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 June 30, 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 August 14, 1997
10 SHARES
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS June 30, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 3,320,000 $ 1,314,000
Trade and other receivables 382,000
793,000
Inventories 2,391,000
2,163,000
Prepaid real estate taxes 565,000
725,000
Deferred income taxes 3,264,000
3,264,000
Prepaid expenses and other current assets 1,066,000
932,000
Total current assets 10,988,000
9,191,000
Property and equipment, at cost:
Land 9,513,000
9,066,000
Buildings and improvements 16,533,000
16,175,000
Leasehold improvements 39,329,000
37,921,000
Equipment 51,888,000
46,834,000
Capital leases 14,548,000
14,548,000
Construction in progress 1,760,000
895,000
133,571,000
125,439,000
Less accumulated depreciation
and amortization (67,190,000)
(63,356,000)
Net property and equipment 66,381,000
62,083,000
Franchise rights, at cost (less accumulated amortization
of $23,246,000 at June 30, 1997 and $21,787,000 at
December 31, 1996). 65,944,000
46,203,000
Beneficial leases, at cost (less
accumulated amortization of $8,169,000 at June 30,
1997 and $7,748,000 at
December 31, 1996). 6,486,000
6,907,000
Excess of cost over fair value of assets acquired
(less accumulated amortization of
$607,000 at June 30, 1997 and $578,000 at December 31,
1996). 1,704,000
1,733,000
Deferred income taxes 7,422,000
6,637,000
Other assets 8,071,000
5,834,000
$ 166,996,000
$138,588,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
JUNE 30, 1997 AND DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) June 30, December 31,
1997 1996
Current liabilities:
Current portion of long-term debt $ 580,000 $ 8,000
Current portion of capital lease obligations 491,000 574,000
Accounts payable 5,897,000 9,319,000
Accrued liabilities:
Payroll and employee benefits 3,467,000 3,837,000
Taxes - income and other 1,674,000 2,334,000
Interest 4,743,000 4,741,000
Other 3,522,000 3,382,000
Total current liabilities 20,374,000 24,195,000
Long-term debt, net of current portion 120,635,000 118,180,000
Capital lease obligations,
net of current portion 2,281,000 2,503,000
Deferred income - sale/leaseback of real
estate 2,094,000 2,154,000
Accrued postretirement benefits 1,557,000 1,522,000
Other liabilities 2,397,000 1,696,000
Total liabilities 149,338,000 150,250,000
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
30,547,990
Accumulated deficit (
(10,574,000)
12,890,000)
Less: Note receivable - redemption of
warrants
(2,500,000)
Total stockholder's equity (deficit)
(11,662,000)
17,658,000
$166,996,000
$138,588,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
June 30, June 30,
1997 1996
(13 weeks) (13 weeks)
Revenues:
Sales $ 72,237,000 $ 61,197,000
Other income 62,000 66,000
72,299,000 61,263,000
Costs and expenses:
Cost of sales 20,796,000 17,380,000
Restaurant wages & related expenses 21,901,000 17,855,000
Other restaurant operating expenses 14,366,000 12,385,000
Depreciation and amortization 3,934,000 2,696,000
Administrative expenses 3,052,000 2,695,000
Advertising expense 3,060,000 2,723,000
Costs associated with change of control 449,000
Total operating expenses 67,109,000 56,183,000
Operating income 5,190,000 5,080,000
Interest expense 3,525,000 3,501,000
Income before taxes 1,665,000 1,579,000
Provision for taxes 741,000 755,000
NET INCOME $ 924,000 $ 824,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
June 30, June 30,
1997 1996
(26 weeks) (26 weeks)
Revenues:
Sales $130,542,000 $115,559,000
Other income 145,000 115,000
130,687,000 115,674,000
Costs and expenses:
Cost of sales 37,302,000 32,936,000
Restaurant wages & related expenses 40,605,000 34,458,000
Other restaurant operating expenses 26,716,000 24,061,000
Depreciation and amortization 6,836,000 5,359,000
Administrative expenses 5,800,000 5,171,000
Advertising expense 5,791,000 5,154,000
Costs associated with change of control 449,000
Total operating expenses 123,050,000 107,588,000
Operating income 7,637,000 8,086,000
Interest expense 7,081,000 7,050,000
Income before taxes 556,000 1,036,000
Provision for taxes 372,000 640,000
NET INCOME $ 184,000 $ 396,000
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
June 30, June 30,
1997 1996
(26 weeks) (26 weeks)
Cash flows from operating activities:
Net income $ 184,000 $ 396,000
Adjustments to reconcile net income
to cash used for operating activities:
Depreciation and amortization 6,836,000 5,360,000
Deferred income taxes 122,000 440,000
(Gain) loss on sale of property and
equipment (244,000) 3,000
Change in assets and liabilities:
Trade and other receivables 411,000 299,000
Inventories (228,000) (150,000)
Prepaid expenses and other current assets 9,000 (61,000)
Other assets (577,000) (598,000)
Accounts payable (3,422,000) (1,786,000)
Accrued interest 2,000 (68,000)
Accrued taxes - income and other (660,000) (74,000)
Accrued payroll and employee benefits (370,000) (645,000)
Other accrued liabilities 140,000 100,000
Other 676,000 (106,000)
Cash provided by operating activities 2,879,000 3,110,000
Cash flows from investing activities:
Capital expenditures:
Property and equipment (2,027,000) (3,607,000)
Construction of new restaurants (3,107,000) (634,000)
Acquisition of restaurants (25,365,000) (22,000)
Franchise rights (325,000) (171,000)
Notes and mortgages issued (3,000)
Payments received on notes and mortgages
receivable 8,000 18,000
Proceeds from sale of property, equipment and franchise
rights 1,092,000 635,000
Other investments 1,330,000
Net cash used for investing activities $ (29,727,000) $(2,451,000)
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Increase (Decrease) in Cash and Cash Equivalents
June 30, June 30,
1997 1996
(26 weeks) (26 weeks)
Cash flows from financing activities:
Proceeds from long-term debt $12,700,000 $ 7,000
Financing costs associated with long-term debt (2,097,000)
Principal payments on long-term debt (4,000) (829,000)
Principal payments on capital leases (305,000) (314,000)
Purchase of senior notes (838,000)
Retirement of long-term debt (9,669,000)
Proceeds from issuing stock 30,442,000
Exercise of employee stock options 12,000
Proceeds from sale-leaseback transactions 1,659,000
Dividends paid (407,000) (423,000)
Redemption of preferred stock (1,806,000)
Net cash provided by (used for)
financing activities 28,854,000 (726,000)
Increase (decrease) in cash and cash
equivalents 2,006,000 (67,000)
Cash and cash equivalents,
beginning of period 1,314,000 1,463,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,320,000 $ 1,396,000
Supplemental disclosures:
Interest paid on debt $ 7,079,000 $ 7,118,000
Taxes paid $ 1,358,000 $ 98,000
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 and six months ended June 30,
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 June 30, 1997 and December 31, 1996, consisted of:
June 30, December 31,
1997 1996
Raw materials (food and
paper products) $1,454,000 $ 1,386,000
Supplies 937,000 777,000
$2,391,000 $ 2,163,000
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
3. INCOME TAXES
The income tax provision was comprised of the following:
June 30, June 30,
1997 1996
Current $ 250,000 $ 200,000
Deferred 122,000 440,000
$ 372,000 $ 640,000
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. The following proforma
results of operations assume the acquisition occurred as of January 1,
1997:
SIX MONTHS ENDED JUNE 30,
1997
Revenues $ 136,590,000
Operating income $ 7,784,000
Net income $ 272,000
The proforma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of January 1, 1997, nor are they necessarily indicative of
future operating results.
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 (collectively the "Lender") who are parties thereto (the "Loan
Agreement"). The Loan Agreement provides for: (i) a $127,000,000 Advance
Loan Facility under which the Company may borrow, through December 31,
1999, up to 75% of the purchase costs incurred in connection with the
acquisition and; (ii) a $25,000,000 Revolving Loan Facility which replaced
the Company's revolving credit facility with Heller Financial, Inc. The
Revolving Loan Facility is available to finance restaurant acquisitions
and new restaurant development by the Company, and for other working
capital and general corporate purposes.
The Loan Agreement provides for interest rate options of: (i) the greater
of the prime rate (or the Federal Funds Rate plus .50%) plus a margin
currently at .75% but variable between 0.00% and 1.00%; or (ii) the London
Interbank offering rate plus a margin currently at 2.25% but variable
between 1.50% and 2.50%, based upon debt to cash flow ratios. Commitment
fees on the unused balances of the Advance Loan Facility and the Revolving
Loan Facility are 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 June 30, 1997, $12.7 million was outstanding under the Advance Loan
Facility including $5.0 million used to refinance the previously
outstanding term loan with Heller Financial, Inc. Substantially all
assets of the Company are or will be pledged to the Lender as collateral
security under the loans made pursuant to the Loan Agreement.
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
6. CHANGE IN STOCKHOLDERS' EQUITY
As reported in the Company's 1996 Annual report on Form 10-K and in a Form
8-K dated March 27, 1997, the change in control of the Company's parent
company, Carrols Holdings Corporation ("Holdings"), occurred on March 27,
1997. In connection with this, the Company received additional capital of
approximately $30.4 million.
Holdings has exercised its option to purchase certain warrants to acquire
its common stock by cancellation of a note receivable from the holder of
the warrants. The note receivable was previously reflected as an increase
to the December 31, 1996 stockholders deficit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996.
SALES. Sales for the three months ended June 30, 1997 increased $11.0
million, or 18.0%, as compared to the three months ended June 30, 1996. The
Company operated an average of 262 Burger King restaurants for the second
quarter of 1997 as compared to 220 in 1996. Average restaurant unit sales
decreased 1.0% when comparing 1997 to 1996. Sales at comparable restaurants,
the 218 units operating for the entirety of the compared periods, decreased
$0.6 million, or 1.0%. Net restaurant selling prices remained relatively
stable.
COST OF SALES. Cost of sales (food and paper costs) for the three months
ended June 30, 1997 increased in dollars due to higher sales. As a percentage
of sales, these costs increased .4% from 1996 to 1997 due primarily to
increases in commodity costs, especially beef, partially offset by the effect
of fewer discount promotions.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 29.2% of sales to 30.3% of sales when comparing the
three months ended June 30, 1996 to 1997 due mainly to increased wage rates
(including the increase in the minimum wage rate effective October 1, 1996) and
related payroll tax 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 20.2% in 1996 to 19.9% in 1997. A decrease in
average utility expense, repair and maintenance costs, operating supplies and
linen were the principal causes of this decrease.
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
$1.2 million when comparing 1997 to 1996.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $.4 million
when comparing the three months ended June 30, 1997 to 1996 due mainly to
increased costs associated with more restaurants and costs associated with
anticipated future expansion. However, as a percentage of sales these expenses
decreased from 4.4% the three months ended June 30, 1996 to 4.2% in the same
period of 1997.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.4 million (based on sales levels) was the principal cause for
the increase in advertising expense when comparing 1997 to 1996. This was
partially offset by a .1% decrease in expenditures on other promotional
activity.
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.
PROVISION FOR TAXES. The provision for income taxes reflected during the
three months ended June 30, 1997 and 1996 reflects taxes at the expected annual
effective rate.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
SALES. Sales for the six months ended June 30, 1997 increased $15.0
million, or 13.0% as compared to the six months ended June 30, 1996. The
Company operated an average of 249 Burger King restaurants in the first six
months of 1997 as compared to an average of 219 in the first six months of
1996. Average restaurant unit sales decreased .4% in the first six months of
1997 as compared to 1996. Sales at comparable restaurants, the 216 restaurants
operating for the entirety of the compared periods, decreased $0.6 million, or
.5%. Net restaurant selling prices remained relatively stable for the
comparable six month periods.
COST OF SALES. Cost of sales (food and paper costs) for the six months
ended June 30, 1997 increased in dollars due to higher sales. Cost of sales as
a percentage of sales increased from 28.5% in 1996 to 28.6% in 1997 as a result
of increases in certain commodity costs, especially beef.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses increased from 29.8% of sales to 31.1% of sales when comparing the six
months ended June 30, 1997 to 1996 due mainly to increased wage rates,
increased group insurance costs, and some increases in unemployment tax rates.
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 20.8% in 1996 to 20.5% in 1997 as a result of a
decrease in average repair and maintenance cost, operating supplies and linen
costs.
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
$1.5 million when comparing 1997 to 1996.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $.6 million
when comparing the six months ended June 30, 1997 to 1996 due mainly to
increased costs associated with more restaurants and costs associated with
anticipated future expansion. However, as a percentage of sales, these
expenses decreased 4.5% in the six months ended June 30, 1996 to 4.4% in the
same period of 1997.
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 $0.6 million (based on sales levels) was the principal cause for
the increase in advertising expense when comparing 1997 to 1996.
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.
PROVISION FOR TAXES. The provision for income taxes reflected during the
six months ended June 30, 1996 and 1997 reflects taxes at the expected annual
effective rate.
LIQUIDITY AND CAPITAL RESOURCES
The operating activities of the Company provided $2.9 million of cash for
the six months ended June 30, 1997 after using $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 of $30.8
million included $25.8 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 four new restaurant
units that opened during the period, various remodels and other capital
maintenance projects. One restaurant unit was sold during the first 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 acquisitions. A
$25.0 million Revolving Loan Facility was also established to refinance the
Company's previous revolving credit facility with Heller Financial, Inc., to
finance restaurant acquisitions and new store development, and for other
working capital and general corporate purposes.
During the six months ended June 30, 1997, the Company borrowed $12.7
million under the Advance Loan Facility with Texas Commerce Bank, $5.0 million
of which represented the refinancing of an existing term loan with Heller
Financial, Inc. and $4.6 million to retire the previous balance of the revolver
with Heller Financial, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
As reported in the Company's 1996 Annual report on Form 10-K and in a Form
8-K dated March 27, 1997, the change in control of the Company's parent,
Carrols Holdings Corporation, occurred on March 27, 1997. In connection with
this change of control, the Company received net proceeds from new common
equity of approximately $30.4 million. Under the 1993 Indenture governing the
Company's Senior Notes,(the "Indenture") the change in control gave each holder
of Senior Notes the right to require the Company to repurchase all or any part
of such holder's Senior Notes at a repurchase price equal to 101% of the
principal amount of the Senior Notes being repurchased plus accrued and unpaid
interest. A total of $25,000 in Senior Notes were presented for redemption.
While interest is accrued monthly, payments of approximately $6.2 million
for interest on the Senior 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 Loan Agreement
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 Burger King franchise agreements and meet
required payments in respect of Holdings' Preferred Stock (subject to the terms
of the Indenture and the Loan Agreement) 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) During the quarter 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)
August 13, 1997 /S/ ALAN VITULI
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
August 13, 1997 /S/ PAUL R. FLANDERS
Date (Signature)
Paul R. Flanders
Vice President - Finance