Fiesta Restaurant Group Annual Report 2016

FY2016 Annual Report · Fiesta Restaurant Group
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________

FORM 10-K
____________

(cid:54)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ﬁ scal year ended January 1, 2017

OR

(cid:133)  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 speciﬁ ed in its charter)
____________

Delaware
(State or other jurisdiction of 
incorporation or organization)

14800 Landmark Boulevard, Suite 500 Dallas, TX
(Address of principal executive office)

90-0712224
(I.R.S. Employer 
Identiﬁcation No.)

75254
(Zip Code)

Registrant’s telephone number, including area code: (972) 702-9300
Securities registered pursuant to Section 12(b) of the Act:

Title of each class:
Common Stock, par value $.01 per share

Name on each exchange on which registered:
The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None
____________

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁ ned in Rule 405 of the Securities Act. 

Yes (cid:54) No (cid:133)

Indicate by check mark if the registrant is not required to ﬁ le reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes (cid:133) No (cid:54)

Indicate by check mark whether the registrant (1) has ﬁ led all reports required to be ﬁ led 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 ﬁ le 
such reports), and (2) has been subject to such ﬁ ling requirements for the past 90 days. Yes (cid:54) No (cid:133)

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 ﬁ les). Yes (cid:54) No (cid:133)

Indicate by check mark if disclosure of delinquent ﬁ lers pursuant to Item 405 of Regulation S-K is not contained herein, 

and will not be contained, to the best of the registrant’s knowledge, in deﬁ nitive proxy or information statements incorporated by 
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)

Indicate by check mark whether the registrant is a large accelerated ﬁ ler, an accelerated ﬁ ler, a non-accelerated ﬁ ler or a 

smaller reporting company. See the deﬁ nitions of “large accelerated ﬁ ler”, “accelerated ﬁ ler” and “smaller reporting company” in 
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated ﬁler
Non-accelerated ﬁler
(Do not check if smaller reporting company)

(cid:54)
(cid:133)

Accelerated ﬁler
Smaller reporting company

(cid:133)
(cid:133)

Indicate by check mark whether the registrant is a shell company (as deﬁ ned in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:54)
As of February 23, 2017, Fiesta Restaurant Group, Inc. had 26,884,992 shares of its common stock, $.01 par value, 
outstanding. The aggregate market value of the common stock held by non-affi  liates as of July 3, 2016 of Fiesta Restaurant 
Group, Inc. was $582,150,821.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s deﬁ nitive Proxy Statement for Fiesta Restaurant Group, Inc.’s 2017 Annual Meeting of 

Stockholders, which is expected to be ﬁ led pursuant to Regulation 14A no later than 120 days after the conclusion of Fiesta 
Restaurant Group, Inc.’s ﬁ scal year ended January 1, 2017 are incorporated by reference into Part III of this annual report.

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FIESTA RESTAURANT GROUP, INC.

FORM 10-K
YEAR ENDED JANUARY 1, 2017

PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4

PART II
Item 5

Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B

PART III
Item 10
Item 11
Item 12

Item 13
Item 14

PART IV
Item 15
Item 16

Business  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Directors, Executive Officers and Corporate Governance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder 
Matters  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibits and Financial Statement Schedules  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Presentation of Information

PART I

Throughout this Annual Report on Form 10-K, we refer to Fiesta Restaurant Group, Inc. as “Fiesta Restaurant 

Group” or “Fiesta” and, together with its consolidated subsidiaries, as “we,” “our” and “us” unless otherwise 
indicated or the context otherwise requires.

We own, operate and franchise two fast-casual restaurant brands, Pollo Tropical® and Taco Cabana®, through 

our wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively 
“Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Prior to May 7, 2012, we 
were indirectly owned by Carrols Restaurant Group, Inc. (“Carrols”). On that date, Carrols completed a spin-off  of 
Fiesta, and Fiesta became an independent public company, through the distribution of all of the outstanding shares of 
Fiesta’s common stock to the stockholders of Carrols. Our common stock is traded on The NASDAQ Global Select 
Market under the symbol “FRGI.”

We use a 52 or 53 week ﬁ scal year ending on the Sunday closest to December 31. The ﬁ scal years ended 

December 30, 2012, December 29, 2013, December 28, 2014 and January 1, 2017 each contained 52 weeks. The 
ﬁ scal year ended January 3, 2016 contained 53 weeks. The next year to contain 53 weeks is expected to be the ﬁ scal 
year ending January 3, 2021.

In this Annual Report on Form 10-K, we refer to information, forecasts and statistics regarding the restaurant 

industry. Unless otherwise indicated, all restaurant industry data in this Annual Report on Form 10-K refers to 
the U.S. restaurant industry and is taken from or based upon the Technomic, Inc. (“Technomic”) report titled 
“2016 Technomic Top 500 Chain Restaurant Report.” The information, forecasts and statistics we have used from 
Technomic may reﬂ ect rounding adjustments.

Use of Non-GAAP Financial Measures

Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level 

Adjusted EBITDA margin are all non-GAAP ﬁ nancial measures. Adjusted EBITDA is deﬁ ned as earnings before 
interest, loss on extinguishment of debt, income taxes, depreciation and amortization, impairment and other lease 
charges, stock-based compensation expense and other income and expense. Adjusted EBITDA may not necessarily 
be comparable to other similarly titled captions of other companies due to diff erences in methods of calculation. 
Adjusted EBITDA for each of our Pollo Tropical and Taco Cabana segments includes an allocation of general and 
administrative expenses associated with administrative support for executive management, information systems and 
certain accounting, legal, supply chain, human resources, development and other administrative functions. Adjusted 
EBITDA margin represents Adjusted EBITDA divided by total revenues. Restaurant-Level Adjusted EBITDA 
represents Adjusted EBITDA excluding franchise royalty revenues and fees and general and administrative expenses 
(including corporate-level general and administrative expenses). Restaurant-Level Adjusted EBITDA margin 
represents Restaurant-Level Adjusted EBITDA divided by restaurant sales.

Management believes that such ﬁ nancial measures, when viewed with our results of operations calculated in 

accordance with GAAP and our reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA to net 
income (i) provide useful information about our operating performance and period-over-period growth, (ii) provide 
additional information that is useful for evaluating the operating performance of our business and (iii) permit 
investors to gain an understanding of the factors and trends aff ecting our ongoing earnings, from which capital 
investments are made and debt is serviced. However, such measures are not measures of ﬁ nancial performance or 
liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash ﬂ ow from 
operating activities as indicators of operating performance or liquidity. Also these measures may not be comparable 
to similarly titled captions of other companies.

All of such non-GAAP ﬁ nancial measures have important limitations as analytical tools. These limitations 

include the following:

• 

such ﬁ nancial information does not reﬂ ect our capital expenditures, future requirements for capital 
expenditures or contractual commitments to purchase capital equipment;

1

• 

• 

• 

such ﬁ nancial information does not reﬂ ect interest expense or the cash used to repay outstanding 
borrowings under our senior credit facility;

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 ﬁ nancial information does not reﬂ ect the 
cash required to fund such replacements; and

such ﬁ nancial information does not reﬂ ect the eff ect 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 (such as impairment and other lease charges, other income and expense and stock-based 
compensation expense) have recurred and may recur.

See Item 6 — “Selected Financial Data” for a quantitative reconciliation from net income, which we believe 
is the most directly comparable GAAP ﬁ nancial performance measure to Restaurant-Level Adjusted EBITDA and 
Adjusted EBITDA.

Forward-Looking Statements

This 2016 Annual Report on Form 10-K contains “forward-looking” statements within the meaning of 
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as 
amended. “Forward-looking statements” are any statements that are not based on historical information. Statements 
other than statements of historical facts included herein, including, without limitation, statements regarding 
our future ﬁ nancial position and results of operations, business strategy, budgets, projected costs and plans and 
objectives of management for future operations, are “forward-looking statements.” Forward-looking statements 
generally can be identiﬁ ed by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” 
“intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such 
words and similar expressions. These statements are not guarantees of future performance and involve certain risks, 
uncertainties and assumptions, which are diffi  cult to predict. Therefore, actual outcomes and results may diff er 
materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance 
that such forward-looking statements will prove to be correct. Important factors that could cause actual results to 
diff er materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” 
include, but are not limited to:

• 

• 

• 

• 

• 

• 

• 

• 

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 and social media;

Our ability to manage our growth and successfully implement our business strategy;

Labor and employment beneﬁ t costs, including the impact of increases in federal and state minimum 
wages, increases in exempt status salary levels and healthcare costs imposed by the Aff ordable Care Act;

Cyber security breaches;

General economic conditions, particularly in the retail sector;

Competitive conditions;

•  Weather conditions;

• 

• 

• 

• 

• 

Signiﬁ cant 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;

2

• 

• 

• 

• 

• 

• 

• 

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 ﬁ nancing or reﬁ nancing and other related risks and 
uncertainties;

The risk of an act of terrorism or escalation of any insurrection or armed conﬂ ict involving the United 
States or any other national or international calamity;

Factors that aff ect the restaurant industry generally, including product recalls, liability if our products 
cause injury, ingredient disclosure and labeling laws and regulations; and

Other factors discussed under Item 1A — “Risk Factors” and elsewhere herein.

ITEM 1. BUSINESS

Overview

Our Company

We own, operate and franchise two fast-casual restaurant brands, Pollo Tropical® and Taco Cabana®, which 

have almost 30 and 40 years, respectively, of operating history and loyal customer bases. Our Pollo Tropical 
restaurants off er a wide variety of freshly prepared Caribbean inspired food, while our Taco Cabana restaurants off er 
a broad selection of freshly prepared Mexican inspired food. We believe that both brands are diff erentiated from 
other restaurant concepts and off er a unique dining experience. Our brands are positioned within the value-oriented 
fast-casual restaurant segment and nearly all of our restaurants off er the convenience of drive-thru windows.

For the ﬁ scal year ended January 1, 2017, the average annual sales per restaurant was approximately 

$2.4 million for our company-owned Pollo Tropical restaurants and approximately $1.9 million for our 
company-owned Taco Cabana restaurants, which we believe are among the highest in the fast-casual and 
quick-service segments based on industry data from Technomic. As of January 1, 2017, we owned and operated 
177 Pollo Tropical restaurants in the southeast and south central United States, and 166 Taco Cabana restaurants 
primarily located in Texas, for a total of 343 restaurants across ﬁ ve states. We franchise our Pollo Tropical restaurants 
primarily in international markets, and as of January 1, 2017, we had 29 franchised Pollo Tropical restaurants 
outside the United States. In addition, as of January 1, 2017, we had ﬁ ve domestic non-traditional licensed locations 
on college campuses and one location in a hospital in Florida. As of January 1, 2017, we had ﬁ ve Taco Cabana 
franchised restaurants in New Mexico and two non-traditional Taco Cabana licensed domestic locations on college 
campuses in Texas. For the ﬁ scal year ended January 1, 2017, we generated consolidated revenues of $711.8 million, 
and comparable restaurant sales decreased 1.6% for Pollo Tropical and 2.5% for Taco Cabana.

On September 30, 2016, Timothy P. Taft, Chief Executive Offi  cer, President and a member of the Company’s 

Board of Directors, retired as the Company’s Chief Executive Offi  cer and President, and resigned as a member of the 
Company’s Board of Directors. Danny Meisenheimer, Chief Operating Offi  cer, Pollo Tropical, was appointed interim 
Chief Executive Offi  cer and President eff ective September 30, 2016.

On February 27, 2017, the Company announced that Richard C. Stockinger has been appointed Chief 
Executive Offi  cer and President of the Company, eff ective February 28, 2017. Also, the Company announced that 
Danny Meisenheimer, the Interim Chief Executive Offi  cer and President of the Company and Chief Operating 
Offi  cer, Pollo Tropical through February 27, 2017 was appointed Chief Operating Offi  cer and Senior Vice President 
of the Company eff ective February 28, 2017.

In 2016, we decided to suspend additional development of Pollo Tropical restaurants outside of Florida and to 
review our development strategy while we continue to build brand awareness, affi  nity and off  premise consumption 
through several initiatives. Based on a restaurant portfolio examination, we closed ten Pollo Tropical restaurants 
in the fourth quarter of 2016 including eight restaurants in Texas, one restaurant in Nashville, Tennessee and one 
restaurant in Atlanta, Georgia. We plan to convert up to three of the closed restaurants in Texas to Taco Cabana 
restaurants in 2017.

3

In 2016, we recognized impairment charges with respect to ten closed restaurants and seven additional Pollo 

Tropical restaurants and seven Taco Cabana restaurants that we continue to operate. Impairment and other lease 
charges for the twelve months ended January 1, 2017 were $25.6 million and included impairment charges of 
$22.7 million and lease and other charges related to closed restaurants of $2.9 million. The ten closed restaurants 
contributed approximately $5.3 million in operating losses to income from operations for the twelve months ended 
January 1, 2017.

The restaurant industry experienced a continued general slowdown in 2016, that further declined in the 
fourth quarter. We believe the challenging market and industry conditions and, in the case of Pollo Tropical, sales 
cannibalization from new restaurants on existing restaurants contributed to a decline in comparable restaurant 
transactions and sales in 2016.

In the latter part of 2016 we reevaluated the previously announced separation of Taco Cabana and decided not 
to move forward with the separation transaction, concluding that continued ownership of the Taco Cabana brand was 
in our stockholders’ best interest.

Our Brands.  Our restaurants operate in the fast-casual restaurant segment, combining the convenience and 
value of quick-service restaurants in an appealing atmosphere with the menu variety, use of fresh ingredients, food 
quality and decor more typical of casual dining restaurants with limited table service and competitive pricing.

Pollo Tropical.  Our Pollo Tropical restaurants off er Caribbean inspired menu items, featuring our bone-in 

chicken marinated in a proprietary blend of tropical fruit juices and spices and grilled over an open ﬂ ame. Our 
menu also includes a line of TropiChops® (a create your own casserole bowl of grilled chicken breast, roast pork 
or grilled vegetables, or in some markets beef, served over white, brown or yellow rice and red or black beans and 
vegetables), a variety of sandwiches, wraps and salads off ered with an array of Caribbean style made-from-scratch 
side dishes, including black beans and rice, fried yuca and sweet plantains, as well as more traditional menu items 
such as waffl  e fries, Caesar salad and corn. We also off er a self-service “Saucing Island” which includes a wide 
selection of made-from-scratch salsas, sauces, jalapeños, cilantro, onions and other items which allows our guests 
to further customize their orders. Our restaurants off er Caribbean dessert favorites, such as guava cheesecake and 
tres leche cake. Our beverage off erings include fountain soft drinks and other bottled drinks. Most menu items are 
prepared daily in each of our restaurants, which feature open display cooking on large, open-ﬂ ame grills. We off er 
both individual and family meal-sized portions which enable us to provide a home meal replacement for our guests. 
We also off er catering for parties and corporate events.

Our Pollo Tropical restaurants feature dining areas designed to create an inviting, festive and tropical 
atmosphere. We also provide our guests the option of take-out, including the ability to order on-line in advance, 
and nearly all of our restaurants provide the convenience of drive-thru windows. In some locations, delivery is 
available. Our Pollo Tropical restaurants are generally open for lunch, dinner and late night seven days a week. As 
of January 1, 2017, substantially all of our company-owned Pollo Tropical restaurants were freestanding buildings. 
Our typical freestanding Pollo Tropical restaurant ranges from 2,800 to 3,700 square feet and provides interior 
seating for approximately 70 to 90 guests. For the year ended January 1, 2017, the average sales transaction at our 
company-owned Pollo Tropical restaurants was $10.94, with dinner representing the largest day-part at 52.9%. For 
the year ended January 1, 2017, our Pollo Tropical brand generated total revenues of $401.8 million and Adjusted 
EBITDA of $55.5 million, including pre-opening costs of $4.8 million (which include costs incurred prior to 
opening a new restaurant, including restaurant employee wages and related expenses, travel expenditures, recruiting, 
training, promotional costs associated with the restaurant opening and rent, including any non-cash rent expense 
recognized during the construction period).

Pollo Tropical opened its ﬁ rst restaurant in 1988 in Miami, Florida. As of January 1, 2017, we owned and 
operated a total of 177 Pollo Tropical restaurants, of which 128 were located in Florida, 30 were located in Texas, 16 
were located in Georgia and three were located in Tennessee. In 2014, we introduced a new building design that we 
believe better diff erentiates our Pollo Tropical brand with a bolder, more Caribbean inspired look while continuing 
to utilize the elevated, limited table service and menu format that has been in place in certain locations outside of 
our core South Florida markets since 2009. We believe the new design will more eff ectively position the brand for a 
broader target audience and growth. In addition, in 2015 we began a reimaging program to conform select existing 
Pollo Tropical restaurants to the new building design. As of January 1, 2017, we had reimaged 30 Pollo Tropical 
restaurants located in the Orlando, Nashville, South Florida and Atlanta markets.

4

We are franchising our Pollo Tropical restaurants primarily internationally, and as of January 1, 2017, we 

had 29 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Trinidad & Tobago, Guatemala, the 
Bahamas, Venezuela, and Guyana, and ﬁ ve non-traditional licensed locations on college campuses and one located 
in a hospital in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants 
in certain of our existing franchised markets.

Taco Cabana. Our Taco Cabana restaurants serve fresh, Mexican-inspired food, including ﬂ ame-grilled steak and 

chicken fajitas served on sizzling iron skillets, quesadillas, hand-rolled ﬂ autas, enchiladas, burritos, tacos, fresh-made 
ﬂ our tortillas, customizable salads served in our Cabana Bowl®, and our popular breakfast tacos. We also off er a 
self-service salsa bar which includes a wide selection of made-from-scratch salsas, sauces, sliced jalapeños, chopped 
cilantro, chopped onions and other items which allow our guests to further customize their orders. Our beverage 
off erings include fountain soft drinks, our signature frozen margaritas and beer as well as bottled Mexican Coke and 
Fanta Orange soda made with real cane sugar. Most menu items are freshly-prepared at each restaurant daily.

Taco Cabana restaurants feature open display cooking that enables guests to observe fajitas cooking on an 
open grill, a tortilla machine pressing and grilling fresh ﬂ our tortillas and the fresh preparation of other menu items. 
Our Taco Cabana restaurants feature interior dining areas as well as semi-enclosed and outdoor patio areas, which 
provide a vibrant, contemporary decor and relaxing atmosphere. Additionally, we provide our guests the option 
of take-out, including the ability to order on-line in advance, as well as the convenience of drive-thru windows 
and catering. In some locations, delivery is available. Our typical freestanding Taco Cabana restaurants average 
approximately 3,500 square feet (exclusive of the exterior dining area) and provide seating for approximately 80 
guests, with additional outside patio seating for approximately 50 guests. As of January 1, 2017, substantially all of 
our company-owned Taco Cabana restaurants were freestanding buildings.

Taco Cabana pioneered the Mexican patio cafe concept with its ﬁ rst restaurant in San Antonio, Texas in 1978. 
As of January 1, 2017, we owned and operated 166 Taco Cabana restaurants, of which 165 were located in Texas and 
one was located in Oklahoma. As of January 1, 2017, we also had ﬁ ve Taco Cabana franchised restaurants located 
in New Mexico and two non-traditional Taco Cabana licensed locations located on college campuses in Texas. 
A majority of our Taco Cabana restaurants are open 24 hours a day, generating guest traffi  c and restaurant sales 
balanced across multiple day-parts. For the year ended January 1, 2017, dinner sales represented the largest day-part 
at 24.9% and the average sales transaction at our company-owned Taco Cabana restaurants was $9.27. For the year 
ended January 1, 2017, our Taco Cabana brand generated total revenues of $310.0 million and Adjusted EBITDA of 
$38.1 million, including pre-opening costs of $0.7 million.

Our Competitive Strengths

We believe the success of our Pollo Tropical and Taco Cabana brands is a result of the following key attributes:

Well Positioned in the Fast Growing Fast-Casual Segment.  As of January 1, 2017, we owned, operated and 

franchised 385 fast-casual restaurants under our Pollo Tropical and Taco Cabana brands which have almost 30 and 
40 years, respectively, of operating history. According to Technomic, the fast-casual segment had sales growth of 
11.5% in 2015 over 2014 for fast-casual chains in the Technomic Top 500 restaurant chains as compared to 5.0% 
growth for the overall Top 500 restaurant chains. In addition, at $2.4 million and $1.9 million, respectively, we 
believe Pollo Tropical and Taco Cabana have compelling average annual sales per restaurant within the fast-casual 
segment. However, average annual sales per restaurant for our Pollo Tropical restaurants will generally decrease as 
we open restaurants in newer markets, which have lower annual sales per restaurant than our mature markets. We 
believe our brands are well positioned to continue to beneﬁ t from the growing consumer demand for fast-casual 
restaurants because of our high quality, freshly-prepared food, value and diff erentiation of ﬂ avor proﬁ les. In 
addition, we believe our brand elevation initiatives and reimaging programs have enhanced our Pollo Tropical and 
Taco Cabana restaurants in certain existing and new markets by providing our guests with an elevated fast-casual 
experience while better positioning our brands for successful and sustainable future growth.

Two Leading, Diff erentiated Brands Serving Fresh, High Quality Foods With Broad Appeal and a 
Compelling Value Proposition.  Our Pollo Tropical and Taco Cabana brands are diff erentiated from other dining 
options and off er distinct ﬂ avor proﬁ les and healthful menu choices at aff ordable prices that we believe have broad 
consumer appeal, provide guests with a compelling value proposition, attract a diverse customer base and drive guest 
frequency and loyalty. Pollo Tropical and Taco Cabana are committed to serving freshly-prepared food using quality 
ingredients that are made-to-order and customized for each guest. Both of our brands off er a wide range of menu 

5

off erings with regional taste proﬁ les and home meal replacement options in generous portion sizes and at aff ordable 
price points which appeal to a broad customer base. Our open display kitchen format allows guests to view and 
experience our food being freshly-prepared and cooked to order. Pollo Tropical’s menu off ers dishes inspired from 
various regions throughout the Caribbean, including our featured bone-in chicken marinated in a proprietary blend 
of tropical fruit juices and spices and grilled over an open ﬂ ame. Taco Cabana’s menu off ers favorites such as 
sizzling fajitas served hot on an iron skillet and other Mexican inspired dishes. In order to provide variety to our 
guests and to address changes in consumer preferences, we frequently enhance our menu with seasonal off erings at 
our Pollo Tropical and Taco Cabana restaurants. We also selectively use promotions and limited time off ers which are 
intended to reinforce our value proposition and to introduce new products. Additionally, our menus include a number 
of options to address consumers’ increasing focus on healthful eating, and we off er our guests drive-thru service at 
the majority of our restaurants in order to provide a fast, convenience option including home meal replacement and 
family meals.

Compelling Business Model and Strong Financial Results.  We enjoy signiﬁ cant brand recognition due to 

high market penetration of company-owned restaurants in our core markets which provides operating, marketing 
and distribution effi  ciencies, convenience for our guests, and the ability to eff ectively manage and enhance brand 
awareness. As a result of this brand recognition and the three factors discussed above, we believe that our brands 
have enjoyed strong ﬁ nancial results in our core markets, which reinforces our compelling business model in those 
markets. Both of our brands enjoy segment-leading average annual sales volumes, as noted above, with compelling 
Restaurant-Level Adjusted EBITDA margins.

Growth Strategies

Since 2012, we have focused our strategy on growing both of our brands, although Pollo Tropical has been 
our primary growth vehicle. In 2016, we opened 36 new company-owned restaurants comprised of 32 Pollo Tropical 
restaurants and four Taco Cabana restaurants, and we closed 10 underperforming company-owned Pollo Tropical 
restaurants. For 2017, our new restaurant development will be more balanced across both brands and for 2017 we are 
planning to open 12 new company-owned Pollo Tropical restaurants in Florida and ten new company-owned Taco 
Cabana restaurants in Texas. In 2016, we decided to suspend additional development of Pollo Tropical restaurants 
outside of Florida while we continue to build brand awareness, affi  nity and off  premise consumption through several 
initiatives. Based on a restaurant portfolio examination as part of our strategic review process to enhance long-term 
shareholder value, we closed ten Pollo Tropical restaurants in the fourth quarter of 2016 including eight restaurants 
in Texas, one restaurant in Nashville, Tennessee and one restaurant in Atlanta, Georgia. We plan to convert three of 
the closed restaurants in Texas to Taco Cabana restaurants in 2017.

Our strategies for growth primarily include:

Develop New Restaurants.  We believe that we have opportunities to develop additional Pollo Tropical 
and Taco Cabana restaurants in Florida and Texas, respectively, as well as potential future expansion opportunities 
in other existing markets and into other regions of the United States that match our targeted demographic and 
site selection criteria. However, taking into account challenging market conditions and because company-owned 
restaurants in new markets that have not yet reached media effi  ciency have typically opened at lower sales volumes 
than restaurants opened in existing, media-effi  cient markets and have not achieved expected sales volumes at 
the pace we anticipated, we have suspended near-term new restaurant development of Pollo Tropical restaurants 
outside of Florida while we focus on implementing operational and transactional growth plans and drive improved 
performance in these markets.

In 2014, Pollo Tropical developed a new format that includes a new exterior design and a more upscale décor 

that we believe better diff erentiates our brand with a more Caribbean inspired look, while continuing to utilize the 
elevated, limited table service platform and format that has been in place in certain locations since 2009.

In 2016, we developed a new small Taco Cabana format with approximately 2,500 square feet intended for 
new smaller markets and existing markets in Texas. The new format off ers the same menu and has the same look and 
feel as existing Taco Cabana restaurants, but has a smaller dining room and patio. The ﬁ rst two small format Taco 
Cabana restaurants are scheduled to open in 2017.

6

We target opening freestanding company-owned restaurants in order to provide drive-thru service which is 
an important convenience and sales component for our brands. We believe that the location of our restaurants is a 
critical component of each restaurant’s success. We evaluate potential new sites on many critical criteria including 
accessibility, visibility, costs, surrounding traffi  c patterns, competition and demographic characteristics. Our senior 
management team determines the acceptability of all new sites, based upon analyses prepared by our real estate, 
ﬁ nancial and operations professionals as well as a third party vendor that employs proprietary location research 
technology and performs site evaluations on our behalf. Historically, this process has typically resulted in entering 
into a long-term lease for the land followed by construction of the building or the conversion of an existing 
building using cash generated from our operations or with borrowings under our senior credit facility. Infrequently, 
we acquire land for which we may consider seeking to include the land and building in a sale and leaseback 
arrangement as a form of ﬁ nancing in order to reinvest the proceeds in additional restaurants.

The following table includes the recent historical initial interior cost (including equipment, seating, signage 
and other interior costs) of a typical new or converted freestanding restaurant, as well as the historical exterior cost 
(including building and site improvements) and land if acquired.

Interior costs and signage . . . . . . . . . . . . . . 
Exterior costs  . . . . . . . . . . . . . . . . . . . . . . . 
Land  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Pollo Tropical
$0.6 million to $0.9 million
$0.7 million to $1.4 million
$0.9 million to $1.4 million

Taco Cabana
$0.5 million to $0.6 million
$1.2 million to $1.3 million
N/A

The cost of securing real estate and building and equipping new restaurants can vary signiﬁ cantly and depends 

on a number of factors, including the local economic conditions, geographic considerations, size of the restaurant 
and the characteristics of a particular site. Accordingly, the cost of opening new restaurants in the future may diff er 
substantially from the historical cost of restaurants previously opened. The new smaller format Taco Cabana and Pollo 
Tropical Express locations will likely have lower interior and exterior costs than our recent larger format locations.

Increase Comparable Restaurant Sales.  We experienced a decline in comparable restaurant sales in 

2016, which we believe was attributable to challenging market and industry conditions and, in the case of Pollo 
Tropical, sales cannibalization from new restaurants on existing restaurants. However, we experienced an increase 
in comparable restaurant sales at each brand in 2011 through 2015 and we intend to increase comparable restaurant 
sales by attracting new customers and increasing guest frequency through the following strategies:

• 

• 

• 

Focus on consistency of operations and food quality:  We believe the quality, consistency and accuracy 
of our operations result in an enjoyable guest experience, which drives guest frequency. We will continue 
to reﬁ ne our menu off erings, supply chain and food preparation processes to ensure high quality, 
freshness and consistency of our food which we believe are critical components to the continued success 
of our brands.

New product innovation:  Across both brands, our menus are centered on fresh, high quality food 
off erings that we believe have both broad appeal and provide everyday value. Pollo Tropical and Taco 
Cabana each have separate teams of product research and development professionals that enables us to 
continually reﬁ ne our menu off erings and develop new products. Maintaining a strong product pipeline 
is critical to keeping our off erings compelling, and we intend to introduce innovative new items and 
enhancements to existing menu favorites throughout the year to drive further guest traffi  c and maximize 
guest frequency. Also, the addition of portable menu items, such as wraps, sandwiches, bowls and salads, 
as well as home meal replacement and family meals will continue to be a key focus for both brands as 
we look to capture more meal occasions for people on the go.

Focus on eff ective advertising to highlight our everyday value proposition:  Pollo Tropical and 
Taco Cabana utilize an integrated, multi-level marketing approach that includes periodic chain-wide 
promotions, direct mail, outdoor marketing including billboards, in-restaurant promotions, local store 
marketing, social media marketing and web-based and other strategies, including the use of radio 
and television advertising and limited-time off er menu item promotions. The type, mix and volume 
of advertising spend is heavily inﬂ uenced by the number of restaurants in each market, so that in 
new markets we achieve certain restaurant penetration levels prior to launching more expensive 
and broad-based radio and television advertising. We plan to continue to reﬁ ne our advertising and 
media strategies to continue to reinforce the key attributes of our brands which include high quality, 

7

• 

• 

freshly-prepared food, an enhanced guest experience, everyday value, convenience and new limited time 
menu off erings. We have experienced success emphasizing the attractive price points of our menu. We 
also provide guests with the opportunity to sign up for our respective eClubs to stay informed regarding 
product and promotional launches. In addition, we introduced a loyalty program at Pollo Tropical to 
further connect with our repeat guests, and we plan to pilot a loyalty program at Taco Cabana in 2017. 
As a percentage of Pollo Tropical restaurant sales, Pollo Tropical’s advertising expenditures were 3.7% in 
2016, 2.6% in 2015 and 2.5% in 2014. As a percentage of Taco Cabana restaurant sales, Taco Cabana’s 
advertising expenditures were 3.9% in 2016, 3.8% in 2015 and 3.9% in 2014.

Grow our off  premise sales:  While both Pollo Tropical and Taco Cabana off er family meals and 
catering, we believe both brands have signiﬁ cant opportunities to grow their off  premise sales. We 
redesigned the Pollo Tropical on-line catering order site in 2016 to improve the on-line catering order 
experience and expect to complete a redesign of the Taco Cabana on-line catering order site in 2017. 
In addition to launching a redesigned website with enhanced on-line ordering capabilities and a smart 
phone app, we are also off ering delivery in certain markets and plan to increase our delivery capabilities 
in 2017.

Continue our brand elevation and reimage program:  We believe that our elevated brand position 
continues to resonate with guests by enhancing the quality of the guest experience at our restaurants 
by aligning our image and service with our high quality food off erings. We continue to implement 
restaurant enhancement initiatives to elevate the dining experience at our Pollo Tropical and Taco 
Cabana restaurants in select markets. We believe these enhancements improve our brands’ positioning 
in the fast-casual segment while appealing to a broader demographic. Our restaurant enhancements 
create an updated, contemporary look that we believe is more relevant to today’s consumers and include 
changes to both the interior and exterior of our restaurants with the addition of new tables and chairs, 
upgraded salsa bars and the addition of photos and murals to create a more inviting feel and highlight 
our fresh ingredients. Our Pollo Tropical and Taco Cabana elevated formats also feature limited table 
service, Wi-Fi and new menu items, as well as hand-held menus and real plates and silverware in certain 
locations. Additionally, we plan to continue our restaurant reimaging eff orts as we refresh and upgrade 
our entire system. As of January 1, 2017, we have reimaged 30 Pollo Tropical restaurants, and plan to 
continue to reimage additional Pollo Tropical restaurants, which we believe will further diff erentiate 
our Pollo Tropical brand with a more Caribbean inspired look, help us maintain a quality restaurant 
environment, and further drive incremental sales and proﬁ tability.

Improve Proﬁ tability and Optimize Our Infrastructure.  We believe our Restaurant-Level Adjusted EBITDA 

margins, at 22.6% for Pollo Tropical and 18.8% for Taco Cabana, are competitive within the fast-casual segment. 
However, through new restaurant development, growing comparable restaurant sales and emerging market new Pollo 
Tropical restaurant sales, we believe we will grow our Restaurant-Level Adjusted EBITDA and related margins. 
We also believe that our large restaurant base, skilled management team, operating systems, technology initiatives 
and training and development programs support our strategy of enhancing operating effi  ciencies for our existing 
restaurants while concurrently growing our restaurant base. We continue to focus on maximizing cost effi  ciencies, 
including implementing proﬁ t enhancement initiatives focused on food and labor costs and leveraging our scale, as 
well as enhancing our supply chain expertise with the result of reduced costs and improved food quality, consistency 
and yield.

However, because our company-owned restaurants in new markets have lower sales than our company-owned 

restaurants in markets that have achieved media effi  ciency and require regional support structures in advance of 
new company-owned restaurant openings, our average annual sales per restaurant and Adjusted EBITDA margins, 
which include general and administrative costs, have been and could continue to be impacted by company-owned 
restaurants in newer markets. In 2017, we will implement a plan to improve sales and proﬁ tability in our new Pollo 
Tropical restaurants in new markets that includes retraining staff  at all restaurants, operational investments in batch 
cooking, ensuring that each restaurant is adequately staff ed to provide a great guest experience, improving brand 
awareness through promotions and advertising and adding new menu off erings.

8

Competition

The restaurant industry is highly competitive with respect to price, service, location and food quality. In 

each of our markets, our restaurants compete with a large number of national and regional restaurant chains, 
as well as locally owned restaurants, off ering low and medium-priced fare. We also compete with convenience 
stores, delicatessens and prepared food counters in supermarkets, grocery stores, cafeterias and other purveyors of 
moderately priced and quickly prepared foods.

We believe that:

• 

• 

• 

• 

• 

• 

• 

• 

• 

product quality and taste;

brand diff erentiation and recognition;

convenience of location;

speed of service;

menu variety;

value perception;

ambiance;

cleanliness; and

hospitality

are among the most important competitive factors in the fast-casual restaurant segment and that our two concepts 
eff ectively compete in that category. Pollo Tropical’s competitors include national and regional chicken-based 
concepts, as well as other concepts. Taco Cabana’s restaurants compete with Mexican concepts.

Restaurant Operating Data

Selected restaurant operating data for our two restaurant concepts is as follows:

January 1, 
2017

Year ended
January 3, 
2016

December 28, 
2014

Pollo Tropical:
Average annual sales per company-owned restaurant (in thousands)(1)  . . .  $  2,354
Average sales transaction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  10.94
Drive-through sales as a percentage of total sales  . . . . . . . . . . . . . . . . . . . 
Day-part sales percentages:

46.3%

Lunch  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Dinner and late night . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

47.1%
52.9%

Taco Cabana:
Average annual sales per company-owned restaurant (in thousands)(1)  . . .  $  1,894
9.27
Average sales transaction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Drive-through sales as a percentage of total sales  . . . . . . . . . . . . . . . . . . . 
55.7%
Day-part sales percentages:

$  2,585
$  10.76

$ 
$ 

45.7%

46.8%
53.2%

$  1,920
9.16
$ 
54.7%

$ 
$ 

Breakfast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lunch  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Dinner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Late night (9pm to midnight) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Afternoon (2pm to 5pm) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Overnight (midnight to 6am)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

22.3%
22.0%
24.9%
11.8%
12.6%
6.4%

20.8%
22.4%
25.4%
12.1%
12.7%
6.6%

2,720
10.26
45.3%

46.5%
53.5%

1,831
8.75
53.9%

19.8%
22.5%
25.8%
12.4%
12.5%
7.0%

(1)  Average annual sales for company-owned restaurants are derived by dividing restaurant sales for such year for the 

applicable segment by the average number of company-owned restaurants for the applicable segment for such year. For 
comparative purposes, the calculation of average annual sales per company-owned restaurant is based on a 52-week ﬁ scal 
year. Restaurant sales data for the extra week in the ﬁ scal year ended January 3, 2016 have been excluded for purposes of 
calculating average annual sales per company-owned restaurant.

9

Seasonality

Our business is marginally seasonal due to regional weather conditions, particularly in Florida and Texas. 
Average restaurant sales are typically higher during the ﬁ rst and second quarters and typically lower in the third and 
fourth quarters. In addition, we have outdoor seating at many of our restaurants and the eff ects of adverse weather 
may impact the use of these areas and may negatively impact our restaurant sales.

Operations

Management Structure

We conduct substantially all of our marketing and operations support functions from our Pollo Tropical 
division headquarters in Dallas, Texas and Miami, Florida, and our Taco Cabana division headquarters in San 
Antonio, Texas. The management structure for Pollo Tropical consists of our Chief Operating Offi  cer, Danny 
Meisenheimer, who also serves as our Interim Chief Executive Offi  cer and President and has over 25 years of 
experience in the restaurant industry, and two Vice Presidents of Operations supported by six Regional Directors, 
25 District Managers and three Assistant District Managers. The management structure of Taco Cabana consists 
of our Interim Chief Operating Offi  cer, Mark Phillips, who has over 37 years of restaurant industry experience, 
and who also serves as the Vice President of Operations and is supported by four Regional Directors, one Senior 
District Manager and 28 District Managers. The Taco Cabana Interim Chief Operating Offi  cer reports to our Interim 
Chief Executive Offi  cer and President, who are supported by a number of divisional and corporate executives with 
responsibility for operations, marketing, product development, purchasing, human resources, training, real estate and 
ﬁ nance. For each of our brands, a district manager is responsible for the direct oversight of the day-to-day operations 
of an average of approximately seven restaurants. Typically, district managers have previously served as restaurant 
managers at one of our restaurants. Regional directors, district managers and restaurant managers are compensated 
with a ﬁ xed salary plus an incentive bonus based upon the performance of the restaurants under their supervision. 
Typically, our restaurants are staff ed with hourly employees who are supervised by a salaried restaurant or general 
manager and one to three salaried assistant managers and one to eight shift leaders.

Our executive management functions are primarily conducted from our corporate headquarters in Dallas, 
Texas. Our management team is led by Danny Meisenheimer, who serves as our Interim Chief Executive Offi  cer and 
President. Lynn Schweinfurth serves as our Chief Financial Offi  cer and Treasurer, Joseph A. Zirkman serves as our 
General Counsel and Secretary and Joseph W. Brink serves as our Chief Procurement Offi  cer.

Training

We maintain a comprehensive training and development program for all of our restaurant personnel and 
provide both classroom and in-restaurant training for our salaried and hourly personnel. The program emphasizes 
system-wide operating procedures, food preparation methods and guest service standards for each of the concepts. 
The ﬁ rst six months of a new manager’s time is spent in initial training with close oversight and a limited span 
of control. This period covers basic shift control, team member supervision, procedural and technical skills and 
management development. Eight weeks of this time is spent under direct supervision of a dedicated ﬁ eld training 
manager. The ensuing four months contain intense classroom training with an emphasis on skills building. The next 
phase is an intensive, self-paced ongoing development program designed to prepare the participant for the next level 
of management.

Our training process for new restaurant openings has been developed over the last ﬁ ve years as we expanded 
into new territory. Dedicated trainers, a new restaurant opening support team and a well-documented training and 
logistics process to assist us in ensuring consistent execution of the brand standards at openings. Menu authenticity 
and knowledge, passion for our food and a culture of caring are our strengths in our traditional markets. Our opening 
processes help to instill these in our teams in new markets.

Management Information Systems

Our management information systems provide us the ability to effi  ciently and eff ectively manage our 

restaurants and to ensure consistent application of operating controls at our restaurants.

10

In all corporate-owned restaurants, we use computerized management information systems, which we 
believe are scalable to support our future growth plans. We use touch-screen point-of-sale (POS) systems designed 
speciﬁ cally for the restaurant industry that facilitate accuracy and speed of order taking, are user-friendly, require 
limited cashier training and improve speed-of-service through the use of conversational order-taking techniques. 
The POS systems are integrated with above-store enterprise applications that are designed to facilitate ﬁ nancial 
and management control of our restaurant operations. All products sold and related prices at our company-owned 
restaurants are programmed into the system from our central support offi  ce.

We provide in-store access to enterprise systems that assist in labor scheduling and food cost management, 

allow on-line ordering from distributors, and reduce managers’ administrative time. Critical information from such 
systems is available in near real-time to our restaurant managers, who are expected to react quickly to trends or 
situations in their restaurant. Our district managers also receive near real-time information from all restaurants under 
their control and have access to key operating data on a remote basis. Management personnel at all levels, from 
the restaurant manager through senior management, utilize key restaurant performance indicators to manage our 
business.

These enterprise systems provide daily tracking and reporting of traffi  c counts, menu item sales, labor and 

food data including costs, and other key operating information for each restaurant. These systems also provide the 
ability to monitor labor utilization and sales trends on a real-time basis at each restaurant and provide analyses, 
reporting and tools to enable all levels of management to review a wide-range of ﬁ nancial, product mix and 
operational data.

We use an integrated digital ordering system that is integrated with our POS system at each restaurant. 
Individual, group or catering orders placed on our website or that of our third party delivery partners, mobile app or 
through our call center are transmitted electronically to the restaurants to provide a seamless ordering, payment and 
pickup or delivery experience for our guests.

We expect to continue to make substantial investments in technology that we believe will drive sales and 

transaction growth through improved customer engagement and off -premise service off erings, improve the 
eff ectiveness of labor and inventory management and business analytics, and improve effi  ciencies with our core 
enterprise systems.

Suppliers and Distributors

For our Pollo Tropical and Taco Cabana restaurants, we have negotiated directly with local and national 
suppliers for the purchase of food and beverage products and supplies to ensure consistent quality and freshness and 
to obtain competitive prices. Food and supplies for both brands are ordered from approved suppliers and are shipped 
to the restaurants via distributors. Both brands are responsible for monitoring quality control, for the supervision of 
these suppliers and for conducting inspections to observe preparations and ensure the quality of products purchased.

For both our Pollo Tropical and Taco Cabana restaurants, we have long-term service agreements with our 

primary distributors of food and paper products. In 2014, we consolidated our food distribution with Performance 
Food Group, Inc., which is now our primary distributor of food and beverage products and supplies for both our 
Pollo Tropical and Taco Cabana restaurants under a distribution services agreement that expires on July 26, 2019. 
For our restaurants in the Southeast, Kelly Food Service is our primary chicken distributor under an agreement that 
expires on December 31, 2017. We also currently rely on six suppliers for chicken for our Pollo Tropical restaurants 
under agreements that expire on December 31, 2017.

Quality Assurance

Pollo Tropical and Taco Cabana are committed to obtaining quality ingredients and creating 

made-from-scratch, freshly-prepared food in a safe manner. In addition to operating in accordance with quality 
assurance and health standards mandated by federal, state and local governmental laws and regulations regarding 
minimum cooking times and temperatures, maximum time standards for holding prepared food, food handling 
guidelines and cleanliness, among other things, we have also developed our own internal quality control standards. 
We require our suppliers to adhere to our high quality control standards, and we regularly inspect their products 
and production and distribution facilities to ensure that they conform to those standards. In addition, we have 
implemented certain procedures to ensure that we serve safe, quality meals to our guests. As an example, we utilize 

11

the nationally-recognized ServSafe program to train our kitchen staff  and managers in proper food handling and 
preparation techniques. In addition, our quality assurance team conducts unscheduled inspections of our restaurants, 
and restaurant managers conduct internal inspections for taste, quality, cleanliness and food safety on a regular basis.

In addition to food safety, our operational focus at each of our two concepts is closely monitored to achieve a 
high level of guest satisfaction via speed of service, order accuracy and quality of service. Our senior management 
and restaurant management staff s are principally responsible for ensuring compliance with our operating policies. 
We have uniform operating standards and speciﬁ cations relating to the quality, preparation and selection of menu 
items, maintenance and cleanliness of the restaurants and employee conduct. In order to maintain compliance with 
these operating standards and speciﬁ cations, we distribute to our restaurant operations management team detailed 
reports measuring compliance with various guest service standards and objectives, including feedback obtained 
directly from our guests. The guest feedback is monitored by an independent agency and by us and consists of 
evaluations of speed of service, quality of service, quality of our menu items and other operational objectives 
including the cleanliness of our restaurants. We also have our own in-house guest service representatives that handle 
guest inquiries and feedback.

Trademarks

We believe that our trademarks, service marks, trade dress, logos and other proprietary intellectual property 

are important to our success. We have registered the principal Pollo Tropical and Taco Cabana logos and designs 
with the U.S. Patent and Trademark Offi  ce on the Principal Register as a service mark for our restaurant services. 
We also have secured or have applied for state and federal registrations for several other advertising or promotional 
marks, including variations of the Pollo Tropical and Taco Cabana principal marks as well as those related to our 
core menu off erings. In connection with our current and potential international franchising activities, we have 
applied for or been granted registrations in foreign countries of the Pollo Tropical and Taco Cabana principal marks 
and several other marks.

Other than the Pollo Tropical and Taco Cabana trademarks and the logo and trademark of Fiesta Restaurant 

Group (including Internet domain names and addresses) and proprietary rights relating to certain of our core menu 
off erings, we have no proprietary intellectual property.

Government Regulation

Various federal, state and local laws aff ect our business, including various health, sanitation, ﬁ re and safety 

standards. Restaurants to be constructed or reimaged are subject to state and local building code and zoning 
requirements. In connection with the development and reimaging of our restaurants, we may incur costs to meet certain 
federal, state and local regulations, including regulations promulgated under the Americans with Disabilities Act.

We are subject to the federal Fair Labor Standards Act and various other federal and state laws governing 

employment matters. While we pay, on average, rates that are above the federal minimum wage, and where 
applicable, state minimum wage, increases in those minimum wages have in the past increased wage rates at our 
restaurants and in the future will aff ect our labor costs. In addition, changes to the salary level used to determine 
exempt status that may become eff ective in 2017 could increase our labor costs. Also, certain provisions of 
the comprehensive federal health care reform law enacted in 2010 became eff ective in 2015. We believe that a 
combination of labor management, cost reduction initiatives, technology and menu price increases can materially 
off set the potential increased costs associated with these regulations for 2017.

Taco Cabana is subject to alcoholic beverage control regulations that require state, county or municipal 
licenses or permits to sell alcoholic beverages at each restaurant location that sells alcoholic beverages. Typically, 
licenses must be renewed every one to two years and may be revoked or suspended for cause at any time. Licensing 
entities, authorized with law enforcement authority, may issue violations and conduct audits and investigations of 
the restaurant’s records and procedures. Alcoholic beverage control regulations relate to numerous aspects of the 
daily operations of our Taco Cabana restaurants including minimum age for consumption, certiﬁ cation requirements 
for employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage 
and dispensing of alcoholic beverages. These regulations also prescribe certain required banking and accounting 
practices related to alcohol sales and purchasing. Our Taco Cabana restaurants are subject to state “dram-shop” 
laws. Dram-shop laws provide a person injured by an intoxicated person the right to recover damages from an 
establishment that wrongfully served alcoholic beverages to the intoxicated or minor patron. We have speciﬁ c 

12

insurance that covers claims arising under dram-shop laws. However, we cannot ensure that this insurance will be 
adequate to cover any claims that may be instituted against us. During 2016 certain of our Pollo Tropical restaurants 
served alcoholic beverages; however, we discontinued the sale of alcoholic beverages at Pollo Tropical restaurants in 
early 2017.

Employees

As of January 1, 2017, we employed approximately 12,080 persons, of which approximately 250 were 
corporate and administrative personnel, including personnel for our information technology help desk which was 
outsourced prior to 2016, and approximately 11,830 were restaurant operations and other supervisory personnel. 
None of our employees are covered by collective bargaining agreements. We believe that overall relations with our 
employees are good.

Availability of Information

We ﬁ le annual, quarterly and current reports and other information with the Securities and Exchange 
Commission (the “SEC”). The public may read and copy any materials we ﬁ le with the SEC at the SEC’s Public 
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation 
of the Public Reference Room by calling the SEC at 1 800-SEC-0330. The SEC also maintains an Internet site that 
contains reports, proxy and information statements and other information regarding issuers that ﬁ le electronically 
with the SEC. The address of that site is http://www.sec.gov.

We make available through our internet website (www.frgi.com) our annual report on Form 10-K, quarterly 

reports on Form 10-Q, current reports on Form 8-K and amendments to those reports ﬁ led or furnished pursuant to 
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically ﬁ ling such material 
with the SEC. The reference to our website address is a textual reference only, meaning that it does not constitute 
incorporation by reference of the information contained on the website and should not be considered part of this 
document. In addition, at our website you may also obtain, free of charge, copies of our corporate governance 
materials, including the charters for the committees of our Board of Directors and copies of various corporate 
policies including our Code of Business Ethics and Conduct, Code of Ethics for Executives and our “Whistle 
Blower” policy.

13

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below, as well as other information and data included in this 
Annual Report on Form 10-K. Any of the following risks, as well as additional risks and uncertainties not currently 
known to us, could materially adversely aff ect our business, consolidated ﬁ nancial condition or results of operations 
and could also adversely aff ect the trading price of our common stock.

Risks Related to Our Business

Intense competition in the restaurant industry could make it more diffi  cult to grow our business and could also 
have a negative impact on our operating results if guests favor our competitors or we are forced to change our 
pricing and other marketing strategies.

The restaurant industry is highly competitive. In each of our markets, our restaurants compete with a 

large number of national and regional restaurant chains, as well as locally owned restaurants, off ering low and 
medium-priced fare. We also compete with convenience stores, delicatessens and prepared food counters in grocery 
stores, supermarkets, cafeterias and other purveyors of moderately priced and quickly prepared food.

Pollo Tropical’s competitors include national and regional chicken-based concepts as well as other types of 

quick-service and fast-casual restaurants. Our Taco Cabana restaurants compete with Mexican concepts, including 
those in the quick-service, fast-casual and casual dining segments.

To remain competitive, we, as well as certain of the other major fast-casual chains, have increasingly off ered 
selected food items and combination meals at discounted prices. These pricing and other marketing strategies have 
had, and in the future may have, a negative impact on our sales and earnings.

Factors applicable to the fast-casual restaurant segment may adversely aff ect our results of operations, which may 
cause a decrease in earnings and revenues.

The fast-casual restaurant segment is highly competitive and can be materially adversely aff ected by many 

factors, including:

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• 

• 

• 

• 

• 

• 

changes in local, regional or national economic conditions;

changes in demographic trends;

changes in consumer tastes;

changes in traffi  c patterns;

increases in fuel prices and utility costs;

consumer concerns about health, diet and nutrition;

instances of food-borne or localized illnesses or other food safety issues;

increases in the number of, and particular locations of, competing restaurants;

changes in discretionary consumer spending;

inﬂ ation;

availability of key commodities such as beef, chicken, eggs and produce;

increases in the cost of key commodities, such as beef, chicken, eggs and produce as well as the cost of 
paper goods and packaging;

increased labor costs, including escalating wages due to competition for employees, unemployment 
insurance, minimum wage and overtime requirements;

increases in the cost of providing healthcare and related beneﬁ ts to employees, including the impact of 
the Aff ordable Care Act;

14

• 

• 

• 

costs related to remaining competitive and current with regard to new technologies in our restaurants 
such as, loyalty programs, gift cards, on-line ordering and credit card security;

the availability of hourly-paid employees and experienced restaurant managers; and

regional weather conditions.

Our continued growth depends on our ability to open and operate new restaurants proﬁ tably, which in turn 
depends on our continued access to capital, and newly developed restaurants may not perform as we expect and 
there can be no assurance that our growth and development plans will be achieved.

Our continued growth depends on our ability to develop additional Pollo Tropical and Taco Cabana restaurants. 

Development involves substantial risks, including the following:

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• 

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• 

• 

• 

• 

• 

• 

• 

developed restaurants that do not achieve desired revenue or cash ﬂ ow levels or other operating and 
performance targets once opened;

the inability to recruit and retain managers and other employees necessary to staff  each new restaurant;

incurring substantial unrecoverable costs in the event a development project is abandoned prior to 
completion or a new restaurant is closed due to poor ﬁ nancial performance;

changes in general economic and business conditions;

the inability to fund development;

increasing development costs or development costs that exceed budgeted amounts;

delays in completion of construction;

the inability to obtain all necessary zoning and construction permits;

the inability to identify, or the unavailability of, suitable sites on acceptable leasing or purchase terms; 
and

changes in governmental rules and regulations or enforcement thereof.

We cannot ensure that our growth and development plans can be achieved. Our long-term development 
plans will require additional management, operational and ﬁ nancial resources. For example, we will be required to 
recruit managers and other personnel for each new restaurant. We cannot ensure that we will be able to manage our 
expanding operations eff ectively and our failure to do so could adversely aff ect our results of operations. In addition, 
our ability to open new restaurants and to grow, as well as our ability to meet other anticipated capital needs, may 
depend on our continued access to external ﬁ nancing, including borrowing under our senior secured revolving credit 
facility, which we refer to as the “senior credit facility”. There can be no assurance that we will have access to the 
capital we need at acceptable terms or at all, which could materially adversely aff ect our business. In addition, our 
need to manage our indebtedness levels to ensure continued compliance with ﬁ nancial leverage ratio covenants 
under our senior credit facility may reduce our ability to develop new restaurants.

Our expansion into new markets may present increased risks due to a lack of market awareness of our brands.

We have encountered and may continue to encounter diffi  culties developing restaurants outside of our more 

mature markets, and there can be no assurance that we will be able to successfully grow our market presence beyond 
our more mature markets. We may be unable to ﬁ nd attractive locations or successfully market our products as we 
attempt to expand beyond our existing markets, as the competitive circumstances and consumer characteristics 
in these new areas may diff er substantially from those in areas in which we currently operate. It may be more 
challenging for us to attract guests to our restaurants in areas where there is a limited or a lack of market awareness 
of the Pollo Tropical or Taco Cabana brand. Restaurants opened in new markets where we have not reached media 
effi  ciency may open at lower sales volumes than restaurants opened in more mature markets, and may have lower 
restaurant-level operating margins than more mature markets. Sales at restaurants opened in new markets that are 
not yet media effi  cient have taken and may continue to take longer to reach average restaurant sales volumes, if 
at all, thereby adversely aff ecting our operating results, including the recognition of future impairment and other 

15

lease charges. Opening new restaurants in areas in which potential guests may not be familiar with our restaurants 
may include costs related to the opening and marketing of those restaurants that are substantially greater than those 
incurred by our restaurants in other areas. Even though we may incur substantial additional costs with respect to 
these new restaurants, they may attract fewer guests than our more established restaurants in existing markets. We 
may also not open a suffi  cient number of restaurants in new markets to adequately leverage distribution, supervision 
and marketing costs. As a result of the foregoing, we cannot ensure that we will be able to successfully or proﬁ tably 
operate our new restaurants outside our existing markets.

We could be adversely aff ected by food-borne or local illnesses, as well as widespread negative publicity regarding 
food quality, illness, injury or other health concerns.

Negative publicity about food quality, illness, injury or other health concerns (including health implications 
of obesity) or similar issues stemming from one restaurant or a number of restaurants could materially adversely 
aff ect us, regardless of whether they pertain to our own restaurants, restaurants operated by our franchisees or to 
restaurants owned or operated by other companies. For example, outbreaks of e-coli, norovirus, salmonella, lysteria 
and other illnesses or health concerns about the consumption of beef or chicken or by speciﬁ c events such as the 
outbreak of “mad cow” disease or “avian” ﬂ u could lead to changes in consumer preferences, reduce consumption 
of our products and adversely aff ect our ﬁ nancial performance. These events could also reduce the available supply 
of beef, chicken or other key commodities, such as eggs or produce, or signiﬁ cantly raise the price of these key 
commodities.

In addition, we cannot guarantee that our operational controls and employee training will be eff ective in 

preventing food-borne illnesses, food tampering and other food safety issues that may aff ect our restaurants. 
Food-borne or local illness or food tampering incidents could be caused by guests, employees, food suppliers or 
distributors and, therefore, could be outside of our control. Any publicity relating to health concerns or the perceived 
or speciﬁ c outbreaks of food-borne illnesses, food tampering or other food safety issues attributed to one or more 
of our restaurants, could result in a signiﬁ cant decrease in guest traffi  c in all of our restaurants and could have a 
material adverse eff ect on our results of operations. In addition, similar publicity or occurrences with respect to other 
restaurants or restaurant chains could also decrease our guest traffi  c and have a similar material adverse eff ect on our 
business.

Changes in consumer tastes and purchasing habits could negatively impact our business.

We obtain a signiﬁ cant portion of our revenues from the sale of foods that are characterized as Caribbean and 

Mexican and if consumer preferences for these types of foods change, it could have a material adverse eff ect on 
our operating results. The fast-casual segment is characterized by the frequent introduction of new products, often 
accompanied by substantial promotional campaigns and are subject to changing consumer preferences, tastes, and 
eating and purchasing habits. Our success depends on our ability to anticipate and respond to changing consumer 
preferences, tastes and dining and purchasing habits, as well as other factors aff ecting the restaurant industry, 
including new market entrants and demographic changes. The fast-casual segment is characterized by the frequent 
introductions of new products, often accompanied by substantial promotional campaigns and is subject to changing 
consumer preferences and tastes and demographic changes. In addition, consumer dining and purchasing habits 
may shift due to competing alternatives and services including grab-and-go kiosks and home delivery of meals 
and groceries, and other factors aff ecting the restaurant industry. We may ﬁ nd it necessary to make changes to our 
menu items in order to respond to changes in consumer tastes or dining patterns, and we may lose guests who do 
not prefer the new menu items. In recent years, numerous companies in the fast-casual segment have introduced 
products positioned to capitalize on the growing consumer preference for food products that are, or are perceived 
to be, promoting good health, nutritious, low in calories and low in fat content. If we do not continually develop 
and successfully introduce new menu off erings that appeal to changing consumer preferences or if we do not timely 
capitalize on new products, our operating results could suff er. In addition, any signiﬁ cant event that adversely aff ects 
consumption of our products, such as cost, changing tastes or health concerns, could adversely aff ect our ﬁ nancial 
performance.

An increase in food costs could adversely aff ect our operating results.

Our proﬁ tability and operating margins are dependent in part on our ability to anticipate and react to changes 

in food costs. Changes in the cost or availability of certain food products could aff ect our ability to off er a broad 

16

menu and maintain competitive prices and could materially adversely aff ect our proﬁ tability and reputation. The 
type, variety, quality and cost of produce, beef, poultry, cheese and other commodities can be subject to change and 
to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which 
may aff ect our food costs or cause a disruption in our supply. Our food distributors or suppliers also may be aff ected 
by higher costs to produce and transport commodities used in our restaurants, including higher minimum wage 
and beneﬁ t costs and other expenses that they pass through to their customers, which could result in higher costs 
for goods and services supplied to us. Although we utilize purchasing contracts to lock in the prices for a material 
portion of the food commodities used in our restaurants, some of the commodities used in our operations cannot 
be locked in for periods of longer than one month. Currently, we have contracts of varying lengths with several of 
our distributors and suppliers, including our distributors and suppliers of poultry and beef. We do not use ﬁ nancial 
instruments to hedge our risk against market ﬂ uctuations in the price of commodities at this time. We may not be 
able to anticipate and react to changing food costs through our purchasing practices and menu price adjustments in 
the future, and failure to do so could negatively impact our revenues and results of operations.

If a signiﬁ cant disruption in service or supply by any of our suppliers or distributors were to occur, it could create 
disruptions in the operations of our restaurants, which could have a material adverse eff ect on our business.

Our ﬁ nancial performance is dependent on our continuing ability to off er fresh, quality food at competitive 
prices. If a signiﬁ cant disruption in service or supply by our suppliers or distributors were to occur, it could create 
disruptions in the operations of our restaurants, which could have a material adverse eff ect on us.

We negotiate directly with local and national suppliers for the purchase of food and beverage products and 

supplies to ensure consistent quality and freshness and to obtain competitive prices. Food and supplies for both 
brands are ordered from approved suppliers and are shipped to the restaurants via distributors. Both brands are 
responsible for monitoring quality control, for the supervision of these suppliers and for conducting inspections to 
observe preparations and ensure the quality of products purchased. For both our Pollo Tropical and Taco Cabana 
restaurants, we have long-term service agreements with our primary distributors of food and paper products. 
In 2014, we consolidated our food distribution with Performance Food Group, Inc., which is now our primary 
distributor of food and beverage products and supplies for both our Pollo Tropical and Taco Cabana restaurants under 
a distribution services agreement that expires on July 26, 2019. For our restaurants in the Southeast, Kelly Food 
Service is our primary chicken distributor under an agreement that expires on December 31, 2017. We also currently 
rely on six suppliers for chicken for our Pollo Tropical restaurants under agreements that expire on December 31, 
2017. If our distributors or suppliers were unable to service us, this could lead to a material disruption of service or 
supply until a new distributor or supplier is engaged, which could have a material adverse eff ect on our business.

If labor costs increase, we may not be able to make a corresponding increase in our prices and our operating 
results may be adversely aff ected.

Wage rates for a substantial number of our employees are above the federal and or state minimum wage 
rates. As federal and/or state minimum wage rates increase, we may need to increase not only the wage rates of our 
minimum wage employees but also the wages paid to other employees at wage rates which are above the minimum 
wage, which will increase our costs. To the extent that we are not able to raise our prices to compensate for increases 
in wage rates, including increases in state unemployment insurance costs, overtime costs or other costs including 
mandated health insurance, this could have a material adverse eff ect on our operating results. In addition, even 
if minimum wage rates do not increase, we may still be required to raise wage rates in order to compete for an 
adequate supply of labor for our restaurants.

Additionally, while we do not currently have any unionized employees, union organizers have engaged in 

eff orts to organize employees of other restaurant companies. If a signiﬁ cant portion of our employees were to 
become union organized, our labor costs could increase. Potential changes in labor laws, including the possible 
passage of legislation designed to make it easier for employees to unionize, could increase the likelihood of some or 
all of our employees being subjected to greater organized labor inﬂ uence, and could have an adverse eff ect on our 
business and ﬁ nancial results by imposing requirements that could potentially increase our costs.

17

The effi  ciency and quality of our competitors’ advertising and promotional programs and the extent and cost of 
our advertising could have a material adverse eff ect on our results of operations and ﬁ nancial condition.

If our competitors increase spending on advertising and promotions, or the cost of television or radio 
advertising increases, or our advertising and promotions are less eff ective than our competitors, there could be a 
material adverse eff ect on our results of operations and ﬁ nancial condition.

Our business is regional and we therefore face risks related to reliance on certain markets as well as risks for 
other unforeseen events.

As of January 1, 2017, excluding our franchised locations, all but 19 of our Pollo Tropical restaurants were 
located in Florida and Texas and all but one of our Taco Cabana restaurants were located in Texas. Therefore, the 
economic conditions, state and local government regulations, weather conditions or other conditions aff ecting 
Florida and Texas, the tourism industry aff ecting Florida and other unforeseen events may have a material impact on 
the success of our restaurants in those locations.

Many of our restaurants are located in regions that may be susceptible to severe weather conditions. As a 
result, adverse weather conditions in any of these areas could damage these restaurants, and/or result in fewer guest 
visits to these restaurants and otherwise have a material adverse impact on our business. For example, our Florida 
and certain of our Texas restaurants are susceptible to hurricanes, other severe tropical weather events and ﬂ ooding, 
and in the past, a number of our Texas restaurants have been periodically aff ected by severe winter weather.

Economic downturns may adversely impact consumer spending patterns.

Our business is dependent to a signiﬁ cant extent on national, regional and local economic conditions, 
particularly those that aff ect our guests that frequently patronize our restaurants. In particular, where our guests’ 
disposable income is reduced (such as by job losses, credit constraints and higher housing, tax, utility, gas, consumer 
credit or other costs) or where the perceived wealth of guests has decreased (because of circumstances such as 
lower residential real estate values, lower investment values, increased foreclosure rates, increased tax rates or other 
economic disruptions), our restaurants have in the past experienced, and may in the future experience, lower sales 
and guest traffi  c as guests choose lower-cost alternatives or choose alternatives to dining out. The resulting decrease 
in our guest traffi  c or average sales per transaction has had an adverse eff ect in the past, and could in the future have 
a material adverse eff ect, on our business.

We cannot ensure that the current locations of our existing restaurants will continue to be economically viable or 
that additional locations will be acquired at reasonable costs.

The location of our restaurants has signiﬁ cant inﬂ uence on their success. We cannot ensure that current 
locations will continue to be economically viable or that additional locations can be acquired at reasonable costs. In 
addition, the economic environment where restaurants are located could decline in the future, which could result in 
reduced sales in those locations. We cannot ensure that new sites will be proﬁ table or as proﬁ table as existing sites.

Government regulation could adversely aff ect our ﬁ nancial condition and results of operations.

We are subject to extensive laws and regulations relating to the development and operation of restaurants, 

including regulations relating to the following:

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• 

• 

health care;

employer/employee relationships, including minimum wage requirements, overtime, working and 
safety conditions, family leave mandates, immigration and citizenship or work authorization or related 
requirements;

federal and state laws that prohibit discrimination and laws regulating design and operation of, and 
access to, facilities, such as the Americans With Disabilities Act of 1990;

requirements relating to labeling of caloric and other nutritional information on menu boards, 
advertising and food packaging;

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• 

• 

the preparation and sale of food;

liquor licenses which allow us to serve alcoholic beverages at our Taco Cabana restaurants;

zoning; and

federal and state regulations governing the operations of franchises, including rules promulgated by the 
Federal Trade Commission.

In the event that legislation has a negative impact on our business, it could have a material adverse impact. For 

example, substantial increases in the minimum wage or state or Federal unemployment taxes could adversely aff ect 
our ﬁ nancial condition and results of operations. Local zoning or building codes or regulations and liquor license 
approvals can cause substantial delays in our ability to build and open new restaurants. Local authorities may revoke, 
suspend or deny renewal of our liquor licenses if they determine that our conduct violates applicable regulations. 
Any failure to obtain and maintain required licenses, permits and approvals could adversely aff ect our operating 
results. Complying with these rules and regulations subjects us to substantial expense and can expose us to liabilities 
from claims for non-compliance. We could suff er losses from, and we incur legal costs to defend, these claims and 
the amount of such losses could be signiﬁ cant.

The eff ect of recent changes to U.S. health care laws may increase our health care costs and negatively impact 
our ﬁ nancial results.

Under the comprehensive U.S. health care reform law enacted in 2010, the Aff ordable Care Act, changes 
that became eff ective in 2014, and the employer mandate and employer penalties that became eff ective in 2015, 
may increase our labor costs signiﬁ cantly. While changes in the law that became eff ective in 2015, including the 
imposition of a penalty on individuals who do not obtain health care coverage, have not resulted in signiﬁ cant 
numbers of additional employees electing to participate in our health care plans, there can be no assurance that 
this will not change in the future which may increase our health care costs. It is also possible that making changes 
or failing to make changes in the health care plans we off er will make us less attractive to our current or potential 
employees. The costs and other eff ects of these new health care requirements on future periods cannot be determined 
with certainty and could have a material adverse eff ect on our results of operations.

We are dependent on information technology, and any material failure of that technology could impair our ability 
to effi  ciently operate our business.

We rely on information systems across our operations, including, for example, point-of-sale processing in 

our restaurants, management of our supply chain, collection of cash, and payment of obligations and various other 
processes and procedures. Our ability to effi  ciently manage our business depends signiﬁ cantly on the reliability and 
capacity of these systems. The failure of these systems to operate eff ectively, problems with maintenance, upgrading 
or transitioning to replacement systems or a breach in security of these systems could cause delays in guest service 
and reduce effi  ciency in our operations. Signiﬁ cant capital investments might be required to remediate any problems.

In recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent 
trolls”, have purchased technology related patents and other intellectual property assets related to our information 
technology for the purpose of making claims of infringement in order to extract settlements. From time to time, 
we may receive threatening letters or notices or may be the subject of claims that technology or equipment we use 
infringe or violate the intellectual property rights of others. Responding to such claims, regardless of their merit, 
can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our 
reputation and brand, and cause us to incur signiﬁ cant expenses.

Security breaches of conﬁ dential guest information in connection with our electronic processing of credit and 
debit card transactions or security breaches of conﬁ dential employee information may adversely aff ect our 
business.

A signiﬁ cant amount of our restaurant sales are by credit or debit cards. Other restaurants and retailers have 

experienced security breaches in which credit and debit card information of their guests has been stolen. We may in 
the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the 

19

actual or alleged theft of our guests’ credit or debit card information. Any such claim or proceeding, or any adverse 
publicity resulting from these allegations, may have a material adverse eff ect on us and our restaurants.

We also collect and maintain personal information about our employees and customers as part of some of our 

marketing and guest loyalty programs. The collection and use of such information is regulated at the federal and 
state levels, and the regulatory environment related to information security and privacy is increasingly demanding. 
We also rely increasingly on cloud computing and other technologies that result in third parties holding signiﬁ cant 
amounts of customer or employee information on our behalf. If the security and information systems of our 
outsourced third party providers we use to store or process such information are compromised or if we or such 
third parties otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of 
penalties, which could adversely aff ect our ﬁ nancial performance. Our reputation as a brand or as an employer could 
also be adversely aff ected, which could impair our sales or ability to attract and keep qualiﬁ ed employees.

We may incur signiﬁ cant liability or reputational harm if claims are brought against us or against our 
franchisees.

We or our franchisees may be subject to complaints, regulatory proceedings or litigation from guests or other 

persons alleging food-related illness, injuries suff ered on our premises or other food quality, health or operational 
concerns, including environmental claims. In addition, in recent years a number of restaurant companies have been 
subject to lawsuits, including class action lawsuits, alleging, among other things, violations of federal and state 
law regarding workplace and employment matters, discrimination, harassment, wrongful termination and wage, 
rest break, meal break and overtime compensation issues and, in the case of quick-service restaurants, alleging that 
they have failed to disclose the health risks associated with high-fat or high sodium foods and that their marketing 
practices have encouraged obesity. We may also be subject to litigation or other actions initiated by governmental 
authorities, our employees and our franchisees, among others, based upon these and other matters. Adverse publicity 
resulting from such allegations or occurrences or alleged discrimination or other operating issues stemming from 
one of our locations, a number of our locations or our franchisees could adversely aff ect our business, regardless of 
whether the allegations are true, or whether we are ultimately held liable. Any cases ﬁ led against us could materially 
adversely aff ect us if we lose such cases and have to pay substantial damages or if we settle such cases. In addition, 
any such cases may materially and adversely aff ect our operations by increasing our litigation costs and diverting our 
attention and resources to address such actions. In addition, if a claim is successful, our insurance coverage may not 
cover or be adequate to cover all liabilities or losses and we may not be able to continue to maintain such insurance, 
or to obtain comparable insurance at a reasonable cost, if at all. If we suff er losses, liabilities or loss of income in 
excess of our insurance coverage or if our insurance does not cover such loss, liability or loss of income, there could 
be a material adverse eff ect on our results of operations.

Our franchisees could take actions that harm our reputation.

As of January 1, 2017, a total of 42 Pollo Tropical and Taco Cabana restaurants were owned and operated 
by our franchisees. We do not exercise control of the day-to-day operations of our franchisees and the number of 
franchised restaurants may increase in the future. While we attempt to ensure that franchisee-owned restaurants 
maintain the same high operating standards as our company-owned restaurants, one or more of these franchisees 
may fail to meet these standards. Any shortcomings at our franchisee-owned restaurants could be attributed to our 
company as a whole and could adversely aff ect our reputation and damage our brands.

Our indebtedness could adversely aff ect our ﬁ nancial condition.

As of January 1, 2017, we had $73.2 million of outstanding indebtedness comprised of $69.9 million of 
revolving credit borrowings under our senior credit facility, lease ﬁ nancing obligations of $1.7 million and capital 
lease obligations of $1.6 million.

As a result of our indebtedness, a portion of our operating cash ﬂ ow will be required to make payments on 

our outstanding indebtedness. In addition, to the extent we signiﬁ cantly increase our borrowings and interest rates 
increase under our senior credit facility, we may not generate suffi  cient cash ﬂ ow from operations to enable us to 
both repay our indebtedness and fund our other liquidity needs.

20

Our indebtedness could have important consequences. For example, it could:

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• 

make it more diffi  cult for us to satisfy our obligations with respect to our debt;

increase our vulnerability to general adverse economic and industry conditions;

require us to dedicate a portion of our cash ﬂ ow from operations to payments on our indebtedness and 
related interest, including indebtedness we may incur in the future, thereby reducing the availability of 
our cash ﬂ ow to fund working capital, capital expenditures and other general corporate purposes;

limit our ﬂ exibility in planning for, or reacting to, changes in our business and the industry in which we 
operate;

increase our cost of borrowing;

place us at a competitive disadvantage compared to our competitors that may have less debt; and

limit our ability to obtain additional ﬁ nancing for working capital, capital expenditures, acquisitions, 
debt service requirements or general corporate purposes.

We expect to use cash ﬂ ow from operations and revolving borrowings under our senior credit facility to meet 
our current and future ﬁ nancial obligations, including funding our operations, debt service and capital expenditures. 
Our ability to make these payments depends on our future performance, which will be aff ected by ﬁ nancial, business, 
economic and other factors, many of which we cannot control. Our business may not generate suffi  cient cash ﬂ ow 
from operations in the future, which could result in our being unable to repay indebtedness, or to fund other liquidity 
needs. If we do not have enough money, we may be forced to reduce or delay our business activities and capital 
expenditures, sell assets, obtain additional debt or equity capital or restructure or reﬁ nance all or a portion of our 
debt, including our senior credit facility, on or before maturity. We cannot make any assurances that we will be able 
to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future 
indebtedness, including the agreements for our senior credit facility, may limit our ability to pursue any of these 
alternatives.

Despite current indebtedness levels and restrictive covenants, we may still be able to incur more debt or make 
certain restricted payments, which could further exacerbate the risks described above.

We and our subsidiaries may be able to incur additional debt in the future. Although our senior credit facility 

contains restrictions on our ability to incur indebtedness, those restrictions are subject to a number of exceptions. 
We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. Moreover, 
although our senior credit facility contains restrictions on our ability to make restricted payments, including the 
declaration and payment of dividends, we are able to make such restricted payments under certain circumstances. 
Adding new debt to current debt levels or making restricted payments could intensify the related risks that we and 
our subsidiaries now face.

Our senior credit facility restricts our ability to engage in some business and ﬁ nancial transactions.

Our senior credit facility restricts our ability in certain circumstances to, among other things:

• 

• 

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• 

• 

• 

incur additional debt;

pay dividends and make other distributions on, redeem or repurchase, capital stock;

make investments or other restricted payments;

enter into transactions with affi  liates;

sell all, or substantially all, of our assets;

create liens on assets to secure debt; or

eff ect a consolidation or merger.

21

These covenants limit our operational ﬂ exibility and could prevent us from taking advantage of business 
opportunities as they arise, growing our business or competing eff ectively. In addition, our senior credit facility 
requires us to maintain speciﬁ ed ﬁ nancial ratios and satisfy other ﬁ nancial condition tests. Our ability to meet these 
ﬁ nancial ratios and tests can be aff ected by events beyond our control, and we cannot ensure that we will meet these 
tests.

Our ability to renew our senior credit facility by December 11, 2018 at favorable rates and conditions may be 
impacted by adverse market conditions.

Our senior credit facility matures on December 11, 2018. Our ability to renew our senior credit facility at 
favorable rates and conditions is based on credit conditions and availability which may be impacted by adverse 
market conditions.

If one of our employees sells alcoholic beverages to an intoxicated patron, we may be liable to third parties for the 
acts of the patron.

We serve alcoholic beverages at our Taco Cabana restaurants and at some of our Pollo Tropical restaurant 
locations and are subject to the “dram-shop” statutes of the jurisdictions in which we serve alcoholic beverages. 
“Dram-shop” statutes generally provide that serving alcohol to an intoxicated patron is a violation of the law. (We 
discontinued the sale of alcoholic beverages at Pollo Tropical restaurants in early 2017.)

In most jurisdictions, if one of our employees sells alcoholic beverages to an intoxicated patron we may be 

liable to third parties for the acts of the patron. We cannot guarantee that those patrons will not be served or that we 
will not be subject to liability for their acts. Our liquor liability insurance coverage may not be adequate to cover any 
potential liability and insurance may not continue to be available on commercially acceptable terms or at all, or we 
may face increased deductibles on such insurance. A signiﬁ cant dram-shop claim or claims could have a material 
adverse eff ect on us as a result of the costs of defending against such claims; paying deductibles and increased 
insurance premium amounts; implementing improved training and heightened control procedures for our employees; 
and paying any damages or settlements on such claims.

If one of our employees sells alcoholic beverages to a minor patron, we may be liable for signiﬁ cant ﬁ nes or 
penalties including the suspension or loss of our liquor license.

We are subject to statutes of the jurisdictions in which we serve alcoholic beverages which prohibit us from 

selling or serving alcohol to minor patrons. These statutes generally provide that serving or selling alcohol to minors 
is a violation of the law, and will result in ﬁ nes and other penalties including the suspension or loss of our license to 
sell alcohol in the future. If we were to incur a signiﬁ cant number of sale to minor violations the ﬁ nes or penalties 
could have a material adverse eff ect on us.

Federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of 
hazardous materials could expose us to liabilities, which could adversely aff ect our results of operations.

We are subject to a variety of federal, state and local environmental regulations relating to the use, storage, 

discharge, emission and disposal of hazardous substances or other regulated materials, release of pollutants into the 
air, soil and water, and the remediation of contaminated sites.

Failure to comply with environmental laws could result in the imposition of ﬁ nes or penalties, restrictions on 
operations by governmental agencies or courts of law, as well as investigatory or remedial liabilities and claims for 
alleged personal injury or damages to property or natural resources. Some environmental laws impose strict, and 
under some circumstances joint and several, liability for costs of investigation and remediation of contaminated sites 
on current and prior owners or operators of the sites, as well as those entities that send regulated materials to the 
sites. We cannot ensure that we have been or will be at all times in complete compliance with such laws, regulations 
and permits. Therefore, our costs of complying with current and future environmental, health and safety laws could 
adversely aff ect our results of operations.

22

We are subject to all of the risks associated with leasing property subject to long-term non-cancelable leases.

The leases for our restaurant locations generally have initial terms of 10 to 20 years, and typically provide 
for renewal options in ﬁ ve year increments as well as for rent escalations. Generally, our leases are “net” leases, 
which require us to pay all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel 
these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an 
existing or future restaurant is not proﬁ table, and we decide to close it, we may nonetheless be obligated to perform 
our monetary obligations under the applicable lease including, among other things, paying all amounts due for the 
balance of the lease term. In addition, as each of our leases expire, we may fail to negotiate renewals, either on 
commercially acceptable terms or at all, which could cause us to close restaurants in desirable locations.

Our failure or inability to enforce our trademarks or other proprietary rights could adversely aff ect our 
competitive position or the value of our brand.

We own certain common law trademark rights and a number of federal and international trademark and service 
mark registrations, including the Pollo Tropical and Taco Cabana names and logos, and proprietary rights relating to 
certain of our core menu off erings. We believe that our trademarks, service marks, trade dress and other proprietary 
rights are important to our success and our competitive position. We, therefore, devote appropriate resources to the 
protection of our trademarks and proprietary rights. If our eff orts to protect our intellectual property are inadequate 
or if any third party misappropriates or infringes on our intellectual property either in print or on the internet, the 
value of our brands may be harmed which could have a material adverse eff ect on our business. We are aware of 
restaurants in foreign jurisdictions using menu items, logos or branding that we believe are based on our intellectual 
property and our ability to prevent these restaurants from using these elements may be limited in jurisdictions in 
which we are not operating. This could have an adverse impact on our ability to expand into other jurisdictions in the 
future.

We are not aware of any assertions that our trademarks or menu off erings infringe upon the proprietary rights 

of third parties, but we cannot ensure that third parties will not claim infringement by us in the future. Any such 
claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing 
new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim 
could have a material adverse eff ect on our business, results of operations and ﬁ nancial condition.

Risks Related to Our Common Stock

The market price of our common stock may be highly volatile or may decline regardless of our operating 
performance.

The trading price of our common stock may ﬂ uctuate substantially. The price of our common stock that will 
prevail in the market may be higher or lower than the price you pay, depending on many factors, some of which are 
beyond our control. Broad market and industry factors may adversely aff ect the market price of our common stock, 
regardless of our actual operating performance. The ﬂ uctuations could cause a loss of all or part of an investment in 
our common stock. Factors that could cause ﬂ uctuation in the trading price of our common stock may include, but 
are not limited to the following:

• 

• 

• 

• 

• 

• 

price and volume ﬂ uctuations in the overall stock market from time to time;

signiﬁ cant volatility in the market price and trading volume of our company as well as companies 
generally or restaurant companies;

actual or anticipated variations in the earnings or operating results of our company or our competitors;

actual or anticipated changes in ﬁ nancial estimates by us or by any securities analysts who might cover 
our stock or the stock of other companies in our industry;

market conditions or trends in our industry and the economy as a whole;

announcements by us or our competitors of signiﬁ cant acquisitions, strategic partnerships or divestitures 
and our ability to complete any such transaction;

23

• 

• 

• 

• 

• 

announcements of investigations or regulatory scrutiny of our operations or lawsuits ﬁ led against us;

capital commitments;

changes in accounting principles;

additions or departures of key personnel; and

sales of our common stock, including sales of large blocks of our common stock or sales by our directors 
and offi  cers.

In addition, if the market for restaurant company stocks or the stock market in general experiences loss of 
investor conﬁ dence, the trading price of our common stock could decline for reasons unrelated to our business, 
results of operations or ﬁ nancial condition. The trading price of our common stock might also decline in reaction to 
events that aff ect other companies in our industry or related industries even if these events do not directly aff ect us.

In the past, following periods of volatility in the market price of a company’s securities, class action securities 

litigation has often been brought against that company. Due to the potential volatility of our stock price, we may 
therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs 
and divert management’s attention and resources from our business, and could also require us to make substantial 
payments to satisfy judgments or to settle litigation.

Proxy contests threatened or commenced against us could be disruptive and costly, cause uncertainty about the 
strategic direction of our business and adversely aff ect our business, operating results and ﬁ nancial condition.

On January 26, 2017, JCP Investment Partnership, LLC, and other joint ﬁ lers to a Schedule 13D ﬁ led with 

the SEC (collectively, “JCP”), notiﬁ ed us of their intention to nominate three persons for election as directors at our 
2017 Annual Meeting of Stockholders. If JCP continues to pursue a proxy contest and related actions at our 2017 
Annual Meeting of Stockholders to elect directors other than those recommended by our Board of Directors, or takes 
other actions that conﬂ ict with our strategic direction, such actions could have a material and adverse eff ect on us for 
the following reasons:

• 

• 

• 

Responding to proxy contests and related actions by activist stockholders such as JCP can be costly and 
time-consuming, disrupt our operations, and divert the attention of our management and employees away 
from their regular duties and the pursuit of our business strategies, which could materially and adversely 
aff ect our business, operating results and ﬁ nancial condition.

Perceived uncertainties as to our future direction as a result of potential changes to the composition of 
the Board of Directors may lead to the perception of a change in the direction of our business, instability 
or lack of continuity. This may aff ect our relationship with current or potential suppliers, vendors, and 
other third parties, and make it more diffi  cult to attract and retain management employees and executives 
which could adversely aff ect our business, operating results and ﬁ nancial condition.

Proxy contests and related actions by activist stockholders such as JCP could cause signiﬁ cant 
ﬂ uctuations in our stock price based on temporary or speculative market perceptions or other factors that 
do not necessarily reﬂ ect the underlying fundamentals and prospects of our business.

We do not expect to pay any cash dividends for the foreseeable future, and our senior credit facility limits our 
ability to pay dividends to our stockholders.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable 

future. The absence of a dividend on our common stock may increase the volatility of the market price of our 
common stock or make it more likely that the market price of our common stock will decrease in the event of 
adverse economic conditions or adverse developments aff ecting our company. Our senior credit facility limits, and 
the debt instruments that we and our subsidiaries may enter into in the future may limit, our ability to pay dividends 
to our stockholders.

24

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the 
price of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or ﬁ nancial 
analysts publish about us or our business. We cannot ensure that these analysts will publish research or reports about 
us or that any analysts that do so will not discontinue publishing research or reports about us in the future. If one or 
more analysts who cover us downgrade our stock, our stock price could decline rapidly. If analysts do not publish 
reports about us or if one or more analyst ceases coverage of our stock, we could lose visibility in the market, which 
in turn could cause our stock price to decline.

Percentage ownership of our common stock may be diluted in the future.

Percentage ownership of our common stock may be diluted in the future because of equity awards that we 

expect will be granted to our directors, offi  cers and employees. The Fiesta Restaurant Group, Inc. 2012 Stock 
Incentive Plan provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock 
options, and other equity-based awards to our directors, offi  cers and other employees, advisors and consultants. In 
addition, in the future we may also issue common stock or other securities to raise additional capital. Any new shares 
issued would dilute our existing shareholders.

Provisions in our restated certiﬁ cate of incorporation and amended and restated bylaws or Delaware law might 
discourage, delay or prevent a change of control of our company or changes in our management and, therefore, 
depress the trading price of our common stock.

Delaware corporate law and our restated certiﬁ cate of incorporation and amended and restated bylaws contain 

provisions that could discourage, delay or prevent a change in control of our company or changes in our management 
that the stockholders of our company may deem advantageous. These provisions:

• 

• 

• 

• 

• 

• 

• 

• 

require that special meetings of our stockholders be called only by our board of directors or certain of 
our offi  cers, thus prohibiting our stockholders from calling special meetings;

deny holders of our common stock cumulative voting rights in the election of directors, meaning 
that stockholders owning a majority of our outstanding common stock will be able to elect all of our 
directors;

authorize the issuance of “blank check” preferred stock that our board could issue to dilute the voting 
and economic rights of our common stock and to discourage a takeover attempt;

provide the approval of our board of directors or a supermajority of stockholders is necessary to make, 
alter or repeal our amended and restated bylaws and that approval of a supermajority of stockholders is 
necessary to amend, alter or change certain provisions of our restated certiﬁ cate of incorporation;

establish advance notice requirements for stockholder nominations for election to our board or for 
proposing matters that can be acted upon by stockholders at stockholder meetings;

divided our board into three classes of directors, with each class serving a staggered 3-year term, which 
generally increases the diffi  culty of replacing a majority of the directors;

provide that directors only may be removed for cause by a majority of the board and/or by a 
supermajority of our stockholders; and

require that any action required or permitted to be taken by our stockholders must be eff ected at a duly 
called annual or special meeting of stockholders and may not be eff ected by any consent in writing.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

25

ITEM 2. PROPERTIES

As of January 1, 2017, we owned or leased the following operating restaurant properties:

Restaurants:
Pollo Tropical  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Taco Cabana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total operating restaurants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Owned

Leased(1)

Total(2)

11
9
20

166
157
323

177
166
343

(1) 
(2) 

Includes twelve restaurants located in in-line or storefront locations.
Excludes restaurants operated by our Pollo Tropical and Taco Cabana franchisees. In addition, as of January 1, 2017, we 
had six restaurants under development, six properties subleased to third parties and seven properties available for sublease.

As of January 1, 2017, we leased 94% of our Pollo Tropical restaurants and 95% of our Taco Cabana 
restaurants. We typically enter into leases (including renewal options) ranging from 35 to 45 years. The average 
remaining term for all leases, including options, was approximately 27 years as of January 1, 2017. Generally, we 
have been able to renew leases, upon or prior to their expiration, at the prevailing market rates, although there can be 
no assurance that this will continue to occur.

Most leases require us to pay utility and water charges and real estate taxes. Certain leases also require 

contingent rentals based upon a percentage of gross sales of the particular restaurant that exceed speciﬁ ed 
minimums. In some of our mall locations, we are also required to pay certain other charges such as a pro-rata share 
of the mall’s common area maintenance costs, insurance and security costs.

In addition to the restaurant locations, we lease approximately 21,000 square feet at 14800 Landmark 

Boulevard, Suite 500, Dallas, Texas and 18,700 square feet at 3220 Keller Springs Road, Suite 108, Carrollton, Texas 
which house our executive offi  ces and certain of our administrative functions, including some of our administrative 
operations for our Pollo Tropical restaurants. We also lease approximately 10,400 square feet at 7255 Corporate 
Center Drive, Miami, Florida, which houses some of our administrative operations for our Pollo Tropical restaurants. 
In addition, we lease approximately 17,700 square feet of offi  ce space at 8918 Tesoro Drive, Suite 200, San Antonio, 
Texas, which houses most of our administrative operations for our Taco Cabana restaurants.

ITEM 3. LEGAL PROCEEDINGS

On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were 
misclassiﬁ ed as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior 
to any suit being ﬁ led, Pollo Tropical reached a settlement with seven named individuals and a proposed collective 
action class that will allow current and former assistant managers to receive notice and opt-in to the settlement. Pollo 
Tropical denies any liability or unlawful conduct. The Company has recorded a charge of $0.8 million to cover the 
estimated costs related to the settlement, including estimated payments to individuals that opt-in to the settlement, 
premium payments to named individuals, attorneys’ fees for the individuals’ counsel, and related settlement 
administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending the action. The 
settlement, which is subject to approval by an arbitrator and a judicial body, will result in dismissal with prejudice 
for the named individuals and all individuals that opt-in to the settlement.

We are a party to various other litigation matters incidental to the conduct of our business. We do not believe 
that the outcome of any of these matters will have a material adverse eff ect on our business, results of operations or 
ﬁ nancial condition.

ITEM 4. MINE SAFETY DISCLOSURES

None.

26

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS 

AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The NASDAQ Global Select Market under the symbol “FRGI”. The common 

stock has been quoted on The NASDAQ Global Select Market since May 8, 2012. On February 23, 2017, there were 
26,884,992 shares of our common stock outstanding held by 542 holders of record. This excludes persons whose 
shares are held by a brokerage house or clearing agency. The closing price of our common stock on February 23, 
2017 was $26.95.

The following table presents the range of high and low closing prices of our common stock for the periods 

indicated, as reported by The NASDAQ Global Select Market:

Common Stock Price

High

Low

Year Ended January 1, 2017

First Quarter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  38.42 $  31.38
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  35.70 $  21.01
Third Quarter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  26.48 $  21.93
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  30.50 $  23.74

Year Ended January 3, 2016

First Quarter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  66.99 $  55.32
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  62.32 $  46.45
Third Quarter  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  58.47 $  46.35
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  45.71 $  32.01

Dividends

We did not pay any cash dividends during 2016 or 2015. We do not anticipate paying any cash dividends on 
our common stock in the foreseeable future. We currently intend to retain the majority of available funds to fund 
the development and growth of our business or to use for other corporate related purposes such as the repayment of 
revolving credit borrowings under our senior credit facility. In addition, we are a holding company and conduct all 
of our operations through our direct and indirect subsidiaries. As a result, for us to pay dividends, we need to rely on 
dividends and distributions to us from our subsidiaries. Our senior credit facility limits, and debt instruments that we 
and our subsidiaries may enter into in the future may limit, our ability to pay dividends to our stockholders.

27

Stock Performance Graph

The following graph compares, from May 8, 2012 (the date on which our common stock began “regular 
way” trading on The NASDAQ Global Select Market), the cumulative total stockholder return on our common 
stock with the cumulative total returns of The NASDAQ Composite Index and a peer group, The S&P Small Cap 
600 Restaurant Index. We have elected to use the S&P Small Cap 600 Restaurant Index in compiling our stock 
performance graph because we believe the S&P Small Cap 600 Restaurant Index represents a comparison to 
competitors with similar market capitalization as us.

The initial trading price of our common stock on May 8, 2012 was $11.10 and the closing price of our 
common stock on December 30, 2016, the last trading day before our ﬁ scal year end date of January 1, 2017, 
was $29.85. The following graph is based upon the closing price of our common stock from May 8, 2012 through 
January 1, 2017.

Total Cumulative Shareholder Returns

5/8/2012

06/30/2012

12/31/2012

06/30/2013

12/31/2013

06/30/2014

12/31/2014

6/30/2015

1/3/2016

6/30/2016

1/1/2017

Fiesta Restaurant Group, Inc. . 

$ 100.00

$  115.04

$  133.22

$  298.75

$  454.26

$  403.57

$  528.70

$  434.78

$ 292.17

$  189.65

$ 259.57

NASDAQ Composite  . . . . . . . 

$ 100.00

$ 

96.66

$ 

99.81

$  113.79

$  141.87

$  150.29

$  161.78

$  170.84

$ 171.75

$  166.99

$ 185.66

S&P Small Cap 600 

Restaurants . . . . . . . . . . . . 

$ 100.00

$  101.27

$  111.87

$  145.62

$  168.52

$  167.71

$  185.65

$  191.84

$ 170.87

$  166.36

$ 183.14

The graph and table above provide the cumulative change of $100.00 invested on May 8, 2012, including 

reinvestment of dividends, if applicable, for the periods indicated.

28

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated ﬁ nancial data derived from our audited consolidated 

ﬁ nancial statements for each of the years ended January 1, 2017, January 3, 2016, December 28, 2014, 
December 29, 2013 and December 30, 2012. The information in the following table should be read together with our 
consolidated ﬁ nancial statements and accompanying notes as of January 1, 2017, January 3, 2016 and December 28, 
2014 and for the years ended January 1, 2017, January 3, 2016 and December 28, 2014, and “Management’s 
Discussion and Analysis of Financial Condition and Results of Operations” included under Item 7 of this Annual 
Report. These historical results are not necessarily indicative of the results to be expected in the future. Our ﬁ scal 
years ended January 1, 2017, December 28, 2014, December 29, 2013, and December 30, 2012 each contained 
52 weeks. The ﬁ scal year ended January 3, 2016 contained 53 weeks.

(Dollars in thousands, except share 
and per share data)
Statement of operations data:
Revenues:

January 1, 
2017 

January 3, 
2016

Year ended
December 28, 
2014

December 29, 
2013

December 30, 
2012

Restaurant sales  . . . . . . . . . . . . . . . . . . . . . .  $ 
Franchise royalty revenues and fees . . . . . . . 
Total revenues  . . . . . . . . . . . . . . . . . . . . . 

708,956
2,814
711,770

$ 

$ 

684,584
2,808
687,392

$ 

608,540
2,603
611,143

$ 

548,980
2,357
551,337

507,351
2,375
509,726

214,609

217,328

192,250

176,123

163,514

Costs and expenses:

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 
Restaurant wages and related expenses 
(including stock-based compensation 
expense of $142, $156, $71, $2 and $11, 
respectively) . . . . . . . . . . . . . . . . . . . . . . . 
Restaurant rent expense  . . . . . . . . . . . . . . . . 
Other restaurant operating expenses . . . . . . . 
Advertising expense . . . . . . . . . . . . . . . . . . . 
General and administrative (including 

stock-based compensation expense of 
$3,141, $4,137, $3,426, $2,296 and 
$2,025, respectively)  . . . . . . . . . . . . . . . . 
Depreciation and amortization . . . . . . . . . . . 
Pre-opening costs . . . . . . . . . . . . . . . . . . . . . 
Impairment and other lease charges . . . . . . . 
Other (income) expense, net(1)  . . . . . . . . . . . 
Total operating expenses  . . . . . . . . . . . . . 
Income from operations  . . . . . . . . . . . . . . . . . . 
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 
Loss on extinguishment of debt(2) . . . . . . . . . . . 
Income before income taxes . . . . . . . . . . . . . . . 
Provision for income taxes . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 

Per share data:
Basic net income per share . . . . . . . . . . . . . . . .  $ 
Diluted net income per share  . . . . . . . . . . . . . .  $ 
Weighted average shares outstanding:
Basic weighted average shares outstanding  . . . 
Diluted weighted average shares outstanding . . 
Other ﬁnancial data:
Net cash provided from operating activities . . . . $ 
Net cash used for investing activities . . . . . . . . 
Net cash (used for) provided from ﬁnancing 

136,265
21,595
63,813
16,791

43,870
18,278
1,673
7,039
(92)
472,746
36,980
24,424
—
12,556
4,289
8,267

185,305
37,493
96,457
26,800

174,222
33,103
87,285
21,617

155,140
29,645
78,921
19,493

143,392
26,849
69,021
17,138

49,414
23,047
4,061
363
(558)
551,776
59,367
2,228
—
57,139
20,963
36,176 $ 

48,521
20,375
2,767
199
(554)
503,831
47,506
18,043
16,411
13,052
3,795
9,257 $ 

56,084
36,776
5,511
25,644
(128)
684,551
27,219
2,171
—
25,048
8,336
16,712

0.62
0.62

$ 

$ 
$ 

54,521
30,575
4,567
2,382
(679)
624,921
62,471
1,889
—
60,582
22,046
38,536

1.44
1.44

$ 

$ 
$ 

1.35
1.35

$ 
$ 

0.39
0.39

$ 
$ 

0.35
0.35

26,682,227
26,689,179

26,515,029
26,522,196

26,293,714
26,296,049

23,271,431
23,271,431

22,890,018
22,890,018

$ 

80,679
(81,160)

$ 

81,352
(87,671)

$ 

64,106
(66,658)

$ 

36,176
(34,067)

37,975
(32,718)

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total capital expenditures . . . . . . . . . . . . . . . . . 

(604)
(82,365)

6,513
(87,570)

(3,339)
(74,079)

(6,664)
(47,025)

(3,394)
(40,996)

29

(Dollars in thousands)
Balance sheet data:

January 1, 
2017

January 3, 
2016

December 28, 
2014

December 29, 
2013

December 30, 
2012

Year ended

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441,565
Working capital . . . . . . . . . . . . . . . . . . . . . . . . .
(19,827)
Long-term debt:

8.875% Senior Secured Second Lien 

$ 415,645
(15,067)

$ 

357,956
(14,243)

$ 

318,785
(8,180)

$ 

303,729
(12,370)

Notes(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

— $ 

— $ 

— $ 

— $ 

Revolving credit facility . . . . . . . . . . . . . . . .
Lease ﬁnancing obligations . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . . . . . . .

69,900
1,664
1,612
Total long-term debt . . . . . . . . . . . . . . . . . . . . . $  73,176
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . $ 264,175

71,000
1,663
1,681
$  74,344
$ 243,982

66,000
1,660
1,325
68,985
199,587

$ 
$ 

71,000
1,657
1,385
74,042
158,306

$ 
$ 

$ 
$ 

200,000
—
3,029
949
203,978
10,504

Operating statistics:
Consolidated:

Restaurant-Level Adjusted EBITDA(3) . . . . . . . $ 148,434
Restaurant-Level Adjusted EBITDA 

$ 151,185

$ 

133,162

$ 

116,459

$ 

105,384

margin(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA margin(3) . . . . . . . . . . . . . . .
Total company-owned restaurants (at end of 

20.9%

92,794

13.0%

22.1%

99,042

14.4%

21.9%

85,716

14.0%

21.2%

69,824

12.7%

20.8%

64,241

12.6%

period)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

343

Pollo Tropical:

Company-owned restaurants (at end of 

period)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

177

Average number of company-owned 

317

155

restaurants  . . . . . . . . . . . . . . . . . . . . . . . . . .

169.8

138.5

Revenues:

Restaurant sales . . . . . . . . . . . . . . . . . . . . . . $ 399,736
2,062
Franchise royalty revenues and fees . . . . . . .
401,798
Total revenues  . . . . . . . . . . . . . . . . . . . . .

$ 364,544
2,197
366,741

$ 

Average annual sales per company-owned 

restaurant(4) . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant-Level Adjusted EBITDA(3) . . . . . . .
Restaurant-Level Adjusted EBITDA 

margin(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA margin(3) . . . . . . . . . . . . . . .
Change in comparable company-owned 

2,354
90,294

22.6%

55,535

13.8%

2,585
90,374

24.8%

59,335

16.2%

291

124

112.3

305,404
2,072
307,476

2,720
78,960

267

102

96.7

251

91

89.6

$ 

257,837
1,865
259,702

2,666
67,785

$ 

227,428
1,915
229,343

2,538
58,184

25.9%

52,721

17.1%

26.3%

43,738

16.8%

25.6%

38,592

16.8%

restaurant sales(5)  . . . . . . . . . . . . . . . . . . . . .

(1.6)%

3.8%

6.6%

5.9%

8.1%

30

(Dollars in thousands)
Taco Cabana:

January 1, 
2017

January 3, 
2016

December 28, 
2014

December 29, 
2013

December 30, 
2012

Year ended

Company-owned restaurants (at end of 

period)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

166

162

Average number of company-owned 

restaurants  . . . . . . . . . . . . . . . . . . . . . . . . . .

163.3

163.9

Revenues:

Restaurant sales . . . . . . . . . . . . . . . . . . . . . . $ 309,220
752
Franchise royalty revenues and fees . . . . . . .
309,972
Total revenues  . . . . . . . . . . . . . . . . . . . . .

$ 320,040
611
320,651

$ 

Average annual sales per company-owned 

restaurant(5) . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant-Level Adjusted EBITDA(3) . . . . . . .
Restaurant-Level Adjusted EBITDA 

margin(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(3) . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA margin(3) . . . . . . . . . . . . . . .
Change in comparable company-owned 

1,894
58,140

18.8%

38,081

12.3%

1,920
60,811

19.0%

39,707

12.4%

$ 

167

165.6

303,136
531
303,667

1,831
54,202

17.9%

32,995

10.9%

restaurant sales(5)  . . . . . . . . . . . . . . . . . . . . .

(2.5)%

4.4%

3.3%

165

163.3

291,143
492
291,635

1,783
48,674

$ 

160

158.3

279,923
460
280,383

1,768
47,200

16.7%

26,086

8.9%

0.5%

16.9%

25,649

9.1%

4.7%

(1)  Other (income) expense, net for the year ended January 1, 2017, includes additional proceeds related to a location 

that closed in 2015 as a result of an eminent domain proceeding, partially off set by costs for the removal of signs and 
equipment related to the closure of 10 Pollo Tropical restaurants in the fourth quarter of 2016. Other income for the year 
ended January 3, 2016 consisted primarily of a previously deferred gain of $0.4 million from a sale-leaseback transaction 
that was recognized upon termination of the lease as a result of an eminent domain proceeding and expected business 
interruption proceeds of $0.3 million related to a Pollo Tropical that was temporarily closed due to a ﬁ re. Other income 
for the year ended December 28, 2014 consisted primarily of a gain of $0.6 million from a condemnation award resulting 
from an eminent domain proceeding related to a location that closed in 2014. Other income for the year ended December 
29, 2013 resulted primarily from a gain of $0.5 million from the sale of a non-operating Pollo Tropical restaurant 
property. Other income for the year ended December 30, 2012 also resulted from a gain of $0.1 million from the sale of a 
non-operating Pollo Tropical restaurant property.
In the year ended December 29, 2013, we completed a tender off er and consent solicitation for all of our outstanding 
$200.0 million 8.875% Senior Secured Second Lien Notes due 2016 (“Notes”) and called for redemption and redeemed 
all of our Notes that were not validly tendered and accepted for payment in the tender off er. We recognized a loss on 
extinguishment of debt of $16.4 million in the fourth quarter of 2013 related to the repurchase and redemption of the 
Notes. The loss on extinguishment of debt includes the write-off  of $3.9 million in deferred ﬁ nancing costs related to the 
Notes and $12.5 million of debt redemption premiums, consent payments, additional interest and other fees related to the 
redemption of the Notes.

(2) 

(3)  Adjusted EBITDA is deﬁ ned as earnings before interest, loss on extinguishment of debt, income taxes, depreciation and 

amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. 
Adjusted EBITDA for each of our Pollo Tropical and Taco Cabana segments includes an allocation of general and 
administrative expenses associated with administrative support for executive management, information systems and certain 
accounting, legal, supply chain, human resources, development and other administrative functions. Adjusted EBITDA 
margin is derived by dividing Adjusted EBITDA by total revenues.

Restaurant-Level Adjusted EBITDA is deﬁ ned as Adjusted EBITDA excluding franchise royalty revenue and fees, 
pre-opening costs and general and administrative expense (including corporate-level general and administrative expenses). 
Restaurant-Level Adjusted EBITDA margin is derived by dividing Restaurant-Level Adjusted EBITDA by restaurant sales.

Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted 
EBITDA margin are non-GAAP ﬁ nancial measures. Management believes that such ﬁ nancial measures, when viewed 
with our results of operations calculated in accordance with GAAP and our reconciliation of Restaurant-Level Adjusted 
EBITDA and Adjusted EBITDA to net income (i) provide useful information about our operating performance and 
period-over-period growth, (ii) provide additional information that is useful for evaluating the operating performance of 
our business, and (iii) permit investors to gain an understanding of the factors and trends aff ecting our ongoing earnings, 
from which capital investments are made and debt is serviced. However, such measures are not measures of ﬁ nancial 
performance or liquidity under GAAP and, accordingly should not be considered as alternatives to net income or cash ﬂ ow 
from operating activities as indicators of operating performance or liquidity. Also these measures may not be comparable 
to similarly titled captions of other companies.

31

 
 
A reconciliation from consolidated net income to Restaurant-Level Adjusted EBITDA and Adjusted EBITDA is presented 
below:

Year ended

January 1, 
2017

January 3, 
2016

December 28, 
2014

December 29, 
2013

December 30, 
2012

(Dollars in thousands)
Net income  . . . . . . . . . . . . . . . . . . . . . .  $  16,712 $  38,536 $ 
Add:

Depreciation and amortization . . . . . 
Impairment and other lease 

charges  . . . . . . . . . . . . . . . . . . . . . 
Interest expense . . . . . . . . . . . . . . . . . 
Loss on extinguishment of debt  . . . . 
Provision for income taxes . . . . . . . . 
Stock-based compensation 

expense . . . . . . . . . . . . . . . . . . . . . 
Other (income) expense, net . . . . . . . 

36,776

30,575

25,644
2,171
—
8,336

2,382
1,889
—
22,046

3,283
(128)

4,293
(679)

Adjusted EBITDA:
Pollo Tropical  . . . . . . . . . . . . . . . . . . . .  $  55,535 $  59,335 $ 
Taco Cabana . . . . . . . . . . . . . . . . . . . . . 
Fiesta . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Consolidated . . . . . . . . . . . . . . . . . . . . . 
Add:

38,081
(822)
92,794

39,707
—
99,042

36,176 $ 

9,257 $ 

8,267

23,047

363
2,228
—
20,963

3,497
(558)

20,375

199
18,043
16,411
3,795

2,298
(554)

52,721 $ 
32,995
—
85,716

43,738 $ 
26,086
—
69,824

18,278

7,039
24,424
—
4,289

2,036
(92)

38,592
25,649
—
64,241

Pre-opening costs  . . . . . . . . . . . . . . . 
General and administrative 
(excluding stock-based 
compensation expense of $3,141, 
$4,137, $3,426, $2,296 and 
$2,025, respectively) . . . . . . . . . . . 

Less:

5,511

4,567

4,061

2,767

1,673

52,943

50,384

45,988

46,225

41,845

Franchise royalty revenue and fees . . 

2,814

2,808

2,603

2,357

2,375

Restaurant-Level Adjusted EBITDA:

Pollo Tropical  . . . . . . . . . . . . . . . . . .  $  90,294 $  90,374 $ 
Taco Cabana . . . . . . . . . . . . . . . . . . . 
Consolidated . . . . . . . . . . . . . . . . . . . 

58,140
148,434

60,811
151,185

78,960 $ 
54,202
133,162

67,785 $ 
48,674
116,459

58,184
47,200
105,384

(4)  Average annual sales per company-owned restaurant are derived by dividing restaurant sales for the applicable segment 
by the average number of company-owned and operated restaurants. For comparative purposes, the calculation of 
average annual sales per company-owned restaurant is based on a 52-week ﬁ scal year. Restaurant sales data for the extra 
week in the ﬁ scal year ended January 3, 2016 have been excluded for purposes of calculating average annual sales per 
company-owned restaurant.

(5)  Restaurants are included in comparable restaurant sales after they have been open for 18 months. For comparative 

purposes, the calculation of the changes in comparable restaurant sales is based on a 52-week ﬁ scal year. Restaurant sales 
for the extra week in the ﬁ scal year ended January 3, 2016 have been excluded for purposes of calculating the change in 
comparable company-owned restaurant sales.

32

 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 

RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of ﬁ nancial condition and results of operations 
(“MD&A”) is written to help the reader understand our company. The MD&A is provided as a supplement to, and 
should be read in conjunction with, our consolidated ﬁ nancial statements and the accompanying ﬁ nancial statement 
notes. Any reference to restaurants refers to company-owned restaurants unless otherwise indicated.

On May 7, 2012, Carrols Restaurant Group, Inc. (“Carrols”) completed the spin-off  of Fiesta into an 
independent public company, through the distribution of all of the outstanding shares of Fiesta Restaurant Group’s 
common stock to the stockholders of Carrols (“the Spin-off ”). As a result of the Spin-off , we became an independent 
public company whose common stock is traded on The NASDAQ Global Select Market under the symbol “FRGI.”

We use a 52-53 week ﬁ scal year ending on the Sunday closest to December 31. The ﬁ scal years ended 
January 1, 2017 and December 28, 2014 each contained 52 weeks. The ﬁ scal year ended January 3, 2016 contained 
53 weeks.

Company Overview

We own, operate and franchise two fast-casual restaurant brands, Pollo Tropical® and Taco Cabana®, which 

have almost 30 years and 40 years, respectively, of operating history and loyal customer bases in their core markets. 
Our Pollo Tropical restaurants off er a wide variety of freshly prepared Caribbean inspired food, while our Taco 
Cabana restaurants off er a broad selection of freshly prepared Mexican inspired food. We believe that both brands 
are diff erentiated from other restaurant concepts and off er a unique dining experience. We are positioned within 
the value-oriented fast-casual restaurant segment, which combines the convenience and value of quick-service 
restaurants with the variety, food quality, décor and atmosphere more typical of casual dining restaurants. Our open 
display kitchen format allows guests to view and experience our food being freshly-prepared and cooked to order. 
Additionally, nearly all of our restaurants off er the convenience of drive-thru windows. As of January 1, 2017, our 
company-owned restaurants included 177 Pollo Tropical restaurants and 166 Taco Cabana restaurants.

We franchise our Pollo Tropical restaurants primarily internationally and as of January 1, 2017, we had 
29 franchised Pollo Tropical restaurants located in Puerto Rico, Trinidad & Tobago, the Bahamas, Venezuela, 
Panama, Guatemala and Guyana and six licensed locations on college campuses and at a hospital in Florida. We 
have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing 
franchised markets.

As of January 1, 2017, we had ﬁ ve franchised Taco Cabana restaurants located in New Mexico and two 

non-traditional Taco Cabana licensed locations on college campuses in Texas.

Events Aff ecting our Results of Operations

In 2016, we decided to suspend additional development of Pollo Tropical restaurants outside of Florida and to 
review our development strategy while we continue to build brand awareness, affi  nity and off  premise consumption 
through several initiatives. Based on a restaurant portfolio examination, we closed ten Pollo Tropical restaurants 
in the fourth quarter of 2016 including eight restaurants in Texas, one restaurant in Nashville, Tennessee and one 
restaurant in Atlanta, Georgia. We plan to convert up to three of the closed restaurants in Texas to Taco Cabana 
restaurants in 2017.

In 2016, we recognized impairment charges with the respect to ten closed restaurants and seven additional 
Pollo Tropical restaurants and seven Taco Cabana restaurants that we continue to operate. Impairment and other 
lease charges for the twelve months ended January 1, 2017 were $25.6 million and included impairment charges of 
$22.7 million and lease and other charges related to closed restaurants of $2.9 million. The ten closed restaurants 
contributed approximately $5.3 million in operating losses to income from operations for the twelve months ended 
January 1, 2017.

The restaurant industry experienced a continued general slowdown in 2016, that further declined in the 
fourth quarter. We believe the challenging market and industry conditions and, in the case of Pollo Tropical, sales 
cannibalization from new restaurants on existing restaurants contributed to a decline in comparable restaurant 
transactions and sales in 2016.

33

Executive Summary-Consolidated Operating Performance for the Year Ended January 1, 2017

Our ﬁ scal year 2016 results include the following:

• 

• 

• 

Net income decreased $21.8 million to $16.7 million in 2016, or $0.62 per diluted share, compared to 
net income of $38.5 million, or $1.44 per diluted share in 2015, due primarily to impairment and other 
lease charges, new restaurant performance, lower comparable restaurant sales and the extra week in our 
2015 ﬁ scal year.

Total revenues increased 3.5% in 2016 to $711.8 million from $687.4 million in 2015, driven primarily 
by a net increase in the number of company-owned restaurants, partially off set by a decrease in 
comparable restaurant sales of 1.6% for our Pollo Tropical restaurants and 2.5% for our Taco Cabana 
restaurants and the extra week in our 2015 ﬁ scal year. The decrease in comparable restaurant sales 
resulted primarily from a decrease in comparable restaurant transactions of 3.6% at Taco Cabana and 
3.1% at Pollo Tropical, partially off set by an increase in average check of 1.1% at Taco Cabana and 1.5% 
at Pollo Tropical. Comparable restaurant transactions at Pollo Tropical was negatively impacted by sales 
cannibalization as a result of opening new restaurants in close proximity to existing restaurants of 1.5%.

During 2016, we opened 32 new company-owned Pollo Tropical restaurants and four new 
company-owned Taco Cabana restaurants and permanently closed ten company-owned Pollo Tropical 
restaurants.

Results of Operations

The following table sets forth, for the years ended January 1, 2017, January 3, 2016 and December 28, 
2014, selected consolidated operating results as a percentage of consolidated restaurant sales and selected segment 
operating results as a percentage of applicable segment restaurant sales:

January 1, 
2017

January 3, 
2016

December 28, 
2014

January 1, 
2017

Pollo Tropical

Year Ended
January 3, 
2016

Taco Cabana

December 28, 
2014

January 1, 
2017

January 3, 
2016

December 28, 
2014

Consolidated

Restaurant sales:

Pollo Tropical  . . . . . . . . . . 

Taco Cabana  . . . . . . . . . . . 

Consolidated restaurant 

sales . . . . . . . . . . . . . . . 

Costs and expenses:

56.38%

43.62%

53.25%

46.75%

50.19%

49.81%

100.0%

100.0%

100.0%

Cost of sales  . . . . . . . . . . . 

31.7%

33.4%

32.9%

28.5%

29.9%

30.3%

30.3%

31.7%

31.6%

Restaurant wages and 

related expenses . . . . . . 

23.5%

22.4%

22.1%

29.5%

28.9%

28.9%

26.1%

25.4%

25.5%

Restaurant rent 

expense  . . . . . . . . . . . . 

5.0%

4.4%

4.1%

5.7%

5.3%

5.7%

5.3%

4.8%

4.9%

Other restaurant operating 

expenses . . . . . . . . . . . . .

13.6%

Advertising expense  . . . . . 

Pre-opening costs  . . . . . . . . . . 

3.7%

1.2%

12.4%

2.6%

1.2%

12.6%

2.5%

1.1%

13.7%

3.9%

0.2%

13.1%

3.8%

0.1%

13.4%

3.9%

0.2%

13.6%

3.8%

0.8%

12.8%

3.2%

0.7%

13.0%

3.2%

0.7%

The following table summarizes the changes in the number and mix of Pollo Tropical and Taco Cabana 

company-owned and franchised restaurants in each ﬁ scal year:

Owned

2016
Franchised

Total

Owned

2015
Franchised

Total

Owned

2014
Franchised

Total

Pollo Tropical:

Beginning of year . . . . . . . . . . . . . . .

New . . . . . . . . . . . . . . . . . . . . . . .

Closed . . . . . . . . . . . . . . . . . . . . .

End of year  . . . . . . . . . . . . . . . . . . . .

Taco Cabana:

Beginning of year . . . . . . . . . . . . . . .

New . . . . . . . . . . . . . . . . . . . . . . .

Closed . . . . . . . . . . . . . . . . . . . . .

End of year  . . . . . . . . . . . . . . . . . . . .

155

32

(10)

177

162

4

—

166

35

4

(4)

35

6

1

—

7

124

32

(1)

155

167

2

(7)

162

190

36

(14)

212

168

5

—

173

34

37

1

(3)

35

7

—

(1)

6

161

33

(4)

190

174

2

(8)

168

102

22

—

124

165

4

(2)

167

39

5

(7)

37

7

—

—

7

141

27

(7)

161

172

4

(2)

174

Consolidated Revenues.  Revenues include restaurant sales and franchise royalty revenues and fees. 
Restaurant sales consist of food and beverage sales, net of discounts, at our company-owned restaurants. Franchise 
royalty revenues and fees represent ongoing royalty payments that are determined based on a percentage of 
franchisee sales, franchise fees associated with new restaurant openings, and development fees associated with the 
opening of new franchised restaurants in a given market. Restaurant sales are inﬂ uenced by new restaurant openings, 
closures of restaurants and changes in comparable restaurant sales.

Total revenues increased 3.5% to $711.8 million in 2016 from $687.4 million in 2015, while the 2015 revenues 

represent an increase of 12.5% from $611.1 million in 2014. Restaurant sales also increased 3.6% to $709.0 million 
in 2016 from $684.6 million in 2015, which represents an increase of 12.5% from $608.5 million in 2014. 
Restaurant sales in 2015 contained 53 weeks which increased sales by $11.8 million for the additional week in 2015.

The following table presents the primary drivers of the increase or decrease in restaurant sales for both Pollo 

Tropical and Taco Cabana (in millions):

2016 vs. 2015

2015 vs. 2014

Pollo Tropical:
(Decrease) increase in comparable restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Incremental sales related to new restaurants, net of closed restaurants  . . . . . . . . . . . .
Additional week in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total increase  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

Taco Cabana:
(Decrease) increase in comparable restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Incremental sales related to new restaurants, net of closed restaurants  . . . . . . . . . . . .
Additional week in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (decrease) increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

(5.2) $ 
46.9
(6.5)
35.2 $ 

(7.7) $ 
2.2
(5.3)
(10.8) $ 

10.7
41.9
6.5
59.1

12.9
(1.3)
5.3
16.9

Comparable restaurant sales for Pollo Tropical restaurants decreased 1.6% in 2016 and increased 3.8% in 
2015. Comparable restaurant sales for Taco Cabana restaurants decreased 2.5% in 2016 and increased 4.4% in 2015. 
Restaurants are included in comparable restaurant sales after they have been open for 18 months. For comparative 
purposes, the calculation of the changes in comparable restaurant sales is based on a 52-week ﬁ scal year. Restaurant 
sales for the extra week in the ﬁ scal year ended January 3, 2016 have been excluded for purposes of calculating the 
change in comparable company-owned restaurant sales. Increases or decreases in comparable restaurant sales result 
primarily from an increase or decrease in comparable restaurant transactions and in average check. The increase in 
average check is primarily driven by menu price increases. For Pollo Tropical, a decrease in comparable restaurant 
transactions of 3.1% was partially off set by menu price increases of 1.4% in 2016 as compared to 2015. For Pollo 
Tropical, menu price increases drove an increase in restaurant sales of 4.7% in 2015 as compared to 2014, partially 
off set by a decrease in average check due to sales mix and higher discounting. As a result of new restaurant openings, 
sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by 
1.5% in 2016. For Taco Cabana, a decrease in comparable restaurant transactions of 3.6% was partially off set by 
menu price increases of 2.2% in 2016 as compared to 2015, partially off set by a decrease in average check driven by 
a negative change in sales mix. For Taco Cabana, menu price increases drove an increase in restaurant sales of 3.0% 
in 2015 as compared to 2014, and the remaining increase in average check was primarily driven by a positive change 
in sales mix due to the implementation of new menu boards during the ﬁ rst quarter of 2015. Comparable restaurant 
sales for both brands continue to be negatively impacted by the general industrywide slowdown in restaurant sales.

Restaurants in newer markets that have not reached media effi  ciency generally have lower sales than 

restaurants in mature, media-effi  cient markets. As a result, Pollo Tropical revenues are growing at a slower rate than 
the average number of restaurants.

Franchise revenues remained relatively stable and were $2.8 million in 2016 and 2015. Franchise revenues 

were $2.6 million in 2014.

Operating costs and expenses.  Operating costs and expenses include cost of sales, restaurant wages and 

related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and 
beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally inﬂ uenced 
by changes in commodity costs, the sales mix of items sold and the eff ectiveness of our restaurant-level controls to 

35

manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts 
for future periods of up to one year.

Restaurant wages and related expenses include all restaurant management and hourly productive labor 
costs, employer payroll taxes, restaurant-level bonuses and related beneﬁ ts. Payroll and related taxes and beneﬁ ts 
are subject to inﬂ ation, including minimum wage increases and increased costs for health insurance, workers’ 
compensation insurance and state unemployment insurance.

Other restaurant operating expenses include all other restaurant-level operating costs, the major components 
of which are utilities, repairs and maintenance, general liability insurance, real estate taxes, sanitation, supplies and 
credit card fees.

Advertising expense includes all promotional expenses including television, radio, billboards and other 

sponsorships and promotional activities.

Pre-opening costs include costs incurred prior to opening a restaurant, including restaurant employee wages 

and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant 
opening and rent, including any non-cash rent expense recognized during the construction period. Pre-opening costs 
are generally incurred beginning four to six months prior to a restaurant opening.

The following tables present the primary drivers of the changes in the components of restaurant operating 

margins for Pollo Tropical and Taco Cabana. All percentages are stated as a percentage of applicable segment 
restaurant sales.

2016 vs. 2015

2015 vs. 2014

Pollo Tropical:
Cost of sales:

(Lower) higher commodity costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Sales mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Menu price increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Operating inefficiencies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net (decrease) increase in cost of sales as a percentage of restaurant sales . . . . . . 

(0.8)%
(0.9)%
(0.5)%
0.3%
0.2%
(1.7)%

1.7%
(0.2)%
(1.4)%
0.4%
—%
0.5%

Restaurant wages and related expenses:

Impact of lower sales volumes and higher labor costs for new restaurants  . . . . . . . . 
Impact of lower (higher) sales volumes and higher labor costs for comparable 

restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher workers compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lower incentive bonus costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lower medical beneﬁt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Net increase in restaurant wages and related expenses as a percentage of 

0.8%

1.0%

0.5%
0.1%
(0.2)%
(0.1)%

(0.6)%
0.2%
(0.2)%
(0.1)%

restaurant sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

1.1%

0.3%

Other operating expenses:(1)

Higher (lower) repairs and maintenance costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher real estate taxes generally related to new restaurants . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net increase (decrease) in other restaurant operating expenses as a percentage of 
restaurant sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Advertising expense:

Increase in advertising  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net increase in advertising expense as a percentage of restaurant sales . . . . . . . . . 

Pre-opening costs:

Increase in number and timing of restaurants openings . . . . . . . . . . . . . . . . . . . . . . . 
Net increase in pre-opening costs as a percentage of restaurant sales . . . . . . . . . . 

(1) 

Includes the impact of lower sales at new restaurants.

36

0.4%
0.3%
0.5%

1.2%

1.1%
1.1%

—%
—%

(0.2)%
0.1%
(0.1)%

(0.2)%

0.1%
0.1%

0.1%
0.1%

2016 vs. 2015

2015 vs. 2014

Taco Cabana:
Cost of sales:

(Lower) higher commodity costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Menu price increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Menu board changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher promotions and discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher operating inefficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net decrease in cost of sales as a percentage of restaurant sales  . . . . . . . . . . . . . . 

Restaurant wages and related expenses:

Impact of lower sales volumes and higher labor costs . . . . . . . . . . . . . . . . . . . . . . . . 
(Lower) higher medical beneﬁt costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lower incentive bonus costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Net increase in restaurant wages and related expenses as a percentage of 

(1.1)%
(0.7)%
—%
0.2%
0.2%
(1.4)%

1.1%
(0.2)%
(0.2)%
(0.1)%

0.7%
(1.0)%
(0.4)%
0.3%
—%
(0.4)%

—%
0.2%
—%
(0.2)%

restaurant sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

0.6%

—%

Other operating expenses:

Lower utility costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher (lower) repairs and maintenance costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Higher (lower) insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net increase (decrease) in other restaurant operating expenses as a percentage of 
restaurant sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

(0.3)%
0.3%
0.2%
0.4%

(0.1)%
(0.1)%
(0.1)%
—%

0.6%

(0.3)%

Advertising expense:

Impact of higher sales volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Net increase (decrease) in advertising expense as a percentage of restaurant 

sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Pre-opening costs:

Increase (decrease) in number of restaurants opened . . . . . . . . . . . . . . . . . . . . . . . . . 

Net increase (decrease) in pre-opening costs as a percentage of 

restaurant sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

0.1%

0.1%

0.1%

0.1%

(0.1)%

(0.1)%

(0.1)%

(0.1)%

Consolidated Restaurant Rent Expense.  Restaurant rent expense includes base rent and contingent rent 

on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. 
Restaurant rent expense, as a percentage of total restaurant sales, increased to 5.3% in 2016 from 4.8% in 2015, 
primarily as a result of new restaurants that generally have higher rent and lower sales, and the impact of lower 
comparable restaurant sales. Restaurant rent expense, as a percentage of total restaurant sales, was 4.9% in 2014. 
The impact of new sale-leaseback transactions and new restaurants was off set by the impact of higher sales in 2015 
compared to 2014 as a percentage of restaurant sales.

Consolidated General and Administrative Expenses.  General and administrative expenses are comprised 

primarily of (1) salaries and expenses associated with the development and support of our company and brands and 
the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees and 
stock-based compensation expense.

General and administrative expenses increased to $56.1 million in 2016 from $54.5 million in 2015 and as 
a percentage of total revenues, were 7.9% in 2016 and 2015 due primarily to the impact of higher sales and lower 
incentive-based compensation costs, partially off set by higher labor costs associated with current and future growth. 
In addition, general and administrative expenses in 2016 include $1.6 million in ﬁ nancial and legal advisory fees, 
primarily related to a review of strategic alternatives, the write-off  of $1.3 million of site costs related to locations 
that we decided not to develop and a charge for estimated costs related to a class action litigation settlement 
plus legal and other fees incurred in defending the action totaling $0.9 million, partially off set by the beneﬁ t of 
$0.6 million related to litigation matters. General and administrative expenses in 2015 include a charge for estimated 

37

costs related to a class action lawsuit settlement plus legal and other fees incurred in defending the action totaling 
$1.6 million and the write-off  of $0.4 million of site costs related to locations that we decided not to develop.

General and administrative expenses increased to $54.5 million in 2015 from $49.4 million in 2014, but 
as a percentage of total revenues, decreased to 7.9% compared to 8.1% in 2014. The impact of higher sales on 
ﬁ xed costs was partially off set by additional costs for brand and corporate personnel and training to support the 
ongoing Pollo Tropical expansion into new markets and the impact of legal settlements and related costs. General 
and administrative expenses in 2014 included the beneﬁ t of a $0.5 million payment received as a settlement of a 
litigation matter.

Adjusted EBITDA.  Adjusted EBITDA, which is one of the measures of segment proﬁ t or loss used by our 
chief operating decision maker for purposes of allocating resources to our segments and assessing their performance, 
is deﬁ ned as earnings attributable to the applicable segment before interest, income taxes, depreciation and 
amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. 
Adjusted EBITDA may not necessarily be comparable to other similarly titled captions of other companies due to 
diff erences in methods of calculation. Adjusted EBITDA for each of our segments includes an allocation of general 
and administrative expenses associated with administrative support for executive management, information systems 
and certain accounting, legal, supply chain, human resources, development and other administrative functions. 
Adjusted EBITDA is a non-GAAP ﬁ nancial measure of performance. For a discussion of our use of Adjusted 
EBITDA and a reconciliation from net income to Adjusted EBITDA, see the heading entitled “Management’s Use of 
Non-GAAP Financial Measures”.

Adjusted EBITDA for our Pollo Tropical restaurants decreased to $55.5 million in 2016 from $59.3 million 

in 2015 primarily as a result of lower proﬁ tability at new restaurants, the impact of lower comparable restaurant 
sales, higher operating expenses and the write-off  of site costs related to locations that we decided not to develop 
partially off set by a decrease in legal settlements and related costs and cost of sales as a percentage of sales. Adjusted 
EBITDA for our Taco Cabana restaurants decreased to $38.1 million in 2016 from $39.7 million in 2015 due 
primarily to the net impact of the decrease in revenues partially off set by a decrease in cost of sales as a percentage 
of sales.

Adjusted EBITDA for our Pollo Tropical restaurants increased to $59.3 million in 2015 from $52.7 million in 

2014 due primarily to the net impact of the increase in revenues, partially off set by legal settlements and related costs 
and an increase in pre-opening costs. Adjusted EBITDA for our Taco Cabana restaurants increased to $39.7 million 
in 2015 from $33.0 million in 2014 due primarily to the net impact of the increase in revenues

Depreciation and Amortization.  Depreciation and amortization expense increased to $36.8 million in 2016 

from $30.6 million in 2015 due primarily to increased depreciation relating to new company-owned restaurant 
openings. Depreciation and amortization expense increased to $30.6 million in 2015 from $23.0 million in 2014 also 
due primarily to increased depreciation relating to new company-owned restaurant openings.

Impairment and Other Lease Charges.  As discussed under Events Aff ecting our Results of Operations, 

we reviewed our restaurant portfolio during the third quarter of 2016 and subsequently closed ten Pollo Tropical 
restaurants in the fourth quarter of 2016, three of which will be converted to Taco Cabana restaurants in 2017. 
Impairment and other lease charges were $25.6 million in 2016 and consisted of impairment charges totaling 
$21.6 million primarily for ten closed Pollo Tropical restaurants and seven Pollo Tropical restaurants that we 
continue to operate and $1.1 million for seven Taco Cabana restaurants that we continue to operate, as well as lease 
charges totaling $2.9 million primarily related to the closed restaurants.

Impairment and other lease charges were $2.4 million in 2015 and consisted primarily of impairment charges 

totaling $1.7 million and a $0.2 million lease charge related to the closure of a Pollo Tropical restaurant at the end 
of ﬁ scal 2015, a $0.3 million lease charge related to the closure of a Pollo Tropical restaurant that was relocated 
prior to the end of its lease term to a superior site in the same trade area and lease charges, net of recoveries, totaling 
$0.2 million related to previously closed Pollo Tropical restaurants.

Impairment and other lease charges were $0.4 million in 2014 and consisted primarily of a $0.3 million 

impairment charge representing the write-down of the carrying value to fair value of certain assets related to the 
Pollo Tropical restaurant that closed in 2015 and $0.1 million in impairment charges for additional assets acquired at 
previously impaired Taco Cabana restaurants.

38

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering 
event, including restaurants for which the related trailing twelve month cash ﬂ ows are below a certain threshold. 
Refer to Impairment of Long-Lived Assets under Application of Critical Accounting Policies for additional 
information about our impairment assessment process.

Thirteen Pollo Tropical restaurants open more than twelve months in markets outside of Florida with a 

combined carrying value of $22.0 million have projected cash ﬂ ows that exceed the restaurant’s carrying value 
by a small margin. The thirteen restaurants contributed approximately $6.1 million in operating losses to income 
from operations, including $2.7 million in depreciation expense, for the twelve months ended January 1, 2017. In 
addition, 16 Pollo Tropical restaurants opened during 2016 in markets outside of Florida with a combined carrying 
value of $30.2 million have initial sales volumes lower than expected, but do not have signiﬁ cant operating history 
to form a good basis for future projections. The 16 restaurants contributed approximately $6.0 million in operating 
losses to income from operations, including $1.5 million in depreciation expense and $2.9 million in preopening 
costs, for the twelve months ended January 1, 2017.

In addition, three Taco Cabana restaurants with a combined carrying value of $2.5 million have projected cash 

ﬂ ows, that exceed the restaurants carrying value by a small margin. These restaurants contributed approximately 
$0.4 million in operating losses to income from operations, including $0.3 million in depreciation expense, for the 
twelve months ended January 1, 2017.

For these restaurants, if expected performance improvements are not realized, an impairment charge may be 

recognized in future periods, and such charge could be material.

Other (Income) Expense, Net.  Other (income) expense, net in 2016 consisted primarily of additional 
proceeds related to a location that closed in 2015 as a result of an eminent domain proceeding, partially off set by 
costs for the removal of signs and equipment related to the closure of 10 Pollo Tropical restaurants in the fourth 
quarter of 2016. Other income in 2015 consisted primarily of a previously deferred gain from a sale-leaseback 
transaction that was recognized upon termination of the lease as a result of an eminent domain proceeding and 
expected business interruption insurance proceeds for a Pollo Tropical restaurant that was temporarily closed due 
to a ﬁ re. Other income in 2014 consisted primarily of a gain from a condemnation award resulting from an eminent 
domain proceeding related to a location that closed in 2014.

Interest Expense. 
higher borrowing rates in 2016.

Interest expense increased $0.3 million to $2.2 million in 2016 from 2015 due primarily to 

Interest expense decreased $0.3 million to $1.9 million in 2015 from 2014 due primarily to lower borrowing 

rates and higher capitalized interest in 2015.

Provision for Income Taxes.  The eff ective tax rate for 2016 of 33.3% decreased as compared to an eff ective 

tax rate for 2015 of 36.4%, due primarily to the impact of tax credits on lower income before taxes and various other 
changes in permanent items.

The eff ective tax rate for 2015 of 36.4% decreased as compared to an eff ective tax rate for 2014 of 36.7%, due 

primarily to lower state taxes and various other changes in tax credits and permanent items.

Net Income.  As a result of the foregoing, we had net income of $16.7 million in 2016 compared to net 

income of $38.5 million in 2015, and $36.2 million in 2014.

Liquidity and Capital Resources

We do not have signiﬁ cant receivables or inventory and receive trade credit based upon negotiated terms 

in purchasing food products and other supplies. We are able to operate with a substantial working capital deﬁ cit 
because:

• 

• 

• 

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.

39

Capital expenditures and payments related to our lease obligations represent signiﬁ cant liquidity requirements 
for us. We believe cash generated from our operations, availability of borrowings under our senior credit facility and 
proceeds from any sale-leaseback transactions which we may choose to do will provide suffi  cient cash availability to 
cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve 
months.

Operating Activities.  Net cash provided by operating activities for 2016, 2015 and 2014 was $80.7 million, 
$81.4 million and $64.1 million, respectively. The $0.7 million decrease in net cash provided by operating activities 
in 2016 compared to 2015 was driven primarily by the decrease in Adjusted EBITDA and increase in deferred 
income taxes, partially off set by the timing of payments. The $17.2 million increase in net cash provided by 
operating activities in 2015 compared to 2014 was driven primarily by the increase in Adjusted EBITDA and the 
decrease in deferred income taxes.

Investing Activities.  Net cash used in investing activities in 2016, 2015 and 2014 was $81.2 million, 

$87.7 million and $66.7 million, respectively. Capital expenditures are the largest component of our investing 
activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant 
remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing 
restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the 
ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.

The following table sets forth our capital expenditures for the periods presented (in thousands):

Pollo Tropical Taco Cabana

Other

Consolidated

Year ended January 1, 2017:

New restaurant development . . . . . . . . . . . . . . . . . . $ 
Restaurant remodeling  . . . . . . . . . . . . . . . . . . . . . .
Other restaurant capital expenditures(1) . . . . . . . . . .
Corporate and restaurant information systems . . . .

Total capital expenditures . . . . . . . . . . . . . . . . . . $ 

Number of new restaurant openings . . . . . . . . . . . .

Year ended January 3, 2016:

New restaurant development . . . . . . . . . . . . . . . . . . $ 
Restaurant remodeling  . . . . . . . . . . . . . . . . . . . . . .
Other restaurant capital expenditures(1) . . . . . . . . . .
Corporate and restaurant information systems . . . .

Total capital expenditures . . . . . . . . . . . . . . . . . . $ 

Number of new restaurant openings . . . . . . . . . . . .

Year ended December 28, 2014:

New restaurant development . . . . . . . . . . . . . . . . . . $ 
Restaurant remodeling  . . . . . . . . . . . . . . . . . . . . . .
Other restaurant capital expenditures(1) . . . . . . . . . .
Corporate and restaurant information systems . . . .

Total capital expenditures . . . . . . . . . . . . . . . . . . $ 

Number of new restaurant openings . . . . . . . . . . . .

58,325 $ 

2,755
2,823
1,886
65,789 $ 
32

65,992 $ 

2,757
3,299
1,081
73,129 $ 
32

49,142 $ 
—
2,973
240
52,355 $ 
22

7,791 $ 
—
4,302
1,113
13,206 $ 
4

4,849 $ 
2,045
4,415
985
12,294 $ 
2

7,960 $ 
7,588
2,002
419
17,969 $ 
4

— $ 
—
—
3,370
3,370 $ 

— $ 
—
—
2,147
2,147 $ 

— $ 
—
—
3,755
3,755 $ 
26

66,116
2,755
7,125
6,369
82,365
36

70,841
4,802
7,714
4,213
87,570
34

57,102
7,588
4,975
4,414
74,079

(1) 

Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our consolidated 
ﬁ nancial statements. For the years ended January 1, 2017, January 3, 2016 and December 28, 2014, total restaurant repair 
and maintenance expenses were approximately $18.9 million, $15.9 million and $15.0 million, respectively.

In 2017, the Company expects to open 12 new Company-owned Pollo Tropical restaurants in Florida and ten 
new Company-owned Taco Cabana restaurants in Texas. Three of the new Company-owned Taco Cabana restaurant 
openings will be closed Pollo Tropical restaurants converted to Taco Cabana restaurants. Total capital expenditures 
in 2017 are expected to be $57.0 million to $68.0 million. Capital expenditures in 2017 are expected to include 
$35.0 million to $43.0 million for development of new restaurants and purchase of related real estate. Our capital 
expenditures in 2017 are also expected to include expenditures of approximately $14.0 million to $16.0 million 

40

for the ongoing reinvestment in our Pollo Tropical and Taco Cabana restaurants for remodeling costs and capital 
maintenance expenditures and approximately $8.0 million to $9.0 million of other expenditures.

In 2016, investing activities also included $2.7 million for the purchase of a property for a sale-leaseback and a 

sale-leaseback transaction related to our restaurant properties, the net proceeds from which were $3.6 million.

In 2014, investing activities included two sale-leaseback transactions related to our restaurant properties, 

the net proceeds from which were $5.7 million, as well as the sale of an excess Taco Cabana property and 
a condemnation award resulting from an eminent domain proceeding, the net proceeds from which totaled 
$1.7 million.

Financing Activities.  Net cash used in ﬁ nancing activities in 2016 was $0.6 million, net cash provided by 

ﬁ nancing activities in 2015 was $6.5 million and net cash used in ﬁ nancing activities in 2014 was $3.3 million.

Net cash used in ﬁ nancing activities in 2016 included net repayments of revolving credit borrowings under our 

senior credit facility of $1.1 million and the excess tax beneﬁ t from vesting of restricted shares of $0.6 million.

Net cash provided by ﬁ nancing activities in 2015 included net revolving credit borrowings under our senior 

credit facility of $5.0 million and the excess tax beneﬁ t from vesting of restricted shares of $1.6 million.

Net cash used in ﬁ nancing activities in 2014 included net repayments of revolving credit borrowings under our 

senior credit facility of $5.0 million and the excess tax beneﬁ t from vesting of restricted shares of $1.8 million.

Senior Credit Facility.  Our senior credit facility provides for aggregate revolving credit borrowings of 

up to $150 million (including $15 million available for letters of credit) and matures on December 11, 2018. The 
senior credit facility also provides for potential incremental increases of up to $50 million to the revolving credit 
borrowings available under the senior credit facility. On January 1, 2017, there were $69.9 million in outstanding 
revolving credit borrowings under our senior credit facility.

Borrowings under the senior credit facility bear interest at a per annum rate, at our option, equal to either (all 

terms as deﬁ ned in the senior credit facility):

1) 

2) 

the Alternate Base Rate plus the applicable margin of 0.50% to 1.50% based on our Adjusted Leverage 
Ratio (with a margin of 0.50% as of January 1, 2017), or

the LIBOR Rate plus the applicable margin of 1.50% to 2.50% based on our Adjusted Leverage Ratio 
(with a margin of 1.50% at January 1, 2017)

In addition, the senior credit facility requires us to pay (i) a commitment fee based on the applicable 
Commitment Fee margin of 0.25% to 0.45%, based on our Adjusted Leverage Ratio (with a margin of 0.25% at 
January 1, 2017) and the unused portion of the facility and (ii) a letter of credit fee based on the applicable LIBOR 
margin and the dollar amount of outstanding letters of credit.

All obligations under the senior credit facility are guaranteed by all of our material domestic subsidiaries. In 

general, our obligations under our senior credit facility and our subsidiaries’ obligations under the guarantees are 
secured by a ﬁ rst priority lien and security interest on substantially all of our assets and the assets of our material 
subsidiaries (including a pledge of all of the capital stock and equity interests of our material subsidiaries), other 
than certain speciﬁ ed assets, including real property owned by us or our subsidiaries.

The outstanding borrowings under the senior credit facility are prepayable without penalty (other than 
customary breakage costs). The senior credit facility requires us to comply with customary affi  rmative, negative 
and ﬁ nancial covenants, including, without limitation, those limiting our and our subsidiaries’ ability to (i) incur 
indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments 
to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem 
and repurchase equity interests, (vi) conduct asset and restaurant sales and other dispositions (subject to certain 
exceptions), (vii) conduct transactions with affi  liates and (viii) change our business. In addition, the senior credit 
facility will require us to maintain certain ﬁ nancial ratios, including minimum Fixed Charge Coverage and maximum 
Adjusted Leverage Ratios (all as deﬁ ned under the senior credit facility).

41

Our senior credit facility contains customary default provisions, including without limitation, a cross 
default provision pursuant to which it is an event of default under this facility if there is a default under any of our 
indebtedness having an outstanding principal amount of $5.0 million or more which results in the acceleration of 
such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

As of January 1, 2017, we were in compliance with the covenants under our senior credit facility. After 

reserving $5.2 million for letters of credit issued under the senior credit facility, $74.9 million was available for 
borrowing under the senior credit facility at January 1, 2017.

Contractual Obligations

The following table summarizes our contractual obligations and commitments as of January 1, 2017 (in 

thousands):

Contractual Obligations
Credit facility debt obligations, 

Payments due by period
Less than 
1 Year

1 – 3 Years

Total

3 – 5 Years

More than 
5 Years

including interest(1) . . . . . . . . . . . . . . .  $ 

73,545 $ 

1,877 $ 

71,668 $ 

— $ 

—

Capital lease obligations, including 

interest(2)  . . . . . . . . . . . . . . . . . . . . . . . 
Operating lease obligations(3)  . . . . . . . . . 
Lease ﬁnancing obligations, including 

2,973
545,050

282
43,026

564
85,164

587
78,776

1,540
338,084

interest(4)  . . . . . . . . . . . . . . . . . . . . . . . 
Purchase obligations(5) . . . . . . . . . . . . . . . 
Total contractual obligations . . . . . . . . . .  $ 

2,656
14,340
638,564 $ 

143
2,390
47,718 $ 

290
4,780
162,466 $ 

296
4,780
84,439 $ 

1,927
2,390
343,941

(1)  Our credit facility debt obligations at January 1, 2017 totaled $69.9 million. Total interest payments on the obligations 

of $3.1 million for all years presented are included at a weighted average interest rate of 2.29%. Total credit facility fees 
of $0.5 million for all years presented are included based on January 1, 2017 rates and balances. Actual interest and fee 
payments will vary based on our outstanding credit facility balances and the rates in eff ect during those years. Refer to 
Note 7 of our consolidated ﬁ nancial statements included in this Annual Report on Form 10-K for details of our debt.
Includes total interest of $1.4 million for all years presented.

(2) 
(3)  Represents the aggregate minimum lease payments under operating leases. Many of our leases also require contingent 

rent based on a percentage of sales in addition to the minimum base rent and require expenses incidental to the use of the 
property, all of which have been excluded from this table.
Includes total interest of $1.0 million for all years presented.

(4) 
(5)  Represents a contractual obligation for the master subscription agreement for a new ERP system through April 27, 2024.

We have not included in the contractual obligations table payments we may make for workers’ compensation, 

general liability and employee health care claims for which we pay all claims, subject to some annual stop-loss 
limitations both for individual claims and claims in the aggregate. The majority of our recorded liabilities related 
to employee health and insurance plans represent estimated reserves for incurred claims that have yet to be ﬁ led 
or settled. We are also party to various service and supply contracts that generally extend approximately twelve 
months. These arrangements are primarily individual contracts for routine goods and services that are part of our 
normal operations and are reﬂ ected in historical operating cash ﬂ ow trends. These contract obligations are generally 
short-term in nature and can be canceled within a reasonable time period, at our option. We do not believe such 
arrangements will adversely aff ect our liquidity position.

Off -Balance Sheet Arrangements

We have no off -balance sheet arrangements other than our operating leases, which are primarily for our 

restaurant properties and are not recorded on our consolidated balance sheet.

Inﬂ ation

The inﬂ ationary factors that have historically aff ected our results of operations include increases in food and 

paper costs, labor and other operating expenses and energy costs. Labor costs in our restaurants are impacted by 
changes in the Federal and state hourly minimum wage rates as well as changes in payroll related taxes, including 

42

Federal and state unemployment taxes. We typically attempt to off set the eff ect of inﬂ ation, at least in part, through 
periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will 
be able to fully off set such inﬂ ationary cost increases in the future.

Application of Critical Accounting Policies

Our consolidated ﬁ nancial statements and accompanying notes are prepared in accordance with accounting 

principles generally accepted in the United States of America. Preparing consolidated ﬁ nancial statements requires 
us to make estimates and assumptions that aff ect the reported amounts of assets, liabilities, revenue and expenses. 
These estimates and assumptions are aff ected by the application of our accounting policies. Our signiﬁ cant 
accounting policies are described in the “Signiﬁ cant Accounting Policies” footnote in the notes to our consolidated 
ﬁ nancial statements. Critical accounting estimates are those that require application of management’s most diffi  cult, 
subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in 
subsequent periods.

Sales recognition at our company-owned and operated restaurants is straightforward as customers pay 

for products at the time of sale and inventory turns over very quickly. Payments to vendors for products sold in 
the restaurants are generally settled within 30 days. The earnings reporting process is covered by our system of 
internal controls and generally does not require signiﬁ cant management estimates and judgments. However, critical 
accounting estimates and judgments, as noted below, are inherent in the assessment and recording of accrued 
occupancy costs, insurance liabilities, the valuation of goodwill for impairment, assessing impairment of long-lived 
assets and lease accounting matters. While we apply our judgment based on assumptions believed to be reasonable 
under the circumstances, actual results could vary from these assumptions. It is possible that materially diff erent 
amounts would be reported using diff erent assumptions.

Accrued occupancy costs.  We make estimates of accrued occupancy costs pertaining to closed restaurant 

locations on an ongoing basis. These estimates require assessment and continuous evaluation of a number of factors 
such as the remaining contractual period under our lease obligations, the amount of sublease income we are able to 
realize on a particular property and estimates of other costs such as property taxes. Diff erences between actual future 
events and prior estimates will result in adjustments to these accrued costs. Total accrued occupancy costs pertaining 
to closed restaurant locations was $4.9 million at January 1, 2017.

Insurance liabilities.  We are insured for workers’ compensation, general liability and medical insurance 
claims under policies where we pay all claims, subject to annual stop-loss limitations both for individual claims 
and for general liability and certain workers’ compenstation claims in the aggregate. At January 1, 2017, we had 
$9.3 million accrued for these insurance claims. We record insurance liabilities based on historical and industry 
trends, which are continually monitored, with the assistance of actuaries, and adjust accruals as warranted by 
changing circumstances. Since there are estimates and assumptions inherent in recording these insurance liabilities, 
including the ability to estimate the future development of incurred claims based on historical trends or the 
severity of the claims, diff erences between actual future events and prior estimates and assumptions could result in 
adjustments to these liabilities.

Evaluation of Goodwill.  We must evaluate our recorded goodwill for impairment on an ongoing basis. We 
have elected to conduct our annual impairment review of goodwill assets as of the last day of our ﬁ scal year. Our 
review at January 1, 2017 indicated there was no impairment as of that date. In reviewing goodwill for impairment, 
we compare the net book values of our reporting units to their estimated fair values. In determining the estimated 
fair values of the reporting units, we employ a combination of a discounted cash ﬂ ow analysis and a market-based 
approach. Assumptions include our anticipated growth rates and the weighted average cost of capital. The results of 
these analyses are corroborated with other value indicators where available, such as comparable company earnings 
multiples. This annual evaluation of goodwill requires us to make estimates and assumptions to determine the fair 
value of our reporting units including projections regarding future operating results and market values. We had two 
reporting units with goodwill balances as of our most recent measurement date. The fair value exceeded the carrying 
value of our respective reporting units by substantial amounts for both our Pollo Tropical and our Taco Cabana 
segments. These estimates may diff er from actual future events and if these estimates or related projections change in 
the future, we may be required to record impairment charges for these assets.

43

Impairment of Long-lived Assets.  We assess the potential impairment of long-lived assets, principally 
property and equipment, whenever events or changes in circumstances indicate that the carrying value may not be 
recoverable. In addition to considering management’s plans, known regulatory/governmental actions and damage 
due to acts of God (hurricanes, tornadoes, etc.), we consider an event indicating that the carrying value may not be 
recoverable to have occurred related to a speciﬁ c restaurant if the restaurant’s cash ﬂ ows for the last twelve months 
are less than a minimum threshold or if consistent levels of cash ﬂ ows for the remaining lease period are less than 
the carrying value of the restaurant’s assets. We determine if there is impairment at the restaurant level by comparing 
undiscounted future cash ﬂ ows from the related long-lived assets to their respective carrying values. In determining 
future cash ﬂ ows, signiﬁ cant estimates are made by us with respect to future operating results of each restaurant over 
its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. 
If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which 
the asset carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates 
and assumptions, including our ability to sell or reuse the related assets and market conditions, which are subject 
to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment 
charges for these assets and these charges could be material.

As discussed under Events Aff ecting our Results of Operations, during the third quarter we reviewed our 

restaurant portfolio and subsequently closed ten Pollo Tropical restaurants in the fourth quarter of 2016, three of 
which will be converted to Taco Cabana restaurants in 2017. Impairment and other lease charges were $25.6 million 
in 2016 and consisted of impairment charges totaling $21.6 million primarily for ten closed Pollo Tropical 
restaurants and seven Pollo Tropical restaurants that we continue to operate and $1.1 million for seven Taco Cabana 
restaurants that we continue to operate, as well as lease charges totaling $2.9 million primarily related to the closed 
restaurants.

Many new restaurants in its emerging markets have opened at lower sales volumes and have not yet achieved 

the sales volumes required to generate positive cash ﬂ ows. Pollo Tropical’s emerging markets include Atlanta, 
Nashville and Texas. Generally, restaurants in Atlanta have performed better than restaurants in Nashville and Texas 
due primarily to higher average sales volumes and lower average wage rates, rent expense and real estate taxes. The 
combined carrying values of the restaurants in Atlanta, Nashville and Texas are $26.7 million, $3.2 million and 
$48.3 million, respectively.

We have initiated operational and transactional growth plans to drive improved performance in these markets 

and will continue to evaluate their long-term viability. Our estimates of future cash ﬂ ows for restaurants that were 
not impaired assume these plans will succeed and sales will reach the levels required to generate cash ﬂ ows that 
exceed the carrying value of the restaurants. Our cash ﬂ ow projections include, among other things, signiﬁ cant 
sales growth as the result of the introduction of broadcast media, dedicated sales positions to build our catering 
business, increased frequency with the launch of our loyalty program, third party delivery and local store marketing. 
If these assumptions change in the future or the performance of these restaurants does not improve as projected, an 
impairment charge could be recognized in future periods, and such charge could be material.

Thirteen Pollo Tropical restaurants open more than twelve months in markets outside of Florida with a 

combined carrying value of $22.0 million have projected cash ﬂ ows that exceed the restaurant’s carrying value 
by a small margin. The thirteen restaurants contributed approximately $6.1 million in operating losses to income 
from operations, including $2.7 million in depreciation expense, for the twelve months ended January 1, 2017. In 
addition, 16 Pollo Tropical restaurants opened during 2016 in markets outside of Florida with a combined carrying 
value of $30.2 million have initial sales volumes lower than expected, but do not have signiﬁ cant operating history 
to form a good basis for future projections. The 16 restaurants contributed approximately $6.0 million in operating 
losses to income from operations, including $1.5 million in depreciation expense and $2.9 million in preopening 
costs, for the twelve months ended January 1, 2017.

In addition, three Taco Cabana restaurants with a combined carrying value of $2.5 million have projected cash 

ﬂ ows that exceed the restaurants carrying value by a small margin. These restaurants contributed approximately 
$0.4 million in operating losses to income from operations, including $0.3 million in depreciation expense, for the 
twelve months ended January 1, 2017.

For these restaurants, if expected performance improvements described above are not realized, an impairment 

charge may be recognized in future periods, and such charge could be material.

44

Lease Accounting.  Judgments made by management for our lease obligations include the length of the lease 

term, which includes the determination of renewal options that are reasonably assured. The lease term can aff ect 
the classiﬁ cation of a lease as capital or operating for accounting purposes, the term over which related leasehold 
improvements for each restaurant are amortized, and any rent holidays and/or changes in rental amounts for 
recognizing rent expense over the term of the lease. These judgments may produce materially diff erent amounts of 
depreciation, amortization and rent expense than would be reported if diff erent assumed lease terms were used.

We also must evaluate sales of our restaurants which occur in sale-leaseback transactions to determine the 
proper accounting for the proceeds of such sales either as a sale or a ﬁ nancing. This evaluation requires certain 
judgments in determining whether or not clauses in the lease or any related agreements constitute continuing 
involvement. For those sale-leasebacks that are accounted for as ﬁ nancing transactions, we must estimate our 
incremental borrowing rate, or another rate in cases where the incremental borrowing rate is not appropriate to 
utilize, for purposes of determining interest expense and the resulting amortization of the lease ﬁ nancing obligation. 
Changes in the determination of the incremental borrowing rates or other rates utilized in connection with the 
accounting for lease ﬁ nancing transactions could have a signiﬁ cant eff ect on the interest expense and underlying 
balance of the lease ﬁ nancing obligations.

New Accounting Pronouncements

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 
amends the guidance in former Topic 605, Revenue Recognition, and provides for either a full retrospective adoption 
in which the standard is applied to all of the periods presented or a modiﬁ ed retrospective adoption in which the 
cumulative eff ect of initially applying the standard is recognized at the date of initial application. The new standard 
provides accounting guidance for all revenue arising from contracts with customers and aff ects all entities that 
enter into contracts to provide goods or services to their customers unless the contracts are in the scope of other US 
GAAP requirements. The guidance also provides a model for the measurement and recognition of gains and losses 
on the sale of certain non-ﬁ nancial assets, such as property and equipment, including real estate. We are currently 
evaluating the impact of the provisions of Topic 606; however, we do not believe the standard will impact our 
recognition of revenue from company-owned restaurants or our recognition of franchise royalty revenues, which are 
based on a percent of gross sales. We expect the provisions to primarily impact franchise and development fees as 
well as gift card programs and do not expect the standard to have a material eff ect on our ﬁ nancial statements. We do 
not plan to early adopt the standard and we plan to use the modiﬁ ed retrospective approach to adopt the standard. For 
us, the new standard is eff ective for interim and annual periods beginning after December 15, 2017.

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 eff ective for interim and annual periods beginning after 
December 15, 2018, and early adoption is permitted. A modiﬁ ed retrospective approach is required with an option 
to use certain practical expedients. The new guidance is required to be applied at the beginning of the earliest 
comparative period presented. We are currently evaluating the impact on our ﬁ nancial statements. Although the 
impact is not currently estimable, we expect to recognize lease assets and lease liabilities for most of the leases we 
currently account for as operating leases. In addition, for our leases that are classiﬁ ed as sale-leaseback transactions, 
we will be required to record an initial adjustment to retained earnings associated with the previously deferred 
gains, and for any future sale-leaseback transactions, the gain, adjusted for any off -market terms, will be recorded 
immediately. Currently we amortize sale-leaseback gains over the lease term. We are continuing our assessment, 
which may identify other impacts.

In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value 

Products (Topic 405-20), which creates an exception under Topic 405-20 to derecognize ﬁ nancial liabilities related 
to certain prepaid stored-value products using a breakage model consistent with the revenue breakage model in Topic 
606. The new guidance will be eff ective concurrent with Topic 606, which is eff ective for us for interim and annual 
periods beginning after December 15, 2017. We do not expect this standard to have a material eff ect on our ﬁ nancial 
statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment 
Accounting (Topic 718), to simplify various aspects of the accounting and presentation of share-based payments, 

45

including the income tax eff ects of awards and forfeiture assumptions. Currently, tax deductions in excess of 
compensation costs (excess tax beneﬁ ts) are recorded in equity and tax deduction shortfalls (tax deﬁ ciencies), 
to the extent of previous excess tax beneﬁ ts, are recorded in equity and then to income tax expense. Under 
the new guidance, all excess tax beneﬁ ts and tax deﬁ ciencies will be recorded to income tax expense in the 
income statement, which could create volatility in our income statement. The new guidance will also change the 
classiﬁ cation of excess tax beneﬁ ts in the cash ﬂ ow statement and impact the diluted earnings per share calculation. 
The guidance will be eff ective for interim and annual periods beginning after December 15, 2016, and early adoption 
is permitted. Diff erent components of the guidance require prospective, retrospective and/or modiﬁ ed retrospective 
adoption. We will make a policy election to account for forfeitures of awards as they occur and we will record an 
immaterial cumulative-eff ect adjustment to beginning retained earnings as of January 2, 2017, as a result of adopting 
the standard.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) — Classiﬁ cation 

of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice in how certain transactions are 
classiﬁ ed in the statement of cash ﬂ ows. The guidance will be eff ective for interim and annual periods beginning 
after December 15, 2017. Early adoption is permitted and a retrospective approach is required. We do not expect this 
standard to have a material impact on our ﬁ nancial statements.

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 eff ective for interim and annual periods beginning 
after December 15, 2020. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. We 
do not expect this standard to have a material impact on our ﬁ nancial statements.

Management’s Use of Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP ﬁ nancial measure. We use Adjusted EBITDA in addition to net income, 

income from operations, and income before income taxes to assess our performance, and we believe it is important 
for investors to be able to evaluate us using the same measures used by management. We believe this measure is an 
important indicator of our operational strength and the performance of our business. Adjusted EBITDA as calculated 
by us is not necessarily comparable to similarly titled measures reported by other companies, and should not be 
considered as an alternative to net income, earnings per share, cash ﬂ ows from operating activities or other ﬁ nancial 
information determined under GAAP.

Adjusted EBITDA is deﬁ ned as earnings before interest, income taxes, depreciation and amortization, 
impairment and other lease charges, stock-based compensation expense and other income and expense. Adjusted 
EBITDA for each of our segments includes an allocation of general and administrative expenses associated with 
administrative support for executive management, information systems and certain accounting, legal, supply chain, 
human resources, development and other administrative functions.

Management believes that Adjusted EBITDA, when viewed with our results of operations calculated in 
accordance with GAAP and our reconciliation of Adjusted EBITDA to net income (i) provide useful information 
about our operating performance and period-over-period growth, (ii) provide additional information that is useful 
for evaluating the operating performance of our business and (iii) permit investors to gain an understanding of the 
factors and trends aff ecting our ongoing earnings, from which capital investments are made and debt is serviced. 
However, such measures are not measures of ﬁ nancial performance or liquidity under GAAP and, accordingly, 
should not be considered as alternatives to net income or cash ﬂ ow from operating activities as indicators of 
operating performance or liquidity. Also these measures may not be comparable to similarly titled captions of other 
companies.

All of such non-GAAP ﬁ nancial measures have important limitations as analytical tools. These limitations 

include the following:

• 

such ﬁ nancial information does not reﬂ ect our capital expenditures, future requirements for capital 
expenditures or contractual commitments to purchase capital equipment;

46

• 

• 

• 

such ﬁ nancial information does not reﬂ ect 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 ﬁ nancial information does not reﬂ ect the 
cash required to fund such replacements; and

such ﬁ nancial information does not reﬂ ect the eff ect of earning or charges resulting from matters that 
our management does not consider to be indicative of our ongoing operations. However, some of 
these charges (such as impairment and other lease charges, other income and expense and stock-based 
compensation expense) have recurred and may recur.

A reconciliation from net income to consolidated Adjusted EBITDA follows:

(Dollars in thousands)
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Add:

January 1, 
2017

Year ended
January 3, 
2016

December 28, 
2014

16,712 $ 

38,536 $ 

36,176

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense  . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36,776
25,644
2,171
8,336
3,283
(128)

30,575
2,382
1,889
22,046
4,293
(679)

Adjusted EBITDA:

Pollo Tropical  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Taco Cabana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiesta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

55,535 $ 
38,081
(822)
92,794 $ 

59,335 $ 
39,707
—
99,042 $ 

23,047
363
2,228
20,963
3,497
(558)

52,721
32,995
—
85,716

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risk associated with ﬂ uctuations in interest rates, primarily limited to our senior 
credit facility, under which we had outstanding borrowings of $69.9 million as of January 1, 2017. Borrowings under 
the senior credit facility bear interest at a per annum rate, at our option, of either (all terms as deﬁ ned in the senior 
credit facility):

1) 

2) 

the Alternate Base Rate plus the applicable margin of 0.50% to 1.50% based on our Adjusted Leverage 
Ratio (with a margin of 0.50% as of January 1, 2017), or

the LIBOR Rate plus the applicable margin of 1.50% to 2.50% based on our Adjusted Leverage Ratio 
(with a margin of 1.50% at January 1, 2017).

For variable rate debt instruments, market risk is deﬁ ned as the potential change in earnings resulting from 

a hypothetical adverse change in interest rates. As of January 1, 2017, we had primarily elected to be charged 
interest on borrowings under our senior credit facility at the LIBOR Rate plus the applicable margin. We elected 
a one-month LIBOR Rate for $69.9 million of borrowings under the senior credit facility as of January 1, 2017. 
The weighted average interest rate applicable to these borrowings as of January 1, 2017 was 2.29%, which would 
result in interest expense in 2017 of $1.6 million assuming that outstanding borrowings and interest rates remain 
unchanged during the year. A hypothetical increase of 100 basis points in the variable interest rate would increase 
interest expense in 2017 by $0.7 million.

47

Commodity Price Risk

We purchase certain products which are aff ected by commodity prices and are, therefore, subject to price 
volatility caused by weather, market conditions and other factors which are not considered predictable or within our 
control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing 
contracts or pricing arrangements have been negotiated in advance to minimize price volatility. Where possible, we 
use these types of purchasing techniques to control costs as an alternative to using ﬁ nancial instruments to hedge 
commodity prices. In many cases, we believe we will be able to address commodity cost increases that are signiﬁ cant 
and appear to be long-term in nature by adjusting our menu pricing. However, long-term increases in commodity 
prices may result in lower restaurant-level operating margins.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The ﬁ nancial statements and supplementary data of Fiesta Restaurant Group, Inc. required by this Item are 

described in Item 15 of this Annual Report on Form 10-K and are presented beginning on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 

FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.  Our senior management is responsible for establishing and maintaining 
disclosure controls and procedures (as deﬁ ned in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange 
Act of 1934, as amended (the “Exchange Act”)), designed to ensure that information required to be disclosed by 
us in the reports that we ﬁ le or submit under the Exchange Act is recorded, processed, summarized and reported, 
within the time periods speciﬁ ed in the Securities and Exchange Commission’s rules and forms. Disclosure controls 
and procedures include, without limitation, controls and procedures designed to ensure that information required 
to be disclosed by an issuer in the reports that it ﬁ les or submits under the Exchange Act is accumulated and 
communicated to the issuer’s management, including its principal executive offi  cer or offi  cers and principal ﬁ nancial 
offi  cer or offi  cers, or persons performing similar functions, as appropriate to allow timely decisions regarding 
required disclosure.

Evaluation of Disclosure Controls and Procedures.  We have evaluated the eff ectiveness of our disclosure 

controls and procedures (as deﬁ ned in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of 
the period covered by this report, with the participation of our Interim Chief Executive Offi  cer and Chief Financial 
Offi  cer, as well as other key members of our management. Based on this evaluation, our Interim Chief Executive 
Offi  cer and Chief Financial Offi  cer concluded that our disclosure controls and procedures were eff ective as of 
January 1, 2017.

Changes in Internal Control over Financial Reporting. 

 No change occurred in our internal control over 
ﬁ nancial reporting during the fourth quarter of 2016 that materially aff ected, or is reasonably likely to materially 
aff ect, our internal control over ﬁ nancial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our senior management is responsible for establishing and maintaining adequate internal control over ﬁ nancial 

reporting (as deﬁ ned in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act), designed to ensure that 
information required to be disclosed by us in the reports that we ﬁ le or submit under the Exchange Act is recorded, 
processed, summarized and reported, within the time periods speciﬁ ed in the Securities and Exchange Commission’s 
rules and forms.

Because of inherent limitations, a system of internal control over ﬁ nancial reporting may not prevent or detect 

misstatements. Also, projections of any evaluation of eff ectiveness to future periods are subject to the risk that 
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies 
or procedures may deteriorate.

48

Management has evaluated the eff ectiveness of its internal control over ﬁ nancial reporting as of January 1, 
2017 based on the criteria set forth in a report entitled Internal Control-Integrated Framework (2013), issued by 
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we 
have concluded that, as of January 1, 2017, our internal control over ﬁ nancial reporting was eff ective based on those 
criteria.

Our independent registered public accounting ﬁ rm, Deloitte & Touche LLP, has issued an audit report on the 

eff ectiveness of our internal control over ﬁ nancial reporting and their report is included herein.

49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Fiesta Restaurant Group, Inc. and subsidiaries
Dallas, Texas

We have audited the internal control over ﬁ nancial reporting of Fiesta Restaurant Group, Inc. and subsidiaries 

(the “Company”) as of January 1, 2017, based on criteria established in Internal Control - Integrated Framework 
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s 
management is responsible for maintaining eff ective internal control over ﬁ nancial reporting and for its assessment 
of the eff ectiveness of internal control over ﬁ nancial reporting, included in the accompanying Management’s Annual 
Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an 
opinion on the Company’s internal control over ﬁ nancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board 

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 
whether eff ective internal control over ﬁ nancial reporting was maintained in all material respects. Our audit included 
obtaining an understanding of internal control over ﬁ nancial reporting, assessing the risk that a material weakness 
exists, testing and evaluating the design and operating eff ectiveness of internal control based on the assessed risk, 
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit 
provides a reasonable basis for our opinion.

A company’s internal control over ﬁ nancial reporting is a process designed by, or under the supervision of, the 
company’s principal executive and principal ﬁ nancial offi  cers, or persons performing similar functions, and eff ected 
by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding 
the reliability of ﬁ nancial reporting and the preparation of ﬁ nancial statements for external purposes in accordance 
with generally accepted accounting principles. A company’s internal control over ﬁ nancial reporting includes 
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately 
and fairly reﬂ ect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance 
that transactions are recorded as necessary to permit preparation of ﬁ nancial statements in accordance with 
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in 
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance 
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that 
could have a material eff ect on the ﬁ nancial statements.

Because of the inherent limitations of internal control over ﬁ nancial reporting, including the possibility of 
collusion or improper management override of controls, material misstatements due to error or fraud may not be 
prevented or detected on a timely basis. Also, projections of any evaluation of the eff ectiveness of the internal control 
over ﬁ nancial reporting to future periods are subject to the risk that the controls may become inadequate because of 
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, eff ective internal control over ﬁ nancial 
reporting as of January 1, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) 
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board 
(United States), the consolidated ﬁ nancial statements as of and for the year ended January 1, 2017 of the Company 
and our report dated February 27, 2017 expressed an unqualiﬁ ed opinion on those ﬁ nancial statements and ﬁ nancial 
statement schedule.

/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2017

50

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated by reference from our Deﬁ nitive Proxy Statement to be ﬁ led in connection with the 2017 Annual 

Meeting of Stockholders.

We have adopted a written code of ethics applicable to our directors, offi  cers and employees in accordance 
with the rules of The NASDAQ Stock Market and the SEC. We make our code of ethics available free of charge 
through our internet website, www.frgi.com. We will disclose on our website amendments to or waivers from our 
code of ethics in accordance with all applicable laws and regulations.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference from our Deﬁ nitive Proxy Statement to be ﬁ led in connection with the 2017 Annual 

Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 

RELATED STOCKHOLDER MATTERS

Incorporated by reference from our Deﬁ nitive Proxy Statement to be ﬁ led in connection with the 2017 Annual 

Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR 

INDEPENDENCE

Incorporated by reference from our Deﬁ nitive Proxy Statement to be ﬁ led in connection with the 2017 Annual 

Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from our Deﬁ nitive Proxy Statement to be ﬁ led in connection with the 2017 Annual 

Meeting of Stockholders.

51

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) Financial Statements - Fiesta Restaurant Group, Inc. and Subsidiaries

FIESTA RESTAURANT GROUP, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements:

Consolidated Balance Sheets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

F-1

F-2
F-3
F-4
F-5
F-7

(a) (2) Financial Statement Schedules

Schedule
II

Description
Valuation and Qualifying Accounts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page
F-24

Schedules other than those listed are omitted for the reason that they are not required, not applicable, or the 

required information is shown in the ﬁ nancial statements or notes thereto.

(a) (3) Exhibits

Exhibit 
No.
3.1

3.2

4.1

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

Description

Amended and Restated Certiﬁcate of Incorporation of Fiesta Restaurant Group, Inc. (“Fiesta”) 
(incorporated by reference to Exhibit 3.1 to Amendment No. 3 to Fiesta’s Form 10, File No. 001-35373, 
ﬁled on April 5, 2012)
Amended and Restated Bylaws of Fiesta (incorporated by reference to Exhibit 3.2 to Amendment 
No. 1 to Fiesta’s Form 10, File No. 001-35373, ﬁled on January 26, 2012)
Form of Stock Certiﬁcate for Common Stock (incorporated by reference to Exhibit 4.4 to Amendment 
No. 2 to Fiesta’s Form 10, File No. 001-35373, ﬁled on March 14, 2012)
Form of Separation and Distribution Agreement among Fiesta, Carrols Restaurant Group and 
Carrols’ (incorporated by reference to Exhibit 10.1 to Amendment No. 3 to Fiesta’s Form 10, 
File No. 001-35373, ﬁled on April 5, 2012)
Form of Tax Matters Agreement between Fiesta, Carrols and Carrols Restaurant Group (incorporated 
by reference to Exhibit 10.2 to Amendment No. 3 to Fiesta’s Form 10, File No. 001-35373, ﬁled on 
April 5, 2012)
Form of Employee Matters Agreement between Fiesta, Carrols and Carrols Restaurant 
Group (incorporated by reference to Exhibit 10.3 to Amendment No. 3 to Fiesta’s Form 10, 
File No. 001-35373, ﬁled on April 5, 2012)
Form of Transition Services Agreement among Fiesta, Carrols Restaurant Group and 
Carrols (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to Fiesta’s Form 10, 
File No. 001-35373, ﬁled on April 5, 2012)
Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to 
Fiesta’s Current Report on Form 8-K ﬁled on May 8, 2012)+
Executive Employment Agreement, dated as of February 20, 2014, between Fiesta Restaurant 
Group and Timothy P. Taft (incorporated by reference to Exhibit 10.1 of Fiesta’s Current Report on 
Form 8-K ﬁled on February 25, 2014)+
Agreement dated as of November 4, 2016 between Fiesta Restaurant Group, Inc. and Danny K. 
Meisenheimer (incorporated by reference to Exhibit 10.1 of Fiesta’s Quarterly Report on Form 10-Q 
for the period ended October 2, 2016)+
Agreement dated as of November 4, 2016 between Fiesta Restaurant Group, Inc. and Lynn 
Schweinfurth (incorporated by reference to Exhibit 10.2 of Fiesta’s Quarterly Report on Form 10-Q for 
the period ended October 2, 2016)+

52

Exhibit 
No.
10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

21.1
23.1
31.1

31.2

32.1

32.2

Description

Agreement dated as of November 4, 2016 between Fiesta Restaurant Group, Inc. and Joseph A. 
Zirkman (incorporated by reference to Exhibit 10.3 of Fiesta’s Quarterly Report on Form 10-Q for the 
period ended October 2, 2016)+
Agreement dated as of September 27, 2016 between Fiesta Restaurant Group, Inc. and Timothy P. Taft 
(incorporated by reference to Exhibit 10.4 of Fiesta’s Quarterly Report on Form 10-Q for the period 
ended October 2, 2016)+
Executive Employment Agreement, dated as of February 24, 2017, between Fiesta Restaurant Group 
and Richard Stockinger (incorporated by reference to Exhibit 10.1 of Fiesta’s Current Report on 
Form 8-K ﬁled on February 27, 2017)+
Fiesta Restaurant Group, Inc. and Subsidiaries Deferred Compensation Plan (incorporated by 
reference to Exhibit 10.10 of Fiesta’s Amendment No. 1 to Registration Statement on Form 10 ﬁled on 
January 26, 2012)+
Offer letter between Fiesta Restaurant Group, Inc. and Lynn S. Schweinfurth (incorporated by reference 
to Exhibit 10.1 of Fiesta’s Quarterly Report on Form 10-Q for the period ended July 1, 2012)+
Credit Agreement, dated as of December 11, 2013, between Fiesta Restaurant Group, Inc., the 
guarantors named therein, the lenders named therein and Wells Fargo Bank, National Association, 
as administrative agent (incorporated by reference to Exhibit 10.1 of Fiesta’s Current Report on 
Form 8-K ﬁled on December 12, 2013)
Security Agreement, dated as of December 11, 2013, between Fiesta Restaurant Group, Inc., 
the guarantors named therein and Wells Fargo Bank, National Association, as administrative 
agent (incorporated by reference to Exhibit 10.2 of Fiesta’s Current Report on Form 8-K ﬁled on 
December 12, 2013)
Amendment to Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan+ (incorporated by reference to 
Exhibit 10.11 of Fiesta’s Annual Report on Form 10-K ﬁled on February 19, 2015)
Subsidiaries of Fiesta#
Consent of Deloitte & Touche LLP#
Chief Executive Officer’s Certiﬁcate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for 
Fiesta Restaurant Group, Inc.#
Chief Financial Officer’s Certiﬁcate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for 
Fiesta Restaurant Group, Inc.#
Chief Executive Officer’s Certiﬁcate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to 
Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.#
Chief Financial Officer’s Certiﬁcate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to 
Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.#

XBRL Instance Document

101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE

XBRL Taxonomy Extension Deﬁnition Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

# 
+ 

Filed herewith.
Compensatory plan or arrangement

ITEM 16. FORM 10-K SUMMARY

None.

53

[THIS PAGE INTENTIONALLY LEFT BLANK.]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Fiesta Restaurant Group, Inc. and subsidiaries
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Fiesta Restaurant Group, Inc. and 

subsidiaries (the “Company”) as of January 1, 2017 and January 3, 2016, and the related consolidated statements of 
operations, changes in stockholders’ equity, and cash ﬂ ows for each of the three years in the period ended January 1, 
2017. Our audits also included the ﬁ nancial statement schedule listed in the Index at Item 15. These ﬁ nancial 
statements and ﬁ nancial statement schedule are the responsibility of the Company’s management. Our responsibility 
is to express an opinion on the ﬁ nancial statements and ﬁ nancial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board 

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 
whether the ﬁ nancial statements are free of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the ﬁ nancial statements. An audit also includes assessing the 
accounting principles used and signiﬁ cant estimates made by management, as well as evaluating the overall ﬁ nancial 
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated ﬁ nancial statements present fairly, in all material respects, the ﬁ nancial 
position of Fiesta Restaurant Group, Inc. and subsidiaries as of January 1, 2017 and January 3, 2016, and the results 
of their operations and their cash ﬂ ows for each of the three years in the period ended January 1, 2017, in conformity 
with accounting principles generally accepted in the United States of America. Also, in our opinion, such ﬁ nancial 
statement schedule, when considered in relation to the basic consolidated ﬁ nancial statements taken as a whole, 
presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board 
(United States), the Company’s internal control over ﬁ nancial reporting as of January 1, 2017, based on the criteria 
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations 
of the Treadway Commission and our report dated February 27, 2017 expressed an unqualiﬁ ed opinion on the 
Company’s internal control over ﬁ nancial reporting.

/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2017

F-1

FIESTA RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share amounts)

January 1, 
2017

January 3, 
2016

Current assets:

ASSETS

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lease ﬁnancing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred income – sale-leaseback of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Commitments and contingencies (Note 13)
Stockholders’ equity:

Common stock, par value $.01; authorized 100,000,000 shares, issued 26,884,992 

and 26,829,220 shares, respectively, and outstanding 26,755,640 and 
26,571,602 shares, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total liabilities and stockholders’ equity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 

4,196 $ 
8,771
2,865
3,575
3,304
4,231
26,942
270,920
123,484
14,377
5,842
441,565 $ 

89 $ 

16,165
12,275
6,924
11,316
46,769
71,423
1,664
27,165
30,369
177,390

5,281
9,217
2,910
3,163
7,448
3,219
31,238
248,992
123,484
8,497
3,434
415,645

69
12,405
15,614
6,121
12,096
46,305
72,612
1,663
30,086
20,997
171,663

267
163,204
100,704
264,175
441,565 $ 

266
159,724
83,992
243,982
415,645

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

F-2

FIESTA RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except share and per share amounts)

January 1, 
2017

Years Ended
January 3, 
2016

December 28, 
2014

Revenues:

Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Franchise royalty revenues and fees . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

708,956 $ 
2,814
711,770

684,584 $ 
2,808
687,392

608,540
2,603
611,143

Costs and expenses:

Cost of sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant wages and related expenses (including stock-based 

compensation expense of $142, $156 and $71, respectively) . . .
Restaurant rent expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other restaurant operating expenses . . . . . . . . . . . . . . . . . . . . . . . .
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative (including stock-based compensation 
expense of $3,141, $4,137 and $3,426, respectively) . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-opening costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Diluted net income per share  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Basic weighted average common shares outstanding . . . . . . . . . . . . .
Diluted weighted average common shares outstanding  . . . . . . . . . . .

214,609

217,328

192,250

185,305
37,493
96,457
26,800

56,084
36,776
5,511
25,644
(128)
684,551
27,219
2,171
25,048
8,336
16,712 $ 
0.62 $ 
0.62 $ 

174,222
33,103
87,285
21,617

54,521
30,575
4,567
2,382
(679)
624,921
62,471
1,889
60,582
22,046
38,536 $ 
1.44 $ 
1.44 $ 

26,682,227
26,689,179

26,515,029
26,522,196

155,140
29,645
78,921
19,493

49,414
23,047
4,061
363
(558)
551,776
59,367
2,228
57,139
20,963
36,176
1.35
1.35
26,293,714
26,296,049

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

F-3

FIESTA RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except share amounts)

Balance at December 29, 2013 . . . . . . . . . . 
Additional transfers from Carrols . . . . . . 
Stock-based compensation . . . . . . . . . . . 
Vesting of restricted shares . . . . . . . . . . . 
Tax beneﬁt from stock-based 

compensation  . . . . . . . . . . . . . . . . . . . 
Share issuance costs . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 
Balance at December 28, 2014 . . . . . . . . . . 
Stock-based compensation . . . . . . . . . . . 
Vesting of restricted shares . . . . . . . . . . . 
Tax beneﬁt from stock-based 

compensation  . . . . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 
Balance at January 3, 2016 . . . . . . . . . . . . . 
Stock-based compensation . . . . . . . . . . . 
Vesting of restricted shares . . . . . . . . . . . 
Tax beneﬁt from stock-based 

compensation  . . . . . . . . . . . . . . . . . . . 
Net income  . . . . . . . . . . . . . . . . . . . . . . . 
Balance at January 1, 2017 . . . . . . . . . . . . . 

Number of 
Common 
Stock Shares

Common 
Stock

Additional 
Paid-In 
Capital

Retained 
Earnings

Total 
Stockholders’ 
Equity

26,082,800 $ 

261 $ 

—
—
275,648

—
—
26,358,448
—
213,154

—
26,571,602
—
184,038

—
—
3

—
—
264
—
2

—
266
—
1

—

26,755,640 $ 

—
267 $ 

148,765 $ 
(127)
3,497
(3)

9,280 $ 
—
—
—

1,765
(30)
—
153,867
4,293
(2)

1,566
—
159,724
3,283
(1)

198
—

—
36,176
45,456
—
—

38,536
83,992
—
—

16,712

163,204 $ 100,704 $ 

158,306
(127)
3,497
—

1,765
(30)
36,176
199,587
4,293
—

1,566
38,536
243,982
3,283
—

198
16,712
264,175

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

F-4

FIESTA RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars)

Cash ﬂows from operating activities:

Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Adjustments to reconcile net income to net cash provided from 

16,712 $ 

38,536 $ 

36,176

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

operating activities:

Loss (gain) 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  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in other operating assets and liabilities:

Accounts receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets – long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll, related taxes and beneﬁts. . . . . . . . . . . . . . . .
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities – current  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities – long term  . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable/payable  . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided from 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties purchased for sale-leaseback . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposals of other properties . . . . . . . . . . . . . . . . . . .
Proceeds from sale-leaseback transactions . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . .

Cash ﬂows from ﬁnancing activities:

779
3,283
25,644
36,776
309

(3,583)
(5,880)
1

446
(2,796)
3,330
(3,339)
803
(780)
6,498
4,144
(1,668)
80,679

(66,116)
(2,755)
(7,125)
(6,369)
(82,365)
(2,663)
226
3,642
(81,160)

(170)
4,293
2,382
30,575
315

(3,618)
5,483
4

(2,877)
(48)
283
(243)
1,077
3,325
4,752
(2,474)
(243)
81,352

(70,841)
(4,802)
(7,714)
(4,213)
(87,570)
(250)
149
—
(87,671)

Proceeds from issuance of stock, net of issuance costs  . . . . . . . . . .
Excess tax beneﬁt from vesting of restricted shares . . . . . . . . . . . . .
Borrowings on revolving credit facility  . . . . . . . . . . . . . . . . . . . . . .
Repayments on revolving credit facility . . . . . . . . . . . . . . . . . . . . . .
Principal payments on capital leases . . . . . . . . . . . . . . . . . . . . . . . . .
Other ﬁnancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided from ﬁnancing activities. . . . . .
Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, beginning of year  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

—
566
18,400
(19,500)
(70)
—
(604)
(1,085)
5,281
4,196 $ 

—
1,566
28,500
(23,500)
(53)
—
6,513
194
5,087
5,281 $ 

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

F-5

(369)
3,497
363
23,047
309

(3,671)
957
4

(329)
4
(529)
1,561
539
(113)
3,441
(477)
(304)
64,106

(57,102)
(7,588)
(4,975)
(4,414)
(74,079)
—
1,729
5,692
(66,658)

(30)
1,765
25,000
(30,000)
(61)
(13)
(3,339)
(5,891)
10,978
5,087

FIESTA RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars)

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Supplemental disclosures:

Interest paid on long-term debt (including capitalized interest of 

$255 in 2016 and $335 in 2015) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Interest paid on lease ﬁnancing obligations  . . . . . . . . . . . . . . . . . . . $ 
Accruals for capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Income tax payments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Capital lease obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Non-cash transfers of income tax assets and liabilities from 

1,867 $ 
141 $ 
5,288 $ 
9,873 $ 
— $ 

1,748 $ 
140 $ 
4,858 $ 
17,472 $ 
410 $ 

1,971
139
2,889
18,718
—

Carrols . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

— $ 

— $ 

(127)

The accompanying notes are an integral part of these consolidated ﬁ nancial statements.

F-6

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

1. Basis of Presentation

Business Description.  Fiesta Restaurant Group, Inc. (“Fiesta Restaurant Group” or “Fiesta”) owns, operates 

and franchises two fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc., and 
its subsidiaries, and Pollo Franchise, Inc., (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries 
(collectively “Taco Cabana”). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and 
Taco Cabana, are collectively referred to as the “Company”. At January 1, 2017, the Company owned and operated 
177 Pollo Tropical® restaurants and 166 Taco Cabana® restaurants. The Pollo Tropical restaurants include 128 located 
in Florida, 30 located in Texas, 16 located in Georgia and three located in Tennessee. The Taco Cabana restaurants 
include 165 located in Texas and one located in Oklahoma. At January 1, 2017, Fiesta franchised a total of 35 Pollo 
Tropical restaurants and seven Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in 
Puerto Rico, one in the Bahamas, one in Guyana, three in Trinidad & Tobago, one in Venezuela, four in Panama, 
two in Guatemala, and six on college campuses in Florida and a hospital in Florida. The franchised Taco Cabana 
restaurants include ﬁ ve in New Mexico and two on college campuses in Texas.

Basis of Consolidation.  The consolidated ﬁ nancial statements presented herein reﬂ ect the consolidated 
ﬁ nancial position, results of operations and cash ﬂ ows of Fiesta and its wholly-owned subsidiaries. All intercompany 
transactions have been eliminated in consolidation.

Fiscal Year.  The Company uses a 52-53 week ﬁ scal year ending on the Sunday closest to December 31. 
The ﬁ scal years ended January 1, 2017 and December 28, 2014 each contained 52 weeks. The ﬁ scal year ended 
January 3, 2016 contained 53 weeks.

Use of Estimates.  The preparation of the consolidated ﬁ nancial statements in conformity with U.S. Generally 

Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that aff ect 
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the 
ﬁ nancial statements. Estimates also aff ect the reported amounts of expenses during the reporting periods. Signiﬁ cant 
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 diff er from those 
estimates.

Reclassiﬁ cations.  Deferred ﬁ nancing costs, net was reclassiﬁ ed to other assets to conform with the 
current year presentation. In addition, other assets - long term was reclassiﬁ ed to a separate line from other in the 
consolidated statements of cash ﬂ ows to conform with the current year presentation.

Cash and Cash Equivalents.  The Company considers all highly liquid investments with an original maturity 

of three months or less when purchased to be cash equivalents.

Inventories. 
ﬁ rst-out) or market.

Inventories, primarily consisting of food and paper, are stated at the lower of cost (ﬁ rst-in, 

Property and Equipment.  The Company capitalizes all direct costs incurred to construct and substantially 

improve its restaurants. These costs are depreciated and charged to expense based upon their property classiﬁ cation 
when placed in service. Property and equipment is recorded at cost. Application development stage costs for 
signiﬁ cant internally developed software projects are capitalized and amortized. Repairs and maintenance activities 
are expensed as incurred. Depreciation and amortization is provided using the straight-line method over the 
following estimated useful lives:

Buildings and improvements
Equipment
Computer hardware and software
Assets subject to capital lease 

5 to 30 years
3 to 7 years
3 to 7 years
Shorter of useful life or lease term

F-7

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

1. Basis of Presentation (cont.)

Leasehold improvements, including new buildings constructed on leased land, are depreciated over the shorter 

of their estimated useful lives or the underlying lease term. In circumstances where an economic penalty would be 
presumed by the non-exercise of one or more renewal options under the lease, the Company includes those renewal 
option periods when determining the lease term. For signiﬁ cant leasehold improvements made during the latter part 
of the lease term, the Company amortizes those improvements over the shorter of their useful life or an extended 
lease term. The extended lease term would consider the exercise of renewal options if the value of the improvements 
would imply that an economic penalty would be incurred without the renewal of the option. Building costs incurred 
for new restaurants on leased land are depreciated over the lease term, which is generally a twenty-year period.

Goodwill.  Goodwill represents the excess purchase price and related costs over the value assigned to the net 

tangible and identiﬁ able intangible assets acquired by Carrols Restaurant Group, Inc. (“Carrols”), Fiesta’s former 
parent company, from the acquisition of Pollo Tropical in 1998 and Taco Cabana in 2000. Goodwill is not amortized 
but is tested for impairment at least annually as of the last day of the ﬁ scal year or more frequently if impairment 
indicators exist.

Long-Lived Assets.  The Company assesses the recoverability of property and equipment and deﬁ nite-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 ﬂ ows. Impairment is reviewed whenever events or 
changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 4 
for results of the Company’s impairment review.

Deferred Financing Costs.  Financing costs incurred in obtaining long-term debt, credit facilities and lease 
ﬁ nancing obligations are capitalized and amortized over the life of the related obligation as interest expense using 
the eff ective interest method.

Leases.  All leases are reviewed for capital or operating classiﬁ cation at their inception. The majority of the 
Company’s leases are operating leases. Many of the lease agreements contain rent holidays, rent escalation clauses 
and/or contingent rent provisions. Rent expense for leases that contain scheduled rent increases or rent holidays is 
recognized on a straight-line basis over the lease term, including any option periods included in the determination of 
the lease term. Contingent rentals are generally based upon a percentage of sales or a percentage of sales in excess 
of stipulated amounts and are not considered minimum rent payments but are recognized as rent expense when 
incurred.

Revenue Recognition.  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. Franchise fees, which are associated with opening new franchised restaurants, are 
recognized as income when all required activities have been performed by the Company. Area development fees, 
which are associated with opening new franchised restaurants in a given market, are recognized as income over the 
term of the related agreement.

Income Taxes.  Deferred income tax assets and liabilities are based on the diff erence between the ﬁ nancial 

statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in eff ect when 
those diff erences reverse. The deferred tax provision generally represents the net change in deferred tax assets and 
liabilities during the period. The eff ect on deferred tax assets and liabilities of a change in tax rates is recognized in 
the results of operations in the period that includes the enactment date. A valuation allowance is established when 
it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. The Company 
recognizes the tax beneﬁ t from an uncertain tax position only if it is more likely than not that the tax position will be 
sustained on examination by the taxing authorities, based on the technical merits of the position.

Advertising Costs.  All advertising costs are expensed as incurred.

F-8

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

1. Basis of Presentation (cont.)

Cost of Sales.  The Company includes the cost of food, beverage and paper, net of any discounts, in cost of 

sales.

Pre-opening Costs.  The Company’s pre-opening costs are generally incurred beginning four to six months 

prior to a restaurant opening and generally include restaurant employee wages and related expenses, travel 
expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including any 
non-cash rent expense recognized during the construction period.

Insurance.  The Company is insured for workers’ compensation, general liability and medical insurance 
claims under policies where it pays all claims, subject to stop-loss limitations both for individual claims and for 
general liability and certain workers’ compensation claims in the aggregate. Losses are accrued based upon estimates 
of the aggregate liability for claims based on the Company’s experience and certain actuarial methods used to 
measure such estimates. The Company does not discount any of its self-insurance obligations.

Fair Value of Financial Instruments.  Fair value is deﬁ ned as the price that would be received to sell an asset 

or paid to transfer a liability in an orderly transaction between market participants on the measurement date. 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 reﬂ ect our own assumptions. The following 
methods were used to estimate the fair value of each class of ﬁ nancial 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 ﬁ nancial 
instruments.

Revolving Credit Borrowings.  The fair value of outstanding revolving credit borrowings under our 
senior credit facility, which is considered Level 2, is based on current LIBOR rates. At January 1, 2017 
and January 3, 2016, the fair value and carrying value of the Company’s senior credit facility were 
approximately $69.9 million and $71.0 million, respectively.

See Note 4 for discussion of the fair value measurement of non-ﬁ nancial assets.

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. The gift cards have no stated 
expiration dates. Revenues from unredeemed gift cards are not material to the Company’s ﬁ nancial statements.

Recent Accounting Pronouncements. 

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 amends the guidance in former Topic 605, Revenue Recognition, and provides 
for either a full retrospective adoption in which the standard is applied to all of the periods presented or a modiﬁ ed 
retrospective adoption in which the cumulative eff ect of initially applying the standard is recognized at the date 
of initial application. The new standard provides accounting guidance for all revenue arising from contracts with 
customers and aff ects all entities that enter into contracts to provide goods or services to their customers unless the 
contracts are in the scope of other US GAAP requirements. The guidance also provides a model for the measurement 
and recognition of gains and losses on the sale of certain non-ﬁ nancial assets, such as property and equipment, 
including real estate. The Company is currently evaluating the impact of the provisions of Topic 606; however, the 
Company does not believe the standard will impact its recognition of revenue from company-owned restaurants or 
its recognition of franchise royalty revenues, which are based on a percent of gross sales. The Company expects the 
provisions to primarily impact franchise and development fees as well as gift card programs and does not expect the 
standard to have a material eff ect on its ﬁ nancial statements. The Company does not plan to early adopt the standard 

F-9

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

1. Basis of Presentation (cont.)

and plans to use the modiﬁ ed retrospective approach to adopt the standard. For the Company, the new standard is 
eff ective for interim and annual periods beginning after December 15, 2017.

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 eff ective for interim and annual periods beginning after 
December 15, 2018, and early adoption is permitted. A modiﬁ ed retrospective approach is required with an option 
to use certain practical expedients. The new guidance is required to be applied at the beginning of the earliest 
comparative period presented. The Company is currently evaluating the impact on its ﬁ nancial statements. Although 
the impact is not currently estimable, the Company expects to recognize lease assets and lease liabilities for most 
of the leases it currently accounts for as operating leases. In addition, for the Company’s leases that are classiﬁ ed 
as sale-leaseback transactions, the Company will be required to record an initial adjustment to retained earnings 
associated with the previously deferred gains, and for any future 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 is continuing its assessment, which may identify other impacts.

In March 2016, the FASB issued ASU No. 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value 

Products (Topic 405-20), which creates an exception under Topic 405-20 to derecognize ﬁ nancial liabilities related 
to certain prepaid stored-value products using a breakage model consistent with the revenue breakage model in 
Topic 606. The new guidance will be eff ective concurrent with Topic 606, which is eff ective for the Company for 
interim and annual periods beginning after December 15, 2017. The Company does not expect this standard to have 
a material eff ect on its ﬁ nancial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment 
Accounting (Topic 718), to simplify various aspects of the accounting and presentation of share-based payments, 
including the income tax eff ects of awards and forfeiture assumptions. Currently, tax deductions in excess of 
compensation costs (excess tax beneﬁ ts) are recorded in equity and tax deduction shortfalls (tax deﬁ ciencies), 
to the extent of previous excess tax beneﬁ ts, are recorded in equity and then to income tax expense. Under the 
new guidance, all excess tax beneﬁ ts and tax deﬁ ciencies will be recorded to income tax expense in the income 
statement, which could create volatility in the Company’s income statement. The new guidance will also change the 
classiﬁ cation of excess tax beneﬁ ts in the cash ﬂ ow statement and impact the diluted earnings per share calculation. 
The guidance will be eff ective for interim and annual periods beginning after December 15, 2016, and early adoption 
is permitted. Diff erent components of the guidance require prospective, retrospective and/or modiﬁ ed retrospective 
adoption. The Company will make a policy election to account for forfeitures of awards as they occur and it will 
record an immaterial cumulative-eff ect adjustment to beginning retained earnings as of January 2, 2017, as a result 
of adopting the standard.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) - Classiﬁ cation 

of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice in how certain transactions are 
classiﬁ ed in the statement of cash ﬂ ows. The guidance will be eff ective for interim and annual periods beginning 
after December 15, 2017. Early adoption is permitted and a retrospective approach is required. The Company does 
not expect this standard to have a material impact on its ﬁ nancial statements.

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 eff ective for interim and annual periods beginning 
after December 15, 2020. Early adoption is permitted for any goodwill impairment tests after January 1, 2017. The 
Company does not expect this standard to have a material impact on its ﬁ nancial statements.

F-10

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

2. Property and Equipment

Property and equipment consisted of the following:

January 1, 
2017

January 3, 
2016

Land  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Owned buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Leasehold improvements(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Assets subject to capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

(1) 

Leasehold improvements include the cost of new buildings constructed on leased land.

23,395 $ 
22,008
249,507
220,397
2,057
517,364
(246,444)
270,920 $ 

23,363
20,101
206,293
194,181
2,057
445,995
(197,003)
248,992

Assets subject to capital leases primarily pertain to buildings leased for certain restaurant locations and 
certain offi  ce equipment and had accumulated amortization at January 1, 2017 and January 3, 2016 of $1.0 million 
and $0.8 million, respectively. At January 1, 2017 and January 3, 2016, land of $0.7 million and owned buildings 
of 0.8 million were subject to lease ﬁ nancing obligations accounted for under the lease ﬁ nancing method. See 
Note 8 — Lease Financing Obligations. Accumulated depreciation pertaining to owned buildings subject to lease 
ﬁ nancing obligations at January 1, 2017 and January 3, 2016 was $0.4 million and$0.3 million.

Depreciation and amortization expense for all property and equipment for the years ended January 1, 2017, 

January 3, 2016 and December 28, 2014 was $36.8 million, $30.6 million and $23.0 million, respectively.

3. Goodwill

The Company is required to review goodwill for impairment annually or more frequently when events and 
circumstances indicate that the carrying amount may be impaired. If the determined fair value of goodwill is less 
than the related carrying amount, an impairment loss is recognized. The Company performs its annual impairment 
assessment as of the last day of the ﬁ scal year and has determined its reporting units to be its operating segments, 
Pollo Tropical and Taco Cabana.

In performing its goodwill impairment test, the Company compared the net book values of its reporting 
units to their estimated fair values, the latter determined by employing a discounted cash ﬂ ow analysis, which was 
corroborated with other value indicators where available, such as comparable company earnings multiples.

There have been no changes in goodwill or goodwill impairment losses recorded during the year ended 

January 1, 2017 or the years ended January 3, 2016 and December 28, 2014. Goodwill balances are summarized 
below:

Balance, January 1, 2017 and January 3, 2016 . . . . . . . . . . . . . . . . . . .  $ 

56,307 $ 

67,177 $ 

Pollo Tropical Taco Cabana

Total
123,484

4. 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 speciﬁ c restaurant if the restaurant’s cash ﬂ ows for the last twelve months are less than a minimum 
threshold or if consistent levels of cash ﬂ ows 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 

F-11

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

4. Impairment of Long-Lived Assets and Other Lease Charges (cont.)

ﬂ ows 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 ﬂ ow, 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 ﬂ ows 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.

A summary of impairment on long-lived assets and other lease charges recorded by segment is as follows:

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Pollo Tropical  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Taco Cabana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

24,419 $ 
1,225
25,644 $ 

510 $ 

1,872
2,382 $ 

254
109
363

In 2016, the Company decided to suspend additional development of Pollo Tropical restaurants outside 
of Florida and to review its strategy for development while it continues to build brand awareness, affi  nity and 
off  premise consumption through several initiatives and to suspend all near-term development of Pollo Tropical 
restaurants outside of Florida. Based on a restaurant portfolio examination, the Company closed ten Pollo Tropical 
restaurants in the fourth quarter of 2016 including eight restaurants in Texas, one restaurant in Nashville, Tennessee 
and one restaurant in Atlanta, Georgia. The Company plans to convert three of the closed restaurants in Texas to Taco 
Cabana restaurants in 2017.

In 2016, the Company recognized impairment charges with respect to the ten closed restaurants and seven 
additional Pollo Tropical restaurants and seven Taco Cabana restaurants that it continues to operate. Impairment 
and other lease charges in 2016 consisted of impairment charges for Pollo Tropical and Taco Cabana restaurants of 
$21.6 million and $1.1 million, respectively and lease and other charges related to closed Pollo Tropical and Taco 
Cabana restaurants of $2.8 million and $0.2 million, respectively, net of recoveries.

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, the Company’s plans to use this equipment in new restaurants that are scheduled to open in 2017 and 
2018, and the Company’s expectation of how a market participant would value the equipment. These fair value asset 
measurements rely on signiﬁ cant 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 2016 totaled $6.9 million.

Impairment and other lease charges in 2015 consisted primarily of impairment charges totaling $1.7 million 
and a $0.2 million lease charge related to a restaurant closure at the end of ﬁ scal 2015, a $0.3 million lease charge 
related to the closure of a Pollo Tropical restaurant that was relocated prior to the end of its lease term to a superior 
site in the same trade area and lease charges, net of recoveries, totaling $0.2 million related to previously closed 
Pollo Tropical restaurants.

Impairment and other lease charges in 2014 included a $0.3 million impairment charge representing the 

write-down of the carrying value to fair value of certain assets related to the Pollo Tropical restaurant that closed 
in 2015 and $0.1 million in impairment charges for additional assets acquired at previously impaired Taco Cabana 
locations.

F-12

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

5. Other Liabilities

Other liabilities, current, consist of the following:

Accrued workers’ compensation and general liability claims. . . . . . . . . . . . . . . . . . . .  $ 
Sales and property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accrued occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

4,838 $ 
1,844
2,161
2,473
11,316 $ 

5,540
3,031
980
2,545
12,096

Other liabilities, long-term, consist of the following:

January 1, 
2017

January 3, 
2016

January 1, 
2017

January 3, 
2016

Accrued occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Accrued workers’ compensation and general liability claims. . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

20,172 $ 
2,027
4,030
4,140
30,369 $ 

15,349
1,665
697
3,286
20,997

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-store reserve, of which $3.1 million and $1.2 million 
are included in long-term accrued occupancy costs at January 1, 2017 and January 3, 2016, respectively, with the 
remainder in other current liabilities.

Year Ended

January 1, 
2017

January 3, 
2016

Balance, beginning of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Provisions for restaurant closures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Additional lease charges, net of (recoveries)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Payments, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Balance, end of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 

1,832 $ 
3,093
(237)
(806)
1,030
4,912 $ 

1,251
554
258
(358)
127
1,832

6. Leases

The Company utilizes land and buildings in its operations under various lease agreements. The Company 

does not consider any one of these individual leases material to the Company’s operations. Initial lease terms are 
generally for twenty years and, in many cases, provide for renewal options and in most cases rent escalations. Certain 
leases require contingent rent, determined as a percentage of sales as deﬁ ned by the terms of the applicable lease 
agreement. For most locations, the Company is obligated for occupancy related costs including payment of property 
taxes, insurance and utilities.

During the years ended January 1, 2017 and December 28, 2014 the Company sold one and two restaurant 
properties in each year, respectively, in sale-leaseback transactions for net proceeds of $3.6 million and $5.7 million, 
respectively. These leases have been classiﬁ ed as operating leases and generally contain a twenty-year initial term 
plus renewal options.

F-13

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

6. Leases (cont.)

Deferred gains on sale-leaseback transactions of $0.7 million and $1.9 million were recognized during the 
years ended January 1, 2017 and December 28, 2014, respectively and are being amortized over the term of the 
related leases. The amortization of deferred gains on sale-leaseback transactions was $3.6 million, $3.6 million and 
$3.7 million for the years ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively.

Minimum rent commitments due under capital and non-cancelable operating leases at January 1, 2017 were as 

follows:

Capital

Operating

2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total minimum lease payments(1)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Total obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less current portion  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Long-term debt under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 

282 $ 
282
282
286
301
1,540
2,973 $ 
(1,361)
1,612
(89)
1,523

43,026
42,784
42,380
40,852
37,924
338,084
545,050

(1)  Minimum operating lease payments have not been reduced by minimum sublease rentals of $6.7 million due in the future 

under noncancelable subleases.

Total rent expense on operating leases, including contingent rentals, was as follows:

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Minimum rent on real property, excluding rent included in 

pre-opening costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

Additional rent based on percentage of sales . . . . . . . . . . . . . . . . . . . .
Restaurant rent expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent included in pre-opening costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative and equipment rent . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 

37,180 $ 
313
37,493
2,066
1,119
40,678 $ 

32,716 $ 
387
33,103
1,736
1,026
35,865 $ 

29,309
336
29,645
1,421
1,042
32,108

7. Long-term Debt

Long term debt at January 1, 2017 and January 3, 2016 consisted of the following:

January 1, 
2017

January 3, 
2016

Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
Capital leases  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

Less: current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

69,900 $ 
1,612
71,512
(89)
71,423 $ 

71,000
1,681
72,681
(69)
72,612

Senior Credit Facility. 

In December 2013, the Company terminated its former senior secured revolving 
credit facility, referred to as the “former senior credit facility”, and entered into a new senior secured revolving 

F-14

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

7. Long-term Debt (cont.)

credit facility with a syndicate of lenders, which is referred to as the “senior credit facility”. The senior credit facility 
provides for aggregate revolving credit borrowings of up to $150 million (including $15 million available for letters 
of credit) and matures on December 11, 2018. The senior credit facility also provides for potential incremental 
increases of up to $50 million to the revolving credit borrowings available under the senior credit facility. On 
January 1, 2017, there were $69.9 million in outstanding revolving credit borrowings under the senior credit facility.

Borrowings under the senior credit facility bear interest at a per annum rate, at the Company’s option, equal to 

either (all terms as deﬁ ned in the senior credit facility):

1) 

2) 

the Alternate Base Rate plus the applicable margin of 0.50% to 1.50% based on the Company’s Adjusted 
Leverage Ratio (with a margin of 0.50% as of January 1, 2017), or

the LIBOR Rate plus the applicable margin of 1.50% to 2.50% based on the Company’s Adjusted 
Leverage Ratio (with a margin of 1.50% at January 1, 2017).

In addition, the senior credit facility requires the Company to pay (i) a commitment fee based on the applicable 

Commitment Fee margin of 0.25% to 0.45%, based on the Company’s Adjusted Leverage Ratio (with a margin of 
0.25% at January 1, 2017) and the unused portion of the facility and (ii) a letter of credit fee based on the applicable 
LIBOR margin and the dollar amount of outstanding letters of credit.

All obligations under the Company’s senior credit facility are guaranteed by all of the Company’s material 
domestic subsidiaries. In general, the Company’s obligations under the senior credit facility and its subsidiaries’ 
obligations under the guarantees are secured by a ﬁ rst priority lien and security interest on substantially all of its 
assets and the assets of its material subsidiaries (including a pledge of all of the capital stock and equity interests of 
its material subsidiaries), other than certain speciﬁ ed assets, including real property owned by the Company or its 
subsidiaries.

The outstanding borrowings under the Company’s senior credit facility are prepayable without penalty 
(other than customary breakage costs). The senior credit facility requires the Company to comply with customary 
affi  rmative, negative and ﬁ nancial covenants, including, without limitation, those limiting Fiesta’s and its 
subsidiaries’ ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other 
investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), 
(iv) pay dividends, (v) redeem and repurchase equity interests, (vi) conduct asset and restaurant sales and other 
dispositions (subject to certain exceptions), (vii) conduct transactions with affi  liates and (viii) change its business. 
In addition, the senior credit facility requires the Company to maintain certain ﬁ nancial ratios, including a Fixed 
Charge Coverage Ratio and an Adjusted Leverage Ratio (all as deﬁ ned under the senior credit facility).

The Company’s senior credit facility contains customary default provisions, including without limitation, a 
cross default provision pursuant to which it is an event of default under this facility if there is a default under any 
of the Company’s indebtedness having an outstanding principal amount of $5.0 million or more which results in the 
acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.

As of January 1, 2017, the Company was in compliance with the covenants under its senior credit facility. 
After reserving $5.2 million for letters of credit issued under the senior credit facility, $74.9 million was available for 
borrowing under the senior credit facility at January 1, 2017.

At January 1, 2017, principal payments required on borrowings under the senior credit facility were 
$69.9 million in 2018. The weighted average interest rate on the borrowings under the senior credit facility was 
2.29% and 2.08% at January 1, 2017 and January 3, 2016, respectively. Interest expense on the Company’s long-term 
debt, excluding lease ﬁ nancing obligations, was $1.9 million, $1.6 million and $2.1 million for the years ended 
January 1, 2017, January 3, 2016, and December 28, 2014, respectively.

F-15

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

8. Lease Financing Obligations

The Company entered into a sale-leaseback transaction that did not qualify for sale-leaseback accounting 

due to a form of continuing involvement and, as a result, the lease was classiﬁ ed as a ﬁ nancing transaction in the 
Company’s consolidated ﬁ nancial statements.

Under the ﬁ nancing method, the assets remain on the consolidated balance sheet and the net proceeds received 
by the Company from the transaction are recorded as a lease ﬁ nancing liability. Payments under the lease are applied 
as payments of imputed interest and deemed principal on the underlying ﬁ nancing obligations.

The lease provides for an initial term of 20 years plus renewal options and requires payment of property taxes, 

insurance and utilities.

At January 1, 2017, payments required on lease ﬁ nancing obligations were as follows:

2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter, through 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Interest implicit in obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease ﬁnancing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 

143
144
146
147
149
1,927
2,656
(992)
1,664

The interest rate on lease ﬁ nancing obligations was 8.6% at January 1, 2017. Interest expense associated 
with lease ﬁ nancing obligations was 0.1 million, for each of the years ended January 1, 2017, January 3, 2016, and 
December 28, 2014.

9. Income Taxes

The Company’s income tax provision was comprised of the following:

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Foreign  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Valuation allowance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 

11,979 $ 
372
1,865
14,216

(4,908)
(792)
(5,700)
(180)
8,336 $ 

14,086 $ 
396
2,081
16,563

5,318
139
5,457
26
22,046 $ 

17,335
380
2,291
20,006

417
46
463
494
20,963

F-16

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

9. Income Taxes (cont.)

Deferred income taxes reﬂ ect the net eff ects of temporary diff erences between the carrying amounts of assets 

and liabilities for ﬁ nancial reporting purposes and the amount used for income tax purposes. The components of 
deferred income tax assets and liabilities at January 1, 2017 and January 3, 2016 were as follows:

January 1, 
2017

January 3, 
2016

Deferred income tax assets:

Accrued vacation beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Incentive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Deferred income on sale-leaseback of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Lease ﬁnancing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

1,640
986
3,924
9,861
162
8,036
1,148
1,738
27,495

1,494
1,571
3,188
10,929
133
5,840
1,036
1,618
25,809

Deferred income tax liabilities:

Property and equipment depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Amortization of other intangibles, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Gross deferred income tax liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Net deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 

(8,311)
(3,250)
(701)
(12,262)
(856)
14,377 $ 

(12,176)
(3,211)
(889)
(16,276)
(1,036)
8,497

The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets 
when it is more likely than not that it will not realize some portion or all of the tax beneﬁ t of its deferred tax assets. 
The Company evaluates whether its deferred income tax assets are probable of realization on a quarterly basis. In 
performing this analysis, the Company considers all available evidence including historical operating results, the 
estimated timing of future reversals of existing taxable temporary diff erences and estimated future taxable income 
exclusive of reversing temporary diff erences and carryforwards. At January 1, 2017 and January 3, 2016, the 
Company had a valuation allowance of $856 and $1,036 respectively, against net deferred income tax assets due to 
foreign income tax credit carryforwards where it was determined to be more likely than not that the deferred income 
tax asset amounts would not be realized. The valuation allowance decreased $180 in 2016 and increased $26 in 2015, 
primarily due to foreign tax credit carryforwards, net of expired foreign income tax credits. The estimation of future 
taxable income for federal and state purposes and the Company’s ability to realize deferred income tax assets can 
signiﬁ cantly change based on future events and operating results.

The Company’s eff ective tax rate was 33.3%, 36.4%, and 36.7% for the years ended January 1, 2017, 

January 3, 2016 and December 28, 2014, respectively. A reconciliation of the statutory federal income tax provision 
to the eff ective tax provision was as follows:

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Statutory federal income tax provision . . . . . . . . . . . . . . . . . . . . . . . .  $ 
State income taxes, net of federal beneﬁt . . . . . . . . . . . . . . . . . . . . . . 
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Non-deductible expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Employment tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

F-17

8,767 $ 
689
(180)
(3)
372
(905)
(372)
(32)
8,336 $ 

21,204 $ 
1,435
26
260
396
(889)
(396)
10
22,046 $ 

19,999
1,453
494
293
380
(1,174)
(380)
(102)
20,963

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

9. Income Taxes (cont.)

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. 

As of January 1, 2017 and January 3, 2016, the Company had no unrecognized tax beneﬁ ts and no accrued interest 
related to uncertain tax positions.

The tax years 2013-2015 remain open to examination by the taxing jurisdictions to which the Company is 

subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax beneﬁ ts may 
increase within the next twelve months due to uncertainties regarding the timing of any examinations, the Company 
does not expect unrecognized tax beneﬁ ts to signiﬁ cantly change in the next twelve months.

10. Stock-Based Compensation

The Company established the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the “Fiesta Plan”) in 

order to be able to compensate its employees and directors by issuing stock options, stock appreciation rights, or 
stock awards to them under this plan. The aggregate number of shares of stock authorized for distribution under the 
Fiesta Plan is 3,300,000. As of January 1, 2017, there were 2,169,321 shares available for future grants under the 
Fiesta Plan.

During the years ended January 1, 2017, January 3, 2016 and December 28, 2014, the Company granted 

certain employees and directors in the aggregate 97,859, 50,600 and 80,290 non-vested restricted shares, 
respectively, under the Fiesta Plan. Shares granted to employees during the years ended January 1, 2017, January 3, 
2016 and December 28, 2014 vest and become non-forfeitable over a four year vesting period, or for certain 
grants, at the end of a four year vesting period. Shares granted to directors during the years ended January 1, 
2017, January 3, 2016 and December 28, 2014 vest and become non-forfeitable over a one year vesting period. 
The weighted average fair value at the grant date for restricted non-vested shares issued during the years ended 
January 1, 2017, January 3, 2016 and December 28, 2014 was $34.98, $61.47 and $44.22, respectively. The grant 
date fair value of each non-vested share award was determined based on the closing price of the Company’s stock on 
the date of grant.

During the years ended January 1, 2017, January 3, 2016 and December 28, 2014, the Company granted 
certain employees 39,453, 27,508 and 24,252 restricted stock units, respectively, under the Fiesta Plan. Certain of the 
restricted stock units vest and become non-forfeitable over a four year vesting period, certain of the restricted units 
vest and become non-forfeitable at the end of a four year vesting period, and certain of the restricted stock units vest 
at the end of a three year vesting period. The weighted average fair value at grant date for the restricted stock units 
issued to employees during the years ended January 1, 2017, January 3, 2016 and December 28, 2014 was $35.25, 
$63.93 and $45.04. The grant date fair value of each restricted stock unit award was determined based on the closing 
price of the Company’s stock on the date of grant.

During the years ended January 1, 2017 and January 3, 2016, the Company granted 33,691 and 17,501 
non-vested restricted shares, respectively, and 33,691 and 17,501 restricted stock units, respectively, under the Fiesta 
Plan to certain employees subject to ﬁ nancial performance conditions. The non vested restricted shares vest and 
become non-forfeitable over a four year vesting period subject to the attainment of ﬁ nancial performance conditions. 
The restricted stock units vest and become non-forfeitable at the end of a three year vesting period. The number 
of shares into which the restricted stock units convert is based on the attainment of certain ﬁ nancial performance 
conditions and for the restricted stock units granted during the years ended January 1, 2017 and January 3, 2016, 
ranges from no shares, if the minimum ﬁ nancial performance condition is not met, to 67,382 and 35,002 shares, 
respectively, if the maximum ﬁ nancial performance condition is met. The weighted average fair value at grant date 
for both restricted non-vested shares and restricted stock units subject to performance conditions granted during the 
years ended January 1, 2017 and January 3, 2016 was $35.25 and $65.01, respectively.

Stock-based compensation expense is measured at the grant date based on the fair value of the award and 
is recognized as expense over the applicable requisite service period of the award (the vesting period) using the 

F-18

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

10. Stock-Based Compensation (cont.)

straight-line method. Stock-based compensation expense for the years ended January 1, 2017, January 3, 2016 
and December 28, 2014 was $3.3 million, $4.3 million and $3.5 million, respectively. As of January 1, 2017, the 
total unrecognized stock-based compensation expense related to non-vested shares and restricted stock units was 
approximately $3.4 million. At January 1, 2017, the remaining weighted average vesting period for non-vested 
restricted shares was 1.7 years and restricted stock units was 1.8 years.

During 2016, a portion of the awards previously granted to the Company’s former Chief Executive Offi  cer 

were modiﬁ ed and vested in connection with his retirement. The modiﬁ cation reduced stock compensation expense 
by $0.1 million.

A summary of all non-vested restricted shares and restricted stock units activity for the year ended January 1, 

2017 is as follows:

Non-Vested Shares

Restricted Stock Units

Weighted 
Average 
Grant Date 
Price

Units

Weighted 
Average 
Grant Date 
Price

Shares

Outstanding at January 3, 2016 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested/Released  . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at January 1, 2017 . . . . . . . . . . . . . . . . .

257,618 $ 

97,859
(183,369)
(42,756)
129,352 $ 

30.69
34.98
24.83
40.57
37.94

42,840 $ 
39,453
(669)
(30,179)
51,445 $ 

56.46
35.25
51.27
45.67
46.59

The fair value of the shares vested and released during the years ended January 1, 2017, January 3, 2016 and 

December 28, 2014 was $5.2 million, $11.9 million and $12.8 million, respectively.

11. Business Segment Information

The Company is engaged in the fast-casual restaurant industry, with two restaurant concepts (each of which 
is an operating segment): Pollo Tropical and Taco Cabana. Pollo Tropical restaurants off er a wide variety of freshly 
prepared Caribbean inspired food, while our Taco Cabana restaurants off er a broad selection of freshly prepared 
Mexican inspired food.

Each segment’s accounting policies are the same as those described in the summary of signiﬁ cant accounting 

policies in Note 1. The Company reports more than one measure of segment proﬁ t or loss to the chief operating 
decision maker for the purposes of allocating resources to the segments and assessing their performance. The 
primary measures of segment proﬁ t or loss used to assess performance and allocate resources are income before 
taxes and Adjusted EBITDA, which is deﬁ ned as earnings attributable to the applicable operating segment before 
interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation 
expense and other income and expense. Although the chief operating decision maker uses Adjusted EBITDA as a 
measure of segment proﬁ tability, in accordance with Accounting Standards Codiﬁ cation 280, Segment Reporting, 
the following table includes segment income before taxes, which is the measure of segment proﬁ t or loss determined 
in accordance with the measurement principles that are most consistent with the principles used in measuring the 
corresponding amounts in the consolidated ﬁ nancial statements.

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, a current income tax receivable, and advisory fees related to a 
previously proposed separation transaction.

F-19

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

11. Business Segment Information (cont.)

Pollo Tropical

Taco Cabana

Other

Consolidated

Year Ended
January 1, 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) . . . . . . . . . . . . . . . . . . 
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 
Pre-opening costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . 
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Income (loss) before taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . 
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
January 3, 2016:
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) . . . . . . . . . . . . . . . . . . 
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 
Pre-opening costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . 
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Income before taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
December 28, 2014:
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) . . . . . . . . . . . . . . . . . . 
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 
Pre-opening costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Impairment and other lease charges . . . . . . . . . . . . . . . . . . . 
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Income before taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
Identiﬁable Assets:
January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 
January 3, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
December 28, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

$ 

$ 

$ 

$ 

399,736
2,062
126,539
93,958
19,998
54,198
14,819
33,776
23,587
4,837
24,419
930
4,639
65,789

364,544
2,197
121,689
81,647
16,003
45,376
9,527
31,142
18,000
4,310
510
806
38,021
73,129

305,404
2,072
100,468
67,487
12,473
38,331
7,714
26,672
11,596
3,385
254
1,035
38,061
52,355

263,868
237,065
177,923

309,220
752
88,070
91,347
17,495
42,259
11,981
21,486
13,189
674
1,225
1,241
21,231
13,206

320,040
611
95,639
92,575
17,100
41,909
12,090
23,379
12,575
257
1,872
1,083
22,561
12,294

303,136
531
91,782
87,653
17,172
40,590
11,779
22,742
11,451
676
109
1,193
19,078
17,969

165,195
165,549
167,729

$ 

822

(822)
3,370

$ 

2,147

$ 

$ 

3,755

12,502
13,031
12,304

$ 

708,956
2,814
214,609
185,305
37,493
96,457
26,800
56,084
36,776
5,511
25,644
2,171
25,048
82,365

684,584
2,808
217,328
174,222
33,103
87,285
21,617
54,521
30,575
4,567
2,382
1,889
60,582
87,570

608,540
2,603
192,250
155,140
29,645
78,921
19,493
49,414
23,047
4,061
363
2,228
57,139
74,079

441,565
415,645
357,956

(1) 

(2) 

Includes stock-based compensation expense of $142, $156 and $71 for the years ended January 1, 2017, January 3, 2016 
and December 28, 2014, respectively.
Includes stock-based compensation expense of $3,141, $4,137 and $3,426 for the years ended January 1, 2017, January 3, 
2016 and December 28, 2014, respectively.

F-20

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

12. Net Income per Share

The Company computes basic net income per share by dividing net income 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 reﬂ ects 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 eff ect of the restricted stock units, determined using the treasury stock method.

Weighted average outstanding restricted stock units totaling 9,379, 4,491 and 5,899 shares were not included 
in the computation of diluted earnings per share for the twelve months ended January 1, 2017, January 3, 2016 and 
December 28, 2014, respectively, because to do so would have been antidilutive.

The computation of basic and diluted net income per share is as follows:

January 1, 
2017

Year Ended
January 3, 
2016

December 28, 
2014

Basic and diluted net income per share:
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Less: income allocated to participating securities  . . . . . . . . . . . . . .
Net income available to common stockholders. . . . . . . . . . . . . . . . . . . $ 

16,712 $ 
135
16,577 $ 

38,536 $ 
441
38,095 $ 

36,176
647
35,529

Weighted average common shares, basic . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares, diluted . . . . . . . . . . . . . . . . . . . . . .

26,682,227
6,952
26,689,179

26,515,029
7,167
26,522,196

26,293,714
2,335
26,296,049

Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . $ 

0.62 $ 
0.62 $ 

1.44 $ 
1.44 $ 

1.35
1.35

F-21

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

13. 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. The maximum potential liability for future rental 
payments that the Company could be required to make under these leases at January 1, 2017 was $1.7 million. The 
Company could also be obligated to pay property taxes and other lease related costs. The obligations under these 
leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it 
is probable that it will be ultimately responsible for the obligations under these leases.

Legal Matters.  The Company is a party to legal proceedings incidental to the conduct of business, including 

the matter described below. The Company records accruals for outstanding legal matters when it believes it is 
probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a 
quarterly basis, developments in legal matters that could aff ect the amount of any accrual and developments that 
would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable 
and estimable, the Company does not establish an accrued liability.

On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were 
misclassiﬁ ed as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior 
to any suit being ﬁ led, Pollo Tropical reached a settlement with seven named individuals and a proposed collective 
action class that will allow current and former assistant managers to receive notice and opt-in to the settlement. Pollo 
Tropical denies any liability or unlawful conduct. The Company has recorded a charge of $0.8 million to cover the 
estimated costs related to the settlement, including estimated payments to individuals that opt-in to the settlement, 
premium payments to named individuals, attorneys’ fees for the individuals’ counsel, and related settlement 
administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending the action. The 
settlement, which is subject to approval by an arbitrator and a judicial body, will result in dismissal with prejudice 
for the named individuals and all individuals that opt-in to the settlement.

On September 29, 2014, Daisy, Inc., an automotive repair shop in Cape Coral, Florida, ﬁ led a putative class 

action suit against Pollo Tropical in the United States District Court for the Middle District of Florida. The suit 
alleged that Pollo Tropical engaged in unlawful activity in violation of the Telephone Consumer Protection Act, § 
227 et seq. occurring in December 2010 and January 2011. During the ﬁ rst quarter of 2016, Pollo Tropical reached a 
settlement with the plaintiff  that resulted in dismissal of the case and paid all settlement claims.

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 eff ect on its consolidated 
ﬁ nancial statements.

14. Retirement Plans

Fiesta off ers the Company’s salaried employees the option to participate in the Fiesta Corporation Retirement 
Savings Plan (the “Retirement Plan”). The Retirement Plan includes a savings option pursuant to section 401(k) of 
the Internal Revenue Code in addition to a post-tax savings option. Fiesta may elect to contribute to the Retirement 
Plan on an annual basis. Contributions made by Fiesta to the Retirement Plan for the Company’s employees are made 
after the end of each plan year. For 2016 and 2015, Fiesta’s annual contribution is equal to 50% of the employee’s 
contribution up to a maximum Fiesta contribution of 3% of eligible compensation per participating employee. 
For 2014, Fiesta’s annual contribution was equal to 50% of the employee’s contribution up to a maximum Fiesta 
contribution $0.5 per participating employee. Under the Retirement Plan, Fiesta contributions begin to vest after 
1 year and fully vest after 5 years of service. A year of service is deﬁ ned as a plan year during which an employee 
completes at least 1,000 hours of service. Participating employees may contribute up to 50% of their salary annually 

F-22

FIESTA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars, except per share amounts)

14. Retirement Plans (cont.)

to either of the savings options, subject to other limitations. The employees have various investment options 
available under a trust established by the Retirement Plan. Retirement Plan employer matching expense for the years 
ended January 1, 2017, January 3, 2016 and December 28, 2014 was $0.3 million, $0.3 million and $0.2 million 
respectively.

Fiesta also has a Deferred Compensation Plan which permits employees not eligible to participate in the 

Retirement Plan because they have been excluded as “highly compensated” employees (as so deﬁ ned in the 
Retirement Plan) to voluntarily defer portions of their base salary and annual bonus. All amounts deferred by 
the participants earn interest at 8% per annum. There is no Company matching on any portion of the funds. At 
January 1, 2017 and January 3, 2016, a total of $2.0 million and $1.7 million, respectively, was deferred by the 
Company’s employees under the Retirement Plan, including accrued interest.

15. Selected Quarterly Financial and Earnings Data (Unaudited)

Year Ended January 1, 2017

First 
Quarter

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Income (loss) from operations  . . . . . . . . . . . . . . . . . . .
Net income (loss)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per share . . . . . . . . . . . . . . . . . $ 
Diluted net income (loss) per share  . . . . . . . . . . . . . . . $ 

176,677 $ 

16,141
9,895
0.37 $ 
0.37 $ 

Second 
Quarter

Third 
Quarter
181,532 $  182,256

Fourth 
Quarter
$  171,305

14,576
8,916
0.33 $ 
0.33 $ 

(6,737)(1)
(4,531)(1)
(0.17)
(0.17)

$ 
$ 

3,239(1)
2,432(1)
0.09
0.09

First 
Quarter

Year Ended January 3, 2016

Second 
Quarter

Third 
Quarter

Fourth 
Quarter

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 
Income from operations  . . . . . . . . . . . . . . . . . . . . . . . .
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . $ 
Diluted net income per share  . . . . . . . . . . . . . . . . . . . . $ 

163,875 $ 

171,900 $ 

172,105 $ 

17,458
10,501

18,646
11,249

0.39 $ 
0.39 $ 

0.42 $ 
0.42 $ 

13,009
7,945
0.30 $ 
0.30 $ 

179,512
13,358
8,841
0.33
0.33

(1) 

The Company recognized impairment and other lease charges of $18.5 million and $7.0 million in the third and fourth 
quarters of 2016, respectively (See Note 4).

F-23

FIESTA RESTAURANT GROUP, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JANUARY 1, 2017, JANUARY 3, 2016 AND DECEMBER 28, 2014
(In thousands of dollars)

Column B
Balance at 
beginning of 
period

Column C

Column D

Charged to 
costs and 
expenses

Charged to 
other 
accounts

Deduction

Column E
Balance at 
end of 
period

Description
Year Ended January 1, 2017:

Deferred income tax valuation 

allowance . . . . . . . . . . . . . . . . . .  $ 

1,036 $ 

(180) $ 

— $ 

— $ 

856

Year Ended January 3, 2016:

Deferred income tax valuation 

allowance . . . . . . . . . . . . . . . . . . 

1,010

26 

Year Ended December 28, 2014:
Deferred income tax valuation 

allowance . . . . . . . . . . . . . . . . . . 

516

494 

—

—

— 

— 

1,036

1,010

F-24

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant 

has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 27th day of 
February 2017.

SIGNATURES

Date: February 27, 2017

FIESTA RESTAURANT GROUP, INC.

/S/ DANNY K. MEISENHEIMER
(Signature)
Danny K. Meisenheimer 
Interim Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the 

following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

/s/ JACK A. SMITH
Jack A. Smith

Title

Date

Director and Chairman of the Board of Directors

February 27, 2017

/s/ DANNY K. MEISENHEIMER Interim Chief Executive Officer

February 27, 2017

Danny K. Meisenheimer

/s/ LYNN S. SCHWEINFURTH Senior Vice President, Chief Financial Officer and

February 27, 2017

Lynn S. Schweinfurth

Treasurer

/s/ CHERI L. KINDER
Cheri L. Kinder

/s/ BRIAN P. FRIEDMAN
Brian P. Friedman

/s/ NICHOLAS DARAVIRAS
Nicholas Daraviras

/s/ STACEY RAUCH
Stacey Rauch

/s/ BARRY J. ALPERIN
Barry J. Alperin

/s/ STEPHEN P. ELKER
Stephen P. Elker

Vice President, Corporate Controller

February 27, 2017

Director

Director

Director

Director

Director

February 27, 2017

February 27, 2017

February 27, 2017

February 27, 2017

February 27, 2017

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