FIESTA RESTAURANT GROUP, INC., 10-K filed on 3/5/2021
Annual Report
v3.20.4
Document and Entity Information - USD ($)
12 Months Ended
Jan. 03, 2021
Feb. 26, 2021
Jun. 28, 2020
Document And Entity Information [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Jan. 03, 2021    
Document Transition Report false    
Entity File Number 001-35373    
Entity Registrant Name FIESTA RESTAURANT GROUP, INC.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 90-0712224    
Entity Address, Address Line One 14800 Landmark Boulevard, Suite 500    
Entity Address, City or Town Dallas    
Entity Address, State or Province TX    
Entity Address, Postal Zip Code 75254    
City Area Code 972    
Local Phone Number 702-9300    
Title of 12(b) Security Common Stock, par value $.01 per share    
Trading Symbol FRGI    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Accelerated Filer    
Entity Small Business true    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 104,660,040
Entity Common Stock, Shares Outstanding   26,283,998  
Documents Incorporated by Reference Portions of the registrant's definitive Proxy Statement for Fiesta Restaurant Group, Inc.'s 2021 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A no later than 120 days after the conclusion of Fiesta Restaurant Group, Inc.'s fiscal year ended January 3, 2021, are incorporated by reference into Part III of this annual report.    
Entity Central Index Key 0001534992    
Current Fiscal Year End Date --01-03    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
v3.20.4
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Jan. 03, 2021
Dec. 29, 2019
Current assets:    
Cash $ 50,035 $ 13,413
Restricted cash 3,584 0
Accounts receivable 8,884 7,933
Inventories 4,205 3,394
Prepaid rent 115 117
Income tax receivable 9,399 3,821
Prepaid expenses and other current assets 7,804 10,605
Total current assets 84,026 39,283
Property and equipment, net 161,081 211,944
Operating lease right-of-use assets 261,304 251,272
Goodwill 56,307 56,307
Other assets 6,025 9,835
Total assets 568,743 568,641
Current liabilities:    
Current portion of long-term debt 1,015 212
Accounts payable 13,339 14,776
Accrued payroll, related taxes and benefits 14,236 9,866
Accrued real estate taxes 6,600 6,497
Other current liabilities 29,719 32,269
Total current liabilities 64,909 63,620
Long-term debt, net of current portion 72,328 76,823
Operating lease liabilities 268,086 256,798
Deferred tax liabilities 4,109 4,759
Other non-current liabilities 11,530 8,405
Total liabilities 420,962 410,405
Commitments and contingencies
Stockholders' equity:    
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued 0 0
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,278,320 and 27,461,697 shares issued, respectively, and 25,293,149 and 25,612,597 shares outstanding, respectively 273 271
Additional paid-in capital 176,614 173,132
Retained earnings (accumulated deficit) (8,327) 1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively (20,779) (17,051)
Total stockholders' equity 147,781 158,236
Total liabilities and stockholders' equity $ 568,743 $ 568,641
v3.20.4
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jan. 03, 2021
Dec. 29, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (usd per share) $ 0.01 $ 0.01
Preferred stock, shares authorized 20,000,000 20,000,000
Preferred stock, shares issued 0 0
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 28,278,320 27,461,697
Common stock, shares outstanding 25,293,149 25,612,597
Treasury stock, shares 1,993,495 1,493,495
v3.20.4
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
12 Months Ended
Jan. 03, 2021
Dec. 29, 2019
Dec. 30, 2018
Revenues:      
Revenues $ 554,803,000 $ 660,943,000 $ 688,597,000
Costs and expenses:      
Cost of sales 170,513,000 207,453,000 218,946,000
Restaurant wages and related expenses (including stock-based compensation expense of $200, $195, and $90, respectively) 149,145,000 179,178,000 188,131,000
Restaurant rent expense 45,361,000 47,805,000 36,034,000
Other restaurant operating expenses 82,180,000 91,897,000 100,828,000
Advertising expense 14,839,000 23,179,000 23,695,000
General and administrative (including stock-based compensation expense of $3,284, $2,649, and $3,379, respectively) 53,077,000 56,195,000 54,525,000
Depreciation and amortization 38,206,000 39,195,000 37,604,000
Pre-opening costs 69,000 972,000 1,716,000
Impairment and other lease charges 9,139,000 13,101,000 21,144,000
Goodwill impairment 0 67,909,000 0
Closed restaurant rent expense, net of sublease income 6,487,000 4,163,000 0
Other expense (income), net (1,697,000) 1,041,000 (3,007,000)
Total operating expenses 567,319,000 732,088,000 679,616,000
Income (loss) from operations (12,516,000) (71,145,000) 8,981,000
Interest expense 4,756,000 3,872,000 3,966,000
Loss on extinguishment of debt 1,241,000 0 0
Income (loss) before income taxes (18,513,000) (75,017,000) 5,015,000
Provision for (benefit from) income taxes (8,302,000) 9,369,000 (2,772,000)
Net income (loss) $ (10,211,000) $ (84,386,000) $ 7,787,000
Earnings (loss) per common share:      
Basic (usd per share) $ (0.40) $ (3.18) $ 0.29
Diluted (usd per share) $ (0.40) $ (3.18) $ 0.29
Weighted average common shares outstanding:      
Basic (in shares) 25,341,415 26,500,356 26,890,577
Diluted (in shares) 25,341,415 26,500,356 26,894,083
Restaurant sales      
Revenues:      
Revenues $ 552,797,000 $ 658,263,000 $ 685,925,000
Franchise royalty revenues and fees      
Revenues:      
Revenues $ 2,006,000 $ 2,680,000 $ 2,672,000
v3.20.4
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Jan. 03, 2021
Dec. 29, 2019
Dec. 30, 2018
Stock-based compensation expense $ 3,500 $ 2,800 $ 3,500
Restaurant Wages And Related Expenses      
Stock-based compensation expense 200 195 90
General and Administrative Expense [Member]      
Stock-based compensation expense $ 3,284 $ 2,649 $ 3,379
v3.20.4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Treasury Stock
Beginning balance at Dec. 31, 2017 $ 231,516   $ 268 $ 166,823 $ 64,425    
Beginning balance (in shares) at Dec. 31, 2017     26,847,458        
Increase (Decrease) in Stockholders' Equity              
Stock-based compensation 3,469     3,469      
Vesting of restricted shares (in shares)     123,888        
Vesting of restricted shares 0   $ 2 (2)      
Purchase of treasury stock (in shares)     (112,358)        
Purchase of treasury stock (2,769)           $ (2,769)
Net income (loss) 7,787       7,787    
Ending balance (in shares) at Dec. 30, 2018     26,858,988        
Ending balance at Dec. 30, 2018 240,059   $ 270 170,290 72,268   (2,769)
Increase (Decrease) in Stockholders' Equity              
Retained earnings (accumulated deficit)   $ 56       $ 56  
Stock-based compensation 2,844     2,844      
Vesting of restricted shares (in shares)     134,746        
Vesting of restricted shares $ (1)   $ 1 (2)      
Purchase of treasury stock (in shares) (1,381,137)   (1,381,137)        
Purchase of treasury stock $ (14,282)           (14,282)
Net income (loss) $ (84,386)       (84,386)    
Ending balance (in shares) at Dec. 29, 2019 25,612,597   25,612,597        
Ending balance at Dec. 29, 2019 $ 158,236   $ 271 173,132 1,884   (17,051)
Increase (Decrease) in Stockholders' Equity              
Retained earnings (accumulated deficit) 1,884 $ 14,002       $ 14,002  
Stock-based compensation 3,484     3,484      
Vesting of restricted shares (in shares)     180,552        
Vesting of restricted shares $ 0   $ 2 (2)      
Purchase of treasury stock (in shares) (500,000)   (500,000)        
Purchase of treasury stock $ (3,728)           (3,728)
Net income (loss) $ (10,211)       (10,211)    
Ending balance (in shares) at Jan. 03, 2021 25,293,149   25,293,149        
Ending balance at Jan. 03, 2021 $ 147,781   $ 273 $ 176,614 $ (8,327)   $ (20,779)
Increase (Decrease) in Stockholders' Equity              
Retained earnings (accumulated deficit) $ (8,327)            
v3.20.4
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Jan. 03, 2021
Dec. 29, 2019
Dec. 30, 2018
Operating activities:      
Net income (loss) $ (10,211,000) $ (84,386,000) $ 7,787,000
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Gain on disposals of property and equipment, net (3,267,000) (6,000) (757,000)
Stock-based compensation 3,484,000 2,844,000 3,469,000
Impairment and other lease charges 9,139,000 13,101,000 21,144,000
Goodwill impairment 0 67,909,000 0
Loss on extinguishment of debt 1,241,000 0 0
Depreciation and amortization 38,206,000 39,195,000 37,604,000
Amortization of deferred financing costs 437,000 270,000 270,000
Amortization of deferred gains from sale-leaseback transactions 0 0 (3,564,000)
Deferred income taxes (650,000) 10,888,000 6,830,000
Changes in other operating assets and liabilities:      
Accounts receivable (951,000) 640,000 805,000
Prepaid expenses and other current assets 340,000 364,000 894,000
Operating lease right-of-use assets 24,213,000 23,780,000 0
Other non-current assets 3,396,000 (1,360,000) (1,491,000)
Accounts payable 1,309,000 504,000 (1,797,000)
Accrued payroll, related taxes and benefits 4,370,000 (220,000) (1,690,000)
Accrued real estate taxes 103,000 626,000 11,000
Other current liabilities (3,396,000) (2,618,000) (10,583,000)
Operating lease liabilities (23,264,000) (19,765,000) 0
Other non-current liabilities 2,166,000 (162,000) 1,358,000
Income tax receivable/payable (5,578,000) 14,036,000 (6,523,000)
Other (815,000) (608,000) 36,000
Net cash provided by operating activities 40,272,000 65,032,000 53,803,000
Capital expenditures:      
New restaurant development (1,863,000) (11,390,000) (21,445,000)
Restaurant remodeling (1,103,000) (2,573,000) (582,000)
Other restaurant capital expenditures (11,270,000) (19,335,000) (27,464,000)
Corporate and restaurant information systems (4,133,000) (7,949,000) (8,359,000)
Total capital expenditures (18,369,000) (41,247,000) (57,850,000)
Proceeds from disposals of properties 9,559,000 1,774,000 4,743,000
Proceeds from sale-leaseback transactions 17,222,000 0 0
Proceeds from insurance recoveries 0 42,000 983,000
Net cash provided by (used in) investing activities 8,412,000 (39,431,000) (52,124,000)
Financing activities:      
Borrowings on revolving credit facility 154,143,000 32,000,000 26,000,000
Repayments on revolving credit facility (229,143,000) (35,000,000) (23,000,000)
Proceeds from Issuance of Unsecured Debt 15,000,000 0 0
Repayments of Unsecured Debt 15,000,000 0 0
Proceeds from Issuance of Secured Debt 73,500,000 0 0
Principal payments on finance/capital leases (237,000) (164,000) (101,000)
Financing costs associated with debt (3,013,000) 0 (150,000)
Payments to purchase treasury stock (3,728,000) (14,282,000) (2,769,000)
Net cash used in financing activities (8,478,000) (17,446,000) (20,000)
Net change in cash and restricted cash 40,206,000 8,155,000 1,659,000
Cash and restricted cash, beginning of year 13,413,000 5,258,000 3,599,000
Cash and restricted cash, end of year $ 53,619,000 $ 13,413,000 $ 5,258,000
v3.20.4
Basis of Presentation
12 Months Ended
Jan. 03, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively "Pollo Tropical") and Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the "Company." At January 3, 2021, the Company owned and operated 138 Pollo Tropical® restaurants and 143 Taco Cabana® restaurants. All of the Company-owned Pollo Tropical restaurants are located in Florida, and all of the Company-owned Taco Cabana restaurants are located in Texas. At January 3, 2021, Fiesta franchised a total of 29 Pollo Tropical restaurants and six Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, two in Panama, one in Guyana, two in Ecuador, one in the Bahamas, and five on college campuses and one at a hospital in Florida. The franchised Taco Cabana restaurants include six in New Mexico.
Basis of Consolidation. The consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Fiscal Year. The Company uses a 52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended December 29, 2019 and December 30, 2018, each contained 52 weeks. The fiscal year ended January 3, 2021 contained 53 weeks.
Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: insurance liabilities, evaluation for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. The Company's current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact through at least the first half of 2021 with the greatest impact in the near term.
Concentrations of Risk. Food and supplies are ordered from approved suppliers and are shipped to the restaurants via distributors. Performance Food Group, Inc. is the primary distributor of food and beverage products and supplies for both Pollo Tropical and Taco Cabana. In the twelve months ended January 3, 2021, and December 29, 2019, Performance Food Group, Inc. accounted for approximately 96% and 85%, respectively, of the food and supplies delivered to restaurants. The Company's limited distributor relationships could have an adverse effect on the Company's operations.
Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Restricted Cash. The Company's restricted cash is comprised of certain cash balances that are reserved as cash collateral for the Company's existing letters of credit.
Inventories. Inventories, primarily consisting of food and paper, are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment. The Company capitalizes all direct costs incurred to construct and substantially improve its restaurants. These costs are depreciated and charged to expense based upon their property classification when placed in service. Property and equipment is recorded at cost. Application development stage costs for significant internally developed software
projects are capitalized and amortized. Repairs and maintenance activities are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements5to30 years
Equipment3to7 years
Computer hardware and software3to7 years
Assets subject to finance leaseShorter of useful life or lease term
Leasehold improvements, including new buildings constructed on leased land, are depreciated over the shorter of their estimated useful lives or the underlying lease term. In circumstances where an economic penalty would be presumed by the non-exercise of one or more renewal options under the lease, the Company includes those renewal option periods when determining the lease term for depreciation purposes. For significant leasehold improvements made during the latter part of the lease term, the Company amortizes those improvements over the shorter of their useful life or an extended lease term. The extended lease term would consider the exercise of renewal options if the value of the improvements would imply that an economic penalty would be incurred without the renewal of the option. For significant leasehold improvements made during the latter part of the lease term prior to the adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASC 842"), this extended term may differ from the lease term used to determine lease assets and liabilities. Building costs incurred for new restaurants on leased land are depreciated over the lease term, which is generally a 20-year period.
Cloud-Based Computing Arrangements. The Company defers and amortizes application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement.
Goodwill. Goodwill represents the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by Carrols Restaurant Group, Inc. ("Carrols"), Fiesta's former parent company, from the acquisition of Pollo Tropical in 1998. Prior to September 29, 2019, goodwill also represented the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by Carrols from the acquisition of Taco Cabana in 2000. Goodwill is not amortized but is assessed for impairment at least annually as of the last day of the fiscal year or more frequently if impairment indicators exist. See Note 4—Goodwill.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 5—Impairment of Long-Lived Assets.
Deferred Financing Costs. Financing costs incurred and the original issue discount recognized in obtaining revolving credit facilities are capitalized and included within other assets on the consolidated balance sheets and are amortized over the life of the related credit facility as interest expense on a straight-line basis. Financing costs incurred and original issue discount recognized in obtaining long-term debt are capitalized and amortized over the term of the associated debt agreement as interest expense using the effective interest method. These financing costs and the original issue discount are presented as a reduction from the carrying amount of the related long-term debt balance on the consolidated balance sheets.
Leases. The Company assesses whether an agreement contains a lease at inception. Subsequent to the adoption of ASC 842, all leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease ROU assets, other current liabilities, and operating lease liabilities on the consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion on the consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties, and subsequent to the adoption of ASC 842, when it incurs
significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component. See Note 7—Leases.
Upon adoption of ASC 842 at the beginning of fiscal year 2019, the Company recognized lease liabilities and corresponding ROU lease assets for substantially all of the leases it previously accounted for as operating leases, including leases related to closed restaurant properties. The initial ROU assets were calculated as the present value of the remaining operating lease payments using the Company's incremental borrowing rate as of December 31, 2018, reduced by accrued occupancy costs such as certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis), unamortized lease incentives and any unamortized sale-leaseback gains that resulted from off-market terms and increased by unamortized lease acquisition costs. Upon the adoption of ASC 842, the Company no longer records closed restaurant lease reserves, and ROU lease assets are reviewed for impairment with the Company's long-lived assets.
The Company elected the practical expedient to combine lease and non-lease components of real estate contracts, which resulted in classification of certain occupancy related expenses that are included in other restaurant operating expenses for periods prior to the adoption of ASC 842 as restaurant rent expenses in the consolidated statement of operations for periods subsequent to the adoption of ASC 842. The Company separately presents rent expense related to its closed restaurant locations and any sublease income related to these closed restaurant locations within closed restaurant rent expense, net of sublease income in the consolidated statement of operations for periods subsequent to the adoption of ASC 842.
The Company recorded an initial adjustment to the opening balance of retained earnings of $14.0 million associated with previously deferred gains on sale-leaseback transactions and impairment of operating lease right-of-use assets as of the date of adoption. This adjustment consisted of $18.6 million in deferred gains on sale-leaseback transactions, net of a related deferred tax asset of $4.3 million and $0.2 million in impairment charges, net of tax. Gains or losses (adjusted for any off-market terms) from sale-leaseback transactions subsequent to the adoption of ASC 842 are recognized immediately.
Income Taxes. Deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse. The deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
Advertising Costs. All advertising costs are expensed as incurred.
Cost of Sales. The Company includes the cost of food, beverage and paper, net of any discounts, in cost of sales. Cost of sales excludes depreciation and amortization expense, which are presented separately on the consolidated statement of operations.
Pre-opening Costs. The Company's pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening and generally include restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense recognized during the construction period.
Insurance. The Company is insured for workers' compensation, general liability and medical insurance claims under policies where it pays all claims, subject to stop-loss limitations both for individual claims and for general liability, medical insurance and certain workers' compensation claims in the aggregate. Losses are accrued based upon estimates of the aggregate liability for claims based on the Company's experience and certain actuarial methods used to measure such estimates. The Company does not discount any of its self-insurance obligations.
 Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date under current market conditions. In determining fair value, the accounting standards establish a three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the consolidated balance sheets of cash and restricted 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 former senior credit facility, which was considered Level 2, was based on current LIBOR rates. The fair value of the Company's former senior credit facility was approximately $75.0 million at December 29, 2019. The carrying value of the Company's former senior credit facility was $75.0 million at December 29, 2019.
Term Loan Borrowings. The fair value of outstanding term loan borrowings under the Company's new 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 $74.4 million at January 3, 2021. The carrying value of Company's new senior credit facility was $71.5 million at January 3, 2021.
See Note 5 for discussion of the fair value measurement of non-financial assets.
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. See Note 11—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.
Loyalty Programs. The Company's loyalty programs for Pollo Tropical (My Pollo™) and Taco Cabana (My TC™) allow eligible customers who enroll in the program to earn points for every dollar spent. After accumulating a certain number of points, the customer earns a reward that can be used for future purchases at the Company's respective restaurants. Earned rewards generally expire 90 days after they are issued, however, certain issued rewards outstanding have expirations up to ten months from January 3, 2021. Earned points that have not been converted to rewards do not currently expire.
The Company defers revenue associated with the estimated standalone selling price of points earned by customers as each point is earned, net of points the Company does not expect to be redeemed. The estimated standalone selling price of each point earned is based on the estimated value of the reward which is expected to be redeemed.
Loyalty revenue is recognized when a customer redeems an earned reward. For unredeemed rewards that the Company expects to be entitled to breakage, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption of the rewards by the customers. The costs associated with rewards are recorded when they are redeemed and are included within cost of sales on the consolidated statements of operations. Deferred revenue associated with the rewards is included within other current liabilities on the consolidated balance sheets.
Guidance Adopted in 2020. In August 2018, the Financial Accounting Standards Board ("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 Company adopted this new accounting standard
as of December 30, 2019 and applied it prospectively to all implementation costs incurred after the date of adoption. The standard did not have a material effect on the Company's financial statements. The Company deferred and amortized application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement in the same line item that the fees associated with the subscription arrangement were presented prior to adoption of the new standard.
Recent Accounting Pronouncements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) ("ASU No. 2019-12"), which is a part of the Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions, the most notable for the Company being the exception to the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss for the full year. The guidance will be effective for interim and annual periods beginning after December 15, 2020. Early adoption is permitted and any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied on a prospective basis. The impact of the standard is largely dependent on interim and anticipated profit or loss in a given period, however the Company does not expect ASU No. 2019-12 to have a significant impact on its financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of March 12, 2020, through December 31, 2022. As of January 3, 2021, the Company's only exposure to LIBOR rates was its new senior credit facility. Upon cessation of the LIBOR, the new senior credit facility will use a benchmark replacement rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company does not expect ASU No. 2020-04 to have a significant impact on its financial statements.
v3.20.4
Prepaid Expenses and Other Current Assets
12 Months Ended
Jan. 03, 2021
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:
January 3, 2021December 29, 2019
Prepaid contract expenses$4,279 $4,410 
Assets held for sale(1)
1,257 4,110 
Other2,268 2,085 
$7,804 $10,605 
(1)     As of January 3, 2021, one closed Taco Cabana restaurant property owned by the Company was classified as held for sale. As of December 29, 2019, one closed Pollo Tropical restaurant property and two closed Taco Cabana restaurant properties owned by the Company were classified as held for sale.
v3.20.4
Property and Equipment
12 Months Ended
Jan. 03, 2021
Property, Plant and Equipment [Abstract]  
Property and Equipment Property and Equipment
Property and equipment consisted of the following:
January 3, 2021December 29, 2019
Land and land improvements$2,162 $21,051 
Owned buildings1,841 13,978 
Leasehold improvements (1)
217,000 212,413 
Equipment212,526 219,610 
Assets subject to finance leases2,733 2,713 
436,262 469,765 
Less accumulated depreciation and amortization(275,181)(257,821)
$161,081 $211,944 
(1)    Leasehold improvements include the cost of new buildings constructed on leased land.
Assets subject to finance leases primarily pertain to buildings leased for certain restaurant locations and fleet vehicles, and had accumulated amortization at January 3, 2021, and December 29, 2019, of $1.6 million and $1.3 million, respectively.
During the year ended January 3, 2021, the Company sold 13 properties, including seven properties as a part of sale-leaseback transactions. The net proceeds of the sales were $26.8 million and resulted in a net gain of $(3.8) million, which is included within other expense (income), net on the consolidated statement of operations.
Depreciation and amortization expense for all property and equipment for the years ended January 3, 2021; December 29, 2019; and December 30, 2018, was $38.2 million, $39.2 million, and $37.6 million, respectively.
v3.20.4
Goodwill
12 Months Ended
Jan. 03, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill Goodwill
The Company is required to review goodwill for impairment annually or more frequently when events and circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment assessment as of the last day of the fiscal year and has determined its reporting units to be its operating segments, Pollo Tropical and Taco Cabana.
There were no changes in goodwill or goodwill impairment losses recorded during the years ended January 3, 2021 and December 30, 2018.
In performing its goodwill impairment test as of December 30, 2018, the Company compared the net book values of its reporting units to their estimated fair values, the latter determined by employing an income-based discounted cash flow analysis approach and a market-based approach, which was corroborated with other value indicators where available, such as comparable company earnings multiples.
As of June 30, 2019, the Company determined that a triggering event had occurred due to a sustained decrease in the market price of the Company's common stock. In response to the triggering event, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units. Fair value for each reporting unit was determined using a combination of the income-based approach and two market-based approaches. Based on the impairment test analysis, the fair value of the Pollo Tropical reporting unit substantially exceeded its carrying amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value, which indicated an impairment of the Taco Cabana reporting unit. Lower than expected profitability and a lower profitability and growth outlook for the Taco Cabana reporting unit reduced its income-based and market-based approach fair value. The Company early adopted ASU 2017-04, which eliminates Step 2 from the goodwill impairment test, and requires recognition of an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, limited to the carrying value of the reporting unit's goodwill. In the second quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $46.5 million, which represented the excess of the reporting unit's carrying value over its fair value at June 30, 2019, and which was not deductible for tax purposes.
In addition, in response to a further decrease in the market price of the Company's common stock and lower than expected profitability in the third quarter of 2019, the Company performed a quantitative impairment test for both the Pollo Tropical and Taco Cabana reporting units as of September 29, 2019. Based on the impairment test analysis, which utilized the same approach used in the second quarter of 2019, the fair value of the Pollo Tropical reporting unit continued to substantially exceed its carrying amount, while the carrying amount for the Taco Cabana reporting unit exceeded its estimated fair value. In the third quarter of 2019, the Company recorded an impairment charge on the goodwill of its Taco Cabana reporting unit of $21.4 million, of which $9.1 million was deductible for tax purposes at the time of acquisition and resulted in an income tax benefit of $2.1 million. The excess of the Taco Cabana reporting unit's carrying value over its fair value was greater than the balance of the reporting unit's goodwill, resulting in a full impairment of the Taco Cabana reporting unit's goodwill.
The Company's annual goodwill impairment assessments as of January 3, 2021, and December 29, 2019, were performed using a qualitative assessment, which included examining key events and circumstances affecting fair value and indicated that it is more likely than not that the Pollo Tropical reporting unit's fair value is greater than its carrying value. There were no changes in goodwill or goodwill impairment losses for the Pollo Tropical reporting unit recorded during the year ended December 29, 2019.
A summary of changes in goodwill during the twelve months ended January 3, 2021, is as follows:
Pollo
Tropical
Taco
Cabana(1)
Total
Balance at December 30, 2018:
Goodwill, gross$56,307 $67,177 $123,484 
Accumulated impairment losses— — — 
Goodwill56,307 67,177 123,484 
Impairment charges(1)
— (67,177)(67,177)
Balance at December 29, 2019:
Goodwill, gross56,307 67,177 123,484 
Accumulated impairment losses(1)
— (67,177)(67,177)
Goodwill56,307 — 56,307 
Balance at January 3, 2021:
Goodwill, gross56,307 67,177 123,484 
Accumulated impairment losses(1)
— (67,177)(67,177)
Goodwill$56,307 $— $56,307 
(1) Impairment charges for the year ended December 29, 2019, and accumulated impairment losses at January 3, 2021 and December 29, 2019, represent the full goodwill balance of the Taco Cabana reporting unit. Impairment charges during the year ended December 29, 2019, include $0.7 million previously classified as an intangible asset and included in other assets.
v3.20.4
Impairment of Long-Lived Assets and Other Lease Charges
12 Months Ended
Jan. 03, 2021
Restructuring and Related Activities [Abstract]  
Impairment of Long-Lived Assets and Other Lease Charges Impairment of Long-Lived Assets and Other Lease ChargesThe Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived asset group's carrying value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. Prior to the adoption of ASC 842 on December 31, 2018, for closed restaurant locations, the Company reviewed 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 recorded a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries.
A summary of impairment on long-lived assets and other lease charges recorded by segment is as follows:
 Year Ended
 January 3, 2021December 29, 2019December 30, 2018
Pollo Tropical$8,023 $15 $13,587 
Taco Cabana1,116 13,086 7,557 
$9,139 $13,101 $21,144 
In December 2018, based on a restaurant portfolio examination, the Company closed 14 Pollo Tropical restaurants and nine Taco Cabana restaurants. The Company also closed two Taco Cabana restaurants in the second quarter of 2018 as a result of the sale of a property and a lease termination, one Taco Cabana restaurant in the fourth quarter of 2019 as a result of a lease termination, and 19 Taco Cabana restaurants in January 2020 as a result of a restaurant portfolio review. Additionally, the Company closed one Pollo Tropical restaurant in the first quarter of 2020 as a result of a lease termination, one Pollo Tropical restaurant and one Taco Cabana restaurant as the result of the sale of a property and two Pollo Tropical restaurants as a result of a limited restaurant portfolio review in the third quarter of 2020, and two Taco Cabana restaurants in the fourth quarter of 2020 as the result of the sale of a property and a lease termination.
Impairment and other lease charges for the twelve months ended January 3, 2021, consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $7.3 million and $1.1 million, respectively, and other lease charges for Pollo Tropical of $0.7 million. Impairment charges in 2020, which also included right-of-use asset impairment, were related primarily to three underperforming Pollo Tropical restaurants, two of which were closed in the third quarter of 2020, as well as two underperforming Taco Cabana restaurants, for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows. Additionally, impairment charges consisted of the write-down of saucing islands and self-service soda machines that were removed from Pollo Tropical dining rooms as a result of COVID-19 and the write-down of assets held for sale to their fair value less costs to sell for Pollo Tropical and Taco Cabana. Other lease charges in 2020 related primarily to lease termination charges of $0.9 million for Pollo Tropical restaurant locations the Company decided not to develop and other lease termination charges of $0.2 million, net of a gain from lease terminations of $(0.4) million.
Impairment and other lease charges for the twelve months ended December 29, 2019, consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $0.8 million and $13.2 million, respectively, and net lease charge recoveries for Pollo Tropical and Taco Cabana restaurants of $(0.8) million and $(0.1) million, respectively. Impairment charges in 2019, which also included right-of-use asset impairment, were related primarily to 19 Taco Cabana restaurants that were subsequently closed in 2020, five of which were initially impaired in prior years, as well as previously closed Pollo Tropical restaurants and other underperforming Taco Cabana restaurants that the Company continued to operate. Net lease charge recoveries in 2019 were related primarily to lease terminations for previously closed restaurants.
Impairment and other lease charges for the twelve months ended December 30, 2018, consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of $13.1 million and $6.0 million, respectively, and lease and other charges for Pollo Tropical and Taco Cabana restaurants (as well as a Taco Cabana office location) of $0.5 million and $1.6 million, respectively, net of recoveries. Impairment charges in 2018 were related primarily to 14 Pollo Tropical restaurants that were closed in 2018, two of which were initially impaired in 2017, nine Taco Cabana restaurants that were closed in 2018, one of which was initially impaired in 2017, and one Pollo Topical restaurant and six Taco Cabana restaurants the Company continued to operate. Other lease charges, net of recoveries, in 2018 were related primarily to restaurants and an office location that were closed in 2018 as well as previously closed restaurants.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. The Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilized current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the twelve months ended January 3, 2021, and December 29, 2019, totaled $2.8 million and $5.8 million, respectively.
v3.20.4
Other Liabilities
12 Months Ended
Jan. 03, 2021
Other Liabilities Disclosure [Abstract]  
Other Liabilities Other Liabilities
Other current liabilities consist of the following:
January 3, 2021December 29, 2019
Operating lease liabilities$19,803 $22,338 
Accrued workers' compensation and general liability claims3,619 4,354 
Sales and property taxes2,347 1,889 
Accrued occupancy costs330 891 
Other3,620 2,797 
$29,719 $32,269 
Other non-current liabilities consist of the following:
January 3, 2021December 29, 2019
Accrued workers' compensation and general liability claims6,791 7,348 
Accrued payroll taxes(1)
3,003 — 
Deferred compensation491 424 
Other1,245 633 
$11,530 $8,405 
(1) Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The following table presents the activity in the closed restaurant reserve, which is included within other current liabilities on the consolidated balance sheets at January 3, 2021 and December 29, 2019.
Year Ended
January 3, 2021December 29, 2019
Balance, beginning of period$752 $8,819 
Payments, net(259)(1,405)
Other adjustments(1)
(275)(6,662)
Balance, end of period$218 $752 
(1)     As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments totaling $6.0 million was reclassified and included as a component of the related ROU assets during the twelve months ended December 29, 2019. The portion of the closed restaurant reserve related to variable ancillary lease costs was not reclassified and was not included as a reduction to ROU assets.
v3.20.4
Leases
12 Months Ended
Jan. 03, 2021
Leases [Abstract]  
Leases Leases The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's leases have remaining lease terms of 0.1 years to 21.4 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
During fiscal 2020, the Company completed seven sale-leaseback transactions with third parties, with transactions for two Pollo Tropical properties occurring in the third quarter of 2020 and transactions for three Pollo Tropical properties and two Taco Cabana properties occurring in the fourth quarter of 2020. The sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The net proceeds of the sales were $17.2 million which resulted in a net gain of $3.0 million which is included within other expense (income), net on the consolidated statement of operations. The leases have initial terms of 20 years plus renewal options and have been accounted for as operating leases.
Lease expense consisted of the following:
Year Ended
January 3, 2021December 29, 2019
Operating lease cost$45,746 $45,414 
Finance lease costs:
Amortization of right-of-use assets$272 $202 
Interest on lease liabilities219 226 
Total finance lease costs$491 $428 
Variable lease costs$12,605 $12,050 
Sublease income(5,300)(4,037)
Total lease costs$53,542 $53,855 
Supplemental balance sheet information related to leases is as follows:
January 3, 2021December 29, 2019
Operating Leases
Operating lease right-of-use assets$261,304 $251,272 
Other current liabilities$19,803 $22,338 
Operating lease liabilities268,086 256,798 
Total operating lease liabilities$287,889 $279,136 
Finance Leases
Property and equipment, gross$2,733 $2,713 
Accumulated amortization(1,599)(1,323)
Property and equipment, net$1,134 $1,390 
Current portion of long-term debt$265 $212 
Long-term debt, net of current portion1,593 1,823 
Total finance lease liabilities$1,858 $2,035 
Weighted Average Remaining Lease Term (in Years)
Operating leases11.612.1
Finance leases6.77.9
Weighted Average Discount Rate
Operating leases7.60 %7.67 %
Finance leases11.89 %12.67 %
Supplemental cash flow information related to leases is as follows:
Year Ended
January 3, 2021December 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$47,232 $41,216 
Operating cash flows for finance leases219 226 
Financing cash flows for finance leases237 164 
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets37,616 12,654 
Finance lease ROU assets33 495 
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets2,726 4,372 
Operating lease liabilities3,188 5,126 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets— 267,743 
Operating lease liabilities— 291,373 
Maturities of lease liabilities were as follows:
Operating LeasesFinance Leases
2021$40,741 $455 
202243,508 484 
202340,578 437 
202437,439 352 
202535,986 293 
Thereafter252,236 713 
Total lease payments450,488 2,734 
Less amount representing interest(162,599)(876)
Total discounted lease liabilities287,889 1,858 
Less current portion(19,803)(265)
Long-term portion of lease liabilities$268,086 $1,593 
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's subleases have remaining sublease terms of 1.3 years to 18.4 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
Operating Leases
2021$5,004 
20224,971 
20234,967 
20245,024 
20255,146 
Thereafter41,798 
Total $66,910 
Total rent expense on operating leases, including contingent rentals, prior to the adoption of ASC 842 was as follows:
Year Ended
December 30, 2018
Minimum rent on real property, excluding rent included in pre-opening costs$35,881 
Additional rent based on percentage of sales153 
Restaurant rent expense36,034 
Rent included in pre-opening costs861 
Administrative and equipment rent850 
$37,745 
Leases Leases The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's leases have remaining lease terms of 0.1 years to 21.4 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
During fiscal 2020, the Company completed seven sale-leaseback transactions with third parties, with transactions for two Pollo Tropical properties occurring in the third quarter of 2020 and transactions for three Pollo Tropical properties and two Taco Cabana properties occurring in the fourth quarter of 2020. The sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The net proceeds of the sales were $17.2 million which resulted in a net gain of $3.0 million which is included within other expense (income), net on the consolidated statement of operations. The leases have initial terms of 20 years plus renewal options and have been accounted for as operating leases.
Lease expense consisted of the following:
Year Ended
January 3, 2021December 29, 2019
Operating lease cost$45,746 $45,414 
Finance lease costs:
Amortization of right-of-use assets$272 $202 
Interest on lease liabilities219 226 
Total finance lease costs$491 $428 
Variable lease costs$12,605 $12,050 
Sublease income(5,300)(4,037)
Total lease costs$53,542 $53,855 
Supplemental balance sheet information related to leases is as follows:
January 3, 2021December 29, 2019
Operating Leases
Operating lease right-of-use assets$261,304 $251,272 
Other current liabilities$19,803 $22,338 
Operating lease liabilities268,086 256,798 
Total operating lease liabilities$287,889 $279,136 
Finance Leases
Property and equipment, gross$2,733 $2,713 
Accumulated amortization(1,599)(1,323)
Property and equipment, net$1,134 $1,390 
Current portion of long-term debt$265 $212 
Long-term debt, net of current portion1,593 1,823 
Total finance lease liabilities$1,858 $2,035 
Weighted Average Remaining Lease Term (in Years)
Operating leases11.612.1
Finance leases6.77.9
Weighted Average Discount Rate
Operating leases7.60 %7.67 %
Finance leases11.89 %12.67 %
Supplemental cash flow information related to leases is as follows:
Year Ended
January 3, 2021December 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$47,232 $41,216 
Operating cash flows for finance leases219 226 
Financing cash flows for finance leases237 164 
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets37,616 12,654 
Finance lease ROU assets33 495 
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets2,726 4,372 
Operating lease liabilities3,188 5,126 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets— 267,743 
Operating lease liabilities— 291,373 
Maturities of lease liabilities were as follows:
Operating LeasesFinance Leases
2021$40,741 $455 
202243,508 484 
202340,578 437 
202437,439 352 
202535,986 293 
Thereafter252,236 713 
Total lease payments450,488 2,734 
Less amount representing interest(162,599)(876)
Total discounted lease liabilities287,889 1,858 
Less current portion(19,803)(265)
Long-term portion of lease liabilities$268,086 $1,593 
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's subleases have remaining sublease terms of 1.3 years to 18.4 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
Operating Leases
2021$5,004 
20224,971 
20234,967 
20245,024 
20255,146 
Thereafter41,798 
Total $66,910 
Total rent expense on operating leases, including contingent rentals, prior to the adoption of ASC 842 was as follows:
Year Ended
December 30, 2018
Minimum rent on real property, excluding rent included in pre-opening costs$35,881 
Additional rent based on percentage of sales153 
Restaurant rent expense36,034 
Rent included in pre-opening costs861 
Administrative and equipment rent850 
$37,745 
Leases Leases The Company utilizes land and buildings in its operations under various operating and finance lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for 20 years and, in many cases, provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's leases have remaining lease terms of 0.1 years to 21.4 years. Some of the Company's leases include options to extend the lease for up to 40 years. Certain leases require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities. Variable lease payments included in rent expense consist of such contingent rent, certain rent payments based on changes in an index and certain occupancy related costs, such as variable common area maintenance expense and property taxes. The Company is not subject to residual value guarantees under any of the lease agreements. Many of the Company's real estate leases contain usage restrictions, but its leases do not contain financial covenants and restrictions.
During fiscal 2020, the Company completed seven sale-leaseback transactions with third parties, with transactions for two Pollo Tropical properties occurring in the third quarter of 2020 and transactions for three Pollo Tropical properties and two Taco Cabana properties occurring in the fourth quarter of 2020. The sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The net proceeds of the sales were $17.2 million which resulted in a net gain of $3.0 million which is included within other expense (income), net on the consolidated statement of operations. The leases have initial terms of 20 years plus renewal options and have been accounted for as operating leases.
Lease expense consisted of the following:
Year Ended
January 3, 2021December 29, 2019
Operating lease cost$45,746 $45,414 
Finance lease costs:
Amortization of right-of-use assets$272 $202 
Interest on lease liabilities219 226 
Total finance lease costs$491 $428 
Variable lease costs$12,605 $12,050 
Sublease income(5,300)(4,037)
Total lease costs$53,542 $53,855 
Supplemental balance sheet information related to leases is as follows:
January 3, 2021December 29, 2019
Operating Leases
Operating lease right-of-use assets$261,304 $251,272 
Other current liabilities$19,803 $22,338 
Operating lease liabilities268,086 256,798 
Total operating lease liabilities$287,889 $279,136 
Finance Leases
Property and equipment, gross$2,733 $2,713 
Accumulated amortization(1,599)(1,323)
Property and equipment, net$1,134 $1,390 
Current portion of long-term debt$265 $212 
Long-term debt, net of current portion1,593 1,823 
Total finance lease liabilities$1,858 $2,035 
Weighted Average Remaining Lease Term (in Years)
Operating leases11.612.1
Finance leases6.77.9
Weighted Average Discount Rate
Operating leases7.60 %7.67 %
Finance leases11.89 %12.67 %
Supplemental cash flow information related to leases is as follows:
Year Ended
January 3, 2021December 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$47,232 $41,216 
Operating cash flows for finance leases219 226 
Financing cash flows for finance leases237 164 
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets37,616 12,654 
Finance lease ROU assets33 495 
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets2,726 4,372 
Operating lease liabilities3,188 5,126 
Operating lease right-of-use assets obtained and liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets— 267,743 
Operating lease liabilities— 291,373 
Maturities of lease liabilities were as follows:
Operating LeasesFinance Leases
2021$40,741 $455 
202243,508 484 
202340,578 437 
202437,439 352 
202535,986 293 
Thereafter252,236 713 
Total lease payments450,488 2,734 
Less amount representing interest(162,599)(876)
Total discounted lease liabilities287,889 1,858 
Less current portion(19,803)(265)
Long-term portion of lease liabilities$268,086 $1,593 
The Company subleases land and buildings related to closed restaurant locations and a closed office location under various operating sublease agreements. Initial sublease terms are generally for the period of time remaining on the head lease term and, in some cases, subleases provide for renewal options and in most cases rent escalations. As of January 3, 2021, the Company's subleases have remaining sublease terms of 1.3 years to 18.4 years. Some of the Company's subleases include options to extend the lease for up to 25 years. Variable lease payments included in sublease income consist of certain occupancy related costs, such as variable common area maintenance expense and property taxes where the Company makes the real estate payment and is reimbursed by the lessee. The sublease agreements do not include residual value guarantees. Consistent with the Company's real estate leases, many of the subleases contain usage restrictions, but its subleases do not contain financial covenants and restrictions.
The undiscounted cash flows to be received under operating subleases were as follows:
Operating Leases
2021$5,004 
20224,971 
20234,967 
20245,024 
20255,146 
Thereafter41,798 
Total $66,910 
Total rent expense on operating leases, including contingent rentals, prior to the adoption of ASC 842 was as follows:
Year Ended
December 30, 2018
Minimum rent on real property, excluding rent included in pre-opening costs$35,881 
Additional rent based on percentage of sales153 
Restaurant rent expense36,034 
Rent included in pre-opening costs861 
Administrative and equipment rent850 
$37,745 
v3.20.4
Long-term Debt
12 Months Ended
Jan. 03, 2021
Debt Disclosure [Abstract]  
Long-term Debt Long-Term Debt
Long-term debt at January 3, 2021 and December 29, 2019, consisted of the following:
January 3, 2021December 29, 2019
Term loan facility$75,000 $— 
Revolving credit facility— 75,000 
Finance leases1,858 2,035 
76,858 77,035 
Less: current portion of long-term debt(1,015)(212)
Less: unamortized discount and debt issuance costs(3,515)— 
$72,328 $76,823 
New Senior Credit Facility. On November 23, 2020, the Company terminated its former senior secured revolving credit facility, referred to as the "former senior credit facility," and entered into a new senior secured credit facility among the Company and the lenders, which is referred to as the "new senior credit facility." The new senior credit facility is comprised of a term loan facility (the "term loan facility") of $75.0 million and a revolving credit facility (the "revolving credit facility") of up to $10.0 million and matures on November 23, 2025. The new senior credit facility also provides for potential incremental
term loan borrowing increases of up to $37.5 million in the aggregate, subject to, among other items, compliance with a minimum Total Leverage Ratio and other terms specified in the new senior credit facility. On January 3, 2021, there were $75.0 million in outstanding borrowings, subject to an original issue discount, under the term loan facility and no borrowings under the revolving credit facility.
Under the new senior credit facility, the Company must repay the unpaid principal amount of the term loan facility quarterly which commences on March 31, 2021, in an amount equal to 0.25% of the aggregate principal amount of the term loan facility on the effective date of the new senior credit facility, resulting in annual mandatory principal repayments of $0.8 million.
The new senior credit facility provides that the Company must maintain minimum Liquidity (as defined in the new senior credit facility) of $20.0 million (the "Liquidity Threshold") until January 3, 2022. The new senior credit facility also provides that the Company is not required to be in compliance with the Total Leverage Ratio under the new senior credit facility until January 3, 2022, or the date in which Liquidity is less than the Liquidity Threshold. The Company will be permitted to exercise equity cure rights with respect to compliance with the Total Leverage Ratio subject to certain restrictions as set forth in the new senior credit facility.
Borrowings under the new senior credit facility bear interest at a rate per annum, at the Company's option, equal to either (all terms as defined in the new senior credit facility):
1)    the Base Rate plus the Applicable Margin of 6.75% with a minimum Base Rate of 2.00%, or
2)    the LIBOR (or Benchmark Replacement) Rate plus the Applicable Margin of 7.75%, with a minimum LIBOR (or Benchmark Replacement) Rate of 1.00%.
In addition, the new senior credit facility requires the Company to pay a commitment fee of 0.50% per annum on the daily amount of the unused portion of the revolving credit facility.
The outstanding borrowings under the revolving credit facility are prepayable without penalty or premium (other than customary breakage costs). The outstanding borrowings under the term loan facility are voluntarily prepayable by the Company, and the new senior credit facility requires that proceeds received when certain prepayment events (as defined in the new senior credit facility) occur must be used to reduce the outstanding revolver and term loan borrowings under the new senior credit facility. Voluntary and mandatory prepayments of the term loan facility are subject to payment of an Applicable Premium as defined under the new senior credit facility.
The Company's new senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of the Company's indebtedness having an outstanding principal amount in excess of $5.0 million which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.
The new senior credit facility contains certain covenants, including, without limitation, those limiting the Company's ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends.
The Company's obligations under the new senior credit facility are secured by all of the Company's and its subsidiaries assets (including a pledge of all of the capital stock and equity interests of our subsidiaries).
Under the new senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the new senior credit facility).
As of January 3, 2021, the Company was in compliance with the financial covenants under its new senior credit facility. At January 3, 2021, $10.0 million was available for borrowing under the revolving credit facility.
At January 3, 2021, principal payments required on borrowings under the new senior credit facility over each of the following five years are as follows:
Term Loan
2021$750 
2022750 
2023750 
2024750 
202572,000 
Total$75,000 
Interest expense on the Company's long-term debt, was $4.7 million, $3.7 million and $3.9 million for the years ended January 3, 2021; December 29, 2019; and December 30, 2018, respectively.
Former Amended Senior Credit Facility. On July 10, 2020, the Company entered into the Second Amendment to Credit Agreement (the former credit agreement as amended, the "former amended senior credit facility") among the Company and a syndicate of lenders. The former amended senior credit facility was scheduled to mature on November 30, 2022. The former amended senior credit facility included adjustments to the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio (each as amended and defined in the former amended senior credit facility) that were more reflective of the then-current sales and profit trends. Until its termination in November 2020, the only applicable financial covenants under the Company's former amended senior credit facility that required compliance were a minimum liquidity covenant and a maximum capital expenditure covenant discussed below. The former amended senior credit facility reduced the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the former amended senior credit facility from $150.0 million to $95.0 million in a phased reduction beginning with a $30.0 million permanent reduction that occurred on July 10, 2020. The former amended senior credit facility was terminated on November 23, 2020 and replaced with the new senior credit facility discussed above.
The former amended senior credit facility provided that the Company was not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio under the former amended senior credit facility from July 10, 2020 through April 3, 2021. The former amended senior credit facility also provided that the Company maintain minimum liquidity (as defined and provided in the former amended senior credit facility, generally unrestricted cash plus available borrowings under the former amended senior credit facility).
Borrowings under the former amended senior credit facility bore interest at a rate per annum, at the Company's option, equal to either (all terms as defined in the former amended senior credit facility):
1)    the Alternate Base Rate plus the Applicable Rate of 4.00% with a minimum Alternate Base Rate of 2.00%, or
2)    the Adjusted LIBOR Rate plus the Applicable Rate of 5.00% with a minimum Adjusted LIBOR Rate of 1.00%.
In addition, the former amended senior credit facility required the Company to pay (i) a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
Former Senior Credit Facility. The former senior credit facility was entered into in November 2017, provided for aggregate revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit) and was scheduled to mature on November 30, 2022. The former senior credit facility also provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the former senior credit facility. The former senior secured credit facility was amended on July 10, 2020 before being terminated on November 23, 2020 and replaced with the new senior credit facility discussed above.
Borrowings under the former senior credit facility bore interest at a per annum rate, at the Company's option, equal to either (all terms as defined in the former senior credit facility agreement):
1)     the Alternate Base Rate plus the applicable margin of 0.75% to 1.50% based on the Company's Adjusted Leverage Ratio, or
2)     the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on the Company's Adjusted Leverage Ratio.
In addition, the former senior credit facility required the Company to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on the Company's Adjusted Leverage Ratio and the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
The Company recognized a loss on extinguishment of debt totaling $1.2 million for unamortized deferred financing costs related to the capacity reduction and termination of its former senior credit facility.
v3.20.4
Income Taxes
12 Months Ended
Jan. 03, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company's income tax provision (benefit) was comprised of the following:
 Year Ended
 January 3, 2021December 29, 2019December 30, 2018
Current:
Federal$(8,320)$(2,347)$(10,378)
Foreign278 336 355 
State390 492 421 
(7,652)(1,519)(9,602)
Deferred:
Federal632 (2,132)6,591 
State(380)(425)297 
252 (2,557)6,888 
Valuation allowance(902)13,445 (58)
$(8,302)$9,369 $(2,772)
Deferred income taxes reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred income tax assets and liabilities at January 3, 2021, and December 29, 2019, were as follows:
January 3, 2021December 29, 2019
Deferred income tax assets:
  Accrued vacation benefits$833 $875 
  Incentive compensation1,564 1,024 
  Other accruals2,460 2,804 
  Operating lease liabilities68,216 65,251 
  Occupancy costs51 175 
  Tax credit carryforwards1,776 1,949 
  Federal net operating loss— 2,770 
  Other2,856 973 
        Gross deferred income tax assets77,756 75,821 
Deferred income tax liabilities:
  Right-of-use operating lease assets(60,860)(58,524)
  Property and equipment depreciation(6,191)(6,509)
  Amortization of other intangibles, net(49)(34)
  Cloud-based software deferred costs(1,083)(990)
  Other(461)(400)
        Gross deferred income tax liabilities(68,644)(66,457)
  Less: Valuation allowance(13,221)(14,123)
Net deferred income tax liabilities$(4,109)$(4,759)
The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all of the tax benefit of its deferred tax assets. The Company evaluates whether its deferred income tax assets are probable of realization on a quarterly basis. In performing this analysis, the Company considers all available positive and negative evidence including historical operating results, the estimated timing of future reversals of existing taxable temporary differences and, when appropriate, estimated future taxable income exclusive of reversing temporary differences and carryforwards. In 2019, the Company determined that it was more likely than not that its deferred tax assets would not be fully realized in future periods and established a valuation allowance of $10.3 million against federal deferred tax assets and $3.2 million against state deferred tax assets. At January 3, 2021, and December 29, 2019, the Company had a valuation allowance of $13.2 million and $14.1 million, respectively, against deferred income tax assets where it was determined to be more likely than not that the deferred income tax assets will not be realized through the reversal of existing deferred tax liabilities. The valuation allowance decreased $0.9 million in 2020 as a result of changes in the Company's deferred tax assets and liabilities and increased $13.4 million in 2019 as a result of establishing a valuation allowance in the fourth quarter of 2019. The Company's ability to utilize deferred income tax assets and estimate future taxable income for federal and state purposes can significantly change based on future events and operating results.
The Company's effective tax rate was 44.8%, (12.5)%, and (55.3)% for the years ended January 3, 2021; December 29, 2019; and December 30, 2018, respectively. A reconciliation of the statutory federal income tax provision (benefit) to the effective tax provision (benefit) was as follows:
Year Ended
January 3, 2021December 29, 2019December 30, 2018
Statutory federal income tax provision (benefit)$(3,888)$(15,753)$1,053 
State income taxes, net of federal benefit49 552 
Change in valuation allowance(902)13,445 (58)
Change in federal income tax rate and tax methods(3,846)(716)(3,977)
Net share-based compensation-tax benefit deficiencies352 235 178 
Non-deductible goodwill— 12,357 — 
Non-deductible expenses139 214 53 
Foreign taxes278 336 355 
Employment tax credits(325)(381)(897)
Foreign tax credits/deductions(241)(71)(75)
Other123 (346)44 
$(8,302)$9,369 $(2,772)
Tax Law Changes. In 2018, in conjunction with a cost segregation study conducted prior to filing its 2017 federal income tax return, the Company changed the depreciation method for certain assets for federal income tax purposes to accelerate tax deductions. Changes in the Company's 2017 federal income tax return from the amounts recorded as of December 31, 2017 were primarily the result of changing the depreciable lives of assets for federal income tax purposes. These changes allowed the Company to record an incremental benefit of $4.0 million during the twelve months ended December 30, 2018.
On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions that allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the 80% taxable income limitation on net operating loss deductions for 2018 through 2020. The CARES Act also includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately. These changes allowed the Company to record an incremental benefit of $3.8 million, which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate as well as reclassifying certain assets as qualified improvement property and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing the Company's 2019 federal income tax return in 2020.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of January 3, 2021, and December 29, 2019, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions.
The Company has deferred tax benefits of $1.3 million related to employment tax credits which, if unutilized after various times beginning in 2038, will have a reduced value of $0.3 million. The Company also has a deferred tax benefit of $0.4 million (for which a valuation allowance has been established) related to a Florida net operating loss carryforward that has no expiration date.
The Company is currently under examination by the Internal Revenue Service for the tax years 2015–2017. It is not currently under examination by any other taxing jurisdictions. The tax years 2013–2020 remain open to examination by the taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of any examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.
v3.20.4
Stockholders' Equity
12 Months Ended
Jan. 03, 2021
Share-based Payment Arrangement [Abstract]  
Stockholders' Equity Stockholders' Equity
Purchase of Treasury Stock
In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 500,000 shares of common stock valued at approximately $3.7 million and 1,381,137 shares of common stock valued at approximately $14.3 million during the twelve months ended January 3, 2021, and December 29, 2019, respectively. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's new senior credit facility prohibits share repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.
Stock-Based Compensation
The Company established the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan") in order to be able to compensate its employees and directors by issuing stock options, stock appreciation rights, or stock awards to them under this plan. The aggregate number of shares of stock authorized for grants or awards under the Fiesta Plan is 3,300,000. As of January 3, 2021, there were 676,853 shares available for future grants or awards under the Fiesta Plan.
During the years ended January 3, 2021; December 29, 2019; and December 30, 2018, the Company granted certain employees, and in 2019 and 2018 a consultant, in the aggregate 422,446, 243,948, and 161,791 non-vested restricted shares, respectively, under the Fiesta Plan. Shares granted to employees during the years ended January 3, 2021; December 29, 2019; and December 30, 2018, vest and become non-forfeitable over a four-year vesting period. The shares granted to the consultant vest over a three-year vesting period. Additionally, during the year ended January 3, 2021, the Company granted certain employees 366,445 non-vested restricted shares that fully vest and become non-forfeitable after two years. The weighted average fair value at the grant date for restricted non-vested shares issued during the years ended January 3, 2021; December 29, 2019; and December 30, 2018, was $9.33 per share, $13.06 per share, and $18.70 per share, respectively.
During the years ended January 3, 2021; December 29, 2019; and December 30, 2018, the Company granted non-employee directors 79,260, 43,054, and 31,146 non-vested restricted shares, respectively, under the Fiesta Plan. The weighted average fair value at the grant date for restricted non-vested shares issued to directors during the twelve months ended January 3, 2021; December 29, 2019; and December 30, 2018, was $8.16 per share, $12.66 per share, and $20.71 per share, respectively. These shares vest and become non-forfeitable over a one-year vesting period, or for certain grants to new directors, over a five-year vesting period.
During the years ended December 29, 2019 and December 30, 2018, the Company also granted certain employees 15,348 and 112,169 restricted stock units, respectively, under the Fiesta Plan subject to continued service requirements and market performance conditions.
During the year ended and December 30, 2018, the Company granted certain executives 112,169 restricted stock units which vest in three tranches over a three-year vesting period subject to continued service and attainment of specified share price of the Company's common stock. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. The number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 112,169 shares, if the service and market performance conditions are met in the third year. The weighted average fair value at grant date for the restricted stock units granted to executives in the year ended December 30, 2018 was $6.96 per share.
During the year ended December 29, 2019, the Company granted a certain executive 15,348 restricted stock units, which vest in two tranches over a two-year vesting period subject to continued service and attainment of specified share price of the Company's common stock. Each tranche vests by the end of a one-year period if the specified target stock price condition for that year is met. If the specified target stock price condition for the first tranche is not met for the year, the cumulative unearned units will be rolled over to the subsequent tranche. 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 15,348 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 in the year ended December 29, 2019 was $1.76 per share.
Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable requisite service period of the award (the vesting period) using the straight-line method, or for restricted stock units subject to market performance conditions using the accelerated method. Stock-based compensation expense for the years ended January 3, 2021; December 29, 2019; and December 30, 2018, was $3.5 million, $2.8 million, and $3.5 million, respectively. As of January 3, 2021, the total unrecognized stock-based compensation expense related to non-vested shares and restricted stock units was approximately $7.9 million. At January 3, 2021, the remaining weighted average vesting period for non-vested restricted shares was 2.3 years and restricted stock units was 0.2 years.
A summary of all non-vested restricted shares and restricted stock units activity for the year ended January 3, 2021, is as follows:
Non-Vested SharesRestricted Stock Units
 Shares Weighted Average Grant Date
Fair Value
UnitsWeighted Average Grant Date
Fair Value
Outstanding at December 29, 2019355,605 $15.47 176,362 $9.42 
Granted868,151 9.22 — — 
Vested/Released(179,805)15.22 (747)32.44 
Forfeited(52,275)11.86 (25,030)8.33 
Outstanding at January 3, 2021991,676  $10.26 150,585  $9.49 
The fair value of the non-vested restricted shares and all other restricted stock units is based on the closing price on the date of grant. The fair value of the restricted stock units subject to market conditions was estimated using the Monte Carlo simulation method. The assumptions used to value grant restricted stock units subject to market conditions are detailed below:
20192018
Non-CEO GrantNon-CEO Grant
Grant date stock price$14.66 $18.70 
Fair value at grant date$1.76 $6.96 
Risk free interest rate2.53 %2.40 %
Expected term (in years)23
Dividend yield— %— %
Expected volatility43.18 %41.49 %
The fair value of the shares vested and released during the years ended January 3, 2021; December 29, 2019; and December 30, 2018, was $1.2 million, $1.8 million, and $2.5 million, respectively.
v3.20.4
Business Segment Information
12 Months Ended
Jan. 03, 2021
Segment Reporting [Abstract]  
Business Segment Information Business Segment Information
The Company owns, operates and franchises two restaurant brands, Pollo Tropical® and Taco Cabana®, each of which is an operating segment. Pollo Tropical restaurants feature fire-grilled and crispy citrus marinated chicken and other freshly prepared tropical-inspired menu items, while Taco Cabana restaurants specialize in Mexican-inspired food.
Each segment's accounting policies are the same as those described in the summary of significant accounting policies in Note 1. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below. The Company has included the presentation of Adjusted EBITDA for all periods presented.
The "Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, and a current income tax receivable.
Year EndedPollo TropicalTaco CabanaOtherConsolidated
January 3, 2021:
Restaurant sales$314,112 $238,685 $— $552,797 
Franchise revenue1,246 760 — 2,006 
Cost of sales100,080 70,433 — 170,513 
Restaurant wages and related expenses(1)
74,328 74,817 — 149,145 
Restaurant rent expense22,773 22,588 — 45,361 
Other restaurant operating expenses47,354 34,826 — 82,180 
Advertising expense8,384 6,455 — 14,839 
General and administrative expense(2)
28,622 24,455 — 53,077 
Adjusted EBITDA36,517 8,463 — 44,980 
Depreciation and amortization21,112 17,094 — 38,206 
Capital expenditures9,163 7,214 1,992 18,369 
December 29, 2019:
Restaurant sales$361,693 $296,570 $— $658,263 
Franchise revenue1,780 900 — 2,680 
Cost of sales115,119 92,334 — 207,453 
Restaurant wages and related expenses(1)
84,909 94,269 — 179,178 
Restaurant rent expense22,050 25,755 — 47,805 
Other restaurant operating expenses49,768 42,129 — 91,897 
Advertising expense12,358 10,821 — 23,179 
General and administrative expense(2)
31,023 25,172 — 56,195 
Adjusted EBITDA50,560 7,889 — 58,449 
Depreciation and amortization21,476 17,719 — 39,195