SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Fiscal Year Ended December 31, 1995
Commission File Number 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 No.)
968 JAMES STREET, SYRACUSE, NEW YORK 13203
(Address of principal executive office) (Zip Code)
(315) 424-0513
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
11-1/2% SENIOR NOTES DUE 2003
(Title of Class)
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___
The aggregate market value of the voting stock held by non-affiliates of
the Registrant: NO VOTING STOCK IS HELD BY NON-AFFILIATES.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 15, 1996: 10.
Documents Incorporated by Reference: NONE.
Ammended only to reformat the information for readability.
Page 1 of 53
<PAGE>
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
On March 6, 1996, Atlantic Restaurants, Inc. (the "Buyer"), Carrols
Holdings Corporation ("Holdings"), Carrols Corporation (the "Company" or
"Carrols") and certain selling shareholders of Holdings (the "Selling
Shareholders") entered into a Securities Purchase Agreement (the "Agreement").
Pursuant to the Agreement and subject to certain conditions precedent described
below, Buyer will acquire between 95% and 100% of the outstanding shares of
common stock, including securities that are convertible, exercisable or
exchangeable into shares of common stock, of Holdings (the "Securities").
Holdings is the owner of all of the issued and outstanding capital stock of
Carrols.
Assuming all of the Securities are acquired by the Buyer, the aggregate
purchase price therefor will be approximately $86,500,000 (the "Purchase
Price"). In accordance with the Agreement, the Purchase Price is subject to
adjustment in the event (i) that certain liabilities of Carrols and Holdings as
at March 31, 1996 exceed specified targeted levels or (ii) of a delay in the
Closing. The Purchase Price shall be paid in cash.
It is anticipated that, at the closing of the transaction (the "Closing"),
the Buyer will elect a new Board of Directors of Holdings and Holdings will
elect a new Board of Directors of Carrols. Such new board will include Alan
Vituli and Daniel T. Accordino who will also continue to serve Holdings and
Carrols in their present positions.
The parties anticipate that the Closing will occur in April 1996 if all of
the conditions precedent to the Closing will have occurred by such time,
including (i) obtaining the consent of Burger King Corporation and (ii)
additional conditions to Closing set forth in the Agreement. The purchase and
sale of certain outstanding options, representing 3.2% of the Securities on a
fully-diluted basis (excluding for this purpose the Warrants defined in note j
in Item 12), will be consummated on or about January 6, 1997.
The consummation of the transactions contemplated by the Agreement (the
"Change of Control Transaction") will constitute a "change of control" under
the Indenture, dated as of August 17, 1993 (the "Indenture"), among Carrols,
Holdings and Marine Midland Bank, N.A., as trustee, governing Carrols' $110
million aggregate principal amount (currently $108.5 million outstanding) of
11-1/2% Senior Notes Due 2003 (the "Notes"). In accordance with the terms and
conditions of the Indenture, upon a "change of control", each holder of the
Notes will have the right to require Carrols to repurchase all or any part of
such holder's Notes at a repurchase price in cash equal to 101% of the
principal amount of the Notes being repurchased (plus accrued and unpaid
interest, if any). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources".
HISTORICAL DEVELOPMENT
Carrols was incorporated in 1968 and through 1976 its principal business
was the operation of fast food hamburger restaurants under the name Carrols
Restaurants and movie theaters under the name CinemaNational. In 1976, as a
result of growing competition from larger and better recognized national fast
food restaurant chains, Carrols became a franchisee of Burger King Corporation
("BKC") and began converting its restaurants to Burger King restaurants and
ceased operating and franchising restaurants under the name of Carrols
Restaurants. In order to facilitate the financing of the conversion of these
restaurants, Carrols disposed of a substantial portion of its movie theater
assets.
In 1969, Carrols offered its common stock through an initial public
offering. The Company's shares were listed for trading on the New York Stock
Exchange in 1983.
The Company was acquired in December 1986 (the "Acquisition") by Holdings,
a corporation formed to effect the Acquisition by Mr. Alan Vituli and other
members of the Company's current senior management, a private investor group
and certain institutional investors. As a result of the Acquisition, Carrols
became a wholly-owned subsidiary of Holdings and, as a result, the shares of
common stock of Carrols ceased trading. In March 1992, Mr. Vituli, who was
Chairman of the Board of the Company from the time of the Acquisition in
December 1986, was also elected to serve as Chief Executive Officer. Mr.
Daniel T. Accordino was appointed President of the Company in February 1993.
In January 1995, the Company entered into three-year employment agreements with
Messrs. Vituli and Accordino. See "Executive Compensation -- Employment
Agreements".
At the time of the Acquisition, the Company owned 138 Burger King
restaurants and a food distribution business. In August 1990, the Company sold
the distribution business to Burger King Distribution Services (BKDS), a
division of BKC. Carrols currently purchases substantially all of its
requirements for foodstuffs and paper and packaging products from ProSource
Services Corporation ("ProSource"), the successor to BKDS, pursuant to a five
year supply agreement which was entered into on April 1, 1994 and which expires
on March 31, 1999. See "Business--Supplies and Distribution."
Since the Acquisition, Carrols has expanded its operations from 138 Burger
King restaurants to 220 as of March 15, 1996. During this period, Carrols built
31 restaurants, purchased 63 restaurants and disposed of or closed twelve
restaurants. See "Business--Restaurant Locations." Since October 1992, the
Company has acquired 52 Burger King restaurants through the 1992 acquisition of
ten Burger King restaurants for a purchase price of approximately $7.4
million, the 1993 acquisition of 18 Burger King restaurants for a purchase
price of approximately $10.5 million, the 1994 acquisition of 22 restaurants in
three separate transactions for a total purchase price of approximately $11.6
million, the acquisition of one restaurant in 1995 and one in 1996.
On August 17, 1993, the Company consummated a refinancing (the
"Refinancing") that repaid all outstanding amounts under the then existing
senior secured credit facility, senior subordinated notes and subordinated
debentures. Under the terms of the refinancing and the Company's present
outstanding indebtedness, (including capital lease obligation) scheduled debt
amortization requirements range from under $1.0 million to $3.6 million per
year until 2000. The Refinancing included the issuance of $110.0 million
aggregate principal amount of 11-1/2% Senior Notes due 2003 and the concurrent
closing of a new $25.0 million senior secured revolving credit facility (the
"Senior Secured Credit Facility") which replaced the Company's existing senior
secured credit facility with the same lender. On December 20, 1994, Carrols
amended certain provisions of the Senior Secured Credit Facility which included
an increase in the maximum amount of the revolver to the original $25.0
million, elimination of the scheduled annual reductions in the maximum revolver
available and a reduction in the interest rate. As part of the amendment, an
additional $5.0 million credit facility was added to the existing $25.0 million
facility, which additional facility was secured by the 22 Burger King
restaurants acquired during 1994.
COMPANY OPERATIONS
GENERAL. Since 1976, the Company's principal business has been the
operation of Burger King restaurants. The Company is the largest independent
Burger King franchisee in the United States. As of March 15, 1996, the Company
operated, as franchisee, 220 Burger King restaurants, of which 200 are
free-standing restaurants and 20 are located in retail shopping centers or
specialty stores. Carrols currently operates Burger King restaurants in nine
Northeastern and Midwestern states and one Southeastern state.
Carrols' Burger King restaurants are typically open seven days a week from
7:00 a.m. to 11:00 p.m. Substantially all of Carrols' Burger King restaurants
offer a breakfast menu and the traditional Burger King menu for lunch and
dinner. A standard, free-standing Burger King restaurant building typically
has an area of approximately 3,000 square feet with a seating capacity of
approximately 90, drive-thru service and adjacent parking areas. Smaller Burger
King facilities are utilized in retail shopping centers. In Carrols' free-
standing Burger King restaurants, greater than 50% of sales are generally
generated through drive-thru windows. Carrols leases most of its restaurant
properties, although it owns the land and buildings on which 18 restaurants are
located. See "Properties."
BURGER KING. There are approximately 7,900 Burger King restaurants
worldwide making BKC the second largest fast food hamburger operation. BKC has
been franchising since 1954 and has expanded to locations in all 50 states, the
District of Columbia and approximately 54 foreign countries.
Burger King restaurants are fast food restaurants of distinctive design
which serve a limited menu of moderately-priced foods and offer efficient and
rapid service. The Company believes that convenience, quality of food,
price/value and speed of service are the primary competitive advantages of
Burger King restaurants. Burger King restaurants appeal to a broad spectrum of
consumers.
Burger King restaurants feature flame-broiled hamburgers, which are an
integral part of the Burger King identity, and several widely-known,
trademarked products, the most popular being the Whopper{<reg-trade-mark>}
sandwich, which is a large, flame-broiled hamburger on a five-inch toasted bun
garnished with combinations of mayonnaise, lettuce, onions, pickles and
tomatoes. The basic menu of all Burger King restaurants consists of
hamburgers, cheeseburgers, chicken sandwiches and filets, fish sandwiches,
french fried potatoes, salads, various breakfast products, shakes, desserts,
soft drinks, milk and coffee. From time to time, other promotional items are
added to the menu for limited periods. BKC continually seeks to develop new
products and concepts as it endeavors to enhance the menu and service of Burger
King restaurants.
FRANCHISE AGREEMENTS. Each of Carrols' Burger King restaurants operates
under a separate Franchise Agreement from BKC. The Franchise Agreements
require, among other things, that all restaurants be of standardized design and
be operated in a prescribed manner, including utilization of the standard
Burger King menu. The Franchise Agreements generally provide for an initial
term of 20 years and have an initial fee of $40,000. A Successor Franchise
Agreement may be granted by Burger King for an additional 20 year term,
provided the restaurant meets the then-current BKC operating standards and the
Company is not in default under the relevant Franchise Agreement. Currently,
the Successor Franchise Agreement fee is $25,000 per restaurant, which fee is
expected to increase to $40,000. In addition to this fee, in order to obtain a
Successor Franchise Agreement, a franchisee is typically required to make
capital improvements to the subject restaurant to bring the restaurant up to
BKC's then-current design standards. The amount of such capital expenditures
will vary widely depending upon the magnitude of the required changes and the
degree to which the Company has made interim changes to the restaurant.
Although the Company estimates that a substantial remodeling can cost in excess
of $250,000, the Company's average remodeling cost over the past five years has
been approximately $140,000 per restaurant. The Franchise Agreements are non-
cancelable except for failure to abide by the terms thereof.
Carrols believes that it enjoys a good relationship with BKC, and believes
that it will satisfy BKC's normal Successor Franchise Agreement policies and,
accordingly, that Successor Franchise Agreements will be granted in due course
by BKC at expiration of the existing Franchise Agreements. Historically, BKC
has granted Successor Franchise Agreements for all of the Restaurants sought by
the Company.
In addition to the initial franchise fee, franchisees currently pay to BKC
a monthly royalty of 3-1/2% of the gross revenues from their Burger King
restaurants. Burger King operators currently also contribute 4% of monthly
gross revenues from their Burger King restaurants to fund BKC's national and
regional advertising. BKC engages in substantial advertising and promotional
activities and other efforts to maintain and enhance the nationwide Burger King
system. Carrols supplements BKC's marketing with local advertising and
promotional campaigns. See "Business--Business Strategy" and "Advertising and
Promotion."
The franchisee of a new restaurant must also purchase the requisite
equipment, seating, signage and pay various other costs to open a new Burger
King restaurant. The Company estimates that the average cost for a standard
free-standing restaurant are approximately $240,000 (excluding the cost of the
building, land and site improvements). The Company estimates that the
aggregate cost of constructing a free-standing restaurant and the cost of land
and site improvements range from $650,000 to $1,000,000 (or higher) depending
upon building type, land cost and site work.
The BKC Franchise Agreement does not grant any franchisee exclusive rights
to a defined territory. The Company believes that BKC generally seeks to ensure
that newly granted franchises do not materially adversely affect the operations
of existing Burger King restaurants.
The Company is required to obtain BKC's consent prior to the acquisition
or development of new Burger King restaurants. BKC has the right of first
refusal to purchase any Burger King restaurant which the Company wishes to
acquire from other franchisees. In addition, BKC's prior consent is required
for the sale by the Company of any of its restaurants. Since the Acquisition,
BKC has consented to all of the Company's proposed acquisitions.
MANAGEMENT STRUCTURE; STAFFING; TRAINING. Substantially all executive
management, finance, marketing and operation support functions are conducted
centrally at Carrols' Syracuse, New York headquarters. The Company currently
has three vice president-regional directors and a regional director who are
responsible for the operations of all Carrols' Burger King restaurants in their
respective regions. Three of the regional directors have been employed by
Carrols for over 20 years. There are 28 district supervisors who report to the
regional directors. The district supervisors have responsibility for an average
of eight restaurants and are responsible for direct supervision of the
day-to-day operations of the restaurants. Typically, district supervisors
previously served as restaurant managers at one of Carrols' restaurants. Both
regional directors and district supervisors are compensated with a fixed salary
plus an incentive bonus based upon the performance of the restaurants under
their supervision.
A typical Carrols' Burger King restaurant is staffed with hourly
employees, who are supervised by a salaried manager and two or three salaried
assistant managers.
Carrols provides both classroom and in-restaurant training for its
salaried and hourly personnel, in addition to training programs provided by
BKC. Carrols believes that training and management development are integral to
its success.
CONTROL SYSTEMS. Financial and management control of Carrols' restaurants
is facilitated by the use of a computerized back office point of sale system
which integrates a personal computer and point of sale equipment to
electronically communicate data from each of the Company's restaurants to
Carrols' centralized management information system on a daily basis. Sales
reports, payroll data, food and labor cost analyses and other operating
information for each restaurant are also available daily to the restaurant
manager, who is expected to react quickly to trends or situations in his or her
restaurant. The daily information is accumulated for weekly operating reports
covering significant restaurant performance indicators for each restaurant.
These reports are monitored by each management level from district supervisor
through senior management. Carrols believes that these systems materially
enhance its ability to control and manage its restaurant operations.
FACTORS AFFECTING THE COMPANY'S OPERATIONS. Carrols' business is affected
by various conditions such as automobile usage, inclement weather, gasoline
prices and road construction. Weather conditions can be particularly severe in
the Northeast where the Company operates a significant number of its Burger
King restaurants. Historically, the Company's business has also been affected
by changes in local and national economic conditions, demographic trends and
consumer spending habits, tastes, and concerns about the nutritional quality of
fast food.
SITE SELECTION. The Company believes that the location of its restaurants
is very important to its success. New development sites are evaluated based
upon accessibility, visibility, costs, surrounding traffic patterns,
competition and demographic characteristics. The Company's senior management,
based upon analyses prepared by its real estate professionals and its
operations personnel, determines the acceptability of all acquisition and new
development sites. See "Business--Business Strategy."
<PAGE>
RESTAURANT LOCATIONS
The following table sets forth the locations of the 220 Burger King
restaurants in Carrols' system at March 15, 1996.
<TABLE>
<CAPTION>
NEW YORK (98) OHIO (66) MAINE (3)
<S> <C> <C>
Greater Albany (14) Greater Akron (11) Augusta (1)
Auburn (1) Alliance (2) Bangor (2)
Amsterdam (1) Archbold (1)
Greater Binghamton (6) Ashland (1)
Boonville (1) Bowling Green (3) MASSACHUSETTS (2)
Buffalo (1) Bryan (1)
Catskill (1) Greater Canton (11) North Andover (1)
Cobleskill (1) Greater Cleveland (10) Billerica (1)
Cortland (1) Defiance (1)
Fulton (1) Findlay (2)
Glens Falls (2) Fostoria (1) NEW JERSEY (2)
Gloversville (2) Fremont (1)
Hamilton (1) Hartville (1)
Herkimer (1) Lima (2) Franklin (1)
Hudson (1) Mansfield (6) Newton (1)
Kingston (3) Medina (1)
Middletown (2) Mentor (1)
New City (1) New Philadelphia (2) CONNECTICUT (1)
Newburgh (3) Ottawa (1)
Niagara Falls (1) Streetsboro (1) Westport (1)
Norwich (1) Tiffin (1)
Oneonta (2) Van Wert (1)
Oswego (1) Wapakoneta (1) VERMONT (1)
Peekskill (1) Wooster (2)
Plattsburgh (3) Wauseon (1) Rutland (1)
Poughkeepsie (2)
Port Jervis (1)
Greater Rochester (14) MICHIGAN (15)
Rome (2)
Greater Syracuse (18) Ann Arbor (3)
Schodack (1) Battle Creek (4)
Greater Utica (4) Kalamazoo (4)
Watertown (2) Jackson (3)
Yorktown Heights (1) Washtenaw (1)
NORTH CAROLINA (24) PENNSYLVANIA (8)
Greater Asheville (9) Bradford (1)
Durham (7) East Stroudsburg (1)
Forest City (1) Lebanon (1)
Hendersonville (2) Reading (4)
Marion (1) Tamaqua (1)
Morganton (1)
Raleigh (2)
Shelby (1)
</TABLE>
<PAGE>
ADVERTISING AND PROMOTION
As a Burger King franchisee, a significant portion of the
Company's advertising and promotional programs are established and
coordinated by BKC through regional and national advertising campaigns.
Carrols supplements BKC's advertising and promotional activities with
local advertising and promotions, including purchasing additional
television, radio and print advertising. Carrols also utilizes
promotional programs, such as combination meals and discounted prices,
targeted to its customers, thereby enabling Carrols to create a
flexible and directed marketing program.
Most BKC franchisees and BKC are required to contribute 4% of
monthly gross revenues from restaurant operations to an advertising
fund, utilized by BKC for its advertising and promotional programs and
public relations activities. BKC's advertising programs consist of
national campaigns and local advertising which supplements the national
campaigns. BKC's advertising campaigns are generally carried on
television, radio and in circulated print media (national and regional
newspapers and magazines). Carrols believes that one of the major
advantages of being a Burger King franchisee is the leverage it
realizes from the marketing power of BKC.
SUPPLIES AND DISTRIBUTION
As a Burger King franchisee, Carrols is required to purchase all
of its foodstuffs, paper and packaging from BKC-approved suppliers.
Other non-food items such as kitchen utensils, equipment maintenance
tools and other supplies may be purchased from any suitable source
provided such items meet BKC product uniformity standards. On April 1,
1994, Carrols entered into a new supply agreement with its supplier,
ProSource. Pursuant to that agreement, Carrols is required to obtain
substantially all of its foodstuffs (other than bread products), paper,
promotional premiums and packaging from ProSource. The supply
agreement with ProSource is a five-year agreement which expires on
March 31, 1999. The Company believes that ProSource's services are
competitive with alternatives available to the Company. Carrols
purchases its bread products from local bakeries. See
"Business--Historical Development."
There are other BKC-approved supplier/distributors which compete
with ProSource. Carrols believes that it would be able to substitute
another supplier if ProSource were unable, for any reason, or chose
not to continue to service the Company.
All BKC-approved suppliers are required to purchase all foodstuffs
and supplies from BKC-approved manufacturers and purveyors. BKC is
responsible for monitoring quality control and supervision of these
manufacturers and purveyors. See "Business--Quality Assurance."
BKC monitors all BKC-approved manufacturers and purveyors of its
foodstuffs. BKC regularly visits these manufacturers and purveyors to
observe the preparation of foodstuffs and run various tests to ensure
that only high quality foodstuffs are sold to BKC-approved suppliers
and distributors. In addition, BKC coordinates and supervises audits of
approved suppliers and distributors to determine continuing product
specification compliance and ensure that manufacturing plant and
distribution center standards are met.
QUALITY ASSURANCE
All Burger King franchisees, including Carrols, operate subject to
a comprehensive regimen of quality assurance and health standards set
by BKC, as well as standards set by Federal, state and local
governmental laws and regulations. These standards include food
preparation rules regarding, among other things, minimum cooking
temperatures, sanitation and cleanliness. In addition, BKC has set
maximum time standards for holding unsold prepared food; for example,
unsold sandwiches are discarded ten minutes after preparation and
unsold french fries are discarded seven minutes after preparation. The
"conveyor belt" cooking system utilized in all Burger King restaurants,
which is calibrated to carry hamburgers through the flame broiler at
regulated speeds, helps ensure that standardized cooking times and
temperatures are met.
Carrols, through its regional directors and district supervisors,
closely supervises the operation of all of its restaurants to help
ensure that standards and policies are followed and that product
quality, customer service and cleanliness of the restaurants are
maintained. BKC conducts unscheduled periodic inspections of each
Burger King restaurant throughout the Burger King system.
BUSINESS STRATEGY
The Company's primary business strategy is to expand its
operations through the acquisition and construction of additional
Burger King restaurants while enhancing the quality of operations and
competitive position of its existing Burger King restaurants. Carrols
believes the size of the nationwide Burger King system will continue to
present opportunities for selective growth through acquisitions. In
addition, Carrols believes that the number of markets in which the
Company operates will provide opportunities for construction of new
restaurants. The ability of the Company to expand through the
acquisition and construction of additional Burger King restaurants is
subject to, among other things, the availability of financing and
obtaining the consent of BKC.
GOVERNMENT REGULATION
Carrols is subject to various Federal, state and local laws
affecting its business, including various health, sanitation, fire and
safety standards. Newly constructed or remodeled restaurants are
subject to state and local building code and zoning requirements. In
connection with the remodeling and alteration of the Company's
restaurants, the Company may be required to expend funds to meet
certain Federal, state and local regulations, including regulations
requiring that remodeled or altered restaurants be handicap accessible.
The Company is also subject to Federal and state environmental
regulations, although such regulations have not had a material effect
on the Company's operations.
The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements,
overtime and other working conditions and citizenship requirements. A
significant number of the Company's food service personnel are paid at
rates related to the Federal minimum wage and increases in the minimum
wage could increase the Company's labor costs.
The Company believes that it is operating in substantial
compliance with applicable laws and regulations governing its
operations.
COMPETITION
The fast food industry is highly competitive. In each of its
markets, Carrols' restaurants compete with a large number of national
and regional restaurant chains, as well as locally-owned restaurants,
offering low-priced and medium-priced fare. Convenience stores, grocery
store delicatessens and food counters, cafeterias and other purveyors
of moderately priced and quickly prepared foods also compete with the
Company. In the Company's markets, McDonald's, Wendy's and Hardee's
provide the most significant competition. Carrols believes that
national brand name identification is a significant competitive
advantage in the fast food business. The Company's largest competitor
is McDonald's. The Company believes that product quality and taste,
convenience of location, speed of service, menu variety, and price are
the most important competitive factors in the fast food restaurant
industry.
EMPLOYEES
At December 31, 1995, Carrols employed approximately 7,500
persons; approximately 100 were administrative personnel and 7,400 were
restaurant operating personnel. None of Carrols' employees is covered
by collective bargaining agreements. Approximately 6,800 of the
restaurant operating personnel at December 31, 1995 were part-time
employees. Carrols believes that its employee relations are
satisfactory.
ADDITIONAL RESTAURANT CONCEPTS
TACO CABANA. Carrols is a party to an agreement
dated June 20, 1994, as amended on February 16, 1996 (the
"Taco Cabana Agreement") with T.C. Management, Inc., an affiliate of
Taco Cabana, Inc., under which Carrols has the exclusive
right to develop Taco Cabana restaurants in North Carolina, South
Carolina, and the Tidewater and Richmond areas of Virginia. Taco
Cabana, Inc., is a publicly traded company which operates quick-service
Mexican patio cafe restaurants. As of December 31, 1995, Taco
Cabana owned and operated 106 Taco Cabana restaurants and
franchised 27 Taco Cabana restaurants.
The Taco Cabana Agreement requires Carrols to develop three Taco
Cabana restaurants during the first year, six Taco Cabana restaurants
during the second year, and eight Taco Cabana restaurants during each
of the next three years in order to retain the entirety of its
territory under the agreement. Carrols has the ability to maintain the
exclusive right to develop in its assigned territory provided it
continues to develop Taco Cabana restaurants in accordance with the
formula set forth in the Taco Cabana Agreement. Failure to comply with
the formula would result in a reduction or elimination of its exclusive
territorial rights. Upon execution of the Taco Cabana Agreement,
Carrols paid a non-refundable fee of $250,000, which will be credited
against development and license fees for the first five Taco Cabana
restaurants developed by Carrols. The development and license fee for
the first ten Taco Cabana restaurants to be opened by Carrols is
$50,000 per restaurant, thereafter the development and license fee is
$25,000 per restaurant.
The Taco Cabana Agreement, as amended, provides that
the first three restaurants required to be developed are not required
to be open until thirty months after February 16, 1996. Accordingly,
no Taco Cabana Restaurants are required to be open until
August 1998. To date, no Taco Cabana restaurants have been built
by Carrols.
POLLO TROPICAL. Carrols is a party to an
agreement dated January 1, 1995, as amended June 30, 1995, (the
"Pollo Tropical Agreement") with Pollo Franchise, Inc., an affiliate of
Pollo Tropical, Inc., under which Carrols has the exclusive
right to develop Pollo Tropical restaurants in certain specified
regions of Ohio and Kentucky. Pollo Tropical is a publicly traded
company which operates a chain of quick service restaurants featuring
grilled marinated chicken. As of December 31, 1995,
Pollo Tropical had 42 restaurants systemwide, of which 36
were Company owned and 6 were franchised.
The Pollo Tropical Agreement requires Carrols to develop three
Pollo Tropical restaurants during the first 18 months, six Pollo
Tropical restaurants during the next 12 months, and eight Pollo
Tropical restaurants during each of the next three years in order to
retain the entirety of its territory under the agreement. Carrols
maintains the exclusive right to develop in its assigned territories
provided it continues to develop restaurants in accordance with the
formula set forth in the Pollo Tropical Agreement. Failure to comply
with the formula would result in a reduction or elimination of its
exclusive territorial rights. Upon the execution of the Pollo Tropical
Agreement, Carrols paid a non-refundable fee of $110,000, which will be
credited against franchise fees for the first five Pollo Tropical
restaurants developed by Carrols. The license fee for the first three
Pollo Tropical restaurants is $30,000 per restaurant, thereafter the
license fee is $15,000 per restaurant.
The Pollo Tropical Agreement, as amended,
provides for a commencement date of January 1, 1996.
Accordingly, no restaurants are required to be opened under the Pollo
Tropical Agreement until July 1, 1997. To date, no Pollo Tropical
restaurants have been built by Carrols.
In addition to the territories of Ohio and Kentucky, Carrols has
certain limited options to develop Pollo Tropical restaurants in the
State of Michigan (other than Detroit) and Toronto, Canada.
<PAGE>
ITEM 2. PROPERTIES
The Company owns the approximately 20,000 square foot building at
968 James Street, Syracuse, New York, in which its executive offices
are located. This building houses all of the Company's administrative
operations (except for those conducted at three small regional offices)
and is adequate for future expansion. The Company is the beneficial
owner of a 160,000 square foot warehouse building in Liverpool, New
York. The warehouse is not used in the current operations of the
Company and is under contract dated December 29, 1995, to be sold
for $1,300,000. In addition to the above, at March 15, 1996 the
Company owned or leased the following properties:
<TABLE>
<CAPTION>
Owned Leased Leased
Land; Land; Land;
Owned Owned Leased
BUILDING BUILDING BUILDING TOTAL
<S> <C> <C> <C> <C>
Burger King restaurants 18 16 186(a) 220
Excess properties:
Leased to others 1 -- 6 7
Available for sale or lease 5(b) -- -- 5
Total properties 24 16 192 232
</TABLE>
(a) Includes 20 restaurants located in mall shopping centers or
specialty locations.
(b) The Company has entered into a Contract of Sale dated February,
1996 for the sale of land known as Albemarle Road, Charlotte,
North Carolina, for a purchase price of $540,000. The Company
anticipates the closing will occur in mid-April, 1996. The
Company has also entered into a Contract of Sale, dated February
14, 1996 for the sale of land known as 108 East Main Street,
Endicott, New York, for a purchase price of $88,500. The Company
anticipates the closing will occur in June of 1996.
Most of the Company's leases are coterminous with the related
Franchise Agreements. The Company believes that it generally will be
able to renew at commercially reasonable rates the leases whose terms
expire prior to the subject Franchise Agreements.
Most leases require the Company, as lessee, to pay utility and
water charges, premiums on insurance and real estate taxes. Certain
leases also require contingent rentals based upon a percentage of gross
sales that exceed specified minimums.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which,
in management's belief, will have a material adverse effect on the
Company's results of operations or financial condition, nor to any
other pending legal proceedings other than ordinary, routine litigation
incidental to its business.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established trading market for the Company's common
equity, since 100% of its common stock (10 shares) is owned by
Holdings.
Cash dividends per share were paid during 1994 and 1995 by Carrols
to Holdings as follows:
<TABLE>
<CAPTION>
January, 1994 $237,301.10
<S> <C>
April, 1994 20,000.00
July, 1994 20,000.00
October, 1994 20,000.00
January, 1995 20,000.00
April, 1995 20,000.00
June, 1995 3,672.00
July, 1995 20,000.00
</TABLE>
See discussion of dividend restriction in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CARROLS CORPORATION AND SUBSIDIARIES-SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995__ 1994__ 1993__ 1992__ 1991__
<S> <C> <C> <C> <C> <C>
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
</TABLE>
(Dollars in thousands
except for per share data and restaurants)
<TABLE>
<CAPTION>
OPERATING RESULTS:
<C> <C> <C> <C> <C>
Revenues $ 226,458 $ 204,254 $ 171,634 $ 156,413 $ 146,634
Income (loss) before taxes,
extraordinary loss
and cumulative effect of change in
accounting principle 5,100 (1,666) (4,408) (1,262)
(Provision) benefit for taxes 9,826 (165)
Extraordinary loss on extinguishment of
debt (4,883)
Cumulative effect of change in
accounting
for post-retirement benefits _________ _________ _________ (1,037) _________
Net income (loss) $ 14,926 $ (1,831) $ (9,291) $ (2,299) $ (4,919)
PER SHARE OF COMMON STOCK:
Income (loss) before taxes,
extraordinary loss
and cumulative effect of change in
accounting principle $ 510,000 $ (166,600) $ (440,800) $ (126,200) $ (491,900)
(Provision) benefit for taxes 982,600 (16,500)
Extraordinary loss on extinguishment of
debt (488,300)
Cumulative effect of change in
accounting for post-retirement
benefits _________ _________ _________ (103,700) ________
Net income (loss) $ 1,492,600 $ (183,100) $ (929,100) $ (229,900) $ (491,900)
Dividends Declared $ 63,672 $ 297,301 $ 273,960 $ 20,010 $ 40,000
OTHER DATA:
Total assets $ 135,064 $ 125,319 $ 119,735 $ 115,900 $ 115,592
Long-term debt 116,375 120,680 114,197 91,245 88,541
Capital lease obligations 3,301 3,966 4,603 5,436 6,002
Total long-term debt and capital lease
obligations 119,676 124,646 118,800 96,681 94,543
Common stockholder's deficit (12,916) (27,208) (22,404) (10,383) (7,884)
Burger King restaurants in operation:
At end of period 219 219 195 177 165
Annual weighted average 218.6 206.8 184.5 168.7 163.8
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL. The following table sets forth for the years ended December 31,
1995, 1994 and 1993 certain consolidated financial data for the Company,
expressed as a percentage of sales:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
<S> <C>
YEARS ENDED DECEMBER 31,
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
<C> <C> <C>
Sales 100.0% 100.0% 100.0%
Other income .1 .2 .3
Cost of sales 28.1 28.4 28.3
Restaurant wages and related expenses 29.1 29.4 30.2
Other restaurant operating expenses 20.2 20.8 20.6
Depreciation and amortization 5.0 5.5 7.1
Administrative expenses 4.7 4.6 4.7
Advertising expense 4.3 4.3 4.6
Interest expense 6.4 7.1 7.3
Loss on closing restaurants and other .9
Income (loss) before taxes and
extraordinary item 2.3 (.9) 2.6)
(Provision) benefit for taxes 4.3 (.1)
</TABLE>
1995 COMPARED TO 1994
SALES. Sales for the year ended December 31, 1995 increased $22.3
million, or 11.0%, as compared to the year ended December 31, 1994. The
Company operated an average of 219 Burger King restaurants for the year ended
December 31, 1995 as compared to 207 for 1994. Average unit sales increased
4.9% when comparing 1995 to 1994. Sales at comparable restaurants, the 187
units operating for the entirety of the compared periods, increased $7.1
million, or 3.8%. Net restaurant selling prices increased approximately 0.5%
from fewer discount promotions in 1995.
COST OF SALES. Cost of sales (food and paper costs) for the year ended
December 31, 1995 increased in dollars due to higher sales. Cost of sales as
a percentage of sales decreased 0.3% from 1994 to 1995 as a result of the
effect of net restaurant selling prices and decreases in various commodity
costs, especially beef, partially offset by the introduction of larger-sized
meat patties in certain sandwiches.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses decreased from 29.4% of sales to 29.1% of sales when comparing the
year ended December 31, 1994 to 1995. The effect of increased selling prices,
lower workers' compensation cost and lower health insurance cost were the
principal reasons for the lower percentage in 1995.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
increased by $3.2 million but decreased 0.6% 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 year when compared to the prior year. The effect of higher sales on the
fixed element of some expenses like utilities, real estate taxes, linen and
some repair and maintenance costs was the primary reason for the decrease in
the percentage from 1994 to 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively equal to the year ended December 31, 1994. Additional depreciation
and amortization from new and acquired restaurants were offset by assets
becoming fully depreciated during the last two years.
ADMINISTRATIVE EXPENSES. Supervision and training expenses associated
with operating additional restaurants were the principal cause of increased
administrative expenses during the year ended December 31, 1995 as compared to
1994.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $0.9 million (based on sales levels) was the principal cause of
the increase in advertising expense when comparing 1995 to 1994.
INTEREST EXPENSE. Average interest rates and average loan balances
remained relatively the same in 1995 and 1994.
(PROVISION) BENEFIT FOR TAXES. The income tax benefit reflected during
the twelve months ended December 31, 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
income tax asset at December 31, 1995 of $10,061,000.
1994 COMPARED TO 1993
SALES. Sales for the year ended December 31, 1994 increased $32.8
million, or 19.2%, as compared to the year ended December 31, 1993. The
Company operated an average of 207 Burger King restaurants for the year ended
December 31, 1994 as compared to 185 for 1993. Average unit sales increased
6.8% when comparing 1994 to 1993. Sales at comparable restaurants, the 170
units operating for the entirety of the compared periods, increased $7.9
million, or 5.1%. Net restaurant selling prices were down approximately 0.7%,
resulting from a 7.0% reduction in menu prices offset by a 6.3% increase from
fewer discount promotions in 1994. The pricing changes reflect the value menu
pricing strategy adopted nationally by BKC near the end of 1993 which prices a
sandwich, drink and fries as a meal for less than the prices of the individual
items and correspondingly reduces price-off promotion activity.
COST OF SALES. Cost of sales (food and paper costs) for the year ended
December 31, 1994 increased in dollars due to higher sales. Cost of sales as a
percentage of sales increased 0.1% from 1993 to 1994 as a result of the effect
of lower net restaurant selling prices, partially offset by decreases in
various commodity costs, especially beef.
RESTAURANT WAGES AND RELATED EXPENSES. Restaurant wages and related
expenses decreased from 30.2% of sales to 29.4% of sales when comparing the
year ended December 31, 1993 to 1994. Productive labor efficiencies realized
from improved technology utilized in operating the drive-thru windows at the
restaurants and the effect of higher sales on the fixed component of restaurant
wages more than offset the effects of lower restaurant selling prices and
increased wage rates.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating expenses
increased by $7.2 million and by 0.2% as a percentage of sales for 1994
compared to 1993. The increase in dollars was caused primarily by expenses
associated with the operation of the additional restaurants during the most
recent year when compared to the prior year. Increased expense for replacement
of employee uniforms was the major cause of the 0.2% increase in the percentage
when comparing 1994 to 1993.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased by
$0.9 million when comparing the year ended December 31, 1994 to 1993. The
effect from assets becoming fully depreciated during the last two years was
partially offset by additional depreciation and amortization from new and
acquired restaurants.
ADMINISTRATIVE EXPENSES. Expenses associated with acquired restaurants
and those arising from improved restaurant operating performance were the
principal cause of increased administrative expenses during the year ended
December 31, 1994 as compared to 1993.
ADVERTISING EXPENSE. An increase in advertising payments to Burger King
Corporation of $1.3 million (based on sales levels) was partially offset by
decreases in other forms of promotional activities of $0.5 million when
comparing 1994 to 1993.
INTEREST EXPENSE. An increase in average loan balances outstanding was
the principal cause for interest expense to increase $2.0 million for the year
ended December 31, 1994 compared to 1993.
LOSS ON CLOSING RESTAURANTS AND OTHER. The charge of $1.8 million during
the year ended December 31, 1994 represents a $1.3 million loss from the
anticipated closing of certain restaurants and the write down of approximately
$0.5 million to estimated net realizable value of an unused warehouse. The
charge includes a write down of the related restaurant operating assets to net
realizable value and accrual of lease termination costs.
LIQUIDITY AND CAPITAL RESOURCES
The operating activities of the Company during 1995 provided $16.6 million
of cash. The net income of $14.9 million is after recognizing a deferred tax
benefit of $10.1 million and depreciation and amortization of $11.3 million.
Operating cash also was provided by an increase in accounts payable of $1.4
million due principally to increased operations.
Capital spending during 1995 of $8.5 million included $3.1 million for the
acquisition of one Burger King restaurant in Ohio and the construction of four
new restaurants. The balance of the spending went toward restaurant capital
maintenance and remodeling. The Company completed 15 remodelings in 1995.
During 1995, $4.4 million was drawn down under the Company's acquisition
loan with Heller Financial, Inc. and a sale and leaseback of one restaurant
property was completed for $0.9 million. $7.2 million was paid down on the
revolving line of credit portion of the Senior Secured Credit Facility and $1.5
million of the Senior Notes were purchased. Dividends of $.6 million were paid
to Holdings for the payment by Holdings of regular quarterly preferred stock
dividends of $0.2 million each.
At December 31, 1995, the Company had $21.9 million available under its
Senior Secured Credit Facility after reserving $1.4 million for a letter of
credit guaranteed by the Senior Secured Credit Facility. While interest is
accrued monthly, payments of approximately $6.2 million for interest on the
Notes are made each February 15th and August 15th thus creating semi annual
cash needs. 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, fund restaurant remodeling
required under the Franchise Agreements and meet required payments in respect
of Holdings' Preferred Stock (subject to the terms of the Indenture and the
Senior Secured Credit Facility) for at least the next twelve months. The
balance will provide funds for future acquisitions.
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends. The ability to make such restricted
payments is dependent upon either earnings or proceeds from the issuance of new
capital stock. As of March 27, 1996 dividends on the Preferred Stock were
current; however, based on current limitations on restricted payments, payment
of the dividend scheduled to become due on March 31, 1996 will not be made
until such payments are permitted. As more fully explained in Note 7 to the
financial statements, the dividend rate is increased if dividend payments by
Holdings are not made within specific time periods.
Consummation of the Change of Control Transaction described in "Business--
Recent Developments" will constitute a "change of control" under the Indenture
governing the Senior Notes. In accordance with the terms and conditions of the
Indenture, upon a "change of control", each holder of Senior Notes will have
the right to require the Company (within a 30-60 day period, as determined by
the Company, following such a change of control) to repurchase all or any part
of such holder's Senior Notes at a repurchase price in cash equal to 101% of
the principal amount of the Senior Notes being repurchased (plus accrued and
unpaid interest, if any). In light of current market conditions, the Company
does not anticipate that a significant number of Senior Note holders will
exercise their repurchase rights. To the extent that such repurchase rights
are exercised, the Company expects to finance the aggregate repurchase amount
through borrowings under the revolving line of credit portion of its Senior
Secured Credit Facility, and/or, to the extent necessary, through additional
debt financing on a pari passu basis with the Senior Notes.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements attached hereto is set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This item is omitted as there have been no disagreements with respect to
accounting and financial disclosure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Alan Vituli 54 Chairman of the Board, Chief Executive Officer
Daniel T. Accordino 45 President, Chief Operating Officer and Director
Richard V. Cross 60 Executive Vice President - Finance, Treasurer and Director
M. Bruce Adelberg 59 Director
Franklin Glasgall 63 Director
Joseph A. Zirkman 35 Vice President, General Counsel and Secretary
Richard H. Liem 42 Vice President--Financial Operations
Paul P. Drotar 49 Vice President--Corporate Controller
David R. Smith 46 Vice President--Regional Director
James E. Tunnessen 41 Vice President--Regional Director
Michael A. Biviano 39 Vice President--Regional Director
</TABLE>
The Board of Directors consists of five board members. Peter Weidhorn
resigned from the Board on November 29, 1995; Mr. Weidhorn has not yet been
replaced on the Board. Upon consummation of the Change of Control Transaction,
it is anticipated that the Board of Directors of the Company will be
reconstituted but that Alan Vituli and Daniel T. Accordino will continue to
serve the Company as Directors and in their present positions.
Certain biographical information regarding each current Director and
executive officer of the Company is set forth below:
Mr. Vituli has been Chairman of the Board of Carrols since 1986 and Chief
Executive Officer since March 1992. He is also a director and Chairman of the
Board of Holdings. Mr. Vituli is also general partner of Morgan Ventures III, a
limited partnership ("Morgan Ventures"), which is the record owner of 1,100,000
shares of voting common stock of Holdings. See "Principal Stockholders."
Between 1983 and 1985, Mr. Vituli was employed by Smith Barney, Harris Upham &
Co., Inc. as a senior vice president responsible for real estate transactions.
For the 17 years prior to joining Smith Barney, Mr. Vituli was associated with
the accounting firm of Coopers & Lybrand, first as an employee and the last ten
years as a partner. Among the positions held by Mr. Vituli at Coopers & Lybrand
was national director of mergers and acquisitions. Prior to joining Coopers &
Lybrand, Mr. Vituli was employed in a family owned restaurant business. Mr.
Vituli currently serves as a Director on the Board of Directors of Pollo
Tropical, Inc.
Mr. Accordino has been President, Chief Operating Officer and a Director
of Carrols since February 1993. Prior thereto, he served as Executive Vice
President--Operations of Carrols from December 1986 and as Senior Vice
President from April 1984. He is also a Director of Holdings. From 1979 to
April 1984 he was Vice President responsible for restaurant operations of the
Company, having previously served as the Company's Assistant Director of
Restaurant Operations. Mr. Accordino has been employed by the Company for over
20 years.
Mr. Cross is a Director and Executive Vice President--Finance and
Treasurer of Carrols. He has served as a Director since 1981, Executive Vice
President since 1986 and Treasurer from 1981. From 1984 through 1986, Mr. Cross
was Senior Vice President of Carrols. He is also a Director of Holdings. Prior
to 1984, Mr. Cross was Vice President and Controller of Carrols for more than
five years. Mr. Cross has been employed by the Company for over 20 years.
Mr. Adelberg was appointed a Director of Carrols in December 1992. He is
also a Director of Holdings. Since April 1989, Mr. Adelberg has been the
principal of MBA Research Group, an institutional investment research group.
For the 11 years preceding April 1989, he was employed by Merrill Lynch,
Pierce, Fenner & Smith, an investment banking firm, where he was vice president
of New York institutional sales. Mr. Adelberg currently serves on the Board of
Directors of Comstock Partners Strategy Fund, Inc. and Pallet Management
System, Inc.
Mr. Glasgall was appointed a Director of Carrols Corporation in December
1992. He is also a Director of Holdings. Mr. Glasgall has been a real estate
consultant since 1991. From 1974 through 1990 he was vice president--real
estate for Restaurant Associates Corp., a national restaurant, food service and
retail chain.
Mr. Zirkman became Vice President and General Counsel of Carrols in
January 1993. He was appointed Secretary of the Company in February 1993. Prior
to joining Carrols, Mr. Zirkman was an associate with the New York City law
firm of Baer Marks & Upham for six and one-half years.
Mr. Liem became Vice President--Financial Operations in May 1994. Prior
to joining Carrols Mr. Liem was a Senior Audit Manager with the accounting firm
of Price Waterhouse. Mr. Liem was with Price Waterhouse for ten and one-half
years.
Mr. Drotar has been Vice President--Corporate Controller of Carrols since
April 1984. He was Assistant Controller from June 1982 through April 1984,
having served as Manager of Restaurant Accounting from December 1980 to June
1982. Mr. Drotar has been employed by the Company for over 20 years.
Mr. Smith is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since 1984, having served as District
Supervisor from 1975 to 1984. Mr. Smith has been employed by the Company for
over 20 years.
Mr. Tunnessen is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since August 1988, having served as District
Supervisor from 1979 to August 1988. Mr. Tunnessen has been employed by the
Company for over 20 years.
Mr. Biviano is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since October 1989, having served as District
Supervisor from December 1983 to October 1989. Mr. Biviano has been employed by
the Company for over 20 years.
The Board of Directors currently has four committees: the Executive
Committee, of which Messrs. Vituli, Accordino and Cross are members; the
Finance Committee, of which Messrs. Vituli and Cross are members; the
Compensation Committee, of which Messrs. Adelberg and Glasgall are members; and
the Audit Committee, of which Messrs. Adelberg and Glasgall are members.
All Directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. The executive officers
of the Company are chosen by the Board and serve at its discretion.
All non-employee Directors of the Company receive a fee of $6,000 per
annum and also receive $500 for each Board of Directors meeting attended and
$500 for each committee meeting attended. All Directors are reimbursed for all
reasonable expenses incurred by them in acting as Directors, including as
members of any committee of the Board of Directors.
As permitted under the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides that a Director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of a fiduciary duty owed to the Company or its stockholders.
By its terms and in accordance with the laws of the State of Delaware, however,
this provision does not eliminate or limit the liability of a Director of the
Company (i) for any breach of the Director's duty of loyalty to the Company or
its stockholders, (ii) for an act or omission committed in bad faith or
involving intentional misconduct or a knowing violation of law, (iii) for any
transaction from which the Director derived an improper personal benefit or
(iv) for an improper declaration of dividends or purchase of the Company's
securities.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify its Directors and officers to the fullest extent
permitted by Delaware law.
All of the holders of the voting common stock of Holdings are subject to
the terms of a stockholders agreement dated December 22, 1986 (the
"Stockholders Agreement"). The Stockholders Agreement requires the Board of
Directors of Holdings to consist of six directors, four of whom are designated
by Morgan Ventures and two of whom are designated by a majority of the shares
held by a group of named individuals, including Messrs. Accordino, Cross,
Drotar and Smith. Upon consummation of the Change of Control Transaction, the
provisions of the Stockholders' Agreement will cease to apply.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information for the years ended
December 31, 1995, 1994 and 1993 for the Chief Executive Officer and the next
four most highly compensated executive officers of the Company who were serving
as executive officers at December 31, 1995 whose annual compensation exceeded
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION
NUMBER OF
NAME AND PRINCIPAL SECURITIES
POSITION UNDERLYING
YEAR SALARY BONUS OPTIONS
<S> <C> <C> <C> <C>
Alan Vituli
Chairman of the 1995 $352,632 $245,000 20,000
Board
and Chief Executive 1994 300,430 81,000 ----------
Officer 1993 292,118 ---------- 100,000
Daniel T. Accordino 1995 250,751 150,322 10,000
President, Chief 1994 226,216 60,891 ----------
Operating Officer 1993 206,516 ---------- 25,000
and Director
Richard V. Cross 1995 161,522 80,262 5,000
Executive Vice 1994 156,378 42,106 --------
President--Finance, 1993 155,936 ---------- 8,000
Treasurer and
Director
Joseph A. Zirkman 1995 105,249 41,995 3,000
Vice President, 1994 95,890 24,303 --------
General Counsel and 1993 85,711 15,000 5,000
Secretary
Richard H. Liem 1995 93,092 37,153 3,000
Vice President , 1994 57,552 15,423 10,000
Financial 1993 -------- -------- --------
Operations
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1995
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(a)
________________________________________________________________________ ______________________
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SAR
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SAR EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(B) 1995 ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Alan Vituli 20,000 20.8% $6.12 March 31, 2005 $76,976 $195,074
Daniel T. Accordino 10,000 10.4% 6.12 March 31, 2005 38,488 97,537
Richard V. Cross 5,000 5.2% 6.12 March 31, 2005 19,244 48,768
Joseph A. Zirkman 3,000 3.1% 6.12 March 31, 2005 11,546 29,261
Richard H. Liem 3,000 3.1% 6.12 March 31, 2005 11,546 29,261
</TABLE>
(a) Potential realizable value is based on an assumption that the price of
Holdings' Common shares appreciate at 5% and 10% annually (compounded) from the
date of grant until the end of the ten year option term. These calculations
are based on requirements promulgated by the Securities and Exchange Commission
and are not intended to forecast possible future appreciation of the stock
price.
(b) Options set forth in this table were granted under Holdings' 1993
Employee Stock Option and Award Plan administered by Holdings' Compensation
Committee which is comprised entirely of members of the Board of Directors who
are not employees of Holdings or the Company. The Compensation Committee
determines the number of options to be granted to each individual, and members
of the Compensation Committee are not eligible to participate in the Plan.
Pursuant to the terms of the Award Agreement under which the options set forth
on the table have been granted, such options vest at the rate of 20% per year
commencing on April 1, 1996 and such vesting is contingent upon continued
employment with Holdings or the Company. Upon termination of employment with
the Company, only those options which have then vested may be exercised. Such
vested options must generally be exercised within three months of termination
of employment.
DESCRIPTION OF PLANS
EMPLOYEE SAVINGS PLAN. In 1979, Carrols adopted two identical savings
plans, qualified as profit-sharing plans, for its salaried employees,
permitting participating employees to make annual contributions. On December
31, 1994, Carrols merged the two plans into a single plan, the Carrols
Corporation Corporate Employee Savings Plan (the "Savings Plan"). In
accordance with the Savings Plan, Carrols matches up to $1,060 of an employee's
contributions by contributing $0.50 for each dollar contributed by the
employee. Employees are fully vested in their own contributions; employees
become vested in Carrols' contributions beginning in the fourth year of
service, and are fully vested after seven years of service or upon retirement
at age 65 with five years' service, death, permanent or total disability or
termination. Benefits may be paid out upon the occurrence of any of the
foregoing events in a single cash lump sum, in periodic installments over not
more than 15 years or in the form of an annuity. The employee's contributions
may be withdrawn at any time, subject to restrictions on future contributions.
Carrols' matching contributions may be withdrawn under certain conditions of
financial necessity or hardship as defined in the Savings Plan.
BONUS PLANS. Carrols has cash bonus plans designed to promote and reward
excellent performance by providing employees with incentive compensation. Key
senior management executives of each operating division can be eligible for
bonuses equal to varying percentages of their respective annual salaries
determined by the performance of the Company and the division.
1993 EMPLOYEE STOCK OPTION AND AWARD PLAN. On December 14, 1993, Holdings
and its shareholders adopted the 1993 Employee Stock Option and Award Plan (the
"1993 Option Plan") pursuant to which Holdings may grant "Incentive Stock
Options" (as defined under Section 422 of the Internal Revenue Code),
non-statutory stock options or stock appreciation rights (the foregoing
collectively "Awards") to certain employees, including district supervisors,
division heads and officers of Holdings and its subsidiaries. The 1993 Option
Plan is designed to advance the interests of Holdings and the Company by
providing an additional incentive to attract and retain qualified and competent
persons through the encouragement of stock ownership or stock appreciation
rights in Holdings.
The 1993 Option Plan permits Holdings' Compensation Committee to grant,
from time to time, options to purchase an aggregate of up to 750,000 shares of
Holdings, including, without limitation, the amount of shares in respect to
which stock appreciation rights are granted. The vesting periods for awards
and the expiration dates for exercisability of Awards granted under the 1993
Option Plan shall be determined by the Compensation Committee of the Board of
Directors; however, all shares granted under options must be purchased within
ten years from the date of the grant. The Compensation Committee is authorized
to grant options under the 1993 Option Plan to all eligible employees of
Holdings and the Company, including executive officers and directors (other
than outside Directors). The 1993 Option Plan provides that Incentive Stock
Options shall not be granted to any person owning directly or indirectly
(through attribution under Section 424(d) of the Internal Revenue Code) at the
date of the grant, stock possessing more than 10% of the total combined voting
power of all classes of stock of Holdings as defined in Internal Revenue Code
Section 422 (or of any subsidiary of Holdings [each as defined in Section 424
of the Internal Revenue Code] at the date of grant) unless the option price of
such option is at least 110% of the fair market value of the shares subject to
such option on the date the option is granted, and such option by its terms is
not exercisable after the expiration of five years from the date such option is
granted. As of March 15, 1996, options to purchase 225,400 shares of common
stock at $4.00 per share and options to purchase 93,400 shares at $6.12 per
share are outstanding under the 1993 Option Plan. The option price per share
is determined by the Compensation Committee of the Board of Directors; however,
in no event shall the option price per share of any option intended to qualify
as an Incentive Stock Option be less than the fair market value of the common
stock on the date such option is granted.
The Company in its sole discretion may lend money to an optionee,
guarantee a loan from a third party to an optionee, or otherwise assist an
optionee to obtain the cash necessary to exercise all or a portion of an option
granted hereunder or to pay any tax liability of the optionee attributable to
such exercise. If the exercise price is paid in whole or part with the
optionee's promissory note, such note shall (i) provide for full recourse to
the maker, (ii) be collateralized by the pledge of the Shares that the optionee
purchases upon exercise of such option, (iii) bear interest at the prime rate
of the Company's principal lender or in its absence, the prime rate charged by
Citibank, N.A., and (iv) contain such other terms as the Board in its sole
discretion shall reasonably require. If stock appreciation rights are granted,
upon vesting of a stock appreciation right, the employee may elect in writing
during a 30 day period designated by the Committee each year to receive a
distribution of the value of a portion or all of his vested interest.
Distribution to an employee of stock appreciation rights amounts shall be made
in cash in a lump sum or by interest bearing notes payable over no more than
five years commencing within a reasonable time after the Committee's receipt of
the optionee's election to receive such payments. Awards may not be
transferred by the optionee otherwise than by will or the laws of descent and
distribution, and each option or stock appreciation right shall be exercisable,
during the optionee's lifetime only by the optionee.
Upon consummation of the Change of Control Transaction, the vesting and
exercisability of all Awards and options (except for those granted to Alan
Vituli) granted under the 1993 Option Plan will be accelerated and all such
Awards and options (except those held by Alan Vituli) will be sold to the
Buyer. The options held by Alan Vituli will be sold to the Buyer on or about
January 6, 1997. In addition, the foregoing plan will be terminated.
It is intended that a new stock option plan will be adopted promptly after
the consummation of the Change of Control Transaction. See "Employment
Agreements" below.
1994 DIRECTORS' STOCK OPTION PLAN. On April 1, 1994 Carrols Holdings
Corporation adopted the 1994 Directors' Stock Option Plan (the "Directors'
Option Plan") pursuant to which Carrols Holdings Corporation may grant to each
non-employee director stock options to purchase common stock of Holdings. The
Directors' Option Plan is designed to advance the interests of Holdings by
providing an incentive to attract and retain qualified non-employee directors
of Holdings and to foster the commonality of their interest with those of the
general shareholders.
The Directors' Option Plan permits Holdings to grant options to the non-
employee directors to purchase an aggregate of up to 100,000 shares of Holdings
common stock. Under the Directors' Option Plan, each non-employee director
received an initial grant of 5,000 options on April 1, 1994, and will receive
an additional grant of 1,000 shares on the anniversary date of each year of
service as a director. Each option granted under the Directors' Option Plan
vests and is exercisable equally over a three-year period from the date of the
grant. The expiration date of all options is ten years from the date of grant
of such option. The exercise price of the options granted under the Directors'
Option Plan is the "fair market value" (as defined in the Directors' Option
Plan) of the share underlying such option at the date such option is granted.
As of March 15, 1996, options to purchase 10,000 shares of stock at $4.00 per
share and 2,000 shares at $6.12 per share have been granted and are outstanding
under the Directors' Option Plan.
Upon consummation of the Change of Control Transaction, the vesting and
exercisability of all options granted under the Directors' Option Plan will be
accelerated and all such options will be sold to the Buyer. In addition, the
foregoing plan will be terminated.
EMPLOYMENT AGREEMENTS. In January 1995, the Company entered into an
employment agreement with Alan Vituli to serve as the Company's Chairman and
Chief Executive Officer. The employment agreement is for an initial term of
three years, commencing on January 1, 1995 and expiring on December 31, 1997
and automatically renews for successive one-year terms unless terminated by the
Company or Mr. Vituli upon written notice to be provided not less than 90 days
before a scheduled expiration date. Pursuant to the employment agreement, Mr.
Vituli will receive a base salary of $350,000 for the first year of the term,
which amount shall be subject to a consumer price index increase for the second
and third years of the term. Beginning in 1998, the base salary for each year
thereafter will be increased in accordance with the recommendation of the
Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, Mr. Vituli will participate in the Executive Bonus Plan of the
Company and the Employee Stock Option and Award Plan. The employment agreement
also provides that the Company will provide a split-dollar life insurance
policy on the life of Mr. Vituli providing a death benefit of $1,500,000
payable to an irrevocable trust designated by Mr. Vituli.
In January 1995, the Company entered into an employment agreement with
Daniel T. Accordino to serve as the Company's President and Chief Operating
Officer. The employment agreement is for an initial term of three years,
commencing on January 1, 1995 and expiring on December 31, 1997 and
automatically renews for successive one-year terms unless terminated by the
Company or Mr. Accordino upon written notice to be provided not less than 90
days before a scheduled expiration date. Pursuant to the employment agreement,
Mr. Accordino will receive a base salary of $250,000 for the first year of the
term, which amount shall be subject to a consumer price index increase for the
second and third years of the term. Beginning in 1998, the base salary for
each year thereafter will be increased in accordance with the recommendation of
the Compensation Committee of the Board of Directors. Pursuant to the
employment agreement, Mr. Accordino will participate in the Executive Bonus
Plan of the Company and the Employee Stock Option and Award Plan. The
employment agreement also provides that the Company will provide a split-dollar
life insurance policy on the life of Mr. Accordino providing a death benefit of
$1,000,000 payable to an irrevocable trust designated by Mr. Accordino.
Upon consummation of the Charge of Control Transaction, the Company will
enter into Amended and Restated Employment Agreements with Alan Vituli and
Daniel T. Accordino, respectively, upon terms and conditions substantially
similar to their current agreements except that, in lieu of the current stock
option plans maintained by Holdings (all of which will be terminated) a new
stock option plan will be developed pursuant to which employees of the Company
will be eligible to be awarded options to purchase up to 9.09% of the
outstanding common stock of Holdings on a fully-diluted basis. Messrs. Vituli
and Accordino will receive 36% and 24%, respectively, of the options available
in such pool.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following tables set forth the number and percentage of shares of
voting common stock of the Company and of Holdings beneficially owned, as of
March 15, 1995, by (i) each Director of the Company who owns shares of such
voting common stock, (ii) each executive officer of the Company included in the
Summary Compensation Table above, (iii) all persons known by the Company to be
the beneficial owners of more than 5% of the shares of such voting common stock
and (iv) all executive officers and Directors of the Company as a group.
CARROLS' COMMON STOCK
NAME OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
Carrols Holdings Corporation 10 100%
968 James Street
Syracuse, New York 13203
HOLDINGS' COMMON STOCK (a)
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(B) SHARES(B)
Alan Vituli(c)(m) 1,152,294 49.8%
Alan Vituli Charitable Remainder Trust(d) 306,827 13.6
Richard V. Cross(e)(m) 230,190 10.1
Daniel T. Accordino(f)(m) 240,048 10.5
Joseph A. Zirkman(g) 8,600 .4
Richard H. Liem(h) 2,600 .1
Citicorp Venture Capital, Ltd.(i) 959,388 30.6
Deemer Corp (j) 488,111 17.7
World Equity Partners, L.P.(k) 234,668 9.4
M. Bruce Adelberg(l) 3,667 .2
Franklin Glasgall(l) 3,667 .2
Directors and executive officers
of Carrols as a group
(11 persons)(m)(n) 1,717,723 72.9
(a) Upon consummation of the Change of Control Transaction, the Buyer
will acquire beneficial ownership of substantially all of the outstanding
securities of Holdings.
(b) As used in this table, "beneficial ownership" means the sole or
shared power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to dispose
of, or to direct the disposition of, a security). For purposes of this table, a
person is deemed as of any date to have "beneficial ownership" of any security
that such person has the right to acquire within 60 days after such date. As
calculated in this table, the percent of shares is the percent of each
beneficial owner's shares to the total shares of Holdings' common stock
outstanding plus the shares to which only that person has a right to acquire
within 60 days.
(c) Includes 1,100,000 shares of Holdings voting common stock held of
record by Morgan Ventures, over which shares Mr. Vituli, as general partner of
Morgan Ventures, exercises voting and investment power. Of the shares held of
record by Morgan Ventures, Mr. Vituli effectively owns 715,040 shares through
his ownership interest in Morgan Ventures. Mr. Vituli disclaims beneficial
ownership of all but such 384,960 shares held of record by Morgan Ventures.
Also includes 8,294 shares of Holdings common stock subject to currently
exercisable warrants and 44,000 shares of Holdings' voting common stock subject
to currently exercisable stock options. The address of Mr. Vituli is c/o
Carrols Corporation, 968 James Street, Syracuse, New York 13203.
(d) Shares are in the name of the Alan Vituli Charitable Remainder Trust
of which the trustee is Nancy Vituli and Alan Vituli is an income beneficiary.
The address of Nancy Vituli is 799 Park Avenue, New York, New York 10021.
(e) Includes 4,200 shares of Holdings' voting common stock subject to
currently exercisable stock options and 1,368 shares of Holdings common stock
subject to currently exercisable warrants. The address of Mr. Cross is c/o
Carrols Corporation, 968 James Street, Syracuse, New York 13203.
(f) Includes 2,426 shares of Holdings voting common stock subject to
currently exercisable warrants and 12,000 shares of Holdings' voting common
stock subject to currently exercisable stock options.. The address of Mr.
Accordino is c/o Carrols Corporation, 968 James Street, Syracuse, New York
13203.
(g) Includes 1,600 shares of Holdings' voting common stock subject to
currently exercisable stock options.
(h) Includes 600 shares of Holdings voting common stock subject to
currently exercisable stock options.
(i) Includes 740 shares of Holdings Class B Convertible Preferred Stock
issued to Citicorp Venture Capital, Ltd., an affiliate of World Equity
Partners, L.P., in connection with the financing of the Acquisition which are
currently convertible into 870,588 shares of Holdings' non-voting common stock,
which are, in turn, convertible at any time into an equal number of shares of
Holdings voting common stock. The address for Citicorp Venture Capital, Ltd. is
399 Park Avenue, New York, New York 10043.
(j) Includes currently exercisable warrants (the "Warrants"), for the
purchase of 441,177 shares of Holdings voting common stock at $0.97 per share
and 46,934 shares of Holdings voting common stock at $1.00 per share. The
address for Deemer Corporation ("Deemer") is 276 Fifth Avenue, New York, New
York 10001. Holdings has the option to purchase the Warrants from Deemer for
$5.1423 per warrant if exercised before November 1, 1997, and $5.1628 if
exercised after November 1, 1997. The option expires on November 2, 2000.
Deemer purchased the Warrants from Heller Financial, Inc., on November 2, 1995
for the sum of $2,500,000 and borrowed the purchase price from Holdings which
loan was secured by a collateral pledge of the shares of Deemer and the
Warrants.
(k) Includes currently exercisable warrants, issued to World Equity
Partners, L.P., an affiliate of Citicorp Venture Capital, Ltd., for the
purchase of 234,668 shares of Holdings voting common stock at $1.00 per share.
The address for World Equity Partners, L.P. is 399 Park Avenue, New York, New
York 10043.
(l) Includes 3,667 shares of Holdings' voting common stock subject to
currently exercisable options.
(m) Morgan Ventures, Messrs. Cross and Accordino and certain of the
Company's other shareholders have entered into the Stockholders Agreement
which, among other things, prohibits the transfer of the subject shares (except
for certain permitted transfers) and grants Holdings and certain holders of
Holdings voting and non-voting common stock certain rights to acquire the
shares of a stockholder who wishes to sell shares to a third party.
(n) Includes 79,332 shares of Holdings' voting common stock subject to
currently exercisable options and 12,088 shares of Holdings voting common stock
subject to currently exercisable warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS
CARROLS CORPORATION AND SUBSIDIARIES:
PAGE
Opinion of Independent Certified F-1
Public Accountants
Financial Statements:
Consolidated Balance Sheets F-2 to
F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash F-5 to
Flows F-6
Notes to Consolidated Financial F-7 to
Statements F-17
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE DESCRIPTION PAGE
CARROLS CORPORATION AND SUBSIDIARIES:
II Valuation and Qualifying Accounts F-18
Schedules other than those listed are omitted for the reason that
they are not required, not applicable, or the required information is shown in
the financial statements or notes thereto.
Separate financial statements of the Company are not filed for the
reasons that (1) consolidated statements of the Company and its consolidated
subsidiaries are filed and (2) the Company is primarily an operating Company
and all subsidiaries included in the consolidated financial statements filed
are wholly-owned, and indebtedness of all subsidiaries included in the
consolidated financial statements to any person other than the Company does not
exceed 5% of the total assets as shown by the Consolidated Balance Sheet at
December 31, 1995.
<PAGE>
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE TO THE FOLLOWING
INSTRUMENTS PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
EXHIBIT NUMBER
DESCRIPTION
<S> <C> <C>
2.1 Purchase and Sale Agreement dated Exhibit 2.1 to the Company's 1994 Annual
February 10, 1994 between Carrols Report on Form 10-K
Corporation, as Purchase, and KIN
Restaurant, Inc., as Seller
2.2 Purchase and Sale Agreement dated April 18, Exhibit 2.2 to the Company's 1994 Annual
1994 among Carrols Corporation, as Report on Form 10-K
Purchaser, and Riva Development Corporation
and John Riva, as Seller
2.3 Purchase and Sale Agreement dated May 31, Exhibit 2.3 to the Company's 1994 Annual
1994 among Carrols Corporation, as Report on Form 10-K
Purchaser, and Michael P. Jones and Donald
M. Cepiel, Sr., and the corporations listed
therein
2.4 Securities Purchase Agreement dated March Exhibit 2.1 to the Company's current report on
6, 1996, among Atlantic Restaurants, Inc., Form 8-K dated March 21, 1996
Carrols Holdings Corporation, Carrols
Corporation and Certain Selling
Shareholders, excluding exhibits and
schedules
2.5 Deferred Securities Purchase Agreement Exhibit 2.2 to the Company's current report on
dated March 6, 196 among Atlantic Form 8-K dated March 21, 1996
Restaurants, Inc., Alan Vituli and Pryor,
Cashman, Sherman & Flynn
3.1 Restated Certificate of Incorporation Exhibit 3.(3)(a) to the Company's 1987 Annual
Report on Form 10-K
3.2 Restated By-laws Exhibit 3.(3)(b) to the Company's 1987 Annual
Report on Form 10-K
4.1 Indenture dated as of August 17, 1993 among Exhibit 4.1 to Amendment No. 3 to the
Holdings, the Company and Marine Midland Company's Registration Statement on Form S-1
Bank, N.A. (Number 3365100) filed August 10, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
WITH THE SECURITIES AND EXCHANGE
EXHIBIT NUMBER COMMISSION
DESCRIPTION
<S> <C> <C>
<PAGE>
10.1 First Amended and Restated Loan Exhibit 10.1 to the Company's 1987 Annual
Security and Preferred Stock Purchase Report on Form 10-K
Agreement by and among Carrols Merger
Corporation and Carrols Holdings
Corporation, as "Borrower" and Heller
Financial, Inc., as "Lender" dated
December 22, 1986
10.2 Form of Stockholders Agreement by and Exhibit 10.2 to the Company's 1987 Annual
among Carrols Holdings Corporation, Report on Form 10-K
Morgan Ventures Limited Partnership and
certain Shareholders
10.3 Second Amended and Restated Loan and Exhibit 10.15 to the Company's 1992 Annual
Security Agreement by and among Carrols Report on Form 10-K
Corporation and Carrols Holdings
Corporation, as "Borrower" and Heller
Financial, Inc., as "Lender" dated as
of September 15, 1992
10.4 Senior Subordinated Credit Agreement Exhibit 10.17 to the Company's Annual
dated as of September 15, 1992 between Report on Form 10-K
Carrols Corporation, Carrols Holdings
Corporation and World Subordinated Debt
Partners, L.P.
10.5 Third Amended and Restated Loan and Exhibit 10.19 to Amendment No. 2 to the
Security Agreement by, and among Company's Form S-1 Registration Statement
Carrols Corporation and Carrols filed on August 4, 1993
Holdings Corporation, as "Borrower" and
Heller Financial, Inc., as "Lender"
dated as of August 9, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
WITH THE SECURITIES AND EXCHANGE
EXHIBIT NUMBER COMMISSION
DESCRIPTION
<S> <C> <C>
10.6 First Amendment to Third Amended and The Company's 1993 Annual Report on Form
Restated Loan and Security Agreement by 10-K
and among Carrols Corporation and
Carrols Holdings Corporation, as
Borrower" and Heller Financial, Inc.,
as "Lender" dated October 27, 1993
10.7 Second Amendment to Third Amended and The Company's 1993 Annual Report on Form
Restated Loan and Security Agreement by 10-K
and among Carrols Corporation and
Carrols Holdings Corporation, as
"Borrower" and Heller Financial, Inc.,
as "Lender" dated March 11, 1994
10.8 Carrols Holdings Corporation 1993 The Company's 1993 Annual Report on Form
Employee Stock Option and Award Plan 10-K
10.9 Third Amendment to Third Amended and Exhibit 10.9 to the Company's 1994 Annual
Restated Loan and Security Agreement Report on Form 10-K
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc., dated May 2, 1994
10.10 Fourth Amendment to Third Amended and Exhibit 10.10 to the Company's 1994 Annual
Restated Loan and Security Agreement Report on Form 10-K
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc., dated December 20,
1994
10.11 Supply Agreement between ProSource Exhibit 10.11 to the Company's 1994 Annual
Services Corporation and Carrols Report on Form 10-K
Corporation dated April 1, 1994
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
WITH THE SECURITIES AND EXCHANGE
EXHIBIT NUMBER COMMISSION
DESCRIPTION
<S> <C> <C>
10.12 Taco Cabana Restaurants Development Exhibit 10.12 of the Company's 1994 Annual
Agreement dated June 30, 1994 between Report on Form 10-K
T.C. Management Inc. and Carrols
Corporation
10.13 Letter Agreement dated September 9, Exhibit 10.13 to the Company's 1994 Annual
1994 amending the Taco Cabana Report on Form 10-K
Restaurants Development Agreement dated
June 30, 1994
10.14 Pollo Tropical Area Development Exhibit 10.14 to the Company's 1994 Annual
Agreement dated January 1, 1995 between Report on Form 10-K
Pollo Franchise, Inc. and Carrols
Corporation
10.15 Option Agreement for Toronto dated Exhibit 10.15 to the Company's 1994 Annual
January 1, 1995 between Pollo Report on Form 10-K
Franchise, Inc. and Carrols Corporation
10.16 Option Agreement for Michigan dated Exhibit 10.16 to the Company's 1994 Annual
January 1, 1995 between Pollo Report on Form 10-K
Franchise, Inc. and Carrols Corporation
10.17 Employment Agreement dated January 1, Exhibit 10.17 to the Company's 1994 Annual
1995 between Carrols Corporation and Report on Form 10-K
Daniel T. Accordino
10.18 Employment Agreement dated January 1, Exhibit 10.18 to the Company's 1994 Annual
1995 between Carrols Corporation and Report on Form 10-K
Alan Vituli
10.19 1994 Regional Directors Bonus Plan Exhibit 10.19 to the Company's 1994 Annual
Report on Form 10-K
10.20 1994 Directors Stock Option Plan Exhibit 10.20 to the Company's 1994 Annual
Report on Form 10-K
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE TO THE
FOLLOWING INSTRUMENTS PREVIOUSLY FILED
WITH THE SECURITIES AND EXCHANGE
EXHIBIT NUMBER COMMISSION
DESCRIPTION
<S> <C> <C>
10.21 Carrols Corporation Corporate Exhibit 10.21 to the Company's 1994 Annual
Employee's Savings Plan dated December Report on Form 10-K
31, 1994
10.22 Escrow Agreement dated March 6, 1996, Exhibit 2.3 to the Company's Current
by and among Atlantic Restaurants, Report on Form 8-K dated March 21, 1996
Inc., Bahrain International Bank
(E.C.), Carrols Holdings Corporation,
Carrols Corporation, certain selling
shareholders and Baer Marks & Upham
L.L.P.
22.1 Subsidiaries of the Registrant, all
wholly-owned are:
Carrols J.G. Corp.
Carrols Realty Holdings Corp.
Carrols Realty I Corp.
Carrols Realty II Corp.
CPC Theater Properties, Inc.
H.N.S. Equipment & Leasing Corp.
Quanta Advertising Corp.
Confectionery Square Corp.,
Jo-Ann Enterprises, Inc.
</TABLE>
(d) REPORTS ON FORM 8-K
No current reports on Form 8-K were filed
during the Company's fiscal quarter ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned thereunto duly authorized in the City of
Syracuse, State of New York on the 1st day of April, 1996
CARROLS
CORPORATION
BY: /s/ Alan Vituli
Alan Vituli, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/Alan Vituli Director, Chairman and Chief April 1,1996
(Alan Vituli) Executive Officer
/s/Daniel T. Accordino Director, President and Chief April 1,1996
(Daniel T. Accordino) Operating Officer
/s/ Richard V. Cross Director, Executive Vice April 1,1996
(Richard V. Cross) President - Finance, and Treasurer
(Principal Financial & Accounting
Officer)
/s/ Franklin Glasgall Director April 1,1996
(Franklin Glasgall)
/s/ M. Bruce Adelberg Director April 1,1996
(M. Bruce Adelberg)
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Carrols Corporation
We have audited the consolidated financial statements and the financial
statement schedules of Carrols Corporation (a wholly owned subsidiary of
Carrols Holdings Corporation) and Subsidiaries listed in Item 14(a) of this
Form 10K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Carrols
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
March 1, 1996, except for the subsequent
event discussed in Note 7, as to which
the date is March 6, 1996
F-1
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
___________
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,463,000 $ 1,710,000
Trade and other receivables net of
reserves of $419,000 and $424,000
for 1995 and 1994, respectively 688,000 532,000
Inventories 2,292,000 2,254,000
Prepaid real estate taxes 664,000 714,000
Deferred income taxes 3,641,000
Prepaid expenses and other current assets 830,000 760,000
Total current assets 9,578,000 5,970,000
Property and equipment, at cost:
Land 6,888,000 6,543,000
Buildings and improvements 15,049,000 14,260,000
Leasehold improvements 36,260,000 34,854,000
Equipment 42,361,000 40,141,000
Capital leases 15,352,000 15,558,000
115,910,000 111,356,000
Less accummulated depreciation
and amortization (59,631,000) (53,969,000)
Net property and equipment 56,279,000 57,387,000
Franchise rights, at cost (less accumulated
amortization of $19,648,000 and
$17,548,000 for 1995 and 1994,
respectively) 44,582,000 46,042,000
Beneficial leases, at cost (less accumulated
amortization of $7,655,000 and
$7,433,000 for 1995 and 1994, respectively) 7,705,000 8,405,000
Excess of cost over fair value of assets
acquired (less accumulated amortization
of $520,000 and $462,000 for 1995 and
1994, respectively) 1,791,000 1,849,000
Deferred income taxes 6,420,000
Other assets 8,709,000 5,666,000
$135,064,000 $125,319,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1995 AND 1994
___________
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S DEFICIT 1995 1994
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 258,000 $ 258,000
Current portion of capital lease
obligations 644,000 615,000
Accounts payable 8,909,000 7,546,000
Accrued liabilities:
Taxes 1,426,000 1,525,000
Payroll and employee benefits 4,000,000 3,748,000
Interest 4,809,000 4,899,000
Other 3,134,000 3,835,000
Total current liabilities 23,180,000 22,426,000
Long-term debt, net of current portion 116,375,000 120,680,000
Capital lease obligations, net of current portion 3,301,000 3,966,000
Deferred income - sale/leaseback of real estate 1,773,000 1,888,000
Accrued postretirement benefits 1,424,000 1,354,000
Other liabilities 1,927,000 2,213,000
Total liabilities 147,980,000 152,527,000
Commitments and contingencies
Stockholder's deficit:
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital 840,990 1,474,990
Accumulated deficit (13,757,000) (28,683,000)
Total stockholder's deficit (12,916,000) (27,208,00)
$135,064,000 $125,319,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS)
Revenues:
Sales $226,257,000 $203,927,000 $171,137,000
Other income 201,000 327,000 497,000
226,458,000 204,254,000 171,634,000
Costs and expenses:
Cost of sales 63,629,000 57,847,000 48,502,000
Restaurant wages and related expenses 65,932,000 59,934,000 51,739,000
Other restaurant operating expenses 45,635,000 42,390,000 35,192,000
Depreciation and amortization 11,263,000 11,259,000 12,143,000
Administrative expenses 10,635,000 9,449,000 8,031,000
Advertising expense 9,764,000 8,785,000 7,930,000
Interest expense 14,500,000 14,456,000 12,505,000
Loss on closing restaurants and other _ 1,800,000 _
221,358,000 205,920,000 176,042,000
Income (loss) before taxes and
extraordinary item 5,100,000 (1,666,000) (4,408,000)
(Provision) benefit for taxes 9,826,000 (165,000)
Income (loss) before extraordinary
item 14,926,000 (1,831,000) (4,408,000)
Extraordinary loss on extinguishment
of debt (4,883,000)
NET INCOME (LOSS) 14,926,000 (1,831,000) (9,291,000)
Accumulated deficit, beginning of year (28,683,000) (26,852,000) (17,561,000)
ACCUMULATED DEFICIT, END OF YEAR $(13,757,000) $(28,683,000) $(26,852,000)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(52 WEEKS) (52 WEEKS) (52 WEEKS)
Cash flows from operating activities:
Net income (loss) $14,926,000 $(1,831,000) $(9,291,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 11,263,000 11,259,000 12,143,000
Non-cash charges included in
extraordinary loss 2,245,000
Non-cash charges included
in loss on closing restaurants
and other 1,800,000
Deferred income taxes (10,061,000)
Change in operating assets and
liabilities:
Trade and other receivables (156,000) 100,000 (278,000)
Inventories (38,000) (203,000) (147,000)
Prepaid expenses and other
current assets (45,000) (256,000) (568,000)
Other assets (80,000) (494,000) 424,000
Accounts payable 1,363,000 1,209,000 963,000
Accrued interest (90,000) 35,000 4,006,000
Accrued liabilities and
other (461,000) 2,781,000 211,000
Cash provided by operating
activities 16,621,000 14,400,000 9,708,000
Cash flows from investing activities:
Capital expenditures:
Property and equipment (4,846,000) (4,509,000) (2,303,000)
Construction of new restaurants (2,607,000) (1,357,000) (1,411,000)
Acquisition of restaurants (516,000) (11,615,000) (10,464,000)
Franchise fees and renewals (569,000) (158,000) (149,000)
Notes and mortgages issued (2,503,000) (613,000)
Payments received on notes, mortgages
and capital subleases receivable 32,000 112,000 82,000
Disposal of property, equipment
and franchise rights 17,000 569,000 842,000
Other Investments (1,295,000)
Net cash used for
investing activities (12,287,000) (16,958,000) (14,016,000)
</TABLE>
The accompanying notes are an integral part of the financial statements.
Continued
F-5
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1995 1994 1993
(52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $ 4,376,000 $ 6,800,000 $ 119,629,000
Principal payments on long-term debt (7,181,000) (267,000) (4,187,000)
Retirement of long-term debt (75,000) (104,090,000)
Purchase of senior notes (1,387,000)
Proceeds from sale-leaseback transaction 861,000 672,000
Dividends paid (636,000) (3,473,000) (2,241,000)
Principal payments on capital leases (616,000) (561,000) (564,000)
Exercise of employee stock options 2,000
Payment of other liability (4,256,000)
Net cash provided by (used for)
financing activities (4,581,000) 3,096,000 4,291,000
Increase (decrease) in cash
and cash equivalents (247,000) 538,000 (17,000)
Cash and cash equivalents,
beginning of year 1,710,000 1,172,000 1,189,000
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,463,000 $ 1,710,000 $ 1,172,000
Supplemental disclosures:
Interest paid on debt $14,590,000 $ 14,421,000 $ 8,499,000
Taxes paid $ 153,000 $ 126,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
The following is a summary of certain significant accounting policies followed
in the preparation of the consolidated financial statements.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Carrols
Corporation and its subsidiaries (the "Company"). All significant intercompany
transactions have been eliminated in consolidation. The Company is a
wholly-owned subsidiary of Carrols Holdings Corporation ("Holdings").
The Company operates, as franchisee, 219 fast food restaurants under the trade
name "Burger King" in nine Northeastern and Midwestern states and one
Southeastern state. As reported by Burger King Corporation ("BKC"), the Burger
King system is the second largest "hamburger fast food" restaurant system in
the United States in terms of sales and number of restaurants. The Company is
the largest independent Burger King franchisee in the United States.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided on the straight-line method for
financial reporting purposes. The useful lives for computing depreciation and
amortization are as follows:
Buildings and improvements 5 to 20 years
Leasehold improvements Remaining life of lease including
renewal options or life of asset,
whichever is shorter
Equipment 3 to 10 years
Capital leases Remaining life of lease
At the time of retirement or other disposition, the cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
income. Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $7,594,000, $7,404,000, and $7,840,000, respectively.
FRANCHISE RIGHTS AND BENEFICIAL LEASES
Fees for initial franchises and renewals paid to Burger King Corporation are
amortized using the straight-line method over the term of the agreement,
generally twenty years.
Acquisition costs allocated to franchise rights and beneficial leases are
amortized using the straight-line method, principally over the remaining lives
of the leases including renewal options, but not in excess of 40 years.
F-7
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF COST OVER FAIR VALUE
The excess of cost over fair value of assets acquired is amortized on a
straight-line basis over 40 years.
LONG-LIVED ASSETS
The recoverability of the carrying values of property, equipment, franchise
rights and beneficial leases is periodically evaluated based on current and
forecasted undiscounted cash flows, future market opportunities, strategic
importance and estimated disposal values.
DEFERRED FINANCING COSTS
Financing costs incurred in obtaining long-term debt are capitalized and
amortized over the life of the related debt on an effective interest basis.
INCOME TAXES
The Company and its subsidiaries are included in the consolidated federal
income tax return of Holdings.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Senior Notes - The fair value of senior notes is based on quoted market prices.
The recorded amount, as of December 31, 1995, approximates fair value.
Revolving Line of Credit and Acquisition Loan - Rates currently available to
the Company for debt with similar terms and remaining maturities are used to
estimate fair value. The recorded amount, as of December 31, 1995, approximates
fair value.
F-8
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FISCAL YEAR
The Company uses a 52-53 week fiscal year ending on the Sunday closest to
December 31. The financial statements included herein are as of December 31,
1995 (52 weeks), January 1, 1995 (52 weeks) and January 2, 1994 (52 weeks).
RECLASSIFICATION
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
2. ACQUISITIONS
Proforma financial information reflecting the 1993 acquisition of 18
restaurants assuming the acquisition took place at the beginning of the fiscal
year is as follows:
<TABLE>
<CAPTION>
1993
<S> <C>
Revenues $181,341,000
Loss before extraordinary
item $ (3,703,000)
Net loss $ (8,586,000)
</TABLE>
This acquisition has been accounted for by the purchase method; accordingly,
the results of operations are included in the consolidated financial statements
from the acquisition date.
3. INVENTORIES
Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials (food and paper products) $ 1,458,000 $ 1,415,000
Supplies 834,000 839,000
$ 2,292,000 $ 2,254,000
</TABLE>
F-9
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
4. LEASES
The Company utilizes land and buildings in its operations under various lease
agreements. These leases are generally for initial terms of twenty years and,
in most cases, contain renewal options for two to four additional five year
periods. The rent payable under such leases is generally a percentage of sales
with a provision for minimum rent. In addition, most leases require payment of
property taxes, insurance and utilities.
Deferred gains of approximately $2,300,000 were recorded as a result of
sale/leaseback transactions and are being amortized over the lives of the
leases. These leases are operating leases, have a 20 year term with four five-
year renewal options and provide for additional rent based on a percentage of
sales in excess of predetermined levels. The deferred gain of $1,773,000 and
$1,888,000 at December 31, 1995 and 1994, respectively, is the result of these
transactions.
Accumulated amortization pertaining to capital leases for the years ended
December 31, 1995 and 1994 was $8,945,000 and $8,285,000, respectively.
Minimum rent commitments under noncancelable leases as of December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
<S> <C> <C>
Years Ending:
1996 $ 1,088,000 $ 9,165,000
1997 980,000 9,000,000
1998 805,000 8,454,000
1999 588,000 7,869,000
2000 527,000 7,684,000
2001 and thereafter 2,434,000 61,287,000
Total minimum lease payments 6,422,000 $103,459,000
Less amount representing interest (7.7% to 16.6%) 2,477,000
Total obligations under capital leases 3,945,000
Less current portion 644,000
Long term obligations under capital leases $ 3,301,000
</TABLE>
F-10
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
4. LEASES (CONTINUED)
Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Minimum rent on real property $ 11,108,000 $ 10,147,000 $ 8,627,000
Additional rent based on a
percentage of sales 2,548,000 1,917,000 1,290,000
Equipment rent 164,000 109,000 69,000
$ 13,820,000 $ 12,173,000 $ 9,986,000
</TABLE>
5. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Collateralized:
Revolving line of credit $ 1,700,000 $8,622,000
Acquisition loan 5,000,000 650,000
Industrial Development Revenue bonds 596,000 846,000
Other notes payable with
interest rates to 10% 837,000 820,000
Unsecured:
Senior notes 108,500,000 110,000,000
116,633,000 120,938,000
Less current portion 258,000 258,000
$116,375,000 $120,680,000
</TABLE>
The Company issued $110 million of unsecured senior notes in August 1993 to
effect a refinancing of existing long-term obligations. The extraordinary loss
of $4,883,000 on extinguishment of debt in 1993 included $2,245,000 of
previously deferred financing costs and $2,638,000 of premium and expenses paid
on the retirement of subordinated debentures and debt.
The senior notes bear interest at a rate of 11.5%, payable semi-annually on
each February 15 and August 15, and are due August 15, 2003. The notes are
not redeemable prior to August 15, 1998, except that, through August 1996, the
Company may redeem up to $33 million in aggregate principal amount at 111.5%
plus accrued interest from the proceeds of a public offering of common stock by
the Company or by Carrols Holdings Corporation. The notes are redeemable at
the option of the Company in whole or in part on or after August 15, 1998 at
specified redemption prices. Provisions of the revolving line of credit
facility place limitations on the redemption or repurchase of the notes so long
as the facility remains in effect. During 1995, the Company purchased $1.5
million face value of senior notes.
On December 20, 1994, the revolving line of credit agreement was amended to
provide for an additional acquisition loan of $5 million. The $5 million
acquisition loan was collateralized by the twenty-two restaurants acquired
during 1994 and was fully advanced during 1995. The $5 million is required to
be repaid by quarterly payments of $250,000 beginning in November 1997
increasing to quarterly payments of $500,000 beginning in November 1998.
F-11
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
5. LONG-TERM DEBT (CONTINUED)
Effective December 20, 1994, in conjunction with the additional $5 million
acquisition loan, the revolving line of credit agreement was amended to reduce
the interest rate on all borrowings thereunder to either the London Interbank
Offering Rate plus 2.5% or the prime rate plus 1.25%, as selected by the
Company. If the revolving line of credit and acquisition loan exceed $25
million, the interest rate is increased to either the London Interbank Offering
Rate plus 3.5% or the prime rate plus 2.25% on the amount of the loan exceeding
$25 million. The amount available under the revolving line of credit was
increased to $25 million with no future reductions until its maturity in August
2000. At December 31, 1995 there was $21.9 million available under the
revolving line of credit facility after reduction for the $1.7 million
outstanding and a $1.4 million letter of credit guaranteed by the facility. A
commitment fee of 1/2% is payable on the unused balance. At December 31, 1995,
the facility was collateralized by substantially all assets of the Company.
The Industrial Development Revenue bonds are due in yearly amounts of $250,000
through 1998, with interest at seventy-five percent of prime. The bonds are
collateralized by a warehouse which has a net book value of $1,300,000 at
December 31, 1995 and is available for disposition.
Restrictive covenants of the senior notes and the revolving line of credit
facility include limitations with respect to the issuance of additional debt
and redeemable preferred stock; the sale of assets; dividend payments and
capital stock redemption; transactions with affiliates; consolidations, mergers
and transfers of assets and minimum interest and fixed charge coverage ratios.
At December 31, 1995, principal payments required on all long-term debt are as
follows:
<TABLE>
<S> <C>
1996 $ 258,000
1997 508,000
1998 1,354,000
1999 2,192,000
2000 3,320,000
2001 and thereafter 109,001,000
$116,633,000
</TABLE>
6. INCOME TAXES
The income tax (provision) benefit was comprised of the following at December
31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Current:
Federal $ (35,000)
State (200,000) $ (165,000)
(235,000) (165,000)
Deferred:
Federal 8,552,000
State 1,509,000
10,061,000
$ 9,826,000 $ (165,000)
</TABLE>
F-12
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
6. INCOME TAXES (CONTINUED)
The components of deferred income tax assets and liabilities at December 31,
are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Receivable and other reserves $ 405,000 $ 588,000
Accrued vacation benefits 484,000 426,000
Deferred income on sale/leaseback
of real estate 709,000 755,000
Postretirement benefits 569,000 542,000
Capital leases 545,000 572,000
Property and equipment 138,000
Alternative minimum tax credit carryforward 35,000
Net operating loss carryforwards 12,458,000 15,552,000
Less: Valuation allowance (11,799,000)
15,343,000 6,636,000
Deferred tax liabilities:
Franchise rights 5,282,000 6,500,000
Property and equipment 136,000
5,282,000 6,636,000
Net deferred income tax asset $10,061,000 $ 0
</TABLE>
The Company has net operating loss and alternative minimum tax ("AMT") credit
carryforwards for income tax purposes of approximately $31.1 million and
$35,000, respectively. The net operating loss carryforwards expire in varying
amounts beginning 2003 through 2009. Realization of the deferred income tax
assets relating to the net operating loss and AMT credit carryforwards is
dependent on generating sufficient taxable income prior to the expiration of
the loss carryforwards. 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, during 1995 the previously provided valuation
allowance has been eliminated and the net deferred tax asset has been
recognized as a deferred income tax benefit.
The difference for 1995 between the expected tax provision resulting from
application of the federal statutory income tax rate to pre-tax income and the
actual income tax benefit recognized results principally from recognition of
the previously unrecorded deferred tax asset.
7. STOCKHOLDER'S EQUITY
THE COMPANY
The Company has 1,000 shares of common stock authorized of which 10 shares are
issued and outstanding. Dividends on the Company's common stock are restricted
to amounts permitted by various loan agreements.
Additional paid-in capital was reduced for cash dividends declared of $636,000,
$2,973,000, and $2,741,000 in 1995, 1994 and 1993, respectively.
F-13
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
7. STOCKHOLDER'S EQUITY (CONTINUED)
HOLDINGS
The sole activity of Holdings is the ownership of 100% of the stock of Carrols
Corporation.
Holdings, the parent, has issued various classes of stock with redemption,
convertibility and cumulative dividend payment requirements. At December 31,
Holdings stock consists of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Preferred stock:
Class A, 10% cumulative redeemable,
par value $.01, authorized, issued
and outstanding 7,250 shares at
liquidation preference and
redemption price $7,250,000 $7,250,000
Class B, convertible, 10% cumulative
redeemable Series I, par value $.01,
authorized, issued and outstanding 750
shares at liquidation preference and
redemption price 750,000 750,000
Class B, 10% cumulative redeemable
Series II, par value $.01, authorized
750 shares, issued - none
Common stock:
Voting, par value $.01, authorized
6,000,000 shares, issued and
outstanding 2,260,757 and 2,266,157
shares for 1995 and 1994, respectively 23,000 23,000
Non-voting, par value $.01, authorized
882,353 shares, issued - none
</TABLE>
The Class A Preferred Stock, issued in December 1986, is subject to
redemptions equally over each of the tenth through thirteenth anniversaries of
issuance. Subject to the redemption restrictions of various loan agreements,
all preferred stock may be redeemed at the option of Holdings, at a price of
$1,000 per share, plus accrued dividends. In the event that the scheduled
redemptions are not timely made, the annual dividend rate on the Class A
Preferred Stock will automatically increase to 14%.
Each share of Holdings Class B Convertible Preferred Stock is convertible at
any time prior to redemption into 1,176.5 shares of Holdings Non-Voting Common
Stock (subject to adjustment to prevent dilution).
Holders of the Preferred Stock are entitled to cumulative dividends payable
quarterly at the rate of 10% per annum. In the event that Holdings fails to
pay four consecutive quarterly dividends on the Class A preferred stock, the
subsequent dividend rate increases to 11.5%; if eight consecutive quarterly
dividends are missed, the rate increases to 13% per annum until such dividends
are paid. Dividends on the Class B preferred stock cannot be declared or paid
if there are any Class A preferred stock dividends in arrears. Because of
certain restrictive covenants in the Company's loan agreements, at December 31,
1995, dividends have not been paid for the last two quarters which aggregate
$405,000.
F-14
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
7. STOCKHOLDER'S EQUITY (CONTINUED)
In conjunction with the Class A Preferred Stock, warrants to purchase 529,412
shares of Holdings Common Stock at an exercise price of $.97 to $1.00 per share
were granted. Outstanding warrants as of December 31, 1995 and 1994 totalled
463,549. Warrants are exercisable until the redemption of the Class A
Preferred Stock. The warrants contain restrictions as to transfer, dilution and
registration rights.
The Company also granted warrants for the purchase of 281,602 shares of
Holdings Common Stock with various expiration dates through 2004 at an exercise
price of $1.00 per share.
REDEMPTION OFFER
During 1993, Carrols Holdings Corporation initiated a redemption and retirement
offer resulting in the tender of 743,843 shares of common stock and the tender
of warrants to purchase 65,863 shares of common stock with a total redemption
value of $3,173,000.
Approximately $500,000, or 249,988 shares, of the redemption was effected
during 1993. The remainder of the redemption, $2,673,000, or 493,855 shares
and warrants for 65,863 shares, was completed in 1994.
STOCK OPTIONS
Carrols Holdings Corporation adopted an Employee Stock Option and Award Plan on
December 14, 1993. Effective April 1, 1994, Holdings also adopted a Stock
Option Plan for non-employee directors. The Plans allow for the granting of
non-qualified stock options, stock appreciation rights and incentive stock
options to directors, officers and certain other Company employees. The
Company is authorized to grant options for up to 850,000 shares, 100,000 shares
for non-employee directors and 750,000 shares for employees. Options are
generally exercisable over 5 years with 94,600 and 46,400 options exercisable
as of December 31, 1995 and 1994, respectively. As of December 31, 1995 and
1994, non-employee directors were granted options totaling 18,000 and 15,000,
respectively. Under the non-employee director plan, no options were exercised
or cancelled during 1994 or 1995.
Option activity during 1994 and 1995 consisted of:
<TABLE>
<CAPTION>
OPTIONS AT $4.00 OPTIONS AT $6.12
<S> <C> <C>
Balance at December 31, 1993 235,000 0
Granted 25,000
Exercised
Cancelled (3,000)
Balance at December 31, 1994 257,000 0
Granted 99,100
Exercised (600)
Cancelled (12,400) (2,300)
Balance at December 31, 1995 244,000 96,800
</TABLE>
SUBSEQUENT EVENT
On March 6, 1996, Carrols Holdings Corporation, Carrols Corporation and certain
selling shareholders of Carrols Holdings Corporation signed, subject to certain
conditions, an agreement to sell substantially all of the issued common stock
and common stock equivalents (the Class B Convertible Preferred stock, warrants
to buy common stock and the options to buy common stock).
F-15
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
7. STOCKHOLDER'S EQUITY (CONTINUED)
The sale of stock pursuant to this agreement consistutes an ownership change
under certain provisions of the Internal Revenue Code which may result in
annual limitations on utilization of the net operating loss carryforward
referred to in Note 6.
The consummation of the transaction contemplated by the Agreement will
constitute a "change of control" under the Indenture governing the Senior Notes
Due 2003 ("Notes"). Accordingly, each holder of the Notes will have the right
to require the Company to repurchase all or any part of such holder's Notes at
a repurchase price in cash equal to 101% of the principal amount of the Notes
being repurchased plus accrued and unpaid interest, if any, within a 30-60 day
period, as determined by the Company. The Company does not anticipate a
significant number of Note holders to exercise their rights, based on current
market conditions. However, to the extent holders exercise their rights, the
Company expects to finance the aggregate repurchase amount through borrowings
under the revolving line of credit portion of its Senior Secured Credit
Facility, and/or , through additional debt financing on a pari passu basis with
the Notes.
8. LITIGATION
The Company is a party to various legal proceedings arising from the normal
course of business. Management believes adverse decisions relating to
litigation and contingencies in the aggregate would not materially effect the
Company's results of operations or financial condition.
9. EMPLOYEE SAVINGS PLAN
The Company offers a savings plan for salaried employees. Under the plan,
participating employees may contribute up to 10% of their salary annually. The
Company's contributions, which begin to vest after three years and fully vest
after seven years of service, are equal to 50% of the employee's contributions
to a maximum Company contribution of $530 annually. The employees have various
investment options available under a trust established by the plan. The plan
cost was $125,000, $125,000, and $111,000, for the years ended December 31,
1995, 1994 and 1993, respectively.
F-16
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
10. POSTRETIREMENT BENEFITS
While the Company reserves the right to change its policy, the Company provides
postretirement medical and life insurance benefits covering substantially all
salaried employees.
The following sets forth the plan status at December 31:
Accumulated Postretirement Benefit Obligation (APBO):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retirees $ 411,000 $ 409,000
Fully eligible active participants 242,000 130,000
Other active plan participants
not fully eligible 580,000 568,000
Total APBO 1,233,000 1,107,000
Unrecognized benefit from plan changes 255,000 281,000
Unrecognized net loss (64,000) (34,000)
Accrued postretirement
benefit obligation $ 1,424,000 $ 1,354,000
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost $47,000 $47,000 $61,000
Interest cost 76,000 70,000 74,000
Net amortization of
gains,losses and unrecognized
benefit from plan changes (29,000) (20,000) (19,000)
$94,000 $97,000 $116,000
</TABLE>
A 7.0% annual rate of increase in the per capita costs of covered health care
benefits was assumed for 1995, gradually decreasing to 5.5% by the year 2001.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as
of December 31, 1995 by $162,000 and increase the aggregate of the service cost
and interest cost components of net periodic postretirement benefit cost for
1995 by $18,000. For 1995 and 1994, a discount rate of 7% was used to
determine the accumulated postretirement benefit obligation. Actual benefit
costs paid on behalf of retirees in 1995, 1994 and 1993 amounted to $24,000,
$31,000 and $14,000, respectively.
11. LOSS ON CLOSING RESTAURANTS AND OTHER
The loss on closing restaurants and other of $1.8 million for 1994 included the
write-down of assets to net realizable value and estimated lease termination
costs for the closing during 1995 of certain restaurants operating at a
negative annual cash flow and the write down to net realizable value of a
vacant warehouse held for sale.
F-17
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL E
<S> <C> <C> <C> <C>
Additions
Balance at Charged to Balance at
Beginning Costs and End
DECRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
Year ended December 31, 1995:
Accumulated depreciation of property
and equipment $ 53,969,000 $ 7,594,000 $(1,932,000)(d) $59,631,000
Accumulated amortization of
franchise rights 17,548,000 2,512,000 (412,000)(a) 19,648,000
Accumulated amortization of
beneficial leases 7,433,000 721,000 (499,000)(a) 7,655,000
Accumulated amortization of excess cost
over fair value of assets 462,000 58,000 520,000
Reserve for doubtful trade accounts
receivable 424,000 12,000 (17,000)(b) 419,000
Other reserves (c) 542,000 388,000 (142,000)(b) 788,000
Year ended December 31,1994:
Accumulated depreciation of property
and equipment 47,254,000 7,404,000 (689,000)(d) 53,969,000
Accumulated amortization of
franchise rights 15,146,000 2,402,000 17,548,000
Accumulated amortization of
beneficial leases 6,921,000 785,000 (273,000)(a) 7,433,000
Accumulated amortization of excess cost
over fair value of assets 404,000 58,000 462,000
Reserve for doubtful trade accounts
receivable 563,000 2,000 (141,000)(b) 424,000
Other reserves (c) 521,000 21,000 542,000
Year ended December 31, 1993:
Accumulated depreciation of property and
equipment 40,686,000 7,840,000 (1,272,000)(d) 47,254,000
Accumulated amortization of
franchise rights 13,364,000 2,513,000 (731,000)(a) 15,146,000
Accumulated amortization of
beneficial leases 5,962,000 1,189,000 (230,000)(a) 6,921,000
Accumulated amortization of excess cost
over fair value of assets 347,000 57,000 404,000
Reserve for doubtful trade accounts
receivable 616,000 (53,000)(b) 563,000
Other reserves (c) 292,000 229,000 521,000
</TABLE>
(a) Represents reduction of accumulated amortization due to sale or disposition
of restaurants.
(b) Represents write-offs of accounts.
(c) Included principally in other assets
(d) Represents retirements of fixed assets.
F-18
