FIESTA RESTAURANT GROUP, INC., 10-K filed on 2/26/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 30, 2018
Feb. 20, 2019
Jul. 01, 2018
Document And Entity Information [Abstract]      
Entity Registrant Name FIESTA RESTAURANT GROUP, INC.    
Entity Central Index Key 0001534992    
Current Fiscal Year End Date --12-30    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 30, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   27,234,451  
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Entity Public Float     $ 675,651,497
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 30, 2018
Dec. 31, 2017
Current assets:    
Cash $ 5,258 $ 3,599
Accounts receivable 8,505 9,830
Inventories 2,842 2,880
Prepaid rent 3,375 3,300
Income tax receivable 17,857 11,334
Prepaid expenses and other current assets 6,562 10,105
Total current assets 44,399 41,048
Property and equipment, net 231,328 234,561
Goodwill 123,484 123,484
Deferred income taxes 10,383 17,232
Other assets 9,065 6,988
Total assets 418,659 423,313
Current liabilities:    
Current portion of long-term debt 108 98
Accounts payable 16,410 20,293
Accrued payroll, related taxes and benefits 10,086 11,776
Accrued real estate taxes 5,871 5,860
Other current liabilities 14,086 21,817
Total current liabilities 46,561 59,844
Long-term debt, net of current portion 79,636 76,425
Deferred income—sale-leaseback of real estate 19,899 23,466
Other non-current liabilities 32,504 32,062
Total liabilities 178,600 191,797
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, 27,259,212 and 27,086,958 shares issued, respectively, and 26,858,988 and 26,847,458 shares outstanding, respectively 270 268
Additional paid-in capital 170,290 166,823
Retained earnings 72,268 64,425
Treasury stock, at cost; 112,358 shares (2,769) 0
Total stockholders' equity 240,059 231,516
Total liabilities and stockholders' equity $ 418,659 $ 423,313
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 30, 2018
Dec. 31, 2017
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 27,259,212 27,086,958
Common stock, shares outstanding 26,858,988 26,847,458
Treasury stock, shares 112,358  
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 30, 2018
Dec. 31, 2017
Jan. 01, 2017
Revenues:      
Revenues $ 688,597 $ 669,132 $ 711,770
Costs and expenses:      
Cost of sales 218,946 202,888 214,609
Restaurant wages and related expenses (including stock-based compensation expense of $90, $52, and $142, respectively) 188,131 184,742 185,305
Restaurant rent expense 36,034 36,936 37,493
Other restaurant operating expenses 100,828 98,927 96,457
Advertising expense 23,695 26,091 26,800
General and administrative (including stock-based compensation expense of $3,379, $3,493, and $3,141, respectively) 54,525 59,633 54,826
Depreciation and amortization 37,604 34,957 36,776
Pre-opening costs 1,716 2,118 5,511
Impairment and other lease charges 21,144 61,760 25,644
Other expense (income), net (3,007) 2,190 1,130
Total operating expenses 679,616 710,242 684,551
Income (loss) from operations 8,981 (41,110) 27,219
Interest expense 3,966 2,877 2,171
Income (loss) before income taxes 5,015 (43,987) 25,048
Provision for (benefit from) income taxes (2,772) (7,755) 8,336
Net income (loss) $ 7,787 $ (36,232) $ 16,712
Earnings (loss) per common share:      
Basic (usd per share) $ 0.29 $ (1.35) $ 0.62
Diluted (usd per share) $ 0.29 $ (1.35) $ 0.62
Weighted average common shares outstanding:      
Basic (in shares) 26,890,577 26,821,471 26,682,227
Diluted (in shares) 26,894,083 26,821,471 26,689,179
Restaurant sales      
Revenues:      
Revenues $ 685,925 $ 666,584 $ 708,956
Franchise royalty revenues and fees      
Revenues:      
Revenues $ 2,672 $ 2,548 $ 2,814
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 30, 2018
Dec. 31, 2017
Jan. 01, 2017
Stock-based compensation $ 3,500 $ 3,500 $ 3,300
Restaurant Wages And Related Expenses      
Stock-based compensation 90 52 142
General and Administrative Expense      
Stock-based compensation $ 3,379 $ 3,493 $ 3,141
v3.10.0.1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Beginning balance at Jan. 03, 2016 $ 243,982 $ 266 $ 159,724 $ 83,992  
Beginning balance (in shares) at Jan. 03, 2016 26,571,602        
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 3,283   3,283    
Vesting of restricted shares (in shares) 184,038        
Vesting of restricted shares $ 0 1 (1)    
Tax benefit from stock-based compensation 198   198    
Net income (loss) $ 16,712     16,712  
Ending balance (in shares) at Jan. 01, 2017 26,755,640        
Ending balance at Jan. 01, 2017 $ 264,175 267 163,204 100,704  
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 3,545   3,545    
Vesting of restricted shares (in shares) 91,818        
Vesting of restricted shares $ 1 1 0    
Cumulative effect of adopting a new accounting standard 27   74 (47)  
Net income (loss) $ (36,232)     (36,232)  
Ending balance (in shares) at Dec. 31, 2017 26,847,458        
Ending balance at Dec. 31, 2017 $ 231,516 268 166,823 64,425 $ 0
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 3,469   3,469    
Vesting of restricted shares (in shares) 123,888        
Vesting of restricted shares $ 0 2 (2)    
Cumulative effect of adopting a new accounting standard $ 56     56  
Purchase of treasury stock (in shares) (112,358)        
Purchase of treasury stock $ (2,769)       (2,769)
Net income (loss) $ 7,787     7,787  
Ending balance (in shares) at Dec. 30, 2018 26,858,988        
Ending balance at Dec. 30, 2018 $ 240,059 $ 270 $ 170,290 $ 72,268 $ (2,769)
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 30, 2018
Dec. 31, 2017
Jan. 01, 2017
Operating activities:      
Net income (loss) $ 7,787 $ (36,232) $ 16,712
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
(Gain) loss on disposals of property and equipment (757) 815 779
Stock-based compensation 3,469 3,545 3,283
Impairment and other lease charges 21,144 61,760 25,644
Depreciation and amortization 37,604 34,957 36,776
Amortization of deferred financing costs 270 352 309
Amortization of deferred gains from sale-leaseback transactions (3,564) (3,602) (3,583)
Deferred income taxes 6,830 (2,828) (5,880)
Other 0 0 1
Changes in other operating assets and liabilities:      
Accounts receivable 805 (1,171) 446
Prepaid expenses and other current assets 894 (2,015) (412)
Other assets - long term (1,491) (552) (2,796)
Accounts payable (1,797) 1,046 3,330
Accrued payroll, related taxes and benefits (1,690) (499) (3,339)
Accrued real estate taxes 11 (311) 803
Other liabilities - current (10,583) (590) (780)
Other liabilities - long term 1,358 3,887 6,498
Income tax receivable/payable (6,523) (8,030) 4,144
Other 36 288 (1,256)
Net cash provided by operating activities 53,803 50,820 80,679
Capital expenditures:      
New restaurant development (21,445) (26,727) (66,116)
Restaurant remodeling (582) (3,020) (2,755)
Other restaurant capital expenditures (27,464) (17,410) (7,125)
Corporate and restaurant information systems (8,359) (8,709) (6,369)
Total capital expenditures (57,850) (55,866) (82,365)
Properties purchased for sale-leaseback 0 0 (2,663)
Proceeds from disposals of properties 4,743 374 226
Proceeds from insurance recoveries 983 0 0
Proceeds from sale-leaseback transactions 0 0 3,642
Net cash used in investing activities (52,124) (55,492) (81,160)
Financing activities:      
Excess tax benefit from vesting of restricted shares 0 0 566
Borrowings on revolving credit facility 26,000 91,000 18,400
Repayments on revolving credit facility (23,000) (85,900) (19,500)
Principal payments on capital leases (101) (88) (70)
Financing costs associated with issuance of debt (150) (937) 0
Payments to purchase treasury stock (2,769) 0 0
Net cash provided by (used in) financing activities (20) 4,075 (604)
Net change in cash 1,659 (597) (1,085)
Cash, beginning of year 3,599 4,196 5,281
Cash, end of year 5,258 3,599 4,196
Supplemental disclosures:      
Interest paid on long-term debt (including capitalized interest of $377, $256 and $255, respectively) 3,508 2,363 1,867
Interest paid on lease financing obligations 0 83 141
Accruals for capital expenditures 6,191 8,409 5,288
Income tax payments (refunds), net (3,081) 3,103 9,873
Capital lease obligations incurred 322 0 0
Non-cash reduction of lease financing obligations 0 1,664 0
Non-cash reduction of assets under lease financing obligations $ 0 $ 1,193 $ 0
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 30, 2018
Dec. 31, 2017
Jan. 01, 2017
Statement of Cash Flows [Abstract]      
Capitalized interest $ 377 $ 256 $ 255
v3.10.0.1
Basis of Presentation
12 Months Ended
Dec. 30, 2018
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 fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively "Pollo Tropical") and Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the "Company." At December 30, 2018, the Company owned and operated 139 Pollo Tropical® restaurants and 162 Taco Cabana® restaurants. All of the Company-owned Pollo Tropical restaurants are located in Florida, and all of the Company-owned Taco Cabana restaurants are located in Texas. At December 30, 2018, Fiesta franchised a total of 30 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 the Bahamas and five 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.
Basis of Consolidation. The consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 5253 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended December 30, 2018, December 31, 2017 and January 1, 2017 each contained 52 weeks.
Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
Reclassification. Write-offs of site development costs were reclassified from general and administrative expense to other expense (income), net in the Consolidated Statements of Operations to conform with the current year presentation.
Concentrations of Risk. Food and supplies are ordered from approved suppliers and are shipped to the restaurants via distributors. Performance Food Group, Inc. is the primary distributor of food and beverage products and supplies for both Pollo Tropical and Taco Cabana. In the twelve months ended December 30, 2018 and December 31, 2017, Performance Food Group, Inc. accounted for approximately 74% of the supplies delivered to restaurants. The Company's limited distributor relationships could have an adverse effect on the Company's operations.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Inventories. Inventories, primarily consisting of food and paper, are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment. The Company capitalizes all direct costs incurred to construct and substantially improve its restaurants. These costs are depreciated and charged to expense based upon their property classification when placed in service. Property and equipment is recorded at cost. Application development stage costs for significant internally developed software projects are capitalized and amortized. Repairs and maintenance activities are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements
5
to
30 years
Equipment
3
to
7 years
Computer hardware and software
3
to
7 years
Assets subject to capital lease
Shorter of useful life or lease term

Leasehold improvements, including new buildings constructed on leased land, are depreciated over the shorter of their estimated useful lives or the underlying lease term. In circumstances where an economic penalty would be presumed by the non-exercise of one or more renewal options under the lease, the Company includes those renewal option periods when determining the lease term. For significant leasehold improvements made during the latter part of the lease term, the Company amortizes those improvements
over the shorter of their useful life or an extended lease term. The extended lease term would consider the exercise of renewal options if the value of the improvements would imply that an economic penalty would be incurred without the renewal of the option. Building costs incurred for new restaurants on leased land are depreciated over the lease term, which is generally a twenty-year period.
Cloud-Based Computing Arrangements. The Company defers and amortizes application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement.
Goodwill. Goodwill represents the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by Carrols Restaurant Group, Inc. ("Carrols"), Fiesta's former parent company, from the acquisition of Pollo Tropical in 1998 and Taco Cabana in 2000. Goodwill is not amortized but is tested for impairment at least annually as of the last day of the fiscal year or more frequently if impairment indicators exist.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 5 for results of the Company's impairment review.
Deferred Financing Costs. Financing costs incurred in obtaining revolving credit facilities are capitalized and amortized over the life of the related obligation as interest expense on a straight-line basis.
Leases.  All leases are reviewed for capital or operating classification at their inception. The majority of the Company's leases are operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. Rent expense for leases that contain scheduled rent increases or rent holidays is recognized on a straight-line basis over the lease term, including any option periods included in the determination of the lease term. Contingent rentals are generally based upon a percentage of sales or a percentage of sales in excess of stipulated amounts and are not considered minimum rent payments but are recognized as rent expense when incurred.
Income Taxes. Deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
Advertising Costs. All advertising costs are expensed as incurred.
Cost of Sales. The Company includes the cost of food, beverage and paper, net of any discounts, in cost of sales.
Pre-opening Costs. The Company's pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening and generally include restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period.
Insurance.  The Company is insured for workers' compensation, general liability and medical insurance claims under policies where it pays all claims, subject to stop-loss limitations both for individual claims and for general liability, medical insurance and certain workers' compensation claims in the aggregate. Losses are accrued based upon estimates of the aggregate liability for claims based on the Company's experience and certain actuarial methods used to measure such estimates. The Company does not discount any of its self-insurance obligations.
 Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date 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 Consolidated 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 $78.0 million at December 30, 2018 and $75.0 million at December 31, 2017. The carrying value of the Company's senior credit facility was $78.0 million at December 30, 2018 and $75.0 million at December 31, 2017
See Note 5 for discussion of the fair value measurement of non-financial assets.
Guidance Adopted in 2018. In May 2014, and in subsequent updates, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the guidance in former Topic 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted this new accounting standard and all the related amendments as of January 1, 2018 using the modified retrospective method, and recognized a total cumulative effect adjustment to increase retained earnings by less than $0.1 million, which consisted of a $0.3 million increase related to gift card breakage and a $0.3 million decrease related to initial franchise and area development fees, as a result of adopting the standard. The new standard did not impact the Company's recognition of revenue from Company-owned and operated restaurants or its recognition of sale-based royalties from restaurants operated by franchisees. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for those periods. When compared to the previous accounting policies, the impact of adopting the new standard was immaterial to current and non-current other liabilities and retained earnings at January 1, 2018 and to net income for the twelve months ended December 30, 2018. The adoption of the new standard had no impact on the Company's consolidated statements of cash flows.
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. Prior to adopting Topic 606, the Company recognized initial franchise fees as revenue in the period that a franchised location opened for business. See Note 6—Business Segment Information.
Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. For unredeemed gift cards that the Company expects to be entitled to breakage, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption by the customers. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards and gift card liabilities, which are recorded in other current liabilities, are not material to the Company's financial statements. Prior to adopting Topic 606, the Company did not recognize breakage on its gift cards.
Recent Accounting Pronouncements. In February 2016, and in subsequent updates, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The Company intends to elect the transition method that allows it to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The comparative period information will not be restated and will continue to be reported under the accounting standard
in effect for those periods. The Company expects to recognize right-of-use lease assets and lease liabilities for most of the leases it currently accounts for as operating leases, including leases related to closed restaurant properties. The initial right-of-use assets will be calculated as the present value of the remaining operating lease payments using the Company's incremental borrowing rate as of December 31, 2018. See Note 7 for remaining undiscounted operating lease payments. The right-of-use lease assets to be recognized will be reduced by accrued occupancy costs such as certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis) and unamortized lease incentives. See Note 6 for accrued occupancy costs. Upon the adoption of Topic 842, the Company will no longer record closed restaurant lease reserves, and right-of-use lease assets will be reviewed for impairment with the Company's long-lived assets. The Company intends to elect the transition practical expedient package as well as the practical expedient to combine lease and non-lease components of the contracts, which it expects to result in reclassification of certain occupancy related expenses to restaurant rent expenses in the consolidated statement of operations. The Company also expects to separately present rent expense related to its closed restaurant locations and any sublease income related to these closed restaurant locations in the consolidated statement of operations. In addition, the Company will be required to record an initial adjustment to retained earnings associated with previously deferred gains on sale-leaseback transactions and will no longer receive the benefit to rent expense from amortizing such previously deferred gains on sale-leaseback transactions beginning in 2019. For any future sale-leaseback transactions, the gain (adjusted for any off-market terms) will be recognized immediately. Currently, the Company amortizes sale-leaseback gains over the lease term. The Company has not assessed the potential impact of Topic 842 on its covenant financial ratios as the Company's senior credit facility does not give effect to any change in GAAP arising out of Topic 842. The Company is continuing to evaluate the impact of Topic 842 on its financial statements and may identify other impacts.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the standard to have a material effect on its financial statements.
v3.10.0.1
Prepaid Expenses and Other Current Assets
12 Months Ended
Dec. 30, 2018
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:
 
December 30, 2018
 
December 31, 2017
Prepaid contract expenses
$
4,232

 
$
3,681

Assets held for sale(1)

 
2,705

Other
2,330

 
3,719

 
$
6,562

 
$
10,105

(1)
Two closed Pollo Tropical restaurant properties owned by the Company that were classified as held for sale as of December 31, 2017 were sold in 2018 for a total of $3.3 million.
v3.10.0.1
Property and Equipment
12 Months Ended
Dec. 30, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment Property and Equipment
Property and equipment consisted of the following:
 
December 30, 2018
 
December 31, 2017
Land and land improvements
$
20,428

 
$
20,502

Owned buildings
15,205

 
17,221

Leasehold improvements (1)
207,206

 
208,499

Equipment
214,674

 
206,436

Assets subject to capital leases
1,905

 
2,057

 
459,418

 
454,715

Less accumulated depreciation and amortization
(228,090
)
 
(220,154
)
 
$
231,328

 
$
234,561


(1) 
Leasehold improvements include the cost of new buildings constructed on leased land.
Assets subject to capital leases primarily pertain to buildings leased for certain restaurant locations and had accumulated amortization at December 30, 2018 and December 31, 2017 of $1.1 million and $1.1 million, respectively.
Depreciation and amortization expense for all property and equipment for the years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $37.6 million, $35.0 million and $36.8 million, respectively.
v3.10.0.1
Goodwill
12 Months Ended
Dec. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill Goodwill
The Company is required to review goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of the last day of the fiscal year and has determined its reporting units to be its operating segments, Pollo Tropical and Taco Cabana.
In performing its goodwill impairment test, the Company compared the net book values of its reporting units to their estimated fair values, the latter determined by employing a discounted cash flow analysis, which was corroborated with other value indicators where available, such as comparable company earnings multiples.
There have been no changes in goodwill or goodwill impairment losses recorded during the years ended December 30, 2018, December 31, 2017, and January 1, 2017.
Goodwill balances are summarized below: 
 
Pollo
Tropical
 
Taco
Cabana
 
Total
Balance, December 30, 2018 and December 31, 2017
$
56,307

 
$
67,177

 
$
123,484

v3.10.0.1
Impairment of Long-Lived Assets and Other Lease Charges
12 Months Ended
Dec. 30, 2018
Restructuring and Related Activities [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, for impairment at the restaurant level. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset's carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the
lease liabilities to be incurred, net of any estimated sublease recoveries. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional charges, and such amounts could be material.
A summary of impairment on long-lived assets and other lease charges recorded by segment is as follows:
 
Year Ended
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
Pollo Tropical
$
13,587

 
$
57,947

 
$
24,419

Taco Cabana
7,557

 
3,813

 
1,225

 
$
21,144

 
$
61,760

 
$
25,644


In 2016, the Company reviewed it strategy for development and decided to suspend additional development of Pollo Tropical restaurants outside of its core Florida markets. The Company closed ten Pollo Tropical restaurants in the fourth quarter of 2016 in Texas, Nashville, Tennessee and Atlanta, Georgia.
On April 24, 2017, the Company announced a Strategic Renewal Plan (the "Plan") to drive long-term shareholder value creation that included the closure of 30 Pollo Tropical restaurants outside its core Florida markets. In September 2017, the Company also closed the six remaining Pollo Tropical restaurants in south Texas. In December 2017, the Company closed four additional underperforming Pollo Tropical restaurants in Atlanta, Georgia. Six Pollo Tropical restaurants that were closed in 2016 and 2017 in Texas were rebranded as Taco Cabana restaurants in 2017 and 2018 and one Pollo Tropical restaurant will be rebranded as a Taco Cabana location in 2019. In December 2018, based on the completion a restaurant portfolio examination, the Company closed 14 Pollo Tropical restaurants including all the remaining restaurants in Atlanta, Georgia, and nine Taco Cabana restaurants. The Company also closed two Taco Cabana restaurants in the second quarter of 2018 and six Taco Cabana restaurants in 2017.
Impairment and other lease charges for the twelve months ended December 30, 2018 consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $13.1 million and $6.0 million, respectively, and lease and other charges for Pollo Tropical and Taco Cabana restaurants (as well as a Taco Cabana office location) of $0.5 million and $1.6 million, respectively, net of recoveries. Impairment charges in 2018 were related primarily to 14 Pollo Tropical restaurants that were closed in 2018, two of which were initially impaired in 2017, nine Taco Cabana restaurants that were closed in 2018, one of which was initially impaired in 2017, and one Pollo Tropical restaurant and six Taco Cabana restaurants that the Company continues to operate. Other lease charges, net of recoveries, in 2018 were related primarily to restaurants and an office location that were closed in 2018 as well as previously closed restaurants.
Impairment and other lease charges for the twelve months ended December 31, 2017 consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants and an office location of $52.1 million, $1.9 million, and $0.2 million, respectively, and lease and other charges for Pollo Tropical and Taco Cabana restaurants and an office location of $5.4 million, $1.6 million, and $0.5 million, respectively, net of recoveries. Impairment charges in 2017 were related primarily to 40 Pollo Tropical restaurants that were closed in 2017, seven of which were initially impaired in 2016, six Taco Cabana restaurants that were closed in 2017, four of which were initially impaired in 2016, and two Pollo Topical restaurants and five Taco Cabana restaurants the Company continued to operate. Impairment charges in 2017 also included charges with respect to an office location that was closed in December 2017. Other lease charges, net of recoveries, in 2017 were related primarily to restaurants and an office location that were closed in 2017 as well as previously closed restaurants.
Impairment and other lease charges for the twelve months ended January 1, 2017 consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $21.6 million and $1.1 million, respectively, and lease and other charges for Pollo Tropical and Taco Cabana restaurants of $2.8 million and $0.2 million, respectively, net of recoveries. Impairment charges in 2016 were related primarily to 17 Pollo Tropical restaurants that were closed in 2016 and 2017 and seven Taco Cabana restaurants, four of which were subsequently closed in 2017 and three of which the Company continued to operate. Other lease charges, net of recoveries, for the twelve months ended January 1, 2017 were related to restaurants closed in 2016 as well as previously closed 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. 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 twelve months ended December 30, 2018 and December 31, 2017 totaled $8.0 million and $13.8 million.
At December 31, 2017, the Company owned four of the Pollo Tropical restaurants that were closed in 2017. Two of these properties were available for sale and the Company intended to lease the other two properties. Two of these restaurants with a total carrying value of $2.7 million at December 31, 2017 were classified as held for sale. The Company subsequently sold both of the owned properties held for sale in 2018. At December 30, 2018, the Company owned three Pollo Tropical and two Taco Cabana locations that were closed in 2017 and 2018.
v3.10.0.1
Other Liabilities
12 Months Ended
Dec. 30, 2018
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other liabilities, current, consist of the following:
 
December 30, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
4,886

 
$
5,083

Sales and property taxes
1,958

 
2,279

Accrued occupancy costs
4,554

 
7,813

Other
2,688

 
6,642

 
$
14,086

 
$
21,817


Other liabilities, long-term, consist of the following:
 
December 30, 2018
 
December 31, 2017
Accrued occupancy costs
$
21,534

 
$
20,985

Deferred compensation
867

 
1,029

Accrued workers' compensation and general liability claims
6,808

 
6,102

Other
3,295

 
3,946

 
$
32,504

 
$
32,062


Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-store reserve, of which $4.4 million and $5.3 million are included in long-term accrued occupancy costs at December 30, 2018 and December 31, 2017, respectively, with the remainder in other current liabilities.
 
Year Ended
 
December 30, 2018
 
December 31, 2017
Balance, beginning of period
$
12,994

 
$
4,912

Provisions for restaurant closures
2,228

 
8,767

Additional lease charges, net of (recoveries)
(152
)
 
(1,301
)
Payments, net
(6,778
)
 
(5,528
)
Other adjustments
527

 
6,144

Balance, end of period
$
8,819

 
$
12,994

v3.10.0.1
Leases
12 Months Ended
Dec. 30, 2018
Leases [Abstract]  
Leases Leases
The Company utilizes land and buildings in its operations under various lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for twenty years and, in many cases, provide for renewal options and in most cases rent escalations. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities.
During the year ended January 1, 2017, the Company sold one restaurant property in a sale-leaseback transaction for net proceeds of $3.6 million. The lease was classified as an operating lease and contained a twenty-year initial term plus renewal options. A deferred gain on the sale-leaseback transaction of $0.7 million was recognized during the year ended January 1, 2017 and is being amortized over the term of the lease.
The amortization of deferred gains on sale-leaseback transactions was $3.6 million for each of the years ended December 30, 2018, December 31, 2017 and January 1, 2017.
Minimum rent commitments due under capital and non-cancelable operating leases at December 30, 2018 were as follows:
 
Capital
 
Operating
2019
$
323

 
$
44,427

2020
327

 
44,144

2021
342

 
41,396

2022
342

 
40,215

2023
349

 
36,587

Thereafter
1,646

 
264,704

Total minimum lease payments(1)
3,329

 
$
471,473

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

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

 
 
(1)
Minimum operating lease payments include contractual rent payments for closed restaurants for which the Company is still obligated under the lease agreements and have not been reduced by minimum sublease rentals of $41.4 million due in the future under non-cancelable subleases. See Note 6—Other Liabilities.
Total rent expense on operating leases, including contingent rentals, was as follows:
 
Year Ended
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
Minimum rent on real property, excluding rent included in pre-opening costs
$
35,881

 
$
36,760

 
$
37,180

Additional rent based on percentage of sales
153

 
176

 
313

Restaurant rent expense
36,034

 
36,936

 
37,493

Rent included in pre-opening costs
861

 
856

 
2,066

Administrative and equipment rent
850

 
988

 
1,119

 
$
37,745

 
$
38,780

 
$
40,678

v3.10.0.1
Long-term Debt
12 Months Ended
Dec. 30, 2018
Debt Disclosure [Abstract]  
Long-term Debt Long-term Debt
Long term debt at December 30, 2018 and December 31, 2017 consisted of the following:
 
December 30, 2018
 
December 31, 2017
Revolving credit facility
$
78,000

 
$
75,000

Capital leases
1,744

 
1,523

 
79,744

 
76,523

Less: current portion of long-term debt
(108
)
 
(98
)
 
$
79,636

 
$
76,425


New Senior Credit Facility. In November 2017, the Company terminated its former senior secured revolving credit facility, referred to as the "former senior credit facility," and entered into a new senior secured revolving credit facility with a syndicate of lenders, which is referred to as the "new senior credit facility." The new senior credit facility provides for aggregate revolving credit borrowings of up to $150 million (including $15 million available for letters of credit) and matures on November 30, 2022. The new senior credit facility also provides for potential incremental increases of up to $50 million to the revolving credit borrowings available under the new senior credit facility. On December 30, 2018, there were $78.0 million in outstanding borrowings under the new senior credit facility.
Borrowings under the new senior credit facility bear interest at a per annum rate, at the Company's option, equal to either (all terms as defined in the new senior credit facility agreement):
1)
the Alternate Base Rate plus the applicable margin of 0.75% to 1.50% based on the Company's Adjusted Leverage Ratio (with a margin of 1.25% as of December 30, 2018), or
2)
the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on the Company's Adjusted Leverage Ratio (with a margin of 2.25% at December 30, 2018)
In addition, the new senior credit facility requires the Company to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on the Company's Adjusted Leverage Ratio, (with a rate of 0.30% at December 30, 2018) and the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
All obligations under the Company's new senior credit facility are guaranteed by all of the Company's material domestic subsidiaries. In general, the Company's obligations under the new senior credit facility and its subsidiaries' obligations under the guarantees are secured by a first priority lien and security interest on substantially all of its assets and the assets of its material subsidiaries (including a pledge of all of the capital stock and equity interests of its material subsidiaries), other than certain specified assets, including real property owned by the Company or its subsidiaries.
The outstanding borrowings under the Company's new senior credit facility are prepayable subject to breakage costs as defined in the new senior credit facility. The new senior credit facility requires the Company to comply with customary affirmative, negative and financial covenants, including, without limitation, those limiting the Company's and its subsidiaries' ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests (subject to certain exceptions), (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii) change its business. In addition, the new senior credit facility requires the Company to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under the new senior credit facility).
The Company's new 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 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.
As of December 30, 2018, the Company was in compliance with the covenants under its new senior credit facility. After reserving $4.0 million for letters of credit, $68.0 million was available for borrowing under the new senior credit facility at December 30, 2018.
At December 30, 2018, principal payments required on borrowings under the new senior credit facility were $78.0 million in 2022. The weighted average interest rate on the borrowings under the new senior credit facility and former senior credit facility was 4.59% and 3.73% at December 30, 2018 and December 31, 2017, respectively. Interest expense on the Company's long-term debt, excluding lease financing obligations, was $3.9 million, $2.7 million and $1.9 million for the years ended December 30, 2018, December 31, 2017, and January 1, 2017, respectively.
v3.10.0.1
Income Taxes
12 Months Ended
Dec. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company's income tax provision (benefit) was comprised of the following:    
 
Year Ended
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
Current:
 
 
 
 
 
Federal
$
(10,378
)
 
$
(5,718
)
 
$
11,979

Foreign
355

 
346

 
372

State
421

 
445

 
1,865

 
(9,602
)
 
(4,927
)
 
14,216

Deferred:
 
 
 
 
 
Federal
6,591

 
(1,059
)
 
(4,908
)
State
297

 
(1,649
)
 
(792
)

6,888

 
(2,708
)
 
(5,700
)
Valuation allowance
(58
)
 
(120
)
 
(180
)
 
$
(2,772
)
 
$
(7,755
)
 
$
8,336


Deferred income taxes reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred income tax assets and liabilities at December 30, 2018 and December 31, 2017 were as follows:
 
 
December 30, 2018
 
December 31, 2017
Deferred income tax assets:
 
 
 
 
  Accrued vacation benefits
 
$
1,017

 
$
1,051

  Incentive compensation
 
959

 
924

  Other accruals
 
2,976

 
3,187

  Deferred income on sale-leaseback of real estate
 
4,591

 
5,422

  Occupancy costs
 
6,038

 
6,669

  Tax credit carryforwards
 
1,534

 
883

  Property and equipment depreciation
 

 
1,665

  Federal net operating loss
 
1,040

 

  Other
 
839

 
1,073

        Gross deferred income tax assets
 
18,994

 
20,874

Deferred income tax liabilities:
 
 
 
 
  Property and equipment depreciation
 
(5,438
)
 

  Amortization of other intangibles, net
 
(2,121
)
 
(2,094
)
  Other
 
(374
)
 
(812
)
        Gross deferred income tax liabilities
 
(7,933
)
 
(2,906
)
  Less: Valuation allowance
 
(678
)
 
(736
)
Net deferred income tax assets
 
$
10,383

 
$
17,232


The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all of the tax benefit of its deferred tax assets. The Company evaluates whether its deferred income tax assets are probable of realization on a quarterly basis. In performing this analysis, the Company considers all available evidence including historical operating results, the estimated timing of future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporary differences and carryforwards. At December 30, 2018 and December 31, 2017, the Company had a valuation allowance of $678 and $736 respectively, against net deferred income tax assets due to foreign income tax credit carryforwards where it was determined to be more likely than not that the deferred income tax asset amounts would not be realized. The valuation allowance decreased $58 and $120 in 2018 and 2017, respectively, primarily due to expired foreign income tax credits and utilization of foreign tax credit carryforwards. The estimation of future taxable income for federal and state purposes and the Company's ability to realize deferred income tax assets can significantly change based on future events and operating results.
The Company's effective tax rate was (55.3)%, 17.6%, and 33.3% for the years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively. A reconciliation of the statutory federal income tax provision (benefit) to the effective tax provision (benefit) was as follows:
 
Year Ended
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
Statutory federal income tax provision (benefit)
$
1,053

 
$
(15,394
)
 
$
8,767

State income taxes, net of federal benefit
552

 
(734
)
 
689

Change in valuation allowance
(58
)
 
(120
)
 
(180
)
Change in federal income tax rate and tax methods
(3,977
)
 
8,952

 

Net share-based compensation-tax benefit deficiencies
178

 
228

 

Non-deductible expenses
53

 
84

 
(3
)
Foreign taxes
355

 
346

 
372

Employment tax credits
(897
)
 
(914
)
 
(905
)
Foreign tax credits/deductions
(75
)
 
(121
)
 
(372
)
Other
44

 
(82
)
 
(32
)
 
$
(2,772
)
 
$
(7,755
)
 
$
8,336


Tax Law Changes. On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), which includes a provision that reduced the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, was signed into law. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required the Company to revalue its net deferred income tax assets at the new corporate statutory rate of 21.0% as of the enactment date, which resulted in an adjustment to its deferred income taxes of $9.0 million with a corresponding increase to the provision for income taxes as a discrete item during the fourth quarter of 2017. In 2018, in conjunction with a cost segregation study conducted prior to filing its 2017 federal income tax return, the Company changed the depreciation method for certain assets for federal income tax purposes to accelerate tax deductions. Changes in the Company's 2017 federal income tax return from the amounts recorded as of December 31, 2017 were primarily the result of changing the depreciable lives of assets for federal income tax purposes. These changes allowed the Company to record an incremental benefit of $4.0 million during the twelve months ended December 30, 2018.
On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the impact of the Act, that, in effect, allows entities to use a methodology similar to the measurement period in a business combination. At December 30, 2018, the Company had completed the accounting for all of the enactment-date income tax effects of the Act. The Company did not make any measurement period adjustments related to the Act in the twelve months ended December 30, 2018.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of December 30, 2018, and December 31, 2017, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.
The Company has deferred tax benefits that it expects to realize in future years of $1.0 million related to a 2018 federal net operating loss carryforward that has no expiration date and $0.9 million related to employment tax credits that will expire in 2038.
The Company also has a deferred tax benefit of $0.2 million related to a Florida net operating loss carryforward that will expire in 2037.
The Company is not currently under examination by any taxing jurisdictions. The tax years 2015–2018 remain open to examination by the taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
v3.10.0.1
Stockholders' Equity
12 Months Ended
Dec. 30, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stockholders' Equity Stockholders' Equity
Purchase of Treasury Stock
On February 26, 2018, the Company announced that its board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 112,358 shares of its common stock under the program in open market transactions during the twelve months ended December 30, 2018 for $2.8 million. The repurchased shares are held as treasury stock at cost.
Stock-Based Compensation
The Company established the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan") in order to be able to compensate its employees and directors by issuing stock options, stock appreciation rights, or stock awards to them under this plan. The aggregate number of shares of stock authorized for distribution under the Fiesta Plan is 3,300,000. As of December 30, 2018, there were 1,615,389 shares available for future grants under the Fiesta Plan.
During the years ended December 30, 2018, December 31, 2017 and January 1, 2017, the Company granted certain employees, and in 2018 a consultant, in the aggregate 161,791, 182,522 and 50,087 non-vested restricted shares, respectively, under the Fiesta Plan. Shares granted to employees during the years ended December 30, 2018, December 31, 2017 and January 1, 2017 vest and become non-forfeitable over a four-year vesting period. The shares granted to the consultant vest over a three-year vesting period. The weighted average fair value at the grant date for restricted non-vested shares issued during the years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $18.70, $20.75 and $35.25, respectively.
During the years ended December 30, 2018, December 31, 2017 and January 1, 2017, the Company granted non-employee directors 31,146, 38,596 and 14,081 non-vested restricted shares, respectively, under the Fiesta Plan. The weighted average fair value at the grant date for restricted non-vested shares issued to directors during the twelve months ended December 30, 2018, December 31, 2017 and January 1, 2017 was $20.71, $21.25 and $33.39, respectively. These shares vest and become non-forfeitable over a one year vesting period, or for certain grants to new directors, over a five year vesting period.
During the years ended December 31, 2017 and January 1, 2017, the Company granted certain employees 11,745 and 5,762 restricted stock units, respectively, under the Fiesta Plan. Certain of the restricted stock units vest and become non-forfeitable over a four year vesting period and certain of the restricted stock units vest and become non-forfeitable at the end of a four year vesting period. The weighted average fair value at grant date for the restricted stock units issued to employees during the years ended December 31, 2017 and January 1, 2017 was $20.75 and $35.25.
Also during the years ended December 30, 2018 and December 31, 2017, the Company granted certain employees 112,169 and 92,171 restricted stock units, respectively, under the Fiesta Plan subject to continued service requirements and market performance conditions.
During the year ended December 31, 2017, the Company granted its Chief Executive Officer 72,290 restricted stock units, which vest in four tranches over a four-year vesting period subject to continued service and attainment of specified share prices of the Company's common stock during 20 consecutive trading days at any point during each year. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. The number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 72,290 shares, if the service and market performance
conditions are met in the fourth year. The weighted average fair value at grant date for these restricted stock units was $12.90.
During the years ended December 30, 2018 and December 31, 2017, the Company granted certain executives 112,169 and 19,881 restricted stock units, respectively, which vest in three tranches over a three-year vesting period subject to continued service and attainment of specified share price of the Company's common stock. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. The number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 112,169 and 19,881 shares, if the service and market performance conditions are met in the third year. The weighted average fair value at grant date for the restricted stock units granted to executives in the years ended December 30, 2018 and December 31, 2017 was $6.96 and $9.31 per share, respectively.
During the year ended January 1, 2017, the Company granted 33,691 non-vested restricted shares and 33,691 restricted stock units, under the Fiesta Plan to certain employees subject to performance conditions. The non-vested restricted shares vest and become non-forfeitable over a four-year vesting period subject to the attainment of financial performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three-year vesting period. The number of shares into which the restricted stock units convert is based on the attainment of certain financial performance conditions and for the restricted stock units granted during the year ended January 1, 2017, ranges from no shares, if the minimum financial performance condition is not met, to 67,382 shares, if the maximum financial performance condition is met. The weighted average fair value at grant date for both restricted non-vested shares and restricted stock units subject to financial performance conditions granted during the year ended January 1, 2017 was $35.25.
Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the award (the vesting period) using the straight-line method, or for restricted stock units subject to market performance conditions using the accelerated method. Stock-based compensation expense for the years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $3.5 million, $3.5 million and $3.3 million, respectively. As of December 30, 2018, the total unrecognized stock-based compensation expense related to non-vested shares and restricted stock units was approximately $4.9 million. At December 30, 2018, the remaining weighted average vesting period for non-vested restricted shares was 2.4 years and restricted stock units was 1.1 years.
A summary of all non-vested restricted shares and restricted stock units activity for the year ended December 30, 2018 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 31, 2017
239,500

 
$
24.81

 
143,946

 
$
23.11

Granted
192,937

 
19.02

 
112,169

 
6.96

Vested/Released
(113,548
)
 
25.15

 
(10,385
)
 
45.82

Forfeited
(31,023
)
 
22.08

 
(14,618
)
 
51.86

Outstanding at December 30, 2018
287,866

 
$
20.70

 
231,112

 
$
12.44


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:
 
 
2018
 
2017
 
 
Non-CEO Grant
 
Non-CEO Grant
 
CEO Grant
Grant date stock price
 
$
18.70

 
$
17.60

 
$
22.55

Fair value at grant date
 
$
6.96

 
$
9.31

 
$
12.90

Risk free interest rate
 
2.40
%
 
1.51
%
 
1.52
%
Expected term (in years)
 
3

 
2.5

 
3.8

Dividend yield
 
%
 
%
 
%
Expected volatility
 
41.49
%
 
41.72
%
 
39.06
%

The fair value of the shares vested and released during the years ended December 30, 2018, December 31, 2017 and January 1, 2017 was $2.5 million, $2.1 million and $5.2 million, respectively.
v3.10.0.1
Business Segment Information
12 Months Ended
Dec. 30, 2018
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 made fresh by hand.
Each segment's accounting policies are the same as those described in the summary of significant accounting policies in Note 1. Prior to the second quarter of 2017, the primary measures of segment profit or loss used to assess performance and allocate resources were income (loss) before taxes and an Adjusted EBITDA measure, which was defined as earnings attributable to the applicable operating segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense.
In 2017, the Company's board of directors appointed a new Chief Executive Officer who initiated the Plan and uses an Adjusted EBITDA measure for the purpose of assessing performance and allocating resources to segments. The new Adjusted EBITDA measure used by the chief operating decision maker includes adjustments for significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants. Beginning in the second quarter of 2017, 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 now defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, 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 Company has included the presentation of Adjusted EBITDA for all periods presented.
The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, a current income tax receivable, and advisory fees related to a previously proposed and terminated separation transaction.
Year Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
December 30, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
374,381

 
$
311,544

 
$

 
$
685,925

Franchise revenue
 
1,815

 
857

 

 
2,672

Cost of sales
 
123,042

 
95,904

 

 
218,946

Restaurant wages and related expenses(1)
 
87,025

 
101,106

 

 
188,131

Restaurant rent expense
 
17,457

 
18,577

 

 
36,034

Other restaurant operating expenses
 
51,757

 
49,071

 

 
100,828

Advertising expense
 
13,068

 
10,627

 

 
23,695

General and administrative expense(2)
 
29,621

 
24,904

 

 
54,525

Adjusted EBITDA
 
54,903

 
13,059

 

 
67,962

Depreciation and amortization
 
21,372

 
16,232

 

 
37,604

Capital expenditures
 
27,667

 
28,886

 
1,297

 
57,850

December 31, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
372,328

 
$
294,256

 
$

 
$
666,584

Franchise revenue
 
1,787

 
761

 

 
2,548

Cost of sales
 
117,493

 
85,395

 

 
202,888

Restaurant wages and related expenses(1)
 
88,587

 
96,155

 

 
184,742

Restaurant rent expense
 
18,949

 
17,987

 

 
36,936

Other restaurant operating expenses
 
52,848

 
46,079

 

 
98,927

Advertising expense
 
16,397

 
9,694

 

 
26,091

General and administrative expense(2)
 
33,025

 
26,608

 

 
59,633

Adjusted EBITDA
 
50,937

 
16,508

 

 
67,445

Depreciation and amortization
 
21,758

 
13,199

 

 
34,957

Capital expenditures
 
31,786

 
20,781

 
3,299

 
55,866

January 1, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
399,736

 
$
309,220

 
$

 
$
708,956

Franchise revenue
 
2,062

 
752

 

 
2,814

Cost of sales
 
126,539

 
88,070

 

 
214,609

Restaurant wages and related expenses(1)
 
93,958

 
91,347

 

 
185,305

Restaurant rent expense
 
19,998

 
17,495

 

 
37,493

Other restaurant operating expenses
 
54,198

 
42,259

 

 
96,457

Advertising expense
 
14,819

 
11,981

 

 
26,800

General and administrative expense(2)
 
32,638

 
21,366

 
822

 
54,826

Adjusted EBITDA
 
58,286

 
38,281

 

 
96,567

Depreciation and amortization
 
23,587

 
13,189

 

 
36,776

Capital expenditures
 
65,789

 
13,206

 
3,370

 
82,365

Identifiable Assets:
 
 
 
 
 
 
 
 
December 30, 2018
 
$
207,435

 
$
174,681

 
$
36,543

 
$
418,659

December 31, 2017
 
227,194

 
167,237

 
28,882

 
423,313

January 1, 2017
 
263,868

 
165,195

 
12,502

 
441,565


(1) Includes stock-based compensation expense of $90, $52 and $142 for the years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively.
(2) Includes stock-based compensation expense of $3,379, $3,493 and $3,141 for the years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively.


A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:

Year Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
December 30, 2018:
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
$
7,787

Benefit from income taxes
 
 
 
 
 
 
 
(2,772
)
Income (loss) before taxes
 
$
17,639

 
$
(12,624
)
 
$

 
$
5,015

Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
21,372

 
16,232

 

 
37,604

          Impairment and other lease charges
 
13,587

 
7,557

 

 
21,144

          Interest expense
 
1,920

 
2,046

 

 
3,966

          Other expense (income), net
 
(1,225
)
 
(1,782
)
 

 
(3,007
)
          Stock-based compensation expense in restaurant wages
 
34

 
56

 

 
90

                Total non-general and administrative expense adjustments
 
35,688

 
24,109

 

 
59,797

     General and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Stock-based compensation expense
 
1,885

 
1,494

 

 
3,379

          Board and shareholder matter costs
 
(328
)
 
(269
)
 

 
(597
)
          Strategic Renewal Plan restructuring costs and retention bonuses
 
196

 
349

 

 
545

          Legal settlements and related costs
 
(177
)
 

 

 
(177
)
               Total general and administrative expense adjustments
 
1,576

 
1,574

 

 
3,150

Adjusted EBITDA
 
$
54,903

 
$
13,059

 
$

 
$
67,962

 
 
 
 
 
 
 
 
 
December 31, 2017:
 
 
 
 
 
 
 
 
Net loss
 
 
 
 
 
 
 
$
(36,232
)
Benefit from income taxes
 
 
 
 
 
 
 
(7,755
)
Loss before taxes
 
$
(37,831
)
 
$
(6,156
)
 
$

 
$
(43,987
)
Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
21,758

 
13,199

 

 
34,957

          Impairment and other lease charges
 
57,947

 
3,813

 

 
61,760

          Interest expense
 
1,348

 
1,529

 

 
2,877

          Other expense (income), net
 
2,427

 
(237
)
 

 
2,190

          Stock-based compensation expense in restaurant wages
 
(4
)
 
56

 

 
52

          Unused pre-production costs in advertising expense
 
322

 
88

 

 
410

                Total non-general and administrative expense adjustments
 
83,798

 
18,448

 

 
102,246

     General and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Stock-based compensation expense
 
1,983

 
1,510

 

 
3,493

          Terminated capital project
 
484

 
365

 

 
849

          Board and shareholder matter costs
 
1,738

 
1,311

 

 
3,049

          Strategic Renewal Plan restructuring costs and retention bonuses
 
1,390

 
1,030

 

 
2,420

          Office restructuring and relocation costs
 
(152
)
 

 

 
(152
)
          Legal settlements and related costs
 
(473
)
 

 

 
(473
)
               Total general and administrative expense adjustments
 
4,970

 
4,216

 

 
9,186

Adjusted EBITDA
 
$
50,937

 
$
16,508

 
$

 
$
67,445

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Year Ended:
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
January 1, 2017:
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
16,712

Provision for income taxes
 
 
 
 
 
 
 
8,336

Income (loss) before taxes
 
4,639

 
21,231

 
(822
)
 
25,048

Add:
 
 
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Depreciation and amortization
 
23,587

 
13,189

 

 
36,776

          Impairment and other lease charges
 
24,419

 
1,225

 

 
25,644

          Interest expense
 
930

 
1,241

 

 
2,171

          Other expense (income), net
 
1,236

 
(106
)
 

 
1,130

          Stock-based compensation expense in restaurant wages
 
69

 
73

 

 
142

                Total non-general and administrative expense adjustments
 
50,241

 
15,622

 

 
65,863

     General and administrative expense adjustments:
 
 
 
 
 
 
 
 
          Stock-based compensation expense
 
1,793

 
1,348

 

 
3,141

          Board and shareholder matter costs
 
432

 
326

 
822

 
1,580

          Strategic Renewal Plan restructuring costs and retention bonuses
 
45

 
41

 

 
86

          Office restructuring and relocation costs
 
539