UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
or
| ¨ | Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
Commission File Number 0-25629
CARROLS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 16-0958146 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 968 James Street Syracuse, New York |
13203 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number including area code: (315) 424-0513
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrant’s common stock outstanding as of May 12, 2004 is 10.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
| March 31, 2004 |
December 31, 2003 | |||||
| (unaudited) | ||||||
| ASSETS |
||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 3,148 | $ | 2,414 | ||
| Trade and other receivables, net of reserves of $128 at each date |
1,913 | 1,280 | ||||
| Inventories |
4,505 | 4,936 | ||||
| Prepaid rent |
2,616 | 2,534 | ||||
| Prepaid expenses and other current assets |
4,277 | 4,043 | ||||
| Deferred income taxes |
6,286 | 6,286 | ||||
| Total current assets |
22,745 | 21,493 | ||||
| Property and equipment, at cost less accumulated depreciation of $202,607 and $194,652, respectively |
224,173 | 236,353 | ||||
| Franchise rights, at cost less accumulated amortization of $51,791 and $50,732, respectively |
85,114 | 86,148 | ||||
| Intangible assets, at cost less accumulated amortization of $10,271 and $10,258, respectively (Note 4) |
124,831 | 124,844 | ||||
| Deferred income taxes |
8,857 | 8,619 | ||||
| Other assets |
9,290 | 9,417 | ||||
| Total assets |
$ | 475,010 | $ | 486,874 | ||
The accompanying notes are an integral part of these financial statements.
2
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands of dollars)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| LIABILITIES and STOCKHOLDER’S EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 13,457 | $ | 17,230 | ||||
| Accrued interest |
5,639 | 1,549 | ||||||
| Accrued payroll, related taxes and benefits |
12,418 | 11,545 | ||||||
| Accrued income taxes |
7 | 836 | ||||||
| Other liabilities |
14,740 | 14,897 | ||||||
| Current portion of long-term debt |
13,901 | 14,005 | ||||||
| Current portion of financing obligations |
2,393 | 2,288 | ||||||
| Total current liabilities |
62,555 | 62,350 | ||||||
| Long-term debt, net of current portion |
268,752 | 281,827 | ||||||
| Financing obligations, net of current portion |
81,748 | 82,397 | ||||||
| Deferred income – sale/leaseback of real estate |
9,789 | 8,841 | ||||||
| Accrued postretirement benefits |
3,100 | 2,962 | ||||||
| Other liabilities (Note 6) |
27,717 | 27,527 | ||||||
| Total liabilities |
453,661 | 465,904 | ||||||
| Stockholder’s equity: |
||||||||
| Common stock, par value $1; authorized 1,000 shares, issued and outstanding – 10 shares |
— | — | ||||||
| Additional paid-in capital |
24,485 | 24,485 | ||||||
| Accumulated deficit |
(3,136 | ) | (3,515 | ) | ||||
| Total stockholder’s equity |
21,349 | 20,970 | ||||||
| Total liabilities and stockholder’s equity |
$ | 475,010 | $ | 486,874 | ||||
The accompanying notes are an integral part of these financial statements.
3
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands of dollars)
| 2004 |
Restated (Note 2) 2003 |
||||||
| (unaudited) | |||||||
| Revenues: |
|||||||
| Restaurant sales |
$ | 156,545 | $ | 151,902 | |||
| Franchise royalty revenues and fees |
355 | 338 | |||||
| Total revenues |
156,900 | 152,240 | |||||
| Costs and expenses: |
|||||||
| Cost of sales |
43,681 | 42,434 | |||||
| Restaurant wages and related expenses |
47,851 | 47,044 | |||||
| Restaurant rent expense |
8,564 | 7,818 | |||||
| Other restaurant operating expenses |
21,890 | 21,363 | |||||
| Advertising expense |
5,827 | 7,269 | |||||
| General and administrative |
9,759 | 9,274 | |||||
| Depreciation and amortization |
11,152 | 10,885 | |||||
| Total operating expenses |
148,724 | 146,087 | |||||
| Income from operations |
8,176 | 6,153 | |||||
| Interest expense |
7,577 | 8,356 | |||||
| Income (loss) before income taxes |
599 | (2,203 | ) | ||||
| Provision (benefit) for income taxes (Note 5) |
220 | (863 | ) | ||||
| Net income (loss) |
$ | 379 | $ | (1,340 | ) | ||
The accompanying notes are an integral part of these financial statements.
4
CARROLS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands of dollars)
| 2004 |
Restated (Note 2) 2003 |
|||||||
| (unaudited) | ||||||||
| Cash flows provided from operating activities: |
||||||||
| Net income (loss) |
$ | 379 | $ | (1,340 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided from operating activities: |
||||||||
| Depreciation and amortization |
11,152 | 10,885 | ||||||
| Deferred income taxes |
(238 | ) | (866 | ) | ||||
| Change in operating assets and liabilities |
(829 | ) | 1,012 | |||||
| Net cash provided from operating activities |
10,464 | 9,691 | ||||||
| Cash flows used for investing activities: |
||||||||
| Capital expenditures: |
||||||||
| New restaurant development |
(1,637 | ) | (6,774 | ) | ||||
| Restaurant remodeling |
(61 | ) | (1,278 | ) | ||||
| Other restaurant expenditures |
(1,240 | ) | (2,206 | ) | ||||
| Corporate and restaurant information systems |
(166 | ) | (761 | ) | ||||
| Total capital expenditures |
(3,104 | ) | (11,019 | ) | ||||
| Proceeds from sales of non-operating properties |
— | 1,964 | ||||||
| Net cash used for investing activities |
(3,104 | ) | (9,055 | ) | ||||
| Cash flows used for financing activities: |
||||||||
| Payments on revolving credit facility, net |
(600 | ) | (4,600 | ) | ||||
| Principal payments on term loans |
(3,375 | ) | — | |||||
| Principal pre-payments on term loans |
(9,000 | ) | — | |||||
| Principal payments on financing obligations |
(544 | ) | (487 | ) | ||||
| Payments on other notes payable |
(98 | ) | (258 | ) | ||||
| Principal payments on capital leases |
(106 | ) | (121 | ) | ||||
| Proceeds from sale-leaseback transactions |
7,097 | 4,912 | ||||||
| Net cash used for financing activities |
(6,626 | ) | (554 | ) | ||||
| Increase in cash and cash equivalents |
734 | 82 | ||||||
| Cash and cash equivalents, beginning of period |
2,414 | 2,538 | ||||||
| Cash and cash equivalents, end of period |
$ | 3,148 | $ | 2,620 | ||||
The accompanying notes are an integral part of these financial statements.
5
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
| 1. | Statement of Management |
The accompanying unaudited consolidated financial statements for the three months ended March 31, 2004 and 2003 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete statements. In the opinion of management, all normal and recurring adjustments necessary for a fair presentation of such financial statements have been included.
The results of operations for the three months ended March 31, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Carrols Corporation and its majority owned subsidiaries (“Carrols” or the “Company”). All material intercompany balances, transactions and profits have been eliminated.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003 contained in the Company’s 2003 Annual Report on Form 10-K. The December 31, 2003 balance sheet data is derived from those audited financial statements. As further discussed in Note 2 of the consolidated financial statements for the year ended December 31, 2003, the Company restated its financial statements including applicable footnotes in its 2003 Annual Report on Form 10-K for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 “Accounting for Leases” rather than as sale/leaseback transactions as previously reported. All previously reported amounts affected by the restatement that appear elsewhere in these footnotes to the consolidated financial statements have also been restated.
Certain amounts for prior periods have been reclassified to conform to the current year presentation.
6
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands of dollars)
| 2. | Restatement of Previously Issued Financial Statements |
As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, the Company has restated its financial statements including applicable footnotes for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98 “Accounting for Leases” rather than as sale/leaseback transactions as previously reported. The impact of the restatement is to record on the Company’s balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred), as a form of debt financing. The restatement also impacted our operating results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously reported as rent expense for these restaurants as principal repayments and interest expense. There was no impact on sale/leaseback transactions that were consummated in 2002 and 2003.
The following table sets forth the previously reported amounts and the restated amounts reflected in the accompanying consolidated financial statements for the three months ended March 31, 2003:
| As Previously |
As Restated |
|||||||
| Consolidated Statement of Operations: |
||||||||
| Restaurant rent expense |
$ | 10,071 | $ | 7,818 | ||||
| Depreciation and amortization |
9,767 | 10,885 | ||||||
| Total operating expenses |
147,222 | 146,087 | ||||||
| Income from operations |
5,018 | 6,153 | ||||||
| Interest expense |
6,525 | 8,356 | ||||||
| Loss before income taxes |
(1,507 | ) | (2,203 | ) | ||||
| Benefit for income taxes |
(572 | ) | (863 | ) | ||||
| Net loss |
(935 | ) | (1,340 | ) | ||||
| Consolidated Statement of Cash Flows: |
||||||||
| Net loss |
$ | (935 | ) | $ | (1,340 | ) | ||
| Depreciation and amortization |
9,767 | 10,885 | ||||||
| Deferred income taxes |
(575 | ) | (866 | ) | ||||
| Other changes in operating assets and liabilities |
947 | 1,012 | ||||||
| Net cash provided from operating activities |
9,204 | 9,691 | ||||||
| Principal payments on financing obligations |
— | (487 | ) | |||||
| Net cash used for financing activities |
(67 | ) | (554 | ) | ||||
7
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands of dollars)
| 3. | Impairment of Long-Lived Assets |
The Company reviews its long-lived assets for impairment at the restaurant level on an ongoing basis. If an indicator of impairment exists for any of its restaurants, an estimate of undiscounted future cash flows produced by each restaurant is compared to that restaurant’s carrying value. If an asset is determined to be impaired, an impairment charge is measured by the excess of the carrying amount of the asset over its fair value. For the three months ended March 31, 2004 and 2003 the Company recorded impairment charges, included in depreciation and amortization, of $261 and $37, respectively, related to its property and equipment for certain of its Burger King restaurants.
| 4. | Intangible Assets |
Intangible assets, net of accumulated amortization, consisted of the following:
| March 31, 2004 |
December 31, 2003 | |||||
| Goodwill, net of accumulated amortization of $10,053 at both dates |
$ | 123,861 | $ | 123,861 | ||
| Trademarks, net of accumulated amortization of $36 at both dates |
228 | 228 | ||||
| Other, net of accumulated amortization of $182 and $170, respectively |
742 | 755 | ||||
| $ | 124,831 | $ | 124,844 | |||
Intangible assets, net of accumulated amortization, applicable to our business segments consisted of the following:
| March 31, 2004 |
December 31, 2003 | |||||
| Burger King |
$ | 1,460 | $ | 1,473 | ||
| Pollo Tropical |
57,382 | 57,382 | ||||
| Taco Cabana |
65,989 | 65,989 | ||||
| $ | 124,831 | $ | 124,844 | |||
8
CARROLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands of dollars)
| 5. |