SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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.
Page 1 of 53
PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
On March 6, 1996, Atlantic Restaurants, Inc. (the <o^>Buyer<o">),
Carrols Holdings Corporation
(<o^>Holdings<o">), Carrols Corporation (the <o^>Company<o"> or
<o^>Carrols<o">) and certain selling shareholders of
Holdings (the <o^>Selling Shareholders<o">) entered into a Securities
Purchase Agreement (the
<o^>Agreement<o">). 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 <o^>Securities<o">). 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 <o^>Purchase Price<o">).
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
<o^>Closing<o">), 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 <o^>Change of
Control Transaction<o">) will constitute a <o^>change of control<o"> under
the Indenture, dated as of August 17,
1993 (the <o^>Indenture<o">), among Carrols, Holdings and Marine Midland
Bank, N.A., as trustee, governing
CarrolsAE $110 million aggregate principal amount (currently $108.5 million
outstanding) of 11-1/2%
Senior Notes Due 2003 (the <o^>Notes<o">). In accordance with the terms
and conditions of the Indenture,
upon a <o^>change of control<o">, each holder of the Notes will have the
right to require Carrols to
repurchase all or any part of such holderAEs 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
<o^>ManagementAEs Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity
and Capital Resources<o">.
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<< 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 CarrolsAE 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."
RESTAURANT LOCATIONS
The following table sets forth the locations of the 220 Burger King
restaurants in Carrols'
system at March 15, 1996.
NEW YORK (98)
OHIO (66)
MAINE (3)
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)
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.
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:
Owned
Leased
Leased
Land;
Land;
Land;
Owned
Owned
Leased
Building
Building
Building
Total
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
(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.
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:
January, 1994
$237,301.10
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
See discussion of dividend restriction in <o^>ManagementAEs
Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.
ITEM 6. SELECTED FINANCIAL DATA
CARROLS CORPORATION AND SUBSIDIARIES-SUMMARY OF SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
1995__
1994__
1993__
1992__
1991__
(52 weeks)
(52 weeks)
(52 weeks)
(53 weeks)
(52 weeks)
(Dollars in
thousands except for per share data and restaurants)
OPERATING RESULTS:
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)
(4,919)
(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 stockholderAEs 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
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:
PERCENTAGE OF SALES
YEARS ENDED DECEMBER 31,
1995
1994
1993
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)
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 workersAE
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 CompanyAEs
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
HoldingsAE 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 CompanyAEs 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
<o^>Business--Recent
Developments<o"> will constitute a <o^>change of control<o"> under the
Indenture governing the Senior Notes. In
accordance with the terms and conditions of the Indenture, upon a
<o^>change of control<o">, 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 holderAEs 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers are:
NAME
AGE
POSITION WITH THE COMPANY
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
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
StockholdersAE 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.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG TERM
COMPENSATION
AWARDS
NAME AND PRINCIPAL
POSITION
YEAR
SALARY
BONUS
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS
Alan Vituli
Chairman of the Board
1995
$352,632
$245,000
20,000
and Chief Executive
1994
300,430
81,000
- ----------
Officer
1993
292,118
- ----------
100,000
Daniel T. Accordino
1995
250,751
150,322
10,000
President, Chief
1994
226,216
60,891
- ----------
Operating Officer
1993
206,516
- ----------
25,000
and Director
Richard V. Cross
1995
161,522
80,262
5,000
Executive Vice
1994
156,378
42,106
- --------
President--Finance,
1993
155,936
- ----------
8,000
Treasurer and Director
Joseph A. Zirkman
1995
105,249
41,995
3,000
Vice President,
1994
95,890
24,303
- --------
General Counsel and
Secretary
1993
85,711
15,000
5,000
Richard H. Liem
1995
93,092
37,153
3,000
Vice President ,
1994
57,552
15,423
10,000
Financial Operations
1993
- --------
- --------
- --------
OPTIONS/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1995
POTENTIAL REALIZABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(a)
____________________________________________________________________________________ __________________________
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SAR
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SAR EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(b) 1995 ($/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 HoldingsAE 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 HoldingsAE
1993 Employee Stock
Option and Award Plan administered by HoldingsAE 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 <o^>Employment Agreements<o">
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 DirectorsAE 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
HoldingsAE 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
<o^>Warrants<o">), 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
(<o^>Deemer<o">) 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
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.
(c) Exhibits Required by Item 601 of Regulation S-K
EXHIBIT
NUMBER
DESCRIPTION
INCORPORATION BY REFERENCE TO
THE FOLLOWING INSTRUMENTS
PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
2.1
Purchase and Sale Agreement dated
February 10, 1994 between Carrols
Corporation, as Purchase, and KIN
Restaurant, Inc., as Seller
Exhibit 2.1 to the CompanyAEs 1994 Annual
Report on Form 10-K
2.2
Purchase and Sale Agreement dated
April 18, 1994 among Carrols
Corporation, as Purchaser, and Riva
Development Corporation and John
Riva, as Seller
Exhibit 2.2 to the CompanyAEs 1994 Annual
Report on Form 10-K
2.3
Purchase and Sale Agreement dated
May 31, 1994 among Carrols
Corporation, as Purchaser, and
Michael P. Jones and Donald M.
Cepiel, Sr., and the corporations listed
therein
Exhibit 2.3 to the CompanyAEs 1994 Annual
Report on Form 10-K
2.4
Securities Purchase Agreement dated
March 6, 1996, among Atlantic
Restaurants, Inc., Carrols Holdings
Corporation, Carrols Corporation and
Certain Selling Shareholders,
excluding exhibits and schedules
Exhibit 2.1 to the CompanyAEs current report
on Form 8-K dated March 21, 1996
2.5
Deferred Securities Purchase
Agreement dated March 6, 196 among
Atlantic Restaurants, Inc., Alan Vituli
and Pryor, Cashman, Sherman &
Flynn
Exhibit 2.2 to the CompanyAEs current report
on Form 8-K dated March 21, 1996
3.1
Restated Certificate of Incorporation
Exhibit 3.(3)(a) to the CompanyAEs 1987
Annual Report on Form 10-K
3.2
Restated By-laws
Exhibit 3.(3)(b) to the CompanyAEs 1987
Annual Report on Form 10-K
4.1
Indenture dated as of August 17, 1993
among Holdings, the Company and
Marine Midland Bank, N.A.
Exhibit 4.1 to Amendment No. 3 to the
CompanyAEs Registration Statement on Form
S-1 (Number 3365100) filed August 10,
1993
EXHIBIT
NUMBER
DESCRIPTION
INCORPORATION BY REFERENCE TO
THE FOLLOWING INSTRUMENTS
PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
10.1
First Amended and Restated Loan
Security and Preferred Stock
Purchase Agreement by and among
Carrols Merger Corporation and
Carrols Holdings Corporation, as
<o^>Borrower<o"> and Heller Financial, Inc.,
as <o^>Lender<o"> dated December 22, 1986
Exhibit 10.1 to the CompanyAEs 1987 Annual
Report on Form 10-K
10.2
Form of Stockholders Agreement by
and among Carrols Holdings
Corporation, Morgan Ventures Limited
Partnership and certain Shareholders
Exhibit 10.2 to the CompanyAEs 1987 Annual
Report on Form 10-K
10.3
Second Amended and Restated Loan
and Security Agreement by and
among Carrols Corporation and
Carrols Holdings Corporation, as
<o^>Borrower<o"> and Heller Financial, Inc.,
as <o^>Lender<o"> dated as of September
15, 1992
Exhibit 10.15 to the CompanyAEs 1992
Annual Report on Form 10-K
10.4
Senior Subordinated Credit
Agreement dated as of September 15,
1992 between Carrols Corporation,
Carrols Holdings Corporation and
World Subordinated Debt Partners,
L.P.
Exhibit 10.17 to the CompanyAEs Annual
Report on Form 10-K
10.5
Third Amended and Restated Loan
and Security Agreement by, and
among Carrols Corporation and
Carrols Holdings Corporation, as
<o^>Borrower<o"> and Heller Financial, Inc.,
as <o^>Lender<o"> dated as of August 9,
1993
Exhibit 10.19 to Amendment No. 2 to the
CompanyAEs Form S-1 Registration
Statement filed on August 4, 1993
EXHIBIT
NUMBER
DESCRIPTION
INCORPORATION BY REFERENCE TO
THE FOLLOWING INSTRUMENTS
PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
10.6
First Amendment to Third Amended
and Restated Loan and Security
Agreement by and among Carrols
Corporation and Carrols Holdings
Corporation, as Borrower<o"> and Heller
Financial, Inc., as <o^>Lender<o"> dated
October 27, 1993
The CompanyAEs 1993 Annual Report on
Form 10-K
10.7
Second Amendment to Third
Amended and Restated Loan and
Security Agreement by and among
Carrols Corporation and Carrols
Holdings Corporation, as <o^>Borrower<o">
and Heller Financial, Inc., as <o^>Lender<o">
dated March 11, 1994
The CompanyAEs 1993 Annual Report on
Form 10-K
10.8
Carrols Holdings Corporation 1993
Employee Stock Option and Award
Plan
The CompanyAEs 1993 Annual Report on
Form 10-K
10.9
Third Amendment to Third Amended
and Restated Loan and Security
Agreement among Carrols Holdings
Corporation, Carrols Corporation and
Heller Financial, Inc., dated May 2,
1994
Exhibit 10.9 to the CompanyAEs 1994 Annual
Report on Form 10-K
10.10
Fourth Amendment to Third Amended
and Restated Loan and Security
Agreement among Carrols Holdings
Corporation, Carrols Corporation and
Heller Financial, Inc., dated December
20, 1994
Exhibit 10.10 to the CompanyAEs 1994
Annual Report on Form 10-K
10.11
Supply Agreement between
ProSource Services Corporation and
Carrols Corporation dated April 1,
1994
Exhibit 10.11 to the CompanyAEs 1994
Annual Report on Form 10-K
EXHIBIT
NUMBER
DESCRIPTION
INCORPORATION BY REFERENCE TO
THE FOLLOWING INSTRUMENTS
PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
10.12
Taco Cabana Restaurants
Development Agreement dated June
30, 1994 between T.C. Management
Inc. and Carrols Corporation
Exhibit 10.12 of the CompanyAEs 1994
Annual Report on Form 10-K
10.13
Letter Agreement dated September 9,
1994 amending the Taco Cabana
Restaurants Development Agreement
dated June 30, 1994
Exhibit 10.13 to the CompanyAEs 1994
Annual Report on Form 10-K
10.14
Pollo Tropical Area Development
Agreement dated January 1, 1995
between Pollo Franchise, Inc. and
Carrols Corporation
Exhibit 10.14 to the CompanyAEs 1994
Annual Report on Form 10-K
10.15
Option Agreement for Toronto dated
January 1, 1995 between Pollo
Franchise, Inc. and Carrols
Corporation
Exhibit 10.15 to the CompanyAEs 1994
Annual Report on Form 10-K
10.16
Option Agreement for Michigan dated
January 1, 1995 between Pollo
Franchise, Inc. and Carrols
Corporation
Exhibit 10.16 to the CompanyAEs 1994
Annual Report on Form 10-K
10.17
Employment Agreement dated
January 1, 1995 between Carrols
Corporation and Daniel T. Accordino
Exhibit 10.17 to the CompanyAEs 1994
Annual Report on Form 10-K
10.18
Employment Agreement dated
January 1, 1995 between Carrols
Corporation and Alan Vituli
Exhibit 10.18 to the CompanyAEs 1994
Annual Report on Form 10-K
10.19
1994 Regional Directors Bonus Plan
Exhibit 10.19 to the CompanyAEs 1994
Annual Report on Form 10-K
10.20
1994 Directors Stock Option Plan
Exhibit 10.20 to the CompanyAEs 1994
Annual Report on Form 10-K
EXHIBIT
NUMBER
DESCRIPTION
INCORPORATION BY REFERENCE TO
THE FOLLOWING INSTRUMENTS
PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
10.21
Carrols Corporation Corporate
EmployeeAEs Savings Plan dated
December 31, 1994
Exhibit 10.21 to the CompanyAEs 1994
Annual Report on Form 10-K
10.22
Escrow Agreement dated March 6,
1996, by and among Atlantic
Restaurants, Inc., Bahrain
International Bank (E.C.), Carrols
Holdings Corporation, Carrols
Corporation, certain selling
shareholders and Baer Marks &
Upham L.L.P.
Exhibit 2.3 to the CompanyAEs Current Report
on Form 8-K dated March 21, 1996
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.
(d) Reports on Form 8-K
No current reports on Form 8-K were filed during
the CompanyAEs fiscal
quarter ended December 31, 1995.
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.
SIGNATURE
TITLE
DATE
/S/Alan Vituli
(Alan Vituli)
Director, Chairman and Chief
Executive Officer
April 1,1996
/s/Daniel T. Accordino
(Daniel T. Accordino)
Director, President and Chief
Operating Officer
April 1,1996
/s/ Richard V. Cross
(Richard V. Cross)
Director, Executive Vice
President - Finance, and
Treasurer (Principal Financial &
Accounting Officer)
April 1,1996
/s/ Franklin Glasgall
(Franklin Glasgall)
Director
April 1,1996
/s/ M. Bruce Adelberg
(M. Bruce Adelberg)
Director
April 1,1996
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
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
___________
ASSETS
1995
1994
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 accumulated 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 0
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
The accompanying notes are an integral part of the financial
statements.
F-2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1995 AND 1994
___________
LIABILITIES AND STOCKHOLDER'S DEFICIT
1995
1994
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
StockholderAEs 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 stockholderAEs deficit
(12,916,000)
(27,208,000)
$135,064,000
$125,319,000
The accompanying notes are an integral part of the financial
statements.
F-3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
1995
1994
1993
(52 Weeks)
(52 Weeks)
(52 Weeks)
Revenues:
Sales
$226,257,000
$203,927,00
0
$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
)
$(28,683,00
0)
$(26,852,000
)
The accompanying notes are an integral part of the financial
statements.
F-4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
Increase (Decrease) in Cash and Cash Equivalents
1995
1994
1993
(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
)
The accompanying notes are an integral part of the financial
statements.
Continued
F-5
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
1995
(52 Weeks)
1994
(52 Weeks)
1993
(52 Weeks)
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
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-
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
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:
1993
Revenues
$181,341,000
Loss before extraordinary
item
$
(3,703,000)
Net loss
$
(8,586,000)
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:
1995
1994
Raw materials (food and paper
products)
$
1,458,000
$
1,415,000
Supplies
834,000
839,000
$
2,292,000
$
2,254,000
F-9
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:
Capital
Operating
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
$103,459,00
0
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
F-10
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:
1995
1994
1993
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
5. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
1995
1994
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
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
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:
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
6. INCOME TAXES
The income tax (provision) benefit was comprised of the following
at December 31:
1995
1994
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)
F-12
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:
1995
1994
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
The Company has net operating loss and alternative minimum tax
(<o^>AMT<o">) 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
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:
1995
1994
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
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 CompanyAEs loan
agreements, at December 31, 1995, dividends have not been paid for
the last two quarters which aggregate $405,000.
F-14
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:
Options at
$4.00
Options at
$6.12
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
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
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
7. STOCKHOLDERAES 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 <o^>change of control<o"> under the Indenture
governing the Senior Notes Due 2003 (<o^>Notes<o">). Accordingly, each
holder of the Notes will have the right to require the Company to
repurchase all or any part of such holderAEs 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
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):
1995
1994
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
Net periodic postretirement benefit cost included the following
components:
1995
1994
1993
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
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
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________
Col. A
Col. B
Col. C
Col. D
Col E
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
$(1,932,00
0)(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
(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
14
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted from the Annual
Report for the twelve months ended December 31, 1995 of Carrols Corporation and
is qualified in its entirety by reference to such financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> $ 1,463,000
<SECURITIES> 0
<RECEIVABLES> $ 688,000
<ALLOWANCES> 0
<INVENTORY> $ 2,292,000
<CURRENT-ASSETS> $ 9,578,000
<PP&E> $115,910,000
<DEPRECIATION> $ 59,631,000
<TOTAL-ASSETS> $135,064,000
<CURRENT-LIABILITIES> $ 23,180,000
<BONDS> $116,375,000
0
0
<COMMON> 10
<OTHER-SE> $(12,916,000)
<TOTAL-LIABILITY-AND-EQUITY> $135,064,000
<SALES> $226,458,000
<TOTAL-REVENUES> $226,458,000
<CGS> $ 63,629,000
<TOTAL-COSTS> $186,459,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $ 14,500,000
<INCOME-PRETAX> $ 5,100,000
<INCOME-TAX> $ (9,826,000)
<INCOME-CONTINUING> $ 14,926,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 14,926,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
