Company Quick10K Filing
Carrols Restaurant Group
Price8.28 EPS-0
Shares51 P/E-21
MCap423 P/FCF12
Net Debt484 EBIT1
TEV906 TEV/EBIT1,117
TTM 2019-09-29, in MM, except price, ratios
10-Q 2020-06-28 Filed 2020-08-06
10-Q 2020-03-29 Filed 2020-05-07
10-K 2019-12-29 Filed 2020-03-13
10-Q 2019-09-29 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-30 Filed 2019-03-07
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-07-01 Filed 2018-08-09
10-Q 2018-04-01 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-12
10-Q 2017-10-01 Filed 2017-11-09
10-Q 2017-07-02 Filed 2017-08-09
10-Q 2017-04-02 Filed 2017-05-10
10-K 2017-01-01 Filed 2017-03-07
10-Q 2016-10-02 Filed 2016-11-09
10-Q 2016-07-03 Filed 2016-08-10
10-Q 2016-04-03 Filed 2016-05-11
10-K 2016-01-03 Filed 2016-03-09
10-Q 2015-09-27 Filed 2015-11-04
10-Q 2015-06-28 Filed 2015-08-05
10-Q 2015-03-29 Filed 2015-05-06
10-K 2014-12-28 Filed 2015-03-04
10-Q 2014-09-28 Filed 2014-11-06
10-Q 2014-06-29 Filed 2014-08-06
10-Q 2014-03-30 Filed 2014-05-07
10-K 2013-12-29 Filed 2014-03-03
10-Q 2013-09-29 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-30 Filed 2013-03-12
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-07-01 Filed 2012-08-10
10-Q 2012-04-01 Filed 2012-05-10
10-K 2012-01-01 Filed 2012-03-08
10-Q 2011-10-02 Filed 2011-11-14
10-Q 2011-07-03 Filed 2011-08-12
10-Q 2011-04-03 Filed 2011-05-12
10-K 2011-01-02 Filed 2011-03-18
10-Q 2010-10-03 Filed 2010-11-10
10-Q 2010-07-04 Filed 2010-08-12
10-Q 2010-04-04 Filed 2010-05-12
10-K 2010-01-03 Filed 2010-03-09
8-K 2020-08-06 Earnings, Exhibits
8-K 2020-06-23
8-K 2020-06-15
8-K 2020-06-15
8-K 2020-05-07
8-K 2020-04-16
8-K 2020-04-08
8-K 2020-03-26
8-K 2020-03-17
8-K 2020-02-25
8-K 2020-02-14
8-K 2020-02-14
8-K 2020-01-13
8-K 2019-12-13
8-K 2019-11-20
8-K 2019-11-08
8-K 2019-11-07
8-K 2019-09-10
8-K 2019-09-09
8-K 2019-08-29
8-K 2019-08-08
8-K 2019-06-13
8-K 2019-05-08
8-K 2019-05-01
8-K 2019-03-27
8-K 2019-02-27
8-K 2019-02-20
8-K 2019-02-19
8-K 2018-11-30
8-K 2018-11-06
8-K 2018-10-08
8-K 2018-08-07
8-K 2018-06-07
8-K 2018-05-08
8-K 2018-02-28
8-K 2018-02-20

TAST 10Q Quarterly Report

Part I - Financial Information
Item 1 - Interim Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 ex101carrols-fifthamen.htm
EX-31.1 tast-ex31120200628xq2.htm
EX-31.2 tast-ex31220200628xq2.htm
EX-32.1 tast-ex32120200628xq2.htm
EX-32.2 tast-ex32220200628xq2.htm

Carrols Restaurant Group Earnings 2020-06-28

Balance SheetIncome StatementCash Flow
1.81.41.10.70.40.02012201420172020
Assets, Equity
0.50.40.30.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22012201420172020
Ops, Inv, Fin

Document
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The COVID-19 has significantly impacted the communities the Company's restaurants operate in as federal, state and local governments have taken a series of actions to contain its spread. Customer traffic declined at our restaurants as social distancing policies have impacted consumer behavior. In March 2020, the Company closed its dining rooms in all restaurants, temporarily closed </font><font style="font-family:inherit;font-size:11pt;">46</font><font style="font-family:inherit;font-size:11pt;"> restaurants that were geographically close to other restaurants, and modified operating hours in line with local ordinances and day-part sales trends. </font></div><div style="line-height:120%;padding-top:8px;text-align:justify;text-indent:32px;font-size:11pt;"><font style="font-family:inherit;font-size:11pt;">Throughout the course of this evolving COVID-19 outbreak, the Company has been adapting its business in order continue operating safely. To support the health and safety of our employees and customers, the Company mandated the use of masks and contactless procedures in its restaurants, the use of sanitizers and requiring team members' temperatures be taken at the beginning of each shift. The Company also implemented a work-from-home policy for all non-restaurant personnel. </font></div><div style="line-height:120%;padding-top:8px;text-align:justify;text-indent:32px;font-size:11pt;"><font style="font-family:inherit;font-size:11pt;">Additionally, the Company has strengthened and preserved its liquidity in light of the emerging economic conditions. The Company has been in contact with its major suppliers and at this point, has not experienced any material disruption in its supply chains. The Company has contacted each of its landlords to potentially negotiate accommodations to preserve cash. Further, the Company increased the borrowing capacity under its Senior Credit Facilities as described in Note 7. </font></div><div style="line-height:120%;padding-top:8px;text-align:justify;text-indent:32px;font-size:11pt;"><font style="font-family:inherit;font-size:11pt;">While the COVID-19 pandemic has negatively impacted the Company's customer traffic in March and April of 2020, the immediate actions taken to continue drive-thru and carry-out business operations and secure liquidity have minimized the financial impact on the Company's results of operations, financial condition and cash flows. </font></div><div style="line-height:120%;padding-bottom:16px;padding-top:12px;text-align:justify;text-indent:32px;font-size:11pt;"><font style="font-family:inherit;font-size:11pt;">However, given the uncertainty as to when or the manner in which the conditions surrounding the COVID-19 pandemic will change and the related continued economic uncertainty, including but not limited to stock price volatility, lower customer traffic and governmental restrictions on restaurant businesses, in the future the Company may determine that non-cash impairment adjustments to the carrying value of its assets, including goodwill and other intangible assets, could be required. 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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 June 28, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-33174
CARROLS RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
 
 
 
Delaware
83-3804854
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
 
968 James Street
 
Syracuse,
New York
13203
(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 class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $.01 per share
 
TAST
 
The 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 filer
 
Accelerated filer
 
 
 
 
 
Non-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. 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 August 4, 2020, Carrols Restaurant Group, Inc. had 52,723,814 shares of its common stock, $.01 par value, outstanding.



CARROLS RESTAURANT GROUP, INC.
FORM 10-Q
QUARTER ENDED JUNE 28, 2020
 
 
 
Page
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
Item 5
 
 
 
Item 6

3


PART I—FINANCIAL INFORMATION
ITEM 1—INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
June 28, 2020
 
December 29, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
45,978

 
$
2,974

Trade and other receivables
17,166

 
13,445

Inventories
11,943

 
13,334

Prepaid expenses and other current assets
8,277

 
9,748

Refundable income taxes
188

 
284

Total current assets
83,552

 
39,785

Property and equipment, net of accumulated depreciation of $409,333 and $377,810, respectively
363,554

 
385,578

Franchise rights, net of accumulated amortization of $126,628 and $119,288, respectively (Note 3)
341,601

 
348,941

Goodwill (Note 3)
122,619

 
122,619

Franchise agreements, at cost less accumulated amortization of $13,481 and $13,365, respectively
32,973

 
32,690

Operating right-of-use assets, net (Note 6)
816,922

 
811,016

Other assets
11,165

 
10,831

Total assets
$
1,772,386

 
$
1,751,460

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt and finance lease liabilities (Notes 6 and 7)
$
4,996

 
$
5,866

Current portion of operating lease liabilities (Note 6)
40,880

 
40,805

Accounts payable
36,673

 
45,780

Accrued interest
812

 
901

Accrued payroll, related taxes and benefits
28,986

 
31,314

Accrued real estate taxes
8,891

 
8,139

Other liabilities
31,042

 
16,520

Total current liabilities
152,280

 
149,325

Long-term debt and finance lease liabilities, net of current portion (Notes 6 and 7)
478,214

 
455,565

Lease financing obligations
1,193

 
1,194

Operating lease liabilities (Note 6)
822,479

 
808,292

Deferred income taxes, net (Note 8)

 
6,983

Accrued postretirement benefits
2,464

 
2,555

Other liabilities (Note 5)
25,861

 
18,084

Total liabilities
1,482,491

 
1,441,998

Commitments and contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
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—52,723,814 and 51,840,200 shares, respectively, and outstanding—51,486,116 and 51,049,377 shares, respectively
515

 
510

Additional paid-in capital
303,487

 
301,251

Retained earnings (accumulated deficit)
(3,271
)
 
11,096

Accumulated other comprehensive income (loss)
(6,765
)
 
622

Treasury stock, at cost
(4,071
)
 
(4,017
)
Total stockholders’ equity
289,895

 
309,462

Total liabilities and stockholders’ equity
$
1,772,386

 
$
1,751,460

CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 28, 2020
 
June 30, 2019
 
June 28, 2020
 
June 30, 2019
Revenue:
 
 
 
 
 
 
 
Restaurant sales
$
368,418

 
$
365,674

 
$
719,936

 
$
656,463

Other revenue

 
2,885

 

 
2,885

Total revenue
368,418

 
368,559

 
719,936

 
659,348

Operating expenses:
 
 
 
 
 
 
 
Cost of sales
104,703

 
109,157

 
207,630

 
191,732

Restaurant wages and related expenses
111,888

 
121,140

 
236,463

 
221,332

Restaurant rent expense
28,984

 
26,690

 
58,438

 
48,606

Other restaurant operating expenses
54,310

 
56,308

 
112,288

 
101,913

Advertising expense
14,416

 
14,677

 
28,292

 
26,549

General and administrative (including stock-based compensation expense of $1,109, $1,282, $2,241 and $2,808 respectively)
18,581

 
20,620

 
39,368

 
40,344

Depreciation and amortization
20,296

 
17,121

 
41,327

 
32,413

Impairment and other lease charges (Note 4)
2,941

 
367

 
5,822

 
1,277

Other expense (income), net (Note 14)
(2,003
)
 
376

 
(1,947
)
 
(1,753
)
Total operating expenses
354,116

 
366,456

 
727,681

 
662,413

Income (loss) from operations
14,302

 
2,103

 
(7,745
)
 
(3,065
)
Loss on extinguishment of debt

 
7,443

 

 
7,443

Interest expense
6,370

 
6,900

 
13,510

 
12,847

Income (loss) before income taxes
7,932

 
(12,240
)
 
(21,255
)
 
(23,355
)
Provision (benefit) for income taxes (Note 8)
90

 
(8,508
)
 
(6,888
)
 
(8,154
)
Net income (loss)
$
7,842

 
$
(3,732
)
 
$
(14,367
)
 
$
(15,201
)
Basic and diluted net income (loss) per share (Note 13)
$
0.13

 
$
(0.09
)
 
$
(0.28
)
 
$
(0.39
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
50,916,758

 
41,051,354

 
50,868,929

 
38,548,246

Diluted
60,331,817

 
41,051,354

 
50,868,929

 
38,548,246

Comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Net income (loss)
$
7,842

 
$
(3,732
)
 
$
(14,367
)
 
$
(15,201
)
Change in valuation of interest rate swap (Note 7)
(2,178
)
 

 
(7,387
)
 

Comprehensive income (loss)
$
5,664

 
$
(3,732
)
 
$
(21,754
)
 
$
(15,201
)

See accompanying notes to unaudited condensed consolidated financial statements.
4


CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Retained
 
Other
 
 
 
Total
 
Common Stock
 
Preferred Stock
 
Paid-In
 
Earnings
 
Comprehensive
 
Treasury
 
Stockholders'
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
(Deficit)
 
Income (Loss)
 
Stock
 
Equity
Balance, December 29, 2019
51,049,377

 
$
510

 
100

 
$

 
$
301,251

 
$
11,096

 
$
622

 
$
(4,017
)
 
$
309,462

Stock-based compensation

 

 

 

 
1,132

 

 

 

 
1,132

Vesting of non-vested shares
424,963

 
5

 

 

 
(5
)
 

 

 

 

Net loss

 

 

 

 

 
(22,209
)
 

 

 
(22,209
)
Repurchase of treasury stock

 

 

 

 

 

 

 
(54
)
 
(54
)
Change in valuation of interest rate swap (Note 7)

 

 

 

 

 

 
(5,209
)
 

 
(5,209
)
Balance, March 29, 2020
51,474,340

 
$
515

 
100

 
$

 
$
302,378

 
$
(11,113
)
 
$
(4,587
)
 
$
(4,071
)
 
$
283,122

Stock-based compensation

 

 

 

 
1,109

 

 

 

 
1,109

Vesting of non-vested shares
11,776

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 
7,842

 

 

 
7,842

Change in valuation of interest rate swap (Note 7)

 

 

 

 

 

 
(2,178
)
 

 
(2,178
)
Balance, June 28, 2020
51,486,116

 
$
515

 
100

 
$

 
$
303,487

 
$
(3,271
)
 
$
(6,765
)
 
$
(4,071
)
 
$
289,895

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 30, 2018
35,742,427

 
$
357

 
100

 
$

 
$
150,459

 
$
35,511

 
$
(646
)
 
$
(141
)
 
$
185,540

Stock-based compensation

 

 

 

 
1,526

 

 

 

 
1,526

Vesting of non-vested shares
371,824

 
4

 

 

 
(4
)
 

 

 

 

Net loss

 

 

 

 

 
(11,469
)
 

 

 
(11,469
)
Adoption of ASC 842, net of taxes (Note 6)

 

 

 

 

 
7,504

 

 

 
7,504

Balance, March 31, 2019
36,114,251

 
$
361

 
100

 
$

 
$
151,981

 
$
31,546

 
$
(646
)
 
$
(141
)
 
$
183,101

Stock-based compensation

 

 

 

 
1,282

 

 

 

 
1,282

Vesting of non-vested shares
2,478

 

 

 

 

 

 

 

 

Issuance of common and preferred stock
7,364,413

 
74

 
10,000

 

 
145,259

 

 

 

 
145,333

Retirement of treasury stock

 

 

 

 
(141
)
 

 

 
141

 

Net loss

 

 

 

 

 
(3,732
)
 

 

 
(3,732
)
Balance, June 30, 2019
43,481,142

 
$
435

 
10,100

 
$

 
$
298,381

 
$
27,814

 
$
(646
)
 
$

 
$
325,984


See accompanying notes to unaudited condensed consolidated financial statements.
5

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


CARROLS RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
 
June 28, 2020
 
June 30, 2019
Cash flows provided by operating activities:
 
 
 
Net loss
$
(14,367
)
 
$
(15,201
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
(Gain) loss on disposals of property and equipment
(1,859
)
 
508

Stock-based compensation
2,241

 
2,808

Gain on settlement agreement (Note 11)

 
(1,913
)
Impairment and other lease charges
5,822

 
1,277

Depreciation and amortization
41,327

 
32,413

Amortization of deferred financing costs
1,039

 
719

Amortization of bond premium and discount on debt
146

 
(264
)
Deferred income taxes
(6,983
)
 
(8,219
)
Change in refundable income taxes
96

 
(41
)
Loss on extinguishment of debt non-cash

 
129

Changes in other operating assets and liabilities
20,430

 
(1,384
)
Net cash provided by operating activities
47,892

 
10,832

Cash flows used for investing activities:
 
 
 
Capital expenditures:
 
 
 
New restaurant development
(13,952
)
 
(19,120
)
Restaurant remodeling
(7,349
)
 
(12,990
)
Other restaurant capital expenditures
(5,555
)
 
(8,784
)
Corporate and restaurant information systems
(6,288
)
 
(2,198
)
Total capital expenditures
(33,144
)
 
(43,092
)
Acquisition of restaurants, net of cash acquired (Note 2)

 
(127,980
)
Properties purchased for sale-leaseback
(12,441
)
 

Proceeds from sale-leaseback transactions
18,859

 
4,637

Proceeds from insurance recoveries
1,720

 
123

Net cash used for investing activities
(25,006
)
 
(166,312
)
Cash flows provided by financing activities:
 
 
 
Proceeds from issuance of Term Loan B Facility
71,250

 
422,875

Repayments of Term Loan B Facility
(2,125
)
 

Retirement of 8% Senior Secured Second Lien Notes, premium and fees

 
(280,500
)
Borrowings under prior revolving credit facility

 
175,750

Repayments under prior revolving credit facility

 
(150,750
)
Borrowings under new revolving credit facility
150,000

 

Repayments under new revolving credit facility
(195,750
)
 

Payments on finance lease liabilities
(1,134
)
 
(981
)
Costs associated with financing long-term debt
(2,123
)
 
(11,516
)
Net cash provided by financing activities
20,118

 
154,878

Net increase (decrease) in cash and cash equivalents
43,004

 
(602
)
Cash and cash equivalents, beginning of period
2,974

 
4,014

Cash and cash equivalents, end of period
$
45,978

 
$
3,412

Supplemental disclosures:
 
 
 
Interest paid on long-term debt
$
12,363

 
$
15,988

Interest paid on lease financing obligations
$
52

 
$
52

Accruals for capital expenditures
$
3,405

 
$
4,882

Income taxes paid
$

 
$
138


See accompanying notes to unaudited condensed consolidated financial statements.
6

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



1. Basis of Presentation
Business Description. At June 28, 2020 Carrols Restaurant Group, Inc. ("Carrols Restaurant Group") operated, as franchisee, 1,027 Burger King® restaurants in 23 Northeastern, Midwestern and Southeastern states and 65 Popeyes® restaurants in seven Southeastern states.
In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has significantly impacted the communities the Company's restaurants operate in as federal, state and local governments have taken a series of actions to contain its spread. In March 2020, the Company closed its dining rooms in all restaurants and modified operating hours in line with local ordinances and day-part sales trends, and over the course of March and April of 2020 temporarily closed 46 restaurants that were geographically close to one of its other restaurants. These closures were in effect for most of the second quarter. Each restaurant operated according to their respective local governmental guidelines as well as safety procedures developed by Burger King and Popeyes. As individual states and local governments have allowed reopenings, the Company has evaluated the opportunity to re-open dining rooms. As of the end of the second quarter, 28 of the temporarily closed restaurants had reopened, and another seven restaurants were reopened in July.
The Company took actions to strengthen and preserve its liquidity in light of these emerging economic conditions. The Company has been in contact with its major suppliers and at this point, has not experienced any material disruption in its supply chains. During the second quarter, the Company contacted each of its landlords to request rent relief during this period as described in Note 6. Further, the Company increased the borrowing capacity under its Senior Credit Facilities and issued Incremental Term B-1 Loans for proceeds of $71.3 million after original issue discount as described in Note 7.
Basis of Consolidation. 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 direct and indirect wholly-owned subsidiaries (collectively, "Carrols") include its wholly-owned subsidiary Carrols LLC, a Delaware limited liability company, and Carrols LLC's wholly-owned subsidiary Republic Foods, Inc., a Maryland corporation ("Republic Foods"). New CFH LLC's material direct and indirect wholly-owned subsidiaries include Alabama Quality, LLC, Carolina Quality, LLC, Frayser Quality, LLC, Nashville Quality, LLC, Frayser Holdings, LLC, Louisiana Quality, LLC, CFH Real Estate, LLC, Tennessee Quality, LLC, TQ Real Estate, LLC and Mirabile Investment Corporation (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.” 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 six months ended June 28, 2020 and June 30, 2019 each contained thirteen weeks. The 2020 fiscal year will end January 3, 2021 and will contain 53 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements as of and for the three and six months ended June 28, 2020 and June 30, 2019 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 the 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 six months ended June 28, 2020 and June 30, 2019 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 consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 29, 2019. The December 29, 2019 consolidated balance sheet data is derived from those audited consolidated financial statements.

7


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


Use of Estimates. The preparation of the accompanying 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, evaluation for impairment of long-lived assets and franchise rights, lease accounting matters, the valuation of acquired assets and liabilities, valuation of interest rate swap, and the valuation of deferred income tax assets. Actual results could differ from those estimates.
Segment Information. Operating segments are components of an entity for which separate 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 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 total Company operations. The Company derives all significant revenues from a single operating segment. 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 net 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 sometimes engages 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 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. The fair value of the favorable and unfavorable leases acquired, right-of-use assets, right-of-use liabilities, as well as the fair value of land, buildings, leasehold improvements and restaurant equipment subject to finance leases acquired is measured using significant inputs observable in the open market. The Company categorizes all such inputs as Level 2 inputs under ASC 820. The fair value of acquired franchise rights is primarily determined using the income approach, and unobservable inputs classified as Level 3 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 June 28, 2020 and December 29, 2019, the Company did not have any cash invested in money market funds classified as cash equivalents on the condensed consolidated balance sheet.
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. The carrying amount of the Term Loan B and B-1 Facilities at June 28, 2020 and outstanding borrowings on our Revolving Credit Facility approximate fair value because of their variable rates.

8


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


The Company recognizes derivatives on the balance sheet at fair value, which is considered Level 2. The Company’s only derivative is an interest rate swap which is designated as a cash flow hedge; therefore, the effective portion of the changes in the fair value of this arrangement are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of the changes in the fair value of this arrangement are immediately recognized in earnings as interest expense. The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows.
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 Note 4, the Company recorded long-lived asset impairment charges of $2.7 million and $4.4 million during the three and six months ended June 28, 2020, respectively, and $0.3 million and $1.1 million during the three and six months ended June 30, 2019.
Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, to introduce new guidance for the accounting for credit losses on instruments within its scope. ASU 2016-13 requires among other things, the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This update was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU in the first quarter of 2020 and there was no impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds its fair value. This update was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU in the first quarter of 2020 and there was no impact on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20). This ASU amends ASC 715 to add certain relevant disclosures, remove certain disclosures no longer considered to be cost beneficial, and clarify specific disclosure requirements related to defined benefit pension and other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020 and requires application on a retrospective basis. The Company does not expect adoption of this guidance will have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”). This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the effect adoption of this guidance will have on its consolidated financial statements and related disclosures.
In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the COVID-19 pandemic consistent with how those concessions would be accounted for under ACS Topic 842, Leases ("ASC 842"), as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company has made the

9


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


policy election to apply this interpretive guidance to certain rent relief resulting directly from COVID-19, and has assumed that enforceable rights and obligations for those concessions exist in the lease contract. Accordingly, the Company recognized abatements that did not result in an extension of lease term as reductions in variable lease payments, and deferrals that did not result in an extension of lease term as an increase in other current liabilities. This election will continue while these abatement or deferrals are in effect.
Subsequent events. The Company reviewed and evaluated subsequent events through the issuance date of the Company’s unaudited condensed consolidated financial statements.
2. Acquisitions
The Company was assigned Burger King Corporation's ("BKC") right of first refusal on the sale of franchisee-operated restaurants in 20 states (the "ROFR") in 2012 as part of its acquisition of 278 restaurants from BKC. Since the beginning of 2019 through the end of the first quarter of 2020, the Company acquired an aggregate of 179 Burger King restaurants and 55 Popeyes restaurants from other franchisees in the following transactions, some of which were acquired pursuant to the exercise of the ROFR (in thousands, except number of restaurants):
Closing Date
 
Number of Restaurants
 
Purchase Price
 
Market Location
April 30, 2019
(1)
220

 
$
259,083

 
Southeastern states, primarily TN, MS, LA
June 11, 2019
 
13

 
15,788

 
Baltimore, Maryland
August 20, 2019
(2)
1

 
1,108

 
Pennsylvania

 
234

 
$
275,979

 
 

(1)
During the second quarter of 2019, the Company completed the merger with New CFH, LLC (“Cambridge”) and acquired 165 Burger King restaurants and 55 Popeyes restaurants.
(2)
Acquisitions resulting from the exercise of the ROFR with Burger King.
On April 30, 2019 the Company completed a merger with Cambridge ("the Cambridge Merger") for a purchase price of $259.1 million through the issuance to Cambridge Franchise Holdings LLC ("Cambridge Holdings") of shares of stock which consisted of (i) approximately 7.4 million shares of common stock, (ii) 10,000 shares of the Company's newly designated Series C Convertible Preferred Stock, which were converted into approximately 7.5 million shares of common stock on August 29, 2019, and (iii) the retirement of approximately $113.8 million of the indebtedness of Cambridge, net of cash acquired. All shares issued are subject to a two year restriction on sale or transfer subject to certain limited exceptions. As part of the transaction, Cambridge Holdings has the right to designate up to two director nominees and two Cambridge Holdings executives joined the Company's Board of Directors on April 30, 2019.
Under the purchase method of accounting, the aggregate purchase price is allocated to the net tangible and intangible assets based on their estimated fair values on the acquisition date. The purchase price allocation values the common stock at $145.3 million based on the $9.81 closing price of the Company's common stock on the date of acquisition.
The Company allocated the aggregate purchase price to the net tangible and intangible assets acquired in the Cambridge Merger at their estimated fair values. The Company engaged a third party valuation specialist to assist with the valuation of franchise rights, leasehold improvements and favorable and unfavorable leases included in the operating right-to-use assets acquired. The fair value of other property and equipment and franchise agreements was based on the carrying value of the respective assets given that in the three years prior to the Cambridge Merger, Cambridge had completed valuations in connection with its acquisition of 132 restaurants and also recently constructed 33 new restaurants. The fair value of the right-of-use liability is based upon the lease payments over the remaining lease term discounted by the Company's incremental borrowing rate.
Goodwill recorded in connection with the Cambridge Merger represents the excess of the purchase price over the aggregate fair value of net assets acquired and is related to the benefits expected as a result of the merger, including

10


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


sales, operating synergies, development and growth opportunities. Cambridge's existing Burger King and Popeyes restaurant portfolios provides the Company with significant growth and development opportunities and, due to the geographic location of the restaurants, mitigates the dependence on the economic performance of any one particular geographic location or restaurant concept. A deferred income tax liability of approximately $44.3 million was recorded representing book and tax differences primarily related to the fair value of the acquired franchise rights.
The following table summarizes the final allocation of the aggregate purchase price for the Cambridge Merger reflected in the condensed consolidated balance sheets as of December 29, 2019:
Inventory
$
2,839

Prepaid expenses
2,947

Other assets
1,846

Land and buildings
21,257

Restaurant equipment
25,358

Restaurant equipment - subject to finance leases
488

Right-of-use assets
251,431

Leasehold improvements
3,498

Franchise fees
7,300

Franchise rights
174,500

Deferred income taxes
(44,292
)
Goodwill
84,060

Finance lease obligations for restaurant equipment
(568
)
Operating lease liabilities
(255,897
)
Accounts payable
(8,014
)
Accrued payroll, related taxes and benefits
(3,133
)
Other liabilities
(4,537
)
Net assets acquired
$
259,083



11


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 2019 acquisitions other than the Cambridge Merger at their estimated fair values. The following table summarizes the preliminary allocation of the aggregate purchase price for the 2019 acquisitions reflected in the condensed consolidated balance sheets as of December 29, 2019:
Inventory
$
158

Restaurant equipment
743

Restaurant equipment - subject to finance leases
150

Right-of-use assets
9,515

Leasehold improvements
6,205

Franchise fees
394

Franchise rights
9,809

Deferred income taxes
29

Goodwill
86

Operating lease liabilities
(9,968
)
Finance lease liabilities for restaurant equipment
(185
)
Accounts payable
(40
)
Net assets acquired
$
16,896


Goodwill recorded in connection with the 2019 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 $47.2 million in 2019. Deferred income tax assets and liabilities are due primarily to the book and tax bases differences of franchise rights, property and equipment, net favorable and unfavorable leases.
The results of operations for the restaurants acquired are included from the closing date of the respective acquisition. The 2019 acquired restaurants contributed restaurant sales of $68.6 million and $137.3 million in the three and six months ended June 28, 2020, respectively. 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 2019 for the three and six months ended June 30, 2019 is 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 Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2019
Total revenue
$
397,665

 
$
764,854

Net loss
$
(1,260
)
 
$
(8,946
)
Basic and diluted net loss per share
$
(0.03
)
 
$
(0.23
)

This unaudited pro forma financial information does not give effect to any anticipated synergies, operating efficiencies, cost savings or any integration costs related to the acquired restaurants. The unaudited pro forma financial results exclude transaction costs recorded as general and administrative expenses of $1.4 million and $4.0 million during the three and six months ended June 30, 2019, respectively.

12


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


3. 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. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of the last day of its fiscal year and does not believe circumstances have changed since the last assessment date which would make it necessary to reassess the value of its goodwill. There were no recorded goodwill impairment losses during the three and six months ended June 28, 2020 or June 30, 2019, respectively.
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 twenty-year renewal period.
The Company assesses the potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying value may not be 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. No impairment charges were recorded related to the Company’s franchise rights for the three and six months ended June 28, 2020 and June 30, 2019, respectively. The change in franchise rights for the six months ended June 28, 2020 is summarized below:
Balance at December 29, 2019
$
348,941

Amortization expense
(7,340
)
Balance at June 28, 2020
$
341,601


Amortization expense related to franchise rights was $3.4 million and $2.0 million for the three months ended June 28, 2020 and June 30, 2019, respectively and $7.3 million and $4.1 million for the six months ended June 28, 2020 and June 30, 2019, respectively. The Company expects annual amortization expense to be $14.3 million in 2020 and $13.7 million in each of the following five years.
4. 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 the lease liabilities to be incurred, 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 June 28, 2020, the Company recorded impairment and other lease charges of $2.9 million consisting of $2.6 million of initial impairment charges for six underperforming restaurants, capital expenditures of $0.1 million at underperforming restaurants, and $0.2 million of other lease charges. During the six months ended June 28, 2020, the Company recorded impairment and other lease charges of $5.8 million consisting of $4.1 million related to initial impairment charges for nine underperforming restaurants, capital expenditures of $0.3 million at previously impaired restaurants and $1.4 million of other lease charges primarily from nine restaurants closed during the first quarter of 2020.

13


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


During the three months ended June 30, 2019, the Company recorded impairment and other lease charges of $0.4 million consisting of $0.2 million related to initial impairment charges for one underperforming restaurant, capital expenditures of $0.1 million at previously impaired restaurants, and $0.1 million associated with the closure of one underperforming restaurant. During the six months ended June 30, 2019, the Company also recorded impairment and other lease charges of $1.3 million consisting of $0.9 million related to initial impairment charges for three underperforming restaurants, capital expenditures of $0.2 million at underperforming restaurants and $0.2 million of other lease charges primarily due to the de-imaging of six restaurants closed during the first quarter.
5. Other Liabilities, Long-Term
Other liabilities, long-term, at June 28, 2020 and December 29, 2019 consisted of the following:
 
June 28, 2020
 
December 29, 2019
Accrued occupancy costs
$
2,288

 
$
8,523

Accrued workers’ compensation and general liability claims
4,843

 
5,370

Interest rate swap
7,387

 

Deferred compensation
4,016

 
3,902

Deferred federal payroll taxes
7,093

 

Other
234

 
289

 
$
25,861

 
$
18,084


6. 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, in many cases, provide for renewal options and in most cases rent escalations. The exercise of such renewal options are generally at the Company’s sole discretion. The Company evaluates renewal options at lease commencement to determine if such options are reasonably certain to be exercised based on economic factors. Certain leases also require contingent 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.
As a result of the COVID-19 pandemic and the economic uncertainty in the restaurant industry that has resulted, the Company contacted each of its landlords to potentially negotiate accommodations to preserve cash, and for certain leases was able to modify existing payment terms, in some cases through deferral of existing payments until future periods and in some cases through a reduction in payments due during this period. The Company elected the practical expedient to not evaluate whether a deferral of rent within the current term is a lease modification. Any concessions which resulted in extension of the existing lease term were accounted for as a lease modification under the current GAAP guidance. The total rent that was or will be deferred as a result of requests for relief from our landlords other than BKC (see Note 11) was $5.8 million, of which $4.8 million is expected to be repaid over various periods beginning in the third quarter of 2020.
The right-of-use (“ROU”) 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 its incremental borrowing rate which considers the Company's debt issuances and lease term in determining the present value of future payments. The ROU asset is also reduced by lease incentives and initial direct costs and is adjusted by favorable lease assets and unfavorable lease liabilities. Variable lease components represent amounts that are contractually fixed 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 balance sheet 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, real estate taxes and insurance costs) separately from the non-lease components.

14


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


In addition, the Company utilizes certain restaurant equipment under various finance lease agreements with initial terms of generally 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 rate at lease inception and the subsequent fluctuations in that rate 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 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 payments are incurred.
Lease Cost
The components and classification of lease expense for the three and six months ended June 28, 2020 and June 30, 2019 are as follows:
 
 
 
 
Three Months Ended
 
Six Months Ended
Lease cost
 
Classification
 
June 28, 2020
 
June 30, 2019
 
June 28, 2020
 
June 30, 2019
Operating lease cost (1)
 
Restaurant rent expense
 
$
25,491

 
$
22,543

 
$
50,962

 
$
40,837

Operating lease cost
 
General and administrative
 
167

 
148

 
265

 
222

Variable lease cost
 
Restaurant rent expense
 
3,599

 
4,290

 
7,704

 
8,090

Sublease income
 
Restaurant rent expense
 
(106
)
 
(143
)
 
(228
)
 
(321
)
Finance lease cost:
 
 
 
 
 
 
 
 
 
 
Amortization of right-of-use assets
 
Depreciation and amortization
 
437

 
523

 
882

 
999

Interest on lease liabilities
 
Interest expense
 
36

 
64

 
82

 
135

Total lease cost
 
 
 
$
29,624

 
$
27,425

 
$
59,667

 
$
49,962

(1)
Includes short-term leases which are not material.
Other Information
Supplemental cash flow information related to leases for the six months ended June 28, 2020 and June 30, 2019 are as follows:
 
 
Six Months Ended
 
 
June 28, 2020
 
June 30, 2019
Gain (loss) on sale-leaseback transactions
 
$
567

 
$
105

Lease assets and liabilities resulting from lease modifications and new leases
 
$
39,953

 
$
36,124

Cash paid for amounts included in the measurement of lease liabilities: