FIESTA RESTAURANT GROUP, INC., 10-Q filed on 11/5/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 31, 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-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   27,256,842
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash $ 5,743 $ 3,599
Accounts receivable 9,462 9,830
Inventories 2,761 2,880
Prepaid rent 3,360 3,300
Income tax receivable 16,059 11,334
Prepaid expenses and other current assets 6,970 10,105
Total current assets 44,355 41,048
Property and equipment, net 235,609 234,561
Goodwill 123,484 123,484
Deferred income taxes 9,376 17,232
Other assets 7,074 6,988
Total assets 419,898 423,313
Current liabilities:    
Current portion of long-term debt 106 98
Accounts payable 16,042 20,293
Accrued payroll, related taxes and benefits 11,813 11,776
Accrued real estate taxes 6,525 5,860
Other current liabilities 15,052 21,817
Total current liabilities 49,538 59,844
Long-term debt, net of current portion 71,664 76,425
Deferred income—sale-leaseback of real estate 20,765 23,466
Other non-current liabilities 30,474 32,062
Total liabilities 172,441 191,797
Commitments and contingencies
Stockholders' equity:    
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,258,395 and 27,086,958 shares issued, respectively, and 26,865,639 and 26,847,458 shares outstanding, respectively 270 268
Additional paid-in capital 169,465 166,823
Retained earnings 80,206 64,425
Treasury stock, at cost; 97,358 shares (2,484) 0
Total stockholders' equity 247,457 231,516
Total liabilities and stockholders' equity $ 419,898 $ 423,313
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common stock, par value (usd per share) $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 27,258,395 27,086,958
Common stock, shares outstanding 26,865,639 26,847,458
Treasury stock, shares 97,358  
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Oct. 01, 2017
Sep. 30, 2018
Oct. 01, 2017
Revenues:        
Revenues $ 174,648 $ 158,691 $ 520,959 $ 506,922
Costs and expenses:        
Cost of sales 56,021 49,151 166,275 150,827
Restaurant wages and related expenses (including stock-based compensation expense of $6, $9, $56 and $44, respectively) 47,943 44,649 142,103 139,050
Restaurant rent expense 9,129 9,104 26,861 27,881
Other restaurant operating expenses 27,294 24,856 75,398 73,560
Advertising expense 6,472 5,885 18,046 17,716
General and administrative (including stock-based compensation expense of $732, $938, $2,588 and $2,723, respectively) 13,284 12,057 41,023 46,751
Depreciation and amortization 9,739 8,483 27,908 26,265
Pre-opening costs 223 544 1,481 1,878
Impairment and other lease charges 6,417 15,905 6,539 59,081
Other expense (income), net 47 469 (3,132) 1,721
Total operating expenses 176,569 171,103 502,502 544,730
Income (loss) from operations (1,921) (12,412) 18,457 (37,808)
Interest expense 924 672 2,979 1,910
Income (loss) before income taxes (2,845) (13,084) 15,478 (39,718)
Benefit from income taxes (4,892) (4,827) (246) (14,241)
Net income (loss) $ 2,047 $ (8,257) $ 15,724 $ (25,477)
Earnings per common share:        
Basic (usd per share) $ 0.08 $ (0.31) $ 0.58 $ (0.95)
Diluted (usd per share) $ 0.08 $ (0.31) $ 0.58 $ (0.95)
Weighted average common shares outstanding:        
Basic (in shares) 26,954,285 26,845,568 26,900,716 26,811,610
Diluted (in shares) 26,958,874 26,845,568 26,905,391 26,811,610
Restaurant sales        
Revenues:        
Revenues $ 173,966 $ 158,100 $ 518,951 $ 505,082
Franchise royalty revenues and fees        
Revenues:        
Revenues $ 682 $ 591 $ 2,008 $ 1,840
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Oct. 01, 2017
Sep. 30, 2018
Oct. 01, 2017
Stock-based compensation $ 700 $ 900 $ 2,600 $ 2,800
Restaurant Wages And Related Expenses        
Stock-based compensation 6 9 56 44
General and Administrative Expense        
Stock-based compensation $ 732 $ 938 $ 2,588 $ 2,723
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Treasury Stock
Beginning balance at Jan. 01, 2017 $ 264,175 $ 267 $ 163,204 $ 100,704  
Beginning shares at Jan. 01, 2017 26,755,640        
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 2,767   2,767    
Vesting of restricted shares (in shares) 91,169        
Vesting of restricted shares $ 1 1 0    
Cumulative effect of adopting a new accounting standard 26   73 (47)  
Net income (loss) $ (25,477)     (25,477)  
Ending shares at Oct. 01, 2017 26,846,809        
Ending balance at Oct. 01, 2017 $ 241,492 268 166,044 75,180  
Beginning balance at Dec. 31, 2017 $ 231,516 268 166,823 64,425 $ 0
Beginning shares at Dec. 31, 2017 26,847,458        
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 2,644   2,644    
Vesting of restricted shares (in shares) 115,539        
Vesting of restricted shares $ 0 2 (2)    
Cumulative effect of adopting a new accounting standard $ 57     57  
Purchase of treasury stock (in shares) (97,358)        
Purchase of treasury stock $ (2,484)       (2,484)
Net income (loss) $ 15,724     15,724  
Ending shares at Sep. 30, 2018 26,865,639        
Ending balance at Sep. 30, 2018 $ 247,457 $ 270 $ 169,465 $ 80,206 $ (2,484)
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Oct. 01, 2017
Operating activities:    
Net income (loss) $ 15,724 $ (25,477)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
(Gain) loss on disposals of property and equipment (1,167) 1,020
Stock-based compensation 2,644 2,767
Impairment and other lease charges 6,539 59,081
Depreciation and amortization 27,908 26,265
Amortization of deferred financing costs 203 231
Amortization of deferred gains from sale-leaseback transactions (2,698) (2,703)
Deferred income taxes 7,856 (16,886)
Changes in other operating assets and liabilities (12,721) 3,355
Net cash provided by operating activities 44,288 47,653
Capital expenditures:    
New restaurant development (17,897) (23,994)
Restaurant remodeling (234) (2,280)
Other restaurant capital expenditures (15,536) (7,650)
Corporate and restaurant information systems (6,256) (4,615)
Total capital expenditures (39,923) (38,539)
Proceeds from disposals of properties 4,676 0
Proceeds from insurance recoveries 813 0
Net cash used in investing activities (34,434) (38,539)
Financing activities:    
Borrowings on revolving credit facility 18,000 7,000
Repayments on revolving credit facility (23,000) (16,000)
Principal payments on capital leases (76) (66)
Financing costs associated with issuance of debt (150) 0
Payments to purchase treasury stock (2,484) 0
Net cash used in financing activities (7,710) (9,066)
Net change in cash 2,144 48
Cash, beginning of period 3,599 4,196
Cash, end of period 5,743 4,244
Supplemental disclosures:    
Interest paid on long-term debt 2,505 1,756
Interest paid on lease financing obligations 0 83
Accruals for capital expenditures 5,338 7,950
Income tax payments (refunds), net (3,360) 3,003
Capital lease obligations incurred 322 0
Non-cash reduction of lease financing obligations 0 1,664
Non-cash reduction of assets under lease financing obligations $ 0 $ 1,193
v3.10.0.1
Basis of Presentation
9 Months Ended
Sep. 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 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 September 30, 2018, the Company owned and operated 150 Pollo Tropical® restaurants and 171 Taco Cabana® restaurants. The Pollo Tropical restaurants included 141 located in Florida and 9 located in Georgia. All of the Taco Cabana restaurants are located in Texas. At September 30, 2018, the Company franchised a total of 30 Pollo Tropical restaurants and eight Taco Cabana restaurants. The franchised Pollo Tropical restaurants included 17 in Puerto Rico, four in Panama, two in Guyana, one in the Bahamas, five on college campuses and one at a hospital in Florida. The franchised Taco Cabana restaurants included six in New Mexico and two on college campuses in Texas.
Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 5253 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 31, 2017 contained 52 weeks. The three and nine months ended September 30, 2018 and October 1, 2017 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending December 30, 2018 will contain 52 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018 and October 1, 2017 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and nine months ended September 30, 2018 and October 1, 2017 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 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The December 31, 2017 balance sheet data is derived from those audited financial statements.
Reclassification. Write-offs of site development costs were reclassified from general and administrative expense to other expense (income), net in the condensed consolidated statement of operations to conform with the current year presentation.
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 three and nine months ended September 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.
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 $69.9 million at September 30, 2018, and $75.0 million at December 31, 2017. The carrying value of the Company's senior credit facility was $70.0 million at September 30, 2018 and $75.0 million at December 31, 2017.
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 when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—Impairment of Long-Lived Assets.
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
v3.10.0.1
Prepaid Expenses and Other Current Assets
9 Months Ended
Sep. 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:
 
September 30, 2018
 
December 31, 2017
Prepaid contract expenses
$
3,670

 
$
3,681

Assets held for sale(1)

 
2,705

Other
3,300

 
3,719

 
$
6,970

 
$
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
Impairment of Long-Lived Assets and Other Lease Charges
9 Months Ended
Sep. 30, 2018
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, 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 lease charges or recoveries, and such amounts could be material.

A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Pollo Tropical
$
3,295

 
$
13,729

 
$
3,439

 
$
56,336

Taco Cabana
3,122

 
2,176

 
3,100

 
2,745

 
$
6,417

 
$
15,905

 
$
6,539

 
$
59,081



The Company recognized impairment charges totaling $5.7 million in the three months ended September 30, 2018 related to management's ongoing assessment of the Company's restaurant portfolio in light of continued sales declines at certain underperforming restaurants. Impairment and other lease charges for the three and nine months ended September 30, 2018 for Pollo Tropical include impairment charges of $3.4 million and $3.6 million, respectively, related primarily to impairment of three underperforming restaurants that the Company continues to operate and a benefit of $(0.1) million in net lease charge recoveries related to certain previously closed restaurants due to adjustments to estimates of future lease costs. Impairment and other lease charges for the three and nine months ended September 30, 2018 for Taco Cabana include impairment charges of $2.4 million and $2.6 million, respectively, related primarily to impairment of five underperforming restaurants that the Company continues to operate and other lease charges, net of recoveries, of $0.7 million and $0.5 million, respectively, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to certain previously closed restaurants due to adjustments to estimates of future lease costs.
In conjunction with the Strategic Renewal Plan to drive long-term shareholder value creation, Pollo Tropical recognized impairment charges of $15.6 million and $51.3 million for the three and nine months ended October 1, 2017, respectively. In addition, Pollo Tropical recognized a $(1.9) million net benefit related to lease charge recoveries and $5.0 million of lease charges, net of recoveries, for the three and nine months ended October 1, 2017, respectively. These charges were due primarily to impairment and closures of underperforming Pollo Tropical restaurants in 2017 and the net benefit related to lease charge recoveries during the third quarter of 2017 was due to closed restaurant lease terminations, assignments and other adjustments to estimates of future lease costs. Impairment and other lease charges for Taco Cabana consisted of impairment charges of $0.9 million and $1.4 million for the three and nine months ended October 1, 2017, respectively, and other lease charges of $1.3 million for the three and nine months ended October 1, 2017. These charges were due primarily to impairment and closures of underperforming Taco Cabana restaurants in 2017.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company’s history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the nine months ended September 30, 2018 and October 1, 2017 totaled $1.2 million and $13.5 million, respectively, which primarily consisted of equipment for the nine months ended September 30, 2018 and leasehold improvements related to Pollo Tropical restaurants that were or will be rebranded as Taco Cabana restaurants and the estimated fair value of owned properties for the nine months ended October 1, 2017.
v3.10.0.1
Other Liabilities
9 Months Ended
Sep. 30, 2018
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
 
September 30, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
5,401

 
$
5,083

Sales and property taxes
2,299

 
2,279

Accrued occupancy costs
4,959

 
7,813

Other
2,393

 
6,642

 
$
15,052

 
$
21,817


Other non-current liabilities consist of the following:
 
September 30, 2018
 
December 31, 2017
Accrued occupancy costs
$
20,007

 
$
20,985

Deferred compensation
826

 
1,029

Accrued workers’ compensation and general liability claims
6,099

 
6,102

Other
3,542

 
3,946

 
$
30,474

 
$
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-restaurant reserve, of which $3.3 million and $5.3 million are included in non-current accrued occupancy costs at September 30, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
 
Nine Months Ended September 30, 2018
 
Year Ended December 31, 2017
Balance, beginning of period
$
12,994

 
$
4,912

Provisions for restaurant closures

 
8,767

Additional lease charges (recoveries), net
413

 
(1,301
)
Payments, net
(5,741
)
 
(5,528
)
Other adjustments(1)
388

 
6,144

Balance, end of period
$
8,054

 
$
12,994


(1) For the year ended December 31, 2017, includes the transfer of accruals to expense operating lease payments on a straight-line basis.
v3.10.0.1
Stockholders' Equity
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Stockholders' Equity Stockholders' Equity

Purchase of Treasury Stock

On February 26, 2018, the Company announced that its board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 97,358 shares of its common stock under the program in open market transactions during the nine months ended September 30, 2018 for $2.5 million. The repurchased shares are held as treasury stock at cost.

Stock-Based Compensation

During the nine months ended September 30, 2018, the Company granted certain employees, non-employee directors and a non-employee food and beverage consultant a total of 187,747 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 non-employee directors, the non-employee food and beverage consultant and a new non-employee director vest and become non-forfeitable over a one-, three- and five-year vesting period, respectively. The weighted average fair value at grant date for non-vested shares issued during the nine months ended September 30, 2018 and October 1, 2017 was $19.02 and $20.84 per share, respectively.
During the nine months ended September 30, 2018, the Company granted certain executives a total of 112,169 restricted stock units under the Fiesta Plan, which vest in three tranches over a three-year vesting period. The restricted stock units granted to executives are subject to continued service and attainment of specified share prices of the Company's common stock for a specified period of time within each vesting period. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. For the restricted stock units granted to executives in the nine months ended September 30, 2018, 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 shares, if the service and market performance conditions are met in the last vesting period. The weighted average fair value at grant date for the restricted stock units granted to executives in the nine months ended September 30, 2018 and October 1, 2017 was $6.96 and $12.13 per share, respectively.
During the nine months ended October 1, 2017, the Company granted certain employees restricted stock units under the Fiesta Plan. The restricted stock units granted during the nine months ended October 1, 2017 vest and become non-forfeitable at the end of a four-year vesting period. The weighted average fair value at grant date for these restricted stock units issued to employees during the nine months ended October 1, 2017 was $20.75 per share.
Stock-based compensation expense for the three and nine months ended September 30, 2018 was $0.7 million and $2.6 million, respectively, and for the three and nine months ended October 1, 2017 was $0.9 million and $2.8 million, respectively. At September 30, 2018, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $5.8 million. At September 30, 2018, the remaining weighted average vesting period for non-vested restricted shares was 2.7 years and restricted stock units was 1.3 years.
A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended September 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
187,747

 
19.02

 
112,169

 
6.96

Vested and released
(105,240
)
 
25.62

 
(10,344
)
 
45.76

Forfeited
(26,609
)
 
22.56

 
(13,851
)
 
52.93

Outstanding at September 30, 2018
295,398

 
$
20.66

 
231,920

 
$
12.51


The fair value of the restricted stock units subject to market performance conditions was estimated using the Monte Carlo simulation method. 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.
v3.10.0.1
Business Segment Information
9 Months Ended
Sep. 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 24-hour 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 31, 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 defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below.
The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts and a current income tax receivable.
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 30, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
93,592

 
$
80,374

 
$

 
$
173,966

Franchise revenue
 
453

 
229

 

 
682

Cost of sales
 
31,219

 
24,802

 

 
56,021

Restaurant wages and related expenses(1)
 
21,947

 
25,996

 

 
47,943

Restaurant rent expense
 
4,392

 
4,737

 

 
9,129

Other restaurant operating expenses
 
13,521

 
13,773

 

 
27,294

Advertising expense
 
3,413

 
3,059

 

 
6,472

General and administrative expense(2)
 
7,291

 
5,993

 

 
13,284

Adjusted EBITDA
 
12,544

 
2,493

 

 
15,037

Depreciation and amortization
 
5,438

 
4,301

 

 
9,739

Capital expenditures
 
4,621

 
7,489

 
525

 
12,635

October 1, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
87,888

 
$
70,212

 
$

 
$
158,100

Franchise revenue
 
396

 
195

 

 
591

Cost of sales
 
28,527

 
20,624

 

 
49,151

Restaurant wages and related expenses(1)
 
21,208

 
23,441

 

 
44,649

Restaurant rent expense
 
4,655

 
4,449

 

 
9,104

Other restaurant operating expenses
 
13,034

 
11,822

 

 
24,856

Advertising expense
 
4,980

 
905

 

 
5,885

General and administrative expense(2)
 
6,647

 
5,410

 

 
12,057

Adjusted EBITDA
 
9,396

 
3,776

 

 
13,172

Depreciation and amortization
 
5,187

 
3,296

 

 
8,483

Capital expenditures
 
6,302

 
5,471

 
613

 
12,386


 
Nine Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 30, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
283,447

 
$
235,504

 
$

 
$
518,951

Franchise revenue
 
1,376

 
632

 

 
2,008

Cost of sales
 
93,716

 
72,559

 

 
166,275

Restaurant wages and related expenses(1)
 
65,652

 
76,451

 

 
142,103

Restaurant rent expense
 
13,024

 
13,837

 

 
26,861

Other restaurant operating expenses
 
38,270

 
37,128

 

 
75,398

Advertising expense
 
9,859

 
8,187

 

 
18,046

General and administrative expense(2)
 
22,256

 
18,767

 

 
41,023

Adjusted EBITDA
 
42,520

 
9,652

 

 
52,172

Depreciation and amortization
 
16,117

 
11,791

 

 
27,908

Capital expenditures
 
17,656

 
21,400

 
867

 
39,923

October 1, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
281,572

 
$
223,510

 
$

 
$
505,082

Franchise revenue
 
1,272

 
568

 

 
1,840

Cost of sales
 
87,430

 
63,397

 

 
150,827

Restaurant wages and related expenses(1)
 
66,945

 
72,105

 

 
139,050

Restaurant rent expense
 
14,502

 
13,379

 

 
27,881

Other restaurant operating expenses
 
39,353

 
34,207

 

 
73,560

Advertising expense
 
11,316

 
6,400

 

 
17,716

General and administrative expense(2)
 
26,161

 
20,590

 

 
46,751

Adjusted EBITDA
 
41,257

 
17,252

 

 
58,509

Depreciation and amortization
 
16,705

 
9,560

 

 
26,265

Capital expenditures
 
23,208

 
13,487

 
1,844

 
38,539

Identifiable Assets:
 
 
 
 
 
 
 
 
September 30, 2018
 
$
212,704

 
$
174,575

 
$
32,619

 
$
419,898

December 31, 2017
 
227,194

 
167,237

 
28,882

 
423,313


(1) Includes stock-based compensation expense of $6 and $56 for the three and nine months ended September 30, 2018, respectively, and $9 and $44 for the three and nine months ended October 1, 2017, respectively.
(2) Includes stock-based compensation expense of $732 and $2,588 for the three and nine months ended September 30, 2018, respectively, and $938 and $2,723 for the three and nine months ended October 1, 2017, respectively.
A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
September 30, 2018:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
2,047

Benefit from income taxes
 
 
 
 
 
(4,892
)
Income (loss) before taxes
 
$
2,976

 
$
(5,821
)
 
$
(2,845
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,438

 
4,301

 
9,739

          Impairment and other lease charges
 
3,295

 
3,122

 
6,417

          Interest expense
 
448

 
476

 
924

          Other expense (income), net
 
(29
)
 
76

 
47

          Stock-based compensation expense in restaurant wages
 
4

 
2

 
6

                Total non-general and administrative expense adjustments
 
9,156

 
7,977

 
17,133

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
407

 
325

 
732

          Strategic Renewal Plan restructuring costs and retention bonuses
 
5

 
12

 
17

               Total general and administrative expense adjustments
 
412

 
337

 
749

Adjusted EBITDA
 
$
12,544

 
$
2,493

 
$
15,037

 
 
 
 
 
 
 
October 1, 2017:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(8,257
)
Benefit from income taxes
 
 
 
 
 
(4,827
)
Loss before taxes
 
$
(10,816
)
 
$
(2,268
)
 
$
(13,084
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,187

 
3,296

 
8,483

          Impairment and other lease charges
 
13,729

 
2,176

 
15,905

          Interest expense
 
329

 
343

 
672

          Other expense (income), net
 
574

 
(105
)
 
469

          Stock-based compensation expense in restaurant wages
 
(4
)
 
13

 
9

                Total non-general and administrative expense adjustments
 
19,815

 
5,723

 
25,538

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
587

 
351

 
938

          Board and shareholder matter costs
 
(89
)
 
(66
)
 
(155
)
          Strategic Renewal Plan restructuring costs and retention bonuses
 
51

 
36

 
87

          Office restructuring and relocation costs
 
(152
)
 

 
(152
)
               Total general and administrative expense adjustments
 
397

 
321

 
718

Adjusted EBITDA
 
$
9,396

 
$
3,776

 
$
13,172

 
 
 
 
 
 
 

Nine Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
September 30, 2018:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
15,724

Benefit from income taxes
 
 
 
 
 
(246
)
Income (loss) before taxes
 
$
21,901

 
$
(6,423
)
 
$
15,478

Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
16,117

 
11,791

 
27,908

          Impairment and other lease charges
 
3,439

 
3,100

 
6,539

          Interest expense
 
1,467

 
1,512

 
2,979

          Other expense (income), net
 
(1,577
)
 
(1,555
)
 
(3,132
)
          Stock-based compensation expense in restaurant wages
 
23

 
33

 
56

                Total non-general and administrative expense adjustments
 
19,469

 
14,881

 
34,350

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
1,458

 
1,130

 
2,588

          Board and shareholder matter costs
 
(328
)
 
(269
)
 
(597
)
          Strategic Renewal Plan restructuring costs and retention bonuses
 
187

 
333

 
520

          Legal settlements and related costs
 
(167
)
 

 
(167
)
               Total general and administrative expense adjustments
 
1,150

 
1,194

 
2,344

Adjusted EBITDA
 
$
42,520

 
$
9,652

 
$
52,172

 
 
 
 
 
 
 
October 1, 2017:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(25,477
)
Benefit from income taxes
 
 
 
 
 
(14,241
)
Loss before taxes
 
$
(39,414
)
 
$
(304
)
 
$
(39,718
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
16,705

 
9,560

 
26,265

          Impairment and other lease charges
 
56,336

 
2,745

 
59,081

          Interest expense
 
873

 
1,037

 
1,910

          Other expense (income), net
 
1,624

 
97

 
1,721

          Stock-based compensation expense in restaurant wages
 
(4
)
 
48

 
44

          Unused pre-production costs in advertising expense
 
322

 
88

 
410

                Total non-general and administrative expense adjustments
 
75,856

 
13,575

 
89,431

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
1,542

 
1,181

 
2,723

          Terminated capital project
 
484

 
365

 
849

          Board and shareholder matter costs
 
2,136

 
1,612

 
3,748

          Strategic Renewal Plan restructuring costs and retention bonuses
 
1,278

 
823

 
2,101

          Office restructuring and relocation costs
 
(152
)
 

 
(152
)
          Legal settlements and related costs
 
(473
)
 

 
(473
)
               Total general and administrative expense adjustments
 
4,815

 
3,981

 
8,796

Adjusted EBITDA
 
$
41,257

 
$
17,252

 
$
58,509

v3.10.0.1
Earnings Per Share
9 Months Ended
Sep. 30, 2018
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share
Basic earnings 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.
Weighted average outstanding restricted stock units totaling 568 and 746 shares were not included in the computation of diluted EPS for the three and nine months ended September 30, 2018, respectively, because including them would have been antidilutive. For the three and nine months ended October 1, 2017, all restricted stock units outstanding were excluded from the computation of diluted EPS because including them would have been antidilutive as a result of the net loss in these periods.
The computation of basic and diluted EPS is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Basic and diluted EPS:
 
 
 
 
 
 
 
Net income (loss)
$
2,047

 
$
(8,257
)
 
$
15,724

 
$
(25,477
)
Less: income allocated to participating securities
23

 

 
171

 

Net income (loss) available to common shareholders
$
2,024

 
$
(8,257
)
 
$
15,553

 
$
(25,477
)
Weighted average common shares—basic
26,954,285

 
26,845,568

 
26,900,716

 
26,811,610

Restricted stock units
4,589

 

 
4,675

 

Weighted average common shares—diluted
26,958,874

 
26,845,568

 
26,905,391

 
26,811,610

 
 
 
 
 
 
 
 
Earnings per common share—basic
$
0.08

 
$
(0.31
)
 
$
0.58

 
$
(0.95
)
Earnings per common share—diluted
0.08

 
(0.31
)
 
0.58

 
(0.95
)
v3.10.0.1
Commitments and Contingencies
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies

Lease Assignments. Taco Cabana has assigned three leases to various parties on properties where it no longer operates restaurants with lease terms expiring on various dates through 2029. The assignees are responsible for making the payments required by the leases. The Company is a guarantor under one of the leases, and it remains secondarily liable as a surety with respect to two of the leases. Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. The assignee is responsible for making the payments required by the lease. The Company is a guarantor under the lease.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at September 30, 2018 was $3.7 million. The Company could also be obligated to pay property taxes and other lease related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Legal Matters. On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were misclassified as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior to any suit being filed, Pollo Tropical reached a settlement with seven named individuals and a proposed collective action class that allowed current and former assistant managers to receive notice and opt-in to the settlement. Pollo Tropical denies any liability or unlawful conduct.
The settlement was approved by a Florida state judge on December 27, 2017 which resulted in dismissal with prejudice for the named individuals and all individuals that opted-in to the settlement. The Company reserved $0.8 million in 2016 to cover the estimated costs related to the settlement. During the second quarter of 2018, the Company paid all settlement claims costs and recognized a reduction in legal settlement costs of $0.2 million.

The Company is also a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements.
Contingency Related to Insurance Recoveries. During the third quarter of 2017, Texas and Florida were struck by Hurricanes Harvey and Irma (the "Hurricanes"). Forty-three Taco Cabana restaurants in the Houston metropolitan area and all Pollo Tropical restaurants in Florida and the Atlanta metropolitan area were temporarily closed and affected by the Hurricanes to varying degrees (e.g. property preparation and damages, inventory losses, payments to hourly employees while restaurants were closed and lost business related to temporary closures). In 2017, the Company recorded certain expected insurance proceeds in accounts receivable of $0.7 million and $0.4 million for Pollo Tropical and Taco Cabana, respectively. In the nine months ended September 30, 2018, the Company received business interruption and property damage insurance settlement proceeds of $2.8 million and $1.4 million for Pollo Tropical and Taco Cabana, respectively, and recognized other income of $2.1 million and $1.0 million for Pollo Tropical and Taco Cabana, respectively, related to the Hurricanes. The Company has received a final settlement related to Hurricane Irma as of September 30, 2018 and expects to record additional insurance proceeds related to Hurricane Harvey at the time of final settlement.
v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
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 $3.9 million during the third quarter of 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. Pursuant to the disclosure provisions of SAB 118, the Company continues to evaluate the impact of the Act on various matters. The actual impact of the Act on the Company may differ from the provisional amounts recognized based on its reasonable estimates due to, among other things, changes in assumptions made in the Company's interpretation of the Act, guidance related to application of the Act that may be issued in the future, and actions that the Company may take as a result of the expected impact of the Act. The Company will adjust the amounts recognized related to the Act if more information becomes available. The Company did not make any measurement period adjustments related to the Act in the nine months ended September 30, 2018.
v3.10.0.1
Recent Accounting Pronouncements
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Recent Accounting Pronouncements 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 is currently evaluating the impact of the new standard on its financial statements. Although the impact is not currently estimable, 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. The right-of-use lease assets to be recognized will be adjusted by certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis) and unamortized lease incentives upon the adoption of Topic 842. 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 may result in reclassification of certain occupancy related expenses to restaurant rent expenses 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 its assessment of the impact of Topic 842 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 for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the standard to have a material effect on its financial statements.
v3.10.0.1
Basis of Presentation (Policies)
9 Months Ended
Sep. 30, 2018
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 31, 2017 contained 52 weeks. The three and nine months ended September 30, 2018 and October 1, 2017 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending December 30, 2018 will contain 52 weeks.
Basis of Presentation Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018 and October 1, 2017 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and nine months ended September 30, 2018 and October 1, 2017 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 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The December 31, 2017 balance sheet data is derived from those audited financial statements.
Reclassification Reclassification. Write-offs of site development costs were reclassified from general and administrative expense to other expense (income), net in the condensed consolidated statement of operations to conform with the current year presentation.
Guidance Adopted in 2018 and Recent Accounting Pronouncements 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 three and nine months ended September 30, 2018. The adoption of the new standard had no impact on the Company's consolidated statements of cash flows.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 is currently evaluating the impact of the new standard on its financial statements. Although the impact is not currently estimable, 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. The right-of-use lease assets to be recognized will be adjusted by certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis) and unamortized lease incentives upon the adoption of Topic 842. 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 may result in reclassification of certain occupancy related expenses to restaurant rent expenses 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 its assessment of the impact of Topic 842 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 for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
In August 2018, the FASB issued ASU No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted and may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the standard to have a material effect on its financial statements.
Revenue Recognition Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the
related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services. 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.
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 by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3—Impairment of Long-Lived Assets.
Use of Estimates Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
Impairment of Long-Lived Assets The Company reviews its long-lived assets, principally property and equipment, 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 lease charges or recoveries, and such amounts could be material.
Purchase of Treasury Stock 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 97,358 shares of its common stock under the program in open market transactions during the nine months ended September 30, 2018 for $2.5 million. The repurchased shares are held as treasury stock at cost.
Segment Reporting Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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 defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants
Earnings per Share Basic earnings per share ("EPS") is computed by dividing net income (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.
v3.10.0.1
Prepaid Expenses and Other Current Assets (Tables)
9 Months Ended
Sep. 30, 2018
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:
 
September 30, 2018
 
December 31, 2017
Prepaid contract expenses
$
3,670

 
$
3,681

Assets held for sale(1)

 
2,705

Other
3,300

 
3,719

 
$
6,970

 
$
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
Impairment of Long-Lived Assets and Other Lease Charges (Tables)
9 Months Ended
Sep. 30, 2018
Property, Plant and Equipment [Abstract]  
Summary of Impairment on Long-Lived Assets by Segment A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Pollo Tropical
$
3,295

 
$
13,729

 
$
3,439

 
$
56,336

Taco Cabana
3,122

 
2,176

 
3,100

 
2,745

 
$
6,417

 
$
15,905

 
$
6,539

 
$
59,081

Other Lease Charges (Recoveries) by Segment A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018
 
October 1, 2017
 
September 30, 2018
 
October 1, 2017
Pollo Tropical
$
3,295

 
$
13,729

 
$
3,439

 
$
56,336

Taco Cabana
3,122

 
2,176

 
3,100

 
2,745

 
$
6,417

 
$
15,905

 
$
6,539

 
$
59,081

v3.10.0.1
Other Liabilities (Tables)
9 Months Ended
Sep. 30, 2018
Other Liabilities Disclosure [Abstract]  
Other Liabilities, Current Other current liabilities consist of the following:
 
September 30, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
5,401

 
$
5,083

Sales and property taxes
2,299

 
2,279

Accrued occupancy costs
4,959

 
7,813

Other
2,393

 
6,642

 
$
15,052

 
$
21,817

Other Liabilities, Non-current Other non-current liabilities consist of the following:
 
September 30, 2018
 
December 31, 2017
Accrued occupancy costs
$
20,007

 
$
20,985

Deferred compensation
826

 
1,029

Accrued workers’ compensation and general liability claims
6,099

 
6,102

Other
3,542

 
3,946

 
$
30,474

 
$
32,062

Activity in the Closed-Store Reserve The following table presents the activity in the closed-restaurant reserve, of which $3.3 million and $5.3 million are included in non-current accrued occupancy costs at September 30, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
 
Nine Months Ended September 30, 2018
 
Year Ended December 31, 2017
Balance, beginning of period
$
12,994

 
$
4,912

Provisions for restaurant closures

 
8,767

Additional lease charges (recoveries), net
413

 
(1,301
)
Payments, net
(5,741
)
 
(5,528
)
Other adjustments(1)
388

 
6,144

Balance, end of period
$
8,054

 
$
12,994


(1) For the year ended December 31, 2017, includes the transfer of accruals to expense operating lease payments on a straight-line basis.
v3.10.0.1
Stockholders' Equity (Tables)
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Schedule of Non-vested Restricted Shares Activity A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended September 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
187,747

 
19.02

 
112,169

 
6.96

Vested and released
(105,240
)
 
25.62

 
(10,344
)
 
45.76

Forfeited
(26,609
)
 
22.56

 
(13,851
)
 
52.93

Outstanding at September 30, 2018
295,398

 
$
20.66

 
231,920

 
$
12.51

Schedule of Restricted Stock Units Activity A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended September 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
187,747

 
19.02

 
112,169

 
6.96

Vested and released
(105,240
)
 
25.62

 
(10,344
)
 
45.76

Forfeited
(26,609
)
 
22.56

 
(13,851
)
 
52.93

Outstanding at September 30, 2018