CARROLS CORP - 10-Q Quarterly Report

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 September 30, 2004

¨	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 November 9, 2004 is 10.

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)


	September 30, 2004		December 31, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,989	$	2,414
Trade and other receivables, net		1,975		1,280
Inventories		4,595		4,936
Prepaid rent		191		2,534
Prepaid expenses and other current assets		4,497		4,043
Refundable income taxes		200		—
Deferred income taxes		6,286		6,286

Total current assets		20,733		21,493

Property and equipment, at cost less accumulated depreciation of $221,384 and $194,652, respectively		210,981		236,353

Franchise rights, at cost less accumulated amortization of $54,012 and $50,732, respectively (Note 9)		82,992		86,148

Goodwill, at cost less accumulated amortization of $10,053 at both dates (Note 9)		123,861		123,861

Deferred income taxes		7,188		8,619

Other assets		9,434		10,400

Total assets	$	455,189	$	486,874

The accompanying notes are an integral part of these financial statements.

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(in thousands of dollars)


	September 30, 2004		December 31, 2003
	(unaudited)
LIABILITIES and STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	19,676	$	17,230
Accrued interest		5,470		1,549
Accrued payroll, related taxes and benefits		16,513		11,545
Accrued income taxes		—		836
Other liabilities		15,027		14,897
Current portion of long-term debt		12,215		14,005
Current portion of lease financing obligations		2,535		2,288

Total current liabilities		71,436		62,350

Long-term debt, net of current portion		233,581		281,827
Lease financing obligations, net of current portion		80,472		82,397
Deferred income – sale/leaseback of real estate		11,004		8,841
Accrued postretirement benefits		3,367		2,962
Other liabilities (Note 7)		27,343		27,527

Total liabilities		427,203		465,904

Commitments and contingencies (Note 11)

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 earnings (deficit)		3,501		(3,515	)

Total stockholder’s equity		27,986		20,970

Total liabilities and stockholder’s equity	$	455,189	$	486,874

The accompanying notes are an integral part of these financial statements.

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(unaudited)

(in thousands of dollars)


	2004		Restated (Note 2) 2003
Revenues:
Restaurant sales	$	177,796	$	165,836
Franchise royalty revenues and fees		366		359

Total revenues		178,162		166,195

Costs and expenses:
Cost of sales		51,853		47,304
Restaurant wages and related expenses		52,245		49,400
Restaurant rent expense		8,966		7,670
Other restaurant operating expenses		24,405		23,352
Advertising expense		6,186		6,261
General and administrative		10,503		10,236
Depreciation and amortization		10,357		10,729
Impairment losses (Note 5)		60		1,687
Other expense (Note 4)		2,352		—

Total operating expenses		166,927		156,639

Income from operations		11,235		9,556

Interest expense		7,145		8,067

Income before income taxes		4,090		1,489

Provision for income taxes (Note 6)		1,506		695

Net income	$	2,584	$	794

The accompanying notes are an integral part of these financial statements.

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(unaudited)

(in thousands of dollars)


	2004		Restated (Note 2) 2003
Revenues:
Restaurant sales	$	511,863	$	483,001
Franchise royalty revenues and fees		1,122		1,055

Total revenues		512,985		484,056

Costs and expenses:
Cost of sales		147,854		135,123
Restaurant wages and related expenses		151,767		146,224
Restaurant rent expense		26,253		23,020
Other restaurant operating expenses		69,154		67,164
Advertising expense		19,059		21,266
General and administrative		30,749		28,448
Depreciation and amortization		32,043		32,553
Impairment losses (Note 5)		629		2,332
Other expense (Note 4)		2,352		—

Total operating expenses		479,860		456,130

Income from operations		33,125		27,926

Interest expense		22,046		24,710

Income before income taxes		11,079		3,216

Provision for income taxes (Note 6)		4,063		1,439

Net income	$	7,016	$	1,777

The accompanying notes are an integral part of these financial statements.

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(unaudited)

(in thousands of dollars)


	2004			Restated (Note 2) 2003
Cash flows provided from operating activities:
Net income	$	7,016		$	1,777
Adjustments to reconcile net income to net cash provided from operating activities:
Loss (gain) on sales of properties		(314	)		388
Depreciation and amortization		32,043			32,553
Impairment losses		629			2,332
Deferred income taxes		1,431			674
Change in operating assets and liabilities		10,781			(1,008	)

Net cash provided from operating activities		51,586			36,716

Cash flows used for investing activities:
Capital expenditures:
New restaurant development		(7,422	)		(16,833	)
Restaurant remodeling		(818	)		(3,133	)
Other restaurant expenditures		(4,565	)		(5,468	)
Corporate and restaurant information systems		(724	)		(1,187	)

Total capital expenditures		(13,529	)		(26,621	)
Properties purchased for sale-leaseback		(924	)		(3,149	)
Proceeds from dispositions of property and equipment		1,174			2,670

Net cash used for investing activities		(13,279	)		(27,100	)

Cash flows used for financing activities:
Payments on revolving credit facility, net		(500	)		(36,100	)
Principal payments on term loans		(10,125	)		(5,500	)
Principal pre-payments on term loans		(39,000	)		—
Principal payments on lease financing obligations		(1,678	)		(1,496	)
Payments on other notes payable		(117	)		(716	)
Principal payments on capital leases		(294	)		(370	)
Proceeds from sale-leaseback transactions		13,982			35,278

Net cash used for financing activities		(37,732	)		(8,904	)

Increase in cash and cash equivalents		575			712
Cash and cash equivalents, beginning of period		2,414			2,538

Cash and cash equivalents, end of period	$	2,989		$	3,250

The accompanying notes are an integral part of these financial statements.

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 and nine months ended September 30, 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 financial 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 and nine months ended September 30, 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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.

We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, all references herein to the fiscal years ended December 29, 2002 and December 28, 2003 will be referred to as the fiscal years ended December 31, 2002 and 2003, respectively. Similarly, all references herein to the three and nine months ended September 28, 2003 and September 26, 2004 will be referred to as the three and nine months ended September 30, 2003 and September 30, 2004, respectively. Our fiscal years ended December 31, 2001, 2002 and 2003 each contained 52 weeks. Our fiscal year ended December 31, 2004 will contain 53 weeks. The additional week in fiscal 2004 will be included in the fourth quarter.

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 3, 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. 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.

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(in thousands of dollars)

2.	Stock-Based Compensation Disclosures Required by SFAS No. 123 and No. 148

Statement of Financial Accounting Standards (“SFAS”) 123, “Accounting for Stock-Based Compensation,” (SFAS 123), as amended by FAS 148, permits entities to recognize as an expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities to continue to apply the provisions of APB 25 and provide pro forma net income disclosures for employee stock option grants as if the fair-value-based method defined in SFAS 123 has been applied. The Company has elected to continue applying the provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123.

The following table presents the Company’s proforma net income had compensation cost been determined based upon the fair value of the stock options at the grant date consistent with the fair-value-based method of FAS 123:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
			Restated (Note 2)				Restated (Note 2)
Net income as reported	$	2,584	$	794	$	7,016	$	1,777
Less: Compensation cost, net of tax		72		65		224		208

Proforma net income	$	2,512	$	729	$	6,792	$	1,569

3.	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 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 was 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.