FIESTA RESTAURANT GROUP, INC., 10-K filed on 2/27/2017
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 1, 2017
Feb. 23, 2017
Jul. 3, 2016
Document And Entity Information [Abstract]
 
 
 
Entity Registrant Name
FIESTA RESTAURANT GROUP, INC. 
 
 
Entity Central Index Key
0001534992 
 
 
Current Fiscal Year End Date
--01-01 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Jan. 01, 2017 
 
 
Document Fiscal Year Focus
2016 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
26,884,992 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Public Float
 
 
$ 582,150,821 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Jan. 1, 2017
Jan. 3, 2016
Current assets:
 
 
Cash
$ 4,196 
$ 5,281 
Trade receivables
8,771 
9,217 
Inventories
2,865 
2,910 
Prepaid rent
3,575 
3,163 
Income tax receivable
3,304 
7,448 
Prepaid expenses and other current assets
4,231 
3,219 
Total current assets
26,942 
31,238 
Property and equipment, net
270,920 
248,992 
Goodwill
123,484 
123,484 
Deferred income taxes
14,377 
8,497 
Other assets
5,842 
3,434 
Total assets
441,565 
415,645 
Current liabilities:
 
 
Current portion of long-term debt
89 
69 
Accounts payable
16,165 
12,405 
Accrued payroll, related taxes and benefits
12,275 
15,614 
Accrued real estate taxes
6,924 
6,121 
Other liabilities
11,316 
12,096 
Total current liabilities
46,769 
46,305 
Long-term debt, net of current portion
71,423 
72,612 
Lease financing obligations
1,664 
1,663 
Deferred income—sale-leaseback of real estate
27,165 
30,086 
Other liabilities
30,369 
20,997 
Total liabilities
177,390 
171,663 
Commitments and contingencies (Note 13)
   
   
Stockholders' equity:
 
 
Common stock, par value $.01; authorized 100,000,000 shares, issued 26,884,992 and 26,829,220 shares, respectively, and outstanding 26,755,640 and 26,571,602 shares, respectively.
267 
266 
Additional paid-in capital
163,204 
159,724 
Retained earnings
100,704 
83,992 
Total stockholders' equity
264,175 
243,982 
Total liabilities and stockholders' equity
$ 441,565 
$ 415,645 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jan. 1, 2017
Jan. 3, 2016
Statement of Financial Position [Abstract]
 
 
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
26,884,992 
26,829,220 
Common stock, shares outstanding
26,755,640 
26,571,602 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Jan. 1, 2017
Jan. 3, 2016
Dec. 28, 2014
Revenues:
 
 
 
Restaurant sales
$ 708,956 
$ 684,584 
$ 608,540 
Franchise royalty revenues and fees
2,814 
2,808 
2,603 
Total revenues
711,770 
687,392 
611,143 
Costs and expenses:
 
 
 
Cost of sales
214,609 
217,328 
192,250 
Restaurant wages and related expenses (including stock-based compensation expense of $142, $156 and $71, respectively)
185,305 
174,222 
155,140 
Restaurant rent expense
37,493 
33,103 
29,645 
Other restaurant operating expenses
96,457 
87,285 
78,921 
Advertising expense
26,800 
21,617 
19,493 
General and administrative (including stock-based compensation expense of $3,141, $4,137 and $3,426, respectively)
56,084 
54,521 
49,414 
Depreciation and amortization
36,776 
30,575 
23,047 
Pre-opening costs
5,511 
4,567 
4,061 
Impairment and other lease charges
25,644 
2,382 
363 
Other (income) expense, net
(128)
(679)
(558)
Total operating expenses
684,551 
624,921 
551,776 
Income from operations
27,219 
62,471 
59,367 
Interest expense
2,171 
1,889 
2,228 
Income before income taxes
25,048 
60,582 
57,139 
Provision for income taxes
8,336 
22,046 
20,963 
Net income
$ 16,712 
$ 38,536 
$ 36,176 
Basic net income per share (usd per share)
$ 0.62 
$ 1.44 
$ 1.35 
Diluted net income per share (usd per share)
$ 0.62 
$ 1.44 
$ 1.35 
Basic weighted average common shares outstanding
26,682,227 
26,515,029 
26,293,714 
Diluted weighted average common shares outstanding
26,689,179 
26,522,196 
26,296,049 
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 1, 2017
Jan. 3, 2016
Dec. 28, 2014
Restaurant Wages And Related Expenses
 
 
 
Stock-based compensation
$ 142 
$ 156 
$ 71 
General and Administrative Expense
 
 
 
Stock-based compensation
$ 3,141 
$ 4,137 
$ 3,426 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Beginning balance at Dec. 29, 2013
$ 158,306 
$ 261 
$ 148,765 
$ 9,280 
Beginning balance (in shares) at Dec. 29, 2013
26,082,800 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
Additional transfers from Carrols
(127)
 
(127)
 
Stock-based compensation
3,497 
 
3,497 
 
Vesting of restricted shares (in shares)
275,648 
 
 
 
Vesting of restricted shares
(3)
 
Tax benefit from stock-based compensation
1,765 
 
1,765 
 
Share issuance costs
(30)
 
(30)
 
Net income
36,176 
 
 
36,176 
Ending balance at Dec. 28, 2014
199,587 
264 
153,867 
45,456 
Ending balance (in shares) at Dec. 28, 2014
26,358,448 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
Stock-based compensation
4,293 
 
4,293 
 
Vesting of restricted shares (in shares)
213,154 
 
 
 
Vesting of restricted shares
(2)
 
Tax benefit from stock-based compensation
1,566 
 
1,566 
 
Net income
38,536 
 
 
38,536 
Ending balance at Jan. 03, 2016
243,982 
266 
159,724 
83,992 
Ending balance (in shares) at Jan. 03, 2016
26,571,602 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
Stock-based compensation
3,283 
 
3,283 
 
Vesting of restricted shares (in shares)
184,038 
 
 
 
Vesting of restricted shares
(1)
 
Tax benefit from stock-based compensation
198 
 
198 
 
Net income
16,712 
 
 
16,712 
Ending balance at Jan. 01, 2017
$ 264,175 
$ 267 
$ 163,204 
$ 100,704 
Ending balance (in shares) at Jan. 01, 2017
26,755,640 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 1, 2017
Jan. 3, 2016
Dec. 28, 2014
Cash flows from operating activities:
 
 
 
Net income
$ 16,712 
$ 38,536 
$ 36,176 
Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
Loss (gain) on disposals of property and equipment
779 
(170)
(369)
Stock-based compensation
3,283 
4,293 
3,497 
Impairment and other lease charges
25,644 
2,382 
363 
Depreciation and amortization
36,776 
30,575 
23,047 
Amortization of deferred financing costs
309 
315 
309 
Amortization of deferred gains from sale-leaseback transactions
(3,583)
(3,618)
(3,671)
Deferred income taxes
(5,880)
5,483 
957 
Other
Changes in other operating assets and liabilities:
 
 
 
Accounts receivable
446 
(2,877)
(329)
Other assets - long term
(2,796)
(48)
Accounts payable
3,330 
283 
(529)
Accrued payroll, related taxes and benefits
(3,339)
(243)
1,561 
Accrued real estate taxes
803 
1,077 
539 
Other liabilities - current
(780)
3,325 
(113)
Other liabilities - long term
6,498 
4,752 
3,441 
Income tax receivable/payable
4,144 
(2,474)
(477)
Other
(1,668)
(243)
(304)
Net cash provided from operating activities
80,679 
81,352 
64,106 
Capital expenditures:
 
 
 
New restaurant development
(66,116)
(70,841)
(57,102)
Restaurant remodeling
(2,755)
(4,802)
(7,588)
Other restaurant capital expenditures
(7,125)
(7,714)
(4,975)
Corporate and restaurant information systems
(6,369)
(4,213)
(4,414)
Total capital expenditures
(82,365)
(87,570)
(74,079)
Properties purchased for sale-leaseback
(2,663)
(250)
Proceeds from disposals of other properties
226 
149 
1,729 
Proceeds from sale-leaseback transactions
3,642 
5,692 
Net cash used in investing activities
(81,160)
(87,671)
(66,658)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of stock, net of issuance costs
(30)
Excess tax benefit from vesting of restricted shares
566 
1,566 
1,765 
Borrowings on revolving credit facility
18,400 
28,500 
25,000 
Repayments on revolving credit facility
(19,500)
(23,500)
(30,000)
Principal payments on capital leases
(70)
(53)
(61)
Other financing costs
(13)
Net cash (used in) provided from financing activities
(604)
6,513 
(3,339)
Net (decrease) increase in cash
(1,085)
194 
(5,891)
Cash, beginning of year
5,281 
5,087 
10,978 
Cash, end of year
4,196 
5,281 
5,087 
Supplemental disclosures:
 
 
 
Interest paid on long-term debt (including capitalized interest of $255 in 2016 and $335 in 2015)
1,867 
1,748 
1,971 
Interest paid on lease financing obligations
141 
100 
100 
Accruals for capital expenditures
5,288 
4,858 
2,889 
Income tax payments, net
9,873 
17,472 
18,718 
Capital lease obligations incurred
410 
Non-cash transfers of income tax assets and liabilities from Carrols
$ 0 
$ 0 
$ (127)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Jan. 1, 2017
Jan. 3, 2016
Statement of Cash Flows [Abstract]
 
 
Capitalized interest
$ 255 
$ 335 
Basis of Presentation
Basis of Presentation
Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the “Company”. At January 1, 2017, the Company owned and operated 177 Pollo Tropical® restaurants and 166 Taco Cabana® restaurants. The Pollo Tropical restaurants include 128 located in Florida, 30 located in Texas, 16 located in Georgia and three located in Tennessee. The Taco Cabana restaurants include 165 located in Texas and one located in Oklahoma. At January 1, 2017, Fiesta franchised a total of 35 Pollo Tropical restaurants and seven Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, one in the Bahamas, one in Guyana, three in Trinidad & Tobago, one in Venezuela, four in Panama, two in Guatemala, and six on college campuses in Florida and a hospital in Florida. The franchised Taco Cabana restaurants include five in New Mexico and two on college campuses in Texas.
Basis of Consolidation. The 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 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended January 1, 2017 and December 28, 2014 each contained 52 weeks. The fiscal year ended January 3, 2016 contained 53 weeks.
Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: 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.
Reclassifications. Deferred financing costs, net was reclassified to other assets to conform with the current year presentation. In addition, other assets - long term was reclassified to a separate line from other in the consolidated statements of cash flows to conform with the current year presentation.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Inventories. Inventories, primarily consisting of food and paper, are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment. The Company capitalizes all direct costs incurred to construct and substantially improve its restaurants. These costs are depreciated and charged to expense based upon their property classification when placed in service. Property and equipment is recorded at cost. Application development stage costs for significant internally developed software projects are capitalized and amortized. Repairs and maintenance activities are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements
5
to
30 years
Equipment
3
to
7 years
Computer hardware and software
3
to
7 years
Assets subject to capital lease
Shorter of useful life or lease term

Leasehold improvements, including new buildings constructed on leased land, are depreciated over the shorter of their estimated useful lives or the underlying lease term. In circumstances where an economic penalty would be presumed by the non-exercise of one or more renewal options under the lease, the Company includes those renewal option periods when determining the lease term. For significant leasehold improvements made during the latter part of the lease term, the Company amortizes those improvements over the shorter of their useful life or an extended lease term. The extended lease term would consider the exercise of renewal options if the value of the improvements would imply that an economic penalty would be incurred without the renewal of the option. Building costs incurred for new restaurants on leased land are depreciated over the lease term, which is generally a twenty-year period.
Goodwill. Goodwill represents the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by Carrols Restaurant Group, Inc. ("Carrols"), Fiesta's former parent company, from the acquisition of Pollo Tropical in 1998 and Taco Cabana in 2000. Goodwill is not amortized but is tested for impairment at least annually as of the last day of the fiscal year or more frequently if impairment indicators exist.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible 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 whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 4 for results of the Company's impairment review.
Deferred Financing Costs. Financing costs incurred in obtaining long-term debt, credit facilities and lease financing obligations are capitalized and amortized over the life of the related obligation as interest expense using the effective interest method.
Leases.  All leases are reviewed for capital or operating classification at their inception. The majority of the Company's leases are operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. Rent expense for leases that contain scheduled rent increases or rent holidays is recognized on a straight-line basis over the lease term, including any option periods included in the determination of the lease term. Contingent rentals are generally based upon a percentage of sales or a percentage of sales in excess of stipulated amounts and are not considered minimum rent payments but are recognized as rent expense when incurred.
Revenue Recognition. 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. Franchise fees, which are associated with opening new franchised restaurants, are recognized as income when all required activities have been performed by the Company. Area development fees, which are associated with opening new franchised restaurants in a given market, are recognized as income over the term of the related agreement.
Income Taxes. Deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
Advertising Costs. All advertising costs are expensed as incurred.
Cost of Sales. The Company includes the cost of food, beverage and paper, net of any discounts, in cost of sales.
Pre-opening Costs. The Company's pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening and generally include restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period.
Insurance.  The Company is insured for workers' compensation, general liability and medical insurance claims under policies where it pays all claims, subject to stop-loss limitations both for individual claims and for general liability and certain workers' compensation claims in the aggregate. Losses are accrued based upon estimates of the aggregate liability for claims based on the Company's experience and certain actuarial methods used to measure such estimates. The Company does not discount any of its self-insurance obligations.
 Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values 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 our senior credit facility, which is considered Level 2, is based on current LIBOR rates. At January 1, 2017 and January 3, 2016, the fair value and carrying value of the Company's senior credit facility were approximately $69.9 million and $71.0 million, respectively.
See Note 4 for discussion of the fair value measurement of non-financial assets.
Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards are not material to the Company's financial statements.
Recent Accounting Pronouncements. In May 2014, and in subsequent updates, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance in former Topic 605, Revenue Recognition, and provides for either a full retrospective adoption in which the standard is applied to all of the periods presented or a modified retrospective adoption in which the cumulative effect of initially applying the standard is recognized at the date of initial application. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless the contracts are in the scope of other US GAAP requirements. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property and equipment, including real estate. The Company is currently evaluating the impact of the provisions of Topic 606; however, the Company does not believe the standard will impact its recognition of revenue from company-owned restaurants or its recognition of franchise royalty revenues, which are based on a percent of gross sales. The Company expects the provisions to primarily impact franchise and development fees as well as gift card programs and does not expect the standard to have a material effect on its financial statements. The Company does not plan to early adopt the standard and plans to use the modified retrospective approach to adopt the standard. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2017.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The new guidance is required to be applied at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact on its financial statements. Although the impact is not currently estimable, the Company expects to recognize lease assets and lease liabilities for most of the leases it currently accounts for as operating leases. In addition, for the Company's leases that are classified as sale-leaseback transactions, the Company will be required to record an initial adjustment to retained earnings associated with the previously deferred gains, and for any future transactions, the gain, adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company is continuing its assessment, which may identify other impacts.
In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products (Topic 405-20), which creates an exception under Topic 405-20 to derecognize financial liabilities related to certain prepaid stored-value products using a breakage model consistent with the revenue breakage model in Topic 606. The new guidance will be effective concurrent with Topic 606, which is effective for the Company for interim and annual periods beginning after December 15, 2017. The Company does not expect this standard to have a material effect on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), to simplify various aspects of the accounting and presentation of share-based payments, including the income tax effects of awards and forfeiture assumptions. Currently, tax deductions in excess of compensation costs (excess tax benefits) are recorded in equity and tax deduction shortfalls (tax deficiencies), to the extent of previous excess tax benefits, are recorded in equity and then to income tax expense. Under the new guidance, all excess tax benefits and tax deficiencies will be recorded to income tax expense in the income statement, which could create volatility in the Company's income statement. The new guidance will also change the classification of excess tax benefits in the cash flow statement and impact the diluted earnings per share calculation. The guidance will be effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. Different components of the guidance require prospective, retrospective and/or modified retrospective adoption. The Company will make a policy election to account for forfeitures of awards as they occur and it will record an immaterial cumulative-effect adjustment to beginning retained earnings as of January 2, 2017, as a result of adopting the standard.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted
and a retrospective approach is required. The Company does not expect this standard to have a material impact on its financial statements.
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, 2020. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. The Company does not expect this standard to have a material impact on its financial statements.
Property and Equipment
Property and Equipment
Property and Equipment
Property and equipment consisted of the following:
 
January 1, 2017
 
January 3, 2016
Land
$
23,395

 
$
23,363

Owned buildings
22,008

 
20,101

Leasehold improvements (1)
249,507

 
206,293

Equipment
220,397

 
194,181

Assets subject to capital leases
2,057

 
2,057

 
517,364

 
445,995

Less accumulated depreciation and amortization
(246,444
)
 
(197,003
)
 
$
270,920

 
$
248,992


(1) Leasehold improvements include the cost of new buildings constructed on leased land.
Assets subject to capital leases primarily pertain to buildings leased for certain restaurant locations and certain office equipment and had accumulated amortization at January 1, 2017 and January 3, 2016 of $1.0 million and $0.8 million, respectively. At January 1, 2017 and January 3, 2016, land of $0.7 million and owned buildings of 0.8 million were subject to lease financing obligations accounted for under the lease financing method. See Note 8—Lease Financing Obligations. Accumulated depreciation pertaining to owned buildings subject to lease financing obligations at January 1, 2017 and January 3, 2016 was $0.4 million and$0.3 million.
Depreciation and amortization expense for all property and equipment for the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $36.8 million, $30.6 million and $23.0 million, respectively.
Goodwill
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, the Company compared the net book values of its reporting units to their estimated fair values, the latter determined by employing a discounted cash flow analysis, which was corroborated with other value indicators where available, such as comparable company earnings multiples.
There have been no changes in goodwill or goodwill impairment losses recorded during the year ended January 1, 2017 or the years ended January 3, 2016 and December 28, 2014. Goodwill balances are summarized below: 
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, January 1, 2017 and January 3, 2016
$
56,307

 
$
67,177

 
$
123,484

Impairment of Long-Lived Assets and Other Lease Charges
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, 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. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.
A summary of impairment on long-lived assets and other lease charges recorded by segment is as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Pollo Tropical
$
24,419

 
$
510

 
$
254

Taco Cabana
1,225

 
1,872

 
109

 
$
25,644

 
$
2,382

 
$
363


    In 2016, the Company decided to suspend additional development of Pollo Tropical restaurants outside of Florida and to review its strategy for development while it continues to build brand awareness, affinity and off premise consumption through several initiatives and to suspend all near-term development of Pollo Tropical restaurants outside of Florida. Based on a restaurant portfolio examination, the Company closed ten Pollo Tropical restaurants in the fourth quarter of 2016 including eight restaurants in Texas, one restaurant in Nashville, Tennessee and one restaurant in Atlanta, Georgia. The Company plans to convert three of the closed restaurants in Texas to Taco Cabana restaurants in 2017.
In 2016, the Company recognized impairment charges with respect to the ten closed restaurants and seven additional Pollo Tropical restaurants and seven Taco Cabana restaurants that it continues to operate. Impairment and other lease charges in 2016 consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $21.6 million and $1.1 million, respectively and lease and other charges related to closed Pollo Tropical and Taco Cabana restaurants of $2.8 million and $0.2 million, respectively, net of recoveries.
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, the Company's plans to use this equipment in new restaurants that are scheduled to open in 2017 and 2018, and the Company's expectation of how a market participant would value the equipment. 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 2016 totaled $6.9 million.
Impairment and other lease charges in 2015 consisted primarily of impairment charges totaling $1.7 million and a $0.2 million lease charge related to a restaurant closure at the end of fiscal 2015, a $0.3 million lease charge related to the closure of a Pollo Tropical restaurant that was relocated prior to the end of its lease term to a superior site in the same trade area and lease charges, net of recoveries, totaling $0.2 million related to previously closed Pollo Tropical restaurants.
Impairment and other lease charges in 2014 included a $0.3 million impairment charge representing the write-down of the carrying value to fair value of certain assets related to the Pollo Tropical restaurant that closed in 2015 and $0.1 million in impairment charges for additional assets acquired at previously impaired Taco Cabana locations.
Other Liabilities
Other Liabilities
Other Liabilities
Other liabilities, current, consist of the following:
 
January 1, 2017
 
January 3, 2016
Accrued workers' compensation and general liability claims
$
4,838

 
$
5,540

Sales and property taxes
1,844

 
3,031

Accrued occupancy costs
2,161

 
980

Other
2,473

 
2,545

 
$
11,316

 
$
12,096


Other liabilities, long-term, consist of the following:
 
January 1, 2017
 
January 3, 2016
Accrued occupancy costs
$
20,172

 
$
15,349

Deferred compensation
2,027

 
1,665

Accrued workers’ compensation and general liability claims
4,030

 
697

Other
4,140

 
3,286

 
$
30,369

 
$
20,997


Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-store reserve, of which $3.1 million and $1.2 million are included in long-term accrued occupancy costs at January 1, 2017 and January 3, 2016, respectively, with the remainder in other current liabilities.
 
 
Year Ended
 
January 1, 2017
 
January 3, 2016
Balance, beginning of period
$
1,832

 
$
1,251

Provisions for restaurant closures
3,093

 
554

Additional lease charges, net of (recoveries)
(237
)
 
258

Payments, net
(806
)
 
(358
)
Other adjustments
1,030

 
127

Balance, end of period
$
4,912

 
$
1,832

Leases
Leases
Leases
The Company utilizes land and buildings in its operations under various 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 twenty years and, in many cases, provide for renewal options and in most cases rent escalations. 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.
During the years ended January 1, 2017 and December 28, 2014 the Company sold one and two restaurant properties in each year, respectively, in sale-leaseback transactions for net proceeds of $3.6 million and $5.7 million, respectively. These leases have been classified as operating leases and generally contain a twenty-year initial term plus renewal options.
Deferred gains on sale-leaseback transactions of $0.7 million and $1.9 million were recognized during the years ended January 1, 2017 and December 28, 2014, respectively and are being amortized over the term of the related leases. The amortization of deferred gains on sale-leaseback transactions was $3.6 million, $3.6 million and $3.7 million for the years ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively.
Minimum rent commitments due under capital and non-cancelable operating leases at January 1, 2017 were as follows:
 
Capital
 
Operating
2017
$
282

 
$
43,026

2018
282

 
42,784

2019
282

 
42,380

2020
286

 
40,852

2021
301

 
37,924

Thereafter
1,540

 
338,084

Total minimum lease payments(1)
2,973

 
$
545,050

Less amount representing interest
(1,361
)
 
 
Total obligations under capital leases
1,612

 
 
Less current portion
(89
)
 
 
Long-term debt under capital leases
$
1,523

 
 
(1)Minimum operating lease payments have not been reduced by minimum sublease rentals of $6.7 million due in the future under noncancelable subleases.
Total rent expense on operating leases, including contingent rentals, was as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Minimum rent on real property, excluding rent included in pre-opening costs
$
37,180

 
$
32,716

 
$
29,309

Additional rent based on percentage of sales
313

 
387

 
336

Restaurant rent expense
37,493

 
33,103

 
29,645

Rent included in pre-opening costs
2,066

 
1,736

 
1,421

Administrative and equipment rent
1,119

 
1,026

 
1,042

 
$
40,678

 
$
35,865

 
$
32,108

Long-term Debt
Long-term Debt
Long-term Debt
Long term debt at January 1, 2017 and January 3, 2016 consisted of the following:
 
January 1,
2017
 
January 3,
2016
Revolving credit facility
$
69,900

 
$
71,000

Capital leases
1,612

 
1,681

 
71,512

 
72,681

Less: current portion of long-term debt
(89
)
 
(69
)
 
$
71,423

 
$
72,612


Senior Credit Facility. In December 2013, the Company terminated its former senior secured revolving credit facility, referred to as the “former senior credit facility”, and entered into a new senior secured revolving credit facility with a syndicate of lenders, which is referred to as the "senior credit facility". The senior credit facility provides for aggregate revolving credit borrowings of up to $150 million (including $15 million available for letters of credit) and matures on December 11, 2018. The senior credit facility also provides for potential incremental increases of up to $50 million to the revolving credit borrowings available under the senior credit facility. On January 1, 2017, there were $69.9 million in outstanding revolving credit borrowings under the senior credit facility.
Borrowings under the senior credit facility bear interest at a per annum rate, at the Company's option, equal to either (all terms as defined in the senior credit facility):
1) the Alternate Base Rate plus the applicable margin of 0.50% to 1.50% based on the Company's Adjusted Leverage Ratio (with a margin of 0.50% as of January 1, 2017), or
2) the LIBOR Rate plus the applicable margin of 1.50% to 2.50% based on the Company's Adjusted Leverage Ratio (with a margin of 1.50% at January 1, 2017).
In addition, the senior credit facility requires the Company to pay (i) a commitment fee based on the applicable Commitment Fee margin of 0.25% to 0.45%, based on the Company's Adjusted Leverage Ratio (with a margin of 0.25% at January 1, 2017) and the unused portion of the facility and (ii) a letter of credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
All obligations under the Company's senior credit facility are guaranteed by all of the Company's material domestic subsidiaries. In general, the Company's obligations under the senior credit facility and its subsidiaries’ obligations under the guarantees are secured by a first priority lien and security interest on substantially all of its assets and the assets of its material subsidiaries (including a pledge of all of the capital stock and equity interests of its material subsidiaries), other than certain specified assets, including real property owned by the Company or its subsidiaries.
The outstanding borrowings under the Company's senior credit facility are prepayable without penalty (other than customary breakage costs). The senior credit facility requires the Company to comply with customary affirmative, negative and financial covenants, including, without limitation, those limiting Fiesta's and its subsidiaries’ ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests, (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii) change its business. In addition, the senior credit facility requires the Company to maintain certain financial ratios, including a Fixed Charge Coverage Ratio and an Adjusted Leverage Ratio (all as defined under the senior credit facility).
The Company's senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of the Company's indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.
As of January 1, 2017, the Company was in compliance with the covenants under its senior credit facility. After reserving $5.2 million for letters of credit issued under the senior credit facility, $74.9 million was available for borrowing under the senior credit facility at January 1, 2017.
At January 1, 2017, principal payments required on borrowings under the senior credit facility were $69.9 million in 2018. The weighted average interest rate on the borrowings under the senior credit facility was 2.29% and 2.08% at January 1, 2017 and January 3, 2016, respectively. Interest expense on the Company's long-term debt, excluding lease financing obligations, was $1.9 million, $1.6 million and $2.1 million for the years ended January 1, 2017, January 3, 2016, and December 28, 2014, respectively.
Lease Financing Obligations
Lease Financing Obligations
Lease Financing Obligations
The Company entered into a sale-leaseback transaction that did not qualify for sale-leaseback accounting due to a form of continuing involvement and, as a result, the lease was classified as a financing transaction in the Company’s consolidated financial statements.
Under the financing method, the assets remain on the consolidated balance sheet and the net proceeds received by the Company from the transaction are recorded as a lease financing liability. Payments under the lease are applied as payments of imputed interest and deemed principal on the underlying financing obligations.
The lease provides for an initial term of 20 years plus renewal options and requires payment of property taxes, insurance and utilities.
At January 1, 2017, payments required on lease financing obligations were as follows:
2017
$
143

2018
144

2019
146

2020
147

2021
149

Thereafter, through 2023
1,927

Total minimum lease payments
2,656

Less: Interest implicit in obligations
(992
)
Total lease financing obligations
$
1,664

The interest rate on lease financing obligations was 8.6% at January 1, 2017. Interest expense associated with lease financing obligations was 0.1 million, for each of the years ended January 1, 2017, January 3, 2016, and December 28, 2014.
Income Taxes
Income Taxes
Income Taxes
The Company’s income tax provision was comprised of the following:
    
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Current:
 
 
 
 
 
Federal
$
11,979

 
$
14,086

 
$
17,335

Foreign
372

 
396

 
380

State
1,865

 
2,081

 
2,291

 
14,216

 
16,563

 
20,006

Deferred:
 
 
 
 
 
Federal
(4,908
)
 
5,318

 
417

State
(792
)
 
139

 
46


(5,700
)
 
5,457

 
463

Valuation allowance
(180
)
 
26

 
494

 
$
8,336

 
$
22,046

 
$
20,963


Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The components of deferred income tax assets and liabilities at January 1, 2017 and January 3, 2016 were as follows:
 
 
January 1, 2017
 
January 3, 2016
Deferred income tax assets:
 
 
 
 
  Accrued vacation benefits
 
1,640

 
1,494

  Incentive compensation
 
986

 
1,571

  Other accruals
 
3,924

 
3,188

  Deferred income on sale-leaseback of real estate
 
9,861

 
10,929

  Lease financing obligations
 
162

 
133

  Occupancy costs
 
8,036

 
5,840

  Tax credit carryforwards
 
1,148

 
1,036

  Other
 
1,738

 
1,618

        Gross deferred income tax assets
 
27,495

 
25,809

Deferred income tax liabilities:
 
 
 
 
  Property and equipment depreciation
 
(8,311
)
 
(12,176
)
  Amortization of other intangibles, net
 
(3,250
)
 
(3,211
)
  Other
 
(701
)
 
(889
)
        Gross deferred income tax liabilities
 
(12,262
)
 
(16,276
)
  Less: Valuation allowance
 
(856
)
 
(1,036
)
Net deferred income tax assets
 
$
14,377

 
$
8,497


The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all of the tax benefit of its deferred tax assets. The Company evaluates whether its deferred income tax assets are probable of realization on a quarterly basis. In performing this analysis, the Company considers all available evidence including historical operating results, the estimated timing of future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporary differences and carryforwards. At January 1, 2017 and January 3, 2016, the Company had a valuation allowance of $856 and $1,036 respectively, against net deferred income tax assets due to foreign income tax credit carryforwards where it was determined to be more likely than not that the deferred income tax asset amounts would not be realized. The valuation allowance decreased $180 in 2016 and increased $26 in 2015, primarily due to foreign tax credit carryforwards, net of expired foreign income tax credits. The estimation of future taxable income for federal and state purposes and the Company's ability to realize deferred income tax assets can significantly change based on future events and operating results.
The Company's effective tax rate was 33.3%, 36.4%, and 36.7% for the years ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively. A reconciliation of the statutory federal income tax provision to the effective tax provision was as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Statutory federal income tax provision
$
8,767

 
$
21,204

 
$
19,999

State income taxes, net of federal benefit
689

 
1,435

 
1,453

Change in valuation allowance
(180
)
 
26

 
494

Non-deductible expenses
(3
)
 
260

 
293

Foreign taxes
372

 
396

 
380

Employment tax credits
(905
)
 
(889
)
 
(1,174
)
Foreign tax credits
(372
)
 
(396
)
 
(380
)
Other
(32
)
 
10

 
(102
)
 
$
8,336

 
$
22,046

 
$
20,963


The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of January 1, 2017 and January 3, 2016, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.
The tax years 2013-2015 remain open to examination by the taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
The Company established the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan") in order to be able to compensate its employees and directors by issuing stock options, stock appreciation rights, or stock awards to them under this plan. The aggregate number of shares of stock authorized for distribution under the Fiesta Plan is 3,300,000. As of January 1, 2017, there were 2,169,321 shares available for future grants under the Fiesta Plan.
During the years ended January 1, 2017, January 3, 2016 and December 28, 2014, the Company granted certain employees and directors in the aggregate 97,859, 50,600 and 80,290 non-vested restricted shares, respectively, under the Fiesta Plan. Shares granted to employees during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 vest and become non-forfeitable over a four year vesting period, or for certain grants, at the end of a four year vesting period. Shares granted to directors during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 vest and become non-forfeitable over a one year vesting period. The weighted average fair value at the grant date for restricted non-vested shares issued during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $34.98, $61.47 and $44.22, respectively. The grant date fair value of each non-vested share award was determined based on the closing price of the Company's stock on the date of grant.
During the years ended January 1, 2017, January 3, 2016 and December 28, 2014, the Company granted certain employees 39,453, 27,508 and 24,252 restricted stock units, respectively, under the Fiesta Plan. Certain of the restricted stock units vest and become non-forfeitable over a four year vesting period, certain of the restricted units vest and become non-forfeitable at the end of a four year vesting period, and certain of the restricted stock units vest at the end of a three year vesting period. The weighted average fair value at grant date for the restricted stock units issued to employees during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $35.25, $63.93 and $45.04. The grant date fair value of each restricted stock unit award was determined based on the closing price of the Company's stock on the date of grant.
During the years ended January 1, 2017 and January 3, 2016, the Company granted 33,691 and 17,501 non-vested restricted shares, respectively, and 33,691 and 17,501 restricted stock units, respectively, under the Fiesta Plan to certain employees subject to financial performance conditions. The non vested restricted shares vest and become non-forfeitable over a four year vesting period subject to the attainment of financial performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three year vesting period. The number of shares into which the restricted stock units convert is based on the attainment of certain financial performance conditions and for the restricted stock units granted during the years ended January 1, 2017 and January 3, 2016, ranges from no shares, if the minimum financial performance condition is not met, to 67,382 and 35,002 shares, respectively, if the maximum financial performance condition is met. The weighted average fair value at grant date for both restricted non-vested shares and restricted stock units subject to performance conditions granted during the years ended January 1, 2017 and January 3, 2016 was $35.25 and $65.01, respectively.
Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the award (the vesting period) using the straight-line method. Stock-based compensation expense for the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $3.3 million, $4.3 million and $3.5 million, respectively. As of January 1, 2017, the total unrecognized stock-based compensation expense related to non-vested shares and restricted stock units was approximately $3.4 million. At January 1, 2017, the remaining weighted average vesting period for non-vested restricted shares was 1.7 years and restricted stock units was 1.8 years.
During 2016, a portion of the awards previously granted to the Company's former Chief Executive Officer were modified and vested in connection with his retirement. The modification reduced stock compensation expense by $0.1 million.
A summary of all non-vested restricted shares and restricted stock units activity for the year ended January 1, 2017 is as follows:
 
Non-Vested Shares
 
Restricted Stock Units
 
Shares
 
Weighted Average Grant Date
Price
 
Units
 
Weighted Average Grant Date
Price
Outstanding at January 3, 2016
257,618

 
$
30.69

 
42,840

 
$
56.46

Granted
97,859

 
34.98

 
39,453

 
35.25

Vested/Released
(183,369
)
 
24.83

 
(669
)
 
51.27

Forfeited
(42,756
)
 
40.57

 
(30,179
)
 
45.67

Outstanding at January 1, 2017
129,352

 
$
37.94

 
51,445

 
$
46.59


The fair value of the shares vested and released during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $5.2 million, $11.9 million and $12.8 million, respectively.
Business Segment Information
Business Segment Information
Business Segment Information
The Company is engaged in the fast-casual restaurant industry, with two restaurant concepts (each of which is an operating segment): Pollo Tropical and Taco Cabana. Pollo Tropical restaurants offer a wide variety of freshly prepared Caribbean inspired food, while our Taco Cabana restaurants offer a broad selection of freshly prepared Mexican inspired food.
Each segment's accounting policies are the same as those described in the summary of significant accounting policies in Note 1. The Company reports more than one measure of segment profit or loss to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The primary measures of segment profit or loss used to assess performance and allocate resources are income before taxes and Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. Although the chief operating decision maker uses Adjusted EBITDA as a measure of segment profitability, in accordance with Accounting Standards Codification 280, Segment Reporting, the following table includes segment income before taxes, which is the measure of segment profit or loss determined in accordance with the measurement principles that are most consistent with the principles used in measuring the corresponding amounts in the consolidated financial statements.
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, a current income tax receivable, and advisory fees related to a previously proposed separation transaction.

Year Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
January 1, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
399,736

 
$
309,220

 


 
$
708,956

Franchise revenue
 
2,062

 
752

 


 
2,814

Cost of sales
 
126,539

 
88,070

 


 
214,609

Restaurant wages and related expenses(1)
 
93,958

 
91,347

 


 
185,305

Restaurant rent expense
 
19,998

 
17,495

 


 
37,493

Other restaurant operating expenses
 
54,198

 
42,259

 


 
96,457

Advertising expense
 
14,819

 
11,981

 


 
26,800

Year Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
General and administrative expense(2)
 
33,776

 
21,486

 
822

 
56,084

Depreciation and amortization
 
23,587

 
13,189

 


 
36,776

Pre-opening costs
 
4,837

 
674

 


 
5,511

Impairment and other lease charges
 
24,419

 
1,225

 


 
25,644

Interest expense
 
930

 
1,241

 


 
2,171

Income (loss) before taxes
 
4,639

 
21,231

 
(822
)
 
25,048

Capital expenditures
 
65,789

 
13,206

 
3,370

 
82,365

January 3, 2016:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
364,544

 
$
320,040

 


 
$
684,584

Franchise revenue
 
2,197

 
611

 


 
2,808

Cost of sales
 
121,689

 
95,639

 


 
217,328

Restaurant wages and related expenses(1)
 
81,647

 
92,575

 


 
174,222

Restaurant rent expense
 
16,003

 
17,100

 


 
33,103

Other restaurant operating expenses
 
45,376

 
41,909

 


 
87,285

Advertising expense
 
9,527

 
12,090

 


 
21,617

General and administrative expense(2)
 
31,142

 
23,379

 


 
54,521

Depreciation and amortization
 
18,000

 
12,575

 


 
30,575

Pre-opening costs
 
4,310

 
257

 


 
4,567

Impairment and other lease charges
 
510

 
1,872

 


 
2,382

Interest expense
 
806

 
1,083

 


 
1,889

Income before taxes
 
38,021

 
22,561

 


 
60,582

Capital expenditures
 
73,129

 
12,294

 
2,147

 
87,570

December 28, 2014:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
305,404

 
$
303,136

 


 
$
608,540

Franchise revenue
 
2,072

 
531

 


 
2,603

Cost of sales
 
100,468

 
91,782

 


 
192,250

Restaurant wages and related expenses(1)
 
67,487

 
87,653

 


 
155,140

Restaurant rent expense
 
12,473

 
17,172

 


 
29,645

Other restaurant operating expenses
 
38,331

 
40,590

 


 
78,921

Advertising expense
 
7,714

 
11,779

 


 
19,493

General and administrative expense(2)
 
26,672

 
22,742

 


 
49,414

Depreciation and amortization
 
11,596

 
11,451

 


 
23,047

Pre-opening costs
 
3,385

 
676

 


 
4,061

Impairment and other lease charges
 
254

 
109

 


 
363

Interest expense
 
1,035

 
1,193

 


 
2,228

Income before taxes
 
38,061

 
19,078

 


 
57,139

Capital expenditures
 
52,355

 
17,969

 
3,755

 
74,079

Identifiable Assets:
 
 
 
 
 
 
 
 
January 1, 2017
 
$
263,868

 
$
165,195

 
$
12,502

 
$
441,565

January 3, 2016
 
237,065

 
165,549

 
13,031

 
415,645

December 28, 2014
 
177,923

 
167,729

 
12,304

 
357,956


(1) Includes stock-based compensation expense of $142, $156 and $71 for the years ended  January 1, 2017, January 3, 2016 and December 28, 2014, respectively.
(2) Includes stock-based compensation expense of $3,141, $4,137 and $3,426 for the years ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively.
Net Income per Share
Net Income per Share
Net Income per Share
The Company computes basic net income per share by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Our 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 net income per share pursuant to the two-class method. The two-class method of computing earnings per share 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. Net income per common share 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 earnings per share reflects the potential dilution that could occur if our restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per share 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 9,379, 4,491 and 5,899 shares were not included in the computation of diluted earnings per share for the twelve months ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively, because to do so would have been antidilutive.
The computation of basic and diluted net income per share is as follows:
 
  
Year Ended
 
  
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Basic and diluted net income per share:
  
 
 
 
 
 
Net income
  
$
16,712

 
$
38,536

 
$
36,176

Less: income allocated to participating securities
  
135

 
441

 
647

Net income available to common stockholders
  
$
16,577

 
$
38,095

 
$
35,529

 
 
 
 
 
 
 
Weighted average common shares, basic
  
26,682,227

 
26,515,029

 
26,293,714

Restricted stock units
 
6,952

 
7,167

 
2,335

Weighted average common shares, diluted
 
26,689,179

 
26,522,196

 
26,296,049

 
 
 
 
 
 
 
Basic net income per common share
  
$
0.62

 
$
1.44

 
$
1.35

Diluted net income per common share
 
$
0.62

 
$
1.44

 
$
1.35

Commitments and Contingencies
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. The maximum potential liability for future rental payments that the Company could be required to make under these leases at January 1, 2017 was $1.7 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 legal proceedings incidental to the conduct of business, including the matter described below. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.
On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were misclassified as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior to any suit being filed, Pollo Tropical reached a settlement with seven named individuals and a proposed collective action class that will allow current and former assistant managers to receive notice and opt-in to the settlement. Pollo Tropical denies any liability or unlawful conduct. The Company has recorded a charge of $0.8 million to cover the estimated costs related to the settlement, including estimated payments to individuals that opt-in to the settlement, premium payments to named individuals, attorneys’ fees for the individuals' counsel, and related settlement administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending the action. The settlement, which is subject to approval by an arbitrator and a judicial body, will result in dismissal with prejudice for the named individuals and all individuals that opt-in to the settlement. 
On September 29, 2014, Daisy, Inc., an automotive repair shop in Cape Coral, Florida, filed a putative class action suit against Pollo Tropical in the United States District Court for the Middle District of Florida. The suit alleged that Pollo Tropical engaged in unlawful activity in violation of the Telephone Consumer Protection Act, § 227 et seq. occurring in December 2010 and January 2011. During the first quarter of 2016, Pollo Tropical reached a settlement with the plaintiff that resulted in dismissal of the case and paid all settlement claims.
The Company is also a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements.
Retirement Plans
Retirement Plans
Retirement Plans
Fiesta offers the Company's salaried employees the option to participate in the Fiesta Corporation Retirement Savings Plan (the “Retirement Plan”). The Retirement Plan includes a savings option pursuant to section 401(k) of the Internal Revenue Code in addition to a post-tax savings option. Fiesta may elect to contribute to the Retirement Plan on an annual basis. Contributions made by Fiesta to the Retirement Plan for the Company's employees are made after the end of each plan year. For 2016 and 2015, Fiesta's annual contribution is equal to 50% of the employee's contribution up to a maximum Fiesta contribution of 3% of eligible compensation per participating employee. For 2014, Fiesta's annual contribution was equal to 50% of the employee's contribution up to a maximum Fiesta contribution $0.5 per participating employee. Under the Retirement Plan, Fiesta contributions begin to vest after 1 year and fully vest after 5 years of service. A year of service is defined as a plan year during which an employee completes at least 1,000 hours of service. Participating employees may contribute up to 50% of their salary annually to either of the savings options, subject to other limitations. The employees have various investment options available under a trust established by the Retirement Plan. Retirement Plan employer matching expense for the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $0.3 million, $0.3 million and $0.2 million respectively.
Fiesta also has a Deferred Compensation Plan which permits employees not eligible to participate in the Retirement Plan because they have been excluded as “highly compensated” employees (as so defined in the Retirement Plan) to voluntarily defer portions of their base salary and annual bonus. All amounts deferred by the participants earn interest at 8% per annum. There is no Company matching on any portion of the funds. At January 1, 2017 and January 3, 2016, a total of $2.0 million and $1.7 million, respectively, was deferred by the Company's employees under the Retirement Plan, including accrued interest.
Selected Quarterly Financial and Earnings Data (Unaudited)
Selected Quarterly Financial and Earnings Data (Unaudited)
Selected Quarterly Financial and Earnings Data (Unaudited)
 
Year Ended January 1, 2017
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
 
Revenue
$
176,677

 
$
181,532

 
$
182,256

 
$
171,305

 
Income (loss) from operations
16,141

 
14,576

 
(6,737
)
(1 
) 
3,239

(1 
) 
Net income (loss)
9,895

 
8,916

 
(4,531
)
(1 
) 
2,432

(1 
) 
Basic net income (loss) per share
$
0.37

 
$
0.33

 
$
(0.17
)
 
$
0.09

 
Diluted net income (loss) per share
$
0.37

 
$
0.33

 
$
(0.17
)
 
$
0.09

 
 
 
 
 
 
 
 
 
 
 
Year Ended January 3, 2016
 
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
 
Revenue
$
163,875

 
$
171,900

 
$
172,105

 
$
179,512

 
Income from operations
17,458

 
18,646

 
13,009

 
13,358

 
Net income
10,501

 
11,249

 
7,945

 
8,841

 
Basic net income per share
$
0.39

 
$
0.42

 
$
0.30

 
$
0.33

 
Diluted net income per share
$
0.39

 
$
0.42

 
$
0.30

 
$
0.33

 

(1) The Company recognized impairment and other lease charges of $18.5 million and $7.0 million in the third and fourth quarters of 2016, respectively (See Note 4).
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars)

 
 
Column B
 
Column C
 
Column D
 
Column E
Description
 
Balance at
beginning of period
 
Charged to
costs and
expenses
Charged to
other
accounts
 
Deduction
 
Balance
at end of
period
Year Ended January 1, 2017:
 
 
 
 
 
 
 
 
 
Deferred income tax valuation allowance
 
$
1,036

 
$
(180
)
$

 
$

 
$
856

Year Ended January 3, 2016:
 
 
 
 
 
 
 
 
 
Deferred income tax valuation allowance
 
1,010

 
26


 

 
1,036

Year Ended December 28, 2014:
 
 
 
 
 
 
 
 
 
Deferred income tax valuation allowance
 
516

 
494


 

 
1,010

Basis of Presentation (Policies)
12 Months Ended
Jan. 1, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
Basis of Consolidation
Basis of Consolidation. The 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
Use of Estimates
Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: 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. 
Reclassifications
Reclassifications. Deferred financing costs, net was reclassified to other assets to conform with the current year presentation. In addition, other assets - long term was reclassified to a separate line from other in the consolidated statements of cash flows to conform with the current year presentation. 
Cash and Cash Equivalents
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. 
Inventories
Inventories. Inventories, primarily consisting of food and paper, are stated at the lower of cost (first-in, first-out) or market. 
Property and Equipment
Goodwill
Goodwill. Goodwill represents the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by Carrols Restaurant Group, Inc. ("Carrols"), Fiesta's former parent company, from the acquisition of Pollo Tropical in 1998 and Taco Cabana in 2000. Goodwill is not amortized but is tested for impairment at least annually as of the last day of the fiscal year or more frequently if impairment indicators exist. 
Long-Lived Assets
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible 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 whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. 
Deferred Financing Costs
Deferred Financing Costs. Financing costs incurred in obtaining long-term debt, credit facilities and lease financing obligations are capitalized and amortized over the life of the related obligation as interest expense using the effective interest method. 
Leases
Revenue Recognition
Revenue Recognition. 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. Franchise fees, which are associated with opening new franchised restaurants, are recognized as income when all required activities have been performed by the Company. Area development fees, which are associated with opening new franchised restaurants in a given market, are recognized as income over the term of the related agreement. 
Income Taxes
Income Taxes. Deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. 
Advertising Costs
Advertising Costs. All advertising costs are expensed as incurred. 
Cost of Sales
Cost of Sales. The Company includes the cost of food, beverage and paper, net of any discounts, in cost of sales. 
Pre-opening Costs
Pre-opening Costs. The Company's pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening and generally include restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period. 
Insurance
Insurance.  The Company is insured for workers' compensation, general liability and medical insurance claims under policies where it pays all claims, subject to stop-loss limitations both for individual claims and for general liability and certain workers' compensation claims in the aggregate. Losses are accrued based upon estimates of the aggregate liability for claims based on the Company's experience and certain actuarial methods used to measure such estimates. The Company does not discount any of its self-insurance obligations. 
Fair Value of Financial Instruments
Gift Cards
Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards are not material to the Company's financial statements. 
Recent Accounting Pronouncements
Lease Financing Obligations
Business Segments
The Company reports more than one measure of segment profit or loss to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The primary measures of segment profit or loss used to assess performance and allocate resources are income before taxes and Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. Although the chief operating decision maker uses Adjusted EBITDA as a measure of segment profitability, in accordance with Accounting Standards Codification 280, Segment Reporting, the following table includes segment income before taxes, which is the measure of segment profit or loss determined in accordance with the measurement principles that are most consistent with the principles used in measuring the corresponding amounts in the consolidated financial statements. 
Net Income per Share
The Company computes basic net income per share by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Our 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 net income per share pursuant to the two-class method. The two-class method of computing earnings per share 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. Net income per common share 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. 
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended January 1, 2017 and December 28, 2014 each contained 52 weeks.
Property and Equipment. The Company capitalizes all direct costs incurred to construct and substantially improve its restaurants. These costs are depreciated and charged to expense based upon their property classification when placed in service. Property and equipment is recorded at cost. Application development stage costs for significant internally developed software projects are capitalized and amortized. Repairs and maintenance activities are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements
5
to
30 years
Equipment
3
to
7 years
Computer hardware and software
3
to
7 years
Assets subject to capital lease
Shorter of useful life or lease term

Leasehold improvements, including new buildings constructed on leased land, are depreciated over the shorter of their estimated useful lives or the underlying lease term. In circumstances where an economic penalty would be presumed by the non-exercise of one or more renewal options under the lease, the Company includes those renewal option periods when determining the lease term. For significant leasehold improvements made during the latter part of the lease term, the Company amortizes those improvements over the shorter of their useful life or an extended lease term. The extended lease term would consider the exercise of renewal options if the value of the improvements would imply that an economic penalty would be incurred without the renewal of the option. Building costs incurred for new restaurants on leased land are depreciated over the lease term, which is generally a twenty-year period.
Leases.  All leases are reviewed for capital or operating classification at their inception. The majority of the Company's leases are operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. Rent expense for leases that contain scheduled rent increases or rent holidays is recognized on a straight-line basis over the lease term, including any option periods included in the determination of the lease term. Contingent rentals are generally based upon a percentage of sales or a percentage of sales in excess of stipulated amounts and are not considered minimum rent payments but are recognized as rent expense when incurred.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values 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 our senior credit facility, which is considered Level 2, is based on current LIBOR rates.
Recent Accounting Pronouncements. In May 2014, and in subsequent updates, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance in former Topic 605, Revenue Recognition, and provides for either a full retrospective adoption in which the standard is applied to all of the periods presented or a modified retrospective adoption in which the cumulative effect of initially applying the standard is recognized at the date of initial application. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless the contracts are in the scope of other US GAAP requirements. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property and equipment, including real estate. The Company is currently evaluating the impact of the provisions of Topic 606; however, the Company does not believe the standard will impact its recognition of revenue from company-owned restaurants or its recognition of franchise royalty revenues, which are based on a percent of gross sales. The Company expects the provisions to primarily impact franchise and development fees as well as gift card programs and does not expect the standard to have a material effect on its financial statements. The Company does not plan to early adopt the standard and plans to use the modified retrospective approach to adopt the standard. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2017.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The new guidance is required to be applied at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact on its financial statements. Although the impact is not currently estimable, the Company expects to recognize lease assets and lease liabilities for most of the leases it currently accounts for as operating leases. In addition, for the Company's leases that are classified as sale-leaseback transactions, the Company will be required to record an initial adjustment to retained earnings associated with the previously deferred gains, and for any future transactions, the gain, adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company is continuing its assessment, which may identify other impacts.
In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products (Topic 405-20), which creates an exception under Topic 405-20 to derecognize financial liabilities related to certain prepaid stored-value products using a breakage model consistent with the revenue breakage model in Topic 606. The new guidance will be effective concurrent with Topic 606, which is effective for the Company for interim and annual periods beginning after December 15, 2017. The Company does not expect this standard to have a material effect on its financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), to simplify various aspects of the accounting and presentation of share-based payments, including the income tax effects of awards and forfeiture assumptions. Currently, tax deductions in excess of compensation costs (excess tax benefits) are recorded in equity and tax deduction shortfalls (tax deficiencies), to the extent of previous excess tax benefits, are recorded in equity and then to income tax expense. Under the new guidance, all excess tax benefits and tax deficiencies will be recorded to income tax expense in the income statement, which could create volatility in the Company's income statement. The new guidance will also change the classification of excess tax benefits in the cash flow statement and impact the diluted earnings per share calculation. The guidance will be effective for interim and annual periods beginning after December 15, 2016, and early adoption is permitted. Different components of the guidance require prospective, retrospective and/or modified retrospective adoption. The Company will make a policy election to account for forfeitures of awards as they occur and it will record an immaterial cumulative-effect adjustment to beginning retained earnings as of January 2, 2017, as a result of adopting the standard.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted
and a retrospective approach is required. The Company does not expect this standard to have a material impact on its financial statements.
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, 2020. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. The Company does not expect this standard to have a material impact on its financial statements.
The Company entered into a sale-leaseback transaction that did not qualify for sale-leaseback accounting due to a form of continuing involvement and, as a result, the lease was classified as a financing transaction in the Company’s consolidated financial statements.
Under the financing method, the assets remain on the consolidated balance sheet and the net proceeds received by the Company from the transaction are recorded as a lease financing liability. Payments under the lease are applied as payments of imputed interest and deemed principal on the underlying financing obligations.
The lease provides for an initial term of 20 years plus renewal options and requires payment of property taxes, insurance and utilities.
Basis of Presentation (Tables)
Schedule of Property and Equipment Useful Lives
Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements
5
to
30 years
Equipment
3
to
7 years
Computer hardware and software
3
to
7 years
Assets subject to capital lease
Shorter of useful life or lease term
Property and equipment consisted of the following:
 
January 1, 2017
 
January 3, 2016
Land
$
23,395

 
$
23,363

Owned buildings
22,008

 
20,101

Leasehold improvements (1)
249,507

 
206,293

Equipment
220,397

 
194,181

Assets subject to capital leases
2,057

 
2,057

 
517,364

 
445,995

Less accumulated depreciation and amortization
(246,444
)
 
(197,003
)
 
$
270,920

 
$
248,992


(1) Leasehold improvements include the cost of new buildings constructed on leased land.
Property and Equipment (Tables)
Schedule of Property and Equipment
Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements
5
to
30 years
Equipment
3
to
7 years
Computer hardware and software
3
to
7 years
Assets subject to capital lease
Shorter of useful life or lease term
Property and equipment consisted of the following:
 
January 1, 2017
 
January 3, 2016
Land
$
23,395

 
$
23,363

Owned buildings
22,008

 
20,101

Leasehold improvements (1)
249,507

 
206,293

Equipment
220,397

 
194,181

Assets subject to capital leases
2,057

 
2,057

 
517,364

 
445,995

Less accumulated depreciation and amortization
(246,444
)
 
(197,003
)
 
$
270,920

 
$
248,992


(1) Leasehold improvements include the cost of new buildings constructed on leased land.
Goodwill (Tables)
Schedule of Goodwill
Goodwill balances are summarized below: 
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, January 1, 2017 and January 3, 2016
$
56,307

 
$
67,177

 
$
123,484

Impairment of Long-Lived Assets and Other Lease Charges (Tables)
Impairment of Long-Lived Assets and Other Lease Charges by Segment
A summary of impairment on long-lived assets and other lease charges recorded by segment is as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Pollo Tropical
$
24,419

 
$
510

 
$
254

Taco Cabana
1,225

 
1,872

 
109

 
$
25,644

 
$
2,382

 
$
363

Other Liabilities (Tables)
Other liabilities, current, consist of the following:
 
January 1, 2017
 
January 3, 2016
Accrued workers' compensation and general liability claims
$
4,838

 
$
5,540

Sales and property taxes
1,844

 
3,031

Accrued occupancy costs
2,161

 
980

Other
2,473

 
2,545

 
$
11,316

 
$
12,096

Other liabilities, long-term, consist of the following:
 
January 1, 2017
 
January 3, 2016
Accrued occupancy costs
$
20,172

 
$
15,349

Deferred compensation
2,027

 
1,665

Accrued workers’ compensation and general liability claims
4,030

 
697

Other
4,140

 
3,286

 
$
30,369

 
$
20,997

The following table presents the activity in the closed-store reserve, of which $3.1 million and $1.2 million are included in long-term accrued occupancy costs at January 1, 2017 and January 3, 2016, respectively, with the remainder in other current liabilities. 
 
Year Ended
 
January 1, 2017
 
January 3, 2016
Balance, beginning of period
$
1,832

 
$
1,251

Provisions for restaurant closures
3,093

 
554

Additional lease charges, net of (recoveries)
(237
)
 
258

Payments, net
(806
)
 
(358
)
Other adjustments
1,030

 
127

Balance, end of period
$
4,912

 
$
1,832

Leases (Tables)
Minimum rent commitments due under capital and non-cancelable operating leases at January 1, 2017 were as follows:
 
Capital
 
Operating
2017
$
282

 
$
43,026

2018
282

 
42,784

2019
282

 
42,380

2020
286

 
40,852

2021
301

 
37,924

Thereafter
1,540

 
338,084

Total minimum lease payments(1)
2,973

 
$
545,050

Less amount representing interest
(1,361
)
 
 
Total obligations under capital leases
1,612

 
 
Less current portion
(89
)
 
 
Long-term debt under capital leases
$
1,523

 
 
(1)Minimum operating lease payments have not been reduced by minimum sublease rentals of $6.7 million due in the future under noncancelable subleases.
Minimum rent commitments due under capital and non-cancelable operating leases at January 1, 2017 were as follows:
 
Capital
 
Operating
2017
$
282

 
$
43,026

2018
282

 
42,784

2019
282

 
42,380

2020
286

 
40,852

2021
301

 
37,924

Thereafter
1,540

 
338,084

Total minimum lease payments(1)
2,973

 
$
545,050

Less amount representing interest
(1,361
)
 
 
Total obligations under capital leases
1,612

 
 
Less current portion
(89
)
 
 
Long-term debt under capital leases
$
1,523

 
 
(1)Minimum operating lease payments have not been reduced by minimum sublease rentals of $6.7 million due in the future under noncancelable subleases.
Total rent expense on operating leases, including contingent rentals, was as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Minimum rent on real property, excluding rent included in pre-opening costs
$
37,180

 
$
32,716

 
$
29,309

Additional rent based on percentage of sales
313

 
387

 
336

Restaurant rent expense
37,493

 
33,103

 
29,645

Rent included in pre-opening costs
2,066

 
1,736

 
1,421

Administrative and equipment rent
1,119

 
1,026

 
1,042

 
$
40,678

 
$
35,865

 
$
32,108

Long-term Debt (Tables)
Schedule of Long-term Debt
Long term debt at January 1, 2017 and January 3, 2016 consisted of the following:
 
January 1,
2017
 
January 3,
2016
Revolving credit facility
$
69,900

 
$
71,000

Capital leases
1,612

 
1,681

 
71,512

 
72,681

Less: current portion of long-term debt
(89
)
 
(69
)
 
$
71,423

 
$
72,612

Lease Financing Obligations (Tables)
Payments Required on Lease Financing Obligations
At January 1, 2017, payments required on lease financing obligations were as follows:
2017
$
143

2018
144

2019
146

2020
147

2021
149

Thereafter, through 2023
1,927

Total minimum lease payments
2,656

Less: Interest implicit in obligations
(992
)
Total lease financing obligations
$
1,664

Income Taxes (Tables)
The Company’s income tax provision was comprised of the following:    
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Current:
 
 
 
 
 
Federal
$
11,979

 
$
14,086

 
$
17,335

Foreign
372

 
396

 
380

State
1,865

 
2,081

 
2,291

 
14,216

 
16,563

 
20,006

Deferred:
 
 
 
 
 
Federal
(4,908
)
 
5,318

 
417

State
(792
)
 
139

 
46


(5,700
)
 
5,457

 
463

Valuation allowance
(180
)
 
26

 
494

 
$
8,336

 
$
22,046

 
$
20,963

The components of deferred income tax assets and liabilities at January 1, 2017 and January 3, 2016 were as follows:
 
 
January 1, 2017
 
January 3, 2016
Deferred income tax assets:
 
 
 
 
  Accrued vacation benefits
 
1,640

 
1,494

  Incentive compensation
 
986

 
1,571

  Other accruals
 
3,924

 
3,188

  Deferred income on sale-leaseback of real estate
 
9,861

 
10,929

  Lease financing obligations
 
162

 
133

  Occupancy costs
 
8,036

 
5,840

  Tax credit carryforwards
 
1,148

 
1,036

  Other
 
1,738

 
1,618

        Gross deferred income tax assets
 
27,495

 
25,809

Deferred income tax liabilities:
 
 
 
 
  Property and equipment depreciation
 
(8,311
)
 
(12,176
)
  Amortization of other intangibles, net
 
(3,250
)
 
(3,211
)
  Other
 
(701
)
 
(889
)
        Gross deferred income tax liabilities
 
(12,262
)
 
(16,276
)
  Less: Valuation allowance
 
(856
)
 
(1,036
)
Net deferred income tax assets
 
$
14,377

 
$
8,497

A reconciliation of the statutory federal income tax provision to the effective tax provision was as follows:
 
Year Ended
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
Statutory federal income tax provision
$
8,767

 
$
21,204

 
$
19,999

State income taxes, net of federal benefit