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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 31, 2000
Commission File Number: 0-25629
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CARROLS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 16-0958146
(State or other jurisdiction (I.R.S. EmployerIdentification No.)
ofincorporation or organization)
968 James Street 13203
Syracuse, New York (Zip Code)
(Address of principal executive
office)
Registrant's telephone number, including area code: (315) 424-0513
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
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 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 26, 2001: 10.
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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 3, 1999,
January 2, 2000 and December 31, 2000 will hereinafter be referred to as the
fiscal years ended December 31, 1998, 1999 and 2000, respectively.
PART I
This 2000 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Those statements include statements regarding the intent,
belief or current expectations of the Registrant and its management team.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-
looking statements. Such risks and uncertainties include, among other things,
competitive conditions, economic and regulatory factors, general economic
conditions, fluctuations in commodity prices, availability of restaurant
supply and distribution of product, liquidity of major distributors, labor
costs, the ability of the Registrant to manage its growth and successfully
implement its business strategy and other risks and uncertainties that are
discussed herein.
Item 1. Business
Overview
Who We Are
We are one of the largest restaurant companies in the U.S. operating more than
520 restaurants in 17 states. We are the second largest Burger King(R)
franchisee in the world and have operated Burger King restaurants since 1976. As
of December 31, 2000, we operated 355 Burger King restaurants located in 13
Northeastern, Midwestern and Southeastern states. We also operate two regional
Hispanic restaurant chains, Taco Cabana and Pollo Tropical, that operate or
franchise more than 200 restaurants.
We have acquired and constructed Burger King restaurants resulting in a 53%
increase in the number of restaurants we operate since the end of fiscal 1996.
We have also enhanced the quality of operations and have grown our Burger King
restaurant sales from $240.8 million in 1996 to $371.3 million in 2000.
We have also expanded our operations during the past three years through the
acquisition of two regional quick-casual Hispanic restaurant chains. In July
1998 we acquired Pollo Tropical Inc., a restaurant chain featuring grilled
marinated chicken and authentic "made from scratch" side dishes, for a cash
purchase price of approximately $95 million. Since the acquisition we have
expanded this concept almost 40% by opening 14 new Pollo Tropical restaurants.
At December 31, 2000 we had 49 company owned Pollo Tropical restaurants in
Florida and 24 franchised Pollo Tropical restaurants, primarily in Puerto Rico.
Total Pollo Tropical revenues were $90.0 million in 2000.
On December 19, 2000 we acquired Taco Cabana Inc., a restaurant chain
featuring Tex-Mex style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas, for a total purchase price of
approximately $154.7 million. As of December 31, 2000 we had 117 company owned
Taco Cabana restaurants located in Texas, Oklahoma and Arizona and 10 franchised
Taco Cabana restaurants. Although not included in our results for the entire
year, Taco Cabana's revenues were $170.7 million in 2000. See Note 9 "Business
Segment Information" in Item 14.
Due to our acquisitions and the increase in the number of Burger King
restaurants over the past five years, our total revenues have increased
approximately 94% from $240.8 million in 1996 to $466.9 million in 2000 and
our EBITDA (earnings before interest, income taxes, depreciation, amortization
and other income) has increased approximately 90% from $31.5 million in 1996
to $59.9 million in 2000.
1
Burger King
Burger King is the second largest quick-service hamburger restaurant chain
in the world, with approximately 11,300 restaurants throughout the U.S. and in
58 foreign countries as of January 31, 2001. In fiscal 2000, Burger King
Corporation ("BKC") reported worldwide sales of approximately $11.4 billion
including $8.7 billion from its restaurants in the U.S. Burger King
restaurants are quick-service restaurants of distinctive design which feature
flame-broiled hamburgers and serve several widely known, trademarked products,
the most popular being the WHOPPER(R) sandwich.
We believe that the primary competitive advantages of Burger King
restaurants are:
. convenience of location;
. speed of service;
. quality; and
. price.
Pollo Tropical
We operate and franchise Pollo Tropical quick-casual restaurants featuring
fresh grilled chicken marinated in a proprietary blend of tropical fruit
juices and spices and authentic "made from scratch" side dishes. The menu
emphasizes freshness and quality with a focus on flavorful chicken served "hot
off the grill." Pollo Tropical restaurants combine high quality, distinctive
menu items and an inviting tropical setting with the convenience and value of
quick-service restaurants.
Pollo Tropical opened its first company-owned restaurant in 1988 in Miami
and its first international franchised restaurant in 1995 in Puerto Rico. As
of December 31, 2000, we owned and operated 49 Pollo Tropical restaurants, all
located in south and central Florida, and we franchised 24 Pollo Tropical
restaurants, 18 of which are located in Puerto Rico, three in Ecuador and one
location each in Aruba, El Salvador and Miami. For the year ended December 31,
2000, Pollo Tropical's average restaurant sales were approximately $2 million,
which we believe is among the highest in the quick-service restaurant industry.
Our acquisition of Pollo Tropical has allowed us to:
. broaden our opportunities to build additional restaurants;
. expand our geographic presence;
. diversify our revenue base;
. increase our cash flow; and
. enhance our operating margins.
Taco Cabana
Acquired in December 2000, our Taco Cabana restaurants feature fresh,
premium quality Tex-Mex and traditional Mexican style food. Menu items include
flame-grilled beef and chicken fajitas, rotisserie chicken, quesadillas,
traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-
made flour tortillas. Many of Taco Cabana's menu items are "sharing" foods
designed for families and large groups. Unlike many of its competitors, most
menu items are made fresh daily in each of our Taco Cabana restaurants. Taco
Cabana restaurants also offer a variety of beverage choices, including
margaritas and beer.
Taco Cabana pioneered the Mexican patio cafe concept with its first
restaurant in 1978 and as of December 31, 2000 operated 117 restaurants, 106 of
which are located in Texas. For the year ended December 31, 2000, Taco Cabana's
average restaurant sales were approximately $1.5 million.
Our acquisition of Taco Cabana will allow us to:
. further expand our geographic presence in areas with high population
growth;
. further diversify our revenue base into the Tex-Mex restaurant segment;
. enhance our overall operating margins and cash flow; and
. capitalize on the significant growth of the Hispanic population in the
United States.
2
The Industry
The quick-service restaurant industry, which includes hamburgers, pizza,
chicken, various types of sandwiches and Mexican and other ethnic foods, has
experienced consistent growth. The National Restaurant Association estimated
that sales at quick-service restaurants would reach approximately $114.7
billion in 2000, compared with approximately $61.4 billion in 1988. This
growth in the quick-service restaurant industry reflects consumers' increasing
desire for a convenient, reasonably priced restaurant experience. In addition,
consumer need for meals and snacks prepared outside of the home has increased
as a result of the greater numbers of working women and single parent
families. According to the National Restaurant Association, the percentage of
the average family's food budget spent on meals consumed "away from home" has
grown from approximately 25% of the food budget in 1955 to almost 50% in 2000.
Competitive Strengths
We attribute our success in the quick-service restaurant industry to the
following competitive strengths:
One of the Largest Burger King Franchisees. We are the second largest Burger
King franchisee in the world. We believe that our leadership position,
together with our experienced management team, effective management
information systems, an extensive infrastructure and a proven track record for
integrating acquisitions and new restaurants, provide us with attractive
opportunities to build and acquire additional restaurants. In addition, we
believe that these factors enable us to enhance restaurant margins and overall
performance and allow us to operate more efficiently than most other Burger
King franchisees.
Strong Brand Names. We believe all of our restaurant concepts are highly
recognized brands in their market areas.
Burger King
Since the formation of BKC in 1954, the Burger King brand has become one of
the most recognized brands in the restaurant industry. BKC spends between 4%
and 5% of total system sales on advertising per year (approximately $500
million in 2000 and approximately $2.2 billion over the past five years). The
strong Burger King brand, coupled with the quality and value of the food and
convenience of its restaurants, has provided growth for the Burger King system.
Pollo Tropical
Pollo Tropical is one of the most highly recognized quick-service restaurant
brands in Pollo Tropical's core markets of south and central Florida. We
believe that the following factors have led to the success of the Pollo
Tropical concept:
. strong brand awareness in Pollo Tropical's core markets;
. high frequency of visits and loyalty among our Hispanic customers; and
. positioning of our menu to capitalize on the growing consumer preference
for both healthier and ethnic foods.
Taco Cabana
Taco Cabana is a highly recognized brand in its Texas core markets. Of the
117 Taco Cabana restaurants we operated as of December 31, 2000, a total of
101 restaurants are concentrated in four major markets: San Antonio, Houston,
Dallas/Fort Worth and Austin. Taco Cabana has converted or re-imaged
substantially all of its existing restaurants over the past three years. This
new design enhances Taco Cabana's unique patio cafe image.
Stable Cash Flows. We believe that the stability of our operating cash flow
is due to the proven success of our Burger King, Pollo Tropical and Taco
Cabana restaurant concepts and our consistent focus on restaurant operations.
During the past five years, our restaurant level EBITDA (EBITDA before general
and administrative expenses) margins for our Burger King restaurants ranged
between 14.5% and 17.4% and averaged 15.9%. In addition, over the same period,
restaurant level EBITDA margins for our Pollo Tropical restaurants has ranged
3
between 18.7% and 25.6% and averaged 23.9%. Aggregate cash flow from total
Company operations has increased from $14.3 million in 1996 to $49.7 million in
2000. We believe that the stability and diversification of our cash flow
provides us with adequate liquidity to meet our cash flow needs and to pursue
additional growth.
Diversified Locations and Restaurant Concepts. Over the past five years, we
have increased the number of Burger King restaurants we own by over 50% and we
have increased our geographic presence from nine states to 13 states. Our
acquisitions of Pollo Tropical with its restaurants in Florida, the Caribbean
and Central and South America and Taco Cabana with its restaurants in Texas
and the Southwest have further expanded our geographic presence. We believe
this geographic expansion and continued restaurant growth from these concepts
enable us to capitalize on regions that have rapidly growing populations and
to further reduce our dependence on the economic performance of any one
particular region or restaurant concept.
Experienced Management Team with a Significant Equity Stake. Our senior
management team, headed by Chairman and Chief Executive Officer Alan Vituli
and President and Chief Operating Officer Daniel T. Accordino, has a long and
successful history of developing, acquiring and operating quick-service
restaurants. Under their leadership and direction, we have become one of the
world's largest Burger King franchisees. Mr. Accordino oversees all Company
operations. For our Burger King restaurants he leads a team of five regional
operating directors who have an average of 26 years of restaurant industry
experience and 48 district managers who have an average of 16 years of
restaurant management experience in the Burger King system. In addition,
Nicholas A. Castaldo, President and Chief Operating Officer of our Pollo
Tropical Division has over 20 years experience in the restaurant industry. Our
management owns (on a fully diluted basis) approximately 12% of Carrols
Holdings, which owns 100% of our stock. Our regional and district managers
also hold options to acquire equity in Carrols Holdings.
Business Strategy
Our business strategy is to continue to increase revenues and cash flow
through the construction of new restaurants and selective acquisitions, and to
increase operating efficiencies. Based on our historical performance, we believe
that our business strategy represents a low-risk growth plan. Our strategy is
based on the following components:
Leverage Brand Names. We realize significant benefits as a Burger King
franchisee and owner of the Pollo Tropical and Taco Cabana restaurant
concepts. These benefits are the result of the following:
. widespread recognition of the Burger King brand;
. the size and penetration of BKC's advertising;
. BKC's management of the Burger King brand, including new product
development; and
. strong recognition of the Pollo Tropical and Taco Cabana brands in their
core markets.
We believe that all three of our brands provide opportunities to expand our
operations both within and outside our existing geographic markets.
Develop Additional Restaurants in Existing Markets. We believe that our
existing markets will continue to provide opportunities for the development of
new restaurants. We look to develop restaurants in those of our markets that
we believe are underpenetrated and where the demographic characteristics are
favorable for the development of new restaurants. Our own staff of real estate
and construction professionals conduct our new restaurant development. Before
developing a new restaurant, we conduct an extensive site selection and
evaluation process which includes in-depth demographic, market and financial
analysis. By selectively increasing the number of restaurants we operate in a
particular market, we can effectively leverage our management, corporate
infrastructure and local marketing while increasing brand awareness.
4
Selectively Acquire Burger King Restaurants. The Burger King system is
highly fragmented in the U.S., with approximately 7,800 Burger King
restaurants being operated by approximately 1,600 franchisees. We expect to
continue to be a buyer of Burger King restaurants and we believe that
opportunities for selective acquisitions will continue in both existing and
new geographic markets as smaller franchisees seek liquidity through the sale
of their restaurants. As one of the largest Burger King franchisees with a
demonstrated ability to effectively integrate acquisitions, we believe that we
are better positioned to capitalize on potential acquisitions than many other
Burger King franchisees. We believe that by acquiring additional Burger King
restaurants, we can achieve operating efficiencies from our ability to improve
controls over restaurant food costs, more efficiently utilize labor, and
achieve economies of scale by leveraging our corporate infrastructure.
Achieve Operating Efficiencies. We maintain a disciplined commitment to
increasing the profitability of our existing restaurants. Our large base of
restaurants, management structure and management information systems enable us
to optimize operating efficiencies for our new and existing restaurants. We are
able to control restaurant and corporate level costs, capture economies of scale
by leveraging our existing corporate infrastructure and use our sophisticated
management information and point-of-sale systems to more efficiently manage our
restaurant operations and to ensure consistent application of operating
controls. Our size enables us to realize benefits with improved bargaining power
for purchasing and cost management activities. We believe these factors provide
the basis for increased unit and Company profitability.
Consistently Provide Superior Customer Satisfaction. Our operations are
focused on achieving a high level of customer satisfaction through quick,
accurate and high-quality customer service. We and BKC have uniform operating
standards and specifications relating to the following:
. quality;
. preparation and selection of menu items;
. maintenance and cleanliness; and
. employee conduct.
We closely supervise the operation of all of our restaurants to help ensure
that standards and policies are followed and that product quality, customer
service and cleanliness of the restaurants are maintained at high levels.
Overview of Restaurant Concepts
Burger King Restaurants
"Have It Your Way"(R) service, flame-broiling, generous portions and
competitive prices characterize the Burger King system marketing strategy.
Burger King restaurants feature flame-broiled hamburgers, the most popular of
which is the WHOPPER(R) sandwich. The WHOPPER is a large, flame-broiled
hamburger on a toasted bun garnished with a combination of mayonnaise,
lettuce, onions, pickles and tomatoes. The basic menu of all Burger King
restaurants consists of hamburgers, cheeseburgers, chicken and fish
sandwiches, breakfast items, french fried potatoes, salads, shakes, desserts,
soft drinks, milk and coffee. In addition, promotional menu items are
introduced periodically for limited periods. BKC continually seeks to develop
new products as it endeavors to enhance the menu and service of Burger King
restaurants.
Our Burger King restaurants are typically open seven days per week with
minimum operating hours from 6:00 AM to 11:00 PM. Burger King restaurants are
quick-service restaurants of distinctive design and are generally located in
high-traffic areas throughout the U.S. We believe that the primary competitive
advantages of Burger King restaurants are:
. convenience of location;
. quality;
. price; and
. speed of service.
Burger King restaurants appeal to a broad spectrum of consumers, with multiple
day-part meal segments that appeal to different groups of consumers.
5
Our Burger King restaurants consist of one of several building types with
various seating capacities. BKC's traditional restaurant contains
approximately 2,800 to 3,200 square feet with seating capacity for 90 to 100
customers, has drive-thru service windows, and has adjacent parking areas. At
December 31, 2000, 340 of our 355 Burger King restaurants were freestanding.
Pollo Tropical Restaurants
Pollo Tropical restaurants combine high quality, distinctive taste and an
inviting tropical setting with the convenience and value pricing of quick-
service restaurants. Pollo Tropical restaurants offer a unique selection of
food items reflecting tropical and Caribbean influences and feature grilled
fresh chicken marinated in a proprietary blend of tropical fruit juices and
spices. Chicken is grilled in view of customers on large, custom, open-flame
grills. Pollo Tropical broadened its selection in 1996 by adding "island" pork
to the menu, and in 1997 by adding a line of "TropiChops(R)," a bowl
containing rice, black beans, chicken or pork and other ingredients at an
attractive price point to the menu. In 1998, grilled shrimp was added to the
menu. We also feature an array of distinctive and popular side dishes,
including black beans and rice, yucatan fries and sweet plantains, as well as
more traditional menu items such as french fries, corn, and tossed and caesar
salads. We also offer freshly prepared tropical desserts, such as flan and
tres leches.
Our Pollo Tropical restaurants incorporate high ceilings, large windows,
tropical plants, light colored woods, decorative tiles, a visually distinctive
exterior entrance tower, lush landscaping and other signature architectural
features, all designed to create an airy, inviting and tropical atmosphere. We
design our restaurants to conveniently serve a high volume of customer traffic
while retaining an inviting, casual atmosphere.
Our Pollo Tropical restaurants are generally open for lunch and dinner seven
days per week from 11:00 AM to 10:00 PM (11:00 PM on Friday and Saturday) and
offer sit-down dining, counter take-out and drive-thru service to accommodate
the varied schedules of families, business people, students and other time-
sensitive individuals. Our menu offers a variety of portion sizes to
accommodate a single customer, family or large group. Pollo Tropical
restaurants also offer an economical catering menu, with special prices and
portions to serve 25 to 500 persons.
Our Pollo Tropical restaurants typically provide seating for 80 to 100
customers and provide drive-thru service. All of our Pollo Tropical
restaurants are free-standing buildings except for three locations contained
within strip shopping centers and one street-level storefront location in an
office building. Our current prototypical freestanding Pollo Tropical
restaurant ranges between 2,800 and 3,200 square feet in size.
Taco Cabana
Taco Cabana restaurants feature generous portions of fresh, premium quality
Tex-Mex and traditional Mexican style food at an exceptional value. The
restaurants provide interior, semi-enclosed and patio dining areas with a
festive Mexican theme. Menu items include flame-grilled beef and chicken
fajitas served on sizzling iron skillets, "Chicken Flameante"(TM) (a marinated
rotisserie chicken), quesadillas, traditional Mexican and American breakfasts,
other Tex-Mex dishes and fresh, hot flour tortillas. The menu items offered at
our Taco Cabana restaurants are prepared at that restaurant from fresh meat
and produce ingredients delivered by suppliers to most restaurants three times
each week. Taco Cabana is committed to differentiating itself from other quick
service competitors by utilizing fresh, high quality ingredients as well as
the preparation of most items "from scratch". In order to simplify operations
and provide a more consistent product, Taco Cabana also uses a number of pre-
prepared items.
Taco Cabana restaurants average approximately 3,200 square feet (exclusive
of the exterior dining area) and provide seating for approximately 80
customers, with additional patio seating for approximately 50 customers. Taco
Cabana restaurants are typically distinctive in appearance, conveying a
Mexican theme and permitting easy identification by passing motorists. During
1997, Taco Cabana initiated a re-image program for its existing restaurants
which incorporated many of the features of a new prototype restaurant design
introduced in 1996 and utilized for subsequent restaurant development.
Substantially all of Taco Cabana's restaurants have been
6
converted or re-imaged over the past three years. The new prototype features
rounded fronts, as well as Southwest accents such as a clay tile roof, heavy
wood beams and a trellis that shades the patio area, and add the use of bright
colors outside and inside, including colored tiles, doors, windows and
awnings. Corrugated metal wall panels, aged wood finishes and distressed
stainless steel counter tops are featured inside, all of which are intended to
replicate an old Mexican cafe.
Taco Cabana's interior restaurant design enables customers to observe fresh
fajitas cooking on a charcoal grill, a machine making fresh, hot flour
tortillas, Chicken Flameante(TM) rotating on spits and the preparation of
other food items. Upon entry, the customer places an order selected from an
overhead menu board, proceeds down a service line to where the order is picked
up, and then passes a Salsa Bar en route to the dining area. The distinctive
Salsa Bar offers Taco Cabana customers freshly prepared, authentic Tex-Mex
ingredients such as Salsa de Fuego (made with charred peppers and tomatoes,)
pico de gallo and salsa (all "made from scratch" throughout the day at each
restaurant), cilantro, pickled jalapeno slices, crisp chopped onions, and
fresh sliced limes. According to the season, time of day and personal
preference, our customers can choose to dine in the restaurant's brightly
colored and festive interior dining area or in either the semi-enclosed or
outdoor patio areas.
We operate our Taco Cabana restaurants to enable customers to dine-in or
take-out, as they choose. In most cases, the restaurants also provide the
convenience of drive-thru windows which, in the aggregate, accounted for 42.4%
of restaurant sales for the year ended December 31, 2000. A majority of our
Taco Cabana restaurants are open 24 hours a day. This strategy is continually
evaluated for economic viability on a restaurant by restaurant basis.
Restaurant Economics
Burger King Restaurants
For fiscal 2000, our Burger King restaurants generated average sales of
$1,055,000 and average restaurant level EBITDA of $174,000. Drive-thru sales
contributed 57.4% of restaurant sales. In all but 19 locations, which are
primarily in malls, our Burger King restaurants have a drive-thru window.
Percentages of total sales by day part were as follows for the year ended
December 31, 2000:
Breakfast........................................................ 14.7%
Lunch............................................................ 33.3%
Dinner........................................................... 27.0%
Late Afternoon & Late Night Snacks............................... Remainder
The average sales transaction was $4.16 in 2000.
The cost of the franchise fee, equipment, seating, signage and other
interior costs of a standard new Burger King restaurant is approximately
$265,000 (excluding the cost of the land, building, and site improvements).
The cost of land generally ranges from $200,000 to $500,000. The cost of
building and site improvements generally ranges from $500,000 to $550,000. We
typically lease the real estate associated with our Burger King restaurants.
Pollo Tropical Restaurants
For the year ended December 31, 2000, our Pollo Tropical restaurants
generated average sales of $1,951,000 and average restaurant level EBITDA of
$499,000. Pollo Tropical restaurant sales are well balanced by method of
service and by day part. For 2000, drive-thru sales contributed 37.3% of
restaurant sales and take-out sales accounted for 23.2% of total sales.
Percentages of total sales by day part are as follows:
Lunch................................................................ 45.8%
Dinner............................................................... 54.2%
The average sales transaction was $7.95 in 2000.
7
The cost of equipment, seating, signage and other interior costs of a
standard new Pollo Tropical restaurant is approximately $240,000 (excluding
the cost of the land, building, and site improvements). The cost of land
generally ranges from $450,000 to $700,000. The cost of building and site
improvements generally ranges from $550,000 to $650,000. We typically lease
the real estate associated with our Pollo Tropical restaurants.
Taco Cabana Restaurants
Although not included in our results for the entire year, for the year ended
December 31, 2000, Taco Cabana generated average restaurant sales of
$1,510,000 and average restaurant level EBITDA of $329,000.
The majority of our Taco Cabana restaurants are open 24 hours a day. Sales
at the restaurants are well balanced by day part. Percentages of total sales
by day part are as follows:
Breakfast........................................................ 15.2%
Lunch............................................................ 22.1%
Dinner........................................................... 23.6%
Late Night (9pm to 2am).......................................... 17.0%
Other (2pm to 5pm and 2am to 6:30am)............................. Remainder
The average sales transaction was $6.29 in 2000.
The cost of equipment, seating, signage and other interior costs of a
standard new Taco Cabana restaurant is approximately $400,000 (excluding the
cost of the land, building and site improvements). The cost of the land
generally ranges from $450,000 to $750,000. The cost of building and site
improvements generally ranges from $550,000 to $650,000. We will typically
lease the real estate associated with our Taco Cabana restaurants.
Restaurant Locations
Burger King
The following table sets forth the locations of the 355 Burger King
restaurants we operated at December 31, 2000.
Total
State Restaurants
----- -----------
Connecticut.................................................... 1
Indiana........................................................ 5
Kentucky....................................................... 10
Maine.......................................................... 5
Massachusetts.................................................. 2
Michigan....................................................... 27
New Jersey..................................................... 2
New York....................................................... 153
North Carolina................................................. 38
Ohio........................................................... 75
Pennsylvania................................................... 14
South Carolina................................................. 22
Vermont........................................................ 1
---
Total........................................................ 355
===
8
Pollo Tropical
As of December 31, 2000, we owned and operated 49 Pollo Tropical
restaurants, all located in Florida. In addition, of our 24 franchised Pollo
Tropical restaurants, 19 are located in Puerto Rico, three are located in
Ecuador and Aruba, El Salvador and Miami each have one location.
Taco Cabana
As of December 31, 2000, we owned and operated 117 Taco Cabana restaurants
and franchised 10 Taco Cabana restaurants located in the following states:
Owned Franchised Total
----- ---------- -----
Texas............................................... 106 6 112
Oklahoma............................................ 8 -- 8
Arizona............................................. 3 -- 3
New Mexico.......................................... -- 2 2
Georgia............................................. -- 1 1
Indiana............................................. -- 1 1
--- --- ---
Total............................................. 117 10 127
=== === ===
Operations
Management Structure
We conduct substantially all of our executive management, finance, marketing
and operations support functions from our corporate headquarters in Syracuse,
New York, or our Pollo Tropical headquarters in Miami, Florida or our Taco
Cabana headquarters in San Antonio, Texas. With respect to our Burger King
operations, we currently have five regional directors with an average of 26
years of restaurant industry experience, three of whom are vice presidents.
Each of our regional directors is responsible for the operations of our Burger
King restaurants in their assigned region. We have employed four of our
regional directors for over 20 years. Forty-eight district supervisors support
the regional directors. Our district supervisors have an average of 16 years
of restaurant management experience in the Burger King system. The management
structure for Pollo Tropical consists of a Vice President of Operations who is
supported by five district supervisors. The management structure of Taco
Cabana consists of two regional vice presidents supported by 17 district
supervisors.
For each of a our brands a district supervisor is responsible for the direct
oversight of the day-to-day operations of an average of seven restaurants.
Typically, district supervisors have previously served as restaurant managers
at one of our 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. Typically, our
restaurants are staffed with hourly employees who are supervised by a salaried
manager and two or three salaried assistant managers.
Training
We maintain a comprehensive training and development program for all of our
personnel and provide both classroom and in-restaurant training for our
salaried and hourly personnel. The program emphasizes system-wide operating
procedures, food preparation methods and customer service standards for each
of the concepts. In addition, BKC's training and development programs are also
available to us.
Management Information Systems
We believe that our management information systems, which are more
sophisticated than those typically utilized by smaller Burger King franchisees
and other small quick-service restaurant operators, provide us with the
ability to more efficiently manage our restaurants and to ensure consistent
application of operating controls
9
throughout the chain. We also believe that our size affords us the ability to
maintain an in-house staff of information and restaurant systems professionals
dedicated to continuously enhancing our existing systems. These capabilities
also allow us to quickly integrate newly acquired restaurants and to leverage
our investments in information technology over a large base of restaurants.
Both our Burger King and Taco Cabana restaurants employ state-of-the-art,
touch-screen point-of-sale (POS) that are designed to facilitate accuracy and
speed of order taking. These systems are user-friendly, require limited cashier
training and improve speed-of-service through the use of conversational order-
taking techniques. The POS systems are integrated with PC-based applications at
the restaurant that are designed to facilitate financial and management control
of our restaurant operations.
Our restaurant systems provide daily tracking and reporting of traffic
counts, menu item sales, labor and food data, and other key operating
information for each restaurant. We electronically communicate with our
restaurants on a daily basis enabling us to collect this information for use in
our corporate systems. Our Corporate and divisional administrative headquarters
house client/server-based systems that support all of our accounting, operating
and reporting systems. We also operate a 24-hour, 7-day help desk at our
Corporate headquarters which enables us to provide systems and operational
support to our Burger King restaurant operations as required. Among other
things, our Burger King and Taco Cabana restaurant information systems provide
us with the ability to:
. monitor labor utilization and sales trends on a real-time basis at each
restaurant enabling the store manager to effectively manage to corporate
established labor standards on a timely basis;
. minimize shrinkage using restaurant-level inventory management and
centralized standard costing systems;
. analyze sales and product mix data and help restaurant management
personnel forecast production levels;
. systematically communicate payroll transactions and human resource data
to our divisional administrative offices for efficient centralized
management of labor costing and payroll processing;
. employ centralized control over price, menu and inventory management
activities at the restaurant utilizing the remote access capabilities of
our systems;
. take advantage of electronic commerce including our ability to place
orders with suppliers and to integrate detailed invoice, receiving and
product data with our inventory and accounting systems;
. provide analyses, reporting and tools to enable all levels of management
to review a wide-range of financial and operating data; and
. monitor day-part drive-thru speed of service at each of our restaurants.
Information from our systems is available daily to the restaurant manager,
who is expected to react quickly to trends or situations in his or her
restaurant. Our district supervisors also receive daily information for all
restaurants under their control and have access to key operating data on a
remote basis using our corporate intranet and laptop computers. Each management
level, from the restaurant manager through senior management, monitors key
restaurant performance indicators.
Our Pollo Tropical restaurants utilize in-store computerized point-of-sale
systems to control cash, collect customer and sales statistics, and to track
labor and other restaurant data. We believe that we have the ability to
continue improving the operating efficiencies of the Pollo Tropical restaurants
as we deploy systems and technology with capabilities similar to those in our
Burger King and Taco Cabana restaurants. Since our acquisition of Pollo
Tropical in 1998, we have begun to establish the foundation for these systems
by installing new versions of POS software, implementing recipe files to
capture inventory costing data, and by the initial introduction of PC-based
applications for the restaurant managers.
Site Selection
We believe that the location of our restaurants is a critical component of
each restaurant's success. We evaluate potential new development sites based
upon accessibility, visibility, costs, surrounding traffic patterns,
10
competition and demographic characteristics. Our senior management determines
the acceptability of all acquisition and new development sites, based upon
analyses prepared by our real estate professionals and operations personnel.
Burger King Franchise Agreements
Each of our Burger King restaurants operates under a separate franchise
agreement. Our franchise agreements with BKC 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. Our franchise
agreements with BKC generally provide for an initial term of 20 years and
currently have an initial fee of $50,000. BKC may grant a successor franchise
agreement (renewal) for an additional 20-year term, provided the restaurant
meets the then current BKC operating standards. The successor BKC franchise
agreement fee is currently $50,000. Our franchise agreements with BKC are non-
cancelable except for failure to abide by their terms. We are not in default
under our franchise agreements with BKC.
In order to obtain a successor franchise agreement with BKC, a franchisee is
typically required to make capital improvements to the Burger King restaurant
to bring the Burger King restaurant up to BKC's then-current design standards.
The required capital improvements will vary widely depending upon the magnitude
of the required changes and the degree to which we have made interim changes to
the restaurant. Our average remodeling costs for the 105 restaurants we have
remodeled in the past three years was approximately $258,000. We have four
franchise agreements expiring in 2001, five franchise agreements expiring in
2002 and seven franchise agreements expiring in 2003.
We believe that we enjoy a good relationship with BKC and that we will
satisfy BKC's normal successor franchise agreement policies. Accordingly, we
believe that successor franchise agreements with BKC will be granted on a
timely basis by BKC at the expiration of our existing franchise agreements with
BKC. Historically, BKC has granted each of our requests for a successor
franchise agreement for our restaurants. We cannot assure you, however, that
BKC will continue to grant each of our requests for successor franchise
agreements.
In addition to the initial franchise fee, we currently pay a monthly royalty
of 3 1/2% of the gross revenues from our Burger King restaurants to BKC. We
currently also contribute 4% of gross revenues from our Burger King restaurants
to fund BKC's national and regional advertising. BKC engages in substantial
national advertising and promotional activities and other efforts to maintain
and enhance the Burger King brand. We supplement BKC's marketing with local
advertising and promotional campaigns. See "Business--Advertising and
Promotion."
Our franchise agreements with BKC do not give us exclusive rights to operate
a Burger King restaurant in any defined territory. We believe that BKC
generally seeks to ensure that newly granted franchises do not materially
adversely affect the operations of existing Burger King restaurants. There is
no assurance that a franchise given by BKC to a third party will not adversely
effect any single Burger King restaurant that we operate.
We are required to obtain BKC's consent before we acquire or develop new
Burger King restaurants. BKC also has the right of first refusal to purchase
any Burger King restaurant that is being offered for sale by a franchisee. To
date, BKC has approved all of our acquisitions of Burger King restaurants,
except for two instances when it exercised its right of first refusal.
Franchise Fee Changes and Early Successor Program
On July 1, 2000, BKC increased its royalty and franchise fees for most new
restaurants. The franchise fee for new restaurants increased from $40,000 to
$50,000 for a 20-year agreement and the royalty rate will increase from 3 1/2%
of sales to 4 1/2% of sales, after a transitional period. For franchise
agreements entered into during the transitional period, the royalty rate will
be 4% of sales for the first 10 years and 4 1/2% of sales for the balance of
the term.
11
For new restaurants, the transitional period will be from July 1, 2000
through June 30, 2003. As of July 1, 2003, the royalty rate will become 4 1/2%
of sales for the full term of new restaurant franchise agreements. For renewals
of existing franchise agreements, the transitional period will be from July 1,
2000 through June 30, 2001. As of July 1, 2001, existing restaurants that renew
their franchise agreements will pay a royalty of 4 1/2% of sales for the full
term of the renewed agreement. The advertising contribution will remain at 4%
of sales. The royalty rates under existing franchise agreements are not
affected by these changes until the time of renewal.
BKC is also offering a voluntary program to encourage franchisees to
accelerate the renewal of their franchise agreements. Franchisees that elect to
participate in the Early Successor Incentive Program will be required to make
capital improvements in the restaurants to bring them up to BKC's current
design image. Franchise agreements entered into under this program will have
special provisions regarding the royalty rates including a reduction in the
royalty for a period of time.
For commitments made prior to July 1, 2000 to renew franchise agreements
under BKC's Fiscal 2000 early successor program, the renewal franchise fee
remained at $40,000. The royalty rate under this program will remain at 3 1/2%
through March 31, 2002, at which time it will then be reduced to 2 3/4% for the
following five-year period. The royalty rate reverts back to 3 1/2% effective
April 1, 2007 for the remainder of any of the initial franchise term, and then
increases to 4 1/2% for the balance of the new agreement. The capital
improvements required in conjunction with the successor franchise renewal under
this program must be completed by December 31, 2001.
For commitments made between July 1, 2000 and June 30, 2001 to renew
franchise agreements under BKC's Fiscal 2001 early successor program, the
renewal franchise fee will increase to $50,000. The royalty rate will remain at
3 1/2% through September 30, 2002, at which time it will be reduced to 3% for a
three-year period. The royalty rate reverts back to 3 1/2% effective October 1,
2005 for the remainder of any of the initial franchise term, and then increases
to 4 1/2% for the balance of the new agreement. The capital improvements
required in conjunction with the successor franchise renewal under this program
must be completed by June 30, 2002.
After evaluating the applicable royalty reductions and the acceleration of
the required capital improvements, we elected to renew 45 franchise agreements
under BKC's Fiscal 2000 early successor program. The capital investments and
franchise fees related to these 45 renewals were $6.7 million in 2000 and are
estimated to be approximately $8.2 million in 2001. It is our intention to
elect to renew 15 franchise agreements under the Fiscal 2001 early successor
program. The capital investments and franchise fees for these 15 renewals are
estimated to be approximately $6 million and will be invested in 2002.
Transformation Initiatives
BKC has initiatives underway to encourage and facilitate franchisees'
investment in certain upgrades to their restaurants. These transformation
initiatives include the installation of new signage with the new Burger King
logos, and where necessary, expenditures for painting, parking lot maintenance
and landscaping. In addition, BKC is in the process of approving a drive-thru
equipment package. BKC is also evaluating potential changes to the kitchen
including a new flexible broiler capable of cooking at different speeds and
temperatures facilitating the preparation of a wider variety of menu items. By
an amendment to our franchise agreements, we have committed:
. to install the new signage in substantially all of our restaurants by
December 31, 2001;
. to "spruce up" our restaurants in 2000 to the extent necessary, including
painting, parking lot sealing/striping, and landscaping;
. to install the drive-thru package, once mandated for use by BKC, no later
than December 31, 2001; and
. to roll-out and install the new kitchen initiatives if and when approved
and mandated by BKC.
BKC has also arranged for the Coca-Cola Company and Dr. Pepper/Seven-Up, Inc.
to make funds available to franchisees to be used in connection with the
transformation initiatives. By agreeing to make the investments associated with
the transformation initiatives, we received in 2000 $56,000 per restaurant or
approximately $19.8 million in the aggregate, from the fund established by
Coca-Cola and Dr. Pepper.
12
In 2000 we had total expenditures of $1.6 million related to these
activities. We are presently evaluating, in detail, the nature, timing and
amount of the remaining required capital investments. Excluding expenditures
that relate to changes to the kitchen, which are not yet finalized by BKC, we
estimate total expenditures in 2001 of $5.6 million relating to these
activities.
Pollo Tropical Franchise Operations
At December 31, 2000 Pollo Tropical had five franchisees operating a total of
24 Pollo Tropical restaurants located in Puerto Rico, Ecuador, Aruba, El
Salvador and Miami. We are currently evaluating our international franchising
opportunities.
Our standard franchise agreement under which we franchise Pollo Tropical
restaurants to independent restaurant operators has a 15-year term (with one
15-year renewal option) and provides for an initial payment by the franchisee
of a portion of all franchise fees upon signing of the area development and
franchise agreements, with the remainder due before the opening of the
franchisee's Pollo Tropical restaurants. The franchisee also pays a continuing
royalty, based upon gross sales. The terms and conditions of these franchise
agreements will vary depending upon a number of factors, including:
. the experience and resources of the franchisee;
. the size and density of the covered territory;
. the number of units to be developed;
. the schedule for development;
. capital requirements; and
. fee and royalty arrangements.
All franchisees are required to operate their restaurants in compliance with
certain methods, standards and specifications developed by Pollo Tropical
regarding such matters as menu items, recipes, food preparation, materials,
supplies, services, fixtures, furnishings, decor and signs, although the
franchisee has discretion to determine the prices to be charged to customers.
In addition, all franchisees are required to purchase substantially all food,
ingredients, supplies and materials from suppliers approved by us.
Taco Cabana Franchise Operations
As of December 31, 2000, Taco Cabana had five franchisees operating a total
of 10 Taco Cabana restaurants. Taco Cabana did not enter into any new
franchise agreements during 2000 and does not currently anticipate entering
into any new franchise agreements during 2001.
Advertising and Promotion
The efficiency and quality of advertising and promotional programs can
significantly affect quick-service restaurant businesses. We believe that one
of the major advantages of being a Burger King franchisee is the value of the
extensive regional and national advertising and promotional programs conducted
by BKC. In addition to the benefits derived from BKC's advertising spending,
which according to information published by BKC was approximately $500 million
for fiscal 2000, we supplement BKC's advertising and promotional activities
with local advertising and promotions, including the purchase of additional
television, radio and print advertising. Our concentration of restaurants in
many of our markets permits us to leverage advertising in those markets. We
also utilize promotional programs, such as combination value meals and
discounted prices, targeted to our customers, in order to create a flexible
and directed marketing program.
We are generally required to contribute 4% of 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).
13
We believe that brand awareness for our Pollo Tropical restaurants is
extremely high because of the concentration of our restaurants in the south
Florida markets. Pollo Tropical restaurants are clustered in target markets in
order to maximize the effectiveness of our advertising efforts. Pollo Tropical
advertises in both English and Spanish media throughout the year, including
television, radio and print advertising. Pollo Tropical also has marketed at
the individual restaurant level through special price offerings, coupon
discounts and unique promotional and public relations programs. Pollo Tropical
spent approximately 3.9%, 4.0% and 4.1% of restaurant sales on advertising in
fiscal 2000, 1999, and 1998, respectively.
Taco Cabana utilizes an integrated, multi-level marketing approach that
includes periodic chain-wide promotions, direct mail, in-store promotions,
local store marketing and other strategies, including the use of radio
advertising in its major markets. Going forward we also intend to utilize
television advertising. Taco Cabana has spent approximately 3.8% of restaurant
sales on advertising over the past three years.
Supplies and Distribution
We are a member of a national purchasing cooperative created for the Burger
King system known as Restaurant Services, Inc. Restaurant Services is a non-
profit independent cooperative which acts as the purchasing agent for approved
distributors to the system and serves to negotiate the lowest cost for the
Burger King system. We use our purchasing power to negotiate directly with
certain other vendors, to obtain favorable pricing and terms for supplying our
restaurants.
For our Burger King restaurants we are required to purchase all of our
foodstuffs, paper goods and packaging materials from BKC-approved suppliers. We
may purchase non-food items such as kitchen utensils, equipment maintenance
tools and other supplies from any suitable source provided that such items meet
BKC product uniformity standards. All BKC-approved suppliers are required to
purchase foodstuffs and supplies from BKC-approved manufacturers and purveyors.
BKC is responsible for monitoring quality control and supervision of these
manufacturers and conducts regular visits to observe the preparation of
foodstuffs, and to run various tests to ensure that only high quality foodstuffs
are sold to BKC-approved suppliers. 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.
We previously obtained substantially all of our foodstuffs for our Burger
King restaurants (other than bread products which we purchase from local
bakeries), paper goods, promotional premiums and packaging materials from
AmeriServe Food Distribution, Inc. under a supply contract which expired on
May 15, 2000. We have entered into new supply agreements each for terms of up
to five years with four BKC-approved suppliers who are servicing our
restaurants utilizing a total of seven distribution centers in various
geographical regions. The transition to our new suppliers was completed in
June 2000.
For our Pollo Tropical and Taco Cabana restaurants, we have negotiated
directly with local and national suppliers for the purchase of food and
beverage products and supplies to ensure consistent quality and freshness and
to obtain competitive prices. Pollo Tropical and Taco Cabana restaurant's food
and supplies are ordered from approved suppliers and are shipped directly to
the restaurants. Both brands are responsible for monitoring quality control
and supervision of these suppliers and conduct inspections to observe the
preparation and quality of products purchased. For a majority of our Taco
Cabana restaurants, SYGMA Network, Inc. (SYGMA) serves as the primary
distributor of food and beverage products and supplies. SYGMA purchases,
warehouses and distributes products for these restaurants under a distribution
service agreement that expires on August 9, 2003.
If a significant disruption in service or supply by any of our suppliers
were to occur, it could create disruptions in the operations of our
restaurants, which could have a material adverse effect on us.
Quality Assurance
At each of our three brands we focus our operations on achieving a high
level of customer satisfaction with speed, accuracy and quality of service
that is closely monitored. Our senior management and restaurant
14
management staff are principally responsible for ensuring compliance with our
operating policies, and with respect to our Burger King restaurants, BKC's
required operating procedures as well. We have uniform operating standards and
specifications relating to the quality, preparation and selection of menu items,
maintenance and cleanliness of the premises and employee conduct. In order to
help maintain compliance with these operating standards and specifications, we
distribute to our restaurant operations management team detailed reports
measuring compliance with various customer service standards and objectives.
We also operate in accordance with quality assurance and health standards
set by Federal, state and local governmental laws and regulations. These
standards include food preparation rules regarding, among other things,
minimum cooking times and temperatures, maximum time standards for holding
prepared food, food handling guidelines and cleanliness. To maintain these
standards, we conduct unscheduled inspections of our restaurants In addition,
restaurant managers conduct internal inspections for taste, quality, cleanliness
and food safety on a regular basis.
Trademarks
Taco Cabana has registered its principal Taco Cabana logo and design with
the United States Patent and Trademark Office on the Principal Register as a
service mark for its restaurant services. It also has secured or has applied
for state and federal registrations of several other advertising or
promotional marks, including variations of its principal mark and has applied
for registrations in foreign countries of its principal mark and several other
marks.
Pollo Tropical has registered its principal trademarks for "Pollo
Tropical(R)," "TropiGrill(R)" and "TropiChops(R)" in the United States and
presently has applications pending or registrations granted in various foreign
countries in which it conducts business or may conduct business through its
franchise system. In certain foreign countries, Pollo Tropical has been
involved in trademark opposition proceedings to defend its rights to register
certain trademarks. We intend to protect both Taco Cabana and Pollo Tropical
trademarks by appropriate legal action whenever necessary.
Other than the Pollo Tropical and Taco Cabana trademarks, we have no
proprietary intellectual property other than the logo and trademark of Carrols
Corporation. As a franchisee of Burger King, we also have contractual rights
to use certain BKC-owned trademarks, servicemarks and other intellectual
property relating to the Burger King concept.
Government Regulation
Various Federal, state and local laws affect our business, including various
health, sanitation, fire and safety standards. Restaurants to be constructed
or remodeled are subject to state and local building code and zoning
requirements. In connection with the construction and remodeling of our
restaurants, we may incur costs to meet certain Federal, state and local
regulations, including regulations promulgated under the Americans with
Disabilities Act.
We are subject to the Federal 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 our food service personnel are paid at rates related
to the Federal minimum wage and, accordingly, increases in the minimum wage
have increased wage rates at our restaurants.
We are also subject to various Federal, state and local environmental laws,
rules and regulations. We believe that we conduct our operations in
substantial compliance with applicable environmental laws and regulations. In
an effort to prevent and, if necessary, to correct environmental problems, we
conduct environmental audits of proposed restaurant sites and restaurants we
seek to acquire. None of the applicable environmental laws or regulations have
had a material adverse effect on our operations or financial condition.
15
Taco Cabana is subject to state "dram-shop" laws in the states in which
it operates. Dram-shop laws provide a person injured by an intoxicated person
the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated person. Our general liability insurance
covers claims arising under dram-shop laws.
With respect to the franchising of Pollo Tropical and Taco Cabana
restaurants, we are subject to franchise and related regulations in the U.S.
and certain foreign jurisdictions where we offer and sell franchises. These
regulations include obligations to provide disclosure about our two concepts,
the franchise agreements and the franchise system. The regulations also
include obligations to register certain franchise documents in the U.S. and
foreign jurisdictions, and obligations to disclose the substantive
relationship between the parties to the agreements.
Competition
The quick-service and quick-casual restaurant industries are highly
competitive with respect to price, service, location and food quality. In each
of our markets, our restaurants compete with a large number of national and
regional restaurant chains, as well as locally-owned restaurants, offering low
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 us.
We believe that:
. product quality and taste;
. brand recognition;
. convenience of location;
. speed of service;
. menu variety;
. price; and
. ambiance
are the most important competitive factors in the quick-service restaurant
industry and that our three concepts effectively compete in each category.
With respect to our Burger King restaurants, which are part of the quick-
service hamburger segment, our largest competitors are McDonald's and Wendy's.
According to publicly available information, as of December 31, 1999,
McDonald's U.S. operations comprised 12,629 restaurants and had U.S.
systemwide sales for the year ended December 31, 1999 of $19.0 billion. As of
December 31, 1999, Wendy's U.S. operations comprised 4,868 restaurants and had
total U.S. systemwide sales for the year ended December 31, 1999 of $5.3
billion.
In addition to quick-service hamburger restaurant chains, Pollo Tropical's
competitors include national and regional chicken-based concepts, such as
Boston Market and KFC, as well as other types of quick-service restaurants.
Taco Cabana's restaurants compete both with quick-service operators, including
those in the quick-service Mexican segment such as Taco-Bell, and traditional
casual dining Mexican restaurants. We believe that Taco Cabana's combination of
freshly prepared food, distinctive ambiance and superior service help to
distinguish Taco Cabana restaurants from quick-service operators, while Taco
Cabana's price-value relationship enables it to compete favorably with more
expensive casual dining Mexican restaurants.
Employees
At December 31, 2000, we employed approximately 17,200 persons of which
approximately 370 were supervisory and administrative personnel and 16,830
were restaurant operating personnel. None of our employees are covered by
collective bargaining agreements. We believe that our relations with our
employees are good.
16
Item 2. Properties
At December 31, 2000 we owned or leased the following restaurant properties:
Owned Land; Leased land; Leased Land;
Owned Owned Leased
Building Building Building Total
----------- ------------ ------------ -----
Restaurants--operating............. 45 67 409(a) 521
Restaurants under construction..... 3 1 4
Excess properties:
Leased to others................. -- -- 6 6
Available for sale or lease...... 2 -- 5 7
--- --- --- ---
Total restaurant properties........ 50 68 420 538
=== === === ===
- --------
(a) Includes 17 restaurants located in mall shopping centers.
As of December 31, 2000 we leased 94% of our Burger King restaurant
locations, 88% of our Pollo Tropical restaurant locations and 94% of our Taco
Cabana restaurant locations. We typically enter into leases (including options
to renew) from 20 to 40 years. The average remaining term for all leases,
excluding options, is approximately 20 years. Generally, we have been able to
renew leases, upon or prior to their expiration, at the prevailing market
rates.
Most of our Burger King restaurant leases are coterminous with the related
Franchise Agreements. We believe that we generally will be able to renew, at
commercially reasonable rates, the leases whose terms expire prior to the
subject Burger King Franchise Agreements.
Most leases require us, 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.
In addition to the restaurant locations set forth under "Business--
Restaurant Locations," we own an approximately 22,000 square foot building at
968 James Street, Syracuse, New York, which houses our executive offices and
most of our administrative operations for our Burger King restaurants. We
lease five small regional offices that support the management of our Burger
King restaurants. We also lease 13,449 square feet at 7300 North Kendall
Drive, 8th Floor, Miami, Florida, which houses most of our administrative
operations for our Pollo Tropical restaurants. In addition, we lease
approximately 17,200 square feet of office space at 8918 Tesoro Drive, Suite
200, San Antonio, Texas, which houses most of our administrative operations
for our Taco Cabana restaurants.
Item 3. Legal Proceedings
On November 16, 1998, the Equal Employment Opportunity Commission ("EEOC")
filed suit in the United States District Court for the Northern District of
New York, under Title VII of the Civil rights Act of 1964, as amended, against
the Company.
The case is in discovery, with the nominal deadline for written and
documentary discovery having passed and the parties being engaged in an
attempt to resolve discovery disputes. Further discovery may follow, after
which the parties may file motions for summary judgment late in 2001 or early
in 2002. It is too early to make an evaluation of the likelihood of an
unfavorable outcome and/or an estimate of the amount or range of potential
loss. We intend to contest the case vigorously and believe it is without
merit.
We are a party to various other litigation matters incidental to the conduct
of our business. We do not believe that the outcome of any of these matters
will have a material adverse effect on our financial condition or results of
operations and cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None
17
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.
Carrols Holdings Corporation owns 10 shares of common stock of the Company
(representing 100% of the capital stock of the Company).
There were no cash dividends paid during fiscal 2000 and 1999.
Item 6. Selected Financial Data
The selected historical financial information presented below at the end of
and for each of the fiscal years ended December 31, 1996, 1997, 1998, 1999 and
2000 have been derived from the Carrols' audited consolidated financial
statements. Our acquisition of Pollo Tropical was completed in July 1998 and,
as a result, Carrols' audited financial statements as of and for the year
ended December 31, 1998 include the results of operations for Pollo Tropical
since July 10, 1998. Our acquisition of Taco Cabana was completed in December,
2000 and, as a result Carrols' audited financial statements as of and for
the year ended December 31, 2000 include the results of operations for Taco
Cabana since December 20, 2000. The following selected financial information
should be read in conjunction with Carrols' Consolidated Financial Statements
and accompanying Notes as of December 31, 1999 and 2000 and for the fiscal
years ended December 31, 1998, 1999 and 2000 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Year Ended December 31,
---------------------------------------------
1996 1997 1998(1) 1999 2000
-------- -------- -------- -------- --------
(Dollars in thousands)
Statement of Operations Data:
Revenues:
Restaurant sales............. $240,809 $295,436 $416,190 $455,440 $465,862
Franchise revenues........... -- -- 395 1,039 1,039
-------- -------- -------- -------- --------
Total revenues............. 240,809 295,436 416,585 456,479 466,901
Costs and expenses:
Cost of sales................ 68,031 85,542 122,620 137,279 132,646
Restaurant wages and related
expenses.................... 70,894 89,447 121,732 134,125 135,787
Other restaurant operating
expenses.................... 48,683 61,691 82,710 89,093 91,595
Advertising expense.......... 10,798 13,122 18,615 20,618 20,554
General and administrative... 10,387 13,121 19,219 23,102 26,403
Depreciation and
amortization................ 11,015 15,102 20,005 23,898 28,856
Other income(3).............. -- -- -- -- (1,365)
Other costs(2)............... 509 -- -- -- --
-------- -------- -------- -------- --------
Total costs and expenses... 220,317 278,025 384,901 428,115 434,476
-------- -------- -------- -------- --------
Income from operations......... 20,492 17,411 31,684 28,364 32,425
Refinancing expenses........... -- -- 1,639 -- --
Interest expense............... 14,209 14,598 21,068 22,386 23,666
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary loss............ 6,283 2,813 8,977 5,978 8,759
Provision for income taxes..... 3,100 655 4,847 3,826 4,441
-------- -------- -------- -------- --------
Income before extraordinary
loss.......................... 3,183 2,158 4,130 2,152 4,318
Extraordinary loss on
extinguishment of debt, net of
tax benefit................... -- -- 3,701 1,099 350
-------- -------- -------- -------- --------
Net income..................... $ 3,183 $ 2,158 $ 429 $ 1,053 $ 3,968
======== ======== ======== ======== ========
18
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998(1) 1999 2000
-------- -------- --------- -------- ---------
(Dollars in thousands)
Balance Sheet Data (At
Period End):
Total assets............ $138,588 $215,328 $ 318,810 $320,027 $ 476,912
Working capital
deficiency............. (15,004) (18,293) (10,633) (21,696) (25,943)
Total long-term
debt(4)................ 121,265 160,287 261,522 253,494 371,138
Stockholder's equity
(deficit).............. (11,662) 17,447 13,998 15,051 19,019
Other Financial Data:
EBITDA(5)............... $ 31,507 $ 32,513 $ 45,411 $ 52,262 $ 59,916
Adjusted EBITDA(6)...... 32,016 32,513 51,689 52,262 59,916
Adjusted EBITDA margin.. 13.3% 11.0% 12.4% 11.4% 12.8%
Cash provided from
operating activities... 14,322 19,940 23,273 38,173 49,720
Cash used for investing
activities............. (20,238) (95,383) (126,504) (48,935) (190,818)
Cash provided from
financing activities... 5,767 76,381 107,756 5,886 141,909
Capital expenditures,
excluding
acquisitions........... 15,255 18,210 33,295 45,332 36,157
Operating Statistics:
Total number of
restaurants............ 232 335 383 397 521
Burger King:
Number of restaurants
(at end of period)... 232 335 343 352 355
Average number of
restaurants.......... 225 280 339 344 352
Average annual sales
per restaurant....... $ 1,070 $ 1,055 $ 1,124 $ 1,082 $ 1,055
Percentage change in
comparable restaurant
sales(1)............. 3.2% (1.4)% 6.2% (2.5)% (2.5)%
Pollo Tropical(7):
Number of restaurants
(at end of period)... 35 36 40 45 49
Average number of
restaurants.......... 38 35 37 42 46
Average annual sales
per restaurant....... $ 1,677 $ 1,861 $ 1,985 $ 1,952 $ 1,951
Percentage change in
comparable restaurant
sales(1)(7).......... 7.9% 4.2% 7.8% 0.7% 1.7%
Taco Cabana(7):
Number of restaurants
(at end of period)... 104 98 102 109 117
Average number of
restaurants.......... 104 107 101 106 113
Average annual sales
per restaurant....... $ 1,247 $ 1,220 $ 1,402 $ 1,487 $ 1,510
Percentage change in
comparable restaurant
sales(1)(7).......... (2.0)% (2.5)% 6.3% 5.5% 3.4%
- --------
(1) The year ended December 31, 1998 includes 53 weeks. All other years
presented include 52 weeks. The percentage change in comparable restaurant
sales for the year ended December 31, 1998 has been calculated using a
comparable number of weeks from the prior year. The percentage change in
comparable Burger King restaurant sales using the actual number of weeks
in the year ended December 31, 1998 is 7.9%. The percentage change in
comparable restaurant sales is calculated using only those restaurants
that have been open since the beginning of the earliest period being
compared (12 months in the case of Burger King and 18 months for Pollo
Tropical and Taco Cabana)
(2) Other costs represent costs associated with a change in control associated
with the sale of the Company to BIB Holdings.
(3) Other income in 2000 was from the recognition of previously deferred
contractual payments received from Ameriserve Food Distribution, Inc. which
were recognized upon termination of the related supply agreement in 2000.
(4) Includes capital lease obligations and other debt which was $5.5 million
at December 31, 2000.
(5) EBITDA is defined as income before income taxes, interest, depreciation
and amortization, non-cash extraordinary items and non-cash other costs.
EBITDA is presented because we believe it is a useful financial indicator
for measuring a company's ability to service and/or incur indebtedness;
however,
19
EBITDA should not be considered as an alternative to net income as a measure
of operating results or to cash flows as a measure of liquidity in
accordance with generally accepted accounting principles.
(6) Adjusted EBITDA is defined as EBITDA plus $509,000 of other costs in 1996
associated with the sale of the Company to BIB Holdings, refinancing
expenses of $1,639,000 in 1998 and the redemption premium of $4,639,000
associated with the retirement of debt in 1998.
(7) Pollo Tropical was acquired in July, 1998 and Taco Cabana was acquired in
December 2000. Average restaurants, average sales and comparable sales data
for periods prior to the respective acquisition is presented for
informational purposes only. The percentage change in comparable restaurant
sales has been calculated using a comparable number of weeks in all years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Overview
We are one of the largest restaurant companies in the U. S. operating more
than 520 restaurants in 17 states. We are the second largest Burger King
franchisee in the world, and have operated Burger King restaurants since 1976.
As of December 31, 2000, we operated 355 Burger King restaurants located in 13
Northeastern, Midwestern and Southeastern states. We also operate two regional
Hispanic restaurant chains, Taco Cabana and Pollo Tropical, which operate or
franchise more than 200 restaurants.
We have acquired and constructed additional Burger King restaurants
resulting in a 53% increase in the number of Burger King restaurants we operate
since the end of fiscal 1996. Burger King restaurant sales have grown from
$240.8 million in 1996 to $371.3 million in 2000.
We have also expanded our operations during the past three years through
the acquisition of two regional quick-casual Hispanic restaurant chains. In
July 1998, we acquired Pollo Tropical Inc., a restaurant chain featuring grilled
marinated chicken and authentic "made from scratch" side dishes. Since the
acquisition we have opened 14 new Pollo Tropical restaurants and at December 31,
2000 we had 49 company owned Pollo Tropical restaurants in Florida and 24
franchised Pollo Tropical restaurants, primarily in Puerto Rico. Due to our
acquisition of Pollo Tropical in July 1998, our results for the year ended
December 31, 1998 include the operations of Pollo Tropical from July 10, 1998.
On December 19, 2000 we acquired Taco Cabana Inc., a restaurant chain
featuring Tex-Mex style food including flame-grilled beef and chicken fajitas,
quesadillas, and fresh flour tortillas. As of December 31, 2000 we had 117
company owned Taco Cabana restaurants located in Texas, Oklahoma and Arizona and
10 franchised Taco Cabana restaurants. Due to our acquisition of Taco Cabana in
December, 2000 our results for the year ended December 31, 2000 include the
operations of Taco Cabana from December 20, 2000.
We use a 52-53 week fiscal year ending on the Sunday closest to December
31. As a result of our fiscal calendar, the years ended December 31, 2000, 1999
and 1998 contain 52, 52, and 53 weeks, respectively.
Results of Operations
The following table sets forth, for fiscal years 1998, 1999 and 2000,
selected operating results of Carrols as a percentage of restaurant sales:
Year Ended December 31,
----------------------------------------
1998 1999 2000
----- ----- -----
Restaurant sales:
Burger King 91.6 % 81.8 % 79.7%
Pollo Tropical 8.4 % 18.2% 19.1%
Taco Cabana -- -- 1.2%
----- ----- -----
Total restaurant sales 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 29.5% 30.1% 28.5%
Restaurant wages and related expenses 29.2% 29.4% 29.1%
Other restaurant expenses including advertising 24.3% 24.1% 24.1%
General and administrative 4.6% 5.1% 5.7%
Depreciation and amortization 4.8% 5.2% 6.2%
Other income -- -- (.3)%
----- ----- -----
Income from restaurant operations 7.6 % 6.1 % 6.7%
===== ===== =====
Fiscal 2000 Compared to Fiscal 1999
In addition to our acquisition of Taco Cabana in December 2000, we opened
seven Burger King restaurants and five Pollo Tropical restaurants in 2000. We
also closed four underperforming Burger King restaurants and one Pollo Tropical
restaurant was closed due to a fire. The results of operations for Taco Cabana
from December 20, 2000 are included in our consolidated operating results for
2000. Taco Cabana had restaurant sales for this period of $5.6 million, pretax
income of $.5 million and EBITDA of $.9 million.
Restaurant Sales. Total revenues increased 2.3% from $456.5 million in
1999 to $466.9 in 2000 due to the increase in the number of restaurants we
operate and due to Taco Cabana restaurant sales of $5.6 million since our
acquisition in December 2000. Burger King restaurant sales for the year ended
December 31, 2000 decreased .4% to $371.3 million from $372.7 million in 1999.
Sales at our comparable Burger King restaurants (those units operating for the
entirety of the compared periods) decreased 2.5% due to a decrease in customer
traffic as the 2000 Burger King national promotional activities did not generate
traffic above our 1999 levels. Pollo Tropical restaurant sales increased 7.5%
for the year ended December 31, 2000 to $89.0 million from $82.8 million in
1999. The increase was due primarily to the opening of five new Pollo Tropical
restaurants in 2000 and from a 1.7% sales increase at comparable Pollo Tropical
restaurants.
Operating Costs and Expenses. Cost of sales (food and paper costs), as a
percentage of total restaurant sales, decreased to 28.5% in 2000 from 30.1% in
1999. Burger King cost of sales, as a percentage of Burger King sales, decreased
from 29.1% in 1999 to 27.3% in 2000 and Pollo Tropical cost of sales, as a
percentage of Pollo Tropical sales, decreased from 34.8% in 1999 to 33.2% in
2000. These decreases, in part, are due to improvements in our food cost
management systems and related investments in restaurant information systems.
They also reflect menu price increases since the end of the third quarter of
1999 at our Burger King restaurants and menu price increases in the first
quarter of 2000 of approximately 1% at our Pollo Tropical restaurants. These
decreases are also due to higher supplier rebates for both Burger King and Pollo
Tropical, including the amortization of rebates received in 2000 from our soft
drink suppliers, and due to favorable commodity costs, particularly chicken, for
Pollo Tropical. These factors were offset, in part, by an increase in beef costs
at our Burger King restaurants in 2000.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, decreased from 29.4% in 1999 to 29.1% in 2000. Burger King restaurant
wages and related expenses, as a percentage of Burger King sales, decreased to
30.5% in 2000 compared to 30.8% in 1999. The Burger King decrease was due to
labor efficiencies and to the effects of menu price increases since the end of
the third quarter of 1999. Labor efficiencies at our Burger King restaurants
reflected a 9.3% decrease in average restaurant labor hours due to operating
improvements, partially offset by a 3.3% increase in the hourly labor rate.
Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo
Tropical sales, increased to 23.5% of sales in 2000 from 23.2% of sales in 1999.
This increase, as a percentage of sales, was due in part to higher medical
insurance costs.
Other restaurant operating expenses, including advertising, as a percentage
of total restaurant sales, were 24.1% in both 1999 and 2000. Burger King
restaurant operating expenses were 25.6% of Burger King sales in both 1999 and
2000 due to slight increases in utility and maintenance costs being offset by
lower promotional advertising expenditures. Pollo Tropical other restaurant
expenses increased slightly from 17.6% of Pollo Tropical sales in 1999 to 17.7%
of Pollo Tropical sales in 2000 due primarily to higher utility costs.
Administrative expenses, as a percentage of total restaurant sales,
increased from 5.1% in 1999 to 5.7% in 2000. This increase is due in part to
lower sales volumes in our Burger King restaurants in 2000, increased levels
of information systems support associated with the installation of restaurant
point-of-sale systems and increases in management incentives.
EBITDA. EBITDA increased from $52.3 million in 1999 to $59.9 million in
2000. As a percentage of total revenues, EBITDA increased from 11.4% in 1999 to
12.8% in 2000 as a result of the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$5.0 million in 2000 compared to 1999 due primarily to our capital expenditures
of $81.5 million since the beginning of 1999.
Interest Expense. Interest expense was $23.7 million in 2000 compared to
$22.4 million in 1999. The increase in 2000 was due in part to higher interest
rates in 2000 compared to 1999 and additional interest associated with the
acquisition of Taco Cabana in December 2000. Our average weighted interest rate
was 9.4% in 2000 compared to 8.9% in 1999.
Income Taxes. The provision for income taxes of $4.4 million in 2000 is
based on an estimated effective income tax rate for 2000 of 50.7%. This rate is
higher than the Federal statutory tax rate due to state franchise and income
taxes and the non-deductible amortization of certain franchise rights and
intangible assets pertaining to our acquisitions.
Net Income. Net income was $3,968,000 in 2000 compared to $1,053,000 in
1999. Net income in 2000 includes an extraordinary loss of $350,000, which is
net of income taxes, for the write-off of unamortized debt issue costs related
to the refinancing of our senior credit facility. Net income in 1999 includes
an extraordinary loss of $1,099,000, which is net of income taxes, for the
write-off of unamortized debt issue costs related to the refinancing of our
senior credit facility in 1999.
Fiscal 1999 Compared to Fiscal 1998
The results of operations and cash flows for the years ended December 31,
1999 and 1998 include 52 and 53 weeks, respectively. During 1999, we opened
eight Burger King restaurants, acquired six Burger King restaurants and closed
five underperforming Burger King restaurants. Also during 1999, we opened five
Pollo Tropical restaurants.
Restaurant Sales. Total revenues increased 9.6% from $416.6 million in
1998 to $456.5 in 1999 due to the increase in the number of restaurants and due
to the inclusion of Pollo Tropical for a full year in 1999. Burger King
restaurant sales for the year ended December 31, 1999 decreased 2.2% to $372.7
million from $381.0 million in 1998 due, in part, to the additional week
included in 1998. Sales at our 299 comparable Burger King restaurants (those
units operating for the entirety of the compared periods) decreased 2.5% in
1999, using a comparable number of weeks from the year ended December 31, 1998
due to a decrease in customer traffic. In 1999, Burger King national
promotional activities did not generate a similar level of incremental traffic
as in 1998. Pollo Tropical restaurant sales for the year ended December 31,
1999 were $82.8 million as compared to $35.1 million in 1998, due to our
acquisition of Pollo Tropical in July 1998. Compared to the twelve months ended
December 31, 1998, 1999 Pollo Tropical sales increased 13.8%, in total, and 0.7%
on a comparable store basis.
Operating Costs and Expenses. Cost of sales, as a percentage of sales,
were 30.1% in 1999 compared to 29.5% in 1998. The increase in 1999 was due to
higher food costs as a percentage of sales, at our Pollo Tropical restaurants,
relative to our Burger King restaurants, and due to the inclusion of Pollo
Tropical in all of 1999 operating results as compared to six months in 1998.
This increased total cost of sales in 1999 by 0.5%. Pollo Tropical's cost of
sales, as a percentage of sales, were 34.8% in 1999 and 35.1% in 1998. For our
Pollo Tropical restaurants lower food costs in 1999, as a percentage of sales,
were primarily due to a 3.5% decrease in whole chicken prices. Cost of sales,
as a percentage of sales, at our Burger King restaurants were 29.1% in 1999 and
28.9% in 1998. This increase was due to a 3.7% increase in beef costs over 1998
levels and higher promotional discounts in 1999, as compared to 1998, which were
offset, in part, by menu price increases of approximately 1% of sales late in
the third quarter of 1999.
Restaurant wages and related expenses, as a percentage of sales, increased
from 29.2% in 1998 to 29.4% in 1999. For our Burger King restaurants,
restaurant wages and related expenses, as a percentage of sales, were 30.8% in
1999 compared to 29.8% in 1998. The Burger King percentage increase was due to
a 3.7% increase in productive hourly wage rates in 1999 and the effect of lower
Burger King sales on fixed management costs, offset in part, by menu price
increases in 1999. The effect of the Burger King increase, as a percentage of
total Company sales, was partially offset by the inclusion of Pollo Tropical in
all of 1999 operating results as compared to six months in 1998. Pollo
Tropical's restaurant wages and related expenses, as well as other operating
expenses, are lower than those of our Burger King restaurants due to Pollo
Tropical's higher per unit sales volumes. Pollo Tropical restaurant wages and
related expenses, as a percentage of sales, were 23.2% in 1999 and 23.5% in
1998. This caused a 0.5% decrease, as a percentage of sales, in combined
restaurant wages and related expenses in 1999. The decrease, as a percentage of
sales, for Pollo Tropical for 1999 compared to 1998 was due to lower worker's
compensation payroll insurance.
Other restaurant operating expenses, including advertising, as a percentage
of sales, decreased from 24.3% in 1998 to 24.1% in 1999 due to the inclusion of
Pollo Tropical operating results in all of 1999 as compared to six months in
1998. This caused a 0.5% decrease, as a percentage of sales, in combined other
restaurant operating expenses in 1999. This decrease was partially offset by
higher occupancy costs in 1999, as a percentage of sales, due to the effect of
lower sales volumes on fixed costs at our Burger King restaurants and due to the
sale and leaseback of eight Burger King and five Pollo Tropical restaurant
properties in 1999.
Administrative expenses, as a percentage of sales, increased from 4.6% in
1998 to 5.1% in 1999. This increase is due to lower sales volumes in our Burger
King restaurants in 1999 and administrative functions acquired in the July 1998
acquisition of Pollo Tropical.
EBITDA. EBITDA increased from $45.4 million in 1998 to $52.3 million in
1999. Included in EBITDA for the year ended December 31, 1998 are refinancing
expenses of $1.6 million and a redemption premium of $4.6 million associated
with the retirement of debt. EBITDA, as adjusted for these items, was $51.7
million for the year ended December 31, 1998. As a percentage of total
revenues, EBITDA, as adjusted, decreased from 12.4% in 1998 to 11.4% in 1999 as
a result of the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$3.9 million in 1999 compared to 1998 due to the increase in goodwill, purchased
intangibles and other fixed assets associated with the purchase of Pollo
Tropical in July 1998. This increased depreciation and amortization by $2.1
million in 1999 compared to 1998. The remainder of the increase is due to
primarily to new restaurant construction and remodeling of Burger King
restaurants in 1998 and 1999.
Interest Expense. Interest expense was $22.4 million in 1999 compared to
$21.1 million in 1998. The increase in 1999 was due to higher average debt
balances in 1999 compared to 1998 due to the acquisition of Pollo Tropical in
July 1998, offset, in part, by the favorable impact of refinancing our senior
subordinated notes in the fourth quarter of 1998. Our average weighted interest
rate was 8.9% in 1999 compared to 9.9% in 1998.
Income Taxes. The provision for income taxes of $3.8 million in 1999 is
based on an estimated effective income tax rate for 1999 of 64.0%. This rate is
higher than the Federal statutory tax rate due to state franchise and income
taxes, non-deductible amortization of certain franchise rights and intangible
assets pertaining to our acquisitions.
Net Income. Net income was $1,053,000 in 1999 compared to $429,000 in
1998. Net income in 1999 includes an extraordinary loss of $1,099,000, which is
net of tax, for the write-off of unamortized debt issue costs related to the
Company's previous senior credit facility. Net income in 1998 includes an
extraordinary loss of $3,701,000, which is net of tax pertaining to the
redemption of our 11.5% senior notes.
Liquidity and Capital Resources
We do not have significant receivables or inventory and receive trade credit
based upon negotiated terms in purchasing food products and other supplies. We
are able to operate with a substantial working capital deficit because:
. restaurant operations are conducted on a cash basis;
. rapid turnover results in a limited investment in inventories; and
. cash from sales is usually received before related accounts for food,
supplies and payroll become due.
Our cash requirements arise primarily from:
. the need to finance the opening and equipping of new restaurants;
. ongoing capital reinvestment in our existing restaurants;
. the acquisition of restaurants; and
. servicing our debt.
Our 2000 operations generated approximately $49.7 million in cash, compared
to $38.2 million during 1999 and $23.3 million in 1998.
Our capital expenditures included the acquisitions of Taco Cabana for $154.7
million in December 2000 and Pollo Tropical in July 1998 for approximately $95
million. We also acquired six Burger King restaurants in 1999 and two Burger
King restaurants in 1998 for a total of $4.4 million.
Capital expenditures, excluding acquisitions, totaled $36.2 million in 2000
as compared to $45.3 million in 1999 and $33.3 million in 1998. Capital
expenditures in 2000 included construction costs and related equipment for seven
Burger King and five Pollo Tropical restaurants opened in 2000. Capital
expenditures in 1999 included construction costs and related equipment for
eleven new Burger King restaurants, eight that were opened in 1999, and five
Pollo Tropical restaurants opened in 1999. Capital expenditures in 1998
included construction costs for twelve new Burger King restaurants, eleven that
were opened in 1998, and for five new Pollo Tropical restaurants, four of which
were open in 1998.
Our capital expenditures also include remodeling costs and capital
maintenance projects for the ongoing reinvestment and enhancement of our
restaurants. Expenditures that relate to remodeling our Burger King restaurants
have totaled $30.3 million since the beginning of 1998. These expenditures have
been made to enhance the operations of the 101 Burger King restaurants that we
have acquired since the beginning of 1997 and to reinvest in properties
associated with the renewal of franchises that were scheduled to expire. In 2000
we elected to renew 45 franchise agreements under BKC's Fiscal 2000 early
successor program. The capital investments and franchise fees related to these
45 renewals were $6.7 million in 2000 and are estimated to be approximately $8.2
million in 2001. It is also our intention to renew 15 franchise agreements under
BKC's Fiscal 2001 early successor program. The capital investments and franchise
fees for these 15 renewals are estimated to be approximately $6 million and will
be invested in 2002.
In 2000 we completed the installation of restaurant point-of sale and
management systems for our Burger King restaurants, which began in 1999. In
1999, we substantially completed the upgrade of corporate information and
decision support systems for our Burger King restaurants. These projects have
resulted in incremental capital investments that totaled $5.7, $11.9 and $4.2
million in 2000, 1999 and 1998, respectively.
In December 2000 we generated $29.5 million from the sale and leaseback of 25
Taco Cabana restaurant properties. The proceeds were used to reduce the debt
associated with the Taco Cabana acquisition. During 1999, we generated $14.8
million from the sale and leaseback of eight Burger King restaurant properties
and five Pollo Tropical restaurant properties. During 1998, the sale and
leaseback of two Burger King restaurant properties and 13 Pollo Tropical
restaurant properties generated $20.5 million. The proceeds from the 1999 and
1998 transactions were used to reduce outstanding debt. We paid dividends to our
parent of $3.9 million in 1998 that included $3.6 million for the redemption of
its preferred stock.
At December 31, 2000, we had total outstanding borrowings of $371.1 million
comprised of the $170.0 million principal amount of outstanding senior
subordinated notes, borrowings under our senior credit facility of $195.6
million and other debt, including capital leases, of $5.5 million. In total, our
borrowings were $117.6 million higher than at December 31, 1999 due primarily to
the debt associated with the acquisition of Taco Cabana, as reduced by the
December 2000 sale leaseback.
On November 24, 1998, we issued $170 million of unsecured senior subordinated
notes that bear interest at an annual rate of 9.5% payable on June 1 and
December 1. The notes mature on December 1, 2008 and are redeemable, at our
option, in whole or in part on or after December 1, 2003. In connection with the
issuance of the 9.5% senior subordinated notes, we redeemed all of our
outstanding 11.5% senior notes.
On December 19, 2000 we entered into a new senior credit facility with the
Chase Manhattan Bank, as agent and lender, and a syndicate of other lenders.
This new facility was used to finance the acquisition of Taco Cabana and to
refinance outstanding borrowings under our previous credit facility. The new
facility provides for total borrowings of $250 million and consists of a $100
million revolving credit facility (including a standby letter of credit facility
for up to $10 million), a $70 million term loan A facility and an $80 million
term loan B facility. At December 31, 2000, $150 million was outstanding on the
term A and B facilities. At December 31, 2000, $50.3 million was available for
borrowings under our revolving credit facility, after reserving $4.1 million for
letters of credit guaranteed by the facility.
The revolving credit and the term loan A facilities expire on December 31,
2005, however the revolving credit facility is eligible for a one-year extension
upon request and unanimous approval of the lenders. The term loan B facility
expires on December 31, 2007. The term loan A facility is repayable in
increasing quarterly installments through September 30, 2005 with a final
payment of $24.6 million due December 31, 2005. The term loan B facility is
repayable in increasing quarterly installments through September 30, 2007 with a
final payment of $13.8 million due December 31, 2007. Principal repayments
required in 2001 under the term A and B facilities total $7.0 million.
Borrowings under our credit facility bear interest, at our option, of either:
(1) the greater of the prime rate, or the Federal Funds rate plus .50%, plus a
margin ranging from .50% to 1.75% for the revolving credit facility and the
term loan A facility, based on debt to cash flow ratios, and a fixed margin
of 2.5% for the term loan B facility; or,
(2) LIBOR plus a margin ranging from 2.00% to 3.25% for the revolving credit
facility and the term loan A facility, based on debt to cash flow ratios,
and a fixed margin of 4.0% for the term loan B facility.
Both the senior subordinated notes and the senior credit facility contain
certain restrictive covenants, including limitations on certain restricted
payments and dividends. The senior credit facility also requires maintaining
certain financial ratios.
In 2001, we anticipate total capital expenditures of approximately $51
million, excluding the cost of any acquisitions that we may make. These
expenditures include approximately $22 million for the construction of new
restaurants and related real estate applicable to our three restaurant concepts
as follows; $8 million for Burger King; $9.5 million for Taco Cabana and $4.5
million for Pollo Tropical. Also included in 2001 capital expenditures is
approximately $12 million for remodeling existing Burger King restaurants; and
approximately $6 million for expenditures related to Burger King transformation
initiatives, which include new signage and drive-thru improvements. See
Transformation Initiatives on page 12. Burger King remodeling activities in
2001 include approximately $8 million of expenditures related to the Burger King
Early Successor Incentive Program. See Franchise Fee Changes and Early
Successor Program on page 11. Other anticipated restaurant level capital
expenditures in 2001 for ongoing reinvestment in our three concepts total
approximately $10 million; with approximately $5 million applicable to our
Burger King restaurants, $3 million for Taco Cabana and $2 million for Pollo
Tropical.
Interest payments under our senior subordinated notes and other existing
debt obligations represent significant liquidity requirements for us. We believe
that cash generated from our operations and availability under our revolving
credit facility will provide sufficient cash availability to cover our working
capital needs, capital expenditures, planned development and debt service
requirements for fiscal 2001.
Burger King Corporation arranged for the Coca-Cola Company and Dr.
Pepper/Seven-Up, Inc. to provide funding to franchisees in connection with
Burger King's transformation initiatives. We received approximately $19.8
million in 2000 under this arrangement.
Inflation
The inflationary factors that have historically affected our results of
operations include increases in food and paper costs, labor and other operating
expenses. Wages paid in our restaurants are impacted by changes in the Federal
or state hourly minimum wage rates. Accordingly, changes in the Federal or
states hourly minimum wage rate directly affect our labor cost. We and the
restaurant industry typically attempt to offset the effect of inflation, at
least in part, through periodic menu price increases and various cost reduction
programs. However, no assurance can be given that we will be able to offset such
inflationary cost increases in the future.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
To the extent applicable, see Notes 1 and 5 to the Financial Statements
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
There have been no changes in or disagreements with the Company's independent
accountants on accounting or financial disclosures.
20
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information about our directors, executive
officers and other named officers:
Name Age Position with the Company
---- --- -------------------------
Alan Vituli............. 59 Chairman of the Board and Chief Executive Office
Daniel T. Accordino..... 50 President, Chief Operating Officer and Director
Paul R. Flanders........ 44 Vice President--Finance and Treasurer
Joseph A. Zirkman....... 40 Vice President, General Counsel and Secretary
Timothy J. LaLonde...... 44 Vice President--Controller
Nicholas A. Castaldo.... 49 President and Chief Operating Officer--Pollo Tropical
Benjamin D. Chereskin... 42 Director
James M. Conlon......... 33 Director
David J. Mathies, Jr. .. 53 Director
Robin P. Selati......... 34 Director
Clayton E. Wilhite...... 55 Director
Certain biographical information regarding our directors, executive officers
and other officers is set forth below:
Alan Vituli has been Chairman of the Board since 1986 and Chief Executive
Officer since March 1992. He is also a Director and Chairman of the Board of
Holdings. 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 for the last ten years as a partner. Among the positions held by Mr.
Vituli at Coopers & Lybrand was National Director of Mergers and Acquisitions.
Before joining Coopers & Lybrand, Mr. Vituli was employed in a family-owned
restaurant business. From 1993 through our acquisition of Pollo Tropical, Mr.
Vituli served on the Board of Directors of Pollo Tropical.
Daniel T. Accordino has been President, Chief Operating Officer and a
Director since February 1993. Before that, Mr. Accordino served as Executive
Vice President--Operations from December 1986 and as Senior Vice President
from April 1984. From 1979 to April 1984 he was Vice President responsible for
restaurant operations, having previously served as our Assistant Director of
Restaurant Operations. Mr. Accordino has been employed by us since 1972.
Paul R. Flanders has been Vice President--Finance and Treasurer since April
1997. Before joining us, he was Vice President--Corporate Controller of Fay's
Incorporated, a retailing chain, from 1989 to 1997, and Vice President--
Corporate Controller for Computer Consoles, Inc., a computer systems
manufacturer, from 1982 to 1989. Mr. Flanders was also associated with the
accounting firm of Touche Ross & Co. from 1977 to 1982.
Joseph A. Zirkman became Vice President and General Counsel in January 1993.
He was appointed Secretary in February 1993. Before joining us, Mr. Zirkman
was an associate with the New York City law firm of Baer Marks & Upham
beginning in 1986.
21
Timothy J. LaLonde has been Vice President--Controller since July 1997.
Before joining us, he was a controller at Fay's Incorporated, a retailing
chain, from 1992 to 1997. Before that he was a Senior Audit Manager with the
accounting firm of Deloitte & Touche LLP, where he was employed since 1978.
Nicholas A. Castaldo has been the President and Chief Operating Officer of
the Pollo Tropical Division since our acquisition of Pollo Tropical, Inc. in
July 1998. At that time, Mr. Castaldo had been the President of Pollo
Tropical, Inc. since October 1995 and its Chief Operating Officer since
November 1, 1996. Before joining Pollo Tropical and since August 1993, Mr.
Castaldo was employed as Vice President of Marketing for Denny's Inc., a
restaurant company. From 1986 to 1993, Mr. Castaldo was employed by S&A
Restaurant Corp., which includes Steak & Ale and Bennigan's restaurant chains,
and ultimately served as Senior Vice President of Marketing and Business
Development. Mr. Castaldo's career spans 20 years and includes management
positions at Burger King, Citicorp, and Clairol Inc.
Benjamin D. Chereskin has served as a Director since March 1997. Mr.
Chereskin is a Managing Director of Madison Dearborn Partners, LLC., a private
equity firm, and co-founded the firm in 1993. Before that, Mr. Chereskin was
with First Chicago Venture Capital for nine years. Mr. Chereskin also serves
on the Board of Directors of Cornerstone Brands, Inc.; Tuesday Morning
Corporation; NWL Holdings, Inc.; Family Christian Stores, Inc. and Agweb.com,
Inc.
James M. Conlon has served as a Director since 1998. Mr. Conlon has served
as Managing Director of Dilmun Investments, Inc., an investment advisory firm,
since 1992. Since 1997, Mr. Conlon has been the
22
Co-Head of the bank's U.S. Merchant Banking group. Before joining Dilmun
Investments, Inc., Mr. Conlon was employed as an Investment Analyst in the
Securities Division of TIAA-CREF. Mr. Conlon also serves on the Boards of
Directors of Capital Recovery Holdings, Inc; Thompson Products, Inc;
Independent Pictures, Inc.; Intimates Holdings, Inc; and Springfield Services
Corporation.
David J. Mathies, Jr. has served as a Director since 1996. Mr. Mathies has
served as President of Dilmun Investments, Inc., an investment advisory firm,
since its inception in 1988. From 1971 to 1988, he was employed by Mellon
Bank, where he was head of their Pension Management Group, providing
investment management services to middle market clients.
Robin P. Selati has served as a Director since March 1997. Mr. Selati is a
Managing Director of Madison Dearborn Partners, LLC., a private equity firm,
and joined the firm in 1993. Before 1993, Mr. Selati was associated with Alex
Brown & Sons Incorporated in the consumer/retail investment banking group. Mr.
Selati also serves on the Board of Directors of Peter Piper, Inc., Tuesday
Morning Corporation; NWL Holdings, Inc.; Beverages & More, Inc.; Family
Christian Stores, Inc.; and Ruth's Chris Steak House, Inc.
Clayton E. Wilhite has served as a Director since July 1997. Since January
1998, Mr. Wilhite has been with CFI Group, Inc., has been its Managing Partner
since May 1998, and has served on its Board of Directors since September 1998.
CFI Group, Inc. is an international marketing and consulting firm specializing
in measuring customer satisfaction. Between 1996 and 1998, he was the Chairman
of Thurloe Holdings, L.L.C. Before 1996, Mr. Wilhite was with the advertising
firm of D'Arcy Masius Benton & Bowles, Inc. having served as its Vice Chairman
from 1995 to 1996, as President of DMB&B/North America from 1988 to 1995, and
as Chairman and Managing Director of DMB&B/St. Louis from 1985 to 1988. From
August 1996 through our acquisition of Pollo Tropical, Mr. Wilhite served on
the Board of Directors of Pollo Tropical, Inc.
All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Our executive officers
are chosen by the Board and serve at its discretion. All of our directors also
serve as directors of Holdings.
23
Item 11. Executive Compensation
The following tables set forth certain information for the fiscal years
ended December 31, 2000, 1999 and 1998 for our Chief Executive Officer and our
next four most highly compensated executive officers who were serving as
executive officers at December 31, 2000 and whose annual compensation exceeded
$100,000. Stock option data refers to the stock options of Holdings.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
---------------------- ------------
Securities
Underlying
Name and Principal Position Year Salary Bonus(a) Options(#)
--------------------------- ---- -------- -------- ------------
Alan Vituli................................. 2000 $475,008 $498,758 --
Chairman of the Board and Chief Executive
Officer................................... 1999 450,000 -- --
1998 425,004 297,503 --
Daniel T. Accordino......................... 2000 $360,000 $324,000 --
President, Chief Operating Officer and
Director.................................. 1999 340,000 -- --
1998 320,004 192,002 --
Nicholas A. Castaldo........................ 2000 $315,000 $121,276 --
President and Chief Operating Officer,..... 1999 300,000 300,000 --
Pollo Tropical Division.................... 1998 144,230 150,000 50,000
Paul R. Flanders............................ 2000 $162,500 $121,875 325
Vice President, Finance and Treasurer...... 1999 152,503 -- 300
1998 143,759 71,880 500
Joseph A. Zirkman........................... 2000 $154,000 $115,500 300
Vice President, General Counsel and
Secretary................................. 1999 140,000 -- 272
1998 131,000 65,500 400
- --------
(a) We provide bonus compensation to executive officers based on an
individual's achievement of certain specified objectives and our
achievement of specified increases in stockholder value. Under the
Company's executive bonus plans, bonuses earned above certain specified
percentages of each executive's compensation are subject to deferral to be
paid out in the three succeeding years provided that stockholder value
(division stockholder value in the case of Mr. Castaldo) is at least equal
to what it was in the year that the bonus was earned. Of the bonus earned
in 2000 by Mr. Vituli, Mr. Accordino, Mr. Flanders and Mr. Zirkman,
$166,252, $108,000, $40,625 and $38,500, respectively, was subject to
deferral. Mr. Castaldo's 2000 bonus was not subject to any deferral;
$150,000 of his 1999 bonus was subject to deferral.
Options Grants in Last Fiscal Year
----------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed Rates
Securities Options of Stock Appreciation
Underlying Granted to for Option Term(b)
Options Employees in Exercise Price Expiration -----------------------
Name Granted(a) 2000 (Price per Share) Date 5% 10%
---- ---------- ------------ ----------------- ---------- ----------- -----------
Paul R. Flanders........ 325 4.3% $124.00 3/31/2010 $ 25,344 $ 64,228
Joseph A. Zirkman....... 300 4.0% $124.00 3/31/2010 23,395 59,287
- --------
(a) Stock option grants were granted under the 1996 Long-Term Incentive Plan.
These options become exercisable at the rate of 25% per year beginning on
December 31, 2000.
(b) Potential realizable value is based on an assumption that the price of
Holdings' common shares appreciate at 5% and 10% annually (compounded)
from the date of grant until the end of the option term. These
calculations are based on requirements promulgated by the Commission and
are not intended to forecast possible future appreciation of the stock
price.
24
Compensation Committee Interlocks and Insider Participation
During the last fiscal year, no executive officer of ours served as a
director of or member of a compensation committee of any entity for which any
of the persons serving on our Board of Directors or on the Compensation
Committee of the Board of Directors is an executive officer. The Compensation
Committee is comprised of Messrs. Chereskin, Mathies and Wilhite.
Board of Directors
Directors' Compensation. Directors who are our employees do not receive any
additional compensation for serving as directors. Directors who are not our
employees receive a fee of $15,000 per annum. All directors are reimbursed for
all reasonable expenses they incur while acting as directors, including as
members of any committee of the Board of Directors.
Liability Limitation. As permitted under the Delaware General Corporation
Law, our Restated Certificate of Incorporation provides that a director will
not be personally liable to us or our stockholders for monetary damages for
breach of a fiduciary duty owed to us or our 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 any of our directors:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for an act or omission not in good faith or involving intentional
misconduct or a knowing violation of law;
. for any transaction from which the director derived an improper personal
benefit; or
. for an improper declaration of dividends or purchase or redemption of our
securities.
Indemnification. Our Restated Certificate of Incorporation provides that we
will indemnify our directors and officers to the fullest extent permitted by
Delaware law.
Description of Plans
Employee Retirement Plan. We offer salaried employees, excluding those of
Pollo Tropical, the option to participate in the Carrols Corporation
Retirement Savings Plan, which as amended April 1, 1999, offers both a post-
tax savings option and a savings option pursuant to section 401(k) of the
Internal Revenue Code. Participating employees may contribute up to 18% of
their salary annually to either savings option, subject to certain
limitations. In accordance with the plan, we match up to $1,040 of an
employee's mandatory contributions by contributing $0.50 for each dollar
contributed by the employee. Employees are fully vested in their own
contributions; employees become vested in our 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, or permanent or
total disability. If any of the foregoing events occurs, benefits may be paid
out in a single cash lump sum or in periodic installments over not more than
the employee's assumed life expectancy. The employee's contributions may be
withdrawn at any time, subject to restrictions on future contributions. Our
matching contributions may be withdrawn under certain conditions of financial
necessity or hardship as defined in the plan. Our contributions to the plan
totaled $344,000, $245,000 and $216,000 for the years ended December 31, 2000,
1999 and 1998, respectively.
Pollo Tropical 401(k) Savings Plan. Pollo Tropical has an employee savings
plan pursuant to Section 401(k) of the Internal Revenue Code. All employees
who are age 21 or older and who have been credited with at least 1,000 hours
of service within twelve consecutive months are eligible to participate in the
plan. Employees may elect to contribute to the plan through payroll deductions
in an amount not to exceed the amount permitted under the Internal Revenue
Code. We make discretionary matching contributions, which are allocated to
participants based on the participant's eligible deferrals during the plan
year. Employees are fully vested in their contributions. Our contributions
vest at a rate of 33% for each complete year of service. Our contributions to
the 401(k) plan totaled $39,000, $29,000 and $17,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
25
Taco Cabana 401(k) Savings Plan. Under the Taco Cabana Savings and
Retirement Plan, all employees who are age 21 or older and who have been
credited with at least 1,000 hours of service within 12 consecutive months are
eligible to participate in the plan. Employees may contribute up to 15% of
their salary on a pre-tax basis, and may self-direct contributions to various
investment options. During 2000, the plan was modified to include a
contribution equal to $.25 for every $1.00 contributed to the plan up to 3% of
an employee's salary. Contributions vest at a rate of 20% per year over 5
years.
Bonus Plans. We have 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 our performance as well as the division's performance.
1996 Long-Term Incentive Plan. In connection with the investment by Madison
Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings adopted the Carrols Holdings Corporation 1996 Long-Term
Incentive Plan pursuant to which we may grant awards such as "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 to
certain of our and our subsidiaries' officers and employees. The 1996 Long-
Term Incentive Plan replaced a prior long-term incentive plan which was
adopted December 26, 1996. The plan is designed to advance our interests and
the interests of Holdings by providing an additional incentive to attract,
retain and motivate qualified and competent persons through the encouragement
of stock ownership or stock appreciation rights in Holdings.
The 1996 Long-Term Incentive Plan permits the Compensation Committee of the
Board of Directors of Holdings to grant, from time to time, options to
purchase an aggregate of up to 106,250 shares of Holdings' Carrols common
stock. The vesting periods for options and the expiration dates for
exercisability of options granted under the 1996 Long-Term Incentive Plan are
determined by Holdings' Compensation Committee; however, the exercise period
for an option granted under the 1996 Long-Term Incentive Plan may not exceed
ten years from the date of the grant. Holdings' Compensation Committee is
authorized to grant options under the plan to all of our and our subsidiaries'
eligible officers and employees, including executive officers and directors
(other than outside directors and members of Holdings' Compensation
Committee).
Holdings' Compensation Committee determines the option exercise price per
share of any option granted under the 1996 Long-Term Incentive Plan; however,
the option price per share of an option intended to qualify as an Incentive
Stock Option shall not be less than the fair market value of the Holdings'
Carrols common stock on the date such option is granted. Payment of such
option exercise price shall be made:
(1) in cash;
(2) by delivering shares of Holdings' Carrols common stock already owned by
the holder of such options;
(3) by delivering a promissory note;
(4) by a combination of any of the foregoing, in accordance with the terms
of the 1996 Long-Term Incentive Plan, the applicable stock option
agreement and any applicable guidelines of Holdings' Compensation
Committee in effect at the time; or
(5) by any other means approved by Holdings' Compensation Committee.
If the holder of an option issued pursuant to the plan elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:
(1) unsecured and fully recourse against the holder of such option; or
(2) nonrecourse but secured by the shares of Holdings' Carrols common stock
being purchased by such exercise and by other assets having a fair
market value equal to not less than 40% of the exercise price of such
option. In either event, such note shall mature on the fifth
anniversary of the date of the note and bear interest at the rate
provided under Section 1274(d) of the Internal Revenue Code of 1986, as
amended from time to time.
26
Pursuant to the 1996 Long-Term Incentive Plan, in the event of a Change of
Control (as defined in the plan) any and all options issued and outstanding
will vest and become exercisable in full on the date of such Change of
Control. In addition, as soon as practicable but no later than thirty days
before such Change of Control, Holdings' Compensation Committee shall notify
any holder of an option granted under the plan of such Change of Control.
Further, upon a Change of Control that qualifies as an Approved Sale (as
defined in the plan) in which the outstanding Holdings' Carrols 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 plan),
(1) each option granted under the 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;
(2) 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 Holdings' Carrols
common stock; or
(b) upon consummation of the Approved Sale, receive in exchange for
such option consideration equal to the amount determined by
multiplying:
(x) the same amount of consideration per share of Holdings' Carrols
common stock received by the holders in connection with the
Approved Sale less the exercise price per share of such option
to acquire Holdings' Carrols common stock by
(y) the number of shares of Holdings' Carrols common stock
represented by such option; and
(3) to the extent such option is not exercised prior to or simultaneous
with such Approved Sale, any such option shall be canceled.
1998 Directors' Stock Option Plan. During 1998, Holdings adopted the Carrols
Holdings Corporation 1998 Directors' Stock Option Plan pursuant to which we
may grant "Incentive Stock Options" (as defined under Section 422 of the
Internal Revenue Code), nonqualified stock options, stock appreciation rights,
restricted stock, and other stock-based awards to certain non-employee
directors of Holdings. The plan is designed to advance the interests of
Holdings and us by providing an additional incentive to attract, retain and
motivate non-employee individuals as directors of our Board and the Board of
Holdings.
The 1998 Directors' Stock Option Plan permits Holdings' Compensation
Committee to grant, from time to time, options to purchase an aggregate of up
to 10,000 shares of Holdings' Carrols common stock. The vesting periods for
these options and the expiration dates for exercisability of the options
granted under the plan are determined by the Compensation Committee; however,
the exercise period for an option granted under the plan may not exceed ten
years from the date of the grant. Holdings' Compensation Committee is
authorized to grant options under the plan to all eligible non-employee
directors of Holdings. Directors that are our employees or employees of
Holdings, Madison Dearborn Capital Partners, L.P., Madison Dearborn Capital
Partners II, L.P. or BIB Holdings, or any of their respective affiliates are
not eligible under the plan.
The option exercise price per share of any option granted under the 1998
Directors' Stock Option Plan is determined by Holdings' Compensation
Committee; however, the option price per share of an option intended to
qualify as an Incentive Stock Option shall not be less than the fair market
value of Holdings' Carrols common stock on the date such option is granted.
Payment of such option exercise price shall be made:
(1) in cash;
(2) by delivering shares of Holdings' Carrols common stock already owned by
the holder of such options;
(3) by delivering a promissory note;
(4) by a combination of any of the foregoing, in accordance with the terms
of the plan, the applicable stock option agreement and any applicable
guidelines of the Holdings Compensation Committee in effect at the
time; or
27
(5) by any other means approved by the Holdings Compensation Committee.
If the holder of an option issued pursuant to the plan elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:
(1) unsecured and fully recourse against the holder of such options; or
(2) nonrecourse but secured by the shares of Holdings' Carrols common stock
being purchased by such exercise and by other assets having a fair
market value equal to not less than 40% of the exercise price of such
option.
In either event, such note shall mature on the fifth anniversary of the date
of the note and bear interest at the rate provided under Section 1274(d) of
the Internal Revenue Code of 1986, as amended from time to time.
Pursuant to the 1998 Directors' Stock Option Plan, in the event of a Change
of Control (as defined in the plan), any and all options issued and
outstanding 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 30 days prior to a Change of Control, Holdings' Compensation Committee
shall notify any holder of an option granted under the plan of such Change of
Control. Further, upon a Change of Control that qualifies as an Approved Sale
(as defined in the 1998 Directors' Plan) in which the outstanding Holdings'
Carrols 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 1998 Directors' Plan):
(1) each option granted under the plan shall become exercisable solely for
the amount of such cash, property or securities that the holder of such
award would have been entitled to had such award been exercised
immediately prior to such event;
(2) 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 Holdings' Carrols
common stock; or
(b) upon consummation of the Approved Sale, receive in exchange for
such award consideration equal to the amount determined by
multiplying:
(x) the same amount of consideration per share of Holdings' Carrols
common stock received by the holders in connection with the
Approved Sale less the exercise price per share of such award to
acquire Holdings' Carrols common stock by
(y) the number of shares of Holdings' Carrols common stock
represented by such option; and
(3) to the extent such option is not exercised prior to or simultaneous
with such Approved Sale, any such award will be canceled.
1998 Pollo Tropical Long-Term Incentive Plan. Holdings has also adopted the
Carrols Holdings Corporation 1998 Pollo Tropical Long-Term Incentive Plan
pursuant to which we may grant awards such as "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 to certain of our and our
subsidiaries' officers and employees. The plan is designed to advance our
interests and the interests of Holdings by providing an additional incentive
to attract, retain and motivate qualified and competent persons through the
encouragement of stock ownership or stock appreciation rights in Holdings.
The 1998 Pollo Tropical Long-Term Incentive Plan permits the Compensation
Committee of the Board of Directors of Holdings to grant, from time to time,
options to purchase an aggregate of up to 100,000 shares of Holdings' Pollo
Tropical class of common stock. The vesting periods for options and the
expiration dates for exercisability of options granted under the 1998 Pollo
Tropical Long-Term Incentive Plan are determined by Holdings' Compensation
Committee; however, the exercise period for an option granted under the 1998
Pollo Tropical Long-Term Incentive Plan may not exceed ten years from the date
of the grant. Holdings' Compensation
28
Committee is authorized to grant options under the plan to all of our and our
subsidiaries' eligible officers and employees, including executive officers
and directors (other than outside directors and members of Holdings'
Compensation Committee).
Holdings' Compensation Committee determines the option exercise price per
share of any option granted under the 1998 Pollo Tropical Long-Term Incentive
Plan; however, the option price per share of an option intended to qualify as
an Incentive Stock Option shall not be less than the fair market value of the
Holdings' Pollo Tropical class of common stock on the date such option is
granted. Payment of such option exercise price shall be made:
(1) in cash;
(2) by delivering shares of Holdings' Pollo Tropical class of common stock
already owned by the holder of such options;
(3) by delivering a promissory note;
(4) by a combination of any of the foregoing, in accordance with the terms
of the 1998 Pollo Tropical Long-Term Incentive Plan, the applicable
stock option agreement and any applicable guidelines of Holdings'
Compensation Committee in effect at the time; or
(5) by any other means approved by Holdings' Compensation Committee.
If the holder of an option issued pursuant to the plan elects to pay the
exercise price of such option by delivering a promissory note, such promissory
note may be either:
(1) unsecured and fully recourse against the holder of such option; or
(2) nonrecourse but secured by the shares of Holdings' Pollo Tropical class
of common stock being purchased by such exercise and by other assets
having a fair market value equal to not less than 40% of the exercise
price of such option. In either event, such note shall mature on the
fifth anniversary of the date of the note and bear interest at the rate
provided under Section 1274(d) of the Internal Revenue Code of 1986, as
amended from time to time.
Pursuant to the 1998 Pollo Tropical Long-Term Incentive Plan, in the event
of a Change of Control (as defined in the plan) any and all options issued and
outstanding will vest and become exercisable in full on the date of such
Change of Control. Under the terms of the 1998 Pollo Tropical Long-Term
Incentive Plan a change of control includes both a change of control of
Holdings or a sale of the Pollo Tropical Group. In addition, as soon as
practicable but no later than thirty days before such Change of Control,
Holdings' Compensation Committee shall notify any holder of an option granted
under the plan of such Change of Control. Further, upon a Change of Control
that qualifies as an Approved Sale (as defined in the plan) in which the
outstanding common stock of Holdings is converted or exchanged for or becomes
a right to receive any cash, property or securities other than Illiquid
Consideration (as defined in the plan),
(1) each option granted under the 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;
(2) 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 Holdings' Pollo
Tropical common stock; or
(b) upon consummation of the Approved Sale, receive in exchange for
such option consideration equal to the amount determined by
multiplying:
(x) the same amount of consideration per share of Holdings' Pollo
Tropical common stock received by the holders of Holdings' Pollo
Tropical common stock in connection with the Approved Sale less
the exercise price per share of Holdings' Pollo Tropical common
stock of such option to acquire Holdings' Pollo Tropical common
stock by
29
(y) the number of shares of Holdings' Pollo Tropical common stock
represented by such option; and
(3) 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 Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Alan Vituli, which amended and restated an Amended
and Restated Employment Agreement dated April 3, 1996 between us and Mr.
Vituli. Pursuant to the amended employment agreement, Mr. Vituli will continue
to serve as our Chairman of the Board and Chief Executive Officer. The amended
employment agreement will be for an initial term of four years, commencing on
March 27, 1997 and will be subject to automatic renewals for successive one-
year terms unless either we or Mr. Vituli elect not to renew by giving written
notice to the other at least 90 days before a scheduled expiration date.
Pursuant to the amended 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 amended employment
agreement, Mr. Vituli will participate in our Executive Bonus Plan and any of
our stock option plans applicable to executive employees. The amended
employment agreement also requires that we are 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. The amended employment agreement provides that
if Mr. Vituli's employment is terminated without Cause (as defined in the
amended employment agreement) following a Change of Control (as defined in the
amended employment agreement),
(1) Mr. Vituli will receive a cash payment in the amount equal to 2.99
times his Five Year Compensation Average (as defined in the amended
employment agreement) if such Change of Control occurs during the first
two years of the initial term of the amended employment agreement; and
(2) a cash lump sum equal to his salary during the previous 12 months if
terminated thereafter. The amended employment agreement includes non-
competition and non-solicitation provisions effective during the term
of the amended employment agreement and for two years following its
termination.
Accordino Employment Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., we entered into a Second Amended and Restated
Employment Agreement with Daniel T. Accordino, which amended and restated an
Amended and Restated Employment Agreement dated April 3, 1996 between us and
Mr. Accordino. Pursuant to the amended employment agreement, Mr. Accordino
will continue to serve as our President and Chief Operating Officer. The
amended employment agreement will be for an initial term of four years,
commencing on March 27, 1997 and will be subject to automatic renewal for
successive one-year terms unless either we or Mr. Accordino elect not to renew
by giving written notice to the other at least 90 days before a scheduled
expiration date. Pursuant to the amended 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 amended
employment agreement, Mr. Accordino will participate in our Executive Bonus
Plan and any of stock option plans applicable to executive employees. The
amended employment agreement also will require that we are responsible for
maintaining the premium payments on a split-dollar life insurance policy on
the life of Mr. Accordino providing a death benefit of $1.0 million payable to
an irrevocable trust designated by Mr. Accordino. The amended employment
agreement provides that if Mr. Accordino's employment is terminated without
Cause (as defined in the amended employment agreement) following a Change of
Control (as defined in the amended employment agreement),
(1) Mr. Accordino will receive a cash payment in the amount equal to 2.99
times his Five Year Compensation Average (as defined in the amended
employment agreement) if such change of control occurs during the first
two years of the agreement; and
30
(2) a cash lump sum equal to his salary during the previous 12 months if
terminated thereafter. The agreement includes non-competition and non-
solicitation provisions effective during the term of the amended
employment agreement and for two years following its termination.
Castaldo Employment Agreement. Effective July 20, 1998, in connection with
our acquisition of Pollo Tropical, we entered into an Amended and Restated
Employment Agreement with Nicholas A. Castaldo, which amended and restated an
Employment Agreement dated September 19, 1995, as amended May 5, 1997, between
Pollo Tropical and Mr. Castaldo. Pursuant to the amended agreement, Mr.
Castaldo serves as the President and Chief Operating Officer of our Pollo
Tropical Division. The agreement is for an initial term commencing on
July 20, 1998 and ending September 30, 2003, and will be subject to renewal
for up to two additional one-year periods at our option, exercisable by giving
written notice to Mr. Castaldo by no later than July 31, 2003 or 2004, as
applicable. Pursuant to the agreement, Mr. Castaldo receives a base salary of
$300,000 per year during the term, which amount increases on each January 1st
during the term by at least 5% subject to additional increases that may be
authorized by our Board of Directors. Pursuant to the agreement, Mr. Castaldo
is eligible to receive an annual bonus of up to 100% of his base salary (of
which not more than 50% may be subject to deferral provisions in our Executive
Bonus Plan (as defined in the agreement)), which bonus will be payable in
accordance with our Executive Bonus Plan and is based solely upon the
achievement by Mr. Castaldo of certain corporate and individual performance
standards during the relevant period as reasonably established by us with Mr.
Castaldo. Pursuant to the agreement, Mr. Castaldo was granted non-qualified
options to purchase 5% of Holdings' Pollo Tropical common stock pursuant to
the 1998 Pollo Tropical Long-Term Incentive Plan. Mr. Castaldo's agreement
provides that if Mr. Castaldo's employment is terminated by us without Cause
(as defined in the agreement) or by Mr. Castaldo for Good Reason (as defined
in the agreement), or if the term of the agreement expires, then Mr. Castaldo
is entitled to the following payments and benefits:
(1) An amount equal to the greater of:
(a) Mr. Castaldo's base salary then in effect, from the date on which
his employment is terminated or expires under the terms of the
agreement until 12 months after such termination date; or
(b) Mr. Castaldo's base salary from such termination date through the
end of the initial term. The foregoing will be payable as follows:
a lump sum equal to one year's then current base salary payable
within ten days of such termination date and the balance, if any,
payable in 24 equal monthly installments.
(2) Mr. Castaldo's stock options granted under the Option Agreement (as
defined in the agreement) shall vest as set forth in and in accordance
with the terms and provisions of the Option Agreement;
(3) Mr. Castaldo's health and medical insurance benefits will be continued
at our expense through the date which is 24 months following the
termination date; and
(4) any portion of bonus that was deferred under the Pollo Tropical
Executive Bonus Plan will be payable in a lump sum within ten days of
the termination date.
Mr. Castaldo's agreement includes non-competition and non-solicitation
provisions effective during the term of the agreement and for two years
following its termination.
Option Agreements Pursuant to the 1996 Long-term Incentive Plan
Vituli Plan Option Agreement. On December 30, 1996, pursuant to the
Securities Purchase Agreement dated as of March 6, 1996 among Holdings, the
stockholders of Holdings, BIB Holdings and us, Holdings granted to Alan
Vituli, under the 1996 Long-Term Incentive Plan, an option to purchase 43,350
shares of Holdings' common stock. The option:
(1) was immediately exercisable with regard to 15,300 shares of Holdings'
common stock at an exercise price of $110.00 per share; and
31
(2) was to become exercisable on June 1, 1997 with regard to:
(a) 15,300 shares of Holdings' common stock at an exercise price of
$130.00 per share; and
(b) 12,750 shares of Holdings' common stock at an exercise price of
$140.00 per share; and
On January 22, 1997, Mr. Vituli contributed these options to the Vituli
Family Trust for the benefit of his children.
In connection with the investment by Madison Dearborn Capital Partners, L.P.
and Madison Dearborn Capital Partners II, L.P. in 1997, Holdings granted an
option to purchase 43,350 shares of Holdings' common stock under the 1996
Long-Term Incentive Plan in exchange for the options held by the Vituli Family
Trust. The Vituli Family Trust agreed to reduce the exercise price to
$101.7646 per share. The new option:
(1) has a term of ten years from the date of grant;
(2) became exercisable:
(a) on the date of grant with regard to 15,300 shares of Holdings'
common stock;
(b) on December 31, 1997 with regard to 5,610 shares of Holdings'
common stock;
(c) on December 31, 1998 with regard to 5,610 shares of Holdings'
common stock;
(d) on December 31, 1999 with regard to 5,610 shares of Holdings'
common stock; and
(e) on December 31, 2000 with regard to 11,220 shares of Holdings'
common stock.
Accordino Plan Option Agreement. On December 30, 1996, pursuant to the
Securities Purchase Agreement dated as of March 6, 1996, Holdings granted to
Daniel T. Accordino, under the 1996 Long-Term Incentive Plan, an option to
purchase 28,900 shares of Holdings' common stock. The option:
(1) was immediately exercisable with regard to 10,200 shares of Holdings'
common stock at an exercise price of $110.00 per share; and
(2) was to become exercisable on December 31, 1997 with regard to:
(a) 10,200 shares of Holdings' common stock at an exercise price of
$130.00 per share; and
(b) 8,500 shares of Holdings' common stock at an exercise price of
$140.00 per share.
In connection with the investment by Madison Dearborn Capital Partners, L.P.
and Madison Dearborn Capital Partners II, L.P. in 1997, the option granted to
Mr. Accordino was canceled and Holdings granted to Mr. Accordino, under the
1996 Long-Term Incentive Plan, an option to purchase 28,900 shares of
Holdings' common stock at an exercise price of $101.7646 per share. The new
option:
(1) has a term of ten years from the date of grant;
(2) became exercisable:
(a) on the date of grant with regard to 10,200 shares of Holdings'
common stock;
(b) on December 31, 1997 with regard to 3,740 shares of Holdings'
common stock;
(c) on December 31, 1998 with regard to 3,740 shares of Holdings'
common stock;
(d) on December 31, 1999 with regard to 3,740 shares of Holdings'
common stock; and
(e) on December 31, 2000 with regard to 7,480 shares of Holdings'
common stock.
Other Option Agreements
Vituli Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madson Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Mr. Vituli a nonqualified stock option to
purchase 29,480 shares of Holdings' common stock at an exercise price of
$101.7646 per share. The option will have a term of ten years from the date of
grant and will become exercisable in five equal parts on the
32
five consecutive anniversaries of the date of grant. The option will have
substantially the same terms as options issued under the 1996 Long-Term
Incentive Plan with respect to:
(1) the method of payment of the exercise price of the option; and
(2) the effect of a Change of Control (as defined in the 1996 Long-Term
Incentive Plan).
Accordino Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Mr. Accordino a nonqualified stock option to
purchase 2,579 shares of Holdings' common stock at an exercise price of
$101.7646 per share. The option will have a term of ten years from the date of
grant and will become exercisable in five equal parts on the five consecutive
anniversaries of the date of grant. The option will have substantially the
same terms as the option granted to Mr. Vituli.
Zirkman Non-Plan Option Agreement. In connection with the investment by
Madison Dearborn Partners, L.P. and Madison Dearborn Capital Partners II, L.P.
in 1997, Holdings granted to Mr. Zirkman a nonqualified stock option to
purchase 368 shares of Holdings' common stock at an exercise price of
$101.7646 per share. The option will have a term of ten years from the date of
grant and will become exercisable in five substantially equal parts on the
five consecutive anniversaries of the date of grant. The option will have
substantially the same terms as the option granted to Mr. Vituli.
Castaldo Option Agreement. In conjunction with Mr. Castaldo's employment
agreement Holdings granted Mr. Castaldo a nonqualified stock option to
purchase 50,000 shares of Holdings' Pollo Tropical class of common stock under
the 1998 Pollo Tropical Long-Term Incentive Plan. The option:
(1) has a term of ten years from the date of grant;
(2) became exercisable:
(a) on July 19, 1999 with regard to 20,000 shares of Holdings' Pollo
Tropical common stock at an exercise price of $77.50 per share; and
(b) on July 19, 2000 with regard to 7,500 shares of Holdings' Pollo
Tropical common stock at an exercise price of $88.80 per share; and
(3) will become exercisable:
(a) on July 19, 2001 with regard to 7,500 shares of Holdings' Pollo
Tropical common stock at an exercise price of $102.90 per share;
(b) on July 19, 2002 with regard to 7,500 shares of Holdings' Pollo
Tropical common stock at an exercise price of $119.50 per share;
and
(c) on July 19, 2003 with regard to 7,500 shares of Holdings' Pollo
Tropical common stock at an exercise price of $137.00 per share.
33
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following tables set forth the number and percentage of shares of our
voting stock and Holdings' voting common stock beneficially owned, as of March
15, 2001, by:
(1) all persons known by us to be the beneficial owners of more than 5% of
the shares of such voting common stock;
(2) each of our directors who owns shares of such voting common stock;
(3) each of our executive officers included in the Summary Compensation
Table above; and
(4) all of our executive officers and directors as a group.
Shares Beneficially Owned
----------------------------
Number Percentage
------------- --------------
Stockholders of Carrols
Corporation:
Carrols Holdings 10 100%
Corporation.............
968 James Street
Syracuse, New York 13203
Carrols Class Pollo Tropical Class
---------------------------- ------------------------
Number Percentage Number Percentage
------------- -------------- ----------- ------------
Stockholders of Carrols
Holdings Corporation(a):
BIB Holdings (Bermuda) 566,667 44.8%
Ltd.(b).................
c/o Dilmun Investments
Metro Center
One Station Place
Stamford, CT 06902
Madison Dearborn Capital 283,333 22.4%
Partners, L.P. .........
Three First National
Plaza
Suite 3800
Chicago, IL 60602
Madison Dearborn Capital 283,334 22.4%
Partners II, L.P. ......
(Same address as Madison
Dearborn Capital
Partners, L.P.)
Executive Officers and
Directors:
Alan Vituli(c).......... 76,761 6.1%
Daniel T. Accordino..... 31,824 2.5%
Nicholas A. Castaldo.... -- -- 27,500 2.7%
Paul R. Flanders........ 2,106 *
Joseph A. Zirkman....... 1,679 *
Clayton E. Wilhite...... 1,125 *
Directors and executive
officers of Carrols as a
group (11 persons)..... 114,356 9.0% 27,500 2.7%
- --------
* Less than one percent.
(a) The number of shares shown in the table includes stock options which are
currently exercisable or exercisable within 60 days to purchase: 66,934
shares held by Mr. Vituli; 30,964 shares held by Mr. Accordino; 20,000
held by Mr. Castaldo; 2,106 shares held by Mr. Flanders; 1,556 shares held
by Mr. Zirkman; and 1,125 shares held by Mr. Wilhite.
(b) These 566,667 shares of Holdings' common stock were previously owned by
Atlantic Restaurants, Inc. which was formed to effect the acquisition of
the company in 1996. Atlantic Restaurants, Inc., which was a wholly-owned
subsidiary of BIB Holdings, was merged into BIB Holdings on February 10,
1999.
(c) Includes 43,350 vested stock options contributed to and held by the Vituli
Family Trust.
34
Item 13. Certain Relationships and Related Transactions
Stockholders Agreement. On March 27, 1997, in connection with the investment
by Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital
Partners II, L.P., all holders of Holdings' voting common stock entered into a
Stockholders Agreement. The agreement provides that all holders of Holdings'
voting common stock will vote their common stock in order to cause the
following individuals to be elected to the Board of Directors of Holdings and
each of its subsidiaries (including us):
(a) three representatives designated collectively by Madison Dearborn
Capital Partners, L.P. and Madison Dearborn
(b) three representatives designated by BIB Holdings; and
(c) two representatives designated by Mr. Vituli as long as Mr. Vituli is
our Chief Executive Officer, subject in each case to adjustment if the
percentage holdings of each decreases below a certain threshold.
In addition, the agreement provides for certain limitations on the ability
of holders of Holdings' common stock to sell, transfer, assign, pledge or
otherwise dispose of their common stock. The agreement contains covenants
requiring us to obtain the prior consent of Madison Dearborn Capital Partners,
L.P., Madison Dearborn Capital Partners II, L.P., and BIB Holdings before
taking certain actions including the redemption, purchase or other acquisition
of Holdings' capital budget approved by Holdings' Board of Directors for that
year or the entry into the ownership, active management or operation of any
business other than Burger King franchise restaurants.
Registration Rights Agreement. On March 27, 1997, in connection with the
investment by Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P., those entities, BIB Holdings, Alan Vituli, Daniel
T. Accordino and Joseph A. Zirkman entered into a registration agreement with
Holdings. The registration agreement provides for demand and piggyback rights
with respect to Holdings' common stock. The Madison Dearborn Capital Partners,
L.P. and Madison Dearborn Capital Partners II, L.P. or BIB Holdings may demand
registration under the Securities Act of all or any portion of their shares of
Holdings' common stock or options for shares of Holdings' common stock (the
"Registrable Securities"), provided that:
(1) in the case of the first demand registration, Madison Dearborn Capital
Partners, L.P., and Madison Dearborn Capital Partners II, L.P. and BIB
Holdings must consent to a demand registration unless Holdings has
completed a registered public offering of the Holdings' common stock;
and
(2) all demand registrations on Form S-1 must be underwritten.
Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital
Partners II, L.P., collectively, and BIB Holdings are each entitled to
request:
(1) three demand registrations on Form S-1 in which Holdings will pay all
registration expenses, provided that the offering value of the
Registrable Securities is at least $15 million; and
(2) an unlimited number of demand registrations on Form S-3 in which
Holdings will pay all registration expenses, provided that the offering
value of the Registrable Securities is at least $5 million with an
underwritten offering equal to at least $10 million.
Whenever Holdings proposes to register any of its securities (other than
pursuant to a demand registration) and the registration form may be used for
the registration of Registrable Securities, Holdings shall give prompt written
notice to all holders of Registrable Securities of its intention to effect
such a registration and shall include in such registration all Registrable
Securities to which Holdings has received written requests for inclusion in
such registration within 20 days after receipt of Holdings' notice. Holdings
shall pay the registration expenses of the holders of Registrable Securities
in all such piggyback registrations. The Registration Agreement contains
typical "cut back" provisions in connection with both demand registrations and
piggyback registrations. We will provide the holders of the Registrable
Securities with typical indemnification in the event of certain misstatements
or omissions made in connection with both demand registrations and piggyback
registrations.
35
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-k
(a) Financial Statements
Page
----
CARROLS CORPORATION AND SUBSIDIARIES
Opinion of Independent Certified Public Accountants........... F-1
Financial Statements:
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statements of Stockholder's Equity (Deficit)... F-4
Consolidated Statements of Cash Flows....................... F-5 to F-6
Notes to Consolidated Financial Statements.................. F-7 to F-20
(b) Financial Statement Schedules
Schedule Description Page
-------- ----------- ----
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, 1999.
Reports on Form 8-K--No current reports on Form 8-K were filed during the
quarter ended January 2, 2000.
36
(a)(3) Exhibits
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger dated June 3, 1998 by and between Carrols
Corporation and Pollo Tropical, Inc. (incorporated by reference to
Exhibit (c)(1) to the Tender Offer Statement on Schedule 14 (d)(1)
dated July 3, 1998)
2.2 Agreement and Plan of Merger among Carrols Corporation, Spur
Acquisition Corp. and Taco Cabana, Inc. dated October 6, 2000
(incorporated by reference to Exhibit 2.2 to Carrols Corporation's
Form 8-K filed October 11, 2000).
3.1 Restated By-laws (incorporated by reference to Exhibit 3.(3)(b) to
Carrols Corporation's 1986 Annual Report on Form 10-K)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation
of Carrols Holdings Corporation (incorporated by reference to Exhibit
3.1 to Carrols Corporation's September 30, 1999 Quarterly Report on
Form 10-Q)
4.1 Indenture, dated as of November 24, 1998, between Carrols Corporation,
the Guarantors named therein and IBJ Schroder Bank & Trust Company, as
Trustee (incorporated by reference to Exhibit 4.1 to Carrols
Corporation's Form S-4 filed February 2, 1999)
4.2 Exchange and Registration Rights Agreement, dated as of November 24,
1998, among Carrols Corporation and Chase Securities Inc. and
NationsBanc Montgomery Securities LLC (incorporated by reference to
Exhibit 4.2 to Carrols Corporation's Form S-4 filed on February 2,
1999
4.3 Form of 9 1/2% Senior Subordinated Note due 2008 (incorporated by
reference to Exhibit 4.3 to Carrols Corporation's Form S-4 filed
February 2, 1999)
10.1 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 (incorporated by reference to Exhibit 10.12 to Carrols
Corporation's 1996 Annual Report on Form 10-K)
(1)10.2 Amended and Restated Employment Agreement dated as of July 20, 1998 by
and between Carrols Corporation and Nicholas A. Castaldo (incorporated
by reference to Exhibit 10.11 to Carrols Corporation's Form S-4 filed
February 2, 1999)
37
Exhibit
Number Description
------- -----------
(1)10.3 Carrols Corporation 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.20 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
(1)10.4 Stock Option Agreement dated as of December 30, 1996 by and between
Carrols Corporation and Alan Vituli (incorporated by reference to
Exhibit 10.21 to Carrols Corporation's 1996 Annual Report on Form 10-
K)
(1)10.5 Stock Option Agreement dated as of December 30, 1996 by and between
Carrols Corporation and Daniel T. Accordino (incorporated by
reference to Exhibit 10.22 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
10.6 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 (incorporated by
reference to Exhibit 10.23 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
10.7 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 (incorporated by
reference to Exhibit 10.24 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
(1)10.8 Form of Second Amended and Restated Employment Agreement dated March
27, 1997 by and between Carrols Corporation and Alan Vituli
(incorporated by reference to Exhibit 10.25 to Carrols Corporation's
1996 Annual Report on Form 10-K)
(1)10.9 Form of Second Amended and Restated Employment Agreement dated March
27, 1997 by and between Carrols Corporation and Daniel T. Accordino
(incorporated by reference to Exhibit 10.26 to Carrols Corporation's
1996 Annual Report on Form 10-K)
10.10 Form of Carrols Holdings Corporation 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.27 to Carrols Corporation's
1996 Annual Report on Form 10-K)
(1)10.11 Form of Stock Option Agreement by and between Carrols Holdings
Corporation and Alan Vituli (incorporated by reference to Exhibit
10.28 to Carrols Corporation's 1996 Annual Report on Form 10-K)
(1)10.12 Form of Stock Option Agreement by and between Carrols Holdings
Corporation and Daniel T. Accordino (incorporated by reference to
Exhibit 10.29 to Carrols Corporation's 1996 Annual Report on Form 10-
K)
(1)10.13 Form of Unvested Stock Option Agreement by and between Carrols
Holdings Corporation and Alan Vituli (incorporated by reference to
Exhibit 10.30 to Carrols Corporation's 1996 Annual Report on Form 10-
K)
(1)10.14 Form of Unvested Stock Option Agreement by and between Carrols
Holdings Corporation and Daniel T. Accordino (incorporated by
reference to Exhibit 10.31 to Carrols Corporation's 1996 Annual
Report on Form 10-K)
(1)10.15 Form of Unvested Stock Option Agreement by and between Carrols
Holdings Corporation and Joseph A. Zirkman (incorporated by reference
to Exhibit 10.32 to Carrols Corporation's 1996 Annual Report on Form
10-K)
10.16 First Amendment to the Stock Purchase Agreement dated March 27, 1997
by and among Carrols Holdings Corporation, Atlantic Restaurants,
Inc., Madison Dearborn Capital Partners, L.P. and Madison Dearborn
Capital Partners II, L.P. (incorporated by reference to Exhibit 10.38
to Carrols Corporation's current report on Form 8-K filed March 27,
1997)
10.17 Purchase and Sale Agreement dated as of January 15, 1997 by and
between Carrols Corporation, as Purchaser, Omega Services, Inc. as
Seller and Mr. Harold W. Hobgood as Omega's Agent (incorporated by
reference to Exhibit 10.39 to Carrols Corporation's current report on
Form 8-K filed March 27, 1997)
38
Exhibit
Number Description
------- -----------
10.18 Purchase and Sale Agreement dated as of January 15, 1997 by and
between Carrols Corporation, as Purchaser, Omega Services, Inc. as
Seller and Mr. Harold W. Hobgood as Omega's Agent (incorporated by
reference to Exhibit 10.40 to Carrols Corporation's current report on
Form 8-K filed March 27, 1997)
10.19 Purchase Agreement dated as of July 7, 1997 among Carrols
Corporation, as Purchaser, and the individuals and trusts listed on
Exhibit A attached thereto, as Sellers, the individuals and entities
listed on Exhibit B attached thereto, as Affiliated Real Property
Owners, and Richard D. Fors, Jr. and Charles J. Mund, as the Seller's
representatives (incorporated by reference to Exhibit 10.41 to
Carrols Corporation's current report on Form 8-K filed August 20,
1997)
(1)10.20 Carrols Holdings Corporation 1998 Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.29 to Carrols Corporation's
1998 Annual Report on Form 10-K)
10.21 Supply Agreement between AmeriServe Food Distribution, Inc. and
Carrols Corporation dated January 31, 1999 (incorporated by reference
to Exhibit 10.31 to Carrols Corporation's June 30, 1999 Quarterly
Report on Form 10-Q)
(1)10.22 Carrols Holdings Corporation 1998 Pollo Tropical Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.1 to Carrols
Corporation's September 30, 1999 Quarterly Report on Form 10-Q)
(1)10.23 Carrols Corporation Retirement Savings Plan dated April 1, 1999.
10.24 Loan Agreement dated as of December 19, 2000 among Carrols
Corporation, The Chase Manhattan Bank, Bank of America, N.A.,
Suntrust Bank, Atlanta, Manufacturers and Traders Trust Company, and
the other lenders now or hereafter parties hereto (incorporated by
reference to Exhibit 10.30 to Carrols Corporation's Form 8-K filed
January 3, 2001).
(2)21.1 List of subsidiaries
- --------
(1) Management contract or compensatory plan or arrangement identified
pursuant to this report.
(2) Filed herewith.
(b) Reports on Form 8-K
A current report on Form 8-K dated October 6, 2000 was filed during the fourth
quarter of the fiscal year to report that Carrols Corporation (the "Company")
entered into a definitive Agreement and Plan of Merger under which the Company
would purchase, for cash, all of the outstanding common shares of Taco Cabana,
Inc. Subsequently, on December 19, 2000, the Company completed its acquisition
of Taco Cabana, Inc.
39
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholder
of Carrols Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Carrols Corporation and its subsidiaries at December 31,
2000 and January 2, 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedules
listed in the index appearing under Item 14(a)(2) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
Syracuse, New York
March 2, 2001
F-1
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
Current Assets: 2000 1999
---- ----
Cash and cash equivalents $ 2,712,000 $ 1,901,000
Trade and other receivables, net of reserves of
$130,000 and $53,000, respectively 1,912,000 787,000
Inventories 5,917,000 4,211,000
Prepaid rent 2,284,000 1,829,000
Prepaid expenses and other current assets 4,122,000 1,629,000
Refundable income taxes 2,605,000 682,000
Deferred income taxes (Note 7) 8,451,000 6,475,000
------------- -------------
Total current assets 28,003,000 17,514,000
------------- -------------
Property and equipment, at cost less accumulated
depreciation and amortization of $97,968,000,
and $91,599,000, respectively (Note 2) 203,284,000 122,813,000
Franchise rights, at cost less accumulated amortization
of $38,539,000 and $34,174,000, respectively 98,931,000 101,927,000
Intangible assets, at cost less accumulated
amortization of $13,615,000 and $11,328,000,
respectively (Note 2) 127,417,000 67,545,000
Deferred income taxes (Note 7) 6,406,000 -
Other assets 12,871,000 10,228,000
------------- -------------
$ 476,912,000 $ 320,027,000
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 13,369,000 $ 19,345,000
Accrued interest 2,247,000 1,920,000
Accrued payroll, related taxes and benefits 12,471,000 7,267,000
Accrued acquisition costs 5,612,000 --
Other liabilities 12,104,000 6,302,000
Current portion of long-term debt (Notes 4 and 5) 8,143,000 4,376,000
------------- -------------
Total current liabilities 53,946,000 39,210,000
Long-term debt, net of current portion (Notes 4 and 5) 362,995,000 249,118,000
Deferred income--sale/leaseback of real estate (Note 4) 4,171,000 4,463,000
Accrued postretirement benefits (Note 12) 2,117,000 1,913,000
Deferred income taxes (Note 7) - 1,208,000
Other liabilities (Note 3) 34,664,000 9,064,000
------------- -------------
Total liabilities 457,893,000 304,976,000
Commitments and contingencies (Notes 4 and 10)
Stockholder's equity (Note 8):
Common stock, par value $1; authorized 1,000
shares, issued and outstanding - 10 shares 10 10
Additional paid-in capital 24,484,990 24,484,990
Accumulated deficit (5,466,000) (9,434,000)
------------- -------------
Total stockholder's equity 19,019,000 15,051,000
------------- -------------
$ 476,912,000 $ 320,027,000
============= =============
The accompanying notes are an integral part of these financial
statements.
F-2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Revenues:
Restaurant sales $ 465,862,000 $ 455,440,000 $ 416,190,000
Franchise royalty revenues and franchise fees 1,039,000 1,039,000 395,000
-------------- ------------- -------------
Total revenues 466,901,000 456,479,000 416,585,000
-------------- ------------- -------------
Costs and expenses:
Cost of sales 132,646,000 137,279,000 122,620,000
Restaurant wages and related expenses 135,787,000 134,125,000 121,732,000
Other restaurant operating expenses 91,595,000 89,093,000 82,710,000
Advertising expense 20,554,000 20,618,000 18,615,000
General and administrative 26,403,000 23,102,000 19,219,000
Depreciation and amortization 28,856,000 23,898,000 20,005,000
Other income (Note 14) (1,365,000) -- --
-------------- ------------- -------------
Total operating expenses 434,476,000 428,115,000 384,901,000
-------------- ------------- -------------
Income from operations 32,425,000 28,364,000 31,684,000
Interest expense 23,666,000 22,386,000 21,068,000
Refinancing expenses (Note 6) -- -- 1,639,000
-------------- ------------- -------------
Income before income taxes and extraordinary loss 8,759,000 5,978,000 8,977,000
Provision for income taxes(Note 7) 4,441,000 3,826,000 4,847,000
-------------- ------------- -------------
Income before extraordinary loss 4,318,000 2,152,000 4,130,000
Extraordinary loss on extinguishment of debt, net
of tax benefit (Note 5) 350,000 1,099,000 3,701,000
-------------- ------------- -------------
Net income $ 3,968,000 $ 1,053,000 $ 429,000
============== ============= =============
The accompanying notes are an integral part of these financial statements.
F-3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years Ended December 31, 2000, 1999 and 1998
Additional Total
Common Paid- Accumulated Stockholder's
Stock In-Capital Deficit Equity
----- ---------- ------- ------
Balance at January 1, 1998 $ 10 $ 28,362,990 $ (10,916,000) $ 17,447,000
Net income 429,000 429,000
Dividends declared (3,878,000) (3,878,000)
------- ------------ ------------- ------------
Balance at December 31, 1998 10 24,484,990 (10,487,000) 13,998,000
Net income 1,053,000 1,053,000
------- ------------ ------------- ------------
Balance at December 31, 1999 10 24,484,990 (9,434,000) 15,051,000
Net income 3,968,000 3,968,000
------- ------------ ------------- ------------
Balance at December 31, 2000 $ 10 $ 24,484,990 $ (5,466,000) $ 19,019,000
======= ============ ============= ============
The accompanying notes are an integral part of these financial statements.
F-4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows provided from operating activities:
Net income $ 3,968,000 $ 1,053,000 $ 429,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Loss (gain) on disposal of property and equipment -- 102,000 (96,000)
Depreciation and amortization 28,856,000 23,898,000 20,005,000
Extraordinary loss on extinguishment of
debt, net of tax 350,000 1,099,000 3,701,000
Deferred income taxes 2,922,000 1,675,000 854,000
Changes in operating assets and liabilities:
Refundable income taxes 816,000 4,632,000 2,204,000
Accounts payable (8,329,000) 8,183,000 (3,169,000)
Accrued payroll, related taxes and benefits 1,843,000 (2,123,000) 2,128,000
Accrued acquisition costs 5,612,000 -- --
Other liabilities - current 753,000 (851,000) 383,000
Accrued interest 327,000 (92,000) (2,758,000)
Other liabilities--long-term 14,852,000 1,953,000 --
Other (2,250,000) (1,356,000) (408,000)
---------- ---------- ------------
Net cash provided from operating activities 49,720,000 38,173,000 23,273,000
---------- ---------- -----------
Cash flow used for investing activities:
Capital expenditures:
Purchase of Taco Cabana, Inc. net of cash acquired (154,668,000) -- --
Purchase of Pollo Tropical, Inc. net of cash acquired -- -- (94,632,000)
New restaurant development (11,328,000) (14,085,000) (13,297,000)
Restaurant remodeling (10,957,000) (9,795,000) (9,500,000)
Corporate and restaurant information systems (5,663,000) (11,883,000) (4,246,000)
Other capital expenditures (8,209,000) (9,569,000) (6,252,000)
Acquisition of Burger King restaurants -- (3,833,000) (629,000)
Payments received on notes and mortgages -- -- 715,000
Proceeds from dispositions of property and equipment 7,000 230,000 1,337,000
-------------- ------------- -------------
Net cash used for investing activities $ (190,818,000) $(48,935,000) $(126,504,000)
============== ============ =============
The accompanying notes are an integral part of these financial statements.
F-5
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows provided from financing activities:
Proceeds from long-term debt, net $ 222,113,000 $ -- $ 245,000,000
Principal payments and retirements of long-term obligations (106,167,000) (8,028,000) (143,851,000)
Proceeds from sale-leaseback transactions 29,523,000 14,800,000 20,532,000
Dividends paid -- -- (3,878,000)
Financing costs associated with issuance of debt (3,560,000) (886,000) (5,408,000)
Redemption premium on retirement of debt -- -- (4,639,000)
------------ ------------ -----------
Net cash provided from financing activities 141,909,000 5,886,000 107,756,000
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents 811,000 (4,876,000) 4,525,000
Cash and cash equivalents, beginning of year 1,901,000 6,777,000 2,252,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,712,000 $ 1,901,000 $ 6,777,000
============ =========== ============
Supplemental disclosures:
Interest paid on debt $ 23,339,000 $22,739,000 $ 23,826,000
Income taxes paid $ 1,294,000 $ 1,594,000 $ 3,652,000
The accompanying notes are an integral part of these financial statements.
F-6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies
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, 2000 the Company operated, as franchisee, 355 quick-service
restaurants under the trade name "Burger King" in thirteen Northeastern,
Midwestern and Southeastern states. At December 31, 2000 the Company also owned
and operated 49 Pollo Tropical restaurants located in Florida and franchised 24
restaurants in Puerto Rico, Ecuador, Aruba, El Salvador and Florida. As
described in Note 13, during 2000, the Company purchased Taco Cabana, Inc.
("Taco Cabana"). At December 31, 2000, the Company owned and operated 117 Taco
Cabana restaurants located in Texas, Oklahoma and Arizona and franchised 10
restaurants in Texas, New Mexico, Georgia and Indiana.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original 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. Inventories are primarily comprised of food and paper.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization is provided using the straight-line method over
the following estimated useful lives:
Buildings and improvements................ 5 to 30 years
Leasehold improvements.................... Remaining life of lease
including renewal options or
life of asset whichever is
shorter
Equipment................................. 3 to 15 years
Computer hardware and software............ 3 to 7 years
Capital leases............................ Remaining life of lease
Burger King Franchise Rights. Fees for initial franchises and renewals are
amortized using the straight-line method over the term of the agreement,
generally twenty years. Acquisition costs allocated to franchise rights are
amortized using the straight-line method, principally over the remaining lives
of the acquired leases including renewal options, but not in excess of 40 years.
Intangible Assets. Intangible assets consist of the excess purchase price
over net assets acquired, beneficial leases and trademarks. The excess purchase
price over net assets acquired and trademarks are amortized using the straight
line method over 40 years with the exception of the excess cost over fair value
associated with the acquisition of Taco Cabana, Inc. which is amortized over 20
years. Beneficial leases and unfavorable leases are amortized using the
straight-line method over the lives of the leases including renewal options, but
not in excess of 40 years.
Long-Lived Assets. The Company assesses the recoverability of property and
equipment, franchise rights and intangible assets by determining whether the
amortization of these assets, over their respective remaining lives, can be
recovered through undiscounted future operating cash flows. Impairment is
reviewed whenever events or changes in circumstances indicate the carrying
amounts of these assets may not be fully recoverable.
Deferred Financing Costs. Financing costs, that are included in other
assets and were incurred in obtaining long-term debt are capitalized and
amortized over the life of the related debt on an effective interest basis for
costs associated with the Company's unsecured senior subordinated notes and on a
straight-line basis for costs associated with the Company's senior credit
facility.
Revenue Recognition. On December 3, 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements, implementation of which was effective in
the fourth quarter of 2000. SAB 101 reflects the basic principles of revenue
recognition in existing generally accepted accounting principles (GAAP). The
Company was in compliance with basic principles of revenue recognition and as
such, implementation of the SAB 101 did not have an effect on its results.
F-7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies--(Continued)
Franchise Fees associated with Pollo Tropical restaurants. Franchise fees
are typically collected upon execution of an area development and/or franchise
agreement. Franchise fees are initially recorded as deferred revenue and are
recognized in earnings when the franchised restaurants are opened, or upon
forfeiture of such fees by the franchisees pursuant to the terms of the
franchise development agreements.
Royalty Revenues associated with Pollo Tropical and Taco Cabana
restaurants. Royalty revenues are based on a percent of gross sales and are
recorded as income when earned.
Income Taxes. The Company and its subsidiaries file consolidated
federal income tax returns.
Advertising Costs. All advertising costs are expensed as incurred.
Self Insurance. The Company is generally self-insured for workers
compensation, general liability and medical insurance. The Company maintains
stop loss coverage for both individual and aggregate claim amounts. Losses are
accrued based upon the Company's estimates of the aggregate liability for claims
based on Company experience and certain actuarial methods used to measure such
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 Subordinated Notes. The fair values of outstanding senior
subordinated notes and senior notes are based on quoted market
prices. The fair values at December 31, 2000 and 1999 are
approximately $110,075,000 and $153,850,000, respectively.
. Revolving and Term Loan Facilities. Rates currently available to
the Company for debt with similar terms and remaining maturities
are used to estimate fair value. The recorded amounts, as of
December 31, 2000 and 1999, approximated fair value.
Stock-Based Compensation. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) permits entities
to recognize as an expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also allowed
entities to continue to apply the provisions of APB 25 and provide pro forma net
income disclosures for employee stock option grants as if the fair-value-based
method defined in SFAS 123 has been applied. The Company has elected to continue
to apply the provisions of APB 25 and provide the pro forma disclosure
provisions of SFAS 123.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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.
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 31, 2000 (52 weeks), January 2, 2000 (52 weeks) and January 3, 1999 (53
weeks).
F-8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
1. Summary of Significant Accounting Policies--(Continued)
Reclassifications. Certain amounts for prior years have been reclassified
to conform to the current year presentation.
2. Property and Equipment and Intangible Assets
Property and equipment at December 31, net of accumulated depreciation and
amortization, consist of the following:
2000 1999
------ ------
Land $ 22,943,000 $ 9,280,000
Buildings and improvements 40,576,000 27,044,000
Leasehold improvements 89,888,000 61,034,000
Equipment 133,438,000 102,647,000
Capital leases 14,407,000 14,407,000
------------- -------------
301,252,000 214,412,000
Less accumulated depreciation
and amortization (97,968,000) (91,599,000)
------------- -------------
$ 203,284,000 $ 122,813,000
============= =============
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $17,594,000, $15,314,000 and $12,737,000, respectively.
Intangible assets at December 31, net of accumulated amortization, consist
of the following:
2000 1999
---- ----
Goodwill $ 126,228,000 $ 61,912,000
Trademarks 452,000 421,000
Other 737,000 5,212,000
------------- -------------
$ 127,417,000 $ 67,545,000
============= =============
Amortization expense for the years ended December 31, 2000, 1999 and 1998
was $2,286,000, $2,183,000 and $1,439,000, respectively.
3. Other Liabilities, Long-Term
Other liabilities, long-term, at December 31, consist of the following:
2000 1999
---- ----
Unearned purchase discounts $ 16,530,000 $ 1,544,000
Accrued occupancy costs 12,410,000 1,995,000
Other 5,724,000 5,525,000
------------- -------------
$ 34,664,000 $ 9,064,000
============= =============
Unearned purchase discounts are amortized as a reduction of cost of sales
either over the life of the supplier contract or the estimated purchase
commitment period. In 2000, Burger King Corporation arranged for the Coca-Cola
Company and Dr. Pepper/Seven-Up, Inc. to provide funding to franchisees in
connection with Burger King's transformation initiatives. The Company received
approximately $19.8 million in 2000 under this arrangement with these suppliers.
The total amount of purchase discounts amortized for the year ended December 31,
2000 was $2,044,000.
Accrued occupancy costs include obligations pertaining to closed restaurant
locations, contingent rent and accruals to expense operating lease rental
payments on a straight-line basis over the lease term.
4. Leases
The Company utilizes land and buildings in its operations under various
lease agreements. These leases generally contain an initial term of twenty years
and, in most cases, contain renewal options. The rent payable under such leases
includes a minimum rent provision and, in some cases, include a percentage of
sales provision. In addition, most leases require payment of property taxes,
insurance and utilities.
Deferred gains have been recorded as a result of sale/leaseback
transactions and are being amortized over the lives of the related leases. These
related leases have been classified as operating leases and generally contain a
twenty year initial term with renewal options.
F-9
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
4. Leases (continued)
Minimum rent commitments under capital and non-cancelable operating leases
at December 31, 2000 were as follows:
Years Ending Capital Operating
------------ ------- ---------
2001 $ 1,668,000 $ 36,465,000
2002 1,639,000 35,844,000
2003 1,366,000 34,826,000
2004 1,329,000 33,661,000
2005 1,322,000 31,251,000
Thereafter 1,990,000 247,018,000
------------ ------------
Total minimum lease payments $ 9,314,000 $419,065,000
Less amount representing interest 6,159,000 ============
------------
Total obligations under capital leases 3,155,000
Less current portion 522,000
------------
Long-term obligations under capital leases $ 2,633,000
============
Accumulated amortization pertaining to capital leases for the years ended
December 31, 2000 and 1999 was $11,393,000 and $10,898,000, respectively.
Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the past three years was as follows:
2000 1999 1998
---- ---- ----
Minimum rent on real property $27,213,000 $25,775,000 $22,441,000
Additional rent based on a
percentage of sales 3,113,000 3,901,000 4,328,000
Equipment rent 42,000 226,000 39,000
----------- ----------- -----------
$30,368,000 $29,902,000 $26,808,000
=========== =========== ===========
5. Long-Term Debt
Long-term debt at December 31 consisted of:
2000 1999
---- ----
Collateralized:
Revolving credit facility $ 45,600,000 $ 34,100,000
Term loan A facility 70,000,000 47,000,000
Term loan B facility 80,000,000 --
Other notes payable 2,383,000 681,000
Unsecured 9.5% senior subordinated notes 170,000,000 170,000,000
Capital leases 3,155,000 1,713,000
------------- -------------
371,138,000 253,494,000
Less current portion (8,143,000) (4,376,000)
------------- -------------
$ 362,995,000 $ 249,118,000
============= =============
F-10
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
5. Long-Term Debt (continued)
Senior Credit Facility:
- ----------------------
On December 19, 2000, the Company entered into a new senior credit
facility with The Chase Manhattan Bank, as agent and lender, and other lenders
as parties thereto. This new senior credit facility was used to finance the
acquisition of Taco Cabana, Inc. and to refinance outstanding amounts under the
Company's previous credit facility. The facility provides for total borrowings
of $250 million and consists of a $100 million revolving credit facility
(including a standby letter of credit facility for up to $10 million) a $70
million term loan A facility and an $80 million term loan B facility.
Borrowings under the revolving credit facility may be used to finance
permitted acquisitions and new store development, or for working capital and
general corporate purposes. At December 31, 2000, $50,350,000 was available for
borrowings under the revolving credit facility, after reserving $4,050,000 for
letters of credit guaranteed by the facility.
Borrowings under the new senior credit facility bear interest at a per
annum rate, at the Company's option, of either:
1) the greater of the prime rate or the federal funds rate plus .50%
plus a margin ranging from .50% to 1.75% for the revolving credit
facility and the term loan A facility based on debt to cash flow
ratios, and at a fixed margin of 2.5% for the term loan B
facility; or
2) LIBOR plus a margin ranging from 2.00% to 3.25% for the revolving
credit facility and the term loan A facility based on debt to
cash flow ratios, and at a fixed margin of 4.0% for the term loan
B facility.
The revolving credit facility and the term loan A facility expire on December
31, 2005. However, the revolving credit facility is eligible for a one-year
extension based upon request and unanimous approval of the lenders. The term
loan B facility expires on December 31, 2007. Amounts under the term loan A
facility are repayable as follows:
1) an aggregate of $6 million payable in four quarterly installments
in 2001;
2) an aggregate of $7.5 million payable in four quarterly
installments in 2002;
3) an aggregate of $10.0 million payable in four quarterly
installments in 2003;
4) an aggregate of $12.5 million payable in four quarterly
installments in 2004;
5) an aggregate of $9.4 million payable in three quarterly
installments in 2005; and
6) a final payment of $24.6 million payable upon the term loan A
facility's maturity on December 31, 2005.
Amounts under the term loan B facility are repayable as follows:
1) an aggregate of $1.0 million payable in four quarterly
installments for each year including 2001 through 2005;
2) an aggregate of $35.0 million payable in four quarterly
installments in 2006;
3) an aggregate of $26.2 million payable in three quarterly
installments in 2007; and
4) a final payment of $13.8 million payable upon the term loan B
facility's maturity on December 31, 2007.
In general, the Company's obligations under the senior credit facility
are collateralized by all of the Company's assets, a pledge of the Company's
common stock and the stock of each of the Company's subsidiaries.
In connection with the Company's refinancing of its senior credit
facilities in 2000 and 1999, the Company has recognized an extraordinary loss of
$350,000 in 2000 (net of a $225,000 income tax benefit) and $1,099,000 in 1999
(net of a $726,000 income tax benefit). These losses represent the write off of
unamortized debt issue costs related to the previously existing senior credit
facility.
F-11
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
5. Long-Term Debt (continued)
Senior Subordinated Notes:
- -------------------------
The Company issued $170 million of unsecured senior subordinated notes
on November 24, 1998. The senior notes bear interest at a rate of 9.5% payable
semi-annually on June 1 and December 1 and mature on December 1, 2008. The notes
are redeemable at the option of the Company in whole or in part on or after
December 1, 2003 at a price of 104.75% of the principal amount if redeemed
before December 1, 2004, 103.167% of the principal amount if redeemed after
December 1, 2004 but before December 1, 2005, 101.583% of the principal amount
if redeemed after December 1, 2005 but before December 1, 2006 and at 100% of
the principal amount after December 1, 2006.
Restrictive covenants of the senior subordinated notes and the senior
credit facility include limitations with respect to the Company's ability to
issue additional debt, incur liens, sell or acquire assets or businesses, pay
dividends and make certain investments. In addition, the senior credit facility
requires the Company to meet certain financial ratio tests.
In connection with the issuance of the 9.5% senior subordinated notes,
the Company redeemed all of its outstanding 11.5% senior notes. This redemption
included aggregate principal amounts of $107,637,000, a redemption premium of
$4,639,000, and accrued interest to December 24, 1998 of $4,436,000. In
addition, the Company used the proceeds of the 9.5% notes to repay $47.9 million
of its previous senior credit facility.
In connection with the redemption of the 11.5% senior notes in the
fourth quarter of 1998, the Company recognized an extraordinary loss of
$3,701,000, which is net of a $3,281,000 income tax benefit, for the redemption
premium and the write-off of $2,343,000 in unamortized debt issue costs related
to the 11.5% notes.
Other Notes Payable:
- -------------------
During 2000, the Company, as mandated by Burger King, has purchased
frozen Coke machines for all of its Burger King restaurants. Burger King has
made arrangements to allow franchisees to finance these purchases through
Coca-Cola Financial. These notes are for a four year term and bear interest at
annual interest rates ranging from 8.2% to 9.5%. At December 31, 2000, these
notes payable totaled $1,816,000.
At December 31, 2000, principal payments required on all long-term debt,
including the new senior credit facility, are as follows:
2001 $ 7,621,000
2002 9,177,000
2003 11,499,000
2004 13,519,000
2005 80,600,000
Thereafter 245,567,000
------------
$367,983,000
============
The weighted average interest rate for the years ended December 31,
2000, 1999 and 1998 was 9.4%, 8.9% and 9.9%, respectively.
6. Refinancing Expenses
The Company expensed all costs associated with its efforts to refinance
its existing debt in the third quarter of 1998 as the timing of any future
refinancing was then uncertain and the related activities had ceased.
Approximately $1.2 million of these costs related to losses on interest rate
hedge transactions.
F-12
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
7. Income Taxes
The income tax provision was comprised of the following for the years ended
December 31:
2000 1999 1998
---- ---- ----
Current:
Federal $ 121,000 $ 288,000 $ 152,000
Foreign 260,000 239,000 114,000
State 848,000 744,000 471,000
------------ ----------- -----------
1,229,000 1,271,000 737,000
------------ ----------- -----------
Deferred:
Federal 2,784,000 2,188,000 3,602,000
State 428,000 367,000 508,000
------------ ----------- -----------
3,212,000 2,555,000 4,110,000
------------ ----------- -----------
$ 4,441,000 $ 3,826,000 $ 4,847,000
============ =========== ===========
The components of deferred income tax assets and liabilities at December
31, are as follows:
2000 1999
---- ----
Current deferred tax assets:
Accounts receivable and other reserves $ 238,000 $ 260,000
Accrued vacation benefits 1,083,000 827,000
Other non-deductible accruals 1,564,000 723,000
Net operating loss carrryforwards 5,425,000 4,516,000
Other 141,000 149,000
----------- -----------
Total current deferred tax assets 8,451,000 6,475,000
----------- -----------
Long term deferred tax assets/(liabilities):
Deferred income on sale/leaseback of real estate 1,666,000 1,782,000
Postretirement benefit expenses 845,000 764,000
Property and equipment depreciation (7,221,000) (3,626,000)
Net operating loss carryforwards 3,819,000 5,190,000
Amortization of intangible assets (3,448,000) (6,772,000)
Non-deductible occupancy costs 6,642,000 762,000
Tax credit carryforwards 3,926,000 471,000
Other 177,000 221,000
----------- -----------
Total long-term net deferred tax assets/(liabilities) 6,406,000 (1,208,000)
----------- -----------
Total net deferred tax assets $14,857,000 $ 5,267,000
=========== ===========
The Company has net operating loss carryforwards for income tax purposes
of approximately $24 million, at December 31, 2000. The net operating loss
carryforwards expire in varying amounts beginning in 2004 through 2010. The
Company is generally limited, for Federal income tax purposes, to an annual
utilization of net operating losses of $10,664,000. The Company has net
operating losses of approximately $16.5 million available to be utilized in 2001
due to this limit not being fully utilized in prior years. In addition, the
Company has available Federal alternative minimum tax credit carryforwards with
no expiration date and other Federal tax credit carryforwards which begin to
expire in 2018. Realization of the deferred income tax assets relating to net
operating losses and tax credit carryforwards is dependent on generating
sufficient taxable income prior to the expiration of these 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 deferred tax assets, although there can be no assurance of this.
F-13
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
A reconciliation of the statutory federal income tax rate to the
effective tax rates for the years ended December 31, is as follows:
2000 1999 1998
----------------- ------------------- ------------------
Statutory federal income
tax rate $2,978,000 34.0% $ 2,034,000 34.0% $3,053,000 34.0%
State income taxes, net of
federal benefit 569,000 6.5 526,000 8.8 515,000 5.7
Nondeductible expenses 1,003,000 11.4 956,000 16.0 611,000 6.8
Foreign taxes 172,000 2.0 158,000 2.6 114,000 1.3
Miscellaneous (281,000) (3.2) 152,000 2.6 554,000 6.1
---------- ---- ----------- ---- ---------- ----
$4,441,000 50.7% $ 3,826,000 64.0% $4,847,000 53.9%
========== ==== =========== ==== ========== ====
Nondeductible expenses consist primarily of amortization of certain franchise
rights and other intangibles.
8. Stockholder's Equity
The Company
The Company has 1,000 shares of common stock authorized of which 10
shares are issued and outstanding. The Company is 100% owned by Holdings.
Dividends on the Company's common stock are restricted to amounts permitted by
various loan agreements.
Holdings
During 1999, Holdings amended its Restated Certificate of Incorporation
and its stockholders approved and adopted the following actions: (1) 7,250
shares of Holdings' Class A 10% Cumulative Redeemable Preferred Stock which were
authorized but unissued, were canceled; (2) Holdings' authorized common stock
was increased from 3,000,000 shares to 5,000,000 shares; and, (3) 100,000 shares
of Preferred Stock, par value $0.01, were authorized.
Holdings' common stock was designated to consist of two series
comprising of 3,000,000 shares of Carrols Stock, par value $0.01 per share, and
2,000,000 shares of Pollo Tropical Stock, par value $0.01 per share. The
existing common stock of Holdings was redesignated, on a share for share basis,
for shares of the Carrols class of common stock. The holders of the Carrols
Stock will have exclusive voting rights; no holders of the Pollo Tropical Stock
will have voting rights, except as may be required pursuant to Delaware law.
The Pollo Tropical class of Holdings' stock is considered a tracking
stock, which is a class of stock intended to track the separate performance of
the Company's Pollo Tropical division. This tracking stock was adopted as a
separate series of equity securities in order to provide a framework for
structuring employee incentive plans and to tie such incentives to the business
results and performance of the Pollo Tropical division.
The number of shares of Pollo Tropical class stock that initially
represents 100% of the common stockholders' equity of Holdings attributable to
the Pollo Tropical Group, was established at 1,000,000 shares by the Board of
Directors. Of the 1,000,000 shares that are issuable, none have been issued, and
100,000 have been reserved for grants under the 1998 Pollo Tropical Long-Term
Incentive Plan, which is a Holdings stock option plan.
The Carrols class of Holdings' stock consists of the interest of
Holdings in all of its assets, liabilities and businesses, other than the
assets, liabilities and businesses attributed to the Pollo Tropical Group. Until
the issuance of any Pollo Tropical Stock, the rights, preferences and
liabilities of the Pollo Tropical Stock will be retained by Holdings. To the
extent that less than 100% of the authorized shares of Pollo Tropical Stock are
issued, the rights, preferences, assets and liabilities of the shares not issued
remain with Holdings and its existing Carrols class stockholders.
F-14
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
8. Stockholder's Equity (continued)
Of the 5,000,000 common shares authorized, 1,144,144 shares of Holdings'
Carrols common stock are issued and outstanding. In 1998, all preferred stock
was redeemed at the option of Holdings, at a price of $1,000 per share, plus
accrued dividends.
Stock Options for Carrols Class Stock
In 1996, Holdings adopted a stock option plan entitled the 1996
Long-Term Incentive Plan ("1996 Plan") and authorized a total of 106,250 shares
to be granted at prices ranging from $101.76 to $140.00 per share. Options under
this plan generally vest over a four year period. In 1998, Holdings adopted the
1998 Directors' Stock Option Plan ("1998 Directors' Plan") authorizing to grant
up to 10,000 options to non-employee Directors. Options under this plan are
exercisable over four years. In addition, in conjunction with the 1997 sale of
Holdings common stock to Madison Dearborn, additional options not part of the
1996 Plan for 32,427 shares at a price of $101.76 were granted with vesting over
a five year period. As a result of the adoption of the Pollo Tropical tracking
stock, the stock options under these plans were redesignated as options of
Holdings' Carrols class common stock.
Stock Options for Pollo Tropical Tracking Stock
Holdings has also adopted the 1998 Pollo Tropical Long-Term Incentive
Plan ("1998 Pollo Plan") authorizing to grant up to 100,000 shares of Holdings'
Pollo Tropical class of common stock. Options under this plan generally vest
over a five year period.
F-15
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
8. Stockholder's Equity (continued)
A summary of all option activity under Holdings' stock option plans for the
years ended December 31, 2000, 1999 and 1998 is as follows:
NonPlan 1996 Directors Pollo
Options Plan Plan Plan
------- ---- ---- ----
Shares Under Option:
Outstanding at December 31, 1997 32,427 86,140 - -
Granted - 10,400 2,000 70,000
Canceled - (775) - -
--------- ---------- --------- ---------------
Outstanding at December 31, 1998 32,427 95,765 2,000 70,000
Granted - 6,245 500 6,250
Canceled - (3,587) (1,000) -
--------- ---------- --------- ---------------
Outstanding at December 31, 1999 32,427 98,423 1,500 76,250
Granted - 7,590 500 5,000
Canceled - (1,315) - -
--------- ---------- --------- ---------------
Outstanding at December 31, 2000 32,427 104,698 2,000 81,250
Grant Prices:
1998 $ - 124.78 110.00 77.50 to 137.00
1999 - 126.00 126.00 109.00
2000 - 124.00 124.00 127.00
Average Option Price:
At December 31, 1998 $ 101.76 105.32 110.00 92.31
At December 31, 1999 101.76 106.28 115.33 93.68
At December 31, 2000 101.76 107.37 117.50 95.73
Options Exercisable:
At December 31, 1998 6,486 53,474 500 -
At December 31, 1999 12,972 68,057 625 24,000
At December 31, 2000 19,457 94,275 1,125 36,750
Had compensation cost been determined based upon the fair value of the
stock options at grant date consistent with the method of SFAS 123, the
Company's pro-forma net income (loss) would have been $3,511,000, $534,000 and
$(37,000) for the years ended December 31, 2000, 1999 and 1998, respectively.
The fair value of each option grant was estimated using the minimum value
option pricing model with the following weighted-average assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate 6.26% 5.51% 5.60%
Annual dividend yield 0% 0% 0%
Expected life 5 years 5 years 5 years
F-16
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
9. Business Segment Information
The Company is engaged in the quick-service restaurant industry, with three
restaurant concepts: Burger King operating as a franchisee, and Pollo Tropical
and Taco Cabana, both Company owned concepts. The Company's Burger King
restaurants are all located in the United States, primarily in the Northeast,
Southeast and Midwest. Pollo Tropical is a regional quick-service restaurant
chain featuring grilled marinated chicken and authentic "made from scratch" side
dishes. Pollo Tropical's core markets are located in south and central Florida.
Taco Cabana is a regional quick-service restaurant chain featuring Mexican style
food, including, flame-grilled beef and chicken fajitas, quesadillas and other
Tex-Mex dishes. Taco Cabana's core markets are primarily in Texas.
For 1998, segment information includes Burger King restaurants for the year
ended December 31, 1998 and Pollo Tropical for the period July 10, 1998 through
December 31, 1998. For 1999, segment information includes both Burger King and
Pollo Tropical for the full year. For 2000, segment information includes both
Burger King and Pollo Tropical for the full year and Taco Cabana for the period
December 20, 2000 through December 31, 2000. The "Other" column includes
corporate related items not allocated to reportable segments and for income from
operations, principally corporate depreciation and amortization. Other
identifiable assets consist primarily of franchise rights and intangible assets.
Non-operating expenses, comprised of interest expense, interest income, and
refinancing expenses and the extraordinary loss are corporate related items and
therefore have not been allocated to the reportable segments.
Burger
King Pollo Taco
Restaurants Tropical Cabana Other Consolidated
----------- -------- ------ ----- ------------
($ in 000's)
Year Ended December 31, 2000:
Revenues $ 371,335 $ 90,004 $ 5,562 $ -- $ 466,901
Cost of sales 101,520 29,533 1,593 -- 132,646
Restaurant wages and related expenses 113,215 20,950 1,622 -- 135,787
Depreciation and amortization 22,057 2,129 255 4,415 28,856
Income from operations 19,848 16,372 620 (4,415) 32,425
Identifiable assets 208,533 26,198 67,035 175,146 476,912
Capital expenditures, excluding acquisitions 27,359 7,577 -- 1,221 36,157
Year Ended December 31, 1999:
Revenues $ 372,689 $ 83,790 $ -- $ -- $ 456,479
Cost of sales 108,489 28,790 -- -- 137,279
Restaurant wages and related expenses 114,935 19,190 -- -- 134,125
Depreciation and amortization 18,404 1,948 -- 3,546 23,898
Income from operations 17,451 14,459 -- (3,546) 28,364
Identifiable assets 207,172 21,599 -- 91,256 320,027
Capital expenditures, excluding acquisitions 32,159 9,522 -- 3,651 45,332
Year Ended December 31, 1998:
Revenues 381,042 35,543 -- -- 416,585
Cost of sales 110,269 12,351 -- -- 122,620
Restaurant wages and related expenses 113,456 8,276 -- -- 121,732
Depreciation and amortization 17,014 1,018 -- 1,973 20,005
Income from operations 27,940 5,717 -- (1,973) 31,684
Capital expenditures, excluding acquisitions 26,560 4,335 -- 2,400 33,295
F-17
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
10. Contingencies
On November 16, 1998, the Equal Employment Opportunity Commission
("EEOC") filed suit in the United States District Court for the Northern
District of New York, under Title VII of the Civil rights Act of 1964, as
amended, against the Company.
The case is in discovery, with the nominal deadline for written and
documentary discovery having passed and the parties being engaged in an attempt
to resolve discovery disputes. Further discovery may follow, after which the
parties may file motions for summary judgement late in 2001 or early 2002. It is
too early to make an evaluation of the likelihood of an unfavorable outcome
and/or an estimate of the amount or range of potential loss. The Company is
contesting the case vigorously and believes it is without merit.
The Company is a party to various other legal proceedings arising from
the normal course of business. It is the Company's policy to accrue costs
associated with significant outstanding legal proceedings, which are able to be
estimated. Based on information currently available, management believes adverse
decisions relating to litigation and contingencies in the aggregate would not
materially affect the Company's results of operations, cash flows or financial
condition.
11. Retirement Plans
The Company offers three retirement plans, a savings plan for its
salaried Burger King employees (the "Carrols Corporation Retirement Savings
Plan") and 401(k) plans for its Pollo Tropical employees (the "Pollo Tropical
401(k) Retirement Savings Plan") and its Taco Cabana employees (the "Taco Cabana
Savings and Retirement Plan").
Effective April 1, 1999, the Carrols Corporation Retirement Savings Plan
was amended. Under this amendment, the plan was modified to include a savings
option pursuant to section 401(k) of the Internal Revenue Code in addition to a
post tax savings option. Under the amended plan, participating employees may
contribute up to 18% of their salary annually to either of the savings options,
subject to other limitations. 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 $520
annually. The employees have various investment options available under a trust
established by the plan. The plan expense, including Company contributions, was
$344,000, $245,000 and $216,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
Under the Pollo Tropical 401(k) Retirement Plan, all employees who are
age 21 or older and who have been credited with at least 1,000 hours of service
within 12 consecutive months are eligible to participate in the 401K Plan. The
Company makes discretionary matching contributions, which are allocated to
participants based on the participant's eligible deferrals during the plan year.
Company contributions vest at a rate of 33% for each year of service. Company
contributions to the 401K Plan totaled, $39,000, $29,000 and $17,000, for the
years ended December 31, 2000, 1999 and 1998.
Under the Taco Cabana Savings and Retirement Plan, all employees who are
age 21 or older and who have been credited with at least 1,000 hours of service
within 12 consecutive months are eligible to participate in the plan. Employees
may contribute up to 15% of their salary on a pre-tax basis, and may self-direct
contributions to various investment options. During 2000, the plan was modified
to include a Company contribution equal to $.25 for every $1.00 contributed to
the plan up to 3% of an employee's salary. Company contributions vest at a rate
of 20% per year over 5 years.
F-18
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
12. Postretirement Benefits
The Company provides postretirement medical and life insurance benefits
covering substantially all Burger King administrative and restaurant
management salaried employees. The following is the plan status and accumulated
postretirement benefit obligation (APBO) at December 31, 2000 and 1999:
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of the year $ 1,683,000 $ 1,723,000
Service cost 142,000 141,000
Interest cost 125,000 115,000
Plan participant's contributions 2,000 2,000
Amendments, curtailments, special terminations - 8,000
Actuarial loss (gain) 4,000 (262,000)
Benefits paid (55,000) (44,000)
------------ ------------
Benefit obligation at end of the year 1,901,000 1,683,000
Change in plan assets:
Fair value of plan assets at end of year - --
------------ ------------
Funded status 1,901,000 1,683,000
Unrecognized prior service cost 136,000 160,000
Unrecognized actuarial net gain 80,000 70,000
------------ ------------
Accrued benefit cost $ 2,117,000 $ 1,913,000
============ ============
Weighted average assumptions as of December 31:
Discount rate 7.5% 7.5%
============ ============
For measurement purposes, a 5.75% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000, gradually
decreasing to 5.5% by the year 2001 and remaining at that rate thereafter.
2000 1999 1998
---- ---- ----
Components of net periodic benefit cost:
Service cost $ 142,000 $ 141,000 $ 107,000
Interest cost 125,000 115,000 101,000
Amortization of gains and losses - 4,000 --
Amortization of unrecognized prior service cost (24,000) (24,000) (25,000)
----------- ----------- -----------
Net periodic postretirement benefit cost $ 243,000 $ 236,000 $ 183,000
=========== =========== ===========
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in the health care cost
trend rates would have the following effects:
Increase Decrease
-------- --------
Effect on total of service and interest cost components $ 56,000 $ (45,000)
Effect on postretirement benefit obligation 324,000 (266,000)
F-19
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
13. Acquisitions
On December 19, 2000, the Company acquired Taco Cabana, Inc. pursuant to
an Agreement and Plan of Merger dated October 6, 2000. On December 18, 2000,
Taco Cabana, Inc. shareholders approved the merger of Spur Acquisition Corp. (a
wholly-owned subsidiary of Carrols Corporation) with and into Taco Cabana, Inc.
The total transaction was valued at approximately $154.7 million including the
purchase of the 11.9 million outstanding common shares, employee stock options
and the assumption of Taco Cabana's outstanding debt which was approximately $43
million. The Taco Cabana acquisition has been accounted for by the purchase
method of accounting and, accordingly, the results of operations of Taco Cabana
from December 20, 2000 are included in the accompanying consolidated financial
statements. The excess purchase price over net assets acquired is included in
intangible assets and is amortized over 20 years using the straight-line method.
The Company entered into a new senior credit facility, as described in Note 5,
to finance the Taco Cabana acquisition.
The following proforma results of operations for the periods presented
below assume this acquisition occurred as of the beginning of the respective
periods presented:
Year Ended December 31,
----------------------------
2000 1999
---- ----
(unaudited)
Revenues $632,030,000 $614,368,000
============ ============
Cost of sales $181,853,000 $184,818,000
============ ============
Restaurant wages and
related expenses $182,444,000 $177,840,000
============ ============
Depreciation and amortization $ 41,051,000 $ 36,165,000
============ ============
Income from operations $ 46,205,000 $ 41,541,000
============ ============
Net income before extraordinary
items $ 6,792,000 $ 3,646,000
============ ============
The preceding proforma financial information is not necessarily
indicative of the operating results that would have occurred if the acquisition
had been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of future operating results. The Company subsequently
sold 25 fee owned properties in a sale/leaseback transaction, the proceeds from
which were $29.4 million. The proceeds, which were received in December 2000,
were used to reduce the debt incurred for the acquisition. The proforma effects
of that transaction have not been included in these proforma statements.
Assets acquired and liabilities assumed in the Taco Cabana acquisition
were as follows:
Accounts receivable $ 901,000
Inventory 971,000
Prepaid expenses 2,483,000
Refundable income taxes 2,514,000
Deferred income taxes, current 2,700,000
Property and equipment 96,807,000
Intangible assets including goodwill 66,802,000
Deferred income taxes, long-term 9,812,000
Other non-current assets 756,000
Accounts payable 3,095,000
Accrued payroll, related taxes and benefits 3,361,000
Other current liabilities 5,704,000
Accrued occupancy costs 14,907,000
Other liabilities, long-term 2,011,000
---------------
$ 154,668,000
===============
14. Other Income
During 2000, the Company ended its supply agreement with Ameriserve Food
Distribution, Inc. and recognized $1,365,000 in other income representing the
remaining unrecognized portion of contractual payments previously received and
deferred at the inception of the agreement.
F-20
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2000, 1999 and 1998
15. Guarantor Financial Statements
The $170 million senior subordinated notes of the Company are
guaranteed by all of the Company's subsidiaries ("Guarantor Subsidiaries"), all
of which are wholly-owned by the Company. These subsidiaries are:
. Carrols Realty Holdings
. Carrols Realty I Corp.
. Carrols Realty II Corp.
. Carrols J.G. Corp.
. Quanta Advertising Corp.
. Pollo Franchise Inc.
. Pollo Operations, Inc.
. Taco Cabana, Inc.
. TP Acquisition Corp.
. T.C. Management, Inc.
. Taco Cabana Management, Inc.
. Get Real, Inc.
. Texas Taco Cabana, L.P.
. Taco Cabana Multistate, Inc.
. Taco Cabana Atlanta, Inc.
. Colorado Cabana, Inc.
. T.C. Lease Holdings III, V and VI, Inc.
. Cabana Bevco, LLC
. TC Bevco Management, LLC
. TC Bevco Holdings, LLC
. TC Bevco, LLC
. Cabana Beverages, Inc.
. Two Pesos Liquor Corporation
. Rosa Beverages, Inc.
The following supplemental financial information sets forth on a
condensed consolidating basis, consolidating balance sheets, statements of
operations and statements of cash flows for the Parent Company only, Guarantor
Subsidiaries and for the Company as of December 1999 and 2000 and for the years
ended December 31, 1998, 1999 and 2000.
F-21
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 1999
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
ASSETS
Current Assets:
Cash and cash equivalents $ 468,000 $ 1,433,000 $ 1,901,000
Trade and other receivables 677,000 110,000 787,000
Inventories 3,823,000 388,000 4,211,000
Prepaid rent 1,430,000 399,000 1,829,000
Prepaid expenses and other current assets 1,302,000 327,000 1,629,000
Refundable income taxes 682,000 -- 682,000
Deferred income taxes 6,475,000 -- 6,475,000
------------ ------------- ------------
Total current assets 14,857,000 2,657,000 17,514,000
------------ ------------- ------------
Property and equipment, net 96,236,000 26,577,000 122,813,000
Franchise rights, net 101,927,000 -- 101,927,000
Intangible assets, net 6,754,000 60,791,000 67,545,000
Intercompany receivable (payable) 83,248,000 (83,248,000) --
Other assets 8,070,000 2,158,000 10,228,000
------------ ------------- ------------
$311,092,000 $ 8,935,000 $320,027,000
============ ============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 16,280,000 $ 3,065,000 19,345,000
Accrued interest 1,920,000 -- 1,920,000
Accrued payroll, related taxes and benefits 5,930,000 1,337,000 7,267,000
Other liabilities 4,970,000 1,332,000 6,302,000
Current portion of long-term debt 4,376,000 -- 4,376,000
------------ ------------- ------------
Total current liabilities 33,476,000 5,734,000 39,210,000
Long-term debt, net of current portion 249,118,000 -- 249,118,000
Deferred income, sale/leaseback of real estate 4,463,000 -- 4,463,000
Accrued postretirement benefits 1,913,000 -- 1,913,000
Deferred income taxes 1,208,000 -- 1,208,000
Other liabilities 6,306,000 2,758,000 9,064,000
------------ ------------- ------------
Total liabilities 296,484,000 8,492,000 304,976,000
Commitments and contingencies
Stockholder's equity
Common stock 10 -- 10
Additional paid-in-capital 24,484,990 -- 24,484,990
Accumulated deficit (9,877,000) 443,000 (9,434,000)
------------ ------------- ------------
Total stockholder's equity 14,608,000 443,000 15,051,000
------------ ------------- ------------
$311,092,000 $ 8,935,000 $320,027,000
============ ============= ============
F-22
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2000
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
ASSETS
Current Assets:
Cash and cash equivalents $ 785,000 $ 1,927,000 $ 2,712,000
Trade and other receivables 207,000 1,705,000 1,912,000
Inventories 4,521,000 1,396,000 5,917,000
Prepaid rent 1,200,000 1,084,000 2,284,000
Prepaid expenses and other current assets 1,311,000 2,811,000 4,122,000
Refundable income taxes 91,000 2,514,000 2,605,000
Deferred income taxes 5,984,000 2,467,000 8,451,000
------------ ------------- -------------
Total current assets 14,099,000 13,904,000 28,003,000
------------ ------------- -------------
Property and equipment, net 106,599,000 96,685,000 203,284,000
Franchise rights, net 98,931,000 -- 98,931,000
Intangible assets, net 6,217,000 121,200,000 127,417,000
Intercompany receivable (payable) 207,970,000 (207,970,000) --
Deferred income taxes (3,406,000) 9,812,000 6,406,000
Other assets 10,275,000 2,596,000 12,871,000
------------ ------------- -------------
$440,685,000 $ 36,227,000 $ 476,912,000
============ ============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 8,883,000 $ 4,486,000 $ 13,369,000
Accrued interest 2,247,000 -- 2,247,000
Accrued payroll, related taxes and benefits 7,711,000 4,760,000 12,471,000
Accrued acquisition costs 4,470,000 1,142,000 5,612,000
Other liabilities 6,103,000 6,001,000 12,104,000
Current portion of long-term debt 7,902,000 241,000 8,143,000
------------- ------------- -------------
Total current liabilities 37,316,000 16,630,000 53,946,000
Long-term debt, net of current portion 361,538,000 1,457,000 362,995,000
Deferred income, sale/leaseback of real estate 4,171,000 -- 4,171,000
Accrued postretirement benefits 2,117,000 -- 2,117,000
Other liabilities 20,934,000 13,730,000 34,664,000
------------- ------------- -------------
Total liabilities 426,076,000 31,817,000 457,893,000
Commitments and contingencies
Stockholder's equity:
Common stock 10 -- 10
Additional paid-in-capital 24,484,990 -- 24,484,990
Accumulated deficit (9,876,000) 4,410,000 (5,466,000)
------------- ------------- -------------
Total stockholder's equity 14,609,000 4,410,000 19,019,000
------------- ------------- -------------
$ 440,685,000 $ 36,227,000 $ 476,912,000
============= ============= =============
F-23
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 1998
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Revenues:
Restaurant sales $ 381,042,000 $ 35,148,000 $ 416,190,000
Franchise royalty revenues and franchise fees -- 395,000 395,000
------------- ------------- -------------
Total revenues 381,042,000 35,543,000 416,585,000
------------- ------------- -------------
Costs and expenses:
Cost of sales 110,269,000 12,351,000 122,620,000
Restaurant wages and related expenses 113,456,000 8,276,000 121,732,000
Other restaurant operating expenses 77,995,000 4,715,000 82,710,000
Advertising expense 17,372,000 1,243,000 18,615,000
General and administrative 16,995,000 2,224,000 19,219,000
Depreciation and amortization 18,237,000 1,768,000 20,005,000
------------- ------------- -------------
Total operating expenses 354,324,000 30,577,000 384,901,000
------------- ------------- -------------
Income from operations 26,718,000 4,966,000 31,684,000
Interest expense 21,181,000 (113,000) 21,068,000
Intercompany allocations (3,437,000) 3,437,000 --
Refinancing expense 1,639,000 -- 1,639,000
------------- ------------- -------------
Income before income taxes and extraordinary loss 7,335,000 1,642,000 8,977,000
Provision for income taxes 2,114,000 2,733,000 4,847,000
------------- ------------- -------------
Income before extraordinary loss 5,221,000 (1,091,000) 4,130,000
Extraordinary loss on extinguishment of debt,
net of tax benefit 3,701,000 -- 3,701,000
------------- ------------- -------------
Net income $ 1,520,000 $ (1,091,000) $ 429,000
============= ============= =============
F-24
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 1999
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Revenues:
Restaurant sales $ 372,689,000 $ 82,751,000 $ 455,440,000
Franchise royalty revenues and franchise fees -- 1,039,000 1,039,000
------------- ------------- -------------
Total revenues 372,689,000 83,790,000 456,479,000
------------- ------------- -------------
Costs and expenses:
Cost of sales 108,489,000 28,790,000 137,279,000
Restaurant wages and related expenses 114,935,000 19,190,000 134,125,000
Other restaurant operating expenses 77,839,000 11,254,000 89,093,000
Advertising expense 17,285,000 3,333,000 20,618,000
General and administrative 18,286,000 4,816,000 23,102,000
Depreciation and amortization 20,043,000 3,855,000 23,898,000
------------- ------------- -------------
Total operating expenses 356,877,000 71,238,000 428,115,000
------------- ------------- -------------
Income from operations 15,812,000 12,552,000 28,364,000
Interest expense 22,386,000 -- 22,386,000
Intercompany allocations (7,362,000) 7,362,000 --
------------- ------------- -------------
Income before income taxes and extraordinary loss 788,000 5,190,000 5,978,000
Provision for income taxes 1,810,000 2,016,000 3,826,000
------------- ------------- -------------
Income before extraordinary loss (1,022,000) 3,174,000 2,152,000
Extraordinary loss on extinguishment of debt,
net of tax benefit 1,099,000 -- 1,099,000
------------- ------------- -------------
Net income $ (2,121,000) $ 3,174,000 $ 1,053,000
============= ============= =============
F-25
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2000
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Revenues:
Restaurant sales $ 371,335,000 $ 94,527,000 $ 465,862,000
Franchise royalty revenues and franchise fees -- 1,039,000 1,039,000
------------- ------------- -------------
Total revenues 371,335,000 95,566,000 466,901,000
------------- ------------- -------------
Costs and expenses:
Cost of sales 101,520,000 31,126,000 132,646,000
Restaurant wages and related expenses 113,216,000 22,571,000 135,787,000
Other restaurant operating expenses 78,444,000 13,151,000 91,595,000
Advertising expense 16,854,000 3,700,000 20,554,000
General and administrative 20,764,000 5,639,000 26,403,000
Depreciation and amortization 24,446,000 4,410,000 28,856,000
Other income (1,365,000) -- (1,365,000)
------------- ------------- -------------
Total operating expenses 353,879,000 80,597,000 434,476,000
------------- ------------- -------------
Income from operations 17,456,000 14,969,000 32,425,000
Interest expense 23,666,000 -- 23,666,000
Intercompany allocations (6,950,000) 6,950,000 --
------------- ------------- -------------
Income before income taxes and extraordinary loss 740,000 8,019,000 8,759,000
Provision for income taxes 389,000 4,052,000 4,441,000
------------- ------------- -------------
Income before extraordinary loss 351,000 3,967,000 4,318,000
Extraordinary loss on extinguishment of debt,
net of tax benefit 350,000 -- 350,000
------------- ------------- -------------
Net income $ 1,000 $ 3,967,000 $ 3,968,000
============= ============= =============
F-26
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Cash flows provided from operating activities:
Net income $ 1,520,000 $ (1,091,000) $ 429,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Loss (gain) on disposal of property and equipment (96,000) -- (96,000)
Depreciation and amortization 18,237,000 1,768,000 20,005,000
Extraordinary loss on extinguishment of debt, net of tax 3,701,000 -- 3,701,000
Deferred income taxes 215,000 639,000 854,000
Changes in operating assets and liabilities ( 5,492,000) (3,872,000) (1,620,000)
------------- ------------- -------------
Net cash provided from operating activities 18,085,000 5,188,000 23,273,000
------------- ------------- -------------
Cash flow used for investing activities
Capital expenditures:
Purchase of Pollo Tropical, Inc., net of cash acquired (94,632,000) -- (94,632,000)
New restaurant development (9,154,000) (4,143,000) (13,297,000)
Restaurant remodeling (9,387,000) (113,000) (9,500,000)
Corporate and restaurant information systems (4,246,000) -- (4,246,000)
Other capital expenditures (6,151,000) (101,000) (6,252,000)
Acquisition of Burger King restaurants (629,000) -- (629,000)
Payments received on notes and mortgages 715,000 -- 715,000
Proceeds from dispositions of property and equipment 1,337,000 -- 1,337,000
------------- ------------- -------------
Net cash used for investing activities (122,147,000) (4,357,000) (126,504,000)
------------- ------------- -------------
Cash flows provided from financing activities:
Proceeds from long-term debt, net 245,000,000 -- 245,000,000
Principal payments and retirements of long-term obligations (143,851,000) -- (143,851,000)
Proceeds from sale/leaseback transactions 20,532,000 -- 20,532,000
Dividends paid (3,878,000) -- (3,878,000)
Financing costs associated with issuance of debt (5,408,000) -- (5,408,000)
Redemption premium on retirement of debt (4,639,000) -- (4,639,000)
------------- ------------- -------------
Net cash provided from financing activities 107,756,000 -- 107,756,000
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 3,694,000 831,000 4,525,000
Cash and cash equivalents, beginning of year 2,252,000 -- 2,252,000
------------- ------------- -------------
Cash and cash equivalents, end of year $ 5,946,000 $ 831,000 $ 6,777,000
============= ============= =============
F-27
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1999
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Cash flows provided from operating activities:
Net income $ (2,121,000) $ 3,174,000 $ 1,053,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Loss (gain) on disposal of property and equipment 102,000 -- 102,000
Depreciation and amortization 20,043,000 3,855,000 23,898,000
Extraordinary loss on extinguishment of debt, net of tax 1,099,000 -- 1,099,000
Deferred income taxes (1,482,000) 3,157,000 1,675,000
Changes in operating assets and liabilities 9,551,000 795,000 10,346,000
------------- ------------- -------------
Net cash provided from operating activities 27,192,000 10,981,000 38,173,000
------------- ------------- -------------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (9,194,000) (4,891,000) (14,085,000)
Restaurant remodeling (9,795,000) -- (9,795,000)
Corporate and restaurant information systems (10,845,000) (1,038,000) (11,883,000)
Other capital expenditures (5,119,000) (4,450,000) (9,569,000)
Acquisition of Burger King restaurants (3,833,000) -- (3,833,000)
Proceeds from dispositions of property and equipment 230,000 -- 230,000
------------- ------------- -------------
Net cash used for investing activities (38,556,000) (10,379,000) (48,935,000)
------------- ------------- -------------
Cash flows provided from financing activities:
Principal payments and retirements of long-term obligations (8,028,000) -- (8,028,000)
Proceeds from sale/leaseback transactions 14,800,000 -- 14,800,000
Financing costs associated with issuance of debt (886,000) -- (886,000)
------------- ------------- -------------
Net cash provided from financing activities 5,886,000 -- 5,886,000
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (5,478,000) 602,000 (4,876,000)
Cash and cash equivalents, beginning of year 5,946,000 831,000 6,777,000
------------- ------------- -------------
Cash and cash equivalents, end of year $ 468,000 $ 1,433,000 $ 1,901,000
============= ============= =============
F-28
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 2000
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Cash flows provided from operating activities:
Net income $ 1,000 $ 3,967,000 $ 3,968,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 24,446,000 4,410,000 28,856,000
Extraordinary loss on extinguishment of debt, net of tax 350,000 -- 350,000
Deferred income taxes 2,689,000 233,000 2,922,000
Changes in operating assets and liabilities 13,754,000 (130,000) 13,624,000
-------------- ------------ --------------
Net cash provided from operating activities 41,240,000 8,480,000 49,720,000
-------------- ------------ --------------
Cash flow used for investing activities:
Capital expenditures:
Purchase of Taco Cabana, Inc. net of cash acquired (154,668,000) -- (154,668,000)
New restaurant development (4,610,000) (6,718,000) (11,328,000)
Restaurant remodeling (10,957,000) -- (10,957,000)
Corporate and restaurant information systems (5,266,000) (397,000) (5,663,000)
Other capital expenditures (7,338,000) (871,000) (8,209,000)
Proceeds from dispositions of property and equipment 7,000 -- 7,000
-------------- ------------ --------------
Net cash used for investing activities (182,832,000) (7,986,000) (190,818,000)
-------------- ------------ --------------
Cash flows provided from financing activities:
Proceeds from long-term debt, net 222,113,000 -- 222,113,000
Principal payments and retirements of long-term obligations (106,167,000) -- (106,167,000)
Proceeds from sale/leaseback transactions 29,523,000 -- 29,523,000
Financing costs associated with issuance of debt (3,560,000) -- (3,560,000)
-------------- ------------ --------------
Net cash provided from financing activities 141,909,000 -- 141,909,000
-------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents 317,000 494,000 811,000
Cash and cash equivalents, beginning of year 468,000 1,433,000 1,901,000
-------------- ------------ --------------
Cash and cash equivalents, end of year $ 785,000 $ 1,927,000 $ 2,712,000
============== ============ ==============
F-29
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- --------- -------- ---------- ------
Year ended December 31, 2000:
Reserve for doubtful trade accounts receivable $ 53,000 $ 14,000 $ (43,000)(c) $ 130,000
106,000(d)
Reserve for note receivable (a) 238,000 -- -- 238,000
Reserve for inventory(b) 293,000 42,000 (185,000) 150,000
Year ended December 31, 1999:
Reserve for doubtful trade accounts receivable 93,000 -- (40,000)(c) 53,000
Reserve for note receivable (a) 238,000 -- -- 238,000
Reserve for inventory(b) 78,000 286,000 (71,000) 293,000
Year ended December 31, 1998:
Reserve for doubtful trade accounts receivable 130,000 64,000(d) (101,000)(c) 93,000
Reserve for note receivable (a) 238,000 -- -- 238,000
Reserve for inventory(b) 91,000 149,000 (162,000) 78,000
(a) Included in other assets.
(b) Included in inventory.
(c) Represents write-offs of accounts.
(d) Represents reserves acquired in the 1999 Pollo Tropical acquistion and the
2000 Taco Cabana acquistion.
F-30
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 on the second day of April,
2001.
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 Executive April 2, 2001
- ---------------------------------------------
Alan Vituli Officer (Principal Executive Officer)
/s/ Daniel T. Accordino Director, President and Chief Operating April 2, 2001
- ---------------------------------------------
Daniel T. Accordino Officer
/s/ Benjamin D. Chereskin Director April 2, 2001
- ---------------------------------------------
Benjamin D. Chereskin
/s/ James M. Conlon Director April 2, 2001
- ---------------------------------------------
James M. Conlon
/s/ David J. Mathies, Jr. Director April 2, 2001
- ---------------------------------------------
David J. Mathies, Jr.
/s/ Robin P. Selati Director April 2, 2001
- ---------------------------------------------
Robin P. Selati
/s/ Clayton E. Wilhite Director April 2, 2001
- ---------------------------------------------
Clayton E. Wilhite
/s/ Paul R. Flanders Vice President - Finance and Treasurer April 2, 2001
- ---------------------------------------------
Paul R. Flanders (Principal Financial Officer and Principal
Accounting Officer)
/s/ Timothy J. LaLonde Vice President - Controller April 2, 2001
- ---------------------------------------------
Timothy J. LaLonde
F-31