FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1998
or
[ ] Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
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
Number)
968 JAMES STREET
SYRACUSE, NEW YORK 13203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (315) 424-0513
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Common stock, par value $1.00, outstanding at November 13, 1998
10 SHARES
1 of 19
<PAGE>
PART 1 - FINANCIAL INFORMATION
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $ 2,442,000 $ 2,252,000
Trade and other receivables 870,000
748,000
Inventories 2,973,000
3,355,000
Prepaid real estate taxes 1,434,000
939,000
Prepaid expenses and other current assets 2,540,000
1,388,000
Refundable income taxes 869,000
2,141,000
Deferred income taxes 2,980,000
2,605,000
Total current assets 14,108,000
13,428,000
Property and equipment, at cost:
Land 9,026,000
7,280,000
Buildings and improvements 24,639,000
12,487,000
Leasehold improvements 54,058,000
43,146,000
Equipment 75,114,000
61,331,000
Capital leases 14,548,000
14,548,000
177,385,000
138,792,000
Less accumulated depreciation
and amortization (76,060,000)
(67,908,000)
Net property and equipment 101,325,000
70,884,000
Franchise rights, at cost less accumulated
amortization of $27,974,000 and $25,047,000,
respectively 107,106,000
108,938,000
Intangible assets, at cost less accumulated
amortization of $9,229,000 and $8,900,000,
respectively 71,547,000
7,864,000
Other assets 7,251,000 7,778,000
Deferred income taxes 5,561,000
6,436,000
$306,898,000
$215,328,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
(unaudited)
Current liabilities:
Accounts payable $ 14,091,000 $ 11,950,000
Accrued interest 2,344,000 4,770,000
Accrued payroll, related taxes and
benefits 8,040,000 6,299,000
Other liabilities 9,672,000 5,104,000
Current portion of long-term debt 8,351,000 3,137,000
Current portion of capital lease
obligations 302,000 441,000
Total current liabilities 42,800,000 31,701,000
Long-term debt, net of current portion 231,125,000 154,649,000
Capital lease obligations, net of current portion
1,835,000 2,060,000
Deferred income - sale/leaseback of
real estate 4,342,000 4,555,000
Accrued postretirement benefits 1,765,000 1,627,000
Other liabilities 6,746,000 3,289,000
Total liabilities 288,613,000 197,881,000
Stockholder's equity:
Common stock, par value $1; authorized
1,000 shares, issued and outstanding -
10 shares 10 10
Additional paid-in capital
24,484,990 28,362,990
Accumulated deficit
(6,200,000) (10,916,000)
Total stockholder's equity
18,285,000 17,447,000
$306,898,000
$215,328,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
(13 weeks) (13 weeks)
Revenues:
Restaurant sales $ 112,608,000 $ 76,589,000
Franchise fees and royalties 161,000 -
Total revenues 112,769,000
76,589,000
Costs and expenses:
Cost of sales 34,204,000
22,303,000
Restaurant wages and related expenses 32,259,000
23,283,000
Advertising expense 5,049,000
3,302,000
Other restaurant operating expenses 21,982,000
15,965,000
Administrative expenses 5,297,000
3,667,000
Depreciation and amortization 5,334,000
3,741,000
Total operating expenses 104,125,000
72,261,000
Operating income 8,644,000
4,328,000
Refinancing expenses (Note 5) 1,639,000 -
Interest expense 5,819,000
3,978,000
Income before income taxes 1,186,000
350,000
Provision (benefit) for income taxes 527,000 (191,000)
Net income $ 659,000 $
541,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
(40 weeks) (39 weeks)
Revenues:
Restaurant sales $305,866,000 $207,113,000
Franchise fees and royalties 161,000 - _
Total revenues 306,027,000 207,113,000
Costs and expenses:
Cost of sales 89,829,000 59,600,000
Restaurant wages and related expenses 89,014,000 63,539,000
Advertising expense 13,920,000 9,093,000
Other restaurant operating expenses 60,685,000 43,005,000
Administrative expenses 13,364,000 9,337,000
Depreciation and amortization 14,294,000 10,578,000
Total operating expenses 281,106,000 195,152,000
Operating income 24,921,000 11,961,000
Refinancing expenses (Note 5) 1,639,000 -
Interest expense 14,716,000 11,059,000
Income before income taxes 8,566,000 902,000
Provision for income taxes 3,850,000 181,000
Net income $ 4,716,000 $ 721,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
(40 weeks) (39 weeks)
Cash flows from operating activities:
Net income $ 4,716,000 $
721,000
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 14,294,000 10,578,000
Deferred income taxes (445,000) -
Gain on sale of property and equipment (119,000) (344,000)
Change in operating assets and
liabilities 3,808,000 (3,904,000)
Cash provided by operating activities 22,254,000 7,051,000
Cash flows from investing activities:
Capital expenditures:
Purchase of Pollo Tropical, Inc.,
net of cash acquired (96,632,000) -
New restaurant development (7,595,000) (6,391,000)
Remodels and other capital expenditures (14,368,000) (4,561,000)
Acquisitions of Burger King restaurants (629,000) (78,056,000)
Proceeds from sales of property and equipment 1,337,000 1,092,000
Net cash used for investing activities (117,887,000) (87,916,000)
Cash flows from financing activities:
Proceeds from revolving loan facility, net 8,800,000 3,600,000
Proceeds from advance term loan facility 75,000,000 62,700,000
Principal payments on advance term loan
facility (2,177,000) (200,000)
Principal payments on capital leases (364,000) (444,000)
Proceeds from issuing stock - 30,442,000
Proceeds from sale-leaseback transactions 18,536,000 -
Dividends paid (3,878,000) (2,349,000)
Retirement of long-term debt - (9,669,000)
Financing costs associated with long-term debt (75,000) (2,397,000)
Other (19,000) (23,000)
Net cash provided by financing activities 95,823,000 81,660,000
Increase in cash and cash equivalents 190,000 795,000
Cash and cash equivalents, beginning of period 2,252,000 1,314,000
Cash and cash equivalents, end of period $ 2,442,000 $ 2,109,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. STATEMENT OF MANAGEMENT
The accompanying unaudited consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and do not include all of the information
and the footnotes required by generally accepted accounting principles for
complete statements. In the opinion of management, all normal and recurring
adjustments necessary for a fair presentation of such financial statements
have been included.
The Company uses a 52-53 week fiscal year ending on the Sunday closest
to December 31. Fiscal 1998 will contain 53 weeks and the Company has
included the extra week in its second fiscal quarter of 1998. Accordingly,
the nine months results of operations and cash flows ending September 30,
1998 and 1997 include 40 weeks and 39 weeks, respectively.
The results of operations for the three and nine months ended September
30, 1998, are not necessarily indicative of the results to be expected for
the full year.
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year
ended December 31, 1997 contained in the Company's 1997 Annual Report on Form
10-K. The December 31, 1997 balance sheet data is derived from these audited
financial statements.
Certain amounts for the prior year have been reclassified to conform to
the current year presentation.
7
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
2. INVENTORIES
Inventories at September 30, 1998 and December 31, 1997, consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
1998 1997
Raw materials (food and
paper products) $1,964,000 $2,111,000
Supplies 1,009,000 1,244,000
$2,973,000 $3,355,000
</TABLE>
3. INCOME TAXES
The income tax provision for the nine months ended September 30, 1998
and 1997 was comprised of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current $ 4,295,000 $ 181,000
Deferred (445,000) -
$ 3,850,000 $ 181,000
</TABLE>
For 1998 and 1997 the difference between the expected tax provision
resulting from application of the federal statutory income tax rate to
pre-tax income and the reported income tax provision result principally
from state taxes and non-deductible amortization of certain franchise
rights and other intangible assets.
4. 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 $21.0 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.
8
<PAGE>
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
4. ACQUISITIONS (continued)
On July 9, 1998, the Company consummated the purchase of Pollo Tropical
Inc. ("Pollo Tropical") for an approximate cash purchase price of $96.6
million and on July 20, 1998 merged Pollo Tropical into the Company.
The excess purchase price over net assets acquired, of approximately
$64.0 million, is included in intangible assets. The Company used its
existing senior credit facility to finance the Pollo Tropical
acquisition. This borrowing required the Company to amend this facility
in July 1998 to modify, among other things, certain financial covenants
with respect to debt to cash flow ratios.
The following proforma results of operations for the periods presented
below assume these acquisitions occurred as of the beginning of the
respective periods:
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
<TABLE>
<CAPTION>
Revenues $344,114,000 $302,648,000
<S> <C> <C>
Operating income $ 30,519,000 $ 21,580,000
Net income $ 5,441,000 $ 1,083,000
</TABLE>
The preceding proforma financial information is not necessarily
indicative of the operating results that would have occurred had any of
the acquisitions been consummated as of the beginning of the respective
periods, nor are they necessarily indicative of future operating
results.
5. LOSS ON REFINANCING EXPENSES
The Company expensed all costs associated with its efforts to refinance
its existing debt in the third quarter of 1998 as the timing of any
future refinancing is uncertain and the related activities have
currently ceased. Approximately $1.2 million of these costs related to
losses on interest rate hedge transactions, which were settled in the
third quarter.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
OVERVIEW
The Company is the largest Burger King franchisee in the United States
and has operated Burger King restaurants since 1976. As of September 30,
1998, the Company operated 338 Burger King restaurants located in 13
Northeastern, Midwestern and Southeastern states. Over the last five years,
the Company has selectively expanded its operation through the acquisition
and construction of additional Burger King restaurants while also enhancing
the quality of operations, the competitive position and financial performance
of its existing restaurants. As a result of its growth strategy, the Company
has increased the total number of restaurants it operates by over 70% from
1993 to 1997 , and over 40% in 1997 alone. In July 1998, the Company
completed its acquisition of Pollo Tropical, a regional quick-service
restaurant chain featuring grilled marinated chicken and authentic "made from
scratch" side dishes. At September 30, 1998 the Company owned and operated
37 Pollo Tropical restaurants in Florida and franchised an additional 20
restaurants in the Caribbean and South America.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.
The following table sets forth, for the three months ended September 30,
1998 and 1997, selected operating results as a percentage of restaurant
sales, except for administrative expenses, operating income and EBITDA which
are presented as a percentage of total revenues:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Restaurant sales 100.0% 100.0%
Costs and expenses:
Cost of sales 30.4% 29.1%
Restaurant wages and related
expenses 28.6% 30.4%
Other restaurant expenses including
advertising 24.0% 25.2%
Administrative expenses 4.7% 4.8%
Depreciation and amortization 4.7% 4.9%
Operating income 7.7% 5.7%
EBITDA 12.4% 10.5%
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESTAURANT SALES Restaurant sales for the three months ended September
30, 1998, increased 47.0% to $112.6 million from $76.6 million in the third
quarter of 1997. 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 329 at the end of the third quarter of 1997 to 338 at the end
of the third quarter of 1998 and the acquisition of 36 Pollo Tropical
restaurants in July 1998. During the twelve months ended September 30, 1998,
the Company opened 10 Burger King restaurants, opened 1 Pollo Tropical
restaurant, acquired 4 Burger King restaurants and closed five
underperforming Burger King restaurants. Sales at the Company's 258
comparable Burger King restaurants (those units operating for the entirety of
the compared periods) increased 7.9% for the third quarter of 1998.
OPERATING COSTS AND EXPENSES Cost of sales (food and paper costs), as a
percentage of sales, were 30.4% for the three months ended September 30, 1998
compared to 29.1% for the third quarter of 1997. The increase in 1998 is
due, in part, to higher food cost relationships at the Company's Pollo
Tropical restaurants, which accounted for 15% of total restaurant sales in
the quarter. Cost of sales, as a percentage of sales, for Pollo Tropical
restaurants was 34.5% in the third quarter. The increase in 1998 was also
due, in part, to higher food commodity costs at the Company's Burger King
restaurants associated with the introduction of a new french fry product in
January 1998, offset, in part, by lower beef costs.
Restaurant wages and related expenses decreased as a percentage of sales
during the third quarter from 30.4% in 1997 to 28.6% in 1998 due, in part, to
lower labor costs as a percentage of sales at the Company's Pollo Tropical
restaurants. Pollo Tropical labor costs were 22.6%, as a percentage of
sales, in the third quarter. Additionally, these expenses decreased as a
percentage of sales for the Company's Burger King restaurants due to
restaurant labor efficiencies, the effect of increased sales on fixed
restaurant management labor, and lower effective unemployment tax rates in
New York State and Ohio. These decreases were, in part, offset by the effect
of an increase in the Federal minimum wage rate from $4.75 per hour to $5.15
per hour which took effect in September 1997.
Other restaurant operating expenses, including advertising, decreased
from 25.2% of sales in the third quarter of 1997 to 24.0% in the third
quarter of 1998. This decrease was due to lower expense relationships of the
Company's Pollo Tropical restaurants, whose other operating costs were 16.0%,
as a percentage of restaurant sales, in the third quarter and the effect of
higher restaurant sales on the fixed components of the Company's costs.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
Administrative expenses, as a percentage of sales, decreased from 4.8%
in the third quarter of 1997 to 4.7% in 1998. The approximate $1.6 million
increase in the third quarter of 1998 compared to 1997 is due to the
acquisition of Pollo Tropical and the addition of field supervision and
corporate support as a result of the 1997 addition of over 93 Burger King
restaurants and to support the Company's plans for continued expansion.
Earnings before interest, taxes, refinancing expenses, depreciation and
amortization ("EBITDA") increased from $8.1 million in the third quarter of
1997 to $14.0 million in the third quarter of 1998. As a percentage of total
revenues, EBITDA increased from 10.5% in 1997 to 12.4% in 1998 as a result of
the factors discussed above. 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 expenditures 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.
Depreciation and amortization increased $1.6 million in the third
quarter of 1998 due primarily to the increase in amortization resulting from
goodwill and purchased intangibles associated with the purchase of Pollo
Tropical, Inc. on July 9, 1998 and the purchase of Burger King restaurants in
1997.
Interest expense was $5.8 million in the third quarter of 1998 compared
to $4.0 million in 1997. The increase in 1998 was due to higher average debt
balances from funding the acquisition of Pollo Tropical and the construction
of additional Burger King restaurants in 1997 and 1998.
The provision for income taxes of $0.5 million in the third quarter of
1998 and $3.9 million for the first nine months of 1998 is based on an
estimated annual effective income tax rate for 1998 of 45%. This rate is
higher than the Federal statutory tax rate due to state franchise and income
taxes and non-deductible amortization of certain franchise rights and
intangible assets.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997.
The following table sets forth, for the nine months ended September 30,
1998 and 1997, selected operating results as a percentage of restaurant sales
except for administrative expenses, operating income and EBITDA, which are
presented as a percentage of total revenues:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Restaurant sales 100.0% 100.0%
Costs and expenses:
Cost of sales 29.4 28.8
Restaurant wages and related
expenses 29.1 30.7
Other restaurant expenses including
advertising 24.4 25.2
Administrative expenses 4.4 4.5
Depreciation and amortization 4.7 5.1
Operating income 8.1% 5.8%
EBITDA 12.8% 10.9%
</TABLE>
RESTAURANT SALES Restaurant sales for the nine months ended September
30, 1998, increased 47.7% to $305.9 million from $207.1 million in the nine
months of 1997. Sales at the Company's 224 comparable restaurants (those
units operating for the entirety of the compared periods) increased 10.2% for
the nine months of 1998. Adjusted for the additional week in 1998,
comparable restaurant sales increased 7.2%.
OPERATING COSTS AND EXPENSES Cost of sales, as a percentage of sales,
were 29.4% for the nine months ended September 30, 1998 compared to 28.8% for
the first nine months of 1997. The increase in 1998 was due to higher cost
relationships at the Company's Pollo Tropical restaurants and higher food
commodity costs associated with the introduction of a new french fry product
in January 1998 offset, in part, by lower beef costs. In addition, the
Company's food and paper cost relationships have been somewhat higher for its
recently acquired Burger King units prior to these units becoming fully
integrated into the Company's operating systems.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
Restaurant wages and related expenses, as a percentage of sales,
during the nine months ended September 30, 1998 decreased from 30.7% in
1997 to 29.1% in 1998 due to restaurant labor efficiencies, the effect of
increased sales on fixed management labor, and lower effective
unemployment tax rates in New York State and Ohio, offset, in part, by an
increase in the Federal minimum wage rate from $4.75 per hour to $5.15
per hour which took effect in September 1997.
Other restaurant operating expenses including advertising decreased
from 25.2% of sales for the first nine months of 1997 to 24.4% for the
first nine months of 1998, due in part to reduced utility costs
associated with a milder winter in the Company's operating areas, as well
as the effect of higher sales on the fixed components of the Company's
costs.
Administrative expenses, as a percentage of sales, decreased from
4.5% in the first nine months of 1997 to 4.4% for the first nine months
of 1998. The approximate $4.8 million increase in the first nine months
of 1998 compared to 1997 is due to the addition of field supervision and
corporate support the 1997 acquisition of 93 Burger King restaurants, the
July 1998 acquisition of Pollo Tropical and to support the Company's
plans for continued expansion.
Earnings before interest, taxes, refinancing expenses, depreciation
and amortization ("EBITDA") increased from $22.5 million for the first
nine months of 1997 to $39.2 million for the first nine months of 1998.
As a percentage of total revenues, EBITDA increased from 10.9% in 1997 to
12.8% in 1998 as a result of the factors discussed above.
Depreciation and amortization increased $3.7 million in the first
nine months of 1998 compared to 1997 due primarily to the increase in
goodwill and purchased intangibles associated with the purchase of Pollo
Tropical, Inc. in July, 1998 and the purchase of Burger King restaurants
in 1997.
Interest expense was $14.7 million for the first nine months of 1998
compared to $11.1 million for the first nine months of 1997. The
increase in 1998 was due to higher average debt balances from funding the
acquisition of Pollo Tropical in July, 1998 and the acquisition and
construction of Burger King restaurants in 1997.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
________________________
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, ongoing capital reinvestment in
its existing restaurants, the acquisition of existing Burger King
restaurants, and debt service.
The Company generated cash flow from operations in the first nine
months of 1998 of approximately $22.3 million, compared with $7.1 million
for the first nine months of 1997.
The Company's capital expenditures include acquisitions of $97.3
million and $78.1 million for the nine months ended September 30, 1998
and 1997, respectively. The Company acquired Pollo Tropical in July 1998
for $96.6 million. For the first nine months of 1998 and 1997, the
Company acquired 2 and 91 Burger King restaurants, respectively, for $.6
million and $78.1 million, respectively.
Capital expenditures, excluding acquisitions, for the first nine
months of 1998 totaled $22.0 million, which included construction costs
for twelve new Burger King restaurants, six of which were open at
September 30, 1998. Capital expenditures, excluding acquisitions, for
the same period in 1997 totaled $11.0 million, which included
construction costs for seven new Burger King restaurants. The Company's
capital expenditures also include remodeling costs and capital
maintenance projects for the ongoing reinvestment and enhancement of its
restaurants. These expenditures have increased in 1998 due to growth in
the number of restaurants and investments being made to enhance the
operations of the 95 Burger King restaurants the Company acquired since
the beginning of 1997. Carrols also has projects underway to upgrade its
corporate information and decision support systems along with its
restaurant point-of-sale and management systems. These systems projects
have resulted in incremental capital investments which totaled
approximately $2.9 million for the first nine months of 1998.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION - continued
________________________
LIQUIDITY AND CAPITAL RESOURCES - continued
The Company generated $18.5 million from the sale and leaseback of two
Burger King restaurant properties and 12 Pollo Tropical restaurant
properties during the first nine months of 1998, the proceeds of which
were used to reduce outstanding debt. Carrols also
paid dividends to its parent totaling $3.9 million for its parent's
payment of dividends on its preferred stock and for the early redemption
of the remaining $3.6 million in preferred stock which was scheduled for
mandatory redemption in December 1998 and December 1999.
At September 30, 1998, the Company had $130.9 million outstanding
under its existing Senior Credit Facility. The Pollo Acquisition has
been funded using the Company's existing Senior Credit Facility which was
amended on July 9, 1998 to modify, among other things, certain financial
covenants with respect to debt to cash flow ratios. The Company is in
compliance with its debt covenants at September 30, 1998.
In 1998, the Company anticipates capital expenditures of
approximately $33 million, excluding the cost of acquisitions. These
amounts include approximately $15 million for construction of new Burger
King restaurants (including certain real estate) and $8 million for
ongoing reinvestment and remodeling of its existing Burger King
restaurants. In 1998, the Company has begun to upgrade its restaurant
point-of-sale and in-restaurant support systems, and has also undertaken
an upgrade of its corporate information and decision support systems.
During 1998 and 1999 the Company estimates that it will incur total
expenditures for these systems projects of $11 to $12 million. The
Company anticipates total capital expenditures in 1998 of approximately
$5 million for Pollo Tropical, consisting primarily of costs related to
the construction of new restaurants.
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 rates. 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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION - continued
________________________
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Carrols has addressed
this risk to the availability and integrity of financial systems and the
reliability of operation systems. Carrols 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 to improve the efficiency of
Carrols' restaurant and support operations, however, they will also
provide the additional benefit of making its systems Year 2000 compliant.
The Company has purchased point-of-sale hardware and software, and a
suite of corporate financial software applications all of which are
designed and warranted to be Year 2000 compliant. The total cost of
these capital projects is anticipated to be approximately $12 million to
$13 million. Through September 30, 1998 the Company has expended $3.2
million associated with these projects. The majority of the remaining
expenditures pertain to restaurant point-of-sale hardware.
As of November 13, 1998, the Company has successfully implemented certain
corporate financial applications including general ledger, accounts
payable and asset management as well as a portion of its payroll
processing. The remaining significant corporate support systems to be
implemented are restaurant payroll and human resources, which is
anticipated to be implemented by March 31, 1999, and sales and inventory
accounting systems which are anticipated to be implemented in the second
quarter of 1999.
The Company believes that all of its computer systems will be Year 2000
compliant by the end of the second quarter of Fiscal 1999. The Company
has not developed a detailed contingency plan due to the anticipated
implementation dates of the projects above. The company is evaluating
its implementation progress on an ongoing basis and will develop
contingency plans as needed should its scheduled implementation dates be
modified. This is a forward looking statement and is subject to risks
and uncertainties, including the ability of third party vendors and
software provided by third parties to effectively satisfy the
requirements of being Year 2000 compliant.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material legal proceedings commenced by or initiated
against the Company during the reported quarter, or material developments
in any previously reported litigation.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
(a) The following exhibit is filed as part of this report.
EXHIBIT NO.
27 Financial Data Schedule
(b) During the quarter the Company filed the following current
reports on Form 8-K:
. The Company filed Form 8-K dated July 9, 1998 reporting the
acquisition of Pollo Tropical, Inc. under Item 2. Financial
statements and proforma financial information required by
Item 7 was filed as part of the Company's quarterly 10-Q
filing for the quarter ended June 30, 1998.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CARROLS CORPORATION
968 James Street
Syracuse, New York 13203
(Registrant)
November 16, 1998 /s/ __
Date (Signature)
Alan Vituli
Chairman and Chief Executive
Officer
November 16, 1998 /s/
Date (Signature)
Paul R. Flanders
Vice President - Finance
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Quarterly Report for the nine months ended September 30, 1998 of Carrols
Corporation and is qualified in its entirety by reference to such financial
statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> $ 2,442,000
<SECURITIES> 0
<RECEIVABLES> $ 870,000
<ALLOWANCES> 0
<INVENTORY> $ 2,973,000
<CURRENT-ASSETS> $ 14,108,000
<PP&E> $177,385,000
<DEPRECIATION> $(76,060,000)
<TOTAL-ASSETS> $306,898,000
<CURRENT-LIABILITIES> $ 42,800,000
<BONDS> $231,125,000
0
0
<COMMON> 10
<OTHER-SE> $ 18,284,000
<TOTAL-LIABILITY-AND-EQUITY> $306,898,000
<SALES> $305,866,000
<TOTAL-REVENUES> $306,027,000
<CGS> $ 89,829,000
<TOTAL-COSTS> $253,822,000
<OTHER-EXPENSES> $ 1,639,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $ 14,716,000
<INCOME-PRETAX> $ 8,566,000
<INCOME-TAX> $ 3,850,000
<INCOME-CONTINUING> $ 4,716,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 4,716,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
