FIESTA RESTAURANT GROUP, INC., 10-Q filed on 8/5/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 28, 2020
Jul. 30, 2020
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 28, 2020  
Document Transition Report false  
Entity File Number 001-35373  
Entity Registrant Name FIESTA RESTAURANT GROUP, INC.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 90-0712224  
Entity Address, Address Line One 14800 Landmark Boulevard, Suite 500  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75254  
City Area Code 972  
Local Phone Number 702-9300  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Entity Trading Symbol FRGI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001534992  
Current Fiscal Year End Date --01-03  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   25,956,504
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jun. 28, 2020
Dec. 29, 2019
Current assets:    
Cash $ 101,375 $ 13,413
Accounts receivable 7,604 7,933
Inventories 3,446 3,394
Prepaid rent 106 117
Income tax receivable 10,635 3,821
Prepaid expenses and other current assets 17,195 10,605
Total current assets 140,361 39,283
Property and equipment, net 187,928 211,944
Operating lease right-of-use assets 257,654 251,272
Goodwill 56,307 56,307
Other assets 8,134 9,835
Total assets 650,384 568,641
Current liabilities:    
Current portion of long-term debt 241 212
Accounts payable 29,525 14,776
Accrued payroll, related taxes and benefits 8,937 9,866
Accrued real estate taxes 5,558 6,497
Other current liabilities 34,836 32,269
Total current liabilities 79,097 63,620
Long-term debt, net of current portion 148,233 76,823
Operating lease liabilities 264,157 256,798
Deferred tax liabilities 7,866 4,759
Other non-current liabilities 10,343 8,405
Total liabilities 509,696 410,405
Commitments and contingencies
Stockholders' equity:    
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued 0 0
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,950,982 and 27,461,697 shares issued, respectively, and 25,288,256 and 25,612,597 shares outstanding, respectively 273 271
Additional paid-in capital 174,970 173,132
Retained earnings (accumulated deficit) (13,776) 1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively (20,779) (17,051)
Total stockholders' equity 140,688 158,236
Total liabilities and stockholders' equity $ 650,384 $ 568,641
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 28, 2020
Dec. 29, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 20,000,000 20,000,000
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 27,950,982 27,461,697
Common stock, shares outstanding 25,288,256 25,612,597
Treasury stock, shares 1,993,495 1,493,495
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Revenues:        
Revenues $ 121,868 $ 171,381 $ 268,567 $ 337,233
Costs and expenses:        
Cost of sales 37,807 53,758 84,083 104,268
Restaurant wages and related expenses (including stock-based compensation expense of $69, $16, $105 and $43, respectively) 33,747 45,766 74,242 90,802
Restaurant rent expense 11,279 11,898 22,618 23,643
Other restaurant operating expenses 18,989 22,513 40,500 44,276
Advertising expense 2,143 5,883 7,926 11,404
General and administrative (including stock-based compensation expense of $959, $719, $1,735 and $1,484, respectively) 12,288 13,496 26,672 28,567
Depreciation and amortization 9,565 9,807 18,995 19,355
Pre-opening costs 0 385 69 786
Impairment and other lease charges 2,285 1,751 6,518 1,413
Goodwill impairment 0 46,485 0 46,485
Closed restaurant rent expense, net of sublease income 1,830 1,335 3,462 2,759
Other expense (income), net 784 154 1,692 856
Total operating expenses 130,717 213,231 286,777 374,614
Loss from operations (8,849) (41,850) (18,210) (37,381)
Interest expense 1,237 967 2,198 2,201
Income (loss) before income taxes (10,086) (42,817) (20,408) (39,582)
Provision for (benefit from) income taxes (1,743) 623 (4,748) 1,569
Net loss $ (8,343) $ (43,440) $ (15,660) $ (41,151)
Earnings (loss) per common share:        
Basic (usd per share) $ (0.33) $ (1.62) $ (0.62) $ (1.53)
Diluted (usd per share) $ (0.33) $ (1.62) $ (0.62) $ (1.53)
Weighted average common shares outstanding:        
Basic (in shares) 25,267,404 26,807,068 25,393,325 26,825,286
Diluted (in shares) 25,267,404 26,807,068 25,393,325 26,825,286
Restaurant sales        
Revenues:        
Revenues $ 121,547 $ 170,713 $ 267,633 $ 335,894
Franchise royalty revenues and fees        
Revenues:        
Revenues $ 321 $ 668 $ 934 $ 1,339
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Jun. 28, 2020
Jun. 30, 2019
Stock-based compensation $ 1,000 $ 700 $ 1,800 $ 1,500
Restaurant Wages And Related Expenses        
Stock-based compensation 69 16 105 43
General and Administrative Expense        
Stock-based compensation $ 959 $ 719 $ 1,735 $ 1,484
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Retained Earnings (Accumulated Deficit)
Cumulative Effect, Period of Adoption, Adjustment
Treasury Stock
Increase (Decrease) in Stockholders' Equity              
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member            
Beginning shares at Dec. 30, 2018     26,858,988        
Beginning balance at Dec. 30, 2018 $ 240,059 $ 14,002 $ 270 $ 170,290 $ 72,268 $ 14,002 $ (2,769)
Increase (Decrease) in Stockholders' Equity              
Stock-based compensation 792     792      
Vesting of restricted shares (in shares)     68,286        
Vesting of restricted shares (1)   $ 0 (1)      
Purchase of treasury stock (in shares)     (158,269)        
Purchase of treasury stock (2,199)           (2,199)
Net income (loss) 2,289       2,289    
Ending shares at Mar. 31, 2019     26,769,005        
Ending balance at Mar. 31, 2019 254,942   $ 270 171,081 88,559   (4,968)
Beginning shares at Dec. 30, 2018     26,858,988        
Beginning balance at Dec. 30, 2018 $ 240,059 $ 14,002 $ 270 170,290 72,268 $ 14,002 (2,769)
Increase (Decrease) in Stockholders' Equity              
Purchase of treasury stock (in shares) (158,269)            
Purchase of treasury stock $ (2,200)            
Net income (loss) (41,151)            
Ending shares at Jun. 30, 2019     26,826,552        
Ending balance at Jun. 30, 2019 212,237   $ 271 171,815 45,119   (4,968)
Beginning shares at Mar. 31, 2019     26,769,005        
Beginning balance at Mar. 31, 2019 254,942   $ 270 171,081 88,559   (4,968)
Increase (Decrease) in Stockholders' Equity              
Stock-based compensation 735     735      
Vesting of restricted shares (in shares)     57,547        
Vesting of restricted shares 0   $ 1 (1)      
Net income (loss) (43,440)       (43,440)    
Ending shares at Jun. 30, 2019     26,826,552        
Ending balance at Jun. 30, 2019 $ 212,237   $ 271 171,815 45,119   (4,968)
Beginning shares at Dec. 29, 2019 25,612,597   25,612,597        
Beginning balance at Dec. 29, 2019 $ 158,236   $ 271 173,132 1,884   (17,051)
Increase (Decrease) in Stockholders' Equity              
Stock-based compensation 812     812      
Vesting of restricted shares (in shares)     73,998        
Vesting of restricted shares 0   $ 0 0      
Purchase of treasury stock (in shares)     (500,000)        
Purchase of treasury stock (3,728)           (3,728)
Net income (loss) (7,317)       (7,317)    
Ending shares at Mar. 29, 2020     25,186,595        
Ending balance at Mar. 29, 2020 $ 148,003   $ 271 173,944 (5,433)   (20,779)
Beginning shares at Dec. 29, 2019 25,612,597   25,612,597        
Beginning balance at Dec. 29, 2019 $ 158,236   $ 271 173,132 1,884   (17,051)
Increase (Decrease) in Stockholders' Equity              
Purchase of treasury stock (in shares) (500,000)            
Purchase of treasury stock $ (3,700)            
Net income (loss) $ (15,660)            
Ending shares at Jun. 28, 2020 25,288,256   25,288,256        
Ending balance at Jun. 28, 2020 $ 140,688   $ 273 174,970 (13,776)   (20,779)
Beginning shares at Mar. 29, 2020     25,186,595        
Beginning balance at Mar. 29, 2020 148,003   $ 271 173,944 (5,433)   (20,779)
Increase (Decrease) in Stockholders' Equity              
Stock-based compensation 1,028     1,028      
Vesting of restricted shares (in shares)     101,661        
Vesting of restricted shares 0   $ 2 (2)      
Net income (loss) $ (8,343)       (8,343)    
Ending shares at Jun. 28, 2020 25,288,256   25,288,256        
Ending balance at Jun. 28, 2020 $ 140,688   $ 273 $ 174,970 $ (13,776)   $ (20,779)
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jun. 28, 2020
Jun. 30, 2019
Operating activities:    
Net loss $ (15,660) $ (41,151)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Loss on disposals of property and equipment 571 8
Stock-based compensation 1,840 1,527
Impairment and other lease charges 6,518 1,413
Goodwill impairment 0 46,485
Depreciation and amortization 18,995 19,355
Amortization of deferred financing costs 135 135
Deferred income taxes 3,107 0
Changes in other operating assets and liabilities 13,462 11,771
Net cash provided by operating activities 28,968 39,543
Capital expenditures:    
New restaurant development (1,840) (7,835)
Restaurant remodeling (1,087) (268)
Other restaurant capital expenditures (3,741) (9,936)
Corporate and restaurant information systems (2,035) (3,632)
Total capital expenditures (8,703) (21,671)
Proceeds from disposals of properties 0 1,774
Net cash used in investing activities (8,703) (19,897)
Financing activities:    
Borrowings on revolving credit facility 146,940 11,000
Repayments on revolving credit facility (75,420) (28,000)
Borrowings of unsecured debt 15,000 0
Repayments of unsecured debt (15,000) 0
Principal payments on finance leases (95) (59)
Payments to purchase treasury stock (3,728) (2,199)
Net cash provided by (used in) financing activities 67,697 (19,258)
Net change in cash 87,962 388
Cash, beginning of period 13,413 5,258
Cash, end of period $ 101,375 $ 5,646
v3.20.2
Basis of Presentation
6 Months Ended
Jun. 28, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively "Pollo Tropical"), and Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the "Company." At June 28, 2020, the Company owned and operated 141 Pollo Tropical® restaurants and 146 Taco Cabana® restaurants. All of the Pollo Tropical restaurants are located in Florida and all of the Taco Cabana restaurants are located in Texas. At June 28, 2020, the Company franchised a total of 33 Pollo Tropical restaurants and seven Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, four in Panama, two in Guyana, one in Ecuador, one in the Bahamas, seven on college campuses and one at a hospital in Florida. The franchised Taco Cabana restaurants include six in New Mexico and one on a college campus in Texas.
The COVID-19 pandemic has affected and is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, the Company closed the dining room seating areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. During the second quarter of 2020, certain restrictions were lifted allowing restaurant dining rooms to open on a limited basis. The Company opened certain dining rooms on a limited basis during the second quarter of 2020; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. The Company expects the COVID-19 restrictions and economic impact to result in reduced earnings. As the COVID-19 situation is dynamic, the Company does not currently know when it will be able to resume full operations or when its results of operations will return to pre-COVID-19 levels.
Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 5253 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 29, 2019 contained 52 weeks. The three and six months ended June 28, 2020 and June 30, 2019 each contained thirteen and twenty-six weeks, respectively. The fiscal year ending January 3, 2021 will contain 53 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 28, 2020 and June 30, 2019 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended June 28, 2020 and June 30, 2019 are not necessarily indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 29, 2019 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The December 29, 2019 balance sheet data is derived from those audited financial statements.
Guidance Adopted in 2020. In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this new accounting standard on December 30, 2019 and will apply it prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material effect on the Company's financial statements. The Company deferred and amortized application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement in the same line item that the fees associated with the subscription arrangement were presented prior to adoption of the new standard.
Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a
percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior secured revolving credit facility (the " senior credit facility"), which is considered Level 2, is based on current LIBOR rates. The fair value of the senior credit facility was approximately $146.5 million at June 28, 2020, and $75.0 million at December 29, 2019. The carrying value of the senior credit facility was $146.5 million at June 28, 2020 and $75.0 million at December 29, 2019.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—Impairment of Long-Lived Assets.
Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.
As a result of the COVID-19 pandemic the Company entered into rent deferral and abatement agreements with 185 landlords as of June 28, 2020. Under these agreements, certain rent payments are deferred without penalty for various periods, generally for up to three months, or abated. The Company has elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the concessions and deferrals existed in the respective contracts at lease inception and did not account for the concessions and deferrals as lease modifications.
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation
for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. The Company's current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact for the remainder of the year with the greatest impact in the near term.
v3.20.2
Prepaid Expenses and Other Current Assets
6 Months Ended
Jun. 28, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets, consist of the following:
 
June 28, 2020
 
December 29, 2019
Prepaid contract expenses
$
3,836

 
$
4,410

Assets held for sale(1)
9,856

 
4,110

Other
3,503

 
2,085

 
$
17,195

 
$
10,605


(1)
As of June 28, 2020, one operating and two closed Pollo Tropical restaurant properties and two operating and two closed Taco Cabana restaurant properties owned by the Company were classified as held for sale. As of December 29, 2019, one closed Pollo Tropical restaurant property and two closed Taco Cabana restaurant properties owned by the Company were classified as held for sale.
v3.20.2
Impairment of Long-Lived Assets and Other Lease Charges
6 Months Ended
Jun. 28, 2020
Property, Plant and Equipment [Abstract]  
Impairment of Long-Lived Assets and Other Lease Charges Impairment of Long-Lived Assets and Other Lease Charges
The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. 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, exclusive of operating lease payments, 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, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.
A summary of impairment of long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 28, 2020
 
June 30, 2019
 
June 28, 2020
 
June 30, 2019
Pollo Tropical
$
1,932

 
$
52

 
$
5,628

 
$
(327
)
Taco Cabana
353

 
1,699

 
890

 
1,740

 
$
2,285

 
$
1,751

 
$
6,518

 
$
1,413


Impairment and other lease charges for the three and six months ended June 28, 2020, for Pollo Tropical include impairment charges of $1.1 million and $4.8 million, respectively, and other lease charges of $0.9 million for both periods. Pollo Tropical impairment charges for the three months ended June 28, 2020, related primarily to the write-down of assets held for sale to their fair value less costs to sell. For the six months ended June 28, 2020, impairment charges also include the impairment of assets from three underperforming Pollo Tropical restaurants for which the near-term impact of temporary COVID-19 related closure for two locations and sustained low sales resulted in a decline in expected future cash flows. For the three and six months ended June 28, 2020, other lease charges for Pollo Tropical related primarily to lease termination charges of $0.9 million for restaurant locations the Company decided not to develop. Impairment and other lease charges for the three and six months ended June 28,
2020 for Taco Cabana include impairment charges of $0.6 million and $1.1 million, respectively, and a gain from a lease termination of $(0.2) million for both periods. Taco Cabana impairment charges for the three months ended June 28, 2020, related primarily to the write-down of assets held for sale to their fair value less costs to sell. For the six months ended June 28, 2020, impairment charges also include the impairment of assets for two underperforming Taco Cabana restaurants for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows.
Impairment and other lease charges for the three and six months ended June 30, 2019 for Pollo Tropical include impairment charges of $0.1 million and $0.4 million, respectively, related primarily to additional impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.7) million for the six months ended June 30, 2019. Impairment and other lease charges for the three and six months ended June 30, 2019 for Taco Cabana include impairment charges of $1.7 million related primarily to impairment of assets for three underperforming Taco Cabana restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and equipment from previously impaired restaurants.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. The Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilized current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the six months ended June 28, 2020 totaled $7.7 million.
v3.20.2
Other Liabilities
6 Months Ended
Jun. 28, 2020
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
 
June 28, 2020
 
December 29, 2019
Operating lease liabilities
$
24,936

 
$
22,338

Accrued workers' compensation and general liability claims
4,228

 
4,354

Sales and property taxes
1,711

 
1,889

Accrued occupancy costs(1)
390

 
891

Other
3,571

 
2,797

 
$
34,836

 
$
32,269


(1) 
Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

Other non-current liabilities consist of the following:
 
June 28, 2020
 
December 29, 2019
Accrued workers' compensation and general liability claims
$
7,348

 
$
7,348

Accrued payroll taxes(1)
1,975

 

Deferred compensation
427

 
424

Accrued occupancy costs(2)
78

 
78

Other
515

 
555

 
$
10,343

 
$
8,405


(1) 
Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
(2) 
Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

The following table presents the activity in the closed restaurant reserve, of which $0.1 million is included in non-current liabilities at both June 28, 2020 and December 29, 2019, with the remainder in other current liabilities.
 
Six Months Ended June 28, 2020
 
Year Ended December 29, 2019
Balance, beginning of period
$
752

 
$
8,819

Payments, net
(241
)
 
(1,405
)
Other adjustments(1)
(155
)
 
(6,662
)
Balance, end of period
$
356

 
$
752


(1)
As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments totaling $6.0 million was reclassified and included as a component of the related ROU assets during the twelve months ended December 29, 2019. The portion of the closed restaurant reserve related to variable ancillary lease costs was not reclassified and was not included as a reduction to ROU assets.
v3.20.2
Stockholders' Equity
6 Months Ended
Jun. 28, 2020
Equity [Abstract]  
Stockholders' Equity Stockholders' Equity
Purchase of Treasury Stock
In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 500,000 shares of common stock valued at approximately $3.7 million and 158,269 shares of common stock valued at approximately $2.2 million during the six months ended June 28, 2020 and June 30, 2019, respectively. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's senior credit facility as amended on July 10, 2020, prohibits share repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.
Stock-Based Compensation
During the six months ended June 28, 2020, the Company granted certain employees and non-employee directors a total of 501,706 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees vest and become non-forfeitable over a four-year vesting period. The shares granted to non-employee directors vest and become non-forfeitable over a one-year vesting period, or for an initial grant to a new director, over a five-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the six months ended June 28, 2020 and June 30, 2019 was $8.27 and $13.32 per share, respectively.
The weighted average fair value at grant date for the restricted stock units subject to market conditions granted in the six months ended June 30, 2019 was $1.76 per share.
Stock-based compensation expense for the three and six months ended June 28, 2020 was $1.0 million and $1.8 million, respectively, and for the three and six months ended June 30, 2019 was $0.7 million and $1.5 million, respectively. At June 28, 2020, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $6.1 million. At June 28, 2020, the remaining weighted average vesting period for non-vested restricted shares was 3.1 years and restricted stock units was 0.7 years.
A summary of all non-vested restricted shares and restricted stock units activity for the six months ended June 28, 2020 is as follows:
 
Non-Vested Shares
 
Restricted Stock Units
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Units
 
Weighted
Average
Grant Date
Fair Value
Outstanding at December 29, 2019
355,605

 
$
15.47

 
176,362

 
$
9.42

Granted
501,706

 
8.27

 

 

Vested and released
(174,912
)
 
15.29

 
(747
)
 
32.44

Forfeited
(13,168
)
 
13.83

 
(607
)
 
24.86

Outstanding at June 28, 2020
669,231

 
$
10.15

 
175,008

 
$
9.27


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

Fair value at grant date
 
$
1.76

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

Dividend yield
 
%
Expected volatility
 
43.18
%

v3.20.2
Business Segment Information
6 Months Ended
Jun. 28, 2020
Segment Reporting [Abstract]  
Business Segment Information Business Segment Information
The Company owns, operates and franchises two restaurant brands, Pollo Tropical® and Taco Cabana®, each of which is an operating segment. Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared tropical-inspired menu items, while Taco Cabana restaurants specialize in Mexican-inspired food.
Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below.
The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, and a current income tax receivable.
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
June 28, 2020:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
63,292

 
$
58,255

 
$

 
$
121,547

Franchise revenue
 
146

 
175

 

 
321

Cost of sales
 
20,321

 
17,486

 

 
37,807

Restaurant wages and related expenses(1)
 
15,108

 
18,639

 

 
33,747

Restaurant rent expense
 
5,660

 
5,619

 

 
11,279

Other restaurant operating expenses
 
10,714

 
8,275

 

 
18,989

Advertising expense
 
1,178

 
965

 

 
2,143

General and administrative expense(2)
 
6,538

 
5,750

 

 
12,288

Adjusted EBITDA
 
4,993

 
2,672

 

 
7,665

Depreciation and amortization
 
5,233

 
4,332

 

 
9,565

Capital expenditures
 
763

 
1,060

 
797

 
2,620

June 30, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
92,620

 
$
78,093

 
$

 
$
170,713

Franchise revenue
 
438

 
230

 

 
668

Cost of sales
 
29,318

 
24,440

 

 
53,758

Restaurant wages and related expenses(1)
 
21,290

 
24,476

 

 
45,766

Restaurant rent expense
 
5,495

 
6,403

 

 
11,898

Other restaurant operating expenses
 
11,900

 
10,613

 

 
22,513

Advertising expense
 
3,189

 
2,694

 

 
5,883

General and administrative expense(2)
 
7,700

 
5,796

 

 
13,496

Adjusted EBITDA
 
14,646

 
4,120

 

 
18,766

Depreciation and amortization
 
5,376

 
4,431

 

 
9,807

Capital expenditures
 
4,648

 
5,930

 
(444
)
 
10,134


Six Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
June 28, 2020:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
149,013

 
$
118,620

 
$

 
$
267,633

Franchise revenue
 
550

 
384

 

 
934

Cost of sales
 
48,052

 
36,031

 

 
84,083

Restaurant wages and related expenses(1)
 
36,145

 
38,097

 

 
74,242

Restaurant rent expense
 
11,300

 
11,318

 

 
22,618

Other restaurant operating expenses
 
23,100

 
17,400

 

 
40,500

Advertising expense
 
4,682

 
3,244

 

 
7,926

General and administrative expense(2)
 
14,026

 
12,646

 

 
26,672

Adjusted EBITDA
 
13,773

 
1,765

 

 
15,538

Depreciation and amortization
 
10,511

 
8,484

 

 
18,995

Capital expenditures
 
4,044

 
3,660

 
999

 
8,703

June 30, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
183,646

 
$
152,248

 
$

 
$
335,894

Franchise revenue
 
893

 
446

 

 
1,339

Cost of sales
 
57,616

 
46,652

 

 
104,268

Restaurant wages and related expenses(1)
 
42,443

 
48,359

 

 
90,802

Restaurant rent expense
 
10,916

 
12,727

 

 
23,643

Other restaurant operating expenses
 
23,858

 
20,418

 

 
44,276

Advertising expense
 
6,221

 
5,183

 

 
11,404

General and administrative expense(2)
 
16,047

 
12,520

 

 
28,567

Adjusted EBITDA
 
28,963

 
7,015

 

 
35,978

Depreciation and amortization
 
10,589

 
8,766

 

 
19,355

Capital expenditures
 
11,793

 
9,967

 
(89
)
 
21,671

Identifiable Assets:
 
 
 
 
 
 
 
 
June 28, 2020
 
$
332,391

 
$
191,260

 
$
126,733

 
$
650,384

December 29, 2019
 
340,012

 
195,883

 
32,746

 
568,641


(1) Includes stock-based compensation expense of $69 and $105 for the three and six months ended June 28, 2020, respectively, and $16 and $43 for the three and six months ended June 30, 2019, respectively.
(2) Includes stock-based compensation expense of $959 and $1,735 for the three and six months ended June 28, 2020, respectively, and $719 and $1,484 for the three and six months ended June 30, 2019, respectively.
A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
June 28, 2020:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(8,343
)
Benefit from income taxes
 
 
 
 
 
(1,743
)
Loss before taxes
 
$
(5,186
)
 
$
(4,900
)
 
$
(10,086
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,233

 
4,332

 
9,565

          Impairment and other lease charges
 
1,932

 
353

 
2,285

          Interest expense
 
625

 
612

 
1,237

          Closed restaurant rent expense, net of sublease income
 
671

 
1,159

 
1,830

          Other expense (income), net
 
644

 
140

 
784

          Stock-based compensation expense in restaurant wages
 
27

 
42

 
69

                Total non-general and administrative expense adjustments
 
9,132

 
6,638

 
15,770

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
523

 
436

 
959

          Restructuring costs and retention bonuses
 
452

 
439

 
891

          Digital and brand repositioning costs
 
72

 
59

 
131

               Total general and administrative expense adjustments
 
1,047

 
934

 
1,981

Adjusted EBITDA
 
$
4,993

 
$
2,672

 
$
7,665

 
 
 
 
 
 
 
June 30, 2019:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(43,440
)
Provision for income taxes
 
 
 
 
 
623

Income (loss) before taxes
 
$
6,918

 
$
(49,735
)
 
$
(42,817
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,376

 
4,431

 
9,807

          Impairment and other lease charges
 
52

 
1,699

 
1,751

       Goodwill impairment
 

 
46,485

 
46,485

          Interest expense
 
480

 
487

 
967

          Closed restaurant rent expense, net of sublease income
 
1,039

 
296

 
1,335

          Other expense (income), net
 
148

 
6

 
154

          Stock-based compensation expense in restaurant wages
 
4

 
12

 
16

                Total non-general and administrative expense adjustments
 
7,099

 
53,416

 
60,515

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
351

 
368

 
719

          Restructuring costs and retention bonuses
 
278

 
71

 
349

               Total general and administrative expense adjustments
 
629

 
439

 
1,068

Adjusted EBITDA
 
$
14,646

 
$
4,120

 
$
18,766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Six Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
June 28, 2020:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(15,660
)
Benefit from income taxes
 
 
 
 
 
(4,748
)
Loss before taxes
 
$
(7,013
)
 
$
(13,395
)
 
$
(20,408
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
10,511

 
8,484

 
18,995

          Impairment and other lease charges
 
5,628

 
890

 
6,518

          Interest expense
 
1,108

 
1,090

 
2,198

          Closed restaurant rent expense, net of sublease income
 
1,273

 
2,189

 
3,462

          Other expense (income), net
 
751

 
941

 
1,692

          Stock-based compensation expense in restaurant wages
 
38

 
67

 
105

                Total non-general and administrative expense adjustments
 
19,309

 
13,661

 
32,970

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
833

 
902

 
1,735

          Restructuring costs and retention bonuses
 
452

 
439

 
891

          Digital and brand repositioning costs
 
192

 
158

 
350

               Total general and administrative expense adjustments
 
1,477

 
1,499

 
2,976

Adjusted EBITDA
 
$
13,773

 
$
1,765

 
$
15,538

 
 
 
 
 
 
 
June 30, 2019:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(41,151
)
Provision for income taxes
 
 
 
 
 
1,569

Income (loss) before taxes
 
$
12,874

 
$
(52,456
)
 
$
(39,582
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
10,589

 
8,766

 
19,355

          Impairment and other lease charges
 
(327
)
 
1,740

 
1,413

       Goodwill impairment
 

 
46,485

 
46,485

          Interest expense
 
1,136

 
1,065

 
2,201

          Closed restaurant rent expense, net of sublease income
 
2,183

 
576

 
2,759

          Other expense (income), net
 
744

 
112

 
856

          Stock-based compensation expense in restaurant wages
 
9

 
34

 
43

                Total non-general and administrative expense adjustments
 
14,334

 
58,778

 
73,112

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
928

 
556

 
1,484

          Restructuring costs and retention bonuses
 
827

 
137

 
964

               Total general and administrative expense adjustments
 
1,755

 
693

 
2,448

Adjusted EBITDA
 
$
28,963

 
$
7,015

 
$
35,978


v3.20.2
Earnings (Loss) Per Share
6 Months Ended
Jun. 28, 2020
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
For the three and six months ended June 28, 2020 and June 30, 2019, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including such restricted stock units would have been antidilutive as a result of the net loss in the three and six months ended June 28, 2020 and June 30, 2019.
The computation of basic and diluted EPS is as follows:
 
Three Months Ended
 
Six Months Ended
 
June 28, 2020
 
June 30, 2019
 
June 28, 2020
 
June 30, 2019
Basic and diluted EPS:
 
 
 
 
 
 
 
Net loss
$
(8,343
)
 
$
(43,440
)
 
$
(15,660
)
 
$
(41,151
)
Less: income allocated to participating securities

 

 

 

Net loss available to common shareholders
$
(8,343
)
 
$
(43,440
)
 
$
(15,660
)
 
$
(41,151
)
Weighted average common shares—basic
25,267,404

 
26,807,068

 
25,393,325

 
26,825,286

Restricted stock units

 

 

 

Weighted average common shares—diluted
25,267,404

 
26,807,068

 
25,393,325

 
26,825,286

 
 
 
 
 
 
 
 
Loss per common share—basic
$
(0.33
)
 
$
(1.62
)
 
$
(0.62
)
 
$
(1.53
)
Loss per common share—diluted
(0.33
)
 
(1.62
)
 
(0.62
)
 
(1.53
)

v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 28, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Lease Assignments. Taco Cabana assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2029. Although the assignee is responsible for making the payments required by the lease, the Company remains secondarily liable as a surety with respect to the lease. Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. Although the assignee is responsible for making the payments required by the lease, the Company is a guarantor under the lease.
The maximum potential liability for future rental payments that the Company could be required to make under these leases at June 28, 2020 was $3.0 million. The Company could also be obligated to pay property taxes and other lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.
Legal Matters. The Company is a party to various litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its condensed consolidated financial statements. 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.
v3.20.2
Income Taxes
6 Months Ended
Jun. 28, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company has historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annualized effective tax rate for the full fiscal year to "ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainty created by the events surrounding the COVID-19 pandemic, the actual effective tax rate for the year to date period was used to calculate the income tax benefit for the three and six months ended June 28, 2020 as permitted by Accounting Standards Codification ("ASC") 740-270-30-18.
Tax Law Changes. On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions that allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the 80% taxable income limitation on net operating loss deductions for 2018 through 2020. These changes allowed the Company to record an incremental benefit of $1.8 million during the first quarter of 2020, which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate. Additionally, the year to date income tax benefit includes the impact of the anticipated 2020 net operating loss carryback.
The CARES Act also includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately. Reclassifying certain assets as qualified improvement property will result in an incremental benefit. The amount of the incremental benefit is not yet known due to the complexity and interaction of other items and tax years involved in the calculation but will be quantified prior to filing the 2019 federal income tax return.
v3.20.2
Supplemental Cash Flow Information
6 Months Ended
Jun. 28, 2020
Supplemental Cash Flow Elements [Abstract]  
Supplemental Cash Flow Information Supplemental Cash Flow Information
The following table details supplemental cash flow disclosures of non-cash investing and financing activities: 
 
Six Months Ended
 
June 28, 2020
 
June 30, 2019
Supplemental cash flow disclosures of non-cash investing and financing activities:
 
 
 
Accruals for capital expenditures
$
2,079

 
$
6,073

Right-of-use assets obtained in exchange for lease liabilities:
 
 
 
Operating lease ROU assets
19,770

 
8,009

Finance lease ROU assets
33

 
304

Right-of-use assets and lease liabilities reduced for terminated leases:
 
 
 
Operating lease ROU assets
683

 
2,547

Operating lease liabilities
927

 
3,196

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

 
267,743

Operating lease liabilities

 
291,373

Supplemental cash flow disclosures:
 
 
 
Interest paid on long-term debt
$
2,105

 
$
2,729

Income tax payments (refunds), net
(1,041
)
 
(15,779
)

v3.20.2
Recent Accounting Pronouncements
6 Months Ended
Jun. 28, 2020
Accounting Policies [Abstract]  
Recent Accounting Pronouncements Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which is a part of the Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, the most notable for the Company being the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the full year. The guidance will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted and any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied on a prospective basis. The Company is still evaluating the impact the standard will have on its financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of June 28, 2020, the Company's only exposure to LIBOR rates was its senior credit facility. Upon cessation of the LIBOR, the senior credit agreement will be amended to reflect an alternative reference rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.
v3.20.2
Subsequent Events
6 Months Ended
Jun. 28, 2020
Subsequent Events [Abstract]  
Subsequent Events Subsequent Events
On July 10, 2020, the Company entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders. The amended senior credit facility includes adjustments to the Adjusted Leverage Ratio and Fixed Charge Coverage Ratios that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants that require compliance will be a minimum liquidity covenant and a maximum capital expenditure covenant discussed below. The amended senior credit facility reduced the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the "revolving commitment") by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and (ii) $10.0 million to $95.0 million on April 4, 2021. On July 31, 2020, there were $54.0 million in outstanding revolving credit borrowings under the amended senior credit facility.
The amended senior credit facility provides that the Company is not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio (each as amended and defined in the amended senior credit facility) under the amended senior credit facility from July 10, 2020, through April 3, 2021. The Company is required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, the Company will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio subject to certain restrictions as set forth in the amended senior credit facility. The amended senior secured credit facility also provides that the Company must maintain minimum liquidity (as defined in the amended senior credit facility agreement, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021 and (iii) $25.0 million on January 4, 2021 and thereafter (the "Liquidity Covenant").
Borrowings under the amended senior credit facility will bear interest at a rate per annum, at the Company's option, of (a) the Alternate Base Rate (as defined in the amended senior credit facility) plus the Applicable Rate (as defined in the amended senior credit facility) of 4.0% with a minimum Alternate Base Rate of 2.0% or (b) the Adjusted LIBOR Rate (as defined in the amended senior credit facility) plus the Applicable Rate of 5.0% with a minimum Adjusted LIBOR Rate of 1.0%. Pursuant to the amended senior credit facility, the Company will be subject to a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility. The amended senior credit facility also provides for a benchmark replacement (as defined in the amended senior credit facility) for LIBOR, which may be a SOFR-based rate, when LIBOR becomes unavailable or an earlier date under certain circumstances.
The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility requires that proceeds received when a prepayment event (as defined in the amended senior credit facility) occurs must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. The amended senior credit facility
further provides that Company must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (as defined in the amended senior credit facility) of the Company exceeds $20.0 million.
The amended senior credit facility contains certain covenants, including, without limitation, those limiting Company's and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by the Company cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants.
The amended senior credit facility also provides that the Company will be required to engage a financial advisor or chief restructuring officer if the Company is not in compliance with certain milestones.
The Company's obligations under the amended senior credit facility are secured by all of the assets of the Company and its subsidiaries (including a pledge of all of the capital stock and equity interests of its subsidiaries) pursuant to an amended and restated security agreement. Under the amended senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the amended senior credit facility).
The amended 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.
The amended senior credit facility matures on November 30, 2022.
v3.20.2
Basis of Presentation (Policies)
6 Months Ended
Jun. 28, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Consolidation
Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year
Fiscal Year. The Company uses a 5253 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 29, 2019 contained 52 weeks. The three and six months ended June 28, 2020 and June 30, 2019 each contained thirteen and twenty-six weeks, respectively. The fiscal year ending January 3, 2021 will contain 53 weeks.
Basis of Presentation
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and six months ended June 28, 2020 and June 30, 2019 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended June 28, 2020 and June 30, 2019 are not necessarily indicative of the results to be expected for the full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 29, 2019 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019. The December 29, 2019 balance sheet data is derived from those audited financial statements.
Guidance Adopted in 2020 and Recent Accounting Pronouncements
Guidance Adopted in 2020. In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this new accounting standard on December 30, 2019 and will apply it prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material effect on the Company's financial statements. The Company deferred and amortized application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement in the same line item that the fees associated with the subscription arrangement were presented prior to adoption of the new standard.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which is a part of the Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, the most notable for the Company being the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the full year. The guidance will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted and any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied on a prospective basis. The Company is still evaluating the impact the standard will have on its financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020 through December 31, 2022. As of June 28, 2020, the Company's only exposure to LIBOR rates was its senior credit facility. Upon cessation of the LIBOR, the senior credit agreement will be amended to reflect an alternative reference rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.
Revenue Recognition
Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a
percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.
Fair Value of Financial Instruments
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior secured revolving credit facility (the " senior credit facility"), which is considered Level 2, is based on current LIBOR rates.
Long-Lived Assets Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable.
Leases
Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.
As a result of the COVID-19 pandemic the Company entered into rent deferral and abatement agreements with 185 landlords as of June 28, 2020. Under these agreements, certain rent payments are deferred without penalty for various periods, generally for up to three months, or abated. The Company has elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the concessions and deferrals existed in the respective contracts at lease inception and did not account for the concessions and deferrals as lease modifications.
Use of Estimates
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation
for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. The Company's current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact for the remainder of the year with the greatest impact in the near term.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. 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, exclusive of operating lease payments, 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, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material.
Purchase of Treasury Stock
Purchase of Treasury Stock
In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 500,000 shares of common stock valued at approximately $3.7 million and 158,269 shares of common stock valued at approximately $2.2 million during the six months ended June 28, 2020 and June 30, 2019, respectively. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's senior credit facility as amended on July 10, 2020, prohibits share repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.
Segment Reporting The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants
Earnings per Share
Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic EPS pursuant to the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted EPS calculation to the extent that performance conditions have been met at the measurement date. Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.