tast-20221002
000080924812/312022Q3falseP3Y00008092482022-01-032022-10-0200008092482022-11-04xbrli:shares00008092482022-10-02iso4217:USD00008092482022-01-02iso4217:USDxbrli:shares00008092482022-07-042022-10-0200008092482021-07-052021-10-0300008092482021-01-042021-10-030000809248us-gaap:CommonStockMember2022-01-020000809248us-gaap:PreferredStockMember2022-01-020000809248us-gaap:AdditionalPaidInCapitalMember2022-01-020000809248us-gaap:RetainedEarningsMember2022-01-020000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-020000809248us-gaap:TreasuryStockMember2022-01-020000809248us-gaap:AdditionalPaidInCapitalMember2022-01-032022-04-0300008092482022-01-032022-04-030000809248us-gaap:CommonStockMember2022-01-032022-04-030000809248us-gaap:RetainedEarningsMember2022-01-032022-04-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-032022-04-030000809248us-gaap:CommonStockMember2022-04-030000809248us-gaap:PreferredStockMember2022-04-030000809248us-gaap:AdditionalPaidInCapitalMember2022-04-030000809248us-gaap:RetainedEarningsMember2022-04-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-030000809248us-gaap:TreasuryStockMember2022-04-0300008092482022-04-030000809248us-gaap:AdditionalPaidInCapitalMember2022-04-042022-07-0300008092482022-04-042022-07-030000809248us-gaap:CommonStockMember2022-04-042022-07-030000809248us-gaap:RetainedEarningsMember2022-04-042022-07-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-042022-07-030000809248us-gaap:CommonStockMember2022-07-030000809248us-gaap:PreferredStockMember2022-07-030000809248us-gaap:AdditionalPaidInCapitalMember2022-07-030000809248us-gaap:RetainedEarningsMember2022-07-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-030000809248us-gaap:TreasuryStockMember2022-07-0300008092482022-07-030000809248us-gaap:AdditionalPaidInCapitalMember2022-07-042022-10-020000809248us-gaap:RetainedEarningsMember2022-07-042022-10-020000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-042022-10-020000809248us-gaap:CommonStockMember2022-10-020000809248us-gaap:PreferredStockMember2022-10-020000809248us-gaap:AdditionalPaidInCapitalMember2022-10-020000809248us-gaap:RetainedEarningsMember2022-10-020000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-020000809248us-gaap:TreasuryStockMember2022-10-020000809248us-gaap:CommonStockMember2021-01-030000809248us-gaap:PreferredStockMember2021-01-030000809248us-gaap:AdditionalPaidInCapitalMember2021-01-030000809248us-gaap:RetainedEarningsMember2021-01-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-030000809248us-gaap:TreasuryStockMember2021-01-0300008092482021-01-030000809248us-gaap:AdditionalPaidInCapitalMember2021-01-042021-04-0400008092482021-01-042021-04-040000809248us-gaap:CommonStockMember2021-01-042021-04-040000809248us-gaap:RetainedEarningsMember2021-01-042021-04-040000809248us-gaap:TreasuryStockMember2021-01-042021-04-040000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-042021-04-040000809248us-gaap:CommonStockMember2021-04-040000809248us-gaap:PreferredStockMember2021-04-040000809248us-gaap:AdditionalPaidInCapitalMember2021-04-040000809248us-gaap:RetainedEarningsMember2021-04-040000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-040000809248us-gaap:TreasuryStockMember2021-04-0400008092482021-04-040000809248us-gaap:AdditionalPaidInCapitalMember2021-04-052021-07-0400008092482021-04-052021-07-040000809248us-gaap:CommonStockMember2021-04-052021-07-040000809248us-gaap:RetainedEarningsMember2021-04-052021-07-040000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-052021-07-040000809248us-gaap:CommonStockMember2021-07-040000809248us-gaap:PreferredStockMember2021-07-040000809248us-gaap:AdditionalPaidInCapitalMember2021-07-040000809248us-gaap:RetainedEarningsMember2021-07-040000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-040000809248us-gaap:TreasuryStockMember2021-07-0400008092482021-07-040000809248us-gaap:AdditionalPaidInCapitalMember2021-07-052021-10-030000809248us-gaap:RetainedEarningsMember2021-07-052021-10-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-052021-10-030000809248us-gaap:CommonStockMember2021-10-030000809248us-gaap:PreferredStockMember2021-10-030000809248us-gaap:AdditionalPaidInCapitalMember2021-10-030000809248us-gaap:RetainedEarningsMember2021-10-030000809248us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-10-030000809248us-gaap:TreasuryStockMember2021-10-0300008092482021-10-030000809248tast:BurgerKingCorporateMember2022-10-02xbrli:pure0000809248tast:PopeyesMember2022-10-020000809248tast:SeniorNotesDue2029Member2022-10-020000809248tast:TermLoanBFacilityMember2022-10-0200008092482021-06-172021-06-17tast:restaurant00008092482021-06-232021-06-230000809248tast:A2021AcquisitionsMember2022-10-020000809248tast:A2021AcquisitionsMember2022-07-042022-10-020000809248tast:A2021AcquisitionsMember2022-01-032022-10-02tast:period0000809248us-gaap:FranchiseRightsMember2021-01-042021-10-030000809248us-gaap:FranchiseRightsMember2022-07-042022-10-020000809248us-gaap:FranchiseRightsMember2022-01-032022-10-020000809248us-gaap:FranchiseRightsMember2021-07-052021-10-030000809248us-gaap:FranchiseRightsMember2022-10-020000809248tast:UnderperformingRestaurantsMember2022-07-042022-10-020000809248tast:InitialImpairmentChargeMember2022-07-042022-10-020000809248tast:CapitalExpendituresAtUnderperformingRestaurantsMember2022-07-042022-10-020000809248tast:OtherImpairmentsMember2022-07-042022-10-020000809248tast:ClosedRestaurantsMember2022-07-042022-10-020000809248tast:OtherLeaseChargesMember2022-07-042022-10-020000809248tast:UnderperformingRestaurantsMember2022-01-032022-10-020000809248tast:InitialImpairmentChargeMember2022-01-032022-10-020000809248tast:PreviouslyImpairedMember2022-01-032022-10-020000809248tast:OtherImpairmentsMember2022-01-032022-10-020000809248tast:ClosedRestaurantsMember2022-01-032022-10-020000809248tast:OtherLeaseChargesMember2022-01-032022-10-020000809248tast:InitialImpairmentChargeMember2021-07-052021-10-030000809248tast:UnderperformingRestaurantsMember2021-07-052021-10-030000809248tast:PreviouslyImpairedMember2021-07-052021-10-030000809248tast:OtherImpairmentsMember2021-07-052021-10-030000809248tast:InitialImpairmentChargeMember2021-01-042021-10-030000809248tast:UnderperformingRestaurantsMember2021-01-042021-10-030000809248tast:PreviouslyImpairedMember2021-01-042021-10-030000809248tast:OtherImpairmentsMember2021-01-042021-10-030000809248tast:COVID19Member2022-10-020000809248srt:MinimumMember2022-10-020000809248srt:MaximumMember2022-10-020000809248tast:RestaurantRentExpenseMember2022-07-042022-10-020000809248tast:RestaurantRentExpenseMember2021-07-052021-10-030000809248tast:RestaurantRentExpenseMember2022-01-032022-10-020000809248tast:RestaurantRentExpenseMember2021-01-042021-10-030000809248us-gaap:GeneralAndAdministrativeExpenseMember2022-07-042022-10-020000809248us-gaap:GeneralAndAdministrativeExpenseMember2021-07-052021-10-030000809248us-gaap:GeneralAndAdministrativeExpenseMember2022-01-032022-10-020000809248us-gaap:GeneralAndAdministrativeExpenseMember2021-01-042021-10-030000809248tast:TermLoanBFacilityMember2022-01-020000809248us-gaap:RevolvingCreditFacilityMember2022-10-020000809248us-gaap:RevolvingCreditFacilityMember2022-01-020000809248tast:SeniorUnsecuredNotesDue2029Member2022-10-020000809248tast:SeniorUnsecuredNotesDue2029Member2022-01-020000809248tast:SeniorSecuredCreditFacilityMember2019-04-300000809248tast:TermLoanBFacilityMember2019-04-300000809248us-gaap:StandbyLettersOfCreditMember2019-04-300000809248us-gaap:RevolvingCreditFacilityMember2019-04-300000809248tast:SeventhAmendmentRevolvingCreditFacilityMember2021-09-300000809248tast:SeniorSecuredCreditFacilityMember2019-12-130000809248us-gaap:RevolvingCreditFacilityMember2019-12-130000809248tast:SeniorSecuredCreditFacilityMember2022-10-020000809248tast:TermLoanBAndB1FacilityMember2022-10-020000809248srt:ScenarioForecastMembertast:TermLoanBAndB1FacilityMember2026-04-302026-04-300000809248us-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMember2020-06-282020-06-280000809248us-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-06-282020-06-280000809248tast:TermLoanBFacilityMemberus-gaap:BaseRateMember2020-06-282020-06-280000809248us-gaap:LondonInterbankOfferedRateLIBORMembertast:TermLoanBFacilityMember2020-06-282020-06-280000809248tast:SeniorUnsecuredNotesDue2029Memberus-gaap:SeniorNotesMember2022-10-020000809248us-gaap:RevolvingCreditFacilityMember2021-06-282021-06-280000809248tast:TermLoanB1FacilityMember2021-06-282021-06-280000809248tast:TermLoanBFacilityMember2021-06-282021-06-2800008092482021-06-282021-06-2800008092482020-03-310000809248tast:SeniorSecuredCreditFacilityMember2022-07-0300008092482021-11-12utr:Rate0000809248us-gaap:RestrictedStockMembersrt:ChiefExecutiveOfficerMember2022-01-032022-04-030000809248us-gaap:ShareBasedPaymentArrangementEmployeeMembertast:TimeVestedRestrictedSharesMember2022-01-032022-10-020000809248tast:TimeVestedRestrictedSharesMemberus-gaap:ShareBasedPaymentArrangementNonemployeeMember2022-01-032022-10-020000809248us-gaap:RestrictedStockMembersrt:ChiefExecutiveOfficerMember2022-04-012022-04-010000809248us-gaap:RestrictedStockMembersrt:ChiefExecutiveOfficerMember2022-04-010000809248tast:PerformanceBasedRestrictedStockMembersrt:ChiefExecutiveOfficerMember2022-04-010000809248tast:IncentiveStockOptionsISOsMember2022-01-032022-07-030000809248tast:IncentiveStockOptionsISOsMember2022-04-010000809248us-gaap:EmployeeStockOptionMember2022-01-032022-07-0300008092482022-01-032022-07-030000809248us-gaap:RestrictedStockUnitsRSUMember2022-01-020000809248us-gaap:RestrictedStockUnitsRSUMember2022-01-032022-10-020000809248us-gaap:RestrictedStockUnitsRSUMember2022-10-020000809248us-gaap:PropertyLeaseGuaranteeMember2022-10-02tast:lease0000809248tast:TacoCabanaLeasesMember2022-10-020000809248tast:ClosedRestaurantsMember2022-10-020000809248us-gaap:PropertyLeaseGuaranteeMembertast:PolloOperationsIncMember2022-10-020000809248us-gaap:PropertyLeaseGuaranteeMembertast:TexasTacoCabanaLPMember2022-10-020000809248tast:LineageFoodserviceSolutionsMemberus-gaap:SalesRevenueNetMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248tast:McLaneCompanyIncMemberus-gaap:SalesRevenueNetMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248tast:BurgerKingMemberus-gaap:SalesRevenueNetMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248tast:ReinhartFoodServiceLLCMemberus-gaap:SalesRevenueNetMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248tast:BakeryRollsMemberus-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-02tast:distributor0000809248tast:PoultryProductMembertast:CustomizedDistributionServicesMemberus-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248tast:NonPoultryProductMembertast:CustomizedDistributionServicesMemberus-gaap:CostOfGoodsTotalMemberus-gaap:SupplierConcentrationRiskMember2022-01-032022-10-020000809248srt:AffiliatedEntityMember2022-10-020000809248srt:AffiliatedEntityMember2022-01-032022-10-02utr:Y0000809248us-gaap:RoyaltyAgreementTermsMembertast:BurgerKingCorporateMember2022-01-032022-10-020000809248tast:PopeyesMemberus-gaap:RoyaltyAgreementTermsMember2022-01-032022-10-020000809248srt:AffiliatedEntityMember2022-07-042022-10-020000809248srt:AffiliatedEntityMember2021-07-052021-10-030000809248srt:AffiliatedEntityMember2021-01-042021-10-030000809248us-gaap:SellingAndMarketingExpenseMembersrt:AffiliatedEntityMember2022-07-042022-10-020000809248srt:AffiliatedEntityMember2021-10-030000809248tast:PropertyLeasesIdenticaltoBKCsLeasewithThirdPartyMembersrt:AffiliatedEntityMember2022-10-020000809248tast:PropertyLeasesIdenticaltoBKCsLeasewithThirdPartyMembersrt:AffiliatedEntityMember2021-10-0300008092482021-01-0400008092482021-09-3000008092482022-09-300000809248us-gaap:SubsequentEventMembersrt:ScenarioForecastMember2023-09-300000809248us-gaap:SubsequentEventMembersrt:ScenarioForecastMember2024-09-300000809248us-gaap:SubsequentEventMembersrt:ScenarioForecastMember2025-09-30tast:state0000809248tast:PopeyesFranchisesMember2021-01-030000809248tast:PopeyesFranchisesMember2020-09-270000809248tast:PopeyesFranchisesMember2019-04-302019-04-300000809248tast:BurgerKingCorporateMembersrt:AffiliatedEntityMember2022-07-042022-10-020000809248tast:RepurchaseProgramMember2019-08-020000809248tast:RepurchaseProgramMember2022-10-02
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-33174
CARROLS RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware83-3804854
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
968 James Street
Syracuse,New York13203
(Address of principal executive office)(Zip Code)
Registrant’s telephone number, including area code: (315424-0513 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per shareTASTThe NASDAQ Global Market
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      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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filerAccelerated filer
Non-accelerated filerSmaller 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 4, 2022, Carrols Restaurant Group, Inc. had 53,273,272 shares of its common stock, $.01 par value, outstanding.


Table of Contents
CARROLS RESTAURANT GROUP, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 2, 2022
 
  Page
Item 1
Item 2
Item 3
Item 4
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6
2


PART I—FINANCIAL INFORMATION
ITEM 1—INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CARROLS RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
October 2, 2022January 2, 2022
ASSETS
Current assets:
Cash and cash equivalents$3,237 $29,151 
Trade and other receivables20,823 16,644 
Inventories13,567 14,023 
Prepaid expenses and other current assets18,807 8,530 
Total current assets56,434 68,348 
Property and equipment, net of accumulated depreciation of $524,095 and $489,588, respectively
320,387 337,702 
Franchise rights, net of accumulated amortization of $157,937 and $147,486, respectively (Note 4)
316,293 326,769 
Goodwill (Note 4)107,751 124,451 
Operating right-of-use assets, net (Note 7)773,505 791,763 
Franchise agreements, at cost less accumulated amortization of $16,696 and $14,608, respectively
29,095 30,788 
Deferred income taxes (Note 9)6,461  
Other assets (Note 8)14,530 7,243 
Total assets$1,624,456 $1,687,064 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease liabilities (Notes 7 and 8)$7,293 $5,794 
Current portion of operating lease liabilities (Note 7)46,812 44,688 
Accounts payable30,082 31,164 
Accrued interest5,173 9,433 
Accrued payroll, related taxes and benefits46,508 50,855 
Accrued real estate taxes9,453 8,256 
Other liabilities32,428 18,433 
Total current liabilities177,749 168,623 
Long-term debt and finance lease liabilities, net of current portion (Notes 7 and 8)478,807 465,317 
Operating lease liabilities (Note 7)785,585 802,959 
Deferred income taxes, net (Note 9) 7,617 
Accrued postretirement benefits1,437 1,552 
Other liabilities (Note 6)11,497 26,772 
Total liabilities1,455,075 1,472,840 
Commitments and contingencies (Note 11)
Stockholders’ equity (Note 13):
Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstanding—100 shares
  
Voting common stock, par value $.01; authorized—100,000,000 shares, issued—55,378,225 and 53,374,341 shares, respectively, and outstanding—50,805,461 and 49,932,558 shares, respectively
529 520 
Additional paid-in capital291,624 287,816 
Accumulated deficit (117,838)(61,396)
Accumulated other comprehensive income9,193 1,411 
Treasury stock, at cost(14,127)(14,127)
Total stockholders’ equity169,381 214,224 
Total liabilities and stockholders’ equity$1,624,456 $1,687,064 
See notes to unaudited condensed consolidated financial statements.
3


CARROLS RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Restaurant sales$443,961 $421,703 $1,285,382 $1,236,237 
Operating expenses:
Food, beverage and packaging costs138,012 131,103 401,244 371,317 
Restaurant wages and related expenses148,838 141,303 439,773 408,541 
Restaurant rent expense (Note 7)31,244 30,551 93,487 91,456 
Other restaurant operating expenses70,237 66,733 204,676 193,280 
Advertising expense17,841 16,619 51,446 48,927 
General and administrative expenses (including stock-based compensation of $940, $1,458, $3,817, and $4,541, respectively)
22,572 19,209 65,416 61,276 
Depreciation and amortization19,284 20,101 58,897 61,131 
Impairment and other lease charges (Notes 4 and 5)1,196 784 19,868 1,281 
Other income, net (Note 15)(1,750)(1,053)(1,109)(111)
Total operating expenses447,474 425,350 1,333,698 1,237,098 
Loss from operations(3,513)(3,647)(48,316)(861)
Loss on extinguishment of debt   8,538 
Interest expense7,896 7,724 22,968 21,392 
Loss before income taxes(11,409)(11,371)(71,284)(30,791)
Benefit from income taxes (Note 9)
(2,712)(1,469)(14,842)(4,162)
Net loss
$(8,697)$(9,902)$(56,442)$(26,629)
Basic and diluted net loss per share (Note 14)
$(0.17)$(0.20)$(1.11)$(0.53)
Shares used in computing net loss per share:
Weighted average common shares outstanding:
Basic and diluted weighted average common shares outstanding50,805,461 49,927,583 50,689,730 49,889,673 
Comprehensive loss, net of tax:
Net loss
$(8,697)$(9,902)$(56,442)$(26,629)
Change in valuation of interest rate swap (Note 8)2,905 269 7,782 2,924 
Comprehensive loss$(5,792)$(9,633)$(48,660)$(23,705)
See notes to unaudited condensed consolidated financial statements.
4


CARROLS RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
Accumulated
AdditionalOtherTotal
Common StockPreferred StockPaid-InAccumulatedComprehensiveTreasury StockStockholders'
SharesAmountSharesAmountCapitalDeficitIncome (Loss)SharesAmountEquity
Balance, January 2, 202252,037,511 $520 100 $ $287,816 $(61,396)$1,411 (2,104,953)$(14,127)$214,224 
Stock-based compensation— — — — 1,941 — — — — 1,941 
Vesting of non-vested shares and RSUs856,039 9 — — (9)— — — —  
Net loss— — — — — (21,269)— — — (21,269)
Change in valuation of interest rate swap, net of income taxes of $816 (Note 8)
— — — — — — 4,282 — — 4,282 
Balance, April 3, 202252,893,550 $529 100 $ $289,748 $(82,665)$5,693 (2,104,953)$(14,127)$199,178 
Stock-based compensation— — — — 936 — — — — 936 
Vesting of non-vested shares16,864 — — — — — — — —  
Net loss— — — — — (26,476)— — — (26,476)
Change in valuation of interest rate swap, net of income tax benefit of $211 (Note 8)
— — — — — — 595 — — 595 
Balance, July 3, 202252,910,414 $529 100 $ $290,684 $(109,141)$6,288 (2,104,953)$(14,127)$174,233 
Stock-based compensation— — — — 940 — — — — 940 
Vesting of non-vested shares— — — — — — — — — — 
Net loss— — — — — (8,697)— — — (8,697)
Change in valuation of interest rate swap, net of income taxes of $159 (Note 8)
— — — — — — 2,905 — — 2,905 
Balance, October 2, 2022
52,910,414 $529 100 $ $291,624 $(117,838)$9,193 (2,104,953)$(14,127)$169,381 
Balance, January 3, 202151,486,116 $515 100 $— $306,469 $(18,367)$(3,015)(2,096,734)$(14,070)$271,532 
Stock-based compensation— — — — 1,469 — — — — 1,469 
Vesting of non-vested shares and RSUs522,406 5 — — (5)— — — —  
Net loss— — — — — (7,168)— — — (7,168)
Purchase of treasury stock— — — — — — — (8,219)(57)(57)
Change in valuation of interest rate swap, net of income taxes of $1,046 (Note 8)
— — — — — — 3,159 — — 3,159 
Balance, April 4, 202152,008,522 $520 100 $ $307,933 $(25,535)$144 (2,104,953)$(14,127)$268,935 
Stock-based compensation— — — — 1,614 — — — — 1,614 
Vesting of non-vested shares 24,014 — — — — — — — —  
Net loss— — — — — (9,559)— — — (9,559)
Change in valuation of interest rate swap, net of income taxes of $167 (Note 8)
— — — — — — (504)— — (504)
Balance, July 4, 202152,032,536 $520 100 $ $309,547 $(35,094)$(360)(2,104,953)$(14,127)$260,486 
Stock-based compensation— — — — 1,458 — — — — 1,458 
Vesting of non-vested shares — — — — — — — — — — — 
Conversion of preferred stock to common stock— — — — (24,882)— — — — (24,882)
Net loss— — — — — (9,902)— — — (9,902)
Change in valuation of interest rate swap, net of income taxes of $89 (Note 8)
— — — — — — 269 — — 269 
Balance, October 3, 202152,032,536 $520 100 $ $286,123 $(44,996)$(91)(2,104,953)$(14,127)$227,429 
See notes to unaudited condensed consolidated financial statements.
5

Table of Contents
CARROLS RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Nine Months Ended
October 2, 2022October 3, 2021
Cash flows provided by (used in) operating activities:
Net loss$(56,442)$(26,629)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
(Gain) loss on disposals of property and equipment, including sale-leasebacks1,375 (111)
Stock-based compensation3,817 4,541 
Impairment and other lease charges19,868 1,281 
Depreciation and amortization58,897 61,131 
Amortization of deferred financing costs1,625 1,903 
Amortization of discount on debt95 455 
Deferred income taxes(14,842)(4,138)
Non-cash loss on extinguishment of debt 8,538 
Changes in other operating assets and liabilities(16,535)3,256 
Net cash provided by (used in) operating activities(2,142)50,227 
Cash flows used for investing activities:
Capital expenditures:
New restaurant development(7,220)(5,768)
Restaurant remodeling(7,251)(9,660)
Other restaurant capital expenditures(12,325)(13,455)
Corporate and restaurant information systems(2,948)(8,660)
Total capital expenditures(29,744)(37,543)
Acquisition of restaurants, net of cash acquired (Note 3) (30,819)
Proceeds from sale of other assets864 229 
Properties purchased for sale-leaseback(3,996) 
Proceeds from sale-leaseback transactions4,052 20,186 
Proceeds from insurance recoveries58 1,244 
Net cash used for investing activities(28,766)(46,703)
Cash flows provided by financing activities:
Proceeds from issuance of 5.875% Senior Notes due 2029 300,000 
Principal payments on Term B and B-1 Loans(3,188)(320,313)
Borrowings under revolving credit facility91,500 47,063 
Repayments under revolving credit facility(81,500) 
Principal payments on finance lease liabilities(1,818)(404)
Costs associated with issuance of long-term debt (5,404)
Purchase of treasury shares (57)
Net cash provided by financing activities 4,994 20,885 
Net increase (decrease) in cash and cash equivalents(25,914)24,409 
Cash and cash equivalents, beginning of period29,151 64,964 
Cash and cash equivalents, end of period$3,237 $89,373 
Supplemental disclosures:
Interest paid on long-term debt$25,210 $14,577 
Interest paid on lease financing obligations77 78 
Interest paid on finance leases505 86 
Accruals for capital expenditures1,916 2,059 
Finance lease obligations incurred9,085 2,798 
Gain on sale-leaseback transactions430 17 
Operating lease assets and liabilities resulting from lease modifications and new leases19,461 35,128 
Operating cash flows related to operating leases76,804 75,389 
See notes to unaudited condensed consolidated financial statements.
6

Table of Contents
CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except share and per share amounts)

1. Business Description
At October 2, 2022, Carrols Restaurant Group, Inc. (“Carrols Restaurant Group”) operated, as franchisee, 1,022 Burger King® restaurants in 23 Northeastern, Midwestern, Southcentral and Southeastern states and 65 Popeyes® restaurants in seven Southeastern states. Carrols Restaurant Group, Inc. is a holding company and conducts all of its operations through its direct and indirect wholly-owned subsidiaries Carrols Corporation and New CFH, LLC and their wholly-owned subsidiaries. Carrols Corporation's material wholly-owned subsidiary is 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”). Unless the context otherwise requires, Carrols Restaurant Group and its direct and indirect wholly-owned subsidiaries are collectively referred to as the “Company.”

2. Significant Accounting Policies
Basis of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The three and nine months ended October 2, 2022 and October 3, 2021 contained thirteen and thirty-nine weeks, respectively. The 2022 fiscal year will end January 1, 2023 and will contain 52 weeks.
Basis of Presentation. The unaudited condensed consolidated financial statements as of and for the three and nine months ended October 2, 2022 and October 3, 2021 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such unaudited condensed consolidated financial statements have been included. The results of operations for the three and nine months ended October 2, 2022 are not necessarily indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended January 2, 2022. The January 2, 2022 consolidated balance sheet data is derived from those audited consolidated financial statements.
Use of Estimates. The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include accrued occupancy costs, insurance liabilities, lease accounting matters, the valuation of acquired assets and liabilities, interest rate swap valuation, the valuation of deferred income tax assets and liabilities, and the evaluation for impairment of goodwill, long-lived assets and franchise rights. Actual results could differ from those estimates.
Segment Information. Operating segments are components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in order to allocate resources and assess performance. The Company's chief operating decision-maker, our President and Chief Executive Officer (“CEO”), currently evaluates the Company's operations from a number of different operational perspectives; however, resource allocation decisions are determined based on the chief operating decision-maker's evaluation of the Company's operations as a whole. The Company derives all significant revenues from a single
7


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

operating segment, its restaurant business. Accordingly, the Company views the operating results of its restaurants as one reportable segment.
Business Combinations. In accordance with ASC 805, the Company allocates the purchase price of an acquired business to its identifiable assets and liabilities based on the estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. The excess value of the net identifiable assets and liabilities acquired over the purchase price, if any, is recorded as a bargain purchase gain. The Company uses all available information to estimate fair values of identifiable intangible assets and property acquired. In making these determinations, the Company may engage an independent third-party valuation specialist to assist with the valuation of certain leasehold improvements, franchise rights and favorable and unfavorable leases.
The Company estimates that the seller's carrying value of acquired restaurant equipment, subject to certain adjustments, is equivalent to the fair value of this equipment at the date of the acquisition. The fair values of assumed franchise agreements are valued as if the remaining term of the agreement is at the market rate. The fair values of acquired land, buildings, certain leasehold improvements and restaurant equipment subject to finance leases are determined using both the cost approach and market approach using significant inputs observable in the open market. The Company categorizes these inputs as Level 2 inputs under ASC 820. The fair value of acquired franchise rights and favorable or unfavorable leases positions are determined using the income approach and include unobservable inputs. The Company categorizes these inputs as Level 3 inputs under ASC 820.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. At both October 2, 2022 and January 2, 2022, the Company did not have any cash invested in money market funds classified as cash equivalents on the condensed consolidated balance sheets.
Food, beverage and packaging costs. The Company includes food, beverage and packaging costs and delivery charges, net of any vendor purchase discounts and rebates, in food, beverage, and packaging costs.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect the Company's own assumptions. Financial instruments include cash and cash equivalents, trade and other receivables, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, trade and other receivables and accounts payable approximate fair value because of the short-term nature of these financial instruments. Borrowings under the Company’s Senior Credit Facilities (including its term B loans) accrue interest at a floating rate tied to a standard short-term borrowing index selected at the Company’s option, plus an applicable margin. The Company's liability for its Senior Credit Facilities and 5.875% Senior Notes due 2029 are carried at historical cost in the accompanying balance sheets. The fair value of our term B loans and 5.875% Senior Notes due 2029 is based on recent trading activity, which are Level 2 inputs in the fair value hierarchy. As of October 2, 2022, the term B loans traded at 86.5% of par value and the 5.875% Senior Notes due 2029 traded at 67.0% of par value.
The Company recognizes its derivative arrangements on the balance sheet at fair value, which is considered a Level 2 input. The Company’s only derivative is an interest rate swap (the “Swap”) which is designated as a cash flow hedge. Accordingly, the effective portion of the changes in the fair value of this arrangement is recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. Any ineffective portion of the changes in the fair value of this arrangement is immediately recognized in earnings as interest expense, as applicable. The Company classifies cash inflows and outflows from derivatives within operating activities on the condensed consolidated statements of cash flows. The Swap is valued at $9.1 million as of October 2, 2022. It is classified as Level 2 within the valuation hierarchy.
8


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of long-lived assets, goodwill and intangible assets. Long-lived assets and definite-lived intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs. As described in Notes 4 and 5, the Company recorded $16.7 million in goodwill impairment charges in the second quarter of 2022 and long-lived asset impairment charges of $0.4 million and $1.8 million during the three and nine months ended October 2, 2022 and $0.6 million and $0.9 million during the three and nine months ended October 3, 2021.
Recently Issued Accounting Pronouncements. In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04 (“ASU 2020-04”) and subsequently ASU No. 2021-01, Reference Rate Reform (Topic 848) in March 2020 and January 2021, respectively. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, including derivative instruments impacted by changes in the interest rates used for discounting cash flows for computing variable margin settlements, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued in 2022 or 2023. The ASUs establish certain contract modification principles that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients and exceptions. The ASUs may be applied prospectively and are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the guidance to determine the timing and extent to which it will apply to the Company's borrowing and interest rate swap arrangements. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.
Subsequent events. The Company reviewed and evaluated subsequent events through the issuance date of the Company’s unaudited condensed consolidated financial statements.
3. Acquisitions
In 2021, the Company acquired an aggregate of 19 Burger King restaurants from other franchisees in the following transactions (in thousands except number of restaurants):
Closing DateNumber of RestaurantsPurchase Price
Fee-Owned(1)(2)
Market Location
June 17, 2021
14
$27,603 12 Fort Wayne, Indiana
June 23, 2021
5
3,216 1 Battle Creek, Michigan
19 $30,819 13 
(1)The 2021 acquisitions included the purchase of 13 fee-owned restaurants, of which 12 were sold in sale-leaseback transactions during the third quarter of 2021 for net proceeds of approximately $20.2 million.
(2)One of the fee-owned restaurants was closed at the end of 2021 and subsequently sold in the second quarter of 2022 for proceeds of $0.2 million.

9


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

The Company allocated the aggregate purchase price for the 2021 acquisitions at their estimated fair values. The following table summarizes the final allocation of the aggregate purchase price for the 2021 acquisitions:
Inventory$229 
Land and buildings20,376 
Restaurant equipment850 
Restaurant equipment - subject to finance leases29 
Right-of-use assets2,997 
Leasehold improvements550 
Franchise fees411 
Franchise rights 6,025 
Deferred income taxes484 
Goodwill 1,832 
Operating lease liabilities(2,900)
Finance lease liabilities for restaurant equipment(35)
Accounts payable(29)
Net assets acquired$30,819 
Goodwill recorded in connection with the 2021 acquisitions represents costs in excess of fair values assigned to the underlying net assets of acquired restaurants. Acquired goodwill that is expected to be deductible for income tax purposes was $1.8 million in 2021.
The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2021 acquired restaurants contributed restaurant sales of $5.5 million and $16.5 million in the three and nine months ended October 2, 2022. It is impracticable to disclose net earnings for the post-acquisition period for the acquired restaurants as net earnings of these restaurants were not tracked on a collective basis due to the integration of administrative functions, including field supervision.
The unaudited pro forma impact on the results of operations for the restaurants acquired in 2021 for the three and nine months ended October 3, 2021 are included below. The unaudited pro forma results of operations are not necessarily indicative of the results that would have occurred had the acquisitions been consummated at the beginning of the periods presented, nor are they necessarily indicative of any future consolidated operating results. The following table summarizes the Company's unaudited pro forma operating results:
Three Months EndedNine Months Ended
October 3, 2021October 3, 2021
Total revenue$421,703 $1,247,727 
Net loss$(9,821)$(25,395)
Basic and diluted net loss per share $(0.20)$(0.51)
This unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies, cost savings or integration costs related to the acquired restaurants.
10


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

4. Intangible Assets
Goodwill. The Company is required to review goodwill for impairment annually, or more frequently when events and circumstances indicate that the carrying amount may be impaired. During the second quarter of 2022, a sustained decline in the Company's stock price due to the impact of continued increases in input costs on the Company's operating margins resulted in an implied equity premium that was outside of an observable range and was determined to be an indicator of an impairment. As a result, the Company performed a quantitative interim goodwill impairment test for its reporting units during the second quarter of 2022. As part of this interim goodwill impairment test, the Company considered certain qualitative and quantitative factors, such as the Company's performance, business forecasts, capital expenditure plans, a discount rate approximating the Company's weighted average cost of capital, and an evaluation of peer company multiples, among other factors. Using both the income approach and the market approach, the Company compared the fair value of each of its reporting units to their respective carrying values. Based on the results of this analysis, the Company determined that the fair value of its Popeyes reporting unit was less than its carrying value, and as a result, recorded a non-cash goodwill impairment charge during the three months ended July 2, 2022 of $16.7 million. The non-cash goodwill impairment charge represented a full write-down of the goodwill for the Popeyes reporting unit and is included in impairment and other lease charges on the condensed consolidated statements of comprehensive loss.
During the third quarter of 2022 the Company performed its annual analysis of its remaining goodwill for the Burger King reporting unit. As part of the annual goodwill impairment test, the Company considered certain qualitative and quantitative factors, such as the Company's performance, business forecasts, capital expenditure plans, a discount rate approximating the Company's weighted average cost of capital, and an evaluation of peer company multiples, among other factors. Given the nature of the qualitative and quantitative factors considered, there is a degree of uncertainty associated with these judgments and estimates. Notably, the business forecasts and market conditions considered within the Company’s annual goodwill impairment test reflect the Company’s long-standing history of operating Burger King restaurants in various business cycles. The forecasts do not reflect an immediate change in commodity costs or wage pressures, but do reflect a normalization of these costs over time. Using both the income approach and the discounted cash flow approach, the Company compared the fair value of the reporting unit to the carrying value for the reporting unit. Based on the results of this analysis, the fair value of the reporting unit exceeded its carrying value and goodwill was not impaired as of October 2, 2022. However, there can be no assurances that goodwill will not be impaired in future periods. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors. These estimates and judgments may not be within the control of the Company and accordingly it is possible that the factors, judgments, and estimates could change in future periods.
The change in goodwill for the nine months ended October 2, 2022 is summarized below:
Balance at January 2, 2022$124,451 
Impairment of goodwill(16,700)
Balance at October 2, 2022$107,751 
Franchise Rights. Amounts allocated to franchise rights for each acquisition of Burger King and Popeyes restaurants are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one renewal period of twenty years.
The Company assesses the potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying value may not be recoverable, including closures of restaurants that were part of an acquisition, a shortfall in undiscounted operating cash flows over the projected remaining life of the franchise rights over the carrying value of such franchise rights for each acquisition group, or a goodwill impairment trigger. 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
11


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

fair value. No impairment charges were recorded related to the Company’s franchise rights for the three and nine months ended October 2, 2022 and October 3, 2021, respectively.
The change in franchise rights for the nine months ended October 2, 2022 is summarized below:
Balance at January 2, 2022$326,769 
Amortization expense(10,476)
Balance at October 2, 2022$316,293 
Amortization expense related to franchise rights was $3.5 million and $3.5 million for the three months ended October 2, 2022 and October 3, 2021, respectively, and $10.5 million and $10.4 million for the nine months ended October 2, 2022 and October 3, 2021, respectively. The Company expects annual amortization expense to be $14.0 million in fiscal 2022, 2023 and 2024 and $13.9 million in 2025, 2026 and 2027.
5. Impairment of Long-Lived Assets and Other Lease Charges
The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and 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 closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for any right-of-use (“ROU”) lease asset impairment or lease-related costs during the remaining term, net of any estimated sublease recoveries.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions. The Company determines the fair value of right-of-use lease assets based on an assessment of market rents and a discounted future cash flow model. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy.
During the three months ended October 2, 2022, the Company recorded long-lived asset impairment and other lease charges of $1.2 million consisting of initial impairment charges for three underperforming restaurants of $0.3 million, capital expenditures at previously impaired restaurants of $0.1 million, and other lease charges of $0.8 million primarily related to one restaurant closed during the third quarter of $0.4 million. During the nine months ended October 2, 2022, the Company recorded long-lived asset impairment and other lease charges of $3.2 million consisting of initial impairment charges for ten underperforming restaurants of $1.4 million, capital expenditures at previously impaired restaurants of $0.4 million, and other lease charges of $1.5 million primarily related to six restaurants closed during the period of $1.0 million.
During the three months ended October 3, 2021, the Company recorded impairment and other lease charges of $0.8 million consisting of $0.5 million of initial impairment charges for three underperforming restaurants, capital expenditure impairment of $0.1 million at underperforming restaurants and $0.2 million of other lease charges in the third quarter of 2021. During the nine months ended October 3, 2021, the Company recorded impairment and other lease charges of $1.3 million consisting of $0.5 million related to initial impairment for four underperforming restaurants, capital expenditure impairment of $0.4 million at previously impaired restaurants and $0.4 million of other lease charges primarily from three restaurants closed during the first nine months of 2021.
12


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

6. Other Liabilities, Long-Term
Other liabilities, long-term, at October 2, 2022 and January 2, 2022 consisted of the following:
October 2, 2022January 2, 2022
Accrued occupancy costs$1,759 $1,741 
Accrued workers’ compensation and general liability claims4,895 4,947 
Deferred compensation2,526 2,286 
Deferred federal payroll taxes 10,808 
Lease finance obligations1,181 5,780 
Other1,136 1,210 
$11,497 $26,772 
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (as amended, the “CARES Act”) as a response to the economic uncertainty resulting from COVID-19. The CARES Act provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 (which was subsequently deferred to January 3, 2022) and the remaining 50% due December 31, 2022 (which was subsequently deferred to January 3, 2023). As of October 2, 2022, $10.8 million of this deferral remained to be repaid and was recorded as a current liability in accrued payroll, related taxes and benefits.
7. Leases
The Company utilizes land and buildings in its operations under various lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for twenty years and provide for renewal options with rent escalations. The exercise of such renewal options is generally at the Company’s sole discretion. The Company evaluates renewal options at lease commencement and upon any lease amendments or remodeling activity to determine if such options are reasonably certain to be exercised based on economic factors. Certain leases also require variable rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy-related costs including payment of property taxes, insurance and utilities.
Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. As the rate implicit within our leases is not readily determinable, the Company uses market and term-specific incremental borrowing rates which consider the rate of interest it expects to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. ROU assets are also reduced by lease incentives, increased by initial direct costs and adjusted by favorable lease assets and unfavorable lease liabilities.
Variable lease components represent amounts that are contractually fixed as a percentage of sales and are recognized in expense as incurred. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets and are recognized as lease expense on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including rent) separately from non-lease components (e.g. common area maintenance).
The Company also utilizes certain restaurant equipment under various finance lease agreements with initial terms of generally three to eight years. The Company does not consider any one of these individual leases material to the Company's operations.
For certain leases where rent escalates based upon a change in a financial index, such as the Consumer Price Index, the difference between the index at lease inception and the subsequent fluctuations in that index are included in variable lease costs. Additionally, because the Company has elected to not separate lease and non-lease components, in limited instances variable costs also include payments to the landlord for common area
13


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

maintenance, real estate taxes, insurance and other operating expenses. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those costs are incurred.
Lease Cost
The components and classification of lease expense for the three and nine months ended October 2, 2022 and October 3, 2021 are as follows:
Three Months Ended
Nine Months Ended
Lease costClassificationOctober 2, 2022October 3, 2021October 2, 2022October 3, 2021
Operating lease cost(1)
Restaurant rent expense$26,274 $25,951 $78,970 $77,410 
Operating lease cost(2)
General and administrative231 213 704 693 
Variable lease costRestaurant rent expense4,970 4,599 14,517 14,046 
Finance lease cost:
Amortization of right-of-use assetsDepreciation and amortization818 240 1,975 549 
Interest on lease liabilitiesInterest expense227 35 505 86 
Total lease cost$32,520 $31,038 $96,671 $92,784 
(1)Includes short-term leases which are not material.
(2)Represents operating lease costs for property and equipment not directly related to restaurant operations.

8. Long-term Debt
Long-term debt at October 2, 2022 and January 2, 2022 consisted of the following:
October 2, 2022January 2, 2022
Senior Credit Facility:
Term B Loans$168,688 $171,875 
Revolving credit borrowings10,000  
Senior Notes Due 2029300,000 300,000 
Finance lease liabilities13,570 6,306 
Total Funded debt492,258 478,181 
Less: current portion of long-term debt and finance lease liabilities(7,293)(5,794)
Less: unamortized debt issuance costs(5,673)(6,490)
Less: unamortized original issue discount(485)(580)
Total Long-term debt$478,807 $465,317 
Senior Credit Facilities. On April 30, 2019, the Company 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”). As of October 2, 2022, 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.
The Company’s obligations under the Senior Credit Facilities are guaranteed by its subsidiaries and are secured by first priority liens on substantially all of the assets of the Company and its subsidiaries, including a pledge of all of the capital stock and equity interests of its subsidiaries.
14


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

Under the Senior Credit Facilities, the Company is required to make mandatory prepayments of borrowings in the event of dispositions of assets, debt issuances and insurance and condemnation proceeds (all subject to certain exceptions).
The Senior Credit Facilities contain certain covenants, including, without limitation, those limiting the Company’s and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in all material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends.
In addition, the Senior Credit Facilities require the Company to meet a First Lien Leverage Ratio (as defined in the Senior Credit Facilities) under certain circumstances. The Company is 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) exceeds 35% of the aggregate amount of the maximum borrowings under the Revolving Credit Facility.
The Senior Credit Facilities contain customary default provisions, including that the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary events of default which include, without limitation, payment default, covenant default, bankruptcy default, cross-default on other indebtedness, judgment default and the occurrence of a change of control.
As of October 2, 2022, there were $10.0 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 of 3.35x to 1.00 as of October 2, 2022 was below the required First Lien Leverage Ratio of 5.75 to 1.00. As a result, the Company does not expect to have to reduce its term loan borrowings mandatorily with Excess Cash Flow (as defined in the Senior Credit Facilities).
After reserving for issued letters of credit and outstanding borrowings under the Revolving Credit Facility, $195.4 million was available for borrowings under the Revolving Credit Facility at October 2, 2022. The Company was in compliance with the covenants under its Senior Credit Facilities at October 2, 2022.
The Term Loan B Facility requires quarterly installment payments, which began on September 30, 2019. Amounts outstanding at October 2, 2022 are due and payable as follows:
(i) fourteen remaining quarterly installments of $1.1 million;
(ii) one final payment of $153.8 million on April 30, 2026.
At October 2, 2022, borrowings under the Senior Credit Facilities bore interest as follows (subject to interest rate swap as described below):
(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) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.25%.
(ii) Term Loan B 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) LIBOR Rate (as defined in the Senior Credit Facilities) plus 3.25%.
The weighted average interest rate for borrowings on long-term debt balances was 5.4% and 5.3% for the three and nine months ended October 2, 2022, respectively, and 5.1% and 4.7% for the three and nine months ended October 3, 2021, respectively.
Senior Notes due 2029. On June 28, 2021, the Company 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 borrowings under the Revolving Credit Facility, were used to (i) repay $74.4 million of outstanding term
15


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

B-1 loans and $243.6 million of outstanding term B loans under the 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 the Company (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. The Company was in compliance with all such covenants as of October 2, 2022.
Interest Rate Swap. In March 2020, the Company entered into an interest rate swap agreement with certain of its lenders under the Senior Credit Facilities to mitigate the risk of increases in the variable interest rate related to term loan borrowings under the Senior Credit Facilities. The interest rate swap fixed the interest rate on $220.0 million of outstanding borrowings under the Senior Credit Facility at 0.915% plus the applicable margin in its Senior Credit Facilities. The differences between the variable LIBOR rate and the interest rate swap rate of 0.915% are settled monthly. The agreement matures on February 28, 2025.
On November 12, 2021, the Company partially terminated this interest rate swap to reduce the notional amount hedged from $220.0 million to $120.0 million. The reduction, which settled with net proceeds to the Company of $0.2 million, left the fixed rate and other terms of the swap arrangement unchanged and provided 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 Company received additional interest income to settle the interest rate swap of $0.4 million and $0.1 million during the three and nine months ended October 2, 2022, respectively, and made net additional interest payments of $0.5 million and $1.3 million, during the three and nine months ended October 3, 2021, respectively.
The fair value of the Company's interest rate swap agreement was an asset of $9.1 million as of October 2, 2022 which is included in long-term other assets in the accompanying condensed consolidated balance sheets. Changes in the valuation of the Company's interest rate swap were included as a component of other comprehensive loss and will be reclassified to earnings as the income or losses are realized. The Company expects to reclassify net gains totaling $4.1 million into earnings in the next twelve months related to this interest rate swap.
The Company's counterparties under this arrangement provided the Company with quarterly statements of the market values of these instruments based on significant inputs that were observable or could be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability. The Company classified this within Level 2 of the valuation hierarchy described in Note 2. The impact on the derivative liabilities for the Company and the counterparties' non-performance risk to the derivative trades was considered when measuring the fair value of derivative liabilities.
16


CARROLS RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Tabular amounts in thousands, except share and per share amounts)

9. Income Taxes
The benefit for income taxes for the three and nine months ended October 2, 2022 and October 3, 2021 was comprised of the following:
Three Months EndedNine Months Ended
 October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Current$ $(8)$ $(24)
Deferred(3,394)(3,102)(21,010)(8,335)
Change in valuation allowance682 1,641 6,168 4,197 
Benefit for income taxes$(2,712)$(1,469)