SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the six months ended Commission File Number
JUNE 30, 1996 1-6553
CARROLS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-0958146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
968 JAMES STREET
SYRACUSE, NEW YORK 13203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (315) 424-0513
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 X No
Common stock, par value $1.00, outstanding at August 13, 1996
10 SHARES
Page 1 of 14
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS June 30, December 31,
1996 1995
Current assets:
Cash and cash equivalents $ 1,396,000 $ 1,463,000
Trade and other receivables 389,000
688,000
Inventories 2,445,000
2,292,000
Prepaid real estate taxes 600,000
664,000
Deferred income taxes 3,639,000
3,641,000
Prepaid expenses and other current assets 972,000
830,000
Total current assets 9,441,000
9,578,000
Property and equipment, at cost:
Land 6,350,000
6,888,000
Buildings and improvements 14,491,000
15,049,000
Leasehold improvements 36,766,000
36,132,000
Equipment 44,221,000
42,361,000
Capital leases 14,893,000
15,352,000
Construction in progress 767,000
128,000
117,488,000
115,910,000
Less accumulated depreciation
and amortization (62,522,000)
(59,631,000)
Net property and equipment 54,966,000
56,279,000
Franchise rights, at cost (less accumulated amortization
of $20,715,000 at June 30, 1996 and $19,648,000 at December
31, 1995). 43,497,000
44,582,000
Beneficial leases, at cost (less
accumulated amortization of $7,761,000 at June 30,
1996 and $7,655,000 at
December 31, 1995). 7,382,000
7,705,000
Excess of cost over fair value of assets acquired
(less accumulated amortization of
$549,000 at June 30, 1996 and $520,000 at December 31,
1995). 1,762,000
1,791,000
Deferred income taxes 7,541,000
6,420,000
Other assets 7,781,000
8,709,000
$132,370,000
$135,064,000
2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
JUNE 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDER'S (DEFICIT) June 30, December 31,
1996 1995
Current liabilities:
Current portion of long-term debt $ 258,000 $ 258,000
Current portion of capital lease obigations 571,000 644,000
Accounts payable 7,123,000 8,909,000
Accrued liabilities:
Payroll and employee benefits 3,355,000 4,000,000
Taxes - income and other 1,352,000 1,426,000
Interest 4,741,000 4,809,000
Other 3,234,000 3,134,000
Total current liabilities 20,634,000 23,180,000
Long-term debt, net of current portion 114,717,000 116,375,000
Capital lease obligations,
net of current portion 3,032,000 3,301,000
Deferred income - sale/leaseback of real
estate 2,038,000 1,773,000
Accrued postretirement benefits 1,459,000 1,424,000
Other liabilities 1,862,000 1,927,000
Total liabilities 143,742,000 147,980,000
Stockholder's (deficit):
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital 1,988,990
840,990
Accumulated deficit (13,361,000)
(13,757,000)
Total stockholder's (deficit) (11,372,000)
(12,916,000)
$132,370,000
$135,064,000
3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
June 30, June 30,
1996 1995
(13 weeks) (13 weeks)
Revenues:
Sales $61,197,000 $58,779,000
Other income 66,000 39,000
61,263,000 58,818,000
Costs and expenses:
Cost of sales 17,380,000 16,926,000
Restaurant wages & related expenses 17,855,000 16,570,000
Other restaurant operating expenses 12,385,000 11,461,000
Depreciation and amortization 2,696,000 2,741,000
Administrative expenses 2,695,000 2,625,000
Advertising expense 2,723,000 2,603,000
Interest expense 3,501,000 3,667,000
Costs associated with change of control 449,000
59,684,000 56,593,000
Income before taxes 1,579,000 2,225,000
Provision for taxes 755,000 50,000
NET INCOME $ 824,000 $ 2,175,000
4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
______________________
June 30, June 30,
1996 1995
(26 weeks) (26 weeks)
Revenues:
Sales $115,559,000 $110,205,000
Other income 115,000 74,000
115,674,000 110,279,000
Costs and expenses:
Cost of sales 32,936,000 31,735,000
Restaurant wages & related expenses 34,458,000 32,388,000
Other restaurant operating expenses 24,061,000 22,160,000
Depreciation and amortization 5,359,000 5,491,000
Administrative expenses 5,171,000 5,153,000
Advertising expense 5,154,000 4,778,000
Interest expense 7,050,000 7,323,000
Costs associated with change of control 449,000
114,638,000 109,028,000
Income before taxes 1,036,000 1,251,000
Provision for taxes 640,000 100,000
NET INCOME $ 396,000 $ 1,151,000
5
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
June 30, June 30,
1996 1995
(26 weeks) (26 weeks)
Cash flows from operating activities:
Net income (loss) $ 396,000 $ 1,151,000
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 5,360,000 5,491,000
Deferred income taxes 440,000
Loss on sale of property and equipment 37,000
Change in operating assets and liabilities:
Trade and other receivables 299,000 (11,000)
Inventories (153,000) (491,000)
Prepaid expenses and
other current assets (61,000) (15,000)
Other assets (598,000) (142,000)
Accounts payable (1,786,000) (886,000)
Accrued interest (68,000) (57,000)
Accrued taxes - income and other (74,000) (13,000)
Accrued payroll and employee benefits (645,000) (487,000)
Other accrued liabilities 100,000 (380,000)
Other (102,000) (217,000)
Cash provided by operating activities 3,943,000
3,145,000
Cash flows from investing activities:
Capital expenditures:
Property and equipment (3,607,000) (2,355,000)
Construction of new restaurants (634,000) (1,119,000)
Acquisition of restaurants (22,000) (525,000)
Franchise rights (171,000) (86,000)
Payments on notes and mortgages receivable 18,000 16,000
Other investments 1,295,000 (2,188,000)
Proceeds from sale of property and equipment 635,000
Net cash used for investing activities $(2,486,000) $(6,257,000)
6
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
June 30, June 30,
1996 1995
(26 weeks) (26 weeks)
Cash flows from financing activities:
Proceeds from long-term debt $ 7,000 $ 4,250,000
Principal payments on long-term debt (829,000) (129,000)
Principal payments on capital leases (314,000) (299,000)
Purchase of senior notes (838,000) (1,387,000)
Proceeds from sale-leaseback transactions 1,659,000 861,000
Dividends paid (411,000) (433,000)
Net cash (used for) provided by
financing activities (726,000) 2,863,000
(Decrease) increase in cash
and cash equivalents (67,000) 549,000
Cash and cash equivalents,
begining of period 1,463,000 1,710,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,396,000 $ 2,259,000
Supplemental disclosures:
Interest paid on debt $ 7,118,000 $ 7,380,000
Taxes paid $ 98,000 $ 73,000
7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
and recurring accruals) necessary to present fairly the Company's financial
position as of June 30, 1996 and December 31, 1995, the results of operations
for the three and six months ended June 30, 1996 and 1995 and cash flows for
the six months ended June 30, 1996 and 1995. These financial statements should
be read in conjunction with the Company's annual report on Form 10-K for the
period ended December 31, 1995 and the Form 8-K filed on April 10, 1996.
2. The results of operations for the three months and six months ended
June 30, 1996 and 1995, are not necessarily indicative of the results to be
expected for the full year.
3. Inventories at June 30, 1996 and December 31, 1995, consisted of:
June 30, December 31,
1996 1995
Raw materials (food and
paper products) $1,219,000 $ 1,458,000
Supplies 1,226,000 834,000
$2,445,000 $ 2,292,000
4. The income tax provision was comprised of the following:
June 30, June 30,
1996 1995
Current $ (200,000) $ (100,000)
Deferred (440,000)
$ (640,000) $ (100,000)
For 1996 the difference between the expected tax provision resulting from
application of the federal statutory income tax rate to pre-tax income and the
reported income tax provision results principally from state taxes and certain
expenses recognized on the statement of operations but not deductible for
federal income tax purposes.
A tax benefit of $1,559,000 resulting from the disqualifying disposition
of incentive stock options associated with the change of control transaction
previously reported on Form 8-K was credited directly to paid in capital and
increased the deferred income tax asset.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995.
SALES. Sales for the three months ended June 30, 1996 increased $2.4
million, or 4.1%, as compared to the three months ended June 30, 1995. The
Company operated an average of 220 Burger King restaurants for the 1996 quarter
as compared to an average of 218 for the second quarter of 1995. Average
restaurant unit sales increased 3.5% in the second quarter of 1996 as compared
to 1995. Sales at comparable restaurants, the 212 restaurants operating for
the entirety of the compared periods, increased $1.6 million, or 2.8%. Net
restaurant selling prices decreased approximately 1.2% from the prior year
period due to a 2.5% decrease from higher discount promotions partially offset
by a 1.3% increase in menu prices. The higher discount promotions were mostly
attributable to a $.99 Whopper( sandwich promotion that ran for three weeks in
the 1996 quarter and only two weeks in the 1995 quarter.
COST OF SALES. Cost of sales (food and paper costs) for the three months
ended June 30, 1996 increased in dollars due to higher sales. Cost of sales as
a percentage of sales decreased from 28.8% in 1995 to 28.4% in 1996 primarily
as a result of lower beef and lettuce costs. The 1995 quarter experienced a
significant temporary increase in lettuce costs.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 28.2% of sales to 29.2% of sales when comparing 1995 to
1996 due mainly to increased wage rates, the effect of lower net selling prices
and increased group insurance costs partially offset by reduced unemployment
tax rates.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
increased in dollars due to higher sales and more restaurants and increased as
a percentage of sales from 19.5% in 1995 to 20.2% in 1996 as a result of
increases in certain operating costs, such as repairs and maintenance,
utilities and uniforms.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively equal to the three months ended June 30, 1995. Additional
depreciation and amortization from new and acquired restaurants was offset by
assets becoming fully depreciated.
ADMINISTRATIVE EXPENSES. Administrative expenses remained relatively
stable during the six months ended June 30, 1996 as compared to 1995.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.1 million (based on sales levels) was the principal cause of
the increase in advertising expense when comparing the three months ended June
30, 1996 to 1995.
INTEREST EXPENSE. A reduction in average loan balances from 1995 to 1996
was the principal cause for the reduction in interest expense of $0.2 million.
COSTS ASSOCIATED WITH CHANGE IN CONTROL. Costs of $0.4 million during the
three months ended June 30, 1996 related to the change of control transaction
reported on Form 8-K during the quarter.
PROVISION FOR INCOME TAXES. Prior to September of 1995, a valuation
allowance was carried against deferred income tax assets, but was eliminated
after a review of current and expected future pre-tax earnings led to the
conclusion that it is more likely than not that the Company would realize the
entire benefit of the net deferred income tax asset.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
SALES. Sales for the six months ended June 30, 1996 increased $5.4
million, or 4.9%, as compared to the six months ended June 30, 1995. The
Company operated an average of 219 Burger King restaurants in the first six
months of 1996 as compared to an average of 218 in the first six months of
1995. Average restaurant unit sales increased 4.1% in the first six months of
1996 as compared to 1995. Sales at comparable restaurants, the 212 restaurants
operating for the entirety of the compared periods, increased $3.7 million, or
3.4%. Net restaurant selling prices remained relatively stable for the
comparable six month periods due to menu price increases offset by increased
discount promotional activity.
COST OF SALES. Cost of sales (food and paper costs) for the six months
ended June 30, 1996 increased in dollars due to higher sales. Cost of sales as
a percentage of sales decreased from 28.8% in 1995 to 28.5% in 1996 as a result
of decreases in certain commodity costs, especially beef.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 29.4% of sales to 29.8% of sales when comparing the six
months ended June 30, 1996 to 1995 due mainly to increased wage rates and
increased group insurance costs partially offset by reduced unemployment tax
rates.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
increased in dollars due to higher sales and more restaurants and increased as
a percentage of sales from 20.1% in 1995 to 20.8% in 1996 as a result of
increased operating costs, especially snow plowing, associated with the harsh
weather conditions in the Northeast during 1996 as compared to the milder
winter of 1995.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
$0.1 million from assets becoming fully depreciated partially offset from
additional depreciation and amortization of new restaurants.
ADMINISTRATIVE EXPENSES. Administrative expenses remained relatively
stable during the six months ended June 30, 1996 as compared to 1995.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.2 million (based on sales levels) was the principal cause of
the increase in advertising expense when comparing 1996 to 1995.
INTEREST EXPENSE. A reduction in average loan balances was the principal
cause for interest expense to decrease $0.3 million for 1996 as compared to
1995.
COSTS ASSOCIATED WITH CHANGE IN CONTROL. Costs of $0.4 million during the
six months ended June 30, 1996 related to the change of control transaction
reported on Form 8-K during the quarter.
PROVISION FOR INCOME TAXES. Prior to September of 1995, a valuation
allowance was carried against deferred income tax assets, but was eliminated
after a review of current and expected future pre-tax earnings led to the
conclusion that it is more likely than not that the Company would realize the
entire benefit of the net deferred income tax asset.
LIQUIDITY AND CAPITAL RESOURCES
The operating activities of the Company provided $3.1 million of cash for
the six months ended June 30, 1996 which included $6.2 million for the semi-
annual payment of accrued interest on the Company's 11-1/2% Senior Notes (the
"Senior Notes"). Capital spending for property, equipment and franchise rights
was $4.4 million which included the construction of two new restaurants, the
remodeling of several existing restaurants and capital maintenance projects.
Dividends of $0.4 million were paid to Carrols Holdings Corporation
("Holdings") for the payment by Holdings of two quarterly dividends on the
preferred stock of Holdings that were in arrears.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
During the six months ended June 30, 1996, $0.8 million was paid down on
the Company's revolving line of credit. Net proceeds of $1.7 million were
received from the sale and leaseback of three properties during the period.
At June 30, 1996, the Company had $22.6 million available under its Senior
Secured Credit Facility, after reserving $1.4 million for a letter of credit
guaranteed under the Senior Secured Credit Facility. While interest is accrued
monthly, payments of approximately $6.2 million for interest on the Senior
Notes are made each February 15th and August 15th thus creating semi-annual
cash needs. The Company believes that future cash flow from operations
together with funds available under the Senior Secured Credit Facility will be
sufficient to meet all interest and principal payments under its indebtedness,
fund the maintenance of property and equipment, fund restaurant remodeling
required under the Franchise Agreements and meet required payments in respect
of Holdings' Preferred Stock (subject to the terms of the Senior Note indenture
and the Senior Secured Credit Facility) for at least the next twelve months.
The balance will provide funds for future acquisitions.
The Senior Note Indenture imposes limitations on certain payments, which
include dividends. Such limitations do not permit payment of the dividend on
Holdings preferred stock due as of June 30, 1996 until the amount available for
such restricted payments is restored through either earnings or new capital
investment. The effect of the failure to pay dividends on a current basis is
that the normal dividend rate increases from 10% to a potential maximum rate of
14% until the dividends are current.
Consummation of the transaction described in Item 1 of the Company's
report on Form 8-K dated April 3, 1996 constituted a "change of control" under
the indenture governing the Company's Senior Notes. Accordingly, each holder
of Senior Notes had the right to require the Company (which right terminated on
May 6, 1996) to repurchase all or any part of such holder's Senior Notes at a
repurchase price in cash equal to 101% of the principal amount of the Senior
notes being repurchased (plus accrued and unpaid interest, if any). Holders of
$838,000 principal amount of Senior Notes elected to have their notes
repurchased.
INFLATION
While inflation can have a significant impact on food, paper, labor and
other operating costs, the Company has historically been able to minimize the
effect of inflation through periodic price increases, and believes it will be
able to offset future inflation with price increases, if necessary.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material legal proceedings commenced by or initiated against
the Company during the reported quarter, or material developments in any
previously reported litigation.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
During the quarter ended June 30, 1996, holders of $838,000 principal
amount of Senior Notes redeemed their notes pursuant to the change of control
provision of the Senior Note Indenture.
Item 6. Exhibits and Reports on Form 8K
(a) No exhibits on Form 8-K are filed with this report
(b) During the quarter ended June 30, 1996, the Company filed a current
report on Form 8-K dated April 3, 1996 reporting Item 1 "Change in Control".
The Company reported consummation of a transaction with Atlantic Restaurants,
Inc. that constituted a "change of control" of the Company and Holdings as
defined in the Senior Note Indenture.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARROLS CORPORATION
968 James Street
Syracuse, New York 13203
(Registrant)
August 13, 1996 (ALAN VITULI)
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
August 13, 1996 (RICHARD V. CROSS)
Date (Signature)
Richard V. Cross
Executive Vice President -
Finance and Treasurer
14