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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[ ] Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission File Number
0-25629
CARROLS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 16-0958146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
968 James Street 13203
Syracuse, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (315) 424-0513
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
Common stock, par value $1.00, outstanding at May 11, 2000: 10 shares
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PART I
ITEM 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2001 2000
- ------ ------------- --------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,195,000 $ 2,712,000
Trade and other receivables 1,639,000 1,912,000
Inventories 4,908,000 5,917,000
Prepaid rent 2,746,000 2,284,000
Prepaid expenses and other current assets 4,337,000 4,122,000
Refundable income taxes 2,972,000 2,605,000
Deferred income taxes 7,449,000 8,451,000
------------ -------------
Total current assets 25,246,000 28,003,000
Property and equipment, at cost less accumulated
depreciation of $104,788,000 and $97,968,000,
respectively 206,480,000 203,284,000
Franchise rights, at cost less accumulated
amortization of $39,715,000 and $38,539,000,
respectively 97,732,000 98,931,000
Intangible assets, at cost less accumulated
amortization of $6,261,000 and $5,004,000,
respectively 126,169,000 127,417,000
Deferred income taxes 9,095,000 6,406,000
Other assets 12,518,000 12,871,000
------------ -------------
$477,240,000 $ 476,912,000
============ =============
The accompanying notes are an integral part of these financial statements.
2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
March 31, December 31,
LIABILITIES and STOCKHOLDER'S EQUITY 2001 2000
- ------------------------------------ ------------- -------------
(unaudited)
Current liabilities:
Accounts payable $ 12,606,000 $ 13,369,000
Accrued interest 5,722,000 2,247,000
Accrued payroll, related taxes and benefits 11,727,000 12,471,000
Accrued acquisition costs 519,000 5,612,000
Other liabilities 12,822,000 12,104,000
Current portion of long-term debt 8,524,000 8,143,000
------------- -------------
Total current liabilities 51,920,000 53,946,000
Long-term debt, net of current portion 368,822,000 362,995,000
Deferred income - sale/leaseback of real estate 4,098,000 4,171,000
Accrued postretirement benefits 2,134,000 2,117,000
Other liabilities 32,779,000 34,664,000
------------- -------------
Total liabilities 459,753,000 457,893,000
Stockholder's equity:
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 (6,998,000) (5,466,000)
------------- -------------
Total stockholder's equity 17,487,000 19,019,000
------------- -------------
$ 477,240,000 $ 476,912,000
============= =============
The accompanying notes are an integral part of these financial statements.
3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
------------- ------------
(unaudited)
Revenues:
Restaurant sales $ 154,731,000 $ 109,523,000
Franchise fees and royalty revenues 381,000 228,000
------------- ------------
Total revenues 155,112,000 109,751,000
Costs and expenses:
Cost of sales 45,449,000 31,412,000
Restaurant wages and related expenses 46,230,000 32,736,000
Other restaurant operating expenses 31,224,000 22,482,000
Advertising expense 6,480,000 5,356,000
General and administrative 9,457,000 6,176,000
Depreciation and amortization 10,370,000 6,682,000
------------- ------------
Total operating expenses 149,210,000 104,844,000
------------- ------------
Income from operations 5,902,000 4,907,000
Interest expense 9,175,000 5,840,000
------------- ------------
Loss before income taxes (3,273,000) (933,000)
Income tax benefit (1,741,000) (420,000)
------------- ------------
Net loss $ (1,532,000) $ (513,000)
============= ============
The accompanying notes are an integral part of these financial statements.
4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
------------ ------------
(unaudited)
Cash flows provided from operating activities:
Net loss $ (1,532,000) $ (513,000)
Adjustments to reconcile net loss to net cash provided
from operating activities:
Depreciation and amortization 10,370,000 6,682,000
Deferred income taxes (1,687,000) (620,000)
Change in operating assets and liabilities (4,169,000) 7,886,000
------------ ------------
Net cash provided from operating activities 2,982,000 13,435,000
------------ ------------
Cash flows used for investing activities:
Capital expenditures:
New restaurant development (3,816,000) (3,033,000)
Restaurant remodeling (3,229,000) (1,761,000)
Corporate and restaurant information systems (215,000) (2,254,000)
Other capital expenditures (3,458,000) (1,053,000)
Proceeds from sales of property and equipment 10,000 4,000
------------ ------------
Net cash used for investing activities (10,708,000) (8,097,000)
------------ ------------
Cash flows used for financing activities:
Proceeds (payments) on revolving credit facility, net 7,300,000 (4,000,000)
Proceeds (payments) on other notes payable, net 787,000 (120,000)
Principal payments on term loans (1,750,000) (1,000,000)
Principal payments on capital leases (128,000) (69,000)
------------ ------------
Net cash provided from (used for) financing activities 6,209,000 (5,189,000)
------------ ------------
Increase (decrease) in cash and cash equivalents (1,517,000) 149,000
Cash and cash equivalents, beginning of period 2,712,000 1,901,000
------------ ------------
Cash and cash equivalents, end of period $ 1,195,000 $ 2,050,000
============ ============
The accompanying notes are an integral part of these financial statements.
5
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Statement of Management
-----------------------
The accompanying unaudited consolidated financial statements for the three
months ended March 31, 2001 and 2000 have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission and do not include all of the information and the footnotes
required by accounting principles generally accepted in the United States
of America for complete statements. In the opinion of management, all
normal and recurring adjustments necessary for a fair presentation of such
financial statements have been included. The accompanying condensed
consolidated balance sheet as of December 31, 2000 has been derived from
the audited consolidated balance sheet as of that date.
The results of operations for the three months ended March 31, 2001 and
2000 are not necessarily indicative of the results to be expected for the
full year.
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 and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The condensed consolidated financial statements include the accounts of
Carrols Corporation and its majority owned subsidiaries ("Carrols" or the
"Company"). All material intercompany balances, transactions and profits
have been eliminated.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
December 31, 2000 contained in our 2000 Annual Report on Form 10-K. The
December 31, 2000 balance sheet data is derived from these audited
financial statements.
2. Income Taxes
------------
The income tax benefit for the three months ended March 31, 2001 and 2000
was comprised of the following:
2001 2000
------------ ----------
Current $ (54,000) $ 200,000
Deferred (1,687,000) (620,000)
------------ ----------
$(1,741,000) $(420,000)
============ ==========
For 2001 and 2000 the difference between the expected tax benefit,
resulting from application of the federal statutory income tax rate to
pretax income, and the reported income tax benefit result principally from
state taxes and non-deductible amortization of certain franchise rights and
certain other intangibles.
6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
3. Business Segment Information
----------------------------
The Company is engaged in the quick-service restaurant industry, with three
restaurant concepts: Burger King operating as a franchisee, 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 restaurants
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 restaurants are located in Texas, Oklahoma and
Arizona.
Segment information as of and for the three months ended March 31, 2000
includes Burger King restaurants and Pollo Tropical but excludes Taco
Cabana, Inc. which was acquired on December 19, 2000. For 2001, segment
information includes Burger King, Pollo Tropical and Taco Cabana. 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 expense, comprised of interest
expense, is a corporate related item and therefore has not been allocated
to the reportable segments.
Burger Pollo Taco
King Tropical Cabana Other Consolidated
---- -------- ------ ----- ------------
Three Months Ended: ($ in 000's)
-------------------
March 31, 2001:
Revenues $88,239 $24,605 $ 42,268 $ -- $155,112
Cost of sales 25,573 7,816 12,060 -- 45,449
Restaurant wages and related expenses 28,266 5,745 12,219 -- 46,230
Depreciation and amortization 5,686 590 1,895 2,199 10,370
Income (loss) from operations 288 4,244 3,569 (2,199) 5,902
Capital expenditures, excluding acquisitions 5,591 1,591 3,040 496 10,718
March 31, 2000:
Revenues $87,038 $22,713 $ -- $ -- $109,751
Cost of sales 23,996 7,416 -- -- 31,412
Restaurant wages and related expenses 27,776 4,960 -- -- 32,736
Depreciation and amortization 5,140 500 -- 1,042 6,682
Income (loss) from operations 1,611 4,338 -- (1,042) 4,907
Capital expenditures, excluding acquisitions 5,596 2,079 -- 426 8,101
Identifiable Assets:
At March 31, 2001 $207,704 $27,053 $ 68,054 $174,429 $477,240
At December 31, 2000 208,533 26,198 67,035 175,146 476,912
7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
4. Acquisition
-----------
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. 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 to finance the Taco Cabana acquisition.
The following unaudited proforma results of operations for the three
months ended March 31, 2000 assume this acquisition occurred as of the
beginning of the period.
Revenues $149,458,000
============
Cost of sales $ 43,050,000
============
Restaurant wages and related expenses $ 43,781,000
============
Depreciation and amortization $ 9,777,000
============
Income from operations $ 8,025,000
============
Net loss $ (909,000)
============
The preceding unaudited 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 period
presented, nor are they necessarily indicative of future operating
results. Subsequent to the acquisition, the Company sold 25 fee owned
properties in a sale/leaseback transaction. The proceeds, which were $29.4
million and 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 the proforma information above.
5. 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:
8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
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, LC
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 March 2001 and
December 2000 and for the three-month periods ended March 31, 2001 and
2000.
9
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
March 31, 2001
(unaudited)
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
ASSETS
Current Assets:
Cash and cash equivalents $ 627,000 $ 568,000 $ 1,195,000
Trade and other receivables 246,000 1,393,000 1,639,000
Inventories 3,655,000 1,253,000 4,908,000
Prepaid rent 1,650,000 1,096,000 2,746,000
Prepaid expenses and other current assets 1,310,000 3,027,000 4,337,000
Refundable income taxes 458,000 2,514,000 2,972,000
Deferred income taxes 5,984,000 1,465,000 7,449,000
------------- -------------- -------------
Total current assets 13,930,000 11,316,000 25,246,000
------------- -------------- -------------
Property and equipment, net 105,854,000 100,626,000 206,480,000
Franchise rights, net 97,732,000 -- 97,732,000
Intangible assets, net 1,488,000 124,681,000 126,169,000
Investment in and advances to (from) subsidiaries 205,491,000 (205,491,000) --
Deferred income taxes (717,000) 9,812,000 9,095,000
Other assets 9,953,000 2,565,000 12,518,000
------------- -------------- -------------
$ 433,731,00 $ 43,509,000 $ 477,240,000
============= ============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 7,979,000 $ 4,627,000 $ 12,606,000
Accrued interest 5,722,000 -- 5,722,000
Accrued payroll, related taxes and benefits 7,086,000 4,641,000 11,727,000
Accrued acquisition costs 357,000 162,000 519,000
Other liabilities 6,626,000 6,196,000 12,822,000
Current portion of long-term debt 8,277,000 247,000 8,524,000
------------- -------------- -------------
Total current liabilities 36,047,000 15,873,000 51,920,000
Long-term debt, net of current portion 367,430,000 1,392,000 368,822,000
Deferred income, sale/leaseback of real estate 4,098,000 -- 4,098,000
Accrued postretirement benefits 2,134,000 -- 2,134,000
Other liabilities 15,269,000 17,510,000 32,779,000
------------- -------------- -------------
Total liabilities 424,978,000 34,775,000 459,753,000
Stockholder's equity 8,753,000 8,734,000 17,487,000
------------- -------------- -------------
$ 433,731,000 $ 43,509,000 $ 477,240,000
============= ============== =============
10
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 104,809,000 98,475,000 203,284,000
Franchise rights, net 98,931,000 -- 98,931,000
Intangible assets, net 1,503,000 125,914,000 127,417,000
Investment in and advances to (from) subsidiaries 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
------------- ------------- -------------
$ 434,181,000 $ 42,731,000 $ 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 6,098,000 6,006,000 12,104,000
Current portion of long-term debt 7,902,000 241,000 8,143,000
------------- ------------- -------------
Total current liabilities 37,311,000 16,635,000 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 16,220,000 18,444,000 34,664,000
------------- ------------- -------------
Total liabilities 421,357,000 36,536,000 457,893,000
Stockholder's equity 12,824,000 6,195,000 19,019,000
------------- ------------- -------------
$ 434,181,000 $ 42,731,000 $ 476,912,000
============= ============= =============
11
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2001
(unaudited)
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Revenues:
Restaurant sales $ 88,239,000 $ 66,492,000 $ 154,731,000
Franchise royalty revenues and franchise fees -- 381,000 381,000
-------------- ------------ -------------
Total revenues 88,239,000 66,873,000 155,112,000
-------------- ------------ -------------
Costs and expenses:
Cost of sales 25,573,000 19,876,000 45,449,000
Restaurant wages and related expenses 28,266,000 17,964,000 46,230,000
Other restaurant operating expenses 19,779,000 11,445,000 31,224,000
Advertising expense 3,458,000 3,022,000 6,480,000
General and administrative 5,187,000 4,270,000 9,457,000
Depreciation and amortization 6,444,000 3,926,000 10,370,000
-------------- ------------ -------------
Total operating expenses 88,707,000 60,503,000 149,210,000
-------------- ------------ -------------
Income (loss) from operations (468,000) 6,370,000 5,902,000
Interest expense 8,997,000 178,000 9,175,000
Intercompany allocations (1,737,000) 1,737,000 --
-------------- ------------ -------------
Income (loss) before income taxes (7,728,000) 4,455,000 (3,273,000)
Provision (benefit) for income taxes (3,668,000) 1,927,000 (1,741,000)
-------------- ------------ -------------
Net income (loss) $ (4,060,000) $ 2,528,000 $ (1,532,000)
============== ============ =============
12
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2000
(unaudited)
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Revenues:
Restaurant sales $ 87,038,000 $ 22,485,000 $ 109,523,000
Franchise royalty revenues and franchise fees -- 228,000 228,000
------------- ------------ ------------
Total revenues 87,038,000 22,713,000 109,751,000
------------- ------------ ------------
Costs and expenses:
Cost of sales 23,996,000 7,416,000 31,412,000
Restaurant wages and related expenses 27,776,000 4,960,000 32,736,000
Other restaurant operating expenses 19,429,000 3,053,000 22,482,000
Advertising expense 4,231,000 1,125,000 5,356,000
General and administrative 4,855,000 1,321,000 6,176,000
Depreciation and amortization 5,674,000 1,008,000 6,682,000
------------- ------------ ------------
Total operating expenses 85,961,000 18,883,000 104,844,000
------------- ------------ ------------
Income from operations 1,077,000 3,830,000 4,907,000
Interest expense 5,840,000 -- 5,840,000
Intercompany allocations (1,737,000) 1,737,000 --
------------- ------------ ------------
Income (loss) before income taxes (3,026,000) 2,093,000 (933,000)
Provision (benefit) for income taxes (1,361,000) 941,000 (420,000)
------------- ------------ ------------
Net income (loss) $ (1,665,000) $ 1,152,000 $ (513,000)
============= ============ ============
13
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2001
(unaudited)
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Cash flows provided from (used for) operating activities:
Net income (loss) $ (4,060,000) $ 2,528,000 $ (1,532,000)
Adjustments to reconcile net income (loss) to net cash
provided from (used for) operating activities:
Depreciation and amortization 6,444,000 3,926,000 10,370,000
Deferred income taxes (2,689,000) 1,002,000 (1,687,000)
Changes in operating assets and liabilities (300,000) (3,869,000) (4,169,000)
----------- ----------- ------------
Net cash provided from (used for) operating activities (605,000) 3,587,000 2,982,000
----------- ----------- ------------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (212,000) (3,604,000) (3,816,000)
Restaurant remodeling (3,229,000) -- (3,229,000)
Corporate and restaurant information systems (137,000) (78,000) (215,000)
Other capital expenditures (2,252,000) (1,206,000) (3,458,000)
Proceeds from dispositions of property and equipment 10,000 -- 10,000
----------- ----------- ------------
Net cash used for investing activities (5,820,000) (4,888,000) (10,708,000)
----------- ----------- ------------
Cash flows provided from (used for) financing activities:
Proceeds (payments) on revolving credit facility, net 7,300,000 -- 7,300,000
Proceeds (payments) on other notes payable, net 787,000 -- 787,000
Principal payments on term loans (1,750,000) -- (1,750,000)
Principal payments on capital leases (70,000) (58,000) (128,000)
----------- ----------- ------------
Net cash provided from (used for) financing activities 6,267,000 (58,000) 6,209,000
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (158,000) (1,359,000) (1,517,000)
Cash and cash equivalents, beginning of year 785,000 1,927,000 2,712,000
----------- ----------- ------------
Cash and cash equivalents, end of year $ 627,000 $ 568,000 $ 1,195,000
=========== =========== ============
14
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2000
(unaudited)
Parent
Company Guarantor Combined
Only Subsidiaries Total
---- ------------ -----
Cash flows provided from operating activities:
Net income (loss) $ (1,665,000) $ 1,152,000 $ (513,000)
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization 5,674,000 1,008,000 6,682,000
Deferred income taxes (620,000) -- (620,000)
Changes in operating assets and liabilities 8,019,000 (133,000) 7,886,000
----------- ------------ ------------
Net cash provided from operating activities 11,408,000 2,027,000 13,435,000
----------- ------------ ------------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (1,314,000) (1,719,000) (3,033,000)
Restaurant remodeling (1,761,000) -- (1,761,000)
Corporate and restaurant information systems (2,042,000) (212,000) (2,254,000)
Other capital expenditures (898,000) (155,000) (1,053,000)
Proceeds from dispositions of property and equipment 4,000 -- 4,000
----------- ------------ ------------
Net cash used for investing activities (6,011,000) (2,086,000) (8,097,000)
----------- ------------ ------------
Cash flows provided from financing activities:
Proceeds (payments) on revolving credit facility, net (4,000,000) -- (4,000,000)
Proceeds (payments) on other notes payable, net (120,000) -- (120,000)
Principal payments on term loans (1,000,000) -- (1,000,000)
Principal payments on capital leases (69,000) -- (69,000)
----------- ------------ ------------
Net cash provided from financing activities (5,189,000) -- (5,189,000)
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 208,000 (59,000) 149,000
Cash and cash equivalents, beginning of year 468,000 1,433,000 1,901,000
----------- ------------ ------------
Cash and cash equivalents, end of year $ 676,000 $ 1,374,000 $ 2,050,000
=========== ============ ============
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Certain statements included in this "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and elsewhere in this Quarterly
Report on Form 10-Q which are not statements of historical fact are intended to
be, and are hereby identified as, "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. Without limiting the
foregoing, the words "believe," "anticipate," "plan," "expect," "estimate,"
"intend," and other similar expressions are intended to identify forward-looking
statements. The Company cautions readers that forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: the success or failure of the Company in implementing its current
business and operational strategies; availability, terms and access to capital
and customary trade credit; general economic and business conditions;
competition; changes in the Company's business strategy; labor relations; the
outcome of pending or yet-to-be instituted legal proceedings; labor and employee
benefit costs; and availability and terms of necessary or desirable financing or
refinancing.
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. We have also
expanded our restaurant operations during the past three years through the
acquisition of Pollo Tropical, Inc. and Taco Cabana Inc., two regional quick-
casual Hispanic restaurant chains.
As of March 31, 2001, we operated 354 Burger King restaurants located in 13
Northeastern, Midwestern and Southeastern states. We have increased through
acquisition and construction the number of Burger King restaurants we operate by
53% since the end of 1996. Since March 31, 2000 we have opened four new Burger
King restaurants and closed five under-performing Burger King restaurants.
In July 1998 we acquired Pollo Tropical Inc. Since the acquisition we have
expanded this concept almost 40% by building 14 new restaurants. At March 31,
2001 we owned and operated 50 Pollo Tropical restaurants in Florida and
franchised 24 Pollo Tropical restaurants, primarily in Puerto Rico. Since March
31, 2000, we have opened five new Pollo Tropical restaurants and reopened a
Pollo Tropical restaurant that was closed due to a fire in the first quarter of
2000.
On December 19, 2000 we acquired Taco Cabana, Inc., a restaurant chain featuring
Tex-Mex style food, for a total purchase price of approximately $154.7 million.
At March 31, 2001 we owned and operated 120 Taco Cabana restaurants located in
Texas, Oklahoma and Arizona and franchised ten Taco Cabana restaurants. We
opened three new Taco Cabana restaurants in the first quarter of 2001.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations
- ---------------------
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000.
The following table sets forth, for the three months ended March 31, 2001 and
2000, selected operating results as a percentage of restaurant sales:
2001 2000
----------- -----------
Restaurant sales:
Burger King 57.0% 79.5%
Pollo Tropical 15.7% 20.5%
Taco Cabana 27.3% -
----- -----
100.0% 100.0%
Costs and expenses:
Cost of sales 29.3% 28.7%
Restaurant wages and related expenses 29.9% 29.9%
Other restaurant expenses including advertising 24.4% 25.4%
General and administrative 6.1% 5.6%
Depreciation and amortization 6.7% 6.1%
----- -----
Income from restaurant operations 3.6% 4.3%
===== =====
Restaurant Sales
- ----------------
Total restaurant sales for the three months ended March 31, 2001 increased 41.3%
to $154.7 million from $109.5 million in the first quarter of 2000 due primarily
to the acquisition of Taco Cabana Inc. in the fourth quarter of 2000. Taco
Cabana restaurant sales were $42.2 million in the first quarter of 2001. Burger
King restaurant sales increased $1.2 million, or 1.4%, in the first quarter
compared to 2000 including a 1.3% increase in sales at our comparable Burger
King restaurants. Pollo Tropical sales increased $1.8 million, or 8.1%, in the
first quarter of 2001 compared to 2000. This increase was due to the opening of
five new restaurants in the twelve months ended March 31, 2001. Sales at
comparable Pollo Tropical restaurants were essentially flat for the quarter,
however this compared to a 5.1% increase in the first quarter of 2000.
Operating Costs and Expenses
- ----------------------------
Cost of sales (food and paper costs), as a percentage of total restaurant sales,
were 29.3% for the first quarter of 2001 compared to 28.7% for the first quarter
of 2000. Burger King cost of sales, as a percentage of Burger King restaurant
sales, increased to 29.0% in the first quarter of 2001 from 27.6% in 2000. This
increase was due primarily to higher promotional sales discounts combined with
somewhat lower supplier rebates in the first quarter of 2001, offset in part by
the effects of menu price increases in the second and third quarter of 2000.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant
sales, decreased to 32.2% in the first quarter of 2001 from 33.0% in 2000. This
decrease was primarily due to lower chicken costs in the first quarter of 2001
partially offset by lower supplier rebates in 2001. The overall Company increase
was partially offset by the inclusion of Taco Cabana in the first quarter of
2001. Cost of sales, as a percentage of restaurant sales, were 28.6% at our Taco
Cabana restaurants in the first quarter of 2001 which caused our cost of sales,
as a percentage of total restaurant sales, to decrease 0.3% from the first
quarter of 2000.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, were 29.9% in both the first quarters of 2001 and 2000. Burger King
restaurant wages and related expenses, as a percentage of Burger King restaurant
sales, increased slightly from 31.9% in the first quarter of 2000 to 32.0% in
2001. A 3.2% increase in the average productive hourly labor rate from the end
of first quarter of 2000 at our Burger King restaurants was substantially offset
by the effects of menu price increases in 2000. Pollo Tropical restaurant wages
and related expenses, as a percentage of Pollo Tropical restaurant sales,
increased from 22.1% in the first quarter of 2000 to 23.6% in 2001. This
increase was due primarily to increases in workers compensation costs and a 2.3%
increase in the average productive hourly labor rate since the end of the first
quarter of 2000. The increases for Burger King and Pollo Tropical were offset by
the inclusion of Taco Cabana in the first quarter of 2001. Taco Cabana
restaurant wages and related expenses were 29.0% of Taco Cabana restaurant sales
in the first quarter of 2001 which caused restaurant wages and related expenses,
as a percentage of total restaurant sales, to decrease 0.3% from the first
quarter of 2000.
Other restaurant operating expenses, including advertising decreased to 24.4% of
total restaurant sales in the first quarter of 2001 from 25.4% in the first
quarter of 2000. Other restaurant operating expenses at our Burger King
restaurants decreased to 26.3% of Burger King restaurant sales in the first
quarter of 2001 from 27.2% in 2000 due to reductions in local advertising
expenditures offset in part by increases in utility costs. Other restaurant
operating expenses at our Pollo Tropical restaurants increased from 18.6% of
Pollo Tropical restaurant sales in the first quarter of 2000 to 19.8% in 2001
due to increased advertising costs related to the timing of promotions and
increased utility costs. Other restaurant operating expenses as a percentage of
restaurant sales also decreased from the prior year by the inclusion of Taco
Cabana in the first quarter of 2001. Other restaurant operating expenses for our
Taco Cabana restaurants were 22.9% of Taco Cabana restaurant sales in the first
quarter of 2001 which caused these expenses, as a percentage of total restaurant
sales, to decrease 0.5% from the first quarter of 2000.
As a percentage of total restaurant sales, general and administrative expenses
increased from 5.6% in the first quarter of 2000 to 6.1% in 2001. These expenses
increased $3.3 million to $9.5 million in the first quarter of 2001 due
primarily to administrative functions included as part of the December 2000
acquisition of Taco Cabana.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Earnings before interest, taxes, depreciation and amortization and non-cash
extraordinary items ("EBITDA") was $16.3 million in the first quarter of 2001
compared to $11.6 million in the first quarter of 2000. As a percentage of
total revenues, EBITDA margins decreased slightly to 10.5% in the first quarter
of 2001 from 10.6% in the first quarter of 2000 as a result of the factors
discussed above.
Depreciation and amortization increased $3.7 million in the first quarter of
2001 from the first quarter of 2000 due to the acquisition of Taco Cabana in the
fourth quarter of 2000 and the Company's capital expenditures, excluding
acquisitions, of $38.8 million since the end of the first quarter of 2000.
Interest expense increased $3.3 million to $9.2 million in the first quarter of
2001 due to the acquisition of Taco Cabana in the fourth quarter of 2000 for
$154.7 million. The Company subsequently sold 25 fee owned properties for $29.4
million in a sale/leaseback transaction, and used the proceeds from the sale to
reduce the debt incurred for the acquisition.
The benefit for income taxes in the first quarter of 2001 was derived using an
estimated annual effective income tax rate for 2001 of 53.2%. This rate is
higher than the Federal statutory tax rate of 35% due to state franchise taxes
and non-deductible amortization of certain franchise rights and certain other
intangible assets, including goodwill.
As a result of the foregoing, the net loss for the first quarter of 2001 was
$1,532,000 as compared to a net loss of $513,000 in the first quarter of 2000.
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 predominantly on a cash basis;
. rapid turnover allows 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
. for servicing our debt.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Our operations in the first quarter of 2001 generated $3.0 million in cash in
2001, compared with $13.4 million in 2000. In the first quarter of 2000 the
Company received from Burger King Corporation $9.9 million, which represented
the first installment of funds related to Burger King transformation
initiatives.
Capital expenditures represent a major investment of cash for the Company, and
excluding acquisitions, were $10.7 million and $8.1 million in the first
quarter of 2001 and 2000, respectively. Expenditures for new restaurant
development were $3.8 million and $3.0 million in the first quarter of 2001 and
2000, respectively.
In 2001, we anticipate total capital expenditures of approximately $50 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 of expenditures related to Burger King transformation initiatives. These
initiatives require franchisees to invest in certain upgrades to their
restaurants, including signage, a new drive-thru package and improvements to the
kitchen. In 2000 the Company received $19.8 million from a fund established by
the Coca-Cola Company and Dr. Pepper/Seven-Up, Inc. to be used in connection
with these transformation initiatives. 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
Burger King, $3 million for Taco Cabana and $2 million for Pollo Tropical.
At March 31, 2001, we had total indebtedness of $377.3 million comprised of
$170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008, total
borrowings under our senior credit facility of $201.1 million and other debt of
$6.2 million. Our senior credit facility provides for a $70 million term loan A
facility, a $80 million term loan B facility and a $100 million revolving credit
facility. At March 31, 2001, $148.3 million was outstanding under the term loan
A and B facilities and $43.1 was available for borrowings under our revolving
credit facility, after reserving $4.1 million for letters of credit guaranteed
by the facility.
Interest payments under our senior subordinated notes and other existing debt
obligations represent significant liquidity requirements for us. We believe
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 the next twelve months.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Inflation
- ---------
The inflationary factors which 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 minimum hourly wage rates. Accordingly, changes in the Federal or
state minimum hourly 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.
21
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
There were no material legal proceedings commenced by or initiated
against the Company during the reported quarter or material
developments in any previously reported litigation.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
a. The following exhibits are filed as part of this report.
Exhibit No.
-----------
4.4 First Supplement to Indenture dated as of December 19, 2000.
b. There were no reports on Form 8-K filed during the reported
quarter.
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARROLS CORPORATION
968 James Street
Syracuse, New York 13203
(Registrant)
Date: May 15, 2001 /s/
-------------------------------------
(Signature)
Alan Vituli
Chairman and Chief Executive Officer
Date: May 15, 2001 /s/
-------------------------------------
(Signature)
Paul R. Flanders
Vice President - Finance (Principal
Financial Officer and Principal
Accounting Officer)
23