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, 1998
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, 1998
10 SHARES
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PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS March 31, December 31,
1998 1997
Current assets:
Cash and cash equivalents $ 2,189,000 $ 2,252,000
Trade and other receivables 496,000
748,000
Inventories 3,055,000
3,355,000
Prepaid real estate taxes 1,179,000
939,000
Prepaid expenses and other current assets 1,319,000
1,388,000
Refundable income taxes -
2,141,000
Deferred income taxes 2,605,000
2,605,000
Total current assets 10,843,000
13,428,000
Property and equipment, at cost:
Land 6,564,000
7,280,000
Buildings and improvements 12,844,000
12,487,000
Leasehold improvements 45,407,000
43,146,000
Equipment 64,280,000
61,331,000
Capital leases 14,548,000
14,548,000
143,643,000
138,792,000
Less accumulated depreciation
and amortization ( 70,569,000)
(67,908,000)
Net property and equipment 73,074,000
70,884,000
Franchise rights, at cost (less accumulated amortization
of $26,503,000 at March 31, 1998 and $25,047,000 at
December 31, 1997) 108,138,000
108,938,000
Intangible assets, at cost less accumulated amortization
of $9,048,000 and $8,900,000 at
March 31, 1998 and December 31, 1997,
respectively 7,715,000
7,864,000
Other assets 7,641,000 7,778,000
Deferred income taxes 6,436,000
6,436,000
$213,847,000
$215,328,000
The accompanying notes are an integral part of these financial statements.
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
MARCH 31, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1998 1997
Current liabilities:
Accounts payable $ 14,190,000 $ 11,950,000
Accrued interest 1,761,000 4,770,000
Accrued payroll, related taxes and benefits 6,345,000 6,299,000
Accrued income taxes 169,000 -
Other liabilities 4,242,000 5,104,000
Current portion of long-term debt 3,375,000 3,137,000
Current portion of capital lease obligations 422,000 441,000
Total current liabilities 30,504,000 31,701,000
Long-term debt, net of current portion 154,094,000 154,649,000
Capital lease obligations, net of current portion
1,951,000 2,060,000
Deferred income - sale/leaseback of
real estate 4,493,000 4,555,000
Accrued postretirement benefits 1,672,000 1,627,000
Other liabilities 3,382,000 3,289,000
Total liabilities 196,096,000 197,881,000
Stockholders' equity:
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital
28,362,990
28,271,990
Accumulated deficit (
(10,916,000)
10,521,000)
Total stockholders' equity
17,751,000 17,447,000
$213,847,000
$215,328,000
The accompanying notes are an integral part of these financial statements.
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
(13 weeks) (13 weeks)
Restaurant sales $ 87,451,000 $58,305,000
Costs and expenses:
Cost of sales 25,391,000 16,506,000
Restaurant wages and related expenses 26,756,000 18,540,000
Advertising expense 4,005,000 2,731,000
Other restaurant operating expenses 18,291,000 12,514,000
Administrative expenses 3,749,000 2,665,000
Depreciation and amortization 4,203,000 2,902,000
Total operating expenses 82,395,000 55,858,000
Operating income 5,056,000 2,447,000
Interest expense 4,334,000 3,556,000
Income (loss) before income taxes 722,000 (1,109,000)
(Provision) benefit for income taxes (327,000) 369,000
Net income (loss) $ 395,000 $ (740,000)
The accompanying notes are an integral part of these financial statements.
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
(13 weeks) (13 weeks)
Cash flows from operating activities:
Net income (loss) $ 395,000 $
(740,000)
Adjustments to reconcile net income (loss)
to cash provided by (used for) operating
activities:
Depreciation and amortization 4,203,000 2,902,000
Deferred income taxes - (494,000)
Gain on sale of property and equipment (187,000) (234,000)
Change in assets and liabilities 1,115,000 (6,334,000)
Cash provided by (used for) operating
activities 5,526,000 (4,900,000)
Cash flows from investing activities:
Capital expenditures:
New restaurant development (2,642,000) (1,042,000)
Remodels and other capital expenditures (3,656,000) (1,022,000)
Acquisitions of restaurants (614,000) (24,816,000)
Proceeds from sales of property and equipment 157,000 1,082,000
Net cash used for investing activities (6,755,000) (25,798,000)
Cash flows from financing activities:
Proceeds from long-term debt 400,000 16,532,000
Principal payments on long-term debt (717,000) (2,000)
Principal payments on capital leases (128,000) (153,000)
Proceeds from issuing stock - 22,128,000
Proceeds from sale-leaseback transactions 1,702,000 -
Dividends paid (91,000) -
Net cash provided by financing activities 1,166,000 38,505,000
Increase (decrease) in cash and cash
equivalents (63,000) 7,807,000
Cash and cash equivalents,
beginning of period 2,252,000 1,314,000
Cash and cash equivalents,
end of period $ 2,189,000 $ 9,121,000
The accompanying notes are an integral part of these financial statements.
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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, 1998, 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, 1997 contained in the Company's 1997 Annual Report on Form 10-K.
The December 31, 1997 balance sheet data is derived from these audited
financial statements.
Certain amounts for the prior year have been reclassified to conform to
the current year presentation.
2. INVENTORIES
Inventories at March 31, 1998 and December 31, 1997, consisted of:
March 31, December 31,
1998 1997
Raw materials (food and
paper products) $1,916,000 $ 2,111,000
Supplies 1,139,000 1,244,000
$3,055,000 $ 3,355,000
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CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
3. INCOME TAXES
The income tax (provision) benefit for the three months ended March 31,
1998 and 1997 was comprised of the following:
1998 1997
Current $ (327,000) $ (125,000)
Deferred - 494,000
$ (327,000) $ 369,000
For 1998 and 1997 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 and non-deductible amortization of franchise rights.
4. ACQUISITIONS
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 million.
On August 20, 1997, the Company purchased certain assets and franchise
rights of sixty-three Burger King restaurants, primarily in Western New
York State, Indiana and Kentucky for a cash price of approximately $52
million.
The following proforma results of operations for the three months ended
March 31, 1997 assume these acquisitions occurred as of the beginning of
the period:
Revenues $107,627,000
Operating income $ 6,364,000
Net income $ 549,000
The preceding proforma financial information is not necessarily indicative
of the operating results that would have occurred had either acquisition
been consummated as of the beginning of the respective periods, nor are
they necessarily indicative of future operating results.
7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
5. HEDGE ACCOUNTING
In the first quarter of 1998 the Company entered into hedge transactions
in anticipation of a possible refinancing transaction of certain of its
existing debt. The Company's accounting policy is to defer any gains or
losses resulting from the hedge until the date of the anticipated
transaction and amortize any gains or losses over the life of the future
debt instrument.
At March 31, 1998, the notional amount of the Company's hedge transactions
was $75,000,000. Deferred gains on these transactions at March 31, 1998
were approximately $300,000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended March 31, 1998
and 1997, selected operating results as a percentage of restaurant sales:
1998 1997
Restaurant sales 100.0% 100.0%
Costs and expenses:
Cost of sales 29.0 28.3
Restaurant wages and related expenses 30.6 31.8
Other restaurant expenses including
advertising 25.5 26.1
Administrative expenses 4.3 4.6
Depreciation and amortization 4.8 5.0
Operating income 5.8% 4.2%
EBITDA 10.6% 9.2%
RESTAURANT SALES Restaurant sales for the three months ended March 31,
1998, increased 50.0% to $87.5 million from $58.3 million in the first quarter
of 1997. The increase in sales was primarily the result of the growth in the
number of Burger King restaurants operated by the Company which increased from
261 at the end of the first quarter of 1997 to 339 at the end of the first
quarter of 1998. During the twelve months ended March 31, 1998, the Company
opened 12 new restaurants, acquired 67 restaurants and closed one
underperforming restaurant. Sales at the Company's 227 comparable restaurants
(those units operating for the entirety of the compared periods) increased 7.2%
for the first quarter of 1998.
OPERATING COSTS AND EXPENSES Cost of sales (food and paper costs), as a
percentage of sales, were 29.0% for the three months ended March 31, 1998
compared to 28.3% for the first quarter of 1997. The increase in 1998, in
part, reflected higher food commodity costs associated with the introduction of
a new french fry product in January 1998. In addition, the Company's food and
paper cost relationships have been somewhat higher for its newly acquired units
prior to these units becoming fully integrated into the Company's operating
systems.
Restaurant wages and related expenses decreased as a percentage of sales
during the first quarter from 31.8% in 1997 to 30.6% in 1998 due to the
reduction of restaurant labor hours and the effect of increased sales on fixed
management labor, offset by the effect of an increase in the Federal minimum
wage rate from $4.75 per hour to $5.15 per hour which took effect in September
1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
Other restaurant operating expenses decreased from 21.5% of sales in the
first quarter of 1997 to 20.9% in the first quarter of 1998, due in part to
reduced utility costs associated with a milder winter in the Company's
operating areas, as well as the effect of higher sales on the fixed components
of the Company's costs.
Administrative expenses increased approximately $1.1 million, however as a
percentage of sales, decreased from 4.6% in the first quarter of 1997 to 4.3%
in the first quarter of 1998. The increase in dollars reflects the addition of
field supervision and corporate support as a result of the 1997 addition of
over 100 restaurants and to support the Company's plans for continued
expansion.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased from $5.3 million in the first quarter of 1997 to $9.3 million in the
first quarter of 1998. As a percentage of sales, EBITDA increased from 9.2% in
the first quarter of 1997 to 10.6% in the first quarter of 1998 as a result of
the factors discussed above.
Depreciation and amortization increased $1.3 million in the first quarter
of 1998 due primarily to the increase in goodwill and purchased intangibles
resulting from the purchase method of accounting for restaurants acquired in
1997.
Interest expense was $4.3 million in the first quarter of 1998 compared to
$3.6 million in the first quarter of 1997. The increase in 1998 was the result
of higher average debt balances due to funding the acquisition and construction
of additional restaurants in 1997.
The provision for income taxes of $327,000 in the first quarter of 1998 is
based on an estimated effective income tax rate for 1998 of 45%. This rate is
higher than the Federal statutory tax rate due to state franchise taxes and
non-deductible amortization of intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food products
and other supplies. The Company is able to operate with a substantial working
capital deficit because (i) restaurant operations are conducted on a cash basis
(ii) rapid turnover allows a limited investment in inventories, and (iii) cash
from sales is usually received before related accounts for food, supplies and
payroll become due. The Company's cash requirements arise primarily from the
need to finance the opening and equipping of new restaurants, for ongoing
capital reinvestment in its existing restaurants, for the acquisition of
existing Burger King restaurants, and for debt service.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
The Company's operations in the first quarter of 1998 generated
approximately $5.5 million in cash, compared with a use of cash of $4.9 million
for the first quarter of 1997.
Capital expenditures represent a major investment of cash for the Company,
and totaled $6.9 million in the first quarter of 1998 and $26.9 million in the
first quarter of 1997. 1997 capital expenditures included $24.8 million for
the acquisition of 29 restaurants.
The sale and leaseback of two restaurant properties in March 1998
generated $1.7 million, the proceeds of which were used to reduce amounts which
had be borrowed under the Company's credit agreement.
At March 31, 1998, the Company had $21.1 million available under its
Revolving Loan facility after reserving $1.0 million for a letter of credit
guaranteed by the facility, and $64.3 million available under its Advance Loan
Facility. While interest is accrued monthly, payments of approximately $6.2
million for interest on the Company's 11.50% Senior Notes are made each
February 15th and August 15th thus creating semi-annual cash needs. The
Company believes that its operations and capital resources will provide
sufficient cash availability to cover its working capital, capital
expenditures, planned development and debt service requirements for the
foreseeable future.
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends and preferred stock redemptions. The Company
has sufficient unrestricted amounts to enable it to make the required payments
to satisfy preferred stock dividend and redemption requirements.
11
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.
12
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 11, 1998 /s/ __
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
May 11, 1998 /s/
Date (Signature)
Paul R. Flanders
Vice President - Finance
13