Filed On 3/30/95 ˇ SEC File 1-06553 ˇ Accession Number 17927-95-7
As Of Filer Filing On/For/As Docs:Pgs
3/30/95 Carrols Corp 10-K 12/31/94 19:462
Document/Exhibit Description Pages Size
1: 10-K Annual Report 55 242K
2: EX-10 Material Contract 9 46K
3: EX-10 Material Contract 10 46K
4: EX-10 Material Contract 6 31K
5: EX-10 Material Contract 5 19K
6: EX-10 Material Contract 32 135K
7: EX-10 Material Contract 73 240K
8: EX-10 Material Contract 73 200K
9: EX-10 Material Contract 27 101K
10: EX-10 Material Contract 12 56K
11: EX-10 Material Contract 23 85K
12: EX-10 Material Contract 7 27K
13: EX-10 Material Contract 8 31K
14: EX-10 Material Contract 1 9K
15: EX-10 Material Contract 61 187K
16: EX-10 Material Contract 17 67K
17: EX-10 Material Contract 40 161K
18: EX-10 Material Contract 2 12K
19: EX-27 Financial Data Schedule 1 10K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For Fiscal Year Ended December 31, 1994
Commission File Number 1-6553
CARROLS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 16-0958146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
968 James Street, Syracuse, New York 13203
(Address of principal executive office) (Zip Code)
(315) 424-0513
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
11 1/2% Senior Notes Due 2003
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
The aggregate market value of the voting stock held by non-affiliates of
the Registrant: No voting stock is held by non-affiliates.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of March 15, 1995: 10.
Documents Incorporated by Reference: None
PART I
ITEM 1. BUSINESS
HISTORICAL DEVELOPMENT
Carrols Corporation (the "Company" or "Carrols") was incorporated in 1968
and through 1976 its principal business was the operation of fast food hamburger
restaurants under the name Carrols Restaurants and movie theaters under the name
CinemaNational. In 1976, as a result of growing competition from larger and
better recognized national fast food restaurant chains, Carrols became a
franchisee of Burger King Corporation ("BKC") and began converting its
restaurants to Burger King restaurants and ceased operating and franchising
restaurants under the name of Carrols Restaurants. In order to facilitate the
financing of the conversion of these restaurants, Carrols disposed of a
substantial portion of its movie theater assets.
In 1969, Carrols offered its common stock through an initial public
offering. The Company's shares were listed for trading on the New York Stock
Exchange in 1983.
The Company was acquired in December 1986 (the "Acquisition") by Carrols
Holdings Corporation ("Holdings"), a corporation formed to effect the
Acquisition by Mr. Alan Vituli and other members of the Company's current senior
management, a private investor group and certain institutional investors. As
a result of the Acquisition, Carrols became a wholly-owned subsidiary of
Holdings. In March, 1992, Mr. Vituli, who was Chairman of the Board of the
Company from the time of the Acquisition in December, 1986, was also elected to
serve as Chief Executive Officer. Mr. Daniel T. Accordino became President of
the Company in February, 1993. In January, 1995, the Company entered into
three-year employment agreements with Messrs. Vituli and Accordino. See
"Executive Compensation -- Employment Agreements".
At the time of the Acquisition, the Company owned 138 Burger King
restaurants and a food distribution business. In August 1990, the Company sold
the distribution business to Burger King Distribution Services (BKDS), a
division of BKC. Carrols currently purchases substantially all of its
requirements for foodstuffs and paper and packaging products from ProSource
Services Corporation ("ProSource"), the successor to BKDS, pursuant to a five
year supply agreement which was entered into on April 1, 1994 and which expires
on March 31, 1999. See "Business--Supplies and Distribution."
Since the Acquisition, Carrols has expanded its operations from 138
Burger King restaurants to 217 as of March 15, 1995. During this period, Carrols
built 27 restaurants, purchased 61 restaurants, and disposed of or closed nine
restaurants. See "Business--Restaurant Locations." Since October 1992, the
Company has acquired 50 Burger King restaurants through the 1992 acquisition
of ten Burger King restaurants for a purchase price of approximately $7.4
million, the 1993 acquisition of 18 Burger King restaurants for a purchase
price of approximately $10.5 million and the 1994 acquisition of 22 restaurants
in three separate transactions, for a total purchase price of $11.6 million.
On August 17, 1993 the Company consummated a refinancing (the
"Refinancing") that repaid all outstanding amounts under the then existing
senior secured credit facility, the senior subordinated notes and the
subordinated debentures. Under the terms of the refinancing and the Company's
present outstanding indebtedness, debt amortization requirements are less than
$1.0 million per year until 2000. The Refinancing included the issuance of
$110.0 million aggregate principal amount of 11-1/2% Senior Notes due 2003 and
the concurrent closing of a new $25.0 million senior secured revolving credit
facility (the "Senior Secured Credit Facility") which replaced the Company's
existing senior secured credit facility with the same lender. On December 20,
1994, Carrols amended certain provisions of the Senior Secured Credit Facility
which included an increase in the maximum amount of the revolver to the original
$25.0 million, elimination of the scheduled annual reductions in the maximum
revolver available and a reduction in the interest rate. As part of the
amendment, an additional $5.0 million credit facility was added to the existing
$25.0 million facility, which additional facility will be secured by the 22
Burger King restaurants acquired during 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
COMPANY OPERATIONS
General. Since 1976, the Company's principal business has been the
operation of Burger King restaurants. The Company is the largest independent
Burger King franchisee in the United States. As of March 15, 1995, the Company
operated, as franchisee, 217 Burger King restaurants, of which 195 are
free-standing restaurants and 22 are located in retail shopping centers or
specialty stores. Carrols currently operates Burger King restaurants in nine
Northeastern and Midwestern states and one Southeastern state.
Carrols' Burger King restaurants are typically open seven days a week from
7:00 a.m. to 11:00 p.m. Substantially all of Carrols' Burger King restaurants
offer a breakfast menu and the traditional Burger King menu for lunch and
dinner. The majority of the Company's Burger King restaurants are free-standing
buildings offering in-store seating and drive-thru service. A standard,
free-standing Burger King restaurant building typically has an area of
approximately 3,000 square feet with a seating capacity of approximately 90 and
adjacent parking areas. Smaller Burger King facilities are utilized in retail
shopping centers. In Carrols' free-standing Burger King restaurants, greater
than 50% of sales are generated through drive-thru windows. Carrols leases most
of its restaurant properties, although it owns the land and buildings on which
17 restaurants are located. See "Business--Properties."
Burger King. There are approximately 7,400 Burger King restaurants
worldwide making BKC the second largest hamburger fast food operation. BKC has
been franchising since 1954 and has expanded to locations in all 50 states, the
District of Columbia and approximately 50 foreign countries.
Burger King restaurants are fast food restaurants of distinctive design
which serve a limited menu of moderately-priced foods and offer efficient and
rapid service. The Company believes that convenience, speed of service, quality
of food and price/value are the primary competitive advantages of Burger King
restaurants. Burger King restaurants appeal to a broad spectrum of consumers,
with different meal segments tending to appeal to different groups.
Burger King restaurants feature flame-broiled hamburgers, which are an
integral part of the Burger King identity, and several widely-known, trademarked
products, the most popular being the Whopper sandwich, which is a large,
flame-broiled hamburger on a five-inch toasted bun garnished with combinations
of mayonnaise, lettuce, onions, pickles and tomatoes. The basic menu of all
Burger King restaurants consists primarily of hamburgers, cheeseburgers, chicken
sandwiches and filets, fish sandwiches, french fried potatoes, salads, shakes,
desserts, soft drinks, milk and coffee. From time to time, other promotional
items are added to the menu for limited periods. BKC continually seeks to
develop new products and concepts as it endeavors to enhance the menu and
service of Burger King restaurants.
Franchise Agreements. Each of Carrols' Burger King restaurants operates
under a separate Franchise Agreement from BKC. The Franchise Agreements require,
among other things, that all restaurants be of standardized design and be
operated in a prescribed manner, including utilization of the standard Burger
King menu. The Franchise Agreements generally provide for an initial term of 20
years and have an initial fee of $40,000. At the option of BKC, a Successor
Franchise Agreement may be granted for an additional 20 year term, provided the
restaurant meets the then-current BKC operating standards and the Company is not
in default under the relevant Franchise Agreement. Currently, the Successor
Franchise Agreement fee is $25,000 per restaurant. In addition to this fee, in
order to obtain a Successor Franchise Agreement, Carrols is typically required
to make capital improvements to the subject restaurant to bring the restaurant
up to BKC's then-current design standards. The amount of such capital
expenditures will vary widely depending upon the magnitude of the required
changes and the degree to which the Company has made interim changes to the
restaurant. Although the Company estimates that a substantial remodeling can
cost in excess of $250,000, the Company's average remodeling cost over the past
five years has been approximately $140,000 per restaurant. The Franchise
Agreements are non-cancelable except for failure to abide by the terms thereof.
Carrols believes that it enjoys a good relationship with BKC, and
believes that it will satisfy BKC's normal Successor Franchise Agreement
policies and, accordingly, that Successor Franchise Agreements will be granted
in due course by BKC at expiration of the existing Franchise Agreements. BKC
has granted Successor Franchise Agreements for all of the Franchise Agreements
for which the Company has sought Successor Agreements.
In addition to the initial franchise fee, franchisees currently pay to
BKC a monthly royalty of 3-1/2% of the gross revenues from their Burger King
restaurants. Burger King operators currently also contribute 4% of monthly gross
revenues from their Burger King restaurants to fund BKC's national and regional
advertising. BKC engages in substantial advertising and promotional activities
and other efforts to maintain and enhance the nationwide Burger King system.
Carrols supplements BKC's marketing with local advertising and promotional
campaigns. See "Business--Business Strategy" and "--Advertising and Promotion."
The franchisee of a new restaurant must also purchase the requisite
equipment, seating, signage, and pay various other costs to open a new Burger
King restaurant. The Company estimates that the average costs for a standard
free-standing restaurant are approximately $260,000 (excluding the cost of the
building and related real estate). In addition, the Company estimates that the
aggregate cost of constructing a free-standing restaurant and the cost of the
associated real estate ranges from $650,000 to $1,000,000 (or higher) depending
upon building type, land costs and site work.
The BKC Franchise Agreement does not grant any franchisee exclusive
rights to a defined territory. The Company believes that BKC generally seeks to
ensure that newly granted franchises do not materially adversely affect the
operations of existing Burger King restaurants.
The Company is required to obtain BKC's consent prior to the acquisition
or development of new Burger King restaurants. BKC has the right of first
refusal to purchase any Burger King restaurant which the Company wishes to
acquire. In addition, BKC's prior consent is required for the sale by the
Company of any of its restaurants. Since the Acquisition, BKC has consented to
each of the Company's proposed acquisitions.
Management Structure; Staffing; Training. Substantially all executive
management, finance, marketing and operation support functions are conducted
centrally at Carrols' Syracuse, New York headquarters. The Company currently has
three vice president-regional directors who are responsible for the operations
of all Burger King restaurants in their respective regions. Each of the three
regional directors has been employed by Carrols for over 20 years. A fourth
regional director has replaced a recently retired vice president-regional
director. There are 28 district supervisors who report to the regional
directors. The district supervisors have responsibility for an average of eight
restaurants and are responsible for direct supervision of the day-to-day
operations of the restaurants. Typically, district supervisors previously served
as restaurant managers at one of Carrols' restaurants. Both regional directors
and district supervisors are compensated with a fixed salary plus an incentive
bonus based upon the performance of the restaurants under their supervision.
A typical Carrols' Burger King restaurant is staffed with hourly
employees, who are supervised by a full-time manager and two or three assistant
managers.
Carrols provides both classroom and in-restaurant training for its
salaried and hourly personnel, in addition to training programs provided by BKC.
Carrols believes that training and management development are integral to its
success.
Control Systems. Financial and management control of Carrols' restaurants
is facilitated by the use of a computerized point of sale system which
electronically communicates data from each of the Company's restaurants to
Carrols' centralized management information system on a daily basis. Sales
reports, payroll data, food and labor cost analyses, and other operating
information for each restaurant are also available daily to the restaurant
manager, who is expected to react quickly to trends or situations in his or her
restaurant. The daily information is accumulated for weekly operating reports
covering significant restaurant performance indicators for each restaurant.
These reports are monitored by each management level from district supervisor
through senior management. Carrols believes that these systems materially
enhance its ability to control and manage its restaurant operations.
Factors Affecting the Company's Operations. Carrols' business is affected
by conditions which reduce automobile usage, such as inclement weather, gasoline
prices and road construction. Weather conditions can be particularly severe in
the Northeast where the Company operates a significant number of its Burger King
restaurants. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Historically, the Company's business has also been
affected by changes in local and national economic conditions, consumer spending
habits, consumer tastes, consumer concerns about the nutritional quality of fast
food and demographic trends.
Site Selection. The Company believes that the location of its restaurants
is very important to its success. The Company's operations personnel review all
potential acquisition and new development sites for accessibility, visibility,
costs, surrounding traffic patterns and demographic characteristics. The
Company's senior management, based upon analyses prepared by its real estate
professionals and its operations division, determines the acceptability of all
acquisition and new development sites. See "Business--Business Strategy."
RESTAURANT LOCATIONS
The following table sets forth the locations of the 217 Burger King
restaurants in Carrols' system at March 15, 1995.
NEW YORK (97) OHIO (65) MAINE (3)
Greater Albany (14) Greater Akron (11) Augusta (1)
Auburn (1) Alliance (2) Bangor (2)
Amsterdam (1) Archbold (1)
Greater Binghamton (6) Ashland (1)
Boonville (1) Bowling Green (2) MASSACHUSETTS (2)
Buffalo (1) Bryan (1)
Catskill (1) Greater Canton (11) North Andover (1)
Cobleskill (1) Greater Cleveland (12) Billerica (1)
Cortland (1) Defiance (1)
Fulton (1) Findlay (2)
Glens Falls (2) Fostoria (1) NEW JERSEY (2)
Gloversville (2) Fremont (1)
Herkimer (1) Hartville (1) Franklin (1)
Hudson (1) Lima (2) Newton (1)
Kingston (3) Mansfield (6)
Middletown (2) Medina (1)
New City (1) Mentor (1) CONNECTICUT (1)
Newburgh (3) New Philadelphia (2)
Niagara Falls (1) Ottawa (1) Westport (1)
Norwich (1) Streetsboro (1)
Oneonta (2) Tiffin (1)
Oswego (1) Van Wert (1) VERMONT (1)
Peekskill (1) Wapakoneta (1)
Plattsburgh (3) Wooster (1) Rutland (1)
Poughkeepsie (2)
Port Jervis (1)
Greater Rochester (15) MICHIGAN (14)
Rome (2)
Greater Syracuse (17) Ann Arbor (3)
Schodack (1) Battle Creek (4)
Greater Utica (4) Kalamazoo (4)
Watertown (2) Jackson (3)
Yorktown Heights (1)
NORTH CAROLINA (24) PENNSYLVANIA (8)
Greater Asheville (9) Bradford (1)
Durham (7) East Stroudsburg (1)
Forest City (1) Lebanon (1)
Hendersonville (2) Reading (4)
Marion (1) Tamaqua (1)
Morganton (1)
Raleigh (2)
Shelby (1)
ADVERTISING AND PROMOTION
As a Burger King franchisee, a significant portion of the Company's
advertising and promotional programs are established and coordinated by BKC
through regional and national advertising campaigns. Carrols supplements BKC's
advertising and promotional activities with local advertising and promotions,
including purchasing additional television, radio and print advertising.
Carrols also utilizes promotional programs, such as combination meals and
discounted prices, targeted to its customers, thereby enabling Carrols to create
a flexible and directed marketing program.
Most BKC franchisees and BKC are required to contribute 4% of monthly
gross revenues from restaurant operations to an advertising fund, utilized by
BKC for its advertising and promotional programs and public relations
activities. BKC's advertising programs are comprised of national campaigns and
local advertising which supplements the national campaigns. BKC's advertising
campaigns are generally carried on television, radio and in the mass circulated
print media (national and regional newspapers and magazines). Carrols believes
that one of the major advantages of being a Burger King franchisee is the
leverage it realizes from the marketing power of BKC.
SUPPLIES AND DISTRIBUTION
As a Burger King franchisee, Carrols is required to purchase all of its
foodstuffs, paper and packaging from BKC-approved suppliers. Other non-food
items such as kitchen utensils, equipment maintenance tools and other supplies
may be purchased from any suitable source provided such items meet BKC product
uniformity standards. On April 1, 1994 Carrols entered into a new supply
agreement with its supplier, ProSource, pursuant to which Carrols is required
to obtain all of its foodstuffs (other than bread products), paper, promotional
premiums and packaging from ProSource. The new supply agreement with ProSource
is a five-year agreement which expires on March 31, 1999. The Company believes
that ProSource's services are competitive with alternatives available to the
Company. Carrols purchases its bread products from local bakeries. See
"Business--Historical Development."
There are other BKC-approved supplier/distributors which compete with
ProSource. Carrols believes that it would be able to substitute another
supplier if ProSource were unable, for any reason, or chose not to continue to
service the Company.
All BKC-approved suppliers are required to purchase all foodstuffs and
supplies from BKC-approved manufacturers and purveyors. BKC is responsible for
quality control and supervision of these manufacturers and purveyors. See
"Business--Quality Assurance."
BKC monitors all BKC-approved manufacturers and purveyors of its
foodstuffs. BKC regularly visits these manufacturers and purveyors to observe
the preparation of foodstuffs and run various tests to ensure that only high
quality foodstuffs are sold to BKC-approved suppliers and distributors. In
addition, BKC coordinates and supervises audits of approved suppliers and
distributors to determine continuing product specification compliance and ensure
that manufacturing plant and distribution center standards are met.
QUALITY ASSURANCE
All Burger King franchisees, including Carrols, operate subject to a
comprehensive regimen of quality assurance and health standards set by BKC, as
well as standards set by Federal, state and local governmental laws and
regulations. These standards include food preparation rules regarding, among
other things, minimum cooking temperatures, sanitation and cleanliness. In
addition, BKC has set maximum time standards for holding unsold prepared food;
for example, sandwiches and french fries are discarded after ten minutes and
seven minutes following preparation, respectively. The "conveyor belt" cooking
system utilized in all Burger King restaurants, which is calibrated to carry
hamburgers through the flame broiler at regulated speeds, helps ensure that
standardized cooking times and temperatures are met.
Carrols, through its regional directors and district supervisors, closely
supervises the operation of all of its restaurants to help insure that standards
and policies are followed and that product quality, customer service and
cleanliness of the restaurants are maintained. BKC conducts unscheduled monthly
inspections of each Burger King restaurant throughout the Burger King system.
BUSINESS STRATEGY
The Company's primary business strategy is to expand its operations
through the acquisition and construction of additional Burger King restaurants
while enhancing the quality of operations and competitive position of its
existing Burger King restaurants. Carrols believes the size of the nationwide
Burger King system will continue to present opportunities for selective growth
through acquisitions. In addition, Carrols believes that the number of markets
in which the Company operates will provide opportunities for construction of new
restaurants. The ability of the Company to expand through the acquisition and
construction of additional Burger King restaurants is subject to, among other
things, the availability of financing and obtaining the consent of the
franchisor. Concurrent with growth within the Burger King system, the Company
has identified other quick service restaurant concepts with appealing market
niches and favorable unit economics which management believes provide excellent
growth vehicles and will allow the Company to leverage its strong operations
expertise. During the last 12 months, the Company entered into Area Development
Agreements with Taco Cabana, Inc., and Pollo Tropical, Inc., pursuant to which
the Company has the exclusive right in specified territories to develop and
operate franchised restaurants in each of those concepts. See "Business --
Additional Restaurant Concepts".
GOVERNMENT REGULATION
Carrols is subject to various Federal, state and local laws affecting its
business, including various health, sanitation, fire and safety standards. Newly
constructed or remodeled restaurants are subject to state and local building
code and zoning requirements. In connection with the remodeling and alteration
of the Company's restaurants, the Company may be required to expend funds to
meet certain Federal, state and local regulations, including regulations
requiring that remodeled or altered restaurants be handicap accessible. The
Company is also subject to Federal and state environmental regulations, although
such regulations have not had a material effect on the Company's operations.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of the
Company's food service personnel are paid at rates related to the Federal
minimum wage and increases in the minimum wage could increase the Company's
labor costs.
The Company believes that it is operating in substantial compliance with
applicable laws and regulations governing its operations.
COMPETITION
The fast food industry is highly competitive. In each of its markets,
Carrols' restaurants compete with a large number of national and regional
restaurant chains, as well as locally-owned restaurants, offering low-priced and
medium-priced fare. Convenience stores, grocery store delicatessens and food
counters, cafeterias and other purveyors of moderately priced and quickly
prepared foods also compete with the Company. In the Company's markets,
McDonald's, Wendy's and Hardee's provide the most significant competition.
Carrols believes that national brand name identification is a significant
competitive advantage in the fast food business. The Company's largest
competitor is McDonald's. The Company believes that product quality and taste,
convenience of location, speed of service, menu variety, price and ambiance, are
the most important competitive factors in the fast food restaurant industry.
EMPLOYEES
At December 31, 1994, Carrols employed approximately 7,800
persons;approximately 100 were administrative personnel and 7,700 restaurant
operating personnel. None of Carrols' employees is covered by collective
bargaining agreements. Approximately 7,100 of the restaurant operating personnel
at December 31, 1994 were part-time employees. Carrols believes that its
employee relations are satisfactory.
ADDITIONAL RESTAURANT CONCEPTS
Taco Cabana. On June 20, 1994 Carrols entered into an agreement (the
"Taco Cabana Agreement") with T.C. Management, Inc., an affiliate of Taco
Cabana, Inc., for Carrols to have the exclusive right to develop Taco Cabana
restaurants in North Carolina, South Carolina, and the Tidewater and Richmond
areas of Virginia. Taco Cabana, Inc., is a publicly traded company which
operates quick-service Mexican patio cafe restaurants. As of December 31, 1994,
Taco Cabana owned and operated 104 Taco Cabana restaurants and franchised 23
Taco Cabana restaurants.
Taco Cabana restaurants feature generous portions of fresh, premium
quality Tex-Mex and traditional Mexican style food at low prices. The
restaurants provide interior, semi-enclosed and patio dining areas with a
festive Mexican theme. Menu items include flame-grilled beef and chicken
fajitas served on sizzling iron skillets, "Chicken Flameante" (a marinated
rotisserie chicken), other Tex-Mex dishes, fresh, hot flour tortillas, and
lighter items such as a variety of salad entrees. Unlike many of its
competitors, Taco Cabana makes all menu items "from scratch," preparing each
item daily in each of its restaurants.
The Taco Cabana Agreement requires Carrols to develop three (3) Taco
Cabana restaurants during the first year, six (6) Taco Cabana restaurants during
the second year, and eight (8) Taco Cabana restaurants during each of the next
three (3) years in order to retain the entirety of its territory under the
agreement. Carrols has the ability to maintain the exclusive right to develop
in its assigned territory provided it continues to develop Taco Cabana
restaurants in accordance with the formula set forth in the Taco Cabana
Agreement. Failure to comply with the formula would result in a reduction or
elimination of its exclusive territorial rights. Upon execution of the Taco
Cabana Agreement, Carrols paid a non-refundable fee of $250,000, which will be
credited against development and license fees for the first five Taco Cabana
restaurants developed by Carrols. The development and license fee for the first
ten Taco Cabana restaurants to be opened by Carrols is $50,000 per restaurant,
thereafter the development and license fee is $25,000 per restaurant.
Pollo Tropical. On January 1, 1995 Carrols entered into an agreement
(the "Pollo Tropical Agreement") with Pollo Franchise, Inc., an affiliate of
Pollo Tropical, Inc., for the exclusive right to develop Pollo Tropical
restaurants in certain specified regions of Ohio and Kentucky. Pollo Tropical
is a publicly traded company which operates a chain of quick service restaurants
featuring grilled marinated chicken. As of December 31, 1994, Pollo Tropical
currently had 34 restaurants systemwide, of which 33 were Company owned and 1
was franchised.
Pollo Tropical restaurants are quick-service restaurants featuring
grilled, fresh chicken, marinated in a proprietary blend of tropical fruit
juices and spices, and authentic "made from scratch" side dishes. The menu's
emphasis on freshness and quality, as well as its focus on chicken served hot
off the grill, provides a healthy and flavorful alternative to ordinary quick-
service restaurants. Pollo Tropical restaurants combine high quality,
distinctive taste and an inviting tropical setting with the convenience and low-
price appeal of quick-service restaurants.
Pollo Tropical restaurants have a tropical and Latin theme, and feature
fresh and flavorful chicken grilled to a quick golden brown over open flames in
view of the customer. Chicken is served whole, in halves or in quarters, and
grilled chicken breasts are served in sandwiches, salads and platters. The
restaurants also offer a wide variety of distinctive and popular side dishes
including black beans and rice, yucatan fries and sweet plantains.
The Pollo Tropical Agreement requires Carrols to develop three (3) Pollo
Tropical restaurants during the first 18 months, six (6) Pollo Tropical
restaurants during the next 12 months, and eight (8) Pollo Tropical restaurants
during each of the next three years in order to retain the entirety of its
territory under the agreement. Carrols maintains the exclusive right to develop
in its assigned territories provided it continues to develop restaurants in
accordance with the formula set forth in the Pollo Tropical Agreement. Failure
to comply with the formula would result in a reduction or elimination of its
exclusive territorial rights. Upon the execution of the Pollo Tropical
Agreement, Carrols paid a non-refundable fee of $110,000, which will be credited
against franchise fees for the first five Pollo Tropical restaurants developed
by Carrols. The license fee for the first three Pollo Tropical restaurants is
$30,000 per restaurant, thereafter the license fee is $15,000 per restaurant.
In addition to the territories of Ohio and Kentucky, Carrols has certain
limited options to develop Pollo Tropical restaurants in the State of Michigan
(other than Detroit) and Toronto, Canada.
ITEM 2. PROPERTIES
The Company owns the approximately 20,000 square foot building at 968
James Street, Syracuse, New York, in which its executive offices are located.
This building houses all of the Company's administrative operations (except for
those conducted at three small regional offices) and is adequate for future
expansion. The Company is the beneficial owner of a 160,000 square foot
warehouse building in Liverpool, New York. The warehouse is not used in the
current operations of the Company and is available for sale or long-term lease.
In addition to the above, at March 15, 1995, the Company owned or leased
the following properties:
Owned Leased Leased
Land; Land; Land;
Owned Owned Leased
Building Building Building Total
Burger King restaurants 17 16 184(a) 217
Excess properties:
Leased to others 1 -- 7 8
Available for sale or lease 4 -- -- 4
Total properties 22 16 191 229
(a) Includes 22 restaurants located in mall shopping centers or specialty
locations.
Most of the Company's leases are coterminous with the related Franchise
Agreements. The Company believes that it generally will be able to renew at
commercially reasonable rates the leases whose terms expire prior to the subject
Franchise Agreements.
Most leases require the Company, as lessee, to pay utility and water
charges, premiums on insurance and real estate taxes. Certain leases also
require contingent rentals based upon a percentage of gross sales that exceed
specified minimums.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding which, in
management's belief, will have a material adverse effect on the Company's
results of operations or financial condition, nor to any other pending legal
proceedings other than ordinary, routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established trading market for the Company's common equity,
since 100% of its common stock is owned by Holdings.
Cash dividends per share were declared during 1993 and 1994 as follows:
January, 1993 $ 20,010.00
April, 1993 20,010.00
July, 1993 20,010.00
October, 1993 113,935.45
December, 1993 99,995.00
January, 1994 237,301.10
April, 1994 20,000.00
July, 1994 20,000.00
October, 1994 20,000.00
ITEM 6. SELECTED FINANCIAL DATA
CARROLS CORPORATION AND SUBSIDIARIES - SUMMARY OF SELECTED FINANCIAL DATA
ˇ Download Table
Col. A Col. B Col. C
Col. D Col. E Col. F
YEARS
ENDED DECEMBER 31,
__________ __________
__________ __________ __________
1994 1993
1992 1991 1990
__________ __________
__________ __________ __________
(52 weeks) (52 weeks)
(53 weeks) (52 weeks) (52 weeks)
(Dollars in thousands except
for per share data and restaurants)
OPERATING RESULTS:
Revenues $ 204,254 $ 171,634
$ 156,413 $ 146,634 $ 149,890
Loss from continuing operations (1,831) (4,408)
(1,262) (4,919) (5,760)
Income from discontinued operations
2,986
Extraordinary loss on
extinguishment of debt (4,883)
Cumulative effect of change in accounting
for post-retirement benefits
(1,037)
Net Loss $ (1,831) $ (9,291)
$ (2,299) $ (4,919) $ (2,774)
PER SHARE OF COMMON STOCK:
Loss from continuing operations $(183,100) $(440,800)
$(126,200) $(491,900) $(576,000)
Income from discontinued operations
298,600
Extraordinary loss on
extinguishment of debt (488,300)
Cumulative effect of change in accounting
for post-retirement benefits
(103,700)
Net Loss $(183,100) $(929,100)
$(229,900) $(491,900) $(277,400)
Dividends Declared $ 297,301 $ 273,960
$ 20,010 $ 40,000 $ 80,000
OTHER DATA:
Total assets $ 124,688 $ 119,735
$ 115,900 $ 115,592 $ 132,942
Long-term debt 120,680 114,197
91,245 88,541 102,568
Capital lease obligations 3,966 4,603
5,436 6,002 6,632
Total long-term debt and capital lease
obligations 124,646 118,800
96,681 94,543 109,200
Common stockholder's equity (deficit) (27,208) (22,404)
(10,383) (7,884) (2,565)
Burger King restaurants in operation:
At end of period 219 195
177 165 164
Annual weighted average 206.8 184.5
168.7 163.8 162.5
FN> </TABLE
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General. The following table sets forth for the years ended December 31,
1992, 1993 and 1994 certain consolidated financial data for the Company,
expressed as a percentage of sales:
PERCENTAGE OF SALES
YEARS ENDED DECEMBER 31,
1994 1993 1992
Sales 100.0% 100.0% 100.0%
Other income .2 .3 .3
Cost of sales 28.4 28.3 27.6
Restaurant wages and related expenses 29.4 30.2 30.2
Other restaurant operating expenses 20.8 20.6 19.7
Depreciation and amortization 5.5 7.1 7.1
Administrative expenses 4.6 4.7 4.5
Advertising expense 4.3 4.6 4.9
Interest expense 7.1 7.3 7.1
Loss on closing restaurants and other .9
Loss before extraordinary item and
cumulative effect of change in
accounting principles (.9) (2.6) (.8)
1994 COMPARED TO 1993
Sales. Sales for the year ended December 31, 1994 increased $32.8
million, or 19.2%, as compared to the year ended December 31, 1993. The Company
operated an average of 207 Burger King restaurants for the year ended December
31, 1994 as compared to 185 for 1993. Average unit sales increased 6.8% when
comparing 1994 to 1993. Sales at comparable restaurants, the 170 units
operating for the entirety of the compared periods, increased $7.9 million, or
5.1%. Net restaurant selling prices were down approximately 0.7%, resulting
from a 7.0% reduction in menu prices offset by a 6.3% increase from fewer
discount promotions in 1994. The pricing changes reflect the value menu pricing
strategy adopted nationally by BKC near the end of 1993 which prices a sandwich,
drink and fries as a meal for less than the prices of the individual items and
correspondingly reduces price-off promotion activity.
Cost of Sales. Cost of sales (food and paper costs) for the year ended
December 31, 1994 increased in dollars due to higher sales. Cost of sales as
a percentage of sales increased 0.1% from 1993 to 1994 as a result of the effect
of lower net restaurant selling prices, partially offset by decreases in various
commodity costs, especially beef.
Restaurant Wages and Related Expenses. Restaurant wages and related
expenses decreased from 30.2% of sales to 29.4% of sales when comparing the year
ended December 31, 1993 to 1994. Productive labor efficiencies realized from
improved technology utilized in operating the drive-thru windows at the
restaurants and the effect of higher sales on the fixed component of restaurant
wages more than offset the effects of lower restaurant selling prices and
increased wage rates.
Other Restaurant Operating Expenses. Other restaurant operating expenses
increased by $7.2 million and by 0.2% as a percentage of sales for 1994 compared
to 1993. The increase in dollars was caused primarily by expenses associated
with the operation of the additional restaurants during the most recent year
when compared to the prior year. Increased expense for replacement of employee
uniforms was the major cause of the 0.2% increase in the percentage when
comparing 1994 to 1993.
Depreciation and Amortization. Depreciation and amortization decreased
$0.9 million when comparing the year ended December 31, 1994 to 1993. The
effect from assets becoming fully depreciated during the last two years was
partially offset by additional depreciation and amortization from new and
acquired restaurants.
Administrative Expenses. Expenses associated with acquired restaurants and
those arising from improved restaurant operating performance were the principal
cause of increased administrative expenses during the year ended December 31,
1994 as compared to 1993.
Advertising Expense. An increase in advertising payments to Burger King
Corporation of $1.3 million (based on sales levels) was partially offset by
decreases in other forms of promotional activities of $0.5 when comparing
1994 to 1993.
Interest Expense. An increase in average loan balances outstanding was the
principal cause for interest expense to increase $2.0 million for the year
ended December 31, 1994 compared to 1993.
Loss on Closing Restaurants and Other. This charge of $1.8 million
during the year ended December 31, 1994 represents a $1.3 million loss from the
anticipated closing of certain restaurants and the write down of approximately
$.5 million to estimated net realizable value of an unused warehouse. The
charge includes a write down of the related restaurant operating assets to net
realizable value and accrual of lease termination costs.
1993 COMPARED TO 1992
Sales increased $15.1 million, or 9.7%, for the year ended December 31, 1993
compared to the year ended December 31, 1992. After adjusting for the extra
week in 1992, average restaurant unit sales increased 1.7% in 1993 compared to
1992, while sales at comparable restaurants, the 158 units operating for the
entirety of 1992 and 1993 decreased $1.9 million, or 1.3%. Net restaurant
selling prices were down approximately 3.4% from increased discount promotional
activity during the year and a reduction in menu prices during the last quarter
of 1993. Sales were adversely affected during most of the first quarter of 1993
by unusually heavy snowfall in the geographic areas of Carrols operations.
Cost of Sales. Cost of sales (food and paper costs) for the year ended
December 31, 1993 compared to the year ended December 31, 1992 increased in
dollars due to higher sales and as a percentage of sales, cost of sales
increased from 27.6% to 28.3%. A 1.0% increase in cost of sales resulting from
the decrease in net restaurant selling prices and increases in the cost of beef
were partially offset by decreases in the cost of various other commodities.
Restaurant Wages and Related Expenses. Restaurant wages and related
expenses increased $4.6 million for the year ended December 31, 1993 as compared
to the year ended December 31, 1992. This increase was due to the increased
sales in 1993 and increases in labor rates and payroll taxes, partially offset
by labor efficiencies.
Other Restaurant Operating Expenses. Other restaurant operating expenses
increased both in dollars of $4.5 million and as a percentage of sales of
0.9% from 1992 to 1993. Rent of $1.4 million and other operating costs of $2.7
million associated with restaurants which were not operating for the entirety
of both years contributed $4.1 million to the increase in 1993 compared to 1992.
Additionally, an increase in the costs of utilities and repairs and maintenance
at comparable units contributed to the balance of the increase for the year.
Depreciation and Amortization. The additional depreciation from new
restaurants acquired during 1992 and 1993, partially offset by a decrease from
assets becoming fully depreciated, resulted in a $1.1 million increase in 1993
as compared to 1992.
Administrative Expenses. The increase in administrative expenses of $1.1
million when comparing 1993 to 1992 resulted from costs associated with the
supervision of additional restaurants operating during part of 1992 and 1993 and
costs expended to prepare for planned future expansion.
Advertising Expense. An increase in advertising payments to BKC (based
upon sales levels) offset by a decrease in other promotional advertising
activities resulted in the increase of $0.3 million in advertising expense when
comparing the year ended December 31, 1993 to 1992.
Interest Expense. Higher average loan balances outstanding together with
an increase of approximately 1/2% in the average interest rate were responsible
for the increase in interest expense when comparing 1993 to 1992.
LIQUIDITY AND CAPITAL RESOURCES
On August 17, 1993, the Company consummated the Refinancing, which repaid
substantially all of the Company's outstanding indebtedness through the issuance
of $110.0 million aggregate principal amount of 11-1/2% Senior Notes due 2003
(the "Notes") and the concurrent closing of the $25.0 million Senior Secured
Credit Facility. The Refinancing significantly reduced the Company's then
scheduled debt amortization requirements to less than $1.0 million per year
until 2000, thus enhancing Carrols' ability to pursue its business strategy.
Among other factors, the Company entered into the Refinancing because the
Company's ability to expand its operations through the acquisition and
construction of additional Burger King restaurants had been constrained in the
past by significant annual debt amortization requirements associated with the
indebtedness incurred to finance the Acquisition.
On December 20, 1994, the Senior Secured Credit Facility was amended to
increase the maximum amount of the revolver to the original $25.0 million,
eliminate the scheduled annual reductions in the maximum revolver availability,
reduce the interest rate and provide an additional $5.0 million acquisition
loan. The acquisition loan will be fully advanced during 1995, secured by the
22 Burger King restaurants acquired during 1994, and requires principal
repayments of $250,000 in 1997, $1.25 million in 1998, $2.0 million in 1999 and
$1.5 million in 2000.
The Company has reported net losses in each of the last three years.
Since completing a leveraged buyout in 1986, the Company's focus has been on
developing annual cash flow to service its indebtedness, maintain its assets,
and provide for modest growth. With its current capital structure and having
depreciation and amortization expense which is considerably greater than its
capital reinvestment requirements, reflecting net income on the statement of
operations is less meaningful to the Company than cash flow. Cash flow from
operations has been adequate to maintain the quality of operations and the
competitive position of the Company's restaurants.
The operating activities of the Company during 1994 provided $14.4
million of cash. The net loss of $1.8 million is after a non-cash charge of
$1.8 million for a loss on closing restaurants and other and $11.3 million of
depreciation and amortization. Operating cash also resulted from an increase
in accounts payable of $1.1 million due to more restaurants being operated at
the end of 1994 and an increase in accrued liabilities of $2.8 million,
primarily because of an increase in accrued payroll and employee benefits.
Capital spending during 1994 of $17.6 million included $13.0 million for
the acquisition of three Burger King restaurants in North Carolina, 19 Burger
King restaurants in New York, and the construction of two new restaurants. The
balance of the spending went toward restaurant maintenance and remodeling. The
Company completed 22 remodelings in 1994.
The Company borrowed a net $6.8 million under the Senior Secured Credit
Facility and completed a sale and leaseback of one restaurant property for $0.7
million. Dividends of $3.5 million were paid to Holdings for the payment by
Holdings of $0.8 million of regular quarterly preferred stock dividends of $0.2
million each and $2.7 million for the redemption and retirement of tendered
Holdings' common stock and warrants to purchase such stock in connection with
the tender offer initiated by Holdings in 1993.
At December 31, 1994, the Company had $19.2 million available under its
Senior Secured Credit Facility after reserving $1.6 million for a letter of
credit guaranteed by the Senior Secured Credit Facility. While interest is
accrued monthly, payments of approximately $6.3 million for interest on the
Notes are made each February 15th and August 15th, thus creating semi-annual
cash needs. The Company believes that future cash flow from operations together
with funds available under the Senior Secured Credit Facility will be sufficient
to meet all interest and principal payments under its indebtedness, fund the
maintenance of property and equipment, fund restaurant remodeling required under
the Franchise Agreements and meet required payments in respect of Holdings'
Preferred Stock (subject to the terms of the Indenture and the Senior Secured
Credit Facility) for at least the next twelve months. The balance will provide
funds for future acquisitions.
The Company's loan agreements contain restrictions as to payment of
dividends. Based on current limitations, the Company is able to pay only three
regular quarterly dividends on Holdings' Preferred Stock after December 31,
1994. As more fully explained in Note 6 to the financial statements, the
dividend rate is increased if timely dividend payments are not made.
INFLATION
While inflation can have a significant impact on food, paper, labor and
other operating costs, the Company has historically been able to minimize the
effect of inflation through periodic price increases, and believes it will be
able to offset future inflation with price increases, if necessary.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Index to Financial Statements attached hereto is set forth in Item
14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is omitted as there have been no disagreements with respect to
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Directors and executive officers are:
NAME AGE POSITION WITH THE COMPANY
Alan Vituli 53 Chairman of the Board, Chief
Executive Officer and Director
Daniel T. Accordino 44 President, Chief Operating
Officer and Director
Richard V. Cross 59 Executive Vice President - Finance,
Treasurer and Director
Peter J. Weidhorn 48 Director
M. Bruce Adelberg 58 Director
Franklin Glasgall 62 Director
Joseph A. Zirkman 34 Vice President, General Counsel and
Secretary
Richard H. Liem 41 Vice President--Financial Operations
Paul P. Drotar 48 Vice President--Corporate Controller
David R. Smith 45 Vice President--Regional Director
James E. Tunnessen 40 Vice President--Regional Director
Michael A. Biviano 38 Vice President--Regional Director
David Morency 39 Vice President--Casual Dining
Division
Certain biographical information regarding each Director and executive
officer of the Company is set forth below:
Mr. Vituli has been Chairman of the Board of Carrols since 1986 and Chief
Executive Officer since March 1992. He is also a director and Chairman of the
Board of Holdings. Mr. Vituli is also managing general partner of Morgan
Ventures III, a limited partnership ("Morgan Ventures"), which is the record
owner of 1,538,706 shares of voting common stock of Holdings. See "Principal
Stockholders." Between 1983 and 1985, Mr. Vituli was employed by Smith Barney,
Harris Upham & Co., Inc. as a senior vice president responsible for real estate
transactions. For the 17 years prior to joining Smith Barney, Mr. Vituli was
associated with the accounting firm of Coopers & Lybrand, first as an employee
and the last ten years as a partner. Among the positions held by Mr. Vituli at
Coopers & Lybrand was national director of mergers and acquisitions. Prior to
joining Coopers & Lybrand, Mr. Vituli was employed in a family owned restaurant
business. Mr. Vituli currently serves as a Director on the Board of Directors
of Tyco Toys, Inc., and Pollo Tropical, Inc.
Mr. Accordino has been President, Chief Operating Officer and a Director
of Carrols since February 1993. Prior thereto, he served as Executive Vice
President--Operations of Carrols from December 1986 and as Senior Vice President
from April 1984. He is also a Director of Holdings. From 1979 to April 1984 he
was Vice President responsible for restaurant operations of the Company, having
previously served as the Company's Assistant Director of Restaurant Operations.
Mr. Accordino has been employed by the Company for over 20 years.
Mr. Cross is a Director and Executive Vice President--Finance and
Treasurer of Carrols. He has served as a Director since 1981, Executive Vice
President since 1986 and Treasurer from 1981. From 1984 through 1986, Mr. Cross
was Senior Vice President of Carrols. He is also a Director of Holdings. Prior
to 1984, Mr. Cross was Vice President and Controller of Carrols for more than
five years. Mr. Cross has been employed by the Company for over 20 years.
Mr. Weidhorn has been a Director of Carrols since 1986. He is also a
Director and President of Holdings. Mr. Weidhorn has been engaged in the
commercial real estate business for approximately 15 years. Since April 1981,
he has been president of WNY Management Corp., a firm that manages real estate
properties. Mr. Weidhorn is co-owner with Mr. Vituli of Morgan Realty
Associates, a general partnership formed in June 1985 which owns interests in
a number of residential real estate properties. In addition, Mr. Weidhorn is a
general partner of Morgan Ventures which is the record owner of 1,538,706 shares
of voting common stock of Holdings. Mr. Weidhorn currently serves as a director
on the Board of Directors of Monmouth Capital Corp.
Mr. Adelberg was appointed a Director of Carrols in December 1992. He is
also a Director of Holdings. Since April 1989, Mr. Adelberg has been the
principal of MBA Research Group, an institutional investment research group. For
the 11 years preceding April 1989, he was employed by Merrill Lynch, Pierce,
Fenner & Smith, an investment banking firm, where he was vice president of New
York institutional sales.
Mr. Glasgall was appointed a Director of Carrols Corporation in December
1992. He is also a Director of Holdings. Mr. Glasgall has been a real estate
consultant since 1991. From 1974 through 1990 he was vice president--real estate
for Restaurant Associates Corp., a national restaurant, food service and retail
chain.
Mr. Zirkman became Vice President and General Counsel of Carrols in
January, 1993. He was appointed Secretary of the Company in February 1993. Prior
to joining Carrols, Mr. Zirkman was an associate with the New York City law firm
of Baer Marks & Upham for six and one-half years.
Mr. Liem became Vice President--Financial Operations in May, 1994. Prior
to joining Carrols Mr. Liem was a Senior Audit Manager with the accounting firm
of Price Waterhouse. Mr. Liem was with Price Waterhouse for ten and one-half
years.
Mr. Drotar has been Vice President--Corporate Controller of Carrols since
April 1984. He was Assistant Controller from June 1982 through April 1984,
having served as Manager of Restaurant Accounting from December 1980 to June
1982. Mr. Drotar has been employed by the Company for over 20 years.
Mr. Smith is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since 1984, having served as District Supervisor
from 1975 to 1984. Mr. Smith has been employed by the Company for over 20
years.
Mr. Tunnessen is Vice President--Regional Director of Carrols. He has
been Regional Director of Operations since August 1988, having served as
District Supervisor from 1979 to August 1988. Mr. Tunnessen has been employed
by the Company for over 20 years.
Mr. Biviano is Vice President--Regional Director of Carrols. He has been
Regional Director of Operations since October 1989, having served as District
Supervisor from December 1983 to October 1989. Mr. Biviano has been employed by
the Company for over 20 years.
Mr. Morency became Vice President--Casual Dining Division of Carrols in
February, 1995. Prior to joining Carrols, Mr. Morency was Director of
Operations for Vicorp-Bakers Square. Mr. Morency was with Vicorp-Bakers Square
for ten years.
The Board of Directors currently has four committees: the Executive
Committee, of which Messrs. Vituli, Accordino and Cross are members; the Finance
Committee, of which Messrs. Vituli, Cross and Weidhorn are members; the
Compensation Committee, of which Messrs. Adelberg and Glasgall are members; and
the Audit Committee, of which Messrs. Weidhorn, Adelberg and Glasgall are
members.
All Directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified. The executive
officers of the Company are chosen by the Board and serve at its discretion.
All non-employee Directors of the Company receive a fee of $6,000 per
annum and also receive $500 for each Board of Directors meeting attended and
$500 for each committee meeting attended. All Directors are reimbursed for all
reasonable expenses incurred by them in acting as Directors, including as
members of any committee of the Board of Directors.
As permitted under the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides that a Director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of a fiduciary duty owed to the Company or its stockholders.
By its terms and in accordance with the laws of the State of Delaware, however,
this provision does not eliminate or limit the liability of a Director of the
Company (i) for any breach of the Director's duty of loyalty to the Company or
its stockholders, (ii) for an act or omission committed in bad faith or
involving intentional misconduct or a knowing violation of law, (iii) for any
transaction from which the Director derived an improper personal benefit or (iv)
for an improper declaration of dividends or purchase of the Company's
securities.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify its Directors and officers to the fullest extent
permitted by Delaware law.
All of the holders of the voting common stock of Holdings are subject to
the terms of a stockholders agreement dated December 22, 1986 (the "Stockholders
Agreement"). The Stockholders Agreement requires the Board of Directors of
Holdings to consist of six directors, four of whom are designated by Morgan
Ventures and two of whom are designated by a majority of the shares held by a
group of named individuals, including Messrs. Accordino, Cross, Drotar and
Smith.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended
December 31, 1994, 1993 and 1992 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, 1994 whose annual compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION
NUMBER OF
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
Alan Vituli 1994 $300,430 $81,000
Chairman of the Board, 1993 292,118 100,000
Chief Executive Officer 1992 224,788 16,826
and Director
Daniel T. Accordino 1994 226,216 60,891
President, Chief Operating 1993 206,516 25,000
Officer, and Director 1992 193,479 14,426
Richard V. Cross 1994 156,378 42,106
Executive Vice 1993 155,936 8,000
President--Finance, 1992 153,290 11,424
Treasurer and Director
Joseph A. Zirkman 1994 95,890 24,303
Vice President, General 1993 85,711 15,000 5,000
Counsel and Secretary
David R. Smith 1994 77,310 34,596
Vice President - Regional 1993 74,694 5,000
Director 1992 71,798 16,554
DESCRIPTION OF PLANS
Employee Savings Plan. In 1979, Carrols adopted two identical savings
plans, qualified as profit-sharing plans, for its salaried employees, permitting
participating employees to make annual contributions. On December 31, 1994,
Carrols merged the two plans into a single plan, the Carrols Corporation
Corporate Employee Savings Plan (the "Savings Plan"). In accordance with the
Savings Plan, Carrols matches up to $1,060 of an employee's contributions by
contributing $0.50 for each dollar contributed by the employee. Employees are
fully vested in their own contributions; employees become vested in Carrols'
contributions beginning in the fourth year of service, and are fully vested
after seven years of service or upon retirement at age 65 with five years'
service, death, permanent or total disability or termination. Benefits may be
paid out upon the occurrence of any of the foregoing events in a single cash
lump sum, in periodic installments over not more than 15 years or in the form
of an annuity. The employee's contributions may be withdrawn at any time,
subject to restrictions on future contributions. Carrols' matching contributions
may be withdrawn under certain conditions of financial necessity or hardship as
defined in the Savings Plan.
Bonus Plans. Carrols has cash bonus plans designed to promote and reward
excellent performance by providing employees with incentive compensation. Key
senior management executives of each operating division can be eligible for
bonuses equal to varying percentages of their respective annual salaries
determined by the performance of the Company and the division.
1993 Employee Stock Option and Award Plan. On December 14, 1993,
Holdings and its shareholders adopted the 1993 Employee Stock Option and Award
Plan (the "1993 Option Plan") pursuant to which Holdings may grant "Incentive
Stock Options" (as defined under Section 422 of the Internal Revenue Code),
non-statutory stock options or stock appreciation rights (the foregoing
collectively "Awards") to certain employees, including district supervisors,
division heads and officers of Holdings and its subsidiaries. The 1993 Option
Plan is designed to advance the interests of Holdings and the Company by
providing an additional incentive to attract and retain qualified and competent
persons through the encouragement of stock ownership or stock appreciation
rights in Holdings.
The 1993 Option Plan permits Holdings' Compensation Committee to grant,
from time to time, options to purchase an aggregate of up to 750,000 shares of
Holdings, including, without limitation, the amount of shares in respect to
which stock appreciation rights are granted. The vesting periods for awards and
the expiration dates for exercisability of Awards granted under the 1993 Option
Plan shall be determined by the Compensation Committee of the Board of
Directors; however, all shares granted under options must be purchased within
10 years from the date of the grant. The Compensation Committee is authorized
to grant options under the 1993 Option Plan to all eligible employees of
Holdings and the Company, including executive officers and directors (other than
outside Directors). The 1993 Option Plan provides that Incentive Stock Options
shall not be granted to any person owning directly or indirectly (through
attribution under Section 424(d) of the Internal Revenue Code) at the date of
the grant, stock possessing more than 10% of the total combined voting power of
all classes of stock of Holdings as defined in Internal Revenue Code Section 422
(or of any subsidiary of Holdings [each as defined in Section 424 of the
Internal Revenue Code] at the date of grant) unless the option price of such
option is at least 110% of the fair market value of the shares subject to such
option on the date the option is granted, and such option by its terms is not
exercisable after the expiration of five years from the date such option is
granted. As of December 31, 1994, options to purchase 242,000 shares of common
stock at $4.00 per share are outstanding under the 1993 Option Plan. The option
price per share is determined by the Compensation Committee of the Board of
Directors; however, in no event shall the option price per share of any option
intended to qualify as an Incentive Stock Option be less than the fair market
value of the common stock on the date such option is granted.
The Company in its sole discretion may lend money to an optionee,
guarantee a loan from a third party to an optionee, or otherwise assist an
optionee to obtain the cash necessary to exercise all or a portion of an option
granted hereunder or to pay any tax liability of the optionee attributable to
such exercise. If the exercise price is paid in whole or part with the
optionee's promissory note, such note shall (i) provide for full recourse to the
maker, (ii) be collateralized by the pledge of the Shares that the optionee
purchases upon exercise of such option, (iii) bear interest at the prime rate
of the Company's principal lender or in its absence, the prime rate charged by
Citibank, N.A., and (iv) contain such other terms as the Board in its sole
discretion shall reasonably require. If stock appreciation rights are granted,
upon vesting of a stock appreciation right, the employee may elect in writing
during a 30 day period designated by the Committee each year to receive a
distribution of the value of a portion or all of his vested interest.
Distribution to an employee of stock appreciation rights amounts shall be
made in cash in a lump sum or by interest bearing notes payable over no more
than five years commencing within a reasonable time after the Committee's
receipt of the optionee's election to receive such payments. Awards may not be
transferred by the optionee otherwise than by will or the laws of descent and
distribution, and each option or stock appreciation right shall be exercisable,
during the optionee's lifetime only by the optionee.
1994 Directors' Stock Option Plan. On April 1, 1994 Carrols Holdings
Corporation adopted the 1994 Directors' Stock Option Plan (the "Directors'
Option Plan") pursuant to which Carrols Holdings Corporation may grant to each
non-employee director stock options to purchase common stock of Holdings. The
Directors' Option Plan is designed to advance the interests of Holdings by
providing an incentive to attract and retain qualified non-employee directors
of Holdings and to foster the commonality of their interest with those of the
general shareholders.
The Directors' Option Plan permits Holdings to grant options to the non-
employee directors to purchase an aggregate of up to 100,000 shares of Holdings
common stock. Under the Directors' Option Plan, each non-employee director
received an initial grant of 5,000 options on April 1, 1994, and will receive
an additional grant of 1,000 shares on the anniversary date of each year of
service as a director. Each option granted under the Directors' Option Plan
vests and is exercisable equally over a three-year period from the date of the
grant. The expiration date of all options is ten years from the date of grant
of such option. The exercise price of the options granted under the Directors'
Option Plan is the "fair market value" (as defined in the Directors' Option
Plan) of the share underlying such option at the date such option is granted.
As of March 15, 1994, options to purchase 15,000 shares of common stock at $4.00
per share have been granted under the Directors' Option Plan.
Employment Agreements. In January 1995, the Company entered into an
employment agreement with Alan Vituli to serve as the Company's Chairman and
Chief Executive Officer. The employment agreement is for an initial term of
three years, commencing on January 1, 1995 and expiring on December 31, 1997 and
automatically renews for successive one-year terms unless terminated by the
Company or Mr. Vituli upon written notice to be provided not less than 90 days
before a scheduled expiration date. Pursuant to the employment agreement, Mr.
Vituli will receive a base salary of $350,000 for the first year of the term,
which amount shall be subject to a consumer price index increase for the second
and third years of the term. Beginning in 1998, the base salary for each year
thereafter will be increased in accordance with the recommendation of the
Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, Mr. Vituli will participate in the Executive Bonus Plan of the
Company and the Employee Stock Option and Award Plan. The employment agreement
also provides that the Company will provide a split-dollar life insurance policy
on the life of Mr. Vituli providing a death benefit of $1,500,000 payable to an
irrevocable trust designated by Mr. Vituli.
In January 1995, the Company entered into an employment agreement with
Daniel T. Accordino to serve as the Company's President and Chief Operating
Officer. The employment agreement is for an initial term of three years,
commencing on January 1, 1995 and expiring on December 31, 1997 and
automatically renews for successive one-year terms unless terminated by the
Company or Mr. Accordino upon written notice to be provided not less than 90
days before a scheduled expiration date. Pursuant to the employment agreement,
Mr. Accordino will receive a base salary of $250,000 for the first year of the
term, which amount shall be subject to a consumer price index increase for the
second and third years of the term. Beginning in 1998, the base salary for each
year thereafter will be increased in accordance with the recommendation of the
Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, Mr. Accordino will participate in the Executive Bonus Plan of the
Company and the Employee Stock Option and Award Plan. The employment agreement
also provides that the Company will provide a split-dollar life insurance policy
on the life of Mr. Accordino providing a death benefit of $1,000,000 payable to
an irrevocable trust designated by Mr. Accordino.
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, 1994, by (i) each Director of the Company who owns shares of such
voting common stock, (ii) each executive officer of the Company included in the
Summary Compensation Table above, (iii) all persons known by the Company to be
the beneficial owners of more than 5% of the shares of such voting common stock
and (iv) all executive officers and Directors of the Company as a group.
CARROLS' COMMON STOCK
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES
Carrols Holdings Corporation 10 100%
968 James Street
Syracuse, New York 13203
HOLDINGS' COMMON STOCK
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(a) SHARES(a)
Alan Vituli(b)(k) 1,558,706 68.2%
Peter J. Weidhorn(c)(k) 640,881 28.3
Richard V. Cross(d)(k) 226,222 10.0
Daniel T. Accordino(e)(k) 239,680 10.5
Joseph A. Zirkman(f)(k) 11,000 .5
David R. Smith (f)(k) 18,059 .8
Citicorp Venture Capital, Ltd.(g) 959,388 30.6
Heller Financial, Inc.(h) 488,111 17.7
World Equity Partners, L.P.(i) 234,668 9.4
M. Bruce Adelberg(j) 1,667 .1
Franklin Glasgall(j) 1,667 .1
Directors and executive officers
of Carrols as a group
(12 persons)(k)(l) 2,111,267 91.7
(a) As used in this table, "beneficial ownership" means the sole or
shared power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security). For purposes of
this table, a person is deemed as of any date to have "beneficial ownership"
of any security that such person has the right to acquire within 60 days
after such date. As calculated in this table, the percent of shares is the
percent of each beneficial owner's shares to the total shares of Holdings'
common stock outstanding plus the shares to which only that person has a
right to acquire within 60 days.
(b) Includes 1,538,706 shares of Holdings voting common stock held of
record by Morgan Ventures, over which shares Mr. Vituli, as managing general
partner of Morgan Ventures, exercises voting and investment power. Of the
shares held of record by Morgan Ventures, Mr. Vituli effectively owns 639,214
shares through his ownership interest in Morgan Ventures. Mr. Vituli
disclaims beneficial ownership of all but such 639,214 shares held of record
by Morgan Ventures. The address of Mr. Vituli is c/o Carrols Corporation,
968 James Street, Syracuse, New York 13203. Also includes 20,000 shares of
Holdings' voting common stock subject to currently exercisable stock options.
(c) Includes 639,214 shares of Holdings voting common stock held of
record by Morgan Ventures, which shares Mr. Weidhorn effectively owns through
his ownership interest in Morgan Ventures. Also includes 1,667 shares of
Holdings' voting common stock subject to currently exercisable options.
The address of Mr. Weidhorn is c/o Morgan Realty Associates, Suite 200, 198
Route 9, Manalapan, New Jersey 07726.
(d) Includes 1,600 shares of Holdings' voting common stock subject to
currently exercisable stock options.
(e) Includes 1,058 shares of Holdings voting common stock subject to
currently exercisable warrants and 5,000 shares of Holdings' voting common
stock subject to currently exercisable stock options.. The address of Mr.
Accordino is c/o Carrols Corporation, 968 James Street, Syracuse, New York
13203.
(f) Includes 1,000 shares of Holdings' voting common stock subject to
currently exercisable stock options.
(g) Includes 740 shares of Holdings Class B Convertible Preferred
Stock issued to Citicorp Venture Capital, Ltd., in connection with the
financing of the Acquisition which are currently convertible into 870,588
shares of Holdings' non-voting common stock, which are, in turn, convertible
at any time into an equal number of shares of Holdings voting common stock.
The address for Citicorp Venture Capital, Ltd. is 399 Park Avenue, New York,
New York 10043.
(h) Includes currently exercisable warrants, issued to Heller
Financial, Inc., the lender under the Senior Secured Credit Facility, for the
purchase of 441,177 shares of Holdings voting common stock at $0.97 per share
and 46,934 shares of Holdings voting common stock at $1.00 per share. The
address for Heller Financial, Inc. is 500 West Monroe Street, Chicago,
Illinois 60661.
(i) Includes currently exercisable warrants, issued to World Equity
Partners, L.P., for the purchase of 234,668 shares of Holdings voting common
stock at $1.00 per share. The address for World Equity Partners, L.P. is 399
Park Avenue, New York, New York 10043.
(j) Includes 1,667 shares of Holdings' voting common stock subject to
currently exercisable options.
(k) Morgan Ventures, Messrs. Cross and Accordino and certain of the
Company's other shareholders have entered into the Stockholders Agreement
which, among other things, prohibits the transfer of the subject shares
(except for certain permitted transfers) and grants Holdings and certain
holders of Holdings voting and non-voting common stock certain rights to
acquire the shares of a stockholder who wishes to sell shares to a third
party.
(l) Includes 36,200 shares of Holdings' voting common stock subject
to currently exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
None.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Financial Statements
CARROLS CORPORATION AND SUBSIDIARIES:
Page
Opinion of Independent Certified F-1
Public Accountants
Financial Statements:
Consolidated Balance Sheets F-2 to
F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash F-5 to
Flows F-6
Notes to Consolidated Financial F-7 to
Statements F-18
(b) Financial Statement Schedules
Schedule Description Page
CARROLS CORPORATION AND SUBSIDIARIES:
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, 1994.
(c) Exhibits Required by Item 601 of Regulation
S-K
The following exhibits are filed with this form 10-K:
2.1 Purchase and Sale Agreement dated
February 10, 1994 between Carrols
Corporation, as Purchaser, and KIN
Restaurants, Inc., as Seller
2.2 Purchase and Sale Agreement dated April
18, 1994 among Carrols Corporation, as
Purchaser and Riva Development
Corporation and John Riva, as Seller
2.3 Purchase and Sale Agreement dated May
31, 1994 among Carrols Corporation, as
Purchaser and Michael P. Jones and
Donald M. Cepiel, Sr., and the
corporations listed therein
* * * * * * *
3.1 Form of Restated Certificate of
Incorporation is incorporated by
reference from the Annual Report
on Form 10-K filed for the year
ended December 31, 1987
3.2 Form of Restated By-Laws is
incorporated by reference from the
Annual Report on Form 10-K filed
for the year ended December 31,
1987
4.1 Indenture between Carrols
Corporation and Marine Midland Bank,
Trustee, is incorporated by reference
to Exhibit 4 to Registration
Statement on Form S-1, Number
3365100, filed August 10, 1993
The following are incorporated by reference from the
Annual Report on Form 10-K filed for the year ended
December 31, 1987
10.1 First Amended and Restated Loan
Security and Preferred Stock
Purchase Agreement by and among
Carrols Merger Corporation and
Carrols Holdings Corporation, as
"Borrower" and Heller Financial,
Inc., as "Lender" dated 12/22/86
10.2 Form of Stockholders Agreement by
and among Carrols Holdings
Corporation, Morgan Ventures III
Limited Partnership and certain
Shareholders
The following are incorporated by reference from the
Annual Report on Form 10-K filed for the year ended
December 31, 1992
10.3 Second Amended and Restated Loan
and Security Agreement by and among
Carrols Corporation and Carrols
Holdings Corporation, as "Borrower" and
Heller Financial, Inc., as "Lender"
dated as of September 15, 1992
10.4 Senior Subordinated Credit Agreement
dated as of September 15, 1992
between Carrols Corporation,
Carrols Holdings Corporation and
World Subordinated Debt
Partners, L.P.
The following are incorporated by reference from
Amendment No. 2 to Form S-1 Registration Statement under
The Securities Act of 1933 as filed with the Securities
and Exchange Commission on August 4, 1993:
10.5 Third Amended and Restated Loan
and Security Agreement by and
among Carrols Corporation and
Carrols Holdings Corporation,
as "Borrower" and Heller
Financial, Inc., as "Lender"
dated as of August 9, 1993
The following are incorporated by reference from the
Annual Report on Form 10-K filed for the year ended
December 31, 1993
10.6 First Amendment to Third Amended and
Restated Loan and Security Agreement
by and among Carrols Corporation and
Carrols Holdings Corporation, as
"Borrower" and Heller Financial,
Inc., as "Lender" dated October 27,
1993
10.7 Second Amendment to Third Amended and
Restated Loan and Security Agreement
by and among Carrols Corporation and
Carrols Holdings Corporation, as
"Borrower" and Heller Financial,
Inc., as "Lender" dated March 11, 1994
10.8 Carrols Holdings Corporation
1993 Employee Stock Option and
Award Plan
The following exhibits are filed with this Form 10-K:
10.9 Third Amendment to Third Amended and
Restated Loan and Security Agreement
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc., dated May 2, 1994
10.10 Fourth Amendment to Third Amended and
Restated Loan and Security Agreement
among Carrols Holdings Corporation,
Carrols Corporation and Heller
Financial, Inc., dated December 20,
1994
10.11 Supply Agreement between ProSource
Services Corporation and Carrols
Corporation dated April 1, 1994
10.12 Taco Cabana Restaurants Development
Agreement dated June 30, 1994 between
T.C. Management, Inc., and Carrols
Corporation
10.13 Letter Agreement dated September 8,
1994 amending the Taco Cabana
Restaurants Development Agreement dated
June 30, 1994
10.14 Pollo Tropical Area Development
Agreement dated January 1, 1995 between
Pollo Franchise, Inc., and Carrols
Corporation
10.15 Option Agreement for Toronto dated
January 1, 1995 between Pollo
Franchise, Inc., and Carrols
Corporation
10.16 Option Agreement for Michigan dated
January 1, 1995 between Pollo
Franchise, Inc., and Carrols
Corporation
10.17 Employment Agreement dated January 1,
1995 between Carrols Corporation and
Daniel T. Accordino
10.18 Employment Agreement dated January 1,
1995 between Carrols Corporation and
Alan Vituli
10.19 1994 Regional Director's Bonus Plan
10.20 1994 Director's Stock Option Plan
10.21 Carrols Corporation Corporate
Employee's Savings Plan dated December
31, 1994
22.1 Subsidiaries of the Registrant, all
wholly-owned are:
Carrols J.G. Corp.
Carrols Realty Holdings Corp.
Carrols Realty I Corp.
Carrols Realty II Corp.
Carrols Realty III Corp.
CDC Theatre Properties, Inc.
H.N.S. Equipment & Leasing Corp.
Quanta Advertising Corp.
Confectionery Square Corp.
Jo-Ann Enterprises, Inc.
27.1 Financial Data Schedule
(d) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the last quarter of the year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized in the City of
Syracuse, State of New York on the 31st day of March, 1995.
CARROLS CORPORATION
BY: /s/ Alan Vituli
Alan Vituli, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Alan Vituli Director, Chairman and March 31, 1995
(Alan Vituli) Chief Executive Officer
/s/Daniel T. Accordino Director, President March 31, 1995
(Daniel T. Accordino) and Chief Operating
Officer
/s/Richard V. Cross Director, Executive March 31, 1995
(Richard V. Cross) Vice President -
Finance, and Treasurer
(Principal Financial &
Accounting Officer)
/s/Peter J. Weidhorn Director March 31, 1995
(Peter J. Weidhorn)
/s/Franklin Glasgall Director March 31, 1995
(Franklin Glasgall)
/s/M. Bruce Adelberg Director March 31, 1995
(M. Bruce Adelberg)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
___________
To the Board of Directors of
Carrols Corporation
We have audited the consolidated financial statements and the financial state-
ment schedules of Carrols Corporation (a wholly-owned subsidiary of Carrols
Holdings Corporation) and Subsidiaries listed in Item 14(a) of this Form 10-K.
These financial statements and financial statement schedules are the responsi-
bility of the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. 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 man-
agement, 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 Corpora-
tion and Subsidiaries as of December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted ac-
counting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the in-
formation required to be included therein.
As further discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits in 1993 and 1992, respectively.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
February 25, 1995
F-1
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
___________
ASSETS 1994 1993
Current assets:
Cash and cash equivalents $ 1,710,000 $ 1,172,000
Trade and other receivables, net of
reserves of $424,000 and $563,000
for 1994 and 1993, respectively 532,000 632,000
Inventories 2,254,000 2,051,000
Prepaid real estate taxes 384,000 273,000
Prepaid expenses and other current assets 459,000 487,000
----------- -----------
Total current assets 5,339,000 4,615,000
----------- -----------
Property and equipment, at cost:
Land 6,543,000 6,431,000
Buildings and improvements 14,260,000 14,341,000
Leasehold improvements 34,854,000 34,125,000
Equipment 40,141,000 35,012,000
Capital leases 15,558,000 15,689,000
----------- -----------
111,356,000 105,598,000
Less accumulated depreciation
and amortization (53,969,000) (47,254,000)
----------- -----------
Net property and equipment 57,387,000 58,344,000
Franchise rights, at cost (less accumulated
amortization of $17,548,000 and $15,146,000
for 1994 and 1993, respectively) 46,042,000 39,566,000
Beneficial leases, at cost (less accumulated
amortization of $7,433,000 and $6,921,000
for 1994 and 1993 respectively) 8,405,000 9,233,000
Excess of cost over fair value of assets acquired
(less accumulated amortization of $462,000
and $404,000 for 1994 and 1993, respectively) 1,849,000 1,907,000
Other assets 5,666,000 6,070,000
---------- ----------
$124,688,000 $119,735,000
<FN> =========== ===========
The accompanying notes are an integral part of the financial statements.
F-2
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
___________
LIABILITIES AND STOCKHOLDER'S DEFICIT 1994 1993
Current liabilities:
Current portion of long-term debt $ 258,000 $ 283,000
Current portion of capital lease obligations 615,000 584,000
Accounts payable 6,915,000 5,845,000
Accrued liabilities:
Taxes 1,525,000 1,073,000
Payroll and employee benefits 3,748,000 2,340,000
Interest 4,899,000 4,864,000
Other 3,835,000 3,432,000
---------- ----------
Total current liabilities 21,795,000 18,421,000
Long-term debt, net of current portion 120,680,000 114,197,000
Capital lease obligations,
net of current portion 3,966,000 4,603,000
Deferred gain - sale/leaseback of real estate 1,888,000 1,998,000
Accrued postretirement benefits 1,354,000 1,288,000
Other liabilities 2,213,000 1,632,000
----------- -----------
Total liabilities 151,896,000 142,139,000
----------- -----------
Commitments and contingencies
Stockholder's deficit:
Common stock, par value $1; authorized 1,000
shares, issued and outstanding - 10 shares 10 10
Additional paid-in capital 1,474,990 4,447,990
Accumulated deficit (28,683,000) (26,852,000)
----------- ----------
Total stockholder's deficit (27,208,000) (22,404,000)
----------- ----------
$124,688,000 $119,735,000
=========== ===========
<FN>
The accompanying notes are an integral part of the financial statements.
F-3
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
___________
1994 1993 1992
(52 Weeks) (52 Weeks) (53 Weeks)
Revenues:
Sales $203,927,000 $171,137,000 $156,020,000
Other income 327,000 497,000 393,000
----------- ----------- -----------
204,254,000 171,634,000 156,413,000
----------- ----------- -----------
Costs and expenses:
Cost of sales 57,847,000 48,502,000 43,133,000
Restaurant wages and related expenses 59,934,000 51,739,000 47,122,000
Other restaurant operating expenses 42,390,000 35,192,000 30,725,000
Depreciation and amortization 11,259,000 12,143,000 11,021,000
Administrative expenses 9,449,000 8,031,000 6,961,000
Advertising expense 8,785,000 7,930,000 7,671,000
Interest expense 14,456,000 12,505,000 11,042,000
Loss on closing restaurants and other 1,800,000
---------- ---------- ----------
205,920,000 176,042,000 157,675,000
----------- ----------- -----------
Loss before taxes, extraordinary item
and cumulative effect of change
in accounting principle (1,666,000) (4,408,000) (1,262,000)
Provision for state taxes, current (165,000)
--------- --------- ---------
Loss before extraordinary item and
cumulative effect of change in
accounting principle (1,831,000) (4,408,000) (1,262,000)
Extraordinary loss on
extinguishment of debt (4,883,000)
Cumulative effect of change in
accounting for postretirement benefits (1,037,000)
--------- ---------- ----------
NET LOSS (1,831,000) (9,291,000) (2,299,000)
Accumulated deficit, beginning of year (26,852,000) (17,561,000) (15,262,000)
---------- ---------- ----------
ACCUMULATED DEFICIT, END OF YEAR $(28,683,000) $(26,852,000) $(17,561,000)
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
F-4
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
___________
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
(52 Weeks) (52 Weeks) (53 Weeks)
Cash flows from operating activities:
Net loss $(1,831,000) $(9,291,000) $(2,299,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 11,259,000 12,143,000 11,021,000
Non-cash charges included in
extraordinary loss 2,245,000
Non-cash charges included
in loss on closing restaurants
and other 1,800,000
Change in operating assets and liabilities:
Trade and other receivables 100,000 (278,000) 395,000
Inventories (203,000) (147,000) (355,000)
Prepaid expenses and
other current assets (117,000) (76,000) (132,000)
Other assets (494,000) 424,000 (74,000)
Accounts payable 1,070,000 471,000 (514,000)
Accrued interest 35,000 4,006,000 272,000
Accrued liabilities and other 2,781,000 211,000 2,118,000
---------- ---------- ----------
Cash provided by operating activities 14,400,000 9,708,000 10,432,000
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures:
Property and equipment (4,509,000) (2,303,000) (2,848,000)
Construction of new restaurants (1,357,000) (1,411,000) (243,000)
Acquisition of restaurants (11,615,000) (10,464,000) (7,863,000)
Franchise fees and renewals (158,000) (149,000) (80,000)
Notes and mortgages issued (613,000) (110,000)
Payments received on notes, mortgages
and capital subleases receivable 112,000 82,000 233,000
Disposal of property, equipment
and franchise rights 569,000 842,000 113,000
------------ ---------- ---------
Net cash used for
investing activities (16,958,000) (14,016,000) (10,798,000)
------------ ---------- ----------
<FN>
Continued
F-5
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CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
___________
Increase (Decrease) in Cash and Cash Equivalents
1994 1993 1992
(52 Weeks) (52 Weeks) (53 Weeks)
Cash flows from financing activities:
Proceeds from long-term debt $ 6,800,000 $119,629,000 $15,000,000
Principal payments on long-term debt (267,000) (4,187,000) (14,486,000)
Retirement of long-term debt (75,000) (104,090,000)
Proceeds from sale -
leaseback transaction 672,000
Dividends paid (3,473,000) (2,241,000) (200,000)
Principal payments on capital leases (561,000) (564,000) (631,000)
Payment of other liability (4,256,000)
---------- ---------- ---------
Net cash provided by (used for)
financing activities 3,096,000 4,291,000 (317,000)
---------- ---------- ---------
Increase (decrease) in cash
and cash equivalents 538,000 (17,000) (683,000)
Cash and cash equivalents,
beginning of year 1,172,000 1,189,000 1,872,000
----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,710,000 $ 1,172,000 $ 1,189,000
========== =========== ==========
Supplemental disclosures:
Interest paid on debt $14,421,000 $ 8,499,000 $10,770,000
Taxes paid $ 126,000
<FN>
The accompanying notes are an integral part of the financial statements.
F-6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies
The following is a summary of certain significant accounting policies
followed in the preparation of the consolidated financial statements.
Basis of Consolidation
The consolidated financial statements include the accounts of Carrols
Corporation and its subsidiaries (the "Company"). The Company is a
wholly-owned subsidiary of Carrols Holdings Corporation ("Holdings"). All
significant intercompany transactions have been eliminated in consolidation.
The Company operates, as franchisee, 219 fast food restaurants under the
trade name "Burger King" in nine Northeastern and Midwestern states and one
Southeastern state. As reported by Burger King Corporation ("BKC"), the
Burger King system is the second largest "hamburger fast food" restaurant
system in the United States in terms of sales and number of restaurants. The
Company is the largest independent Burger King franchisee in the United
States.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Acquisitions
The Company has purchased existing restaurants, principally for cash, during
1994 and 1993 consisting of the following:
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1994 1993
Number of units 22 18
Property and equipment:
Leasehold improvements $ 128,000 $ 967,000
Equipment 2,626,000 2,140,000
--------- ---------
2,754,000 3,107,000
Franchise rights 8,786,000 7,339,000
Other assets 75,000 18,000
--------- ---------
$11,615,000 $10,464,000
========== ==========
These acquisitions have been accounted for by the purchase method; accordingly, their results
are included in the consolidated financial statements from the respective acquisition dates.
<FN>
F-7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Acquisitions (Continued)
Proforma financial information with respect to the 1993 acquisition of 18
restaurants is as follows and assumes the acquisition took place at the
beginning of the fiscal year:
1993 1992
Revenues $181,341,000 $175,350,000
Income (loss) before extraordinary
item and cumulative effect of
accounting change ($ 3,703,000) 434,000
Net loss ($ 8,586,000) (603,000)
Proforma financial information is not provided for the 1994 acquisitions since
their effect on the 1994 consolidated financial statements is not significant.
Depreciation and Amortization
Depreciation and amortization is provided on the straight-line method for
financial reporting purposes. The useful lives for computing depreciation and
amortization are as follows:
Buildings and improvements 5 to 20 years
Leasehold improvements Remaining life of lease
including renewal op-
tions or life of asset,
whichever is shorter
Equipment 3 to 10 years
Capital leases Remaining life of lease
At the time of retirement or other disposition, the cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
income. Depreciation expense for the years ended December 31, 1994, 1993 and
1992 was $7,404,000, $7,840,000 and $7,240,000, respectively.
Franchise Rights and Beneficial Leases
Fees for initial franchises and renewals paid to Burger King Corporation are
amortized using the straight-line method over the term of the agreement,
generally twenty years.
Acquisition costs allocated to franchise rights and beneficial leases are
amortized using the straight-line method, principally over the remaining lives
of the leases including renewal options, but not in excess of 40 years.
The recoverability of the carrying values of franchise rights and beneficial
leases is periodically evaluated based on current and forecasted cash flow,
future market opportunities, strategic importance and estimated disposal
values.
F-8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Excess of Cost Over Fair Value
The excess of cost over fair value of assets acquired is amortized on a
straight-line basis over 40 years.
Deferred Financing Costs
Financing costs incurred in obtaining long-term debt are capitalized and are
amortized over the life of the related debt on an effective interest basis.
Cash and Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Income Taxes
The Company and its subsidiaries are included in the consolidated federal
income tax return of Holdings.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes" which requires, among other things, an asset
and liability approach to recognizing the tax effects of temporary
differences between tax and financial reporting. This change had no effect
on the Company's 1993 financial statements.
Advertising Costs
All advertising costs are expensed as incurred.
Employee Savings Plan
The Company offers a savings plan for salaried employees. Under the plan,
participating employees may contribute up to 10% of their salary annually.
The Company's contributions, which begin to vest after three years and fully
vest after seven years of service, are equal to 50% of the employee's
contributions to a maximum Company contribution of $530 annually. The
employees have various investment options available under a trust
established by the plan. The plan cost was $125,000, $111,000, and
$101,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
F-9
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
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 January 1,
1995 (52 weeks), January 2, 1994 (52 weeks) and January 3, 1993 (53 weeks).
Reclassification
Certain amounts for prior years have been reclassified to conform to the
current year presentation.
2. INVENTORIES
Inventories at December 31 consisted of:
1994 1993
Raw materials (food and paper products) $1,415,000 $1,205,000
Supplies 839,000 846,000
--------- ---------
$2,254,000 $2,051,000
========= =========
3. LEASES
The Company utilizes land and buildings in its operations under various
lease agreements. Initially these leases are generally for 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.
During 1991, the Company sold the real estate of twelve of the Company's
restaurants under sale/leaseback arrangements for total proceeds of
approximately $10,150,000. Deferred gains of approximately $2,050,000 were
recorded in 1991 as a result of these transactions and are being amortized
over the lives of the leases. The leases are operating leases, have a
20 year term with four five-year renewal options and provide for additional
rent based on a percentage of sales in excess of predetermined levels. The
leases contain purchase options at fair market value, as defined in each
lease agreement. The deferred gain of $1,888,000 at December 31, 1994 is
primarily the result of the 1991 transactions.
Accumulated amortization pertaining to capital leases for the years ended
December 31, 1994 and 1993 was $8,285,000 and $7,422,000, respectively.
F-10
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
ˇ Enlarge/Download Table
3. LEASES - continued
Minimum rent commitments under noncancelable leases as of December 31, 1994,
are as follows:
Capital Operating
Years ending:
1995 $1,124,000 $10,474,000
1996 1,088,000 10,343,000
1997 980,000 10,085,000
1998 805,000 9,533,000
1999 588,000 8,911,000
2000 and thereafter 2,961,000 81,821,000
--------- ----------
Total minimum lease payments 7,546,000 $131,167,000
===========
Less amount representing interest (7.7% to 16.6%) 2,965,000
---------
Total obligations under capital leases 4,581,000
Less current portion 615,000
---------
Long-term obligations under capital leases $3,966,000
=========
<FN>
Total rent expense on operating leases, including percentage rent on both
operating and capital leases, for the years ended December 31, was as
ˇ Download Table
follows:
1994 1993 1992
Minimum rent on real property $10,147,000 $8,627,000 $7,223,000
Additional rent based on a
percentage of sales 1,917,000 1,290,000 1,148,000
Equipment rent 109,000 69,000 92,000
---------- ---------- ---------
$12,173,000 $9,986,000 $8,463,000
========== ========== =========
<FN>
F-11
ˇ Enlarge/Download Table
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
4. LONG-TERM DEBT
Long-term debt at December 31 consisted of:
1994 1993
Collateralized:
Revolving line of credit $8,622,000 $2,500,000
Acquisition loan 650,000
Industrial Development Revenue bonds 846,000 1,096,000
Other notes payable with
interest rates to 10% 820,000 884,000
Unsecured:
Senior notes 110,000,000 110,000,000
----------- -----------
120,938,000 114,480,000
Less current portion 258,000 283,000
----------- -----------
$120,680,000 $114,197,000
=========== ===========
<FN>
The Company issued $110 million of unsecured senior notes in August 1993
to effect a refinancing of existing long-term obligations. The
extraordinary loss of $4,883,000 on extinguishment of debt in 1993
includes $2,245,000 of previously deferred financing costs and $2,638,000
of premium and expenses paid on the retirement of subordinated debentures
and debt.
The senior notes bear interest at a rate of 11.5%, payable semi-annually on
each February 15 and August 15, and are due August 15, 2003. The notes are
not redeemable prior to August 15, 1998, except that, through August 1996,
the Company may redeem up to $33 million in aggregate principal amount at
111.5% plus accrued interest from the proceeds of a public offering of
common stock by the Company or by Carrols Holdings Corporation. The notes
are redeemable at the option of the Company in whole or in part on or
after August 15, 1998 at specified redemption prices. Provisions of the
revolving line of credit facility place limitations on the redemption or
repurchase of the notes so long as the facility remains in effect.
On December 20, 1994, the revolving line of credit agreement was amended to
provide for an additional acquisition loan of $5 million. The $5 million
acquisition loan will be collateralized by the twenty-two restaurants
acquired during 1994 and will be fully advanced during 1995. The $5 million
is required to be repaid by quarterly payments of $250,000 beginning in
November 1997 increasing to quarterly payments of $500,000 beginning in
November 1998. As of December 31, 1994, the outstanding balance under the
acquisition loan was $650,000.
F-12
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
4. LONG-TERM DEBT - continued
Effective December 20, 1994, in conjunction with the additional $5 million
acquisition loan, the revolving line of credit agreement was amended to
reduce the interest rate on borrowings to either the London Interbank
Offering Rate plus 2.5% or the prime rate plus 1.25%. If the revolving line
of credit and acquisition loan exceed $25 million, then the interest rate
is increased to either the London Interbank Offering Rate plus 3.5% or the
prime rate plus 2.25% on the amount of the loan exceeding $25 million. The
amount available under the revolving line of credit was increased to $25
million with no future reductions until its maturity in August 2000. At
December 31, 1994 there was $14.8 million available under the revolving line
of credit facility after reduction for the $8.6 million outstanding and a
$1.6 million letter of credit guaranteed by the facility. A commitment fee
of 1/2% is payable on the unused balance. At December 31, 1994, the
facility was collateralized by substantially all assets of the Company.
The Industrial Development Revenue bonds were issued on August 30, 1983 in
connection with the purchase and modernization of a warehouse. Bonds are
due in yearly amounts of $250,000 through 1998, with interest at
seventy-five percent of prime. The bonds are collateralized by the
warehouse which has a net book value of $1,890,000.
Restrictive covenants of the senior notes and the revolving line of credit
facility include limitations with respect to the issuance of additional debt
and redeemable preferred stock; the sale of assets; dividend payments and
capital stock redemption; transactions with affiliates; consolidations,
mergers and transfers of assets and minimum interest and fixed charge
coverage ratios.
At December 31, 1994, principal payments required on all long-term debt are
as follows:
1995 $ 258,000
1996 258,000
1997 291,000
1998 266,000
1999 452,000
Subsequent to 1999 119,413,000
-----------
$120,938,000
===========
F-13
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
5. INCOME TAXES
The components of deferred income taxes at December 31, are as follows:
1994 1993
Assets
Receivable and other reserves $ 588,000 $ 351,000
Insurance reserves 707,000 487,000
Accrued vacation 426,000 405,000
Deferred gain on sale/leaseback
transactions 755,000 799,000
Postretirement benefits 542,000 534,000
Capital leases 572,000 555,000
Net operating loss carryforwards 14,845,000 13,096,000
Less: Valuation allowance (11,799,000) (6,376,000)
---------- ----------
6,636,000 9,851,000
---------- ----------
Liabilities
Franchise rights 6,500,000 7,384,000
Depreciation 136,000 2,438,000
Installment sales 29,000
---------- ----------
6,636,000 9,851,000
---------- ----------
$ 0 $ 0
========== ==========
During 1993, the Company settled outstanding disputes with the Internal
Revenue Service relating to income tax claims arising from periods prior to
the acquisition of Carrols by Holdings. The cost to the company of these
settlements approximated $2.7 million of tax claims plus $1.6 million of
interest and had been previously reserved. The Company has net operating
loss carryforwards for income tax purposes of approximately $37 million,
which expire in varying amounts beginning 2001 through 2009.
6. STOCKHOLDER'S EQUITY
The Company
The Company has 1,000 shares of common stock authorized, 10 shares issued
and outstanding. Dividends on the Company's common stock are restricted to
amounts permitted by various loan and debenture agreements.
Additional paid-in capital was reduced for cash dividends declared of
$2,973,000,$2,741,000 and $200,000 in 1994, 1993 and 1992, respectively.
F-14
ˇ Enlarge/Download Table
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
6. STOCKHOLDER'S EQUITY (Continued)
Holdings
The sole activity of Holdings is the ownership of 100% of the stock of
Carrols Corporation.
Holdings, the parent, has issued various classes of stock with redemption,
convertibility and cumulative dividend payment requirements. At December
31, Holdings stock consists of:
1994 1993
Preferred stock:
Class A, 10% cumulative redeemable,
par value $.01, authorized, issued
and outstanding 7,250 shares at
liquidation preference and
redemption price $7,250,000 $7,250,000
Class B, convertible, 10% cumulative
redeemable Series I, par value $.01,
authorized, issued and outstanding 750
shares at liquidation preference and
redemption price 750,000 750,000
Class B, 10% cumulative redeemable
Series II, par value $.01, authorized
750 shares, issued - none
Common stock:
Voting, par value $.01, authorized
6,000,000 shares, issued and outstanding
2,266,157 and 2,760,012 shares for
1994 and 1993, respectively 23,000 28,000
Non-voting, par value $.01, authorized
882,353 shares, issued - none
<FN>
The Class A Preferred Stock, issued in December 1986, is subject to
redemptions equally over each of the tenth through thirteenth anniversaries
of issuance. Subject to the redemption restrictions of various loan
agreements, all preferred stock may be redeemed at the option of Holdings,
at a price of $1,000 per share, plus accrued dividends. In the event that
the scheduled redemptions are not timely made, the annual dividend rate on
the Class A Preferred Stock will automatically increase to 14%.
Each share of Holdings Class B Convertible Preferred Stock is convertible
at any time prior to redemption into 1,176.5 shares of Holdings Non-Voting
Common Stock (subject to adjustment to prevent dilution).
Holders of the Preferred Stock are entitled to cumulative dividends payable
quarterly at the rate of 10% per annum. In the event that Holdings fails
to pay four consecutive quarterly dividends on the Class A preferred stock,
the subsequent dividend rate increases to 11.5%; if eight consecutive
quarterly dividends are missed, the rate increases to 13% per annum until
such dividends are paid. Dividends on the Class B preferred stock cannot
be declared or paid if there are any Class A preferred stock dividends in
arrears.
F-15
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
6. STOCKHOLDER'S EQUITY (Continued)
In conjunction with the Class A Preferred Stock, warrants to purchase
529,412 shares of Holdings Common Stock at an exercise price of $.97 to
$1.00 per share were granted. Outstanding warrants as of December 31, 1994
and 1993 totalled 463,549 and 529,412, respectively. Warrants are
exercisable until the redemption of the Class A Preferred Stock. The
warrants contain restrictions as to transfer, dilution and registration
rights.
The Company also granted warrants for the purchase of 281,602 shares of
Holdings Common Stock with various expiration dates through 2004 at an
exercise price of $1.00 per share.
Redemption Offer
During 1993, Carrols Holdings Corporation initiated a redemption and
retirement offer resulting in the tender of 743,843 shares of common stock
and the tender of warrants to purchase 65,863 shares of common stock
with a total redemption value of $3,173,000.
Approximately $500,000, or 249,988 shares, of the redemption was effected
during 1993. The remainder of the redemption, $2,673,000, or 493,855
shares and warrants for 65,863 shares, was completed in 1994.
Stock Options
Carrols Holdings Corporation adopted an Employee Stock Option and Award Plan
on December 14, 1993. Effective April 1, 1994, Holdings also adopted a
Stock Option Plan for non-employee directors. The Plans allow for the
granting of non-qualified stock options, stock appreciation rights and
incentive stock options to directors, officers and certain other Company
employees. The Company is authorized to grant options for up to 850,000
shares, 100,000 shares for non-employee directors and 750,000 shares for
employees. As of December 31, 1994, 51 employees and non-employee directors
were granted options for 257,000 shares at $4.00 per share, of which 15,000
shares were for non-employee directors. Options are generally exercisable
over 5 years with 46,400 options exercisable as of December 31, 1994.
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.
F-16
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
8. POSTRETIREMENT EMPLOYMENT BENEFITS
The Company provides postretirement medical and life insurance benefits
covering substantially all salaried employees.
As of January 1, 1992, the provisions of Statement of Financial Accounting
Standard (SFAS) No. 106, Employers Accounting for Postretirement Benefits
Other Than Pensions, were adopted. The Company elected the immediate
recognition approach with respect to the transition obligation.
The following sets forth the plan status at December 31:
Accumulated Postretirement Benefit Obligation (APBO):
ˇ Download Table
1994 1993
Retirees $ 409,000 $ 364,000
Fully eligible
active participants 130,000 135,000
Other active plan participants
not fully eligible 568,000 851,000
--------- ---------
Total APBO 1,107,000 1,350,000
Unrecognized prior service cost 281,000 304,000
Unrecognized net loss (34,000) (366,000)
--------- ---------
Accrued postretirement
benefit obligation $1,354,000 $1,288,000
========= =========
<FN>
ˇ Download Table
Net periodic postretirement benefit cost included the following components:
1994 1993 1992
Service cost $ 47,000 $ 61,000 $ 80,000
Interest cost 70,000 74,000 83,000
Net amortization (20,000) (19,000)
------- ------- ------
$ 97,000 $116,000 $163,000
======= ======= =======
<FN>
F-17
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________
8. POSTRETIREMENT EMPLOYMENT BENEFITS (Continued)
A 10.5% annual rate of increase in the per capita costs of covered health
care benefits was assumed for 1994, gradually decreasing to 5.5% by the year
2004. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $471,000 and increase the aggregate
of the service cost and interest cost components of net periodic
postretirement benefit cost for 1994 by $18,000. A discount rate of 7% was
used to determine the accumulated postretirement benefit obligation. Actual
benefit costs paid on behalf of retirees in 1994 amounted to $31,000.
9. LIQUIDITY AND RESOURCES
Although the Company has experienced losses since inception, it has and
expects to continue to generate sufficient cash flows to meet its
obligations. In addition to cash flows from operations, the Company's
available resources include, among other things, borrowing from available
lines of credit, sale leasebacks of owned real estate to the extent
permitted under the loan agreements and managing certain discretionary
expenditures.
10. LOSS ON CLOSING RESTAURANTS AND OTHER
The loss on closing restaurants and other of $1.8 million for 1994 reflects
approximately $1.3 million associated with the closing during 1995 of
certain restaurants operating at a negative annual cash flow. These costs
include the write-down of assets to net realizable value and estimated
lease termination costs. The loss also includes the write-down of
approximately $0.5 million to net estimated realizable value of a vacant
warehouse held for sale with a net book value as of December 31, 1994 of
$1.9 million.
F-18
CARROLS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
___________
ˇ Enlarge/Download Table
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
Year ended December 31, 1994:
Accumulated depreciation of property
and equipment $ 47,254,000 $ 7,404,000 $ (689,000)(d) $ 53,969,000
Accumulated amortization of franchise rights 15,146,000 2,402,000 17,548,000
Accumulated amortization of beneficial leases 6,921,000 785,000 (273,000)(a) 7,433,000
Accumulated amortization of excess
cost over fair value of assets 404,000 58,000 462,000
Reserve for doubtful trade accounts receivable 563,000 2,000 (141,000)(b) 424,000
Reserve for notes and mortgages receivable(c) 521,000 21,000 542,000
Year ended December 31, 1993:
Accumulated depreciation of property
and equipment 40,686,000 7,840,000 (1,272,000)(d) 47,254,000
Accumulated amortization of franchise rights 13,364,000 2,513,000 (731,000)(a) 15,146,000
Accumulated amortization of beneficial leases 5,962,000 1,189,000 (230,000)(a) 6,921,000
Accumulated amortization of excess
cost over fair value of assets 347,000 57,000 404,000
Reserve for doubtful trade accounts receivable 616,000 (53,000)(b) 563,000
Reserve for notes and mortgages receivable(c) 292,000 229,000 521,000
Year ended December 31, 1992:
Accumulated depreciation of property
and equipment 33,573,000 7,240,000 (127,000)(d) 40,686,000
Accumulated amortization of franchise rights 11,153,000 2,211,000 13,364,000
Accumulated amortization of beneficial leases 4,985,000 977,000 5,962,000
Accumulated amortization of excess
cost over fair value of assets 289,000 58,000 347,000
Reserve for doubtful trade accounts receivable 699,000 (83,000)(b) 616,000
Reserve for notes and mortgages receivable(c) 235,000 57,000 292,000
(a) Represents reduction of accumulated amortization for franchise rights due to sale or disposition of
restaurants.
(b) Represents write-offs of accounts.
(c) Included principally in other assets.
(d) Represents retirements of fixed assets.
<FN>
F-19
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