FIESTA RESTAURANT GROUP, INC., 10-Q filed on 8/15/2012
Quarterly Report
Document and Entity Information
6 Months Ended
Jul. 1, 2012
Aug. 8, 2012
Document And Entity Information [Abstract]
 
 
Entity Registrant Name
FIESTA RESTAURANT GROUP, INC. 
 
Entity Central Index Key
0001534992 
 
Current Fiscal Year End Date
--12-30 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jul. 01, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
23,517,654 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Jul. 1, 2012
Jan. 1, 2012
Current assets:
 
 
Cash
$ 2,733 
$ 13,670 
Trade receivables
6,202 
4,842 
Inventories
2,124 
2,264 
Prepaid rent
2,331 
2,397 
Prepaid expenses and other current assets
2,685 
2,660 
Deferred income taxes
1,830 
1,776 
Total current assets
17,905 
27,609 
Property and equipment, net
120,672 
195,122 
Goodwill
123,484 
123,484 
Intangible assets, net
243 
301 
Deferred income taxes
14,369 
11,659 
Deferred financing costs, net
6,397 
6,908 
Other assets
2,891 
5,083 
Total assets
285,961 
370,166 
Current liabilities:
 
 
Current portion of long-term debt (Note 7)
61 
59 
Due to related party (Note 6)
1,511 
Accounts payable
6,124 
7,515 
Accrued interest
6,660 
7,152 
Accrued income taxes
372 
Accrued payroll, related taxes and benefits
11,047 
12,154 
Accrued real estate taxes
2,887 
3,197 
Other liabilities
5,454 
5,085 
Total current liabilities
32,605 
36,673 
Long-term debt, net of current portion (Note 7)
200,918 
200,949 
Lease financing obligations (Note 8)
3,025 
123,019 
Deferred income--sale-leaseback of real estate
35,622 
4,055 
Other liabilities (Note 5)
11,232 
10,142 
Total liabilities
283,402 
374,838 
Commitments and contingencies (Note 11)
   
   
Stockholder's equity (deficit):
 
 
Common stock, par value $.01; authorized 100,000,000 shares, issued 23,161,822 shares and outstanding 22,727,422 shares
227 
227 
Additional paid-in capital
8,520 
3,345 
Retained earnings (deficit) (Note 5)
(6,188)
(8,244)
Total stockholder's equity (deficit)
2,559 
(4,672)
Total liabilities and stockholder's equity (deficit)
$ 285,961 
$ 370,166 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Jul. 1, 2012
Jan. 1, 2012
Statement of Financial Position [Abstract]
 
 
Common stock, par value
$ 0.01 
$ 0 
Common stock, shares authorized
100,000,000 
Common stock, shares issued
23,161,822 
Common stock, shares outstanding
22,727,422 
Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Jul. 1, 2012
Jul. 3, 2011
Revenues:
 
 
 
 
Restaurant sales
$ 128,208 
$ 120,748 
$ 253,774 
$ 235,999 
Franchise royalty revenues and fees
625 
501 
1,201 
866 
Total revenues
128,833 
121,249 
254,975 
236,865 
Costs and expenses:
 
 
 
 
Cost of sales
41,301 
39,675 
82,085 
76,019 
Restaurant wages and related expenses (including stock-based compensation expense of $4 and $5, respectively)
34,136 
32,769 
67,961 
64,402 
Restaurant rent expense
5,422 
4,232 
9,389 
8,292 
Other restaurant operating expenses
16,241 
15,744 
32,070 
30,487 
Advertising expense
4,023 
3,774 
8,318 
7,893 
General and administrative (including stock-based compensation expense of $1,046 and $411, respectively)
10,522 
9,052 
21,602 
17,973 
Depreciation and amortization
4,377 
4,949 
9,217 
9,746 
Impairment and Other Lease Charges
(39)
820 
6,861 
1,084 
Total operating expenses
115,983 
111,015 
237,503 
215,896 
Income from operations
12,850 
10,234 
17,472 
20,969 
Interest Expense
6,329 
4,842 
14,298 
9,687 
Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Extraordinary Items, Noncontrolling Interest
6,521 
5,392 
3,174 
11,282 
Provision for income taxes
2,600 
1,757 
1,118 
4,033 
Net income
$ 3,921 
$ 3,635 
$ 2,056 
$ 7,249 
Basic and diluted net income (loss) per share
$ 0.17 
$ 0.16 
$ 0.09 
$ 0.31 
Weighted Average Common Shares Outstanding, Basic and Diluted
22,902,944 
23,161,822 
23,032,383 
23,161,822 
Consolidated Statements of Operations (Unaudited) (Parenthetical) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Jul. 1, 2012
Jul. 3, 2011
Stock-based Compensation
$ 173 
$ 443 
$ 1,223 
$ 859 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Cash flows provided from (used for) operating activities:
 
 
Net income
$ 2,056 
$ 7,249 
Adjustments to reconcile net income (loss) to net cash provided from (used for) operating activities:
 
 
Loss on disposals of property and equipment
132 
153 
Allocated Share-based Compensation Expense
1,021 
859 
Impairment and Other Lease Charges
6,861 
1,084 
Loss on settlement of lease financing obligations
120 
Depreciation and amortization
9,217 
9,746 
Amortization of deferred financing costs
841 
121 
Amortization of deferred gains from sale-leaseback transactions
661 
132 
Accretion of interest on lease financing obligations
218 
24 
Deferred income taxes
(2,764)
531 
Changes in other operating assets and liabilities:
5,188 
(548)
Net cash provided from (used for) operating activities
11,853 
20,183 
Capital expenditures:
 
 
New restaurant development
(10,426)
(7,124)
Restaurant remodeling
(2,977)
(2,241)
Other restaurant capital expenditures
(3,491)
(2,232)
Corporate and restaurant information systems
(530)
(405)
Total capital expenditures
(17,424)
(12,002)
Properties purchased for sale-leaseback
(2,082)
Proceeds from sale-leaseback transactions
5,012 
Net cash used for investing activities
(19,506)
(6,990)
Cash flows provided by (used for) financing activities:
 
 
Payments to parent company, net
500 
(10,995)
Capital contribution from parent company
2,500 
Principal payments on capital leases
(29)
(27)
Deferred financing costs
(208)
(697)
Settlement of lease financing obligations
(6,047)
Proceeds from lease financing obligations
1,736 
Financing costs associated with issuance of lease financing obligations
(89)
Net cash provided by (used for) financing activities
(3,284)
(10,072)
Net increase (decrease) in cash
(10,937)
3,121 
Cash, beginning of period
13,670 
2,583 
Cash, end of period
2,733 
5,704 
Supplemental disclosures:
 
 
Interest paid on long-term debt
9,654 
Interest paid on lease financing obligations
4,025 
5,610 
Accruals for capital expenditures
732 
432 
Income tax payments, net
2,171 
Lease Financing Obligations, Reduction in Period
 
Assets Subject to Lease Financing, Reduction in Period
 
$ 0 
Basis of Presentation
Basis of Presentation
Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and Pollo Franchise, Inc., (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the “Company”. At July 1, 2012, Fiesta operated 89 Pollo Tropical® restaurants, of which 87 were located in Florida and two were located in Georgia, and franchised a total of 35 Pollo Tropical restaurants, 21 in Puerto Rico, two in Ecuador, one in Honduras, one in the Bahamas, one in Trinidad, three in Venezuela, two in Costa Rica, one in Panama and three on college campuses in Florida. At July 1, 2012, the Company also owned and operated 158 Taco Cabana® restaurants located primarily in Texas and franchised two Taco Cabana restaurants in New Mexico, two in Texas and one in Georgia.
Spin-Off from Carrols Restaurant Group, Inc. On May 7, 2012, Carrols Restaurant Group, Inc. ("Carrols Restaurant Group" or "Carrols") completed the spin-off of Fiesta into an independent public company, through the distribution of all of the outstanding shares of Fiesta Restaurant Group's common stock to the stockholders of Carrols Restaurant Group (the "Spin-off"). As a result of the Spin-off, Fiesta Restaurant Group is now an independent company whose common stock is traded on The NASDAQ Global Select Market under the symbol “FRGI.”
The Company filed with the Securities and Exchange Commission (the “SEC”) a Form 10 registration statement, File No. 001-35373, as amended (the “Registration Statement”), which includes as an exhibit thereto an information statement which describes the Spin-off. This Registration Statement, which registered the Company’s common stock under the Securities Exchange Act of 1934, as amended, was declared effective by the SEC on April 25, 2012.
In connection with the Spin-off, Fiesta and Carrols entered into several agreements that govern Carrols' post spin-off relationship with Fiesta, including a Separation and Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement and Transition Services Agreement ("TSA"). See Note 6—Related Party Transactions.
Basis of Consolidation. The unaudited consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. The consolidated financial statements have been prepared as if the Company was in existence for all periods presented. All intercompany transactions have been eliminated in consolidation.
Through the date of the Spin-off, these unaudited consolidated financial statements have been prepared on a stand-alone basis from the separate records maintained by Carrols and may not necessarily be indicative of the results of operations or cash flows that would have resulted had allocations and other related-party transactions been consummated with unrelated parties or had the Company been an independent, publicly traded company during all of the periods presented. The interim consolidated financial statements reflect the historical financial position, results of operations and cash flows of Fiesta as it has historically operated, in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"). All intercompany transactions have been eliminated in consolidation.
In connection with the Spin-off of the Company to the stockholders of Carrols, the board of directors of the Company authorized a 23,161.8 for one split of its outstanding common stock that was effective on April 19, 2012. Accordingly, all references to share and per share amounts related to common stock included in the consolidated financial statements and accompanying notes have been adjusted to reflect the stock split and change in the number of authorized shares. The stock split has been retroactively applied to the Company’s financial statements.
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 1, 2012 contained 52 weeks. The three and six months ended July 1, 2012 and July 3, 2011 contained thirteen and twenty-six weeks, respectively.

Basis of Presentation. The accompanying unaudited consolidated financial statements for the three and six months ended July 1, 2012 and July 3, 2011 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and the footnotes required by GAAP for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended July 1, 2012 and July 3, 2011 are not necessarily indicative of the results to be expected for the full year.
These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 1, 2012 included in the Registration Statement. The January 1, 2012 balance sheet data is derived from those audited financial statements.
Allocations. Through the date of the consummation of the Spin-off, Carrols provided administrative support to the Company for executive management, information systems and certain accounting, legal and other administrative functions. The cost of these services were allocated to the Company based primarily on a pro-rata share of either the Company’s revenues, number of restaurants or number of employees. The allocations may not reflect the expense the Company would have incurred as an independent, publicly traded company for the periods presented. Following the Spin-off, certain of these functions continue to be provided by Carrols under the TSA and the Company is performing certain functions using its own resources or purchased services from third parties. Refer to Note 6—Related Party Transactions for further discussion related to agreements entered into effective as of the Spin-off.
The unaudited consolidated financial statements for the three and six months ended July 3, 2011 also reflect interest expense allocated by Carrols to the Company. Effective with the refinancing discussed in Note 7, on August 5, 2011 the Company secured its own financing and interest allocations from Carrols ceased. Management believes that its allocations are reasonable and based on a systematic and rational method; however, they are not necessarily indicative of the actual financial results of the Company, including such expenses that would have been incurred by the Company had it been operating as a separate, stand-alone entity for the periods presented. As a stand-alone entity, the Company expects to incur expenses that may not be comparable in future periods to what is presented for the historical periods presented in the consolidated financial statements. Consequently, the financial information herein may not reflect the financial position, results of operations and cash flows of the Company in the future or if the Company had been an independent stand-alone entity during the periods presented. In our opinion, the consolidated financial statements include all adjustments necessary for a fair presentation of the businesses.
 Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values of cash and accrued liabilities approximate fair value because of the short maturity of those instruments, which are considered Level 1.
Senior Secured Second Lien Notes. The fair value of outstanding senior secured second lien notes is based on recent trading values, which are considered Level 2, and at July 1, 2012, was approximately $210.0 million.
Revolving Credit Facility. There were no outstanding borrowings under the Company’s revolving credit facility at July 1, 2012. Market values for any borrowings would be considered Level 3.
See Note 3 for discussion of the fair value measurement of non-financial assets.
Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: allocations of Carrols' general and administrative expenses and interest expense on amounts due to Carrols, accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
Subsequent Events. The Company reviewed and evaluated subsequent events through the issuance date of the Company’s financial statements.
Stock-based Compensation
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Prior to the Spin-off, certain of the Company's employees participated in the Carrols Restaurant Group, Inc. 2006 Stock Incentive Plan, as amended (the "Carrols Plan"). In conjunction with the Spin-off, the Company established the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan") in order to be able to compensate its employees and directors by issuing stock options, stock appreciation rights, or stock awards to them under this plan. For the period from May 7, 2012 through July 1, 2012, the Statement of Operations includes expenses related to the Company's employees' and directors' participation in both the Carrols Plan and the Fiesta Plan. For the period from January 1, 2012 through the Spin-off, and the three and six months ended July 3, 2011, the Statement of Operations includes expenses related to the Company's employees' and directors' participation in the Carrols Plan.

Effective as of the completion of the Spin-off, all holders of Carrols unvested stock on April 26, 2012, the record date of the Spin-off, received one share of Fiesta Restaurant Group unvested stock for every one share of Carrols unvested stock held, with terms and conditions substantially similar to the terms and conditions applicable to the Carrols unvested stock. Future stock compensation expense on all unvested Carrols or Fiesta stock awards held by Fiesta employees will be recorded by the Company.
On June 8, 2012, the Company’s Chief Executive Officer was granted 165,563 shares of unvested Fiesta common stock with an aggregate value of $2.0 million. The number of shares granted was based upon the average trading price of Fiesta common stock for the first four weeks the shares commenced trading publicly. These unvested shares of Fiesta common stock vest over four years at the rate of 25% per annum beginning on the first anniversary of the date of grant and are subject to the Fiesta Plan.

Stock-based compensation expense for the three and six months ended July 1, 2012 was $0.2 million and $1.2 million, which included $0.4 million of expense related to the accelerated vesting of the unvested shares of the former Chairman of the Company's board of directors upon his departure from the Company's board of directors in the first quarter of 2012. As of July 1, 2012, the total non-vested stock-based compensation expense relating to non-vested shares was approximately $2.9 million. The Company currently anticipates recording an additional $0.8 million as compensation expense in the remainder of 2012. At July 1, 2012, the remaining weighted average vesting period for non-vested shares was 2.6 years.
 
 Non-vested Shares
 
A summary of all non-vested shares activity for the six months ended July 1, 2012 was as follows:
 
 
 
 
Weighted
 
 
 
Average
 
 
 
Grant Date
 
Shares
 
Price
Nonvested at January 1, 2012

 
$

Dividend from Spin-Off
434,397

 
11.10

Granted
199,002

 
12.71

Vested
(14,592
)
 
11.10

Forfeited
(7,424
)
 
11.10

 
 

 
 
Nonvested at July 1, 2012
611,383

 
$
11.62

Goodwill
Goodwill and Intangible Assets Disclosure [Text Block]
Goodwill
The Company is required to review goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of January 1 and has determined its reporting units to be at the brand level for Pollo Tropical and Taco Cabana. The Company does not believe circumstances have changed since the last assessment date which would make it necessary to reassess their values.
There have been no changes in goodwill or goodwill impairment losses recorded during the six months ended July 1, 2012 or the year ended January 1, 2012. Goodwill balances are summarized below:
 
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, July 1, 2012
$
56,307

 
$
67,177

 
$
123,484

Impairment of Long-Lived Assets and Other Lease Charges
Impairment of Long Lived Assets and Other Lease Charges [Text Block]
Impairment of Long-Lived Assets and Other Lease Charges
The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions and the Company’s history of using these assets in the operation of its business. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during six months ended July 1, 2012 totaled $0.3 million.
Impairment on long-lived assets for the Company’s segments and other lease charges (recoveries) recorded were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Pollo Tropical
$
(42
)
 
$
364

 
$
5,837

 
$
636

Taco Cabana
3

 
456

 
1,024

 
448

 
$
(39
)
 
$
820

 
$
6,861

 
$
1,084


During the six months ended July 1, 2012, the Company recorded other lease charges of $1.8 million and impairment charges of $4.1 million associated with the closure of the Company’s five Pollo Tropical restaurants in New Jersey in the first quarter of 2012. The Company also recorded an impairment charge of $1.0 million related to two Taco Cabana restaurants.
During the three months ended July 3, 2011, the Company recorded other lease charges of $0.8 million which consisted primarily of $0.4 million for two previously closed Pollo Tropical restaurants, $0.3 million for a previously impaired Taco Cabana restaurant that was closed in the second quarter and $0.2 million for two previously closed Taco Cabana restaurant properties.
Other Liabilities, Long-Term
Other Liabilities, Long-Term
Other Liabilities, Long-Term
Other liabilities, long-term, consisted of the following:
 
 
July 1, 2012
 
January 1, 2012
Accrued occupancy costs
$
8,194

 
$
7,459

Accrued workers’ compensation and general liability claims
1,434

 
1,251

Deferred compensation
796

 
710

Other
808

 
722

 
$
11,232

 
$
10,142


Accrued occupancy costs include obligations pertaining to closed restaurant locations, contingent rent and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-store reserve, of which $1.9 million and $1.1 million are included in long-term accrued occupancy costs above at July 1, 2012 and January 1, 2012, respectively, with the remainder in other current liabilities:
 
 
Six Months Ended
July 1, 2012
 
Year Ended January 1, 2012
Balance, beginning of period
$
2,246

 
$
1,665

Provisions for restaurant closures
1,796

 
800

Accruals (recoveries) for additional lease charges
(106
)
 
649

Payments, net
(792
)
 
(1,021
)
Other adjustments
136

 
153

Balance, end of period
$
3,280

 
$
2,246

Related Party Transactions
Related Party Transactions Disclosure [Text Block]
6. Former Related Party Transactions
Effective upon the completion of the Spin-off, Fiesta Restaurant Group ceased to be a related party of Carrols.
Prior to the date of the Spin-off, the Company's expenses included allocations from Carrols of costs associated with administrative support functions which included executive management, information systems, finance, legal, accounting, internal audit and human resources and certain other administrative functions. During the three and six months ended July 1, 2012 and July 3, 2011, the Company's allocated administrative expenses from Carrols were $0.9 million and $4.2 million for the three and six months ended July 1, 2012, respectively, and $2.9 million and $5.9 million for the three and six months ended July 3, 2011, respectively.
    
Prior to August 5, 2011, interest expense was allocated to the Company based on the amount due to parent company during the year and the weighted average interest rate in effect for the period for Carrols on its long-term debt obligations, excluding lease financing obligations. Effective with the Company’s debt financings on August 5, 2011, intercompany interest allocations from Carrols ceased. Interest expense on the amount due to parent company was $2.0 million for the three months ended July 3, 2011 and $4.0 million for the six months ended July 3, 2011.

As discussed in Note 1, the Company believes the assumptions and methodologies underlying the allocation of administrative expenses and stock-based compensation are reasonable. However, such expenses may not be indicative of the actual expenses that would have been or could be incurred by the Company if it was to operate as a stand-alone company. As such, the financial information herein may not necessarily reflect the consolidated financial position, results of operations, and cash flows of the Company in the future or if the Company had been a stand-alone entity during the periods presented.
    
In the first quarter of 2012, Carrols made a capital contribution in cash to the Company of $2.5 million. This capital contribution was a portion of the excess cash proceeds from the debt refinancings in 2011 discussed in Note 7. In 2012 and prior to the Spin-off, Carrols made non-cash capital contributions of $2.7 million to the Company which represented $1.0 million in stock compensation expense applicable to equity awards in Carrols' common stock and $1.7 million for the transfer of income tax related assets and liabilities.
Amounts shown as due to parent company at January 1, 2012 in the accompanying consolidated balance sheets represent amounts related to administrative support provided by Carrols and taxes payable by the Company to Carrols due to the Company’s inclusion in Carrols’ consolidated federal and certain state income tax returns. As of July 1, 2012, the Company owed $33 to Carrols.
All significant intercompany transactions between the Company and Carrols were included in the Company's historical financial statements and are considered to be effectively settled at the time of the Spin-off. The settlement of these intercompany transactions is reflected in the statement of cash flows as a financing activity.
Relationship Between Fiesta and Carrols After the Spin-Off
For purposes of governing certain of the ongoing relationships between the Company and Carrols at and after the Spin-off, the Company and Carrols have entered into the following agreements:
Tax Matters Agreement. The tax matters agreement dated April 24, 2012, (the "Tax Matters Agreement"), (1) governs the allocation of the tax assets and liabilities between the Company and Carrols and Carrols Corporation, a subsidiary of Carrols ("Carrols Corp.") , (2) provides for certain restrictions and indemnities in connection with the tax treatment of the Spin-off and (3) addresses certain other tax related matters, including, without limitation, those relating to (a) the obligations of Carrols, Carrols Corp. and the Company with respect to the preparation or filing of tax returns for all periods, and (b) the control of any income tax audits and any indemnities with respect thereto. The Tax Matters Agreement provides that if the Company takes any actions after Carrols’ distribution of our shares in the Spin-off that result in or cause the distribution to be taxable to Carrols, the Company will be responsible under the Tax Matters Agreement for any resulting taxes imposed on us or on Carrols or Carrols Corp. Further, the Tax Matters Agreement provides that the Company will be responsible for 50% of the losses and taxes of Carrols and its affiliates resulting from the Spin-off not attributable to any such action of the Company or an equivalent action by Carrols.
Transition Services Agreement. Under the TSA, Carrols and Carrols Corp. agreed to provide certain support services (including accounting, tax accounting, treasury management, internal audit, financial reporting and analysis, human resources and employee benefits management, information systems, restaurant systems support, legal, property management and insurance and risk management services) to the Company, and the Company agreed to provide certain limited management services (including certain legal services) to Carrols and Carrols Corp. The charge for transition services is intended to allow Carrols to recover its direct and indirect costs incurred in providing those services. The TSA became effective upon consummation of the Spin-off and will continue for a period of three years provided that the Company may extend the term of the TSA by one additional year upon 90 days prior written notice to Carrols or may terminate the TSA with respect to any service provided thereunder at any time upon 90 days prior written notice to Carrols. The Company incurred costs of $1.0 million in the second quarter of 2012 related to the TSA.
Because the terms of these agreements were entered into in the context of a related party transaction, the terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.
Long-term Debt
Long-term Debt
Long-term Debt
Long term debt at July 1, 2012 and January 1, 2012 consisted of the following:
 
 
July 1,
2012
 
January 1,
2012
Collateralized:
 
 
 
Fiesta Restaurant Group 8.875% Senior Secured Second Lien Notes
$
200,000

 
$
200,000

Capital leases
979

 
1,008

 
200,979

 
201,008

Less: current portion of long-term debt
(61
)
 
(59
)
 
$
200,918

 
$
200,949



New Senior Secured Credit Facility. On August 5, 2011 the Company entered into a new first lien senior secured credit facility providing for aggregate revolving credit borrowings of up to $25.0 million (including $10.0 million available for letters of credit) which was undrawn at closing. The facility also provides for incremental increases of up to $5.0 million, in the aggregate, to the revolving credit borrowings available under the senior credit facility, and matures on February 5, 2016. On July 1, 2012, there were no outstanding borrowings under the Company’s senior credit facility.
Borrowings under the senior credit facility bear interest at a per annum rate, at the Company’s option, of either (all terms as defined in the senior credit facility):
1) the Alternate Base Rate plus the applicable margin of 2.00% to 2.75% based on the Company’s Adjusted Leverage Ratio (with a margin of 2.50% at July 1, 2012), or
2) the LIBOR Rate plus the applicable margin of 3.00% to 3.75% based on the Company’s Adjusted Leverage Ratio (with a margin of 3.50% at July 1, 2012).
The Company’s obligations under its senior credit facility are guaranteed by all of the Company's material subsidiaries and are secured by a first priority lien on substantially all of the Company’s assets and its material subsidiaries, as guarantors, (including a pledge of all of the capital stock and equity interests of its material subsidiaries).
The Company’s senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any indebtedness of the Company having an outstanding principal amount of $2.5 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due. As of July 1, 2012, the Company was in compliance with the covenants under its senior credit facility. After reserving $9.4 million for letters of credit guaranteed by the senior credit facility, $15.6 million was available for borrowing at July 1, 2012.
Senior Secured Second Lien Notes. On August 5, 2011, the Company issued $200.0 million of 8.875% Senior Secured Second Lien Notes due 2016 (the "Notes") pursuant to an indenture dated as of August 5, 2011 governing such Notes. The proceeds from the issuance of the Notes were used by Carrols to repay amounts outstanding under Carrols LLC's senior credit facility and Carrols Corp.'s 9% senior subordinated notes due 2013, as well as to pay related fees and expenses. The Notes mature and are payable on August 15, 2016. Interest is payable semi-annually on February 15 and August 15. The Notes are guaranteed by all of the Company’s material subsidiaries and are secured by second-priority liens on substantially all of the Company’s and its material subsidiaries’ assets, (including a pledge of all of the capital stock and equity interests of its material subsidiaries).
The indenture governing the Notes and the security agreement provide that any capital stock and equity interests of any of the Company’s material subsidiaries will be excluded from the collateral to the extent that the par value, book value or market value of such capital stock or equity interests exceeds 20% of the aggregate principal amount of the Notes then outstanding.
The Notes are redeemable at the Company’s option in whole or in part at any time after February 15, 2014 at a price of 104.438% of the principal amount plus accrued and unpaid interest, if any, if redeemed before February 15, 2015, 102.219% of the principal amount plus accrued and unpaid interest, if any, if redeemed after February 15, 2015 but before February 15, 2016 and 100% of the principal amount plus accrued and unpaid interest, if any, if redeemed after February 15, 2016. Prior to February 14, 2014, the Company may redeem some or all of the Notes at a redemption price of 100% of the principal amount of each note plus accrued and unpaid interest, if any, and a make-whole premium. In addition, at any time prior to February 15, 2014, the Company may redeem up to 35% of the Notes with the net cash proceeds from specified equity offerings at a redemption price equal to 108.875% of the principal amount of each note to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
The Notes are jointly and severally guaranteed, unconditionally and in full by all of the Company’s material subsidiaries which are directly or indirectly wholly-owned by the Company. Separate condensed consolidating information is not included because the Company is a holding company with all of its operations conducted through the guarantor subsidiaries. There are no significant restrictions on the ability of the Company or any of the guarantor subsidiaries to obtain funds from its respective subsidiaries. All consolidated amounts in the Company’s financial statements are representative of the combined guarantors.
The indenture governing the Notes includes certain covenants, including limitations and restrictions on the Company and its material subsidiaries who are guarantors under such indenture to incur additional debt, issue preferred stock, pay dividends or make distributions in respect of capital stock or make certain other restricted payments or investments, incur liens, sell assets, enter into transactions with affiliates, agree to payment restrictions affecting certain of its material subsidiaries and enter into mergers, consolidations or sales of all or substantially all of the Company’s or its material subsidiaries’ assets.
The indenture governing the Notes contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under the Notes and the indenture if there is a default under any indebtedness of the Company having an outstanding principal amount of $15.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due. The Company was in compliance as of July 1, 2012 with the restrictive covenants of the indenture governing the Notes.
Lease Financing Obligations
Lease Financing Obligations [Text Block]
8. Lease Financing Obligations
The Company entered into sale-leaseback transactions in various years that did not qualify for sale-leaseback accounting due to certain forms of continuing involvement and, as a result, the leases were classified as financing transactions in the Company’s consolidated financial statements.
Under the financing method, the assets remain on the consolidated balance sheet and the net proceeds received by the Company from these transactions are recorded as a lease financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.
These leases generally provide for an initial term of 20 years plus renewal options. The rent payable under such leases includes a minimum rent provision and in some cases, includes rent based on a percentage of sales. These leases also require payment of property taxes, insurance and utilities
During the second quarter of 2012, the Company exercised its purchase options under the leases for five restaurant properties previously accounted for as lease financing obligations and purchased these properties from the lessor. As a result, the Company reduced its lease financing obligations by $6.0 million during the three months ended July 1, 2012. The Company also recorded a loss of $0.1 million included in interest expense representing the net amount by which the purchase price of the restaurant properties acquired exceeded the balance of the respective lease financing obligations.
For certain of the Company’s historical sale-leaseback transactions, Carrols has guaranteed the lease payments on an unsecured basis or is the primary lessee on the leases associated with certain of the Company’s sale-leaseback transactions. Prior to the Spin-off, ASC 840-40 “Sale-Leaseback Transactions” required the Company to classify these leases as lease financing transactions in the Company’s consolidated financial statements because the guarantee from a related party constituted continuing involvement and caused the sale to not qualify for sale-leaseback accounting. The accompanying consolidated balance sheets include lease financing obligations associated with these transactions of $114.1 million at January 1, 2012.
At the time of the Spin-off, these sale-leaseback transactions qualified for sale-leaseback accounting (and the treatment of such related leases as operating leases) due to the cure or elimination of the provisions that previously precluded sale-leaseback accounting in the Company's financial statements. As a result of the qualification for sale-leaseback accounting during the second quarter of 2012, the Company removed the associated lease financing obligations, property and equipment, and deferred financing costs from its balance sheet, and recognized deferred gains on sale-leaseback transactions related to the qualification of $32.1 million that will be amortized as a reduction of rent expense over the individual remaining lease terms. This resulted in a decrease in lease financing obligations of $114.2 million, a decrease in assets under lease financing obligations of $80.4 million, and a decrease of $1.6 million in deferred financing fees.
The interest rates on lease financing obligations ranged from 8.6% to 8.8% at July 1, 2012. Interest expense associated with lease financing obligations for the three months ended July 1, 2012 and July 3, 2011 was $1.4 million and $2.8 million, respectively and was $4.4 million and $5.6 million for the six months ended July 1, 2012 and July 3, 2011, respectively.
Income Taxes
Income Tax Disclosure [Text Block]
9. Income Taxes
Prior to the Spin-off, the Company’s taxable income has been included in the consolidated U.S. federal income tax return of Carrols and in income tax returns filed by Carrols on a consolidated basis with certain state taxing jurisdictions. Subsequent to the Spin-off, the Company will be responsible for filing its own U.S. consolidated federal and state tax returns. Prior to the Spin-off, the Company determined its provision for income taxes on a separate return basis.
The Tax Matters Agreement governs the methodology for allocating responsibility for federal, state, local and foreign income and other taxes related to taxable periods prior to and subsequent to the Spin-off. Under the Tax Matters Agreement, Carrols is generally responsible for Federal income taxes related to the Company for all periods prior to the date of the Spin-off and the Company is responsible for Federal income taxes for periods after the date of the Spin-off. The Company is also responsible for all state taxes that were filed on a consolidated basis both before and after the date of Spin-off, specifically Florida and Texas, and any other states where the Company was filing or will file separate state tax returns.
The Company’s income tax provision was comprised of the following for the three and six months ended July 1, 2012 and July 3, 2011:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Current
$
3,283

 
$
953

 
$
3,882

 
$
3,502

Deferred
(683
)
 
804

 
(2,764
)
 
531

 
$
2,600

 
$
1,757

 
$
1,118

 
$
4,033


The provision for income taxes for the three and six months ended July 1, 2012 was derived using an estimated effective annual income tax rate for 2012 of 42.7%, which excludes any discrete tax adjustments. Discrete tax adjustments decreased the provision for income taxes by $182 and $237 in the three and six months ended July 1, 2012.
The provision for income taxes for the three and six months ended July 3, 2011 was derived using an estimated effective annual income tax rate for 2011 of 37.3%, which excludes any discrete tax adjustments. Discrete tax adjustments decreased the provision for income taxes by $181 and $170 for the three and six months ended July 3, 2011.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of July 1, 2012 and January 1, 2012, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.
The tax years 2008-2011 remain open to examination by the taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
Business Segment Information
Business Segment Information
Business Segment Information
The Company is engaged in the fast-casual restaurant industry, with two restaurant concepts: Pollo Tropical and Taco Cabana. Pollo Tropical is a fast-casual restaurant brand offering a wide selection of tropical and Caribbean inspired food, featuring grilled chicken marinated in a proprietary blend of tropical fruit juices and spices. Taco Cabana is a fast-casual restaurant brand offering a wide selection of fresh Tex-Mex and traditional Mexican food, including sizzling fajitas, quesadillas, enchiladas, burritos and other Tex-Mex dishes.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies discussed in Note 1. The following table includes Adjusted Segment EBITDA which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance. Adjusted Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other income and expense and gains and losses on extinguishment of debt.
The “Other” column includes corporate related items not allocated to reportable segments and consists primarily of corporate owned property and equipment and capitalized costs associated with the issuance of indebtedness in 2011 discussed in Note 7.
 
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
July 1, 2012:
 
 
 
 
 
 
 
 
Total revenues
 
$
57,190

 
$
71,643

 
$

 
$
128,833

Cost of sales
 
18,729

 
22,572

 

 
41,301

Restaurant wages and related expenses
 
13,199

 
20,937

 

 
34,136

Restaurant rent expense
 
1,997

 
3,425

 

 
5,422

Other restaurant operating expenses
 
6,793

 
9,448

 

 
16,241

Advertising expense
 
1,009

 
3,014

 

 
4,023

General and administrative expense
 
5,092

 
5,430

 

 
10,522

Depreciation and amortization
 
1,960

 
2,417

 

 
4,377

Adjusted Segment EBITDA
 
10,450

 
6,911

 
 
 
 
Capital expenditures
 
4,710

 
4,089

 
82

 
8,881

July 3, 2011:
 
 
 
 
 
 
 
 
Revenues
 
$
52,642

 
$
68,607

 
$

 
$
121,249

Cost of sales
 
17,413

 
22,262

 

 
39,675

Restaurant wages and related expenses
 
12,312

 
20,457

 

 
32,769

Restaurant rent expense
 
1,490

 
2,742

 

 
4,232

Other restaurant operating expenses
 
6,588

 
9,156

 

 
15,744

Advertising expense
 
1,014

 
2,760

 

 
3,774

General and administrative expense
 
4,557

 
4,495

 

 
9,052

Depreciation and amortization
 
2,346

 
2,603

 

 
4,949

Adjusted Segment EBITDA
 
9,467

 
6,979

 
 
 
 
Capital expenditures
 
2,890

 
3,987

 

 
6,877

Six Months Ended
 
 
 
 
 
 
 
 
July 1, 2012:
 
 
 
 
 
 
 
 
Total revenues
 
115,024

 
139,951

 

 
254,975

Cost of sales
 
37,897

 
44,188

 

 
82,085

Restaurant wages and related expenses
 
26,491

 
41,470

 

 
67,961

Restaurant rent expense
 
3,198

 
6,191

 

 
9,389

Other restaurant operating expenses
 
13,766

 
18,304

 

 
32,070

Advertising expense
 
2,269

 
6,049

 

 
8,318

General and administrative expense
 
10,302

 
11,300

 

 
21,602

Depreciation and amortization
 
4,183

 
5,034

 

 
9,217

Adjusted Segment EBITDA
 
21,664

 
13,109

 
 
 
 
Capital expenditures
 
9,260

 
7,989

 
175

 
17,424

July 3, 2011:
 
 
 
 
 
 
 
 
Revenues
 
104,877

 
131,988

 

 
236,865

Cost of sales
 
34,562

 
41,457

 

 
76,019

Restaurant wages and related expenses
 
24,606

 
39,796

 

 
64,402

Restaurant rent expense
 
2,858

 
5,434

 

 
8,292

Other restaurant operating expenses
 
12,921

 
17,566

 

 
30,487

Advertising expense
 
2,320

 
5,573

 

 
7,893

General and administrative expense
 
8,663

 
9,310

 

 
17,973

Depreciation and amortization
 
4,549

 
5,197

 

 
9,746

Adjusted Segment EBITDA
 
19,337

 
13,321

 
 
 
 
Capital expenditures, including acquisitions
 
4,157

 
7,845

 

 
12,002

Identifiable Assets:
 
 
 
 
 
 
 
 
July 1, 2012:
 
126,214

 
150,580

 
9,167

 
285,961

January 1, 2012
 
156,093

 
206,807

 
7,266

 
370,166




A reconciliation of Adjusted Segment EBITDA to consolidated net income follows:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Adjusted Segment EBITDA:
 
 
 
 
 
 
 
Pollo Tropical
$
10,450

 
$
9,467

 
$
21,664

 
$
19,337

Taco Cabana
6,911

 
6,979

 
13,109

 
13,321

Less:
 
 
 
 
 
 
 
Depreciation and amortization
4,377

 
4,949

 
9,217

 
9,746

Impairment and other lease charges
(39
)
 
820

 
6,861

 
1,084

Interest expense
6,329

 
4,842

 
14,298

 
9,687

Provision for income taxes
2,600

 
1,757

 
1,118

 
4,033

Stock-based compensation
173

 
443

 
1,223

 
859

Net income
$
3,921

 
$
3,635

 
$
2,056

 
$
7,249

Net Income (Loss) per Share
Earnings Per Share [Text Block]
11. Net Income per Share
Basic net income per share is computed on the basis of weighted average outstanding common shares.  Diluted net income per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, if dilutive. The numerator of the diluted net income per share calculation is increased by the allocation of net income and dividends declared to nonvested shares, if the net impact is dilutive.
 The Company has determined that nonvested share awards (also referred to as restricted stock awards) issued by the Company are participating securities because they have non-forfeitable rights to dividends. Accordingly, basic net income per share is calculated under the two-class method calculation. In determining the number of diluted shares outstanding, the Company is required to disclose the more dilutive earnings per share result between the treasury stock method calculation and the two-class method calculation.
On May 7, 2012, the Company ceased to be a subsidiary of Carrols and became an independent publicly traded company. On the distribution date of May 7, 2012, Carrols distributed 23.2 million shares of $.01 par value Fiesta Restaurant Group common stock to Carrols' stockholders of record as of the close of business on the record date of April 24, 2012. This share amount is being utilized for the calculation of basic income (loss) per common share for periods presented prior to 2012 because all shares of the Company's common stock outstanding prior to May 7, 2012 were held by Carrols Corp. For periods prior to 2012, the same number of shares is being used for diluted income per common shares as for basic income per common share as no dilutive securities were outstanding for any prior period.
For 2012, in determining the weighted average number of common shares outstanding for basic income per common share, the 23.2 million shares were assumed to be outstanding for the period from January 2, 2012 through May 6, 2012. Diluted income per common share subsequent to the distribution date of May 7, 2012 reflects the potential dilution of outstanding equity-based compensation awards by application of the treasury stock method.
The computation of basic and diluted net income per share for the three and six months ended July 1, 2012 is as follows:
 
 
  
Three Months Ended
 
Six Months Ended
 
  
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Basic and diluted net income per share:
  
 
 
 
 
 
 
 
Net income
  
$
3,921

 
$
3,635

 
$
2,056

 
$
7,249

Less: income allocated to participating securities
  
(52
)
 

 
(14
)
 

Net income available to common stockholders
  
$
3,869

 
$
3,635

 
$
2,042

 
$
7,249

Weighted average common shares outstanding
  
22,902,944

 
23,161,822

 
23,032,383

 
23,161,822

Basic and diluted net income per share
  
$
0.17

 
$
0.16

 
$
0.09

 
$
0.31

Commitments and Contingencies
Commitments Disclosure [Text Block]
12. Commitments and Contingencies
The Company is a party to various litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements.
Recent Accounting Developments
Description of New Accounting Pronouncements Not yet Adopted [Text Block]
13. Recent Accounting Developments
In September 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on testing goodwill for impairment. The guidance provides entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company is evaluating the impact of this guidance on its annual testing for goodwill impairment at December 31, 2012.
Basis of Presentation Accounting Policies (Policies)
Basis of Consolidation. The unaudited consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. The consolidated financial statements have been prepared as if the Company was in existence for all periods presented. All intercompany transactions have been eliminated in consolidation.
Through the date of the Spin-off, these unaudited consolidated financial statements have been prepared on a stand-alone basis from the separate records maintained by Carrols and may not necessarily be indicative of the results of operations or cash flows that would have resulted had allocations and other related-party transactions been consummated with unrelated parties or had the Company been an independent, publicly traded company during all of the periods presented. The interim consolidated financial statements reflect the historical financial position, results of operations and cash flows of Fiesta as it has historically operated, in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"). All intercompany transactions have been eliminated in consolidation.
In connection with the Spin-off of the Company to the stockholders of Carrols, the board of directors of the Company authorized a 23,161.8 for one split of its outstanding common stock that was effective on April 19, 2012. Accordingly, all references to share and per share amounts related to common stock included in the consolidated financial statements and accompanying notes have been adjusted to reflect the stock split and change in the number of authorized shares. The stock split has been retroactively applied to the Company’s financial statements.
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 1, 2012 contained 52 weeks. The three and six months ended July 1, 2012 and July 3, 2011 contained thirteen and twenty-six weeks, respectively.
Allocations. Through the date of the consummation of the Spin-off, Carrols provided administrative support to the Company for executive management, information systems and certain accounting, legal and other administrative functions. The cost of these services were allocated to the Company based primarily on a pro-rata share of either the Company’s revenues, number of restaurants or number of employees. The allocations may not reflect the expense the Company would have incurred as an independent, publicly traded company for the periods presented. Following the Spin-off, certain of these functions continue to be provided by Carrols under the TSA and the Company is performing certain functions using its own resources or purchased services from third parties. Refer to Note 6—Related Party Transactions for further discussion related to agreements entered into effective as of the Spin-off.
The unaudited consolidated financial statements for the three and six months ended July 3, 2011 also reflect interest expense allocated by Carrols to the Company. Effective with the refinancing discussed in Note 7, on August 5, 2011 the Company secured its own financing and interest allocations from Carrols ceased. Management believes that its allocations are reasonable and based on a systematic and rational method; however, they are not necessarily indicative of the actual financial results of the Company, including such expenses that would have been incurred by the Company had it been operating as a separate, stand-alone entity for the periods presented. As a stand-alone entity, the Company expects to incur expenses that may not be comparable in future periods to what is presented for the historical periods presented in the consolidated financial statements. Consequently, the financial information herein may not reflect the financial position, results of operations and cash flows of the Company in the future or if the Company had been an independent stand-alone entity during the periods presented. In our opinion, the consolidated financial statements include all adjustments necessary for a fair presentation of the businesses.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values of cash and accrued liabilities approximate fair value because of the short maturity of those instruments, which are considered Level 1.
Senior Secured Second Lien Notes. The fair value of outstanding senior secured second lien notes is based on recent trading values, which are considered Level 2, and at July 1, 2012, was approximately $210.0 million.
Revolving Credit Facility. There were no outstanding borrowings under the Company’s revolving credit facility at July 1, 2012. Market values for any borrowings would be considered Level 3.
Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: allocations of Carrols' general and administrative expenses and interest expense on amounts due to Carrols, accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
Subsequent Events. The Company reviewed and evaluated subsequent events through the issuance date of the Company’s financial statements.
Goodwill Goodwill Policy (Policies)
Goodwill and Intangible Assets, Policy [Policy Text Block]
The Company is required to review goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of January 1 and has determined its reporting units to be at the brand level for Pollo Tropical and Taco Cabana. The Company does not believe circumstances have changed since the last assessment date which would make it necessary to reassess their values.
Impairment of Long-Lived Assets and Other Lease Charges Impairment Accounting Policy (Policies)
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.
Lease Financing Obligations (Policies)
Lease Financing Obligations [Policy Text Block]
The Company entered into sale-leaseback transactions in various years that did not qualify for sale-leaseback accounting due to certain forms of continuing involvement and, as a result, the leases were classified as financing transactions in the Company’s consolidated financial statements.
Under the financing method, the assets remain on the consolidated balance sheet and the net proceeds received by the Company from these transactions are recorded as a lease financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations.
These leases generally provide for an initial term of 20 years plus renewal options. The rent payable under such leases includes a minimum rent provision and in some cases, includes rent based on a percentage of sales. These leases also require payment of property taxes, insurance and utilities
Net Income (Loss) per Share (Policies)
Earnings Per Share, Policy [Policy Text Block]
Basic net income per share is computed on the basis of weighted average outstanding common shares.  Diluted net income per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, if dilutive. The numerator of the diluted net income per share calculation is increased by the allocation of net income and dividends declared to nonvested shares, if the net impact is dilutive.
 The Company has determined that nonvested share awards (also referred to as restricted stock awards) issued by the Company are participating securities because they have non-forfeitable rights to dividends. Accordingly, basic net income per share is calculated under the two-class method calculation. In determining the number of diluted shares outstanding, the Company is required to disclose the more dilutive earnings per share result between the treasury stock method calculation and the two-class method calculation.
Stock-based Compensation Stock-based Compensation (Tables)
Schedule of Nonvested Share Activity [Table Text Block]
Non-vested Shares
 
A summary of all non-vested shares activity for the six months ended July 1, 2012 was as follows:
 
 
 
 
Weighted
 
 
 
Average
 
 
 
Grant Date
 
Shares
 
Price
Nonvested at January 1, 2012

 
$

Dividend from Spin-Off
434,397

 
11.10

Granted
199,002

 
12.71

Vested
(14,592
)
 
11.10

Forfeited
(7,424
)
 
11.10

 
 

 
 
Nonvested at July 1, 2012
611,383

 
$
11.62



Goodwill Goodwill (Tables)
Schedule of Intangible Assets and Goodwill [Table Text Block]
Goodwill balances are summarized below:
 
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, July 1, 2012
$
56,307

 
$
67,177

 
$
123,484

Impairment of Long-Lived Assets and Other Lease Charges Impairment by segment (Tables)
Impairment of long lived assets and other lease charge [Table Text Block]
Impairment on long-lived assets for the Company’s segments and other lease charges (recoveries) recorded were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Pollo Tropical
$
(42
)
 
$
364

 
$
5,837

 
$
636

Taco Cabana
3

 
456

 
1,024

 
448

 
$
(39
)
 
$
820

 
$
6,861

 
$
1,084

Other Liabilities, Long-Term Other Liabilities (Tables)
Other liabilities, long-term, consisted of the following:
 
 
July 1, 2012
 
January 1, 2012
Accrued occupancy costs
$
8,194

 
$
7,459

Accrued workers’ compensation and general liability claims
1,434

 
1,251

Deferred compensation
796

 
710

Other
808

 
722

 
$
11,232

 
$
10,142

The following table presents the activity in the closed-store reserve, of which $1.9 million and $1.1 million are included in long-term accrued occupancy costs above at July 1, 2012 and January 1, 2012, respectively, with the remainder in other current liabilities:
 
 
Six Months Ended
July 1, 2012
 
Year Ended January 1, 2012
Balance, beginning of period
$
2,246

 
$
1,665

Provisions for restaurant closures
1,796

 
800

Accruals (recoveries) for additional lease charges
(106
)
 
649

Payments, net
(792
)
 
(1,021
)
Other adjustments
136

 
153

Balance, end of period
$
3,280

 
$
2,246

Long-term Debt Long-term debt table (Tables)
Schedule of Long-term Debt Instruments [Table Text Block]
Long term debt at July 1, 2012 and January 1, 2012 consisted of the following:
 
 
July 1,
2012
 
January 1,
2012
Collateralized:
 
 
 
Fiesta Restaurant Group 8.875% Senior Secured Second Lien Notes
$
200,000

 
$
200,000

Capital leases
979

 
1,008

 
200,979

 
201,008

Less: current portion of long-term debt
(61
)
 
(59
)
 
$
200,918

 
$
200,949

Income Taxes (Tables)
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
The Company’s income tax provision was comprised of the following for the three and six months ended July 1, 2012 and July 3, 2011:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Current
$
3,283

 
$
953

 
$
3,882

 
$
3,502

Deferred
(683
)
 
804

 
(2,764
)
 
531

 
$
2,600

 
$
1,757

 
$
1,118

 
$
4,033

Business Segment Information Business Segment (Tables)
Schedule of Segment Reporting Information, by Segment [Table Text Block]
The following table includes Adjusted Segment EBITDA which is the measure of segment profit or loss reported to the chief operating decision maker for purposes of allocating resources to the segments and assessing their performance. Adjusted Segment EBITDA is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other income and expense and gains and losses on extinguishment of debt.
The “Other” column includes corporate related items not allocated to reportable segments and consists primarily of corporate owned property and equipment and capitalized costs associated with the issuance of indebtedness in 2011 discussed in Note 7.
 
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
July 1, 2012:
 
 
 
 
 
 
 
 
Total revenues
 
$
57,190

 
$
71,643

 
$

 
$
128,833

Cost of sales
 
18,729

 
22,572

 

 
41,301

Restaurant wages and related expenses
 
13,199

 
20,937

 

 
34,136

Restaurant rent expense
 
1,997

 
3,425

 

 
5,422

Other restaurant operating expenses
 
6,793

 
9,448

 

 
16,241

Advertising expense
 
1,009

 
3,014

 

 
4,023

General and administrative expense
 
5,092

 
5,430

 

 
10,522

Depreciation and amortization
 
1,960

 
2,417

 

 
4,377

Adjusted Segment EBITDA
 
10,450

 
6,911

 
 
 
 
Capital expenditures
 
4,710

 
4,089

 
82

 
8,881

July 3, 2011:
 
 
 
 
 
 
 
 
Revenues
 
$
52,642

 
$
68,607

 
$

 
$
121,249

Cost of sales
 
17,413

 
22,262

 

 
39,675

Restaurant wages and related expenses
 
12,312

 
20,457

 

 
32,769

Restaurant rent expense
 
1,490

 
2,742

 

 
4,232

Other restaurant operating expenses
 
6,588

 
9,156

 

 
15,744

Advertising expense
 
1,014

 
2,760

 

 
3,774

General and administrative expense
 
4,557

 
4,495

 

 
9,052

Depreciation and amortization
 
2,346

 
2,603

 

 
4,949

Adjusted Segment EBITDA
 
9,467

 
6,979

 
 
 
 
Capital expenditures
 
2,890

 
3,987

 

 
6,877

Six Months Ended
 
 
 
 
 
 
 
 
July 1, 2012:
 
 
 
 
 
 
 
 
Total revenues
 
115,024

 
139,951

 

 
254,975

Cost of sales
 
37,897

 
44,188

 

 
82,085

Restaurant wages and related expenses
 
26,491

 
41,470

 

 
67,961

Restaurant rent expense
 
3,198

 
6,191

 

 
9,389

Other restaurant operating expenses
 
13,766

 
18,304

 

 
32,070

Advertising expense
 
2,269

 
6,049

 

 
8,318

General and administrative expense
 
10,302

 
11,300

 

 
21,602

Depreciation and amortization
 
4,183

 
5,034

 

 
9,217

Adjusted Segment EBITDA
 
21,664

 
13,109

 
 
 
 
Capital expenditures
 
9,260

 
7,989

 
175

 
17,424

July 3, 2011:
 
 
 
 
 
 
 
 
Revenues
 
104,877

 
131,988

 

 
236,865

Cost of sales
 
34,562

 
41,457

 

 
76,019

Restaurant wages and related expenses
 
24,606

 
39,796

 

 
64,402

Restaurant rent expense
 
2,858

 
5,434

 

 
8,292

Other restaurant operating expenses
 
12,921

 
17,566

 

 
30,487

Advertising expense
 
2,320

 
5,573

 

 
7,893

General and administrative expense
 
8,663

 
9,310

 

 
17,973

Depreciation and amortization
 
4,549

 
5,197

 

 
9,746

Adjusted Segment EBITDA
 
19,337

 
13,321

 
 
 
 
Capital expenditures, including acquisitions
 
4,157

 
7,845

 

 
12,002

Identifiable Assets:
 
 
 
 
 
 
 
 
July 1, 2012:
 
126,214

 
150,580

 
9,167

 
285,961

January 1, 2012
 
156,093

 
206,807

 
7,266

 
370,166

Business Segment Information Business Segment Reconciliation (Tables)
Reconciliation of Operating Profit (Loss) from Segments to Consolidated [Table Text Block]
A reconciliation of Adjusted Segment EBITDA to consolidated net income follows:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Adjusted Segment EBITDA:
 
 
 
 
 
 
 
Pollo Tropical
$
10,450

 
$
9,467

 
$
21,664

 
$
19,337

Taco Cabana
6,911

 
6,979

 
13,109

 
13,321

Less:
 
 
 
 
 
 
 
Depreciation and amortization
4,377

 
4,949

 
9,217

 
9,746

Impairment and other lease charges
(39
)
 
820

 
6,861

 
1,084

Interest expense
6,329

 
4,842

 
14,298

 
9,687

Provision for income taxes
2,600

 
1,757

 
1,118

 
4,033

Stock-based compensation
173

 
443

 
1,223

 
859

Net income
$
3,921

 
$
3,635

 
$
2,056

 
$
7,249



Net Income (Loss) per Share (Tables)
Schedule of Earnings Per Share, Basic, by Common Class, Including Two Class Method [Table Text Block]
The computation of basic and diluted net income per share for the three and six months ended July 1, 2012 is as follows:
 
 
  
Three Months Ended
 
Six Months Ended
 
  
July 1, 2012
 
July 3, 2011
 
July 1, 2012
 
July 3, 2011
Basic and diluted net income per share:
  
 
 
 
 
 
 
 
Net income
  
$
3,921

 
$
3,635

 
$
2,056

 
$
7,249

Less: income allocated to participating securities
  
(52
)
 

 
(14
)
 

Net income available to common stockholders
  
$
3,869

 
$
3,635

 
$
2,042

 
$
7,249

Weighted average common shares outstanding
  
22,902,944

 
23,161,822

 
23,032,383

 
23,161,822

Basic and diluted net income per share
  
$
0.17

 
$
0.16

 
$
0.09

 
$
0.31

Basis of Presentation Fair Value Disclosures (Details) (USD $)
In Millions, unless otherwise specified
Jul. 1, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
Debt Instrument, Fair Value Disclosure
$ 210.0 
Basis of Presentation Basis of Presentation Narrative (Details)
3 Months Ended 6 Months Ended 12 Months Ended
Jul. 1, 2012
Jul. 1, 2012
Jan. 1, 2012
Entity Information [Line Items]
 
 
 
Weeks In Fiscal Period
13 
26 
52 
FLORIDA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
87 
87 
 
Entity Operated Units [Member] |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
89 
89 
 
Entity Operated Units [Member] |
Taco Cabana [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
158 
158 
 
Franchised Units [Member] |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
35 
35 
 
Franchised Units [Member] |
FLORIDA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
GEORGIA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
GEORGIA |
Taco Cabana [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
PUERTO RICO |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
21 
21 
 
Franchised Units [Member] |
ECUADOR |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
HONDURAS |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
BAHAMAS |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
TRINIDAD AND TOBAGO |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
VENEZUELA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
COSTA RICA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
PANAMA |
Pollo Tropical [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
NEW MEXICO |
Taco Cabana [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Franchised Units [Member] |
TEXAS |
Taco Cabana [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Number of Restaurants
 
Maximum [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Weeks In Fiscal Period
 
 
53 
Stockholders' Equity Note, Stock Split, Conversion Ratio
23,161.8 
 
 
Minimum [Member]
 
 
 
Entity Information [Line Items]
 
 
 
Weeks In Fiscal Period
 
 
52 
Stock-based Compensation Stock-based Compensation (Details) (USD $)
3 Months Ended 6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Jul. 1, 2012
Y
Jul. 3, 2011
Jan. 1, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights
.25 
 
 
 
 
Stock-based Compensation
$ 173,000 
$ 443,000 
$ 1,223,000 
$ 859,000 
 
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized
2,900,000 
 
2,900,000 
 
 
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized, Expected to Vest Remainder of Fiscal Year
800,000 
 
800,000 
 
 
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition
 
 
2.6 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value
$ 11.62 
 
$ 11.62 
 
$ 0.00 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Period Increase (Decrease)
 
 
434,397 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Other Share Increase (Decrease) in Period, Weighted Average Exercise Price
 
 
$ 11.10 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period
 
 
199,002 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value
 
 
$ 12.71 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures
 
 
(14,592)
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value
 
 
$ 11.10 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Forfeited
 
 
(7,424)
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period, Weighted Average Exercise Price
 
 
$ 11.10 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number
611,383 
 
611,383 
 
 
Chief Executive Officer [Member]
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
Stock Issued During Period, Shares, Restricted Stock Award, Gross
165,563 
 
 
 
 
Stock Issued During Period, Value, Restricted Stock Award, Gross
2,000,000 
 
 
 
 
Board of Directors Chairman [Member]
 
 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
Stock-based Compensation
 
 
$ 400,000 
 
 
Goodwill Goodwill by Segment (Details) (USD $)
6 Months Ended
Jul. 1, 2012
Jan. 1, 2012
Goodwill [Line Items]
 
 
Goodwill, Impairment Loss
$ 0.0 
 
Goodwill
123,484,000 
123,484,000 
Pollo Tropical [Member]
 
 
Goodwill [Line Items]
 
 
Goodwill
56,307,000 
 
Taco Cabana [Member]
 
 
Goodwill [Line Items]
 
 
Goodwill
$ 67,177,000 
 
Impairment of Long-Lived Assets and Other Lease Charges Impairment Table (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Jul. 1, 2012
Jul. 3, 2011
Impairment and Other Lease Charges [Line Items]
 
 
 
 
Impairment and Other Lease Charges
$ (39)
$ 820 
$ 6,861 
$ 1,084 
Pollo Tropical [Member]
 
 
 
 
Impairment and Other Lease Charges [Line Items]
 
 
 
 
Impairment and Other Lease Charges
(42)
364 
5,837 
636 
Taco Cabana [Member]
 
 
 
 
Impairment and Other Lease Charges [Line Items]
 
 
 
 
Impairment and Other Lease Charges
$ 3 
$ 456 
$ 1,024 
$ 448 
Impairment of Long-Lived Assets and Other Lease Charges Impairment Narrative (Details) (USD $)
3 Months Ended 6 Months Ended
Jul. 1, 2012
Jul. 3, 2011
Jul. 1, 2012
Jul. 3, 2011
Impairment and Other Lease Charges [Line Items]
 
 
 
 
Impairment and Other Lease Charges
$ (39,000)
$ 820,000 
$ 6,861,000 
$ 1,084,000 
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Transfers Into Level 3
 
 
300,000 
 
Other Lease Charges
800,000 
 
 
 
Previously Closed [Member]
 
 
 
 
Impairment and Other Lease Charges [Line Items]