CARROLS CORP (Form: 10-Q, Received: 11/13/2002 15:25:59)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

Commission File Number

0-25629

CARROLS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		16-0958146
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

968 James Street Syracuse, New York		13203
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of The Exchange Act). Yes ¨ No x

Common stock, par value $1.00, outstanding at November 11, 2002: 10 shares

PART I

ITEM 1—FINANCIAL INFORMATION

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

	September 30, 2002		December 31, 2001
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	1,796	$	2,405
Trade and other receivables, net of reserves of $128 at each date		1,168		1,741
Inventories		4,757		5,094
Prepaid rent		2,083		2,115
Prepaid expenses and other current assets		4,002		4,262
Refundable income taxes		122		1,133
Deferred income taxes		6,797		6,797

Total current assets		20,725		23,547
Property and equipment, at cost less accumulated depreciation of $142,987 and $124,744, respectively		224,808		213,346
Franchise rights, at cost less accumulated amortization of $46,704 and $43,341, respectively		91,660		94,844
Intangible assets, at cost less accumulated amortization of $10,052 and $10,056, respectively		122,394		122,433
Deferred income taxes		3,844		8,384
Other assets		10,488		11,449

Total assets	$	473,919	$	474,003

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

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(in thousands of dollars)

	September 30, 2002			December 31, 2001
	(unaudited)
LIABILITIES and STOCKHOLDER’S EQUITY

Current liabilities:
Accounts payable	$	13,617		$	16,620
Accrued interest		5,451			1,518
Accrued payroll, related taxes and benefits		15,011			12,872
Other liabilities		16,090			15,706
Current portion of long-term debt		11,828			10,029

Total current liabilities		61,997			56,745
Long-term debt, net of current portion		349,788			363,615
Deferred income—sale/leaseback of real estate		4,847			3,881
Accrued postretirement benefits		2,537			2,310
Other liabilities		30,467			32,397

Total liabilities		449,636			458,948
Stockholder’s equity:
Common stock, par value $1; authorized 1,000 shares, issued and outstanding—10 shares		—			—
Additional paid-in capital		24,485			24,485
Accumulated deficit		(202	)		(9,430	)

Total stockholder’s equity		24,283			15,055

Total liabilities and stockholder’s equity	$	473,919		$	474,003

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

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(in thousands of dollars)

	2002		2001
	(unaudited)

Revenues:
Restaurant sales	$	167,196	$	170,132
Franchise fees and royalty revenues		384		399

Total revenues		167,580		170,531
Costs and expenses:
Cost of sales		46,571		50,524
Restaurant wages and related expenses		49,904		48,998
Other restaurant operating expenses		32,467		32,718
Advertising expense		7,915		8,176
General and administrative		8,921		8,714
Depreciation and amortization		9,980		10,971

Total operating expenses		155,758		160,101

Income from operations		11,822		10,430
Interest expense		6,839		8,046

Income before income taxes		4,983		2,384
Provision for income taxes		1,793		1,964

Net income	$	3,190	$	420

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

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(in thousands of dollars)

	2002		2001
	(unaudited)
Revenues:
Restaurant sales	$	497,658	$	491,493
Franchise fees and royalty revenues		1,102		1,187

Total revenues		498,760		492,680
Costs and expenses:
Cost of sales		138,829		143,952
Restaurant wages and related expenses		147,701		143,582
Other restaurant operating expenses		96,675		95,760
Advertising expense		21,968		21,553
General and administrative		28,204		26,358
Depreciation and amortization		29,776		32,040

Total operating expenses		463,153		463,245

Income from operations		35,607		29,435
Interest expense		20,822		25,594

Income before income taxes		14,785		3,841
Provision for income taxes		5,554		3,097

Net income	$	9,231	$	744

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

CARROLS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(in thousands of dollars)

	2002			2001
	(unaudited)
Cash flows provided from operating activities:
Net income	$	9,231		$	744
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization		29,776			32,040
Deferred income taxes		4,540			1,089
Change in operating assets and liabilities		2,684			(477	)
Loss on disposal of property and equipment		35			—

Net cash provided from operating activities		46,266			33,396

Cash flows used for investing activities:
Capital expenditures:
New restaurant development		(19,219	)		(13,764	)
Restaurant remodeling		(11,198	)		(10,435	)
Other restaurant expenditures		(7,456	)		(7,573	)
Corporate and information systems		(1,124	)		(1,704	)
Acquisition of restaurants		—			(1,612	)

Total capital expenditures		(38,997	)		(35,088	)
Properties purchased for sale-leaseback		(925	)		—
Proceeds from sales of property and equipment		9			26

Net cash used for investing activities		(39,913	)		(35,062	)

Cash flows provided from (used for) financing activities:
Proceeds (payments) on revolving credit facility, net		(4,500	)		5,800
Proceeds (payments) on other notes payable, net		(726	)		358
Principal payments on term loans		(6,375	)		(5,250	)
Principal payments on capital leases		(427	)		(390	)
Proceeds from sale-leaseback transactions		5,066			—

Net cash provided from (used for) financing activities		(6,962	)		518

Decrease in cash and cash equivalents		(609	)		(1,148	)
Cash and cash equivalents, beginning of period		2,405			2,712

Cash and cash equivalents, end of period	$	1,796		$	1,564

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

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Statement of Management

The accompanying unaudited consolidated financial statements as of September 30, 2002 and for the three and nine months ended September 30, 2002 and 2001 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete statements. In the opinion of management, all normal and recurring adjustments necessary for a fair presentation of such financial statements have been included.

The results of operations for the three and nine months ended September 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The consolidated financial statements include the accounts of Carrols Corporation and its subsidiaries (“Carrols” or the “Company”). All material intercompany balances, transactions and profits have been eliminated.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2001 contained in our 2001 Annual Report on Form 10-K. The December 31, 2001 balance sheet data is derived from these audited financial statements.

Intangible Assets

Intangible assets, net of accumulated amortization, consist of the following (in thousands):

	September 30, 2002		December 31, 2001
Goodwill	$	121,335	$	121,335
Trademarks		232		242
Other		827		866

	$	122,394	$	122,433

Amortization expense of goodwill, which is no longer amortized effective January 1, 2002, was $1,241,000 and $3,724,000 for the three and nine months ended September 30, 2001, respectively.

Income Taxes

The income tax provision for the nine months ended September 30, 2002 and 2001 was comprised of the following (in thousands):

	2002		2001
Current	$	1,014	$	2,008
Deferred		4,540		1,089

	$	5,554	$	3,097

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For 2002, the difference between the expected tax provision, resulting from application of the federal statutory income tax rate to pretax income, and the reported income tax provision results principally from state taxes and non-deductible amortization of certain franchise rights. For 2001, this difference is due to the same factors as well as the amortization of non-deductible goodwill.

Business Segment Information

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

The “Other” column includes corporate related items not allocated to reportable segments, principally corporate depreciation and amortization. Other identifiable assets consist primarily of intangible assets.

	Burger King		Pollo Tropical		Taco Cabana		Other			Consolidated
Three Months Ended (dollars in thousands):
September 30, 2002:
Revenues	$	95,986	$	25,824	$	45,770	$	—		$	167,580
Cost of sales		25,351		7,859		13,361		—			46,571
Restaurant wages and related expenses		30,063		6,880		12,961		—			49,904
Depreciation and amortization		6,380		815		1,558		1,227			9,980
Income (loss) from operations		4,475		3,867		4,707		(1,227	)		11,822
Capital expenditures, excluding acquisitions		6,993		2,674		5,087		536			15,290

September 30, 2001:
Revenues	$	99,432	$	24,315	$	46,784	$	—		$	170,531
Cost of sales		28,936		7,786		13,802		—			50,524
Restaurant wages and related expenses		29,769		5,949		13,280		—			48,998
Depreciation and amortization		6,178		698		1,818		2,277			10,971
Income (loss) from operations		4,657		4,211		3,839		(2,277	)		10,430
Capital expenditures, excluding acquisitions		8,769		3,598		2,152		647			15,166

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Burger King		Pollo Tropical		Taco Cabana		Other			Consolidated
Nine Months Ended (dollars in thousands):
September 30, 2002:
Revenues	$	288,778	$	76,230	$	133,752	$	—		$	498,760
Cost of sales		76,502		23,130		39,197		—			138,829
Restaurant wages and related expenses		89,987		19,400		38,314		—			147,701
Depreciation and amortization		19,183		2,356		4,917		3,320			29,776
Income (loss) from operations		12,219		12,936		13,772		(3,320	)		35,607
Capital expenditures, excluding acquisitions		17,882		8,399		11,592		1,124			38,997

September 30, 2001:
Revenues	$	283,619	$	74,123	$	134,938	$	—		$	492,680
Cost of sales		81,078		23,688		39,186		—			143,952
Restaurant wages and related expenses		87,477		17,562		38,543		—			143,582
Depreciation and amortization		17,743		1,957		5,636		6,704			32,040
Income (loss) from operations		10,293		13,523		12,323		(6,704	)		29,435
Capital expenditures, excluding acquisitions		18,518		6,324		6,941		1,693			33,476
Identifiable Assets:
At September 30, 2002	$	211,586	$	37,820	$	67,275	$	157,238		$	473,919
At December 31, 2001		215,249		31,668		60,776		166,310			474,003

Other Expense

During the fourth quarter of 2001, management made the decision to close seven Taco Cabana restaurants in the Phoenix, Arizona market and discontinue restaurant development underway in that market. This decision resulted in a charge to other expense of $8.8 million in the fourth quarter, representing $7.1 million in asset impairments, primarily leasehold improvements, and $1.7 million in future occupancy costs and other ongoing exit activities estimated to be incurred over a two-year period. The Company closed one restaurant in December 2001 and the remaining six restaurants in February 2002. During the nine months ended September 30, 2002, the Company paid $0.5 million in lease liabilities for the closed restaurants and the remaining lease liability at September 30, 2002 was $0.5 million. The Company has also paid $0.4 million in the nine months ended September 30, 2002 pertaining to other exit costs resulting in a September 30, 2002 reserve balance of $0.3 million.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS 142, “Goodwill and Other Intangible Assets,” which supercedes Accounting Principles Board Opinion 17, “Intangible Assets.” Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, effective January 1, 2002, but are to be tested at least annually for impairment. The Company will perform its impairment evaluation annually at December 31. Separable intangible assets with defined lives will continue to be amortized over their useful lives.

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SFAS 142 also required the Company to complete Step 1 of a transitional goodwill impairment test by June 30, 2002. Step 1 required the comparison of the fair value of a reporting unit to its carrying value at January 1, 2002 to determine whether there is an indicated transitional goodwill impairment. Our evaluation of impairment under Step 1 of the transitional goodwill impairment test indicated that our reporting units’ fair values are above their carrying values at January 1, 2002, and that there is no transitional goodwill impairment charge required.

In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” This new standard requires entities to recognize the fair value of an asset retirement obligation in the period which it is incurred if a reasonable estimate of fair value can be made. The provisions of SFAS 143 are effective for fiscal years beginning after June 15, 2002. We have determined the impact of adopting SFAS 143 to be immaterial on the Company’s financial statements.

In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002. Previously issued financial statements can not be restated under SFAS 146.

Guarantor Financial Statements

The $170 million senior subordinated notes of the Company are guaranteed by certain of the Company’s subsidiaries (“Guarantor Subsidiaries”), all of which are wholly-owned by the Company. These subsidiaries are:

Carrols Realty Holdings

Carrols Realty I Corp.

Carrols Realty II Corp.

Carrols J.G. Corp.

Quanta Advertising Corp.

Pollo Franchise, Inc.

Pollo Operations, Inc.

Taco Cabana, Inc.

TP Acquisition Corp.

T.C. Management, Inc.

Taco Cabana Management, Inc.

Get Real, Inc.

Texas Taco Cabana, L.P.

The following supplemental financial information sets forth on a consolidating basis, balance sheets, statements of operations and statements of cash flows for the Parent Company (Carrols Corporation) only, Guarantor Subsidiaries and for the Company as of September 30, 2002 and December 31, 2001 and for the three-month and nine-month periods ended September 30, 2002 and 2001. Debt and goodwill allocated to subsidiaries are presented on an “push-down” accounting basis.

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING BALANCE SHEET

September 30, 2002

(in thousands of dollars)

(unaudited)

	Parent Company Only		Guarantor Subsidiaries			Combined Total
ASSETS

Current Assets:
Cash and cash equivalents	$	1,363	$	433		$	1,796
Trade and other receivables, net		232		936			1,168
Inventories		3,370		1,387			4,757
Prepaid rent		1,258		825			2,083
Prepaid expenses and other current assets		1,196		2,806			4,002
Refundable income taxes		122		—			122
Deferred income taxes		6,797		—			6,797

Total current assets		14,338		6,387			20,725

Property and equipment, net		116,369		108,439			224,808
Franchise rights, net		91,660		—			91,660
Intangible assets, net		1,535		120,859			122,394
Intercompany receivable (payable)		180,498		(180,498	)		—
Deferred income taxes		3,844		—			3,844
Other assets		7,988		2,500			10,488

Total assets	$	416,232	$	57,687		$	473,919


LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Accounts payable	$	7,441	$	6,176		$	13,617
Accrued interest		5,451		—			5,451
Accrued payroll, related taxes and benefits		9,612		5,399			15,011
Other liabilities		7,444		8,646			16,090
Current portion of long-term debt		11,530		298			11,828

Total current liabilities		41,478		20,519			61,997
Long-term debt, net of current portion		348,827		961			349,788
Deferred income, sale/leaseback of real estate		4,847		—			4,847
Accrued postretirement benefits		2,537		—			2,537
Other liabilities		16,519		13,948			30,467

Total liabilities		414,208		35,428			449,636
Stockholder’s equity		2,024		22,259			24,283

Total liabilities and stockholder’s equity	$	416,232	$	57,687		$	473,919

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING BALANCE SHEET

December 31, 2001

(in thousands of dollars)

	Parent Company Only		Guarantor Subsidiaries			Combined Total
ASSETS

Current Assets:
Cash and cash equivalents	$	921	$	1,484		$	2,405
Trade and other receivables, net		423		1,318			1,741
Inventories		3,572		1,522			5,094
Prepaid rent		1,260		855			2,115
Prepaid expenses and other current assets		1,435		2,827			4,262
Refundable income taxes		1,133		—			1,133
Deferred income taxes		6,797		—			6,797

Total current assets		15,541		8,006			23,547

Property and equipment, net		117,186		96,160			213,346
Franchise rights, net		94,844		—			94,844
Intangible assets, net		1,568		120,865			122,433
Intercompany receivable (payable)		181,226		(181,226	)		—
Deferred income taxes		8,384		—			8,384
Other assets		8,849		2,600			11,449

Total assets	$	427,598	$	46,405		$	474,003


LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Accounts payable	$	10,118	$	6,502		$	16,620
Accrued interest		1,518		—			1,518
Accrued payroll, related taxes and benefits		8,278		4,594			12,872
Other liabilities		6,791		8,915			15,706
Current portion of long-term debt		9,762		267			10,029

Total current liabilities		36,467		20,278			56,745
Long-term debt, net of current portion		362,426		1,189			363,615
Deferred income, sale/leaseback of real estate		3,881		—			3,881
Accrued postretirement benefits		2,310		—			2,310
Other liabilities		16,705		15,692			32,397

Total liabilities		421,789		37,159			458,948
Stockholder’s equity		5,809		9,246			15,055

Total liabilities and stockholder’s equity	$	427,598	$	46,405		$	474,003

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended September 30, 2002

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries		Combined Total
Revenues:
Restaurant sales	$	95,986		$	71,210	$	167,196
Franchise fees and royalty revenues		—			384		384

Total revenues		95,986			71,594		167,580

Costs and expenses:
Cost of sales		25,351			21,220		46,571
Restaurant wages and related expenses		30,063			19,841		49,904
Other restaurant operating expenses		20,247			12,220		32,467
Advertising expense		4,337			3,578		7,915
General and administrative		5,133			3,788		8,921
Depreciation and amortization		7,176			2,804		9,980

Total operating expenses		92,307			63,451		155,758

Income from operations		3,679			8,143		11,822
Interest expense		6,763			76		6,839
Intercompany allocations		(1,736	)		1,736		—

Income (loss) before income taxes		(1,348	)		6,331		4,983
Provision (benefit) for income taxes		(475	)		2,268		1,793

Net income (loss)	$	(873	)	$	4,063	$	3,190

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended September 30, 2001

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries		Combined Total
Revenues:
Restaurant sales	$	99,432		$	70,700	$	170,132
Franchise fees and royalty revenues		—			399		399

Total revenues		99,432			71,099		170,531

Costs and expenses:
Cost of sales		28,936			21,588		50,524
Restaurant wages and related expenses		29,769			19,229		48,998
Other restaurant operating expenses		20,445			12,273		32,718
Advertising expense		4,429			3,747		8,176
General and administrative		5,018			3,696		8,714
Depreciation and amortization		6,946			4,025		10,971

Total operating expenses		95,543			64,558		160,101

Income from operations		3,889			6,541		10,430
Interest expense		7,880			166		8,046
Intercompany allocations		(1,737	)		1,737		—

Income (loss) before income taxes		(2,254	)		4,638		2,384
Provision (benefit) for income taxes		(173	)		2,137		1,964

Net income (loss)	$	(2,081	)	$	2,501	$	420

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2002

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries		Combined Total
Revenues:
Restaurant sales	$	288,778		$	208,880	$	497,658
Franchise fees and royalty revenues		—			1,102		1,102

Total revenues		288,778			209,982		498,760

Costs and expenses:
Cost of sales		76,502			62,327		138,829
Restaurant wages and related expenses		89,987			57,714		147,701
Other restaurant operating expenses		60,902			35,773		96,675
Advertising expense		12,731			9,237		21,968
General and administrative		17,254			10,950		28,204
Depreciation and amortization		21,563			8,213		29,776

Total operating expenses		278,939			184,214		463,153

Income from operations		9,839			25,768		35,607
Interest expense		20,582			240		20,822
Intercompany allocations		(5,208	)		5,208		—

Income (loss) before income taxes		(5,535	)		20,320		14,785
Provision (benefit) for income taxes		(1,753	)		7,307		5,554

Net income (loss)	$	(3,782	)	$	13,013	$	9,231

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2001

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries		Combined Total
Revenues:
Restaurant sales	$	283,619		$	207,874	$	491,493
Franchise fees and royalty revenues		—			1,187		1,187

Total revenues		283,619			209,061		492,680

Costs and expenses:
Cost of sales		81,078			62,874		143,952
Restaurant wages and related expenses		87,477			56,105		143,582
Other restaurant operating expenses		60,187			35,573		95,760
Advertising expense		12,007			9,546		21,533
General and administrative		14,834			11,524		26,358
Depreciation and amortization		20,034			12,006		32,040

Total operating expenses		275,617			187,628		463,245

Income from operations		8,002			21,433		29,435
Interest expense		25,151			443		25,594
Intercompany allocations		(5,211	)		5,211		—

Income (loss) before income taxes		(11,938	)		15,779		3,841
Provision (benefit) for income taxes		(3,846	)		6,943		3,097

Net income (loss)	$	(8,092	)	$	8,836	$	744

CARROLS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2002

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries			Combined Total
Cash flows provided from operating activities:
Net income (loss)	$	(3,782	)	$	13,013		$	9,231
Adjustments to reconcile net income (loss) to net cash provided from operating activities:
Loss on disposal of property and equipment		11			24			35
Depreciation and amortization		21,563			8,213			29,776
Deferred income taxes		4,540			—			4,540
Changes in operating assets and liabilities		4,202			(1,518	)		2,684

Net cash provided from operating activities		26,534			19,732			46,266

Cash flow used for investing activities:
Capital expenditures:
New restaurant development		(5,888	)		(13,331	)		(19,219	)
Restaurant remodeling		(7,918	)		(3,280	)		(11,198	)
Corporate and information systems		(530	)		(594	)		(1,124	)
Other restaurant expenditures		(4,076	)		(3,380	)		(7,456	)

Total capital expenditures		(18,412	)		(20,585	)		(38,997	)
Purchased properties for sale/leaseback		(925	)		—			(925	)
Proceeds from sales of property and equipment		9			—			9

Net cash used for investing activities		(19,328	)		(20,585	)		(39,913	)

Cash flows used for financing activities:
Payments on revolving credit facility, net		(4,500	)		—			(4,500	)
Principal payments on term loans		(6,375	)		—			(6,375	)
Payments on other notes payable, net		(726	)		—			(726	)
Principal payments on capital leases		(229	)		(198	)		(427	)
Proceeds from sale/leaseback transactions		5,066			—			5,066

Net cash used for financing activities		(6,764	)		(198	)		(6,962	)

Net increase (decrease) in cash and cash equivalents		442			(1,051	)		(609	)
Cash and cash equivalents, beginning of year		921			1,484			2,405

Cash and cash equivalents, end of period	$	1,363		$	433		$	1,796

CONSOLIDATING STATEMENT OF CASH FLOWS

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Nine Months Ended September 30, 2001

(in thousands of dollars)

(unaudited)

	Parent Company Only			Guarantor Subsidiaries			Combined Total
Cash flows provided from operating activities:
Net income (loss)	$	(8,092	)	$	8,836		$	744
Adjustments to reconcile net income (loss) to net cash provided from operating activities:
Depreciation and amortization		20,034			12,006			32,040
Deferred income taxes		(2,774	)		3,863			1,089
Changes in operating assets and liabilities		11,354			(11,831	)		(477	)

Net cash provided from operating activities		20,522			12,874			33,396

Cash flow used for investing activities:
Capital expenditures:
New restaurant development		(4,553	)		(9,211	)		(13,764	)
Restaurant remodeling		(9,832	)		603			(10,435	)
Corporate and information systems		(1,061	)		(643	)		(1,704	)
Other restaurant expenditures		(4,120	)		(3,453	)		(7,573	)
Acquisition of restaurants		(1,612	)		—			(1,612	)
Proceeds from dispositions of property and equipment		21			5			26

Net cash used for investing activities		(21,157	)		(13,905	)		(35,062	)

Cash flows provided from financing activities:
Proceeds from revolving credit facility, net		5,800			—			5,800
Proceeds from other notes payable, net		358			—			358
Principal payments on term loans		(5,250	)		—			(5,250	)
Principal payments on capital leases		(390	)		—			(390	)

Net cash provided from financing activities		518			—			518

Net decrease in cash and cash equivalents		(117	)		(1,031	)		(1,148	)
Cash and cash equivalents, beginning of year		785			1,927			2,712

Cash and cash equivalents, end of period	$	668		$	896		$	1,564

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Certain statements included in this “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and elsewhere in this Quarterly Report on Form 10-Q which are not statements of historical fact are intended to be, and are hereby identified as, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” and other similar expressions are intended to identify forward-looking statements. The Company cautions readers that forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Such factors include, among others, the following: the success or failure of the Company or Burger King Corporation in implementing its current business and operational strategies; availability, terms and access to capital and customary trade credit; general economic and business conditions; competition; changes in the Company’s business strategy; labor relations; the outcome of pending or yet-to-be instituted legal proceedings; labor and employee benefit costs; and availability and terms of necessary or desirable financing or refinancing.

Overview

We are one of the largest restaurant companies in the U. S. operating 530 restaurants in 16 states at September 30, 2002. We are the largest Burger King franchisee, and have operated Burger King restaurants since 1976. We also operate two regional Hispanic restaurant chains, Taco Cabana and Pollo Tropical, which operate or franchise more than 200 restaurants.

As of September 30, 2002, we operated 358 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. Since September 30, 2001 we have opened six additional Burger King restaurants and closed seven Burger King restaurants.

We have expanded our operations during the past four years through the acquisition of two regional quick-casual Hispanic restaurant chains. In 1998, we acquired Pollo Tropical Inc., a restaurant chain featuring grilled marinated chicken and authentic “made from scratch” side dishes. Since the acquisition we have opened 22 new Pollo Tropical restaurants and at September 30, 2002 we had 58 company owned Pollo Tropical restaurants in Florida and 23 franchised Pollo Tropical restaurants, 18 of which are in Puerto Rico.

In December 2000, we acquired Taco Cabana Inc., a restaurant chain featuring Tex-Mex style food including flame-grilled beef and chicken fajitas, quesadillas and fresh flour tortillas. As of September 30, 2002 we had 114 company owned Taco Cabana restaurants located primarily in Texas and 10 franchised Taco Cabana restaurants. In the fourth quarter of 2001, we decided to close seven restaurants in the Phoenix, Arizona market and discontinue restaurant development underway in that market. One Taco Cabana restaurant in Phoenix was closed in December 2001 and the six remaining Taco Cabana restaurants were closed in the first quarter of 2002. In addition since September 30, 2001, we have opened three new Taco Cabana restaurants and closed three under-performing Taco Cabana restaurants.

We use a 52-53 week fiscal year ending on the Sunday closest to December 31.

Significant Accounting Policies

Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission in December 2001, proposes that all companies include a discussion of critical accounting policies or methods used in the preparation of financial statements. The following is a brief discussion of the more significant accounting policies and methods used by the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make assumptions and estimates that can have a material impact on our results of operations. Sales recognition at company-operated restaurants is straightforward as customers pay for products at the time of sale and inventory turns over very quickly. Payments to vendors for products sold in the restaurants are generally settled within 30 days. The earnings reporting process is governed by our system of internal controls, and generally does not require significant management estimates and judgments. However, estimates and judgments are inherent in the assessment and recording of insurance liabilities, accrued occupancy costs, legal obligations, income taxes and the valuation of goodwill for impairment. While we base our judgments using assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions.

We are essentially self-insured, subject to certain limits for both specific and aggregate losses for most workers’ compensation, general liability and medical insurance claims. We record and monitor insurance liabilities based on our historical trends and industry factors, as appropriate, and adjust accruals as warranted by changing circumstances. Since there are many estimates and assumptions involved in recording these insurance liabilities, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.

We make estimates of accrued occupancy costs pertaining to closed restaurant locations on an ongoing basis. These estimates require assessment and continuous evaluation of a number of factors such as the remaining contractual period under our lease obligations, the amount of sublease income, if any; we are able to realize on a particular property and estimates of other costs such as property taxes. Differences between actual future events and prior estimates could result in adjustments to these accrued costs.

In the normal course of business, we must make estimates of potential future legal obligations and liabilities, which require the use of management’s judgment. Management may also consult with outside legal counsel to assist in the estimating process. However, the ultimate outcome of various legal issues could be different than management estimates, and adjustments to income could be required.

We record income tax liabilities utilizing known obligations and estimates of potential obligations. We are required to record a valuation allowance if the value of estimated deferred tax assets are different from those recorded. This includes making estimates and judgments on future taxable income, the consideration of feasible tax planning strategies and existing facts and circumstances. When the amount of deferred tax assets to be realized is different from that recorded, the asset balance and income statement would reflect the change in the period such determination is made.

We must evaluate our recorded goodwill for impairment under SFAS 142, “Goodwill and Other Intangible Assets,” on an annual basis. This annual evaluation requires us to make estimates and assumptions regarding the fair value of our reporting units. These estimates may differ from actual future events.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS 142, “Goodwill and Other Intangible Assets,” which replaces Accounting Principles Board Opinion 17, “Intangible Assets.” Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized, effective January 1, 2002, but are to be tested at least annually for impairment. Separable intangible assets with defined lives will continue to be amortized over their useful lives. Amortization expense of goodwill was $1,241,000 and $3,724,000 for the three and nine months ended September 30, 2001, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

SFAS 142 also required the Company to complete Step 1 of a transitional goodwill impairment test by June 30, 2002. Step 1 required the comparison of the fair value of a reporting unit to its carrying value at January 1, 2002 to determine whether there is an indicated transitional goodwill impairment. Our evaluation of impairment under Step 1 of the transitional goodwill impairment test indicated that our reporting units’ fair values are above their carrying values at January 1, 2002 and there is no transitional goodwill impairment charge required. On an ongoing basis, the Company has elected to conduct its annual impairment review of goodwill and intangible assets as of December 31.

In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” This new standard, effective in 2003 requires entities to recognize the fair value of an asset retirement obligation in the period that it is incurred if a reasonable estimate of fair value can be made. The provisions of SFAS 143 are effective for fiscal years beginning after June 15, 2002. The adoption of SFAS 143 will have no material impact on our financial statements.

Results of Operations

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001.

The following table sets forth, for the three months ended September 30, 2002 and 2001, selected operating results as a

percentage

of restaurant sales:

	2002		2001
Restaurant sales:
Burger King	57.4	%	58.5	%
Pollo Tropical	15.3		14.1
Taco Cabana	27.3		27.4

	100.0		100.0
Costs and expenses:
Cost of sales	27.9		29.7
Restaurant wages and related expenses	29.8		28.8
Other restaurant expenses including advertising	24.2		24.0
General and administrative	5.3		5.1
Depreciation and amortization	6.0		6.4

Income from restaurant operations	6.8	%	5.9	%

Restaurant Sales

Total restaurant sales for the third quarter decreased 1.7% to $167.2 million in 2002 from $170.1 million in 2001. Burger King restaurant sales in the third quarter decreased $3.4 million to $96.0 million in 2002 due primarily to a sales decrease of 3.6% at our comparable Burger King restaurants (those restaurants operating for the entirety of both periods). This decrease was due in part to decreased Burger King promotional activities in the third quarter of 2002 compared to 2001. Pollo Tropical restaurant sales increased $1.5 million, or 6.4%, to $25.6 million in the third quarter of 2002 due to the opening of seven additional restaurants since the end of the third quarter of 2001. Sales at our comparable Pollo Tropical restaurants in the third quarter of 2002, however, decreased 3.8% due to the economic effects of declining tourism in our

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Orlando and South Florida markets. Taco Cabana restaurant sales in the third quarter decreased $1.0 million to $45.7 million in 2002 from $46.7 million in 2001. This decrease was due to a slight sales decrease of 0.3% at our comparable Taco Cabana restaurants in the third quarter of 2002 and the closure of seven restaurants in the Phoenix, Arizona market, primarily in the first quarter of 2002.

Operating Costs and Expenses

Cost of sales (food and paper costs), as a percentage of total restaurant sales, decreased to 27.9% in the third quarter of 2002 from 29.7% in 2001. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased to 26.4% in the third quarter of 2002 from 29.1% in 2001. This decrease was due to significantly lower promotional sales discounts in the third quarter of 2002 compared to 2001, and to a lesser extent, the effects of menu price increases in the fourth quarter of 2001, the slight reduction in size of the Burger King regular hamburger patty and a 7.8% decrease in beef commodity prices in the third quarter of 2002. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased to 30.7% in the third quarter of 2002 from 32.4% in 2001 due to lower chicken breast costs in 2002 and menu price increases at the beginning of 2002. Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, decreased to 29.3% in the third quarter of 2002 from 29.6% in 2001 due to lower cheese costs and slightly lower promotional sales discounts in the third quarter of 2002, partially offset by higher contracted beef costs in 2002.

Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 29.8% in the third quarter of 2002 from 28.8% in 2001. Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 31.3% in the third quarter of 2002 from 29.9% in 2001 due to the effects of lower Burger King sales volumes in the third quarter of 2002 on fixed labor costs. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, increased to 26.8% in the third quarter of 2002 from 24.8% in 2001 due to the effect of lower sales volumes in the third quarter of 2002 on fixed labor costs and, to a lesser extent, higher workers compensation and medical insurance costs in the third quarter of 2002, offset partially by menu price increases at the beginning of 2002. Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana restaurant sales, decreased slightly to 28.4% in the third quarter of 2002 from 28.5% in 2001 due to closing seven low sales volume restaurants in the Phoenix, Arizona market, primarily in the first quarter of 2002.

Other restaurant operating expenses (which includes advertising) as a percentage of total restaurant sales, increased to 24.2% in the third quarter of 2002 from 24.0% in 2001. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, increased to 25.7% in the third quarter of 2002 from 25.0% in 2001 due to the effect of lower sales volumes on fixed costs and higher utility costs, due to hot weather in the third quarter of 2002 in our Burger King markets. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 19.9% in the third quarter of 2002 from 18.5% in 2001 due to the effect of lower comparable restaurant sales volumes on fixed costs, the timing of advertising expenses in 2002 and higher maintenance expenses related to enhancing our restaurants. Taco Cabana other restaurant operating expenses, as a percentage of Taco Cabana restaurant sales, decreased to 23.5% in the third quarter of 2002 from 24.7% in 2001 due primarily to lower advertising costs in 2002 related to the timing of promotions and lower utility costs.

General and administrative expenses, as a percentage of total restaurant sales, increased to 5.3% in the third quarter of 2002 from 5.1% in 2001 due, in part, to the effect of lower Burger King sales volumes in the third quarter of 2002.

Earnings before interest, taxes and depreciation and amortization (“EBITDA”) increased to $21.8 million in the third quarter of 2002 from $21.4 million in 2001. As a percentage of total revenues, EBITDA margins increased to 13.0% in the third quarter of 2002 from 12.5% in 2001 as a result of the factors discussed above.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Depreciation and amortization decreased $1.0 million in the third quarter of 2002 from the third quarter of 2001 due to the elimination of goodwill amortization under SFAS 142 beginning January 1, 2002. Goodwill amortization was $1.2 million in the third quarter of 2001. This decrease was offset by additional depreciation from our capital expenditures of $53.1 million since the end of the third quarter of 2001.

Interest expense decreased $1.2 million to $6.8 million in the third quarter of 2002 from $8.0 million in 2001 due primarily to lower effective interest rates on our debt, and, to a lesser extent, lower average debt balances in the third quarter of 2002. The average effective interest rate on all debt was 7.3% for the third quarter of 2002 compared to 8.3% in the third quarter of 2001.

The provision for income taxes for the third quarter of 2002 was derived using an estimated effective income tax rate for 2002 of 37.6%. This rate is higher than the Federal statutory tax rate of 35% due to state franchise taxes and non-deductible amortization of certain franchise rights. This rate is lower than our effective income tax rate for 2001 due to the elimination of the amortization of non-deductible goodwill under SFAS 142 effective January 1, 2002.

As a result of the foregoing, net income for the third quarter of 2002 increased to $3.2 million from $0.4 million in the third quarter of 2001.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001.

The following table sets forth, for the nine months ended September 30, 2002 and 2001, selected operating results as a percentage of restaurant sales:

	2002		2001
Restaurant sales:
Burger King	58.0	%	57.7	%
Pollo Tropical	15.2		14.9
Taco Cabana	26.8		27.4

	100.0		100.0
Costs and expenses:
Cost of sales	27.9		29.3
Restaurant wages and related expenses	29.7		29.2
Other restaurant expenses including advertising	23.8		23.9
General and administrative	5.7		5.4
Depreciation and amortization	6.0		6.5

Income from restaurant operations	6.9	%	5.7	%

Restaurant Sales

Total restaurant sales for the first nine months of 2002 increased $6.2 million to $497.7 million from $491.5 million in 2001. Burger King restaurant sales increased $5.2 million, or 1.8%, to $288.8 million in the first nine months of 2002 from $283.6 million in 2001. This increase was due to a sales increase at our comparable Burger King restaurants of 0.3% for the first nine months of 2002 and an increase of four average Burger King restaurants open in 2002. Pollo Tropical restaurant sales increased $2.2 million, or 3.0%, to $75.4 million in the first nine months 2002 due to the opening of seven additional restaurants since the end of the third quarter of 2001. Sales at our comparable Pollo Tropical restaurants in the first nine months of 2002, however, declined 5.0% due to the economic effects of declining tourism in our Florida markets since the September 11 tragedy. Taco Cabana restaurant sales decreased to $133.4 million in the first nine months of 2002 from $134.7 million in 2001. A sales increase at our comparable Taco Cabana restaurants of 1.2% in the first nine months of 2002 was offset by the closure of seven restaurants in the Phoenix, Arizona market, primarily in the first quarter of 2002.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Operating Costs and Expenses

Cost of sales (food and paper costs), as a percentage of total restaurant sales, decreased to 27.9% in the first nine months of 2002 from 29.3% in 2001. Burger King cost of sales, as a percentage of Burger King restaurant sales, decreased to 26.5% in the first nine months of 2002 from 28.6% in 2001. This decrease was due to significantly lower promotional sales discounts in the first nine months of 2002 compared to 2001, and to a lesser extent, the effects of menu price increases in 2001 and the slight reduction in size of the Burger King regular hamburger patty in the fourth quarter of 2001. Pollo Tropical cost of sales, as a percentage of Pollo Tropical restaurant sales, decreased to 30.7% in the first nine months of 2002 from 32.4% in 2001 due to lower chicken breast costs in 2002 and the effect of menu price increases at the beginning of 2002. Taco Cabana cost of sales, as a percentage of Taco Cabana restaurant sales, increased to 29.4% in the first nine months of 2002 from 29.1% in 2001 due to higher contracted beef costs and slightly higher promotional sales discounts in 2002, none of which were offset by menu price increases in 2002.

Restaurant wages and related expenses, as a percentage of total restaurant sales, increased to 29.7% in the first nine months of 2002 from 29.2% in 2001. Burger King restaurant wages and related expenses, as a percentage of Burger King restaurant sales, increased to 31.2% in the first nine months of 2002 from 30.8% in 2001 due to higher state unemployment tax rates and higher restaurant level incentives in 2002, offset in part by menu price increases in 2001. Pollo Tropical restaurant wages and related expenses, as a percentage of Pollo Tropical restaurant sales, increased to 25.7% in the first nine months of 2002 from 24.0% in 2001 due to the effect of lower sales volumes on fixed labor costs and higher workers compensation and medical insurance costs. Taco Cabana restaurant wages and related expenses, as a percentage of Taco Cabana restaurant sales, increased slightly to 28.7% in the first nine months of 2002 from 28.6% in 2001 due primarily to labor rate increases.

Other restaurant operating expenses (which includes advertising) as a percentage of total restaurant sales, decreased slightly to 23.8% in the first nine months of 2002 from 23.9% in 2001. Burger King other restaurant operating expenses, as a percentage of Burger King restaurant sales, decreased slightly to 25.4% in the first nine months of 2002 from 25.5% in 2001 due to lower utility costs partially offset by an increase in local advertising expenditures. Pollo Tropical other restaurant operating expenses, as a percentage of Pollo Tropical restaurant sales, increased to 19.6% in the first nine months of 2002 from 18.6% in 2001. This increase was due to the effect of lower comparable restaurant sales volumes in 2002 on fixed costs, higher maintenance expenses related to enhancing our restaurants in 2002 and an insurance gain of $0.4 million in 2001, partially offset by lower utility costs in 2002. Taco Cabana other restaurant operating expenses, as a percentage of Taco Cabana restaurant sales, decreased to 22.7% in the first nine months of 2002 from 23.3% in 2001 due primarily to lower utility costs in 2002 and lower advertising costs due to the timing of promotions.

General and administrative expenses, increased $1.8 million in the first nine months of 2002 compared to 2001 due primarily to higher administrative bonus levels in 2002. As a percentage of total restaurant sales, general and administrative expenses increased to 5.7% in the first nine months of 2002 from 5.5% in 2001.

Earnings before interest, taxes and depreciation and amortization (“EBITDA”) increased 6.4% to $65.4 million in the first nine months of 2002 from $61.5 million in 2001. As a percentage of total revenues, EBITDA margins increased to 13.1% in the first nine months of 2002 compared to 12.5% in 2001 as a result of the factors discussed above.

Depreciation and amortization decreased $2.3 million in the first nine months of 2002 compared to 2001 due to the elimination of goodwill amortization under SFAS 142 beginning January 1, 2002. Goodwill amortization was $3.7 million in the first nine months of 2001. This decrease was partially offset by additional depreciation from our capital expenditures of $53.1 million since the end of the third quarter of 2001.

Interest expense decreased $4.8 million to $20.8 million in the first nine months of 2002 from $25.6 million in 2001 due primarily to lower effective interest rates on our debt, and, to a lesser extent, lower average debt balances in 2002. The average effective interest rate on all debt was 7.3% for the first nine months of 2002 compared to 8.8% in the first nine months of 2001.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

The provision for income taxes for the first nine months of 2002 was derived using an estimated effective income tax rate for 2002 of 37.6%. This rate is higher than the Federal statutory tax rate of 35% due to state franchise taxes and non-deductible amortization of certain franchise rights. This rate is lower than our effective income tax rate for 2001 due to the elimination of the amortization of non-deductible goodwill under SFAS 142 effective January 1, 2002.

As a result of the foregoing, net income increased $8.5 million to $9.2 million for the first nine months of 2002 from $0.7 million in 2001.

Liquidity and Capital Resources

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:

•

restaurant operations are primarily conducted on a cash basis;

•

rapid turnover results in a limited investment in inventories; and

•

cash from sales is usually received before related accounts for food, supplies and payroll become due.

Our cash requirements arise primarily from:

•

the need to finance the opening and equipping of new restaurants;

•

ongoing capital reinvestment in our existing restaurants;

•

the acquisition of restaurants; and

•

servicing our debt.

Our operations in the first nine months of 2002 generated approximately $46.3 million in cash, compared with $33.4 million in the first nine months of 2001.

In the first nine months of 2002 we sold five fee owned properties for $5.1 million in sale/leaseback transactions and used the proceeds from these sales to reduce debt.

Our capital expenditures are a major investment of cash, and excluding acquisitions, totaled $39.0 million and $33.5 million in the first nine months of 2002 and 2001, respectively. Expenditures for new restaurant development were $19.2 million and $13.8 million in the first nine months of 2002 and 2001, respectively. Our capital expenditures also include remodeling costs and capital maintenance projects for the ongoing reinvestment and enhancement of our restaurants and totaled $18.7 million and $18.0 million in the first nine months of 2002 and 2001, respectively.

In 2002, we anticipate total capital expenditures of approximately $55 million to $60 million, including approximately $26 million to $28 million for the construction of new restaurants and related real estate applicable to our three restaurant concepts as follows: $8 million to $9 million for Burger King, $11 million to $12 million for Taco Cabana and $7 million for Pollo Tropical. Also included in anticipated 2002 capital expenditures is approximately $11 million to $12 million for remodeling existing Burger King restaurants and approximately $3 million to $4 million for expenditures related to Burger King transformation initiatives, which include new signage and drive-thru and kitchen improvements. Other anticipated 2002 capital expenditures for ongoing reinvestment in our restaurants total approximately $12 million to $13 million; with approximately $4 million applicable to our Burger King restaurants, $2 million to $3 million for Pollo Tropical and $6 million for Taco Cabana, which includes $3.5 million to $4 million for the remodeling of our Taco Cabana restaurants in Austin, Texas including the installation of additional grills related to the introduction of grilled chicken.

At September 30, 2002, we had total indebtedness of $361.6 million comprised of $170.0 million of unsecured 9.5% Senior Subordinated Notes due 2008, total borrowings under our senior credit facility of $187.6 million and other debt of $4.0 million. Our senior credit facility provides for a $70 million term loan A facility, an $80 million term loan B facility and a $100 million

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

RESULTS OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

revolving credit facility. At September 30, 2002, $136.6 was outstanding under the term loan A and B facilities and $41.8 million was available for borrowings under our revolving credit facility, after reserving $7.2 million for letters of credit guaranteed by the facility.

Interest payments under our senior subordinated notes and other existing debt obligations represent significant liquidity requirements for us. We believe cash generated from our operations and availability under our revolving credit facility will provide sufficient cash availability to cover our working capital needs, capital expenditures, planned development and debt service requirements for the next twelve months.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating expenses. Wages paid in our restaurants are impacted by changes in the Federal or state minimum hourly wage rates, and accordingly, changes in those rates directly affect our cost of labor. We and the restaurant industry typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to offset such inflationary cost increases in the future.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

There were no material changes from the information presented in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 with respect to the Company’s market risk sensitive instruments.

ITEM 4—CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, nor any significant deficiencies or material weaknesses in such controls requiring corrective actions, subsequent to the date of their evaluation.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There were no material legal proceedings commenced by or initiated against the Company during the reported quarter or material developments in any previously reported litigation.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Default Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8K

a. The following exhibits are filed as part of this report.

Exhibit No.

10.29		Carrols Corporation Retirement Savings Plan dated July 1, 2002.

10.30		Addendum incorporating EGTRRA Compliance Amendment to Carrols Corporation Retirement Savings Plan dated September 12, 2002.

99.1		Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 13, 2002 by Alan Vituli.

99.2		Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 13, 2002 by Paul R. Flanders.

b. There were no reports on Form 8-K filed during the reported quarter.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CARROLS CORPORATION

968 James Street

Syracuse, New York 13203

(Registrant)


Date: November 13, 2002		/ S / A LAN V ITULI (Signature)

		Alan Vituli Chairman and Chief Executive Officer

Date: November 13, 2002		/ S / P AUL R. F LANDERS (Signature)

		Paul R. Flanders Vice President—Finance (Chief Financial Officer)

CERTIFICATIONS

I, Alan Vituli, certify that:

I have reviewed this quarterly report on Form 10-Q of Carrols Corporation;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: November 13, 2002		/ S / A LAN V ITULI

		Alan Vituli Chairman and Chief Executive Officer

CERTIFICATIONS

I, Paul R. Flanders, certify that:

I have reviewed this quarterly report on Form 10-Q of Carrols Corporation;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Date: November 13, 2002		/ S / P AUL R. F LANDERS

		Paul R. Flanders Vice President—Finance (Chief Financial Officer)

	ARTICLE I DEFINITIONS

1.1	Plan Definitions	2
1.2	Interpretation	8

	ARTICLE II SERVICE

2.1	Special Definitions	9
2.2	Crediting of Hours of Service	9
2.3	Limitations on Crediting of Hours of Service	10
2.4	Department of Labor Rules	11
2.5	Eligibility Service	11
2.6	Years of Vesting Service	11
2.7	Crediting of Hours of Service with Respect to Short Computation Periods	12
2.8	Crediting of Service on Transfer or Amendment	12
2.9	Crediting of Service to Leased Employees	12

	ARTICLE III ELIGIBILITY

3.1	Eligibility	14
3.2	Transfers of Employment	14
3.3	Reemployment	14
3.4	Notification Concerning New Eligible Employees	14
3.5	Effect and Duration	14

	ARTICLE IV TAX-DEFERRED CONTRIBUTIONS

4.1	Tax-Deferred Contributions	16
4.2	Amount of Tax-Deferred Contributions	16
4.3	Combined Limit on Tax-Deferred and After-Tax Contributions	16
4.4	Amendments to Reduction Authorization	16
4.5	Suspension of Tax-Deferred Contributions	17
4.6	Resumption of Tax-Deferred Contributions	17
4.7	Delivery of Tax-Deferred Contributions	17
4.8	Vesting of Tax-Deferred Contributions	17

	ARTICLE VIII TRUST FUNDS AND ACCOUNTS

8.1	General Fund	29
8.2	Investment Funds	29
8.3	Loan Investment Fund	29
8.4	Income on Trust	29
8.5	Accounts	29
8.6	Sub-Accounts	30

	ARTICLE IX LIFE INSURANCE CONTRACTS

9.1	No Life Insurance Contracts	31

	ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS

10.1	Future Contribution Investment Elections	32
10.2	Deposit of Contributions	32
10.3	Election to Transfer Between Funds	32
10.4	404(c) Protection	32

	ARTICLE XI CREDITING AND VALUING ACCOUNTS

11.1	Crediting Accounts	33
11.2	Valuing Accounts	33
11.3	Plan Valuation Procedures	33
11.4	Finality of Determinations	34
11.5	Notification	34

	ARTICLE XII LOANS

12.1	Application for Loan	35
12.2	Reduction of Account Upon Distribution	35
12.3	Requirements to Prevent a Taxable Distribution	36
12.4	Administration of Loan Investment Fund	37
12.5	Default	38
12.6	Deemed Distribution Under Code Section 72(p)	38
12.7	Treatment of Outstanding Balance of Loan Deemed Distributed Under Code Section 72(p)	38
12.8	Special Rules Applicable to Loans	39
12.9	Loans Granted Prior to Amendment	39

	ARTICLE XIII WITHDRAWALS WHILE EMPLOYED

13.1	Non-Hardship Withdrawals of After-Tax Contributions	40
13.2	Age 59 1/2 Withdrawals	40
13.3	Overall Limitations on Non-Hardship Withdrawals	40
13.4	Hardship Withdrawals	41
13.5	Hardship Determination	41
13.6	Satisfaction of Necessity Requirement for Hardship Withdrawals	42
13.7	Conditions and Limitations on Hardship Withdrawals	43
13.8	Order of Withdrawal from a Participant’s Sub-Accounts	43

	ARTICLE XIV TERMINATION OF EMPLOYMENT AND SETTLEMENT DATE

14.1	Termination of Employment and Settlement Date	44
14.2	Separate Accounting for Non-Vested Amounts	44
14.3	Disposition of Non-Vested Amounts	44
14.4	Treatment of Forfeited Amounts	45
14.5	Recrediting of Forfeited Amounts	45

	ARTICLE XV DISTRIBUTIONS

15.1	Distributions to Participants	47
15.2	Partial Distributions to Retired or Terminated Participants	47
15.3	Distributions to Beneficiaries	47
15.4	Cash Outs and Participant Consent	48
15.5	Required Commencement of Distribution	48
15.6	Transition Rules for Required Commencement of Distribution	49
15.7	Reemployment of a Participant	49
15.8	Restrictions on Alienation	49
15.9	Facility of Payment	49
15.10	Inability to Locate Payee	50
15.11	Distribution Pursuant to Qualified Domestic Relations Orders	50

	ARTICLE XVI FORM OF PAYMENT

16.1	Definitions	51
16.2	Normal Form of Payment	52
16.3	Optional Forms of Payment	52
16.4	Change of Election	52

16.5	Automatic Annuity Requirements	53
16.6	Qualified Preretirement Survivor Annuity Requirements	53
16.7	Direct Rollover	53
16.8	Notice Regarding Forms of Payment	54
16.9	Reemployment	56

	ARTICLE XVII BENEFICIARIES

17.1	Designation of Beneficiary	57
17.2	Spousal Consent Requirements	57

	ARTICLE XVIII ADMINISTRATION

18.1	Authority of the Sponsor	58
18.2	Discretionary Authority	58
18.3	Action of the Sponsor	58
18.4	Claims Review Procedure	59
18.5	Qualified Domestic Relations Orders	60
18.6	Indemnification	60
18.7	Actions Binding	60

	ARTICLE XIX AMENDMENT AND TERMINATION

19.1	Amendment	62
19.2	Limitation on Amendment	62
19.3	Termination	62
19.4	Reorganization	63
19.5	Withdrawal of an Employer	64

	ARTICLE XX ADOPTION BY OTHER ENTITIES

20.1	Adoption by Related Companies	65
20.2	Effective Plan Provisions	65

	ARTICLE XXI MISCELLANEOUS PROVISIONS

21.1	No Commitment as to Employment	66
21.2	Benefits	66
21.3	No Guarantees	66
21.4	Expenses	66

21.5	Precedent	66
21.6	Duty to Furnish Information	66
21.7	Merger, Consolidation, or Transfer of Plan Assets	67
21.8	Back Pay Awards	67
21.9	Condition on Employer Contributions	67
21.10	Return of Contributions to an Employer	68
21.11	Validity of Plan	68
21.12	Trust Agreement	68
21.13	Parties Bound	68
21.14	Application of Certain Plan Provisions	68
21.15	Merged Plans	69
21.16	Transferred Funds	69
21.17	Veterans Reemployment Rights	69
21.18	Delivery of Cash Amounts	69
21.19	Written Communications	69

	ARTICLE XXII TOP-HEAVY PROVISIONS

22.1	Definitions	71
22.2	Applicability	73
22.3	Minimum Employer Contribution	73
22.4	Accelerated Vesting	74
	ARTICLE XXIII EFFECTIVE DATE

23.1	GUST Effective Dates	75

	ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS

5.1	After-Tax Contributions	18
5.2	Amount of After-Tax Contributions by Payroll Withholding	18
5.3	Combined Limit on Tax-Deferred and After-Tax Contributions	18
5.4	Amendments to Payroll Withholding Authorization	18
5.5	Suspension of After-Tax Contributions by Payroll Withholding	19
5.6	Resumption of After-Tax Contributions by Payroll Withholding	19
5.7	Delivery of After-Tax Contributions	19
5.8	Rollover Contributions	19
5.9	Vesting of After-Tax Contributions and Rollover Contributions	20

	ARTICLE VI EMPLOYER CONTRIBUTIONS

6.1	Contribution Period	21
6.2	Qualified Nonelective Contributions	21
6.3	Allocation of Qualified Nonelective Contributions	21
6.4	Amount and Allocation of Matching Contributions	21
6.5	Limit on Contributions Matched	21
6.6	Qualified Matching Contributions	22
6.7	Verification of Amount of Employer Contributions by the Sponsor	22
6.8	Payment of Employer Contributions	22
6.9	Allocation Requirements for Employer Contributions	22
6.10	Vesting of Employer Contributions	22
6.11	Election of Former Vesting Schedule	23
6.12	Forfeitures to Reduce Employer Contributions	24

	ARTICLE VII LIMITATIONS ON CONTRIBUTIONS

7.1	Definitions	25
7.2	Code Section 402(g) Limit	26
7.3	Distribution of Excess Deferrals	26
7.4	Code Section 415 Limitations on Crediting of Contributions and Forfeitures	27
7.5	Application of Code Section 415 Limitations Where Participant is Covered Under Other Qualified Defined Contribution Plan	28
7.6	Scope of Limitations	28

ARTICLE I DEFINITIONS
1.1	Plan Definitions

As used herein, the following words and phrases have the meanings hereinafter set forth, unless a different meaning is plainly required by the context:

An “ Account ” means the account maintained by the Trustee in the name of a Participant that reflects his interest in the Trust and any Sub-Accounts maintained thereunder, as provided in Article VIII.

The “ Administrator ” means the Sponsor unless the Sponsor designates another person or persons to act as such.

An “ After-Tax Contribution ” means any after-tax employee contribution made by a Participant to the Plan as may be permitted under Article V or as may have been permitted under the terms of the Plan prior to this amendment and restatement or any after-tax employee contribution made by a Participant to another plan that is transferred directly to the Plan.

The “ Beneficiary ” of a Participant means the person or persons entitled under the provisions of the Plan to receive distribution hereunder in the event the Participant dies before receiving distribution of his entire interest under the Plan.

A Participant’s “ Benefit Payment Date ” means (i) if payment is made through the purchase of an annuity, the first day of the first period for which the annuity is payable or (ii) if payment is made in any other form, the first day on which all events have occurred which entitle the Participant to receive payment of his benefit.

A “ Break in Service ” means any “computation period” (as defined in Section 2.1 for purposes of determining years of Vesting Service) during which a person completes fewer than 501 Hours of Service except that no person shall incur a Break in Service solely by reason of temporary absence from work not exceeding 12 months resulting from illness, layoff, or other cause if authorized in advance by an Employer or a Related Company pursuant to its uniform leave policy, if his employment shall not otherwise be terminated during the period of such absence.

The “ Code ” means the Internal Revenue Code of 1986, as amended from time to time. Reference to a Code section includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section.

The “ Compensation ” of a Participant for any period means the wages as defined in Code Section 3401(a), paid to him for such period for services as an Employee that would be used for purposes

Employee attains age 55, as determined under the rules in effect under Code Section 414(q) for such year.

The determination of who is a Highly Compensated Employee hereunder shall be made in accordance with the provisions of Code Section 414(q) and regulations issued thereunder.

For purposes of this definition, the following terms have the following meanings:

(a)	An employee’s “compensation” means compensation as defined in Code Section 415(c)(3) and regulations issued thereunder.

(b)	The “look back year” means the 12-month period immediately preceding the Plan Year.

An “ Hour of Service ” with respect to a person means each hour, if any, that may be credited to him in accordance with the provisions of Article II.

An “ Investment Fund ” means any separate investment Trust Fund maintained by the Trustee as may be provided in the Plan or the Trust Agreement or any separate investment fund maintained by the Trustee, to the extent that there are Participant Sub-Accounts under such funds, to which assets of the Trust may be allocated and separately invested.

A “ Matching Contribution ” means any Employer Contribution made to the Plan on account of a Participant’s Tax-Deferred Contributions or After-Tax Contributions as provided in Article VI, including Regular Matching Contributions and any such contribution that is designated by an Employer as a Qualified Matching Contribution.

The “ Normal Retirement Date ” of an employee means the later of the date he attains age 65 or the fifth anniversary of the date he commenced participation in the Plan. With respect to Participants covered under the Taco Cabana Savings and Retirement Plan who were hired before July 1, 2002, Normal Retirement Age shall mean age 59 1/2.

A “ Participant ” means any person who has an Account in the Trust.

The “ Plan ” means the Carrols Corporation Retirement Savings Plan, as from time to time in effect.

A “ Plan Year ” means the 12-consecutive-month period ending each December 31.

A “ Predecessor Employer ” means any company that is a predecessor organization to an Employer under the Code, provided that the Employer maintains a plan of such predecessor organization.

A “ Qualified Joint and Survivor Annuity ” means an immediate annuity payable at earliest retirement age under the Plan, as defined in regulations issued under Code Section 401(a)(11), that is payable (i) for the life of a Participant, if the Participant is not married, or (ii) for the life of a Participant with a survivor annuity payable for the life of the Participant’s spouse that is equal to at least 50 percent, but not more than 100 percent, of the amount of the annuity payable during the joint lives of the Participant and his spouse, if the Participant is married. No survivor annuity shall be payable to the Participant’s spouse under a Qualified Joint and Survivor Annuity if such spouse is not the same spouse to whom the Participant was married on his Benefit Payment Date.

A “ Qualified Matching Contribution ” means any Matching Contribution made to the Plan as provided in Article VI that is 100 percent vested when made and may be taken into account to satisfy the limitations on Tax-Deferred Contributions made by Highly Compensated Employees under Article VII.

A “ Qualified Nonelective Contribution ” means any Employer Contribution made to the Plan as provided in Article VI that is 100 percent vested when made and may be taken into account to satisfy the limitations on Tax-Deferred Contributions and/or Matching and After-Tax Contributions made by or on behalf of Highly Compensated Employees under Article VII, other than Qualified Matching Contributions.

A “ Qualified Preretirement Survivor Annuity ” means an annuity payable for the life of a Participant’s surviving spouse if the Participant dies prior to his Benefit Payment Date.

A “ Regular Matching Contribution ” means any Matching Contribution made to the Plan at the rate specified in Article VI, other than any Matching Contribution characterized by the Employer as a Qualified Matching Contribution.

A “ Related Company ” means any corporation or business, other than an Employer, which would be aggregated with an Employer for a relevant purpose under Code Section 414.

A Participant’s “ Required Beginning Date ” means the following:

(a)	for a Participant who is not a “five percent owner”, April 1 of the calendar year following the calendar year in which occurs the later of the Participant’s (i) attainment of age 70 1/2 or (ii) Settlement Date.

(b)	for a Participant who is a “five percent owner”, April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2.

A Participant is a “five percent owner” if he is a five percent owner, as defined in Code Section 416(i) and determined in accordance with Code Section 416, but without regard to whether the Plan is top-heavy, for the Plan Year ending with or within the calendar year in which the

A “ Valuation Date ” means the date or dates designated by the Sponsor and communicated in writing to the Trustee for the purpose of valuing the General Fund and each Investment Fund and adjusting Accounts and Sub-Accounts hereunder, which dates need not be uniform with respect to the General Fund, each Investment Fund, Account, or Sub-Account; provided, however, that the General Fund and each Investment Fund shall be valued and each Account and Sub-Account shall be adjusted no less often than once annually.

The “ Vesting Service ” of an employee means the period or periods of service credited to him under the provisions of Article II for purposes of determining his vested interest in his Employer Contributions Sub-Account, if Employer Contributions are provided for under either Article VI or Article XXII.

1.2	Interpretation

Where required by the context, the noun, verb, adjective, and adverb forms of each defined term shall include any of its other forms. Wherever used herein, the masculine pronoun shall include the feminine, the singular shall include the plural, and the plural shall include the singular.

ARTICLE II SERVICE
2.1	Special Definitions

For purposes of this Article, the following terms have the following meanings.

A “ computation period ” for purposes of determining an employee’s years of Vesting Service means each Plan Year; provided, however, that if an employee first completed an Hour of Service prior to the effective date of the Plan, a Plan Year shall not mean any short Plan Year beginning on the effective date of the Plan, if any, but shall mean any 12-consecutive-month period beginning before the effective date of the Plan that would have been a Plan Year if the Plan had been in effect.

A “ maternity/paternity absence ” means a person’s absence from employment with an Employer or a Related Company because of the person’s pregnancy, the birth of the person’s child, the placement of a child with the person in connection with the person’s adoption of the child, or the caring for the person’s child immediately following the child’s birth or adoption. A person’s absence from employment will not be considered a maternity/paternity absence unless the person furnishes the Administrator such timely information as may reasonably be required to establish that the absence was for one of the purposes enumerated in this paragraph and to establish the number of days of absence attributable to such purpose.

2.2	Crediting of Hours of Service

A person shall be credited with an Hour of Service for:

(a)	Each hour for which he is paid, or entitled to payment, for the performance of duties for an Employer, a Predecessor Employer, or a Related Company during the applicable period; provided, however, that hours compensated at a premium rate shall be treated as straight-time hours.

(b)	Subject to the provisions of Section 2.3, each hour for which he is paid, or entitled to payment, by an Employer, a Predecessor Employer, or a Related Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty, or leave of absence.

(c)	Each hour for which he would have been scheduled to work for an Employer, a Predecessor Employer, or a Related Company during the period that he is absent from work because of service with the armed forces of the United States provided he is eligible for reemployment rights under the Uniformed Services Employment and Reemployment

	Rights Act of 1994 and returns to work with an Employer or a Related Company within the period during which he retains such reemployment rights; provided, however, that the same Hour of Service shall not be credited under paragraph (b) of this Section and under this paragraph (c).

(d)	Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by an Employer, a Predecessor Employer, or a Related Company; provided, however, that the same Hour of Service shall not be credited both under paragraph (a) or (b) or (c) of this Section, as the case may be, and under this paragraph (d); and provided, further, that the crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in such paragraph (b) shall be subject to the limitations set forth therein and in Section 2.3.

(e)	Solely for purposes of determining whether a person who is on a “maternity/paternity absence” has incurred a Break in Service for a “computation period”, Hours of Service shall include those hours with which such person would otherwise have been credited but for such “maternity/paternity absence”, or shall include eight Hours of Service for each day of “maternity/paternity absence” if the actual hours to be credited cannot be determined; except that not more than the minimum number of hours required to prevent a Break in Service shall be credited by reason of any “maternity/paternity absence”; provided, however, that any hours included as Hours of Service pursuant to this paragraph shall be credited to the “computation period” in which the absence from employment begins, if such person otherwise would incur a Break in Service in such “computation period”, or, in any other case, to the immediately following “computation period”.

(f)	Solely for purposes of determining whether he has incurred a Break in Service, each hour for which he would have been scheduled to work for an Employer, a Predecessor Employer, or a Related Company during the period of time that he is absent from work on an approved leave of absence pursuant to the Family and Medical Leave Act of 1993; provided, however, that Hours of Service shall not be credited to an employee under this paragraph if the employee fails to return to employment with an Employer or a Related Company following such leave.

For purposes of crediting Hours of Service hereunder, employment with a corporation or business prior to the date such corporation or business becomes a Related Company shall be treated as employment with a Related Company.

2.3	Limitations on Crediting of Hours of Service

In the application of the provisions of paragraph (b) of Section 2.2, the following shall apply:

(a)	An hour for which a person is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed shall not be credited to him if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers’ compensation, unemployment compensation, or disability insurance laws.

(b)	Hours of Service shall not be credited with respect to a payment which solely reimburses a person for medical or medically-related expenses incurred by him.

(c)	A payment shall be deemed to be made by or due from an Employer, a Predecessor Employer, or a Related Company (i) regardless of whether such payment is made by or due from such employer directly or indirectly, through (among others) a trust fund or insurer to which any such employer contributes or pays premiums, and (ii) regardless of whether contributions made or due to such trust fund, insurer, or other entity are for the benefit of particular persons or are on behalf of a group of persons in the aggregate.

(d)	No more than 501 Hours of Service shall be credited to a person on account of any single continuous period during which he performs no duties (whether or not such period occurs in a single “computation period”), unless no duties are performed due to service with the armed forces of the United States for which the person retains reemployment rights as provided in paragraph (c) of Section 2.2 or because of approved leaves of absence of up two years.

2.4	Department of Labor Rules

The rules set forth in paragraphs (b) and (c) of Department of Labor Regulations Section 2530.200b-2, which relate to determining Hours of Service attributable to reasons other than the performance of duties and crediting Hours of Service to particular periods, are hereby incorporated into the Plan by reference.

2.5	Eligibility Service

Because there are no Eligibility Service requirements to participate in the Plan, there shall be no Eligibility Service credited under the Plan.

2.6	Years of Vesting Service

An employee shall be credited with a year of Vesting Service for each “computation period” during which he completes at least 1,000 Hours of Service.

2.7	Crediting of Hours of Service with Respect to Short Computation Periods

The following provisions shall apply with respect to crediting Hours of Service with respect to any short “computation period”:

(a)	For purposes of this Article, the following terms have the following meanings:

	(i)	An “old computation period” means any “computation period” that ends immediately prior to a change in the “computation period”.

	(ii)	A “short computation period” means any “computation period” of fewer than 12 consecutive months.

(b)	Notwithstanding any other provision of the Plan to the contrary, no person shall incur a Break in Service for a short “computation period” solely because of such short “computation period”.

(c)	For purposes of determining the years of Vesting Service to be credited to an Employee, a “computation period” shall not include the “short computation period”, but if an Employee completes at least 1,000 Hours of Service in the 12-consecutive-month period beginning on the first day of the “short computation period”, such Employee shall be credited with a year of Vesting Service for such 12-consecutive-month period.

2.8	Crediting of Service on Transfer or Amendment

Notwithstanding any other provision of the Plan to the contrary, if an Employee is transferred from employment covered under a qualified plan maintained by an Employer or a Related Company for which service is credited based on elapsed time in accordance with Treasury Regulations Section 1.410(a)-7 to employment covered under the Plan or, prior to amendment, the Plan provided for crediting of service on the basis of elapsed time in accordance with Treasury Regulations Section 1.410(a)-7, an affected Employee shall be credited with Vesting Service hereunder as provided in Treasury Regulations Section 1.410(a)-7(f)(1).

2.9	Crediting of Service to Leased Employees

Notwithstanding any other provision of the Plan to the contrary, a “leased employee” working for an Employer or a Related Company (other than an “excludable leased employee”) shall be considered an employee of such Employer or Related Company for purposes of Vesting Service crediting under the Plan, but shall not be eligible to participate in the Plan. Such “leased employee” shall also be considered an employee of such Employer or Related Company for purposes of applying Code Sections 401(a)(3), (4), (7), and (16), and 408(k), 415, and 416.

ARTICLE III ELIGIBILITY

3.1	Eligibility

Each Employee who was an Eligible Employee immediately prior to July 1, 2002 shall continue to be an Eligible Employee on July 1, 2002. Each other Employee shall become an Eligible Employee as of the Enrollment Date coinciding with or next following the date on which he becomes an Employee.

Highly Compensated Employees shall not be permitted to participate in the Plan for the Plan Year following the Plan Year in which he is determined to be a Highly Compensated Employee.

3.2	Transfers of Employment

If a person is transferred directly from employment with an Employer or with a Related Company in a capacity other than as an Employee to employment as an Employee, he shall become an Eligible Employee as of the later of the date he is so transferred or the date he would have become an Eligible Employee if he had been an Employee for his entire period of employment with the Employer or Related Company.

3.3	Reemployment

If a person who terminated employment with an Employer and all Related Companies is reemployed as an Employee and if he had been an Eligible Employee prior to his termination of employment, he shall again become an Eligible Employee on the date he is reemployed. Otherwise, the eligibility of a person who terminated employment with an Employer and all Related Companies and who is reemployed by an Employer or a Related Company to participate in the Plan shall be determined in accordance with Section 3.1 or 3.2.

3.4	Notification Concerning New Eligible Employees

Each Employer shall notify the Administrator as soon as practicable of Employees becoming Eligible Employees as of any date.

3.5	Effect and Duration

Upon becoming an Eligible Employee, an Employee shall be entitled to make Tax-Deferred and After-Tax Contributions to the Plan in accordance with the provisions of Article IV and Article V and receive allocations of Employer Contributions in accordance with the provisions of Article VI (provided he meets any applicable requirements thereunder) and shall be bound by all the terms and conditions of the Plan and the Trust Agreement. A person shall continue as an

ARTICLE IV TAX-DEFERRED CONTRIBUTIONS

4.1	Tax-Deferred Contributions

Effective as of the date he becomes an Eligible Employee, each Eligible Employee may elect, in accordance with rules prescribed by the Administrator, to have Tax-Deferred Contributions made to the Plan on his behalf by his Employer as hereinafter provided. An Eligible Employee’s election shall include his authorization for his Employer to reduce his Compensation and to make Tax-Deferred Contributions on his behalf. An Eligible Employee who elects not to have Tax-Deferred Contributions made to the Plan as of the first Enrollment Date he becomes eligible to participate may change his election by amending his reduction authorization as prescribed in this Article.

Tax-Deferred Contributions on behalf of an Eligible Employee shall commence with the first payment of Compensation made on or after the date on which his election is effective.

4.2	Amount of Tax-Deferred Contributions

The amount of Tax-Deferred Contributions to be made to the Plan on behalf of an Eligible Employee by his Employer shall be an integral percentage of his Compensation of not less than one percent nor more than 18 percent. In the event an Eligible Employee elects to have his Employer make Tax-Deferred Contributions on his behalf, his Compensation shall be reduced for each payroll period by the percentage he elects to have contributed on his behalf to the Plan in accordance with the terms of his currently effective reduction authorization.

4.3	Combined Limit on Tax-Deferred and After-T ax Contributions

Notwithstanding any other provision of the Plan to the contrary, in no event may the Tax-Deferred Contributions made on behalf of an Eligible Employee for the Plan Year, when combined with the After-Tax Contributions made by the Eligible Employee for the Plan Year, exceed 18 percent of the Eligible Employee’s Compensation for the Plan Year.

4.4	Amendments to Reduction Authorization

An Eligible Employee may elect, in the manner prescribed by the Administrator, to change the amount of his future Compensation that his Employer contributes on his behalf as Tax-Deferred Contributions. An Eligible Employee may amend his reduction authorization at such time or times during the Plan Year as the Administrator may prescribe by giving such number of days advance notice of his election as the Administrator may prescribe. An Eligible Employee who amends his reduction authorization shall be limited to selecting an amount of his Compensation that is otherwise permitted under this Article IV. Tax-Deferred Contributions shall be made on

behalf of such Eligible Employee by his Employer pursuant to his properly amended reduction authorization commencing with Compensation paid to the Eligible Employee on or after the date such amendment is effective, until otherwise altered or terminated in accordance with the Plan.

4.5	Suspension of Tax-Deferred Contributions

An Eligible Employee on whose behalf Tax-Deferred Contributions are being made may elect, in the manner prescribed by the Administrator, to have such contributions suspended at any time by giving such number of days advance notice of his election as the Administrator may prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until Tax-Deferred Contributions are resumed as hereinafter set forth.

4.6	Resumption of Tax-Deferred Contributions

An Eligible Employee who has voluntarily suspended his Tax-Deferred Contributions may elect, in the manner prescribed by the Administrator, to have such contributions resumed. An Eligible Employee may make such election at such time or times during the Plan Year as the Administrator may prescribe, by giving such number of days advance notice of his election as the Administrator may prescribe.

4.7	Delivery of Tax-Deferred Contributions

As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets, each Employer shall cause to be delivered to the Trustee in cash all Tax-Deferred Contributions attributable to such amounts.

4.8	Vesting of Tax-Deferred Contributions

A Participant’s vested interest in his Tax-Deferred Contributions Sub-Account shall be at all times 100 percent.

ARTICLE V AFTER-TAX AND ROLLOVER CONTRIBUTIONS

5.1	After-Tax Contributions

An Eligible Employee may elect, in accordance with rules prescribed by the Administrator, to make After-Tax Contributions to the Plan. After-Tax Contributions shall be made by payroll withholding in accordance with the provisions of this Article V. An Eligible Employee’s election to make After-Tax Contributions may be made effective as of the Enrollment Date on which he becomes an Eligible Employee. An Eligible Employee who elects not to make After-Tax Contributions by payroll withholding as of the first Enrollment Date on which he is eligible may change his election by amending his payroll withholding authorization as prescribed in this Article

After-Tax Contributions by payroll withholding shall commence with the first payment of Compensation made on or after the date on which the Eligible Employee’s election is effective.

5.2	Amount of After-Tax Contributions by Pay roll Withholding

The amount of After-Tax Contributions made by an Eligible Employee by payroll withholding shall be an integral percentage of his Compensation of not less than one percent nor more than 18 percent.

5.3	Combined Limit on Tax-Deferred a nd After-Tax Contributions

Notwithstanding any other provision of the Plan to the contrary, in no event may the After-Tax Contributions made by an Eligible Employee for the Plan Year, when combined with the Tax-Deferred Contributions made on behalf of the Eligible Employee for the Plan Year, exceed 18 percent of the Eligible Employee’s Compensation for the Plan Year.

5.4	Amendments to Payroll Withholding Authorization

An Eligible Employee may elect, in the manner prescribed by the Administrator, to change the amount of his future Compensation that he contributes to the Plan as After-Tax Contributions by payroll withholding. An Eligible Employee may amend his payroll withholding authorization at such time or times during the Plan Year as the Administrator may prescribe by giving such number of days advance notice of his election as the Administrator may prescribe. An Eligible Employee who changes his payroll withholding authorization shall be limited to selecting an amount of his Compensation that is otherwise permitted under this Article V. After-Tax Contributions shall be made on behalf of such Eligible Employee pursuant to his properly amended payroll withholding authorization commencing with Compensation paid to the Eligible

Employee on or after the date such amendment is effective, until otherwise altered or terminated in accordance with the Plan.

5.5	Suspension of After-Tax Contributions by Payroll Withholding

An Eligible Employee who is making After-Tax Contributions by payroll withholding may elect, in the manner prescribed by the Administrator, to have such contributions suspended at any time by giving such number of days advance notice to his Employer as the Administrator may prescribe. Any such voluntary suspension shall take effect commencing with Compensation paid to such Eligible Employee on or after the expiration of the required notice period and shall remain in effect until After-Tax Contributions are resumed as hereinafter set forth.

5.6	Resumption of After-Tax Contr ibutions by Payroll Withholding

An Eligible Employee who has voluntarily suspended his After-Tax Contributions by payroll withholding in accordance with Section 5.5 may elect, in the manner prescribed by the Administrator, to have such contributions resumed. An Eligible Employee may make such election at such time or times as the Administrator may prescribe, by giving such number of days advance notice of his election as the Administrator may prescribe.

5.7	Delivery of After-Tax Contributions

As soon after the date an amount would otherwise be paid to an Employee as it can reasonably be separated from Employer assets, the Employer shall cause to be delivered to the Trustee in cash the After-Tax Contributions attributable to such amount.

5.8	Roll over Contributions

An Employee who was a participant in a plan qualified under Code Section 401 and who receives (or is eligible to receive) a cash distribution from such plan that he elects either (i) to roll over immediately to a qualified retirement plan or (ii) to roll over into a conduit IRA from which he receives a later cash distribution, may elect to make a Rollover Contribution to the Plan if he is entitled under Code Section 402(c) or 408(d)(3)(A) to roll over such distribution to another qualified retirement plan. The Administrator may require an Employee to provide it with such information as it deems necessary or desirable to show that he is entitled to roll over such distribution to another qualified retirement plan. An Employee shall make a Rollover Contribution to the Plan by delivering, or causing to be delivered, to the Trustee the cash that constitutes the Rollover Contribution amount. If the Employee received a cash distribution that he is rolling over, such delivery must be made within 60 days of receipt of the distribution from the plan or from the conduit IRA in the manner prescribed by the Administrator.

5.9	Vesting of After-Tax Contributions and Rollover Contributions

A Participant’s vested interest in his After-Tax Contributions Sub-Account and his Rollover Contributions Sub-Account shall be at all times 100 percent.

ARTICLE VI EMPLOYER CONTRIBUTIONS

6.1	Contribution Period

The Contribution Periods for Employer Contributions shall be as follows:

(a)	The Contribution Period for Matching Contributions under the Plan is each Plan Year.

(b)	The Contribution Period for Qualified Nonelective Contributions under the Plan is each Plan Year.

6.2	Qualified Nonelective Contributions

Each Employer may, in its discretion, make a Qualified Nonelective Contribution to the Plan for the Contribution Period in an amount determined by the Sponsor.

6.3	Allocation of Qualified Nonelective Contributions

Any Qualified Nonelective Contribution made for a Contribution Period shall be allocated among the Eligible Employees during the Contribution Period who have met the allocation requirements for Qualified Nonelective Contributions described in this Article, other than any such Eligible Employee who is a Highly Compensated Employee. The allocable share of each such Eligible Employee in the Qualified Nonelective Contribution shall be in the ratio which his Compensation from the Employer for the Plan Year bears to the aggregate of such Compensation for all such Eligible Employees.

6.4	Amount and Allocation of Matching Contributions

Each Employer shall make a Matching Contribution to the Plan for each Contribution Period on behalf of each of its Eligible Employees during the Contribution Period who has met the allocation requirements for Matching Contributions described in this Article. The amount of such Matching Contribution shall be equal to 50 percent of the aggregate Tax-Deferred Contributions and After-Tax Contributions made for the Contribution Period by or on behalf of such Eligible Employee.

6.5	Limit on Contributions Matched

Notwithstanding any other provision of this Article to the contrary, After-Tax Contributions and Tax-Deferred Contributions made to the Plan by or on behalf of an Eligible Employee for a Contribution Period that exceed $1,040 shall be excluded in determining the amount and allocation of Matching Contributions with respect to such Eligible Employee for the Contribution

Period. An Eligible Employee’s After-Tax Contributions and Tax-Deferred Contributions shall be aggregated for purposes of determining whether this limitation has been met.

6.6	Qualified Matching Contributions

An Employer may designate any portion or all of its Matching Contribution as a Qualified Matching Contribution. Amounts that are designated as Qualified Matching Contributions shall be accounted for separately and may be withdrawn only as permitted under the Plan.

6.7	Verification of Amount of Employer Contributions by the Sponsor

The Sponsor shall verify the amount of Employer Contributions to be made by each Employer in accordance with the provisions of the Plan. Notwithstanding any other provision of the Plan to the contrary, the Sponsor shall determine the portion of the Employer Contribution to be made by each Employer with respect to an Employee who transfers from employment with one Employer as an Employee to employment with another Employer as an Employee.

6.8	Payment of Employer Contributions

Employer Contributions made for a Contribution Period shall be paid in cash to the Trustee within the period of time required under the Code in order for the contribution to be deductible by the Employer in determining its Federal income taxes for the Plan Year.

6.9	Allocation Requirements f or Employer Contributions

A person who was an Eligible Employee at any time during a Contribution Period shall be eligible to receive an allocation of Matching Contributions for such Contribution Period.

A person who was an Eligible Employee at any time during a Contribution Period shall be eligible to receive an allocation of Qualified Nonelective Contributions for such Contribution Period.

6.10	Vesting of Employer Contributions

A Participant’s vested interest in his Qualified Nonelective and Qualified Matching Contributions Sub-Accounts shall be at all times 100 percent.

With respect to Participants hired on or after January 1, 2002, a Participant’s vested interest in his Regular Matching Contributions Sub-Account shall be determined in accordance with the following schedule:

Years of Vesting Service		Vested Interest

Less than 1		0%
1, but less than 2		20%
2, but less than 3		40%
3, but less than 4		60%
4, but less than 5		80%
5 or more		100%

Years of Vesting Service		Vested Interest

Less than 3		0%
3, but less than 4		30%
4, but less than 5		40%
5, but less than 6		60%
6, but less than 7		80%
7 or more		100%

Notwithstanding the foregoing, if a Participant is employed by an Employer or a Related Company on his Normal Retirement Date, the date he becomes Disabled, or the date he dies, his vested interest in his Regular Matching Contributions Sub-Account shall be 100 percent.

6.11	Election of Former Vesting Schedule

If the Sponsor adopts an amendment to the Plan that directly or indirectly affects the computation of a Participant’s vested interest in his Employer Contributions Sub-Account, any Participant with three or more years of Vesting Service shall have a right to have his vested interest in his Employer Contributions Sub-Account continue to be determined under the vesting provisions in effect prior to the amendment rather than under the new vesting provisions, unless the vested interest of the Participant in his Employer Contributions Sub-Account under the Plan as amended is not at any time less than such vested interest determined without regard to the amendment. A

Participant shall exercise his right under this Section by giving written notice of his exercise thereof to the Administrator within 60 days after the latest of (i) the date he receives notice of the amendment from the Administrator, (ii) the effective date of the amendment, or (iii) the date the amendment is adopted. Notwithstanding the foregoing, a Participant’s vested interest in his Employer Contributions Sub-Account on the effective date of such an amendment shall not be less than his vested interest in his Employer Contributions Sub-Account immediately prior to the effective date of the amendment.

6.12	Forfeitures to Reduce Employer Contributions

Notwithstanding any other provision of the Plan to the contrary, the amount of the Employer Contribution required under this Article for a Plan Year shall be reduced by the amount of any forfeitures occurring during the Plan Year or any prior Plan Year that are applied against Employer Contributions as provided in Article XIV.

ARTICLE VII LIMITATIONS ON CONTRIBUTIONS

7.1	Definitions

For purposes of this Article, the following terms have the following meanings:

The “ annual addition ” with respect to a Participant for a “limitation year” means the sum of the Tax-Deferred Contributions, After-Tax Contributions, and Employer Contributions allocated to his Account for the “limitation year” (including any “excess contributions” that are distributed pursuant to this Article), the employer contributions, “employee contributions”, and forfeitures allocated to his accounts for the “limitation year” under any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and amounts described in Code Sections 415(l)(2) and 419A(d)(2) allocated to his account for the “limitation year”.

An “ elective contribution ” means any employer contribution made to a plan maintained by an Employer or a Related Company on behalf of a Participant in lieu of cash compensation pursuant to his written election to defer under any qualified CODA as described in Code Section 401(k), any simplified employee pension cash or deferred arrangement as described in Code Section 402(h)(1)(B), any eligible deferred compensation plan under Code Section 457, or any plan as described in Code Section 501(c)(18), and any contribution made on behalf of the Participant by an Employer or a Related Company for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement.

An “ employee contribution ” means any employee after-tax contribution allocated to an Eligible Employee’s account under any qualified plan of an Employer or a Related Company.

An “ excess contribution ” means any contribution made to the Plan by or on behalf of a Participant that exceeds one of the limitations described in this Article.

An “ excess deferral ” with respect to a Participant means that portion of a Participant’s Tax-Deferred Contributions for his taxable year that, when added to amounts deferred for such taxable year under other plans or arrangements described in Code Section 401(k), 408(k), or 403(b) (other than any such plan or arrangement that is maintained by an Employer or a Related Company), would exceed the dollar limit imposed under Code Section 402(g) as in effect on January 1 of the calendar year in which such taxable year begins and is includible in the Participant’s gross income under Code Section 402(g).

A “ limitation year ” means the calendar year.

7.2	Code Section 402(g) Limit

In no event shall the amount of the Tax-Deferred Contributions made on behalf of an Eligible Employee for his taxable year, when aggregated with any “elective contributions” made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company for his taxable year, exceed the dollar limit imposed under Code Section 402(g), as in effect on January 1 of the calendar year in which such taxable year begins. In the event that the Administrator determines that the reduction percentage elected by an Eligible Employee will result in his exceeding the Code Section 402(g) limit, the Administrator may adjust the reduction authorization of such Eligible Employee by reducing the percentage of his Tax-Deferred Contributions to such smaller percentage that will result in the Code Section 402(g) limit not being exceeded. If the Administrator determines that the Tax-Deferred Contributions made on behalf of an Eligible Employee would exceed the Code Section 402(g) limit for his taxable year, the Tax-Deferred Contributions for such Participant shall be automatically suspended for the remainder, if any, of such taxable year.

If an Employer notifies the Administrator that the Code Section 402(g) limit has nevertheless been exceeded by an Eligible Employee for his taxable year, the Tax-Deferred Contributions that, when aggregated with “elective contributions” made on behalf of the Eligible Employee under any other plan of an Employer or a Related Company, would exceed the Code Section 402(g) limit, plus any income and minus any losses attributable thereto, shall be distributed to the Eligible Employee no later than the April 15 immediately following such taxable year.

If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, Matching Contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant no earlier than the date on which distribution of Tax-Deferred Contributions pursuant to this Section occurs and no later than the last day of the Plan Year following the Plan Year for which the Matching Contributions were made.

7.3	Distribution of Excess Deferrals

Notwithstanding any other provision of the Plan to the contrary, if a Participant notifies the Administrator in writing no later than the March 1 following the close of the Participant’s taxable year that “excess deferrals” have been made on his behalf under the Plan for such taxable year, the “excess deferrals”, plus any income and minus any losses attributable thereto, shall be distributed to the Participant no later than the April 15 immediately following such taxable year. If an amount of Tax-Deferred Contributions is distributed to a Participant in accordance with this Section, Matching Contributions that are attributable solely to the distributed Tax-Deferred Contributions, plus any income and minus any losses attributable thereto, shall be forfeited by the Participant no earlier than the date on which distribution of Tax-Deferred Contributions pursuant to this Section occurs and no later than the last day of the Plan Year following the Plan Year for which the Matching Contributions were made.

7.4	Code Section 415 Limitations on Crediting of Contributions and Forfeitures

Notwithstanding any other provision of the Plan to the contrary, the “annual addition” with respect to a Participant for a “limitation year” shall in no event exceed the lesser of (i) $30,000 (adjusted as provided in Code Section 415(d)) or (ii) 25 percent of the Participant’s compensation, as defined in Code Section 415(c)(3) and regulations issued thereunder, for the “limitation year”; provided, however, that the limit in clause (i) shall be pro-rated for any short “limitation year”. If the “annual addition” to the Account of a Participant in any “limitation year” would otherwise exceed the amount that may be applied for his benefit under the limitation contained in this Section, the limitation shall be satisfied by reducing contributions made to the Participant’s Account to the extent necessary in the following order:

	After-Tax Contributions made by the Participant for the “limitation year” that have not been matched, if any, shall be reduced.

	After-Tax Contributions made by the Participant for the “limitation year” that have been matched, if any, and the Matching Contributions attributable thereto shall be reduced pro rata.

	Tax-Deferred Contributions made on behalf of the Participant for the “limitation year” that have not been matched, if any, shall be reduced.

	Tax-Deferred Contributions made on behalf of the Participant for the “limitation year” that have been matched, if any, and the Matching Contributions attributable thereto shall be reduced pro rata.

	Qualified Nonelective Contributions otherwise allocable to the Participant’s Account for the “limitation year”, if any, shall be reduced.

The amount of any reduction of Tax-Deferred or After-Tax Contributions (plus any income attributable thereto) shall be returned to the Participant. The amount of any reduction of Employer Contributions shall be deemed a forfeiture for the “limitation year”.

Amounts deemed to be forfeitures under this Section shall be held unallocated in a suspense account established for the “limitation year” and shall be applied against the Employer’s contribution obligation for the next following “limitation year” (and succeeding “limitation years”, as necessary). If a suspense account is in existence at any time during a “limitation year”, all amounts in the suspense account must be applied against the Employer’s contribution obligation before any further contributions that would constitute “annual additions” may be made to the Plan. No suspense account established hereunder shall share in any increase or decrease in the net worth of the Trust.

For purposes of this Article, excesses shall result only from the allocation of forfeitures, a reasonable error in estimating a Participant’s annual compensation (as defined in Code Section 415(c)(3) and regulations issued thereunder), a reasonable error in determining the amount of “elective contributions” that may be made with respect to any Participant under the limits of Code Section 415, or other limited facts and circumstances that justify the availability of the provisions set forth above.

7.5	Application of Code Section 415 Limitations Where Participant is Covered Under Other Qualified Defined Contribution Plan

If a Participant is covered by any other qualified defined contribution plan (whether or not terminated) maintained by an Employer or a Related Company concurrently with the Plan, and if the “annual addition” for the “limitation year” would otherwise exceed the amount that may be applied for the Participant’s benefit under the limitation contained in the preceding Section, such excess shall be reduced first by returning or forfeiting, as provided under the applicable defined contribution plan, the contributions last allocated to the Participant’s accounts for the “limitation year” under all such defined contribution plans, and, to the extent such contributions are returned to the Participant, the income attributable thereto. If contributions are allocated to the defined contribution plans as of the same date, any excess shall be allocated pro rata among the defined contribution plans. For purposes of determining the order of reduction hereunder, contributions to a simplified employee pension plan described in Code Section 408(k) shall be deemed to have been allocated first and contributions to a welfare benefit fund or individual medical account shall be deemed to have been allocated next, regardless of the date such contributions were actually allocated.

7.6	Scope of Limitations

The Code Section 415 limitations contained in the preceding Sections shall be applicable only with respect to benefits provided pursuant to defined contribution plans and defined benefit plans described in Code Section 415(k). For purposes of applying the Code Section 415 limitations contained in the preceding Sections, the term “Related Company” shall be adjusted as provided in Code Section 415(h).

ARTICLE VIII TRUST FUNDS AND ACCOUNTS

8.1	General Fund

The Trustee shall maintain a General Fund as required to hold and administer any assets of the Trust that are not allocated among the Investment Funds as provided in the Plan or the Trust Agreement. The General Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in the General Fund shall be an undivided interest.

8.2	Investment Funds

The Sponsor shall determine the number and type of Investment Funds and shall communicate the same and any changes therein in writing to the Administrator and the Trustee. Each Investment Fund shall be held and administered as a separate common trust fund. The interest of each Participant or Beneficiary under the Plan in any Investment Fund shall be an undivided interest.

8.3	Loan Investment Fund

If a loan from the Plan to a Participant is approved in accordance with the provisions of Article XII, the Sponsor shall direct the establishment and maintenance of a loan Investment Fund in the Participant’s name. The assets of the loan Investment Fund shall be held as a separate trust fund. A Participant’s loan Investment Fund shall be invested in the note(s) reflecting the loan(s) made to the Participant in accordance with the provisions of Article XII. Notwithstanding any other provision of the Plan to the contrary, income received with respect to a Participant’s loan Investment Fund shall be allocated and the loan Investment Fund shall be administered as provided in Article XII.

8.4	Income on Trust

Any dividends, interest, distributions, or other income received by the Trustee with respect to any Trust Fund maintained hereunder shall be allocated by the Trustee to the Trust Fund for which the income was received.

8.5	Accounts

As of the first date a contribution is made by or on behalf of an Employee there shall be established an Account in his name reflecting his interest in the Trust. Each Account shall be maintained and administered for each Participant and Beneficiary in accordance with the

provisions of the Plan. The balance of each Account shall be the balance of the account after all credits and charges thereto, for and as of such date, have been made as provided herein.

8.6	Sub-Accounts

A Participant’s Account shall be divided into such separate, individual Sub-Accounts as are necessary or appropriate to reflect the Participant’s interest in the Trust.

ARTICLE IX LIFE INSURANCE CONTRACTS

9.1	No Life Ins urance Contracts

A Participant’s Account may not be invested in life insurance contracts on the life of the Participant.

ARTICLE X DEPOSIT AND INVESTMENT OF CONTRIBUTIONS

10.1	Future Contribution Investment Elections

Each Eligible Employee shall make an investment election in the manner and form prescribed by the Administrator directing the manner in which the contributions made on his behalf shall be invested. An Eligible Employee’s investment election shall specify the percentage, in the percentage increments prescribed by the Administrator, of such contributions that shall be allocated to one or more of the Investment Funds with the sum of such percentages equaling 100 percent. The investment election by a Participant shall remain in effect until his entire interest under the Plan is distributed or forfeited in accordance with the provisions of the Plan or until he records a change of investment election with the Administrator, in such form as the Administrator shall prescribe. If recorded in accordance with any rules prescribed by the Administrator, a Participant’s change of investment election may be implemented effective as of the business day on which the Administrator receives the Participant’s instructions.

10.2	Deposit of Contrib utions

All contributions made on a Participant’s behalf shall be deposited in the Trust and allocated among the Investment Funds in accordance with the Participant’s currently effective investment election. If no investment election is recorded with the Administrator at the time contributions are to be deposited to a Participant’s Account, his contributions shall be allocated among the Investment Funds as directed by the Administrator.

10.3	Election to Transfer Between Funds

A Participant may elect to transfer investments from any Investment Fund to any other Investment Fund. The Participant’s transfer election shall specify a percentage, in the percentage increments prescribed by the Administrator, of the amount eligible for transfer that is to be transferred, which percentage may not exceed 100 percent. Any transfer election must be recorded with the Administrator, in such form as the Administrator shall prescribe. Subject to any restrictions pertaining to a particular Investment Fund, if recorded in accordance with any rules prescribed by the Administrator, a Participant’s transfer election may be implemented effective as of the business day on which the Administrator receives the Participant’s instructions.

10.4	404(c) Protection

The Plan is intended to constitute a plan described in ERISA Section 404(c) and regulations issued thereunder. The fiduciaries of the Plan may be relieved of liability for any losses that are the direct and necessary result of investment instructions given by a Participant, his Beneficiary, or an alternate payee under a qualified domestic relations order.

ARTICLE XI CREDITING AND VALUING ACCOUNTS

11.1	Crediting Accounts

All contributions made under the provisions of the Plan shall be credited to Accounts in the Trust Funds by the Trustee, in accordance with procedures established in writing by the Administrator, either when received or on the succeeding Valuation Date after valuation of the Trust Fund has been completed for such Valuation Date as provided in Section 11.2, as shall be determined by the Administrator.

11.2	Valuing Accounts

Accounts in the Trust Funds shall be valued by the Trustee on the Valuation Date, in accordance with procedures established in writing by the Administrator, either in the manner adopted by the Trustee and approved by the Administrator or in the manner set forth in Section 11.3 as Plan valuation procedures, as determined by the Administrator.

11.3	Plan Valuation Procedures

With respect to the Trust Funds, the Administrator may determine that the following valuation procedures shall be applied. As of each Valuation Date hereunder, the portion of any Accounts in a Trust Fund shall be adjusted to reflect any increase or decrease in the value of the Trust Fund for the period of time occurring since the immediately preceding Valuation Date for the Trust Fund (the “valuation period”) in the following manner:

(a)	First, the value of the Trust Fund shall be determined by valuing all of the assets of the Trust Fund at fair market value.

(b)	Next, the net increase or decrease in the value of the Trust Fund attributable to net income and all profits and losses, realized and unrealized, during the valuation period shall be determined on the basis of the valuation under paragraph (a) taking into account appropriate adjustments for contributions, loan payments, and transfers to and distributions, withdrawals, loans, and transfers from such Trust Fund during the valuation period.

(c)	Finally, the net increase or decrease in the value of the Trust Fund shall be allocated among Accounts in the Trust Fund in the ratio of the balance of the portion of such Account in the Trust Fund as of the preceding Valuation Date less any distributions, withdrawals, loans, and transfers from such Account balance in the Trust Fund since the Valuation Date to the aggregate balances of the portions of all Accounts in the Trust Fund similarly adjusted, and each Account in the Trust Fund shall be credited or charged with