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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
__________________________________________________________
FORM 10-Q
__________________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35373 
__________________________________________________________
FIESTA RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
__________________________________________________________
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)
Registrant’s telephone number, including area code: (972) 702-9300
__________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý  No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on their Corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨ (Do not check if smaller reporting company) 
 
 
 
 
 
 
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Table of Contents

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of August 1, 2018, Fiesta Restaurant Group, Inc. had 27,266,023 shares of its common stock, $.01 par value, outstanding.


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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 1, 2018
 
 
 
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

3

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1—INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
July 1, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
4,698

 
$
3,599

Accounts receivable
13,517

 
9,830

Inventories
2,602

 
2,880

Prepaid rent
3,315

 
3,300

Income tax receivable
4,662

 
11,334

Prepaid expenses and other current assets
8,292

 
10,105

Total current assets
37,086

 
41,048

Property and equipment, net
239,647

 
234,561

Goodwill
123,484

 
123,484

Deferred income taxes
15,091

 
17,232

Other assets
7,511

 
6,988

Total assets
$
422,819

 
$
423,313

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
103

 
$
98

Accounts payable
18,198

 
20,293

Accrued payroll, related taxes and benefits
11,729

 
11,776

Accrued real estate taxes
4,581

 
5,860

Other liabilities
15,666

 
21,817

Total current liabilities
50,277

 
59,844

Long-term debt, net of current portion
74,691

 
76,425

Deferred income—sale-leaseback of real estate
21,664

 
23,466

Other liabilities
29,983

 
32,062

Total liabilities
176,615

 
191,797

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Common stock, par value $.01; authorized 100,000,000 shares, issued 27,267,752 and 27,086,958 shares, respectively, and outstanding 26,919,479 and 26,847,458 shares, respectively.
270

 
268

Additional paid-in capital
168,727

 
166,823

Retained earnings
78,159

 
64,425

Treasury stock, at cost; 42,905 shares
(952
)
 

Total stockholders' equity
246,204

 
231,516

Total liabilities and stockholders' equity
$
422,819

 
$
423,313



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 1, 2018 AND JULY 2, 2017
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
Revenues:
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Restaurant sales
$
176,152

 
$
172,005

 
$
344,985

 
$
346,982

Franchise royalty revenues and fees
675

 
619

 
1,326

 
1,249

Total revenues
176,827

 
172,624

 
346,311

 
348,231

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
56,689

 
50,728

 
110,254

 
101,676

Restaurant wages and related expenses (including stock-based compensation expense of $33, ($74), $50 and $35, respectively)
47,677

 
46,269

 
94,160

 
94,401

Restaurant rent expense
8,840

 
8,915

 
17,732

 
18,777

Other restaurant operating expenses
24,654

 
24,636

 
48,104

 
48,704

Advertising expense
5,361

 
4,292

 
11,574

 
11,831

General and administrative (including stock-based compensation expense of $984, $1,248, $1,856 and $1,785, respectively)
12,820

 
18,996

 
27,739

 
34,694

Depreciation and amortization
9,170

 
8,596

 
18,169

 
17,782

Pre-opening costs
877

 
910

 
1,258

 
1,334

Impairment and other lease charges
784

 
10,762

 
122

 
43,176

Other expense (income), net
(3,545
)
 
798

 
(3,179
)
 
1,252

Total operating expenses
163,327

 
174,902

 
325,933

 
373,627

Income (loss) from operations
13,500

 
(2,278
)
 
20,378

 
(25,396
)
Interest expense
986

 
654

 
2,055

 
1,238

Income (loss) before income taxes
12,514

 
(2,932
)
 
18,323

 
(26,634
)
Provision for (benefit from) income taxes
3,021

 
(772
)
 
4,646

 
(9,414
)
Net income (loss)
$
9,493

 
$
(2,160
)
 
$
13,677

 
$
(17,220
)
Basic net income (loss) per share
$
0.35

 
$
(0.08
)
 
$
0.50

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

 
$
(0.08
)
 
$
0.50

 
$
(0.64
)
Basic weighted average common shares outstanding
26,916,295

 
26,815,015

 
26,895,302

 
26,794,560

Diluted weighted average common shares outstanding
26,919,914

 
26,815,015

 
26,901,829

 
26,794,560



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JULY 1, 2018 AND JULY 2, 2017
(In thousands of dollars, except share amounts) 
(Unaudited)

 
Number of
Common
Stock Shares
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury
Stock
 
Total
Stockholders'
Equity
Balance at January 1, 2017
26,755,640

 
$
267

 
$
163,204

 
$
100,704

 
$

 
$
264,175

Stock-based compensation

 

 
1,820

 

 

 
1,820

Vesting of restricted shares
79,497

 
1

 

 

 

 
1

Cumulative effect of adopting a new accounting standard

 

 
73

 
(47
)
 

 
26

Net loss

 

 

 
(17,220
)
 

 
(17,220
)
Balance at July 2, 2017
26,835,137

 
$
268

 
$
165,097

 
$
83,437

 
$

 
$
248,802

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
26,847,458

 
$
268

 
$
166,823

 
$
64,425

 
$

 
$
231,516

Stock-based compensation

 

 
1,906

 

 

 
1,906

Vesting of restricted shares
114,926

 
2

 
(2
)
 

 

 

Cumulative effect of adopting a new accounting standard (Note 1)

 

 

 
57

 

 
57

Purchase of treasury stock
(42,905
)
 

 

 

 
(952
)
 
(952
)
Net income

 

 

 
13,677

 

 
13,677

Balance at July 1, 2018
26,919,479

 
$
270

 
$
168,727

 
$
78,159

 
$
(952
)
 
$
246,204



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6

Table of Contents

FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 1, 2018 AND JULY 2, 2017
(In thousands of dollars)
(Unaudited)
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income (loss)
$
13,677

 
$
(17,220
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
(Gain) loss on disposals of property and equipment
(930
)
 
931

Stock-based compensation
1,906

 
1,820

Impairment and other lease charges
122

 
43,176

Depreciation and amortization
18,169

 
17,782

Amortization of deferred financing costs
135

 
154

Amortization of deferred gains from sale-leaseback transactions
(1,799
)
 
(1,803
)
Deferred income taxes
2,141

 
(14,646
)
Changes in other operating assets and liabilities
(7,088
)
 
5,232

Net cash provided by operating activities
26,333

 
35,426

Cash flows from investing activities:
 
 
 
Capital expenditures:
 
 
 
New restaurant development
(12,051
)
 
(18,796
)
Restaurant remodeling
(299
)
 
(961
)
Other restaurant capital expenditures
(10,026
)
 
(3,587
)
Corporate and restaurant information systems
(4,912
)
 
(2,809
)
Total capital expenditures
(27,288
)
 
(26,153
)
Proceeds from disposals of properties
4,676

 

Proceeds from insurance recoveries
531

 

Net cash used in investing activities
(22,081
)
 
(26,153
)
Cash flows from financing activities:
 
 
 
Borrowings on revolving credit facility
15,000

 
5,000

Repayments on revolving credit facility
(17,000
)
 
(14,000
)
Principal payments on capital leases
(51
)
 
(43
)
Financing costs associated with issuance of debt
(150
)
 

Payments to purchase treasury stock
(952
)
 

Net cash used in financing activities
(3,153
)
 
(9,043
)
Net increase in cash
1,099

 
230

Cash, beginning of period
3,599

 
4,196

Cash, end of period
$
4,698

 
$
4,426

Supplemental disclosures:
 
 
 
Interest paid on long-term debt
$
1,515

 
$
1,149

Interest paid on lease financing obligations

 
71

Accruals for capital expenditures
6,437

 
5,872

Income tax payments (refunds), net
(4,150
)
 
2,486

Capital lease obligations incurred
322

 


The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
7

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except share and per share amounts)



1. 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

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services. Prior to adopting Topic 606, the Company recognized initial franchise fees as revenue in the period that a franchised location opened for business. See Note 6 - Business Segment Information.
Gift cards. The Company sells gift cards to its customers in its restaurants and through select third parties. The Company recognizes revenue from gift cards upon redemption by the customer. For unredeemed gift cards that the Company expects to be entitled to breakage, the Company recognizes expected breakage as revenue in proportion to the pattern of redemption by the customers. The gift cards have no stated expiration dates. Revenues from unredeemed gift cards and gift card liabilities, which are recorded in other current liabilities, are not material to the Company's financial statements. Prior to adopting Topic 606, the Company did not recognize breakage on its gift cards.
Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. The fair value of the Company's senior credit facility was approximately $72.8 million at July 1, 2018, and $75.0 million at December 31, 2017. The carrying value of the Company's senior credit facility was $73.0 million at July 1, 2018 and $75.0 million at December 31, 2017.
Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3 - Impairment of Long-Lived Assets.
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs, insurance liabilities, evaluation for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
2. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets, consist of the following:
 
July 1, 2018
 
December 31, 2017
Prepaid contract expenses
$
4,132

 
$
3,681

Assets held for sale(1)

 
2,705

Other
4,160

 
3,719

 
$
8,292

 
$
10,105


(1) Two closed Pollo Tropical restaurant properties owned by the Company that were classified as held for sale as of December 31, 2017 were sold in 2018 for a total of $3.3 million.
3. 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

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


period are less than the carrying value of the restaurant’s assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material.

A summary of impairment on long-lived assets and other lease charges (recoveries) recorded by segment is as follows:
 
Three Months Ended
 
Six Months Ended
 
July 1, 2018
 
July 2, 2017
 
July 1, 2018
 
July 2, 2017
Pollo Tropical
$
686

 
$
10,536

 
$
144

 
$
42,607

Taco Cabana
98

 
226

 
(22
)
 
569

 
$
784

 
$
10,762

 
$
122

 
$
43,176



Impairment and other lease charges for the three and six months ended July 1, 2018 primarily include lease charges, net of recoveries, of $0.5 million related to certain previously closed restaurants due to adjustments to estimates of future lease costs and impairment charges of $0.3 million related to previously closed restaurants as well as one underperforming Taco Cabana restaurant with a short remaining lease term. Impairment and other lease charges for the six months ended July 1, 2018 also include a net benefit of $(0.7) million in lease charge recoveries due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs in the first quarter of 2018.
In conjunction with the Strategic Renewal Plan to drive long-term shareholder value creation, Pollo Tropical recognized impairment charges of $3.8 million and $35.7 million, and other lease charges, net of recoveries, of $6.7 million and $6.9 million for the three and six months ended July 2, 2017, respectively. These charges were due primarily to impairment and closures of underperforming Pollo Tropical restaurants in the first and second quarters of 2017. Impairment and other lease charges for the three and six months ended July 2, 2017 for Taco Cabana consist of impairment charges of $0.2 million and $0.6 million, respectively.
The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company’s history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the six months ended July 2, 2017 totaled $9.5 million, which primarily consisted of leasehold improvements related to Pollo Tropical restaurants that will be rebranded as Taco Cabana restaurants and the estimated fair value of owned properties.


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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


4. Other Liabilities
Other liabilities, current, consist of the following:
 
July 1, 2018
 
December 31, 2017
Accrued workers' compensation and general liability claims
$
5,107

 
$
5,083

Sales and property taxes
2,045

 
2,279

Accrued occupancy costs
6,095

 
7,813

Other
2,419

 
6,642

 
$
15,666

 
$
21,817


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

 
$
20,985

Deferred compensation
791

 
1,029

Accrued workers’ compensation and general liability claims
6,102

 
6,102

Other
3,819

 
3,946

 
$
29,983

 
$
32,062


Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-restaurant reserve, of which $2.8 million and $5.3 million are included in long-term accrued occupancy costs at July 1, 2018 and December 31, 2017, respectively, with the remainder in current accrued occupancy costs.
 
Six Months Ended July 1, 2018
 
Year Ended December 31, 2017
Balance, beginning of period
$
12,994

 
$
4,912

Provisions for restaurant closures

 
8,767

Additional lease charges (recoveries), net
(263
)
 
(1,301
)
Payments, net
(4,149
)
 
(5,528
)
Other adjustments(1)
146

 
6,144

Balance, end of period
$
8,728

 
$
12,994


(1) For the year ended December 31, 2017, includes the transfer of accruals to expense operating lease payments on a straight-line basis.

5. 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.


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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


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.

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


A summary of all non-vested restricted shares and restricted stock units activity for the six months ended July 1, 2018 is as follows:
 
Non-Vested Shares
 
Restricted Stock Units
 
Shares
 
Weighted
Average
Grant Date
Fair Value
 
Units
 
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2017
239,500

 
$
24.81

 
143,946

 
$
23.11

Granted
187,747

 
19.02

 
112,169

 
6.96

Vested/Released
(104,842
)
 
25.63

 
(10,218
)
 
45.67

Forfeited
(17,037
)
 
24.53

 
(12,243
)
 
55.60

Outstanding at July 1, 2018
305,368

 
$
20.61

 
233,654

 
$
12.67


The fair value of the restricted stock units subject to market performance conditions was estimated using the Monte Carlo simulation method. The fair value of the non-vested restricted shares and all other restricted stock units is based on the closing price on the date of grant.
6. 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.

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


The “Other” column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts and a current income tax receivable.
Three Months Ended
 
Pollo Tropical

 
Taco Cabana

 
Other

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

 
$
80,775

 
$

 
$
176,152

Franchise revenue
 
459

 
216

 

 
675

Cost of sales
 
31,482

 
25,207

 

 
56,689

Restaurant wages and related expenses(1)
 
21,549

 
26,128

 

 
47,677

Restaurant rent expense
 
4,335

 
4,505

 

 
8,840

Other restaurant operating expenses
 
12,634

 
12,020

 

 
24,654

Advertising expense
 
3,130

 
2,231

 

 
5,361

General and administrative expense(2)
 
6,923

 
5,897

 

 
12,820

Adjusted EBITDA
 
15,529

 
4,648

 

 
20,177

Depreciation and amortization
 
5,363

 
3,807

 

 
9,170

Capital expenditures
 
4,862

 
7,000

 
258

 
12,120

July 2, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
94,374

 
$
77,631

 
$

 
$
172,005

Franchise revenue
 
427

 
192

 

 
619

Cost of sales
 
28,956

 
21,772

 

 
50,728

Restaurant wages and related expenses(1)
 
21,691

 
24,578

 

 
46,269

Restaurant rent expense
 
4,472

 
4,443

 

 
8,915

Other restaurant operating expenses
 
12,930

 
11,706

 

 
24,636

Advertising expense
 
2,011

 
2,281

 

 
4,292

General and administrative expense(2)
 
10,673

 
8,323

 

 
18,996

Adjusted EBITDA
 
17,139

 
6,982

 

 
24,121

Depreciation and amortization
 
5,435

 
3,161

 

 
8,596

Capital expenditures
 
8,243

 
5,320

 
916

 
14,479


 

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


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

 
$
155,130

 
$

 
$
344,985

Franchise revenue
 
923

 
403

 

 
1,326

Cost of sales
 
62,497

 
47,757

 

 
110,254

Restaurant wages and related expenses(1)
 
43,705

 
50,455

 

 
94,160

Restaurant rent expense
 
8,632

 
9,100

 

 
17,732

Other restaurant operating expenses
 
24,749

 
23,355

 

 
48,104

Advertising expense
 
6,446

 
5,128

 

 
11,574

General and administrative expense(2)
 
14,965

 
12,774

 

 
27,739

Adjusted EBITDA
 
29,976

 
7,159

 

 
37,135

Depreciation and amortization
 
10,679

 
7,490

 

 
18,169

Capital expenditures
 
13,035

 
13,911

 
342

 
27,288

July 2, 2017:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
193,684

 
$
153,298

 
$

 
$
346,982

Franchise revenue
 
876

 
373

 

 
1,249

Cost of sales
 
58,903

 
42,773

 

 
101,676

Restaurant wages and related expenses(1)
 
45,737

 
48,664

 

 
94,401

Restaurant rent expense
 
9,847

 
8,930

 

 
18,777

Other restaurant operating expenses
 
26,319

 
22,385

 

 
48,704

Advertising expense
 
6,336

 
5,495

 

 
11,831

General and administrative expense(2)
 
19,514

 
15,180

 

 
34,694

Adjusted EBITDA
 
31,861

 
13,476

 

 
45,337

Depreciation and amortization
 
11,518

 
6,264

 

 
17,782

Capital expenditures
 
16,906

 
8,016

 
1,231

 
26,153

Identifiable Assets:
 
 
 
 
 
 
 
 
July 1, 2018
 
$
223,375

 
$
179,170

 
$
20,274

 
$
422,819

December 31, 2017
 
227,194

 
167,237

 
28,882

 
423,313


(1) Includes stock-based compensation expense of $33 and $50 for the three and six months ended July 1, 2018, respectively, and $(74) and $35 for the three and six months ended July 2, 2017, respectively.
(2) Includes stock-based compensation expense of $984 and $1,856 for the three and six months ended July 1, 2018, respectively, and $1,248 and $1,785 for the three and six months ended July 2, 2017, respectively.

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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
July 1, 2018:
 
 
 
 
 
 
Net income
 
 
 
 
 
$
9,493

Provision for income taxes
 
 
 
 
 
3,021

Income before taxes
 
$
10,797

 
$
1,717

 
$
12,514

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

 
3,807

 
9,170

          Impairment and other lease charges
 
685

 
99

 
784

          Interest expense
 
491

 
495

 
986

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

 
19

 
33

                Total Non-general and administrative expense adjustments
 
4,659

 
2,769

 
7,428

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

 
400

 
984

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

 
15

          Legal settlements and related costs
 
(167
)
 

 
(167
)
               Total General and administrative expense adjustments
 
73

 
162

 
235

Adjusted EBITDA:
 
$
15,529

 
$
4,648

 
$
20,177

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

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

 
3,161

 
8,596

          Impairment and other lease charges
 
10,536

 
226

 
10,762

          Interest expense
 
295

 
359

 
654

          Other expense (income), net
 
853

 
(55
)
 
798

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

 
88

 
88

                Total Non-general and administrative expense adjustments
 
17,074

 
3,750

 
20,824

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

 
608

 
1,248

          Terminated capital project
 
7

 
6

 
13

          Board and shareholder matter costs
 
1,767

 
1,332

 
3,099

          Strategic Renewal Plan restructuring costs and retention bonuses
 
1,153

 
716

 
1,869

               Total General and administrative expense adjustments
 
3,567

 
2,662

 
6,229

Adjusted EBITDA:
 
$
17,139

 
$
6,982

 
$
24,121

 
 
 
 
 
 
 


16

Table of Contents
FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share and per share amounts)


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

Provision for income taxes
 
 
 
 
 
4,646

Income (loss) before taxes
 
$
18,925

 
$
(602
)
 
$
18,323

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

 
7,490

 
18,169

          Impairment and other lease charges
 
144

 
(22
)
 
122

          Interest expense
 
1,019

 
1,036

 
2,055

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

 
31

 
50

                Total Non-general and administrative expense adjustments
 
10,313

 
6,904

 
17,217

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

 
805