant Sales (a)

Burger King Restaurants operating at beginning of year:

New restaurants opened, including relocations (b)
Restaurants acquired
Restaurants closed, including relocations (b)
Burger King Restaurants operating at end of year
Average number of operating Burger King restaurants

Popeyes Restaurants operating at beginning and end of year:
Average numbers of operating Popeyes restaurants

Year ended

January 1, 2023
1,730,440
1,642,725
87,715

January 2, 2022
1,652,370
1,568,431
83,939

4.0 %
3.9 %
4.9 %

1,026
6
—
(10)
1,022
1,023.4

65
64.8

8.5 %
9.1 %
(1.9) %

1,009
4
19
(6)
1,026
1,016.0

65
64.6

(a) Restaurants we acquire are included in comparable restaurant sales after they have been operated by us for 12 months. Sales
from restaurants that we develop are included in comparable restaurant sales after they have been open for 15 months. The
calculation of changes in comparable restaurant sales is based on a comparison to the comparable 52-weeks prior.

(b) There were no restaurant relocations during 2022. For the year ended January 2, 2022, one restaurant closure was relocated

within its existing market.

Restaurant Sales. Total restaurant sales in 2022 increased 4.7% to $1,730.4 million from $1,652.4 million in
2021. Comparable restaurant sales increased 4.0% in 2022, which reflected an increase in average check
of 10.8% which was partially offset by a decrease in customer traffic of 6.1%. The change in average check
included a 9.4% effective price increase compared to 2021 for our Burger King restaurants. Promotional sales
discounts in 2022 were 15.8% of restaurant sales compared to 19.8% in 2021. Restaurant sales were also impacted
by the six new Burger King restaurants built since the end of 2021 and the ten Burger King restaurants closed since
the end of 2021.

Operating Costs and Expenses (percentages stated as a percentage of total restaurant sales unless otherwise
noted). The following table sets forth selected operating results for the years ended January 1, 2023 and January 2,
2022:

Costs and expenses (all restaurants):

Food, beverage and packaging costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 1, 2023

January 2, 2022

30.9 %
33.8 %
7.3 %
15.9 %
4.0 %
5.1 %

30.2 %
33.3 %
7.4 %
15.6 %
4.0 %
5.1 %

Food, beverage and packaging costs increased as a percentage of restaurant sales to 30.9% in 2022 from
30.2% in 2021. Compared to last year, with its impact as a percentage of total restaurant sales, 2022 reflected
increased commodity pricing at our Burger King restaurants (3.9%) and increased commodities pricing at our
Popeyes restaurants (0.2%), which were partially offset by the favorable impact of menu price increases taken at our
Burger King restaurants since the end of 2021 (2.7%) and lower promotional discounting in 2022 at our Burger
King restaurants (1.1%).

Restaurant wages and related expenses increased to 33.8% in 2022 from 33.3% in 2021. Since late in the
second quarter of 2021, we have been impacted by competitive pressure on wage rates that has significantly
outpaced statutory minimums as the re-opening of the economy has increased demand for labor at all levels of the
workforce. The impact of base hourly labor rate increases in 2022, inclusive of minimum wage increases, was 9.3%
when compared to the prior year period. This rate of increase has moderated over the course of our 2022 fiscal year,
as we began lapping the inflationary period that began late in the second quarter of 2021.

Restaurant rent expense decreased to 7.3% in 2022 from 7.4% in 2021 due to the impact of higher sales

volumes on generally fixed rental costs.

Other restaurant operating expenses increased to 15.9% in 2022 from 15.6% in 2021. In 2022, we saw higher
spending on insurance (0.2%), utilities (0.1%), security (0.1%) and repair and maintenance (0.1%), which were
offset in part by lower spending in other areas.

Advertising expense was 4.0% in both 2022 and 2021.

Adjusted Restaurant-Level EBITDA. As a result of the factors above, Adjusted Restaurant-Level EBITDA
decreased $15.1 million, or 9.6%, to $141.9 million in 2022 compared to $157.0 million in 2021, and, as a
percentage of total revenue was 8.2% in 2022 and 9.5% in 2021. For a reconciliation between Adjusted Restaurant-
Level EBITDA and loss from operations see page 45.

General and Administrative Expenses. General and administrative expenses increased to $88.1 million in 2022
from $83.7 million in 2021, and, as a percentage of total revenue, remained flat at 5.1%. The increase in total
general and administrative expenses in 2022 was due to higher salaries and training labor ($2.3 million, including
$0.5 million higher executive severance in 2022 than in 2021), higher conference and travel expenses ($1.6 million),
higher professional fees ($1.4 million, including certain executive transition and placement costs) and higher
performance bonus accruals ($0.4 million) which were partially offset by lower stock compensation expense ($1.3
million).

Adjusted EBITDA. As a result of the factors above, Adjusted EBITDA decreased $19.1 million to $62.5
million in 2022 from $81.6 million in 2021. For a reconciliation between net loss and EBITDA and Adjusted
EBITDA see page 45.

Depreciation and Amortization. Depreciation and amortization expense decreased to $78.1 million in 2022

from $80.8 million in 2021.

Impairment and Other Lease Charges. Impairment and other lease charges were $21.9 million in 2022
consisting of $16.7 million in goodwill impairment charges, $0.2 million in franchise rights impairment charges,
initial impairment charges for 15 underperforming restaurants of $2.1 million, capital expenditures at previously
impaired restaurants of $0.7 million, and other lease charges of $2.1 million primarily related to eight restaurants
closed during 2022 of $1.7 million.

We recorded impairment and other lease charges of $4.5 million in 2021 consisting of $1.5 million related to
initial impairment charges for nine underperforming restaurants, $0.5 million of capital expenditures at previously
impaired restaurants, other lease charges of $0.6 million and $1.9 million related to impairment of certain owned
non-operating properties.

Other Income, net. Other income, net, was $0.9 million in 2022 and included loss on sale leaseback
transactions of $0.4 million, a loss on disposal of assets of $1.2 million and a gain from a settlement with a vendor
of $2.5 million. Other income, net, was $1.2 million in 2021 and included $1.1 million gain from the sale of a
litigation claim during the period, a gain from insurance recoveries of $1.3 million related to property damage at
two of the Company's restaurants and a loss on disposal of assets of $1.2 million.

Interest Expense. Interest expense increased to $30.8 million in 2022 from $28.8 million in 2021. The
weighted average interest rate on borrowings under our long-term debt increased to 5.3% in 2022 from 4.8% in
2021, due to the impact of the 5.875% interest rate on our new Notes issued in June of 2021 as well as higher
variable rates on the unhedged portion of our Senior Credit Facilities. Variable rate increases on our Senior Credit
Facilities have and will be offset by our interest rate swap which fixes the interest rate on $120.0 million of debt
outstanding under our Senior Credit Facilities. Prior to November 12, 2021, the interest rate swap hedged a notional
value of $220.0 million. As of January 1, 2023, after consideration of our interest rate swap, approximately 90% of
our long-term debt (including current portion) was at a fixed rate.

Benefit for Income Taxes. The benefit for income taxes during 2022 of $0.8 million was derived using an
estimated effective annual income tax rate for all of 2022 of 29.4%, which excludes any discrete tax adjustments.
The difference compared to the statutory rate for 2022 is attributable to various permanent non-deductible expenses
and non-refundable business credits which are not directly related to the amount of pre-tax loss recorded in the
period as well as the impact of increases to our valuation allowance on our deferred income tax assets of $21.1
million. There was $0.5 million in discrete tax benefits during 2022.

In 2021, we recorded income tax benefit of $5.2 million and our effective income tax rate was 32% prior to
the impact of a tax valuation allowance charge. The difference to the federal statutory rate for 2021 of 21% is
primarily due to the tax benefit of employment tax credits which are not directly related to the amount of pre-tax
loss and the tax benefit of state income taxes. There was a charge in the period of $11.3 million to establish
additional valuation allowance reserves against our deferred income tax assets for general business tax credits that
may expire unused.

Net Loss. As a result of the above, our net loss was $75.6 million in 2022, or $1.49 per diluted share,

compared to net loss of $43.0 million in 2021, or $0.86 per diluted share.

Reconciliations of net loss to EBITDA, Adjusted EBITDA and Adjusted Net Loss and loss from operations to
Adjusted Restaurant-Level EBITDA for the years ended January 1, 2023 and January 2, 2022 are as follows (in
thousands):

Reconciliation of EBITDA and Adjusted EBITDA:
Net loss
Benefit for income taxes
Interest expense
Depreciation and amortization

EBITDA

Impairment and other lease charges
Acquisition costs (1)
Pre-opening costs (2)
Executive transition, litigation and other professional expenses (3)
Other income, net (4)(5)
Stock compensation expense
Loss on extinguishment of debt

Adjusted EBITDA

Reconciliation of Adjusted Restaurant-Level EBITDA:
Loss from operations

Add:
General and administrative expenses
Pre-opening costs (2)
Depreciation and amortization
Impairment and other lease charges
Other income, net (4)(5)

Adjusted Restaurant-Level EBITDA

Year Ended

January 1, 2023

January 2, 2022

(75,572) $
(789)
30,841
78,068
32,548
21,877
—
292
3,777
(926)
4,902
—
62,470

(43,029)
(5,159)
28,791
80,798
61,401
4,470
398
75
1,678
(1,186)
6,234
8,538
81,608

Year Ended

January 1, 2023

January 2, 2022

(45,520) $

(10,859)

88,072
292
78,068
21,877

(926)
141,863 $

83,660
75
80,798
4,470
(1,186)
156,958

Reconciliation of Adjusted net loss:
Net loss
Add:

Year Ended

January 1, 2023

January 2, 2022

(75,572) $

(43,029)

Impairment and other lease charges
Acquisition costs (1)
Pre-opening costs (2)
Executive transition, litigation and other professional expenses (3)
Other income, net (4)(5)
Loss on extinguishment of debt
Income tax effect on above adjustments (6)
Valuation allowance for deferred taxes (7)

Adjusted Net Loss
Adjusted diluted net loss per share (8)
Adjusted diluted weighted average common shares outstanding

$
$

21,877
—
292
3,777
(926)
—
(6,256)
21,065
(35,743) $
(0.70) $

50,718

4,470
398
75
1,678
(1,186)
8,538
(3,494)
11,272
(21,278)
(0.43)
49,899

(1) Acquisition costs for twelve months ended January 2, 2022 mostly include integration, travel, legal and professional fees
incurred in connection with restaurants acquired during the second quarter of 2021, which were included in general and
administrative expenses.

(2) Pre-opening costs for the twelve months ended January 1, 2023 and January 2, 2022 include training, labor and occupancy

costs incurred during the construction of new restaurants.

(3) Executive transition, litigation and other professional expenses for the twelve months ended January 1, 2023 and January 2,
2022 include executive recruiting and transition costs, costs pertaining to an ongoing lawsuit with one of the Company's
former vendors and other non-recurring professional service expenses.

(4) Other income, net for the twelve months ended January 1, 2023 included a loss on sale leaseback transactions of $0.4

million, a loss on disposal of assets of $1.2 million and a gain from a settlement with a vendor of $2.5 million.

(5) Other income, net for the twelve months ended January 2, 2022 included $1.1 million gain from the sale of a litigation
claim during the period, a gain from insurance recoveries of $1.3 million related to property damage at two of the
Company's restaurants and a loss on disposal of assets of $1.2 million.

(6) The income tax effect related to the adjustments to Adjusted Net Loss during the periods presented was calculated using an
incremental income tax rate of 25.0% for the twelve months ended January 1, 2023 and January 2, 2022, respectively.
(7) Reflects the removal of the income tax expense recorded in connection with an increase to our valuation allowance on

deferred income tax assets during the years ended January 1, 2023 and January 2, 2022.

(8) Adjusted diluted net loss per share is calculated based on Adjusted Net Loss and the diluted weighted average common

shares outstanding for the respective periods, where applicable.

Liquidity and Capital Resources

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and
inventories and receive trade credit based upon negotiated terms for purchasing food products and other supplies.
As a result, we may at times maintain current liabilities in excess of current assets, which results in a working
capital deficit. We are able to operate with a substantial working capital deficit because:

•

restaurant operations are primarily conducted on a cash basis;

rapid turnover results in a limited investment in inventories; and

cash from sales is usually received before related liabilities for supplies and payroll become due.

Interest payments under our debt obligations, capital expenditures (including for restaurant remodeling),
payments of royalties and advertising to BKC and PLK, and payments related to our lease obligations represent
significant liquidity requirements for us, not including any discretionary expenditures for the acquisition or
development of additional Burger King and Popeyes restaurants.

If our future financing needs increase, we may need to arrange additional debt or equity financing. We
continually evaluate and consider various financing alternatives to enhance or supplement our existing financial
resources, including our Senior Credit Facilities. However, there can be no assurance that we will be able to enter
into any such arrangements on acceptable terms or at all.

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

Operating activities. Net cash provided from operating activities for the years ended January 1, 2023 and
January 2, 2022 was $20.8 million and $70.9 million, respectively. Net cash provided by operating activities in
2022 decreased by $50.1 million compared to 2021 due primarily to a decrease of Adjusted EBITDA of $19.1
million and a decrease in cash provided by working capital components of $27.6 million. Working capital changes
in 2022 included the repayment of $10.8 million of employer payroll taxes deferred in 2020 under the CARES Act
as well as semi-annual interest payments on our Notes which commenced in 2022.

Net cash provided from operating activities in 2021 decreased by $33.1 million compared to 2020 due
primarily to a decrease in Adjusted EBITDA of $26.2 million and a change in working capital of $9.9 million,
primarily related to favorable timing of required interest payments as well as 2020 including our deferral of the
employer portion of social security taxes through the end of 2020 of $21.6 million (which did not recur in 2021).

Investing activities. Net cash used for investing activities for the years ended January 1, 2023 and January 2,
2022 was $37.2 million and $58.6 million, respectively. In 2021, we acquired 19 Burger King restaurants in two
acquisitions for $30.8 million. This cost included the purchase of 13 fee-owned restaurants, of which 12 were sold
in sale-leaseback transactions during 2021 for net proceeds of approximately $20.2 million and one that was closed
and then sold in 2022 for proceeds of $0.2 million.

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 expenses associated with
our franchise agreement renewals and certain restaurants that we acquire; (3) other restaurant capital expenditures,
which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants,
and from time to time, to support BKC's and PLK's initiatives; and (4) corporate and restaurant information systems,
including expenditures for our point-of-sale software for restaurants that we acquire.

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

Year Ended

New restaurant development
Restaurant remodeling
Other restaurant capital expenditures
Corporate and restaurant information systems

Total capital expenditures

Number of new restaurant openings including relocations

January 1, 2023
$

January 2, 2022
9,000
16,712
17,045
9,006
51,763
4

8,881 $
9,139
16,639
3,560
38,219 $
6

In 2022, investing activities also included proceeds from the sale of other assets of $0.9 million. In 2021,
investing activities also included proceeds from property insurance recoveries of $1.5 million as well as sale
leasebacks of $22.3 million which includes $20.2 million related to the 2021 acquisitions as described above.

Financing activities. Net cash provided by financing activities in 2022 was $5.7 million and included $12.5
million net revolving credit borrowings under our Senior Credit Facilities, principal payments of $4.3 million of
outstanding term B loans under our Senior Credit Facilities, and principal payments on finance leases of $2.6
million.

Net cash provided by financing activities in 2021 was $48.1 million and included issuance of $300.0 million
principal amount of the Notes, principal payments of $321.4 million of outstanding term B and B-1 loans under our
Senior Credit Facilities, payment of a special dividend of $24.9 million, $5.4 million in financing costs paid in
connection with the Notes issuance and amendments to our Senior Credit Facilities, and proceeds from lease
financing obligations of $4.6 million. We also made principal payments on finance leases of $1.0 million.

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

Senior Credit Facilities. As described above under "—Recent and Future Events Affecting Our Results of
Operations—Issuance of Notes and Amendments to our Senior Credit Facilities", we entered into the Senior Credit
Facilities and subsequent amendments to the Senior Credit Facilities.

Our obligations under the Senior Credit Facilities are guaranteed by our subsidiaries and are secured by first
priority liens on substantially all of our assets, including a pledge of all of the capital stock and equity interests of
our subsidiaries. Under the Senior Credit Facilities, we are required to make mandatory prepayments of borrowings
following dispositions of assets, debt issuances and the receipt of insurance and condemnation proceeds (all subject
to certain exceptions).

The Senior Credit Facilities contain certain covenants, including, without limitation, those limiting our and our
subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses,
change the character of its business in any material respect, engage in transactions with related parties, make certain
investments, make certain restricted payments or pay dividends. In addition, the Senior Credit Facilities require us
to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) of not greater than 5.75 to 1.00 (as
measured on a most recent four quarter basis) if, and only if, on the last day of any fiscal quarter, the sum of the
aggregate principal amount of outstanding revolving credit borrowings under the Revolving Credit Facility and the
aggregate face amount of letters of credit issued under the Revolving Credit Facility (excluding undrawn letters of
credit in an aggregate face amount up to $12.0 million) exceed 35% of the aggregate borrowing capacity under the
Revolving Credit Facility.

limitation, payment default, covenant default, bankruptcy default, cross-default on other indebtedness, judgment
default and the occurrence of a change of control.

As of January 1, 2023, there were $12.5 million revolving credit borrowings outstanding and $9.6 million of
letters of credit issued under the Revolving Credit Facility. After reserving for issued letters of credit and
outstanding revolving credit borrowings, $192.9 million was available for revolving credit borrowings at January 1,
2023 under the Revolving Credit Facility.

As the $12.5 million borrowings under the Revolving Credit Facility (and only $9.6 million of letters of
credit) at January 1, 2023 did not exceed 35% of our aggregate borrowing capacity, no First Lien Leverage Ratio
calculation was required. However, if the Company had been subject to the First Lien Leverage Ratio, the
Company's First Lien Leverage Ratio was 2.63x to 1.00 as of January 1, 2023 which was below the required First
Lien Leverage Ratio of 5.75x to 1.00. As a result, we do not expect to have to reduce our term loan borrowings
mandatorily with Excess Cash Flow (as defined in the Senior Credit Facilities). We were in compliance with the
financial covenants under our Senior Credit Facilities at January 1, 2023.

At January 1, 2023, borrowings under our Senior Credit Facilities bore interest as follows:

(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior

Credit Facilities) plus 2.25% or (b) Adjusted Term SOFR (as defined in the Senior Credit Facilities) plus 3.25%.

(ii) Term loan B borrowings: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior

Credit Facilities) plus 2.25% or (b) Adjusted Term SOFR (as defined in the Senior Credit Facilities) plus 3.25%.

The weighted average interest rate for borrowings on long-term debt balances was 5.3% and 4.8% the years

ended January 1, 2023 and January 2, 2022, respectively.

The Term loan B borrowings are due and payable in quarterly installments, which began on September 30,

2019. Amounts outstanding at January 1, 2023 are due and payable as follows:

(i) thirteen quarterly installments of $1.1 million;

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

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

On December 15, 2022, the Company executed an amendment to its interest rate swap agreement to transition
from LIBOR to SOFR as the benchmark rate for purposes of calculating interest, which also changed the fixed rate
of interest from 0.915% plus the applicable margin to 0.847% plus the applicable margin. No other changes were
made to the terms of the interest rate swap.

The differences between the variable and fixed rates are settled monthly. We received net payments of
$1.0 million during the twelve months ended January 1, 2023 and made payments of $1.7 million to settle the
interest rate swap during the twelve months ended January 2, 2022. The fair value of our interest rate swap
agreement was an asset of $8.6 million as of January 1, 2023 which is included in other assets in the accompanying
consolidated balance sheets. Changes in the valuation of our interest rate swap were included as a component of
other comprehensive income, and will be reclassified to earnings as the gain or losses are realized. We expect to
reclassify net gains totaling $4.7 million into earnings in the next twelve months.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of January 1, 2023 (in

thousands):

Contractual Obligations
Long-term debt obligations, including interest (1)
Finance lease obligations, including interest (2)
Operating lease obligations (3)

Total contractual obligations

Total

Less than
1 Year

Payments due by period
1 – 3
Years
$ 628,658 $ 31,888 $ 66,351 $ 203,981 $ 326,438
4
6,785
14,634
1,272,993
774,129
201,838
$ 1,916,285 $ 138,492 $ 274,974 $ 402,248 $ 1,100,571

3,840
102,764

4,005
194,262

More than
5 Years

3 – 5
Years

(1) Our long-term debt at January 1, 2023 included $167.6 million of term B loans under our Senior Credit Facilities and
$300.0 million of Notes. Total interest payments on our Notes of $114.6 million for all years presented are included at
the coupon rate of 5.875% per annum. Interest on our term B loans under our Senior Credit Facilities
of $30.8 million for all years presented are included at a rate of 7.67% per annum for the variable portion and -3.47%
for the $120 million subject to our interest rate swap. Interest on our Revolving Credit Facility of $3.2 million for all
years presented are included at a rate of 7.67% per annum.
Includes total interest of $1.8 million for all years presented.
Includes total interest of $449.1 million for all years presented.

(3)

(2)

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. The total of these liabilities was $12.3 million at January 1, 2023.

Future new restaurant development and restaurant remodeling obligations to BKC and PLK have also been
excluded from the table above as well as contractual obligations related to royalties and advertising payable to BKC
and PLK.

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

term debt.

Lease Guarantees. Fiesta Restaurant Group, Inc. ("Fiesta"), our former wholly-owned subsidiary, was spun-
off in 2012 to our stockholders. As of January 1, 2023, we are a guarantor under 17 Fiesta restaurant property leases
from the time when Fiesta was its subsidiary, which have lease terms expiring on various dates through 2030. As of
January 1, 2023, the guarantees include eight Fiesta restaurant property leases and nine Taco Cabana leases of
which all but one Fiesta-owned restaurant is still operating. Eight of these guarantees are for leases with Pollo
Operations, Inc., a wholly owned subsidiary of Fiesta, and nine of these guarantees are for leases with Texas Taco
Cabana, L.P., an indirect subsidiary of Taco Cabana, Inc. (together with all direct and indirect subsidiaries, "Taco").
Taco was a wholly owned subsidiary of Fiesta until August 16, 2021 when Fiesta sold all of its outstanding capital
stock of Taco Cabana, Inc. to YTC Enterprises, LLC, an affiliate of Yadav Enterprises, Inc. We are fully liable for
all obligations under the terms of the leases in the event that a tenant 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 amount of future undiscounted rental payments we could be required to make under
these leases at January 1, 2023 was $7.0 million. The obligations under these leases will generally continue to
decrease over time as these operating leases expire, other than execution of option renewals that exist under the
original lease. 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.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and
paper costs, labor and other operating expenses, the cost of providing medical and prescription drug insurance to our
employees and energy costs. Wages paid in our restaurants are impacted by changes in the federal and state hourly
minimum wage rates and the Fair Labor Standards Act. Accordingly, changes in the federal and state hourly
minimum wage rates directly affect our labor costs.

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

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 Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and
assumptions are affected by the application of our accounting policies. Our significant accounting policies are
described in the "Significant Accounting Policies" footnote in the notes to 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, assessing impairment of long-lived assets, lease accounting matters and the valuation
of deferred income tax assets. 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. Our acquisition accounting methodology contains uncertainties because it requires us to make
significant estimates and assumptions, and to apply judgment to estimate the fair value of assets acquired and
liabilities assumed, especially with respect to 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.

If actual results are materially different than the assumptions we used to determine the fair value of the assets
acquired and liabilities assumed through an acquisition as well as the estimated useful lives of the acquired
intangible assets, it is possible that adjustments will have a material impact on our financial position and results of

operations. See Note 3 to our consolidated financial statements in this report for more information regarding our
business acquisitions.

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 January 1, 2023, we had $12.3
million accrued for these insurance claims.

Franchise Rights. We assess the potential impairment of franchise rights whenever events or changes in
circumstances indicate that the carrying value may not be recoverable, which include closures of restaurants, change
in restaurant-level cash flow, as well as consideration of the impact of a decline in the Company's market value. If
an indicator of impairment exists, an estimate of the aggregate undiscounted cash flows from the acquired
restaurants is compared to the respective carrying value of franchise rights for each acquisition. If an asset is
determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value.
When measuring impairment of franchise rights, we make assumptions and apply judgment in estimating future
cash flows, including annual revenue growth rates, labor rates, commodity costs and other operating cost
assumptions.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates
or assumptions we use to assess franchise right impairment losses. However, if actual results are not consistent with
our estimates or assumptions, we may be exposed to an impairment charge that could materially adversely impact
our consolidated financial position and results of operations.

Goodwill. Goodwill represents the excess of purchase price over the value assigned to the net tangible and
identifiable intangible assets of the businesses acquired. Goodwill is not amortized, but is tested for impairment
annually, or more frequently when events and circumstances indicate that the carrying amount may be impaired. As
part of our goodwill impairment analysis, we consider certain qualitative factors, such as performance, business
forecasts and expansion plans. Using both the income approach and the market approach, we compare the fair value
of each of our reporting units to carrying value. If the carrying amount of a reporting unit exceeds its estimated fair
value, an impairment loss is recognized.

We determined a sustained decline in the Company's stock price due to the impact of sustained increases in
input costs on our operating margins during the second quarter of 2022 resulted in an implied equity premium that
was outside of an observable range and was a sufficient indicator to trigger an interim goodwill impairment analysis
as of April 30, 2022. Based on the results of our goodwill impairment analysis, the fair value of the PLK reporting
unit was less than the carrying value and a full write-down of the PLK goodwill was required. See Note 5 in our
consolidated financial statements in this report for more information.

When measuring impairment of goodwill using discounted cash flows, we make assumptions and apply
judgment in estimating future cash flows and asset fair values, including annual revenue growth rates, a terminal
year growth rate and selecting a discount rate that reflects the risk inherent in future cash flows. We do not believe
there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to
assess goodwill impairment losses. However, if actual results are not consistent with our estimates or assumptions,
we may be exposed to an impairment charge that could materially adversely impact our consolidated financial
position and results of operations.

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 amount of an asset may not
be recoverable. Impairment indicators at the restaurant level include low operating cash flows, declining sales, if the
ratio of trailing twelve months cash flows extended over the remaining lease term does not exceed the net book
value of the asset group and consideration of the impact of a decline in the Company's market value. We determine
if the asset is recoverable by comparing the carrying amount of the asset to the future undiscounted cash flows

expected to be generated by our restaurants. If assets are determined to not be recoverable, the impairment charge is
measured by calculating the amount by which the asset's carrying amount exceeds its fair value. 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 which can be impacted by changes in the business or economic conditions. Our fair value estimates are
also subject to a high degree of judgment, including our ability to sell the related assets and changing market
conditions. Should actual cash flows and our future estimates vary from those estimates used, we may be required to
record impairment charges for these assets in the future.

Lease Accounting. In accordance with ASC 842, we determine if an arrangement is an operating lease or a
finance lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and current
and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property
and equipment and other current and long-term liabilities on our consolidated balance sheets. Lease liabilities are
calculated using the effective interest method and recognized at the commencement date based on the present value
of lease payments over the reasonably certain lease term, regardless of classification, while the amortization of ROU
assets varies depending upon classification. As our leases generally do not provide an implicit rate, we use a
collateralized incremental borrowing rate ("IBR") to determine the present value of lease payments. This analysis
considers qualitative and quantitative factors. We adjust our selected IBR quarterly with a company-specific yield
curve that approximates our market risk profile. The collateralized IBR is also based upon the estimated impact that
the collateral has on the IBR.

While we believe our estimates and judgments are reasonable, changes in these assumptions may have a

material impact on our consolidated financial positions and results of operations.

Valuation of Deferred Income Tax Assets. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to the years in which those differences are expected to be recovered or settled. Deferred tax
assets are recognized to the extent we believe these assets will more likely than not be realized. In evaluating the
realizability of our net deferred tax assets, we perform an assessment of positive and negative evidence, as required
by ASC 740. ASC 740 prescribes that objective historical evidence, in particular our three-year cumulative loss
position at January 1, 2023, be given a greater weight than subjective evidence, including our forecast of future
taxable income, which include assumptions that cannot be objectively verified. In determining the likelihood of
future realization of the deferred income tax assets as of January 1, 2023 and January 2, 2022 we considered both
positive and negative evidence and weighted the effect of such evidence based upon its objectivity. Based on the
required weight of evidence under ASC 740, as of January 1, 2023 we determined that a valuation allowance was
needed for certain income tax credits in the amount of $44.3 million as they may expire prior to their utilization.
The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable
income during the carryforward period are reduced or increased or if objective negative evidence in the form of
cumulative losses is no longer present and additional weight may be given to subjective evidence such as
projections for growth. 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.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could
differ, and we may be exposed to losses or gains that could be material. To the extent actual results differ from
estimated amounts recorded, such differences will impact the income tax provision in the period in which the
determination is made.

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 borrowings
under our Senior Credit Facilities in excess of the amounts covered by our interest rate swap. At January 1, 2023,
there were outstanding borrowings of $167.6 million under our Senior Credit Facilities of which $120 million was

fixed according to the terms of our interest rate swap. A 1% change in interest rates would have resulted in a $0.7
million change to interest expense for the year ended January 1, 2023 and a $2.8 million change to interest expense
for the year ended January 2, 2022.

At January 1, 2023, borrowings under the Senior Credit Facilities bore interest as follows (all terms as defined

in our Senior Credit Facilities):

(i) Revolving Credit Facility: at a rate per annum equal to (a) the Alternate Base Rate (as defined in the Senior

Credit Facilities) plus 2.25% or (b) Adjusted Term SOFR (as defined in the Senior Credit Facilities) plus 3.25%.

(ii) Term Loan B Facility borrowings: at a rate per annum equal to (a) the Alternate Base Rate (as defined in
the Senior Credit Facilities) plus 2.25% or (b) Adjusted Term SOFR (as defined in the Senior Credit Facilities) plus
3.25%.

Commodity Price Risk

We are exposed to market price fluctuations in beef and other food product prices caused by weather, market
conditions, including sourcing of various products internationally, 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, these types of purchasing techniques to control costs are used as an
alternative to using financial instruments to hedge commodity prices. We are dependent on our national purchasing
cooperatives, RSI for the Burger King system and SMS for the Popeyes system, for sourcing our products and
related supplies and managing relationships with approved distributors. 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

None.

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 Interim Chief Executive Officer and Chief Financial
Officer, as well as other key members of our management. Based on this evaluation, our Interim Chief Executive

Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
January 1, 2023.

Changes in Internal Control over Financial Reporting. No changes occurred in our internal control over
financial reporting during the fourth quarter of 2022 that materially affected, or are 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 January 1,
2023 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 January 1, 2023, 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 shareholders and the Board of Directors of Carrols Restaurant Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Carrols Restaurant Group, Inc. and subsidiaries (the
“Company”) as of January 1, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of January 1, 2023, based on criteria established in
Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements and consolidated financial statement schedule (“consolidated financial
statements”) listed in the Index at Item 15(a)2 as of and for the year ended January 1, 2023 of the Company and our report
dated March 9, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, 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.

/s/ Deloitte & Touche LLP

Rochester, New York
March 9, 2023

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE