In Carls' financial statements, where can I find more information about the reclassification of unfavorable leases and deferred rent due to the transition to ASC 842?

According to Carls's 2024 Franchise Disclosure Document, details regarding the reclassification of unfavorable leases and deferred rent because of the transition to ASC 842 can be found in Note 9, Leases, within the financial statements. This note provides further information on the transition to the new lease guidance using a modified retrospective basis with the effective date transition method.

Specifically, the FDD mentions that the decrease in unfavorable lease agreements reflects the reclassification of unfavorable lease liabilities, where Carls is the lessee in the underlying operating lease, to the operating lease assets recorded for the underlying lease in connection with the transition to ASC 842. Similarly, the decrease in the estimated liability for deferred rent, both current and long-term portions, also reflects the reclassification of deferred rent, where Carls is the lessee, to the operating lease asset recorded for the underlying lease due to the ASC 842 transition.

For a prospective franchisee, understanding these reclassifications is crucial as it impacts how Carls reports its financial obligations and assets related to leases. The transition to ASC 842 changes how leases are accounted for on the balance sheet, and Note 9 provides the necessary details to comprehend these changes. Reviewing this note will help potential franchisees understand the financial implications of lease agreements and how they are presented in Carls's financial statements.