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 nine months ended Commission File Number
SEPTEMBER 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 November 14, 1996
10 SHARES
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS September 30, December 31,
1996 1995
Current assets:
Cash and cash equivalents $ 1,457,000 $ 1,463,000
Trade and other receivables 510,000
688,000
Inventories 2,306,000
2,292,000
Prepaid real estate taxes 827,000
664,000
Deferred income taxes 3,399,000
3,641.000
Prepaid expenses and other current assets 876,000
830,000
Total current assets 9,375,000
9,578,000
Property and equipment, at cost:
Land 8,254,000
6,888,000
Buildings and improvements 14,465,000
15,049,000
Leasehold improvements 37,787,000
36,132,000
Equipment 45,325,000
42,361,000
Capital leases 14,893,000
15,352,000
Construction in progress 943,000
128,000
121,667,000
115,910,000
Less accumulated depreciation
and amortization (61,962,000)
(59,631,000)
Net property and equipment 59,705,000
56,279,000
Franchise rights, at cost (less accumulated amortization
of $21,246,000 at September 30, 1996 and $19,648,000 at
December 31, 1995). 46,698,000
44,582,000
Beneficial leases, at cost (less
accumulated amortization of $7,921,000 at September
30, 1996 and $7,655,000 at
December 31, 1995). 7,223,000
7,705,000
Excess of cost over fair value of assets acquired
(less accumulated amortization of
$563,000 at September 30, 1996 and $520,000 at December
31, 1995). 1,748,000
1,791,000
Deferred income taxes 6,621,000
6,420,000
Other assets 8,355,000
8,709,000
$ 139,725,000
$135,064,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDER'S (DEFICIT) September 30, December 31,
1996 1995
Current liabilities:
Current portion of long-term debt $ 8,000 $ 258,000
Current portion of capital lease obligations 561,000 644,000
Accounts payable 8,740,000 8,909,000
Accrued liabilities:
Payroll and employee benefits 3,510,000 4,000,000
Taxes - income and other 1,373,000 1,426,000
Interest 1,680,000 4,809,000
Other 2,998,000 3,134,000
Total current liabilities 18,870,000 23,180,000
Long-term debt, net of current portion 122,699,000 116,375,000
Capital lease obligations,
net of current portion 2,893,000 3,301,000
Deferred income - sale/leaseback of real
estate 2,010,000 1,773,000
Accrued postretirement benefits 1,476,000 1,424,000
Other liabilities 1,882,000 1,927,000
Total liabilities 149,830,000 147,980,000
Stockholder's (deficit):
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital 1,781,990
840,990
Accumulated deficit (
(13,757,000)
11,887,000)
Total stockholder's (deficit) (
(12,916,000)
10,105,000)
$139,725,000
$135,064,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
September 30, September 30,
1996 1995
(13 weeks) (13 weeks)
Revenues:
Sales $62,079,000 $59,303,000
Other income 71,000 75,000
62,150,000 59,378,000
Costs and expenses:
Cost of sales 17,397,000 16,291,000
Restaurant wages & related expenses 18,088,000 16,867,000
Other restaurant operating expenses 12,246,000 11,835,000
Depreciation and amortization 2,819,000 2,882,000
Administrative expenses 2,532,000 2,742,000
Advertising expense 2,749,000 2,539,000
Interest expense 3,584,000 3,606,000
59,415,000 56,762,000
Income before taxes 2,735,000 2,616,000
Provision (benefit) for taxes 1,260,000 (10,500,000)
NET INCOME $ 1,475,000 $13,116,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
______________________
September 30, September 30,
1996 1995
(39 weeks) (39 weeks)
Revenues:
Sales $177,638,000 $169,508,000
Other income 186,000 149,000
177,824,000 169,657,000
Costs and expenses:
Cost of sales 50,333,000 48,026,000
Restaurant wages & related expenses 52,546,000 49,255,000
Other restaurant operating expenses 36,306,000 33,995,000
Depreciation and amortization 8,178,000 8,373,000
Administrative expenses 7,704,000 7,895,000
Advertising expense 7,903,000 7,317,000
Interest expense 10,635,000 10,929,000
Costs associated with change of control 449,000
174,054,000 165,790,000
Income before taxes 3,770,000 3,867,000
Provision (benefit) for taxes 1,900,000 (10,400,000)
NET INCOME $ 1,870,000 $ 14,267,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
September 30, September 30,
1996 1995
(39 weeks) (39 weeks)
Cash flows from operating activities:
Net income $ 1,870,000 $14,267,000
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization 8,178,000 8,373,000
Deferred income taxes 1,600,000 (10,550,000)
Gain on sale of property and equipment (277,000)
Change in assets and liabilities:
Trade and other receivables 178,000 98,000
Inventories (14,000) 209,000
Prepaid expenses and other current assets (159,000) (184,000)
Other assets (574,000) (74,000)
Accounts payable (169,000) (3,116,000)
Accrued interest (3,129,000) (3,191,000)
Accrued taxes - income and other (53,000) (169,000)
Accrued payroll and employee benefits (490,000) (182,000)
Other accrued liabilities (136,000) (1,011,000)
Other (116,000) (206,000)
Cash provided by operating activities 6,709,000 4,264,000
Cash flows from investing activities:
Capital expenditures:
Property and equipment (4,958,000) (3,561,000)
Construction of new restaurants (1,981,000) (2,095,000)
Acquisition of restaurants (8,597,000) (525,000)
Franchise rights (741,000) (301,000)
Notes and mortgages issued (749,000)
Payments received on notes and mortgages
receivable 26,000 24,000
Proceeds from sale of property and equipment 2,338,000 18,000
Other investments 1,295,000 (1,301,000)
Net cash used for investing activities (13,367,000) (7,741,000)
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
September 30, September 30,
1996 1995
(39 weeks) (39 weeks)
Cash flows from financing activities:
Proceeds from long-term debt $ 7,514,000 $ 5,657,000
Principal payments on long-term debt (152,000) (193,000)
Principal payments on capital leases (463,000) (444,000)
Purchase of senior notes (838,000) (1,387,000)
Retirement of long-term debt (450,000)
Proceeds from sale-leaseback transactions 1,659,000 861,000
Dividends paid (618,000) (634,000)
Net cash provided by
financing activities 6,652,000 3,860,000
Increase (decrease) in cash
and cash equivalents (6,000) 383,000
Cash and cash equivalents,
beginning of period 1,463,000 1,710,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD 1,457,000 $ 2,093,000
Supplemental disclosures:
Interest paid on debt $13,764,000 $14,120,000
Taxes paid $ 290,000 $ 116,000
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 September 30, 1996 and December 31, 1995, the results of
operations for the three and nine months ended September 30, 1996 and 1995 and
cash flows for the nine months ended September 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 and nine months ended
September 30, 1996 and 1995, are not necessarily indicative of the results to
be expected for the full year.
3. Inventories at September 30, 1996 and December 31, 1995, consisted of:
September 30, December 31,
1996 1995
Raw materials (food and
paper products) $1,250,000 $ 1,458,000
Supplies 1,056,000 834,000
$2,306,000 $ 2,292,000
4. The income tax provision (benefit) was comprised of the following:
September 30, December 31,
1996 1995
Current $ 300,000 $ 150,000
Deferred 1,600,000 (10,550,000)
$ 1,900,000 $(10,400,000)
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 non-cash 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995.
SALES. Sales for the three months ended September 30, 1996 increased $2.8
million, or 4.7%, as compared to the three months ended September 30, 1995. The
Company operated an average of 228 Burger King restaurants for the 1996 quarter
which includes the acquisition of seven restaurants in North Carolina and the
opening of one new restaurant in Ohio, as compared to an average of 219 for the
third quarter of 1995. Average restaurant unit sales increased .7% in the third
quarter of 1996 as compared to 1995. Sales at comparable restaurants, the 215
restaurants operating for the entirety of the compared periods, increased $0.2
million, or .4%. Net restaurant selling prices decreased approximately 1.1%
from the prior year period due mainly to discount pricing on breakfast value
meals.
COST OF SALES. Cost of sales (food and paper costs) for the three months
ended September 30, 1996 increased in dollars due to higher sales and increased
as a percentage of sales from 27.5% in 1995 to 28.0% in 1996 primarily as a
result of the lower net restaurant selling prices in 1996 as compared to 1995.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 28.4% of sales to 29.1% 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.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
increased in dollars due to higher sales and more restaurants but decreased as
a percentage of sales from 20.0% in 1995 to 19.7% in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively equal to the three months ended September 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 three months ended September 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 the three months ended
September 30, 1996 to 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
INTEREST EXPENSE. A slightly lower interest rate on a slightly higher
average outstanding balance caused interest expense for the three months ended
September 30, 1996 to be relatively equal to interest expense for the three
months ended September 30, 1995.
PROVISION FOR INCOME TAXES. Prior to September of 1995, a valuation
allowance was carried against deferred income tax assets, but was eliminated
during the quarter ended September 30, 1995 after a review of current and
expected future pre-tax earnings led to the conclusion that it was more likely
than not that the Company would realize the entire benefit of the net deferred
income tax asset.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995.
SALES. Sales for the nine months ended September 30, 1996 increased $8.1
million, or 4.8%, as compared to the nine months ended September 30, 1995. The
Company operated an average of 222 Burger King restaurants in the first nine
months of 1995 as compared to an average of 218 in the first nine months of
1995. Average restaurant unit sales increased 3.0% in the first nine 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
2.2%. Net restaurant selling prices decreased 1.4% from the prior year due
mainly to higher discount promotional activity.
COST OF SALES. Cost of sales (food and paper costs) for the nine months
ended September 30, 1996 increased in dollars due to higher sales. Cost of
sales as a percentage of sales remained stable at 28.3% of sales for both nine
month periods. Increased costs from higher discount promotional activity was
offset by certain lower commodity costs, especially beef.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 29.1% of sales to 29.6% of sales when comparing the
nine months ended September 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% of sales to 20.4% of sales from increased
operating costs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
$0.2 million from assets becoming fully depreciated offset partially from the
additional depreciation and amortization of new restaurants.
ADMINISTRATIVE EXPENSES. Administrative expenses remained relatively
stable during the nine months ended September 30, 1996 as compared to 1995.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.3 million (based on sales levels) and the costs associated
with increased promotional activity were the principal causes 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
nine months ended September 30, 1996 related to the change of control
transaction reported on Form 8-K during the second quarter of 1996.
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 was 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 $6.7 million of cash for
the nine months ended September 30, 1996 which is after paying $12.4 million
for the two semi-annual payments of accrued interest on the Company's 11-1/2%
Senior Notes (the "Senior Notes"). Capital spending for property, equipment
and franchise rights was $16.3 million which included the construction of two
new restaurants, the acquisition of eight restaurants, the remodeling of
several existing restaurants and capital maintenance projects. Dividends of
$0.6 million were paid to Carrols Holdings Corporation ("Holdings") for the
payment by Holdings of three quarterly dividends on the preferred stock of
Holdings that were in arrears.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
During the nine months ended September 30, 1996, $7.5 million was borrowed
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 September 30, 1996, the Company had $14.4 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 and redemptions of Holdings preferred stock which are
scheduled to begin in December, 1996. Such limitations may not permit payment
of the redemptions or dividends on Holdings preferred stock due as of December,
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 or redemptions on a current basis is that the normal dividend
rate increases from 10% to a potential maximum rate of 14% until the dividends
and redemptions are current.
Consummation of the transaction described in Item 1 of the Company's
report on Form 8-K filed April 10, 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.
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
None
Item 6. Exhibits and Reports on Form 8K
(a) The following exhibit is filed as part of this report.
EXHIBIT NO.
27 Financial Data Schedule
(b) There were no reports on form 8-K filed during the reported
quarter.
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)
November 14, 1996 (ALAN VITULI)
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
November 14, 1996 (RICHARD V. CROSS)
Date (Signature)
Richard V. Cross
Executive Vice President -
Finance and Treasurer