FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
[ ] Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission File Number
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 May 14, 1997
10 SHARES
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS March 31, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 9,121,000 $ 1,314,000
Trade and other receivables 8,645,000
793,000
Inventories 2,189,000
2,163,000
Prepaid real estate taxes 774,000
725,000
Deferred income taxes 3,264,000
3,264,000
Prepaid expenses and other current assets 1,144,000
932,000
Total current assets 25,137,000
9,191,000
Property and equipment, at cost:
Land 9,162,000
9,066,000
Buildings and improvements 16,501,000
16,175,000
Leasehold improvements 38,635,000
37,921,000
Equipment 50,313,000
46,834,000
Capital leases 14,548,000
14,548,000
Construction in progress 805,000
895,000
129,964,000
125,439,000
Less accumulated depreciation
and amortization (64,850,000)
(63,356,000)
Net property and equipment 65,114,000
62,083,000
Franchise rights, at cost (less accumulated amortization
of $22,274,000 at March 31, 1997 and $21,787,000 at
December 31, 1996). 66,584,000
46,203,000
Beneficial leases, at cost (less
accumulated amortization of $7,901,000 at March 31,
1997 and $7,748,000 at
December 31, 1996). 6,753,000
6,907,000
Excess of cost over fair value of assets acquired
(less accumulated amortization of
$592,000 at March 31, 1997 and $578,000 at December 31,
1996). 1,719,000
1,733,000
Deferred income taxes 8,038,000
6,637,000
Other assets 7,656,000
5,834,000
$ 181,001,000
$138,588,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
MARCH 31, 1997 AND DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) March 31, December 31,
1997 1996
Current liabilities:
Current portion of long-term debt $ 13,155,000 $ 8,000
Current portion of capital lease obligations 532,000 574,000
Accounts payable 8,802,000 9,319,000
Accrued liabilities:
Payroll and employee benefits 3,237,000 3,837,000
Taxes - income and other 1,311,000 2,334,000
Interest 1,701,000 4,741,000
Other 2,979,000 3,382,000
Total current liabilities 31,717,000 24,195,000
Long-term debt, net of current portion 121,563,000 118,180,000
Capital lease obligations,
net of current portion 2,392,000 2,503,000
Deferred income - sale/leaseback of real
estate 2,121,000 2,154,000
Accrued postretirement benefits 1,539,000 1,522,000
Other liabilities 2,703,000 1,696,000
Total liabilities 162,035,000 150,250,000
Stockholder's equity (deficit):
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital
1,411,990
30,279,990
Accumulated deficit (
(10,574,000)
11,314,000)
Less: Note receivable - redemption of
warrants
(2,500,000)
Total stockholder's equity (deficit)
(11,662,000)
18,966,000
$181,001,000
$138,588,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
March 31, March 31,
1997 1996
(13 weeks) (13 weeks)
Revenues:
Sales $58,305,000 $54,362,000
Other income 83,000 49,000
58,388,000 54,411,000
Costs and expenses:
Cost of sales 16,506,000 15,556,000
Restaurant wages & related expenses 18,704,000 16,603,000
Other restaurant operating expenses 12,350,000 11,675,000
Depreciation and amortization 2,902,000 2,663,000
Administrative expenses 2,748,000 2,476,000
Advertising expense 2,731,000 2,432,000
Total operating expenses 55,941,000 51,405,000
Operating income 2,447,000 3,006,000
Interest expense 3,556,000 3,549,000
Loss before taxes (1,109,000) (543,000)
Benefit for taxes 369,000 115,000
NET LOSS $ (740,000) $ (428,000)
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
March 31, March 31,
1997 1996
(13 weeks) (13 weeks)
Cash flows from operating activities:
Net loss $ (740,000) $ (428,000)
Adjustments to reconcile net loss
to cash used for operating activities:
Depreciation and amortization 2,902,000 2,663,000
Deferred income taxes (494,000) (215,000)
Gain on sale of property and equipment (234,000) (33,000)
Change in assets and liabilities:
Trade and other receivables 481,000 454,000
Inventories (26,000) 160,000
Prepaid expenses and other current assets (261,000) 17,000
Other assets (1,940,000) (35,000)
Accounts payable (517,000) (17,000)
Accrued interest (3,040,000) (3,117,000)
Accrued taxes - income and other (1,023,000) (112,000)
Accrued payroll and employee benefits (600,000) (1,153,000)
Other accrued liabilities (403,000) (572,000)
Other 991,000 (59,000)
Cash used for operating activities (4,904,000) (2,447,000)
Cash flows from investing activities:
Capital expenditures:
Property and equipment (929,000) (2,060,000)
Construction of new restaurants (956,000) (183,000)
Acquisition of restaurants (24,816,000) (17,000)
Franchise rights (179,000) (5,000)
Payments received on notes and mortgages
receivable 4,000 9,000
Proceeds from sale of property and equipment 1,082,000
Other investments 1,330,000
Net cash used for investing activities (25,794,000) (926,000)
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
March 31, March 31,
1997 1996
(13 weeks) (13 weeks)
Cash flows from financing activities:
Proceeds from long-term debt $16,532,000 $ 2,707,000
Principal payments on long-term debt (2,000) (64,000)
Principal payments on capital leases (153,000) (158,000)
Proceeds from issuing stock 22,128,000
Exercise of employee stock options 12,000
Proceeds from sale-leaseback transactions 1,659,000
Dividends paid (423,000)
Net cash provided by
financing activities 38,505,000 3,733,000
Increase in cash and cash equivalents 7,807,000 360,000
Cash and cash equivalents,
beginning of period 1,314,000 1,463,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 9,121,000 $ 1,823,000
Supplemental disclosures:
Interest paid on debt $ 6,596,000 $ 6,666,000
Taxes paid $ 1,265,000 $ 47,000
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. STATEMENT OF MANAGEMENT
The accompanying consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and the footnotes
required by generally accepted accounting principles for complete statements.
In the opinion of management, all normal and recurring adjustments necessary
for a fair presentation of such financial statements have been included.
The results of operations for the three months ended March 31, 1997, are
not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
December 31, 1996 contained in the Company's 1996 Annual Report on Form 10-K.
The December 31, 1996 balance sheet data is derived from audited financial
statements.
2. INVENTORIES
Inventories at March 31, 1997 and December 31, 1996, consisted of:
March 31, December 31,
1997 1996
Raw materials (food and
paper products) $1,456,000 $ 1,386,000
Supplies 733,000 777,000
$2,189,000 $ 2,163,000
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
3. INCOME TAXES
The income tax (provision) benefit was comprised of the following:
March 31, March 31,
1997 1996
Current $ (125,000) $ (100,000)
Deferred 494,000 215,000
$ 369,000 $ 115,000
For 1997 and 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 result principally
from state taxes.
A tax benefit of $907,000 resulting from the deferred disposition of stock
options associated with the 1996 change in control transaction previously
reported on Form 10-K was credited directly to paid in capital and
increased the deferred income tax asset.
4. ACQUISITION
On March 28, 1997, the Company purchased certain assets and franchise
rights of twenty-three Burger King restaurants in North and South Carolina
for a cash price of approximately $21.0 million. Proforma information
with respect to the acquisition is as follows, which assumes the
transaction occurred on the first day of the period presented:
THREE MONTHS ENDED MARCH 31,
1997 1996
Revenues $ 64,291,000 $ 60,696,000
Operating income $ 2,594,000 $ 3,434,000
Net (Loss) $ (908,000) $ (429,000)
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
5. LONG-TERM DEBT
On March 27, 1997, the Company entered into a Loan Agreement among the
Company , Texas Commerce Bank National Association, as Agent, and other
Lenders who are parties thereto (the "Loan Agreement"). The Loan
Agreement provides for (i) a $127,000,000 Advance Loan Facility ($5.0
million of which will be used to replace the current $5.0 million term
loan with Heller Financial, Inc.) under which the Company may borrow,
through December 31, 1999, up to 75% of the purchase costs incurred in
connection with permitted acquisitions of the Company, and; (ii) a
$25,000,000 Revolving Loan Facility to be used to refinance the Company's
existing revolving credit facility with Heller Financial, Inc., to finance
permitted acquisitions and new store development by the Company, and for
other working capital and general corporate purposes. The Company is also
permitted to use the Advance Loan Facility to repurchase up to $25,000,000
of the 11-1/2% Senior Notes due 2003 (The "Senior Notes") in the event
that the holders of such notes exercise the right to cause the Company to
repurchase such Senior Notes due to a change in control.
The Loan Agreement provides for interest rate options of a) the greater of
the prime rate (or the Federal Funds Rate plus .50%) plus a margin
currently at .75% but variable between 1.00% and 0.00%; or b) the London
Interbank offering rate plus a margin currently at 2.25% but variable
between 2.50% and 1.50%. A debt to earnings ratio will determine the
margin percent. Commitment fees on the unused balances of the Advance
Loan Facility and the Revolving Loan Facility will be payable quarterly at
the annual rates of 0.25% and 0.375%, respectively.
The Revolving Loan Facility has a maturity date of December 31, 2001 while
the Advance Loan Facility requires quarterly principal repayments at an
annual rate of 6% beginning with the end of the second quarter after each
advance loan and increasing 2% per year through the 6{th} year with the
remainder repayable during the 7{th} year.
At March 31, 1997, $7.7 million was outstanding under the Advance Loan
Facility. Substantially all assets of the Company are collaterialized by
loan agreements and $12.8 million of the outstanding revolver debt was
classified as current due to payment of such debt subsequent to March 31,
1997.
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
6. CHANGE IN STOCKHOLDERS' EQUITY
On March 27, 1997, the Company received a net investment in its equity of
$30.4 million which included a note of $8.3 million. Proceeds from this
note were received by the Company on April 1, 1997 and the note was
included with Trade and other receivables at March 31, 1997.
In addition, the note receivable reflected as an increase to the December
31, 1996 stockholders deficit has been satisfied and Holdings has
exercised its option to purchase certain warrants to acquire Holdings'
common stock held by the issuer of the note.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
SALES. Sales for the three months ended March 31, 1997 increased $3.9
million, or 7.3%, as compared to the three months ended March 31, 1996. The
Company operated an average of 236 Burger King restaurants for the first
quarter of 1997 as compared to 219 in 1996. Average restaurant unit sales
decreased .4% when comparing 1997 to 1996. Sales at comparable restaurants,
the 216 units operating for the entirety of the compared periods, increased
$0.1 million, or .1%. Net restaurant selling prices increased approximately
4.2% from the prior year due mainly to lower discount promotional activity
(3.5%) and menu price increases (.7%).
COST OF SALES. Cost of sales (food and paper costs) for the three months
ended March 31, 1997 increased in dollars due to higher sales but as a
percentage of sales these costs decreased .3% from 1996 to 1997 due primarily
to the effect of fewer discount promotions partially offset by increases in
commodity costs, especially beef.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 30.5% of sales to 32.1% of sales when comparing the
three months ended March 31, 1996 to 1997. Increased wage rates (including the
increase in the minimum wage rate effective October 1, 1996) and related
payroll tax costs were partially offset by the effects of fewer discount
promotions.
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 21.5% in 1996 to 21.2% in 1997. A modest increase
in utility expenses was more than offset by decreases in other operating costs
like snowplowing expenses associated with the harsh winter conditions in the
Northeast during the winter of 1996 as compared to the milder winter of 1997.
DEPRECIATION AND AMORTIZATION. Additional depreciation and amortization
from new and acquired restaurants was partially offset by the effect of assets
becoming fully depreciated causing depreciation and amortization to increase
$.2 million when comparing 1997 to 1996.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $.3 million
when comparing the three months ended March 31, 1997 to 1996 due mainly to
increased costs associated with more restaurants and costs associated with
anticipated future expansion.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.2 million (based on sales levels) and additional promotional
activities were the principal causes for the increase in advertising expense
when comparing 1997 to 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
INTEREST EXPENSE. A modest increase in the average loan balances
outstanding from 1996 to 1997 was offset by a slight decrease in the average
interest rate.
BENEFIT FOR TAXES. The income tax benefit reflected during the three
months ended March 31, 1997 and 1996 reflects the benefit of the losses
generated during the periods which are expected to be offset by income in
subsequent periods.
LIQUIDITY AND CAPITAL RESOURCES
The operating activities of the Company used $4.9 million of cash for the
three months ended March 31, 1997 which included $6.3 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 of $26.9
million included $24.8 million for the acquisition of 24 restaurants in North
Carolina and South Carolina, three restaurants in Michigan and two restaurants
in Pennsylvania. Also included were construction costs for two new restaurant
units that opened during the quarter, various remodels and other capital
maintenance projects. One restaurant unit was sold during the quarter which
resulted in cash proceeds of $1.1 million.
As discussed in Note 5, the Company entered into a new loan agreement on
March 27, 1997 whereby a $127.0 million Advance Loan Facility was established
for the Company to borrow up to 75% of the purchase costs of permitted
acquisitions. A $25.0 million Revolving Loan Facility was also established to
refinance the existing revolving credit facility with Heller Financial, Inc.,
to finance permitted acquisitions and new store development, and for other
working capital and general corporate purposes.
Additionally as outlined in the Company's Form 8-K dated March 27, 1997,
net proceeds from new common equity of $30.4 million was received including
$8.3 million that was received subsequent to the end of the first quarter.
During the three months ended March 31, 1997, $8.8 million was borrowed
under the Company's revolving line of credit bringing the outstanding balance
to $13.5 million at March 31, 1997. This balance was repaid in its entirety at
the beginning of the second quarter. During the first quarter the Company also
borrowed $7.7 million under the new Advance Term Loan agreement with Texas
Commerce Bank.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends and preferred stock redemptions of Holdings.
As of March 31, 1997 dividends on the Preferred Stock of Holdings for the last
quarter of 1996 and the first quarter of 1997 of $.4 million, and a scheduled
preferred stock redemption of Holdings of $1.8 million from 1996 were unpaid.
Proceeds from the new equity described above permitted the Company to
subsequently make these payments in the second quarter of 1997.
As discussed in the Company's Annual report on Form 10-K for 1996, the
change in control occurred on March 27, 1997. Under the indenture governing
the Company's Senior Notes, the change in control gives each holder of Senior
Notes the right to require the Company to repurchase all or any part of such
holder's Senior Notes which rights terminate on May 26, 1997. The stated
repurchase price would be equal to 101% of the principal amount of the notes
being repurchased plus accrued and unpaid interest. In light of current market
conditions, the Company does not anticipate that a significant number of Senior
Note holders will exercise these rights. To the extent that such repurchase
rights are exercised, the Company expects to finance the amount through
borrowings under the TCB Loan Agreement which provides for such borrowings up
to an aggregate $25 million.
While interest is accrued monthly, payments of approximately $6.2 million
for interest on the Notes are made each February 15{th} and August 15{th} thus
creating semi-annual cash needs. The Company believes that future cash flow
from operations together with funds available under its loan agreements 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 Indenture and the
Loan Facilities) for at least the next twelve months. The balance will provide
funds for future acquisitions.
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) Subsequent to the quarter ended March 31, 1997, the Company filed a
current report on Form 8-K dated March 27, 1997, reporting Item 1 "Change in
Control of Registrant"; Item 5 "Other Events"; and Item 7 "Proforma Financial
Information".
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)
May 14, 1996 /S/ ALAN VITULI
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
May 14, 1996 /S/ PAUL R. FLANDERS
Date (Signature)
Paul R. Flanders
Vice President - Finance