FIESTA RESTAURANT GROUP, INC., 10-Q filed on 5/8/2020
Quarterly Report
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 29, 2020
Apr. 30, 2020
Document And Entity Information [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 29, 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 $0.01 per share  
Entity Trading Symbol FRGI  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001534992  
Current Fiscal Year End Date --01-03  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   27,974,418
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 29, 2020
Dec. 29, 2019
Current assets:    
Cash $ 4,009 $ 13,413
Accounts receivable 6,145 7,933
Inventories 2,894 3,394
Prepaid rent 121 117
Income tax receivable 9,964 3,821
Prepaid expenses and other current assets 11,722 10,605
Total current assets 34,855 39,283
Property and equipment, net 203,042 211,944
Operating lease right-of-use assets 255,810 251,272
Goodwill 56,307 56,307
Other assets 9,016 9,835
Total assets 559,030 568,641
Current liabilities:    
Current portion of long-term debt 228 212
Accounts payable 14,324 14,776
Accrued payroll, related taxes and benefits 8,272 9,866
Accrued real estate taxes 3,160 6,497
Other current liabilities 32,788 32,269
Total current liabilities 58,772 63,620
Long-term debt, net of current portion 72,783 76,823
Operating lease liabilities 262,117 256,798
Deferred tax liabilities 8,971 4,759
Other non-current liabilities 8,384 8,405
Total liabilities 411,027 410,405
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, 27,634,722 and 27,461,697 shares issued, respectively, and 25,186,595 and 25,612,597 shares outstanding, respectively 271 271
Additional paid-in capital 173,944 173,132
Retained earnings (accumulated deficit) (5,433) 1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively (20,779) (17,051)
Total stockholders' equity 148,003 158,236
Total liabilities and stockholders' equity $ 559,030 $ 568,641
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 29, 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 27,634,722 27,461,697
Common stock, shares outstanding 25,186,595 25,612,597
Treasury stock, shares 1,993,495 1,493,495
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2020
Mar. 31, 2019
Revenues:    
Revenues $ 146,699 $ 165,852
Costs and expenses:    
Cost of sales 46,276 50,510
Restaurant wages and related expenses (including stock-based compensation expense of $36, and $27, respectively) 40,495 45,036
Restaurant rent expense 11,339 11,745
Other restaurant operating expenses 21,511 21,763
Advertising expense 5,783 5,521
General and administrative (including stock-based compensation expense of $776, and $765, respectively) 14,384 15,071
Depreciation and amortization 9,430 9,548
Pre-opening costs 69 401
Impairment and other lease charges 4,233 (338)
Closed restaurant rent expense, net of sublease income 1,632 1,424
Other expense (income), net 908 702
Total operating expenses 156,060 161,383
Income (loss) from operations (9,361) 4,469
Interest expense 961 1,234
Income (loss) before income taxes (10,322) 3,235
Provision for (benefit from) income taxes (3,005) 946
Net income (loss) $ (7,317) $ 2,289
Earnings (loss) per common share:    
Basic (usd per share) $ (0.29) $ 0.08
Diluted (usd per share) $ (0.29) $ 0.08
Weighted average common shares outstanding:    
Basic (in shares) 25,519,247 26,842,704
Diluted (in shares) 25,519,247 26,845,077
Restaurant sales    
Revenues:    
Revenues $ 146,086 $ 165,181
Franchise royalty revenues and fees    
Revenues:    
Revenues $ 613 $ 671
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2020
Mar. 31, 2019
Stock-based compensation $ 800 $ 800
Restaurant Wages And Related Expenses    
Stock-based compensation 36 27
General and Administrative Expense    
Stock-based compensation $ 776 $ 765
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Treasury Stock
Beginning shares at Dec. 30, 2018   26,858,988      
Beginning balance at Dec. 30, 2018 $ 240,059 $ 270 $ 170,290 $ 72,268 $ (2,769)
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation 792   792    
Vesting of restricted shares (in shares)   68,286      
Vesting of restricted shares (1) $ 0 (1)    
Cumulative effect of adopting a new accounting standard $ 14,002     14,002  
Purchase of treasury stock (in shares) (158,269) (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. 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) (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 25,186,595      
Ending balance at Mar. 29, 2020 $ 148,003 $ 271 $ 173,944 $ (5,433) $ (20,779)
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 29, 2020
Mar. 31, 2019
Operating activities:    
Net income (loss) $ (7,317) $ 2,289
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Loss (gain) on disposals of property and equipment 0 (13)
Stock-based compensation 812 792
Impairment and other lease charges 4,233 (338)
Depreciation and amortization 9,430 9,548
Amortization of deferred financing costs 68 67
Deferred income taxes 4,212 0
Changes in other operating assets and liabilities (6,974) (4,597)
Net cash provided by operating activities 4,464 7,748
Capital expenditures:    
New restaurant development (1,590) (3,839)
Restaurant remodeling (1,025) (171)
Other restaurant capital expenditures (2,536) (5,015)
Corporate and restaurant information systems (932) (2,512)
Total capital expenditures (6,083) (11,537)
Proceeds from disposals of properties 0 1,774
Net cash used in investing activities (6,083) (9,763)
Financing activities:    
Borrowings on revolving credit facility 71,420 11,000
Repayments on revolving credit facility (75,420) (7,000)
Principal payments on finance leases (57) (26)
Payments to purchase treasury stock (3,728) (2,199)
Net cash provided by (used in) financing activities (7,785) 1,775
Net change in cash (9,404) (240)
Cash, beginning of period 13,413 5,258
Cash, end of period 4,009 5,018
Supplemental disclosures:    
Interest paid on long-term debt 941 1,685
Accruals for capital expenditures 2,161 4,589
Income tax payments (refunds), net (1,073) (58)
Right-of-use assets obtained in exchange for lease liabilities:    
Operating lease ROU assets 11,193 5,191
Finance lease ROU assets 33 0
Right-of-use assets and lease liabilities reduced for terminated leases:    
Operating lease ROU assets 0 2,196
Operating lease right-of-use assets obtained and lease liabilities incurred as a result of adoption of ASC 842:    
Operating lease ROU assets 0 267,743
Operating lease liabilities $ 0 $ 291,373
v3.20.1
Basis of Presentation
3 Months Ended
Mar. 29, 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 March 29, 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 March 29, 2020, the Company franchised a total of 33 Pollo Tropical restaurants and eight 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 two on college campuses in Texas.
Going Concern. The unaudited condensed consolidated financial statements have been prepared on the going concern basis of accounting, assuming the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The COVID-19 pandemic and related "shelter-in-place" orders and other mandates are affecting 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. 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.
The Company has a senior secured revolving credit facility with a syndicate of lenders that provides for aggregate revolving credit borrowings up to $150.0 million and matures on November 30, 2022 ("senior credit facility"). The Company was in compliance with the financial covenants under its senior credit facility, with an outstanding balance of $71.0 million, as of March 29, 2020. The Company borrowed the remaining $75.5 million available for borrowing early in the second quarter of 2020.
However, due to the continued governmental restrictions on operating dine-in services and public gatherings and the resulting declines in revenues, the Company projects it will not remain in compliance with its debt covenants under its senior credit facility during the next twelve months. A breach of its debt covenants will result in an event of default, and the lenders could exercise their right to call the outstanding balance under the Company's senior credit facility. This would result in the Company's total outstanding balance of $146.5 million under its senior credit facility to be immediately due and payable. In such event, the Company believes that it will not have sufficient cash on hand or available liquidity to repay the outstanding balance under its senior credit facility.
Management's plans include executing an amendment related to its debt covenants in its senior credit facility with its lenders and the Company is currently in discussions with its lenders. Management believes that the amendment is probable of occurring. The Company has concluded that Management's plans are probable of being achieved to obtain covenant compliance within the twelve months after the date that the unaudited condensed consolidated financial statements are issued.
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 months ended March 29, 2020 and March 31, 2019 each contained thirteen weeks. The fiscal year ending January 3, 2021 will contain 53 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three months ended March 29, 2020 and March 31, 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 months ended March 29, 2020 and March 31, 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 percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. The fair value of the Company's senior credit facility was approximately $71.0 million at March 29, 2020, and $75.0 million at December 29, 2019. The carrying value of the Company's senior credit facility was $71.0 million at March 29, 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 a rent deferral agreement with one landlord as of March 29, 2020, and entered into similar agreements with other landlords in the second quarter of 2020. Under these agreements, certain rent payments will be deferred without penalty for various periods, generally for up to three months. 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 will 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 "shelter-in-place" mandates, social distancing, closing dining rooms in 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.
v3.20.1
Prepaid Expenses and Other Current Assets
3 Months Ended
Mar. 29, 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:
 
March 29, 2020
 
December 29, 2019
Prepaid contract expenses
$
4,369

 
$
4,410

Assets held for sale(1)
4,110

 
4,110

Other
3,243

 
2,085

 
$
11,722

 
$
10,605


(1)
One closed Pollo Tropical restaurant and two closed Taco Cabana restaurant properties owned by the Company were classified as held for sale as of March 29, 2020 and December 29, 2019.
v3.20.1
Impairment of Long-Lived Assets and Other Lease Charges
3 Months Ended
Mar. 29, 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
 
March 29, 2020
 
March 31, 2019
Pollo Tropical
$
3,696

 
$
(379
)
Taco Cabana
537

 
41

 
$
4,233

 
$
(338
)

Impairment and other lease charges for the three months ended March 29, 2020 for Pollo Tropical include impairment charges of $3.7 million, related primarily to 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. Impairment and other lease charges for the three months ended March 29, 2020 for Taco Cabana include impairment charges of $0.5 million, related primarily to impairment of assets for two underperforming Taco Cabana restaurants for which continued sales declines coupled with the near-term impact of expected sales declines resulted in a decrease in the estimated future cash flows.
Impairment and other lease charges for the three months ended March 31, 2019 for Pollo Tropical include impairment charges of $0.4 million, related primarily to impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit of $(0.7) million related to previously closed restaurant lease terminations. Impairment and other lease charges for the three months ended March 31, 2019 for Taco Cabana include impairment charges related primarily to impairment of equipment from previously impaired restaurants.
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 three months ended March 29, 2020 totaled $3.4 million.
v3.20.1
Other Liabilities
3 Months Ended
Mar. 29, 2020
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
 
March 29, 2020
 
December 29, 2019
Operating lease liabilities
$
23,050

 
$
22,338

Accrued workers' compensation and general liability claims
4,876

 
4,354

Sales and property taxes
865

 
1,889

Accrued occupancy costs
424

 
891

Other
3,573

 
2,797

 
$
32,788

 
$
32,269


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

 
$
7,348

Deferred compensation
427

 
424

Accrued occupancy costs
78

 
78

Other
531

 
555

 
$
8,384

 
$
8,405


Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.
The following table presents the activity in the closed restaurant reserve, of which $0.1 million and $0.1 million are included in non-current liabilities at March 29, 2020 and December 29, 2019, respectively, with the remainder in other current liabilities.
 
Three Months Ended March 29, 2020
 
Year Ended December 29, 2019
Balance, beginning of period
$
752

 
$
8,819

Payments, net
(228
)
 
(1,405
)
Other adjustments(1)
(129
)
 
(6,662
)
Balance, end of period
$
395

 
$
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.
v3.20.1
Stockholders' Equity
3 Months Ended
Mar. 29, 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 three months ended March 29, 2020 and March 31, 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.
Stock-Based Compensation
During the three months ended March 29, 2020, the Company granted certain employees and a new non-employee director a total of 183,426 non-vested restricted shares under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees generally vest and become non-forfeitable over a four-year vesting period. The shares granted to the new non-employee director vest and become non-forfeitable over a five-year vesting period. The weighted average fair value at grant date for non-vested shares issued during the three months ended March 29, 2020 and March 31, 2019 was $8.99 and $13.44 per share, respectively.
The weighted average fair value at grant date for the restricted stock units subject to market conditions granted in the three months ended March 31, 2019 was $1.76 per share.
Stock-based compensation expense for each of the three months ended March 29, 2020 and March 31, 2019 was $0.8 million. At March 29, 2020, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $4.6 million. At March 29, 2020, the remaining weighted average vesting period for non-vested restricted shares was 2.9 years and restricted stock units was 0.9 years.
A summary of all non-vested restricted shares and restricted stock units activity for the three months ended March 29, 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
183,426

 
8.99

 

 

Vested and released
(73,251
)
 
19.03

 
(747
)
 
32.44

Forfeited
(11,148
)
 
14.11

 
(607
)
 
24.86

Outstanding at March 29, 2020
454,632

 
$
12.31

 
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
%

v3.20.1
Business Segment Information
3 Months Ended
Mar. 29, 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
March 29, 2020:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
85,721

 
$
60,365

 
$

 
$
146,086

Franchise revenue
 
404

 
209

 

 
613

Cost of sales
 
27,731

 
18,545

 

 
46,276

Restaurant wages and related expenses(1)
 
21,037

 
19,458

 

 
40,495

Restaurant rent expense
 
5,640

 
5,699

 

 
11,339

Other restaurant operating expenses
 
12,386

 
9,125

 

 
21,511

Advertising expense
 
3,504

 
2,279

 

 
5,783

General and administrative expense(2)
 
7,488

 
6,896

 

 
14,384

Adjusted EBITDA
 
8,780

 
(907
)
 

 
7,873

Depreciation and amortization
 
5,278

 
4,152

 

 
9,430

Capital expenditures
 
3,281

 
2,600

 
202

 
6,083

March 31, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
91,026

 
$
74,155

 
$

 
$
165,181

Franchise revenue
 
455

 
216

 

 
671

Cost of sales
 
28,298

 
22,212

 

 
50,510

Restaurant wages and related expenses(1)
 
21,153

 
23,883

 

 
45,036

Restaurant rent expense
 
5,421

 
6,324

 

 
11,745

Other restaurant operating expenses
 
11,958

 
9,805

 

 
21,763

Advertising expense
 
3,032

 
2,489

 

 
5,521

General and administrative expense(2)
 
8,347

 
6,724

 

 
15,071

Adjusted EBITDA
 
14,317

 
2,895

 

 
17,212

Depreciation and amortization
 
5,213

 
4,335

 

 
9,548

Capital expenditures
 
7,145

 
4,037

 
355

 
11,537

Identifiable Assets:
 
 
 
 
 
 
 
 
March 29, 2020
 
$
339,684

 
$
189,898

 
$
29,448

 
$
559,030

December 29, 2019
 
340,012

 
195,883

 
32,746

 
568,641


(1) Includes stock-based compensation expense of $36 and $27 for the three months ended March 29, 2020 and March 31, 2019, respectively.
(2) Includes stock-based compensation expense of $776 and $765 for the three months ended March 29, 2020 and March 31, 2019, respectively.
A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
March 29, 2020:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(7,317
)
Benefit from income taxes
 
 
 
 
 
(3,005
)
Loss before taxes
 
$
(1,827
)
 
$
(8,495
)
 
$
(10,322
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,278

 
4,152

 
9,430

          Impairment and other lease charges
 
3,696

 
537

 
4,233

          Interest expense
 
483

 
478

 
961

          Closed restaurant rent expense, net of sublease income
 
602

 
1,030

 
1,632

          Other expense (income), net
 
107

 
801

 
908

          Stock-based compensation expense in restaurant wages
 
11

 
25

 
36

                Total non-general and administrative expense adjustments
 
10,177

 
7,023

 
17,200

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
310

 
466

 
776

          Digital and brand repositioning costs
 
120

 
99

 
219

               Total general and administrative expense adjustments
 
430

 
565

 
995

Adjusted EBITDA
 
$
8,780

 
$
(907
)
 
$
7,873

 
 
 
 
 
 
 
March 31, 2019:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
2,289

Provision for income taxes
 
 
 
 
 
946

Income (loss) before taxes
 
$
5,956

 
$
(2,721
)
 
$
3,235

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

 
4,335

 
9,548

          Impairment and other lease charges
 
(379
)
 
41

 
(338
)
          Interest expense
 
656

 
578

 
1,234

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

 
280

 
1,424

          Other expense (income), net
 
596

 
106

 
702

          Stock-based compensation expense in restaurant wages
 
5

 
22

 
27

                Total non-general and administrative expense adjustments
 
7,235

 
5,362

 
12,597

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

 
188

 
765

          Restructuring costs and retention bonuses
 
549

 
66

 
615

               Total general and administrative expense adjustments
 
1,126

 
254

 
1,380

Adjusted EBITDA
 
$
14,317

 
$
2,895

 
$
17,212


v3.20.1
Earnings (Loss) Per Share
3 Months Ended
Mar. 29, 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 months ended March 29, 2020, 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 months ended March 29, 2020. For the three months ended March 31, 2019, no shares of outstanding restricted stock units were excluded from the computation of diluted EPS.
The computation of basic and diluted EPS is as follows:
 
Three Months Ended
 
March 29, 2020
 
March 31, 2019
Basic and diluted EPS:
 
 
 
Net income (loss)
$
(7,317
)
 
$
2,289

Less: income allocated to participating securities

 
22

Net income (loss) available to common shareholders
$
(7,317
)
 
$
2,267

Weighted average common shares—basic
25,519,247

 
26,842,704

Restricted stock units

 
2,373

Weighted average common shares—diluted
25,519,247

 
26,845,077

 
 
 
 
Earnings (loss) per common share—basic
$
(0.29
)
 
$
0.08

Earnings (loss) per common share—diluted
(0.29
)
 
0.08


v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 29, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Lease Assignments. Taco Cabana has assigned two 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 one of the leases. Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. The assignee is responsible for making the payments required by the lease. The Company is a guarantor under the lease.
The maximum potential liability for future rental payments that the Company could be required to make under these leases at March 29, 2020 was $3.1 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.
v3.20.1
Recent Accounting Pronouncements
3 Months Ended
Mar. 29, 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 March 29, 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.
v3.20.1
Income Taxes
3 Months Ended
Mar. 29, 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 months ended March 29, 2020 as permitted by Accounting Standards Codification ("ASC") 740-270-30-18.
Tax Law Changes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (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.
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.
v3.20.1
Basis of Presentation (Policies)
3 Months Ended
Mar. 29, 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 months ended March 29, 2020 and March 31, 2019 each contained thirteen weeks. 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 months ended March 29, 2020 and March 31, 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 months ended March 29, 2020 and March 31, 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 March 29, 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 percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.
Fair Value of Financial Instruments
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates.
Long-Lived Assets Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("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 a rent deferral agreement with one landlord as of March 29, 2020, and entered into similar agreements with other landlords in the second quarter of 2020. Under these agreements, certain rent payments will be deferred without penalty for various periods, generally for up to three months. 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 will 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 "shelter-in-place" mandates, social distancing, closing dining rooms in 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 three months ended March 29, 2020 and March 31, 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.
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.
v3.20.1
Prepaid Expenses and Other Current Assets (Tables)
3 Months Ended
Mar. 29, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets, consist of the following:
 
March 29, 2020
 
December 29, 2019
Prepaid contract expenses
$
4,369

 
$
4,410

Assets held for sale(1)
4,110

 
4,110

Other
3,243

 
2,085

 
$
11,722

 
$
10,605


(1)
One closed Pollo Tropical restaurant and two closed Taco Cabana restaurant properties owned by the Company were classified as held for sale as of March 29, 2020 and December 29, 2019.
v3.20.1
Impairment of Long-Lived Assets and Other Lease Charges (Tables)
3 Months Ended
Mar. 29, 2020
Property, Plant and Equipment [Abstract]  
Summary of Impairment on Long-Lived Assets by Segment
A summary of impairment of long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
March 29, 2020
 
March 31, 2019
Pollo Tropical
$
3,696

 
$
(379
)
Taco Cabana
537

 
41

 
$
4,233

 
$
(338
)

Other Lease Charges (Recoveries) by Segment
A summary of impairment of long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
March 29, 2020
 
March 31, 2019
Pollo Tropical
$
3,696

 
$
(379
)
Taco Cabana
537

 
41

 
$
4,233

 
$
(338
)

v3.20.1
Other Liabilities (Tables)
3 Months Ended
Mar. 29, 2020
Other Liabilities Disclosure [Abstract]  
Other Liabilities, Current
Other current liabilities consist of the following:
 
March 29, 2020
 
December 29, 2019
Operating lease liabilities
$
23,050

 
$
22,338

Accrued workers' compensation and general liability claims
4,876

 
4,354

Sales and property taxes
865

 
1,889

Accrued occupancy costs
424

 
891

Other
3,573

 
2,797

 
$
32,788

 
$
32,269


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

 
$
7,348

Deferred compensation
427

 
424

Accrued occupancy costs
78

 
78

Other
531

 
555

 
$
8,384

 
$
8,405


Activity in the Closed-Restaurant Reserve
The following table presents the activity in the closed restaurant reserve, of which $0.1 million and $0.1 million are included in non-current liabilities at March 29, 2020 and December 29, 2019, respectively, with the remainder in other current liabilities.
 
Three Months Ended March 29, 2020
 
Year Ended December 29, 2019
Balance, beginning of period
$
752

 
$
8,819

Payments, net
(228
)
 
(1,405
)
Other adjustments(1)
(129
)
 
(6,662
)
Balance, end of period
$
395

 
$
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.
v3.20.1
Stockholders' Equity (Tables)
3 Months Ended
Mar. 29, 2020
Equity [Abstract]  
Schedule of Non-vested Restricted Shares and Restricted Stock Units Activity
A summary of all non-vested restricted shares and restricted stock units activity for the three months ended March 29, 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
183,426

 
8.99

 

 

Vested and released
(73,251
)
 
19.03

 
(747
)
 
32.44

Forfeited
(11,148
)
 
14.11

 
(607
)
 
24.86

Outstanding at March 29, 2020
454,632

 
$
12.31

 
175,008

 
$
9.27


Restricted Stock Units Subject to Market Conditions Assumptions 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
%

v3.20.1
Business Segment Information (Tables)
3 Months Ended
Mar. 29, 2020
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
March 29, 2020:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
85,721

 
$
60,365

 
$

 
$
146,086

Franchise revenue
 
404

 
209

 

 
613

Cost of sales
 
27,731

 
18,545

 

 
46,276

Restaurant wages and related expenses(1)
 
21,037

 
19,458

 

 
40,495

Restaurant rent expense
 
5,640

 
5,699

 

 
11,339

Other restaurant operating expenses
 
12,386

 
9,125

 

 
21,511

Advertising expense
 
3,504

 
2,279

 

 
5,783

General and administrative expense(2)
 
7,488

 
6,896

 

 
14,384

Adjusted EBITDA
 
8,780

 
(907
)
 

 
7,873

Depreciation and amortization
 
5,278

 
4,152

 

 
9,430

Capital expenditures
 
3,281

 
2,600

 
202

 
6,083

March 31, 2019:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
91,026

 
$
74,155

 
$

 
$
165,181

Franchise revenue
 
455

 
216

 

 
671

Cost of sales
 
28,298

 
22,212

 

 
50,510

Restaurant wages and related expenses(1)
 
21,153

 
23,883

 

 
45,036

Restaurant rent expense
 
5,421

 
6,324

 

 
11,745

Other restaurant operating expenses
 
11,958

 
9,805

 

 
21,763

Advertising expense
 
3,032

 
2,489

 

 
5,521

General and administrative expense(2)
 
8,347

 
6,724

 

 
15,071

Adjusted EBITDA
 
14,317

 
2,895

 

 
17,212

Depreciation and amortization
 
5,213

 
4,335

 

 
9,548

Capital expenditures
 
7,145

 
4,037

 
355

 
11,537

Identifiable Assets:
 
 
 
 
 
 
 
 
March 29, 2020
 
$
339,684

 
$
189,898

 
$
29,448

 
$
559,030

December 29, 2019
 
340,012

 
195,883

 
32,746

 
568,641


(1) Includes stock-based compensation expense of $36 and $27 for the three months ended March 29, 2020 and March 31, 2019, respectively.
(2) Includes stock-based compensation expense of $776 and $765 for the three months ended March 29, 2020 and March 31, 2019, respectively.
Reconciliation of Consolidated Net Income (Loss) to Adjusted EBITDA
A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
March 29, 2020:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(7,317
)
Benefit from income taxes
 
 
 
 
 
(3,005
)
Loss before taxes
 
$
(1,827
)
 
$
(8,495
)
 
$
(10,322
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,278

 
4,152

 
9,430

          Impairment and other lease charges
 
3,696

 
537

 
4,233

          Interest expense
 
483

 
478

 
961

          Closed restaurant rent expense, net of sublease income
 
602

 
1,030

 
1,632

          Other expense (income), net
 
107

 
801

 
908

          Stock-based compensation expense in restaurant wages
 
11

 
25

 
36

                Total non-general and administrative expense adjustments
 
10,177

 
7,023

 
17,200

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
310

 
466

 
776

          Digital and brand repositioning costs
 
120

 
99

 
219

               Total general and administrative expense adjustments
 
430

 
565

 
995

Adjusted EBITDA
 
$
8,780

 
$
(907
)
 
$
7,873

 
 
 
 
 
 
 
March 31, 2019:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
2,289

Provision for income taxes
 
 
 
 
 
946

Income (loss) before taxes
 
$
5,956

 
$
(2,721
)
 
$
3,235

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

 
4,335

 
9,548

          Impairment and other lease charges
 
(379
)
 
41

 
(338
)
          Interest expense
 
656

 
578

 
1,234

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

 
280

 
1,424

          Other expense (income), net
 
596

 
106

 
702

          Stock-based compensation expense in restaurant wages
 
5

 
22

 
27

                Total non-general and administrative expense adjustments
 
7,235

 
5,362

 
12,597

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

 
188

 
765

          Restructuring costs and retention bonuses
 
549

 
66

 
615

               Total general and administrative expense adjustments
 
1,126

 
254

 
1,380

Adjusted EBITDA
 
$
14,317

 
$
2,895

 
$
17,212


v3.20.1
Earnings (Loss) Per Share (Tables)
3 Months Ended
Mar. 29, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings (Loss) Per Share
The computation of basic and diluted EPS is as follows: