FIESTA RESTAURANT GROUP, INC., 10-Q filed on 11/5/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 29, 2019
Oct. 30, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 29, 2019  
Document Transition Report false  
Entity File Number 001-35373  
Entity Registrant Name FIESTA RESTAURANT GROUP, INC.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 90-0712224  
Entity Address, Address Line One 14800 Landmark Boulevard, Suite 500  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75254  
City Area Code 972  
Local Phone Number 702-9300  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Entity Trading Symbol FRGI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001534992  
Current Fiscal Year End Date --12-29  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   27,476,451
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 29, 2019
Dec. 30, 2018
Current assets:    
Cash $ 3,509 $ 5,258
Accounts receivable 9,066 8,505
Inventories 3,222 2,842
Prepaid rent 119 3,375
Income tax receivable 1,502 17,857
Prepaid expenses and other current assets 12,378 6,562
Total current assets 29,796 44,399
Property and equipment, net 221,122 231,328
Operating lease right-of-use assets 254,449 0
Goodwill 56,307 123,484
Deferred income taxes 8,243 10,383
Other assets 7,685 9,065
Total assets 577,602 418,659
Current liabilities:    
Current portion of long-term debt 204 108
Accounts payable 11,094 16,410
Accrued payroll, related taxes and benefits 9,686 10,086
Accrued real estate taxes 7,424 5,871
Other current liabilities 29,842 14,086
Total current liabilities 58,250 46,561
Long-term debt, net of current portion 70,887 79,636
Deferred income—sale-leaseback of real estate 0 19,899
Operating lease liabilities 258,891 0
Other non-current liabilities 8,066 32,504
Total liabilities 396,094 178,600
Commitments and contingencies
Stockholders' equity:    
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued 0 0
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,480,487 and 27,259,212 shares issued, respectively, and 25,926,561 and 26,858,988 shares outstanding, respectively 271 270
Additional paid-in capital 172,426 170,290
Retained earnings 22,937 72,268
Treasury stock, at cost; 1,176,895 and 112,358 shares, respectively (14,126) (2,769)
Total stockholders' equity 181,508 240,059
Total liabilities and stockholders' equity $ 577,602 $ 418,659
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 29, 2019
Dec. 30, 2018
Statement of Financial Position [Abstract]    
Preferred stock, par value (usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 20,000,000 20,000,000
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 27,480,487 27,259,212
Common stock, shares outstanding 25,926,561 26,858,988
Treasury stock, shares 1,176,895 112,358
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 29, 2019
Sep. 30, 2018
Sep. 29, 2019
Sep. 30, 2018
Revenues:        
Revenues $ 164,248 $ 174,648 $ 501,481 $ 520,959
Costs and expenses:        
Cost of sales 52,056 56,021 156,324 166,275
Restaurant wages and related expenses (including stock-based compensation expense of $102, $6, $145, and $56, respectively) 44,459 47,943 135,261 142,103
Restaurant rent expense 11,970 9,129 35,613 26,861
Other restaurant operating expenses 24,153 27,294 68,429 75,398
Advertising expense 6,385 6,472 17,789 18,046
General and administrative (including stock-based compensation expense of $509, $732, $1,993 and $2,588, respectively) 13,820 13,284 42,387 41,023
Depreciation and amortization 10,165 9,739 29,520 27,908
Pre-opening costs 77 223 863 1,481
Impairment and other lease charges 3,254 6,417 4,667 6,539
Goodwill impairment 21,424 0 67,909 0
Closed restaurant rent expense, net of sublease income 726 0 3,485 0
Other expense (income), net 64 47 920 (3,132)
Total operating expenses 188,553 176,569 563,167 502,502
Income (loss) from operations (24,305) (1,921) (61,686) 18,457
Interest expense 823 924 3,024 2,979
Income (loss) before income taxes (25,128) (2,845) (64,710) 15,478
Benefit from income taxes (2,946) (4,892) (1,377) (246)
Net income (loss) $ (22,182) $ 2,047 $ (63,333) $ 15,724
Earnings (loss) per common share:        
Basic (usd per share) $ (0.84) $ 0.08 $ (2.37) $ 0.58
Diluted (usd per share) $ (0.84) $ 0.08 $ (2.37) $ 0.58
Weighted average common shares outstanding:        
Basic (in shares) 26,548,116 26,954,285 26,734,822 26,900,716
Diluted (in shares) 26,548,116 26,958,874 26,734,822 26,905,391
Restaurant sales        
Revenues:        
Revenues $ 163,589 $ 173,966 $ 499,483 $ 518,951
Franchise royalty revenues and fees        
Revenues:        
Revenues $ 659 $ 682 $ 1,998 $ 2,008
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 29, 2019
Sep. 30, 2018
Sep. 29, 2019
Sep. 30, 2018
Stock-based compensation $ 600 $ 700 $ 2,100 $ 2,600
Restaurant Wages And Related Expenses        
Stock-based compensation 102 6 145 56
General and Administrative Expense        
Stock-based compensation $ 509 $ 732 $ 1,993 $ 2,588
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Beginning shares at Dec. 31, 2017   26,847,458      
Beginning balance at Dec. 31, 2017 $ 231,516 $ 268 $ 166,823 $ 64,425  
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 889   889    
Vesting of restricted shares (in shares)   76,578      
Vesting of restricted shares 0 $ 1 (1)    
Cumulative effect of adopting a new accounting standard 57     57  
Purchase of treasury stock (in shares)   (18,406)      
Purchase of treasury stock (349)       $ (349)
Net income (loss) 4,184     4,184  
Ending shares at Apr. 01, 2018   26,905,630      
Ending balance at Apr. 01, 2018 236,297 $ 269 167,711 68,666 (349)
Beginning shares at Dec. 31, 2017   26,847,458      
Beginning balance at Dec. 31, 2017 231,516 $ 268 166,823 64,425  
Increase (Decrease) in Stockholders' Equity          
Net income (loss) 15,724        
Ending shares at Sep. 30, 2018   26,865,639      
Ending balance at Sep. 30, 2018 247,457 $ 270 169,465 80,206 (2,484)
Beginning shares at Apr. 01, 2018   26,905,630      
Beginning balance at Apr. 01, 2018 236,297 $ 269 167,711 68,666 (349)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 1,017   1,017    
Vesting of restricted shares (in shares)   38,348      
Vesting of restricted shares 0 $ 1 (1)    
Purchase of treasury stock (in shares)   (24,499)      
Purchase of treasury stock (603)       (603)
Net income (loss) 9,493     9,493  
Ending shares at Jul. 01, 2018   26,919,479      
Ending balance at Jul. 01, 2018 246,204 $ 270 168,727 78,159 (952)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 738   738    
Vesting of restricted shares (in shares)   613      
Vesting of restricted shares 0 $ 0 0    
Purchase of treasury stock (in shares)   (54,453)      
Purchase of treasury stock (1,532)       (1,532)
Net income (loss) 2,047     2,047  
Ending shares at Sep. 30, 2018   26,865,639      
Ending balance at Sep. 30, 2018 $ 247,457 $ 270 169,465 80,206 (2,484)
Beginning shares at Dec. 30, 2018 26,858,988 26,858,988      
Beginning balance at Dec. 30, 2018 $ 240,059 $ 270 170,290 72,268 (2,769)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 792   792    
Vesting of restricted shares (in shares)   68,286      
Vesting of restricted shares (1) $ 0 (1)    
Cumulative effect of adopting a new accounting standard 14,002     14,002  
Purchase of treasury stock (in shares)   (158,269)      
Purchase of treasury stock (2,199)       (2,199)
Net income (loss) 2,289     2,289  
Ending shares at Mar. 31, 2019   26,769,005      
Ending balance at Mar. 31, 2019 $ 254,942 $ 270 171,081 88,559 (4,968)
Beginning shares at Dec. 30, 2018 26,858,988 26,858,988      
Beginning balance at Dec. 30, 2018 $ 240,059 $ 270 170,290 72,268 (2,769)
Increase (Decrease) in Stockholders' Equity          
Purchase of treasury stock (in shares) (1,064,537)        
Purchase of treasury stock $ (11,300)        
Net income (loss) $ (63,333)        
Ending shares at Sep. 29, 2019 25,926,561 25,926,561      
Ending balance at Sep. 29, 2019 $ 181,508 $ 271 172,426 22,937 (14,126)
Beginning shares at Mar. 31, 2019   26,769,005      
Beginning balance at Mar. 31, 2019 254,942 $ 270 171,081 88,559 (4,968)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 735   735    
Vesting of restricted shares (in shares)   57,547      
Vesting of restricted shares 0 $ 1 (1)    
Net income (loss) (43,440)     (43,440)  
Ending shares at Jun. 30, 2019   26,826,552      
Ending balance at Jun. 30, 2019 212,237 $ 271 171,815 45,119 (4,968)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 611   611    
Vesting of restricted shares (in shares)   6,277      
Vesting of restricted shares 0 $ 0 0    
Purchase of treasury stock (in shares)   (906,268)      
Purchase of treasury stock (9,158)       (9,158)
Net income (loss) $ (22,182)     (22,182)  
Ending shares at Sep. 29, 2019 25,926,561 25,926,561      
Ending balance at Sep. 29, 2019 $ 181,508 $ 271 $ 172,426 $ 22,937 $ (14,126)
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 29, 2019
Sep. 30, 2018
Operating activities:    
Net income (loss) $ (63,333) $ 15,724
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Loss (gain) on disposals of property and equipment (6) (1,167)
Stock-based compensation 2,138 2,644
Impairment and other lease charges 4,667 6,539
Goodwill impairment 67,909 0
Depreciation and amortization 29,520 27,908
Amortization of deferred financing costs 203 203
Amortization of deferred gains from sale-leaseback transactions 0 (2,698)
Deferred income taxes (2,112) 7,856
Changes in other operating assets and liabilities 11,988 (12,721)
Net cash provided by operating activities 50,974 44,288
Capital expenditures:    
New restaurant development (10,681) (17,897)
Restaurant remodeling (368) (234)
Other restaurant capital expenditures (15,845) (15,536)
Corporate and restaurant information systems (7,179) (6,256)
Total capital expenditures (34,073) (39,923)
Proceeds from disposals of properties 1,774 4,676
Proceeds from insurance recoveries 42 813
Net cash used in investing activities (32,257) (34,434)
Financing activities:    
Borrowings on revolving credit facility 21,000 18,000
Repayments on revolving credit facility (30,000) (23,000)
Principal payments on finance/capital leases (109) (76)
Financing costs associated with issuance of debt 0 (150)
Payments to purchase treasury stock (11,357) (2,484)
Net cash used in financing activities (20,466) (7,710)
Net change in cash (1,749) 2,144
Cash, beginning of period 5,258 3,599
Cash, end of period 3,509 5,743
Supplemental disclosures:    
Interest paid on long-term debt 3,558 2,505
Accruals for capital expenditures 3,198 5,338
Income tax payments (refunds), net (15,620) (3,360)
Finance/capital lease obligations incurred $ 495 $ 322
v3.19.3
Basis of Presentation
9 Months Ended
Sep. 29, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, 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 September 29, 2019, the Company owned and operated 141 Pollo Tropical® restaurants and 165 Taco Cabana® restaurants. All of the Pollo Tropical restaurants are located in Florida and all of the Taco Cabana restaurants are located in Texas. At September 29, 2019, the Company franchised a total of 31 Pollo Tropical restaurants and eight Taco Cabana restaurants. The franchised Pollo Tropical restaurants included 17 in Puerto Rico, four in Panama, two in Guyana, one in the Bahamas, six on college campuses and one at a hospital in Florida. The franchised Taco Cabana restaurants included six in New Mexico and two on college campuses in Texas.
Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 5253 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 30, 2018 contained 52 weeks. The three and nine months ended September 29, 2019 and September 30, 2018 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending December 29, 2019 will contain 52 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 29, 2019 and September 30, 2018 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 footnotes required by U.S. Generally Accepted Accounting Principles ("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 nine months ended September 29, 2019 and September 30, 2018 are not necessarily indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 30, 2018 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The December 30, 2018 balance sheet data is derived from those audited financial statements.
Guidance Adopted in 2019. In February 2016, and in subsequent updates, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The Company adopted this new accounting standard and all the related amendments as of December 31, 2018 using the modified retrospective method, with certain optional practical expedients including the transition practical expedient package, which among other things does not require reassessment of lease classification. The Company elected the transition method that allows it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for that period.
The Company has recognized lease liabilities and corresponding right-of-use ("ROU") lease assets for substantially all of the leases it previously accounted for as operating leases, including leases related to closed restaurant properties. The initial ROU assets were calculated as the present value of the remaining operating lease payments using the Company's incremental borrowing rate as of December 31, 2018, reduced by accrued occupancy costs such as certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis), unamortized lease incentives and any unamortized sale-leaseback gains that resulted from off-market terms and increased by unamortized lease acquisition costs. Upon the adoption of ASC 842, the Company no longer records closed restaurant lease reserves, and ROU lease assets are reviewed for impairment with the Company's long-lived assets.
The Company elected the practical expedient to combine lease and non-lease components of real estate contracts, which resulted in classification of certain occupancy related expenses that are included in other restaurant operating expenses for periods prior to the adoption of ASC 842 as restaurant rent expenses in the consolidated statement of operations for periods subsequent to the adoption of ASC 842. The Company separately presents rent expense related to its closed restaurant locations and any sublease
income related to these closed restaurant locations within closed restaurant rent expense, net of sublease income in the consolidated statement of operations for periods subsequent to the adoption of ASC 842.
The Company recorded an initial adjustment to the opening balance of retained earnings of $14.0 million associated with previously deferred gains on sale-leaseback transactions and impairment of operating lease right-of-use assets as of the date of adoption. This adjustment consisted of $18.6 million in deferred gains on sale-leaseback transactions, net of a related deferred tax asset of $4.3 million and $0.2 million in impairment charges, net of tax. For any future sale-leaseback transactions, the gain (adjusted for any off-market terms) will be recognized immediately.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. In 2019, the Company early adopted this new accounting standard and performed its interim impairment tests in accordance with ASU 2017-04. In the second quarter of 2019, the Company recognized a $46.5 million impairment of its Taco Cabana reporting unit goodwill, which represents the excess of the reporting unit's carrying value over its fair value at June 30, 2019. In the third quarter of 2019, the Company recognized a $21.4 million impairment of its Taco Cabana reporting unit goodwill. In the third quarter of 2019, the excess of the Taco Cabana reporting unit's carrying value over its fair value was greater than the balance of the reporting unit's goodwill, resulting in a full impairment of the Taco Cabana reporting unit's goodwill. See Note 4—Goodwill.
Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.
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 at the measurement date under current market conditions. 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 management's 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 reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. The fair value of the Company's senior credit facility was approximately $69.0 million at September 29, 2019, and $78.0 million at December 30, 2018. The carrying value of the Company's senior credit facility was $69.0 million at September 29, 2019 and $78.0 million at December 30, 2018.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets including right-of-use lease assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—Impairment of Long-Lived Assets.
Leases. The Company assesses whether an agreement contains a lease at inception. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes
any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties, and subsequent to the adoption of ASC 842, when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component. See Note 6—Leases.
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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: 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.
v3.19.3
Prepaid Expenses and Other Current Assets
9 Months Ended
Sep. 29, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets, consist of the following:
 
September 29, 2019
 
December 30, 2018
Prepaid contract expenses
$
4,275

 
$
4,232

Assets held for sale(1)
4,336

 

Other
3,767

 
2,330

 
$
12,378

 
$
6,562


(1) One closed Pollo Tropical restaurant and two Taco Cabana restaurant properties owned by the Company were classified as held for sale as of September 29, 2019.
v3.19.3
Impairment of Long-Lived Assets and Other Lease Charges
9 Months Ended
Sep. 29, 2019
Property, Plant and Equipment [Abstract]  
Impairment of Long-Lived Assets and Other Lease Charges Impairment of Long-Lived Assets and Other Lease Charges
The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. 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. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.
A summary of impairment of long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Pollo Tropical
$
165

 
$
3,295

 
$
(162
)
 
$
3,439

Taco Cabana
3,089

 
3,122

 
4,829

 
3,100

 
$
3,254

 
$
6,417

 
$
4,667

 
$
6,539


Impairment and other lease charges for the three and nine months ended September 29, 2019 for Pollo Tropical include impairment charges of $0.2 million and $0.6 million, respectively, related primarily to additional impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of
$(0.8) million for the nine months ended September 29, 2019. Impairment and other lease charges for the three and nine months ended September 29, 2019 for Taco Cabana include impairment charges of $3.1 million and $4.9 million, respectively, related primarily to impairment of assets for eight underperforming Taco Cabana restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and equipment from previously impaired restaurants as well as a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million for the nine months ended September 29, 2019.
Impairment and other lease charges for the three and nine months ended September 30, 2018 for Pollo Tropical include impairment charges of $3.4 million and $3.6 million, respectively, related primarily to impairment of three underperforming restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and a benefit of $(0.1) million in net lease charge recoveries related to certain previously closed restaurants due to adjustments to estimates of future lease costs. Impairment and other lease charges for the three and nine months ended September 30, 2018 for Taco Cabana include impairment charges of $2.4 million and $2.6 million, respectively, related primarily to impairment of five underperforming restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and other lease charges, net of recoveries, of $0.7 million and $0.5 million, respectively, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to certain previously closed restaurants due to adjustments to estimates of future lease costs.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants. The Level 3 assets measured at fair value associated with impairment charges recorded during the nine months ended September 29, 2019 totaled $1.5 million.
v3.19.3
Goodwill
9 Months Ended
Sep. 29, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill 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 the last day of the fiscal year and has determined its reporting units to be its operating segments, Pollo Tropical and Taco Cabana.
In performing its goodwill impairment test as of December 30, 2018, the Company compared the net book values of its reporting units to their estimated fair values, the latter determined by employing an income-based discounted cash flow analysis approach and a market-based approach, which was corroborated with other value indicators where available, such as comparable company earnings multiples.
As of June 30, 2019, the Company determined that a triggering event had occurred due to a sustained decrease in the market price of the Company's common stock. In response to the triggering event, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units. Fair value for each reporting unit was determined using a combination of the income-based approach and two market-based approaches. Based on the impairment test analysis, the fair value of the Pollo Tropical reporting unit substantially exceeded its carrying amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value, which indicated an impairment of the Taco Cabana reporting unit. Lower than expected profitability and a lower profitability and growth outlook for the Taco Cabana reporting unit reduced its income-based and market-based approach fair value.
The Company early adopted ASU 2017-04, which eliminates Step 2 from the goodwill impairment test, and requires recognition of an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, limited to the carrying value of the reporting unit's goodwill. In the second quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $46.5 million, which represents the excess of the reporting unit's carrying value over its fair value at June 30, 2019 and which was not deductible for tax purposes.
In addition, in response to a further decrease in the market price of the Company's common stock and lower than expected profitability in the third quarter of 2019, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units as of September 29, 2019. Based on the impairment test analysis, which utilized the same approach used in the second quarter of 2019, the fair value of the Pollo Tropical reporting unit continued to substantially exceed its carrying
amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value. In the third quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $21.4 million, of which $9.1 million was deductible for tax purposes and resulted in an income tax benefit of $2.1 million. The excess of the Taco Cabana reporting unit's carrying value over its fair value was greater than the balance of the reporting unit's goodwill, resulting in a full impairment of the Taco Cabana reporting unit's goodwill.
A summary of changes in goodwill during the nine months ended September 29, 2019 is as follows:
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, December 30, 2018
$
56,307

 
$
67,177

 
$
123,484

Impairment charges(1)(2)

 
(67,177
)
 
(67,177
)
Balance, September 29, 2019
$
56,307

 
$

 
$
56,307

(1) Accumulated impairment losses at September 29, 2019 were $67.2 million. There were no accumulated impairment losses at December 30, 2018.
(2) Impairment charges during the three and nine months ended September 29, 2019 include $0.7 million previously classified as an intangible asset and included in other assets.
v3.19.3
Other Liabilities
9 Months Ended
Sep. 29, 2019
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
 
September 29, 2019
 
December 30, 2018
Accrued workers' compensation and general liability claims
$
4,770

 
$
4,886

Sales and property taxes
2,054

 
1,958

Accrued occupancy costs
1,189

 
4,554

Operating lease liabilities
19,647

 

Other
2,182

 
2,688

 
$
29,842

 
$
14,086


Other non-current liabilities consist of the following:
 
September 29, 2019
 
December 30, 2018
Accrued occupancy costs
$
78

 
$
21,534

Deferred compensation
532

 
867

Accrued workers' compensation and general liability claims
6,806

 
6,808

Other
650

 
3,295

 
$
8,066

 
$
32,504


At December 30, 2018, accrued occupancy costs included obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term. As a result of adopting ASC 842 on December 31, 2018, at September 29, 2019, accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.
The following table presents the activity in the closed-restaurant reserve, of which $0.1 million and $4.4 million are included in non-current accrued occupancy costs at September 29, 2019 and December 30, 2018, respectively, with the remainder in current accrued occupancy costs.
 
Nine Months Ended September 29, 2019
 
Year Ended December 30, 2018
Balance, beginning of period
$
8,819

 
$
12,994

Provisions for restaurant closures

 
2,228

Additional lease charges (recoveries), net
(808
)
 
(152
)
Payments, net
(895
)
 
(6,778
)
Other adjustments(1)
(5,992
)
 
527

Balance, end of period
$
1,124

 
$
8,819


(1) As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments totaling $5.7 million was reclassified and included as a component of the related ROU assets during the nine months ended September 29, 2019. The portion of the closed restaurant reserve related to variable ancillary lease costs was not reclassified and was not included as a reduction to ROU assets.
v3.19.3
Leases
9 Months Ended
Sep. 29, 2019
Leases [Abstract]  
Leases Leases
The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's leases have remaining lease terms of 0.3 years to 22.1 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2019
 
September 29, 2019
Operating lease cost
$
11,396

 
$
34,097

 
 
 
 
Finance lease costs:
 
 
 
Amortization of right-of-use assets
$
59

 
$
136

Interest on lease liabilities
58

 
168

Total finance lease costs
$
117

 
$
304

 
 
 
 
Variable lease costs
$
2,766

 
8,855

Sublease income
(1,135
)
 
(2,764
)
Total lease costs
$
13,144

 
$
40,492


Supplemental balance sheet information related to leases is as follows:
 
September 29, 2019
Operating Leases
 
Operating lease right-of-use assets
$
254,449

 
 
Other current liabilities
$
19,647

Operating lease liabilities
258,891

Total operating lease liabilities
$
278,538

 
 
Finance Leases
 
Property and equipment, gross
$
2,874

Accumulated amortization
(1,268
)
Property and equipment, net
$
1,606

 
 
Current portion of long-term debt
$
204

Long-term debt, net of current portion
1,887

Total finance lease liabilities
$
2,091

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.1

Finance leases
8.1

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
12.61
%

Supplemental cash flow information related to leases is as follows:
 
Nine Months Ended
 
September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
32,833

Operating cash flows for finance leases
168

Financing cash flows for finance leases
109

 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
8,618

Finance lease ROU assets
495

 
 
Right-of-use assets and lease liabilities reduced for terminated leases:
 
Operating lease ROU assets
4,058

Operating lease liabilities
4,787

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
267,743

Operating lease liabilities
291,373


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
Remaining 2019
$
7,369

 
$
87

2020
43,570

 
460

2021
40,062

 
475

2022
38,637

 
475

2023
35,269

 
428

2024
31,820

 
350

Thereafter
248,237

 
1,278

Total lease payments
444,964

 
3,553

Less amount representing interest
(166,426
)
 
(1,462
)
Total discounted lease liabilities
278,538

 
2,091

Less current portion
(19,647
)
 
(204
)
Long-term portion of leases liabilities
$
258,891

 
$
1,887


As of September 29, 2019, the Company had five additional operating leases for restaurant properties. These operating leases will commence in fiscal year 2020 with each lease having an initial lease term of 15 years.
Minimum rent commitments due under capital and non-cancelable operating leases at December 30, 2018 were as follows:
 
Operating
 
Capital
2019
$
44,427

 
$
323

2020
44,144

 
327

2021
41,396

 
342

2022
40,215

 
342

2023
36,587

 
349

Thereafter
264,704

 
1,646

Total minimum lease payments(1)
$
471,473

 
3,329

Less amount representing interest
 
 
(1,585
)
Total obligations under capital leases
 
 
1,744

Less current portion
 
 
(108
)
Long-term debt under capital leases
 
 
$
1,636

(1)
Minimum operating lease payments include contractual rent payments for closed restaurants for which the Company is still obligated under the lease agreements and have not been reduced by minimum sublease rent of $41.4 million due in the future under non-cancelable subleases. See Note 5—Other Liabilities.
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's subleases have remaining sublease terms of 2.6 years to 19.7 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
Remaining 2019
$
937

2020
4,384

2021
4,551

2022
4,493

2023
4,481

2024
4,535

Thereafter
41,798

Total
$
65,179


Leases Leases
The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's leases have remaining lease terms of 0.3 years to 22.1 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2019
 
September 29, 2019
Operating lease cost
$
11,396

 
$
34,097

 
 
 
 
Finance lease costs:
 
 
 
Amortization of right-of-use assets
$
59

 
$
136

Interest on lease liabilities
58

 
168

Total finance lease costs
$
117

 
$
304

 
 
 
 
Variable lease costs
$
2,766

 
8,855

Sublease income
(1,135
)
 
(2,764
)
Total lease costs
$
13,144

 
$
40,492


Supplemental balance sheet information related to leases is as follows:
 
September 29, 2019
Operating Leases
 
Operating lease right-of-use assets
$
254,449

 
 
Other current liabilities
$
19,647

Operating lease liabilities
258,891

Total operating lease liabilities
$
278,538

 
 
Finance Leases
 
Property and equipment, gross
$
2,874

Accumulated amortization
(1,268
)
Property and equipment, net
$
1,606

 
 
Current portion of long-term debt
$
204

Long-term debt, net of current portion
1,887

Total finance lease liabilities
$
2,091

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.1

Finance leases
8.1

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
12.61
%

Supplemental cash flow information related to leases is as follows:
 
Nine Months Ended
 
September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
32,833

Operating cash flows for finance leases
168

Financing cash flows for finance leases
109

 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
8,618

Finance lease ROU assets
495

 
 
Right-of-use assets and lease liabilities reduced for terminated leases:
 
Operating lease ROU assets
4,058

Operating lease liabilities
4,787

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
267,743

Operating lease liabilities
291,373


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
Remaining 2019
$
7,369

 
$
87

2020
43,570

 
460

2021
40,062

 
475

2022
38,637

 
475

2023
35,269

 
428

2024
31,820

 
350

Thereafter
248,237

 
1,278

Total lease payments
444,964

 
3,553

Less amount representing interest
(166,426
)
 
(1,462
)
Total discounted lease liabilities
278,538

 
2,091

Less current portion
(19,647
)
 
(204
)
Long-term portion of leases liabilities
$
258,891

 
$
1,887


As of September 29, 2019, the Company had five additional operating leases for restaurant properties. These operating leases will commence in fiscal year 2020 with each lease having an initial lease term of 15 years.
Minimum rent commitments due under capital and non-cancelable operating leases at December 30, 2018 were as follows:
 
Operating
 
Capital
2019
$
44,427

 
$
323

2020
44,144

 
327

2021
41,396

 
342

2022
40,215

 
342

2023
36,587

 
349

Thereafter
264,704

 
1,646

Total minimum lease payments(1)
$
471,473

 
3,329

Less amount representing interest
 
 
(1,585
)
Total obligations under capital leases
 
 
1,744

Less current portion
 
 
(108
)
Long-term debt under capital leases
 
 
$
1,636

(1)
Minimum operating lease payments include contractual rent payments for closed restaurants for which the Company is still obligated under the lease agreements and have not been reduced by minimum sublease rent of $41.4 million due in the future under non-cancelable subleases. See Note 5—Other Liabilities.
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's subleases have remaining sublease terms of 2.6 years to 19.7 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
Remaining 2019
$
937

2020
4,384

2021
4,551

2022
4,493

2023
4,481

2024
4,535

Thereafter
41,798

Total
$
65,179


Leases Leases
The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's leases have remaining lease terms of 0.3 years to 22.1 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 29, 2019
 
September 29, 2019
Operating lease cost
$
11,396

 
$
34,097

 
 
 
 
Finance lease costs:
 
 
 
Amortization of right-of-use assets
$
59

 
$
136

Interest on lease liabilities
58

 
168

Total finance lease costs
$
117

 
$
304

 
 
 
 
Variable lease costs
$
2,766

 
8,855

Sublease income
(1,135
)
 
(2,764
)
Total lease costs
$
13,144

 
$
40,492


Supplemental balance sheet information related to leases is as follows:
 
September 29, 2019
Operating Leases
 
Operating lease right-of-use assets
$
254,449

 
 
Other current liabilities
$
19,647

Operating lease liabilities
258,891

Total operating lease liabilities
$
278,538

 
 
Finance Leases
 
Property and equipment, gross
$
2,874

Accumulated amortization
(1,268
)
Property and equipment, net
$
1,606

 
 
Current portion of long-term debt
$
204

Long-term debt, net of current portion
1,887

Total finance lease liabilities
$
2,091

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.1

Finance leases
8.1

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
12.61
%

Supplemental cash flow information related to leases is as follows:
 
Nine Months Ended
 
September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
32,833

Operating cash flows for finance leases
168

Financing cash flows for finance leases
109

 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
8,618

Finance lease ROU assets
495

 
 
Right-of-use assets and lease liabilities reduced for terminated leases:
 
Operating lease ROU assets
4,058

Operating lease liabilities
4,787

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
267,743

Operating lease liabilities
291,373


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
Remaining 2019
$
7,369

 
$
87

2020
43,570

 
460

2021
40,062

 
475

2022
38,637

 
475

2023
35,269

 
428

2024
31,820

 
350

Thereafter
248,237

 
1,278

Total lease payments
444,964

 
3,553

Less amount representing interest
(166,426
)
 
(1,462
)
Total discounted lease liabilities
278,538

 
2,091

Less current portion
(19,647
)
 
(204
)
Long-term portion of leases liabilities
$
258,891

 
$
1,887


As of September 29, 2019, the Company had five additional operating leases for restaurant properties. These operating leases will commence in fiscal year 2020 with each lease having an initial lease term of 15 years.
Minimum rent commitments due under capital and non-cancelable operating leases at December 30, 2018 were as follows:
 
Operating
 
Capital
2019
$
44,427

 
$
323

2020
44,144

 
327

2021
41,396

 
342

2022
40,215

 
342

2023
36,587

 
349

Thereafter
264,704

 
1,646

Total minimum lease payments(1)
$
471,473

 
3,329

Less amount representing interest
 
 
(1,585
)
Total obligations under capital leases
 
 
1,744

Less current portion
 
 
(108
)
Long-term debt under capital leases
 
 
$
1,636

(1)
Minimum operating lease payments include contractual rent payments for closed restaurants for which the Company is still obligated under the lease agreements and have not been reduced by minimum sublease rent of $41.4 million due in the future under non-cancelable subleases. See Note 5—Other Liabilities.
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of September 29, 2019, the Company's subleases have remaining sublease terms of 2.6 years to 19.7 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
Remaining 2019
$
937

2020
4,384

2021
4,551

2022
4,493

2023
4,481

2024
4,535

Thereafter
41,798

Total
$
65,179


v3.19.3
Stockholders' Equity
9 Months Ended
Sep. 29, 2019
Equity [Abstract]  
Stockholders' Equity Stockholders' Equity
Purchase of Treasury Stock
On February 26, 2018, the Company announced that its board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock, and on August 7, 2019, it announced that its board of directors approved an increase to its share repurchase program of an additional 500,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 1,064,537 shares of its common stock under the program in open market transactions during the nine months ended September 29, 2019 for $11.3 million. The repurchased shares are held as treasury stock at cost.
Stock-Based Compensation
During the nine months ended September 29, 2019, the Company granted certain employees, non-employee directors and a consultant a total of 287,002 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees generally vest and become non-forfeitable over a four-year vesting period. The shares granted to non-employee directors and the consultant vest and become non-forfeitable over a one- and four-year vesting period, respectively. During the three months ended September 29, 2019, the Company granted a certain executive a total of 20,000 non-vested restricted shares under the Fiesta Plan, which vest in two tranches over a four-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the nine months ended September 29, 2019 was $13.00 per share.
During the nine months ended September 29, 2019, the Company granted a certain executive a total of 15,348 restricted stock units under the Fiesta Plan, which vest in two tranches over a two-year vesting period. The restricted stock units granted to the executive are subject to continued service and attainment of specified share prices of the Company's common stock for a specified period of time within each vesting period. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for the first tranche is not met for the year, the cumulative unearned restricted stock units will be rolled over to the subsequent tranche. For the restricted stock units granted in the nine months ended September 29, 2019, the number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 15,348 shares, if the service and market performance conditions are met in the last vesting period. The weighted average fair value at grant date for the restricted stock units granted in the nine months ended September 29, 2019 was $1.76 per share.
Stock-based compensation expense for the three and nine months ended September 29, 2019 was $0.6 million and $2.1 million, respectively, and for the three and nine months ended September 30, 2018 was $0.7 million and $2.6 million, respectively. At September 29, 2019, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $4.8 million. At September 29, 2019, the remaining weighted average vesting period for non-vested restricted shares was 2.7 years and restricted stock units was 0.9 years.
A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended September 29, 2019 is as follows:
 
Non-Vested Shares
 
Restricted Stock Units
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Units
 
Weighted
Average
Grant Date
Fair Value
Outstanding at December 30, 2018
287,866

 
$
20.70

 
231,112

 
$
12.44

Granted
287,002

 
13.00

 
15,348

 
1.76

Vested and released
(128,811
)
 
20.34

 
(3,418
)
 
62.05

Forfeited
(69,190
)
 
17.50

 
(95,123
)
 
12.97

Outstanding at September 29, 2019
376,867

 
$
15.48

 
147,919

 
$
9.83


The fair value of the non-vested restricted shares and all other restricted stock units is based on the closing price on the date of grant. The fair value of the restricted stock units subject to market conditions was estimated using the Monte Carlo simulation method. The assumptions used to value grant restricted stock units subject to market conditions are detailed below:
 
 
2019
 
2018
Grant date stock price
 
$
14.66

 
$
18.70

Fair value at grant date
 
$
1.76

 
$
6.96

Risk free interest rate
 
2.53
%
 
2.40
%
Expected term (in years)
 
2

 
3

Dividend yield
 
%
 
%
Expected volatility
 
43.18
%
 
41.49
%

v3.19.3
Business Segment Information
9 Months Ended
Sep. 29, 2019
Segment Reporting [Abstract]  
Business Segment Information Business Segment Information
The Company owns, operates and franchises two restaurant brands, Pollo Tropical® and Taco Cabana®, each of which is an operating segment. Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared tropical inspired menu items, while Taco Cabana restaurants specialize in Mexican inspired food.
Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2018. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below.
The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts and a current income tax receivable.
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 29, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
88,309

 
$
75,280

 
$

 
$
163,589

Franchise revenue
 
432

 
227

 

 
659

Cost of sales
 
28,239

 
23,817

 

 
52,056

Restaurant wages and related expenses(1)
 
20,944

 
23,515

 

 
44,459

Restaurant rent expense
 
5,477

 
6,493

 

 
11,970

Other restaurant operating expenses
 
12,807

 
11,346

 

 
24,153

Advertising expense
 
3,130

 
3,255

 

 
6,385

General and administrative expense(2)
 
7,521

 
6,299

 

 
13,820

Adjusted EBITDA
 
10,980

 
1,174

 

 
12,154

Depreciation and amortization
 
5,529

 
4,636

 

 
10,165

Capital expenditures
 
6,402

 
5,015

 
985

 
12,402

September 30, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
93,592

 
$
80,374

 
$

 
$
173,966

Franchise revenue
 
453

 
229

 

 
682

Cost of sales
 
31,219

 
24,802

 

 
56,021

Restaurant wages and related expenses(1)
 
21,947

 
25,996

 

 
47,943

Restaurant rent expense
 
4,392

 
4,737

 

 
9,129

Other restaurant operating expenses
 
13,521

 
13,773

 

 
27,294

Advertising expense
 
3,413

 
3,059

 

 
6,472

General and administrative expense(2)
 
7,291

 
5,993

 

 
13,284

Adjusted EBITDA
 
12,544

 
2,493

 

 
15,037

Depreciation and amortization
 
5,438

 
4,301

 

 
9,739

Capital expenditures
 
4,621

 
7,489

 
525

 
12,635


 
Nine Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 29, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
271,955

 
$
227,528

 
$

 
$
499,483

Franchise revenue
 
1,325

 
673

 

 
1,998

Cost of sales
 
85,855

 
70,469

 

 
156,324

Restaurant wages and related expenses(1)
 
63,387

 
71,874

 

 
135,261

Restaurant rent expense
 
16,393

 
19,220

 

 
35,613

Other restaurant operating expenses
 
36,665

 
31,764

 

 
68,429

Advertising expense
 
9,351

 
8,438

 

 
17,789

General and administrative expense(2)
 
23,568

 
18,819

 

 
42,387

Adjusted EBITDA
 
39,943

 
8,189

 

 
48,132

Depreciation and amortization
 
16,118

 
13,402

 

 
29,520

Capital expenditures
 
18,195

 
14,982

 
896

 
34,073

September 30, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
283,447

 
$
235,504

 
$

 
$
518,951

Franchise revenue
 
1,376

 
632

 

 
2,008

Cost of sales
 
93,716

 
72,559

 

 
166,275

Restaurant wages and related expenses(1)
 
65,652

 
76,451

 

 
142,103

Restaurant rent expense
 
13,024

 
13,837

 

 
26,861

Other restaurant operating expenses
 
38,270

 
37,128

 

 
75,398

Advertising expense
 
9,859

 
8,187

 

 
18,046

General and administrative expense(2)
 
22,256

 
18,767

 

 
41,023

Adjusted EBITDA
 
42,520

 
9,652

 

 
52,172

Depreciation and amortization
 
16,117

 
11,791

 

 
27,908

Capital expenditures
 
17,656

 
21,400

 
867

 
39,923

Identifiable Assets:
 
 
 
 
 
 
 
 
September 29, 2019
 
$
348,149

 
$
210,238

 
$
19,215

 
$
577,602

December 30, 2018
 
207,435

 
174,681

 
36,543

 
418,659


(1) Includes stock-based compensation expense of $102 and $145 for the three and nine months ended September 29, 2019, respectively, and $6 and $56 for the three and nine months ended September 30, 2018, respectively.
(2) Includes stock-based compensation expense of $509 and $1,993 for the three and nine months ended September 29, 2019, respectively, and $732 and $2,588 for the three and nine months ended September 30, 2018, respectively.
A reconciliation of consolidated net income to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 29, 2019:
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
$
(22,182
)
Benefit from income taxes
 
 
 
 
 
 
 
(2,946
)
Income (loss) before taxes
 
$
3,857

 
$
(28,985
)
 
$

 
$
(25,128
)
Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
5,529

 
4,636

 

 
10,165

          Impairment and other lease charges
 
165

 
3,089

 

 
3,254

Goodwill impairment
 

 
21,424

 

 
21,424

          Interest expense
 
398

 
425

 

 
823

          Closed restaurant rent expense, net of sublease income
 
601

 
125

 

 
726

          Other expense (income), net
 
5