================================================================================
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 June 30, 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
Syracuse, New York 13203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (315) 424-0513
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
Common stock, par value $1.00, outstanding at August 10, 2001: 10 shares
================================================================================
PART I
ITEM 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 2001 2000
- ------ ------------ ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,617,000 $ 2,712,000
Trade and other receivables 1,599,000 1,912,000
Inventories 4,618,000 5,917,000
Prepaid rent 2,760,000 2,284,000
Prepaid expenses and other current assets 4,051,000 4,122,000
Refundable income taxes 1,279,000 2,605,000
Deferred income taxes 5,984,000 8,451,000
------------ ------------
Total current assets 21,908,000 28,003,000
Property and equipment, at cost less accumulated
depreciation of $111,974,000 and $97,968,000,
respectively 208,966,000 203,284,000
Franchise rights, at cost less accumulated
amortization of $40,925,000 and $38,539,000,
respectively 97,127,000 98,931,000
Intangible assets, at cost less accumulated
amortization of $7,531,000 and $5,004,000,
respectively 124,946,000 127,417,000
Deferred income taxes 9,062,000 6,406,000
Other assets 12,333,000 12,871,000
------------ ------------
Total assets $474,342,000 $476,912,000
============ ============
The accompanying notes are an integral part of these financial statements.
2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
June 30, December 31,
LIABILITIES and STOCKHOLDER'S EQUITY 2001 2000
- ------------------------------------ ------------- -------------
(unaudited)
Current liabilities:
Accounts payable $ 13,250,000 $ 13,369,000
Accrued interest 1,626,000 2,247,000
Accrued payroll, related taxes and benefits 12,296,000 12,471,000
Accrued acquisition costs 412,000 5,612,000
Other liabilities 12,663,000 12,104,000
Current portion of long-term debt 8,906,000 8,143,000
------------- -------------
Total current liabilities 49,153,000 53,946,000
Long-term debt, net of current portion 367,559,000 362,995,000
Deferred income - sale/leaseback of real estate 4,026,000 4,171,000
Accrued postretirement benefits 2,188,000 2,117,000
Other liabilities and deferred income 32,073,000 34,664,000
------------- -------------
Total liabilities 454,999,000 457,893,000
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 (5,142,000) (5,466,000)
------------- -------------
Total stockholder's equity 19,343,000 19,019,000
------------- -------------
Total liabilities and stockholder's equity $ 474,342,000 $ 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 JUNE 30, 2001 AND 2000
2001 2000
------------- -------------
(unaudited)
Revenues:
Restaurant sales $ 166,630,000 $ 119,851,000
Franchise fees and royalty revenues 407,000 228,000
------------- -------------
Total revenues 167,037,000 120,079,000
Costs and expenses:
Cost of sales 47,979,000 34,514,000
Restaurant wages and related expenses 48,354,000 34,027,000
Other restaurant operating expenses 31,818,000 22,397,000
Advertising expense 6,897,000 6,033,000
General and administrative 8,187,000 6,257,000
Depreciation and amortization 10,699,000 6,725,000
Other income (Note 5) -- (1,365,000)
------------- -------------
Total operating expenses 153,934,000 108,588,000
------------- -------------
Income from operations 13,103,000 11,491,000
Interest expense 8,373,000 5,785,000
------------- -------------
Income before income taxes 4,730,000 5,706,000
Provision for income taxes 2,874,000 2,570,000
------------- -------------
Net income $ 1,856,000 $ 3,136,000
============= =============
The accompanying notes are an integral part of these financial statements.
4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 and 2000
2001 2000
------------- -------------
(unaudited)
Revenues:
Restaurant sales $ 321,361,000 $ 229,373,000
Franchise fees and royalty revenues 788,000 456,000
------------- -------------
Total revenues 322,149,000 229,829,000
Costs and expenses:
Cost of sales 93,428,000 65,926,000
Restaurant wages and related expenses 94,584,000 66,763,000
Other restaurant operating expenses 63,042,000 44,878,000
Advertising expense 13,377,000 11,388,000
General and administrative 17,644,000 12,432,000
Depreciation and amortization 21,069,000 13,407,000
Other income (Note 5) -- (1,365,000)
------------- -------------
Total operating expenses 303,144,000 213,429,000
------------- -------------
Income from operations 19,005,000 16,400,000
Interest expense 17,548,000 11,625,000
------------- -------------
Income before income taxes 1,457,000 4,775,000
Provision for income taxes 1,133,000 2,152,000
------------- -------------
Net income $ 324,000 $ 2,623,000
============= =============
The accompanying notes are an integral part of these financial statements.
5
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 and 2000
2001 2000
------------ ------------
(unaudited)
Cash flows provided from operating activities:
Net income $ 324,000 $ 2,623,000
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 21,069,000 13,407,000
Deferred income taxes (189,000) 1,500,000
Change in operating assets and liabilities (6,117,000) 2,726,000
------------ ------------
Net cash provided from operating activities 15,087,000 20,256,000
------------ ------------
Cash flows used for investing activities:
Capital expenditures:
New restaurant development (7,023,000) (4,136,000)
Restaurant remodeling (6,473,000) (5,659,000)
Corporate and restaurant information systems (533,000) (3,659,000)
Other capital expenditures (5,893,000) (4,298,000)
Acquisition of restaurants (1,612,000) --
Proceeds from dispositions of property and equipment 24,000 6,000
------------ ------------
Net cash used for investing activities (21,510,000) (17,746,000)
------------ ------------
Cash flows provided from (used for) financing activities:
Proceeds (payments) on revolving credit facility, net 8,500,000 (700,000)
Proceeds from other notes payable, net 585,000 1,382,000
Principal payments on term loans (3,500,000) (2,000,000)
Principal payments on capital leases (257,000) (131,000)
------------ ------------
Net cash provided from (used for) financing activities 5,328,000 (1,449,000)
------------ ------------
Increase (decrease) in cash and cash equivalents (1,095,000) 1,061,000
Cash and cash equivalents, beginning of period 2,712,000 1,901,000
------------ ------------
Cash and cash equivalents, end of period $ 1,617,000 $ 2,962,000
============ ============
The accompanying notes are an integral part of these financial statements.
6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Statement of Management
-----------------------
The accompanying unaudited consolidated financial statements as of June 30,
2001 and 2000 and for the three and six months then ended 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 results of operations for the three and six months ended June 30, 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 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 provision for the six months ended June 30, 2001 and 2000
was comprised of the following:
2001 2000
---------- ---------
Current $1,322,000 $ 652,000
Deferred (189,000) 1,500,000
---------- ---------
$1,133,000 $2,152,000
---------- ---------
7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For 2001 and 2000 the difference between the expected tax provision,
resulting from application of the federal statutory income tax rate to the
pre-tax income, and the reported income tax provision result principally
from state taxes and non-deductible amortization of franchise rights and
certain other intangibles.
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 month and six month period
ended June 30, 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.
8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Burger King Pollo Taco
Three Months Ended: Restaurants Tropical Cabana Other Consolidated
- ------------------- ----------- -------- ------ ----- ------------
($ in 000's)
June 30, 2001:
Revenues $ 95,948 $ 25,203 $ 45,886 $ -- $167,037
Cost of sales 26,569 8,086 13,324 -- 47,979
Restaurant wages and related
expenses 29,442 5,868 13,044 -- 48,354
Depreciation and amortization 5,879 669 1,923 2,228 10,699
Income (loss) from operations 5,348 5,068 4,915 (2,228) 13,103
Capital expenditures, excluding
acquisitions 5,770 1,135 1,749 550 9,204
June 30, 2000:
Revenues $ 97,532 $ 22,547 $ -- $ -- $120,079
Cost of sales 27,037 7,477 -- -- 34,514
Restaurant wages and related
expenses 28,746 5,281 -- -- 34,027
Depreciation and amortization 3,877 506 -- 2,342 6,725
Income (loss) from operations 10,111 3,722 -- (2,342) 11,491
Capital expenditures, excluding
acquisitions 8,609 860 -- 182 9,651
Burger King Pollo Taco
Six Months Ended: Restaurants Tropical Cabana Other Consolidated
- ----------------- ----------- -------- ------ ----- ------------
($ in 000's)
June 30, 2001:
Revenues $184,187 $ 49,808 $ 88,154 $ -- $322,149
Cost of sales 52,142 15,902 25,384 -- 93,428
Restaurant wages and related
expenses 57,708 11,613 25,263 -- 94,584
Depreciation and amortization 11,565 1,259 3,818 4,427 21,069
Income (loss) from operations 5,636 9,312 8,484 (4,427) 19,005
Capital expenditures, excluding
acquisitions 11,361 2,726 4,789 1,046 19,922
9
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Burger King Pollo Taco
Six Months Ended: (continued): Restaurants Tropical Cabana Other Consolidated
- ------------------------------ ----------- -------- ------ ----- ------------
($ in 000's)
June 30, 2000:
Revenues $ 184,569 $ 45,260 $ -- $ -- $ 229,829
Cost of sales 51,033 14,893 -- -- 65,926
Restaurant wages and related
expenses 56,522 10,241 -- -- 66,763
Depreciation and amortization 7,713 1,006 -- 4,688 13,407
Income (loss) from operations 13,027 8,061 -- (4,688) 16,400
Capital expenditures, excluding
acquisitions 14,205 2,935 -- 612 17,752
Identifiable Assets:
- --------------------
At June 30, 2001 $ 209,165 $ 27,515 $ 67,872 $169,790 $ 474,342
At December 31, 2000 208,533 26,198 67,035 175,146 476,912
4. 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.
The excess purchase price over net assets acquired is included in
intangible assets and is amortized over 20 years using the straight-line
method. See Note 6 on New Accounting Pronouncements. The Company entered
into a new senior credit facility to finance the Taco Cabana acquisition.
10
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following unaudited proforma results of operations for the six months
ended June 30, 2000 assume this acquisition occurred as of the beginning of
the period.
Revenues $ 313,329,000
=============
Cost of sales $ 90,792,000
=============
Restaurant wages and related expenses $ 90,073,000
=============
Depreciation and amortization $ 19,653,000
=============
Income from operations $ 23,596,000
=============
Net Income $ 1,341,000
=============
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. Other Income
------------
During the second quarter of 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.
6. New Accounting Pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board approved Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS
141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which
are effective July 1, 2001 and January 1, 2002, respectively, for the
Company. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Under SFAS
142, amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. In addition,
goodwill recorded as a result of business combinations completed during the
six-month period ending December 31, 2001 will not be amortized. All
goodwill and intangible assets will be tested for impairment in accordance
with the provisions of the Statement. The Company is currently reviewing
the provisions of SFAS 141 and SFAS 142 and assessing the impact of
adoption.
11
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Guarantor Financial Statements
------------------------------
The $170 million senior subordinated notes of the Company are guaranteed by
the following subsidiaries of the Company ("Guarantor Subsidiaries"), all
of which are wholly owned. 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.
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 June 2001 and December 2000 and for
the three-month and six-month periods ended June 30, 2001 and 2000. Debt
and goodwill allocated to subsidiaries are presented on an accounting
"push-down" basis.
12
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
June 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------- ------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,226,000 $ 391,000 $ 1,617,000
Trade and other receivables 216,000 1,383,000 1,599,000
Inventories 3,374,000 1,244,000 4,618,000
Prepaid rent 1,660,000 1,100,000 2,760,000
Prepaid expenses and other current assets 1,273,000 2,778,000 4,051,000
Refundable income taxes (555,000) 1,834,000 1,279,000
Deferred income taxes 5,984,000 -- 5,984,000
------------- ------------- -------------
Total current assets 13,178,000 8,730,000 21,908,000
Property and equipment, net 109,230,000 99,736,000 208,966,000
Franchise rights, net 97,127,000 -- 97,127,000
Intangible assets, net 1,470,000 123,476,000 124,946,000
Investment in and advances to (from) subsidiaries 199,439,000 (199,439,000) --
Deferred income taxes (632,000) 9,694,000 9,062,000
Other assets 9,551,000 2,782,000 12,333,000
------------- ------------- -------------
$ 429,363,000 $ 44,979,000 $ 474,342,000
============= ============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 8,379,000 $ 4,871,000 $ 13,250,000
Accrued interest 1,626,000 -- 1,626,000
Accrued payroll, related taxes and benefits 7,725,000 4,571,000 12,296,000
Accrued acquisition costs 345,000 67,000 412,000
Other liabilities 6,942,000 5,721,000 12,663,000
Current portion of long-term debt 8,652,000 254,000 8,906,000
------------- ------------- -------------
Total current liabilities 33,669,000 15,484,000 49,153,000
Long-term debt, net of current portion 366,233,000 1,326,000 367,559,000
Deferred income, sale/leaseback of real estate 4,026,000 -- 4,026,000
Accrued postretirement benefits 2,188,000 -- 2,188,000
Other liabilities 14,649,000 17,424,000 32,073,000
------------- ------------- -------------
Total liabilities 420,765,000 34,234,000 454,999,000
Stockholders equity 8,598,000 10,745,000 19,343,000
------------- ------------- -------------
$ 429,363,000 $ 44,979,000 $ 474,342,000
============= ============= =============
13
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2000
Parent Guarantor Combined
Company 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 105,704,000 97,580,000 203,284,000
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 208,860,000 (208,860,000) --
Deferred income taxes (3,406,000) 9,812,000 6,406,000
Other assets 10,275,000 2,596,000 12,871,000
------------- ------------- -------------
$ 435,966,000 $ 40,946,000 $ 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 14,609,000 4,410,000 19,019,000
------------- ------------- -------------
$ 435,966,000 $ 40,946,000 $ 476,912,000
============= ============= =============
14
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ ------------
Revenues:
Restaurant sales $ 95,948,000 $ 70,682,000 $166,630,000
Franchise fees and royalty revenues -- 407,000 407,000
------------ ------------ ------------
Total revenues 95,948,000 71,089,000 167,037,000
Costs and expenses:
Cost of sales 26,570,000 21,409,000 47,979,000
Restaurant wages and related expenses 29,442,000 18,912,000 48,354,000
Other restaurant operating expenses 19,962,000 11,856,000 31,818,000
Advertising expense 4,121,000 2,776,000 6,897,000
General and administrative 4,629,000 3,558,000 8,187,000
Depreciation and amortization 6,643,000 4,056,000 10,699,000
------------ ------------ ------------
Total operating expenses 91,367,000 62,567,000 153,934,000
------------ ------------ ------------
Income from operations 4,581,000 8,522,000 13,103,000
Interest expense 8,274,000 99,000 8,373,000
Intercompany allocations (1,737,000) 1,737,000 --
------------ ------------ ------------
Income (loss) before income taxes (1,956,000) 6,686,000 4,730,000
Provision (benefit) for income taxes (5,000) 2,879,000 2,874,000
------------ ------------ ------------
Net income (loss) $ (1,951,000) $ 3,807,000 $ 1,856,000
============ ============ ============
15
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------- ------------- -------------
Revenues:
Restaurant sales $ 97,532,000 $ 22,319,000 $ 119,851,000
Franchise fees and royalty revenues -- 228,000 228,000
------------- ------------- -------------
Total revenues 97,532,000 22,547,000 120,079,000
Costs and expenses:
Cost of sales 27,037,000 7,477,000 34,514,000
Restaurant wages and related expenses 28,746,000 5,281,000 34,027,000
Other restaurant operating expenses 19,270,000 3,127,000 22,397,000
Advertising expense 4,932,000 1,101,000 6,033,000
General and administrative 4,925,000 1,332,000 6,257,000
Depreciation and amortization 5,740,000 985,000 6,725,000
Other income (1,365,000) -- (1,365,000)
------------- ------------- -------------
Total operating expenses 89,285,000 19,303,000 108,588,000
------------- ------------- -------------
Income from operations 8,247,000 3,244,000 11,491,000
Interest expense 5,785,000 -- 5,785,000
Intercompany allocations (1,737,000) 1,737,000 --
------------- ------------- -------------
Income before income taxes 4,199,000 1,507,000 5,706,000
Provision for income taxes 1,892,000 678,000 2,570,000
------------- ------------- -------------
Net income $ 2,307,000 $ 829,000 $ 3,136,000
============= ============= =============
16
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------- ------------- -------------
Revenues:
Restaurant sales $ 184,187,000 $ 137,174,000 $ 321,361,000
Franchise fees and royalty revenues -- 788,000 788,000
------------- ------------- -------------
Total revenues 184,187,000 137,962,000 322,149,000
Costs and expenses:
Cost of sales 52,142,000 41,286,000 93,428,000
Restaurant wages and related expenses 57,708,000 36,876,000 94,584,000
Other restaurant operating expenses 39,742,000 23,300,000 63,042,000
Advertising expense 7,578,000 5,799,000 13,377,000
General and administrative 9,816,000 7,828,000 17,644,000
Depreciation and amortization 13,088,000 7,981,000 21,069,000
------------- ------------- -------------
Total operating expenses 180,074,000 123,070,000 303,144,000
------------- ------------- -------------
Income from operations 4,113,000 14,892,000 19,005,000
Interest expense 17,271,000 277,000 17,548,000
Intercompany allocations (3,474,000) 3,474,000 --
------------- ------------- -------------
Income (loss) before income taxes (9,684,000) 11,141,000 1,457,000
Provision (benefit) for income taxes (3,673,000) 4,806,000 1,133,000
------------- ------------- -------------
Net income (loss) $ (6,011,000) $ 6,335,000 $ 324,000
============= ============= =============
17
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------- ------------- -------------
Revenues:
Restaurant sales $ 184,569,000 $ 44,804,000 $ 229,373,000
Franchise fees and royalty revenues -- 456,000 456,000
------------- ------------- -------------
Total revenues 184,569,000 45,260,000 229,829,000
Costs and expenses:
Cost of sales 51,033,000 14,893,000 65,926,000
Restaurant wages and related expenses 56,522,000 10,241,000 66,763,000
Other restaurant operating expenses 38,698,000 6,180,000 44,878,000
Advertising expense 9,162,000 2,226,000 11,388,000
General and administrative 9,779,000 2,653,000 12,432,000
Depreciation and amortization 11,414,000 1,993,000 13,407,000
Other income (1,365,000) -- (1,365,000)
------------- ------------- -------------
Total operating expenses 175,243,000 38,186,000 213,429,000
------------- ------------- -------------
Income from operations 9,326,000 7,074,000 16,400,000
Interest expense 11,625,000 -- 11,625,000
Intercompany allocations (3,474,000) 3,474,000 --
------------- ------------- -------------
Income before income taxes 1,175,000 3,600,000 4,775,000
Provision for income taxes 533,000 1,619,000 2,152,000
------------- ------------- -------------
Net income $ 642,000 $ 1,981,000 $ 2,623,000
============= ============= =============
18
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------- ------------ ------------
Cash flows provided from operating activities:
Net income (loss) $ (6,011,000) $ 6,335,000 $ 324,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 13,088,000 7,981,000 21,069,000
Deferred income taxes (2,774,000) 2,585,000 (189,000)
Changes in operating assets and liabilities 4,275,000 (10,392,000) (6,117,000)
------------ ------------ ------------
Net cash provided from operating activities 8,578,000 6,509,000 15,087,000
------------ ------------ ------------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (1,462,000) (5,561,000) (7,023,000)
Restaurant remodeling (6,473,000) -- (6,473,000)
Corporate and restaurant information systems (404,000) (129,000) (533,000)
Other capital expenditures (3,652,000) (2,241,000) (5,893,000)
Acquisition of restaurants (1,612,000) -- (1,612,000)
Proceeds from dispositions of property and equipment 21,000 3,000 24,000
------------ ------------ ------------
Net cash used for investing activities (13,582,000) (7,928,000) (21,510,000)
------------ ------------ ------------
Cash flows provided from (used for) financing activities:
Proceeds from revolving credit facility, net 8,500,000 -- 8,500,000
Proceeds from other notes payable, net 585,000 -- 585,000
Principal payments on term loans (3,500,000) -- (3,500,000)
Principal payments on capital leases (140,000) (117,000) (257,000)
------------ ------------ ------------
Net cash provided from (used for) financing activities 5,445,000 (117,000) 5,328,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 441,000 (1,536,000) (1,095,000)
Cash and cash equivalents, beginning of year 785,000 1,927,000 2,712,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,226,000 $ 391,000 $ 1,617,000
============ ============ ============
19
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ ------------
Cash flows provided from operating activities:
Net income $ 642,000 $ 1,981,000 $ 2,623,000
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization 11,414,000 1,993,000 13,407,000
Deferred income taxes 1,500,000 -- 1,500,000
Changes in operating assets and liabilities 3,803,000 (1,077,000) 2,726,000
------------ ------------ ------------
Net cash provided from operating activities 17,359,000 2,897,000 20,526,000
------------ ------------ ------------
Cash flow used for used for investing activities:
Capital expenditures:
New restaurant development (1,889,000) (2,247,000) (4,136,000)
Restaurant remodeling (5,659,000) -- (5,659,000)
Corporate and restaurant information systems (3,375,000) (284,000) (3,659,000)
Other capital expenditures (3,845,000) (453,000) (4,298,000)
Proceeds from dispositions of property and equipment 6,000 -- 6,000
------------ ------------ ------------
Net cash used for investing activities (14,762,000) (2,984,000) (17,746,000)
------------ ------------ ------------
Cash flows used for financing activities:
Payments on revolving credit facility, net (700,000) -- (700,000)
Proceeds from other notes payable, net 1,382,000 -- 1,382,000
Principal payments on term loans (2,000,000) -- (2,000,000)
Principal payments on capital leases (131,000) -- (131,000)
------------ ------------ ------------
Net cash used for financing activities (1,449,000) -- (1,449,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,148,000 (87,000) 1,061,000
Cash and cash equivalents, beginning of year 468,000 1,433,000 1,901,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,616,000 $ 1,346,000 $ 2,962,000
============ ============ ============
20
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 529
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 June 30, 2001, we operated 358 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
54% since the end of 1996. Since June 30, 2000 we have opened four new Burger
King restaurants and closed three under-performing Burger King restaurants. In
the second quarter of 2001 we also acquired three 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 June 30,
2001 we owned and operated 50 Pollo Tropical restaurants in Florida and
franchised 24 Pollo Tropical restaurants, primarily in Puerto Rico. Since June
30, 2000, we have opened four new Pollo Tropical restaurants and reopened a
Pollo Tropical restaurant that was closed due to a fire in the first quarter of
2000.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
On December 19, 2000 we acquired Taco Cabana, Inc., a restaurant chain featuring
Tex-Mex style food. At June 30, 2001 we owned and operated 121 Taco Cabana
restaurants located in Texas, Oklahoma and Arizona and franchised ten Taco
Cabana restaurants. Since our acquisition, we have opened five new Taco Cabana
restaurants and closed one under-performing Taco Cabana restaurant.
Results of Operations
- ---------------------
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000.
The following table sets forth, for the three months ended June 30, 2001 and
2000, selected operating results as a percentage of restaurant sales:
2001 2000
----- -----
Restaurant sales:
Burger King 57.6% 81.4%
Pollo Tropical 14.9 18.6
Taco Cabana 27.5 -
----- -----
100.0 100.0
Costs and expenses:
Cost of sales 28.8 28.8
Restaurant wages and related expenses 29.0 28.4
Other restaurant expenses including advertising 23.2 23.7
General and administrative 4.9 5.2
Depreciation and amortization 6.4 5.6
Other income - (1.1)
----- -----
Income from restaurant operations 7.7% 9.4%
===== =====
Restaurant Sales
- ----------------
Total restaurant sales for the three months ended June 30, 2001 increased 38.9%
to $166.6 million from $119.9 million in the second quarter of 2000 due
primarily to the acquisition of Taco Cabana Inc. in the fourth quarter of 2000.
Taco Cabana restaurant sales were $45.8 million in the second quarter of 2001.
Burger King restaurant sales in the second quarter decreased $1.6 million, or
1.6%, over 2000 due to a second quarter comparable Burger King restaurant sales
decrease of 2.2%. This decrease was offset slightly by the net addition of four
restaurants since the end of the second quarter of 2000. Pollo Tropical
restaurant sales increased $2.6 million in the second quarter of 2001 or 11.5%,
compared to 2000. This increase was due to the opening of five additional
restaurants in the twelve months ended June 30, 2000 and a 2.1% increase in
sales at comparable Pollo Tropical restaurants in the second quarter of 2001.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Operating Costs and Expenses
- ----------------------------
Cost of sales (food and paper costs), as a percentage of total restaurant sales,
were 28.8% in both the second quarter of 2001 and 2000. Burger King cost of
sales, as a percentage of Burger King restaurant sales, were 27.7% in both the
second quarter of 2001 and 2000. Higher promotional sales discounts and a 9.1%
increase in beef costs in the second quarter of 2001 at our Burger King
restaurants were offset by favorable product mix changes, higher supplier
rebates and the effects of menu price increases in the third quarter of 2000.
Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant
sales, decreased to 32.5% in the second quarter of 2001 compared to 33.5% in
2000 due to a decrease in our contracted chicken prices from last year. Taco
Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, was 29.1%
in the second quarter of 2001. The inclusion of Taco Cabana in 2001 caused costs
of sales, as a percentage of total restaurant sales, to increase 0.1% compared
to the second quarter of 2000.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, increased to 29.0% in the second quarter of 2001 from 28.4% in the second
quarter of 2000. Burger King restaurant wages and related expenses, as a
percentage of Burger King restaurant sales, increased to 30.7% in the second
quarter of 2001 from 29.5% in 2000. This increase was due to the effect of lower
Burger King sales volumes in the second quarter of 2001 on fixed labor costs and
to higher restaurant level incentives related to attainment of cost and
inventory control objectives in the second quarter of 2001. A 3.3% increase in
the average productive hourly labor rate in the second quarter of 2001 at our
Burger King restaurants was offset by restaurant labor efficiencies and, to a
lesser extent, the effect of menu price increases in the third quarter of 2000.
Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo
Tropical restaurant sales, decreased slightly to 23.6% in 2001 from 23.7% in
2000. This decrease was due primarily to lower medical plan costs for Pollo
Tropical in the second quarter of 2001 offset in part by a 1.9% increase in the
average productive hourly labor rate in the second quarter of 2001 compared to
2000. Pollo Tropical incurred $300,000 of costs associated with the transition
to a new medical plan carrier in the second quarter of 2000. Taco Cabana
restaurant wages and related expenses, as a percentage of Taco Cabana restaurant
sales, were 28.5% in the second quarter of 2001. The inclusion of Taco Cabana in
2001 caused restaurant wages and related expenses, as a percentage of total
restaurant sales, to decrease 0.2% from the second quarter of 2000.
Other restaurant operating expenses, including advertising, as a percentage of
total restaurant sales, decreased to 23.3% in the second quarter of 2001 from
23.7% in the second quarter of 2000. Burger King other restaurant operating
expenses, as a percentage of Burger King restaurant sales, increased to 25.1% in
the second quarter of 2001 from 24.8% in the second quarter of 2000. This
increase for our Burger King restaurants was due to the effect of lower sales
volumes in the second quarter of 2001 on fixed costs and increases in utility
costs in 2001, offset by reductions in local advertising expenditures in 2001.
Other restaurant operating expenses at our Pollo Tropical restaurants decreased
to 17.4% of Pollo Tropical restaurant sales in the second quarter of 2001 from
18.9% in the second quarter of 2000.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
This decrease was due to lower advertising expenditures in 2001, related to the
timing of promotions, partially offset by higher utility costs in 2001. Other
restaurant operating expenses, including advertising, at our Taco Cabana
restaurants in the second quarter of 2001 was 22.5%, as a percentage of Taco
Cabana restaurant sales. The inclusion of Taco Cabana in 2001 caused other
restaurant operating expenses, as a percentage of total restaurant sales, to
decrease 0.3% from the second quarter of 2000.
General and administrative expenses, as a percentage of total restaurant sales,
decreased to 4.9% in the second quarter of 2001 from 5.2% in the second quarter
of 2000. This decrease was due primarily to lower administrative bonus levels
in the second quarter of 2001. General and administrative expenses in the second
quarter of 2001 increased $1.9 million over the second quarter of 2000 due to
administrative functions included as part of the December 2000 acquisition of
Taco Cabana.
Other income of $1,365,000 in the second quarter of 2000 was a result of the
Company ending its supply agreement with Ameriserve Food Distribution, Inc.
This income represented the remaining unrecognized portion of contractual
payments previously received and deferred at the inception of the agreement.
Earnings before interest, taxes, depreciation and amortization, other income and
non-cash extraordinary items ("EBITDA") increased to $23.8 million in the second
quarter of 2001 from $16.9 million in the second quarter of 2000. As a
percentage of total revenues, EBITDA margins increased from 14.0% in the second
quarter of 2000 to 14.2% in the second quarter of 2001 as a result of the
factors discussed above.
Depreciation and amortization increased $4.0 million in the second quarter of
2001 from the second quarter of 2000, of which $2.9 million of the increase is
due to the Company's acquisition of Taco Cabana in December 2000. The remaining
increase is due to our capital expenditures, excluding acquisitions, of $38.3
million since the end of the second quarter of 2000.
Interest expense increased $2.6 million to $8.4 million in the second quarter of
2001 from $5.8 million, in the second quarter of 2000, due to the acquisition of
Taco Cabana in December 2000. We subsequently sold 25 fee owned properties for
$29.4 million in a sale/leaseback transaction in 2000, and used the proceeds
from the sale to reduce the debt incurred for the acquisition.
The provision for income taxes for the second quarter of 2001 was derived using
an estimated effective income tax rate for 2001 of 77.8%. This rate is higher
than the Federal statutory tax rate due to state franchise taxes and non-
deductible amortization of franchise rights and certain other intangible assets.
Our estimated effective income tax rate for 2001 is higher than our effective
tax rate for the year ended December 31, 2000 of 50.7% due to the increase in
the non-deductible amortization of intangible assets resulting from our
acquisition of Taco Cabana in December 2000.
As a result of the foregoing, net income for the second quarter of 2001 was
$1,856,000 compared to $3,136,000 in the second quarter of 2000.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000.
The following table sets forth, for the six months ended June 30, 2001 and
2000, selected operating results as a percentage of restaurant sales:
2001 2000
----- -----
Restaurant sales:
Burger King 57.3% 80.5%
Pollo Tropical 15.3 19.5
Taco Cabana 27.4 -
----- -----
100.0 100.0
Costs and expenses:
Cost of sales 29.1 28.7
Restaurant wages and related expenses 29.4 29.1
Other restaurant expenses including advertising 23.8 24.5
General and administrative 5.5 5.4
Depreciation and amortization 6.5 5.8
Other income - (.6)
----- -----
Income from restaurant operations 5.7% 7.1%
===== =====
Restaurant Sales
- ----------------
Total restaurant sales for the six months ended June 30, 2001 increased 40.1% to
$321.4 million from $229.4 million in 2000 due primarily to the acquisition of
Taco Cabana Inc. in the fourth quarter of 2000. Taco Cabana restaurant sales
were $88.0 million for the six months ended June 30, 2001. Burger King
restaurant sales decreased $0.4 million to $184.2 million for the six months
ended June 30, 2001 due to a 0.7% decrease in comparable sales at our Burger
King restaurants for the six months ended June 30, 2001. Pollo Tropical sales
increased $4.4 million in the first six months of 2001 or 9.8%, compared to
2000. This increase was due to the opening of five additional restaurants in the
twelve months ended June 30, 2000 and a 1.1% increase in sales at comparable
Pollo Tropical restaurants in the first six months of 2001.
Operating Costs and Expenses
- ----------------------------
Cost of sales (food and paper costs), as a percentage of total restaurant sales,
were 29.1% for the first six months in 2001 compared to 28.7% for the first six
months of 2000. Burger King cost of sales, as a percentage of Burger King
restaurant sales, increased to 28.3% in 2001 from to 27.6% in 2000. This
increase was due to higher discounting of food associated with promotional
activities in 2001, a 7.8% increase in beef costs in the first six months of
2001 and lower supplier rebates in the first six months of 2001. These factors
were partially offset by improvements in food costs achieved by the
implementation of new inventory control systems last year in our Burger King
restaurants and the effects of menu price increases in the third
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
quarter of 2000. Pollo Tropical cost of sales, as a percentage of Pollo Tropical
restaurant sales, decreased to 32.3% in the first six months of 2001 from 33.2%
in 2000 due to lower commodity costs, including a decrease in our contracted
chicken prices from last year. Taco Cabana cost of sales, as a percentage of
Taco Cabana restaurant sales, was 28.9% for the first six months of 2001. The
inclusion of Taco Cabana in 2001 caused cost of sales, as a percentage of total
restaurant sales, to decrease 0.1% compared to the first six months of 2000.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, were 29.4% in the first six months of 2001 compared to 29.1% in 2000.
Burger King restaurant wages and related expenses, as a percentage of Burger
King restaurant sales, increased to 31.3% in the first six months of 2001 from
30.6% in 2000. This increase was due primarily to the effect of lower Burger
King sales volumes on fixed labor costs in the first six months of 2001 and, to
a lesser extent, higher restaurant level incentives in 2001 related to the
attainment of cost and inventory control objectives. These factors were offset
slightly by the effect of menu price increases in the third quarter of 2000.
Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo
Tropical restaurant sales, increased to 23.6% in the first six months of 2001
from 22.9% in 2000. This increase was due to an increase in workers compensation
costs and a 2.1% increase in the average productive hourly labor rate in the
first six months of 2001. Taco Cabana restaurant wages and related expenses, as
a percentage of Taco Cabana restaurant sales, were 28.7% in the first six months
of 2001. The inclusion of Taco Cabana in 2001 caused restaurant wages and
related expenses, as a percentage of total restaurant sales, to decrease 0.3%
compared to the first six months of 2000.
Other restaurant operating expenses, including advertising, as a percentage of
total restaurant sales, decreased to 23.8% in the first six months of 2001 from
24.5% in 2000. Burger King other restaurant operating expenses, as a percentage
of Burger King restaurant sales, decreased to 25.7% in the first six months of
2001 from 25.9% in 2000. This decrease was due to reductions in local
advertising expenditures in the first six months of 2001 offset in part by an
increase in utility costs in 2001, as a percentage of Burger King restaurant
sales, of 0.6%. Other restaurant operating expenses at our Pollo Tropical
restaurants decreased to 18.6% of Pollo Tropical restaurant sales in the first
six months of 2001 from 18.8% in 2000. This decrease was due to lower
advertising expenditures in 2001 related to the timing of promotions offset in
part by an increase in utility costs in 2001, as a percentage of Pollo Tropical
restaurant sales of, 0.7%. Other restaurant operating expenses, including
advertising, at our Taco Cabana restaurants in the first six months of 2001 were
22.7% as a percentage of Taco Cabana restaurant sales. The inclusion of Taco
Cabana in 2001 caused other restaurant operating expenses, as a percentage of
total restaurant sales, to decrease 0.4% compared to the first six months of
2000.
Other income of $1,365,000 in the first six months of 2000 was a result of the
Company ending its supply agreement with Ameriserve Food Distribution, Inc.
This income represented the remaining unrecognized portion of contractual
payments previously received and deferred at the inception of the agreement.
General and administrative expenses, as a percentage of total restaurant sales,
increased slightly to 5.5% in the first six months of 2001 from 5.4% in 2000.
General and administrative expenses in the first six months of 2001 increased
$5.2 million over the first six months of 2000 due to administrative functions
included as part of the December 2000 acquisition of Taco Cabana.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Earnings before interest, taxes, depreciation and amortization, non-cash
extraordinary items and other income ("EBITDA") increased to $40.1 million in
the first six months of 2001 from $28.4 million in the first six months of 2000.
As a percentage of total revenues, EBITDA margins were 12.5% in the first six
months of 2001 compared to 13.0% in 2000 as a result of the factors discussed
above.
Depreciation and amortization increased $7.7 million in the first six months of
2001 from the first six months of 2000, of which $5.8 million is due to the
Company's acquisition of Taco Cabana in December 2000. The remaining increase
is due to our capital expenditures, excluding acquisitions, of $38.3 million
since the end of the second quarter of 2000.
Interest expense increased $5.9 million to $17.5 million in the first six months
of 2001, from $11.6 million in the second quarter of 2000 due to the acquisition
of Taco Cabana in December 2000. We subsequently sold 25 fee owned properties
for $29.4 million in a sale/leaseback transaction in 2000, and used the proceeds
from the sale to reduce the debt incurred for the acquisition.
The provision for income taxes for the first six months of 2001 was derived
using an estimated effective income tax rate for 2001 of 77.8%. This rate is
higher than the Federal statutory tax rate due to state franchise taxes and non-
deductible amortization of franchise rights and certain other intangible assets.
Our estimated effective income tax rate for 2001 is higher than our effective
tax rate for the year ended December 31, 2000 of 50.7% due to the increase in
the non-deductible amortization of intangible assets resulting from our
acquisition of Taco Cabana in December 2000.
As a result of the foregoing, net income for the first six months of 2001 was
$324,000 compared to $2,623,000 in the first six months 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 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 existing Burger King restaurants; and
. for servicing our debt.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
Our operations in the first six months of 2001 generated approximately $15.1
million in cash, compared with $20.3 million in the first six months of 2000.
Capital expenditures represent a major investment of cash for us, and totaled,
excluding acquisitions, $19.9 million and $17.8 million in the first six months
of 2001 and 2000, respectively. Expenditures for new restaurant development were
$7.0 million and $4.1 million in the first six months of 2001 and 2000,
respectively.
In 2001, we anticipate total capital expenditures of approximately $48 million
to $50 million, excluding acquisitions. These amounts include approximately $20
million for the construction of new restaurants and related real estate
applicable to our three restaurant concepts as follows: $6 million to $7 million
for Burger King, $8 million to 9 million for Taco Cabana and $4.5 million for
Pollo Tropical. Also included in anticipated 2001 capital expenditures is
approximately $12 million for remodeling existing Burger King restaurants and
approximately $5 million to $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 we 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 June 30, 2001, we had total indebtedness of $376.5 million comprised of
$170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008, total
borrowings under our senior credit facility of $200.6 million and other debt of
$5.9 million. Our senior credit facility provides for a $70 million term loan A
facility, an $80 million term loan B facility and a $100 million revolving
credit facility. At June 30, 2001 $146.5 was outstanding under the term loan A
and B facilities and $41.2 million was available for borrowings under our
revolving credit facility, after reserving $4.7 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.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
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 minimum hourly wage rates, and accordingly, changes in those rates
directly affect our cost of labor. 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 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes from the information presented in Item 7A of the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 with
respect to the Company's market risk sensitive instruments.
29
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. None
b. There were no reports on Form 8-K filed during the reported
quarter.
30
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: August 15, 2001 /s/ Alan Vituli
------------------------------------
(Signature)
Alan Vituli
Chairman and Chief Executive Officer
Date: August 15, 2001 /s/ Paul R. Flanders
-------------------------------------
(Signature)
Paul R. Flanders
Vice President - Finance (Principal
Financial Officer and Principal
Accounting Officer)
31