Carrols Restaurant Group, Inc.
CARROLS CORP (Form: 10-Q, Received: 08/05/2009 10:31:49)
Table of Contents

 

 

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 June 28, 2009

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33174

 

 

CARROLS RESTAURANT GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   16-1287774
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
968 James Street
Syracuse, New York
  13203
(Address of principal executive office)   (Zip Code)

Registrant’s telephone number, including area code: (315) 424-0513

Commission File Number: 001-06553

 

 

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

 

 

Carrols Corporation meets the conditions set forth in General Instruction H(1) and is therefore filing this form with reduced disclosure format pursuant to General Instruction H(2).

Indicate by check mark whether either of the registrants (1) have 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 were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes   x     No   ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their Corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   ¨     No   ¨

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act, (Check one):

Carrols Restaurant Group, Inc.

 

Large accelerated filer   ¨    Accelerated filer   x    Non-accelerated filer   ¨    Smaller reporting company   ¨
      (Do not check if a smaller reporting company)   

Carrols Corporation

 

Large accelerated filer   ¨    Accelerated filer   ¨    Non-accelerated filer   x    Smaller reporting company   ¨
      (Do not check if a smaller reporting company)   

Indicate by check mark whether either of the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes   ¨     No   x

As of July 31, 2009, Carrols Restaurant Group, Inc. had 21,594,145 shares of its common stock, $.01 par value, outstanding. As of July 31, 2009, all outstanding equity securities of Carrols Corporation, which consisted of 10 shares of its common stock, were owned by Carrols Restaurant Group, Inc.

 

 

 


Table of Contents

CARROLS RESTAURANT GROUP, INC. AND CARROLS CORPORATION

FORM 10-Q

QUARTER ENDED JUNE 28, 2009

 

          Page

PART I

   FINANCIAL INFORMATION   
Item 1    Carrols Restaurant Group, Inc. and Subsidiary - Consolidated Financial Statements (unaudited):   
  

Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008

   3
  

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008

   4
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008

   5
  

Notes to Consolidated Financial Statements

   6
   Carrols Corporation and Subsidiaries - Consolidated Financial Statements (unaudited):   
  

Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008

   16
  

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008

   17
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008

   18
  

Notes to Consolidated Financial Statements

   19
Item 2    Management’s Discussion and Analysis of Financial Condition and Results of Operations    38
Item 3    Quantitative and Qualitative Disclosures About Market Risk    52
Item 4    Controls and Procedures    52
PART II    OTHER INFORMATION   
Item 1    Legal Proceedings    53
Item 1A    Risk Factors    53
Item 2    Unregistered Sales of Equity Securities and Use of Proceeds    53
Item 3    Default Upon Senior Securities    53
Item 4    Submission of Matters to a Vote of Security Holders    53
Item 5    Other Information    54
Item 6    Exhibits    54

 

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Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1—INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share and per share amounts)

(Unaudited)

 

     June 30,
2009
    December 31,
2008
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 3,032      $ 3,399   

Trade and other receivables

     5,808        5,622   

Inventories

     5,272        5,588   

Prepaid rent

     2,998        2,998   

Prepaid expenses and other current assets

     7,280        6,738   

Deferred income taxes

     4,873        4,890   
                

Total current assets

     29,263        29,235   

Property and equipment, net

     191,485        195,376   

Franchise rights, net (Note 4)

     75,302        76,870   

Goodwill (Note 4)

     124,934        124,934   

Intangible assets, net

     610        675   

Franchise agreements, at cost less accumulated amortization of $5,636 and $5,729, respectively

     5,813        5,826   

Deferred income taxes

     5,946        6,697   

Other assets

     9,858        10,585   
                

Total assets

   $ 443,211      $ 450,198   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Current portion of long-term debt (Note 5)

   $ 15,090      $ 12,093   

Accounts payable

     20,009        18,789   

Accrued interest

     6,979        7,742   

Accrued payroll, related taxes and benefits

     18,175        15,431   

Accrued income taxes payable

     614        2,099   

Accrued real estate taxes

     4,081        3,803   

Other liabilities

     10,313        10,848   
                

Total current liabilities

     75,261        70,805   

Long-term debt, net of current portion (Note 5)

     268,152        289,202   

Lease financing obligations (Note 9)

     11,686        14,859   

Deferred income—sale-leaseback of real estate

     43,634        43,447   

Accrued postretirement benefits (Note 8)

     1,566        1,697   

Other liabilities (Note 7)

     21,654        21,729   
                

Total liabilities

     421,953        441,739   

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Preferred stock, par value $.01; authorized 20,000,000 shares, issued and outstanding—none

     —          —     

Voting common stock, par value $.01; authorized 100,000,000 shares, issued and outstanding - 21,592,726 and 21,592,462 shares, respectively

     216        216   

Additional paid-in capital

     1,056        348   

Retained earnings

     18,163        6,072   

Accumulated other comprehensive income (Note 13)

     1,964        1,964   

Treasury stock, at cost

     (141     (141
                

Total stockholders’ equity

     21,258        8,459   
                

Total liabilities and stockholders’ equity

   $ 443,211      $ 450,198   
                

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

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(In thousands of dollars, except share and per share amounts)

(Unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2009     2008     2009     2008  

Revenues:

        

Restaurant sales

   $ 203,535      $ 210,331      $ 404,524      $ 405,724   

Franchise royalty revenues and fees

     399        351        753        711   
                                

Total revenues

     203,934        210,682        405,277        406,435   
                                

Costs and expenses:

        

Cost of sales

     59,349        63,943        117,622        121,572   

Restaurant wages and related expenses (including stock-based compensation expense of $53, $57, $105 and $114, respectively)

     59,144        60,763        117,787        119,304   

Restaurant rent expense

     12,402        11,568        24,834        23,051   

Other restaurant operating expenses

     29,286        31,348        58,700        60,893   

Advertising expense

     7,567        9,224        15,578        17,048   

General and administrative (including stock-based compensation expense of $308, $435, $603 and $852, respectively)

     12,698        13,717        25,916        26,712   

Depreciation and amortization

     7,883        8,077        15,753        16,099   

Impairment and other lease charges (Note 3)

     63        81        354        102   

Other income (Note 14)

     (579     (119     (579     (119
                                

Total costs and expenses

     187,813        198,602        375,965        384,662   
                                

Income from operations

     16,121        12,080        29,312        21,773   

Interest expense

     4,923        7,123        10,074        14,557   

Gain on extinguishment of debt (Note 5)

     —          (180     —          (180
                                

Income before income taxes

     11,198        5,137        19,238        7,396   

Provision for income taxes (Note 6)

     4,133        1,880        7,147        2,693   
                                

Net income

   $ 7,065      $ 3,257      $ 12,091      $ 4,703   
                                

Basic net income per share (Note 12)

   $ 0.33      $ 0.15      $ 0.56      $ 0.22   
                                

Diluted net income per share (Note 12)

   $ 0.32      $ 0.15      $ 0.56      $ 0.22   
                                

Basic weighted average common shares outstanding (Note 12)

     21,592,535        21,571,652        21,592,498        21,571,609   

Diluted weighted average common shares outstanding (Note 12)

     21,782,987        21,575,405        21,688,962        21,574,825   

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

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(In thousands of dollars)

(Unaudited)

 

     2009     2008  

Cash flows provided from operating activities:

    

Net income

   $ 12,091      $ 4,703   

Adjustments to reconcile net income to net cash provided from operating activities:

    

Loss (gain) on disposals of property and equipment

     105        (12

Stock-based compensation expense

     708        966   

Impairment and other lease charges

     354        102   

Depreciation and amortization

     15,753        16,099   

Amortization of deferred financing costs

     489        595   

Amortization of unearned purchase discounts

     (1,077     (1,077

Amortization of deferred gains from sale-leaseback transactions

     (1,559     (1,044

Loss (gain) on settlements of lease financing obligations

     (70     31   

Accretion of interest on lease financing obligations

     19        120   

Deferred income taxes

     768        249   

Accrued income taxes

     (1,485     1,031   

Gain on extinguishment of debt

     —          (180

Changes in other operating assets and liabilities

     3,694        (2,203
                

Net cash provided from operating activities

     29,790        19,380   
                

Cash flows used for investing activities:

    

Capital expenditures:

    

New restaurant development

     (5,620     (16,385

Restaurant remodeling

     (5,421     (6,168

Other restaurant capital expenditures

     (3,190     (4,091

Corporate and restaurant information systems

     (3,077     (2,585
                

Total capital expenditures

     (17,308     (29,229

Properties purchased for sale-leaseback

     (210     —     

Proceeds from sale-leaseback transactions

     5,454        4,657   

Proceeds from sales of other properties

     249        119   
                

Net cash used for investing activities

     (11,815     (24,453
                

Cash flows provided from (used for) financing activities:

    

Borrowings on revolving credit facility

     51,700        62,400   

Repayments on revolving credit facility

     (66,700     (52,900

Scheduled principal payments on term loans

     (3,000     —     

Principal payments on capital leases

     (53     (71

Proceeds from lease financing obligations

     835        —     

Settlement of lease financing obligations

     (1,120     (5,500

Financing costs associated with issuance of lease financing obligations

     (4     —     

Repurchase of senior subordinated notes

     —          (1,820
                

Net cash provided from (used for) financing activities

     (18,342     2,109   
                

Net decrease in cash and cash equivalents

     (367     (2,964

Cash and cash equivalents, beginning of period

     3,399        7,396   
                

Cash and cash equivalents, end of period

   $ 3,032      $ 4,432   
                

Supplemental disclosures:

    

Interest paid on long-term debt

   $ 9,732      $ 11,596   

Interest paid on lease financing obligations

   $ 668      $ 2,520   

Accruals for capital expenditures

   $ 521      $ 962   

Income taxes paid, net

   $ 7,865      $ 1,414   

Capital lease obligations incurred

   $ —        $ 117   

Non-cash reduction of assets under lease financing obligations due to lease amendments

   $ 2,074      $ —     

Non-cash reduction of lease financing obligations due to lease amendments

   $ 2,833      $ —     

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

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars except share and per share amounts)

1. Basis of Presentation

Basis of Consolidation. The unaudited consolidated financial statements presented herein include the accounts of Carrols Restaurant Group, Inc. (“Carrols Restaurant Group” or the “Company”) and its wholly-owned subsidiary Carrols Corporation (“Carrols”). Carrols Restaurant Group is a holding company and conducts all of its operations through Carrols and its wholly-owned subsidiaries. Unless the context otherwise requires, Carrols Restaurant Group, Carrols and the direct and indirect subsidiaries of Carrols are collectively referred to as the “Company.” All intercompany transactions have been eliminated in consolidation.

The difference between the consolidated financial statements of Carrols Restaurant Group and Carrols is primarily due to additional rent expense of approximately $6 per year for Carrols Restaurant Group and the composition of stockholders’ equity.

Business Description. At June 30, 2009 the Company operated, as franchisee, 314 quick-service restaurants under the trade name “Burger King” in 12 Northeastern, Midwestern and Southeastern states. At June 30, 2009, the Company also owned and operated 91 Pollo Tropical restaurants, of which 85 were located in Florida, four were in New Jersey and one each in New York and Connecticut, and franchised a total of 27 Pollo Tropical restaurants, 21 in Puerto Rico, two in Ecuador, one in the Bahamas and three on college campuses in Florida. At June 30, 2009, the Company owned and operated 154 Taco Cabana restaurants located primarily in Texas and franchised a total of four Taco Cabana restaurants, two in New Mexico, one in Texas and one in Georgia.

Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. All references herein to the fiscal years ended December 28, 2008 and December 30, 2007 will be referred to as the fiscal years ended December 31, 2008 and 2007, respectively. Similarly, all references herein to the three and six months ended June 28, 2009 and June 29, 2008 will be referred to as the three and six months ended June 30, 2009 and June 30, 2008, respectively. The years ended December 31, 2008 and 2007 each contained 52 weeks and the three and six months ended June 30, 2009 and 2008 contained thirteen and twenty-six weeks, respectively.

Basis of Presentation. The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2009 and 2008 have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain 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 considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended June 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2008 contained in the Company’s 2008 Annual Report on Form 10-K. The December 31, 2008 balance sheet data is derived from those audited financial statements.

Fair Value of Financial Instruments. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

 

   

Current Assets and Liabilities. The carrying value of cash and cash equivalents and accrued liabilities approximates fair value because of the short maturity of those instruments.

 

   

Senior Subordinated Notes. The fair values of outstanding senior subordinated notes are based on quoted market prices. The fair values at June 30, 2009 and December 31, 2008 were approximately $154.7 million and $111.4 million, respectively.

 

   

Revolving and Term Loan Facilities. Rates and terms under Carrols’ senior credit facility are significantly favorable to debt with similar terms and maturities that could be potentially obtainable, if at all, at June 30, 2009. Given the lack of comparative information regarding such debt it is not practicable to estimate the fair value of our existing borrowings under our senior credit facility at June 30, 2009.

Use of Estimates. The preparation of the 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

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include: accrued occupancy costs, insurance liabilities, legal obligations, income taxes, evaluation for impairment of goodwill, long-lived assets and Burger King franchise rights, lease accounting matters and stock-based compensation. Actual results could differ from those estimates.

2. Stock-Based Compensation

As of June 30, 2009, the total non-vested stock-based compensation expense relating to the options and restricted shares was approximately $3.4 million and the Company expects to record an additional $0.7 million as compensation expense in 2009. At June 30, 2009, the remaining weighted average vesting period for stock options and restricted shares was 3.5 years and 1.7 years, respectively.

Stock Options

A summary of all option activity for the six months ended June 30, 2009 was as follows:

 

     2006 Plan
     Number of
Options
    Weighted
Average
Exercise Price
   Average
Remaining
Contractual
Life
   Aggregate
Intrinsic
Value (in
thousands) (1)

Options outstanding at January 1, 2009

   1,710,764      $ 12.17    5.3    $ —  

Granted

   536,900        2.20      

Forfeited

   (57,384     11.91      
              

Options outstanding at June 30, 2009

   2,190,280      $ 9.86    5.3    $ 2,177
              

Vested or expected to vest at June 30, 2009

   2,152,481      $ 9.88    5.3    $ 2,124
              

Options exercisable at June 30, 2009

   698,254      $ 13.05    4.9    $ —  
              

 

(1) The aggregate intrinsic value was calculated using the difference between the market price of the Company’s common stock at June 30, 2009 and the grant price for only those awards that had a grant price that was less than the market price of the Company’s common stock at June 30, 2009.

3. Impairment and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash flows for each restaurant is compared to the carrying value of that restaurant’s long-lived assets. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value in addition to any lease liabilities to be incurred for non-operating restaurants.

Impairment and other lease charges recorded on long-lived assets for its segments were as follows:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2009    2008    2009    2008

Burger King

   $ 6    $ 71    $ 28    $ 92

Pollo Tropical

     15      —        284      —  

Taco Cabana

     42      10      42      10
                           
   $ 63    $ 81    $ 354    $ 102
                           

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

During the six months ended June 30, 2009, the Company closed one Pollo Tropical restaurant property in Florida whose fixed assets were impaired in the fourth quarter of 2008, and recorded a charge of $0.3 million which principally consisted of future minimum lease payments and related ancillary costs from the date of the closure to the end of the remaining lease term, net of any estimated cost recoveries from subletting the property.

4. Goodwill and Franchise Rights

Goodwill. Goodwill is reviewed for impairment annually, or more frequently when events and circumstances indicate that the carrying amounts may be impaired. The Company performs its annual impairment assessment as of December 31 and does not believe circumstances have changed since the last assessment date which would make it necessary to reassess their values. In performing its goodwill impairment test, the Company compares the net book values of its reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, the Company employs a combination of a discounted cash flow analysis and a market-based approach. The results of the discounted cash flow analyses are corroborated with other value indicators where available, such as comparable company earnings multiples and research analyst estimates. No impairment losses have been recognized as a result of these tests. Goodwill balances are summarized below:

 

     Pollo
Tropical
   Taco
Cabana
   Burger
King
   Total

Balance, June 30, 2009

   $ 56,307    $ 67,177    $ 1,450    $ 124,934
                           

Burger King Franchise Rights. Amounts allocated to franchise rights for each Burger King acquisition are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one twenty-year renewal period. The Company assesses the potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If an indicator of impairment exists, an estimate of the aggregate undiscounted future cash flows from the acquired restaurants is compared to the respective carrying value of franchise rights for each Burger King acquisition and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There were no impairment charges recorded against franchise rights for the three and six months ended June 30, 2009 and 2008.

Amortization expense related to Burger King franchise rights was $784 and $799 for the three months ended June 30, 2009 and 2008, respectively. Amortization expense related to Burger King franchise rights was $1,568 and $1,600 for the six months ended June 30, 2009 and 2008, respectively. The Company estimates the amortization expense for the year ending December 31, 2009 and for each of the five succeeding years to be $3,197.

5. Long-term Debt

Long-term debt at June 30, 2009 and December 31, 2008 consisted of the following:

 

     June 30,
2009
    December 31,
2008
 

Collateralized:

    

Senior Credit Facility-Revolving credit facility

   $ 3,000      $ 18,000   

Senior Credit Facility-Term loan A facility

     114,000        117,000   

Unsecured:

    

9% Senior Subordinated Notes

     165,000        165,000   

Capital leases

     1,242        1,295   
                
     283,242        301,295   

Less: current portion

     (15,090     (12,093
                
   $ 268,152      $ 289,202   
                

Senior Credit Facility. On March 9, 2007, Carrols terminated and replaced its prior senior credit facility with a new senior credit facility with a syndicate of lenders. Carrols’ senior credit facility initially totaled approximately $185 million, consisting of $120 million principal amount of term loan A borrowings maturing on March 8, 2013 (or earlier on March 31, 2012 if the 9% Senior Subordinated Notes due 2013 are not refinanced by June 30, 2012) and a $65.0 million revolving credit facility (including a sub limit of up to $25.0 million for letters of credit and up to $5.0 million for swingline loans), maturing on March 8, 2012.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

The term loan and revolving credit borrowings under the senior credit facility bear interest at a per annum rate, at Carrols’ option, of either:

1) the applicable margin percentage ranging from 0% to 0.25% based on Carrols’ senior leverage ratio (as defined in the senior credit facility) plus the greater of (i) the prime rate or (ii) the federal funds rate for that day plus 0.5%; or

2) Adjusted LIBOR plus the applicable margin percentage in effect ranging from 1.0% to 1.5% based on Carrols’ senior leverage ratio. At June 30, 2009 the LIBOR margin percentage was 1.25%.

At June 28, 2009, outstanding term loan borrowings under the senior credit facility were $114.0 million with the remaining balance due and payable as follows:

 

  1) eight quarterly installments of $3.0 million beginning on June 30, 2009;

 

  2) four quarterly installments of $4.5 million beginning on June 30, 2011; and

 

  3) four quarterly installments of $18.0 million beginning on June 30, 2012.

After reserving $14.3 million for letters of credit guaranteed by the facility, $47.7 million was available for borrowings under the revolving credit facility at June 28, 2009.

Under the senior credit facility, Carrols is also required to make mandatory prepayments of principal on its term loan borrowings (a) annually in an initial amount equal to 50% of Excess Cash Flow depending upon Carrols’ Total Leverage Ratio (as such terms are defined in the senior credit facility), (b) in the event of certain dispositions of assets (all subject to certain exceptions) and insurance proceeds, in an amount equal to 100% of the net proceeds received by Carrols therefrom, and (c) in an amount equal to 100% of the net proceeds from any subsequent issuance of debt. The senior credit facility contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the senior credit facility if there is a default in the payment of any principal of or interest on any indebtedness of Carrols having an outstanding principal amount of at least $2.5 million (excluding lease financing obligations but which would include the Indenture governing the Notes, as defined below) or any event or condition which results in the acceleration of such indebtedness prior to its stated maturity.

In general, Carrols’ obligations under the senior credit facility are guaranteed by the Company and all of Carrols’ material subsidiaries and are collateralized by a pledge of Carrols’ common stock and the stock of each of Carrols’ material subsidiaries. The senior credit facility contains certain covenants, including, without limitation, those limiting Carrols’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of its business, engage in transactions with related parties, make certain investments or pay dividends. In addition, Carrols is required to meet certain financial ratios, including fixed charge coverage, senior leverage, and total leverage ratios (all as defined under the senior credit facility). Carrols was in compliance with the covenants under its senior credit facility as of June 30, 2009.

Senior Subordinated Notes. On December 15, 2004, Carrols issued $180 million of 9% Senior Subordinated Notes due 2013 (the “Notes”). At both June 30, 2009 and December 31, 2008, $165.0 million principal amount of the senior subordinated notes were outstanding. During 2008, Carrols repurchased and retired $15.0 million principal amount of the Notes in open market transactions for $10.4 million resulting in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred financing costs. Of these repurchases in 2008, $2.0 million was repurchased in the three months ended June 30, 2008 which resulted in a gain on extinguishment of debt of $0.2 million.

Restrictive covenants under the Notes include limitations with respect to the Carrols’ ability to issue additional debt, incur liens, sell or acquire assets or businesses, pay dividends and make certain investments. The Indenture governing the Notes contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the Notes and the Indenture if there is a default under any indebtedness of Carrols having an outstanding principal amount of $20 million or more (which would include the senior credit facility) if such default results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due. Carrols was in compliance with the restrictive covenants in the Indenture governing the Notes as of June 30, 2009.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

6. Income Taxes

The provision for income taxes for the three and six months ended June 30, 2009 and 2008 was comprised of the following:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
     2009    2008     2009    2008

Current

   $ 4,125    $ 1,945      $ 6,379    $ 2,444

Deferred

     8      (65     768      249
                            
   $ 4,133    $ 1,880      $ 7,147    $ 2,693
                            

The provision for income taxes for the three and six months ended June 30, 2009 was derived using an estimated effective annual income tax rate for 2009 of 37.4%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $57 in both the three months and six months ended June 30, 2009. The provision for income taxes for the three and six months ended June 30, 2008 was derived using an estimated effective annual income tax rate for 2008 of 37.9%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $66 and $112 for the three and six months ended June 30, 2008, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2009 and 2008, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.

The tax years 2005-2008 remain open to examination by the major taxing jurisdictions to which the Company is subject. It is not possible to reasonably estimate any possible change in the unrecognized tax benefits within the next twelve months due to the uncertainties regarding the timing of any examinations.

7. Other Liabilities, Long-Term

Other liabilities, long-term, at June 30, 2009 and December 31, 2008 consisted of the following:

 

     June 30,
2009
   December 31,
2008

Accrued occupancy costs

   $ 11,110    $ 10,949

Accrued workers’ compensation costs

     4,201      4,312

Deferred compensation

     3,047      3,244

Other

     3,296      3,224
             
   $ 21,654    $ 21,729
             

8. Postretirement Benefits

The Company provides postretirement medical and life insurance benefits covering substantially all Burger King administrative and restaurant management salaried employees who retire or terminate after qualifying for such benefits. A December 31 measurement date is used for postretirement benefits.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

The following summarizes the components of net periodic benefit income:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Service cost

   $ 7      $ (24   $ 15      $ 14   

Interest cost

     27        (18     54        53   

Amortization of net gains and losses

     21        3        42        44   

Amortization of prior service credit

     (88     (67     (172     (180
                                

Net periodic postretirement benefit income

   $ (33   $ (106   $ (61   $ (69
                                

During the three and six months ended June 30, 2009, the Company made contributions of $37 and $72 to its postretirement plan and expects to make additional contributions during 2009.

9. Lease Financing Obligations

The Company has previously entered into sale-leaseback transactions involving certain restaurant properties that did not qualify for sale-leaseback accounting and as a result, were classified as financing transactions under Statement of Financial Accounting Standards (“SFAS”) No. 98, “Accounting for Leases” (“SFAS 98”). Under the financing method, the assets remain on the consolidated balance sheet and proceeds received by the Company from these transactions are recorded as a financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.

In the second quarter of 2009, the Company purchased from the lessor one of its restaurant properties previously subject to a lease financing obligation for $1.1 million. The Company also modified provisions in two of its restaurant leases previously accounted for as lease financing obligations which allowed the respective sale transactions to qualify for sale-leaseback accounting and resulted in a reduction of lease financing obligations of $2.8 million. The Company also entered into a sale transaction for a restaurant property that did not qualify for sale-leaseback accounting and the proceeds of $0.8 million were recorded as a lease financing obligation. As a result of these transactions in the second quarter of 2009, lease financing obligations were reduced $3.2 million, assets under lease financing obligations were reduced by $2.1 million and deferred gains on qualified sale-leaseback transactions of $0.7 million were recorded.

In the second quarter of 2008, the Company purchased from the lessor six restaurant properties for $5.5 million that were previously accounted for as lease financing obligations.

In late 2008, the Company also amended or modified certain lease provisions and terminated certain purchase options for certain restaurant leases previously accounted for as lease financing obligations. The changes permitted 24 leases to qualify as operating leases and the related sale-leaseback transactions to be recorded as sales, which removed all of the respective assets under lease financing obligations and related liabilities from the Company’s consolidated balance sheet. The gains from these sales were generally deferred and are being amortized as an adjustment to rent expense over the remaining term of the underlying leases.

Interest expense associated with lease financing obligations, including settlement gains and losses, for the three months ended June 30, 2009 and 2008 was $0.3 million and $1.4 million, respectively, and for the six months ended June 30, 2009 and 2008 was $0.6 million and $2.7 million, respectively.

10. Business Segment Information

The Company is engaged in the quick-service and quick-casual restaurant industry, with three restaurant concepts: Burger King, operating as a franchisee, and Pollo Tropical and Taco Cabana, both Company-owned concepts. The Company’s Burger King restaurants are all located in the United States, primarily in the Northeast, Southeast and Midwest. Pollo Tropical is a quick-casual restaurant chain featuring grilled marinated chicken and authentic “made from scratch” side dishes. Pollo Tropical’s restaurants are primarily located in south and central Florida. Taco Cabana is a quick-casual restaurant chain featuring fresh Mexican style food, including flame-grilled beef and chicken fajitas, quesadillas and other Tex-Mex dishes. Taco Cabana’s restaurants are primarily located in Texas.

The accounting policies of each segment are the same as those described in the summary of significant accounting policies. The following table includes Segment EBITDA, which is the measure of segment profit or loss reported to the chief

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

operating decision maker for purposes of allocating resources to the segments and assessing their performance. Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other income and gains and losses on extinguishment of debt.

The “Other” column includes corporate related items not allocated to reportable segments, including stock-based compensation expense. Other identifiable assets consist primarily of cash, certain other assets, corporate property and equipment, including restaurant information systems expenditures, goodwill and deferred income taxes.

 

Three Months Ended

   Pollo
Tropical
   Taco
Cabana
   Burger
King
   Other    Consolidated

June 30, 2009:

              

Total revenues

   $ 44,578    $ 63,816    $ 95,540    $ —      $ 203,934

Cost of sales

     14,562      18,527      26,260      —        59,349

Restaurant wages and related expenses

     10,968      18,804      29,319      53      59,144

General and administrative expenses (1)

     2,454      2,896      7,040      308      12,698

Depreciation and amortization

     1,970      2,225      3,304      384      7,883

Segment EBITDA

     6,767      8,038      9,044      

Capital expenditures, including acquisitions

     349      2,793      3,822      2,379      9,343

June 30, 2008:

              

Total revenues

   $ 45,404    $ 63,436    $ 101,842    $ —      $ 210,682

Cost of sales

     15,312      19,540      29,091      —        63,943

Restaurant wages and related expenses

     10,899      18,594      31,213      57      60,763

General and administrative expenses (1)

     2,762      3,006      7,514      435      13,717

Depreciation and amortization

     2,000      2,091      3,611      375      8,077

Segment EBITDA

     6,733      5,789      8,089      

Capital expenditures, including acquisitions

     4,862      6,158      3,479      1,881      16,380

Six Months Ended

                        

June 30, 2009:

              

Total revenues

   $ 88,716    $ 126,530    $ 190,031    $ —      $ 405,277

Cost of sales

     29,206      36,886      51,530      —        117,622

Restaurant wages and related expenses

     21,864      36,999      58,819      105      117,787

General and administrative expenses (1)

     4,801      5,852      14,660      603      25,916

Depreciation and amortization

     3,922      4,459      6,649      723      15,753

Segment EBITDA

     13,232      16,244      16,072      

Capital expenditures, including acquisitions

     1,204      6,579      6,448      3,077      17,308

June 30, 2008:

              

Total revenues

   $ 89,736    $ 123,693    $ 193,006    $ —      $ 406,435

Cost of sales

     29,653      38,376      53,543      —        121,572

Restaurant wages and related expenses

     22,199      36,244      60,747      114      119,304

General and administrative expenses (1)

     5,328      6,012      14,520      852      26,712

Depreciation and amortization

     3,916      4,162      7,249      772      16,099

Segment EBITDA

     12,737      12,371      13,713      

Capital expenditures, including acquisitions

     11,408      9,040      6,196      2,585      29,229

Identifiable Assets:

              

At June 30, 2009

   $ 55,149    $ 66,729    $ 144,775    $ 176,558    $ 443,211

At December 31, 2008

     64,550      67,093      143,152      175,403      450,198

 

(1) For the Pollo Tropical and Taco Cabana segments, such amounts include general and administrative expenses related directly to each segment. For the Burger King segment such amounts include general and administrative expenses related directly to the Burger King segment as well as expenses associated with administrative support to all three of the Company’s segments including executive management, information systems and certain accounting, legal and other administrative functions.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

A reconciliation of segment EBITDA to consolidated net income is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Segment EBITDA:

        

Pollo Tropical

   $ 6,767      $ 6,733      $ 13,232      $ 12,737   

Taco Cabana

     8,038        5,789        16,244        12,371   

Burger King

     9,044        8,089        16,072        13,713   
                                

Subtotal

     23,849        20,611        45,548        38,821   

Less:

        

Depreciation and amortization

     7,883        8,077        15,753        16,099   

Impairment and other lease charges

     63        81        354        102   

Interest expense

     4,923        7,123        10,074        14,557   

Provision for income taxes

     4,133        1,880        7,147        2,693   

Stock-based compensation expense

     361        492        708        966   

Gain on extinguishment of debt

     —          (180     —          (180

Other income

     (579     (119     (579     (119
                                

Net income

   $ 7,065      $ 3,257      $ 12,091      $ 4,703   
                                

11. Commitments and Contingencies

On November 16, 1998, the Equal Employment Opportunity Commission (“EEOC”) filed suit in the United States District Court for the Northern District of New York (the “Court”), under Title VII of the Civil Rights Act of 1964, as amended, against Carrols. The complaint alleged that Carrols engaged in a pattern and practice of unlawful discrimination, harassment and retaliation against former and current female employees. The EEOC identified approximately 450 individuals (which were subsequently increased to 511 individuals) that it believed represented the class of claimants and was seeking monetary and injunctive relief from Carrols. On April 20, 2005, the Court issued a decision and order granting Carrols’ Motion for Summary Judgment that Carrols filed in January 2004. Subject to possible appeal by the EEOC, the case is dismissed; however the Court noted that it was not ruling on the claims, if any, that individual employees might have against Carrols. On February 27, 2006, Carrols filed a motion for summary judgment to dismiss all but between four and 17 of the individual claims. On July 10, 2006, in its response to that motion, the EEOC asserted that, notwithstanding the Court’s dismissal of the case as a class action, the EEOC may still maintain some kind of collective action on behalf of these claimants. Oral argument before the Court was held on October 4, 2006 and the Company is awaiting the Court’s decision on Carrols’ summary judgment motion. The Company does not believe that any individual claim, if any, would have a material adverse impact on its consolidated financial statements. Although the Company believes that the EEOC’s continued class litigation argument is without merit, it is not possible to predict the outcome of the pending motion.

On November 30, 2002, four former hourly employees commenced a lawsuit against Carrols in the United States District Court for the Western District of New York (the “Court”) entitled Dawn Seever, et al. v. Carrols Corporation. The lawsuit alleged, in substance, that Carrols violated certain minimum wage laws under the Federal Fair Labor Standards Act and related state laws by requiring employees to work without recording their time and by retaliating against those who complained. The plaintiffs sought damages, costs and injunctive relief. They also sought to notify and certify a class consisting of current and former employees who, since 1998, have worked, or are working, for Carrols. On December 17, 2007, the Court issued a decision and order denying Plaintiffs’ motion for notice and class certification and granting the Company’s motion to dismiss all of the claims of the plaintiffs, other than certain nominal claims relating to orientation and managers’ meetings. Those nominal claims have now been resolved and on June 10, 2009 the case was dismissed in its entirety with prejudice.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

The Company is a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these other matters will have a material adverse effect on its consolidated financial statements.

12. Net Income per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options using the treasury stock method.

The computation of diluted net income per share excludes options to purchase 1,067,277 and 1,099,544 shares of common stock in each of the three and six months ended June 30, 2009 and 2008, respectively, because the exercise price of these options was greater than the average market price of the common shares in the periods and therefore, they were antidilutive. In addition, options to purchase 57,500 and 2,538 shares of common stock are excluded from the computation of diluted net income per share in the three and six months ended June 30, 2009 and 2008, respectively, as they were antidilutive under the treasury stock method.

The following table is a reconciliation of the income and share amounts used in the calculation of basic net income per share and diluted net income per share:

 

     Three months ended June 30,    Six months ended June 30,
     2009    2008    2009    2008

Basic net income per share:

           

Net income

   $ 7,065    $ 3,257    $ 12,091    $ 4,703

Weighted average common shares outstanding

     21,592,535      21,571,652      21,592,498      21,571,609

Basic net income per share

   $ 0.33    $ 0.15    $ 0.56    $ 0.22
                           

Diluted net income per share:

           

Net income for diluted net income per share

   $ 7,065    $ 3,257    $ 12,091    $ 4,703

Shares used in computed basic net income per share

     21,592,535      21,571,652      21,592,498      21,571,609

Dilutive effect of restricted shares and stock options

     190,452      3,753      96,464      3,216
                           

Shares used in computed diluted net income per share

     21,782,987      21,575,405      21,688,962      21,574,825
                           

Diluted net income per share

   $ 0.32    $ 0.15    $ 0.56    $ 0.22
                           

13. Comprehensive Income

 

SFAS No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires the disclosure of certain revenue, expenses, gains and losses that are excluded from net income in accordance with U.S. generally accepted accounting principles. The items that currently impact the Company’s other comprehensive income are changes in postretirement benefit obligations, net of tax.

     Three months ended June 30,    Six months ended June 30,
     2009    2008    2009    2008

Net income

   $ 7,065    $ 3,257    $ 12,091    $ 4,703

Change in postretirement benefit obligation, net of tax

     —        —        —        8
                           

Comprehensive income

   $ 7,065    $ 3,257    $ 12,091    $ 4,711
                           

14. Other Income

During the three and six months ended June 30, 2009, the Company recorded a gain of $0.6 million related to an insurance recovery for damages to Taco Cabana restaurants during Hurricane Ike. The Company recorded a gain of $0.1 million in the three and six months ended June 30, 2008 related to the sale of a Taco Cabana property.

 

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CARROLS RESTAURANT GROUP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars except share and per share amounts)

 

15. Recent Accounting Developments

In May 2009, the FASB issued SFAS No. 165 (“SFAS 165”), “Subsequent Events,” which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company implemented SFAS 165 during the three months ended June 30, 2009. The Company evaluated for subsequent events through August 5, 2009, the issuance date of the Company’s financial statements. No subsequent events requiring disclosure were noted.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168 (“SFAS 168”), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and identifies the sources of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The Company is required to adopt the provisions of SFAS 168 for its interim period ending September 30, 2009 and it will impact the Company’s financial statement disclosures as all future references to authoritative accounting literature will be referenced in accordance with SFAS 168. There will be no changes to the content of the Company’s financial statements or disclosures as a result of implementing SFAS 168.

 

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ITEM 1—INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars except share and per share amounts)

(Unaudited)

 

     June 30,
2009
    December 31,
2008
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 3,032      $ 3,399   

Trade and other receivables

     5,808        5,622   

Inventories

     5,272        5,588   

Prepaid rent

     2,998        2,998   

Prepaid expenses and other current assets

     7,280        6,738   

Deferred income taxes

     4,873        4,890   
                

Total current assets

     29,263        29,235   

Property and equipment, net

     191,485        195,376   

Franchise rights, net (Note 4)

     75,302        76,870   

Goodwill (Note 4)

     124,934        124,934   

Intangible assets, net

     610        675   

Franchise agreements, at cost less accumulated amortization of $5,636 and $5,729, respectively

     5,813        5,826   

Deferred income taxes

     5,946        6,697   

Other assets

     9,858        10,585   
                

Total assets

   $ 443,211      $ 450,198   
                
LIABILITIES AND STOCKHOLDER’S EQUITY     

Current liabilities:

    

Current portion of long-term debt (Note 5)

   $ 15,090      $ 12,093   

Accounts payable

     20,009        18,789   

Accrued interest

     6,979        7,742   

Accrued payroll, related taxes and benefits

     18,175        15,431   

Accrued income taxes

     614        2,099   

Accrued real estate taxes

     4,081        3,803   

Other liabilities

     10,313        10,848   
                

Total current liabilities

     75,261        70,805   

Long-term debt, net of current portion (Note 5)

     268,152        289,202   

Lease financing obligations (Note 9)

     11,686        14,859   

Deferred income—sale-leaseback of real estate

     43,634        43,447   

Accrued postretirement benefits (Note 8)

     1,566        1,697   

Other liabilities (Note 7)

     21,607        21,685   
                

Total liabilities

     421,906        441,695   

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

     (6,437     (7,145

Retained earnings

     25,778        13,684   

Accumulated other comprehensive income (Note 12)

     1,964        1,964   
                

Total stockholder’s equity

     21,305        8,503   
                

Total liabilities and stockholder’s equity

   $ 443,211      $ 450,198   
                

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

 

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CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(In thousands of dollars)

(Unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
   2009     2008     2009     2008  

Revenues:

        

Restaurant sales

   $ 203,535      $ 210,331      $ 404,524      $ 405,724   

Franchise royalty revenues and fees

     399        351        753        711   
                                

Total revenues

     203,934        210,682        405,277        406,435   
                                

Costs and expenses:

        

Cost of sales

     59,349        63,943        117,622        121,572   

Restaurant wages and related expenses (including stock-based compensation expense of $53, $57, $105 and $114, respectively)

     59,144        60,763        117,787        119,304   

Restaurant rent expense

     12,402        11,568        24,834        23,051   

Other restaurant operating expenses

     29,286        31,348        58,700        60,893   

Advertising expense

     7,567        9,224        15,578        17,048   

General and administrative (including stock-based compensation expense of $308, $435, $603 and $852, respectively)

     12,697        13,716        25,913        26,709   

Depreciation and amortization

     7,883        8,077        15,753        16,099   

Impairment and other lease charges (Note 3)

     63        81        354        102   

Other income (Note 13)

     (579     (119     (579     (119
                                

Total costs and expenses

     187,812        198,601        375,962        384,659   
                                

Income from operations

     16,122        12,081        29,315        21,776   

Interest expense

     4,923        7,123        10,074        14,557   

Gain on extinguishment of debt (Note 5)

     —          (180     —          (180
                                

Income before income taxes

     11,199        5,138        19,241        7,399   

Provision for income taxes (Note 6)

     4,133        1,880        7,147        2,693   
                                

Net income

   $ 7,066      $ 3,258      $ 12,094      $ 4,706   
                                

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

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(In thousands of dollars)

(Unaudited)

 

     2009     2008  

Cash flows provided from operating activities:

    

Net income

   $ 12,094      $ 4,706   

Adjustments to reconcile net income to net cash provided from operating activities:

    

Loss (gain) on disposals of property and equipment

     105        (12

Stock-based compensation expense

     708        966   

Impairment and other lease charges

     354        102   

Depreciation and amortization

     15,753        16,099   

Amortization of deferred financing costs

     489        595   

Amortization of unearned purchase discounts

     (1,077     (1,077

Amortization of deferred gains from sale-leaseback transactions

     (1,559     (1,044

Loss (gain) on settlements of lease financing obligations

     (70     31   

Accretion of interest on lease financing obligations

     19        120   

Deferred income taxes

     768        249   

Accrued income taxes

     (1,485     1,031   

Gain on extinguishment of debt

     —          (180

Changes in other operating assets and liabilities

     3,691        (2,206
                

Net cash provided from operating activities

     29,790        19,380   
                

Cash flows used for investing activities:

    

Capital expenditures:

    

New restaurant development

     (5,620     (16,385

Restaurant remodeling

     (5,421     (6,168

Other restaurant capital expenditures

     (3,190     (4,091

Corporate and restaurant information systems

     (3,077     (2,585
                

Total capital expenditures

     (17,308     (29,229

Properties purchased for sale-leaseback

     (210     —     

Proceeds from sale-leaseback transactions

     5,454        4,657   

Proceeds from sales of other properties

     249        119   
                

Net cash used for investing activities

     (11,815     (24,453
                

Cash flows provided from (used for) financing activities:

    

Borrowings on revolving credit facility

     51,700        62,400   

Repayments on revolving credit facility

     (66,700     (52,900

Scheduled principal payments on term loans

     (3,000     —     

Principal payments on capital leases

     (53     (71

Proceeds from lease financing obligations

     835     

Settlement of lease financing obligations

     (1,120     (5,500

Financing costs associated with issuance of lease financing obligations

     (4     —     

Repurchase of senior subordinated notes

     —          (1,820
                

Net cash provided from (used for) financing activities

     (18,342     2,109   
                

Net decrease in cash and cash equivalents

     (367     (2,964

Cash and cash equivalents, beginning of period

     3,399        7,396   
                

Cash and cash equivalents, end of period

   $ 3,032      $ 4,432   
                

Supplemental disclosures:

    

Interest paid on long-term debt

   $ 9,732      $ 11,596   

Interest paid on lease financing obligations

   $ 668      $ 2,520   

Accruals for capital expenditures

   $ 521      $ 962   

Income taxes paid, net

   $ 7,865      $ 1,414   

Capital lease obligations incurred

   $ —        $ 117   

Non-cash reduction of assets under lease financing obligations due to lease amendments

   $ 2,074      $ —     

Non-cash reduction of lease financing obligations due to lease amendments

   $ 2,833      $ —     

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

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of dollars, except share and per share amounts)

1. Basis of Presentation

Basis of Consolidation. The unaudited consolidated financial statements presented herein include the accounts of Carrols Corporation and its subsidiaries (the “Company”). The Company is a wholly-owned subsidiary of Carrols Restaurant Group, Inc. (“Carrols Restaurant Group” or the “Parent Company”). All intercompany transactions have been eliminated in consolidation.

The difference between the consolidated financial statements of Carrols Corporation and Carrols Restaurant Group is primarily due to additional rent expense of approximately $6 per year for Carrols Restaurant Group and the composition of stockholder’s equity.

Business Description. At June 30, 2009 the Company operated, as franchisee, 314 quick-service restaurants under the trade name “Burger King” in 12 Northeastern, Midwestern and Southeastern states. At June 30, 2009, the Company also owned and operated 91 Pollo Tropical restaurants, of which 85 were located in Florida, four were in New Jersey and one each in New York and Connecticut, and franchised a total of 27 Pollo Tropical restaurants, 21 in Puerto Rico, two in Ecuador, one in the Bahamas and three on college campuses in Florida. At June 30, 2009, the Company owned and operated 154 Taco Cabana restaurants located primarily in Texas and franchised a total of four Taco Cabana restaurants, two in New Mexico, one in Texas and one in Georgia.

Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. All references herein to the fiscal years ended December 28, 2008 and December 30, 2007 will be referred to as the fiscal years ended December 31, 2008 and 2007, respectively. Similarly, all references herein to the three and six months ended June 28, 2009 and June 29, 2008 will be referred to as the three and six months ended June 30, 2009 and June 30, 2008, respectively. The years ended December 31, 2008 and 2007 each contained 52 weeks and the three and six months ended June 30, 2009 and 2008 contained thirteen and twenty-six weeks, respectively.

Basis of Presentation. The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2009 and 2008 have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain 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 considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended June 30, 2009 and 2008 are not necessarily indicative of the results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2008 contained in the Company’s 2008 Annual Report on Form 10-K. The December 31, 2008 balance sheet data is derived from those audited financial statements.

Fair Value of Financial Instruments. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:

 

   

Current Assets and Liabilities. The carrying value of cash and cash equivalents and accrued liabilities approximates fair value because of the short maturity of those instruments.

 

   

Senior Subordinated Notes. The fair values of outstanding senior subordinated notes are based on quoted market prices. The fair values at June 30, 2009 and December 31, 2008 were approximately $154.7 million and $111.4 million, respectively.

 

   

Revolving and Term Loan Facilities. Rates and terms under Carrols’ senior credit facility are significantly favorable to debt with similar terms and maturities that could be potentially obtainable, if at all, at June 30, 2009. Given the lack of comparative information regarding such debt it is not practicable to estimate the fair value of our existing borrowings under our senior credit facility at June 30, 2009.

Use of Estimates. The preparation of the 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

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include: accrued occupancy costs, insurance liabilities, legal obligations, income taxes, evaluation for impairment of goodwill, long-lived assets and Burger King franchise rights, lease accounting matters and stock-based compensation. Actual results could differ from those estimates.

Earnings Per Share Presentation. The guidance of Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” requires presentation of earnings per share by all entities that have issued common stock or potential common stock if those securities trade in a public market either on a stock exchange (domestic or foreign) or in the over-the-counter market. The Company’s common stock is not publicly traded and therefore, earnings per share amounts are not presented.

2. Stock-Based Compensation

As of June 30, 2009, the total non-vested stock-based compensation expense relating to the options and restricted shares was approximately $3.4 million and the Company expects to record an additional $0.7 million as compensation expense in 2009. At June 30, 2009 the remaining weighted average vesting period for stock options and restricted shares was 3.5 years and 1.7 years, respectively.

Stock Options

A summary of all option activity for the three months ended June 30, 2009 was as follows:

 

     2006 Plan
     Number of
Options
    Weighted
Average
Exercise Price
   Average
Remaining
Contractual
Life
   Aggregate
Intrinsic
Value (in
thousands) (1)

Options outstanding at January 1, 2009

   1,710,764      $ 12.17    5.3    $ —  

Granted

   536,900        2.20      

Forfeited

   (57,384     11.91      
              

Options outstanding at June 30, 2009

   2,190,280      $ 9.86    5.3    $ 2,177
              

Vested or expected to vest at June 30, 2009

   2,152,481      $ 9.88    5.3    $ 2,124
              

Options exercisable at June 30, 2009

   698,254      $ 13.05    4.9    $ —  
              

 

(1) The aggregate intrinsic value was calculated using the difference between the market price of Carrols Restaurant Group’s common stock at June 30, 2009 and the grant price for only those awards that had a grant price that was less than the market price of Carrols Restaurant Group’s common stock at June 30, 2009.

3. Impairment and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of the undiscounted future cash flows for each restaurant is compared to the carrying value of that restaurant’s long-lived assets. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value in addition to any lease liabilities to be incurred for non-operating restaurants.

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

Impairment and other lease charges recorded on long-lived assets for its segments were as follows:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2009    2008    2009    2008

Burger King

   $ 6    $ 71    $ 28    $ 92

Pollo Tropical

     15      —        284      —  

Taco Cabana

     42      10      42      10
                           
   $ 63    $ 81    $ 354    $ 102
                           

During the six months ended June 30, 2009, the Company closed one Pollo Tropical restaurant property in Florida whose fixed assets were impaired in the fourth quarter of 2008, and recorded a charge of $0.3 million which principally consisted of future minimum lease payments and related ancillary costs from the date of the closure to the end of the remaining lease term, net of any estimated cost recoveries from subletting the property.

4. Goodwill and Franchise Rights

Goodwill. Goodwill is reviewed for impairment annually, or more frequently when events and circumstances indicate that the carrying amounts may be impaired. The Company performs its annual impairment assessment as of December 31 and does not believe circumstances have changed since the last assessment date which would make it necessary to reassess their values. In performing its goodwill impairment test, the Company compares the net book values of its reporting units to their estimated fair values. In determining the estimated fair values of the reporting units, the Company employs a combination of a discounted cash flow analysis and a market-based approach. The results of the discounted cash flow analyses are corroborated with other value indicators where available, such as comparable company earnings multiples and research analyst estimates. No impairment losses have been recognized as a result of these tests. Goodwill balances are summarized below:

 

     Pollo
Tropical
   Taco
Cabana
   Burger
King
   Total

Balance, June 30, 2009

   $ 56,307    $ 67,177    $ 1,450    $ 124,934
                           

Burger King Franchise Rights. Amounts allocated to franchise rights for each Burger King acquisition are amortized using the straight-line method over the average remaining term of the acquired franchise agreements plus one twenty-year renewal period. The Company assesses the potential impairment of franchise rights whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If an indicator of impairment exists, an estimate of the aggregate undiscounted future cash flows from the acquired restaurants is compared to the respective carrying value of franchise rights for each Burger King acquisition. If an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There were no impairment charges recorded against franchise rights for the three months and six months ended June 30, 2009 and 2008.

Amortization expense related to Burger King franchise rights was $784 and $799 for the three months ended June 30, 2009 and 2008, respectively. Amortization expense related to Burger King franchise rights was $1,568 and $1,600 for the six months ended June 30, 2009 and 2008, respectively. Carrols Restaurant Group estimates the amortization expense for the year ending December 31, 2009 and for each of the five succeeding years to be $3,197.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

5. Long-term Debt

Long-term debt at June 30, 2009 and December 31, 2008 consisted of the following:

 

     June 30,
2009
    December 31,
2008
 

Collateralized:

    

Senior Credit Facility-Revolving credit facility

   $ 3,000      $ 18,000   

Senior Credit Facility-Term loan A facility

     114,000        117,000   

Unsecured:

    

9% Senior Subordinated Notes

     165,000        165,000   

Capital leases

     1,242        1,295   
                
     283,242        301,295   

Less: current portion

     (15,090     (12,093
                
   $ 268,152      $ 289,202   
                

Senior Credit Facility. On March 9, 2007, the Company terminated and replaced its prior senior credit facility with a new senior credit facility with a syndicate of lenders. The Company’s credit facility totals approximately $185 million, consisting of $120 million principal amount of term loan A borrowings maturing on March 8, 2013 (or earlier on March 30, 2012 if the 9% Senior Subordinated Notes due 2013 are not refinanced by June 30, 2012) and a $65.0 million revolving credit facility (including a sub limit of up to $25.0 million for letters of credit and up to $5.0 million for swingline loans), maturing on March 8, 2012.

The term loan and revolving credit borrowings under the senior credit facility bear interest at a per annum rate, at the Company’s option, of either:

1) the applicable margin percentage ranging from 0% to 0.25% based on the Company’s senior leverage ratio (as defined in the senior credit facility) plus the greater of (i) the prime rate or (ii) the federal funds rate for that day plus 0.5%; or

2) Adjusted LIBOR plus the applicable margin percentage in effect ranging from 1.0% to 1.5% based on the Company’s senior leverage ratio. At June 30, 2009 the LIBOR margin percentage was 1.25%.

At June 28, 2009, outstanding term loan borrowings under the senior credit facility were $114.0 million with the remaining balance due and payable as follows:

 

  1) eight quarterly installments of $3.0 million beginning on June 30, 2009;

 

  2) four quarterly installments of $4.5 million beginning on June 30, 2011; and

 

  3) four quarterly installments of $18.0 million beginning on June 30, 2012.

After reserving $14.3 million for letters of credit guaranteed by the facility, $47.7 million was available for borrowings under the revolving credit facility at June 28, 2009.

Under the senior credit facility, the Company is also required to make mandatory prepayments of principal on its term loan borrowings (a) annually in an initial amount equal to 50% of Excess Cash Flow depending upon the Company’s Total Leverage Ratio (as such terms are defined in the senior credit facility), (b) in the event of certain dispositions of assets (all subject to certain exceptions) and insurance proceeds, in an amount equal to 100% of the net proceeds received by the Company therefrom, and (c) in an amount equal to 100% of the net proceeds from any subsequent issuance of debt. The senior credit facility contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the senior credit facility if there is a default in the payment of any principal of or interest on any indebtedness of the Company having an outstanding principal amount of at least $2.5 million (excluding lease financing obligations but which would include the Indenture governing the Notes, as defined below) or any event or condition which results in the acceleration of such indebtedness prior to its stated maturity.

In general, the Company’s obligations under the senior credit facility are guaranteed by Carrols Restaurant Group and all of the Company’s material subsidiaries and are collateralized by a pledge of the Company’s common stock and the stock of each of the Company’s material subsidiaries. The senior credit facility contains certain covenants, including, without limitation, those limiting the Company’s ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of its business, engage in transactions with related parties, make certain investments or pay dividends. In addition, the Company is required to meet certain financial ratios, including fixed charge coverage, senior leverage, and total leverage ratios (all as defined under the senior credit facility). The Company was in compliance with the covenants under its new senior credit facility as of June 30, 2009.

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

Senior Subordinated Notes. On December 15, 2004, the Company issued $180 million of 9% Senior Subordinated Notes due 2013 (the “Notes”). At both June 30, 2009 and December 31, 2008, $165.0 million principal amount of the senior subordinated notes were outstanding. During 2008, the Company repurchased and retired $15.0 million principal amount of the Notes in open market transactions for $10.4 million resulting in a gain on extinguishment of debt of $4.4 million, net of a $0.3 million write-off of deferred financing costs. Of these repurchases in 2008, $2.0 million was repurchased in the three months ended June 30, 2008 which resulted in a gain on extinguishment of debt of $0.2 million.

Restrictive covenants under the Notes include limitations with respect to the Company’s ability to issue additional debt, incur liens, sell or acquire assets or businesses, pay dividends and make certain investments. The Indenture governing the Notes contains customary default provisions as provided therein, including without limitation, a cross default provision pursuant to which it is an event of default under the Notes and the Indenture if there is a default under any indebtedness of the Company having an outstanding principal amount of $20 million or more (which would include the senior credit facility) if such default results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due. The Company was in compliance with the restrictive covenants in the Indenture governing the Notes as of June 30, 2009.

6. Income Taxes

The provision for income taxes for the three months ended June 30, 2009 and 2008 was comprised of the following:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
     2009    2008     2009    2008

Current

   $ 4,125    $ 1,945      $ 6,379    $ 2,444

Deferred

     8      (65     768      249
                            
   $ 4,133    $ 1,880      $ 7,147    $ 2,693
                            

The provision for income taxes for the three and six months ended June 30, 2009 was derived using an estimated effective annual income tax rate for 2009 of 37.4%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $57 in both the three months and six months ended June 30, 2009. The provision for income taxes for the three and six months ended June 30, 2008 was derived using an estimated effective annual income tax rate for 2008 of 37.9%, which excludes any discrete tax adjustments. Discrete tax adjustments reduced the provision for income taxes by $66 and $112 for the three and six months ended June 30, 2008, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2009 and 2008, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.

The tax years 2005-2008 remain open to examination by the major taxing jurisdictions to which the Company is subject. It is not possible to reasonably estimate any possible change in the unrecognized tax benefits within the next twelve months due to the uncertainties regarding the timing of any examinations.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

7. Other Liabilities, Long-Term

Other liabilities, long-term, at June 30, 2009 and December 31, 2008 consisted of the following:

 

     June 30,
2009
   December 31,
2008

Accrued occupancy costs

   $ 11,110    $ 10,949

Accrued workers’ compensation costs

     4,201      4,312

Deferred compensation

     3,047      3,244

Other

     3,249      3,180
             
   $ 21,607    $ 21,685
             

8. Postretirement Benefits

The Company provides postretirement medical and life insurance benefits covering substantially all Burger King administrative and restaurant management salaried employees who retire or terminate after qualifying for such benefits. A December 31 measurement date is used for postretirement benefits.

The following summarizes the components of net periodic benefit income:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Service cost

   $ 7      $ (24   $ 15      $ 14   

Interest cost

     27        (18     54        53   

Amortization of net gains and losses

     21        3        42        44   

Amortization of prior service credit

     (88     (67     (172     (180
                                

Net periodic postretirement benefit income

   $ (33   $ (106   $ (61   $ (69
                                

During the three and six months ended June 30, 2009, the Company made contributions of $37 and $72 to its postretirement plan and expects to make additional contributions during 2009.

9. Lease Financing Obligations

The Company has previously entered into sale-leaseback transactions involving certain restaurant properties that did not qualify for sale-leaseback accounting and as a result, were classified as financing transactions under SFAS No. 98, “Accounting for Leases” (“SFAS 98”). Under the financing method, the assets remain on the consolidated balance sheet and proceeds received by the Company from these transactions are recorded as a financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.

In the second quarter of 2009, the Company purchased from the lessor one of its restaurant properties previously subject to a lease financing obligation for $1.1 million. The Company also modified provisions in two of its restaurant leases previously accounted for as lease financing obligations which allowed the respective sale transactions to qualify for sale-leaseback accounting and resulted in a reduction of lease financing obligations of $2.8 million. The Company also entered into a sale transaction for a restaurant property that did not qualify for sale-leaseback accounting and the proceeds of $0.8 million were recorded as a lease financing obligation. As a result of these transactions in the second quarter of 2009, lease financing obligations were reduced $3.2 million, assets under lease financing obligations were reduced by $2.1 million and deferred gains on qualified sale-leaseback transactions of $0.7 million were recorded.

In the second quarter of 2008, the Company purchased from the lessor six restaurant properties for $5.5 million that were previously accounted for as lease financing obligations.

In late 2008, the Company also amended or modified certain lease provisions and terminated certain purchase options, for certain restaurant leases previously accounted for as lease financing obligations. The changes permitted 24 leases to qualify as operating leases and the related sale-leaseback transactions to be recorded as sales, which removed all of the respective assets under lease financing obligations and related liabilities from the Company’s consolidated balance sheet. The gains from these sales were generally deferred and are being amortized as an adjustment to rent expense over the remaining term of the underlying leases.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

Interest expense associated with lease financing obligations, including settlement gains and losses, for the three months ended June 30, 2009 and 2008 was $0.3 million and $1.4 million, respectively, and for the six months ended June 30, 2009 and 2008 was $0.6 million and $2.7 million, respectively.

10. Business Segment Information

The Company is engaged in the quick-service and quick-casual restaurant industry, with three restaurant concepts: Burger King operating as a franchisee and Pollo Tropical and Taco Cabana, both Company-owned concepts. The Company’s Burger King restaurants are all located in the United States, primarily in the Northeast, Southeast and Midwest. Pollo Tropical is a quick-casual restaurant chain featuring grilled marinated chicken and Caribbean style “made from scratch” side dishes. Pollo Tropical’s restaurants are primarily located in south and central Florida. Taco Cabana is a quick-casual restaurant chain featuring fresh Mexican style food, including flame-grilled beef and chicken fajitas, quesadillas and other Tex-Mex dishes. Taco Cabana’s restaurants are primarily located in Texas.

The accounting policies of each segment are the same as those described in the summary of significant accounting policies. The following table includes Segment EBITDA, which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance. Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment losses, stock-based compensation expense, other income and expense and gains and losses on extinguishment of debt.

The “Other” column includes corporate related items not allocated to reportable segments, including stock-based compensation expense. Other identifiable assets consist primarily of cash, certain other assets, corporate property and equipment, including restaurant information systems expenditures, goodwill and deferred income taxes.

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

Three Months Ended

   Pollo
Tropical
   Taco
Cabana
   Burger
King
   Other    Consolidated

June 30, 2009:

              

Total revenues

   $ 44,578    $ 63,816    $ 95,540    $ —      $ 203,934

Cost of sales

     14,562      18,527      26,260      —        59,349

Restaurant wages and related expenses

     10,968      18,804      29,319      53      59,144

General and administrative expenses (1)

     2,453      2,896      7,040      308      12,697

Depreciation and amortization

     1,970      2,225      3,304      384      7,883

Segment EBITDA

     6,768      8,038      9,044      

Capital expenditures, including acquisitions

     349      2,793      3,822      2,379      9,343

June 30, 2008:

              

Total revenues

   $ 45,404    $ 63,436    $ 101,842    $ —      $ 210,682

Cost of sales

     15,312      19,540      29,091      —        63,943

Restaurant wages and related expenses

     10,899      18,594      31,213      57      60,763

General and administrative expenses (1)

     2,761      3,006      7,514      435      13,716

Depreciation and amortization

     2,000      2,091      3,611      375      8,077

Segment EBITDA

     6,734      5,789      8,089      

Capital expenditures, including acquisitions

     4,862      6,158      3,479      1,881      16,380

Six Months Ended

                        

June 30, 2009:

              

Total revenues

   $ 88,716    $ 126,530    $ 190,031    $ —      $ 405,277

Cost of sales

     29,206      36,886      51,530      —        117,622

Restaurant wages and related expenses

     21,864      36,999      58,819      105      117,787

General and administrative expenses (1)

     4,798      5,852      14,660      603      25,913

Depreciation and amortization

     3,922      4,459      6,649      723      15,753

Segment EBITDA

     13,235      16,244      16,072      

Capital expenditures, including acquisitions

     1,204      6,579      6,448      3,077      17,308

June 30, 2008:

              

Total revenues

   $ 89,736    $ 123,693    $ 193,006    $ —      $ 406,435

Cost of sales

     29,653      38,376      53,543      —        121,572

Restaurant wages and related expenses

     22,199      36,244      60,747      114      119,304

General and administrative expenses (1)

     5,325      6,012      14,520      852      26,709

Depreciation and amortization

     3,916      4,162      7,249      772      16,099

Segment EBITDA

     12,740      12,371      13,713      

Capital expenditures, including acquisitions

     11,408      9,040      6,196      2,585      29,229

Identifiable Assets:

              

At June 30, 2009

   $ 55,149    $ 66,729    $ 144,775    $ 176,558    $ 443,211

At December 31, 2008

     64,550      67,093      143,152      175,403      450,198

 

(1) For the Pollo Tropical and Taco Cabana segments, such amounts include general and administrative expenses related directly to each segment. For the Burger King segment such amounts include general and administrative expenses related directly to the Burger King segment as well as expenses associated with administrative support to all of the Company’s segments including executive management, information systems and certain accounting, legal and other administrative functions.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

A reconciliation of segment EBITDA to consolidated net income is as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2009     2008     2009     2008  

Segment EBITDA:

        

Pollo Tropical

   $ 6,768      $ 6,734      $ 13,235      $ 12,740   

Taco Cabana

     8,038        5,789        16,244        12,371   

Burger King

     9,044        8,089        16,072        13,713   
                                

Subtotal

     23,850        20,612        45,551        38,824   

Less:

        

Depreciation and amortization

     7,883        8,077        15,753        16,099   

Impairment and other lease charges

     63        81        354        102   

Interest expense

     4,923        7,123        10,074        14,557   

Provision for income taxes

     4,133        1,880        7,147        2,693   

Stock-based compensation expense

     361        492        708        966   

Gain on extinguishment of debt

     —          (180     —          (180

Other income

     (579     (119     (579     (119
                                

Net income

   $ 7,066      $ 3,258      $ 12,094      $ 4,706   
                                

11. Commitments and Contingencies

On November 16, 1998, the Equal Employment Opportunity Commission (“EEOC”) filed suit in the United States District Court for the Northern District of New York (the “Court”), under Title VII of the Civil Rights Act of 1964, as amended, against the Company. The complaint alleged that the Company engaged in a pattern and practice of unlawful discrimination, harassment and retaliation against former and current female employees. The EEOC identified approximately 450 individuals (which were subsequently increased to 511 individuals) that it believed represented the class of claimants and was seeking monetary and injunctive relief from the Company. On April 20, 2005, the Court issued a decision and order granting the Company’s Motion for Summary Judgment that the Company filed in January 2004. Subject to possible appeal by the EEOC, the case is dismissed; however the Court noted that it was not ruling on the claims, if any, that individual employees might have against the Company. On February 27, 2006, the Company filed a motion for summary judgment to dismiss all but between four and 17 of the individual claims. On July 10, 2006, in its response to that motion, the EEOC asserted that, notwithstanding the Court’s dismissal of the case as a class action, the EEOC may still maintain some kind of collective action on behalf of these claimants. Oral argument before the Court was held on October 4, 2006 and the Company is awaiting the Court’s decision on the Company’ summary judgment motion. The Company does not believe that any individual claim, if any, would have a material adverse impact on its consolidated financial statements. Although the Company believes that the EEOC’s continued class litigation argument is without merit, it is not possible to predict the outcome of the pending motion.

On November 30, 2002, four former hourly employees commenced a lawsuit against the Company in the United States District Court for the Western District of New York (the “Court”) entitled Dawn Seever, et al. v. the Company. The lawsuit alleged, in substance, that the Company violated certain minimum wage laws under the Federal Fair Labor Standards Act and related state laws by requiring employees to work without recording their time and by retaliating against those who complained. The plaintiffs sought damages, costs and injunctive relief. They also sought to notify and certify a class consisting of current and former employees who, since 1998, have worked, or are working, for the Company. On December 17, 2007, the Court issued a decision and order denying Plaintiffs’ motion for notice and class certification and granting the Company’s motion to dismiss all of the claims of the plaintiffs, other than certain nominal claims relating to orientation and managers’ meetings. Those nominal claims have now been resolved and on June 10, 2009 the case was dismissed in its entirety with prejudice.

The Company is a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these other matters will have a material adverse effect on its consolidated financial statements.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

12. Comprehensive income

SFAS No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires the disclosure of certain revenue, expenses, gains and losses that are excluded from net income in accordance with U.S. generally accepted accounting principles. The items that currently impact the Company’s other comprehensive income are changes in the postretirement benefit obligations, net of tax.

 

     Three months ended
June 30,
   Six months ended
June 30,
     2009    2008    2009    2008

Net income

   $ 7,066    $ 3,258    $ 12,094    $ 4,706

Change in postretirement benefit obligation, net of tax

     —        —        —        8
                           

Comprehensive income

   $ 7,066    $ 3,258    $ 12,094    $ 4,714
                           

13. Other Income

During the three and six months ended June 30, 2009, the Company recorded a gain of $0.6 million related to an insurance recovery for damages to Taco Cabana restaurants during Hurricane Ike. The Company recorded a gain of $0.1 million in the three and six months ended June 30, 2008 related to the sale of a Taco Cabana property.

14. Recent Accounting Developments

In May 2009, the FASB issued SFAS No. 165 (“SFAS 165”), “Subsequent Events,” which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company implemented SFAS 165 during the three months ended June 30, 2009. The Company evaluated for subsequent events through August 5, 2009, the issuance date of the Company’s financial statements. No subsequent events requiring disclosure were noted.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168 (“SFAS 168”), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and identifies the sources of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The Company is required to adopt the provisions of SFAS 168 for its interim period ending September 30, 2009 and it will impact the Company’s financial statement disclosures as all future references to authoritative accounting literature will be referenced in accordance with SFAS 168. There will be no changes to the content of the Company’s financial statements or disclosures as a result of implementing SFAS 168.

15. Guarantor Financial Statements

The Company’s obligations under the Notes are jointly and severally guaranteed in full on an unsecured senior subordinated basis by certain of the Company’s subsidiaries (“Guarantor Subsidiaries”), all of which are directly or indirectly wholly-owned by the Company. These subsidiaries are:

Cabana Beverages, Inc.

Cabana Bevco LLC

Carrols LLC

Carrols Realty Holdings Corp.

Carrols Realty I Corp.

Carrols Realty II Corp.

Carrols J.G. Corp.

Quanta Advertising Corp.

Pollo Franchise, Inc.

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(in thousands of dollars, except share and per share amounts)

 

Pollo Operations, Inc.

Taco Cabana, Inc.

TP Acquisition Corp.

TC Bevco LLC

T.C. Management, Inc.

TC Lease Holdings III, V and VI, Inc.

Get Real, Inc.

Texas Taco Cabana, L.P.

TPAQ Holding Corporation

The following supplemental financial information sets forth on a consolidating basis, balance sheets as of June 30, 2009 and December 31, 2008 for the Parent Company only, Guarantor Subsidiaries and for the Company and the related statements of operations for the three and six months ended June 30, 2009 and 2008, and cash flows for the six months ended June 30, 2009 and 2008.

At the beginning of the third quarter of 2008 assets and liabilities related to the Company’s Burger King restaurant operations were transferred to Carrols LLC, a 100% owned subsidiary of the Company. Carrols LLC became a Guarantor Subsidiary at that time and its results of operations and cash flows are included with the Company’s other Guarantor Subsidiaries for all periods presented.

For certain of the Company’s sale-leaseback transactions, the Parent Company has guaranteed on an unsecured basis the rental payments of its subsidiaries. In accordance with Emerging Issues Task Force Issue No. 90-14, “Unsecured Guarantee by Parent of Subsidiary’s Lease Payments in a Sale-Leaseback Transaction,” the Company has included in the following guarantor financial statements amounts pertaining to these leases as if they were accounted for as financing transactions of the Guarantor Subsidiaries. These adjustments are eliminated in consolidation.

For purposes of the guarantor financial statements, the Company and its subsidiaries determine the applicable tax provision for each entity generally using the separate return method. Under this method, current and deferred taxes are allocated to each reporting entity as if it were to file a separate tax return. The rules followed by the reporting entity in computing its tax obligation or refund, including the effects of the alternative minimum tax, would be the same as those followed in filing a separate return with the Internal Revenue Service. However, for purposes of evaluating an entity’s ability to realize its tax attributes, the Company assesses whether it is more likely than not that those assets will be realized at the consolidated level. Any differences in the total of the income tax provision for the Parent Company only and the Guarantor Subsidiaries, as calculated on the separate return method and the consolidated income tax provision are eliminated in consolidation.

The Company provides some administrative support to its subsidiaries related to executive management, information systems and certain accounting, legal and other administrative functions. For purposes of the guarantor financial statements, the Company allocates such corporate costs on a specific identification basis, where applicable, or based on revenues or the number of restaurants for each subsidiary. Management believes that these allocations are reasonable based on the nature of costs incurred.

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING BALANCE SHEET

June 30, 2009

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
ASSETS         

Current assets:

        

Cash and cash equivalents

   $ 35      $ 2,997      $ —        $ 3,032

Trade and other receivables

     (560     6,368        —          5,808

Inventories

     —          5,272        —          5,272

Prepaid rent

     —          2,998        —          2,998

Prepaid expenses and other current assets

     1,001        6,279        —          7,280

Deferred income taxes

     58        4,815        —          4,873
                              

Total current assets

     534        28,729        —          29,263

Property and equipment, net

     11,556        266,369        (86,440     191,485

Franchise rights, net

     —          75,302        —          75,302

Goodwill

     —          124,934        —          124,934

Intangible assets, net

     —          610        —          610

Franchise fees, net

     —          5,813        —          5,813

Intercompany receivable (payable)

     149,241        (167,802     18,561        —  

Investment in subsidiaries

     151,426        —          (151,426     —  

Deferred income taxes

     2,772        5,679        (2,505     5,946

Other assets

     4,989        7,249        (2,380     9,858
                              

Total assets

   $ 320,518      $ 346,883      $ (224,190   $ 443,211
                              
LIABILITIES AND STOCKHOLDER’S EQUITY         

Current liabilities:

        

Current portion of long-term debt

   $ 15,000      $ 90      $ —        $ 15,090

Accounts payable

     4,458        15,551        —          20,009

Accrued interest

     6,979        —          —          6,979

Accrued payroll, related taxes and benefits

     840        17,335        —          18,175

Accrued income taxes payable

     614        —          —          614

Accrued real estate taxes

     —          4,081        —          4,081

Other liabilities

     155        10,158        —          10,313
                              

Total current liabilities

     28,046        47,215        —          75,261

Long-term debt, net of current portion

     267,000        1,152        —          268,152

Lease financing obligations

     —          128,672        (116,986     11,686

Deferred income—sale-leaseback of real estate

     —          24,282        19,352        43,634

Accrued postretirement benefits

     1,566        —          —          1,566

Other liabilities

     2,601        18,010        996        21,607
                              

Total liabilities

     299,213        219,331        (96,638     421,906

Stockholder’s equity

     21,305        127,552        (127,552     21,305
                              

Total liabilities and stockholder’s equity

   $ 320,518      $ 346,883      $ (224,190   $ 443,211
                              

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING BALANCE SHEET

December 31, 2008

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
ASSETS         

Current assets:

        

Cash and cash equivalents

   $ 361      $ 3,038      $ —        $ 3,399

Trade and other receivables

     (113     5,735        —          5,622

Inventories

     —          5,588        —          5,588

Prepaid rent

     —          2,998        —          2,998

Prepaid expenses and other current assets

     1,033        5,705        —          6,738

Deferred income taxes

     58        4,832        —          4,890
                              

Total current assets

     1,339        27,896        —          29,235

Property and equipment, net

     9,168        267,060        (80,852     195,376

Franchise rights, net

     —          76,870        —          76,870

Goodwill

     —          124,934        —          124,934

Intangible assets, net

     —          675        —          675

Franchise agreements, net

     —          5,826        —          5,826

Intercompany receivable (payable)

     169,553        (173,825     4,272        —  

Investment in subsidiaries

     136,071        —          (136,071     —  

Deferred income taxes

     2,794        5,788        (1,885     6,697

Other assets

     5,449        7,366        (2,230     10,585
                              

Total assets

   $ 324,374      $ 342,590      $ (216,766   $ 450,198
                              
LIABILITIES AND STOCKHOLDER’S EQUITY         

Current liabilities:

        

Current portion of long-term debt

   $ 12,000      $ 93      $ —        $ 12,093

Accounts payable

     1,800        16,989        —          18,789

Accrued interest

     7,742        —          —          7,742

Accrued payroll, related taxes and benefits

     (453     15,884        —          15,431

Accrued income taxes payable

     2,099        —          —          2,099

Accrued real estate taxes

     —          3,803        —          3,803

Other liabilities

     193        10,655        —          10,848
                              

Total current liabilities

     23,381        47,424        —          70,805

Long-term debt, net of current portion

     288,000        1,202        —          289,202

Lease financing obligations

     —          121,341        (106,482     14,859

Deferred income—sale-leaseback of real estate

     —          26,868        16,579        43,447

Accrued postretirement benefits

     1,697        —          —          1,697

Other liabilities

     2,793        18,203        689        21,685
                              

Total liabilities

     315,871        215,038        (89,214     441,695

Stockholder’s equity

     8,503        127,552        (127,552     8,503
                              

Total liabilities and stockholder’s equity

   $ 324,374      $ 342,590      $ (216,766   $ 450,198
                              

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended June 30, 2009

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Revenues:

        

Restaurant sales

   $ —        $ 203,535      $ —        $ 203,535   

Franchise royalty revenues and fees

     —          399        —          399   
                                

Total revenues

     —          203,934        —          203,934   
                                

Costs and expenses:

        

Cost of sales

     —          59,349        —          59,349   

Restaurant wages and related expenses (including stock based compensation expense of $53)

     —          59,144        —          59,144   

Restaurant rent expense

     —          10,149        2,253        12,402   

Other restaurant operating expenses

     —          29,286        —          29,286   

Advertising expense

     —          7,567        —          7,567   

General and administrative (including stock based compensation expense of $308)

     2,192        10,505        —          12,697   

Depreciation and amortization

     —          8,386        (503     7,883   

Impairment and other lease charges

     —          63        —          63   

Other income

     —          (579     —          (579
                                

Total costs and expenses

     2,192        183,870        1,750        187,812   
                                

Income (loss) from operations

     (2,192     20,064        (1,750     16,122   

Interest expense

     4,620        2,873        (2,570     4,923   

Intercompany interest allocations

     (4,469     4,469        —          —     
                                

Income (loss) before income taxes

     (2,343     12,722        820        11,199   

Provision (benefit) for income taxes

     (845     4,628        350        4,133   

Equity income from subsidiaries

     8,564        —          (8,564     —     
                                

Net income

   $ 7,066      $ 8,094      $ (8,094   $ 7,066   
                                

 

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CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended June 30, 2008

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Revenues:

        

Restaurant sales

   $ —        $ 210,331      $ —        $ 210,331   

Franchise royalty revenues and fees

     —          351        —          351   
                                

Total revenues

     —          210,682        —          210,682   
                                

Costs and expenses:

        

Cost of sales

     —          63,943        —          63,943   

Restaurant wages and related expenses (including stock based compensation expense of $57)

     —          60,763        —          60,763   

Restaurant rent expense

     —          10,187        1,381        11,568   

Other restaurant operating expenses

     —          31,348        —          31,348   

Advertising expense

     —          9,224        —          9,224   

General and administrative (including stock based compensation expense of $435)

     2,376        11,340        —          13,716   

Depreciation and amortization

     —          8,402        (325     8,077   

Impairment and other lease charges

     —          81        —          81   

Other income

     —          (119     —          (119
                                

Total costs and expenses

     2,376        195,169        1,056        198,601   
                                

Income (loss) from operations

     (2,376     15,513        (1,056     12,081   

Interest expense

     5,713        2,944        (1,534     7,123   

Gain on extinguishment of debt

     (180     —          —          (180

Intercompany interest allocations

     (4,557     4,557        —          —     
                                

Income (loss) before income taxes

     (3,352     8,012        478        5,138   

Provision (benefit) for income taxes

     (1,306     2,676        510        1,880   

Equity income from subsidiaries

     5,304        —          (5,304     —     
                                

Net income

   $ 3,258      $ 5,336      $ (5,336   $ 3,258   
                                

 

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Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended June 30, 2009

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Revenues:

        

Restaurant sales

   $ —        $ 404,524      $ —        $ 404,524   

Franchise royalty revenues and fees

     —          753        —          753   
                                

Total revenues

     —          405,277        —          405,277   
                                

Costs and expenses:

        

Cost of sales

     —          117,622        —          117,622   

Restaurant wages and related expenses (including stock based compensation expense of $105)

     —          117,787        —          117,787   

Restaurant rent expense

     —          20,429        4,405        24,834   

Other restaurant operating expenses

     —          58,700        —          58,700   

Advertising expense

     —          15,578        —          15,578   

General and administrative (including stock based compensation expense of $603)

     4,714        21,199        —          25,913   

Depreciation and amortization

     —          16,728        (975     15,753   

Impairment and other lease charges

     —          354        —          354   

Other income

     —          (579     —          (579
                                

Total costs and expenses

     4,714        367,818        3,430        375,962   
                                

Income (loss) from operations

     (4,714     37,459        (3,430     29,315   

Interest expense

     9,358        5,738        (5,022     10,074   

Intercompany interest allocations

     (8,937     8,937        —          —     
                                

Income (loss) before income taxes

     (5,135     22,784        1,592        19,241   

Provision (benefit) for income taxes

     (1,874     8,407        614        7,147   

Equity income from subsidiaries

     15,355        —          (15,355     —     
                                

Net income

   $ 12,094      $ 14,377      $ (14,377   $ 12,094   
                                

 

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Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended June 30, 2008

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Revenues:

        

Restaurant sales

   $ —        $ 405,724      $ —        $ 405,724   

Franchise royalty revenues and fees

     —          711        —          711   
                                

Total revenues

     —          406,435        —          406,435   
                                

Costs and expenses:

        

Cost of sales

     —          121,572        —          121,572   

Restaurant wages and related expenses (including stock based compensation expense of $114)

     —          119,304        —          119,304   

Restaurant rent expense

     —          20,315        2,736        23,051   

Other restaurant operating expenses

     —          60,893        —          60,893   

Advertising expense

     —          17,048        —          17,048   

General and administrative (including stock based compensation expense of $852)

     4,766        21,943        —          26,709   

Depreciation and amortization

     —          16,741        (642     16,099   

Impairment and other lease charges

     —          102        —          102   

Other income

     —          (119     —          (119
                                

Total costs and expenses

     4,766        377,799        2,094        384,659   
                                

Income (loss) from operations

     (4,766     28,636        (2,094     21,776   

Interest expense

     11,767        5,830        (3,040     14,557   

Gain on extinguishment of debt

     (180     —          —          (180

Intercompany interest allocations

     (9,113     9,113        —          —     
                                

Income (loss) before income taxes

     (7,240     13,693        946        7,399   

Provision (benefit) for income taxes

     (2,788     4,771        710        2,693   

Equity income from subsidiaries

     9,158        —          (9,158     —     
                                

Net income

   $ 4,706      $ 8,922      $ (8,922   $ 4,706   
                                

 

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Table of Contents

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2009

(In thousands of dollars)

(Unaudited)

 

     Parent
Company
Only
    Guarantor
Subsidiaries
    Eliminations     Consolidated
Total
 

Cash flows provided from operating activities:

        

Net income

   $ 12,094      $ 14,377      $ (14,377   $ 12,094   

Adjustments to reconcile net income to net cash provided from operating activities:

        

Loss on disposals of property and equipment

     —          105        —          105   

Stock-based compensation expense

     170        538        —          708   

Depreciation and amortization

     —          16,728        (975     15,753   

Impairment and other lease charges

     —          354        —          354   

Amortization of deferred financing costs

     478        145        (134     489   

Amortization of unearned purchase discounts

     —          (1,077     —          (1,077

Amortization of deferred gains from sale-leaseback transactions

     —          (941     (618     (1,559

Accretion of interest on lease financing obligations

     —          189        (170     19   

Deferred income taxes

     —          148        620        768   

Accrued income taxes

     (1,485     —          —          (1,485

Gain on settlements of lease financing obligations

     —