FIESTA RESTAURANT GROUP, INC., 10-Q filed on 8/6/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jul. 01, 2018
Aug. 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-Q  
Document Period End Date Jul. 01, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   27,266,023
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jul. 01, 2018
Dec. 31, 2017
Current assets:    
Cash $ 4,698 $ 3,599
Accounts receivable 13,517 9,830
Inventories 2,602 2,880
Prepaid rent 3,315 3,300
Income tax receivable 4,662 11,334
Prepaid expenses and other current assets 8,292 10,105
Total current assets 37,086 41,048
Property and equipment, net 239,647 234,561
Goodwill 123,484 123,484
Deferred income taxes 15,091 17,232
Other assets 7,511 6,988
Total assets 422,819 423,313
Current liabilities:    
Current portion of long-term debt 103 98
Accounts payable 18,198 20,293
Accrued payroll, related taxes and benefits 11,729 11,776
Accrued real estate taxes 4,581 5,860
Other liabilities 15,666 21,817
Total current liabilities 50,277 59,844
Long-term debt, net of current portion 74,691 76,425
Deferred income—sale-leaseback of real estate 21,664 23,466
Other liabilities 29,983 32,062
Total liabilities 176,615 191,797
Commitments and contingencies
Stockholders' equity:    
Common stock, par value $.01; authorized 100,000,000 shares, issued 27,267,752 and 27,086,958 shares, respectively, and outstanding 26,919,479 and 26,847,458 shares, respectively. 270 268
Additional paid-in capital 168,727 166,823
Retained earnings 78,159 64,425
Treasury stock, at cost; 42,905 shares (952) 0
Total stockholders' equity 246,204 231,516
Total liabilities and stockholders' equity $ 422,819 $ 423,313
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jul. 01, 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 27,267,752 27,086,958
Common stock, shares outstanding 26,919,479 26,847,458
Treasury stock, shares 42,905  
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2018
Jul. 02, 2017
Jul. 01, 2018
Jul. 02, 2017
Revenues:        
Restaurant sales $ 176,152 $ 172,005 $ 344,985 $ 346,982
Franchise royalty revenues and fees 675 619 1,326 1,249
Total revenues 176,827 172,624 346,311 348,231
Costs and expenses:        
Cost of sales 56,689 50,728 110,254 101,676
Restaurant wages and related expenses (including stock-based compensation expense of $33, ($74), $50 and $35, respectively) 47,677 46,269 94,160 94,401
Restaurant rent expense 8,840 8,915 17,732 18,777
Other restaurant operating expenses 24,654 24,636 48,104 48,704
Advertising expense 5,361 4,292 11,574 11,831
General and administrative (including stock-based compensation expense of $984, $1,248, $1,856 and $1,785, respectively) 12,820 18,996 27,739 34,694
Depreciation and amortization 9,170 8,596 18,169 17,782
Pre-opening costs 877 910 1,258 1,334
Impairment and other lease charges 784 10,762 122 43,176
Other expense (income), net (3,545) 798 (3,179) 1,252
Total operating expenses 163,327 174,902 325,933 373,627
Income (loss) from operations 13,500 (2,278) 20,378 (25,396)
Interest expense 986 654 2,055 1,238
Income (loss) before income taxes 12,514 (2,932) 18,323 (26,634)
Provision for (benefit from) income taxes 3,021 (772) 4,646 (9,414)
Net income (loss) $ 9,493 $ (2,160) $ 13,677 $ (17,220)
Basic net income (loss) per share (usd per share) $ 0.35 $ (0.08) $ 0.50 $ (0.64)
Diluted net income (loss) per share (usd per share) $ 0.35 $ (0.08) $ 0.50 $ (0.64)
Basic weighted average common shares outstanding 26,916,295 26,815,015 26,895,302 26,794,560
Diluted weighted average common shares outstanding 26,919,914 26,815,015 26,901,829 26,794,560
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jul. 01, 2018
Jul. 02, 2017
Jul. 01, 2018
Jul. 02, 2017
Stock-based compensation $ 1,000 $ 1,200 $ 1,900 $ 1,800
Restaurant Wages And Related Expenses        
Stock-based compensation 33 (74) 50 35
General and Administrative Expense        
Stock-based compensation $ 984 $ 1,248 $ 1,856 $ 1,785
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 $ 1,820   1,820    
Vesting of restricted shares (in shares) 79,497        
Vesting of restricted shares $ 1 1 0    
Cumulative effect of adopting a new accounting standard 26   73 (47)  
Net income (loss) $ (17,220)     (17,220)  
Ending shares at Jul. 02, 2017 26,835,137        
Ending balance at Jul. 02, 2017 $ 248,802 268 165,097 83,437  
Beginning balance at Dec. 31, 2017 $ 231,516 268 166,823 64,425  
Beginning shares at Dec. 31, 2017 26,847,458        
Increase (Decrease) in Stockholders' Equity          
Stock-based compensation $ 1,906   1,906    
Vesting of restricted shares (in shares) 114,926        
Vesting of restricted shares $ 0 2 (2)    
Cumulative effect of adopting a new accounting standard $ 57     57  
Purchase of treasury stock (in shares) (42,905)        
Purchase of treasury stock $ (952)       $ (952)
Net income (loss) $ 13,677     13,677  
Ending shares at Jul. 01, 2018 26,919,479        
Ending balance at Jul. 01, 2018 $ 246,204 $ 270 $ 168,727 $ 78,159 $ (952)
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Jul. 01, 2018
Jul. 02, 2017
Cash flows from operating activities:    
Net income (loss) $ 13,677 $ (17,220)
Adjustments to reconcile net income to net cash provided by operating activities:    
(Gain) loss on disposals of property and equipment (930) 931
Stock-based compensation 1,906 1,820
Impairment and other lease charges 122 43,176
Depreciation and amortization 18,169 17,782
Amortization of deferred financing costs 135 154
Amortization of deferred gains from sale-leaseback transactions (1,799) (1,803)
Deferred income taxes 2,141 (14,646)
Changes in other operating assets and liabilities (7,088) 5,232
Net cash provided by operating activities 26,333 35,426
Capital expenditures:    
New restaurant development (12,051) (18,796)
Restaurant remodeling (299) (961)
Other restaurant capital expenditures (10,026) (3,587)
Corporate and restaurant information systems (4,912) (2,809)
Total capital expenditures (27,288) (26,153)
Proceeds from disposals of properties 4,676 0
Proceeds from insurance recoveries 531 0
Net cash used in investing activities (22,081) (26,153)
Cash flows from financing activities:    
Borrowings on revolving credit facility 15,000 5,000
Repayments on revolving credit facility (17,000) (14,000)
Principal payments on capital leases (51) (43)
Financing costs associated with issuance of debt (150) 0
Payments to purchase treasury stock (952) 0
Net cash used in financing activities (3,153) (9,043)
Net increase in cash 1,099 230
Cash, beginning of period 3,599 4,196
Cash, end of period 4,698 4,426
Supplemental disclosures:    
Interest paid on long-term debt 1,515 1,149
Interest paid on lease financing obligations 0 71
Accruals for capital expenditures 6,437 5,872
Income tax payments (refunds), net (4,150) 2,486
Capital lease obligations incurred $ 322 $ 0
v3.10.0.1
Basis of Presentation
6 Months Ended
Jul. 01, 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 July 1, 2018, the Company owned and operated 150 Pollo Tropical® restaurants and 170 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 July 1, 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, and six on college campuses and 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 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 31, 2017 contained 52 weeks. The three and six months ended July 1, 2018 and July 2, 2017 each contained thirteen and twenty-six 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 six months ended July 1, 2018 and July 2, 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 six months ended July 1, 2018 and July 2, 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 long-term other liabilities and retained earnings at January 1, 2018 and to net income for the three and six months ended July 1, 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 our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under 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 $72.8 million at July 1, 2018, and $75.0 million at December 31, 2017. The carrying value of the Company's senior credit facility was $73.0 million at July 1, 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
6 Months Ended
Jul. 01, 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:
 
July 1, 2018
 
December 31, 2017
Prepaid contract expenses
$
4,132

 
$
3,681

Assets held for sale(1)

 
2,705

Other
4,160

 
3,719

 
$
8,292

 
$
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
6 Months Ended
Jul. 01, 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
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Pollo Tropical
$
686

 
$
10,536

 
$
144

 
$
42,607

Taco Cabana
98

 
226

 
(22
)
 
569

 
$
784

 
$
10,762

 
$
122

 
$
43,176



Impairment and other lease charges for the three and six months ended July 1, 2018 primarily include lease charges, net of recoveries, of $0.5 million related to certain previously closed restaurants due to adjustments to estimates of future lease costs and impairment charges of $0.3 million related to previously closed restaurants as well as one underperforming Taco Cabana restaurant with a short remaining lease term. Impairment and other lease charges for the six months ended July 1, 2018 also include a net benefit of $(0.7) million in lease charge recoveries due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs in the first quarter of 2018.
In conjunction with the Strategic Renewal Plan to drive long-term shareholder value creation, Pollo Tropical recognized impairment charges of $3.8 million and $35.7 million, and other lease charges, net of recoveries, of $6.7 million and $6.9 million for the three and six months ended July 2, 2017, respectively. These charges were due primarily to impairment and closures of underperforming Pollo Tropical restaurants in the first and second quarters of 2017. Impairment and other lease charges for the three and six months ended July 2, 2017 for Taco Cabana consist of impairment charges of $0.2 million and $0.6 million, respectively.
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 six months ended July 2, 2017 totaled $9.5 million, which primarily consisted of leasehold improvements related to Pollo Tropical restaurants that will be rebranded as Taco Cabana restaurants and the estimated fair value of owned properties.
v3.10.0.1
Other Liabilities
6 Months Ended
Jul. 01, 2018
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other liabilities, current, consist of the following:
 
July 1, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
5,107

 
$
5,083

Sales and property taxes
2,045

 
2,279

Accrued occupancy costs
6,095

 
7,813

Other
2,419

 
6,642

 
$
15,666

 
$
21,817


Other liabilities, long-term, consist of the following:
 
July 1, 2018
 
December 31, 2017
Accrued occupancy costs
$
19,271

 
$
20,985

Deferred compensation
791

 
1,029

Accrued workers’ compensation and general liability claims
6,102

 
6,102

Other
3,819

 
3,946

 
$
29,983

 
$
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 $2.8 million and $5.3 million are included in long-term accrued occupancy costs at July 1, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
 
Six Months Ended July 1, 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
(263
)
 
(1,301
)
Payments, net
(4,149
)
 
(5,528
)
Other adjustments(1)
146

 
6,144

Balance, end of period
$
8,728

 
$
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
6 Months Ended
Jul. 01, 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 1.5 million 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 42,905 shares of its common stock under the program in open market transactions during the six months ended July 1, 2018 for $1.0 million. The repurchased shares are held as treasury stock at cost.

Stock-based Compensation

During the three and six months ended July 1, 2018, the Company granted certain employees, non-employee directors and a non-employee food and beverage consultant a total of 25,956 and 187,747 non-vested restricted shares, respectively, 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 and the non-employee food and beverage consultant vest and become non-forfeitable over a one year and a three year vesting period, respectively. The weighted average fair value at grant date for these non-vested shares issued during the three and six months ended July 1, 2018 was $21.00 and $19.02 per share, respectively.

During the three and six months ended July 2, 2017, the Company granted certain employees and non-employee directors a total of 33,776 and 221,118 non-vested restricted shares, respectively, under the Fiesta Plan. The shares granted to employees vest and become non-forfeitable over a four year vesting period. The shares granted to non-employee directors and a new non-employee director vest and become non-forfeitable over a one year and a five year vesting period, respectively. The weighted average fair value at grant date for these non-vested shares issued during the three and six months ended July 2, 2017 was $21.32 and $20.84 per share, respectively.
During the six months ended July 1, 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. During the three and six months ended July 2, 2017, the Company granted certain executives a total of 92,171 restricted stock units under the Fiesta Plan including 72,290 units vesting over a four year vesting period and 19,881 units vesting over a three year vesting period. The restricted stock units granted to executives in 2018 and 2017 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 six months ended July 1, 2018 and July 2, 2017, 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 92,171 shares, respectively, 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 six months ended July 1, 2018 and July 2, 2017 was $6.96 and $12.13 per share, respectively.
During the six months ended July 2, 2017, the Company granted certain employees a total of 11,745 restricted stock units under the Fiesta Plan. The restricted stock units granted during the six months ended July 2, 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 six months ended July 2, 2017 was $20.75 per share.
Stock-based compensation expense for the three and six months ended July 1, 2018 was $1.0 million and $1.9 million, respectively, and for the three and six months ended July 2, 2017 was $1.2 million and $1.8 million, respectively. At July 1, 2018, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $6.8 million. At July 1, 2018, the remaining weighted average vesting period for non-vested restricted shares was 2.9 years and restricted stock units was 1.6 years.
A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 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/Released
(104,842
)
 
25.63

 
(10,218
)
 
45.67

Forfeited
(17,037
)
 
24.53

 
(12,243
)
 
55.60

Outstanding at July 1, 2018
305,368

 
$
20.61

 
233,654

 
$
12.67


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
6 Months Ended
Jul. 01, 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
July 1, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
95,377

 
$
80,775

 
$

 
$
176,152

Franchise revenue
 
459

 
216

 

 
675

Cost of sales
 
31,482

 
25,207

 

 
56,689

Restaurant wages and related expenses(1)
 
21,549

 
26,128

 

 
47,677

Restaurant rent expense
 
4,335

 
4,505

 

 
8,840

Other restaurant operating expenses
 
12,634

 
12,020

 

 
24,654

Advertising expense
 
3,130

 
2,231

 

 
5,361

General and administrative expense(2)
 
6,923

 
5,897

 

 
12,820

Adjusted EBITDA
 
15,529

 
4,648

 

 
20,177

Depreciation and amortization
 
5,363

 
3,807

 

 
9,170

Capital expenditures
 
4,862

 
7,000

 
258

 
12,120

July 2, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
94,374

 
$
77,631

 
$

 
$
172,005

Franchise revenue
 
427

 
192

 

 
619

Cost of sales
 
28,956

 
21,772

 

 
50,728

Restaurant wages and related expenses(1)
 
21,691

 
24,578

 

 
46,269

Restaurant rent expense
 
4,472

 
4,443

 

 
8,915

Other restaurant operating expenses
 
12,930

 
11,706

 

 
24,636

Advertising expense
 
2,011

 
2,281

 

 
4,292

General and administrative expense(2)
 
10,673

 
8,323

 

 
18,996

Adjusted EBITDA
 
17,139

 
6,982

 

 
24,121

Depreciation and amortization
 
5,435

 
3,161

 

 
8,596

Capital expenditures
 
8,243

 
5,320

 
916

 
14,479


 
Six Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
July 1, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
189,855

 
$
155,130

 
$

 
$
344,985

Franchise revenue
 
923

 
403

 

 
1,326

Cost of sales
 
62,497

 
47,757

 

 
110,254

Restaurant wages and related expenses(1)
 
43,705

 
50,455

 

 
94,160

Restaurant rent expense
 
8,632

 
9,100

 

 
17,732

Other restaurant operating expenses
 
24,749

 
23,355

 

 
48,104

Advertising expense
 
6,446

 
5,128

 

 
11,574

General and administrative expense(2)
 
14,965

 
12,774

 

 
27,739

Adjusted EBITDA
 
29,976

 
7,159

 

 
37,135

Depreciation and amortization
 
10,679

 
7,490

 

 
18,169

Capital expenditures
 
13,035

 
13,911

 
342

 
27,288

July 2, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
193,684

 
$
153,298

 
$

 
$
346,982

Franchise revenue
 
876

 
373

 

 
1,249

Cost of sales
 
58,903

 
42,773

 

 
101,676

Restaurant wages and related expenses(1)
 
45,737

 
48,664

 

 
94,401

Restaurant rent expense
 
9,847

 
8,930

 

 
18,777

Other restaurant operating expenses
 
26,319

 
22,385

 

 
48,704

Advertising expense
 
6,336

 
5,495

 

 
11,831

General and administrative expense(2)
 
19,514

 
15,180

 

 
34,694

Adjusted EBITDA
 
31,861

 
13,476

 

 
45,337

Depreciation and amortization
 
11,518

 
6,264

 

 
17,782

Capital expenditures
 
16,906

 
8,016

 
1,231

 
26,153

Identifiable Assets:
 
 
 
 
 
 
 
 
July 1, 2018
 
$
223,375

 
$
179,170

 
$
20,274

 
$
422,819

December 31, 2017
 
227,194

 
167,237

 
28,882

 
423,313


(1) Includes stock-based compensation expense of $33 and $50 for the three and six months ended July 1, 2018, respectively, and $(74) and $35 for the three and six months ended July 2, 2017, respectively.
(2) Includes stock-based compensation expense of $984 and $1,856 for the three and six months ended July 1, 2018, respectively, and $1,248 and $1,785 for the three and six months ended July 2, 2017, respectively.
A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
July 1, 2018:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
9,493

Provision for income taxes
 
 
 
 
 
3,021

Income before taxes
 
$
10,797

 
$
1,717

 
$
12,514

Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,363

 
3,807

 
9,170

          Impairment and other lease charges
 
685

 
99

 
784

          Interest expense
 
491

 
495

 
986

          Other expense (income), net
 
(1,894
)
 
(1,651
)
 
(3,545
)
          Stock-based compensation expense in restaurant wages
 
14

 
19

 
33

                Total Non-general and administrative expense adjustments
 
4,659

 
2,769

 
7,428

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
584

 
400

 
984

          Board and shareholder matter costs
 
(328
)
 
(269
)
 
(597
)
          Strategic Renewal Plan restructuring costs and retention bonuses
 
(16
)
 
31

 
15

          Legal settlements and related costs
 
(167
)
 

 
(167
)
               Total General and administrative expense adjustments
 
73

 
162

 
235

Adjusted EBITDA:
 
$
15,529

 
$
4,648

 
$
20,177

 
 
 
 
 
 
 
July 2, 2017:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(2,160
)
Benefit from income taxes
 
 
 
 
 
(772
)
Income (loss) before taxes
 
$
(3,502
)
 
$
570

 
$
(2,932
)
Add:
 
 
 
 
 
 
     Non-general and administrative expense adjustments:
 
 
 
 
 
 
          Depreciation and amortization
 
5,435

 
3,161

 
8,596

          Impairment and other lease charges
 
10,536

 
226

 
10,762

          Interest expense
 
295

 
359

 
654

          Other expense (income), net
 
853

 
(55
)
 
798

          Stock-based compensation expense in restaurant wages
 
(45
)
 
(29
)
 
(74
)
          Unused pre-production costs in advertising expense
 

 
88

 
88

                Total Non-general and administrative expense adjustments
 
17,074

 
3,750

 
20,824

     General and administrative expense adjustments:
 
 
 
 
 
 
          Stock-based compensation expense
 
640

 
608

 
1,248

          Terminated capital project
 
7

 
6

 
13

          Board and shareholder matter costs
 
1,767

 
1,332

 
3,099

          Strategic Renewal Plan restructuring costs and retention bonuses
 
1,153

 
716

 
1,869

               Total General and administrative expense adjustments
 
3,567

 
2,662

 
6,229

Adjusted EBITDA:
 
$
17,139

 
$
6,982

 
$
24,121

 
 
 
 
 
 
 

Six Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
July 1, 2018:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
13,677

Provision for income taxes
 
 
 
 
 
4,646

Income (loss) before taxes
 
$
18,925

 
$
(602
)
 
$
18,323

Add
 
 
 
 
 
 
     Non-general and administrative expense adjustments
 
 
 
 
 
 
          Depreciation and amortization
 
10,679

 
7,490

 
18,169

          Impairment and other lease charges
 
144

 
(22
)
 
122

          Interest expense
 
1,019

 
1,036

 
2,055

          Other expense (income), net
 
(1,548
)
 
(1,631
)
 
(3,179
)
          Stock-based compensation expense in restaurant wages
 
19

 
31

 
50

                Total Non-general and administrative expense adjustments
 
10,313

 
6,904

 
17,217

     General and administrative expense adjustments
 
 
 
 
 
 
          Stock-based compensation expense
 
1,051

 
805

 
1,856

          Board and shareholder matter costs
 
(328
)
 
(269
)
 
(597
)
          Strategic Renewal Plan restructuring costs and retention bonuses
 
182

 
321

 
503

          Legal settlements and related costs
 
(167
)
 

 
(167
)
               Total General and administrative expense adjustments
 
738

 
857

 
1,595

Adjusted EBITDA
 
$
29,976

 
$
7,159

 
$
37,135

 
 
 
 
 
 
 
July 2, 2017:
 
 
 
 
 
 
Net loss
 
 
 
 
 
$
(17,220
)
Benefit from income taxes
 
 
 
 
 
(9,414
)
Income (loss) before taxes
 
$
(28,598
)
 
$
1,964

 
$
(26,634
)
Add
 
 
 
 
 
 
     Non-general and administrative expense adjustments
 
 
 
 
 
 
          Depreciation and amortization
 
11,518

 
6,264

 
17,782

          Impairment and other lease charges
 
42,607

 
569

 
43,176

          Interest expense
 
544

 
694

 
1,238

          Other expense (income), net
 
1,050

 
202

 
1,252

          Stock-based compensation expense in restaurant wages
 

 
35

 
35

          Unused pre-production costs in advertising expense
 
322

 
88

 
410

                Total Non-general and administrative expense adjustments
 
56,041

 
7,852

 
63,893

     General and administrative expense adjustments
 
 
 
 
 
 
          Stock-based compensation expense
 
955

 
830

 
1,785

          Terminated capital project
 
484

 
365

 
849

          Board and shareholder matter costs
 
2,225

 
1,678

 
3,903

          Strategic Renewal Plan restructuring costs and retention bonuses
 
1,227

 
787

 
2,014

          Legal settlements and related costs
 
(473
)
 

 
(473
)
               Total General and administrative expense adjustments
 
4,418

 
3,660

 
8,078

Adjusted EBITDA
 
$
31,861

 
$
13,476

 
$
45,337

v3.10.0.1
Net Income (Loss) per Share
6 Months Ended
Jul. 01, 2018
Earnings Per Share [Abstract]  
Net Income (Loss) per Share Net Income (Loss) per Share
The Company computes basic net income (loss) per share by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic net income per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Net income per common share is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if our restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per share by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
Weighted average outstanding restricted stock units totaling 611 and 836 shares were not included in the computation of diluted earnings per share for the three and six months ended July 1, 2018 because including them would have been antidilutive. For the three and six months ended July 2, 2017, all restricted stock units outstanding were excluded from the computation of diluted earnings per share because including them would have been antidilutive as a result of the net loss in these periods.
The computation of basic and diluted net income (loss) per share is as follows:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Basic and diluted net income (loss) per share:
 
 
 
 
 
 
 
Net income (loss)
$
9,493

 
$
(2,160
)
 
$
13,677

 
$
(17,220
)
Less: income allocated to participating securities
113

 

 
148

 

Net income (loss) available to common shareholders
$
9,380

 
$
(2,160
)
 
$
13,529

 
$
(17,220
)
Weighted average common shares, basic
26,916,295

 
26,815,015

 
26,895,302

 
26,794,560

Restricted stock units
3,619

 

 
6,527

 

Weighted average common shares, diluted
26,919,914

 
26,815,015

 
26,901,829

 
26,794,560

 
 
 
 
 
 
 
 
Basic net income (loss) per share
$
0.35

 
$
(0.08
)
 
$
0.50

 
$
(0.64
)
Diluted net income (loss) per share
$
0.35

 
$
(0.08
)
 
$
0.50

 
$
(0.64
)
v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jul. 01, 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 July 1, 2018 was $3.8 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"). Over 40 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. During the second quarter of 2018, the Company received property damage insurance proceeds of $0.4 million related to a Taco Cabana restaurant that suffered flood damages due to Hurricane Harvey. In late June 2018, the Company reached written settlement agreements with an insurance carrier for $2.5 million and $1.0 million for Pollo Tropical and Taco Cabana, respectively, for partial settlement related primarily to business interruption coverage. As a result, the Company recorded the additional expected insurance proceeds in accounts receivable with corresponding increases to other income of $1.8 million and $1.0 million for Pollo Tropical and Taco Cabana, respectively, in the second quarter of 2018. The settlement payments were received in early July 2018. The Company expects to record additional insurance proceeds related to the Hurricanes at the time of final settlement.
v3.10.0.1
Income Taxes
6 Months Ended
Jul. 01, 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 reduces 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 a one-time 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.
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 six months ended July 1, 2018.
v3.10.0.1
Recent Accounting Pronouncements
6 Months Ended
Jul. 01, 2018
Accounting Policies [Abstract]  
Recent Accounting Pronouncements Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The Company is currently evaluating the impact 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 for any future sale-leaseback transactions, the gain,
adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company 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.
v3.10.0.1
Basis of Presentation (Policies)
6 Months Ended
Jul. 01, 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 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 31, 2017 contained 52 weeks. The three and six months ended July 1, 2018 and July 2, 2017 each contained thirteen and twenty-six 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 six months ended July 1, 2018 and July 2, 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 six months ended July 1, 2018 and July 2, 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.
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 our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under 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 1.5 million 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 42,905 shares of its common stock under the program in open market transactions during the six months ended July 1, 2018 for $1.0 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
Net Income per Share The Company computes basic net income (loss) per share by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic net income per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Net income per common share is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.Diluted earnings per share reflects the potential dilution that could occur if our restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per share by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
Recent Accounting Pronouncements Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The Company is currently evaluating the impact 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 for any future sale-leaseback transactions, the gain,
adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company 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.
v3.10.0.1
Prepaid Expenses and Other Current Assets (Tables)
6 Months Ended
Jul. 01, 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:
 
July 1, 2018
 
December 31, 2017
Prepaid contract expenses
$
4,132

 
$
3,681

Assets held for sale(1)

 
2,705

Other
4,160

 
3,719

 
$
8,292

 
$
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)
6 Months Ended
Jul. 01, 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
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Pollo Tropical
$
686

 
$
10,536

 
$
144

 
$
42,607

Taco Cabana
98

 
226

 
(22
)
 
569

 
$
784

 
$
10,762

 
$
122

 
$
43,176

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
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Pollo Tropical
$
686

 
$
10,536

 
$
144

 
$
42,607

Taco Cabana
98

 
226

 
(22
)
 
569

 
$
784

 
$
10,762

 
$
122

 
$
43,176

v3.10.0.1
Other Liabilities (Tables)
6 Months Ended
Jul. 01, 2018
Other Liabilities Disclosure [Abstract]  
Other Liabilities, Current Other liabilities, current, consist of the following:
 
July 1, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
5,107

 
$
5,083

Sales and property taxes
2,045

 
2,279

Accrued occupancy costs
6,095

 
7,813

Other
2,419

 
6,642

 
$
15,666

 
$
21,817

Other Liabilities, Long-term Other liabilities, long-term, consist of the following:
 
July 1, 2018
 
December 31, 2017
Accrued occupancy costs
$
19,271

 
$
20,985

Deferred compensation
791

 
1,029

Accrued workers’ compensation and general liability claims
6,102

 
6,102

Other
3,819

 
3,946

 
$
29,983

 
$
32,062

Activity in the Closed-Store Reserve The following table presents the activity in the closed-restaurant reserve, of which $2.8 million and $5.3 million are included in long-term accrued occupancy costs at July 1, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
 
Six Months Ended July 1, 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
(263
)
 
(1,301
)
Payments, net
(4,149
)
 
(5,528
)
Other adjustments(1)
146

 
6,144

Balance, end of period
$
8,728

 
$
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)
6 Months Ended
Jul. 01, 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 six months ended July 1, 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/Released
(104,842
)
 
25.63

 
(10,218
)
 
45.67

Forfeited
(17,037
)
 
24.53

 
(12,243
)
 
55.60

Outstanding at July 1, 2018
305,368

 
$
20.61

 
233,654

 
$
12.67

Schedule of Restricted Stock Units Activity A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 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/Released
(104,842
)
 
25.63

 
(10,218
)
 
45.67

Forfeited
(17,037
)
 
24.53

 
(12,243
)
 
55.60

Outstanding at July 1, 2018
305,368

 
$
20.61

 
233,654

 
$
12.67

v3.10.0.1
Business Segment Information (Tables)
6 Months Ended
Jul. 01, 2018
Segment Reporting [Abstract]  
Schedule of Segment Reporting Information, by Segment
Three Months Ended
 
Pollo Tropical

 
Taco Cabana

 
Other

 
Consolidated
July 1, 2018:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
95,377

 
$
80,775

 
$