SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the nine months ended Commission File Number
SEPTEMBER 30, 1995 1-6553
CARROLS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-0958146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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 11, 1995
10 SHARES
<PAGE>
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS September 30, 1995 December 31,
1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,093,000 $ 1,710,000
Trade and other receivables 434,000
532,000
Inventories 2,045,000
2,254,000
Prepaid real estate taxes 505,000
384,000
Deferred income taxes 2,900,000
Prepaid expenses and other current assets 467,000
459,000
Total current assets 8,444,000
5,339,000
Property and equipment, at cost:
Land 6,938,000
6,543,000
Buildings and improvements 14,533,000
14,260,000
Leasehold improvements 35,768,000
34,813,000
Equipment 42,510,000
40,141,000
Capital leases 15,367,000
15,558,000
Construction in progress 540,000
41,000
115,656,000
111,356,000
Less accumulated depreciation
and amortization (58,964,000)
(53,969,000)
Net property and equipment 56,692,000
57,387,000
Franchise rights, at cost (less accumulated
amortization of $19,341,000 at September 30, 1995 and
$17,548,000 at December 31, 1994)
44,841,000
46,042,000
Beneficial leases, at cost (less
accumulated amortization of $7,580,000 at September
30, 1995 and $7,433,000 at December 31,1994)
7,854,000
8,405,000
Excess of cost over fair value of assets acquired
(less accumulated amortization
of $505,000 at September 30, 1995 and $462,000 at
December 31, 1994) 1,806,000
1,849,000
Deferred income taxes 7,650,000
Other assets 6,680,000
5,666,000
$133,967,000
$124,688,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S (DEFICIT) September 30, December 31,
1995 1994
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 258,000 $ 258,000
Current portion of capital lease
obligations 615,000 615,000
Accounts payable 3,749,000 6,915,000
Accrued liabilities:
Payroll and employee benefits 3,566,000 3,748,000
Taxes - income and other 1,356,000 1,525,000
Other 2,824,000 3,835,000
Interest 1,708,000 4,899,000
Total current liabilities 14,076,000 21,795,000
Long-term debt, net of current portion 124,644,000 120,680,000
Capital lease obligations, net of current portion
3,522,000 3,966,000
Deferred income - sale/leaseback of real estate
1,801,000 1,888,000
Accrued postretirement benefits 1,406,000 1,354,000
Other liabilities 2,093,000 2,213,000
Total liabilities 147,542,000 151,896,000
Stockholder's (deficit):
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital
1,474,990
840,990
Accumulated deficit (14,416,000)
(28,683,000)
Total stockholder's (deficit) (13,575,000)
(27,208,000)
$133,967,000
$124,688,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30,
<S> <C> <C>
1995 1994
(13 weeks) (13 weeks)
Revenues:
Sales $59,303,000 $55,811,000
Other income 75,000 65,000
59,378,000 55,876,000
Costs and expenses:
Cost of sales 16,291,000 15,507,000
Restaurant wages & related expenses 16,867,000 15,799,000
Other restaurant operating expenses 11,835,000 11,396,000
Depreciation and amortization 2,882,000 2,882,000
Administrative expenses 2,742,000 2,250,000
Advertising expense 2,539,000 2,248,000
Interest expense 3,606,000 3,671,000
Loss on closing restaurants and other 1,800,000
56,762,000 55,553,000
Income before taxes 2,616,000 323,000
Provision (benefit) for taxes (10,500,000) 25,000
NET INCOME $13,116,000 $ 298,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
______________________
<TABLE>
<CAPTION>
September 30, September 30,
<S> <C> <C>
1995 1994
(39 weeks) (39 weeks)
Revenues:
Sales $169,508,000 $148,722,000
Other income 149,000 174,000
169,657,000 148,896,000
Costs and expenses:
Cost of sales 48,026,000 42,431,000
Restaurant wages & related expenses 49,255,000 43,798,000
Other restaurant operating expenses 34,060,000 30,893,000
Depreciation and amortization 8,373,000 8,308,000
Administrative expenses 7,895,000 6,559,000
Advertising expense 7,317,000 6,396,000
Interest expense 10,929,000 10,778,000
Loss on closing restaurants and other 1,800,000
165,855,000 150,963,000
Income (loss) before taxes and
extraordinary item 3,802,000 (2,067,000)
Provision (benefit) for taxes (10,400,000) 125,000
Income (loss) before extraordinary item 14,202,000 (2,192,000)
Extraordinary item - gain on purchase of
senior notes 65,000
NET INCOME (LOSS) $14,267,000 $ (2,192,000)
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
September 30, September 30,
<S> <C> <C>
1995 1994
</TABLE>
<TABLE>
<CAPTION>
(39 weeks) (39 weeks)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $14,267,000 $(2,192,000)
Adjustments to reconcile net income (loss)
to cash provided by operating
activities:
Depreciation and amortization 8,373,000 8,308,000
Deferred income taxes (10,550,000)
Non-cash extraordinary gain (65,000)
Non-cash charges included in loss on
closing restaurants and other 1,800,000
Change in operating assets and
liabilities:
Trade and other receivables 98,000 (69,000)
Inventories 209,000 33,000
Prepaid expenses and
other current assets (134,000) (61,000)
Other assets (74,000) (305,000)
Accounts payable (3,166,000) (2,102,000)
Accrued interest (3,191,000) (3,117,000)
Accrued taxes - income and other (169,000) 207,000
Accrued payroll and employee
benefits (182,000) 648,000
Other accrued liabilities (1,011,000) (172,000)
Other (141,000) 11,000
Cash provided by operating activities 4,264,000 2,989,000
Cash flows from investing activities:
Capital expenditures:
Property and equipment (3,561,000) (2,799,000)
Construction of new restaurants (2,095,000) (817,000)
Acquisition of restaurants (525,000) (11,588,000)
Franchise rights (301,000) (123,000)
Payments received on notes, mortgages
and capital subleases receivable 24,000 75,000
Disposal of property, equipment
and franchise rights 18,000 517,000
Other investments (1,301,000)
Net cash used for investing activities (7,741,000) (14,735,000)
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
September 30, September 30,
<S> <C> <C>
1995 1994
(39 weeks) (39 weeks)
Cash flows from financing activities:
Proceeds from long-term debt $ 5,657,000 $15,815,000
Principal payments on long-term debt (193,000) (202,000)
Principal payments on capital leases (444,000) (427,000)
Purchase of senior notes (1,387,000)
Retirement of long-term debt (75,000)
Proceeds from sale-leaseback transactions 861,000 672,000
Dividends paid (634,000) (3,273,000)
Net cash provided by
financing activities 3,860,000 12,510,000
Increase in cash
and cash equivalents 383,000 764,000
Cash and cash equivalents,
beginning of period 1,710,000 1,172,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,093,000 $ 1,936,000
Supplemental disclosures:
Interest paid on debt $14,120,000 $13,894,000
Taxes paid $ 116,000 $ 120,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of normal and recurring accruals) necessary to present fairly
the Company's financial position as of September 30, 1995 and December
31, 1994, the results of operations for the three and nine months ended
September 30, 1995 and 1994 and cash flows for the nine months ended
September 30, 1995 and 1994. These financial statements should be read
in conjunction with the Company's annual report on Form 10-K for the
period ended December 31, 1994.
2. The results of operations for the three months and nine months
ended September 30, 1995 and 1994, are not necessarily indicative of the
results to be expected for the full year.
3. Inventories at September 30, 1995 and December 31, 1994,
consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
1995 1994
Raw materials (food and
paper products) $1,006,000 $1,415,000
Supplies 1,039,000 839,000
$2,045,000 $2,254,000
</TABLE>
4. The income tax provision (benefit) was comprised of the
following:
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
<TABLE>
<CAPTION>
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Current:
State $ 50,000 $ 25,000 $ 150,000 $ 125,000
Deferred:
Federal (8,970,000) (8,970,000)
State (1,580,000) (1,580,000)
(10,550,000) (10,550,000)
$(10,500,000) $ 25,000 $(10,400,000) $ 125,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4. (continued) During the third quarter of 1995, the Company
recorded a deferred income tax benefit of $10,550,000 for which a
valuation allowance had previously been provided. The principal
component of the deferred tax asset relates to net operating loss
carryovers of approximately $34.9 million, which expire in varying
amounts beginning 2001 through 2009. Based upon the increase in the
number of restaurants operated by the Company and the favorable results
of operations, management believes it is more likely than not that the
Company will generate sufficient future taxable income to fully realize
the benefit of the net operating loss carryforwards and existing
temporary differences, although there can be no assurance of this.
Accordingly, the previously provided valuation allowance has been
eliminated and the net deferred tax asset of $10,550,000 at September 30,
1995 has been recognized as a deferred income tax benefit.
At September 30, 1995 the Company's deferred income tax assets and
liabilities approximated the following:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $12,800,000
Deferred gain on sale/leaseback
transactions 700,000
Depreciation of fixed assets 150,000
Other 2,000,000
15,650,000
Deferred tax liabilities:
Amortization of franchise rights 5,100,000
Net deferred income tax assets $10,550,000
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS THREE MONTHS ENDED SEPTEMBER
30, 1994.
Sales for the three months ended September 30, 1995 increased $3.5
million, or 6.2%, as compared to the three months ended September 30,
1994. The Company operated an average of 219 Burger King restaurants for
the 1995 quarter as compared to an average of 213 for the third quarter
of 1994. Average restaurant unit sales increased 3.2% in the third
quarter of 1995 as compared to 1994. Sales at comparable restaurants,
the 198 restaurants operating for the entirety of the compared periods,
increased $1.3 million, or 2.4%. Net restaurant selling prices increased
approximately 1.7% from the prior year period primarily from fewer
discount promotions in the 1995 quarter.
Cost of sales (food and paper costs) for the three months ended September
30, 1995 increased in dollars due to higher sales. Cost of sales as a
percentage of sales decreased approximately .3% from the fewer discount
promotions and decreases in certain commodity costs, especially beef,
partially offset by larger sized meat patties in certain sandwiches.
Restaurant wages and related expenses increased from 28.3% of sales
to 28.4% of sales when comparing 1994 to 1995. Lower workers
compensation costs, and the effect of higher sales on the fixed element
of restaurant wages were more than offset by increased wage rates.
Other restaurant operating expenses increased by approximately $.4
million but decreased by 0.4% as a percentage of sales for 1995 compared
to 1994. The increase in dollars was caused primarily by expenses
associated with the operation of the additional restaurants during the
most recent three months when compared to the prior year's three months.
The decrease in the percentage is attributed to the effect of higher
sales on the fixed elements of certain costs like utilities, insurance,
real estate taxes and some repair and maintenance costs.
Increased depreciation and amortization due to the additional
restaurants in operation during the second quarter of 1995 was offset by
the reduction in depreciation and amortization caused by assets becoming
fully depreciated.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
________________________
Administrative expenses increased $0.5 million when comparing 1995
to 1994. The supervision of additional restaurants and costs related to
future expansion were the primary cause of this increase.
An increase in advertising payments to Burger King Corporation of
$0.1 million (based on sales levels) was the primary cause of the
increase in advertising expense when comparing 1995 to 1994.
A slightly higher interest rate for the 1995 quarter was more than
offset by a decrease in average loan balances for the 1995 quarter
compared to 1994, thus causing a decrease of $.1 million in interest
expense.
The income tax benefit reflected during the three months ended
September 30, 1995 resulted from the elimination of the valuation
allowance for the net deferred income tax asset which arises
substantially from the availability of tax loss carryforwards. A review
of current and expected future pre-tax earnings based upon historical
earnings adjusted for recent acquisitions, led to the conclusion that it
is more likely than not that the Company will realize the entire benefit
of the net deferred tax asset at September 30, 1995 of $10,550,000
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1994.
Sales for the nine months ended September 30, 1995 increased $20.8
million, or 14.0%, as compared to the nine months ended September 30,
1994. The Company operated an average of 218 Burger King restaurants in
the first nine months of 1995 as compared to an average of 203 in the
first nine months of 1994. Average restaurant unit sales increased 5.8%
in the first nine months of 1995 as compared to 1994. Sales at
comparable restaurants, the 187 restaurants operating for the entirety of
the compared periods, increased $6.6 million, or 4.7%. Net restaurant
selling prices increased approximately 2.0% resulting from an increase in
menu prices (1.4%) and from fewer discount promotions (.6%).
Cost of sales (food and paper costs) for the nine months ended
September 30, 1995 increased in dollars due to higher sales. Cost of
sales as a percentage of sales decreased from 28.5% in 1994 to 28.3% in
1995 as a result of the effect of higher net restaurant selling prices
and decreases in certain commodity costs, especially beef during the
latest nine months partially offset by the introduction of larger sized
meat patties in certain sandwiches.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
Restaurant wages and related expenses decreased from 29.4% of sales
to 29.1% of sales when comparing 1994 to 1995. Productive labor
efficiencies, lower workers compensation costs, lower health insurance
costs and the effect of higher sales on the fixed element of restaurant
wages more than offset increased wage rates.
Other restaurant operating expenses increased by approximately $3.2
million but decreased by 0.7% as a percentage of sales for 1995 compared
to 1994. The increase in dollars was caused primarily by expenses
associated with the operation of the additional restaurants during the
most recent nine months when compared to the prior year's nine months.
The decrease in the percentage is attributed to the effect of higher
sales on the fixed elements of certain costs like utilities, insurance,
real estate taxes and certain repair and maintenance costs.
Increased depreciation and amortization due to the additional
restaurants in operation during the first nine months of 1995 was offset
by the reduction in depreciation and amortization caused by assets
becoming fully depreciated.
Administrative expenses for 1995 increased $1.3 million when
compared to 1994. Supervision and training related to operating
additional restaurants and costs related to future expansion were the
principal causes of this increase.
An increase in advertising payments to Burger King Corporation of
$0.8 million (based on sales levels) was the principal cause of the
increase in advertising expense when comparing 1995 to 1994.
An increase in average loan balances was the principal cause for
interest expense to increase $0.2 million for 1995 as compared to 1994.
The income tax benefit reflected during the nine months ended
September 30, 1995 resulted from the elimination of the valuation
allowance for the net deferred income tax asset which arises
substantially from the availability of tax loss carryforwards. A review
of current and expected future pre-tax earnings based upon historical
earnings adjusted for recent acquisitions, led to the conclusion that it
is more likely than not that the Company will realize the entire benefit
of the net deferred tax asset at September 30, 1995 of $10,550,000
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
(continued)
LIQUIDITY AND CAPITAL RESOURCES
The operating activities of the Company provided $4.3 million of
cash for the nine months ended September 30, 1995 after using $3.3
million to take advantage of favorable discount terms from the Company's
major supplier. Capital spending for property, equipment and franchise
rights was $6.5 million which included the acquisition of one restaurant
in Ohio, the construction and opening of two restaurants; one in Michigan
and one in Ohio, and the remodeling and maintenance of various
restaurants. Dividends of $0.6 million were paid to Carrols Holdings
Corporation (the Company's parent) for the payment by Holdings of its
regular quarterly preferred stock dividend. The Company used $1.4 million
to purchase $1.5 million face value of its senior notes. The sale and
leaseback of one restaurant property provided $0.9 million and net
borrowings under the Senior Secured Credit Facility provided $5.7
million.
At September 30, 1995, the Company had $13.5 million available under
its Senior Secured Credit Facility, after reserving $1.6 million for a
letter of credit guaranteed under the Senior Secured Credit Facility.
The Company believes that future cash flow from operations together with
funds available under the Senior Secured Credit Facility will be
sufficient to meet all interest and principal payments under its
indebtedness, fund the maintenance of property and equipment and fund
restaurant remodeling required under the Company's franchise
agreements,for at least the next twelve months, with the balance, to the
extent available, used to provide funds, for future acquisitions.
The Senior Note Indenture imposes limitations on certain restricted
payments, which include dividends. Following the dividend paid in July
1995, dividends on Holdings Preferred Stock were discontinued until the
amount available for such restricted payments is restored through either
earnings or new capital investment. The effect of the dividend
discontinuance is that the normal dividend rate increases from 10% to a
potential maximum rate of 14% until the dividends are current.
INFLATION
While inflation can have a significant impact on food, paper, labor
and other operating costs, the Company has historically been able to
minimize the effect of inflation through periodic price increases, and
believes it will be able to offset future inflation with price increases,
if necessary.
<PAGE>
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 8K filed during the reported
quarter
<PAGE>
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)
November 13,1995 (ALAN VITULI)
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
November 13, 1995 (RICHARD V. CROSS)
Date (Signature)
Richard V. Cross
Executive Vice President -
Finance and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Quarterly Report for the nine months ended September 30, 1995 of Carrols
Corporation and is qualified in its entirety by reference to such financial
statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,093,000
<SECURITIES> 0
<RECEIVABLES> 434,000
<ALLOWANCES> 0
<INVENTORY> 2,045,000
<CURRENT-ASSETS> 8,444,000
<PP&E> 115,656,000
<DEPRECIATION> 58,964,000
<TOTAL-ASSETS> 133,967,000
<CURRENT-LIABILITIES> 14,076,000
<BONDS> 124,644,000
<COMMON> 10
0
(13,575,000)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 133,967,000
<SALES> 169,508,000
<TOTAL-REVENUES> 169,657,000
<CGS> 48,026,000
<TOTAL-COSTS> 139,714,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,929,000
<INCOME-PRETAX> 3,802,000
<INCOME-TAX> (10,400,000)
<INCOME-CONTINUING> 14,202,000
<DISCONTINUED> 0
<EXTRAORDINARY> 65,000
<CHANGES> 0
<NET-INCOME> 14,267,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
