FIESTA RESTAURANT GROUP, INC., 10-Q filed on 5/7/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name FIESTA RESTAURANT GROUP, INC.  
Entity Trading Symbol FRGI  
Entity Central Index Key 0001534992  
Current Fiscal Year End Date --12-29  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   27,452,222
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 30, 2018
Current assets:    
Cash $ 5,018 $ 5,258
Accounts receivable 10,286 8,505
Inventories 2,764 2,842
Prepaid rent 118 3,375
Income tax receivable 16,853 17,857
Prepaid expenses and other current assets 13,220 6,562
Total current assets 48,259 44,399
Property and equipment, net 225,270 231,328
Operating lease right-of-use assets 264,951 0
Goodwill 123,484 123,484
Deferred income taxes 6,131 10,383
Other assets 8,336 9,065
Total assets 676,431 418,659
Current liabilities:    
Current portion of long-term debt 95 108
Accounts payable 14,577 16,410
Accrued payroll, related taxes and benefits 11,360 10,086
Accrued real estate taxes 2,801 5,871
Other current liabilities 31,098 14,086
Total current liabilities 59,931 46,561
Long-term debt, net of current portion 83,594 79,636
Deferred income—sale-leaseback of real estate 0 19,899
Operating lease liabilities 269,424 0
Other non-current liabilities 8,540 32,504
Total liabilities 421,489 178,600
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, 27,453,911 and 27,259,212 shares issued, respectively, and 26,769,005 and 26,858,988 shares outstanding, respectively 270 270
Additional paid-in capital 171,081 170,290
Retained earnings 88,559 72,268
Treasury stock, at cost; 270,627 and 112,358 shares, respectively (4,968) (2,769)
Total stockholders' equity 254,942 240,059
Total liabilities and stockholders' equity $ 676,431 $ 418,659
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 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 27,453,911 27,259,212
Common stock, shares outstanding 26,769,005 26,858,988
Treasury stock, shares 270,627 112,358
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Apr. 01, 2018
Revenues:    
Revenues $ 165,852 $ 169,484
Costs and expenses:    
Cost of sales 50,510 53,565
Restaurant wages and related expenses (including stock-based compensation expense of $27 and $17, respectively) 45,036 46,483
Restaurant rent expense 11,745 8,892
Other restaurant operating expenses 21,763 23,450
Advertising expense 5,521 6,213
General and administrative (including stock-based compensation expense of $765 and $872, respectively) 15,071 14,919
Depreciation and amortization 9,548 8,999
Pre-opening costs 401 381
Impairment and other lease charges (338) (662)
Closed restaurant rent expense, net of sublease income 1,424 0
Other expense (income), net 702 366
Total operating expenses 161,383 162,606
Income from operations 4,469 6,878
Interest expense 1,234 1,069
Income before income taxes 3,235 5,809
Provision for income taxes 946 1,625
Net income $ 2,289 $ 4,184
Earnings per common share:    
Basic (usd per share) $ 0.08 $ 0.15
Diluted (usd per share) $ 0.08 $ 0.15
Weighted average common shares outstanding:    
Basic (in shares) 26,842,704 26,874,016
Diluted (in shares) 26,845,077 26,879,831
Restaurant sales    
Revenues:    
Revenues $ 165,181 $ 168,833
Franchise royalty revenues and fees    
Revenues:    
Revenues $ 671 $ 651
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Apr. 01, 2018
Stock-based compensation $ 800 $ 900
Restaurant Wages And Related Expenses    
Stock-based compensation 27 17
General and Administrative Expense    
Stock-based compensation $ 765 $ 872
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Beginning balance at Dec. 31, 2017 $ 231,516 $ 268 $ 166,823 $ 64,425  
Beginning shares at Dec. 31, 2017   26,847,458      
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 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 balance at Dec. 30, 2018 $ 240,059 $ 270 170,290 72,268 (2,769)
Beginning shares at Dec. 30, 2018 26,858,988 26,858,988      
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) (158,269)      
Purchase of treasury stock $ (2,199)       (2,199)
Net income $ 2,289     2,289  
Ending shares at Mar. 31, 2019 26,769,005 26,769,005      
Ending balance at Mar. 31, 2019 $ 254,942 $ 270 $ 171,081 $ 88,559 $ (4,968)
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Apr. 01, 2018
Operating activities:    
Net income $ 2,289 $ 4,184
Adjustments to reconcile net income to net cash provided by operating activities:    
(Gain) loss on disposals of property and equipment (13) 129
Stock-based compensation 792 889
Impairment and other lease charges (338) (662)
Depreciation and amortization 9,548 8,999
Amortization of deferred financing costs 67 68
Amortization of deferred gains from sale-leaseback transactions 0 (899)
Deferred income taxes 0 1,348
Changes in other operating assets and liabilities (4,597) (5,167)
Net cash provided by operating activities 7,748 8,889
Capital expenditures:    
New restaurant development (3,839) (4,765)
Restaurant remodeling (171) (333)
Other restaurant capital expenditures (5,015) (5,895)
Corporate and restaurant information systems (2,512) (4,175)
Total capital expenditures (11,537) (15,168)
Proceeds from disposals of properties 1,774 1,813
Proceeds from insurance recoveries 0 180
Net cash used in investing activities (9,763) (13,175)
Financing activities:    
Borrowings on revolving credit facility 11,000 15,000
Repayments on revolving credit facility (7,000) (10,000)
Principal payments on finance/capital leases (26) (23)
Financing costs associated with issuance of debt 0 (150)
Payments to purchase treasury stock (2,199) (349)
Net cash provided by financing activities 1,775 4,478
Net change in cash (240) 192
Cash, beginning of period 5,258 3,599
Cash, end of period 5,018 3,791
Supplemental disclosures:    
Interest paid on long-term debt 1,685 516
Accruals for capital expenditures 4,589 3,428
Income tax payments (refunds), net (58) (17)
Finance/capital lease obligations incurred $ 0 $ 322
v3.19.1
Basis of Presentation
3 Months Ended
Mar. 31, 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 March 31, 2019, the Company owned and operated 139 Pollo Tropical® restaurants and 164 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 March 31, 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 months ended March 31, 2019 and April 1, 2018 each contained thirteen weeks. The fiscal year ending December 29, 2019 will contain 52 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2019 and April 1, 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 months ended March 31, 2019 and April 1, 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.
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 $82.0 million at March 31, 2019, and $78.0 million at December 30, 2018. The carrying value of the Company's senior credit facility was $82.0 million at March 31, 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, current portion of long-term debt, and long-term debt, net of current maturities 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 ASC842, 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 5—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.
v3.19.1
Prepaid Expenses and Other Current Assets
3 Months Ended
Mar. 31, 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:
 
March 31, 2019
 
December 30, 2018
Prepaid contract expenses
$
4,647

 
$
4,232

Assets held for sale(1)
4,336

 

Other
4,237

 
2,330

 
$
13,220

 
$
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 March 31, 2019.
v3.19.1
Impairment of Long-Lived Assets and Other Lease Charges
3 Months Ended
Mar. 31, 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 on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
March 31, 2019
 
April 1, 2018
Pollo Tropical
$
(379
)
 
$
(541
)
Taco Cabana
41

 
(121
)
 
$
(338
)
 
$
(662
)

Impairment and other lease charges for the three months ended March 31, 2019 for Pollo Tropical include impairment charges of $0.4 million, related primarily to impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit of $(0.7) million related to previously closed restaurant lease terminations. Impairment and other lease charges for the three months ended March 31, 2019 for Taco Cabana include impairment charges related primarily to impairment of equipment from previously impaired restaurants.
Impairment and other lease charges for the three months ended April 1, 2018 primarily consist of a $(0.6) million and a $(0.1) million net benefit related to lease charge recoveries for Pollo Tropical and Taco Cabana, respectively, due primarily to a lease termination, a lease assignment, subleases and other 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 Level 3 assets measured at fair value associated with impairment charges recorded during the three months ended March 31, 2019 had no value.
v3.19.1
Other Liabilities
3 Months Ended
Mar. 31, 2019
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
 
March 31, 2019
 
December 30, 2018
Accrued workers' compensation and general liability claims
$
5,394

 
$
4,886

Sales and property taxes
1,817

 
1,958

Accrued occupancy costs
1,705

 
4,554

Operating lease liabilities
19,191

 

Other
2,991

 
2,688

 
$
31,098

 
$
14,086


Other non-current liabilities consist of the following:
 
March 31, 2019
 
December 30, 2018
Accrued occupancy costs
$
78

 
$
21,534

Deferred compensation
869

 
867

Accrued workers' compensation and general liability claims
6,808

 
6,808

Other
785

 
3,295

 
$
8,540

 
$
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. At March 31, 2019 accrued occupancy costs consisted of only current 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 March 31, 2019 and December 30, 2018, respectively, with the remainder in current accrued occupancy costs. At March 31, 2019, all closed-restaurant reserves are included in current accrued occupancy costs.
 
Three Months Ended March 31, 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
(742
)
 
(152
)
Payments, net
(693
)
 
(6,778
)
Other adjustments(1)
(5,708
)
 
527

Balance, end of period
$
1,676

 
$
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 was reclassified and included as a component of the related ROU assets. 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.
v3.19.1
Leases
3 Months Ended
Mar. 31, 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 March 31, 2019, the Company's leases have remaining lease terms of 0.5 years to 22.6 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, 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 do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
March 31, 2019
Operating lease cost
$
11,355

 
 
Finance lease costs:
 
Amortization of right-of-use assets
$
35

Interest on lease liabilities
55

Total finance lease costs
$
90

 
 
Variable lease costs
$
2,986

Sublease income
(748
)
Total lease costs
$
13,683


Supplemental balance sheet information related to leases is as follows:
 
March 31, 2019
Operating Leases
 
Operating lease right-of-use assets
$
264,951

 
 
Other current liabilities
$
19,191

Operating lease liabilities
269,424

Total operating lease liabilities
$
288,615

 
 
Finance Leases
 
Property and Equipment, gross
$
2,373

Accumulated amortization
(1,158
)
Property and equipment, net
$
1,215

 
 
Current portion of long-term debt
$
95

Long-term debt, net of current portion
1,593

Total finance lease liabilities
$
1,688

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.4

Finance leases
9.7

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
13.87
%

Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
10,852

Operating cash flows for finance leases
55

Financing cash flows for finance leases
26

 
 
Operating lease right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
5,191

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
265,547

Operating lease liabilities
288,763


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
2019
$
29,422

 
$
225

2020
43,456

 
327

2021
40,012

 
342

2022
38,590

 
342

2023
35,205

 
349

2024
31,488

 
350

Thereafter
247,190

 
1,278

Total lease payments
465,363

 
3,213

Less amount representing interest
(176,748
)
 
(1,525
)
Total discounted lease liabilities
288,615

 
1,688

Less current portion
(19,191
)
 
(95
)
Long-term portion of leases liabilities
$
269,424

 
$
1,593


As of March 31, 2019, the Company had five additional operating leases for restaurant properties and an additional operating lease for additional space at a corporate office that had not yet commenced. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of nine years to 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 4—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 March 31, 2019, the Company's subleases have remaining sublease terms of 3.1 years to 20.2 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 do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
2019
$
2,064

2020
2,946

2021
3,055

2022
2,991

2023
2,951

2024
2,985

Thereafter
29,872

Total
$
46,864

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 March 31, 2019, the Company's leases have remaining lease terms of 0.5 years to 22.6 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, 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 do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
March 31, 2019
Operating lease cost
$
11,355

 
 
Finance lease costs:
 
Amortization of right-of-use assets
$
35

Interest on lease liabilities
55

Total finance lease costs
$
90

 
 
Variable lease costs
$
2,986

Sublease income
(748
)
Total lease costs
$
13,683


Supplemental balance sheet information related to leases is as follows:
 
March 31, 2019
Operating Leases
 
Operating lease right-of-use assets
$
264,951

 
 
Other current liabilities
$
19,191

Operating lease liabilities
269,424

Total operating lease liabilities
$
288,615

 
 
Finance Leases
 
Property and Equipment, gross
$
2,373

Accumulated amortization
(1,158
)
Property and equipment, net
$
1,215

 
 
Current portion of long-term debt
$
95

Long-term debt, net of current portion
1,593

Total finance lease liabilities
$
1,688

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.4

Finance leases
9.7

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
13.87
%

Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
10,852

Operating cash flows for finance leases
55

Financing cash flows for finance leases
26

 
 
Operating lease right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
5,191

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
265,547

Operating lease liabilities
288,763


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
2019
$
29,422

 
$
225

2020
43,456

 
327

2021
40,012

 
342

2022
38,590

 
342

2023
35,205

 
349

2024
31,488

 
350

Thereafter
247,190

 
1,278

Total lease payments
465,363

 
3,213

Less amount representing interest
(176,748
)
 
(1,525
)
Total discounted lease liabilities
288,615

 
1,688

Less current portion
(19,191
)
 
(95
)
Long-term portion of leases liabilities
$
269,424

 
$
1,593


As of March 31, 2019, the Company had five additional operating leases for restaurant properties and an additional operating lease for additional space at a corporate office that had not yet commenced. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of nine years to 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 4—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 March 31, 2019, the Company's subleases have remaining sublease terms of 3.1 years to 20.2 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 do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
2019
$
2,064

2020
2,946

2021
3,055

2022
2,991

2023
2,951

2024
2,985

Thereafter
29,872

Total
$
46,864

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 March 31, 2019, the Company's leases have remaining lease terms of 0.5 years to 22.6 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, 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 do not contain financial covenants and restrictions.
Lease expense consisted of the following:
 
Three Months Ended
 
March 31, 2019
Operating lease cost
$
11,355

 
 
Finance lease costs:
 
Amortization of right-of-use assets
$
35

Interest on lease liabilities
55

Total finance lease costs
$
90

 
 
Variable lease costs
$
2,986

Sublease income
(748
)
Total lease costs
$
13,683


Supplemental balance sheet information related to leases is as follows:
 
March 31, 2019
Operating Leases
 
Operating lease right-of-use assets
$
264,951

 
 
Other current liabilities
$
19,191

Operating lease liabilities
269,424

Total operating lease liabilities
$
288,615

 
 
Finance Leases
 
Property and Equipment, gross
$
2,373

Accumulated amortization
(1,158
)
Property and equipment, net
$
1,215

 
 
Current portion of long-term debt
$
95

Long-term debt, net of current portion
1,593

Total finance lease liabilities
$
1,688

Weighted Average Remaining Lease Term (in Years)
 
Operating leases
12.4

Finance leases
9.7

 
 
Weighted Average Discount Rate
 
Operating leases
7.70
%
Finance leases
13.87
%

Supplemental cash flow information related to leases is as follows:
 
Three Months Ended
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
10,852

Operating cash flows for finance leases
55

Financing cash flows for finance leases
26

 
 
Operating lease right-of-use assets obtained in exchange for lease liabilities:
 
Operating lease ROU assets
5,191

 
 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
 
Operating lease ROU assets
265,547

Operating lease liabilities
288,763


Maturities of lease liabilities were as follows:
 
Operating Leases
 
Finance Leases
2019
$
29,422

 
$
225

2020
43,456

 
327

2021
40,012

 
342

2022
38,590

 
342

2023
35,205

 
349

2024
31,488

 
350

Thereafter
247,190

 
1,278

Total lease payments
465,363

 
3,213

Less amount representing interest
(176,748
)
 
(1,525
)
Total discounted lease liabilities
288,615

 
1,688

Less current portion
(19,191
)
 
(95
)
Long-term portion of leases liabilities
$
269,424

 
$
1,593


As of March 31, 2019, the Company had five additional operating leases for restaurant properties and an additional operating lease for additional space at a corporate office that had not yet commenced. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of nine years to 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 4—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 March 31, 2019, the Company's subleases have remaining sublease terms of 3.1 years to 20.2 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 do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
 
Operating Leases
2019
$
2,064

2020
2,946

2021
3,055

2022
2,991

2023
2,951

2024
2,985

Thereafter
29,872

Total
$
46,864

v3.19.1
Stockholders' Equity
3 Months Ended
Mar. 31, 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. 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 158,269 shares of its common stock under the program in open market transactions during the three months ended March 31, 2019 for $2.2 million. The repurchased shares are held as treasury stock at cost.
Stock-Based Compensation
During the three months ended March 31, 2019, the Company granted certain employees and a consultant a total of 223,948 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted generally vest and become non-forfeitable over a four-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the three months ended March 31, 2019 and April 1, 2018 was $13.44 and $18.70 per share, respectively.
During the three months ended March 31, 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 three months ended March 31, 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 to executives in the three months ended March 31, 2019 and April 1, 2018 was $1.76 and $6.96 per share, respectively.
Stock-based compensation expense for the three months ended March 31, 2019 and April 1, 2018 was $0.8 million and $0.9 million, respectively. At March 31, 2019, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $6.6 million. At March 31, 2019, the remaining weighted average vesting period for non-vested restricted shares was 3.2 years and restricted stock units was 1.4 years.
A summary of all non-vested restricted shares and restricted stock units activity for the three months ended March 31, 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
223,948

 
13.44

 
15,348

 
1.76

Vested and released
(65,363
)
 
22.17

 
(3,124
)
 
62.05

Forfeited
(32,257
)
 
20.08

 
(65,336
)
 
15.22

Outstanding at March 31, 2019
414,194

 
$
16.53

 
178,000

 
$
9.62


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
%
v3.19.1
Business Segment Information
3 Months Ended
Mar. 31, 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, 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, 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
March 31, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
91,026

 
$
74,155

 
$

 
$
165,181

Franchise revenue
 
455

 
216

 

 
671

Cost of sales
 
28,298

 
22,212

 

 
50,510

Restaurant wages and related expenses(1)
 
21,153

 
23,883

 

 
45,036

Restaurant rent expense
 
5,421

 
6,324

 

 
11,745

Other restaurant operating expenses
 
11,958

 
9,805

 

 
21,763

Advertising expense
 
3,032

 
2,489

 

 
5,521

General and administrative expense(2)
 
8,347

 
6,724

 

 
15,071

Adjusted EBITDA
 
14,317

 
2,895

 

 
17,212

Depreciation and amortization
 
5,213

 
4,335

 

 
9,548

Capital expenditures
 
7,145

 
4,037

 
355

 
11,537

April 1, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
94,478

 
$
74,355

 
$

 
$
168,833

Franchise revenue
 
464

 
187

 

 
651

Cost of sales
 
31,015

 
22,550

 

 
53,565

Restaurant wages and related expenses(1)
 
22,156

 
24,327

 

 
46,483

Restaurant rent expense
 
4,297

 
4,595

 

 
8,892

Other restaurant operating expenses
 
12,115

 
11,335

 

 
23,450

Advertising expense
 
3,316

 
2,897

 

 
6,213

General and administrative expense(2)
 
8,042

 
6,877

 

 
14,919

Adjusted EBITDA
 
14,447

 
2,511

 

 
16,958

Depreciation and amortization
 
5,316

 
3,683

 

 
8,999

Capital expenditures
 
8,173

 
6,911

 
84

 
15,168

Identifiable Assets:
 
 
 
 
 
 
 
 
March 31, 2019
 
$
352,050

 
$
287,779

 
$
36,602

 
$
676,431

December 30, 2018
 
207,435

 
174,681

 
36,543

 
418,659


(1) Includes stock-based compensation expense of $27 and $17 for the three months ended March 31, 2019 and April 1, 2018, respectively.
(2) Includes stock-based compensation expense of $765 and $872 for the three months ended March 31, 2019 and April 1, 2018, respectively.
A reconciliation of consolidated net income to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
March 31, 2019:
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
$
2,289

Provision for income taxes
 
 
 
 
 
 
 
946

Income (loss) before taxes
 
$
5,956

 
$
(2,721
)
 
$

 
$
3,235

Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
5,213

 
4,335

 

 
9,548

          Impairment and other lease charges
 
(379
)
 
41

 

 
(338
)
          Interest expense
 
656

 
578

 

 
1,234

          Closed restaurant rent expense, net of sublease income
 
1,144

 
280

 

 
1,424

          Other expense (income), net
 
596

 
106

 

 
702

          Stock-based compensation expense in restaurant wages
 
5

 
22

 

 
27

                Total non-general and administrative expense adjustments
 
7,235

 
5,362

 

 
12,597

     General and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Stock-based compensation expense
 
577

 
188

 

 
765

          Restructuring costs and retention bonuses
 
549

 
66

 

 
615

               Total general and administrative expense adjustments
 
1,126

 
254

 

 
1,380

Adjusted EBITDA
 
$
14,317

 
$
2,895

 
$

 
$
17,212

 
 
 
 
 
 
 
 
 
April 1, 2018:
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
$
4,184

Provision for income taxes
 
 
 
 
 
 
 
1,625

Income (loss) before taxes
 
$
8,128

 
$
(2,319
)
 
$

 
$
5,809

Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
5,316

 
3,683

 

 
8,999

          Impairment and other lease charges
 
(541
)
 
(121
)
 

 
(662
)
          Interest expense
 
528

 
541

 

 
1,069

          Other expense (income), net
 
346

 
20

 

 
366

          Stock-based compensation expense in restaurant wages
 
5

 
12

 

 
17

                Total non-general and administrative expense adjustments
 
5,654

 
4,135

 

 
9,789

     General and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Stock-based compensation expense
 
467

 
405

 

 
872

          Restructuring costs and retention bonuses
 
198

 
290

 

 
488

               Total general and administrative expense adjustments
 
665

 
695

 

 
1,360

Adjusted EBITDA
 
$
14,447

 
$
2,511

 
$

 
$
16,958

v3.19.1
Earnings Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
Weighted average outstanding restricted stock units totaling 1,061 shares were excluded in the computation of diluted EPS for the three months ended April 1, 2018 because including them would have been antidilutive. For the three months ended March 31, 2019, no shares of outstanding restricted stock units were excluded in the computation of diluted EPS.
The computation of basic and diluted EPS is as follows:
 
Three Months Ended
 
March 31, 2019
 
April 1, 2018
Basic and diluted EPS:
 
 
 
Net income
$
2,289

 
$
4,184

Less: income allocated to participating securities
22

 
40

Net income available to common shareholders
$
2,267

 
$
4,144

Weighted average common shares—basic
26,842,704

 
26,874,016

Restricted stock units
2,373

 
5,815

Weighted average common shares—diluted
26,845,077

 
26,879,831

 
 
 
 
Earnings per common share—basic
$
0.08

 
$
0.15

Earnings per common share—diluted
0.08

 
0.15

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Lease Assignments. Taco Cabana has assigned three leases to various parties on properties where it no longer operates restaurants with lease terms expiring on various dates through 2029. The assignees are responsible for making the payments required by the leases. The Company is a guarantor under one of the leases, and it remains secondarily liable as a surety with respect to two of the leases. Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. The assignee is responsible for making the payments required by the lease. The Company is a guarantor under the lease.
The maximum potential liability for future rental payments that the Company could be required to make under these leases at March 31, 2019 was $3.5 million. The Company could also be obligated to pay property taxes and other lease related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.
Legal Matters. 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.
v3.19.1
Recent Accounting Pronouncements
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Recent Accounting Pronouncements Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, 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. The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the standard to have a material effect on its financial statements.
v3.19.1
Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Consolidation 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 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 months ended March 31, 2019 and April 1, 2018 each contained thirteen weeks. The fiscal year ending December 29, 2019 will contain 52 weeks.
Basis of Presentation Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2019 and April 1, 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 months ended March 31, 2019 and April 1, 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 and Recent Accounting Pronouncements 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.Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, 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. The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the standard to have a material effect on its financial statements.
Revenue Recognition 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 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.
Long-Lived Assets 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 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, current portion of long-term debt, and long-term debt, net of current maturities 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 ASC842, 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 5—Leases.
Use of Estimates 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.
Impairment of Long-Lived Assets 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.
Purchase of Treasury Stock Purchase of Treasury StockOn 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. 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 158,269 shares of its common stock under the program in open market transactions during the three months ended March 31, 2019 for $2.2 million. The repurchased shares are held as treasury stock at cost.
Segment Reporting 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, 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
Earnings per Share Basic earnings per share ("EPS") is computed by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
v3.19.1
Prepaid Expenses and Other Current Assets (Tables)
3 Months Ended
Mar. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets, consist of the following:
 
March 31, 2019
 
December 30, 2018
Prepaid contract expenses
$
4,647

 
$
4,232

Assets held for sale(1)
4,336

 

Other
4,237

 
2,330

 
$
13,220

 
$
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 March 31, 2019.
v3.19.1
Impairment of Long-Lived Assets and Other Lease Charges (Tables)
3 Months Ended
Mar. 31, 2019
Property, Plant and Equipment [Abstract]  
Summary of Impairment on Long-Lived Assets by Segment A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
March 31, 2019
 
April 1, 2018
Pollo Tropical
$
(379
)
 
$
(541
)
Taco Cabana
41

 
(121
)
 
$
(338
)
 
$
(662
)
Other Lease Charges (Recoveries) by Segment A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
March 31, 2019
 
April 1, 2018
Pollo Tropical
$
(379
)
 
$
(541
)
Taco Cabana
41

 
(121
)
 
$
(338
)
 
$
(662
)
v3.19.1
Other Liabilities (Tables)
3 Months Ended
Mar. 31, 2019
Other Liabilities Disclosure [Abstract]  
Other Liabilities, Current Other current liabilities consist of the following: