ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 90-0712224 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
14800 Landmark Boulevard, Suite 500 Dallas, Texas | 75254 |
(Address of principal executive office) | (Zip Code) |
Large accelerated filer | ý | Accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if smaller reporting company) | ||
Smaller reporting company | ¨ | ||
Emerging growth company | ¨ |
Page | ||
PART I FINANCIAL INFORMATION | ||
Item 1 | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 1 | ||
Item 1A | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 5 | ||
Item 6 |
July 1, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash | $ | $ | |||||
Accounts receivable | |||||||
Inventories | |||||||
Prepaid rent | |||||||
Income tax receivable | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property and equipment, net | |||||||
Goodwill | |||||||
Deferred income taxes | |||||||
Other assets | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | $ | |||||
Accounts payable | |||||||
Accrued payroll, related taxes and benefits | |||||||
Accrued real estate taxes | |||||||
Other liabilities | |||||||
Total current liabilities | |||||||
Long-term debt, net of current portion | |||||||
Deferred income—sale-leaseback of real estate | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Common stock, par value $.01; authorized 100,000,000 shares, issued 27,267,752 and 27,086,958 shares, respectively, and outstanding 26,919,479 and 26,847,458 shares, respectively. | |||||||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Treasury stock, at cost; 42,905 shares | ( | ) | |||||
Total stockholders' equity | |||||||
Total liabilities and stockholders' equity | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
Revenues: | July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | |||||||||||
Restaurant sales | $ | $ | $ | $ | |||||||||||
Franchise royalty revenues and fees | |||||||||||||||
Total revenues | |||||||||||||||
Costs and expenses: | |||||||||||||||
Cost of sales | |||||||||||||||
Restaurant wages and related expenses (including stock-based compensation expense of $33, ($74), $50 and $35, respectively) | |||||||||||||||
Restaurant rent expense | |||||||||||||||
Other restaurant operating expenses | |||||||||||||||
Advertising expense | |||||||||||||||
General and administrative (including stock-based compensation expense of $984, $1,248, $1,856 and $1,785, respectively) | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Pre-opening costs | |||||||||||||||
Impairment and other lease charges | |||||||||||||||
Other expense (income), net | ( | ) | ( | ) | |||||||||||
Total operating expenses | |||||||||||||||
Income (loss) from operations | ( | ) | ( | ) | |||||||||||
Interest expense | |||||||||||||||
Income (loss) before income taxes | ( | ) | ( | ) | |||||||||||
Provision for (benefit from) income taxes | ( | ) | ( | ) | |||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Basic net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Diluted net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Basic weighted average common shares outstanding | |||||||||||||||
Diluted weighted average common shares outstanding |
Number of Common Stock Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders' Equity | |||||||||||||||||
Balance at January 1, 2017 | $ | $ | $ | $ | — | $ | ||||||||||||||||
Stock-based compensation | — | — | — | — | ||||||||||||||||||
Vesting of restricted shares | — | — | ||||||||||||||||||||
Cumulative effect of adopting a new accounting standard | — | — | ( | ) | — | |||||||||||||||||
Net loss | — | — | — | ( | ) | — | ( | ) | ||||||||||||||
Balance at July 2, 2017 | $ | $ | $ | $ | — | $ | ||||||||||||||||
Balance at December 31, 2017 | $ | $ | $ | $ | — | $ | ||||||||||||||||
Stock-based compensation | — | — | — | — | ||||||||||||||||||
Vesting of restricted shares | ( | ) | — | — | ||||||||||||||||||
Cumulative effect of adopting a new accounting standard (Note 1) | — | — | — | — | ||||||||||||||||||
Purchase of treasury stock | ( | ) | — | — | — | ( | ) | ( | ) | |||||||||||||
Net income | — | — | — | — | ||||||||||||||||||
Balance at July 1, 2018 | $ | $ | $ | $ | ( | ) | $ |
Six Months Ended | |||||||
July 1, 2018 | July 2, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | $ | ( | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
(Gain) loss on disposals of property and equipment | ( | ) | |||||
Stock-based compensation | |||||||
Impairment and other lease charges | |||||||
Depreciation and amortization | |||||||
Amortization of deferred financing costs | |||||||
Amortization of deferred gains from sale-leaseback transactions | ( | ) | ( | ) | |||
Deferred income taxes | ( | ) | |||||
Changes in other operating assets and liabilities | ( | ) | |||||
Net cash provided by operating activities | |||||||
Cash flows from investing activities: | |||||||
Capital expenditures: | |||||||
New restaurant development | ( | ) | ( | ) | |||
Restaurant remodeling | ( | ) | ( | ) | |||
Other restaurant capital expenditures | ( | ) | ( | ) | |||
Corporate and restaurant information systems | ( | ) | ( | ) | |||
Total capital expenditures | ( | ) | ( | ) | |||
Proceeds from disposals of properties | |||||||
Proceeds from insurance recoveries | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities: | |||||||
Borrowings on revolving credit facility | |||||||
Repayments on revolving credit facility | ( | ) | ( | ) | |||
Principal payments on capital leases | ( | ) | ( | ) | |||
Financing costs associated with issuance of debt | ( | ) | |||||
Payments to purchase treasury stock | ( | ) | |||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Net increase in cash | |||||||
Cash, beginning of period | |||||||
Cash, end of period | $ | $ | |||||
Supplemental disclosures: | |||||||
Interest paid on long-term debt | $ | $ | |||||
Interest paid on lease financing obligations | |||||||
Accruals for capital expenditures | |||||||
Income tax payments (refunds), net | ( | ) | |||||
Capital lease obligations incurred |
• | Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments. |
• |
July 1, 2018 | December 31, 2017 | ||||||
Prepaid contract expenses | $ | $ | |||||
Assets held for sale(1) | |||||||
Other | |||||||
$ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | ||||||||||||
Pollo Tropical | $ | $ | $ | $ | |||||||||||
Taco Cabana | ( | ) | |||||||||||||
$ | $ | $ | $ |
July 1, 2018 | December 31, 2017 | ||||||
Accrued workers' compensation and general liability claims | $ | $ | |||||
Sales and property taxes | |||||||
Accrued occupancy costs | |||||||
Other | |||||||
$ | $ |
July 1, 2018 | December 31, 2017 | ||||||
Accrued occupancy costs | $ | $ | |||||
Deferred compensation | |||||||
Accrued workers’ compensation and general liability claims | |||||||
Other | |||||||
$ | $ |
Six Months Ended July 1, 2018 | Year Ended December 31, 2017 | ||||||
Balance, beginning of period | $ | $ | |||||
Provisions for restaurant closures | |||||||
Additional lease charges (recoveries), net | ( | ) | ( | ) | |||
Payments, net | ( | ) | ( | ) | |||
Other adjustments(1) | |||||||
Balance, end of period | $ | $ |
Non-Vested Shares | Restricted Stock Units | ||||||||||||
Shares | Weighted Average Grant Date Fair Value | Units | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding at December 31, 2017 | $ | $ | |||||||||||
Granted | |||||||||||||
Vested/Released | ( | ) | ( | ) | |||||||||
Forfeited | ( | ) | ( | ) | |||||||||
Outstanding at July 1, 2018 | $ | $ |
Three Months Ended | Pollo Tropical | Taco Cabana | Other | Consolidated | ||||||||||||
July 1, 2018: | ||||||||||||||||
Restaurant sales | $ | $ | $ | $ | ||||||||||||
Franchise revenue | ||||||||||||||||
Cost of sales | ||||||||||||||||
Restaurant wages and related expenses(1) | ||||||||||||||||
Restaurant rent expense | ||||||||||||||||
Other restaurant operating expenses | ||||||||||||||||
Advertising expense | ||||||||||||||||
General and administrative expense(2) | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
Capital expenditures | ||||||||||||||||
July 2, 2017: | ||||||||||||||||
Restaurant sales | $ | $ | $ | $ | ||||||||||||
Franchise revenue | ||||||||||||||||
Cost of sales | ||||||||||||||||
Restaurant wages and related expenses(1) | ||||||||||||||||
Restaurant rent expense | ||||||||||||||||
Other restaurant operating expenses | ||||||||||||||||
Advertising expense | ||||||||||||||||
General and administrative expense(2) | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
Capital expenditures |
Six Months Ended | Pollo Tropical | Taco Cabana | Other | Consolidated | ||||||||||||
July 1, 2018: | ||||||||||||||||
Restaurant sales | $ | $ | $ | $ | ||||||||||||
Franchise revenue | ||||||||||||||||
Cost of sales | ||||||||||||||||
Restaurant wages and related expenses(1) | ||||||||||||||||
Restaurant rent expense | ||||||||||||||||
Other restaurant operating expenses | ||||||||||||||||
Advertising expense | ||||||||||||||||
General and administrative expense(2) | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
Capital expenditures | ||||||||||||||||
July 2, 2017: | ||||||||||||||||
Restaurant sales | $ | $ | $ | $ | ||||||||||||
Franchise revenue | ||||||||||||||||
Cost of sales | ||||||||||||||||
Restaurant wages and related expenses(1) | ||||||||||||||||
Restaurant rent expense | ||||||||||||||||
Other restaurant operating expenses | ||||||||||||||||
Advertising expense | ||||||||||||||||
General and administrative expense(2) | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||
Depreciation and amortization | ||||||||||||||||
Capital expenditures | ||||||||||||||||
Identifiable Assets: | ||||||||||||||||
July 1, 2018 | $ | $ | $ | $ | ||||||||||||
December 31, 2017 |
Three Months Ended | Pollo Tropical | Taco Cabana | Consolidated | |||||||||
July 1, 2018: | ||||||||||||
Net income | $ | |||||||||||
Provision for income taxes | ||||||||||||
Income before taxes | $ | $ | $ | |||||||||
Add: | ||||||||||||
Non-general and administrative expense adjustments: | ||||||||||||
Depreciation and amortization | ||||||||||||
Impairment and other lease charges | ||||||||||||
Interest expense | ||||||||||||
Other expense (income), net | ( | ) | ( | ) | ( | ) | ||||||
Stock-based compensation expense in restaurant wages | ||||||||||||
Total Non-general and administrative expense adjustments | ||||||||||||
General and administrative expense adjustments: | ||||||||||||
Stock-based compensation expense | ||||||||||||
Board and shareholder matter costs | ( | ) | ( | ) | ( | ) | ||||||
Strategic Renewal Plan restructuring costs and retention bonuses | ( | ) | ||||||||||
Legal settlements and related costs | ( | ) | ( | ) | ||||||||
Total General and administrative expense adjustments | ||||||||||||
Adjusted EBITDA: | $ | $ | $ | |||||||||
July 2, 2017: | ||||||||||||
Net loss | $ | ( | ) | |||||||||
Benefit from income taxes | ( | ) | ||||||||||
Income (loss) before taxes | $ | ( | ) | $ | $ | ( | ) | |||||
Add: | ||||||||||||
Non-general and administrative expense adjustments: | ||||||||||||
Depreciation and amortization | ||||||||||||
Impairment and other lease charges | ||||||||||||
Interest expense | ||||||||||||
Other expense (income), net | ( | ) | ||||||||||
Stock-based compensation expense in restaurant wages | ( | ) | ( | ) | ( | ) | ||||||
Unused pre-production costs in advertising expense | ||||||||||||
Total Non-general and administrative expense adjustments | ||||||||||||
General and administrative expense adjustments: | ||||||||||||
Stock-based compensation expense | ||||||||||||
Terminated capital project | ||||||||||||
Board and shareholder matter costs | ||||||||||||
Strategic Renewal Plan restructuring costs and retention bonuses | ||||||||||||
Total General and administrative expense adjustments | ||||||||||||
Adjusted EBITDA: | $ | $ | $ | |||||||||
Six Months Ended | Pollo Tropical | Taco Cabana | Consolidated | |||||||||
July 1, 2018: | ||||||||||||
Net income | $ | |||||||||||
Provision for income taxes | ||||||||||||
Income (loss) before taxes | $ | $ | ( | ) | $ | |||||||
Add | ||||||||||||
Non-general and administrative expense adjustments | ||||||||||||
Depreciation and amortization | ||||||||||||
Impairment and other lease charges | ( | ) | ||||||||||
Interest expense | ||||||||||||
Other expense (income), net | ( | ) | ( | ) | ( | ) | ||||||
Stock-based compensation expense in restaurant wages | ||||||||||||
Total Non-general and administrative expense adjustments | ||||||||||||
General and administrative expense adjustments | ||||||||||||
Stock-based compensation expense | ||||||||||||
Board and shareholder matter costs | ( | ) | ( | ) | ( | ) | ||||||
Strategic Renewal Plan restructuring costs and retention bonuses | ||||||||||||
Legal settlements and related costs | ( | ) | ( | ) | ||||||||
Total General and administrative expense adjustments | ||||||||||||
Adjusted EBITDA | $ | $ | $ | |||||||||
July 2, 2017: | ||||||||||||
Net loss | $ | ( | ) | |||||||||
Benefit from income taxes | ( | ) | ||||||||||
Income (loss) before taxes | $ | ( | ) | $ | $ | ( | ) | |||||
Add | ||||||||||||
Non-general and administrative expense adjustments | ||||||||||||
Depreciation and amortization | ||||||||||||
Impairment and other lease charges | ||||||||||||
Interest expense | ||||||||||||
Other expense (income), net | ||||||||||||
Stock-based compensation expense in restaurant wages | ||||||||||||
Unused pre-production costs in advertising expense | ||||||||||||
Total Non-general and administrative expense adjustments | ||||||||||||
General and administrative expense adjustments | ||||||||||||
Stock-based compensation expense | ||||||||||||
Terminated capital project | ||||||||||||
Board and shareholder matter costs | ||||||||||||
Strategic Renewal Plan restructuring costs and retention bonuses | ||||||||||||
Legal settlements and related costs | ( | ) | ( | ) | ||||||||
Total General and administrative expense adjustments | ||||||||||||
Adjusted EBITDA | $ | $ | $ |
Three Months Ended | Six Months Ended | ||||||||||||||
July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | ||||||||||||
Basic and diluted net income (loss) per share: | |||||||||||||||
Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Less: income allocated to participating securities | |||||||||||||||
Net income (loss) available to common shareholders | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Weighted average common shares, basic | |||||||||||||||
Restricted stock units | |||||||||||||||
Weighted average common shares, diluted | |||||||||||||||
Basic net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) | |||||||
Diluted net income (loss) per share | $ | $ | ( | ) | $ | $ | ( | ) |
• | We recognized net income of $9.5 million in the second quarter of 2018, or $0.35 per diluted share, compared to a net loss of $(2.2) million, or $(0.08) per diluted share in the second quarter of 2017, due primarily to a decrease in impairment and other lease charges from $10.8 million in the second quarter of 2017 to $0.8 million in the second quarter of 2018, and $2.8 million in insurance recoveries related to Hurricanes Harvey and Irma (the "Hurricanes"), and total gains of $1.1 million on the sales of two restaurant properties in the second quarter of 2018. In addition, growth in comparable restaurant sales at both brands and lower general and administrative expenses positively contributed to the increase in net income in the second quarter of 2018. The positive impact was partially offset by higher advertising expenses for Pollo Tropical as a result of the reduction of advertising in 2017 during the early stages of the Strategic Renewal Plan, and higher cost of sales at both brands in part attributable to the initiatives under the Strategic Renewal Plan to improve the guest experience. |
• | Total revenues increased 2.4% in the second quarter of 2018 to $176.8 million compared to $172.6 million in the second quarter of 2017, driven primarily by an increase in comparable restaurant sales at both brands, partially offset by the impact of closing underperforming restaurants in 2017. Comparable restaurant sales increased 3.4% for our Pollo Tropical restaurants resulting primarily from an increase in average check of 4.4% partially offset by a decrease in comparable restaurant transactions of 1.0%. Comparable restaurant sales increased 3.1% for our Taco Cabana restaurants resulting primarily from an increase in average check of 10.2% partially offset by a decrease in comparable restaurant transactions of 7.1%. |
• | Consolidated Adjusted EBITDA decreased $3.9 million in the second quarter of 2018 to $20.2 million compared to $24.1 million in the second quarter of 2017, driven primarily by higher costs associated with the Strategic Renewal Plan to improve the guest experience and higher advertising expense at Pollo Tropical, partially offset by higher comparable restaurant sales at both brands. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures". |
• | During the second quarter of 2018, we opened four Pollo Tropical restaurants in Florida and six Taco Cabana restaurants in Texas, four of which were converted from closed Pollo Tropical locations. We closed two Taco Cabana restaurants during the second quarter of 2018 when we opened new Taco Cabana restaurants in superior sites in the same trade areas. During the second quarter of 2017, we opened three Pollo Tropical restaurants and two Taco Cabana restaurants, and closed 30 Pollo Tropical restaurants. |
Pollo Tropical | Taco Cabana | ||||||||||||||||
Owned | Franchised | Total | Owned | Franchised | Total | ||||||||||||
December 31, 2017 | 146 | 31 | 177 | 166 | 7 | 173 | |||||||||||
New | — | — | — | — | — | — | |||||||||||
Closed | — | — | — | — | — | — | |||||||||||
April 1, 2018 | 146 | 31 | 177 | 166 | 7 | 173 | |||||||||||
New | 4 | 4 | 6 | 1 | 7 | ||||||||||||
Closed | — | (1 | ) | (1 | ) | (2 | ) | — | (2 | ) | |||||||
July 1, 2018 | 150 | 30 | 180 | 170 | 8 | 178 | |||||||||||
January 1, 2017 | 177 | 35 | 212 | 166 | 7 | 173 | |||||||||||
New | 3 | 2 | 5 | 1 | — | 1 | |||||||||||
Closed | — | (3 | ) | (3 | ) | — | — | — | |||||||||
April 2, 2017 | 180 | 34 | 214 | 167 | 7 | 174 | |||||||||||
New | 3 | 1 | 4 | 2 | — | 2 | |||||||||||
Closed | (30 | ) | (3 | ) | (33 | ) | — | — | — | ||||||||
July 2, 2017 | 153 | 32 | 185 | 169 | 7 | 176 |
Three Months Ended | |||||||||||||||||
July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | ||||||||||||
Pollo Tropical | Taco Cabana | Consolidated | |||||||||||||||
Restaurant sales: | |||||||||||||||||
Pollo Tropical | 54.1 | % | 54.9 | % | |||||||||||||
Taco Cabana | 45.9 | % | 45.1 | % | |||||||||||||
Consolidated restaurant sales | 100.0 | % | 100.0 | % | |||||||||||||
Costs and expenses: | |||||||||||||||||
Cost of sales | 33.0 | % | 30.7 | % | 31.2 | % | 28.0 | % | 32.2 | % | 29.5 | % | |||||
Restaurant wages and related expenses | 22.6 | % | 23.0 | % | 32.3 | % | 31.7 | % | 27.1 | % | 26.9 | % | |||||
Restaurant rent expense | 4.5 | % | 4.7 | % | 5.6 | % | 5.7 | % | 5.0 | % | 5.2 | % | |||||
Other restaurant operating expenses | 13.2 | % | 13.7 | % | 14.9 | % | 15.1 | % | 14.0 | % | 14.3 | % | |||||
Advertising expense | 3.3 | % | 2.1 | % | 2.8 | % | 2.9 | % | 3.0 | % | 2.5 | % | |||||
Pre-opening costs | 0.4 | % | 0.5 | % | 0.7 | % | 0.6 | % | 0.5 | % | 0.5 | % |
Pollo Tropical: | |||
Increase in comparable restaurant sales | $ | 2.9 | |
Decrease in sales related to closed restaurants, net of new restaurants | (1.9 | ) | |
Total increase | $ | 1.0 | |
Taco Cabana: | |||
Increase in comparable restaurant sales | $ | 2.3 | |
Incremental sales related to new restaurants, net of closed restaurants | 0.8 | ||
Total increase | $ | 3.1 |
Pollo Tropical: | ||
Cost of sales(1): | ||
Menu offering improvement and higher commodity costs | 2.9 | % |
Sales mix | 0.4 | % |
Operating inefficiency | 0.6 | % |
Menu price increases | (1.5 | )% |
Other | (0.1 | )% |
Net increase in cost of sales as a percentage of restaurant sales | 2.3 | % |
Restaurant wages and related expenses: | ||
Lower labor costs due to restaurant closures, net of new restaurants | (0.8 | )% |
Lower workers compensation costs | (0.5 | )% |
Higher labor costs for comparable restaurants(1)(2) | 0.7 | % |
Higher incentive bonus | 0.3 | % |
Other | (0.1 | )% |
Net decrease in restaurant wages and related costs as a percentage of restaurant sales | (0.4 | )% |
Other operating expenses: | ||
Higher repair and maintenance(1) | 0.6 | % |
Lower insurance costs | (0.3 | )% |
Lower utility costs(3) | (0.2 | )% |
Lower real estate taxes | (0.2 | )% |
Other | (0.4 | )% |
Net decrease in other restaurant operating expenses as a percentage of restaurant sales | (0.5 | )% |
Advertising expense: | ||
Increased advertising | 1.2 | % |
Net increase in advertising expense as a percentage of restaurant sales | 1.2 | % |
Pre-opening costs: | ||
Decrease in the number of restaurant openings | (0.1 | )% |
Net decrease in pre-opening costs as a percentage of restaurant sales | (0.1 | )% |
Taco Cabana: | ||
Cost of sales(1): | ||
Menu offering improvement and higher commodity costs | 4.5 | % |
Operating inefficiency | 1.2 | % |
Lower promotions and discounts | (0.3 | )% |
Menu price increases | (2.1 | )% |
Other | (0.1 | )% |
Net increase in cost of sales as a percentage of restaurant sales | 3.2 | % |
Restaurant wages and related expenses: | ||
Higher incentive bonus | 0.5 | % |
Other | 0.1 | % |
Net increase in restaurant wages and related costs as a percentage of restaurant sales | 0.6 | % |
Other operating expenses: | ||
Lower insurance costs | (0.3 | )% |
Lower utility costs(2) | (0.2 | )% |
Lower real estate taxes(2) | (0.2 | )% |
Higher repair and maintenance(1) | 0.2 | % |
Other | 0.3 | % |
Net decrease in other restaurant operating expenses as a percentage of restaurant sales | (0.2 | )% |
Advertising expense: | ||
Reduced advertising(2) | (0.1 | )% |
Net decrease in advertising expense as a percentage of restaurant sales | (0.1 | )% |
Pre-opening costs: | ||
Increase in the number of restaurant openings | 0.1 | % |
Net increase in pre-opening costs as a percentage of restaurant sales | 0.1 | % |
Six Months Ended | |||||||||||||||||
July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | ||||||||||||
Pollo Tropical | Taco Cabana | Consolidated | |||||||||||||||
Restaurant sales: | |||||||||||||||||
Pollo Tropical | 55.0 | % | 55.8 | % | |||||||||||||
Taco Cabana | 45.0 | % | 44.2 | % | |||||||||||||
Consolidated restaurant sales | 100.0 | % | 100.0 | % | |||||||||||||
Costs and expenses: | |||||||||||||||||
Cost of sales | 32.9 | % | 30.4 | % | 30.8 | % | 27.9 | % | 32.0 | % | 29.3 | % | |||||
Restaurant wages and related expenses | 23.0 | % | 23.6 | % | 32.5 | % | 31.7 | % | 27.3 | % | 27.2 | % | |||||
Restaurant rent expense | 4.5 | % | 5.1 | % | 5.9 | % | 5.8 | % | 5.1 | % | 5.4 | % | |||||
Other restaurant operating expenses | 13.0 | % | 13.6 | % | 15.1 | % | 14.6 | % | 13.9 | % | 14.0 | % | |||||
Advertising expense | 3.4 | % | 3.3 | % | 3.3 | % | 3.6 | % | 3.4 | % | 3.4 | % | |||||
Pre-opening costs | 0.3 | % | 0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % |
Pollo Tropical: | |||
Increase in comparable restaurant sales | $ | 3.9 | |
Decrease in sales related to closed restaurants, net of new restaurants | (7.7 | ) | |
Total decrease | $ | (3.8 | ) |
Taco Cabana: | |||
Increase in comparable restaurant sales | $ | 1.1 | |
Increase in sales related to new restaurants, net of closed restaurants | 0.7 | ||
Total increase | $ | 1.8 |
Pollo Tropical: | ||
Cost of sales(1): | ||
Menu offering improvement and higher commodity costs | 3.0 | % |
Operating inefficiency | 0.6 | % |
Sales mix | 0.1 | % |
Menu price increases | (1.3 | )% |
Other | 0.1 | % |
Net increase in cost of sales as a percentage of restaurant sales | 2.5 | % |
Restaurant wages and related expenses: | ||
Lower labor costs due to restaurant closures, net of new restaurants | (1.4 | )% |
Lower workers compensation costs | (0.2 | )% |
Higher labor costs for comparable restaurants(1)(2) | 1.1 | % |
Other | (0.1 | )% |
Net decrease in restaurant wages and related costs as a percentage of restaurant sales | (0.6 | )% |
Other operating expenses: | ||
Lower real estate taxes(3) | (0.3 | )% |
Lower utilities expenses(3) | (0.2 | )% |
Lower insurance costs | (0.2 | )% |
Higher repairs and maintenance costs(1)(4) | 0.4 | % |
Other | (0.3 | )% |
Net decrease in other restaurant operating expenses as a percentage of restaurant sales | (0.6 | )% |
Advertising expense: | ||
Increased advertising(4)(5) | 0.1 | % |
Net increase in advertising expense as a percentage of restaurant sales | 0.1 | % |
Pre-opening costs: | ||
Decrease in the number of restaurant openings | (0.1 | )% |
Net decrease in pre-opening costs as a percentage of restaurant sales | (0.1 | )% |
Taco Cabana: | ||
Cost of sales(1): | ||
Menu offering improvement and higher commodity costs | 4.6 | % |
Operating inefficiency | 1.0 | % |
Sales mix | 0.4 | % |
Menu price increases | (2.1 | )% |
Lower promotions and discounts | (0.8 | )% |
Other | (0.2 | )% |
Net increase in cost of sales as a percentage of restaurant sales | 2.9 | % |
Restaurant wages and related expenses: | ||
Higher medical benefit costs | 0.5 | % |
Higher labor costs for comparable restaurants(1)(2) | 0.2 | % |
Other | 0.1 | % |
Net increase in restaurant wages and related costs as a percentage of restaurant sales | 0.8 | % |
Other operating expenses: | ||
Higher repairs and maintenance costs(1) | 0.4 | % |
Higher operating supplies(1) | 0.2 | % |
Lower insurance costs | (0.2 | )% |
Other | 0.1 | % |
Net increase in other restaurant operating expenses as a percentage of restaurant sales | 0.5 | % |
Advertising expense: | ||
Reduced advertising | (0.3 | )% |
Net decrease in advertising expense as a percentage of restaurant sales | (0.3 | )% |
• | restaurant operations are primarily conducted on a cash basis; |
• | rapid turnover results in a limited investment in inventories; and |
• | cash from sales is usually received before related liabilities for food, supplies and payroll become due. |
Pollo Tropical | Taco Cabana | Other | Consolidated | ||||||||||||
Six Months Ended July 1, 2018: | |||||||||||||||
New restaurant development | $ | 6,378 | $ | 5,673 | $ | — | $ | 12,051 | |||||||
Restaurant remodeling | 105 | 194 | — | 299 | |||||||||||
Other restaurant capital expenditures(1) | 4,726 | 5,300 | — | 10,026 | |||||||||||
Corporate and restaurant information systems | 1,826 | 2,744 | 342 | 4,912 | |||||||||||
Total capital expenditures | $ | 13,035 | $ | 13,911 | $ | 342 | $ | 27,288 | |||||||
Number of new restaurant openings | 4 | 6 | — | 10 | |||||||||||
Six Months Ended July 2, 2017: | |||||||||||||||
New restaurant development | $ | 13,878 | $ | 4,918 | $ | — | $ | 18,796 | |||||||
Restaurant remodeling | 934 | 27 | — | 961 | |||||||||||
Other restaurant capital expenditures(1) | 1,546 | 2,041 | — | 3,587 | |||||||||||
Corporate and restaurant information systems | 548 | 1,030 | 1,231 | 2,809 | |||||||||||
Total capital expenditures | $ | 16,906 | $ | 8,016 | $ | 1,231 | $ | 26,153 | |||||||
Number of new restaurant openings | 6 | 3 | 9 |
• | such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment; |
• | such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt; |
• | although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and such financial information does not reflect the cash required to fund such replacements; and |
• | such financial information does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as impairment and other lease charges, other income and expense and stock-based compensation expense) have recurred and may recur. |
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2018 | July 2, 2017 | July 1, 2018 | July 2, 2017 | |||||||||||||
Net income (loss) | $ | 9,493 | $ | (2,160 | ) | $ | 13,677 | $ | (17,220 | ) | ||||||
Provision for (benefit from) income taxes | 3,021 | (772 | ) | 4,646 | (9,414 | ) | ||||||||||
Income (loss) before taxes | 12,514 | (2,932 | ) | 18,323 | (26,634 | ) | ||||||||||
Add: | ||||||||||||||||
Non-general and administrative expense adjustments: | ||||||||||||||||
Depreciation and amortization | 9,170 | 8,596 | 18,169 | 17,782 | ||||||||||||
Impairment and other lease charges | 784 | 10,762 | 122 | 43,176 | ||||||||||||
Interest expense | 986 | 654 | 2,055 | 1,238 | ||||||||||||
Other expense (income), net | (3,545 | ) | 798 | (3,179 | ) | 1,252 | ||||||||||
Stock-based compensation expense in restaurant wages | 33 | (74 | ) | 50 | 35 | |||||||||||
Unused pre-production costs in advertising expense(1) | — | 88 | — | 410 | ||||||||||||
Total Non-general and administrative expense adjustments | 7,428 | 20,824 | 17,217 | 63,893 | ||||||||||||
General and administrative expense adjustments: | ||||||||||||||||
Stock-based compensation expense | 984 | 1,248 | 1,856 | 1,785 | ||||||||||||
Terminated capital project(2) | — | 13 | — | 849 | ||||||||||||
Board and shareholder matter costs(3) | (597 | ) | 3,099 | (597 | ) | 3,903 | ||||||||||
Strategic Renewal Plan restructuring costs and retention bonuses(4) | 15 | 1,869 | 503 | 2,014 | ||||||||||||
Legal settlements and related costs(5) | (167 | ) | — | (167 | ) | (473 | ) | |||||||||
Total General and administrative expense adjustments | 235 | 6,229 | 1,595 | 8,078 | ||||||||||||
Consolidated Adjusted EBITDA: | $ | 20,177 | $ | 24,121 | $ | 37,135 | $ | 45,337 |
Three Months Ended | Pollo Tropical | Taco Cabana | ||||||
July 1, 2018: | ||||||||
Adjusted EBITDA: | $ | 15,529 | $ | 4,648 | ||||
Restaurant-level Adjustments: | ||||||||
Add: Pre-opening costs | 341 | 536 | ||||||
Add: Other general and administrative expense(1) | 6,850 | 5,734 | ||||||
Less: Franchise royalty revenue and fees | 459 | 216 | ||||||
Restaurant-level Adjusted EBITDA: | $ | 22,261 | $ | 10,702 | ||||
July 2, 2017: | ||||||||
Adjusted EBITDA: | $ | 17,139 | $ | 6,982 | ||||
Restaurant-level Adjustments: | ||||||||
Add: Pre-opening costs | 451 | 459 | ||||||
Add: Other general and administrative expense(1) | 7,106 | 5,661 | ||||||
Less: Franchise royalty revenue and fees | 427 | 192 | ||||||
Restaurant-level Adjusted EBITDA: | $ | 24,269 | $ | 12,910 | ||||
Six Months Ended | Pollo Tropical | Taco Cabana | ||||||
July 1, 2018: | ||||||||
Adjusted EBITDA | $ | 29,976 | $ | 7,159 | ||||
Restaurant-level Adjustments: | ||||||||
Add: Pre-opening costs | 565 | 693 | ||||||
Add: Other general and administrative expense(1) | 14,227 | 11,916 | ||||||
Less: Franchise royalty revenue and fees | 923 | 403 | ||||||
Restaurant-level Adjusted EBITDA: | $ | 43,845 | $ | 19,365 | ||||
July 2, 2017: | ||||||||
Adjusted EBITDA | $ | 31,861 | $ | 13,476 | ||||
Restaurant-level Adjustments: | ||||||||
Add: Pre-opening costs | 783 | 551 | ||||||
Add: Other general and administrative expense(1) | 15,096 | 11,520 | ||||||
Less: Franchise royalty revenue and fees | 876 | 373 | ||||||
Restaurant-level Adjusted EBITDA: | $ | 46,864 | $ | 25,174 |
• | Increases in food and other commodity costs; |
• | Risks associated with the expansion of our business, including increasing construction costs; |
• | Risks associated with food borne illness or other food safety issues, including negative publicity through traditional |
• | Our ability to manage our growth and successfully implement our business strategy; |
• | A decrease in the labor supply to us or our key suppliers due to changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States; |
• | Labor and employment benefit costs, including the impact of increases in federal and state minimum wages, increases in exempt status salary levels and healthcare costs; |
• | Cyber security breaches; |
• | General economic conditions, particularly in the retail sector; |
• | Competitive conditions; |
• | Weather conditions including hurricanes, windstorms and flooding, and other natural disasters; |
• | Significant disruptions in service or supply by any of our suppliers or distributors; |
• | Increases in employee injury and general liability claims; |
• | Changes in consumer perception of dietary health and food safety; |
• | Regulatory factors; |
• | Fuel prices; |
• | The outcome of pending or future legal claims or proceedings; |
• | Environmental conditions and regulations; |
• | Our borrowing costs; |
• | The availability and terms of necessary or desirable financing or refinancing and other related risks and uncertainties; |
• | The risk of an act of terrorism or escalation of any insurrection or armed conflict involving the United States or any other national or international calamity; and |
• | Factors that affect the restaurant industry generally, including product recalls, liability if our products cause injury, ingredient disclosure and labeling laws and regulations. |
Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
April 2, 2018 to April 29, 2018 | — | $ | — | — | 1,481,594 | ||||||||
April 30, 2018 to June 3, 2018 | 16,764 | 24.14 | 16,764 | 1,464,830 | |||||||||
June 4, 2018 to July 1, 2018 | 7,735 | 25.56 | 7,735 | 1,457,095 | |||||||||
Total | 24,499 | 24,499 |
Exhibit No. | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
FIESTA RESTAURANT GROUP, INC. | |
Date: August 6, 2018 | /S/ RICHARD C. STOCKINGER |
(Signature) | |
Richard C. Stockinger Chief Executive Officer | |
Date: August 6, 2018 | /S/ LYNN S. SCHWEINFURTH |
(Signature) | |
Lynn S. Schweinfurth Senior Vice President, Chief Financial Officer and Treasurer | |
Date: August 6, 2018 | /S/ CHERI L. KINDER |
(Signature) | |
Cheri L. Kinder Vice President, Corporate Controller |
FIESTA RESTAURANT GROUP, INC. | ||
By: | /s/ Richard C. Stockinger | |
Name: Richard C. Stockinger Title: Chief Executive Officer and President | ||
/s/ Anthony Dinkins | ||
Anthony Dinkins | ||
EXECUTIVE | |
Anthony Dinkins |
FIESTA RESTAURANT GROUP, INC. | ||
By: | /s/ Richard C. Stockinger | |
Name: Richard C. Stockinger Title: Chief Executive Officer and President | ||
/s/ Maria C. Mayer | ||
Maria C. Mayer | ||
FIESTA RESTAURANT GROUP, INC. | ||
By: | /s/ Richard C. Stockinger | |
Name: Richard C. Stockinger Title: Chief Executive Officer and President | ||
/s/ Charles Locke | ||
Charles Locke | ||
Date: August 6, 2018 | /s/RICHARD C. STOCKINGER |
Richard C. Stockinger Chief Executive Officer |
Date: August 6, 2018 | /s/LYNN SCHWEINFURTH |
Lynn Schweinfurth Senior Vice President, Chief Financial Officer and Treasurer |
/s/ RICHARD C. STOCKINGER |
Richard C. Stockinger |
Chief Executive Officer |
/s/ LYNN SCHWEINFURTH |
Lynn Schweinfurth |
Senior Vice President, Chief Financial Officer and Treasurer |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jul. 01, 2018 |
Aug. 01, 2018 |
|
Document And Entity Information [Abstract] | ||
Entity Registrant Name | FIESTA RESTAURANT GROUP, INC. | |
Entity Central Index Key | 0001534992 | |
Current Fiscal Year End Date | --12-30 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jul. 01, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 27,266,023 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jul. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 27,267,752 | 27,086,958 |
Common stock, shares outstanding | 26,919,479 | 26,847,458 |
Treasury stock, shares | 42,905 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2018 |
Jul. 02, 2017 |
Jul. 01, 2018 |
Jul. 02, 2017 |
|
Stock-based compensation | $ 1,000 | $ 1,200 | $ 1,900 | $ 1,800 |
Restaurant Wages And Related Expenses | ||||
Stock-based compensation | 33 | (74) | 50 | 35 |
General and Administrative Expense | ||||
Stock-based compensation | $ 984 | $ 1,248 | $ 1,856 | $ 1,785 |
Basis of Presentation |
6 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Jul. 01, 2018 | |||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||
Basis of Presentation | Basis of Presentation Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the “Company”. At July 1, 2018, the Company owned and operated 150 Pollo Tropical® restaurants and 170 Taco Cabana® restaurants. The Pollo Tropical restaurants included 141 located in Florida and 9 located in Georgia. All of the Taco Cabana restaurants are located in Texas. At July 1, 2018, the Company franchised a total of 30 Pollo Tropical restaurants and eight Taco Cabana restaurants. The franchised Pollo Tropical restaurants included 17 in Puerto Rico, four in Panama, two in Guyana, one in the Bahamas, and six on college campuses and at a hospital in Florida. The franchised Taco Cabana restaurants included six in New Mexico and two on college campuses in Texas. Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 31, 2017 contained 52 weeks. The three and six months ended July 1, 2018 and July 2, 2017 each contained thirteen and twenty-six weeks, respectively. The fiscal year ending December 30, 2018 will contain 52 weeks. Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and six months ended July 1, 2018 and July 2, 2017 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended July 1, 2018 and July 2, 2017 are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The December 31, 2017 balance sheet data is derived from those audited financial statements. Reclassification. Write-offs of site development costs were reclassified from general and administrative expense to other expense (income), net in the condensed consolidated statement of operations to conform with the current year presentation. Guidance Adopted in 2018. In May 2014, and in subsequent updates, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the guidance in former Topic 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted this new accounting standard and all the related amendments as of January 1, 2018 using the modified retrospective method, and recognized a total cumulative effect adjustment to increase retained earnings by less than $0.1 million, which consisted of a $0.3 million increase related to gift card breakage and a $0.3 million decrease related to initial franchise and area development fees, as a result of adopting the standard. The new standard did not impact the Company’s recognition of revenue from Company-owned and operated restaurants or its recognition of sale-based royalties from restaurants operated by franchisees. The comparative period information has not been restated and continues to be reported under the accounting standard in effect for those periods. When compared to the previous accounting policies, the impact of adopting the new standard was immaterial to current and long-term other liabilities and retained earnings at January 1, 2018 and to net income for the three and six months ended July 1, 2018. The adoption of the new standard had no impact on the Company's consolidated statements of cash flows. Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services. Prior to adopting Topic 606, the Company recognized initial franchise fees as revenue in the period that a franchised location opened for business. See Note 6 - Business Segment Information. Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. For unredeemed gift cards that the Company expects to be entitled to breakage, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption by the customers. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards and gift card liabilities, which are recorded in other current liabilities, are not material to the Company's financial statements. Prior to adopting Topic 606, the Company did not recognize breakage on its gift cards. Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3 - Impairment of Long-Lived Assets. Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
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Prepaid Expenses and Other Current Assets |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expenses and Other Current Assets | Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets, consist of the following:
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Impairment of Long-Lived Assets and Other Lease Charges |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of Long-Lived Assets and Other Lease Charges | Impairment of Long-Lived Assets and Other Lease Charges The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. In addition to considering management’s plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material. A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
Impairment and other lease charges for the three and six months ended July 1, 2018 primarily include lease charges, net of recoveries, of $0.5 million related to certain previously closed restaurants due to adjustments to estimates of future lease costs and impairment charges of $0.3 million related to previously closed restaurants as well as one underperforming Taco Cabana restaurant with a short remaining lease term. Impairment and other lease charges for the six months ended July 1, 2018 also include a net benefit of $(0.7) million in lease charge recoveries due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs in the first quarter of 2018. In conjunction with the Strategic Renewal Plan to drive long-term shareholder value creation, Pollo Tropical recognized impairment charges of $3.8 million and $35.7 million, and other lease charges, net of recoveries, of $6.7 million and $6.9 million for the three and six months ended July 2, 2017, respectively. These charges were due primarily to impairment and closures of underperforming Pollo Tropical restaurants in the first and second quarters of 2017. Impairment and other lease charges for the three and six months ended July 2, 2017 for Taco Cabana consist of impairment charges of $0.2 million and $0.6 million, respectively. The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company’s history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the six months ended July 2, 2017 totaled $9.5 million, which primarily consisted of leasehold improvements related to Pollo Tropical restaurants that will be rebranded as Taco Cabana restaurants and the estimated fair value of owned properties.
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Other Liabilities |
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Other Liabilities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities | Other Liabilities Other liabilities, current, consist of the following:
Other liabilities, long-term, consist of the following:
Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term. The following table presents the activity in the closed-restaurant reserve, of which $2.8 million and $5.3 million are included in long-term accrued occupancy costs at July 1, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
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Stockholders' Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | Stockholders' Equity Purchase of treasury stock On February 26, 2018, the Company announced that its board of directors approved a share repurchase program for up to 1.5 million shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 42,905 shares of its common stock under the program in open market transactions during the six months ended July 1, 2018 for $1.0 million. The repurchased shares are held as treasury stock at cost. Stock-based Compensation During the three and six months ended July 1, 2018, the Company granted certain employees, non-employee directors and a non-employee food and beverage consultant a total of 25,956 and 187,747 non-vested restricted shares, respectively, under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The shares granted to employees generally vest and become non-forfeitable over a four year vesting period. The shares granted to non-employee directors and the non-employee food and beverage consultant vest and become non-forfeitable over a one year and a three year vesting period, respectively. The weighted average fair value at grant date for these non-vested shares issued during the three and six months ended July 1, 2018 was $21.00 and $19.02 per share, respectively. During the three and six months ended July 2, 2017, the Company granted certain employees and non-employee directors a total of 33,776 and 221,118 non-vested restricted shares, respectively, under the Fiesta Plan. The shares granted to employees vest and become non-forfeitable over a four year vesting period. The shares granted to non-employee directors and a new non-employee director vest and become non-forfeitable over a one year and a five year vesting period, respectively. The weighted average fair value at grant date for these non-vested shares issued during the three and six months ended July 2, 2017 was $21.32 and $20.84 per share, respectively. During the six months ended July 1, 2018, the Company granted certain executives a total of 112,169 restricted stock units under the Fiesta Plan, which vest in three tranches over a three year vesting period. During the three and six months ended July 2, 2017, the Company granted certain executives a total of 92,171 restricted stock units under the Fiesta Plan including 72,290 units vesting over a four year vesting period and 19,881 units vesting over a three year vesting period. The restricted stock units granted to executives in 2018 and 2017 are subject to continued service and attainment of specified share prices of the Company's common stock for a specified period of time within each vesting period. Each tranche vests by the end of a one year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. For the restricted stock units granted to executives in the six months ended July 1, 2018 and July 2, 2017, the number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 112,169 and 92,171 shares, respectively, if the service and market performance conditions are met in the last vesting period. The weighted average fair value at grant date for the restricted stock units granted to executives in the six months ended July 1, 2018 and July 2, 2017 was $6.96 and $12.13 per share, respectively. During the six months ended July 2, 2017, the Company granted certain employees a total of 11,745 restricted stock units under the Fiesta Plan. The restricted stock units granted during the six months ended July 2, 2017 vest and become non-forfeitable at the end of a four year vesting period. The weighted average fair value at grant date for these restricted stock units issued to employees during the six months ended July 2, 2017 was $20.75 per share. Stock-based compensation expense for the three and six months ended July 1, 2018 was $1.0 million and $1.9 million, respectively, and for the three and six months ended July 2, 2017 was $1.2 million and $1.8 million, respectively. At July 1, 2018, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $6.8 million. At July 1, 2018, the remaining weighted average vesting period for non-vested restricted shares was 2.9 years and restricted stock units was 1.6 years. A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 2018 is as follows:
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Business Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | Business Segment Information The Company owns, operates and franchises two restaurant brands, Pollo Tropical® and Taco Cabana®, each of which is an operating segment. Pollo Tropical restaurants feature 24-hour citrus marinated chicken and other freshly prepared tropical inspired menu items, while Taco Cabana restaurants specialize in Mexican inspired food. Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants as set forth in the reconciliation table below. The “Other” column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts and a current income tax receivable.
(1) Includes stock-based compensation expense of $33 and $50 for the three and six months ended July 1, 2018, respectively, and $(74) and $35 for the three and six months ended July 2, 2017, respectively. (2) Includes stock-based compensation expense of $984 and $1,856 for the three and six months ended July 1, 2018, respectively, and $1,248 and $1,785 for the three and six months ended July 2, 2017, respectively. A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
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Net Income (Loss) per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) per Share | Net Income (Loss) per Share The Company computes basic net income (loss) per share by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic net income per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Net income per common share is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if our restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per share by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method. Weighted average outstanding restricted stock units totaling 611 and 836 shares were not included in the computation of diluted earnings per share for the three and six months ended July 1, 2018 because including them would have been antidilutive. For the three and six months ended July 2, 2017, all restricted stock units outstanding were excluded from the computation of diluted earnings per share because including them would have been antidilutive as a result of the net loss in these periods. The computation of basic and diluted net income (loss) per share is as follows:
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Commitments and Contingencies |
6 Months Ended |
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Jul. 01, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Lease Assignments. Taco Cabana has assigned three leases to various parties on properties where it no longer operates restaurants with lease terms expiring on various dates through 2029. The assignees are responsible for making the payments required by the leases. The Company is a guarantor under one of the leases, and it remains secondarily liable as a surety with respect to two of the leases. Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. The assignee is responsible for making the payments required by the lease. The Company is a guarantor under the lease. The maximum potential liability for future rental payments that the Company could be required to make under these leases at July 1, 2018 was $3.8 million. The Company could also be obligated to pay property taxes and other lease related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases. Legal Matters. On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were misclassified as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior to any suit being filed, Pollo Tropical reached a settlement with seven named individuals and a proposed collective action class that allowed current and former assistant managers to receive notice and opt-in to the settlement. Pollo Tropical denies any liability or unlawful conduct. The settlement was approved by a Florida state judge on December 27, 2017 which resulted in dismissal with prejudice for the named individuals and all individuals that opted-in to the settlement. The Company reserved $0.8 million in 2016 to cover the estimated costs related to the settlement. During the second quarter of 2018, the Company paid all settlement claims costs and recognized a reduction in legal settlement costs of $0.2 million. The Company is also a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements. Contingency Related to Insurance Recoveries. During the third quarter of 2017, Texas and Florida were struck by Hurricanes Harvey and Irma (the "Hurricanes"). Over 40 Taco Cabana restaurants in the Houston metropolitan area and all Pollo Tropical restaurants in Florida and the Atlanta metropolitan area were temporarily closed and affected by the Hurricanes to varying degrees (e.g. property preparation and damages, inventory losses, payments to hourly employees while restaurants were closed and lost business related to temporary closures). In 2017, the Company recorded certain expected insurance proceeds in accounts receivable of $0.7 million and $0.4 million for Pollo Tropical and Taco Cabana, respectively. During the second quarter of 2018, the Company received property damage insurance proceeds of $0.4 million related to a Taco Cabana restaurant that suffered flood damages due to Hurricane Harvey. In late June 2018, the Company reached written settlement agreements with an insurance carrier for $2.5 million and $1.0 million for Pollo Tropical and Taco Cabana, respectively, for partial settlement related primarily to business interruption coverage. As a result, the Company recorded the additional expected insurance proceeds in accounts receivable with corresponding increases to other income of $1.8 million and $1.0 million for Pollo Tropical and Taco Cabana, respectively, in the second quarter of 2018. The settlement payments were received in early July 2018. The Company expects to record additional insurance proceeds related to the Hurricanes at the time of final settlement.
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Income Taxes |
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Jul. 01, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes Tax Law Changes. On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), which includes a provision that reduces the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, was signed into law. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required the Company to revalue its net deferred income tax assets at the new corporate statutory rate of 21.0% as of the enactment date, which resulted in a one-time adjustment to its deferred income taxes of $9.0 million with a corresponding increase to the provision for income taxes as a discrete item during the fourth quarter of 2017. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the impact of the Act, that, in effect, allows entities to use a methodology similar to the measurement period in a business combination. Pursuant to the disclosure provisions of SAB 118, the Company continues to evaluate the impact of the Act on various matters. The actual impact of the Act on the Company may differ from the provisional amounts recognized based on its reasonable estimates due to, among other things, changes in assumptions made in the Company's interpretation of the Act, guidance related to application of the Act that may be issued in the future, and actions that the Company may take as a result of the expected impact of the Act. The Company will adjust the amounts recognized related to the Act if more information becomes available. The Company did not make any measurement period adjustments related to the Act in the six months ended July 1, 2018.
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Recent Accounting Pronouncements |
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Jul. 01, 2018 | |
Accounting Policies [Abstract] | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The Company is currently evaluating the impact on its financial statements. Although the impact is not currently estimable, the Company expects to recognize right-of-use lease assets and lease liabilities for most of the leases it currently accounts for as operating leases. The right-of-use lease assets to be recognized will be adjusted by certain closed-restaurant lease reserves, accrued rent including accruals to expense operating lease payments on a straight-line basis, and unamortized lease incentives upon the adoption of Topic 842. The Company intends to elect the transition practical expedient package as well as the practical expedient to combine lease and non-lease components of the contracts, which may result in reclassification of certain occupancy related expenses to restaurant rent expenses in the consolidated statement of operations. In addition, the Company will be required to record an initial adjustment to retained earnings associated with previously deferred gains on sale-leaseback transactions, and for any future sale-leaseback transactions, the gain, adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company has not assessed the potential impact of Topic 842 on its covenant financial ratios as the Company's senior credit facility does not give effect to any change in GAAP arising out of Topic 842. The Company is continuing its assessment of the impact of Topic 842 and may identify other impacts. In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
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Basis of Presentation (Policies) |
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Jul. 01, 2018 | |||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Basis of Consolidation | Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. | ||||
Fiscal Year | Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 31, 2017 contained 52 weeks. The three and six months ended July 1, 2018 and July 2, 2017 each contained thirteen and twenty-six weeks, respectively. The fiscal year ending December 30, 2018 will contain 52 weeks. | ||||
Basis of Presentation | Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and six months ended July 1, 2018 and July 2, 2017 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and six months ended July 1, 2018 and July 2, 2017 are not necessarily indicative of the results to be expected for the full year.These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The December 31, 2017 balance sheet data is derived from those audited financial statements. | ||||
Reclassification | Reclassification. Write-offs of site development costs were reclassified from general and administrative expense to other expense (income), net in the condensed consolidated statement of operations to conform with the current year presentation. | ||||
Revenue Recognition | Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percent of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services. Prior to adopting Topic 606, the Company recognized initial franchise fees as revenue in the period that a franchised location opened for business. See Note 6 - Business Segment Information. Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. For unredeemed gift cards that the Company expects to be entitled to breakage, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption by the customers. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards and gift card liabilities, which are recorded in other current liabilities, are not material to the Company's financial statements. Prior to adopting Topic 606, the Company did not recognize breakage on its gift cards.
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Fair Value of Financial Instruments | Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
• Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates.
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Long-Lived Assets | Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3 - Impairment of Long-Lived Assets. | ||||
Use of Estimates | Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates. | ||||
Impairment of Long-Lived Assets | The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. In addition to considering management’s plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material. | ||||
Purchase of Treasury Stock | Purchase of treasury stock |
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Segment Reporting | Each segment's accounting policies are described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of the Company's restaurants | ||||
Net Income per Share | The Company computes basic net income (loss) per share by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic net income per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Net income per common share is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.Diluted earnings per share reflects the potential dilution that could occur if our restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per share by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method. | ||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option to use certain practical expedients. The Company is currently evaluating the impact on its financial statements. Although the impact is not currently estimable, the Company expects to recognize right-of-use lease assets and lease liabilities for most of the leases it currently accounts for as operating leases. The right-of-use lease assets to be recognized will be adjusted by certain closed-restaurant lease reserves, accrued rent including accruals to expense operating lease payments on a straight-line basis, and unamortized lease incentives upon the adoption of Topic 842. The Company intends to elect the transition practical expedient package as well as the practical expedient to combine lease and non-lease components of the contracts, which may result in reclassification of certain occupancy related expenses to restaurant rent expenses in the consolidated statement of operations. In addition, the Company will be required to record an initial adjustment to retained earnings associated with previously deferred gains on sale-leaseback transactions, and for any future sale-leaseback transactions, the gain, adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company has not assessed the potential impact of Topic 842 on its covenant financial ratios as the Company's senior credit facility does not give effect to any change in GAAP arising out of Topic 842. The Company is continuing its assessment of the impact of Topic 842 and may identify other impacts. In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill if the fair value of a reporting unit is less than the carrying amount of the reporting unit. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. This standard may have an impact on the Company's financial statements if goodwill impairment is recognized in future periods.
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Prepaid Expenses and Other Current Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets, consist of the following:
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Impairment of Long-Lived Assets and Other Lease Charges (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Impairment on Long-Lived Assets by Segment | A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
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Other Lease Charges (Recoveries) by Segment | A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
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Other Liabilities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Liabilities, Current | Other liabilities, current, consist of the following:
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Other Liabilities, Long-term | Other liabilities, long-term, consist of the following:
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Activity in the Closed-Store Reserve | The following table presents the activity in the closed-restaurant reserve, of which $2.8 million and $5.3 million are included in long-term accrued occupancy costs at July 1, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
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Stockholders' Equity (Tables) |
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Jul. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Non-vested Restricted Shares Activity | A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 2018 is as follows:
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Schedule of Restricted Stock Units Activity | A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 2018 is as follows:
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Business Segment Information (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment |
(1) Includes stock-based compensation expense of $33 and $50 for the three and six months ended July 1, 2018, respectively, and $(74) and $35 for the three and six months ended July 2, 2017, respectively. (2) Includes stock-based compensation expense of $984 and $1,856 for the three and six months ended July 1, 2018, respectively, and $1,248 and $1,785 for the three and six months ended July 2, 2017, respectively.
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Reconciliation of Consolidated Net Income (Loss) to Adjusted EBITDA | A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
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Net Income (Loss) per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share | The computation of basic and diluted net income (loss) per share is as follows:
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Basis of Presentation - Fair Value Disclosures (Details) - USD ($) $ in Millions |
Jul. 01, 2018 |
Dec. 31, 2017 |
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Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Carrying value of senior credit facility | $ 73.0 | $ 75.0 |
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Fair value of senior credit facility | $ 72.8 | $ 75.0 |
Prepaid Expenses and Other Current Assets (Details) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Jul. 01, 2018
USD ($)
restaurant
|
Jul. 02, 2017
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||
Prepaid contract expenses | $ 4,132 | $ 3,681 | |
Assets held for sale | 0 | 2,705 | |
Other | 4,160 | 3,719 | |
Prepaid expenses and other current assets | 8,292 | $ 10,105 | |
Property, Plant and Equipment [Line Items] | |||
Proceeds from sale of restaurant property | $ 4,676 | $ 0 | |
Pollo Tropical | |||
Property, Plant and Equipment [Line Items] | |||
Number of restaurants sold | restaurant | 2 | ||
Proceeds from sale of restaurant property | $ 3,300 |
Impairment of Long-Lived Assets and Other Lease Charges - Summary by Segment (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2018 |
Jul. 02, 2017 |
Jul. 01, 2018 |
Jul. 02, 2017 |
|
Impairment and Other Lease Charges [Line Items] | ||||
Impairment and other lease charges | $ 784 | $ 10,762 | $ 122 | $ 43,176 |
Pollo Tropical | ||||
Impairment and Other Lease Charges [Line Items] | ||||
Impairment and other lease charges | 686 | 10,536 | 144 | 42,607 |
Taco Cabana | ||||
Impairment and Other Lease Charges [Line Items] | ||||
Impairment and other lease charges | $ 98 | $ 226 | $ (22) | $ 569 |
Other Liabilities - Current (Details) - USD ($) $ in Thousands |
Jul. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Other Liabilities Disclosure [Abstract] | ||
Accrued workers' compensation and general liability claims | $ 5,107 | $ 5,083 |
Sales and property taxes | 2,045 | 2,279 |
Accrued occupancy costs | 6,095 | 7,813 |
Other | 2,419 | 6,642 |
Other liabilities, current | $ 15,666 | $ 21,817 |
Other Liabilities - Long-term (Details) - USD ($) $ in Thousands |
Jul. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Other Liabilities Disclosure [Abstract] | ||
Accrued occupancy costs | $ 19,271 | $ 20,985 |
Deferred compensation | 791 | 1,029 |
Accrued workers’ compensation and general liability claims | 6,102 | 6,102 |
Other | 3,819 | 3,946 |
Other liabilities, long-term | $ 29,983 | $ 32,062 |
Other Liabilities - Narrative (Details) - Closed Stores - USD ($) $ in Thousands |
Jul. 01, 2018 |
Dec. 31, 2017 |
Jan. 01, 2017 |
---|---|---|---|
Restructuring Cost and Reserve [Line Items] | |||
Closed-store reserve | $ 8,728 | $ 12,994 | $ 4,912 |
Other Liabilities, Long-Term | |||
Restructuring Cost and Reserve [Line Items] | |||
Closed-store reserve | $ 2,800 | $ 5,300 |
Other Liabilities - Restructuring Reserve (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Jul. 01, 2018 |
Apr. 01, 2018 |
Jul. 01, 2018 |
Dec. 31, 2017 |
|
Activity in the Closed-Store Reserve | ||||
Provisions for restaurant closures | $ 500 | $ (700) | $ 500 | |
Closed Stores | ||||
Activity in the Closed-Store Reserve | ||||
Balance, beginning of period | $ 12,994 | 12,994 | $ 4,912 | |
Provisions for restaurant closures | 0 | 8,767 | ||
Additional lease charges (recoveries), net | (263) | (1,301) | ||
Payments, net | (4,149) | (5,528) | ||
Other adjustments | 146 | 6,144 | ||
Balance, end of period | $ 8,728 | $ 8,728 | $ 12,994 |
Stockholders' Equity - Purchase of Treasury Stock (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jul. 01, 2018 |
Feb. 26, 2018 |
|
Equity [Abstract] | ||
Number of shares authorized to be repurchased | 1,500,000 | |
Treasury stock purchases (in shares) | 42,905 | |
Treasury stock purchases | $ 952 |
Net Income (Loss) per Share - Narrative (Details) |
3 Months Ended | 6 Months Ended |
---|---|---|
Jul. 01, 2018
shares
|
Jul. 01, 2018
shares
|
|
Earnings Per Share [Abstract] | ||
Nonvested restricted shares right to receive dividends, per share ratio to common shares | 1 | 1 |
Restricted Stock Units | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Weighted average antidilutive securities excluded from computation of diluted earnings per share (in shares) | 611 | 836 |
Net Income (Loss) per Share - Computation of Basic and Diluted Net Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2018 |
Jul. 02, 2017 |
Jul. 01, 2018 |
Jul. 02, 2017 |
|
Basic and diluted net income (loss) per share: | ||||
Net income (loss) | $ 9,493 | $ (2,160) | $ 13,677 | $ (17,220) |
Less: income allocated to participating securities | 113 | 0 | 148 | 0 |
Net income (loss) available to common shareholders | $ 9,380 | $ (2,160) | $ 13,529 | $ (17,220) |
Weighted average common shares, basic | 26,916,295 | 26,815,015 | 26,895,302 | 26,794,560 |
Restricted stock units (in shares) | 3,619 | 0 | 6,527 | 0 |
Weighted average common shares, diluted | 26,919,914 | 26,815,015 | 26,901,829 | 26,794,560 |
Basic net income (loss) per share (usd per share) | $ 0.35 | $ (0.08) | $ 0.50 | $ (0.64) |
Diluted net income (loss) per share (usd per share) | $ 0.35 | $ (0.08) | $ 0.50 | $ (0.64) |
Commitments and Contingencies - Lease Assignments (Details) $ in Millions |
Jul. 01, 2018
USD ($)
restaurant
|
---|---|
Loss Contingencies [Line Items] | |
Maximum potential liability for future rental payments | $ | $ 3.8 |
Taco Cabana | |
Loss Contingencies [Line Items] | |
Number of leases assigned | 3 |
Pollo Tropical | |
Loss Contingencies [Line Items] | |
Number of leases assigned | 1 |
Commitments and Contingencies - Legal Matters (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2016
USD ($)
plaintiff
|
Jul. 01, 2018
USD ($)
|
Jul. 01, 2018
USD ($)
|
Jul. 02, 2017
USD ($)
|
|
Loss Contingencies [Line Items] | ||||
Recognized reduction in legal settlement costs | $ 167 | $ 167 | $ 473 | |
Fair Labor Standards Act Legal Demand Letter | ||||
Loss Contingencies [Line Items] | ||||
Number of named individuals related to settlement | plaintiff | 7 | |||
Recorded charge to cover estimated costs related to settlement | $ 800 | |||
Recognized reduction in legal settlement costs | $ 200 |
Commitments and Contingencies - Contingency Related to Insurance Recoveries (Details) - Loss from Catastrophes $ in Millions |
3 Months Ended | ||
---|---|---|---|
Jul. 01, 2018
USD ($)
|
Oct. 01, 2017
restaurant
|
Dec. 31, 2017
USD ($)
|
|
Pollo Tropical | |||
Loss Contingencies [Line Items] | |||
Recorded expected insurance proceeds | $ 2.5 | $ 0.7 | |
Additional expected insurance proceeds | 1.8 | ||
Taco Cabana | |||
Loss Contingencies [Line Items] | |||
Recorded expected insurance proceeds | 1.0 | $ 0.4 | |
Insurance proceeds | 0.4 | ||
Additional expected insurance proceeds | $ 1.0 | ||
Minimum | Houston | Taco Cabana | |||
Loss Contingencies [Line Items] | |||
Number of restaurants affected by the hurricanes | restaurant | 40 |
Income Taxes (Details) $ in Millions |
3 Months Ended |
---|---|
Dec. 31, 2017
USD ($)
| |
Income Tax Disclosure [Abstract] | |
One-time adjustment to deferred income taxes due to change in enacted rate | $ 9.0 |
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