UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Fiscal Year Ended December 29, 1996
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 No.)
968 JAMES STREET, SYRACUSE, NEW YORK 13203
- --------------------------------------- --------------------
(Address of principal executive office) (Zip Code)
(315) 424-0513
-------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
11-1/2% SENIOR NOTES DUE 2003
---------------------------------
(Title of Class)
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___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K ('SS'229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant: NO VOTING STOCK IS HELD BY NON-AFFILIATES.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 15, 1997: 10.
Documents Incorporated by Reference: NONE.
Page 1 of 270
The Company uses a 52-53 week fiscal year ending on the Sunday
closest to December 31. All references herein to the fiscal years ended January
1, 1995, December 31, 1995 and December 29, 1996 will hereinafter be referred to
as the fiscal years ended December 31, 1994, 1995 and 1996, respectively.
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
ATLANTIC ACQUISITION
Acquisition. On April 3, 1996, pursuant to the Securities Purchase
Agreement (the "Atlantic Agreement"), dated as of March 6, 1996, among Carrols
Corporation (the "Company" or "Carrols"), Carrols Holdings Corporation
("Holdings"), the stockholders of Holdings and Atlantic Restaurants, Inc.
("Atlantic"), Atlantic acquired Holdings, the owner of 100% of the outstanding
capital stock of the Company (the "Atlantic Acquisition"). Pursuant to the
Atlantic Agreement, Atlantic acquired all of the outstanding voting capital
stock of Holdings for an aggregate purchase price of approximately $84 million
in cash.
Atlantic. Atlantic is an indirect wholly-owned subsidiary of Bahrain
International Bank (E.C.), a Bahrain exempt joint stock company ("BIB").
Redemption of Notes. The Atlantic Acquisition constituted a "change of
control" under the Indenture (the "Indenture"), dated as of August 17, 1993,
among the Company, Holdings and Marine Midland Bank, N.A., as trustee, governing
Carrols' $110 million aggregate principal amount (currently $107.7 million
outstanding) of 11-1/2% Senior Notes Due 2003 (the "Notes"). In accordance with
the terms and conditions of the Indenture, the Company offered to each holder of
the Notes the right to require the Company to repurchase all or any part of such
holder's Notes at a repurchase price in cash equal to 101% of the principal
amount of the Notes being repurchased (plus accrued and unpaid interest, if
any). The holders of $838,000 in principal amount of Notes redeemed their Notes
pursuant to such offer.
Employment Agreements. In connection with the Atlantic Acquisition, the
Company entered into Amended and Restated Employment Agreements (the "Employment
Agreements") with each of Alan Vituli (Chairman of the Board and Chief Executive
Officer of the Company) and Daniel T. Accordino (President and Chief Operating
Officer of the Company), each as more specifically described below. The
Employment Agreements contain terms and conditions substantially similar to
Messrs. Vituli's and Accordino's respective previous employment agreements
except that, in lieu of the previous stock option plans maintained by Holdings
(all of which were terminated in connection with the Atlantic Acquisition), a
new stock option plan (the "1996 Plan") was adopted pursuant to which employees
of the Company were eligible to be awarded options to purchase up to 9.09% of
the outstanding Shares of Common Stock on a fully-diluted basis. Messrs. Vituli
and Accordino received, pursuant to the 1996 Plan, 36% and 24%, respectively, of
the options (the "Option Agreements") that were available under the 1996 Plan.
Board of Directors. Upon consummation of the Atlantic Acquisition, each
of M. Bruce Adelberg, Richard V. Cross and Franklin Glasgall resigned from the
Board of Directors of the
-2-
Company and of Holdings. Immediately following completion of the Atlantic
Acquisition, Robin McIlvenny, David J. Mathies, Jr. and Paul W. Durrant, each an
officer of Atlantic or one of its affiliates, were each elected to the
five-person Board of Directors of the Company and of Holdings.
Revised and Proposed Credit Facility. In connection with the Atlantic
Acquisition, the Company entered into a Seventh Amendment to Third Amended and
Restated Loan Security Agreement (the "Loan Amendment"), dated as of April 3,
1996, among Heller Financial, Inc. ("Heller"), Holdings and the Company which
provides, among other things, for additional availability under the senior
secured revolving credit facility (the "Senior Secured Credit Facility") of the
Company to repurchase Notes. The Company and Holdings are presently negotiating
the terms of additional financing (the "TCB Refinancing") pursuant to which
Texas Commerce Bank National Association ("TCB"), as Administrative Agent for a
syndicate of lenders (the "Lenders"), would (i) establish a $25 million
Revolving Credit Facility that would replace the current Senior Secured Credit
Facility and (ii) establish a $127 million Advance Term Loan ($5 million of
which would be used to replace the current $5 million term loan with Heller).
RECAPITALIZATION
On February 20, 1997, the Certificate of Incorporation of Holdings was
amended (the "Amendment") such that (i) the 3,146,110 shares of Common Stock
held by Atlantic were converted into 850,000 shares of Common Stock, (ii) each
of the classes consisting of (a) 882,353 shares of Non-Voting Common Stock of
Holdings, (b) 750 shares of Class B 10% Cumulative Redeemable Preferred Stock
(Series I) of Holdings, par value $0.01 per share, and (c) 750 shares of Class B
10% Cumulative Redeemable Preferred Stock (Series lI) of Holdings, par value
$.01 per share, was canceled and (iii) the outstanding warrants to purchase
488,111 shares of Common Stock were converted into warrants to purchase 131,876
shares of Common Stock. After giving effect to the foregoing, Holdings had
850,000 shares of Common Stock outstanding, all of which were held by Atlantic,
and no other voting capital stock outstanding. The descriptions below of the
1996 Plan and the Option Agreements are made after giving effect to the
foregoing.
MADISON DEARBORN INVESTMENT
MD Investment. On February 25, 1997, Holdings, Atlantic, Madison
Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
(together with Madison Dearborn Capital Partners, L.P., the "MD Investors")
entered into a Stock Purchase Agreement (the "MD Agreement"). Pursuant to the MD
Agreement and subject to certain conditions precedent described below, the MD
Investors will acquire (the "MD Investment") (i) from Holdings 283,334 shares of
Common Stock (the "Holdings Shares") and (ii) from Atlantic 283,333 of the
outstanding shares of Common Stock (the "Atlantic Shares," and, together with
the Holdings Shares, the "MD Shares"). Pursuant to the MD Agreement, certain
members of senior management will purchase, in the aggregate, 10,810 shares of
Common Stock.
The aggregate purchase price for the MD Shares will be approximately $61
million in cash (the "MD Purchase Price"), of which approximately one-half will
be paid to Holdings.
Stockholders Agreement. At the closing (the "MD Closing") of the MD
Investment, Holdings, Atlantic, the MD Investors, Alan Vituli and certain
other members of senior management (collectively the "New Stockholders") will
enter into a stockholders agreement (the "Stockholders Agreement"). Pursuant to
the Stockholders Agreement, at the MD Closing the New Stockholders will elect a
new Board of Directors of Holdings and Holdings will elect a new Board of
Directors of
-3-
Carrols. Such new board will include three representatives designated by the MD
Investors (the "MD Directors"), three representatives designated by Atlantic
(the "Atlantic Directors") and two representatives (each of whom shall be
executive officers of the Company) designated by Mr. Vituli (the "Management
Directors"). The Stockholders Agreement also includes restrictions on the
transfer of Common Stock, restrictions on and covenants of Holdings and the
provision of preemptive, tag along and drag along rights to the parties thereto.
Conditions to MD Closing. The MD Investment is subject to several
conditions customary for comparable transactions and is also subject to the
following conditions:
1. The execution and delivery of the Stockholders Agreement by the
parties thereto;
2. The execution and delivery by Holdings, Atlantic, the MD Investors
and Messrs. Vituli, Accordino and Joseph A. Zirkman (Vice President and General
Counsel of the Company) of a registration rights agreement (the "Registration
Rights Agreement") granting rights relating to the registration of shares of
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act");
3. The execution by Holdings and each of Messrs. Vituli and Accordino
of new employment agreements (the "New Employment Agreements) providing for a
minimum of four year terms of employment for Messrs. Vituli and Accordino;
4. The adoption of the Carrols Holdings Corporation 1996 Long-Term
Incentive Plan (the "New 1996 Plan");
5. The execution by Holdings and each of Messrs. Vituli and Accordino of
new stock option agreements, pursuant to the New 1996 Plan (collectively,
the "New Plan Option Agreements") providing in the aggregate for the purchase of
72,250 shares of Common Stock by them at an exercise price of $101.7646 per
share, a portion of which options vest immediately and a portion of which vest
over a period of four years;
6. The execution by Holdings and each of Messrs. Vituli, Accordino and
Zirkman of new stock option agreements (collectively, the "New Non-Plan
Option Agreements") providing in the aggregate for the purchase of 32,427 shares
of Common Stock by them at an exercise price of $101.7646 per share, which
options vest over a period of five years;
7. The execution and delivery of new financing and related agreements
with respect to the TCB Refinancing;
8. Holdings shall have obtained a key-man life insurance policy on the
life of Mr. Vituli in the face amount of $10,000,000; and
9. The investment by Messrs. Vituli, Accordino and Zirkman in Holdings
through the purchase of 9,827, 860 and 123 shares, respectively, of Common Stock
at the cash purchase price of $101.7646 per share.
Prospective Redemption of Notes. The consummation of the MD Investment
will constitute a "change of control" under the Indenture. In accordance with
the terms and conditions of the Indenture, upon a "change of control", each
holder of the Notes will have the right to require that Carrols repurchase all
or any part of such holder's Notes at a repurchase price in cash equal to
101% of the principal amount of the Notes being repurchased (plus accrued
-4-
interest, if any). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources.
PENDING OMEGA ACQUISITIONS
The Company has entered into (i) a Purchase and Sale Agreement dated as
of January 15, 1997 with Omega Food Services, Inc. ("Omega") and Harold W.
Hobgood, as Omega's agent (the "Omega I Agreement"), pursuant to which the
Company will acquire the assets of 5 Burger King restaurants for an aggregate
purchase price of $5 million (subject to certain adjustments for inventory) and
(ii) a Purchase and Sale Agreement dated as of January 15, 1997 with Omega and
Harold W. Hobgood, as Omega's agent (the "Omega II Agreement"), pursuant to
which the Company will acquire the assets of 18 Burger King restaurants for an
aggregate purchase price of $16 million (subject to certain adjustments for
inventory). In addition, pursuant to the Omega I Agreement and the Omega II
Agreement the Company will purchase, upon their construction, two additional
Burger King restaurants.
* * *
The Atlantic Agreement, the Employment Agreements, the 1996 Plan, the
Option Agreements, the Insurance Agreements, the Loan Amendment, the commitment
letter describing the proposed TCB Refinancing, the Amendment, the MD Agreement,
the Stockholders Agreement, the Registration Rights Agreement, the New
Employment Agreements, the New 1996 Plan, the New Plan Option Agreements and the
New Non-Plan Option Agreements are included as Exhibits to this Form 10-K and
are incorporated by reference herein. The discussions in this Form 10-K of those
instruments are qualified in their entirety by reference to those instruments.
HISTORICAL DEVELOPMENT
Carrols was incorporated in 1968 and through 1976 its principal business
was the operation of fast food hamburger restaurants under the name Carrols
Restaurants and the operation of movie theaters under the name CinemaNational.
In 1976, as a result of growing competition from larger and better recognized
national fast food restaurant chains, Carrols became a franchisee of BKC and
began converting its restaurants into Burger King restaurants and ceased
operating and franchising restaurants under the name of Carrols Restaurants. In
order to facilitate the financing of the conversion of these restaurants,
Carrols disposed of a substantial portion of its movie theater assets.
In 1969, Carrols offered its common stock through an initial public
offering. The Company's shares were listed for trading on the New York Stock
Exchange in 1983.
The Company was acquired in December 1986 (the "1986 Acquisition") by
Holdings, a corporation formed to effect the 1986 Acquisition by Mr. Vituli and
other members of the Company's then-current senior management, a private
investor group and certain institutional investors. As a result of the 1986
Acquisition, Carrols became a wholly-owned subsidiary of Holdings. In March
1992, Mr. Vituli, who was Chairman of the Board of the Company from the time of
the 1986 Acquisition in December 1986, was also elected to serve as Chief
Executive Officer of the Company. Mr. Accordino was appointed President of the
Company in February 1993. In January 1995, the Company entered into three-year
employment agreements, which agreements were amended effective April 3, 1996
pursuant to the Atlantic Acquisition, with each of Messrs. Vituli and Accordino.
See "Executive Compensation -- Employment Agreements".
-5-
At the time of the 1986 Acquisition, the Company owned 138 Burger King
restaurants and a food distribution business. In August 1990, the Company sold
its food distribution business to Burger King Distribution Services (BKDS), a
division of BKC. Carrols currently purchases substantially all of its
requirements for foodstuffs and paper and packaging products from ProSource
Services Corporation ("ProSource"), the successor to BKDS, pursuant to a five
year supply agreement which expires on March 31, 1999. See "Business--Supplies
and Distribution."
Since the 1986 Acquisition, Carrols has expanded its operations from 138
Burger King restaurants to 238 as of March 15, 1997. During this period, Carrols
built 38 restaurants, purchased 75 restaurants and disposed of or closed 13
restaurants. See "Business--Restaurant Locations." Since March 1994, the Company
has acquired 36 Burger King restaurants through the 1994 acquisitions of 22
Burger King restaurants for an aggregate purchase price of approximately $11.6
million, the 1995 acquisition of one Burger King restaurant, the 1996
acquisitions of 8 Burger King restaurants for an aggregate purchase price of
approximately $7.8 million and the 1997 acquisitions of 5 Burger King
restaurants for an aggregate purchase price of approximately $3.6 million.
COMPANY OPERATIONS
General. Since 1976, the Company's principal business has been the
operation of Burger King restaurants. The Company is the largest independent
Burger King franchisee in the United States. As of March 15, 1997, the Company
operated, as franchisee, 238 Burger King restaurants, of which 217 are
free-standing restaurants and 21 are located in retail shopping centers or
specialty stores. Carrols currently operates Burger King restaurants in nine
Northeastern and Midwestern states and one Southeastern state.
Carrols' Burger King restaurants are typically open seven days a week
from 7:00 a.m. to 11:00 p.m. Substantially all of Carrols' Burger King
restaurants offer a breakfast menu and the traditional Burger King menu for
lunch and dinner. A standard, free-standing Burger King restaurant building
typically has an area of approximately 3,000 square feet with a seating capacity
of approximately 90, drive-thru service and adjacent parking areas. Smaller
Burger King facilities are utilized in retail shopping centers. In Carrols'
free-standing Burger King restaurants, greater than 50% of sales are generally
generated through drive-thru service. Carrols leases most of its restaurant
properties, although it owns the land and buildings on which 28 of its Burger
King restaurants are located. See "Properties."
Burger King. There are approximately 8,700 Burger King restaurants
worldwide making BKC the second largest fast food hamburger operation. BKC has
been franchising since 1954 and has expanded to locations in all 50 states, the
District of Columbia and over 50 foreign countries.
Burger King restaurants are fast food restaurants of distinctive design
which serve a limited menu of moderately-priced foods and offer efficient and
rapid service. The Company believes that convenience, quality of food,
price/value and speed of service are the primary competitive advantages of
Burger King restaurants. Burger King restaurants appeal to a broad spectrum of
consumers.
Burger King restaurants feature flame-broiled hamburgers, which are an
integral part of the Burger King identity, and several widely-known, trademarked
products, the most popular being the Whopper'r' sandwich, which is a large,
flame-broiled hamburger on a five-inch toasted bun garnished with combinations
of mayonnaise, lettuce, onions, pickles and tomatoes. The basic
-6-
menu of all Burger King restaurants consists of hamburgers, cheeseburgers,
chicken sandwiches and filets, fish sandwiches, french fried potatoes, salads,
various breakfast products, shakes, desserts, soft drinks, milk and coffee. From
time to time, other promotional items are added to the menu for limited periods.
BKC continually seeks to develop new products and concepts as it endeavors to
enhance the menu and service of Burger King restaurants.
Franchise Agreements. Each of Carrols' Burger King restaurants operates
under a separate Franchise Agreement from BKC. The Franchise Agreements require,
among other things, that all restaurants be of standardized design and be
operated in a prescribed manner, including utilization of the standard Burger
King menu. The Franchise Agreements generally provide for an initial term of 20
years and have an initial fee of $40,000. A Successor Franchise Agreement may be
granted by Burger King for an additional 20 year term, provided the restaurant
meets the then-current BKC operating standards and the Company is not in default
under the relevant Franchise Agreement. Currently, the Successor Franchise
Agreement fee is $40,000. In addition to this fee, in order to obtain a
Successor Franchise Agreement, a franchisee is typically required to make
capital improvements to the subject restaurant to bring the restaurant up to
BKC's then-current design standards. The amount of such capital expenditures
will vary widely depending upon the magnitude of the required changes and the
degree to which the Company has made interim changes to the restaurant. Although
the Company estimates that a substantial remodeling can cost in excess of
$250,000, the Company's average remodeling cost over the past five years has
been approximately $130,000 per restaurant. The Franchise Agreements are
non-cancelable except for failure to abide by the terms thereof.
Carrols believes that it enjoys a good relationship with BKC and that it
will satisfy BKC's normal Successor Franchise Agreement policies and,
accordingly, believes that Successor Franchise Agreements will be granted in due
course by BKC at the expiration of its existing Franchise Agreements.
Historically, BKC has granted each of the Company's requests for a Successor
Franchise Agreement for its restaurants.
In addition to the initial franchise fee, franchisees currently pay to
BKC a monthly royalty of 3-1/2% of the gross revenues from their Burger King
restaurants. Burger King franchisees currently also contribute 4% of monthly
gross revenues from their Burger King restaurants to fund BKC's national and
regional advertising. BKC engages in substantial advertising and promotional
activities and other efforts to maintain and enhance the nationwide Burger King
system. Carrols supplements BKC's marketing with local advertising and
promotional campaigns. See "Business--Business Strategy" and "Advertising and
Promotion."
The franchisee of a new restaurant must also purchase the requisite
equipment, furniture and signage and pay various other costs to open a new
Burger King restaurant. The Company estimates that the average initial cost for
a standard free-standing restaurant is approximately $240,000 (excluding the
cost of the building, land and site improvements). The Company estimates that
the aggregate cost of constructing a free-standing restaurant and the cost of
land and site improvements varies considerably depending upon building type,
land cost and site work, and generally ranges from $650,000 to $1,000,000.
The BKC Franchise Agreements do not grant any franchisees exclusive
rights to a defined territory. The Company believes that BKC generally seeks to
ensure that newly granted franchises do not materially adversely affect the
operations of existing Burger King restaurants.
The Company is required to obtain BKC's consent prior to the acquisition
or development of new Burger King restaurants. BKC has the right of first
refusal to purchase any Burger King
-7-
restaurant which the Company wishes to acquire from other franchisees. In
addition, BKC's prior consent is required for the sale by the Company of any of
its restaurants. Since the Acquisition, BKC has consented to each of the
Company's requests for consent to acquisitions.
Management Structure; Staffing; Training. Substantially all executive
management, finance, marketing and operation support functions of the Company
are conducted centrally at Carrols' Syracuse, New York headquarters. The Company
currently has four vice president-regional directors who are each responsible
for the operations of all of Carrols' Burger King restaurants in their
respective regions. Three of the regional directors have been employed by
Carrols for over 20 years. There are 32 district supervisors who report to the
regional directors. Each district supervisor is responsible for the direct
supervision of the day-to-day operations of an average of seven restaurants.
Typically, district supervisors previously served as restaurant managers at one
of Carrols' restaurants. Both regional directors and district supervisors are
compensated with a fixed salary plus an incentive bonus based upon the
performance of the restaurants under their supervision.
A typical Carrols' Burger King restaurant is staffed with hourly
employees who are supervised by a salaried manager and two or three salaried
assistant managers.
Carrols provides both classroom and in-restaurant training for its
salaried and hourly personnel, in addition to the training programs provided by
BKC. Carrols believes that training and management development are integral to
its success.
Control Systems. Financial and management control of Carrols'
restaurants is facilitated by the use of an integrated computerized back office
and point of sale system which electronically retrieves data from each of the
Company's restaurants on a daily basis. Sales reports, payroll data, food and
labor cost analyses and other operating information for each restaurant are also
available daily to the restaurant manager, who is expected to react quickly to
trends or situations in his or her restaurant. The district supervisors receive
key daily information for all restaurants under their respective control, both
on an individual unit and a cumulative basis. Daily information is accumulated
into weekly and monthly operating reports covering significant restaurant
performance indicators for each restaurant. These reports are monitored at each
management level from district supervisor through senior management. Carrols
believes that these systems materially enhance its ability to control and manage
its restaurant operations.
Factors Affecting the Company's Operations. Carrols' business is
affected by various conditions such as automobile usage, inclement weather,
gasoline prices and road construction. Weather conditions can be particularly
severe in the Northeast where the Company operates a significant number of its
Burger King restaurants. Historically, the Company's business has also been
affected by changes in local and national economic conditions, demographic
trends and consumer spending habits, tastes and concerns about the nutritional
quality of fast food.
Site Selection. The Company believes that the location of each of its
restaurants is very important to such restaurant's success. Potential new
development sites are evaluated based upon accessibility, visibility, costs,
surrounding traffic patterns, competition and demographic characteristics. The
Company's senior management, based upon analyses prepared by its real estate
professionals and its operations personnel, determines the acceptability of all
acquisition and new development sites. See "Business--Business Strategy."
-8-
RESTAURANT LOCATIONS
The following table sets forth the locations of the 238 Burger King
restaurants in Carrols' system at March 15, 1997.
NEW YORK (98) OHIO (68) MAINE (3)
Greater Albany (14) Greater Akron (13) Augusta (1)
Auburn (1) Alliance (2) Bangor (2)
Amsterdam (1) Archbold (1)
Greater Binghamton (6) Ashland (1)
Boonville (1) Bowling Green (3) MASSACHUSETTS (2)
Buffalo (1) Bryan (1)
Catskill (1) Greater Canton (11) North Andover (1)
Cobleskill (1) Greater Cleveland (9) Billerica (1)
Cortland (1) Defiance (1)
Fulton (1) Edon (1)
Glens Falls (2) Findlay (2) NEW JERSEY (2)
Gloversville (2) Fostoria (1)
Hamilton (1) Fremont (1)
Herkimer (1) Hartville (1) Franklin (1)
Hudson (1) Lima (2) Newton (1)
Kingston (3) Mansfield (6)
Middletown (2) Medina (1)
New City (1) Mentor (1) CONNECTICUT (1)
Newburgh (3) New Philadelphia (2)
Niagara Falls (1) Ottawa (1) Westport (1)
Norwich (1) Streetsboro (1)
Oneonta (2) Tiffin (1)
Oswego (1) Van Wert (1) VERMONT (1)
Peekskill (1) Wapakoneta (1)
Plattsburgh (3) Wooster (2) Rutland (1)
Poughkeepsie (2) Wauseon (1)
Port Jarvis (1)
Greater Rochester (14) MICHIGAN (21)
Rome (2)
Greater Syracuse (18) Ann Arbor (3)
Schodack (1) Battle Creek (4)
Greater Utica (4) Brooklyn (1)
Watertown (2) Dearborn (1)
Yorktown Heights (1) Kalamazoo (4)
Jackson (3)
Michigan Center (1)
NORTH CAROLINA (32) Parma (1)
Roseville (2)
Greater Asheville (9) Washtenaw (1)
Durham (7)
Forest City (1)
Havelock (2) PENNSYLVANIA (10)
Hendersonville (2)
Kinston (3) Bradford (1)
Marion (1) East Stroudsburg (1)
Morganton (1) Harrisburg (2)
New Bern (3) Lebanon (1)
Raleigh (2) Reading (4)
Shelby (1) Tamaqua (1)
-9-
ADVERTISING AND PROMOTION
As a Burger King franchisee, a significant portion of the Company's
advertising and promotional programs are established and coordinated by BKC
through regional and national advertising campaigns. Carrols supplements BKC's
advertising and promotional activities with local advertising and promotions,
including the purchase of additional television, radio and print advertising.
Carrols also utilizes promotional programs, such as combination meals and
discounted prices, targeted to its customers, thereby enabling Carrols to create
a flexible and directed marketing program.
Most BKC franchisees and BKC-owned restaurants are required to
contribute 4% of their monthly gross revenues from restaurant operations to an
advertising fund, utilized by BKC for its advertising, promotional programs and
public relations activities. BKC's advertising programs consist of national
campaigns supplemented by local advertising. BKC's advertising campaigns are
generally carried on television, radio and in circulated print media (national
and regional newspapers and magazines). Carrols believes that one of the major
advantages of being a Burger King franchisee is the leverage it realizes from
the marketing power of BKC.
SUPPLIES AND DISTRIBUTION
As a Burger King franchisee, Carrols is required to purchase all of its
foodstuffs, paper goods and packaging materials from BKC-approved suppliers.
Other non-food items such as kitchen utensils, equipment maintenance tools and
other supplies may be purchased from any suitable source provided such items
meet BKC product uniformity standards. On April 1, 1994, Carrols entered into a
new supply agreement with its BKC-approved supplier, ProSource. Pursuant to that
agreement, Carrols is required to obtain substantially all of its foodstuffs
(other than bread products), paper goods, promotional premiums and packaging
materials from ProSource. The supply agreement with ProSource is a five-year
agreement which expires on March 31, 1999. The Company believes that ProSource's
services are competitive with alternatives available to the Company. Carrols
purchases its bread products from local bakeries. See "Business--Historical
Development."
There are other BKC-approved supplier/distributors which compete with
ProSource. Carrols believes that it would be able to substitute another supplier
if ProSource were unable, for any reason, or chose not to continue to service
the Company.
All BKC-approved suppliers are required to purchase all foodstuffs and
supplies from BKC-approved manufacturers and purveyors. BKC is responsible for
monitoring quality control and supervision of these manufacturers and purveyors.
See "Business--Quality Assurance."
BKC monitors all BKC-approved manufacturers and purveyors of its
foodstuffs. BKC regularly visits these manufacturers and purveyors to observe
the preparation of foodstuffs and run various tests to ensure that only high
quality foodstuffs are sold to BKC-approved suppliers and distributors. In
addition, BKC coordinates and supervises audits of approved suppliers and
distributors to determine continuing product specification compliance and to
ensure that manufacturing plant and distribution center standards are met.
QUALITY ASSURANCE
All Burger King franchisees, including Carrols, operate subject to a
comprehensive regimen of quality assurance and health standards set by
BKC, as well as standards set by
-10-
Federal, state and local governmental laws and regulations. These standards
include food preparation rules regarding, among other things, minimum cooking
temperatures, sanitation and cleanliness. The "conveyor belt" cooking system
utilized in all Burger King restaurants, which is calibrated to carry hamburgers
through the flame broiler at regulated speeds, helps ensure that standardized
cooking times and temperatures are met. In addition, BKC has set maximum time
standards for holding unsold prepared food; for example, unsold sandwiches are
discarded ten minutes after preparation and unsold french fries are discarded
seven minutes after preparation.
Carrols, through its regional directors and district supervisors,
closely supervises the operation of all of its restaurants to help ensure that
Company standards and policies are followed and that product quality, customer
service and cleanliness of the restaurants are maintained. BKC conducts
unscheduled periodic inspections of each Burger King restaurant throughout the
Burger King system.
BUSINESS STRATEGY
The Company's primary business strategy is to expand its operations
through the acquisition and construction of additional Burger King restaurants
while enhancing the quality of operations and competitive position of its
existing Burger King restaurants. Carrols believes the size of the nationwide
Burger King system will continue to present opportunities for selective growth
through acquisitions. In addition, Carrols believes that the number of markets
in which the Company operates will provide opportunities for construction of new
restaurants. The ability of the Company to expand through the acquisition and
construction of additional Burger King restaurants is subject to, among other
things, the availability of financing and the obtaining of consent from BKC.
GOVERNMENT REGULATION
Carrols is subject to various Federal, state and local laws affecting
its business, including various health, sanitation, fire and safety standards.
Newly constructed or remodeled restaurants are subject to state and local
building code and zoning requirements. In connection with the remodeling and
alteration of the Company's restaurants, the Company may be required to expend
funds to meet certain Federal, state and local regulations, including
regulations requiring that remodeled or altered restaurants be handicap
accessible. The Company is also subject to Federal and state environmental
regulations, although such regulations have not had, and are not expected to
have, a material effect on the Company's operations.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of the
Company's food service personnel are paid at rates which may be affected by
changes to the Federal minimum wage. The increase in the Federal minimum wage on
October 1, 1996 had the effect of increasing the Company's average hourly rate
by approximately 2%. The Federal minimum wage is scheduled to increase on
September 1, 1997.
The Company believes that it is operating in substantial compliance with
applicable Federal, state and local laws and regulations governing its
operations.
-11-
COMPETITION
The fast food industry is highly competitive. In each of its markets,
Carrols' restaurants compete with a large number of national and regional
restaurant chains, as well as locally-owned restaurants, offering low-priced and
medium-priced fare. Convenience stores, grocery store delicatessens and food
counters, cafeterias and other purveyors of moderately priced and quickly
prepared foods also compete with the Company. In the Company's markets,
McDonald's, Wendy's and Hardee's provide the most significant competition. The
Company's largest competitor is McDonald's. Carrols believes that BKC's national
brand name identification provides a significant competitive advantage in the
fast food business. The Company believes that product quality and taste,
convenience of location, speed of service, menu variety and price are the most
important competitive factors in the fast food restaurant industry.
EMPLOYEES
At December 31, 1996, Carrols employed approximately 8,400 persons;
approximately 100 were administrative personnel and 8,300 were restaurant
operating personnel. None of Carrols' employees are covered by collective
bargaining agreements. Approximately 7,600 of the restaurant operating personnel
at December 31, 1996 were part-time employees. Carrols believes that its
employee relations are satisfactory.
ITEM 2. PROPERTIES
The Company owns the approximately 20,000 square foot building at 968
James Street, Syracuse, New York, in which its executive offices are located.
This building houses all of the Company's administrative operations (except for
those conducted at three small regional offices) and is adequate for future
expansion. In addition to the above, at March 15, 1997 the Company owned or
leased the following properties:
Owned Leased Leased
Land; Land; Land;
Owned Owned Leased
Building Building Building Total
-------- -------- -------- -----
Burger King restaurants 28 16 194(a) 238
Excess properties:
Leased to others -- -- 4 4
Available for sale or lease 4 -- -- 4
--- ---- ----- -----
Total properties 32 16 198 246
=== ==== ===== =====
(a) Includes 21 restaurants located in mall shopping centers or specialty
locations.
Most of the Company's leases are coterminous with the related Franchise
Agreements. The Company believes that it generally will be able to renew at
commercially reasonable rates the leases whose terms expire prior to the subject
Franchise Agreements.
-12-
Most leases require the Company, as lessee, to pay utility and water
charges, premiums on insurance and real estate taxes. Certain leases also
require contingent rentals based upon a percentage of gross sales that exceed
specified minimums.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which, in
management's belief, will have a material adverse effect on the Company's
results of operations or financial condition, nor to any other pending legal
proceedings other than ordinary, routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-13-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established trading market for the Company's capital stock.
Holdings owns 10 shares of common stock of the Company (representing 100% of the
capital stock of the Company).
Cash dividends per share were paid during 1995 and 1996 by Carrols to
Holdings as follows:
January, 1995 $ 20,000.00
April, 1995 $ 20,000.00
June, 1995 $ 3,672.00
July, 1995 $ 20,000.00
January, 1996 $ 800.00
March, 1996 $ 41,480.00
August, 1996 $ 20,722.40
October, 1996 $ 37,000.38
See discussion of dividend restriction in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
-14-
ITEM 6. SELECTED FINANCIAL DATA
CARROLS CORPORATION AND SUBSIDIARIES-SUMMARY OF SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- ---------- --------
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
(Dollars in thousands except for per share data and restaurants)
OPERATING RESULTS:
Revenues $ 241,125 $ 226,458 $ 204,254 $ 171,634 $ 156,413
Income (loss) before taxes,
extraordinary loss and
cumulative effect of change in
accounting principle 6,283 5,100 (1,666) (4,408) (1,262)
(Provision) benefit for taxes
(3,100) 9,826 (165)
Extraordinary loss on
extinguishment of debt (4,883)
Cumulative effect of change in
accounting for post-
retirement benefits (1,037)
------------ ------------ ------------ -------- ----------
Net income (loss) $ 3,183 $ 14,926 $ (1,831) $(9,291) $ (2,299)
============ ============ ============ ======== ==========
PER SHARE OF COMMON STOCK:
Income (loss) before taxes,
extraordinary loss and
cumulative effect of change in
accounting principle $ 628,300 $ 510,000 $ (166,600) $ (440,800) $ (126,200)
(Provision)
benefit for taxes (310,000) 982,600 (16,500)
Extraordinary loss on
extinguishment of debt (488,300)
Cumulative effect of change in
accounting for post-retirement
benefits (103,700)
------------ ------------ ------------ ----------- ----------
Net income (loss) $ 318,300 $1,492,600 $ (183,100) $ (929,100) $ (229,900)
============ ============ ============ ========== ==========
Dividends Declared $ 100,002 $ 63,672 $ 297,301 $ 273,960 $ 20,010
OTHER DATA:
Total assets $ 138,588 $ 135,064 $ 125,319 $ 119,735 $ 115,900
Long-term debt 118,180 116,375 120,680 114,197 91,245
Capital lease obligations 2,503 3,301 3,966 4,603 5,436
Total long-term debt and capital
lease obligations 120,683 119,676 124,646 118,800 96,681
Common stockholder's deficit (11,662) (12,916) (10,383) (27,208) (22,404)
Burger King restaurants in
operation:
At end of period 232 219 219 195 177
Annual weighted average 225 219 207 185 169
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS RESULTS OF OPERATIONS
General. The following table sets forth for the years ended December 31,
1996, 1995 and 1994 certain consolidated financial data for the Company,
expressed as a percentage of sales:
PERCENTAGE OF SALES
YEARS ENDED DECEMBER 31
--------------------------
1996 1995 1994
---- ---- ----
Sales 100.0% 100.0% 100.0%
Other income .1 .1 .2
Cost of sales 28.3 28.1 28.4
Restaurant wages and related expenses 29.4 29.1 29.4
Other restaurant operating expenses 20.2 20.2 20.8
Depreciation and amortization 4.6 5.0 5.5
Administrative expenses 4.4 4.7 4.6
Advertising expense 4.5 4.3 4.3
Loss on closing restaurants and other .9
Costs associated with change of control .2
Operating income 8.5 8.7 6.3
Interest expense 5.9 6.4 7.1
Income (loss) before taxes 2.6 2.3 (.9)
(Provision) benefit for taxes (1.3) 4.3 (.1)
1996 COMPARED TO 1995
Sales. Sales for the year ended December 31, 1996 increased $14.6
million, or 6.4%, as compared to the year ended December 31, 1995. The Company
operated an average of 225 Burger King restaurants during 1996 as compared to an
average of 219 for 1995. Average unit sales increased 2.2% during the year ended
1996 as compared to 1995. Sales at comparable restaurants, the 211 restaurants
operating for the entirety of the compared periods, increased $7.1 million, or
3.2%. Net restaurant selling prices decreased 3.5% from the prior year due
mainly to higher discount promotional activity offset by menu price increases of
approximately 1%.
Cost of Sales. Cost of sales (food and paper costs) for the year ended
December 31, 1996 increased in dollars due to higher sales. Cost of sales
increased as a percentage of sales from 28.1% to 28.3% in 1996 due to the effect
of higher discount promotional activity partially offset by certain lower
commodity costs especially beef.
-16-
Restaurant Wages and Related Expenses. Restaurant wages and related
expenses increased from 29.1% of sales to 29.4% of sales when comparing the year
ended December 31, 1995 to 1996 due mainly to increased wage rates (including
the increase in the minimum wage effective October 1, 1996), the effect of
higher discount promotional activity 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 while the costs as
a percentage of sales remained at 20.2% of sales.
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 year ended December 31, 1996 as compared to 1995. Some
increased costs related to future expansion were offset by the effect of the
fixed element of other costs.
Advertising Expense. An increase in advertising payments to Burger King
Corporation of $0.6 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 $0.5 million during
the year ended December 31, 1996 related to the Atlantic Acquisition during the
second quarter of 1996.
Provision for Income Taxes. The higher than anticipated effective tax
rate is principally the result of the $.5 million of costs associated with
change of control not being deductible.
1995 COMPARED TO 1994
Sales. Sales for the year ended December 31, 1995 increased $22.3
million, or 11.0%, as compared to the year ended December 31, 1994. The Company
operated an average of 219 Burger King restaurants for the year ended December
31, 1995 as compared to 207 for 1994. Average unit sales increased 4.9% when
comparing 1995 to 1994. Sales at comparable restaurants, the 187 units operating
for the entirety of the compared periods, increased $7.1 million, or 3.8%. Net
restaurant selling prices increased approximately 0.5% from fewer discount
promotions in 1995.
Cost of Sales. Cost of sales (food and paper costs) for the year ended
December 31, 1995 increased in dollars due to higher sales. Cost of sales as a
percentage of sales decreased 0.3% from 1994 to 1995 as a result of the effect
of net restaurant selling prices and decreases in various commodity costs,
especially beef, partially offset by the introduction of larger-sized meat
patties in certain sandwiches.
-17-
Restaurant Wages and Related Expenses. Restaurant wages and related
expenses decreased from 29.4% of sales to 29.1% of sales when comparing the year
ended December 31, 1994 to 1995. The effect of increased selling prices, lower
workers' compensation cost and lower health insurance cost were the principal
reasons for the lower percentage in 1995.
Other Restaurant Operating Expenses. Other restaurant operating expenses
increased by $3.2 million but decreased 0.6% as a percentage of sales for 1995
compared to 1994. The increase in dollars was caused primarily by expenses
associated with the operation of the additional restaurants during the most
recent year when compared to the prior year. The effect of higher sales on the
fixed element of some expenses like utilities, real estate taxes, linen and some
repair and maintenance costs was the primary reason for the decrease in the
percentage from 1994 to 1995.
Depreciation and Amortization. Depreciation and amortization remained
relatively equal to the year ended December 31, 1994. Additional depreciation
and amortization from new and acquired restaurants were offset by assets
becoming fully depreciated during the last two years.
Administrative Expenses. Supervision and training expenses associated
with operating additional restaurants were the principal cause of increased
administrative expenses during the year ended December 31, 1995 as compared to
1994.
Advertising Expense. An increase in advertising payments to Burger King
Corporation of $0.9 million (based on sales levels) was the principal cause of
the increase in advertising expense when comparing 1995 to 1994.
Interest Expense. Average interest rates and average loan balances
remained relatively the same in 1995 and 1994.
(Provision) Benefit for Taxes. The income tax benefit reflected during
the twelve months ended December 31, 1995, resulted from the elimination of the
valuation allowance for the net deferred income tax asset which arises
substantially from the availability of tax loss carryforwards. A review of
current and expected future pre-tax earnings based upon historical earnings
adjusted for recent acquisitions, led to the conclusion that it is more likely
than not that the Company will realize the entire benefit of the net deferred
income tax asset at December 31, 1995 of $10,061,000.
LIQUIDITY
The operating activities of the Company during 1996 provided $15.9
million of cash.
Capital spending during 1996 of $23.2 million included $7.9 million for
the acquisition of seven restaurants (including real estate for five of the
restaurants) in North Carolina and one in New York, $3.4 million for the
purchase of real estate for five restaurants operated by the Company and $3.8
million for the construction of five new restaurants, including the real estate
for one of the restaurants. The balance of the spending went toward restaurant
capital maintenance and remodeling. The Company completed 24 remodelings in 1996
at a cost of $2.5 million principally in conjunction with the renewal of
franchises that were scheduled to expire in 1996 through 1998.
-18-
During 1996, utilization of the Company's revolving line of credit
portion of the Senior Secured Credit Facility with Heller Financial, Inc.
increased $3.0 million. Sale and leasebacks of five restaurant properties
generated $4.2 million. Dividends of $1.0 million were paid to Holdings for the
payment by Holdings of 5 regular quarterly preferred stock dividends that were
in arrears. The Company redeemed $.8 million of Notes pursuant to the change of
control resulting from the Atlantic Acquisition (see Redemption of Notes in Item
1 - Recent Developments).
At December 31, 1996, the Company had $19.2 million available under its
Senior Secured Credit Facility after reserving $1.1 million for a letter of
credit guaranteed by the Senior Secured Credit Facility. While interest is
accrued monthly, payments of approximately $6.2 million for interest on the
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 Indenture and the Senior Secured
Credit Facility) for at least the next twelve months. The balance will provide
funds for future acquisitions.
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends and preferred stock redemptions. The ability
to make such restricted payments is dependent upon either earnings or proceeds
from the issuance of new capital stock. As of March 15, 1997 dividends on the
Preferred Stock for the last quarter of 1996 of $.2 million and a scheduled
mandatory preferred stock redemption of $1.8 million were not paid. As more
fully explained in Note 6 to the financial statements, the dividend rate is
increased if dividend payments by Holdings are not made within specific time
periods.
Consummation of the MD Closing described in "Business--Recent
Developments" will constitute a "change of control" under the Indenture
governing the Senior Notes. In accordance with the terms and conditions of the
Indenture, upon a "change of control", each holder of Senior Notes will have the
right to require the Company (within a 30-60 day period, as determined by the
Company, following such a change of control) 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 interest,
if any). In light of current market conditions, the Company does not anticipate
that a significant number of Senior Note holders will exercise their repurchase
rights. To the extent that such repurchase rights are exercised, the Company
expects to finance the aggregate repurchase amount through borrowings under the
TCB Refinancing (see Revised and Proposed Credit Facility in Item I Recent
Developments). Upon closing of the MD Investment (See MD Investment in Item I -
Recent Developments), the Company will be receiving new cash equity of
approximately $30.5 million.
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.
-19-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements attached hereto is set forth in Item
14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 29, 1996, the board of directors of the Company voted to
approve the dismissal of the accounting firm of Coopers & Lybrand, L.L.P.
("Coopers & Lybrand") as their principal audit accountant and has engaged the
services of Arthur Andersen LLP ("Arthur Andersen") as their principal
accountants.
Coopers & Lybrand were the principal audit accountants during the two
years ended December 31, 1995 and their report on the financial statements for
the periods ended December 31, 1994 and 1995 did not contain an adverse opinion
or disclaimer of opinion nor were financial statement opinions qualified or
modified as to uncertainty, as to audit scope or as to accounting principals.
There have been no disagreements on any matters of accounting principles
or practices, financial statement disclosure or auditing scope of procedure with
the accounting firm of Coopers & Lybrand for the most recent two years or any
subsequent interim period.
-20-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers are:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Daniel T. Accordino 46 President, Chief Operating Officer and Director
Steven Barnes 48 Vice President--Regional Director
Michael A. Biviano 40 Vice President--Regional Director
Richard V. Cross 61 Executive Vice President - Finance and Treasurer
Paul P. Drotar 50 Vice President--Corporate Controller
Paul Durrant 38 Director
Richard H. Liem 43 Vice President--Financial Operations
David Mathies 49 Director
Robin McIlvenny 44 Director
David R. Smith 47 Vice President--Regional Director
James E. Tunnessen 42 Vice President--Regional Director
Alan Vituli 55 Chairman of the Board and Chief Executive Officer
Joseph A. Zirkman 36 Vice President, General Counsel and Secretary
Certain biographical information regarding each current Director and
executive officer of the Company is set forth below:
Mr. Accordino has been President, Chief Operating Officer and a Director
of Carrols since February 1993. Prior thereto, he served as Executive Vice
President--Operations of Carrols from December 1986 and as Senior Vice President
from April 1984. He is also a Director of Holdings. From 1979 to April 1984 he
was Vice President responsible for restaurant operations of the Company, having
previously served as the Company's Assistant Director of Restaurant Operations.
Mr. Accordino has been employed by the Company since 1973.
Mr. Barnes is Vice President--Regional Director of Carrols. He has been
a Vice President since February 1997 and a Regional Director of Operations since
1993. Prior to joining Carrols, Mr. Barnes was Vice President--Operations of
Snapps Restaurants, Inc. from 1989 to 1993.
Mr. Biviano is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since October 1989, having served as District
Supervisor from December 1983 to October 1989. Mr. Biviano has been employed by
the Company since 1973.
Mr. Cross is Executive Vice President--Finance and Treasurer of Carrols.
He has served as Executive Vice President since 1986 and Treasurer from 1981.
Mr. Cross also served as Director of Carrols from 1981 to April 1996. From 1984
through 1986, Mr. Cross was Senior Vice President of Carrols. He also served as
a Director of Holdings from 1981 to April 1996. Prior to 1984, Mr. Cross was
Vice President and Controller of Carrols for more than five years. Mr. Cross has
been employed by the Company since 1969.
Mr. Drotar has been Vice President--Corporate Controller of Carrols
since April 1984. He was Assistant Controller from June 1982 through April 1984,
having served as Manager of
-21-
Restaurant Accounting from December 1980 to June 1982. Mr. Drotar has been
employed by the Company since 1973.
Mr. Durrant has served as a Director of Carrols since April 1996. He is
also a Director of Holdings. Since 1994, Mr. Durrant has been Managing Director
of the Merchant Banking group at Dilmun Investments Inc. ("Dilmun"), an
investment advisor and wholly owned subsidiary of BIB. From 1992 to 1994, he was
employed by Dilmun Investment Advisors, Ltd., London, where he was Director of
Direct Corporate Investments.
Mr. Liem became Vice President--Financial Operations in May 1994. Prior
to joining Carrols Mr. Liem was a Senior Audit Manager with the accounting firm
of Price Waterhouse. Mr. Liem was with Price Waterhouse beginning in 1983.
Mr. Mathies has served as a Director of Carrols since April 1996. He is
also a Director of Holdings. Since 1988, Mr. Mathies has been President of
Dilmun. From 1971 to 1988, he was employed by Mellon Bank, where he was Head of
Pension Management Group, providing investment management services to middle
market clients.
Mr. McIlvenny has served as a Director of Carrols since April 1996. He
is also a Director of Holdings. Since 1991, Mr. McIlvenny has been Chief
Executive of BIB. From 1989 to 1991, he was employed by Saudi International
Bank, London, where he was Assistant General Manager and Head of Corporate
Finance.
Mr. Smith is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since 1984, having served as District Supervisor
from 1975 to 1984. Mr. Smith has been employed by the Company since 1972.
Mr. Tunnessen is Vice President--Regional Director of Carrols. He has
been Regional Director of Operations since August 1988, having served as
District Supervisor from 1979 to August 1988. Mr. Tunnessen has been employed by
the Company since 1972.
Mr. Vituli has been Chairman of the Board of Carrols since 1986 and
Chief Executive Officer since March 1992. He is also a director and Chairman of
the Board of Holdings. Mr. Vituli is also general partner of Morgan Ventures
III, a limited partnership ("Morgan Ventures"). Between 1983 and 1985, Mr.
Vituli was employed by Smith Barney, Harris Upham & Co., Inc. as a senior vice
president responsible for real estate transactions. From 1966 until joining
Smith Barney, Mr. Vituli was associated with the accounting firm of Coopers &
Lybrand, first as an employee and the last ten years as a partner. Among the
positions held by Mr. Vituli at Coopers & Lybrand was national director of
mergers and acquisitions. Prior to joining Coopers & Lybrand, Mr. Vituli was
employed in a family owned restaurant business. Mr. Vituli currently serves as a
Director on the Board of Directors of Pollo Tropical, Inc.
Mr. Zirkman became Vice President and General Counsel of Carrols in
January 1993. He was appointed Secretary of the Company in February 1993. Prior
to joining Carrols, Mr. Zirkman was an associate with the New York City law firm
of Baer Marks & Upham beginning in 1986.
-22-
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information for the fiscal years
ended December 31, 1996, 1995 and 1994 for the Chief Executive Officer and the
next four most highly compensated executive officers of the Company who were
serving as executive officers at December 31, 1996 and whose annual compensation
exceeded $100,000.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- --------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
-------- ---- ---------- --------- -----------
Alan Vituli 1996 $363,160 $128,210 ---
Chairman of the 1995 352,632 245,000 20,000
Board
and Chief 1994 300,430 81,000 ---
Executive
Officer
Daniel T. 1996 258,943 91,778 ---
Accordino
President, Chief 1995 250,751 150,322 10,000
Operating 1994 226,216 60,891 ---
Officer
and Director
Richard V. Cross 1996 161,264 57,144 ---
Executive Vice 1995 161,522 80,262 5,000
President--Finance 1994 156,378 42,106 ---
and Treasurer
Joseph A. 1996 115,288 40,934 ---
Zirkman
Vice President, 1995 105,249 41,995 3,000
General Counsel 1994 95,890 24,303 ---
and Secretary
Richard H. Liem 1996 94,750 30,288 ---
Vice President, 1995 93,092 37,153 3,000
Financial 1994 57,552 15,423 10,000
Operations
-23-
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs Money Options/SARs
Shares Acquire Value at FY-End (#) at FY-End ($)
Name on Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------------- ----------- ------------------------- --------------------------
Daniel T. 0/0 0/0
Accordino --- ---
Richard V. Cross --- --- 0/0 0/0
Richard H. Liem 2,000 $38,484 0/0 0/0
Alan Vituli --- --- 0/0 0/0
Joseph A. Zirkman 1,000 19,242 0/0 0/0
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, no executive officer of the Company served
as a director of or member of a compensation committee of any entity for which
any of the persons serving on the Board of Directors of the Company or on the
Compensation Committee of the Board of Directors (the "Compensation Committee")
is an executive officer.
The Board of Directors currently has four committees: the Executive
Committee, of which Messrs. Vituli, Accordino and Durrant are members; the
Finance Committee, of which Messrs. Vituli, Durrant and Cross (as advisor) are
members; the Compensation Committee, of which Messrs. Mathies and Durrant are
members; and the Audit Committee, of which Messrs. Mathies and Durrant are
members.
All Directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified. The executive
officers of the Company are chosen by the Board and serve at its discretion.
All non-employee Directors of the Company receive a fee of $15,000 per
annum. All Directors are reimbursed for all reasonable expenses incurred by them
in acting as Directors, including as members of any committee of the Board of
Directors.
As permitted under the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides that a Director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of a fiduciary duty owed to the Company or its stockholders.
By its terms and in accordance with the laws of the State of Delaware, however,
this provision does not eliminate or limit the liability of a Director of the
Company (i) for any breach of the Director's duty of loyalty to the Company or
its stockholders, (ii) for an act or omission committed in bad faith or
involving intentional misconduct or a knowing violation of law, (iii) for any
transaction from which the Director derived an improper personal benefit or (iv)
for an improper declaration of dividends or purchase of the Company's
securities.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify its Directors and officers to the fullest extent
permitted by Delaware law.
-24-
DESCRIPTION OF PLANS
Employee Savings Plan. In 1979, Carrols adopted two identical savings
plans, qualified as profit-sharing plans, for its salaried employees, permitting
participating employees to make annual contributions. On December 31, 1994,
Carrols merged the two plans into a single plan, the Carrols Corporation
Corporate Employee Savings Plan (the "Savings Plan"). In accordance with the
Savings Plan, Carrols matches up to $1,060 of an employee's contributions by
contributing $0.50 for each dollar contributed by the employee. Employees are
fully vested in their own contributions; employees become vested in Carrols'
contributions beginning in the fourth year of service, and are fully vested
after seven years of service or upon retirement at age 65 with five years'
service, death, permanent or total disability or termination. Benefits may be
paid out upon the occurrence of any of the foregoing events in a single cash
lump sum, in periodic installments over not more than 15 years or in the form of
an annuity. The employee's contributions may be withdrawn at any time, subject
to restrictions on future contributions. Carrols' matching contributions may be
withdrawn under certain conditions of financial necessity or hardship as defined
in the Savings Plan.
Bonus Plans. Carrols has cash bonus plans designed to promote and reward
excellent performance by providing employees with incentive compensation. Key
senior management executives of each operating division can be eligible for
bonuses equal to varying percentages of their respective annual salaries
determined by the performance of the Company and the division.
1996 Plan. On December 26, 1996, Holdings, with the approval of its
stockholder, adopted the 1996 Plan pursuant to which the Company may grant
"Incentive Stock Options" (as defined under Section 422 of the Internal Revenue
Code), nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units and other stock-based awards (the
foregoing collectively "Awards") to certain officers and employees of the
Company and its subsidiaries. The 1996 Plan is designed to advance the interests
of Holdings and the Company by providing an additional incentive to attract and
retain qualified and competent persons through the encouragement of stock
ownership or stock appreciation rights in Holdings.
The 1996 Plan permits the Company's Compensation Committee to grant,
from time to time, options to purchase an aggregate of up to 106,250 shares of
Common Stock. The vesting periods for awards and the expiration dates for
exercisability of Awards granted under the 1996 Plan are determined by the
Compensation Committee; however, the exercise period for an option granted under
the 1996 Plan may not exceed ten years from the date of the grant. The
Compensation Committee is authorized to grant options under the 1996 Plan to all
eligible employees of the Company and its subsidiaries, including executive
officers and directors (other than outside Directors and members of the
Compensation Committee). As of March 15, 1997, the only options outstanding
under the 1996 Plan are governed by the Option Agreements, each as described
below.
The option exercise price per share of any option granted under the 1996
Plan is determined by the Compensation Committee; however, in no event shall the
option price per share of any option intended to qualify as an Incentive Stock
Option be less than the fair market value of the Common Stock on the date such
option is granted. Payment of such option exercise price shall be made (i) in
cash, (ii) by delivering shares of Common Stock already owned by the holder of
such options, (iii) by delivering a promissory note payable over a three year
period and bearing interest at the rate provided under Section 1274(d) of the
Internal Revenue Code of 1986, as amended from time to time or (iv) by a
combination of any of the foregoing, in accordance with
-25-
the terms of the 1996 Plan, the applicable stock option agreement and any
applicable guidelines of the Compensation Committee in effect at the time.
Pursuant to the 1996 Plan, in the event of a Change of Control (as
defined in the 1996 Plan, any or all Stock Options (as defined in the 1996 Plan)
and Stock Appreciation Rights (as defined in the 1996 Plan) still outstanding
shall, notwithstanding any contrary terms of the Award Agreement (as defined in
the 1996 Plan), accelerate and become exercisable in full at least ten days
prior to (and shall expire on) the consummation of such Change of Control, on
such conditions as the Compensation Committee shall determine, unless the
successor corporation assumes the outstanding Stock Options or Stock
Appreciation Rights or substitutes substantially equivalent options.
The New 1996 Plan. The 1996 Plan will be replaced at the MD
Closing by the New 1996 Plan. The New 1996 Plan will be subject to substantially
similar terms as the 1996 Plan, provided, however, that, pursuant to the New
1996 Plan, in the event that the holder of an option issued pursuant to the New
1996 Plan elects to pay the exercise price of such option by delivering a
promissory note, such promissory note may be either (i) unsecured and fully
recourse against the holder of such option or (ii) nonrecourse but secured by
the shares of Common Stock being purchased by such exercise and by other assets
having a fair market value equal to not less than forty percent of the exercise
price of such option and, in either event, such note shall mature on the fifth
anniversary of the date thereof.
In addition, pursuant to the New 1996 Plan, in the event of a
Change of Control (as defined in the New 1996 Plan) during the term of
employment with Carrols of a holder of an option issued under the New 1996 Plan,
the portion of any such option that is not vested shall vest and become
exercisable in full on the date of such Change of Control. In addition, as soon
as practicable but in no event later than thirty days prior to the occurrence of
a Change of Control, the Compensation Committee shall notify any holder of an
option granted under the New 1996 Plan of such Change of Control. Further, upon
a Change of Control that qualifies as an Approved Sale (as defined in the New
1996 Plan) in which the outstanding Common Stock is converted or exchanged for
or becomes a right to receive any cash, property or securities other than
Illiquid Consideration (as defined in the New 1996 Plan), (i) each option
granted under the New 1996 Plan shall become exercisable solely for the amount
of such cash, property or securities that the holder of such option would have
been entitled to had such option been exercised immediately prior to such event
(ii) the holder of such option shall be given an opportunity to either (A)
exercise such option prior to the consummation of the Approved Sale and
participate in such sale as a holder of Common Stock or (B) upon consummation of
the Approved Sale, receive in exchange for such option consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of Common Stock received by the holders of Common Stock in connection with
the Approved Sale less the exercise price per share of Common Stock of such
option to acquire Common Stock by (2) the number of shares of Common Stock
represented by such option; and (iii) to the extent such option is not exercised
prior to or simultaneous with such Approved Sale, any such option shall be
canceled.
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Vituli Employment Agreements. Upon the consummation of the Atlantic
Transaction, the Company entered into an Amended and Restated Employment
Agreement (the "Vituli Employment Agreement"), dated as of April 3, 1996, with
Alan Vituli pursuant to which Mr. Vituli serves as Chairman of the Board and
Chief Executive Officer of the Company. The term of Mr. Vituli's employment
under the Vituli Employment Agreement is deemed to have commenced
-26-
on January 1, 1995 and is for an initial term from such deemed commencement date
of three years, provided, however, that the employment term automatically renews
for successive one-year terms unless either the Company or Mr. Vituli elects not
to renew by giving written notice to the other at least 90 days before a
scheduled expiration date. Pursuant to the Vituli Employment Agreement, Mr.
Vituli received a base salary of $350,000 in 1995, which amount is subject to a
consumer price index increase for the second and third years of the term.
Beginning in 1998, the base salary for each year thereafter will be increased in
accordance with the recommendation of the Compensation Committee. Pursuant to
the Vituli Employment Agreement, Mr. Vituli participates in the Executive Bonus
Plan of the Company and all stock option programs of the Company applicable to
executive employees. In addition, pursuant to the Vituli Employment Agreement,
the Company is responsible for maintaining the premium payments on a
split-dollar life insurance policy on the life of Mr. Vituli providing a death
benefit of $1.5 million payable to an irrevocable trust designated by Mr.
Vituli.
On the date of the MD Closing, the Company will enter into a Second
Amended and Restated Employment Agreement (the "New Vituli Employment
Agreement") with Alan Vituli, which shall amend and restate the Vituli
Employment Agreement. Pursuant to the New Vituli Employment Agreement, Mr.
Vituli will continue to serve as Chairman of the Board and Chief Executive
Officer of the Company. The New Vituli Employment Agreement shall be for an
initial term of four years, commencing on the date of the MD Closing and will be
subject to automatic renewals for successive one-year terms unless either the
Company or Mr. Vituli elects not to renew by giving written notice to the other
at least 90 days before a scheduled expiration date. Pursuant to the New Vituli
Employment Agreement, Mr. Vituli will receive a base salary of $400,000 for the
first year of the term, which amount increases annually by at least $25,000
subject to additional increases that may be authorized by the Compensation
Committee. Pursuant to the New Vituli Employment Agreement, Mr. Vituli will
participate in the Executive Bonus Plan of the Company and any stock option plan
of the Company applicable to executive employees. The New Vituli Employment
Agreement also will require that the Company is responsible for maintaining the
premium payments on a split-dollar life insurance policy on the life of Mr.
Vituli providing a death benefit of $1.5 million payable to an irrevocable trust
designated by Mr. Vituli.
Accordino Employment Agreements. Upon the consummation of the Atlantic
Transaction, the Company entered into an Amended and Restated Employment
Agreement (the "Accordino Employment Agreement"), dated as of April 3, 1996,
with Daniel T. Accordino pursuant to which Mr. Accordino serves as President and
Chief Operating Officer of the Company. The term of Mr. Accordino's employment
under the Accordino Employment Agreement is deemed to have commenced on January
1, 1995 and is for an initial term from such deemed commencement date of three
years, provided, however, that the employment term automatically renews for
successive one-year terms unless either the Company or Mr. Accordino elects not
to renew by giving written notice to the other at least 90 days before a
scheduled expiration date. Pursuant to the Accordino Employment Agreement, Mr.
Accordino received a base salary of $250,000 in 1995, which amount is subject to
a consumer price index increase for the second and third years of the term.
Beginning in 1998, the base salary for each year thereafter will be increased in
accordance with the recommendation of the Compensation Committee. Pursuant to
the Accordino Employment Agreement, Mr. Accordino participates in the Executive
Bonus Plan of the Company and all stock option programs of the Company
applicable to executive employees. In addition, pursuant to the Accordino
Employment Agreement, the Company is responsible for maintaining the premium
payments on a split-dollar life insurance policy on the life of Mr. Accordino
providing a death benefit of $1 million payable to an irrevocable trust
designated by Mr. Accordino.
-27-
On the date of the MD Closing, the Company will enter into a Second
Amended and Restated Employment Agreement (the "New Accordino Employment
Agreement") with Daniel T. Accordino, which shall amend and restate the
Accordino Employment Agreement. Pursuant to the New Accordino Employment
Agreement, Mr. Accordino will continue to serve as President and Chief Operating
Officer of the company. The New Accordino Employment Agreement shall be for an
initial term of four years, commencing on the date of the MD Closing and will be
subject to automatic renewal for successive one-year terms unless either the
Company or Mr. Accordino elects not to renew by giving written notice to the
other at least 90 days before a scheduled expiration date. Pursuant to the New
Accordino Employment Agreement, Mr. Accordino will receive a base salary of
$300,000 for the first year of the term, which amount increases annually by at
least $20,000 subject to additional increases that may be authorized by the
Compensation Committee. Pursuant to the New Accordino Employment Agreement, Mr.
Accordino will participate in the Executive Bonus Plan of the Company and any
stock option plan of the Company applicable to executive employees. The New
Accordino Employment Agreement also will require that the Company is responsible
for maintaining the premium payments on a split-dollar life insurance policy on
the life of Mr. Accordino providing a death benefit of $1 million payable to an
irrevocable trust designated by Mr. Accordino.
DESCRIPTION OF OPTION AGREEMENTS
OPTION AGREEMENTS PURSUANT TO STOCK OPTION PLANS
Vituli Plan Option Agreements. On December 30, 1996 (during the
Company's 1997 fiscal year), pursuant to the Atlantic Transaction, the Company
granted to Alan Vituli, under the 1996 Plan, an option (the "Vituli Option") to
purchase 43,350 shares of Common Stock. The Vituli Option (i) was immediately
exercisable with regard to 15,300 shares of Common Stock at an exercise price of
$110.00 per share and (ii) becomes exercisable on December 31, 1997 with regard
to (a) 15,300 shares of Common Stock at an exercise price of $130.00 per share
and (b) 12,750 shares of Common Stock at an exercise price of $140.00 per share.
Pursuant to its terms, the Vituli Option may not be exercised after the earlier
of a Change in Control (as defined in the 1996 Plan) and the tenth anniversary
of the date of grant.
On the date of the MD Closing, the Vituli Option will be canceled and
Holdings will grant to Mr. Vituli, under the New 1996 Plan, an option (the "New
Vituli Plan Option") to purchase 43,350 shares of Common Stock at an exercise
price of $101.7646 per share. The New Vituli Plan Option shall have a term of
ten years from the date of grant and shall (i) become exercisable on the date of
grant with regard to 15,300 shares of Common Stock and (ii) shall become
exercisable (a) on December 31, 1997 with regard to 5,610 shares of Common
Stock, (b) on December 31, 1998 with regard to 5,610 shares of Common Stock, (c)
on December 31, 1999 with regard to 5,610 shares of Common Stock and (d) on
December 31, 2000 with regard to 11,220 shares of Common Stock.
Accordino Plan Option Agreements. On December 30, 1996 (during the
Company's 1997 fiscal year), pursuant to the Atlantic Transaction, the Company
granted to Daniel T. Accordino, under the 1996 Plan, an option (the "Accordino
Option") to purchase 28,900 shares of Common Stock. The Accordino Option (i) was
immediately exercisable with regard to 10,200 shares of Common Stock at an
exercise price of $110.00 per share and (ii) becomes exercisable on December 31,
1997 with regard to (a) 10,200 shares of Common Stock at an exercise price of
$130.00 per share and (b) 8,500 shares of Common Stock at an exercise price of
$140.00 per share. Pursuant to its terms, the Accordino Option may not be
exercised after the earlier of a Change in Control (as defined in the 1996 Plan)
and the tenth anniversary of the date of grant.
-28-
On the date of the MD Closing, the Accordino Option will be canceled and
the Company will grant to Mr. Accordino, under the New 1996 Plan, an option (the
"New Accordino Plan Option") to purchase 28,900 shares of Common Stock at an
exercise price of $101.7646 per share. The New Accordino Plan Option shall have
a term of ten years from the date of grant and shall (i) become exercisable on
the date of grant with regard to 10,200 shares of Common Stock and (ii) shall
become exercisable (a) on December 31, 1997 with regard to 3,740 shares of
Common Stock, (b) on December 31, 1998 with regard to 3,740 shares of Common
Stock, (c) on December 31, 1999 with regard to 3,740 shares of Common Stock and
(d) on December 31, 2000 with regard to 7,480 shares of Common Stock.
OTHER OPTION AGREEMENTS
Vituli Non-Plan Option Agreement. On the date of the MD Closing,
Holdings will grant to Mr. Vituli a nonqualified stock option (the "Vituli
Non-Plan Option") to purchase 29,480 shares of Common Stock at an exercise price
of $101.7646. The Vituli Non-Plan Option shall have a term of ten years from the
date of grant and shall become exercisable in five equal parts on the five
consecutive anniversaries of the date of grant. The Vituli Non-Plan Option will
have substantially the same terms as options issued under the New 1996 Plan with
respect to (i) the method of payment of the exercise price of the Vituli
Non-Plan Option and (ii) the effect of a Change in Control (as defined in the
New 1996 Plan) on the Vituli Non-Plan Option.
Accordino Non-Plan Option Agreement. On the date of the MD Closing,
Holdings will grant to Mr. Accordino a nonqualified stock option (the "Accordino
Non-Plan Option") to purchase 2,579 shares of Common Stock at an exercise price
of $101.7646. The Accordino Non-Plan Option shall have a term of ten years from
the date of grant and shall become exercisable in five equal parts on the five
consecutive anniversaries of the date of grant.
The Accordino Non-Plan Option will have substantially the same terms as
the Vituli Non-Plan Option.
Zirkman Non-Plan Option Agreement. On the date of the MD Closing,
Holdings will grant to Joseph A. Zirkman a nonqualified stock option (the
"Zirkman Non-Plan Option") to purchase 368 shares of Common Stock at an exercise
price of $101.7646. The Zirkman Non-Plan Option shall have a term of ten years
from the date of grant and shall become exercisable in five substantially equal
parts on the five consecutive anniversaries of the date of grant.
The Zirkman Non-Plan Option will have substantially the same terms as
the Vituli Non-Plan Option.
-29-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following tables set forth the number and percentage of shares of
voting common stock of the Company and of Holdings beneficially owned, as of
March 15, 1997, by (i) all persons known by the Company to be the beneficial
owners of more than 5% of the shares of such voting common stock, (ii) each
Director of the Company who owns shares of such voting common stock, (iii) each
executive officer of the Company included in the Summary Compensation Table
above and (iv) all executive officers and Directors of the Company as a group.
CARROLS' COMMON STOCK
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF SHARES
- ------------------------ ------------------ -----------------
Carrols Holdings Corporation 10 100%
968 James Street
Syracuse, New York 13203
HOLDINGS' COMMON STOCK
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (a) PERCENT OF SHARES (a)
- ------------------------ --------------------- ---------------------
Atlantic Restaurants, Inc. 850,000 100%
Deemer Corporation (b) 131,876 13.4%
Alan Vituli (c) 15,300 1.8%
Daniel T. Accordino (d) 10,200 1.2%
Joseph A. Zirkman --- ---
Richard V. Cross --- ---
Richard H. Liem --- ---
Directors and executive officers of
Carrols as a group (13 persons) 25,500 2.9%
(a) As used in this table, "beneficial ownership" means the sole or
shared power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to dispose
of, or to direct the disposition of, a security). For purposes of this table, a
person is deemed as of any date to have "beneficial ownership" of any security
that such person has the right to acquire within 60 days after such date. As
calculated in this table, the percent of shares is the percent of each
beneficial owner's shares to the total shares of Holdings' common stock
outstanding plus the shares to which that person has a right to acquire within
60 days.
-30-
(b) Consists of currently exercisable warrants (the "Warrants") for the
purchase of 119,195 shares of Holdings voting common stock at $3.590 per share
and 12,681 shares of Holdings voting common stock at $3.701 per share. The
address for Deemer Corporation ("Deemer") is 276 Fifth Avenue, New York, New
York 10001. Holdings has the option to purchase the Warrants from Deemer for
$19.033 per warrant if exercised before November 2, 1997, and $19.109 if
exercised after November 1, 1997. The option expires on November 1, 2000. Deemer
purchased the Warrants from Heller on November 2, 1995 for the sum of $2,500,000
and borrowed the purchase price from Holdings which loan was secured by a
collateral pledge of the shares of Deemer and the Warrants. The Company intends
to exercise its option to purchase the Warrants from Deemer upon the
consummation of the MD Investment.
(c) Consists of currently exercisable stock options to purchase Common
Stock. The address of Mr. Vituli is c/o Carrols Corporation, 968 James Street,
Syracuse, New York 13203.
(d) Consists of currently exercisable stock options to purchase Common
Stock. The address of Mr. Accordino is c/o Carrols Corporation, 968 James
Street, Syracuse, New York 13203.
-31-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
CARROLS CORPORATION AND SUBSIDIARIES:
Page
----
Opinion of Independent Certified F-1 to
Public Accountants F-2
Financial Statements:
Consolidated Balance Sheets F-3 to
F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholder's Deficit F-6
Consolidated Statements of Cash Flows F-7 to
F-8
Notes to Consolidated Financial F-9 to
Statements F-20
(b) Financial Statement Schedules
Schedule Description Page
- -------- ----------- ----
CARROLS CORPORATION AND SUBSIDIARIES:
II Valuation and Qualifying Accounts F-21
Schedules other than those listed are omitted for the reason that they
are not required, not applicable, or the required information is shown in the
financial statements or notes thereto.
Separate financial statements of the Company are not filed for the
reasons that (1) consolidated statements of the Company and its consolidated
subsidiaries are filed and (2) the Company is primarily an operating Company and
all subsidiaries included in the consolidated financial statements filed are
wholly-owned, and indebtedness of all subsidiaries included in the consolidated
financial statements to any person other than the Company does not exceed 5% of
the total assets as shown by the Consolidated Balance Sheet at December 31,
1996.
-32-
(c) Exhibits Required by Item 601 of Regulation S-K
INCORPORATION BY REFERENCE TO THE FOLLOWING
INSTRUMENTS PREVIOUSLY FILED WITH THE
EXHIBIT NUMBER DESCRIPTION SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- ------------------------------------------
2.1 Purchase and Sale Agreement dated Exhibit 2.1 to the Company's 1994 Annual
February 10, 1994 between Carrols Report on Form 10-K
Corporation, as Purchaser, and KIN
Restaurant, Inc., as Seller
2.2 Purchase and Sale Agreement dated Exhibit 2.2 to the Company's 1994 Annual
April 18, 1994 among Carrols Report on Form 10-K
Corporation, as Purchaser, and Riva
Development Corporation and John Riva,
as Seller
2.3 Purchase and Sale Agreement dated May Exhibit 2.3 to the Company's 1994 Annual
31, 1994 among Carrols Corporation, as Report on Form 10-K
Purchaser, and Michael P. Jones and
Donald M. Cepiel, Sr., and the
corporations listed therein
2.4 Securities Purchase Agreement dated as Exhibit 2.1 to the Company's current report
of March 6, 1996, by and among on Form 8-K filed March 21, 1996
Atlantic Restaurants, Inc., Carrols
Holdings Corporation, Carrols
Corporation and certain Selling
Shareholders
2.5 Deferred Securities Purchase Agreement Exhibit 2.2 to the
dated as of March 6, 1996 by and among Company's current report on
Atlantic Restaurants, Inc., Alan Form 8-K filed March 21, 1996
Vituli and Pryor, Cashman, Sherman &
Flynn
3.1 Restated Certificate of Incorporation Exhibit 3.(3)(a) to the Company's 1987
Annual Report on Form 10-K
3.2 Certificate of Amendment of the
Restated Certificate of Incorporation
3.3 Restated By-laws Exhibit 3.(3)(b) to the Company's 1987
Annual Report on Form 10-K
4.1 Indenture dated as of August 17, 1993 Exhibit 4.1 to Amendment No. 3 to the
among Holdings, the Company and Marine Company's Registration Statement on Form
Midland Bank, N.A. S-1 (Number 3365100) filed August 10, 1993
-33-
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER DESCRIPTION WITH THE SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- -------------------------------------------
10.1 First Amended and Restated Loan Exhibit 10.1 to the Company's 1987 Annual
Security and Preferred Stock Purchase Report on Form 10-K
Agreement by and among Carrols Merger
Corporation, Carrols Holdings
Corporation and Heller Financial, Inc.
dated as of December 22, 1986
10.2 Second Amended and Restated Loan and Exhibit 10.15 to the Company's 1992 Annual
Security Agreement by and among Report on Form 10-K
Carrols Corporation, Carrols Holdings
Corporation and Heller Financial, Inc.
dated as of September 15, 1992
10.3 Senior Subordinated Credit Agreement Exhibit 10.17 to the Company's Annual
dated as of September 15, 1992 between Report on Form 10-K
Carrols Corporation, Carrols Holdings
Corporation and World Subordinated
Debt Partners, L.P.
10.4 Third Amended and Restated Loan and Exhibit 10.19 to Amendment No. 2 to the
Security Agreement by, and among Company's Form S-1 Registration Statement
Carrols Corporation, Carrols Holdings filed August 4, 1993
Corporation and Heller Financial, Inc.
dated as of August 9, 1993
10.5 First Amendment to Third Amended and The Company's 1993 Annual Report on Form
Restated Loan and Security Agreement 10-K
by and among Carrols Corporation,
Carrols Holdings Corporation and
Heller Financial, Inc. dated as of
October 27, 1993
10.6 Second Amendment to Third Amended and The Company's 1993 Annual Report on Form
Restated Loan and Security Agreement 10-K
by and among Carrols Corporation,
Carrols Holdings Corporation and
Heller Financial, Inc. dated as of
March 11, 1994
-34-
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER DESCRIPTION WITH THE SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- -------------------------------------------
10.7 Third Amendment to Third Amended and Exhibit 10.9 to the Company's 1994 Annual
Restated Loan and Security Agreement Report on Form 10-K
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc. dated as of May 2, 1994
10.8 Fourth Amendment to Third Amended and Exhibit 10.10 to the Company's 1994 Annual
Restated Loan and Security Agreement Report on Form 10-K
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc. dated as of December
20, 1994
10.9 Supply Agreement between ProSource Exhibit 10.11 to the Company's 1994 Annual
Services Corporation and Carrols Report on Form 10-K
Corporation dated April 1, 1994
10.10 Fifth Amendment to Third Amended and
Restated Loan and Security Agreement
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financing, Inc. dated as of February
22, 1995
10.11 Sixth Amendment to Third Amended and
Restated Loan and Security Agreement
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financing, Inc. dated as of February
14, 1996
10.12 Stock Purchase Agreement dated as of
February 25, 1997 by and among Madison
Dearborn Capital Partners, L.P.,
Madison Dearborn Capital Partners II,
L.P., Atlantic Restaurants, Inc. and
Carrols Holdings Corporation
10.13 1994 Regional Directors Bonus Plan Exhibit 10.19 to the Company's 1994 Annual
Report on Form 10-K
-35-
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER DESCRIPTION WITH THE SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- -------------------------------------------
10.14 Carrols Corporation Corporate Exhibit 10.21 to the Company's 1994 Annual
Employee's Savings Plan dated December Report on Form 10-K
31, 1994
10.15 Commitment Letter from Texas Commerce
Bank National Association and Chase
Securities Inc. and accepted and
agreed to by Carrols Corporation as of
January 8, 1997
10.16 Escrow Agreement dated as of March 6, Exhibit 2.3 to the Company's Current
1996 by and among Atlantic Report on Form 8-K filed March 21, 1996
Restaurants, Inc., Bahrain
International Bank (E.C.), Carrols
Holdings Corporation, Carrols
Corporation, certain selling
shareholders and Baer Marks & Upham
L.L.P.
10.17 Seventh Amendment to Third Amended and Exhibit 10.27 to the Company's current
Restated Loan and Security Agreement report on Form 8-K filed April 10, 1996
by and among Heller Financial, Inc.,
Carrols Holdings Corporation and
Carrols Corporation dated as of April
3, 1996
10.18 Amended and Restated Employment Exhibit 10.23 to the Company's
Agreement dated as of Current Report on Form 8-K
April 3, 1996 by and between Carrols filed on April 10, 1996
Corporation and Alan Vituli
10.19 Amended and Restated Employment Exhibit 10.24 to the Company's Current
Agreement dated as of April 3, 1996 by Report on Form 8-K filed on April 10, 1996
and between Carrols Corporation and
Daniel T. Accordino
10.20 Carrols Corporation 1996 Long-Term
Incentive Plan
10.21 Stock Option Agreement dated as of
December 30, 1996 by and between
Carrols Corporation and Alan Vituli
-36-
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER DESCRIPTION WITH THE SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- -------------------------------------------
10.22 Stock Option Agreement dated as of
December 30, 1996 by and between
Carrols Corporation and Daniel T.
Accordino
10.23 Form of Stockholders Agreement by and
among Carrols Holdings Corporation,
Madison Dearborn Capital Partners,
L.P., Madison Dearborn Capital
Partners II, L.P., Atlantic
Restaurants, Inc., Alan Vituli, Daniel
T. Accordino and Joseph A. Zirkman
10.24 Form of Registration Agreement by and
among Carrols Holdings Corporation,
Atlantic Restaurants, Inc., Madison
Dearborn Capital Partners, L.P.,
Madison Dearborn Capital Partners II,
L.P., Alan Vituli, Daniel T. Accordino
and Joseph A. Zirkman
10.25 Form of Second Amended and Restated
Employment Agreement by and between
Carrols Corporation and Alan Vituli
10.26 Form of Second Amended and Restated
Employment Agreement by and between
Carrols Corporation and Daniel T.
Accordino
10.27 Form of Carrols Holdings Corporation
1996 Long-Term Incentive Plan
10.28 Form of Stock Option Agreement by and
between Carrols Holdings Corporation
and Alan Vituli
10.29 Form of Stock Option Agreement by and
between Carrols Holdings Corporation
and Daniel T. Accordino
-37-
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
EXHIBIT NUMBER DESCRIPTION WITH THE SECURITIES AND EXCHANGE COMMISSION
- -------------- ----------- -------------------------------------------
10.30 Form of Unvested Stock Option
Agreement by and between Carrols
Holdings Corporation and Alan Vituli
10.31 Form of Unvested Stock Option
Agreement by and between Carrols
Holdings Corporation and Daniel T.
Accordino
10.32 Form of Unvested Stock Option
Agreement by and between Carrols
Holdings Corporation and Joseph A.
Zirkman
16.1 Letter re change in certifying
accountant
22.1 Subsidiaries of the Registrant, all
wholly-owned are:
Carrols J.G. Corp.
Carrols Realty Holdings Corp.
Carrols Realty I Corp.
Carrols Realty II Corp.
CDC Theater Properties, Inc.
H.N.S. Equipment & Leasing Corp.
Quanta Advertising Corp.
Confectionery Square Corp.
Jo-Ann Enterprises, Inc.
(d) Reports on Form 8-K
One report on Form 8-K, dated November 4, 1996, was filed during
the quarter ended December 29, 1996 reporting a change of the Company's
certifying accountant.
-38-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 in the City of Syracuse,
State of New York on the 25th day of March, 1996
CARROLS CORPORATION
BY: /s/ Alan Vituli
Alan Vituli, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Alan Vituli Director, Chairman and Chief March 25, 1997
(Alan Vituli) Executive Officer
/s/Daniel T. Accordino Director, President and Chief March 25, 1997
(Daniel T. Accordino) Operating Officer
/s/ Robin McIlvenny Director March 25, 1997
(Robin McIlvenny)
/s/ Paul Durrant Director March 25,1997
(Paul Durrant)
/s/ David Mathies Director March 25,1997
(David Mathies)
-39-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Carrols Corporation:
We have audited the accompanying consolidated balance sheet of Carrols
Corporation (a wholly-owned subsidiary of Carrols Holdings Corporation) and
subsidiaries as of December 29, 1996, and the related consolidated statements of
operations, stockholder's deficit, and cash flows for the year then ended. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Carrols Corporation and
subsidiaries as of December 29, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule for the year ended December 29, 1996
listed in the index at Item 14 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Rochester, New York
March 7, 1997
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Carrols Corporation
We have audited the consolidated balance sheet of Carrols Corporation (a wholly
owned subsidiary of Carrols Holdings Corporation) and Subsidiaries as of
December 31, 1995 and the related consolidated statements of operations,
stockholder's deficit and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Carrols
Corporation and Subsidiaries as of December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
for the years ended December 31, 1995 and 1994 as listed in Item 14 of the Form
10-K is presented for purposes of additional analysis and is not a required part
of the basic consolidated financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ Coopers & Lybrand, L.L.P.
Syracuse, New York
March 1, 1996
F-2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
-----------
ASSETS 1996 1995
----- ----
Current assets:
Cash and cash equivalents $ 1,314,000 $ 1,463,000
Trade and other receivables net of
reserves of $310,000 and $419,000
for 1996 and 1995, respectively 793,000 688,000
Inventories 2,163,000 2,292,000
Prepaid real estate taxes 725,000 664,000
Deferred income taxes 3,264,000 3,641,000
Prepaid expenses and other current assets 932,000 830,000
----------- -----------
Total current assets 9,191,000 9,578,000
----------- -----------
Property and equipment, at cost:
Land 9,066,000 6,888,000
Buildings and improvements 16,175,000 15,049,000
Leasehold improvements 38,816,000 36,260,000
Equipment 46,834,000 42,361,000
Capital leases 14,548,000 15,352,000
----------- -----------
125,439,000 115,910,000
Less accumulated depreciation
and amortization (63,356,000) (59,631,000)
------------ -----------
Net property and equipment 62,083,000 56,279,000
------------ -----------
Franchise rights, at cost (less accumulated amortization of
$21,787,000 and 19,648,000 for 1996 and 1995, respectively)
46,203,000 44,582,000
Beneficial leases, at cost (less accumulated
amortization of $7,748,000 and $7,655,000
for 1996 and 1995, respectively) 6,907,000 7,705,000
Excess of cost over fair value of assets acquired
(less accumulated amortization
of $578,000 and $520,000 for 1996 and
1995, respectively) 1,733,000 1,791,000
Deferred income taxes 6,637,000 6,420,000
Other assets 5,834,000 8,709,000
------------ ------------
$138,588,000 $135,064,000
============ ============
The accompanying notes are an integral part of these balance sheets.
F-3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1996 AND 1995
-----------
LIABILITIES AND STOCKHOLDER'S DEFICIT 1996 1995
---- ----
Current liabilities:
Current portion of long-term debt $ 8,000 $ 258,000
Current portion of capital lease obligations 574,000 644,000
Accounts payable 9,319,000 8,909,000
Accrued liabilities:
Taxes 2,334,000 1,426,000
Payroll and employee benefits 3,837,000 4,000,000
Interest 4,741,000 4,809,000
Other 3,382,000 3,134,000
--------- ----------
Total current liabilities 24,195,000 23,180,000
Long-term debt, net of current portion 118,180,000 116,375,000
Capital lease obligations, net of current portion 2,503,000 3,301,000
Deferred income - sale/leaseback of real estate 2,154,000 1,773,000
Accrued postretirement benefits 1,522,000 1,424,000
Other liabilities 1,696,000 1,927,000
----------- -----------
Total liabilities 150,250,000 147,980,000
----------- -----------
Commitments and contingencies
Stockholder's deficit:
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital 1,411,990 840,990
Accumulated deficit (10,574,000) (13,757,000)
Less: note receivable - redemption of warrants (2,500,000)
----------- ------------
Total stockholder's deficit (11,662,000) (12,916,000)
------------ ------------
$138,588,000 $135,064,000
============ ============
The accompanying notes are an integral part of these balance sheets.
F-4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
1996 1995 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ----------
Revenues:
Sales $240,809,000 $226,257,000 $203,927,000
Other income 316,000 201,000 327,000
------------ ------------ ------------
241,125,000 226,458,000 204,254,000
------------ ------------ ------------
Costs and expenses:
Cost of sales 68,031,000 63,629,000 57,847,000
Restaurant wages and related expenses 70,894,000 65,932,000 59,934,000
Other restaurant operating expenses 48,683,000 45,635,000 42,390,000
Depreciation and amortization 11,015,000 11,263,000 11,259,000
Administrative expenses 10,703,000 10,635,000 9,449,000
Advertising expense 10,798,000 9,764,000 8,785,000
Loss on closing restaurants and other 1,800,000
Costs associated with change of control 509,000
----------- ----------- -----------
Total operating expenses 220,633,000 206,858,000 191,464,000
----------- ----------- -----------
Operating income 20,492,000 19,600,000 12,790,000
Interest expense 14,209,000 14,500,000 14,456,000
---------- ---------- ----------
Income (loss) before taxes 6,283,000 5,100,000 (1,666,000)
(Provision) benefit for taxes (3,100,000) 9,826,000 (165,000)
----------- ----------- -----------
NET INCOME (LOSS) $ 3,183,000 $14,926,000 $(1,831,000)
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT DEFICIT
------ --------- ----------- ---------
Balances at December 31, 1993 $ 10 $ 4,447,990 $(26,852,000) $ (22,404,000)
Net loss (1,831,000) (1,831,000)
Dividends declared (2,973,000) (2,973,000)
--- ----------- ------------ -------------
Balances at December 31, 1994 10 1,474,990 (28,683,000) (27,208,000)
Net income 14,926,000 14,926,000
Dividends declared (636,000) (636,000)
Exercise of stock options 2,000 2,000
--- ----------- ------------ -------------
Balances at December 31, 1995 10 840,990 (13,757,000) (12,916,000)
Net income 3,183,000 3,183,000
Dividends declared (1,000,000) (1,000,000)
Exercise of stock options 12,000 12,000
Tax benefit related to stock
options canceled due to change
of control 1,559,000 1,559,000
Note receivable-redemption of warrants (2,500,000)
--- ----------- ------------ -------------
Balances at December 31, 1996 $ 10 $ 1,411,990 $(10,574,000) $ (11,662,000)
======= =========== ============ =============
The accompanying notes are an integral part of the financial statements.
F-6
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
Increase (Decrease) in Cash and Cash Equivalents
1996 1995 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS)
----------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 3,183,000 $14,926,000 $ (1,831,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
(Gain) loss on disposal of
property and equipment (314,000) 156,000
Depreciation and amortization 11,015,000 11,263,000 11,259,000
Non cash charges included
in loss on closing restaurants
and other 1,800,000
Deferred income taxes 1,719,000 (10,061,000)
Change in operating assets and
liabilities:
Trade and other receivables (105,000) (156,000) 100,000
Inventories 129,000 (38,000) (203,000)
Prepaid expenses and other
current assets (174,000) (45,000) (256,000)
Other assets (611,000) (80,000) (494,000)
Accounts payable 410,000 1,363,000 1,209,000
Accrued interest (68,000) (90,000) 35,000
Accrued liabilities and
other 697,000 (556,000) 2,781,000
----------- ---------- ----------
Cash provided by operating
activities 15,881,000 16,682,000 14,400,000
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures:
Real estate and equipment (9,642,000) (4,846,000) (4,509,000)
Construction of new restaurants (4,714,000) (2,607,000) (1,357,000)
Acquisition of restaurants (7,945,000) (516,000) (11,615,000)
Franchise fees and renewals (899,000) (569,000) (158,000)
Notes and mortgages issued (749,000) (2,503,000)
Payments received on notes, mortgages
and capital subleases receivable 39,000 32,000 112,000
Disposal of property, equipment
and franchise rights 2,342,000 17,000 569,000
Other investments 1,330,000 (1,356,000)
----------- ---------- -----------
Net cash used for
investing activities (20,238,000) (12,348,000) (16,958,000)
---------- ---------- -----------
The accompanying notes are an integral part of the financial statements.
Continued
F-7
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
Increase (Decrease) in Cash and Cash Equivalents
1996 1995 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ------------- ----------
Cash flows from financing activities:
Proceeds from long-term debt $ 2,997,000 $ 4,376,000 $ 6,800,000
Principal payments on long-term debt (154,000) (7,181,000) (267,000)
Retirement of long-term debt (450,000) (75,000)
Purchase of senior notes (838,000) (1,387,000)
Proceeds from sale-leaseback transactions 4,246,000 861,000 672,000
Dividends paid (1,000,000) (636,000) (3,473,000)
Principal payments on capital leases (605,000) (616,000) (561,000)
Exercise of employee stock options 12,000 2,000
----------- ---------- ----------
Net cash provided by (used for)
financing activities 4,208,000 (4,581,000) 3,096,000
----------- ---------- ----------
Increase (decrease) in cash
and cash equivalents (149,000) (247,000) 538,000
Cash and cash equivalents,
beginning of year 1,463,000 1,710,000 1,172,000
----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,314,000 $ 1,463,000 $ 1,710,000
=========== =========== ==========
Supplemental disclosures:
Interest paid on debt $14,277,000 $14,590,000 $ 14,421,000
Taxes paid $ 393,000 $ 153,000 $ 126,000
The accompanying notes are an integral part of the financial statements.
F-8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies
The following is a summary of certain significant accounting policies followed
in the preparation of the consolidated financial statements.
Basis of Consolidation
The consolidated financial statements include the accounts of Carrols
Corporation and its subsidiaries (the "Company"). All significant intercompany
transactions have been eliminated in consolidation. The Company is a
wholly-owned subsidiary of Carrols Holdings Corporation ("Holdings").
At December 31, 1996 the Company operated, as franchisee, 232 fast food
restaurants under the trade name "Burger King" in nine Northeastern and
Midwestern states and one Southeastern state. As reported by Burger King
Corporation ("BKC"), the Burger King system is the second largest "hamburger
fast food" restaurant system in the United States in terms of sales and number
of restaurants. The Company is the largest independent Burger King franchisee in
the United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Depreciation and amortization is provided on the straight-line method for
financial reporting purposes. The useful lives for computing depreciation and
amortization are as follows:
Buildings and improvements 5 to 20 years
Leasehold improvements Remaining life of lease including
renewal options or life of asset,
whichever is shorter
Equipment 3 to 10 years
Capital leases Remaining life of lease
At the time of retirement or other disposition, the cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
income. Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $7,300,000, $7,594,000 and $7,404,000, respectively.
Franchise Rights and Beneficial Leases
Fees for initial franchises and renewals paid to Burger King Corporation are
amortized using the straight-line method over the term of the agreement,
generally twenty years.
Acquisition costs allocated to franchise rights and beneficial leases are
amortized using the straight-line method, principally over the remaining lives
of the leases including renewal options, but not in excess of 40 years.
F-9
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Excess of Cost Over Fair Value
The excess of cost over fair value of assets acquired is amortized on a
straight-line basis over 40 years.
Long-lived Assets
The recoverability of the carrying values of property, equipment, franchise
rights and beneficial leases is periodically evaluated based on current and
forecasted undiscounted cash flows, future market opportunities, strategic
importance and estimated disposal values.
Deferred Financing Costs
Financing costs incurred in obtaining long-term debt are capitalized and
amortized over the life of the related debt on an effective interest basis.
Income Taxes
The Company and its subsidiaries are included in the consolidated federal income
tax return of Holdings through the date of the change of control at April 3,
1996. The Company and its subsidiaries will file separate federal income tax
returns for the period April 4, 1996 to December 31, 1996.
Advertising Costs
All advertising costs are expensed as incurred.
Use of Estimates
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.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The following methods were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that fair value:
Current Assets and Liabilities - The carrying value of cash and cash equivalents
and accrued liabilities approximates fair value because of the short maturity of
those instruments.
Senior Notes - The fair value of senior notes is based on quoted market prices.
The recorded amount, as of December 31, 1996, approximates fair value.
Revolving Line of Credit and Acquisition Loan - Rates currently available to the
Company for debt with similar terms and remaining maturities are used to
estimate fair value. The recorded amount, as of December 31, 1996, approximates
fair value.
F-10
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Self Insurance
The Company is self insured for workers compensation and general liability up to
predetermined amounts above which third party insurance applies. Losses are
accrued based upon the Company's estimates of the aggregate liability for claims
incurred based on the Company's experience.
Stock-Based Compensation
In October 1995, Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" was issued which sets forth a fair
value method of recognizing stock based compensation expense. As permitted by
SFAS No. 123, the Company intends to continue to measure compensation for such
plans using the intrinsic value based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and will disclose the
additional information relative to issued stock options and pro forma net
income, as if the options granted were expensed at their estimated fair value at
the time of grant. There was no effect on the Company's financial statements as
a result of adopting this statement.
Fiscal Year
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The financial statements included herein are as of December 29,
1996 (52 weeks), December 31, 1995 (52 weeks), and January 1, 1995 (52 weeks)
and are referred to as the fiscal years ended December 31, 1996, 1995 and 1994,
respectively.
Reclassification
Certain amounts for prior years have been reclassified to conform to the current
year presentation.
2. INVENTORIES
Inventories at December 31 consisted of:
1996 1995
---- ----
Raw materials (food and paper products) $ 1,386,000 $ 1,458,000
Supplies 777,000 834,000
----------- -----------
$ 2,163,000 $ 2,292,000
=========== ===========
3. LEASES
The Company utilizes land and buildings in its operations under various lease
agreements. These leases are generally for initial terms of twenty years and, in
most cases, contain renewal options for two to four additional five year
periods. The rent payable under such leases is generally a percentage of sales
with a provision for minimum rent. In addition, most leases require payment of
property taxes, insurance and utilities.
F-11
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
3. LEASES CONTINUED
Deferred gains of approximately $2,815,000 were recorded as a result of
sale/leaseback transactions and are being amortized over the lives of the
leases. These leases are operating leases, have a 20 year primary term with four
five-year renewal options and provide for additional rent based on a percentage
of sales in excess of predetermined levels. The net deferred gain of $2,154,000
and $1,773,000 at December 31, 1996 and 1995, respectively, is the result of
these transactions.
Accumulated amortization pertaining to capital leases for the years ended
December 31, 1996 and 1995 was $9,151,000 and $8,945,000, respectively.
Minimum rent commitments under noncancelable leases as of December 31, 1996, are
as follows:
CAPITAL OPERATING
------- ---------
Years Ending:
1997 $927,000 $11,459,000
1998 758,000 10,889,000
1999 541,000 10,255,000
2000 480,000 9,965,000
2001 470,000 9,388,000
2002 and thereafter 1,758,000 78,886,000
--------- ------------
Total minimum lease payments 4,934,000 $130,842,000
============
Less amount representing interest
(7.7% to 16.6%) 1,857,000
---------
Total obligations under capital leases 3,077,000
Less: current portion 574,000
----------
Long term obligations under capital leases $2,503,000
==========
Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the years ended December 31, was as follows:
1996 1995 1994
---- ---- ----
Minimum rent on real property $ 11,590,000 $ 11,108,000 $ 10,147,000
Additional rent based on a
percentage of sales 2,700,000 2,548,000 1,917,000
Equipment rent 167,000 164,000 109,000
------------ ------------ ------------
$ 14,457,000 $ 13,820,000 $ 12,173,000
============ ============ ============
F-12
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
4. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
1996 1995
--------- ---------
Collateralized:
Revolving line of credit $4,669,000 $ 1,700,000
Acquisition loan 5,000,000 5,000,000
Industrial Development Revenue bonds -- 596,000
Other notes payable with
interest rates tp 10% 857,000 837,000
Unsecured:
Senior notes 107,662,000 108,500,000
----------- -----------
118,188,000 116,633,000
Less: current portion 8,000 258,000
------------ ------------
$118,180,000 $116,375,000
============ ============
The Company issued $110 million of unsecured senior notes in August 1993. The
senior notes bear interest at a rate of 11.5%, payable semi-annually on each
February 15 and August 15, and are due August 15, 2003. The notes are redeemable
at the option of the Company in whole or in part on or after August 15, 1998 at
specified redemption prices. Provisions of the revolving line of credit facility
place limitations on the redemption or repurchase of the notes so long as the
facility remains in effect. During 1996, the Company purchased $0.8 million face
value of senior notes.
On December 20, 1994, the revolving line of credit agreement was amended to
provide for an additional acquisition loan of $5 million. The $5 million
acquisition loan was collateralized by the twenty-two restaurants acquired
during 1994 and was fully advanced during 1995.
F-13
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
4. LONG-TERM DEBT (CONTINUED)
Effective December 20, 1994, in conjunction with the additional $5 million
acquisition loan, the revolving line of credit agreement was amended to reduce
the interest rate on all borrowings thereunder to either the London Interbank
Offering Rate plus 2.5% or the prime rate plus 1.25%, as selected by the
Company. If the revolving line of credit and acquisition loan exceed $25
million, the interest rate is increased to either the London Interbank Offering
Rate plus 3.5% or the prime rate plus 2.25% on the amount of the loan exceeding
$25 million. The amount available under the revolving line of credit was
increased to $25 million with no future reductions until its maturity in August
2000. At December 31, 1996 there was $19.2 million available under the revolving
line of credit facility after reduction for the $4.7 million outstanding and a
$1.1 million letter of credit guaranteed by the facility. A commitment fee of
1/2% is payable on the unused balance. At December 31, 1996, the facility was
collateralized by substantially all assets of the Company.
The Industrial Development Revenue bonds were collateralized by a warehouse
which was sold during 1996, at which time the bonds were retired. Interest was
at seventy-five percent of prime.
Restrictive covenants of the senior notes and the revolving line of credit
facility include limitations with respect to the issuance of additional debt and
redeemable preferred stock; the sale of assets; dividend payments and capital
stock redemption; transactions with affiliates; investments; consolidations,
mergers and transfers of assets and minimum interest and fixed charge coverage
ratios.
At December 31, 1996, principal payments required on all long-term debt are as
follows:
1997 $ 8,000
1998 8,000
1999 192,000
2000 9,789,000
2001
2002 and thereafter 108,191,000
------------
$118,188,000
============
5. INCOME TAXES
The income tax (provision) benefit was comprised of the following at December
31:
1996 1995 1994
---- ---- ----
Current:
Federal $ (981,000) $ (35,000)
State (400,000) (200,000) $(165,000)
------------ ----------- ---------
(1,381,000) (235,000) (165,000)
------------ ----------- ---------
Deferred:
Federal (1,199,000) 8,552,000
State (520,000) 1,509,000
------------ ----------- ---------
(1,719,000) 10,061,000
------------ ----------- ---------
$(3,100,000) $ 9,826,000 $ (165,000)
============ =========== =========
F-14
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
5. INCOME TAXES CONTINUED
The components of deferred income tax assets and liabilities at December 31, are
as follows:
1996 1995
---- ----
Deferred tax assets:
Receivable and other reserves $ 503,000 $ 405,000
Accrued vacation benefits 427,000 484,000
Deferred income on sale/leaseback
of real estate 853,000 709,000
Postretirement benefits 602,000 569,000
Capital leases 463,000 545,000
Property and equipment 671,000 138,000
Alternative minimum tax credit carryforward 35,000
Net operating loss carryforwards 12,348,000 12,458,000
---------- ----------
15,867,000 15,343,000
Deferred tax liabilities:
Franchise rights 5,966,000 5,282,000
---------- ----------
Net deferred income tax asset $ 9,901,000 $10,061,000
========== ==========
The Company has net operating loss carryforwards for income tax purposes of
approximately $32 million. The net operating loss carryforwards expire in
varying amounts beginning 2003 through 2010. Realization of the deferred income
tax assets relating to the net operating loss is dependent on generating
sufficient taxable income prior to the expiration of the loss carryforwards.
Based upon results of operations, management believes it is more likely than not
that the Company will generate sufficient future taxable income to fully realize
the benefit of the net operating loss carryforwards and existing temporary
differences, although there can be no assurance of this. Accordingly, during
1995, the previously provided valuation allowance was eliminated and the net
deferred tax asset was recognized as a deferred income tax benefit.
Reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:
1996
----
Statutory federal income tax rate 34.00%
Change in valuation allowance
State Income Taxes, net of
federal benefit 9.66%
Nondeductible expenses 3.13%
Miscellaneous 2.54%
-----
49.34%
=====
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 was credited directly to paid in capital and increased the deferred
income tax asset.
F-15
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
6. STOCKHOLDER'S EQUITY
The Company
The Company has 1,000 shares of common stock authorized of which 10 shares are
issued and outstanding. Dividends on the Company's common stock are restricted
to amounts permitted by various loan agreements.
Additional paid-in capital was reduced for cash dividends declared of
$1,000,000, $636,000, and $2,973,000 in 1996, 1995 and 1994, respectively.
Holdings
The sole activity of Holdings is the ownership of 100% of the stock of Carrols
Corporation. In February 1997, a 1 for 3.701 reverse stock split was effected to
reduce the outstanding shares of common stock of Holdings to 850,000 shares.
Holdings, the parent, has issued various classes of stock with redemption,
convertibility and cumulative dividend payment requirements. The following
amounts have been restated to reflect the effects of the reverse stock split
at December 31,:
1996 1995
---- ----
Preferred stock:
Class A, 10% cumulative redeemable,
par value $.01, authorized, issued
and outstanding 7,250 shares at
liquidation preference and
redemption price $7,250,000 $7,250,000
Class B, convertible, 10% cumulative
redeemable Series I, par value $.01,
authorized, 750 shares, issued and
outstanding - none for 1996 and 750
shares for 1995 750,000
Class B, 10% cumulative redeemable
Series II, par value $.01, authorized
750 shares, issued - none
Common stock:
Voting, par value $.01, authorized
6,000,000 shares, issued and
outstanding 850,000 and 610,801
shares for 1996 and 1995, respectively 9,000 6,000
Non-voting, par value $.01, authorized
882,353 shares, issued - none
The Class A Preferred Stock, issued in December 1986, is subject to mandatory
redemptions equally over each of the tenth through thirteenth anniversaries of
issuance. In addition, subject to the redemption restrictions of various loan
agreements, all preferred stock may be redeemed at the option of Holdings, at a
price of $1,000 per share, plus accrued dividends. In the event that the
scheduled redemptions are not timely made, the annual dividend rate on the
amount of Class A Preferred Stock scheduled to be redeemed but not redeemed will
automatically increase to 14%.
F-16
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
6. STOCKHOLDER'S EQUITY CONTINUED
Holders of the Preferred Stock are entitled to cumulative dividends payable
quarterly at the rate of 10% per annum. In the event that Holdings fails to pay
four consecutive quarterly dividends on the Class A preferred stock, the
subsequent dividend rate increases to 11.5%; if eight consecutive quarterly
dividends are missed, the rate increases to 13% per annum until such dividends
are paid. Because of certain restrictive covenants in the Company's loan
agreements, at December 31, 1996, the first scheduled redemption of $1,813,000
and dividends of $182,000 for the last quarter of 1996 have not been paid.
In conjunction with various financings completed between 1986 and 1992, warrants
to purchase shares of Holdings Common Stock at an exercise price of $3.590 to
$3.701 per share were granted with 131,886 and 201,338 outstanding at December
31, 1996 and 1995, respectively.
The warrants outstanding at December 31, 1996 are owned by an independent third
party. The warrants were originally owned by Heller Financial, Inc. To
facilitate the sale and purchase of the warrants, Holdings loaned $2,500,000 to
the purchaser of the warrants which loan was secured by a collateral pledge of
the shares of the purchaser and of the warrants. Holdings has an option to
purchase the warrants at an aggregate price of $2,510,000 if exercised before
November 2, 1997 and $2,520,000 if exercised after November 1, 1997. The option
expires on November 1, 2000. Upon completion of the sale of Holdings common
stock referred to in Note 11 - Subsequent Event, Holdings will exercise its
option to purchase the warrants. Accordingly, to reflect the ultimate effect of
the Company's exercise of the option, the receivable has been reclassified to
increase stockholder's deficit as of December 31, 1996.
Change of Control
On April 3, 1996, Carrols Holdings Corporation, Carrols Corporation and certain
selling shareholders of Carrols Holdings Corporation sold approximately 97
percent of the issued common stock and common stock equivalents (the Class B
Convertible Preferred stock, warrants to buy common stock and options to buy
common stock) exclusive of the warrants referred to above. This change in
control resulted in the Company incurring a one-time charge of $509,000 in
fiscal 1996.
The sale of stock pursuant to this agreement constituted an ownership change
under certain provisions of the Internal Revenue Code which resulted in annual
limitations on utilization of the net operating loss carryforward referred to in
Note 5.
This transaction constituted a "change of control" under the Indenture governing
the senior notes due 2003. Accordingly, each holder of the notes had the right
to require the Company to repurchase all or any part of such holder's notes at a
repurchase price in cash equal to 101% of the principal amount of the notes
being repurchased plus accrued and unpaid interest. Such redemptions totaled
$838,000 in fiscal 1996.
F-17
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
6. STOCKHOLDER'S EQUITY CONTINUED
Stock Options
Carrols Holdings Corporation adopted an Employee Stock Option and Award Plan on
December 14, 1993. Effective April 1, 1994, Holdings also adopted a Stock Option
Plan for non-employee directors. The Plans allowed for the granting of
non-qualified stock options, stock appreciation rights and incentive stock
options to directors, officers and certain other Company employees. The Company
was authorized to grant options for up to 850,000 shares, 100,000 shares for
non-employee directors and 750,000 shares for employees. Options were generally
exercisable over 5 years with 94,600 options exerciseable at December 31, 1995.
As of December 31, 1995, non-employee directors were granted options totaling
18,000. Under the non-employee director plan, no options were exercised or
canceled during 1995. During 1996, 210,800 options (135,400 at $4.00 and 75,400
at $6.12) were canceled by the sale of such options in conjunction with the
change of control transaction and the plans were canceled. The remaining 120,000
options were subject to a deferred purchase agreement whereby the sale and
cancellation occurred in January, 1997.
The Company accounts for its stock-based compensation plans under APB Opinion
No. 25. Accordingly, compensation cost has been recognized only to the extent
the exercise price was below the fair market value at the time of the grant. The
pro forma effect on the Company's net income, assuming the compensation cost for
the Company's stock-based compensation plans had been determined based on the
fair value at the grant dates for awards consistent with the method of SFAS No.
123, would be immaterial.
Option activity during 1995, and 1996 consisted of:
OPTIONS AT $4.00 OPTIONS AT $6.12
---------------- ----------------
Balance at December 31, 1994 257,000 0
Granted 99,100
Exercised (600)
Canceled (12,400) (2,300)
------- --------
Balance at December 31, 1995 244,000 96,800
Exercised (3,000)
Canceled (141,000) (76,800)
-------- --------
Balance at December 31, 1996 100,000 20,000
======== ========
On December 26, 1996, the Company adopted an incentive stock option plan whereby
the Company may grant options to purchase up to 106,250 shares of Common Stock
to eligible officers and employees of the Company. As of the Company's most
recent year end, no options were granted.
7. LITIGATION
The Company is a party to various legal proceedings arising from the normal
course of business. Management believes adverse decisions relating to litigation
and contingencies in the aggregate would not materially effect the Company's
results of operations, financial condition or cash flows.
F-18
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
8. EMPLOYEE SAVINGS PLAN
The Company offers a savings plan for salaried employees. Under the plan,
participating employees may contribute up to 10% of their salary annually. The
Company's contributions, which begin to vest after three years and fully vest
after seven years of service, are equal to 50% of the employee's contributions
to a maximum Company contribution of $530 annually. The employees have various
investment options available under a trust established by the plan. The plan
expense was $164,000, $125,000, and $125,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
9. POSTRETIREMENT BENEFITS
While the Company reserves the right to change its policy, the Company provides
postretirement medical and life insurance benefits covering substantially all
salaried employees.
The following sets forth the plan status at December 31:
Accumulated Postretirement Benefit Obligation (APBO):
1996 1995
---- ----
Retirees $ 518,000 $ 411,000
Fully eligible active participants 26,000 242,000
Other active plan participants
not fully eligible 697,000 580,000
----------- -----------
Total APBO 1,241,000 1,233,000
Unrecognized benefit from plan changes 315,000 255,000
Unrecognized net loss (34,000) (64,000)
----------- -----------
Accrued postretirement
benefit obligation $ 1,522,000 $ 1,424,000
=========== ===========
Net periodic postretirement benefit cost included the following components:
1996 1995 1994
---- ---- ----
Service cost $64,000 $47,000 $47,000
Interest cost 77,000 76,000 70,000
Net amortization of
gains,losses and unrecognized
benefit from plan changes (25,000) (29,000) (20,000)
-------- ------ ------
$116,000 $94,000 $97,000
======== ====== ======
A 6.75% annual rate of increase in the per capita costs of covered health care
benefits was assumed for 1996, gradually decreasing to 5.5% by the year 2001.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by $157,000 and
F-19
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
9. POST RETIREMENT BENEFITS CONTINUED
increase the aggregate of the service cost and interest cost components of net
periodic postretirement benefit cost for 1996 by $23,000. For 1996 and 1995, a
discount rate of 7% was used to determine the accumulated postretirement benefit
obligation. Actual benefit costs paid on behalf of retirees in 1996, 1995 and
1994 amounted to $24,000, $24,000, and $31,000, respectively.
10. LOSS ON CLOSING RESTAURANTS AND OTHER
The loss on closing restaurants and other of $1.8 million for 1994 included the
write-down of assets to net realizable value and estimated lease termination
costs for the closing during 1995 of certain restaurants operating at a negative
annual cash flow and the write down to net realizable value of a vacant
warehouse held for sale. The vacant warehouse was sold in 1996.
11. SUBSEQUENT EVENT
In February 1997, a 1 for 3.701 reverse stock split was effected to reduce the
outstanding shares of common stock of Holdings to 850,000 shares.
On February 25, 1997, Carrols Holdings Corporation and its sole stockholder
entered into an agreement whereby each agreed to sell 283,334 shares of common
stock of Carrols Holdings Corporation to an independent third party.
Consummation of the transaction is subject to certain conditions, among which is
the completion of a new credit facility satisfactory to the independent third
party. Additionally, Holdings agreed to sell 10,810 shares to certain officers
of the Company. The sale of the new common stock by Holdings will result in
approximately $31.0 million of new equity for the Company.
The consummation of the transaction contemplated by the agreement will
constitute a "change of control" under the indenture governing the senior notes
due 2003. Accordingly, each holder of the notes will have the right to require
the Company to repurchase all or any part of such holder's notes at a repurchase
price in cash equal to 101% of the principal amount of the notes being
repurchased plus accrued and unpaid interest, if any, within a 30-60 day period,
as determined by the Company. The Company anticipates that an insignificant
number of note holders will exercise their rights, based on current market
conditions. However, to the extent holders exercise their rights, the Company
expects to finance the aggregate repurchase amount through borrowings under the
revolving line of credit portion of its senior secured credit facility and/or
through other financing.
F-20
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Col. A Col. B Col. C Col. D Col E
------ ------ ------ ------ -----
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
----------- --------- ----------- ---------- ----------
Year ended December 31, 1996:
Accumulated depreciation of
property and equipment $ 59,631,000 $ 7,300,000 $(3,575,000)(d) $ 63,356,000
Accumulated amortization of
franchise rights 19,648,000 2,575,000 (436,000)(a) 21,787,000
Accumulated amortization of
beneficial leases 7,655,000 634,000 (541,000)(a) 7,748,000
Accumulated amortization of excess
cost over fair value of assets 520,000 58,000 578,000
Reserve for doubtful trade accounts
receivable 419,000 16,000 (125,000)(b) 310,000
Other reserves (c) 788,000 (35,000)(b) 753,000
Year ended December 31, 1995:
Accumulated depreciation of property
and equipment 53,969,000 7,594,000 (1,932,000)(d) 59,631,000
Accumulated amortization of
franchise rights 17,548,000 2,512,000 (412,000)(a) 19,648,000
Accumulated amortization of
beneficial leases 7,433,000 721,000 (499,000)(a) 7,655,000
Accumulated amortization of excess
cost over fair value of assets 462,000 58,000 520,000
Reserve for doubtful trade accounts
receivable 424,000 12,000 (17,000)(b) 419,000
Other reserves (c) 542,000 388,000 (142,000)(b) 788,000
Year ended December 31, 1994:
Accumulated depreciation of property
and equipment 47,254,000 7,404,000 (689,000)(d) 53,969,000
Accumulated amortization of
franchise rights 15,146,000 2,402,000 17,548,000
Accumulated amortization of
beneficial leases 6,921,000 785,000 (273,000)(a) 7,433,000
Accumulated amortization of excess
cost over fair value of assets 404,000 58,000 462,000
Reserve for doubtful trade accounts
receivable 563,000 2,000 (141,000)(b) 424,000
Other reserves (c) 521,000 21,000 542,000
(a) Represents reduction of accumulated amortization due to sale or disposition
of restaurants.
(b) Represents write-offs of accounts.
(c) Included principally in other assets
(d) Represents retirements of fixed assets.
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as...............'r'
The section symbol shall be expressed as............................'SS'