================================================================================
================================================================================
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 September 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 November 9, 2001: 10 shares
================================================================================
================================================================================
PART I
ITEM 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2001 2000
- ------ ------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,564,000 $ 2,712,000
Trade and other receivables 1,552,000 1,912,000
Inventories 4,765,000 5,917,000
Prepaid rent 2,094,000 2,284,000
Prepaid expenses and other current assets 4,420,000 4,122,000
Refundable income taxes 759,000 2,605,000
Deferred income taxes 5,984,000 8,451,000
------------- -------------
Total current assets 21,138,000 28,003,000
Property and equipment, at cost less accumulated
depreciation of $118,791,000 and $97,968,000,
respectively 214,208,000 203,284,000
Franchise rights, at cost less accumulated
amortization of $42,139,000 and $38,539,000,
respectively 96,028,000 98,931,000
Intangible assets, at cost less accumulated
amortization of $8,810,000 and $5,004,000,
respectively 123,822,000 127,417,000
Deferred income taxes 7,784,000 6,406,000
Other assets 11,815,000 12,871,000
------------- -------------
Total assets $ 474,795,000 $ 476,912,000
============= =============
The accompanying notes are an integral part of these financial statements.
2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
September 30, December 31,
LIABILITIES and STOCKHOLDER'S EQUITY 2001 2000
- ------------------------------------ ------------- --------------
(unaudited)
Current liabilities:
Accounts payable $ 13,570,000 $ 13,369,000
Accrued interest 5,462,000 2,247,000
Accrued payroll, related taxes and benefits 12,742,000 12,471,000
Accrued acquisition costs 366,000 5,612,000
Other liabilities 13,484,000 12,104,000
Current portion of long-term debt 9,287,000 8,143,000
------------- --------------
Total current liabilities 54,911,000 53,946,000
Long-term debt, net of current portion 362,368,000 362,995,000
Deferred income - sale/leaseback of real estate 3,954,000 4,171,000
Accrued postretirement benefits 2,236,000 2,117,000
Other liabilities and deferred income 31,563,000 34,664,000
------------- --------------
Total liabilities 455,032,000 457,893,000
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 (4,722,000) (5,466,000)
------------- --------------
Total stockholder's equity 19,763,000 19,019,000
------------- --------------
Total liabilities and stockholder's equity $ 474,795,000 $ 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 SEPTEMBER 30, 2001 AND 2000
2001 2000
------------- --------------
(unaudited)
Revenues:
Restaurant sales $ 170,132,000 $ 115,920,000
Franchise fees and royalty revenues 399,000 255,000
------------- --------------
Total revenues 170,531,000 116,175,000
Costs and expenses:
Cost of sales 50,524,000 32,793,000
Restaurant wages and related expenses 48,998,000 33,605,000
Other restaurant operating expenses 32,718,000 23,152,000
Advertising expense 8,176,000 4,540,000
General and administrative 8,714,000 6,417,000
Depreciation and amortization 10,971,000 6,949,000
------------- --------------
Total operating expenses 160,101,000 107,456,000
------------- --------------
Income from operations 10,430,000 8,719,000
Interest expense 8,046,000 5,770,000
------------- --------------
Income before income taxes 2,384,000 2,949,000
Provision for income taxes 1,964,000 1,672,000
------------- --------------
Net income $ 420,000 $ 1,277,000
============= ==============
The accompanying notes are an integral part of these financial statements.
4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 and 2000
2001 2000
------------- --------------
(unaudited)
Revenues:
Restaurant sales $ 491,493,000 $ 345,293,000
Franchise fees and royalty revenues 1,187,000 711,000
------------- --------------
Total revenues 492,680,000 346,004,000
Costs and expenses:
Cost of sales 143,952,000 98,719,000
Restaurant wages and related expenses 143,582,000 100,368,000
Other restaurant operating expenses 95,760,000 68,030,000
Advertising expense 21,553,000 15,928,000
General and administrative 26,358,000 18,849,000
Depreciation and amortization 32,040,000 20,356,000
Other income (Note 5) -- (1,365,000)
------------- --------------
Total operating expenses 463,245,000 320,885,000
------------- --------------
Income from operations 29,435,000 25,119,000
Interest expense 25,594,000 17,395,000
------------- --------------
Income before income taxes 3,841,000 7,724,000
Provision for income taxes 3,097,000 3,824,000
------------- --------------
Net income $ 744,000 $ 3,900,000
============= ==============
The accompanying notes are an integral part of these financial statements.
5
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 and 2000
2001 2000
------------ ------------
(unaudited)
Cash flows provided from operating activities:
Net income $ 744,000 $ 3,900,000
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 32,040,000 20,356,000
Deferred income taxes 1,089,000 2,998,000
Change in operating assets and liabilities (477,000) 12,261,000
------------ ------------
Net cash provided from operating activities 33,396,000 39,515,000
------------ ------------
Cash flows used for investing activities:
Capital expenditures:
New restaurant development (11,964,000) (8,519,000)
Restaurant remodeling (10,212,000) (8,034,000)
Other restaurant expenditures (9,596,000) (5,197,000)
Corporate and restaurant information systems (904,000) (5,158,000)
Other capital expenditures (800,000) (448,000)
Acquisition of restaurants (1,612,000) --
Proceeds from dispositions of property and equipment 26,000 7,000
------------ ------------
Net cash used for investing activities (35,062,000) (27,349,000)
------------ ------------
Cash flows provided from (used for) financing activities:
Proceeds (payments) on revolving credit facility, net 5,800,000 (10,700,000)
Proceeds from other notes payable, net 358,000 1,322,000
Principal payments on term loans (5,250,000) (3,000,000)
Principal payments on capital leases (390,000) (194,000)
------------ ------------
Net cash provided from (used for) financing activities 518,000 (12,572,000)
------------ ------------
Decrease in cash and cash equivalents (1,148,000) (406,000)
Cash and cash equivalents, beginning of period 2,712,000 1,901,000
------------ ------------
Cash and cash equivalents, end of period $ 1,564,000 $ 1,495,000
============ ============
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
September 30, 2001 and 2000 and for the three and nine 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 nine months ended September
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 nine months ended September 30, 2001
and 2000 was comprised of the following:
2001 2000
----------- -----------
Current $ 2,008,000 $ 826,000
Deferred 1,089,000 2,998,000
----------- -----------
$ 3,097,000 $ 3,824,000
=========== ===========
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 with restaurants 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 with
restaurants located in Texas, Oklahoma and Arizona.
Segment information as of and for the three month and nine month period
ended September 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 intangible assets.
8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Burger King Pollo Taco Consoli-
Three Months Ended: Restaurants Tropical Cabana Other dated
------------------ ----------- -------- ------ ----- -----
($ in 000's)
September 30, 2001:
Revenues $ 99,432 $ 24,315 $ 46,784 $ -- $ 170,531
Cost of sales 28,936 7,786 13,802 -- 50,524
Restaurant wages and related
expenses 29,769 5,949 13,280 -- 48,998
Depreciation and amortization 6,178 698 1,818 2,277 10,971
Income (loss) from operations 4,657 4,211 3,839 (2,277) 10,430
Capital expenditures, excluding
acquisitions 8,769 3,598 2,152 647 15,166
September 30, 2000:
Revenues $ 94,066 $ 22,109 $ -- $ -- $ 116,175
Cost of sales 25,536 7,257 -- -- 32,793
Restaurant wages and related
expenses 28,522 5,083 -- -- 33,605
Depreciation and amortization 5,402 523 -- 1,024 6,949
Income (loss) from operations 5,382 4,361 -- (1,024) 8,719
Capital expenditures, excluding
acquisitions 6,097 3,135 -- 372 9,604
Burger King Pollo Taco Consoli-
Nine Months Ended: Restaurants Tropical Cabana Other dated
----------------- ----------- -------- ------ ----- -----
September 30, 2001:
Revenues $ 283,619 $ 74,123 $134,938 $ -- $ 492,680
Cost of sales 81,078 23,688 39,186 -- 143,952
Restaurant wages and related
expenses 87,477 17,562 38,543 -- 143,582
Depreciation and amortization 17,743 1,957 5,636 6,704 32,040
Income (loss) from operations 10,293 13,523 12,323 (6,704) 29,435
Capital expenditures, excluding
acquisitions 18,518 6,324 6,941 1,693 33,476
9
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Burger King Pollo Taco
Nine Months Ended (continued): Restaurants Tropical Cabana Other Consolidated
------------------------------ ----------- -------- ------ ----- ------------
($ in 000's)
September 30, 2000:
Revenues $ 278,635 $ 67,369 $ -- $ -- $ 346,004
Cost of sales 76,569 22,150 -- -- 98,719
Restaurant wages and related
expenses 85,044 15,324 -- -- 100,368
Depreciation and amortization 15,778 1,529 -- 3,049 20,356
Income (loss) from operations 15,746 12,422 -- (3,049) 25,119
Capital expenditures, excluding
acquisitions 20,302 6,070 -- 984 27,356
Identifiable Assets:
--------------------
At September 30, 2001 210,788 31,152 67,869 164,986 474,795
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 nine
months ended September 30, 2000 assume this acquisition occurred as of
the beginning of the period.
Revenues $474,195,000
============
Cost of sales $137,180,000
============
Restaurant wages and related expenses $136,257,000
============
Depreciation and amortization $ 29,759,000
============
Income from operations $ 36,123,000
============
Net income $ 2,214,000
============
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 ("FASB")
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 142 and
assessing the impact of adoption.
In October 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides
guidance on the accounting for long-lived assets to be held and used
for assets to be disposed of through sale or other means. SFAS No. 144
is effective for fiscal years beginning after December 15, 2001. The
Company is currently reviewing the provisions of SFAS No. 144 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 September 2001 and
December 2000 and for the three-month and nine-month periods ended
September 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
September 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
ASSETS
Current Assets:
Cash and cash equivalents $ 668,000 $ 896,000 $ 1,564,000
Trade and other receivables 198,000 1,354,000 1,552,000
Inventories 3,513,000 1,252,000 4,765,000
Prepaid rent 1,235,000 859,000 2,094,000
Prepaid expenses and other current assets 1,769,000 2,651,000 4,420,000
Refundable income taxes (1,097,000) 1,856,000 759,000
Deferred income taxes 5,984,000 -- 5,984,000
--------------- -------------- ---------------
Total current assets 12,270,000 8,868,000 21,138,000
Property and equipment, net 111,994,000 102,214,000 214,208,000
Franchise rights, net 96,028,000 -- 96,028,000
Intangible assets, net 1,595,000 122,227,000 123,822,000
Intercompany receivable (payable) 196,489,000 (196,489,000) --
Deferred income taxes (632,000) 8,416,000 7,784,000
Other assets 9,266,000 2,549,000 11,815,000
--------------- -------------- ---------------
Total Assets $ 427,010,000 $ 47,785,000 $ 474,795,000
=============== ============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 8,619,000 $ 4,951,000 $ 13,570,000
Accrued interest 5,462,000 -- 5,462,000
Accrued payroll, related taxes and benefits 7,875,000 4,867,000 12,742,000
Accrued acquisition costs 327,000 39,000 366,000
Other liabilities 7,003,000 6,481,000 13,484,000
Current portion of long-term debt 9,027,000 260,000 9,287,000
--------------- -------------- ---------------
Total current liabilities 38,313,000 16,598,000 54,911,000
Long-term debt, net of current portion 361,110,000 1,258,000 362,368,000
Deferred income, sale/leaseback of real estate 3,954,000 -- 3,954,000
Accrued postretirement benefits 2,236,000 -- 2,236,000
Other liabilities 14,880,000 16,683,000 31,563,000
--------------- -------------- ---------------
Total liabilities 420,493,000 34,539,000 455,032,000
Stockholder's equity 6,517,000 13,246,000 19,763,000
--------------- -------------- ---------------
$ 427,010,000 $ 47,785,000 $ 474,795,000
=============== ============== ===============
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 September 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
Revenues:
Restaurant sales $ 99,432,000 $ 70,700,000 $ 170,132,000
Franchise royalty revenues and franchise fees -- 399,000 399,000
-------------- -------------- --------------
Total revenues 99,432,000 71,099,000 170,531,000
Costs and expenses:
Cost of sales 28,936,000 21,588,000 50,524,000
Restaurant wages and related expenses 29,769,000 19,229,000 48,998,000
Other restaurant operating expenses 20,445,000 12,273,000 32,718,000
Advertising expense 4,429,000 3,747,000 8,176,000
General and administrative 5,018,000 3,696,000 8,714,000
Depreciation and amortization 6,946,000 4,025,000 10,971,000
-------------- -------------- --------------
Total operating expenses 95,543,000 64,558,000 160,101,000
-------------- -------------- --------------
Income from operations 3,889,000 6,541,000 10,430,000
Interest expense 7,880,000 166,000 8,046,000
Intercompany allocations (1,737,000) 1,737,000 --
-------------- -------------- --------------
Income (loss) before income taxes (2,254,000) 4,638,000 2,384,000
Provision (benefit) for income taxes (173,000) 2,137,000 1,964,000
-------------- -------------- --------------
Net income (loss) $ (2,081,000) $ 2,501,000 $ 420,000
============== ============== ==============
15
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
Revenues:
Restaurant sales $ 94,066,000 $ 21,854,000 $ 115,920,000
Franchise royalty revenues and franchise fees -- 255,000 255,000
-------------- -------------- --------------
Total revenues 94,066,000 22,109,000 116,175,000
Costs and expenses:
Cost of sales 25,536,000 7,257,000 32,793,000
Restaurant wages and related expenses 28,522,000 5,083,000 33,605,000
Other restaurant operating expenses 20,129,000 3,023,000 23,152,000
Advertising expense 3,884,000 656,000 4,540,000
General and administrative 5,211,000 1,206,000 6,417,000
Depreciation and amortization 5,947,000 1,002,000 6,949,000
-------------- -------------- --------------
Total operating expenses 89,229,000 18,227,000 107,456,000
-------------- -------------- --------------
Income from operations 4,837,000 3,882,000 8,719,000
Interest expense 5,770,000 -- 5,770,000
Intercompany allocations (1,737,000) 1,737,000 --
-------------- -------------- --------------
Income before income taxes 804,000 2,145,000 2,949,000
Provision for income taxes 444,000 1,228,000 1,672,000
-------------- -------------- --------------
Net income $ 360,000 $ 917,000 $ 1,277,000
============== ============== ==============
16
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
Revenues:
Restaurant sales $ 283,619,000 $ 207,874,000 $ 491,493,000
Franchise royalty revenue and franchise fees -- 1,187,000 1,187,000
------------- ------------- -------------
Total revenues 283,619,000 209,061,000 492,680,000
Costs and expenses:
Cost of sales 81,078,000 62,874,000 143,952,000
Restaurant wages and related expenses 87,477,000 56,105,000 143,582,000
Other restaurant operating expenses 60,187,000 35,573,000 95,760,000
Advertising expense 12,007,000 9,546,000 21,553,000
General and administrative 14,834,000 11,524,000 26,358,000
Depreciation and amortization 20,034,000 12,006,000 32,040,000
------------- ------------- -------------
Total operating expenses 275,617,000 187,628,000 463,245,000
------------- ------------- -------------
Income from operations 8,002,000 21,433,000 29,435,000
Interest expense 25,151,000 443,000 25,594,000
Intercompany allocations (5,211,000) 5,211,000 --
------------- ------------- -------------
Income (loss) before income taxes (11,938,000) 15,779,000 3,841,000
Provision (benefit) for income taxes (3,846,000) 6,943,000 3,097,000
------------ ------------- -------------
Net income (loss) $ (8,092,000) $ 8,836,000 $ 744,000
============ ============= =============
17
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
Revenues:
Restaurant sales $ 278,635,000 $ 66,658,000 $ 345,293,000
Franchise royalty revenues and franchise fees -- 711,000 711,000
------------- ------------- -------------
Total revenues 278,635,000 67,369,000 346,004,000
Costs and expenses:
Cost of sales 76,569,000 22,150,000 98,719,000
Restaurant wages and related expenses 85,044,000 15,324,000 100,368,000
Other restaurant operating expenses 58,827,000 9,203,000 68,030,000
Advertising expense 13,046,000 2,882,000 15,928,000
General and administrative 14,990,000 3,859,000 18,849,000
Depreciation and amortization 17,361,000 2,995,000 20,356,000
Other income (1,365,000) -- (1,365,000)
------------- ------------- -------------
Total operating expenses 264,472,000 56,413,000 320,885,000
------------- ------------- -------------
Income from operations 14,163,000 10,956,000 25,119,000
Interest expense 17,395,000 -- 17,395,000
Intercompany allocations (5,211,000) 5,211,000 --
------------- ------------- -------------
Income before income taxes 1,979,000 5,745,000 7,724,000
Provision for income taxes 977,000 2,847,000 3,824,000
------------- ------------- -------------
Net income $ 1,002,000 $ 2,898,000 $ 3,900,000
============= ============= =============
18
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September, 2001
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
Cash flows provided from operating activities:
Net income (loss) $ (8,092,000) $ 8,836,000 $ 744,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,034,000 12,006,000 32,040,000
Deferred income taxes (2,774,000) 3,863,000 1,089,000
Changes in operating assets and liabilities 11,354,000 (11,831,000) (477,000)
------------ ------------ -----------
Net cash provided from operating activities 20,522,000 12,874,000 33,396,000
------------ ------------ -----------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (2,753,000) (9,211,000) (11,964,000)
Restaurant remodeling (9,609,000) (603,000) (10,212,000)
Other restaurant expenditures (6,143,000) (3,453,000) (9,596,000)
Corporate and restaurant information systems (633,000) (271,000) (904,000)
Other capital expenditures (428,000) (372,000) (800,000)
Acquisition of restaurants (1,612,000) -- (1,612,000)
Proceeds from dispositions of property and equipment 21,000 5,000 26,000
------------ ------------ -----------
Net cash used for investing activities (21,157,000) (13,905,000) (35,062,000)
------------ ------------ -----------
Cash flows provided from financing activities:
Proceeds on revolving credit facility, net 5,800,000 -- 5,800,000
Proceeds on other notes payable, net 358,000 -- 358,000
Principal payments on term loans (5,250,000) -- (5,250,000)
Principal payments on capital leases (390,000) -- (390,000)
------------ ------------ -----------
Net cash provided from financing activities 518,000 -- 518,000
------------ ------------ -----------
Net decrease in cash and cash equivalents (117,000) (1,031,000) (1,148,000)
Cash and cash equivalents, beginning of year 785,000 1,927,000 2,712,000
------------ ------------ -----------
Cash and cash equivalents, end of year $ 668,000 $ 896,000 $ 1,564,000
============ ============ ===========
19
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2000
(unaudited)
Parent Guarantor Combined
Company Only Subsidiaries Total
------------ ------------ -----
Cash flows provided from operating activities:
Net income $ 1,002,000 $ 2,898,000 $ 3,900,000
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization 17,361,000 2,995,000 20,356,000
Deferred income taxes 2,998,000 -- 2,998,000
Changes in operating assets and liabilities 12,075,000 186,000 12,261,000
------------- ------------ -------------
Net cash provided from operating activities 33,436,000 6,079,000 39,515,000
------------- ------------ -------------
Cash flow used for investing activities:
Capital expenditures:
New restaurant development (3,391,000) (5,128,000) (8,519,000)
Restaurant remodeling (8,034,000) -- (8,034,000)
Other restaurant expenditures (4,601,000) (596,000) (5,197,000)
Corporate and restaurant information systems (4,812,000) (346,000) (5,158,000)
Other capital expenditures (394,000) (54,000) (448,000)
Proceeds from dispositions of property and equipment 7,000 -- 7,000
------------- ------------ -------------
Net cash used for investing activities (21,225,000) (6,124,000) (27,349,000)
------------- ------------ -------------
Cash flows used for financing activities:
Proceeds (payments) on revolving credit facility, net (10,700,000) -- (10,700,000)
Proceeds (payments) from other notes payable, net 1,322,000 -- 1,322,000
Principal payments on term loans (3,000,000) -- (3,000,000)
Principal payments on capital leases (194,000) -- (194,000)
------------- ------------ -------------
Net cash used for financing activities (12,572,000) -- (12,572,000)
------------- ------------ -------------
Net decrease in cash and cash equivalents (361,000) (45,000) (406,000)
Cash and cash equivalents, beginning of year 468,000 1,433,000 1,901,000
------------- ------------- -------------
Cash and cash equivalents, end of year $ 107,000 $ 1,388,000 $ 1,495,000
============= ============= =============
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; successful integration and management of
recently acquired businesses; 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 531
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 September 30, 2001, we operated 359 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
55% since the end of 1996. Since September 30, 2000 we have opened four new
Burger King restaurants, acquired three Burger King restaurants and closed two
under-performing Burger King restaurants.
In July 1998 we acquired Pollo Tropical, Inc. Since the acquisition we have
expanded this concept by over 40% by building 15 new restaurants. At September
30, 2001 we owned and operated 51 Pollo Tropical restaurants in Florida and
franchised 25 Pollo Tropical restaurants, of which 18 are located in Puerto
Rico. Since September 30, 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.
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, for a total purchase price of approximately $154.7 million.
At September 30, 2001 we owned and operated 121 Taco Cabana restaurants located
in Texas, Oklahoma and Arizona and franchised ten Taco Cabana restaurants. Since
the acquisition, we have opened five new Taco Cabana restaurants and closed one
under-performing Taco Cabana restaurant.
Results of Operations
- ---------------------
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000.
The following table sets forth, for the three months ended September
30, 2001 and 2000, selected operating results as a percentage of restaurant
sales:
2001 2000
---- ----
Restaurant sales:
Burger King 58.5% 81.1%
Pollo Tropical 14.1 18.9
Taco Cabana 27.4 -
----- -----
100.0 100.0
Costs and expenses:
Cost of sales 29.7 28.3
Restaurant wages and related expenses 28.8 29.0
Other restaurant expenses including advertising 24.0 23.9
General and administrative 5.1 5.5
Depreciation and amortization 6.4 6.0
Income from restaurant operations 6.1 7.5
Restaurant Sales
- ----------------
Total restaurant sales for the three months ended September 30, 2001 increased
46.8% to $170.1 million from $115.9 million in the third quarter of 2000 due
primarily to the acquisition of Taco Cabana Inc. in the fourth quarter of 2000
which added restaurant sales of $46.7 million in the third quarter of 2001.
Burger King restaurant sales in the third quarter of 2001 increased $5.4
million, or 5.7%, over the prior year due to a comparable Burger King restaurant
sales increase of 4.2%. This increase was also due to the net addition of five
Burger King restaurants since the end of the third quarter of 2000. Pollo
Tropical restaurant sales increased $2.2 million in the third quarter of 2001 or
9.9%, compared to 2000. This increase was due primarily to the opening of six
additional restaurants since the end of the third quarter of 2000. Sales at
comparable Pollo Tropical restaurants in the third quarter of 2001 decreased
0.1%. Sales trends at our Pollo Tropical restaurants have been negatively
impacted subsequent to the tragedy on September 11, 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,
increased from 28.3% in the third quarter of 2000 to 29.7% in the third quarter
of 2001. Burger King cost of sales, as a percentage of Burger King restaurant
sales, increased from 27.1% in the third quarter of 2000 to 29.1% in the third
quarter of 2001. Higher promotional sales discounts at our Burger King
restaurants, a 15.5% increase in beef commodity prices and lower supplier
rebates in the third quarter of 2001 were partially offset by the effects of
menu price increases since the third quarter of 2000. The impact of higher beef
commodity costs was substantially offset by a reduction in the size of the
Burger King regular hamburger patty. Pollo Tropical cost of sales, as a
percentage of Pollo Tropical restaurant sales, decreased to 32.4% in the third
quarter of 2001 from 33.2% in the third quarter of 2000 due to a decrease in
contracted chicken prices from the prior year, partially offset by lower
supplier rebates in 2001. Taco Cabana cost of sales, as a percentage of Taco
Cabana restaurant sales, was 29.6% in the third quarter of 2001.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, decreased to 28.8% in the third quarter of 2001 from 29.0% in the third
quarter of 2000. Burger King restaurant wages and related expenses, as a
percentage of Burger King restaurant sales, decreased to 29.9% in the third
quarter of 2001 from 30.3% in the third quarter of 2000. This decrease was due
to the effect of higher Burger King sales volumes in the third quarter of 2001
on fixed labor costs and increased restaurant labor efficiencies. These factors
were partially offset by higher restaurant level incentives related to
attainment of cost and inventory control objectives and a 2.3% increase in the
average productive hourly labor rate in the third quarter of 2001 at our Burger
King restaurants. Pollo Tropical restaurant wages and related expenses, as a
percentage of Pollo Tropical restaurant sales, increased from 23.3% in the third
quarter of 2000 to 24.8% in the third quarter of 2001. This increase was due
primarily to higher workers compensation insurance costs in 2001, labor incurred
in conjunction with the rollout of our inventory systems to Pollo Tropical and a
2.1% increase in the average productive hourly labor rate. Taco Cabana
restaurant wages and related expenses, as a percentage of Taco Cabana restaurant
sales, were 28.5% in the third 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 0.1% from the third quarter of 2000.
Other restaurant operating expenses, including advertising, as a percentage of
total restaurant sales, increased slightly from 23.9% in the third quarter of
2000 to 24.0% in the third quarter of 2001. Burger King other restaurant
operating expenses, as a percentage of Burger King restaurant sales, decreased
to 25.0% in the third quarter of 2001 from 25.5% in the third quarter of 2000.
The decrease in the third quarter of 2001 for our Burger King restaurants was
due to the effect of higher sales volumes on fixed occupancy and operating
costs, as well as lower utility costs in 2001. These factors were partially
offset by an increase in local Burger King advertising expenditures in the third
quarter of 2001 compared to the third quarter of 2000. Other restaurant
operating expenses, including advertising, at our Pollo Tropical restaurants, as
a percentage of Pollo Tropical restaurant sales, increased from 16.9% in the
third quarter of 2000 to 18.6% in the third quarter of 2001.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
This increase was due in part to higher advertising expenditures in the third
quarter of 2001 related to the timing of promotions, higher utility costs and
the effect of increases in operating costs on flat comparable restaurant sales
in the third quarter of 2001. Other restaurant operating expenses, including
advertising, at our Taco Cabana restaurants in the third quarter of 2001 were
24.8%, as a percentage of Taco Cabana restaurant sales. Advertising expenditures
at our Taco Cabana restaurants, as a percentage of Taco Cabana restaurant sales,
were 6.4% in the third quarter of 2001 compared to 4.4% in the second quarter of
2001 due to an increased level of television advertising in the third quarter.
We do not anticipate that Taco Cabana advertising expenditures, as a percentage
of Taco Cabana sales, will be at this level in the future. The inclusion of Taco
Cabana in 2001 caused other restaurant operating expenses, as a percentage of
total restaurant sales, to increase 0.3% from the third quarter of 2000.
General and administrative expenses, as a percentage of total restaurant sales,
decreased to 5.1% in the third quarter of 2001 from 5.5% in the third quarter of
2000. This decrease was due in part to higher sales volumes in the third quarter
of 2001 at our Burger King restaurants, cost reductions and lower administrative
bonus levels in the third quarter of 2001 compared to the third quarter of 2000.
General and administrative expenses in the third quarter of 2001 increased $2.3
million over the third quarter of 2000 due to administrative functions included
as part of the December 2000 acquisition of Taco Cabana.
Earnings before interest, taxes, depreciation and amortization, other income and
non-cash extraordinary items ("EBITDA") increased to $21.4 million in the third
quarter of 2001 from $15.7 million in the third quarter of 2000. As a percentage
of total revenues, EBITDA margins decreased to 12.5% in the third quarter of
2001 from 13.5% in the third quarter of 2000 as a result of the factors
discussed above.
Depreciation and amortization increased $4.0 million in the third quarter of
2001 from the third quarter of 2000, of which $2.8 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 $42.3
million since the end of the third quarter of 2000.
Interest expense increased $2.3 million to $8.0 million in the third quarter of
2001 from $5.8 million in the third quarter of 2000, due to the acquisition of
Taco Cabana in December 2000.
The provision for income taxes for the third quarter of 2001 was derived using
an estimated annual effective income tax rate for 2001 of 80.6%. This rate is
significantly higher than the Federal statutory tax rate due to the level of
non-deductible amortization of franchise rights and certain other intangible
assets, relative to our pretax income, and state franchise taxes. Our estimated
annual 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.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
As a result of the foregoing, net income for the third quarter of 2001 was
$420,000 compared to $1,277,000 in the third quarter of 2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000.
The following table sets forth, for the nine months ended September 30, 2001 and
2000, selected operating results as a percentage of restaurant sales:
2001 2000
---- ----
Restaurant sales:
Burger King 57.7% 80.7%
Pollo Tropical 14.9 19.3
Taco Cabana 27.4 -
----- -----
100.0 100.0
Costs and expenses:
Cost of sales 29.3 28.6
Restaurant wages and related expenses 29.2 29.1
Other restaurant expenses including advertising 23.9 24.3
General and administrative 5.4 5.5
Depreciation and amortization 6.5 5.9
Other income - (.4)
Income from restaurant operations 6.0 7.3
Restaurant Sales
- ----------------
Total restaurant sales for the nine months ended September 30, 2001 increased
42.3% to $491.5 million from $345.3 million in 2000 due primarily to the
acquisition of Taco Cabana Inc. in the fourth quarter of 2000 which added
restaurant sales of $134.7 million for the nine months ended September 30, 2001.
Burger King restaurant sales increased $5.0 million to $283.6 million for the
nine months ended September 30, 2001 due to a 0.9% increase in comparable sales
at our Burger King restaurants and the net addition of five Burger King
restaurants in the twelve months ended September 30, 2001. Pollo Tropical sales
increased $6.6 million in the first nine months of 2001 or 9.9%, compared to
2000. This increase was due to the opening of six additional restaurants in the
twelve months ended September 30, 2001 and an increase of 0.7% in sales at
comparable Pollo Tropical restaurants in the first nine months of 2001.
25
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,
increased from 28.6% in the first nine months in 2000 to 29.3% in the first nine
months of 2001. Burger King cost of sales, as a percentage of Burger King
restaurant sales, increased from 27.5% in the first nine months of 2000 to 28.6%
in the first nine months of 2001. This increase was due to higher promotional
sales discounts, a 9.8% increase in beef commodity prices and lower supplier
rebates in the first nine months of 2001. The impact of higher beef costs was
substantially offset by a reduction in the size of the Burger King regular
hamburger patty. These factors were also 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
since the third quarter of 2000. Pollo Tropical cost of sales, as a percentage
of Pollo Tropical restaurant sales, decreased to 32.4% in the first nine months
of 2001 from 33.2% in the first nine months of 2000 due to lower commodity
costs, including a decrease in our contracted chicken prices in 2001. Taco
Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, was 29.1%
for the first nine 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 nine months of 2000.
Restaurant wages and related expenses, as a percentage of total restaurant
sales, increased slightly from 29.1% in the first nine months of 2000 to 29.2%
in the first nine months of 2001. Burger King restaurant wages and related
expenses, as a percentage of Burger King restaurant sales, increased from 30.5%
in the first nine months of 2001 from 30.8% in the first nine months of 2000.
The increase for our Burger King restaurants was due primarily to higher
restaurant level incentives in 2001 related to the attainment of cost and
inventory control objectives and the effect of labor rate increases on a
comparable restaurant sales increase of 0.9% in 2001. These factors were offset
slightly by the effect of menu price increases since the third quarter of 2000.
Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo
Tropical restaurant sales, increased from 23.0% in the first nine months of 2001
to 24.0% in the first nine months of 2001. This increase was due to an increase
in workers compensation costs in 2001 and the effect of labor rate increases on
a comparable restaurant sales increase of 0.7% in 2001. Taco Cabana restaurant
wages and related expenses, as a percentage of Taco Cabana restaurant sales,
were 28.6% in the first nine 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 0.2% compared to the first nine months of 2000.
Other restaurant operating expenses, including advertising, as a percentage of
total restaurant sales, decreased to 23.9% in the first nine months of 2001 from
24.3% in the first nine months of 2000. Burger King other restaurant operating
expenses, including advertising, as a percentage of Burger King restaurant
sales, decreased to 25.5% in the first nine months of 2001 from 25.8% in the
first nine months of 2000. This decrease was due to reductions in local
advertising expenditures in the first nine months of 2001 offset in part by an
increase in utility costs in 2001, as a percentage of Burger King restaurant
sales, of 0.2%. Other restaurant operating expenses, including advertising, at
our Pollo Tropical restaurants increased, as a percentage of Pollo Tropical
restaurant sales, from 18.1% in the first nine months of 2000 to 18.6% in the
first nine months of 2001. This increase was due to higher utility costs in 2001
and the effect of increases in operating costs on a 0.7% comparable restaurant
sales
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
increase in 2001, offset in part by lower advertising expenditures in 2001
related to the timing of promotions. Other restaurant operating expenses,
including advertising, at our Taco Cabana restaurants in the first nine months
of 2001 were 23.4% 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 0.2% compared to the first
nine months of 2000.
Other income of $1,365,000 in the first nine 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,
decreased to 5.4% in the first nine months of 2001 from 5.5% in the first nine
months of 2000. General and administrative expenses in the first nine months of
2001 increased $7.5 million over the first nine months of 2000 due to
administrative functions included as part of the December 2000 acquisition of
Taco Cabana.
Earnings before interest, taxes, depreciation and amortization, non-cash
extraordinary items and other income ("EBITDA") increased to $61.5 million in
the first nine months of 2001 from $44.1 million in the first nine months of
2000. As a percentage of total revenues, EBITDA margins were 12.5% in the first
nine months of 2001 compared to 12.7% in 2000 as a result of the factors
discussed above.
Depreciation and amortization increased $11.7 million in the first nine months
of 2001 from the first nine months of 2000, of which $8.6 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 $42.3 million since
the end of the third quarter of 2000.
Interest expense increased $8.2 million to $25.6 million in the first nine
months of 2001, from $17.4 million in the first nine months of 2000 due to the
acquisition of Taco Cabana in December 2000.
The provision for income taxes for the first nine months of 2001 was derived
using an estimated annual effective income tax rate for 2001 of 80.6%. This rate
is significantly higher than the Federal statutory tax rate due to the level of
non-deductible amortization of franchise rights and certain other intangible
assets, relative to our pretax income, and state franchise taxes. 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 nine months of 2001 was
$744,000 compared to $3,900,000 in the first nine months of 2000.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
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.
On December 19, 2000 we acquired Taco Cabana, Inc. for approximately $154.7
million. We subsequently sold 25 fee owned properties for $29.4 million in a
sale/leaseback transaction in December 2000, and used the proceeds from the
sale to reduce the debt incurred for the acquisition.
Our operations in the first nine months of 2001 generated approximately $33.4
million in cash, compared with $39.5 million in the first nine months of 2000.
Capital expenditures represent a major investment of cash for us and, excluding
acquisitions, were $33.5 million and $27.4 million in the first nine months of
2001 and 2000, respectively. Expenditures for new restaurant development were
$12.0 million and $8.5 million in the first nine months of 2001 and 2000,
respectively.
In 2001, we anticipate total capital expenditures of approximately $47 million
to $48 million. These amounts include approximately $16 million for the
construction of new restaurants and related real estate applicable to our three
restaurant concepts as follows: $4 million for Burger King, $5 million for Taco
Cabana and $7 million for Pollo Tropical. Also included in 2001 capital
expenditures is approximately $11 million for remodeling existing Burger King
restaurants and approximately $7 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 $12 million; with approximately $5.5 million
applicable to Burger King, $4 million for Taco Cabana and $2.5 million for Pollo
Tropical.
At September 30, 2001, we had total indebtedness of $371.7 million comprised of
$170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008, total
borrowings under our senior credit facility of $196.2 million and other debt of
$5.5 million. Our senior credit facility provides for a term
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION (continued)
loan A facility, a term loan B facility and a $100 million revolving credit
facility. At September 30, 2001, $144.8 was outstanding under the term loan A
and B facilities and $43.9 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.
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 RISKS
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. The following exhibits are filed as part of this report.
Exhibit No.
-----------
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation of Carrols Holdings Corporation.
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: November 14, 2001 /s/ Alan Vituli
-----------------------------------
(Signature)
Alan Vituli
Chairman and Chief Executive Officer
Date: November 14, 2001 /s/ Paul R. Flanders
-----------------------------------
(Signature)
Paul R. Flanders
Vice President - Finance (Principal
Financial Officer and Principal
Accounting Officer)