UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KA
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
FOR FISCAL YEAR ENDED DECEMBER 28, 1997
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)
Registrant's telephone number, including area code: (315) 424-0513
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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, 1998: 10.
<PAGE>
THE COMPANY USES A 52-53 WEEK FISCAL YEAR ENDING ON THE SUNDAY CLOSEST TO
DECEMBER 31. ALL REFERENCES HEREIN TO THE FISCAL YEARS ENDED DECEMBER 31,
1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997 WILL HEREINAFTER BE REFERRED TO
AS THE FISCAL YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997, RESPECTIVELY.
PART I
THIS 1997 ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS WHICH CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT,
BELIEF OR CURRENT EXPECTATIONS OF THE REGISTRANT AND ITS MANAGEMENT TEAM.
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-
LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS,
COMPETITIVE, ECONOMIC AND REGULATORY FACTORS, GENERAL ECONOMIC CONDITIONS, THE
ABILITY OF THE REGISTRANT TO MANAGE ITS GROWTH AND SUCCESSFULLY IMPLEMENT ITS
BUSINESS STRATEGY AND OTHER RISKS AND UNCERTAINTIES THAT ARE DISCUSSED HEREIN.
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT
Carrols Corporation ("Carrols" or the "Company") is the largest franchisee
of Burger King restaurants in the United States. As of March 15, 1998
Carrols was operating 338 Burger King restaurants located in 13 Northeastern,
Midwestern and Southeastern states. During the Company's most recent fiscal
year, the Company increased the total number of restaurants that it operates by
over 40% growing from 232 restaurants in 1996 to 335 restaurants at December
31, 1997. During 1997, Carrols opened 11 new restaurants, acquired 93
restaurants in 6 transactions, and closed one underperforming restaurant.
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 the operation of 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 into 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 "1986 Acquisition") by
Carrols Holdings Corporation ("Holdings"), a corporation formed to effect the
1986 Acquisition by Mr. Vituli, the Company's current Chairman and CEO, and
other members of the Company's then-current senior management, a private
investor group and certain institutional investors. As a result of the 1986
Acquisition, Carrols became a wholly-owned subsidiary of Holdings.
At the time of the 1986 Acquisition, the Company owned 138 Burger King
restaurants and a food distribution business. In August 1990, the Company sold
its food 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 expires on March 31, 1999.
ATLANTIC ACQUISITION. On April 3, 1996, pursuant to the Securities
Purchase Agreement (the "Atlantic Agreement"), dated as of March 6, 1996, among
Carrols, Holdings, the stockholders of Holdings and Atlantic Restaurants, Inc.
("Atlantic"), Atlantic acquired Holdings, the owner of 100% of the outstanding
capital stock of the Company (the "Atlantic Acquisition"). Pursuant to the
Atlantic Agreement, Atlantic acquired all of the outstanding voting capital
stock of Holdings for an aggregate purchase price of approximately $86.5
million in cash. Atlantic is an indirect wholly-owned subsidiary of Bahrain
International Bank (E.C.), a Bahrain exempt joint stock company ("BIB").
RECENT DEVELOPMENTS
Recapitalization. On February 20, 1997, the Certificate of Incorporation of
Holdings was amended (the "Amendment") such that (i) the 3,146,110 shares of
Common Stock held by Atlantic were converted into 850,000 shares of Common
Stock, (ii) each of the classes consisting of (a) 882,353 shares of Non-Voting
Common Stock of Holdings, (b) 750 shares of Class B 10% Cumulative Redeemable
Preferred Stock (Series I) of Holdings, par value $0.01 per share, and (c) 750
shares of Class B 10% Cumulative Redeemable Preferred Stock (Series lI) of
Holdings, par value $.01 per share, was canceled and (iii) the outstanding
warrants to purchase 488,111 shares of Common Stock were converted into
warrants to purchase 131,876 shares of Common Stock. After giving effect to
the foregoing, Holdings had 850,000 shares of Common Stock outstanding, all of
which were held by Atlantic, with no other voting capital stock outstanding.
MADISON DEARBORN INVESTMENT. On March 27, 1997, pursuant to a Stock
Purchase Agreement (the "MD Agreement") dated February 25, 1997, between and
among Holdings, Atlantic, Madison Dearborn Capital Partners, L.P. and Madison
Dearborn Capital Partners II, L.P. (together with Madison Dearborn Capital
Partners, L.P., the "MD Investors"), the MD Investors acquired (the "MD
Investment") (i) from Holdings 283,334 shares of Common Stock (the "Holdings
Shares") and (ii) from Atlantic 283,333 of the outstanding shares of Common
Stock (the "Atlantic Shares," and, together with the Holdings Shares, the "MD
Shares"). Pursuant to the MD Agreement, certain members of senior management
also purchased 10,810 shares of Common Stock for $1.1 million. The aggregate
purchase price for the MD Shares was approximately $61 million in cash (the "MD
Purchase Price"), of which approximately one-half was paid to Holdings.
TCB CREDIT FACILITY. On May 12, 1997 the Company and Holdings entered into
a new financing agreement (the "TCB Refinancing") pursuant to which Chase/Texas
Commerce Bank National Association ("TCB"), as Administrative Agent for a
syndicate of lenders (the "Lenders"), (i) established a $25 million Revolving
Credit Facility that replaced the existing Senior Secured Credit Facility with
Heller Financial, Inc. ("Heller") and (ii) established a $127 million Advance
Term Loan ($5 million of which was used to replace an existing $5 million term
loan with Heller).
OMEGA ACQUISITION. On March 28, 1997, the Company acquired 23 Burger King
restaurants (including one restaurant under construction) located in
Greenville, North Carolina and Spartanburg, South Carolina, for an aggregate
purchase price of $21.1 million in cash, pursuant to two separate Purchase and
Sale Agreements, each dated as of January 15, 1997, by and between the Company,
Omega Food Services, Inc. and Harold W. Hobgood as Omega's agent.
BUFFALO ACQUISITION. On August 20, 1997 the Company acquired 63 Burger King
restaurants located in Western New York, Pennsylvania, Indiana and Kentucky for
an aggregate purchase price of approximately $52 million in cash, pursuant to a
Purchase Agreement, dated as of July 7, 1997, among the Company and Richard D.
Fors, Jr., Charles J. Mund, Charles J. Mund, Jr., Eric W. Mund, William J.
O'Donnell, John T. Sweeney, William J. Reznicek and certain other individuals
and entities signatory thereto.
BUSINESS STRATEGY
Carrols business strategy is to continue to increase revenues and improve
operating efficiencies thus increasing restaurant profits and EBITDA (as
defined). The Company's strategy is based on the following components:
DEVELOP NEW BURGER KING RESTAURANTS IN EXISTING MARKETS. The Company looks
to expand in its existing markets through the development of new Burger King
restaurants where the demographics support the Company's ability to increase
profitability and operating leverage. The Company believes that the number of
markets that it operates in will continue to provide opportunities for the
construction of new restaurants. Management believes that new restaurant
development risk is significantly reduced due to the proven success of the
Burger King concept.
The Company's new restaurant development efforts are primarily managed by
its own staff of real estate and construction professionals with input from
BKC's development field personnel. Prior to developing a new restaurant, the
Company conducts an extensive site selection and evaluation process including
in-depth demographic, market and financial analysis.
SELECTIVE ACQUISITION OF EXISTING BURGER KING RESTAURANTS. The Company
believes that due to the number of Burger King restaurants and the number of
franchisees within the Burger King system that there will continue to be
opportunities for selective growth through acquisition in contiguous and new
geographic markets. When evaluating acquisition opportunities the Company
assesses the attractiveness of the market from a demographic perspective
including the potential for the development of new restaurants.
The Company believes that its restaurant operating controls, management
training and administrative efficiencies generally enable it to realize greater
profitability from acquired restaurants than the former owners realized. It
believes that it achieves profit efficiencies from its ability to improve
controls over restaurant food costs, more efficient labor usage, and by its
ability to realize economies of scale by leveraging its corporate
infrastructure.
CONSISTENTLY PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE.
As the number of restaurants that the Company owns in a particular market
increases, the Company has a greater ability to ensure overall customer
satisfaction in that market through consistency in food quality, service and
restaurant appearance. Its stronger presence in a particular market also
allows the Company to maximize the effectiveness of local Burger King
advertising and promotional programs.
ACHIEVE OPERATING EFFICIENCIES. The Company's large number of restaurants,
centralized management structure and management information systems enable the
Company to improve operating efficiencies for both existing and newly acquired
restaurants. These factors enable the Company to tightly control restaurant
and corporate level costs, to capture economies of scale by leveraging its
existing corporate overhead structure, and to use its sophisticated management
information and point-of-sale systems to more efficiently manage its restaurant
operations. Due to its size, the Company also realizes benefits from its
improved bargaining power with respect to its purchasing and cost management
activities.
BURGER KING CORPORATION
Overview. The Company believes that it realizes significant benefits from
its affiliation with BKC as a result of the widespread recognition of the
Burger King name and products, the size and market penetration of BKC's media
advertising, BKC's overall management of the Burger King brand, including new
product development, and from the continued growth of the Burger King system.
According to publicly available information, the Burger King brand is the
second largest restaurant franchised in the world, with more than 9,400 Burger
King restaurants worldwide and system-wide restaurant sales of $9.8 billion for
its fiscal year ended September 30, 1997. BKC is an indirect wholly owned
subsidiary of Diageo PLC (a United Kingdom food and spirits company formed from
the merger of Grand Metropolitan and Guinness).
MENU AND OPERATIONS. The Burger King system marketing strategy is
characterized by its "Have It Your Way" service, flame-broiling, generous
portions and competitive prices. Burger King restaurants feature flame-broiled
hamburgers, the most popular of which is The Whopper{<reg-trade-mark>}
sandwich. The Whopper<reg-trade-mark> is a large, flame-broiled hamburger on a
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 and fish sandwiches, breakfast items, french fried
potatoes, salads, shakes, desserts, soft drinks, milk and coffee. In addition,
promotional menu items are introduced periodically for limited periods. BKC
continually seeks to develop new products as it endeavors to enhance the menu
and service of Burger King restaurants.
The Company's Burger King restaurants are typically open seven days per week
with minimum operating hours from 7:00 AM to 11:00 PM. Burger King
restaurants are fast food restaurants of distinctive design and are generally
located in high-traffic areas throughout the United States. The Company
believes that convenience of location, quality of food, price/value of food
served, and speed of service are the primary competitive advantages of Burger
King restaurants. Burger King restaurants appeal to a broad spectrum of
consumers, with multiple day-part meal segments appealing to different groups
of consumers.
RESTAURANT CONFIGURATIONS. The Company's Burger King restaurants consist of
one of several building types with various seating capacities. BKC's
traditional restaurant contains approximately 2,800 to 3,200 square feet with
seating capacity for 90 to 100 customers, has drive-thru service windows, and
has adjacent parking areas. Of the Company's 338 restaurants, at March 15,
1998, 316 are free-standing and 22 are located in retail shopping centers. In
Carrols' freestanding Burger King restaurants over 55% of sales are generated
from its drive-thru service windows.
FRANCHISE AGREEMENTS.
Each of Carrols' Burger King restaurants operates under a separate Franchise
Agreement entered into between the Company and 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 $40,000. The Franchise Agreements are
non-cancelable except for failure to abide by the terms thereof.
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 $135,000 per
restaurant.
Carrols believes that it enjoys a good relationship with BKC and that it
will satisfy BKC's normal Successor Franchise Agreement policies and,
accordingly, believes that Successor Franchise Agreements will be granted in
due course by BKC at the expiration of its existing Franchise Agreements.
Historically, BKC has granted each of the Company's requests for a Successor
Franchise Agreement for its restaurants.
In addition to the initial franchise fee, Carrols currently pays a monthly
royalty of 3-1/2% of the gross revenues from its restaurants to BKC. Burger
King franchisees currently also contribute 4% of gross revenues from their
Burger King restaurants to fund BKC's national and regional advertising. BKC
engages in substantial national 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.
The cost of a new restaurant also includes the requisite equipment,
furniture, signage and various other costs. The Company estimates that the
average initial cost for a standard free-standing restaurant is approximately
$265,000 (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 varies considerably
depending upon building type, land cost and site work, and generally ranges
from $700,000 to $1,000,000.
The BKC Franchise Agreements do 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 also has the right of first
refusal to purchase any Burger King restaurant which is the subject of a
contract of sale. Since the Acquisition, BKC has granted its approval to all
of the Company's acquisitions, except for one instance when it exercised its
right of first refusal with respect to one proposed six restaurant acquisition
that the Company attempted to make in 1997.
COMPANY OPERATIONS
MANAGEMENT STRUCTURE. Substantially all executive management, finance,
marketing and operations support functions are conducted centrally at the
Company's Syracuse, New York headquarters. The Company currently has six
regional directors, five of whom are vice presidents of the Company, who are
each responsible for the operations of the Carrols' Burger King restaurants in
their assigned region. Three of the regional directors have been employed by
Carrols for over 20 years. The regional directors are supported by 44 district
supervisors that are responsible for the direct oversight of the day-to-day
operations of an average of seven restaurants. Typically, district supervisors
have previously served as restaurant managers at one of Carrols' restaurants or
at an acquired restaurant. 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.
TRAINING. The Company maintains a comprehensive training and development
program for all of its personnel. This program emphasizes the Burger King
system-wide operating procedures, food preparation methods and customer service
standards. Carrols provides both classroom and in-restaurant training for its
salaried and hourly personnel. In addition, BKC's training and development
programs are also available to the Company.
MANAGEMENT INFORMATION SYSTEMS. Financial and management control of Carrols'
restaurants is facilitated by the use of an integrated computerized back office
and point of sale system which electronically transmits data from each of the
Company's restaurants to Corporate headquarters on a daily basis. These
systems provide daily tracking and reporting of customer traffic counts, menu
item sales, payroll data, food and labor cost analyses and other operating
information for each restaurant. This information is available daily to the
restaurant manager, who is expected to react quickly to trends or situations in
his or her restaurant. The district supervisors also receive daily information
for all restaurants under their respective control and have access to key
operating data on a remote basis using a laptop computer. Key restaurant
performance indicators are monitored at each management level from district
supervisor through senior management.
The Company's management information system, typically not utilized by
smaller Burger King franchisees and other smaller quick-service restaurant
chains, provides management with the ability to analyze sales and product mix
data, to minimize shrinkage, and to control labor costs. Carrols believes that
these systems materially enhance its ability to more efficiently control and
manage its restaurant operations.
FACTORS AFFECTING THE COMPANY'S OPERATIONS. Carrols' business is affected by
various factors including weather, gasoline prices and road construction.
Winter weather conditions can be particularly severe in the Northeast where the
Company operates a large 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, consumer spending habits and tastes,
and concerns about the nutritional quality of quick-serve food.
SITE SELECTION. The Company believes that the location of its restaurants is
very important to each restaurant's success. Potential 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.
RESTAURANT LOCATIONS
The following table sets forth the locations of the 338 Burger King
restaurants in the Carrols' system at March 15, 1998.
<TABLE>
<CAPTION>
Total
STATE RESTAURANTS
<S> <C>
Connecticut 1
Indiana 5
Kentucky 6
Maine 4
Massachusetts 2
Michigan 23
New Jersey 2
New York 151
North Carolina 41
Ohio 72
Pennsylvania 11
South Carolina 19
Vermont 1
Total 338
</TABLE>
ADVERTISING AND PROMOTION
The Company believes that one of the major advantages of being a Burger King
franchisee is the value of the extensive regional and national advertising and
promotional programs conducted by BKC. In addition to the benefits derived from
BKC's advertising spending, which according to information published by BKC was
over $400 million for 1997, Carrols supplements BKC's advertising and
promotional activities with local advertising and promotions, including the
purchase of 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.
Burger King franchisees, as well as BKC-owned restaurants, are generally
required to contribute 4% of gross revenues from restaurant operations to an
advertising fund, utilized by BKC for its advertising, promotional programs and
public relations activities. BKC's advertising programs consist of national
campaigns supplemented by local advertising. BKC's advertising campaigns are
generally carried on television, radio and in circulated print media (national
and regional newspapers and magazines).
SUPPLIES AND DISTRIBUTION
The Company is a member of a national purchasing cooperative created for the
Burger King system known as Restaurant Services, Inc. ("RSI"). RSI is a non-
profit independent cooperative which acts as the purchasing agent for approved
distributors to the system and serves to negotiate the lowest cost for the
Burger King system. The Company uses its purchasing power to negotiate
directly with certain other vendors, as well as its distributor, to obtain
favorable pricing and terms for supplying its restaurants.
As a Burger King franchisee, Carrols is required to purchase all of its
foodstuffs, paper goods and packaging materials 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 that such
items meet BKC product uniformity standards.
Carrols currently obtains substantially all of its foodstuffs (other than
bread products which it purchases from local bakeries), paper goods,
promotional premiums and packaging materials from ProSource Distribution
Services, Inc. ("Prosource") under a five-year supply agreement which expires
on March 31, 1999. The Company believes that ProSource's services are
competitive with alternatives available to the Company.
There are other BKC-approved supplier/distributors which compete with
ProSource. Carrols believes that reliable alternative sources for all
restaurant supplies are readily available at competitive prices should the
arrangements with ProSource or any other existing supplier or distributor
change.
All BKC-approved suppliers are required to purchase foodstuffs and supplies
from BKC-approved manufacturers and purveyors. BKC is responsible for
monitoring quality control and supervision of these manufacturers and conducts
regular visits to observe the preparation of foodstuffs, and to run various
tests to ensure that only high quality foodstuffs are sold to BKC-approved
suppliers. In addition, BKC coordinates and supervises audits of approved
suppliers and distributors to determine continuing product specification
compliance and to ensure that manufacturing plant and distribution center
standards are met.
QUALITY ASSURANCE
The Company's operations are focused on achieving a high level of customer
satisfaction with speed, accuracy and quality of service closely monitored.
The Company's senior management and restaurant management staff are principally
responsible for ensuring compliance with the Company's and BKC's operating
procedures. The Company and BKC have uniform operating standards and
specifications relating to the quality, preparation and selection of menu
items, maintenance and cleanliness of the premises and employee conduct.
Detailed reports from the Company's own management information system and
surveys conducted by the Company or BKC are tabulated and distributed to
management on a regular basis to help maintain compliance.
All Burger King franchisees 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
times and temperatures, sanitation and cleanliness. The "conveyor belt" cooking
system utilized in all Burger King restaurants, which is calibrated to carry
hamburgers through the flame broiler at regulated speeds, is one of the safest
cooking systems among major quick-service restaurants and helps to ensure that
the standardized minimum times and temperatures for cooking are met. In
addition, BKC has set maximum time standards for holding unsold prepared food.
The Company 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. In
addition, BKC may conduct unscheduled inspections of Burger King restaurants
throughout the nationwide system.
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 promulgated by the Americans with Disabilities Act (the "ADA")
which require 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, and are not expected to have, 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. In September 1997, the second
phase of an increase in the minimum wage was implemented in accordance with the
Federal Fair Labor Standards Act of 1996. A significant number of the
Company's food service personnel are paid at rates related to the Federal
minimum wage and, accordingly, increases in the minimum wage have increased
labor costs at the Company's restaurants.
The Company is also subject to various local, state and Federal laws
regulating the discharge of pollutants into the environment. The Company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and, if
necessary, to correct environmental problems, the Company conducts
environmental audits of proposed restaurant sites in order to determine whether
there is any evidence of contamination prior to purchasing or entering into a
lease.
The Company believes that it is operating in compliance with applicable
Federal, state and local laws and regulations governing its operations.
COMPETITION
The quick-service restaurant industry is highly competitive with respect to
price, service, location and food quality. 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.
The Company's largest competitor is McDonald's. According to publicly
available information, as of December 31, 1997, the McDonald's worldwide system
comprised over 23,000 restaurants and total system-wide revenues for the year
ended December 31, 1997 were $33.6 billion. The Company believes that product
quality and taste, national brand recognition, convenience of location, speed
of service, menu variety, price and ambiance are the most important competitive
factors in the quick-service restaurant industry and that its Burger King
restaurants effectively compete in each category.
EMPLOYEES
At December 31, 1997, Carrols employed approximately 11,700 persons of which
approximately 200 were supervisory and administrative personnel and 11,500 were
restaurant operating personnel. None of Carrols' employees are covered by
collective bargaining agreements. Approximately 10,500 of the restaurant
operating personnel at December 31, 1997 were part-time employees. Carrols
believes that the dedication of its employees is critical to its success, and
that its employee relations are good.
ITEM 2. PROPERTIES
The Company owns the approximately 20,000 square foot building at 968 James
Street, Syracuse, New York, which houses its executive offices and all of the
Company's administrative operations (except for those conducted at five small
regional offices). In addition to the above, at December 31, 1997 the Company
owned or leased the following properties:
<TABLE>
<CAPTION>
Owned Leased Leased
<S> <C> <C> <C> <C>
Land; Land; Land;
Owned Owned Leased
BUILDING BUILDING BUILDING TOTAL
Burger King
restaurants
23 17 295 (a) 335
Burger King
restaurants
under construction 1 2 1 4
Excess properties:
Leased to others -- -- 4 4
Available for sale
or lease 4 -- -- 4
Total properties
28 19 300 347
</TABLE>
(a) Includes 22 restaurants located in mall shopping centers.
Most of the Company's leases are coterminous with the related Franchise
Agreements. The Company believes that it generally will be able to renew, at
commercially reasonable rates, the leases whose terms expire prior to the
subject Franchise Agreements.
Most leases require the Company, as lessee, to pay utility and water
charges, premiums on insurance and real estate taxes. Certain leases also
require contingent rentals based upon a percentage of gross sales that exceed
specified minimums.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which, in
management's belief, will have a material adverse effect on the Company's
results of operations or financial condition, nor to any other pending legal
proceedings other than ordinary, routine litigation incidental to its business.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established trading market for the Company's capital stock.
Carrols Holdings Corporation owns 10 shares of common stock of the Company
(representing 100% of the capital stock of the Company).
Cash dividends paid during 1996 and 1997 by Carrols to Holdings were as
follows:
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
January 1996 $ 800.00 $ 8,000
March 1996 $ 41,480.00 $ 414,800
August 1996 $ 20,722.40 $ 207,224
October 1996 $ 37,000.38 $ 370,004
April 1997 $ 184,217.01 $ 1,842,170
May 1997 $ 37,087.78 $ 370,878
July 1997 $ 13,610.00 $ 136,100
October 1997 $ 13,610.00 $ 136,100
December 1997 $ 185,309.46 $ 1,853,095
</TABLE>
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends and preferred stock redemptions. As a result
of the 1997 investments by the MD Investors and senior management, the Company
has sufficient unrestricted amounts to enable it to make the required payments
to satisfy preferred stock dividend and redemption requirements.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
DOLLARS IN THOUSANDS EXCEPT RESTAURANT DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 (A)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING RESULTS:
Restaurant sales
$295,436 $240,809 $226,257 $203,927 $ 171,137
Costs and expenses:
Cost of sales 85,542 68,031 63,629 57,847 48,502
Restaurant wages and related expenses 89,447 70,894 65,932 59,934 51,739
Advertising expense 13,122 10,798 9,764 8,785 7,930
Other restaurant operating expenses 61,691 48,683 45,635 42,390 35,192
Administrative expenses 13,121 10,387 10,434 9,122 7,534
Depreciation and amortization 15,102 11,015 11,263 11,259 12,143
Unusual (b) -___ 509 -___ 1,800 -_ _
Total operating costs and expenses 278,025 220,317 206,657 191,137 163,040
Operating income
17,411 20,492 19,600 12,790 8,097
Interest income from income tax refund
(983) - - - -
Interest expense 15,581 14,209 14,500 14,456 12,505
Income (loss) before taxes
2,813 6,283 5,100 (1,666) (4,408)
Provision for (benefit from) income taxes 655 3,100 (9,826) 165 -___
Net Income Before Extraordinary Loss 2,158 3,183 14,926 (1,831) (4,408)
Extraordinary Loss on Extinguishment of Debt
-___ -___ -___ -___ (4,883)
Net Income (Loss)
$ 2,158 $ 3,183 $ 14,926 $ (1,831) $ (9,291)
OTHER FINANCIAL DATA:
EBITDA (c)
$ 32,513 $ 31,507 $ 30,863 $ 24,049 $ 20,240
Total assets
215,328 138,588 135,064 125,319 119,735
Long-term debt 154,649 118,180 116,375 120,680 114,197
Capital lease obligations, long-term 2,060 2,503 3,301 3,966 4,603
Total long-term debt and capital lease
obligations 156,709 120,683 119,676 124,646 118,800
Stockholders' equity (deficit) 17,447 (11,662) (12,916) (27,208) (22,404)
NUMBER OF BURGER KING RESTAURANTS:
At end of period 335 232 219 219 195
Annual weighted average 280 225 219 207 185
</TABLE>
(a) All years included 52 weeks except fiscal 1993 which had 53 weeks.
(b) Includes $509 in 1996 for costs associated with a change of control;
includes $1,800 in 1994 for charges related to closing restaurants.
(c) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, EBITDA is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. In
addition, management believes that certain investors and lenders find
EBITDA to be a useful tool for measuring the ability of the Company to
service its debt.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, select operating
results as a percentage of restaurant sales.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Restaurant sales
100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 29.0 28.3 28.1
Restaurant wages and related
expenses 30.3 29.4 29.1
Other restaurant expenses
including advertising 25.3 24.7 24.5
Administrative expenses 4.4 4.5 4.6
Depreciation and amortization 5.1 4.6 5.0
Operating income
5.9% 8.5% 8.7%
EBITDA
11.0% 13.1% 13.6%
</TABLE>
RESTAURANT SALES. Restaurant sales for the year ended December 31, 1997,
increased 22.7% to $295.4 million from $240.8 in 1996. The increase in sales
was primarily the result of the growth in the number of Burger King restaurants
operated by the Company which increased from 232 at the end of 1996 to 335 at
the end of 1997. During 1997, the Company opened 11 new restaurants, acquired
93 restaurants in six transactions, and closed one underperforming restaurant.
Sales at the Company's 214 comparable restaurants (those units operating for
the entirety of the compared periods) decreased 1.4% during 1997. In general,
the Company did not increase menu prices during 1997.
Restaurant sales were $240.8 million and $226.3 million for 1996 and 1995,
respectively, and increased 6.4% and 10.9% over the year-earlier periods.
Comparable restaurant sales increased 3.2% in 1996 and 3.8% in 1995. The
average number of restaurants operated by the Company was 280 in 1997, compared
to 225 in 1996 and 219 in 1995.
OPERATING COSTS AND EXPENSES. Cost of sales (food and paper costs), as a
percentage of sales, were 29.0% in 1997 compared to 28.3% in 1996 and 28.1% in
1995. The increase in 1997, in part, reflected somewhat higher food costs
including approximately a 2% increase in average beef prices from 1996 level.
The increase in 1996 was due to the effect of higher discount promotional
activity over 1995, offset in part by lower commodity costs.
Restaurant wages and related expenses have increased as a percentage of
sales during the past three years rising from 29.1% in 1995, to 29.4% in 1996,
and to 30.3% in 1997. Wages have increased over this period due to higher
labor rates including the effect of increases in the Federal minimum wage rates
over the past two years. The Federal Fair Labor Standards Act of 1996 mandated
an increase from $4.25 per hour to $4.75 per hour which took effect in October
1996, and a second increase in September 1997 to $5.15 per hour.
Other restaurant operating expenses were 25.3% of sales in 1997, compared to
24.7% in 1996 and 24.5% in 1995. In part, the increase in 1997 is reflective
of general inflationary increases without a corresponding increase in
comparable restaurant sales. In addition, the Company added a significant
number of restaurants through acquisition during 1997, and therefore, expense
relationships have been somewhat higher as these new units become fully
integrated into the business of the Company.
Administrative expenses increased approximately $2.7 million, and as a
percentage of sales, were 4.4% in 1997 compared to 4.3% and 4.6% in 1996 and
1995, respectively. This increase reflects the addition of field supervision
and corporate support as a result of the 1997 addition of over 100 restaurants
and to support the Company's plans for continued expansion.
EBITDA. Earnings before interest, taxes, depreciation and amortization
("EBITDA") increased from $31.5 million in 1996 to $32.5 million in 1997. As a
percentage of sales, EBITDA decreased from 13.1% in 1996 to 11.0% in 1997 as a
result of the factors discussed above. EBITDA was $30.9 million in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $15.1
million in 1997, $11.0 million in 1996 and $11.3 million in 1995. These costs
increased $4.1 million in 1997 which was due primarily to the increase in
goodwill and purchased intangibles resulting from the purchase method of
accounting for newly acquired restaurants.
INTEREST EXPENSE. Interest expense was $15.6 million in 1997 compared to
$14.2 million and $14.5 million in 1996 and 1995, respectively. The increase
in 1997 was the result of higher average debt balances brought about by the
funding of the restaurants that were acquired during the year.
INCOME TAXES. The provision for income taxes of $655,000 in 1997 resulted
in an effective income tax rate of 23.2%. The low effective rate was primarily
attributable to the favorable settlement of a Federal income tax claim that the
Company has had outstanding for several years. As a result of the settlement,
the Company's tax provision was reduced by $806,000 and the Company recorded
interest income of $983,000. The higher than anticipated effective tax rate in
1996 was principally the result of the $.5 million of costs associated with a
change of control of the Company which are not deductible. The income tax
benefit reflected in 1995 resulted from the reversal of a valuation allowance
for the net deferred income tax asset associated with the Company's tax loss
carryforwards. This was based on a review of expected future earnings which
concluded that it was more likely than not that the Company would fully realize
the benefits of the net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food products and other
supplies. The Company is able to operate with a substantial working capital
deficit because (i) restaurant operations are conducted on a cash basis, (ii)
rapid turnover allows a limited investment in inventories, and (iii) cash from
sales is usually received before related accounts for food, supplies and
payroll become due. The Company's cash requirements arise primarily from the
need to finance the opening and equipping of new restaurants, for ongoing
capital reinvestment in its existing restaurants, for the acquisition of
existing Burger King restaurants, and for debt service.
The Company's 1997 operations generated approximately $19.9 million in cash,
compared to $14.3 million during 1996 and $16.7 million in 1995.
Capital expenditures represent a major investment of cash for the Company,
and totaled $96.7 million, $23.2 million and $8.5 million, 1997, 1996 and 1995,
respectively. The 1997 capital expenditures included $78.5 million for the
acquisition of 93 existing Burger King restaurants (including real estate for 3
of the restaurants), as well as $9.7 million for the construction of 15 new
restaurants. The balance of the 1997 capital expenditures went toward
restaurant capital maintenance and remodeling. During 1997, the Company
completed 23 remodels in conjunction with the renewal of franchises that were
scheduled to expire between 1997 and 1999. During the past three years, the
Company has completed 68 remodels.
In 1998, the Company anticipates capital expenditures of approximately $35
million not including the cost of any acquisitions that the Company may make.
These amounts include approximately $15 million for construction of new units
(including certain real estate) and $8 million for ongoing reinvestment and
remodeling of its existing restaurants. The Company's 1998 reinvestment and
remodeling spending is anticipated to be somewhat higher than historical levels
as the Company invests in the 1997 acquired units to bring them up to the
Company's operating standards. In 1998, the Company also plans to upgrade its
restaurant point-of-sale and in-restaurant support systems, and has also
undertaken an upgrade of its headquarters information and decision support
systems. The total cost of these systems projects is estimated to be $11 to 12
million over the next 12 to 18 months.
On March 27,1997, Madison Dearborn Capital Partners acquired 283,334 shares,
and senior management acquired 10,810 shares, of Carrols Holdings which
resulted in the Company receiving net proceeds of $30.4 million. On May 12,
1997 the Company also entered into a new credit agreement which established a
$25 million Revolving Loan Facility and a $127 million Advance Loan Facility
which is available to fund the cost of acquisitions. During 1997, the Company
used the net proceeds from the sale of stock along with borrowings under its
credit facility to fund the acquisition of 93 Burger King restaurants totaling
$79.6 million.
The sale and leaseback of 15 restaurant properties in December 1997
generated $13 million, the proceeds of which were used to reduce amounts which
had been borrowed under the Company's credit agreement. In 1997, the Company
also paid dividends to Holdings totaling $4.3 million for the payment by
Holdings of dividends on its preferred stock and for the redemption of $3.6
million of the preferred stock. The balance of Holdings' preferred stock is
scheduled for mandatory redemption with payments of $1.8 million in December
1998 and December 1999.
At December 31, 1997, the Company had $21.5 million available under its
Revolving Loan facility after reserving $1.0 million for a letter of credit
guaranteed by the facility, and $64.3 million available under its Advance Loan
Facility. While interest is accrued monthly, payments of approximately $6.2
million for interest on the Company's 11.50% Senior Notes are made each
February 15th and August 15th thus creating semi-annual cash needs. The
Company believes that its operations and capital resources will provide
sufficient cash availability to cover its working capital, capital
expenditures, planned development and debt service requirements for the
foreseeable future.
The Company's loan agreements impose limitations on certain restricted
payments, which include dividends and preferred stock redemptions. As a result
of the 1997 investments by Madison Dearborn and senior management, the Company
has sufficient unrestricted amounts to enable it to make the required payments
to satisfy preferred stock dividend and redemption requirements.
<PAGE>
INFLATION
The inflationary factors which have historically affected the Company's
results of operations include increases in food and paper costs, labor and
other operating expenses. Wages paid in the Company' s restaurants are
impacted by changes in the Federal or state minimum hourly wage rate.
Accordingly, changes in the Federal or states minimum hourly wage rate directly
affect the Company's labor cost. The Company and the restaurant industry
typically attempt to offset the effect of inflation, at least in part, through
periodic menu price increases and various cost reduction programs. However, no
assurance can be given that the Company will be able to offset such
inflationary cost increases in the future.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company is addressing
this risk to the availability and integrity of financial systems and the
reliability of operational systems. As discussed above, the Company has
projects underway for the installation of new point-of-sale systems in its
restaurants and for the replacement of a substantial portion of its corporate
financial and decision support systems.
The primary purpose of these projects is designed to improve the efficiency
of the Company's restaurant and support operations, however, they will also
provide the additional benefit of making its systems Year 2000 compliant. The
Company is installing commercially available point-of-sale hardware and
software, and has purchased a suite of financial software applications, all of
which are designed and warranted to be Year 2000 compliant.
ITEM 7A. QUANTITATIVE AND QUALTITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
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
On August 12, 1997 the registrant dismissed the accounting firm of Arthur
Andersen LLP ("Arthur Andersen") as their principal audit accountant and has
engaged the services of PricewaterhouseCoopers, L.L.P as their principal
accountants.
Arthur Andersen were the principal audit accountants during the year ended
December 31, 1996 and their report on the financial statements for the period
ended December 31, 1996 did not contain an adverse opinion or disclaimer of
opinion nor were financial statement opinions qualified or modified as to
uncertainty, as to audit scope or as to accounting principles.
There have been no disagreements on any matters of accounting principles or
practices, financial statement disclosure or auditing scope of procedure with
the accounting firm of Arthur Andersen for the most recent year or any
subsequent interim period.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Alan Vituli
56 Chairman of the Board and Chief Executive Officer
Daniel T. Accordino 47 President, Chief Operating Officer and Director
Paul R. Flanders 41 Vice President-Finance and Treasurer
Timothy J. LaLonde 41 Vice President-Controller
Richard H. Liem 44 Vice President-Financial Operations
Joseph A. Zirkman 37 Vice President, General Counsel and Secretary
Steven Barnes 49 Vice President-Regional Director
Michael A. Biviano 41 Vice President-Regional Director
Joseph W. Hoffman 35 Regional Director
David R. Smith 48 Vice President-Regional Director
James E. Tunnessen 43 Vice President-Regional Director
Richard L. Verity 41 Vice President-Regional Director
Benjamin D. Chereskin 39 Director
James M. Conlon 30 Director
David J. Mathies, Jr. 50 Director
C. Ronald Petty 52 Director
Robin P. Selati 32 Director
Clayton E. Wilhite 52 Director
</TABLE>
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. 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. From 1966 until 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 also 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. 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 since 1973.
Mr. Flanders has been Vice President-Finance and Treasurer since April 1997.
Prior to joining Carrols he was Vice President-Corporate Controller of Fay's
Incorporated from 1989 to 1997, and Vice President-Controller for Computer
Consoles, Inc. from 1982 to 1989. Mr. Flanders was also associated with the
accounting firm of Touche Ross & Co. from 1977 to 1982.
Mr. LaLonde has been Vice President-Controller since July 1997. Prior to
joining Carrols he was a Controller at Fay's Incorporated from 1992 to 1997.
Prior to that he was a Senior Audit Manager with the accounting firm of
Deloitte & Touche LLP having been associated with that firm beginning in 1978.
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 beginning in 1983.
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 beginning in 1986.
Mr. Barnes is Vice President-Regional Director of Carrols. He has been a
Vice President since February 1997 and a Regional Director of Operations since
1993. Prior to joining Carrols, Mr. Barnes was Vice President-Operations of
Snapps Restaurants, Inc. from 1989 to 1993.
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 since 1973.
Mr. Hoffman has been Regional Director of Carrols since July 1997. Mr.
Hoffman joined the Company in 1993 in connection with one of the Company's
acquisitions and served in the capacity of District Supervisor from 1993 to
1997. Prior to 1993 he was in a similar capacity with Community Food Service,
Inc.
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 since
1972.
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 since 1972.
Mr. Verity has been Vice President-Regional Director since August 1997 when
he joined the Company in conjunction with the Company's acquisition of a group
of 63 restaurants. Mr. Verity was previously with Resser Management Corp. from
1986 to 1997 and held the position of Executive Vice President.
Mr. Chereskin has served as a Director since March 1997. He has been a Vice
President of Madison Dearborn Capital Partners since co-founding the firm in
1993. Prior to that Mr. Chereskin was with First Chicago Venture Capital for
nine years. Mr. Chereskin also serves on the Board of Directors of Beverages &
More, Inc., The Cornerstone Investments Group, Inc., Tuesday Morning
Corporation and National Wholesale Liquidators, Inc.
Mr. Conlon has served as a Director since February 1998. Since 1992, he has
held the position of Managing Director-Merchant Banking, USA for Dilmun
Investments, Inc. From 1989 to 1992 Mr. Conlon was a securities analyst for
TIAA-CREF.
Mr. Mathies has served as a Director of Carrols since April 1996. Since
1988, Mr. Mathies has been President of Dilmun Investments, Inc. From 1971 to
1988, he was employed by Mellon Bank, where he was Head of their Pension
Management Group, providing investment management services to middle market
clients.
Mr. Petty has served as a Director of Carrols since July 1997. Mr. Petty
has been the Chairman, Chief Executive and President of Peter Piper, Inc. since
November 1996. Prior to joining Peter Piper, Mr. Petty was the Executive Vice
President of Flagstar Companies, Inc. and President and Chief Executive Officer
of Denny's. Before that he served as President and Chief Executive of Miami
Subs Corporation and held a variety of senior positions with Burger King
Corporation including President and Chief Operating Officer of its U.S. and
International division.
Mr. Selati has served as a Director since March 1997. Since 1993, he has
been associated with Madison Dearborn Capital Partners. Prior to 1993 he was
associated with Alex Brown & Sons Incorporated in the consumer/retail
investment banking group. Mr. Selati also serves as a Director on the Board of
Directors of Peter Piper, Inc., Tuesday Morning Corporation, and National
Wholesale Liquidators, Inc.
Mr. Wilhite has served as a Director since July 1997. Since 1996 he has
been the Chairman of Thurloe Holdings, L.L.C.. Prior to 1996 he was with
D'Arcy Masius Benton & Bowles, Inc. (DMB&B) having served as its Vice Chairman
from 1995 to 1996, President of DMB&B/North America from 1988 to 1995, and as
Chairman and Managing Director of DMB&B/St. Louis from 1985 to 1988. Mr.
Wilhite also serves as a Director on the Board of Directors of Pollo Tropical,
Inc.
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
Directors of Carrols Corporation also serve as Directors for Carrols Holdings
Corporation.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information for the fiscal years
ended December 31, 1997, 1996 and 1995 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, 1997 and whose annual
compensation exceeded $100,000. No other executive officers received total
compensation in excess of $100,000 in 1997. Stock option data refers to the
stock options of Carrols Holdings Corporation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
Annual Compensation Securities
(a) Underlying
<S> <C> <C> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS.(#)
Alan Vituli 1997 $392,758 $ - 72,830
Chairman of the Board and 1996 363,160 128,210 -
Chief Executive Officer 1995 352,632 245,000 20,000
Daniel T. Accordino 1997 288,386 - 31,479
President, Chief Operating 1996 258,943 91,778 -
Officer and Director 1995 250,751 150,322 10,000
Joseph A. Zirkman 1997 120,436 - 1,118
Vice President, General 1996 115,288 40,934 -
Counsel and Secretary 1995 105,249 41,995 3,000
Paul R. Flanders 1997 105,925 - 1,500
Vice-President, Finance 1996 - - -
and Treasurer 1995 - - -
Richard H. Liem 1997 103,160 - 500
Vice President, 1996 94,750 30,288 -
Financial Operations 1995 93,092 37,153 3,000
</TABLE>
(d) The Company provides bonus compensation to Executive Officers based on an
individual's achievement of certain specified objectives and the Company's
achievement of specified increases in shareholder value.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(c)
Number of of Total Options
Securities Granted to Potential Realizable Value at
Underlying Employees Exercise Assumed Rates of Stock
Options Price per Expiration APPRECIATION FOR OPTION TERM
NAME GRANTED IN 1997 SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Alan Vituli (a)
72,830 61.1% $101.76 3/26/2007 $5,429,590 $13,035,600
Daniel T. Accordino (a) 31,479 26.4% 101.76 3/26/2007 2,346,808 5,634,322
Joseph A. Zirkman (a) 368 .3% 101.76 3/26/2007 27,435 65,867
(b) 750 .6% 110.00 6/9/2007 51,884 131,484
Paul R. Flanders (b)
1,500 1.3% 110.00 6/9/2007 103,768 262,968
Richard H. Liem (b) 500 .4% 110.00 6/9/2007 34,589 87,656
</TABLE>
(e) Stock option grants to Messrs. Vituli, Accordino and Zirkman
include 29,480, 2,579 and 368 shares, respectively, granted
at the time of the MD Investment under the Vituli Non-Plan
Option Agreement, the Accordino Non-Plan Option Agreement and
the Zirkman Non-Plan Option Agreement, respectively. At the
time of the MD Investment, stock option grants under the 1996
Long-Term Incentive Plan were also made for 43,350 shares to
the Vituli Family Trust in exchange for options that it was
holding. Mr. Accordino was also granted options for 28,900
shares under the 1996 Long-Term Incentive Plan. These plans,
as well as the terms of the aforementioned grants, are
described in detail separately in this report.
(f) Stock option grants to Messrs. Zirkman, Flanders and Liem include
750, 1,500, and 500 shares, respectively, granted under the 1996
Long-Term Incentive Plan. These options become exercisable at the
rate of 25% per year beginning on December 31, 1997.
(g) Potential realizable value is based on an assumption that the price
of Holdings' common shares appreciate at 5% and 10% annually
(compounded) from the date of grant until the end of the ten year
option term. These calculations are based on requirements
promulgated by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation of the stock
price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, no executive officer of the
Company served as a director of or member of a compensation
committee of any entity for which any of the persons serving on
the Board of Directors of the Company or on the Compensation
Committee of the Board of Directors (the "Compensation
Committee") is an executive officer. The Compensation Committee
is comprised of Messrs. Chereskin, Mathies and Wilhite.
BOARD OF DIRECTORS
DIRECTORS COMPENSATION. Directors who are Company employees
do not receive any additional compensation for serving as
directors. Directors who are not employees of the Company
receive a fee of $15,000 per annum. 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.
LIABILITY LIMITATION. 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.
INDEMNIFICATION. 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.
DESCRIPTION OF PLANS
EMPLOYEE SAVINGS PLAN. The Company offers its salaried
employees the option to participate in the Carrols Corporation
Corporate Employee Savings Plan (the "Savings Plan") which is
qualified as a profit-sharing 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.
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.
1996 LONG-TERM INCENTIVE PLAN. In connection with the MD
Closing, Holdings adopted the Carrols Holdings Corporation 1996
Long-Term Incentive Plan (the "1996 Plan") pursuant to which the
Company may grant "Incentive Stock Options" (as defined under
Section 422 of the Internal Revenue Code), nonqualified stock
options, stock appreciation rights, restricted stock,
performance shares and performance units and other stock-based
awards (the foregoing collectively "Awards") to certain officers
and employees of the Company and its subsidiaries. The 1996
Plan replaced a prior long-term incentive plan which was adopted
December 26, 1996 (the "Prior Incentive Plan"). The 1996 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 1996 Plan permits the Company's Compensation Committee to
grant, from time to time, options to purchase an aggregate of up
to 106,250 shares of Common Stock. The vesting periods for
awards and the expiration dates for exercisability of Awards
granted under the 1996 Plan are determined by the Compensation
Committee; however, the exercise period for an option granted
under the 1996 Plan may not exceed ten years from the date of
the grant. The Compensation Committee is authorized to grant
options under the 1996 Plan to all eligible employees of the
Company and its subsidiaries, including executive officers and
directors (other than outside Directors and members of the
Compensation Committee).
The option exercise price per share of any option granted
under the 1996 Plan is determined by the Compensation Committee;
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. Payment of such option exercise price shall
be made (i) in cash, (ii) by delivering shares of Common Stock
already owned by the holder of such options, (iii) by delivering
a promissory note payable over a three year period and bearing
interest at the rate provided under Section 1274(d) of the
Internal Revenue Code of 1986, as amended from time to time or
(iv) by a combination of any of the foregoing, in accordance
with the terms of the 1996 Plan, the applicable stock option
agreement and any applicable guidelines of the Compensation
Committee in effect at the time.
Pursuant to the 1996 Plan, in the event of a Change of
Control (as defined in the 1996 Plan), any or all Stock Options
(as defined in the 1996 Plan) and Stock Appreciation Rights (as
defined in the 1996 Plan) still outstanding shall,
notwithstanding any contrary terms of the Award Agreement (as
defined in the 1996 Plan), accelerate and become exercisable in
full at least ten days prior to (and shall expire on) the
consummation of such Change of Control, on such conditions as
the Compensation Committee shall determine, unless the successor
corporation assumes the outstanding Stock Options or Stock
Appreciation Rights or substitutes substantially equivalent
options.
Pursuant to the 1996 Plan, in the event that the holder of an
option issued pursuant to the 1996 Plan elects to pay the
exercise price of such option by delivering a promissory note,
such promissory note may be either (i) unsecured and fully
recourse against the holder of such option or (ii) nonrecourse
but secured by the shares of Common Stock being purchased by
such exercise and by other assets having a fair market value
equal to not less than forty percent of the exercise price of
such option and, in either event, such note shall mature on the
fifth anniversary of the date thereof.
In addition, pursuant to the 1996 Plan, in the event of a
Change of Control (as defined in the 1996 Plan) during the term
of employment with Carrols of a holder of an option issued under
the 1996 Plan, the portion of any such option that is not vested
shall vest and become exercisable in full on the date of such
Change of Control. In addition, as soon as practicable but in
no event later than thirty days prior to the occurrence of a
Change of Control, the Compensation Committee shall notify any
holder of an option granted under the 1996 Plan of such Change
of Control. Further, upon a Change of Control that qualifies as
an Approved Sale (as defined in the 1996 Plan) in which the
outstanding Common Stock is converted or exchanged for or
becomes a right to receive any cash, property or securities
other than Illiquid Consideration (as defined in the 1996 Plan),
(i) each option granted under the 1996 Plan shall become
exercisable solely for the amount of such cash, property or
securities that the holder of such option would have been
entitled to had such option been exercised immediately prior to
such event (ii) the holder of such option shall be given an
opportunity to either (A) exercise such option prior to the
consummation of the Approved Sale and participate in such sale
as a holder of Common Stock or (B) upon consummation of the
Approved Sale, receive in exchange for such option consideration
equal to the amount determined by multiplying (1) the same
amount of consideration per share of Common Stock received by
the holders of Common Stock in connection with the Approved Sale
less the exercise price per share of Common Stock of such option
to acquire Common Stock by (2) the number of shares of Common
Stock represented by such option; and (iii) to the extent such
option is not exercised prior to or simultaneous with such
Approved Sale, any such option shall be canceled.
<PAGE>
DESCRIPTION OF EMPLOYMENT AGREEMENTS
Vituli Employment Agreement. On March 27, 1997 in connection
with the MD Closing, the Company entered into a Second Amended
and Restated Employment Agreement (the "Vituli Employment
Agreement") with Alan Vituli, which amended and restated that
certain Amended and Restated Employment Agreement dated April 3,
1996 between the Company and Mr. Vituli. Pursuant to the Vituli
Employment Agreement, Mr. Vituli will continue to serve as
Chairman of the Board and Chief Executive Officer of the
Company. The Vituli Employment Agreement shall be for an
initial term of four years, commencing on March 27, 1997 and
will be subject to automatic renewals for successive one-year
terms unless either the Company or Mr. Vituli elects not to
renew by giving written notice to the other at least 90 days
before a scheduled expiration date. Pursuant to the Vituli
Employment Agreement, Mr. Vituli will receive a base salary of
$400,000 for the first year of the term, which amount increases
annually by at least $25,000 subject to additional increases
that may be authorized by the Compensation Committee. Pursuant
to the Vituli Employment Agreement, Mr. Vituli will participate
in the Executive Bonus Plan of the Company and any stock option
plan of the Company applicable to executive employees. The
Vituli Employment Agreement also will require that the Company
is responsible for maintaining the premium payments on a split-
dollar life insurance policy on the life of Mr. Vituli providing
a death benefit of $1.5 million payable to an irrevocable trust
designated by Mr. Vituli.
ACCORDINO EMPLOYMENT AGREEMENT. On March 27, 1997 in
connection with the MD Closing, the Company entered into a
Second Amended and Restated Employment Agreement (the "Accordino
Employment Agreement") with Daniel T. Accordino, which amended
and restated that certain Amended and Restated Employment
Agreement dated April 3, 1996 between the Company and Mr.
Accordino. Pursuant to the Accordino Employment Agreement, Mr.
Accordino will continue to serve as President and Chief
Operating Officer of the company. The Accordino Employment
Agreement shall be for an initial term of four years, commencing
on March 27, 1997 and will be subject to automatic renewal for
successive one-year terms unless either the Company or Mr.
Accordino elects not to renew by giving written notice to the
other at least 90 days before a scheduled expiration date.
Pursuant to the Accordino Employment Agreement, Mr. Accordino
will receive a base salary of $300,000 for the first year of the
term, which amount increases annually by at least $20,000
subject to additional increases that may be authorized by the
Compensation Committee. Pursuant to the Accordino Employment
Agreement, Mr. Accordino will participate in the Executive Bonus
Plan of the Company and any stock option plan of the Company
applicable to executive employees. The Accordino Employment
Agreement also will require that the Company is responsible for
maintaining the premium payments on a split-dollar life
insurance policy on the life of Mr. Accordino providing a death
benefit of $1 million payable to an irrevocable trust designated
by Mr. Accordino.
OPTION AGREEMENTS PURSUANT TO HOLDINGS STOCK OPTION PLANS
VITULI PLAN OPTION AGREEMENT. On December 30, 1996 (during
the Company's 1997 fiscal year), pursuant to the Atlantic
Transaction, Holdings granted to Alan Vituli, under the 1996
Plan, an option (the "Vituli Option") to purchase 43,350 shares
of Common Stock. The Vituli Option (i) was immediately
exercisable with regard to 15,300 shares of Common Stock at an
exercise price of $110.00 per share and (ii) was to become
exercisable on June 1, 1997 with regard to (a) 15,300 shares of
Common Stock at an exercise price of $130.00 per share and
(b) 12,750 shares of Common Stock at an exercise price of
$140.00 per share. On January 22, 1997, Mr. Vituli contributed
these options to the Vituli Family Trust for the benefit of his
children.
In connection with the MD Closing, Holdings granted an option
to purchase 43,350 shares of Common Stock under the 1996 Plan in
exchange for the options held by the Vituli Family Trust (the
"New Vituli Plan Option"). The Vituli Family Trust agreed to
reduce the exercise price to $101.7646 per share. The New
Vituli Plan Option shall (i) have a term of ten years from the
date of grant, shall (ii) become exercisable on the date of
grant with regard to 15,300 shares of Common Stock and
(iii) shall become exercisable (a) on December 31, 1997 with
regard to 5,610 shares of Common Stock, (b) on December 31, 1998
with regard to 5,610 shares of Common Stock, (c) on December 31,
1999 with regard to 5,610 shares of Common Stock and (d) on
December 31, 2000 with regard to 11,220 shares of Common Stock.
ACCORDINO PLAN OPTION AGREEMENT. On December 30, 1996 (during
the Company's 1997 fiscal year), pursuant to the Atlantic
Transaction, Holdings granted to Daniel T. Accordino, under the
1996 Plan, an option (the "Accordino Option") to purchase 28,900
shares of Common Stock. The Accordino Option (i) was
immediately exercisable with regard to 10,200 shares of Common
Stock at an exercise price of $110.00 per share and (ii) was to
becomes exercisable on December 31, 1997 with regard to
(a) 10,200 shares of Common Stock at an exercise price of
$130.00 per share and (b) 8,500 shares of Common Stock at an
exercise price of $140.00 per share.
In connection with the MD Closing, the Accordino Option was
canceled and Holdings granted to Mr. Accordino, under the 1996
Plan, an option (the "New Accordino Plan Option") to purchase
28,900 shares of Common Stock at an exercise price of $101.7646
per share. The New Accordino Plan Option shall (i) have a term
of ten years from the date of grant and shall (ii) become
exercisable on the date of grant with regard to 10,200 shares of
Common Stock and (iii) become exercisable (a) on December 31,
1997 with regard to 3,740 shares of Common Stock, (b) on
December 31, 1998 with regard to 3,740 shares of Common Stock,
(c) on December 31, 1999 with regard to 3,740 shares of Common
Stock and (d) on December 31, 2000 with regard to 7,480 shares
of Common Stock.
OTHER OPTION AGREEMENTS
VITULI NON-PLAN OPTION AGREEMENT. In connection with the MD
Closing, Holdings granted to Mr. Vituli a nonqualified stock
option (the "Vituli Non-Plan Option") to purchase 29,480 shares
of Common Stock at an exercise price of $101.7646. The Vituli
Non-Plan Option shall have a term of ten years from the date of
grant and shall become exercisable in five equal parts on the
five consecutive anniversaries of the date of grant. The Vituli
Non-Plan Option will have substantially the same terms as
options issued under the 1996 Plan with respect to (i) the
method of payment of the exercise price of the Vituli Non-Plan
Option and (ii) the effect of a Change in Control (as defined in
the New 1996 Plan) on the Vituli Non-Plan Option.
ACCORDINO NON-PLAN OPTION AGREEMENT. In connection with the
MD Closing, Holdings granted to Mr. Accordino a nonqualified
stock option (the "Accordino Non-Plan Option") to purchase 2,579
shares of Common Stock at an exercise price of $101.7646. The
Accordino Non-Plan Option shall have a term of ten years from
the date of grant and shall become exercisable in five equal
parts on the five consecutive anniversaries of the date of
grant. The Accordino Non-Plan Option will have substantially
the same terms as the Vituli Non-Plan Option.
ZIRKMAN NON-PLAN OPTION AGREEMENT. In connection with the
MD Closing, Holdings granted to Joseph A. Zirkman a nonqualified
stock option (the "Zirkman Non-Plan Option") to purchase 368
shares of Common Stock at an exercise price of $101.7646. The
Zirkman Non-Plan Option shall have a term of ten years from the
date of grant and shall become exercisable in five substantially
equal parts on the five consecutive anniversaries of the date of
grant. The Zirkman Non-Plan Option will have substantially the
same terms as the Vituli Non-Plan Option.
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, 1998, by (i) all persons
known by the Company to be the beneficial owners of more than 5%
of the shares of such voting common stock, (ii) each Director of
the Company who owns shares of such voting common stock, (iii)
each executive officer of the Company included in the Summary
Compensation Table above and (iv) all executive officers and
Directors of the Company as a group.
SHARES BENEFICIALLY
OWNED (a)
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
<S> <C> <C>
STOCKHOLDERS OF CARROLS CORPORATION:
Carrols Holdings Corporation
968 James Street 10 100%
Syracuse, New
York 13203
STOCKHOLDERS OF CARROLS HOLDINGS CORPORATION:
Atlantic Restaurants, Inc.
566,667 47.8%
Madison Dearborn Capital Partners, L.P. 283,333 23.9%
Madison Dearborn Capital Partners, L.P. II 283,334 23.9%
EXECUTIVE OFFICERS AND DIRECTORS:
Alan Vituli (b) 36,633 3.1%
Daniel T. Accordino 15,316 1.3%
Joseph A. Zirkman 385 -
--
Paul R. Flanders 375 -
--
Richard H. Liem 125 -
--
Directors and executive officers of Carrols
as a group 52,959 4.5%
(12 persons)
</TABLE>
(h) 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. 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. The number of
shares shown in the table includes stock options which are
currently exercisable or exercisable within 60 days to
purchase: 26,806 shares held by Mr. Vituli; 14,456 shares
held by Mr. Accordino; 262 shares held by Mr. Zirkman; 375
shares held by Mr. Flanders; and, 125 shares held by Mr.
Liem.
(i) Includes 20,910 vested stock options contributed to and
held by the Vituli Family Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8K
CARROLS CORPORATION AND SUBSIDIARIES:
<TABLE>
<CAPTION>
(a) (a) FINANCIAL STATEMENTS
<S> <C>
PAGE
Opinion of Independent Certified Public Accountants
F-1 to F-2
Financial Statements:
Consolidated Balance Sheets
F-3 to F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Stockholders' Equity (Deficit)
F-6
Consolidated Statements of Cash Flows
F-7 to F-8
Notes to Consolidated Financial Statements
F-9 to F-18
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE DESCRIPTION PAGE
II Valuation and Qualifying Accounts F-19
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, 1997.
<PAGE>
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
EXHIBIT NUMBER INCORPORATED BY
DESCRIPTION REFERENCE
<S> <C> <C>
2.1 Purchase and Sale Agreement dated Exhibit 2.1 to the Company's 1994 Annual
February 10, 1994 between Carrols Corporation, as Purchase, Report on Form 10-K
and KIN Restaurant, Inc., as Seller
2.2 Purchase and Sale Agreement dated April 18, 1994 among Exhibit 2.2 to the Company's 1994 Annual
Carrols Corporation, as Purchaser, and Riva Development Report on Form 10-K
Corporation and John Riva, as Seller
2.3 Purchase and Sale Agreement dated May 31, 1994 among Exhibit 2.3 to the Company's 1994 Annual
Carrols Corporation, as Purchaser, and Michael P. Jones and Report on Form 10-K
Donald M. Cepiel, Sr., and the corporations listed therein
2.4 Securities Purchase Agreement dated as of March 6, 1996, by Exhibit 2.1 to the Company's current report on
and among Atlantic Restaurants, Inc., Carrols Holdings Form 8-K filed March 21, 1996
Corporation, Carrols Corporation and certain Selling
Shareholders
2.5 Deferred Securities Purchase Agreement dated as of March 6, Exhibit 2.2 to the Company's current report on
1996 by and among Atlantic Restaurants, Inc., Alan Vituli Form 8-K filed March 21, 1996
and Pryor, Cashman, Sherman & Flynn
3.1 Restated Certificate of Incorporation Exhibit 3.(3)(a) to the Company's 1987 Annual
Report on Form 10-K
3.2 Certificate of Amendment of the Restated Certificate of Exhibit 3.2 to the Company's 1996 Annual
Incorporation Report on Form 10-K
3.3 Restated By-laws Exhibit 3.(3)(b) to the Company's 1987 Annual
Report on Form 10-K
4.1 Indenture dated as of August 17, 1993 among Holdings, the Exhibit 4.1 to Amendment No. 3 to the
Company and Marine Midland Bank, N.A. Company's Registration Statement on Form S-1
(Number 3365100) filed August 10, 1993
<PAGE>
10.1 First Amended and Restated Loan Security and Preferred Exhibit 10.1 to the Company's 1987 Annual
Stock Purchase Agreement by and among Carrols Merger Report on Form 10-K
Corporation, Carrols Holdings Corporation and Heller
Financial, Inc. dated as of December 22, 1986
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER INCORPORATED BY
DESCRIPTION REFERENCE
<S> <C> <C>
10.2 Second Amended and Restated Loan and Security Agreement by Exhibit 10.15 to the Company's 1992 Annual
and among Carrols Corporation, Carrols Holdings Corporation Report on Form 10-K
and Heller Financial, Inc. dated as of September 15, 1992
10.3 Senior Subordinated Credit Agreement dated as of September Exhibit 10.17 to the Company's 1992 Annual
15, 1992 between Carrols Corporation, Carrols Holdings Report on Form 10-K
Corporation and World Subordinated Debt Partners, L.P.
10.4 Third Amended and Restated Loan and Security Agreement by, Exhibit 10.19 to Amendment No. 2 to the
and among Carrols Corporation, Carrols Holdings Corporation Company's Form S-1 Registration Statement
and Heller Financial, Inc. dated as of August 9, 1993 filed August 4, 1993
10.5 First Amendment to Third Amended and Restated Loan and The Company's 1993 Annual Report on Form 10-K
Security Agreement by and among Carrols Corporation,
Carrols Holdings Corporation and Heller Financial, Inc.
dated as of October 27, 1993
10.6 Second Amendment to Third Amended and Restated Loan and The Company's 1993 Annual Report on Form 10-K
Security Agreement by and among Carrols Corporation,
Carrols Holdings Corporation and Heller Financial, Inc.
dated as of March 11, 1994
10.7 Third Amendment to Third Amended and Restated Loan and Exhibit 10.9 to the Company's 1994 Annual
Security Agreement among Carrols Holdings Corporation, Report on Form 10-K
Carrols Corporation and Heller Financial, Inc. dated as of
May 2, 1994
10.8 Fourth Amendment to Third Amended and Restated Loan and Exhibit 10.10 to the Company's 1994 Annual
Security Agreement among Carrols Holdings Corporation, Report on Form 10-K
Carrols Corporation and Heller Financial, Inc. dated as of
December 20, 1994
10.9 Supply Agreement between ProSource Services Corporation and Exhibit 10.11 to the Company's 1994 Annual
Carrols Corporation dated April 1, 1994 Report on Form 10-K
10.10 Fifth Amendment to Third Amended and Restated Loan and Exhibit 10.10 to the Company's 1996 Annual
Security Agreement among Carrols Holdings Corporation, Report on Form 10-K
Carrols Corporation and Heller Financing, Inc. dated as of
February 22, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER INCORPORATED BY
DESCRIPTION REFERENCE
<S> <C> <C>
10.11 Sixth Amendment to Third Amended and Restated Loan and Exhibit 10.11 to the Company's 1996 Annual
Security Agreement among Carrols Holdings Corporation, Report on Form 10-K
Carrols Corporation and Heller Financing, Inc. dated as of
February 14, 1996
10.12 Stock Purchase Agreement dated as of February 25, 1997 by Exhibit 10.12 to the Company's 1996 Annual
and among Madison Dearborn Capital Partners, L.P., Madison Report on
Dearborn Capital Partners II, L.P., Atlantic Restaurants, Form 10-K
Inc. and Carrols Holdings Corporation
10.13 1994 Regional Directors Bonus Plan Exhibit 10.19 to the Company's 1994 Annual
Report on Form 10-K
10.14 Carrols Corporation Corporate Employee's Savings Plan dated Exhibit 10.21 to the Company's 1994 Annual
December 31, 1994 Report on Form 10-K
10.15 Commitment Letter from Texas Commerce Bank National Exhibit 10.15 to the Company's 1996 Annual
Association and Chase Securities Inc. and accepted and Report on Form 10-K
agreed to by Carrols Corporation as of January 8, 1997
10.16 Escrow Agreement dated as of March 6, 1996 by and among Exhibit 2.3 to the Company's Current Report on
Atlantic Restaurants, Inc., Bahrain International Bank Form 8-K filed March 21, 1996
(E.C.), Carrols Holdings Corporation, Carrols Corporation,
certain selling shareholders and Baer Marks & Upham L.L.P.
10.17 Seventh Amendment to Third Amended and Restated Loan and Exhibit 10.27 to the Company's current report
Security Agreement by and among Heller Financial, Inc., on Form 8-K filed April 10, 1996
Carrols Holdings Corporation and Carrols Corporation dated
as of April 3, 1996
10.18 Amended and Restated Employment Agreement dated as of Exhibit 10.23 to the Company's Current Report
April 3, 1996 by and between Carrols Corporation and Alan on Form 8-K filed on April 10, 1996
Vituli
10.19 Amended and Restated Employment Agreement dated as of Exhibit 10.24 to the Company's Current Report
April 3, 1996 by and between Carrols Corporation and Daniel on Form 8-K filed on April 10, 1996
T. Accordino
10.20 Carrols Corporation 1996 Long-Term Incentive Plan Exhibit 10.20 to the Company's 1996 Annual
Report on Form 10-K
10.21 Stock Option Agreement dated as of December 30, 1996 by and Exhibit 10.21 to the Company's 1996 Annual
between Carrols Corporation and Alan Vituli Report on Form 10-K
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
<PAGE>
EXHIBIT NUMBER INCORPORATED BY
DESCRIPTION REFERENCE
<S> <C> <C>
10.22 Stock Option Agreement dated as of December 30, 1996 by and Exhibit 10.22 to the Company's 1996 Annual
between Carrols Corporation and Daniel T. Accordino Report on Form 10-K
10.23 Form of Stockholders Agreement by and among Carrols Exhibit 10.23 to the Company's 1996 Annual
Holdings Corporation, Madison Dearborn Capital Partners, Report on Form 10-K
L.P., Madison Dearborn Capital Partners II, L.P., Atlantic
Restaurants, Inc., Alan Vituli, Daniel T. Accordino and
Joseph A. Zirkman
10.24 Form of Registration Agreement by and among Carrols Exhibit 10.24 to the Company's 1996 Annual
Holdings Corporation, Atlantic Restaurants, Inc., Madison Report on Form 10-K
Dearborn Capital Partners, L.P., Madison Dearborn Capital
Partners II, L.P., Alan Vituli, Daniel T. Accordino and
Joseph A. Zirkman
10.25 Form of Second Amended and Restated Employment Agreement by Exhibit 10.25 to the Company's 1996 Annual
and between Carrols Corporation and Alan Vituli Report on Form 10-K
10.26 Form of Second Amended and Restated Employment Agreement by Exhibit 10.26 to the Company's 1996 Annual
and between Carrols Corporation and Daniel T. Accordino Report on Form 10-K
10.27 Form of Carrols Holdings Corporation 1996 Long-Term Exhibit 10.27 to the Company's 1996 Annual
Incentive Plan Report on Form 10-K
10.28 Form of Stock Option Agreement by and between Carrols Exhibit 10.28 to the Company's 1996 Annual
Holdings Corporation and Alan Vituli Report on Form 10-K
10.29 Form of Stock Option Agreement by and between Carrols Exhibit 10.29 to the Company's 1996 Annual
Holdings Corporation and Daniel T. Accordino Report on Form 10-K
10.30 Form of Unvested Stock Option Agreement by and between Exhibit 10.30 to the Company's 1996 Annual
Carrols Holdings Corporation and Alan Vituli Report on Form 10-K
10.31 Form of Unvested Stock Option Agreement by and between Exhibit 10.31 to the Company's 1996 Annual
Carrols Holdings Corporation and Daniel T. Accordino Report on Form 10-K
10.32 Form of Unvested Stock Option Agreement by and between Exhibit 10.32 to the Company's 1996 Annual
Carrols Holdings Corporation and Joseph A. Zirkman Report on Form 10-K
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
<PAGE>
EXHIBIT NUMBER INCORPORATED BY
DESCRIPTION REFERENCE
<S> <C> <C>
10.33 First Amendment to the Stock Purchase Agreement Exhibit 10.38 to the Company's current report on Form 8-
dated March 27, 1997 by and among Carrols K filed March 27, 1997
Holdings Corporation, Atlantic Restaurants, Inc.,
Madison Dearborn Capital Partners, L.P. and
Madison Dearborn Capital Partners II, L.P.
10.34 Purchase and Sale Agreement dated as of January Exhibit 10.39 to the Company's current report on Form 8-
15, 1997 by and between Carrols Corporation, as K filed March 27, 1997
Purchaser, Omega Services, Inc. as Seller and Mr.
Harold W. Hobgood as Omega's Agent.
10.35 Purchase and Sale Agreement dated as of January Exhibit 10.40 to the Company's current report on Form 8-
15, 1997 by and between Carrols Corporation, as K filed March 27, 1997
Purchaser, Omega Services, Inc. as Seller and Mr.
Harold W. Hobgood as Omega's Agent.
10.36 Purchase Agreement dated as of July 7, 1997 among Exhibit 10.41 to the Company's current report on Form 8-
Carrols Corporation, as Purchaser, and the K filed August 20, 1997
individuals and trusts listed on Exhibit A
attached thereto, as Sellers, the individuals and
entities listed on Exhibit B attached thereto, as
Affiliated Real Property Owners, and Richard D.
Fors, Jr. And Charles J. Mund, as the Seller's
representatives
16.1 Letter re: change in certifying accountant Exhibit 16.1 to the Company's 1996 Annual Report on
Form 10-K
16.2 Letter re: change in certifying accountant Exhibit 16.1 to the Company's current report on Form 8-K
filed August 15, 1997
22.1 Subsidiaries of the Registrant:
Carrols J.G. Corp., Carrols Realty Holdings
Corp., Carrols Realty I Corp., Carrols Realty II
Corp., CDC Theater Properties, Inc., H.N.S.
Equipment & Leasing Corp., Quanta Advertising
Corp., Confectionery Square Corp., Jo-Ann
Enterprises, Inc.
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K - No current reports on Form 8-K were filed during
the quarter ended December 28, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized on the 25th day of March, 1998.
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
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Alan Vituli Director, Chairman and Chief November 9, 1998
(Alan Vituli) Executive Officer
/s/ Daniel T. Accordino Director, President and Chief November 9, 1998
(Daniel T. Accordino) Operating Officer
/s/ Benjamin D. Chereskin Director November 9, 1998
(Benjamin D. Chereskin)
/s/ James M. Conlon Director November 9, 1998
(James M. Conlon)
/s/ David J. Mathies, Jr. Director November 9, 1998
(David J. Mathies, Jr.)
/s/ C. Ronald Petty Director November 9, 1998
(C. Ronald Petty)
/s/ Robin P. Selati Director November 9, 1998
(Robin P. Selati)
/s/ Clayton E. Wilhite Director November 9, 1998
(Clayton E. Wilhite)
/s/ Paul R. Flanders Vice President - Finance November 9, 1998
(Paul R. Flanders) and Treasurer
/s/ Timothy J. LaLonde Vice President - Controller November 9, 1998
(Timothy J. LaLonde)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Carrols Corporation
We have audited the consolidated balance sheet of Carrols Corporation (a wholly
owned subsidiary of Carrols Holdings Corporation) and Subsidiaries as of
December 31, 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 and December 31, 1995. These financial statements 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, 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1997 and December 31, 1995, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
for the years ended December 31, 1997 and 1995 as listed in Item 14 of the Form
10-K is presented for purposes of additional analysis and is not a required
part of the basic consolidated financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ PricewaterhouseCoopers L.L.P.
Syracuse, New York
February 27, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Carrols Corporation:
We have audited the accompanying consolidated balance sheet of Carrols
Corporation (a wholly-owned subsidiary of Carrols Holdings Corporation) and
subsidiaries as of December 29, 1996, and the related consolidated statements
of operations, stockholder's deficit, and cash flows for the year then ended.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Carrols Corporation and
subsidiaries as of December 29, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule for the year ended December 29, 1996
listed in the index at Item 14 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
Rochester, New York,
March 7, 1997
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
___________
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,252,000 $ 1,314,000
Trade and other receivables, net of reserves
of $130,000 and $310,000 at 1997 and 1996,
respectively 748,000 793,000
Inventories (Note 2) 3,355,000 2,163,000
Prepaid real estate taxes 939,000 725,000
Prepaid expenses and other current assets 1,388,000 932,000
Refundable income taxes (Note 5) 2,141,000 -
Deferred income taxes (Note 5) 2,605,000 3,264,000
Total current assets 13,428,000 9,191,000
Property and equipment, at cost (Notes 3 and 4):
Land 7,280,000 9,066,000
Buildings and improvements 12,487,000 16,175,000
Leasehold improvements 43,146,000 38,816,000
Equipment 61,331,000 46,834,000
Capital leases 14,548,000 14,548,000
138,792,000 125,439,000
Less accumulated depreciation
and amortization (67,908,000) (63,356,000)
Net property and equipment 70,884,000 62,083,000
Franchise rights, at cost less accumulated
amortization of $25,047,000 and $21,787,000 at
1997 and 1996, respectively 108,938,000 46,203,000
Intangible assets, at cost less accumulated
amortization of $8,900,000 and $8,326,000
at 1997 and 1996, respectively 7,864,000 8,640,000
Other assets 7,778,000 5,834,000
Deferred income taxes (Note 5) 6,436,000 6,637,000
$215,328,000 $138,588,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1997 AND 1996
___________
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Current liabilities:
Accounts payable $ 11,950,000 $ 9,319,000
Accrued interest 4,770,000 4,741,000
Accrued payroll, related taxes and benefits 6,299,000 4,620,000
Accrued income taxes - 1,058,000
Other liabilities 5,104,000 3,875,000
Current portion of long-term debt (Note 4) 3,137,000 8,000
Current portion of capital lease obligations
(Note 3) 441,000 574,000
Total current liabilities 31,701,000 24,195,000
Long-term debt, net of current portion (Note 4) 154,649,000 118,180,000
Capital lease obligations, net of current portion
(Note 3) 2,060,000 2,503,000
Deferred income - sale/leaseback of real estate
(Note 3) 4,555,000 2,154,000
Accrued postretirement benefits (Note 9) 1,627,000 1,522,000
Other liabilities 3,289,000 1,696,000
Total liabilities 197,881,000 150,250,000
Commitments and contingencies
Stockholders' equity (deficit) (Note 6):
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital
28,362,990 1,411,990
Accumulated deficit
(10,916,000) (10,574,000)
Less: note receivable - redemption of warrants
-___ (2,500,000)
Total stockholders' equity (deficit)
17,447,000 (11,662,000)
$215,328,000
$138,588,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
___________
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Restaurant sales $295,436,000 $240,809,000 $226,257,000
Costs and expenses:
Cost of sales 85,542,000 68,031,000 63,629,000
Restaurant wages and related
Expenses 89,447,000 70,894,000 65,932,000
Advertising expense 13,122,000 10,798,000 9,764,000
Other restaurant operating
expenses 61,691,000 48,683,000 45,635,000
Administrative expenses 13,121,000 10,387,000 10,434,000
Depreciation and amortization 15,102,000 11,015,000 11,263,000
Costs associated with change of
control - 509,000 -
Total operating expenses 278,025,000 220,317,000 206,657,000
Operating income 17,411,000 20,492,000 19,600,000
Interest income (Note 5) (983,000) - -
Interest expense 15,581,000 14,209,000 14,500,000
Income before income taxes 2,813,000 6,283,000 5,100,000
Provision (benefit) for income taxes
(Note 5) 655,000 3,100,000 (9,826,000)
Net Income $ 2,158,000 $ 3,183,000 $ 14,926,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
___________
<TABLE>
<CAPTION>
TOTAL
<S> <C> <C> <C> <C> <C>
ADDITIONAL STOCKHOLDERS'
COMMON Paid-in ACCUMULATED Notes EQUITY
STOCK CAPITAL DEFICIT RECEIVABLE (DEFICIT)
Balance at December 31, 1994 $ 10 $ 1,474,990 $(28,683,000) $ - $(27,208,000)
Net income 14,926,000 14,926,000
Dividends declared (636,000) (636,000)
Exercise of stock options 2,000 2,000
Balance at December 31, 1995 10 840,990 (13,757,000) - (12,916,000)
Net income 3,183,000 3,183,000
Dividends declared (1,000,000) (1,000,000)
Exercise of stock options 12,000 12,000
Tax benefit from sale of
stock options due to
change of control 1,559,000 1,559,000
Loan to purchase warrants (2,500,000) (2,500,000)
Balance at December 31, 1996 10 1,411,990 (10,574,000) (2,500,000) (11,662,000)
Net income 2,158,000 2,158,000
Dividends declared (4,338,000) (4,338,000)
Capital contribution 30,382,000 30,382,000
Tax benefit from sale of
stock options due to
change of control 907,000 907,000
Redemption of warrants (2,500,000) 2,500,000
Balance at December 31, 1997 $ 10 $28,362,990 $(10,916,000) $ - $ 17,447,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
___________
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,158,000 $ 3,183,000 $ 14,926,000
Adjustments to reconcile net income
To net cash provided by operating activities:
(Gain) loss on disposal of property equipment (344,000) (314,000) 156,000
Depreciation and amortization 15,102,000 11,015,000 11,263,000
Deferred income taxes 860,000 160,000 (10,061,000)
Changes in operating assets and liabilities:
Refundable income taxes (2,141,000) - -
Trade and other receivables 45,000 (105,000) (156,000)
Inventories (588,000) 129,000 (38,000)
Prepaid real estate tax expenses and other
current assets (731,000) (174,000) (45,000)
Other assets (149,000) (611,000) (80,000)
Accounts payable 2,631,000 410,000 1,363,000
Accrued payroll, related tax and benefits 1,286,000 (256,000) 297,000
Accrued income taxes (1,058,000) 983,000 48,000
Other liabilities - current 1,229,000 266,000 (893,000)
Accrued interest 29,000 (68,000) (90,000)
Other liabilities - long-term 1,593,000 (231,000) 84,000
Other 18,000 (65,000) (92,000)
Net cash provided from operating activities 19,940,000 14,322,000 16,682,000
Cash Flows For Investing Activities:
Capital expenditures:
New restaurant development (9,732,000) 5,280,000) (2,767,000)
Remodels (3,807,000) (6,656,000) (2,524,000)
Other capital expenditures (4,671,000) (3,319,000) (2,731,000)
Acquisition of restaurants (78,485,000) (7,945,000) (516,000)
Notes and mortgages issued - (749,000) (2,503,000)
Payments received on notes and mortgages 88,000 39,000 32,000
Disposal of property, equipment
And franchise rights 1,224,000 2,342,000 17,000
Other investments - 1,330,000 (1,356,000)
Net cash used for investing activities (95,383,000) (20,238,000) (12,348,000)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
___________
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Proceeds from long-term debt, net $ 62,614,000 $ 2,997,000 $ 4,376,000
Principal payments and retirements of
long-term obligations (26,184,000) (2,047,000) (9,184,000)
Proceeds from sale-leaseback transactions 13,000,000 4,246,000 861,000
Dividends paid (4,338,000) (1,000,000) (636,000)
Exercise of employee stock options and
related tax benefits 907,000 1,571,000 2,000
Capital contribution 30,382,000 - -
Net cash provided from (used for) financing activities 76,381,000 5,767,000 (4,581,000)
Net increase (decrease) in cash and cash equivalents 938,000 (149,000) (247,000)
Cash and cash equivalents, beginning of year 1,314,000 1,463,000 1,710,000
Cash and cash equivalents, end of year $ 2,252,000 $ 1,314,000 $ 1,463,000
Supplemental disclosures:
Interest paid on debt $ 15,552,000 $14,277,000 $ 14,590,000
Income taxes paid $ 1,456,000 $ 393,000 $ 153,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
________________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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").
At December 31, 1997 the Company operated, as franchisee, 335 fast
food restaurants under the trade name "Burger King" in seven
Northeastern, four Midwestern and two Southeastern states. According
to publicly available information the Burger King brand is the second
largest franchised restaurant system in the world. The Company is the
largest independent Burger King franchisee in the United States.
Cash and Cash 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.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization is provided using the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
Buildings and improvements 5 to 20 years
<S> <C>
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
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and
1995 was $9,718,000, $7,300,000 and $7,594,000, respectively.
FRANCHISE RIGHTS - 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 are amortized using the
straight-line method, principally over the remaining lives of the
acquired leases including renewal options, but not in excess of 40
years.
INTANGIBLE ASSETS - Intangible assets consist primarily of beneficial
leases which are amortized using the straight-line method over the
lives of the leases including renewal options, but not in excess of 40
years.
LONG-LIVED ASSETS - The Company assesses the recoverability of
property and equipment, franchise rights and intangible assets by
determining whether the amortization of these assets, over their
respective remaining lives, can be recovered through undiscounted
future operating cash flows. Impairment is reviewed whenever events
or changes in circumstances indicate the carrying amounts of these
assets may not be fully recoverable.
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 for costs associated with
the Company's unsecured senior notes and on a straight-line basis for
costs associated with the Company's advance loan facility.
<PAGE>
INCOME TAXES - The Company and its subsidiaries were included in the
consolidated federal income tax return of Holdings through the date of
the change of control at April 3, 1996. The Company and its
subsidiaries have filed separate federal income tax returns for the
period April 4, 1996 to December 31, 1996 and the year ended December
31, 1997.
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 - The following methods were used
to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that fair value:
Current Assets and Liabilities - The carrying value of cash and
cash equivalents and accrued liabilities approximates fair value
because of the short maturity of those instruments.
Senior Notes - The fair value of senior notes is based on quoted
market prices. The fair value at December 31, 1997 is
approximately $113,557,000.
Revolving and Advance Loan Facilities - 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, 1997, approximates fair
value.
Stock-Based Compensation - On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) which permitted entities to
recognize as an expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 also
allowed entities to continue to apply the provisions of APB 25 and
provide pro forma net income disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS 123 has been
applied. The Company has elected to continue to apply the provisions
of APB 25 and provide the pro forma disclosure provisions of SFAS 123.
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 28, 1997 (52 weeks), December 29, 1996 (52
weeks), and December 31, 1995 (52 weeks).
RECLASSIFICATIONS - Certain amounts for prior years have been
reclassified to conform to the current year presentation.
2. INVENTORIES
Inventories at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials (food and paper products) $ 2,111,000 $ 1,386,000
Supplies 1,244,000 777,000
$ 3,355,000 $ 2,163,000
</TABLE>
<PAGE>
3. 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 have been recorded as a result of sale/leaseback
transactions and are being amortized over the lives of the leases.
These leases are operating leases, with a twenty year primary term
with four five-year renewal options and provide for additional rent
based on a percentage of sales in excess of predetermined levels. The
net deferred gain is $4,555,000 and $2,154,000 at December 31, 1997
and 1996, respectively. Accumulated amortization pertaining to
capital leases for the years ended December 31, 1997 and 1996 was
$9,951,000 and $9,151,000, respectively.
Minimum rent commitments under noncancelable leases at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
<S> <C> <C>
Years Ending:
1998 $ 758,000 $ 18,807,000
1999 541,000 17,884,000
2000 480,000 17,470,000
2001 469,000 16,889,000
2002 429,000 16,069,000
2003 and thereafter 1,329,000 123,819,000
Total minimum lease payments 4,006,000 $210,938,000
Less amount representing interest 1,505,000
Total obligations under capital leases 2,501,000
Less current portion 441,000
Long term obligations under capital leases $ 2,060,000
</TABLE>
Total rent expense on operating leases, including percentage rent on
both operating and capital leases, for the past three years was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Minimum rent on real property $ 15,303,000 $ 11,590,000 $ 11,108,000
Additional rent based on a
percentage of sales 3,099,000 2,700,000 2,548,000
Equipment rent 162,000 167,000 164,000
$ 18,564,000 $ 14,457,000 $ 13,820,000
</TABLE>
<PAGE>
4. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Collateralized:
Revolving loan facility
$ 2,500,000 $ 4,669,000
Acquisition loan
- 5,000,000
Advance term loan facility
46,786,000 -
Other notes payable with interest
rates to 10% 863,000 857,000
Unsecured 11.5% senior notes
107,637,000 107,662,000
157,786,000 118,188,000
Less current portion
3,137,000 8,000
$154,649,000 $118,180,000
</TABLE>
The Company issued $110 million of unsecured senior notes in August
1993. 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 redeemable at the option of the Company in
whole or in part on or after August 15, 1998 at a price of 104.31% of
the principal amount if redeemed before August 15, 1999 and 102.88% of
the principal amount if redeemed before August 15, 2000, with other
specified redemption prices thereafter. 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.
On March 27, 1997, the Company entered into a loan agreement (the
"Loan Agreement") among the Company, Texas Commerce Bank National
Association, as Agent, and other lenders (collectively the "Lenders")
who are parties thereto. The Loan Agreement provides for: (i)
$127,000,000 Advance Term Loan Facility under which the Company may
borrow, through December 31, 1999, up to 75% of the purchase costs
incurred in connection with the acquisition of restaurants and; (ii) a
$25,000,000 Revolving Loan Facility which replaced the Company's
previous revolving credit facility. The Revolving Loan Facility is
available to finance restaurant acquisitions and new restaurant
development by the Company, and for other working capital and general
corporate purposes. At December 31, 1997, $21,525,000 was available
for use under the Revolving Loan Facility after reserving $975,000 for
a letter of credit guaranteed by the facility.
The Loan Agreement provides for interest rate options of: (i) the
greater of the prime rate (or the Federal Funds Rate plus .50%) plus a
variable margin between 0% and 1% (1% at December 31, 1997); or (ii)
the London Interbank offering rate plus a variable margin between 1.5%
and 2.5% (2.5% of December 31, 1997), based upon debt to cash flow
ratios. Commitment fees on the unused balances of the Advance Term
Loan Facility and the Revolving Loan Facility are payable quarterly at
the annual rates of 0.25% and 0.375%, respectively.
The Revolving Loan Facility has a maturity date of December 31, 2001
while the Advance Term Loan Facility requires quarterly principal
repayments at an annual rate of 6% beginning with the end of the
second quarter after each advance loan and increasing 2% per year
through the sixth year, with the remainder repayable on June 30, 2003.
The $5 million acquisition loan was collateralized by twenty-two
restaurants acquired during 1994. This loan was paid in full in 1997
and refinanced under the Company's Advance Term Loan Facility.
Substantially all assets of the Company are or will be pledged to the
lender as collateral under the loans made pursuant to the Loan
Agreement.
<PAGE>
Restrictive covenants of the senior notes and the revolving loan
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; investments; consolidations, mergers and transfers of
assets and minimum interest and fixed charge coverage ratios.
At December 31, 1997, principal payments required on all long-term
debt are as follows:
<TABLE>
<CAPTION>
1998 $ 3,137,000
<S> <C>
1999 4,274,000
2000 5,153,000
2001 8,486,000
2002 6,438,000
2003 and thereafter 129,798,000
$157,286,000
</TABLE>
5. INCOME TAXES
The income tax provision (benefit) was comprised of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ 887,000 $ 981,000 $ 35,000
State 628,000 400,000 200,000
1,515,000 1,381,000 235,000
Deferred:
Federal (672,000) 1,199,000 (8,552,000)
State (188,000) 520,000 (1,509,000)
(860,000) 1,719,000 10,061,000)
$ 655,000 $3,100,000 $ (9,826,000)
</TABLE>
The components of deferred income tax assets and liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accounts receivable and other reserves $ 408,000 $ 503,000
Accrued vacation benefits 508,000 427,000
Other accruals 168,000 -
Deferred gain on sale of real estate 1,710,000 853,000
Postretirement benefits 650,000 602,000
Capital leases 464,000 463,000
Property and equipment depreciation 549,000 671,000
Alternative minimum tax credit
carryforward 21,000 -
Net operating loss carryforwards 10,459,000 12,348,000
14,937,000 15,867,000
Deferred tax liabilities:
Amortization of franchise rights 5,896,000 5,966,000
Net deferred income tax assets $ 9,041,000 $ 9,901,000
</TABLE>
<PAGE>
The Company has net operating loss carryforwards for income tax
purposes of approximately $27 million. The net operating loss
carryforwards expire in varying amounts beginning in 2003 through
2010. Due to a change in ownership the Company is limited, for
Federal tax purposes, to a $4,354,000 utilization of net operating
losses annually. Realization of the deferred income tax assets
relating to these net operating losses is dependent on generating
sufficient taxable income prior to the expiration of the loss
carryforwards. Based upon 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 was eliminated and the net
deferred tax assets were recognized as a deferred income tax benefit.
A reconciliation of the statutory federal income tax rate to the
effective tax rates for the years ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate $ 957,000 34.0% $2,136,000 34.0%
State income taxes, net of
federal benefit 266,000 9.5% 607,000 9.7%
Nondeductible expenses 197,000 7.0% 197,000 3.1%
Tax appeals settlement (806,000) (28.7)% - -
Miscellaneous 41,000 1.4 % 160,000 2.5%
$655,000 23.2% $3,100,000 49.3%
</TABLE>
Included in refundable income taxes at December 31, 1997 is $983,000
of interest income associated with a Federal tax appeals claim
settlement.
6. STOCKHOLDERS' EQUITY (DEFICIT)
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.
HOLDINGS
The sole activity of Holdings is the ownership of 100% of the stock of
Carrols Corporation. In February 1997, a 1 for 3.701 reverse stock
split was effected to reduce the outstanding shares of common stock of
Holdings to 850,000 shares. As a result of a recapitalization in
February 1997, the capital structure of Holdings was as follows at
December 31, 1997:
<TABLE>
<CAPTION>
Class A, preferred stock 10% cumulative redeemable,
<S> <C>
par value $.01, authorized, issued
and outstanding 3,633 shares at
liquidation preference
and redemption price $3,633,000
Voting common stock, par value $.01, authorized
3,000,000 shares issued and outstanding
1,144,144 shares 11,000
</TABLE>
<PAGE>
The Class A preferred stock is subject to two remaining equal
mandatory redemptions, scheduled for December 23, 1998 and 1999. In
addition, 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 made timely, the
annual dividend rate on the amount of Class A Preferred Stock not
redeemed is automatically increased to 14%.
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.
Warrants outstanding at December 31, 1996 to purchase 131,886 shares
of Holdings Common Stock at exercise prices of $3.59 to $3.70 per
share were owned by an independent third party. To facilitate the
sale and purchase of the warrants, Holdings loaned $2,500,000 to the
purchaser of the warrants which loan was secured by a collateral
pledge of the shares of the purchaser and of the warrants. The
receivable was reclassified to increase stockholders' deficit as of
December 31, 1996. In 1997, Holdings exercised its option to purchase
the warrants at an aggregate price of $2,510,000 from the third party
in exchange for payment on the related loan.
CHANGE OF CONTROL TRANSACTIONS
On April 3, 1996, Holdings, Carrols Corporation and certain selling
shareholders of Holdings sold approximately 97 percent of the issued
common stock and common stock equivalents (the Class B Convertible
Preferred stock, warrants to buy common stock and options to buy
common stock) exclusive of the warrants referred to above to Atlantic
Restaurants, Inc. ("Atlantic"). This change in control resulted in
the Company incurring a one-time charge of $509,000 in fiscal 1996.
On March 27, 1997, Holdings and Atlantic, its then sole stockholder,
entered into an agreement whereby they agreed to sell 283,334 shares
of common stock of Holdings to Madison Dearborn Capital Partners
("Madison Dearborn"), an independent third party, resulting in
approximately $30.4 million of new equity for the Company. Atlantic
also sold 283,333 of its shares of Holdings to Madison Dearborn
resulting in both Atlantic and Madison Dearborn having an equal
interest in the Company.
Both transactions constituted a "change of control" under the
Indenture governing the Senior Notes Due 2003 ("Notes"). Accordingly,
each holder of the Notes had the right to require the Company to
repurchase all or any part of such holder's Notes at a repurchase
price in cash equal to 101% of the principal amount of the Notes being
repurchased plus accrued and unpaid interest in both 1996 and in 1997.
Such redemptions totaled $25,000 in 1997 and $838,000 in 1996.
STOCK OPTIONS
Holdings adopted an Employee Stock Option and Award Plan on December
14, 1993 ("The 1993 Plan"). Effective April 1, 1994, Holdings also
adopted a Stock Option Plan for non-employee directors ("Directors
Plan"). The Plans allowed 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
was authorized to grant options for up to 229,700 shares, 27,000
shares for non-employee directors and 202,700 shares for employees.
Options were generally exercisable over 5 years with 25,600 options
exerciseable as of December 31, 1995. As of December 31, 1995, non-
employee directors were granted options totaling 4,900 shares. Under
the Directors Plan, no options were exercised or canceled during 1995.
During 1996, 57,000 options (36,600 at $14.80 and 20,400 at $22.65)
were canceled by
the sale of such options in conjunction with the sale to Atlantic and
the plans were canceled. The remaining 32,426 options were subject to
a deferred purchase agreement whereby the sale and cancellation
occurred in January, 1997.
A summary of all option activity in the 1993 Plan and the Directors
Plan for the years ended December 31, 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
Options at Options at
<S> <C> <C>
$14.80 $22.65
Balance at December 31, 1994 69,441 -
Granted - 26,777
Exercised (162) -
Canceled (3,350) (621)
Balance at December 31, 1995 65,929 26,156
Exercised (810) -
Canceled (38,098) (20,751)
Balance at December 31, 1996 27,021 5,405
Canceled (27,021) (5,405)
Balance at December 31, 1997 - -
</TABLE>
Holdings adopted a stock option plan in 1996 entitled the 1996 Long-
Term Incentive Plan ("1996 Plan") and authorized a total of 106,250
shares to be granted at prices ranging from $101.77 to $140.00 per
share. Options under this plan generally vest over a four year period
There were no outstanding options in fiscal 1996 under this plan. In
1997, options were granted at prices ranging from $101.77 to $110.00
per share.
A summary of all option activity in the 1996 Plan for the year ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
OPTIONS AT OPTIONS AT
<S> <C> <C>
$101.77 $110.00
Balance at December 31, 1996 - -
Granted 72,250 14,460
Canceled -___ (570)
Balance at December 31, 1997 72,250 13,890
Exercisable at December 31, 1997 34,850 -___
</TABLE>
In addition, in conjunction with the 1997 sale of Holdings common
stock to Madison Dearborn, additional options not part of the 1996
Plan for 32,427 shares at a price of $101.77 were granted with vesting
over a five year period. None of these options were exercisable at
December 31, 1997.
Had compensation cost been determined based upon the fair value of the
stock options at grant date consistent with the method of SFAS 123,
the Company's pro-forma net income for the year ended December 31,
1997 would have been $1,527,000 as compared with $2,158,000, as
reported.
The fair value of each option grant was estimated using the minimum
value option pricing model with the following weighted-average
assumptions for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Risk-free interest rate 6.53%
<S> <C>
Annual dividend yield 0%
Expected life 5 years
</TABLE>
<PAGE>
7. 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.
8. 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 expense was
$208,000, $164,000 and $125,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
9. 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 is the plan status and accumulated postretirement
benefit obligation (APBO) at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 519,000 $ 518,000
Fully eligible active participants 28,000 26,000
Other active plan participants not fully
eligible 814,000 697,000
Total APBO 1,361,000 1,241,000
Unrecognized prior service cost 286,000 315,000
Unrecognized net actuarial losses (20,000) (34,000)
Accrued postretirement benefit obligation $ 1,627,000 $ 1,522,000
</TABLE>
Net periodic postretirement benefit cost for 1997, 1996 and 1995
included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned during
the year $ 69,000 $ 64,000 $ 47,000
Interest cost on accumulated benefit
obligation 85,000 77,000 76,000
Net amortization of actuarial
gains and losses and prior service
costs (25,000) (25,000) (29,000)
$129,000 $116,000 $ 94,000
</TABLE>
A 6.50% annual rate of increase in the per capita costs of covered
health care benefits was assumed for 1997, gradually decreasing to
5.5% by the year 2001. Increasing the assumed health care cost trend
rates by one percentage point in each future year would increase the
accumulated postretirement benefit obligation as of December 31, 1997
by $137,000 and increase the sum of the service cost and interest cost
components by $26,000 in 1997.
<PAGE>
For 1997, 1996 and 1995, a discount rate of 7% was used to determine
the accumulated postretirement benefit obligation. Actual benefit
costs paid on behalf of retirees in 1997, 1996 and 1995 was $24,000
in each year.
10. ACQUISITIONS
On March 28, 1997, the Company purchased certain assets and franchise
rights of twenty-three Burger King restaurants in North and South
Carolina for a cash price of approximately $21 million.
On August 20, 1997, the Company purchased certain assets and franchise
rights of sixty-three Burger King restaurants, primarily in Western
New York State, Indiana and Kentucky for a cash price of approximately
$52 million.
The following unaudited proforma results of operations assume these
acquisitions occurred as of the beginning of the respective periods:
(Unaudited)
YEAR ENDED DECEMBER
31,
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $341,889,000 $329,927,000
Operating Income $ 21,129,000 $ 28,652,000
Net income $ 2,829,000 $ 5,603,000
</TABLE>
The unaudited results of operations are not necessarily indicative of
the actual operating results that would have occurred had the
acquisitions been consummated on January 1 of each fiscal year, or of
future operating results of the combined companies.
During the year ended December 31, 1997, the Company acquired a total
of 93 restaurants. Assets acquired and liabilities assumed in these
transactions were as follows:
<TABLE>
<CAPTION>
Inventory $ 604,000
<S> <C>
Land 1,025,000
Buildings and improvements 1,532,000
Equipment 10,221,000
Franchise rights 65,496,000
Accrued payroll, related taxes
and benefits (393,000)
$78,485,000
</TABLE>
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
___________
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL E
<S> <C> <C> <C> <C>
Additions
Balance at Charged to Balance at
Beginning Costs and End
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
Year ended December 31, 1997:
Reserve for doubtful trade
accounts receivable 310,000 - (180,000)(b) 130,000
Other reserves (a) 753,000 133,000 - 886,000
Year ended December 31, 1996:
Reserve for doubtful trade
accounts receivable 419,000 16,000 (125,000)(b) 310,000
Other reserves (a) 788,000 (35,000)(b) 753,000
Year ended December 31, 1995:
Reserve for doubtful trade
accounts receivable 424,000 12,000 (17,000)(b) 419,000
Other reserves (a) 542,000 388,000 (142,000)(b) 788,000
</TABLE>
(a) Included principally in other assets
(b) Represents write-offs of accounts.
