Noodles & Company
Annual Report 2016

Plain-text annual report

NOODLES & CO FORM 10-K (Annual Report) Filed 03/02/17 for the Period Ending 01/03/17 Address Telephone CIK 520 ZANG ST., SUITE D BROOMFIELD, CO 80021 7202141921 0001275158 Symbol NDLS SIC Code 5812 - Eating Places Industry Restaurants & Bars Sector Consumer Cyclicals Fiscal Year 01/03 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 3, 2017or¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 001-35987 NOODLES & COMPANY(Exact name of registrant as specified in its charter) Delaware 84-1303469(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.) 520 Zang Street, Suite D 80021Broomfield, CO (Address of Principal Executive Offices) (Zip Code)Registrant’s telephone number, including area code: (720) 214-1900Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon stock, par value $0.01 per share 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 defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): ¨ Large accelerated filer x Accelerated filer ¨ Non-accelerated filer(do not check if asmaller reportingcompany) ¨ Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the voting and non-voting common stock held by non-affiliates as of June 28, 2016, the last business day of the registrant’s most recently completed second fiscalquarter, was $113.7 million. This amount was calculated based on the closing price of the common stock on June 28, 2016 on the NASDAQ Global Select Market. All executive officers anddirectors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.As of February 24, 2017, there were 26,350,827 shares of the registrant’s Class A common stock, par value of $0.01 per share, and 1,522,098 shares of the registrant’s Class B commonstock, par value $0.01 per share, outstanding.Table of Contents TABLE OF CONTENTS Page PART I ITEM 1.Business1ITEM 1A.Risk Factors11ITEM 1B.Unresolved Staff Comments25ITEM 2.Properties26ITEM 3.Legal Proceedings26ITEM 4.Mine Safety Disclosures27 PART II ITEM 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities28ITEM 6.Selected Financial Data29ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations32ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk49ITEM 8.Financial Statements and Supplementary Data50ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure77ITEM 9A.Controls and Procedures77ITEM 9B.Other Information77 PART III ITEM 10.Directors, Executive Officers and Corporate Governance78ITEM 11.Executive Compensation81ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters87ITEM 13.Certain Relationships and Related Transactions, and Director Independence89ITEM 14.Principal Accounting Fees and Services92 PART IV ITEM 15.Exhibits, Financial Statement Schedules93SIGNATURES EXHIBITS iTable of Contents PART IITEM 1. BusinessGeneralNoodles & Company is a restaurant concept offering lunch and dinner within the fast casual segment of the restaurant industry. We opened our first location inDenver, Colorado in 1995, offering noodle and pasta dishes, staples of many cuisines, with the goal of delivering fresh ingredients and flavors from around theworld under one roof. Today, our globally inspired menu includes a wide variety of high quality, cooked-to-order dishes, including noodles and pasta, soups, saladsand appetizers, which are served on china by our friendly team members. We believe that we offer our customers value, with per person spend of $8.68 for thefiscal year ended January 3, 2017 .We offer approximately 19 globally inspired dishes together on a single menu. We believe we will benefit from trends in consumer preferences, wider availabilityof international cuisines and increasingly adventurous consumer tastes. At many restaurants, customers are limited to a particular ethnic cuisine or type of dish,such as a sandwich, burrito or burger. At Noodles & Company, we aim to eliminate the “veto vote” by satisfying the preferences of a wide range of customers,whether a family or parent with kids, a group of coworkers, an individual or a large party.We believe that our globally inspired menu, focused on noodle and pasta dishes, differentiates us from other restaurants. We believe our attributes—global flavors,variety, dishes prepared-to-order and fast service—allow us to compete against multiple segments throughout the restaurant industry and provide us a largeraddressable market for lunch and dinner than competitors who focus on a single cuisine. We believe we provide a pleasant dining experience by quickly deliveringfresh food with friendly service at a price point we believe is attractive to our customers.Noodles & Company is a Delaware corporation that was organized in 2002. Noodles & Company and its subsidiaries are sometimes referred to as “we,” “us,”“our,” and the “Company” in this report. We refer to our Class A Common Stock, par value $0.01 per share, as our “Class A common stock,” unless the contextotherwise requires. We refer to our Class B Common Stock, par value $0.01 per share, as our “Class B common stock,” unless the context otherwise requires. Werefer to our Class A common stock and our Class B common stock together as our “common stock.” The rights of the holders of our Class A common stock andour Class B common stock are identical in all respects, except that our Class B common stock does not vote on the election or removal of directors unless and untilconverted on a share for share basis into Class A common stock.Our Concept and Business StrengthsVariety . We have purposefully chosen a range of healthy to indulgent dishes to satisfy carnivores and vegetarians. Our menu encourages customers to customizetheir meals to meet their tastes and nutritional preferences with our selection of 14 fresh vegetables and six proteins–marinated steak, naturally raised pork,chicken, meatballs, shrimp and organic tofu.All of our dishes are cooked-to-order with fresh, high quality ingredients sourced from our carefully selected suppliers. Our commitment to the freshness of ouringredients is further demonstrated by our use of seasonal ingredients and healthy add-in options (such as organic tofu). Our culinary team strives to develop newdishes and limited time offerings to further reinforce our World Kitchen brand positioning and regularly provide our customers additional options. For example,during 2016 we offered as new dishes or limited time offerings items such as Korean Beef Noodles and Buffalo Mac & Cheese. This focus on culinary innovationallows us to prepare and serve high quality food.Value. The value we offer, the quality of our food and the welcoming ambiance of our restaurants creates an overall customer experience that we believe is uniqueand differentiated. Our per person spend is competitive not only within the fast casual segment, but also within the quick-service segment. We deliver value bycombining a family-friendly dining environment with the opportunity to enjoy many dishes containing a variety of fresh ingredients. We also offer Kids Mealswhich, at a fixed low price, offer the opportunity for parents to feed their children a balanced meal with sides such as broccoli, carrots, fruit, applesauce and asmaller portion of our housemade rice crispy treat.Our Restaurant Experience. We design each location individually, which we believe creates an inviting restaurant environment. We believe the ambiance is warmand welcoming, with muted lighting and colors, comfortable seating and our own custom music mix, which is intended to make our customers feel relaxed and athome.1Table of Contents We believe we deliver an exceptional overall dining experience. We believe that our customers should expect not only great food from our restaurants, but alsowarm hospitality and attentive service. Whether you are a parent with kids or a businessperson with a laptop, you simply order your food, grab a drink and take aseat. We cook each dish to order in approximately five minutes and bring the food right to your table. Our customers may enjoy a relaxed meal or just eat and run.Consistent with our culture of enhanced customer service, we seek to hire individuals who will deliver prompt, attentive service by engaging customers themoment they enter our restaurants. Our training philosophy empowers both our restaurant managers and team members to add a personal touch when serving ourcustomers, such as coming out from behind the counter to explain our menu and guide customers to the right dish. Our restaurant managers are critical to oursuccess, as we believe that their entrepreneurial spirit and outreach efforts build our brand in our communities. We call our cashiers “Noodle Ambassadors” tohighlight their role in helping our customers explore our global menu. After our customers order at the counter, their food is served on china and delivered to theirtable by our friendly team members.Our Operational StrategyWe believe our brand and globally inspired menu resonates with consumers, and we believe our restaurants and team members provide customers a unique andhigh-quality experience. We are focused on offering customers flavorful, cooked-to-order dishes in a warm and welcoming environment at an attractive value.However, our business has recently underperformed our expectations and our concept’s potential primarily due to the performance of a group of our restaurantsopened in the last two to three years. We believe that our rapid expansion, particularly into new markets, without commensurate investments in training andsupport of our team members, adversely affected these restaurants’ performance.In order to improve our profitability and earnings, as well as deliver an exceptional dining experience, we believe we need to enhance our menu offerings, improveour operational consistency and efficiency and close a select group of restaurants. To execute against these goals, we have developed a strategy, outlined herein, toreposition the business and enhance our financial performance.We believe we have made significant progress with respect to the strategic initiatives that we have pursued over the past six months. In August 2016, we completedan organizational restructuring that we expect to generate approximately $2.5 million of annual cash savings. In the period from August 2016 through January2017, during which time we began pursuing a number of customer-facing as well as operational initiatives, our Service Management Group overall guestsatisfaction scores increased from 66.0% to 71.0%, the highest score that we have achieved in our history. Additionally, we have begun to focus resources on in-restaurant support and training, which we believe will reduce manager turnover.Restaurant initiatives. We are pursuing strategies to improve the operational and financial performance of our restaurant base. Our plan to improve ourperformance includes the following three key strategies:•Focusing on our global flavors and menu offering. We believe that our globally inspired menu, focused on noodle and pasta dishes, differentiates us fromother restaurants. We also believe this global variety, which includes a range of healthy to indulgent dishes that are cooked to order with fresh, high-quality ingredients, remains a competitive strength. However, we believe we can elevate our offerings by improving the flavor and taste profiles ofexisting menu items and introducing new menu items from global cuisines, including those cuisines that have not historically been represented in theMediterranean, Asian and American menu categories we have offered. In two markets we are testing menus that include several new dishes, areformulation of most of our existing dishes and the elimination of a number of dishes that were a small part of our menu revenue mix. We intend to rollout successful elements of these tests nationally in 2017 and 2018. In February 2017, we launched two limited-time offers, Adobo with Pork or Chickenand Thai Green Curry, both of which are new dishes with distinctive flavor profiles.•Improving labor efficiencies and unit-level margins. We believe that there is significant opportunity to improve our operational consistency as well as ouroverall unit level margins. In October 2016, we reduced the size of our core menu from 28 entrée items to 19 entrée items, removing menu items that didnot sell well and were challenging for our teams to execute. We have also initiated tests of equipment such as a chopper and steamer, which we believewill save labor hours as well as improve throughput in our restaurants. Finally, we have begun testing self-bussing stations in certain test markets, whichwe believe will reduce labor hours and improve cleanliness in our restaurants. While we believe the strategies mentioned above will meaningfullyimprove our labor efficiencies, we are also pursuing a strategy for a redesign of our kitchen and dining room, which we believe will allow us to develop amore cost-effective and efficient production and service model.2Table of Contents •Increasing convenience for our customers . We believe there is significant opportunity in increasing convenience for our customers. We are currentlytesting a revised menu layout that we believe will make it easier for our customers to use our menu as well as increase customer check average. Finally,we have begun testing a more streamlined approach to the pick-up of online orders through dedicated take-out areas, which we believe will better meetthe increased convenience demanded by today’s consumers.•Improved manager selection, training and development of our teams . We have increased the focus on the selection, training and development of ourrestaurant teams. We are initiating the use of new assessment tools in management hiring, and we have effected certain changes to our restaurantcompensation program to encourage team member retention. We have also begun rolling out new training tools and learning management systems toimprove execution and encourage career development with our teams. Finally, we are implementing new selection methods that we believe will improvethe caliber of our promotions and new hires at all levels.Restaurant Portfolio and FranchisingWe have significantly grown our restaurant unit base over the past several years. As of January 3, 2017 , we had 457 company-owned restaurants and 75 franchiserestaurants in 35 states, the District of Columbia and one Canadian province. Our restaurants are typically 2,600 to 2,700 square feet and are located in end-cap,in-line or free-standing locations across a variety of urban and suburban markets. During the near-term we anticipate modest unit growth combined with targetedrestaurant closures and refranchising, each as described in greater detail below, as we allow time for our operational, financial, and customer initiatives to becomeeffective.As of January 3, 2017 , we had 75 franchise units in 16 states operated by 12 franchisees. We look for experienced, well-capitalized franchise partners who areable to leverage their existing infrastructure and local knowledge in a manner that benefits both our franchisees and ourselves. As of January 3, 2017 , a total of` 11area developers have signed development agreements providing for the opening of 124 additional restaurants in their respective territories. We expect to continueto offer development rights in markets where we do not intend to build company-owned restaurants. We may offer such rights to larger developers who commit toopen 10 or more units, or to smaller developers who may commit to open significantly fewer restaurants. We do not currently intend to offer single-unit franchises.We believe the strength and attractiveness of our brand will attract experienced and well-capitalized area developers.In addition, to support our portfolio of company-owned and franchise restaurants, we recently announced strategies to close underperforming restaurants, reducerestaurant growth and refranchise restaurants in certain of our markets.•Restaurant closings . Our financial performance has been adversely impacted by a subset of our restaurants that have significantly underperformed ourrestaurant averages, as measured by average unit volumes (“AUVs”), restaurant contribution margin and cash flow. Many of these restaurants wereopened in the last two to three years in newer markets where brand awareness of our restaurants is not as strong and where it has been more difficult toadequately staff our restaurants. Our Board of Directors has approved the closure of certain of these restaurants in order to eliminate the negative cashflow resulting from their continued operation and to permit us to increase our focus on the remaining restaurants in our restaurant portfolio. We believeclosing these restaurants will increase our restaurant contribution, restaurant contribution margin, adjusted earnings before interest, taxes, depreciation andamortization (“adjusted EBITDA”), adjusted EBITDA margin and net income. For more information on these financial metrics, see “Part II, Item 7.Management’s Discussion and Analysis—Key Measures We Use to Evaluate Our Performance.”We have closed 39 restaurants in the first quarter of 2017 and intend to close an additional 18 restaurants prior to the end of the second quarter of 2017.These 57 restaurants have significantly underperformed our restaurant averages, generating AUVs of approximately $0.7 million and an aggregaterestaurant contribution margin of approximately (22.0%) during the fiscal year ended January 3, 2017. If such restaurants had not been in operation duringsuch period, we believe that our restaurant contribution would have been $8.2 million higher and restaurant contribution margin would have been 290basis points higher.Our anticipated plan of restaurant closings will result in liabilities to landlords from the termination of our leases for such restaurants, fees to be paid toour real estate advisor and brokers related to such terminations and other costs of closing restaurants, such as severance for terminated employees(“Restaurant Closing Liabilities”). We currently anticipate that the Restaurant Closing Liabilities future cash outlays will total $24.0 million to $29.0million, which will include (i) $23.0 million to $28.0 million relating to the termination of leases, including related fees and expenses, to be paid out overthe3Table of Contents next 12 to 18 months, and (ii) approximately $1.0 million relating to severance for terminated employees. However, it is possible that the RestaurantClosing Liabilities will exceed such amounts. We expect to recognize accounting charges for the Restaurant Closing Liabilities aggregating between$17.5 million to $19.5 million, at the time such restaurants are closed, subject to adjustment as lease terminations occur.•Reduction in corporate restaurant growth . In 2016, we announced that we intended to reduce our rate of company-owned restaurant unit growth. In2016, we opened 38 company-owned restaurants and in 2017, we plan to open between 12 and 15 company-owned restaurants; eight of these openingshave occurred to date in the first quarter of 2017. We do not intend to open restaurants in new markets in 2017, and most of our openings will be in well-established markets where we maintain strong brand awareness and restaurant-level financial performance that exceeds company averages. We believethis more moderate growth strategy will enhance our ability to focus on improving restaurant operations and profitability. We will continue to evaluateour company-owned restaurant growth rate based on our operational and financial performance, capital resources and real estate opportunities.•Refranchising . We have identified a number of restaurants within certain markets for potential sale or refranchising to new or existing franchisees. Ingeneral, these restaurants are in markets that are less penetrated than our well-established markets and provide significant opportunity for unit growth.Given our decision to moderate our company-owned restaurant growth rate, we believe that franchise operators will better support the development of theNoodles & Company brand in these markets. In connection with the sale of company-owned restaurants to new or existing franchisees in existingmarkets, we intend to enter into agreements that also provide for the development of new restaurants. After refranchising select company-ownedrestaurants, and as we grow with existing and new franchisees into the future, we expect franchise restaurants to represent a larger percentage of Noodles& Company system-wide restaurants than they currently constitute. The franchisor model requires significantly lower capital investment by the franchisorand generates revenues, in the form of development and franchise fees and royalties, which are less volatile than company-owned restaurant revenues.While we plan to embark on refranchising in 2017, we are focused on identifying qualified franchisees, and it may take multiple years to complete thiseffort.Site Development and ExpansionWe consider our site selection and development process critical to our long-term success. We use a combination of our own development team and outside realestate consultants to locate, evaluate and negotiate new sites using various criteria. In addition, because we offer a mix of dishes and a dining experience that differfrom many other restaurant concepts, we believe our restaurants are highly sought after by real estate owners and developers. Also, we occasionally learn ofopportunities early in their development process, allowing us to secure optimal locations in those instances.In making site selection decisions, we also use several analytical tools designed to uncover the key site, demographic, business, retail, competitive and trafficcharacteristics that drive successful locations. These tools have been customized to leverage existing real estate information to project sales at a potential locationand to assist in the development of local marketing plans.Once a location has been approved by our executive-level selection committee, we begin a design process to match the characteristics and feel of the location to thetrade area. For example, in a trade area with a high percentage of families we will utilize additional booth seating in the dining room, and in an urban location wewill typically alter our kitchen design to enhance throughput for the busy lunch hours.Our Executive Management TeamIn 2016, Kevin Reddy, Chief Executive Officer and Chairman of our Board of Directors, and Phil Petrilli, Executive Vice President of Operations, each left theCompany. In July 2016, Dave Boennighausen, our Chief Financial Officer, became interim Chief Executive Officer and we hired Victor Heutz as Chief OperationsOficer. Our Board of Directors is conducting a search to find a permanent Chief Executive Officer. Candidates include both our interim Chief Executive Officerand external candidates. The existing management team is actively managing the business in accordance with a business strategy approved by our Board ofDirectors.4Table of Contents Restaurant Management and OperationsFriendly People. We believe our genuine, friendly people separate us from our competitors. We value the individuality of our team members, which we believeresults in a management, operations and training philosophy distinct from that of our competitors. We make an effort to hire team members who share a passion forfood, have a competitive spirit and will operate our restaurants in a way that is consistent with our high standards. We seek to hire individuals who will deliverprompt, attentive service by engaging customers the moment they enter our restaurants. We empower our team members to enrich the experience of our customersand directly address any concerns that may arise in a manner that contributes to the success of our business.Restaurant Management and Employees. Each restaurant typically has a restaurant manager, an assistant manager and as many as 15 to 25 team members. Wecross-train our employees in an effort to create a depth of competency in our critical restaurant functions. Consistent with our emphasis on customer interaction, weencourage our restaurant managers and team members to welcome and interact with customers throughout their visit. To lead our restaurant management teams, wehave area managers (each of whom is responsible for between five and 12 restaurants), as well as market directors (each of whom is responsible for between 50and 80 restaurants).Training and Career Development. We believe that our training efforts create a culture of continuous learning and professional growth that allows our teammembers to continue their career development with us. Within each restaurant, two to four team members are designated to lead the training efforts and ensure aconsistent approach to team member development. We produce training materials that encourage individual contributions and participation from our teammembers, rather than providing rote, step-by-step scripts or rigid and extensively detailed policy manuals.Food Preparation and Quality. Our teams use classic professional cooking methods, including hand-chopping, par boiling and sautéing many of our vegetables, infull kitchens resembling those of full service restaurants. All team members, including our restaurant managers, spend their first several days working solely withfood and learning these techniques, and we spend a significant amount of time ensuring that each team member learns how to prepare and cook our food properly.Despite our more labor-intensive method of food preparation, we believe that we produce food with an efficiency that enables us to compete effectively.The majority of our restaurants have exhibition-style kitchens. This design demonstrates our commitment to cooking fresh food in an accessible manner. Weprovide each customer with individual attention and make every effort to respond to customer suggestions and concerns in a personal and hospitable way.All of our dishes are cooked to order at food safe temperatures or, in the case of salads, subject to our produce washing protocols, which helps us to ensure that thefood that we serve to our customers is safe. We have designed our food safety and quality assurance programs to maintain high standards for our food and foodpreparation procedures. Our quality assurance manager oversees comprehensive restaurant and supplier audits based upon the potential food safety risk of eachfood. We also consider food safety and quality assurance when selecting our distributors and suppliers. Our suppliers are inspected by federal, state and localregulators or other reputable, qualified inspection services, which helps ensure their compliance with all federal food safety and quality guidelines. We regularlyinspect our suppliers to ensure that the ingredients we buy conform to our quality standards and that the prices we pay are competitive. We also rely on our ownrecipes, specifications and protocols to ensure that our food is consistently the best quality that is possible when it is served, including a physical examination ofingredients when they arrive at our restaurants. We train our employees to pay detailed attention to food quality at every stage of the food preparation cycle, andwe have developed a daily checklist that our employees use to assess the freshness and quality of food supplies. Finally, we encourage our customers to providefeedback regarding our food quality so that we can identify and resolve problems or concerns as quickly as possible.Restaurant MarketingOur marketing efforts seek to increase sales through a variety of channels and initiatives. Community-based restaurant marketing, as well as online, social andother media tools, highlight our competitive strengths, including our varied and healthy menu offerings and the value we offer our customers.•Outdoor, Radio, and Digital Advertising. In select markets where we have economies of scale, we utilize traditional advertising methods such as outdoorbillboards and transit stations, as well as radio placement. Additionally, we use targeted digital advertising in many of our markets. We believe theseefforts help to increase top of mind awareness with potential customers and drive both frequency and trial. In addition, digital advertising provides us withthe opportunity to promote specific product platforms and offerings such as online ordering.5Table of Contents •Our Menu Offerings. We focus some of our marketing efforts on new menu offerings to broaden our appeal to our customers. We promote these itemsthrough a variety of formats including market-wide public relations events, social media marketing, radio promotions, tastings and email blasts to our e-club. In addition to increasing brand awareness, these promotions also encourage prompt consumer action, resulting in more immediate increases in ourcustomer traffic.•Online, Social and Other Media Tools. We rely on our website, www.noodles.com , to promote our business and increase brand awareness. Theinformation on or available through our website is not, and should not be considered, a part of this report. Our customers are encouraged to sign up toreceive email communication or Noodlegrams, updating them on new menu offerings and promotional opportunities. As of January 3, 2017 , more than1,600,000 of our customers have signed up to receive Noodlegrams. We also communicate with our customers using social media, such as our Facebookand Instagram pages, our YouTube and Vimeo channels and our Twitter feed. Our media tools also include advertising and direct mail in local, regionaland national print/online media and mass communications including radio and out of home. In October 2016, we also began the testing of ourNoodlesRewards loyalty program, which we believe will allow us a significant opportunity to create deeper relationships with our guests and increasefrequency and average spend. Our online and social media engagement provide exciting opportunities to engage with our customers; however, suchefforts also entail certain risks.•Creating New Meal Occasions. We also focus on ways Noodles & Company can serve customers at different times and in new places. For example, ourKids Meal menu was created for the future foodies of the world, children aged ten and under are invited to design their own meal made fresh-to-order,with quality ingredients, by choosing their entrée, two sides and a drink for around $5. Customers who want to feed a large group can enjoy our cateringoptions comprised of main entrées, sides and desserts. We market these offerings in a variety of ways, including through in-restaurant posters, emailNoodlegrams, Facebook posts and other communications outside of our restaurants.•Making Noodles & Company Easier to Use. Some of our marketing efforts focus on making our restaurants easier to use. We seek to deliver superiorcustomer service at every opportunity, generating consumer awareness of menu offerings with in-restaurant communications such as displays of our menuofferings that are visible upon entry and table top cards that highlight healthy food offerings. By providing multiple points of access to our wide variety ofmenu offerings, we seek to optimize our customers’ in-restaurant experience to increase the frequency of our customers’ visits. Our efforts also utilizetools like online ordering.SuppliersMaintaining a high degree of quality in our restaurants depends in part on our ability to acquire fresh ingredients and other necessary supplies that meet ourspecifications from reliable suppliers. We carefully select suppliers based on quality and their understanding of our brand, and we seek to develop mutuallybeneficial long-term relationships with them. We work closely with our suppliers and use a mix of forward, fixed and formula pricing protocols. We have tried toincrease, in some cases, the number of suppliers for our ingredients, which we believe can help mitigate pricing volatility, and we monitor industry news, tradeissues, weather, crises and other world events that may affect supply prices. In addition, a substantial volume of our produce items are grown in Mexico and othercountries and any new or increased import duties, tariffs or taxes, or other changes in U.S. trade or tax policy, could result in higher food and supply costs.SeasonalitySeasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first andfourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters.CompetitionWe face competition from the casual dining, quick-service and fast casual segments of the restaurant industry. These segments are highly competitive with respectto taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant, among other things. Our competition includes avariety of locally owned restaurants and national and regional chains who offer dine-in, carry-out and delivery services. Many of our competitors have existedlonger and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. Among ourcompetitors are a number of multi-unit, multi-market fast casual restaurant concepts, some of which are expanding nationally. As we expand, we will facecompetition from these concepts and new competitors that strive to compete with our market segments.6Table of Contents Intellectual Property and TrademarksWe own a number of trademarks and service marks registered or pending with the U.S. Patent and Trademark Office (“PTO”). We have registered the followingmarks with the PTO: Noodles & Company, the Noodles & Company logo, Your World Kitchen, Noodles & Company World Kitchen, Noodlegram and WisconsinMac & Cheese. We also have certain trademarks registered or pending in certain foreign countries. In addition, we have registered the Internet domain namewww.noodles.com . The information on, or that can be accessed through, our website is not part of this report. We believe that our trademarks, service marks andother intellectual property rights have significant value and are important to the marketing of our brand, and it is our policy to protect and defend vigorously ourrights to such intellectual property.Governmental Regulation and Environmental MattersWe are subject to extensive and varied federal, state and local government regulation, including regulations relating to public and occupational health and safety,sanitation and fire prevention. We operate each of our restaurants in accordance with standards and procedures designed to comply with applicable codes andregulations. However, an inability to obtain or retain health department or other licenses could adversely affect our operations. Although we have not experienced,and do not anticipate, any significant difficulties, delays or failures in obtaining required licenses, permits or approvals, any such problem could delay or preventthe opening of, or adversely impact the viability of, a particular restaurant or group of restaurants.In addition, in order to develop and construct restaurants, we need to comply with applicable zoning, land use and environmental regulations. Federal and stateenvironmental regulations have not had a material effect on our operations to date, but more stringent and varied requirements of local governmental bodies withrespect to zoning, land use and environmental factors could delay or even prevent construction and increase development costs for new restaurants. We are alsorequired to comply with the accessibility standards mandated by the U.S. Americans with Disabilities Act (“ADA”), which generally prohibits discrimination inaccommodation or employment based on disability. We may in the future have to modify restaurants, for example by adding access ramps or redesigning certainarchitectural fixtures, to provide service to or make reasonable accommodations for disabled persons. While these expenses could be material, our currentexpectation is that any such actions will not require us to expend substantial funds.In addition, we are subject to the U.S. Fair Labor Standards Act, the U.S. Immigration Reform and Control Act of 1986, the Occupational Safety and Health Actand various other federal and state laws governing similar matters including minimum wages, overtime, workplace safety and other working conditions. Our failureto fully comply with these laws could subject us to potential litigation and liability. We are also subject to various laws and regulations relating to our current andany future franchise operations.We are also subject to the Patient Protection and Affordable Care Act of 2010 (the “PPACA”), which requires health care coverage for many previously uninsuredindividuals and expands coverage for those already insured. We began offering such benefits in July 2015, and as a consequence we are incurring additionalexpenses for employee health care. It is possible that legislation will be passed by Congress and signed into law that repeals the PPACA, in whole or in part, and/orintroduces a new form of health care reform. It is unclear at this point what the scope of any such legislation will be and when it will become effective. Because ofthe uncertainty surrounding possible replacement health care reform legislation, we cannot predict with any certainty the likely impact of the PPACA’s repeal orthe adoption of any other health care reform legislation on our business, financial condition or results of operations. Whether or not there is alternative health carelegislation enacted in the U.S., there is likely to be significant disruption to the health care market in the coming months and years and the costs of the Company’shealth care expenditures may increase.We are subject to federal, state and local environmental laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence,discharge, storage, handling, release and disposal of, or exposure to, hazardous or toxic substances (“environmental laws”). These environmental laws can providefor significant fines and penalties for non-compliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the propertyknew of, or was responsible for, the release or presence of the hazardous or toxic substances. Third parties may also make claims against owners or operators ofproperties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such substances. We are not aware of anyenvironmental laws that will materially affect our earnings or competitive position, or result in material capital expenditures relating to our restaurants. However,we cannot predict what environmental laws will be enacted in the future, how existing or future environmental laws will be administered, interpreted or enforced,or the amount of future expenditures that we may need to make to comply with, or to satisfy claims relating to, environmental laws. It is possible that we willbecome subject to environmental liabilities at our properties, and any such liabilities could materially affect our business, financial condition or results ofoperations.7Table of Contents Management Information SystemsWe use a variety of applications and systems to securely manage the flow of information within each restaurant, and within our central support officeinfrastructure. All of our restaurants use computerized management information systems, which we believe are scalable to support any future growth plans. We usepoint-of-sale (“POS”) computers designed specifically for the restaurant industry. Our POS system provides a touch screen interface, a graphical orderconfirmation display and integrated, high-speed credit card and gift card processing. Our online ordering system allows guests to place orders online or through ourmobile app. Orders taken remotely are routed to the point-of-sales system based on the time of customer order pickup. The POS system is used to collect dailytransaction data, which generates information about daily sales, product mix and average check that we actively analyze. All products sold and prices at ourcompany-owned restaurants are programmed into the system from our central support office. We also continue to modernize and make investments in ourinformation technology networks and infrastructure, specifically in our physical and technological security measures to anticipate cyber-attacks and preventbreaches, such as the data security incident we experienced in 2016 (described below), and to provide improved control, security and scalability. Enhancing thesecurity of our financial data, customer information and other personal information is a high priority for us.Our in-restaurant back office computer system is designed to assist in the management of our restaurants and provide labor and food cost management tools. Thesetools provide restaurant operations management and our central support office quick access to detailed business data and reduces restaurant managers’administrative time. The system provides our restaurant managers the ability to submit orders electronically with our distribution network. The system alsosupplies sales, bank deposit and variance data to our accounting department on a daily basis. We use this data to generate daily sales information and weeklyconsolidated reports regarding sales and other key measures, as well as preliminary weekly detailed profit and loss statements for each location with final reportsfollowing the end of each period.Franchisees use similar point of sale systems and are required to report sales on a daily basis through an on-line reporting network and submit their restaurant-levelfinancial statements on a quarterly or annual basis.Data Breach LiabilitiesOn June 28, 2016, we announced that a data security incident compromised the security of the payment information of some customers who used debit or creditcards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. The malware involved in the incident has been removed, and webelieve that it no longer poses a risk to credit or debit cards currently being used at affected locations. We have been implementing additional security proceduresto further secure customers’ debit and credit card information. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent Trends, Risks and Uncertainties—Data Breach Liabilities” for more information.Recent Financing TransactionsIn order to pursue our operational strategies and fund future obligations such as the Restaurant Closing Liabilities and the Data Breach Liabilities, we determinedthat we needed additional sources of liquidity. We have executed the following transactions in order to provide us with additional liquidity:•Private placement . On February 9, 2017, we completed a private placement transaction for aggregate gross proceeds to us of $18.5 million. For moreinformation, see “Private placement” below.•Credit agreement amendment . Concurrent with the private placement, we also amended our credit agreement to increase our flexibility under the creditfacility. For more information, see the “Credit agreement amendment” and Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations — Liquidity and Capital Resources — Credit Facility” below.Private placement. On February 8, 2017, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Catterton-Noodles, LLC (“ LCatterton”), pursuant to which we agreed, in return for aggregate gross proceeds to us of $18.5 million, to sell to L Catterton an aggregate of 18,500 shares ofSeries A Convertible Preferred Stock, par value $0.01 per share, convertible into 4,252,873 shares of Class A common stock (the “preferred stock”), at a purchaseprice of $1,000 per share, plus warrants (the “warrants”) exercisable for five years beginning six months following their issuance for the purchase of 1,913,793shares of Class A common stock at an exercise price per share of $4.35, which is equal to the closing bid price of our Class A common stock on February 7, 2017(such transactions, collectively, the “private placement”). The preferred stock will rank senior to any other class or series of our equity, including our commonstock. The preferred stock will be entitled to a priority cash payment in the event of our liquidation, dissolution or winding-up. The funding of the privateplacement occurred on February 9, 2017.8Table of Contents Each share of preferred stock is initially convertible at the holder’s option, subject to certain terms and conditions, at a conversion price of $4.35 per share, whichis equal to the closing bid price for our Class A common stock on February 7, 2017 and is subject to adjustment for dividends, certain distributions, stock splits,combinations, reclassifications, recapitalizations and similar events. The preferred stock will accrue dividends beginning on the earlier of (i) the six-monthanniversary of our issuing the preferred stock and (ii) the date on which we complete specified equity offerings generating aggregate gross proceeds to us of at least$50.0 million. If we complete specified equity offerings generating aggregate gross proceeds to us of at least $50.0 million (including proceeds from the privateplacement) prior to the six-month anniversary of our issuing the preferred stock, then (i) if the volume-weighted average price per share of our Class A commonstock for the prior 30-day period is greater than the conversion price, we may elect, and we currently intend, to convert the preferred stock into Class A commonstock at the then-applicable conversion price, or (ii) if the volume-weighted average price per share of our Class A common stock for the prior 30-day period isequal to or less than the conversion price, dividends on the preferred stock will stop accruing. In addition, the preferred stock are also entitled to participate in cashand in-kind distributions to holders of shares of our common stock on an as-converted basis. The dividend rate of the preferred stock is 8.0% per annum and willincrease by 0.5% per month beginning on the date that is the six-month anniversary of our issuing the preferred stock, up to a maximum of 18.0% per annum.Dividends on the preferred stock will be payable only in cash, when, as, and if declared by our Board of Directors, out of legally available funds and if, after suchpayment, we would be in compliance with the covenants under our outstanding indebtedness for borrowed money. Additionally, holders of the preferred stockenjoy customary equity participation rights, voting rights on an as-converted basis, customary anti-dilution provisions, customary information rights andregistration rights with related monetary penalties. The specific rights of holders of the preferred stock are set forth in a Certificate of Designations attached asExhibit 4.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2017. Additionally, the form of thewarrant and the Securities Purchase Agreement were each attached as Exhibit 4.2 and 10.1, respectively, to our Current Report on Form 8-K filed with the SEC onFebruary 9, 2017.In connection with the private placement, we entered into a letter agreement (the “Letter Agreement”) with Argentia Private Investments Inc. (“Argentia”), thatprovides we will indemnify Argentia in limited circumstances for losses incurred by Argentia or its affiliates that arise out of the private placement, for whichtransaction Argentia provided its consent pursuant to the terms of our stockholders agreement. For more information see “Transactions with Related Persons”below.Credit agreement amendment. On February 8, 2017, we amended our Amended and Restated Credit Agreement, dated as of November 22, 2013, by entering intoAmendment No. 5 to the Amended and Restated Credit Agreement, as borrower, with the guarantors signatory thereto, Bank of America, N.A., as administrativeagent, and the lenders signatory thereto (the “Amendment”). The Amendment modifies some of the changes made to our credit agreement in the previouslydisclosed Amendment No. 4, dated as of November 4, 2016. Among other things, the Amendment (i) restores our ability to request an increase in the maximumcommitment amount under the credit facility by up to $15.0 million, (ii) suspends quarterly amortization payments of $2.5 million until the end of the second fiscalquarter of 2018, (iii) increases the interest rate margin applicable at total lease adjusted leverage levels at and above 4.25:1.00 and from the period of the date of theAmendment to the delivery of the first following quarterly compliance certificate, and (iv) makes certain other changes. The Consolidated EBITDA definition, asrevised, will permit certain costs to be added back into the Consolidated EBITDA calculation, including the costs associated with the Restaurant Closing Liabilitiesand the Data Breach Liabilities. In addition, the Amendment provides that upon the completion of one or more equity issuances for an aggregate gross purchaseamount of at least $45.0 million (including the $18.5 million of preferred stock and warrants issued to L Catterton pursuant to the private placement), (i) therequired $2.5 million quarterly amortization payment will be eliminated and (ii) increased capital expenditure amounts related to restaurant growth will bepermitted. The Amendment also revises certain financial covenant levels. The Amendment was attached as Exhibit 10.2 to our Current Report on Form 8-K filedwith the SEC on February 9, 2017.In addition to the private placement and the amendment to our credit facility, we intend to take further measures to address our capital needs and anticipate makingfurther announcements in this respect in the future. Specifically, on February 9, 2017, we filed a registration statement on Form S-1 with respect to our Class Acommon stock.9Table of Contents Financial Information About SegmentsWe operate as a single accounting segment. Financial information related to our business is included in Item 8 of this Annual Report on Form 10-K.EmployeesAs of January 3, 2017 , we had approximately 10,900 employees, including approximately 1,000 salaried employees and approximately 9,900 hourly employees.None of our employees are unionized or covered by a collective bargaining agreement, and we consider our current employee relations to be good.Available InformationWe maintain a website at www.noodles.com , including an investor relations section at investor.noodles.com , on which we routinely post important information,such as webcasts of quarterly earnings calls, and any related materials. You may access our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, amendments to those reports and other reports relating to us that are filed with or furnished to the SEC, free of charge in the investorrelations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The public may also readand copy materials we file with the SEC at the SEC’s Public Reference Room, which is located at 100 F Street, NE, Room 1580, Washington, DC 20549. You canobtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports,proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov .The contents of the websites mentioned above are not incorporated into and should not be considered a part of this report. The references to the URLs for thesewebsites are intended to be inactive textual references only.Executive Officers of the RegistrantName Age (1) PositionDave Boennighausen 39 Interim Chief Executive Officer and Chief Financial OfficerVictor Heutz 55 Chief Operations OfficerPaul Strasen 60 Executive Vice President, General Counsel and SecretaryKathy Lockhart 52 Vice President and Controller_____________(1)As of March 2, 2017Dave Boennighausen has served as our Chief Financial Officer since July 2012 and has served as our interim Chief Executive Officer since July 2016. He becamea member of our Board of Directors in August 2015. Mr. Boennighausen has been with the Company since 2004, and served as our Vice President of Finance fromOctober 2007 to March 2011, and as our Executive Vice President of Finance from April 2011 to June 2012. He began his career with May Department Stores. Hereceived a BS degree in Finance and Marketing from Truman State University and holds an MBA from the Stanford Graduate School of Business.Victor Heutz has served as our Chief Operations Officer since July 2016. Prior to joining us, he held the position of Vice President of US Franchise Operations atBuffalo Wild Wings, where he oversaw the company’s domestic franchise operations business unit. Prior to his role at Buffalo Wild Wings, he served as VicePresident of Operations, Mid-Atlantic region at Starbucks Corporation from 2009 to 2015, where he was responsible for overseeing the direct operations of theregion. From 2005 to 2009, Mr. Heutz held the position of Vice-President of Franchise Operations, Eastern USA for Cold Stone Creamery.Paul Strasen has served as our Executive Vice President, Secretary and General Counsel since January 2008. Prior to joining our company, Mr. Strasen was theVice President, General Counsel and Secretary of Houlihan’s Restaurants, Inc. and served as the General Counsel of Einstein/Noah Bagel Corp. He began hiscareer at Bell Boyd & Lloyd, now part of K & L Gates. Mr. Strasen received a BA degree in Humanities and Political Science from Valparaiso University andreceived a JD from The University of Chicago Law School.10Table of Contents Kathy Lockhart has served as our Vice President and Controller since August 2006. Prior to joining us, Ms. Lockhart served as the Vice President and Controller ofseveral public and private restaurant and retail companies, including Einstein/Noah Bagel Corp., Boston Market, VICORP (parent company of Village Inn andBakers Square restaurants) and Ultimate Electronics. She received a BA degree in Business Administration and Political Science from Western State College, andshe is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.ITEM 1A. Risk FactorsSpecial Note Regarding Forward-Looking StatementsThis report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties,including but not limited to the risks and uncertainties discussed under this Item 1A. “Risk Factors,” Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and Item 1. “Business.” In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,”“objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms,and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors thatmay cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or impliedby the forward-looking statements. We discuss these risks, uncertainties and other factors in greater detail below. These statements reflect our current views withrespect to future events and are based on currently available operating, financial and competitive information. Unless required by United States federal securitieslaws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made.Risks Related to Our Business and IndustryWe may not achieve our operational, strategic or financial goals.We are pursuing a number of financial, operational and strategic goals and we may be unsuccessful in achieving some or all of them. We are pursuing operationalstrategies to close underperforming restaurants, reduce restaurant growth and refranchise restaurants in certain of our markets. These strategies were identified byour management team and approved by our Board of Directors as a means to, among other objectives, focus on the remaining restaurants in our restaurant portfolioand increase our net income, restaurant contribution margin and adjusted EBITDA. However, these strategies may not be successful in achieving our goals in partor at all. Further, we may encounter difficulty in executing these strategies or in raising the funds necessary to execute these strategies. Failing to execute ouroperational strategies could materially adversely affect our business, financial condition or results of operations.We are also pursuing new initiatives to increase the variety of our offerings, including those cuisines that have not historically been represented in theMediterranean, Asian and American menu categories we have offered, as well as to improve our restaurant margins by simplifying our operations, improving laborefficiencies and enhancing convenience for our customers. However, customers may not favor our new offerings or may not find initiatives aimed at theirconvenience appealing, and our efforts to increase our sales growth and improve our offerings may be unsuccessful. Additionally, our operational initiatives maybe ineffective at reducing costs or may reduce the quality of the customer experience. As previously disclosed, a committee of our Board of Directors is conductinga search for a permanent Chief Executive Officer. Candidates include both our interim Chief Executive Officer and external candidates. Any management changemay affect our implementation of our strategic and operational initiatives. Any failure of our new initiatives could materially adversely affect our business,financial condition or results of operations.Further, we have had, and expect to continue to have, priorities and initiatives in various stages of testing, evaluation and implementation, upon which we expect torely to improve our results of operations and financial condition. It is possible that our focus on operational strategies, such as closing underperforming restaurantsand franchising certain of our restaurants, or others that we may pursue from time to time, may detract from these initiatives. Failure to achieve successfulimplementation of our initiatives could materially adversely affect our results of operations.We believe our culture — from the restaurant level up through management — is an important contributor to our success. As time passes, however, we may havedifficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations. Among other important factors, our culture depends on our abilityto attract, retain and motivate employees who share our enthusiasm and dedication to our concept. Our comparable restaurant sales, and more broadly, ourbusiness, financial condition or results of operations, could be materially adversely affected if we do not maintain our infrastructure and culture.11Table of Contents Our strategic and operational goals are designed to improve our results of operations, including sales and profitability. The level of comparable restaurant sales,which represent the change in year-over-year sales for restaurants open for at least 18 full periods, affects our sales growth and will continue to be a critical factoraffecting profit growth because the profit margin on comparable restaurant sales growth is generally higher than the profit margin on new restaurant sales. Ourability to increase comparable restaurant sales depends in part on our ability to successfully implement our initiatives to build sales. It is possible that suchinitiatives will not be successful, that we will not achieve our target comparable restaurant sales growth or that the change in comparable restaurant sales could benegative, which may cause a decrease in sales and profit growth that could materially adversely affect our business, financial condition or results of operations.We depend on the services of key executives, the loss of which could materially harm our business.We rely on executives and senior management to drive the financial and operational performance of our business. Turnover of executives and senior managementcan adversely impact the price of our Class A common stock, our results of operations and may make recruiting for future management positions more difficult ormay require us to offer more generous executive compensation packages to attract top executives. Changes in other key management positions may temporarilyaffect our financial performance and results of operations as new management becomes familiar with our business. In recent years, we have experiencedmanagement turnover. Our future success depends on our ability to identify, attract and retain qualified personnel on a timely basis. In addition, we mustsuccessfully integrate any newly hired management personnel within our organization in order to achieve our operating objectives. In 2016, Kevin Reddy, ChiefExecutive Officer and Chairman of our Board of Directors, and Phil Petrilli, Executive Vice President of Operations, each left the Company. Dave Boennighausen,our Chief Financial Officer, became interim Chief Executive Officer and we hired Victor Heutz as Chief Operations Officer. Our Board of Directors is leading asearch to find a permanent Chief Executive Officer. Candidates include both our interim Chief Executive Officer and external candidates. No assurance can bemade, however, as to when we will hire a permanent Chief Executive Officer. The existing management team is actively managing the business in accordance witha business strategy approved by our Board of Directors. However, if we are unable to hire a permanent Chief Executive Officer in a timely manner, it mayadversely impact our ability to execute on our strategic and operational plans.We are subject to risks associated with long-term non-cancellable leases and the costs of exiting leases at restaurants we have identified for closure may begreater than we estimate or could be greater than the funds we raise to address closure costs.We do not own any real property. Payments under our operating leases account for a significant portion of our operating expenses and we expect the newrestaurants we open in the future will similarly be leased. Our leases generally have an initial term of ten years and generally can be extended only in five-yearincrements (at increased rates). All of our leases require a fixed annual rent, although some require the payment of additional rent if restaurant sales exceed anegotiated amount. Generally, our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and utilities. We generally cannotcancel these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. In connection with closing restaurants, wemay nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the leaseterm. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to payincreased occupancy costs or to close restaurants in desirable locations.In connection with our strategy to close underperforming restaurants, our preferred approach is to enter into lease termination agreements with respect to the leasesat such restaurants, rather than to assign leases or to sublease the restaurant premises because it allows us to avoid the risk of future liability under the leases.However, the costs of terminating the leases for restaurants we close may be greater than we currently estimate, in which case we may need to borrow under ourcredit facility, or use cash flow from operations, to fund such liabilities. In addition, we could encounter difficulty raising the funds necessary to cover a part of thecosts of terminating the leases for restaurants we intend to close. Such circumstances could materially adversely affect our business, financial condition or resultsof operations.We may sublease or assign properties and face future liability if subtenants or assignees default or incur contingent liabilities.We may be unable to negotiate lease termination agreements on acceptable terms, due to unexpectedly high costs or otherwise. Accordingly, in such cases we mayseek either to assign leases and retain contingent liability for rent and other lease obligations or to retain the tenant’s obligations under the lease and sublease therestaurant premises to a third party. Such arrangements may result in our incurring liabilities and expenses in future periods or the rent payments we receive fromsubtenants being less than our rent obligations under the leases. Under these circumstances, we would be responsible for any shortfall. In addition, continuingliabilities12Table of Contents and obligations under assigned or subleased properties could result in expenses in future periods, which could adversely affect our results of operations in thoseperiods.We may not be successful in executing our franchise strategy.We have identified a number of our restaurants within certain markets for potential sale or refranchising to new or existing franchisees. In connection with the saleto new or existing franchisees of restaurants in existing markets, we intend to enter into agreements that also provide for the development of new restaurants bysuch franchisees. We may be unable to identify franchisees willing to partner with us with respect to some or all of these existing or new restaurants. Becoming afranchisee entails economic risks and uncertainties and the perceived risks and uncertainties may not, in the view of potential franchisees, outweigh the anticipatedbenefits. If we are unable to identify franchisees, we may be unable to execute our refranchising strategy as intended, which could materially adversely affect ourbusiness, financial condition or results of operations.In addition, to the extent we are able to identify franchisees for the franchising of existing restaurants and the development of new restaurants, our success isdependent on the performance of our franchisees in successfully operating the restaurants. Our franchisees may not achieve financial and operational objectives,and they may close existing restaurants due to underperformance or they may ultimately be unsuccessful in developing new restaurants. We may also not be able tomanage our franchise system effectively. Failure to provide our new franchisees with adequate support and resources could materially adversely affect thesefranchisees, as well as cause disputes between us and them and potentially lead to material liabilities.Our franchisees may also not be successful in achieving financial and operational objectives, leading us to close existing restaurants. In that case, we may retaincontingent liabilities for rent and other lease obligations under assigned leases or we may retain the franchisee tenants’ obligations under the leases and subleasethe restaurant premises to third parties. These arrangements may cause us to incur liabilities and expenses in future periods or to pay rent obligations under theretained leases that are less than rent payments we receive from subtenants. Restaurant closures stemming from franchisee underperformance and potential leaseliabilities could materially adversely affect our business, financial condition or results of operations.We may face underperformance of restaurants that we do not close or refranchise.We have identified a subset of our restaurants that have in recent years significantly underperformed our restaurant averages, as measured by average unit volume(“AUV”), restaurant contribution margin and cash flow. Many of these restaurants were opened in the last two to three years in newer markets where brandawareness of our restaurants is not as strong and where it has been more difficult to adequately staff our restaurants. Our strategies include closing certain of suchrestaurants; however, there can be no assurance that we have identified all of our restaurants that are appropriate candidates for closure. Following the anticipatedexecution of this strategy, we may observe significant underperformance in certain restaurants that we did not close, which could materially adversely affect ourbusiness, financial condition or results of operations.We rely in part on our franchisees, and if our franchisees cannot develop or finance new restaurants, build them on suitable sites or open them on schedule,our success may be affected.We rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business. Although we have developed criteriato evaluate and screen prospective franchisees, we cannot be certain that our franchisees will have the business acumen or financial resources necessary to operatesuccessful franchises in their franchise areas and state franchise laws may limit our ability to terminate or modify these franchise arrangements. Moreover, despiteour training, support and monitoring, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements, or may nothire and train qualified managers and other restaurant personnel. The failure of our franchisees to operate their franchises successfully could have a materialadverse effect on us, our reputation, our brand and our ability to attract prospective franchisees and could materially adversely affect our business, financialcondition or results of operations.Franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by their agreements with us, or beable to find suitable sites on which to develop them, or they may elect to cease development for other reasons. Franchisees may not be able to negotiate acceptablelease or purchase terms for the sites, obtain the necessary permits and government approvals or meet construction schedules. Any of these problems could reduceour franchise revenues. Additionally, our franchisees typically depend on financing from banks and other financial institutions, which may not always be availableto them,13Table of Contents in order to construct and open new restaurants. The lack of adequate financing could adversely affect the number and rate of new restaurant openings by ourfranchisees and could materially adversely affect our future franchise revenues.A franchisee bankruptcy could have a substantial negative impact on our ability to collect payments due under such franchisee’s franchise arrangements. In afranchisee bankruptcy, the bankruptcy trustee may reject its franchise arrangements pursuant to Section 365 under the United States bankruptcy code, in whichcase there would be no further royalty payments from such franchisee, and there can be no assurance as to the proceeds, if any, that may ultimately be recovered ina bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection.Failure to support our expanding franchise system could have a material adverse effect on our business, financial condition or results of operations.Our strategy depends in part on our franchise network, which requires enhanced business support systems, management information systems, financial controls andother systems and procedures as well as additional management, franchise support and financial resources. We may not be able to manage our franchise systemeffectively. Failure to provide our franchisees with adequate support and resources could materially adversely affect both our new and existing franchisees as wellas cause disputes between us and our franchisees and potentially lead to material liabilities. Any of the foregoing could materially adversely affect our business,financial condition or results of operations.Opening and operating new restaurants entails numerous risk and uncertainties.One continuing element of our operational strategy is the opening of new restaurants and operating those restaurants on a profitable basis. In 2016, we opened 38company-owned restaurants and six franchise restaurants, while we closed three company-owned restaurants and one franchise restaurant. We expect to openapproximately 12 to 15 company-wide restaurants in 2017, a significant decrease from 2016, as we have modified our business strategy to open fewer restaurants,with such openings primarily taking place in well-established existing markets.Opening new restaurants presents numerous risks and uncertainties. We may not be able to open new restaurants as quickly as planned. In the past, we haveexperienced delays in opening some restaurants and that could happen again. Delays or failures in opening new restaurants could materially adversely affect ourbusiness strategy and our expected results.Our ability to open new restaurants also depends on other factors, including: site selection; negotiating leases with acceptable terms; identifying, hiring and trainingqualified employees; the state of the labor market in each local market; timely delivery of leased premises to use; managing construction and development costs;avoiding the impact of inclement weather, natural disasters and other calamities; obtaining construction materials and labor at acceptable costs; securing requiredgovernmental approvals, permits and licenses; and accessing sufficient capital.Our long-term success is highly dependent on our ability to effectively identify appropriate target markets and secure appropriate sites for new restaurants. In order to build new restaurants, we must first identify target markets where we can enter or expand our footprint, taking into account numerous factors, includingthe location of our current restaurants, local economic trends, population density, area demographics and geography. The selection of target markets is challenging,and we have had to close, and are in the process of closing, restaurants in some markets that we had previously believed would be successful. We also must locateand secure appropriate sites for new restaurants, which is one of our biggest challenges. There are numerous factors involved in identifying and securing anappropriate site, including, among others: identification and availability of locations; competition; financial conditions affecting developers and potential landlords;developers and potential landlords obtaining licenses or permits for development projects on a timely basis; proximity of potential development sites to an existinglocation; anticipated development near our new restaurants; and availability of acceptable lease arrangements.We may not be able to successfully develop critical market presence for our brand in new geographical markets, as we may be unable to find and secure attractivelocations, build name recognition or attract new customers. If we are unable to fully implement our development plan, our business, financial condition or resultsof operations could be materially adversely affected.14Table of Contents New restaurants, once opened, may not be profitable.In new markets, the length of time before average sales for new restaurants stabilize is less predictable and can be longer as a result of our limited knowledge ofthese markets and consumers’ limited awareness of our brand. New restaurants may not be profitable and their sales performance may not follow historicalpatterns. In addition, our average restaurant sales and comparable restaurant sales may underperform our expectations. Our ability to operate new restaurantsprofitably and increase average restaurant sales and comparable restaurant sales will depend on many factors, some of which are beyond our control, including:consumer awareness, understanding and support of our brand; general economic conditions, local labor costs and prices we pay for the food products and othersupplies we use; changes in consumer preferences; competition; temporary and permanent site characteristics of new restaurants; and changes in governmentregulation.If our new restaurants do not perform as planned, our business and future prospects could be harmed. In addition, if we are unable to achieve our expected averagerestaurant sales, our business, financial condition or results of operations could be materially adversely affected.Opening new restaurants in existing markets may negatively affect sales at our existing restaurants.The consumer target area of our restaurants varies by location, depending on a number of factors, including population density, other local retail and businessattractions, area demographics and geography. As a result, opening a new restaurant in or near markets in which we already have restaurants could adversely affectthe sales of these existing restaurants. Existing restaurants could also make it more difficult to build our consumer base for a new restaurant in the same market.Our core business strategy does not entail opening new restaurants that we believe will materially affect sales at our existing restaurants, but we may selectivelyopen new restaurants in and around areas of existing restaurants that are operating at or near capacity to effectively serve our customers. Sales cannibalizationbetween our restaurants may become significant in the future as we continue to expand our operations and could affect our sales growth, which could, in turn,materially adversely affect our business, financial condition or results of operations.We rely heavily on information technology, and any material failure, weakness, interruption or breach of security, such as the data breach that we experiencedin 2016, could prevent us from effectively operating our business.We rely heavily on information systems, including point-of-sale processing in our restaurants, for management of our supply chain, payment of obligations,collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business dependssignificantly on the reliability and capacity of these systems. Our operations depend upon our ability to protect our computer equipment and systems againstdamage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches,viruses and other disruptive problems. Additionally, our information technology systems contain personal, financial and other information that is entrusted to us byour customers and employees as well as financial, proprietary and other confidential information related to our business. Given the nature of the industry in whichwe operate, we are susceptible to data security breaches, such as the data security incident that we experienced in 2016. Other restaurants and retailers have alsoexperienced security breaches in which credit and debit card information has been stolen. Avoiding such incidents in the future will require us to continue toenhance our systems, procedures and controls and to hire, train and retain managers and team members. The failure of these systems to operate effectively,maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result in delays in customer service and reduceefficiency in our operations. Remediation of such problems could result in significant, unplanned capital investments and harm our business, financial condition orresults of operations.We have incurred and in the future may incur costs resulting from breaches of security of confidential consumer information related to our electronicprocessing of credit and debit card transactions.The majority of our restaurant sales are by credit or debit cards. On June 28, 2016, we announced that a data security incident compromised the security of thepayment information of some customers who used debit or credit cards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. In thefourth quarter of 2016, we recorded a charge of $10.6 million for estimated losses associated with claims and anticipated claims by payment card companies fornon-ordinary course operating expenses, card issuer losses and card replacement costs for which we expect to be liable (the “Data Breach Liabilities”). However,we may ultimately be subject to Data Breach Liabilities that are up to $5.5 million greater than that amount. In addition to claims by payment card companies withrespect to the data security incident, we are the defendant in a purported class action lawsuit, alleging that we negligently failed to provide adequate security toprotect the payment card information of customers of the plaintiffs and those of other similarly situated credit unions, banks and other financial institutions allegedto be part of the putative class,15Table of Contents causing those institutions to suffer financial losses (the “Selco Litigation”). It is possible that losses associated with the data security incident, including lossesassociated with the Selco Litigation, could have a material adverse effect on our results of operations in future periods.We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit cardinformation, and we may also be subject to further lawsuits or other proceedings relating to these types of incidents. In addition, most states have enactedlegislation requiring notification of security breaches involving personal information, including credit and debit card information. Any such claim or proceedingcould cause us to incur significant unplanned expenses, which could have an adverse impact on our financial condition and results of operations. Further, adversepublicity resulting from these allegations may have a material adverse effect on us and our restaurants.We might require additional capital, and this capital might be senior to existing equity holders, dilute existing equity holders or include unfavorablerestrictions.In order to pursue our business and operational strategies, we determined that we needed additional sources of liquidity. As a general matter, operating anddeveloping our business requires significant capital. Subsequent to fiscal 2016 year-end, we completed a private placement transaction for aggregate grossproceeds to us of $18.5 million. Concurrent with completing the private placement transaction, we also amended our credit agreement to increase our flexibilityunder the credit facility. We intend to further increase our liquidity through incremental offerings of equity or debt securities, although there can be no assurancesthat such efforts will be successful. Our failure to generate additional liquidity when it is required could materially adversely affect our financial condition and thesuccess of our business strategies.Despite these efforts, we may require additional liquidity in the future and it may be difficult or impossible at such time to increase our liquidity. Our lenders maynot agree to amend our credit agreement at such time to increase our borrowing capacity. Further, our requirements for additional liquidity may coincide withperiods during which we are not in compliance with covenants under our credit agreement and our lenders may not agree to further amend our credit agreement toaccommodate such non-compliance. Even if we are able to access additional liquidity, any sale of additional equity could result in dilution to our stockholders andagreements governing any borrowing arrangement could contain covenants restricting our operations. If we raise additional funds through future issuances ofequity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights,preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure in the future could involve restrictivecovenants relating to our capital-raising activities and other financial and operational matters, which might make it more difficult for us to obtain additional capitaland to pursue business opportunities. Moreover, if we issue new debt securities, the debt holders would have rights senior to Class A common stockholders tomake claims on our assets.Competition from other restaurant companies could adversely affect us.We face competition from the casual dining, quick-service and fast casual segments of the restaurant industry. These segments are highly competitive with respectto taste, price, food quality and presentation, service, location and the ambience and condition of each restaurant, among other things. Our competition includes avariety of locally owned restaurants and national and regional chains who offer dine-in, carry-out and delivery services. Many of our competitors have existedlonger and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. Among ourcompetitors are a number of multi-unit, multi-market fast casual restaurant concepts, some of which are expanding nationally. As we expand, we will facecompetition from these concepts and new competitors that strive to compete with our market segments. For example, additional competitive pressures come fromthe deli sections and in-store cafés of grocery store chains, as well as from convenience stores and online meal preparation sites. These competitors may have,among other things, lower operating costs, food offerings more responsive to consumer preferences, better locations, better facilities, better management, moreeffective marketing and more efficient operations.Several of our competitors compete by offering menu items that are specifically identified as low in carbohydrates, gluten-free, rich in protein or healthier forconsumers. In addition, many of our competitors emphasize lower-cost value options or meal packages or have loyalty programs, strategies we do not currentlypursue. Any of these competitive factors may materially adversely affect our business, financial condition or results of operations.Negative publicity relating to one of our restaurants, including our franchised restaurants, could reduce sales at some or all of our other restaurants.16Table of Contents Our success is dependent in part upon our ability to maintain and enhance the value of our brand, consumers’ connection to our brand and positive relationshipswith our franchisees. We may, from time to time, be faced with negative publicity relating to food quality, restaurant facilities, customer complaints or litigationalleging illness or injury, health inspection scores, integrity of our or our suppliers’ food processing, our strategy to close under-performing restaurants, employeerelationships or other matters, regardless of whether the allegations are valid or whether we are held to be responsible. The negative impact of adverse publicityrelating to one restaurant may extend far beyond the restaurant or franchise involved to affect some or all of our other restaurants. The risk of negative publicity isparticularly great with respect to our franchised restaurants because we are limited in the manner in which we can regulate them, especially on a real-time basis.Negative publicity generated by such incidents may be amplified by the use of social media. A similar risk exists with respect to unrelated food service businesses,if consumers associate those businesses with our own operations or are concerned with the food safety of the broader restaurant industry.Additionally, employee claims against us based on, among other things, wage and hour violations, discrimination, harassment or wrongful termination may alsocreate negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the futureperformance of our operations. A significant increase in the number of these claims or an increase in the number or scope of successful claims could materiallyadversely affect our business, financial condition or results of operations. Consumer demand for our products and our brand’s value could diminish significantly ifany such incidents or other matters create negative publicity or otherwise erode consumer confidence in us or our products, or in the restaurant industry as a whole,which would likely result in lower sales and could materially adversely affect our business, financial condition or results of operations.Food safety and foodborne illness concerns could have an adverse effect on our business.We cannot guarantee that our internal controls and training will be fully effective in preventing all food safety issues at our restaurants, including any occurrencesof foodborne illnesses such as salmonella, E. coli, listeria and Hepatitis A. The risk of illnesses associated with our food might also increase in connection with theexpansion of our catering business or other situations in which our food is served in conditions that we cannot control. Furthermore, we and our franchisees rely onthird-party vendors, making it difficult to monitor food safety compliance and increasing the risk that foodborne illness would affect multiple locations rather thana single restaurant. Some foodborne illness incidents could be caused by third-party vendors and transporters outside of our control. New illnesses resistant to ourcurrent precautions may develop in the future, or diseases with long incubation periods could arise, that could give rise to claims or allegations on a retroactivebasis. One or more instances of foodborne illness in any of our restaurants or markets or related to food products we sell could negatively affect our restaurant salesnationwide if highly publicized on national media outlets or through social media. This risk exists even if it were later determined that the illness was wronglyattributed to us or one of our restaurants.A number of other restaurant chains have experienced incidents related to foodborne illnesses that have had a material adverse effect on their operations, includingE. coli and listeria outbreaks at other fast casual concepts. These incidents at other restaurants could cause some customers to have a negative perception of fastcasual concepts generally, which can negatively affect our restaurants. The occurrence of a similar incident at one or more of our restaurants, or negative publicityor public speculation about an incident, could materially adversely affect our business, financial condition or results of operations. Adverse weather conditions could affect our sales.Adverse weather conditions, such as regional winter storms, floods and hurricanes, could affect our sales at restaurants in locations that experience these weatherconditions, which could materially adversely affect our business, financial condition or results of operations. It is possible that weather conditions may impact ourbusiness more than other businesses in our industry because of the significant concentration of our restaurants in the Upper Midwest, Rocky Mountain and Mid-Atlantic states.17Table of Contents Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition or results ofoperations.We are subject to various federal, state and local regulations, including those relating to building and zoning requirements and those relating to the preparation andsale of food. Our restaurants are also subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and occupational safety andother agencies. We may experience material difficulties or failures in obtaining the necessary licenses, approvals or permits for our restaurants, which could delayplanned restaurant openings or affect the operations at our existing restaurants. In addition, stringent and varied requirements of local regulators with respect tozoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations.We are subject to the ADA and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, publicaccommodations and other areas, including our restaurants. We may in the future have to modify restaurants, for example, by adding access ramps or redesigningcertain architectural fixtures, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modificationscould be material.Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, whichgoverns such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that govern these and other employment law matters.In addition, federal, state and local proposals related to paid sick leave or similar matters could, if implemented, materially adversely affect our business, financialcondition or results of operations.Changes in employment laws may adversely affect our business.Various federal and state labor laws govern the relationship with our employees and affect operating costs. These laws include employee classification asexempt/non-exempt for overtime and other purposes, minimum wage requirements, unemployment tax rates, workers’ compensation rates, mandatory healthbenefits, immigration status and other wage and benefit requirements. Some jurisdictions, including some of those in which we operate, have recently increasedtheir minimum wage by a significant amount, and other jurisdictions are considering similar actions. Significant additional government-imposed increases in thefollowing areas could materially affect our business, financial condition, operating results or cash flow: overtime rules; mandatory health benefits; vacationaccruals; paid leaves of absence, including paid sick leave; and tax reporting.In addition, various states in which we operate are considering or have already adopted new immigration laws or enforcement programs, and the U.S. Congress andthe Department of Homeland Security from time to time may consider and implement changes to federal immigration laws, regulations or enforcement programsas well. Immigration laws have recently been an area of considerable focus by the Department of Homeland Security, with enforcement operations taking placeacross the country, resulting in arrests and detentions of unauthorized workers. Some of these changes and enforcement programs may increase our obligations forcompliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potentialemployees. Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of ouremployees may, without our knowledge, be unauthorized workers. We currently participate in the “E-Verify” program, an Internet-based, free program run by theUnited States government to verify employment eligibility, in all of our restaurants and in our corporate support office. However, use of the “E-Verify” programdoes not guarantee that we will successfully identify all applicants who are ineligible for employment. Unauthorized workers are subject to deportation and maysubject us to fines or penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that negatively impacts our brand andmay make it more difficult to hire and keep qualified employees. Termination of a significant number of employees who were unauthorized employees may disruptour operations, cause temporary increases in our labor costs as we train new employees and result in additional adverse publicity. We could also become subject tofines, penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws.These factors could materially adversely affect our business, financial condition or results of operations.Compliance with environmental laws may negatively affect our business.We are subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge,storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties fornoncompliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, therelease or presence of hazardous toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and propertydamage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants.18Table of Contents Environmental conditions relating to releases of hazardous substances at prior, existing or future restaurant sites could materially adversely affect our business,financial condition or results of operations. Further, environmental laws, and the administration, interpretation and enforcement thereof, are subject to change andmay become more stringent in the future, each of which could materially adversely affect our business, financial condition or results of operations.We rely heavily on certain vendors, suppliers and distributors, which could adversely affect our business.Our ability to maintain consistent price, quality and safety throughout our restaurants depends in part upon our ability to acquire specified food products andsupplies in sufficient quantities from third-party vendors, suppliers and distributors at a reasonable cost. We do not control the businesses of our vendors, suppliersand distributors and our efforts to specify and monitor the standards under which they perform may not be successful. Furthermore, certain food items areperishable, and we have limited control over whether these items will be delivered to us in appropriate condition for use in our restaurantsIf any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financialcondition, results of operations or cash flows could be adversely affected. Although we often enter into contracts for the purchase of food products and supplies, wedo not have long-term contracts for the purchase of all of such food products and supplies. As a result, we may not be able to anticipate or react to changing foodcosts by adjusting our purchasing practices or menu prices, which could cause our operating results to deteriorate. If we cannot replace or engage distributors orsuppliers who meet our specifications in a short period of time, that could increase our expenses and cause shortages of food and other items at our restaurants,which could cause a restaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales duringthe shortage or thereafter, if customers change their dining habits as a result. Our focus on a limited menu would make the consequences of a shortage of a keyingredient more severe. In addition, because we provide moderately priced food, we may choose not to, or may be unable to, pass along commodity price increasesto consumers. These potential changes in food and supply costs could materially adversely affect our business, financial condition or results of operations.In addition, we use various third-party vendors to provide, support and maintain most of our management information systems. We also outsource certainaccounting, payroll and human resource functions to business process service providers. The failure of such vendors to fulfill their obligations could disrupt ouroperations. Additionally, any changes we may make to the services we obtain from our vendors, or new vendors we employ, may disrupt our operations. Thesedisruptions could materially adversely affect our business, financial condition or results of operations.The effect of changes to healthcare laws in the United States has increased the number of employees who have elected to participate in our healthcare plans,which has increased our healthcare costs, and further changes or the repeal of existing healthcare laws may further significantly increase our healthcare costsand negatively impact our financial results in future periods.The Patient Protection and Affordable Care Act of 2010 (the “PPACA”) requires health care coverage for many previously uninsured individuals and expandscoverage for those already insured. We began offering such benefits in July 2015, and as a consequence we are incurring additional expenses for employeehealthcare. If we fail to continue to offer such benefits, or the benefits we elect to offer do not meet the applicable requirements, we may incur penalties. Since thePPACA also requires individuals to obtain coverage or face individual penalties, employees who are currently eligible for but elect not to participate in ourhealthcare plans may find it advantageous to do so in the future, particularly as the level of individual penalties increases over time. It is also possible that bymaking changes or failing to make changes in the healthcare plans we offer, we will become less competitive in the market for our labor. Finally, continuing toimplement the requirements of the PPACA is likely to impose additional administrative costs. The future costs and other effects of these new healthcarerequirements cannot be determined with certainty, but they may continue to significantly increase our healthcare coverage costs and could materially adverselyaffect our, business, financial condition or results of operations.It is possible that legislation will be passed by Congress and signed into law that repeals the PPACA, in whole or in part, and/or introduces a new form of healthcare reform. It is unclear at this point what the scope of such legislation would be and when it would become effective. Because of the uncertainty surroundingpossible replacement health care reform legislation, we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of any otherhealth care reform legislation on our business, financial condition or results of operations. Whether or not there is alternative health care legislation enacted in theU.S., there is likely to be significant disruption to the health care market in the coming months and years and the costs of the Company’s health care expendituresmay increase.19Table of Contents Unionization activities or labor disputes may disrupt our operations and affect our profitability.Although none of our employees are currently covered under collective bargaining agreements, our employees may elect to be represented by labor unions in thefuture. If a significant number of our employees were to become unionized and collective bargaining agreement terms were significantly different from our currentcompensation arrangements, it could adversely affect our business, financial condition or results of operations. In addition, a labor dispute involving some or all ofour employees may harm our reputation, disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs. Potential changes inlabor laws, including the possible passage of legislation designed to make it easier for employees to unionize, or increases in politically-inspired labor activism,could increase the likelihood of some or all of our employees being subjected to greater organized labor influence, and could have an adverse effect on ourbusiness and financial results by imposing requirements that could potentially increase our costs, reduce our flexibility and impact our employee culture.As an employer, we may be subject to various employment-related claims, such as individual, class action or government enforcement actions relating to allegedemployment discrimination, employee classification and related withholding, wage-hour, labor standards or healthcare and benefit issues. Such actions, if broughtagainst us and successful in whole or in part, may affect our ability to compete or could materially adversely affect our business, financial condition or results ofoperations.If we or our franchisees face labor shortages or increased labor costs, our operating results could be adversely affected.Labor is a primary component in the cost of operating our restaurants. If we or our franchisees face labor shortages or increased labor costs because of increasedcompetition for employees, higher employee turnover rates, increases in the federal, state or local minimum wage or other employee benefits costs (including costsassociated with health insurance coverage), our operating expenses could increase. In addition, our success depends in part upon our and our franchisees’ ability toattract, motivate and retain a sufficient number of well-qualified restaurant operators and management personnel, as well as a sufficient number of other qualifiedemployees, including customer service and kitchen staff, to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in shortsupply in some geographic areas, and the national unemployment rate, as well as the unemployment rates in many of the areas in which we operate, has continuedto fall over the past few years. In addition, restaurants have traditionally experienced relatively high employee turnover rates. Our and our franchisees’ ability torecruit and retain qualified individuals may delay the planned openings of new restaurants or result in higher employee turnover in existing restaurants, whichcould have a material adverse effect on our business, financial condition or results of operations.If we or our franchisees are unable to continue to recruit and retain sufficiently qualified individuals at wages comparable to those we currently pay, our businesscould be adversely affected. Competition for these employees could require us or our franchisees to pay higher wages, which could result in higher labor costs. Inaddition, increases in the minimum wage, which have become more common and more material in size in recent years, would increase our labor costs.Additionally, costs associated with workers’ compensation are rising, and these costs may continue to rise in the future. We may be unable to increase our menuprices in order to pass these increased labor costs on to consumers, in which case our margins would be negatively affected, which could materially adverselyaffect our business, financial condition or results of operations.Changes in economic conditions could materially affect our ability to maintain or increase sales at our restaurants or open new restaurants.The restaurant industry depends on consumer discretionary spending. The United States in general or the specific markets in which we operate may suffer fromdepressed economic activity, recessionary economic cycles, higher fuel or energy costs, low consumer confidence as a result of stock market volatility and otherreasons, high levels of unemployment, reduced home values, increases in home foreclosures, investment losses, personal bankruptcies, reduced access to credit orother economic factors that may affect consumers’ discretionary spending. Economic conditions may remain volatile and may depress consumer confidence anddiscretionary spending. Traffic in our restaurants could decline if consumers choose to dine out less frequently or reduce the amount they spend on meals whiledining out. Negative economic conditions (including negative economic conditions resulting from war, terrorist activities, global economic occurrences or trends orother geo-political events) might cause consumers to make long-term changes to their discretionary spending behavior, including dining out less frequently or atlower priced restaurants on a permanent basis. If restaurant sales decrease, our profitability would decline as we spread fixed costs across a lower level of sales.Reductions in staff levels, additional asset impairment charges and additional restaurant closures could result from prolonged negative restaurant sales, whichcould materially adversely affect our business, financial condition or results of operations.Changes to estimates related to our property, fixtures and equipment or operating results that are lower than our current estimates20Table of Contents at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may materially adversely affect our results ofoperations.In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to individualrestaurant operations, as well as our overall performance, in connection with our impairment analyses for long-lived assets. When impairment triggers are deemedto exist for any location, the estimated undiscounted future cash flows are compared to its carrying value. If the carrying value exceeds the undiscounted cashflows, an impairment charge equal to the difference between the carrying value and the fair value is recorded. The projections of future cash flows used in theseanalyses require the use of judgment and a number of estimates and projections of future operating results. If actual results differ from our estimates, additionalcharges for asset impairments may be required in the future. If future impairment charges are significant, this could have a material adverse effect on our results ofoperations.Changes in food and supply costs could adversely affect our results of operations.Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Shortages or interruptions in the availability of certainsupplies caused by seasonal fluctuations, unanticipated demand, problems in production or distribution, food contamination, product recalls, governmentregulations, inclement weather or other conditions could adversely affect the availability, quality and cost of our ingredients, which could harm our operations.Weather related issues, such as freezes, heavy rains or drought, may also lead to temporary spikes in the prices of some ingredients such as produce or meats.Increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have asignificant impact on the price, availability and timing of delivery of some of our ingredients. Any increase in the prices of the food products most critical to ourmenu, such as pasta, beef, chicken, wheat flour, cheese and other dairy products, tofu and vegetables, could adversely affect our operating results. Although we tryto manage the impact that these fluctuations have on our operating results, we remain susceptible to increases in food costs as a result of factors beyond ourcontrol, such as general economic conditions, seasonal fluctuations, weather conditions, demand, food safety concerns, generalized infectious diseases, productrecalls and government regulations. For example, when fuel prices were higher, surcharges on the delivery of commodities to our distributors were sometimesimposed, and generally passed on to us to the extent permitted under our arrangements with them.Failure to receive frequent deliveries of fresh food ingredients and other supplies could harm our operations.Our ability to maintain our menu depends in part on our ability to acquire ingredients that meet our specifications from reliable suppliers. We currently importingredients from many different countries. If any of our distributors or suppliers performs inadequately, or our distribution or supply relationships are disrupted forany reason, our business, financial condition or results of operations could be adversely affected. If we cannot replace or engage distributors or suppliers who meetour specifications in a short period of time, that could increase our expenses and cause shortages of food and other items at our restaurants, which could cause arestaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales during the shortage orthereafter, if customers change their dining habits as a result. Our focus on a limited menu would make the consequences of a shortage of a key ingredient moresevere. This reduction in sales could materially adversely affect our business, financial condition or results of operations.In addition, at certain times of the year a substantial volume of our produce items are imported from Mexico and other countries. Any new or increased importduties, tariffs or taxes, or other changes in U.S. trade or tax policy, could result in higher food and supply costs that would materially adversely affect our business,financial condition or results of operations.New information or attitudes regarding diet and health could result in changes in regulations and consumer consumption habits that could adversely affectour results of operations.Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet, health and safety. Such changes may include federal,state and local regulations and recommendations from medical and diet professionals pertaining to the ingredients and nutritional content of the food and beverageswe offer. The success of our restaurant operations is dependent, in part, upon our ability to effectively respond to changes in any consumer health regulations andour ability to adapt our menu offerings to trends in food consumption. If consumer health regulations or consumer eating habits change significantly, we maychoose or be required to modify or delete certain menu items, which may adversely affect the attractiveness of our restaurants to new or returning customers. Tothe extent we are unwilling or unable to respond with appropriate changes to our menu offerings, it could materially affect consumer demand and could have anadverse impact on our business, financial condition or results of operations.21Table of Contents Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new informationregarding the adverse health effects of consuming certain menu offerings. These changes have resulted in, and may continue to result in, laws and regulationsrequiring us to disclose the nutritional content of our food offerings, and they have resulted, and may continue to result in, laws and regulations affectingpermissible ingredients and menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurantoperators to disclose to consumers certain nutritional information, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Theserequirements may be different or inconsistent with requirements under the PPACA, which establishes a uniform, federal requirement for certain restaurants to postnutritional information on their menus. Specifically, the PPACA requires chain restaurants with 20 or more locations operating under the same name and offeringsubstantially the same menu, effective as of May 5, 2017, to publish the total number of calories of standard menu items on menus and menu boards, along with astatement that puts this calorie information in the context of a total daily calorie intake. Inconsistencies among state laws with respect to presentation of nutritionalcontent could be challenging for us to comply with in an efficient manner. The PPACA also requires covered restaurants to provide to consumers, upon request, awritten summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability ofthis information upon request. An unfavorable report on, or reaction to, our menu ingredients, the size of our portions or the nutritional content of our menu itemscould negatively influence the demand for our offerings.Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.Additionally, if consumer health regulations or consumer eating habits change significantly, we may be required to modify or discontinue certain menu items, andwe may experience higher costs associated with the implementation of those changes. The risks and costs associated with nutritional disclosures on our menuscould also impact our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect totesting and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritionalinformation obtained from third-party suppliers.We may not be able to effectively respond to changes in consumer health and safety perceptions or to successfully implement the nutrient content disclosurerequirements and adapt our menu offerings to trends in eating habits. The imposition of additional menu labeling laws could materially adversely affect ourbusiness, financial condition or results of operations, as well as our position within the restaurant industry in general.We may not be able to adequately protect our intellectual property, which could harm the value of our brand and could adversely affect our business.Our intellectual property is material to the conduct of our business and our marketing efforts. Our ability to implement our business plan successfully depends inpart on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property, including ourname and logos and the unique ambience of our restaurants. While it is our policy to protect and defend vigorously our rights to our intellectual property, wecannot predict whether steps taken by us to protect our intellectual property rights will be adequate to prevent misappropriation of these rights or the use by othersof restaurant features based upon, or otherwise similar to, our concept. It may be difficult for us to prevent others from copying elements of our concept and anylitigation to enforce our rights will likely be costly and may not be successful. Although we believe that we have sufficient rights to all of our trademarks andservice marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such litigation maybe costly and divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may be prevented from using ourtrademarks or service marks in the future, may be liable for damages and may have to change our marketing efforts, which in turn could materially adversely affectour business, financial condition or results of operations.We could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to material money damagesand other remedies.Our customers occasionally file complaints or lawsuits against us alleging we caused an illness or injury they suffered at or after a visit to our restaurants, or thatwe have problems with food quality or operations. These kinds of complaints or lawsuits may be more common in a period in which the public is focused on healthsafety issues, or may attract more attention due to publication on various social media outlets. We are also subject to a variety of other claims arising in theordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace andemployment matters, equal opportunity, discrimination and similar matters, and we could become subject to class action or other lawsuits related to these ordifferent matters in the future. Regardless of whether any claims against us are valid, or whether we are ultimately held liable,22Table of Contents claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment in excess of our insurancecoverage for any claims could materially adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations,even if proven to be false, may also materially adversely affect our reputation or prospects, which in turn could materially adversely affect our business, financialcondition or results of operations.We are subject to state and local “dram shop” statutes, which may subject us to uninsured liabilities. These statutes generally allow a person injured by anintoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Because a plaintiff may seekpunitive damages, which may not be fully covered by insurance, this type of action could have an adverse impact on our financial condition or results ofoperations. A judgment in such an action significantly in excess of, or not covered by, our insurance coverage could adversely affect our business, financialcondition or results of operations. Further, adverse publicity resulting from any such allegations may adversely affect us and our restaurants taken as a whole.In addition, the restaurant industry has been subject to a growing number of claims based on the nutritional content of food products sold and disclosure andadvertising practices. We may in the future also be subject to this type of proceeding or to publicity about these matters (particularly those directed at the quick-service or fast casual segments of the industry) may harm our reputation and could materially adversely affect our business, financial condition or results ofoperations.Our current insurance may not provide adequate levels of coverage against claims.There are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure against. Such losses could have amaterial adverse effect on our business and results of operations. In addition, we self-insure a significant portion of expected losses under our workers’compensation, general liability, employee health and property insurance programs. Unanticipated changes in the actuarial assumptions and management estimatesunderlying our reserves for these losses could result in materially different amounts of expense under these programs, which could have a material adverse effecton our financial condition, results of operations and liquidity. Failure to obtain and maintain adequate directors’ and officers’ insurance could materially adverselyaffect our ability to attract and retain qualified officers and directors.Changes to accounting rules or regulations may adversely affect our results of operations.Changes to existing accounting rules or regulations may impact our future results of operations or cause the perception that we are more highly leveraged. Othernew accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and may occur in the future. For instance,accounting regulatory authorities have implemented a requirement that lessees capitalize operating leases in their financial statements beginning in 2019. Suchchange will require us to record significant capital lease obligations on our balance sheet and make other changes to our financial statements. This and other futurechanges to accounting rules or regulations could materially adversely affect our financial condition or results of operations.Failure of our internal control over financial reporting could adversely affect our business and financial results.Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of2002. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes inaccordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we wouldprevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting couldlimit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lackof controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and decline in the market price of our Class Acommon stock. We cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods or maintain all ofthe controls necessary for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel,especially in light of the increased demand for such personnel among publicly traded companies.Under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financialreporting pursuant to Section 404 of the Sarbanes-Oxley Act until we are no longer an “emerging growth company.” We could be an “emerging growth company”until the end of our 2018 fiscal year.23Table of Contents Our principal stockholders and their affiliates own a substantial portion of our outstanding equity, and their interests may not always coincide with theinterests of the other holders.As of January 3, 2017 , L Catterton, certain of its affiliates and Argentia Private Investments, Inc. (“Argentia,” and together with L Catterton, our “EquitySponsors”) beneficially owned in the aggregate shares representing approximately 51.6% of our outstanding voting power, assuming no conversion of Class Bcommon stock into Class A common stock. L Catterton and certain of its affiliates beneficially owned, in the aggregate, shares representing approximately 24.5%of our outstanding equity interests and approximately 26.0% of our outstanding voting power as of January 3, 2017 . Argentia beneficially owned sharesrepresenting approximately 29.7% of our outstanding equity interests and approximately 25.6% of our outstanding voting power as of January 3, 2017 . As a result,L Catterton, certain of its affiliates and Argentia could continue to potentially have significant influence over all matters presented to our stockholders for approval,including election and removal of our directors and change in control transactions. The interests of L Catterton, certain of its affiliates and Argentia may not alwayscoincide with the interests of the other holders of our common stock.In addition, on February 9, 2017, we completed the sale to L Catterton of (i) 18,500 shares of Series A Convertible Preferred Stock, par value $0.01 per share,convertible into 4,252,873 shares of Class A common stock (the “preferred stock”) and (ii) warrants exercisable beginning six months following their issuance forthe purchase of 1,913,793 shares of Class A common stock (the “warrants”). Assuming the conversion of the preferred stock into shares of Class A common stockand no exercise of the warrants, L Catterton and certain of its affiliates would have beneficially owned, in the aggregate, shares representing approximately 36.3%of our outstanding voting power and Argentia would have beneficially owned shares representing approximately 22.0% of our outstanding voting power, each as ofJanuary 3, 2017.Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality andother factors, some of which are beyond our control, resulting in a decline in our stock price.Our quarterly operating results may fluctuate significantly because of several factors, including: increases and decreases in AUVs and comparable restaurant sales;impairment of long-lived assets and any loss on and exit costs associated with restaurant closures; profitability of our restaurants, especially in new markets andany refranchised restaurants; labor availability and costs for hourly and management personnel; changes in interest rates; macroeconomic conditions, bothnationally and locally; negative publicity relating to the consumption of products we serve; changes in consumer preferences and competitive conditions;expansion to new markets; the timing of new restaurant openings and related expense; restaurant operating costs for our newly-opened restaurants, which are oftenmaterially greater during the first several months of operation than thereafter; increases in infrastructure costs; and fluctuations in commodity prices.Seasonal factors, particularly weather disruptions, and the timing of holidays also cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurantis typically lower in the first and fourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters. As a result of these factors,our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly. Accordingly, results for any one quarter are not necessarilyindicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In thefuture, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our Class A common stock would likelydecrease.The price of our Class A common stock may be volatile.The market price of our Class A common stock could fluctuate significantly. Those fluctuations could be based on various factors, including: our operatingperformance and the performance of our competitors or restaurant companies in general; the public’s reaction to our press releases, our other publicannouncements and our filings with the SEC; changes in earnings estimates or recommendations by research analysts who follow us or other companies in ourindustry; global, national or local economic, legal and regulatory factors unrelated to our performance; changes in, or our ability to achieve, projections orestimates of our operating results made by analysts, investors or management; future sales of our Class A common stock by our officers, directors and significantstockholders; the conversion of preferred stock into shares of Class A common stock or the exercise of warrants for shares of Class A common stock; the arrival ordeparture of key personnel; and other developments affecting us, our industry or our competitors.In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated to the operatingperformance of particular companies. These broad market fluctuations may cause declines in the market price of our Class A common stock. The price of our ClassA common stock could fluctuate based upon factors that have little or24Table of Contents nothing to do with our business, financial condition or results of operations, and those fluctuations could materially reduce the price of our Class A common stock.We do not intend to pay dividends for the foreseeable future.We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the operation ofour business, and we do not anticipate paying any cash dividends on our common stock. See Item 5. “Market for the Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities-Dividends.”Future sales of our common stock, or the perception that such sales may occur, could depress our Class A common stock price.Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could depress the market price ofour common stock. Our amended and restated certificate of incorporation authorizes us to issue up to 180,000,000 shares of common stock and Class B commonstock. As of February 24, 2017, we have 26,350,827 outstanding shares of Class A common stock and 1,522,098 shares of Class B common stock. In addition, asof such date, approximately 2.7 million shares of Class A common stock are issuable upon the exercise of outstanding stock options and vesting of restricted stockunits, 1,913,793 shares of Class A common stock and 28,850 shares of Class B common stock are issuable upon the exercise of warrants and 4,252,873 shares ofClass A common stock are issuable upon the conversion of the preferred stock. Moreover, as of that date, approximately 3.9 million shares of our common stockare reserved for future grants under our stock incentive plan and for future purchase under our employee stock purchase plan. Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.Our amended and restated certificate of incorporation and second amended and restated bylaws, and Delaware law, contain several provisions that may make itmore difficult for a third party to acquire control of us without the approval of our Board of Directors. For example, we have a classified Board of Directors withthree-year staggered terms, which could delay the ability of stockholders to change membership of a majority of our Board of Directors. Additionally, the terms ofour preferred stock and warrants each contain change of control provisions which, in the event of a potential change of control transaction, may require thepayment of a premium to holders of such securities. These provisions may make it more difficult or expensive for a third party to acquire a majority of ouroutstanding equity interests. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that mightotherwise result in our stockholders receiving a premium over the market price for their common stock.ITEM 1B. Unresolved Staff CommentsNone.25Table of Contents ITEM 2. PropertiesAs of January 3, 2017 , we and our franchisees operated 532 restaurants in 35 states, the District of Columbia and one Canadian province. Our restaurants aretypically 2,600 to 2,700 square feet and are located in a variety of suburban, urban and small markets. We lease the property for our central support office and allof the properties on which we operate restaurants. The chart below shows the locations of our company-owned and franchised restaurants as of January 3, 2017 .State Company- owned Franchised TotalArizona 4 — 4California 26 — 26Colorado 62 — 62Connecticut — 3 3Delaware 3 — 3District of Columbia 1 — 1Florida 6 1 7Idaho 6 — 6Illinois 56 5 61Indiana 24 — 24Iowa 11 1 12Kansas 10 — 10Kentucky 2 5 7Maryland 28 — 28Massachusetts — 6 6Michigan — 21 21Minnesota 44 1 45Missouri 5 8 13Montana — 2 2Nebraska — 6 6New Hampshire — 2 2New Jersey 4 — 4New York 4 5 9North Carolina 17 — 17North Dakota — 3 3Ohio 21 — 21Oklahoma 4 — 4Oregon 8 — 8Pennsylvania 13 — 13South Dakota — 3 3Tennessee 5 — 5Texas 3 — 3Utah 15 — 15Virginia 31 — 31Washington 2 — 2Wisconsin 40 3 43Canada 2 — 2 457 75 532We are obligated under non-cancelable leases for our restaurants and our central support office. Our restaurant leases generally have initial terms of 10 years withtwo or more five-year renewal options. Our restaurant leases may require us to pay a proportionate share of real estate taxes, insurance, common area maintenancecharges and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, although we generally do not expect topay significant contingent rent on these properties based on the thresholds in those leases.ITEM 3. Legal ProceedingsData Security LitigationOn June 28, 2016, we announced that a data security incident compromised the security of the payment information of some customers who used debit or creditcards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. In addition to claims by payment card companies with respect to thedata security incident, we are the defendant in a purported class action lawsuit in the United States District Court for the District of Colorado, Selco CommunityCredit Union vs. Noodles & Company, alleging that we negligently failed to provide adequate security to protect the payment card information of customers of theplaintiffs and those of other similarly situated credit unions, banks and other financial institutions alleged to be part of the putative class, causing those institutionsto suffer financial losses (the “Selco Litigation”). The complaint in the Selco Litigation also claims we were negligent per se based on alleged violations of Section5 of the Federal Trade Commission Act, and it seeks monetary damages, injunctive relief and attorneys’ fees. We intend to vigorously defend the Selco Litigation.We cannot reasonably estimate the range of potential losses that will be associated with the Selco Litigation because it is at an early stage. We also cannot assureyou that we will not become subject to other inquiries or claims, such as claims brought by customers, relating to the data security incident in the future. Althoughwe maintain data security liability insurance, and certain fees and costs associated with this data security incident and the Selco Litigation to date have been paid orreimbursed by our data security liability insurer, we currently believe that it is possible that the ultimate amount paid by us, if we are unsuccessful in defending thislitigation, with respect to the Selco Litigation will be in excess of the limits of our data security liability insurance coverage applicable to claims of this nature.Delaware Gift Card LitigationAs previously disclosed in prior reports filed with the SEC, the Company is named as a defendant in an action filed in the Superior Court of Delaware in NewCastle County (the “Court”), entitled The State of Delaware, William French v. Card Compliant, LLC, et. al. The case was filed under seal in June 2013 and wasunsealed on March 26, 2014. The complaint in this case alleges that a number of large retailers and restaurant companies, including the Company, knowinglyrefused to fulfill obligations under Delaware’s Abandoned Property Law by failing to report and deliver “unclaimed gift card funds” to the State of Delaware, andknowingly made, used or caused to be made or used, false statements and records to conceal, avoid or decrease an obligation to pay or transmit money to Delawarein violation of the Delaware False Claims and Reporting Act. The complaint seeks an order that we cease and desist from violating the Delaware AbandonedProperty Law, monetary damages (including treble damages under the False Claims and Reporting Act), penalties, and attorneys’ fees and costs. On November 23,2015, the Court ruled on a motion to dismiss the complaint that the defendants—including the Company—had filed. While the Court granted the motion to dismisswith respect to a claim alleging that the defendants intended to defraud the government or willfully concealed property owed to the government and for which acertificate or receipt was provided, it did not dismiss the other claims alleging that the defendants knowingly made false statements to avoid transmitting money tothe government. The trial date with respect to this matter is set for January 8, 2018. We have recorded a loss contingency accrual based on a reasonable estimate ofthe probable losses that might arise from this matter; this loss contingency accrual did not have a material effect on our results of operations. However, we mayultimately be subject to greater losses resulting from the litigation. We intend to continue to vigorously defend this action.Litigation Regarding Classification of Assistant General ManagersAs we reported in our Quarterly Reports on Form 10-Q for the quarters ended March 29, 2016, June 28, 2016 and September 27, 2016, Carrie Castillo, AnastassiaLetourneau and Jacquelyn Myhre, former employees of the Company, filed a purported collective and class action lawsuit against us on March 10, 2016 allegingviolations of the Fair Labor Standards Act and Illinois and Minnesota wage laws (the “Labor Laws”) in the United States District Court for the Northern District ofIllinois (”Castillo Litigation”). The plaintiffs filed the case on their behalf and on behalf of all assistant general managers employed by us since January 5, 2013whom we classified as exempt employees, and they allege that we violated the Labor Laws by not paying overtime compensation to our assistant generalmanagers. The plaintiffs were seeking, on behalf of themselves and members of the putative class, unpaid overtime compensation, liquidated damages andavailable penalties under applicable state laws, a declaratory judgment, an injunction and attorneys’ fees and costs. In the third quarter of 2016, we and theplaintiffs in the litigation agreed in principle to settle the litigation. To cover the estimated costs of the settlement, including estimated payments to any opt-inmembers and class attorneys, as well as26Table of Contents related settlement administration costs, we recorded a charge of $3.0 million in 2016. The charge was recorded in general and administrative expenses in ourunaudited condensed consolidated statements of operations and in accrued expenses and other current liabilities in our unaudited condensed consolidated balancesheets. The settlement has been approved by the United States District Court for the Northern District of Illinois.Other MattersIn the normal course of business, we are subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are notpredictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to thesematters as of January 3, 2017. These matters could affect the operating results of any one financial reporting period when resolved in future periods. We believethat an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to our consolidated financial statements. Significantincreases in the number of these claims, or one or more successful claims that result in greater liabilities than they currently anticipate, could materially adverselyaffect our business, financial condition, results of operations or cash flows.ITEM 4. Mine Safety DisclosuresNot applicable.27Table of Contents PART IIITEM 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur Class A common stock has traded on the Nasdaq Global Select Market under the symbol NDLS since it began trading on June 28, 2013, the date of our IPO.The following table sets forth, for the periods indicated, the high and low sales prices per share of our Class A common stock as reported on the Nasdaq GlobalSelect Market. High Low Fiscal Year 2016 First quarter (December 30, 2015 - March 29, 2016) $13.65 $9.32 Second quarter (March 30, 2016 - June 28, 2016) $12.55 $9.28 Third quarter (June 29, 2016 - September 27, 2016) $10.47 $4.91 Fourth quarter (September 28, 2016 - January 3, 2017) $5.10 $3.51Fiscal Year 2015 First quarter (December 31, 2014 - March 31, 2015) $28.02 $17.18 Second quarter (April 1, 2015 - June 30, 2015) $21.41 $14.28 Third quarter (July 1, 2015 - September 29, 2015) $15.88 $11.20 Fourth quarter (September 30, 2015 - December 29, 2015) $14.95 $10.02As of February 24, 2017, there were approximately 43 holders of record of our common stock. The number of holders of record is based upon the actual numbersof holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities insecurity position listings maintained by depositories.Purchases of Equity Securities by the IssuerWe had no share repurchases during the fourth quarter of 2016.Sales of Unregistered Securities by the IssuerNo transactions that have not been previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.Stock Performance GraphThe following graph compares the cumulative total shareholder return on our Class A common stock from June 28, 2013 (using the price of which our shares ofClass A common stock were initially sold to the public) to January 3, 2017 to that of the total return of the Nasdaq Composite and the S&P 600 Restaurants Index.The comparison assumes $100 was invested in our common stock on June 28, 2013 and in each of the forgoing indices on June 28, 2013 and assumes thereinvestment of dividends. This graph is furnished and not “filed” with the Securities and Exchange Commission or “soliciting material” under the SecuritiesExchange Act of 1934, as amended (“the Exchange Act”) and shall not be incorporated by reference into any such filings, irrespective of any general incorporationcontained in such filing.28Table of Contents The stock price performance included in this graph is not necessarily indicative of future stock price performance.DividendsNo dividends have been declared or paid on our shares of common stock. We do not anticipate paying any cash dividends on any of our shares of common stock inthe foreseeable future. We currently intend to retain any earnings to finance the development and expansion of our business. Any future determination to paydividends will be at the discretion of our Board of Directors and will be dependent upon then-existing conditions, including our earnings, capital requirements,results of operations, financial condition, business prospects and other factors that our Board of Directors considers relevant. Further, the Company’s credit facility,preferred stock and warrants each contain provisions that limit its ability to pay dividends on its common stock. See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Certain Relationships and Related Transactions, and Director Independence” for additional informationregarding our financial condition.ITEM 6. Selected Financial DataThe following table summarizes the consolidated historical financial and operating data for the periods indicated. The statements of operations data for the fiscalyears ended January 3, 2017 , December 29, 2015 and December 30, 2014 , and the balance sheet data as of January 3, 2017 and December 29, 2015 have beenderived from our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data,” and the statements of operationsdata from the fiscal years ended December 31, 2013 and January 1, 2013 , and the balance sheet data as of December 30, 2014 , December 31, 2013 and January 1,2013 have been derived from our audited consolidated financial statements not included in this report.The historical results presented below are not necessarily indicative of the results to be expected for any future period. This information should be read inconjunction with “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidatedfinancial statements and the related notes included elsewhere in this report.We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2016, which ended on January 3, 2017, contained 53 weeks,and all other fiscal years presented below contained 52 weeks. We refer to our fiscal years as 2016 , 2015 , 2014 , 2013 and 2012 . Our fiscal quarters each containthirteen weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains fourteen weeks.29Table of Contents Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014 December 31, 2013 January 1, 2013 (in thousands)Revenue: Restaurant revenue $482,544 $450,482 $398,993 $347,140 $297,264Franchising royalties and fees 4,930 4,969 4,748 3,784 3,146Total revenue 487,474 455,451 403,741 350,924 300,410Costs and Expenses: Restaurant operating costs (exclusive of depreciation and amortization, shown separately below): Cost of sales 130,630 120,455 107,217 91,892 78,997Labor 161,219 143,145 120,492 104,040 89,435Occupancy 55,912 50,300 42,540 35,173 29,323Other restaurant operating costs 73,011 63,549 52,580 44,078 36,380General and administrative (1)(2) 55,654 37,244 31,394 35,893 29,081Depreciation and amortization 28,134 27,802 24,787 20,623 16,719Pre-opening 3,131 4,407 4,425 3,809 3,145Restaurant impairments, closure costs and asset disposals (3) 47,311 29,616 1,391 1,164 1,278Total costs and expenses 555,002 476,518 384,826 336,672 284,358(Loss) income from operations (67,528) (21,067) 18,915 14,252 16,052Debt extinguishment expense — — — 624 2,646Interest expense, net 2,916 1,432 365 2,196 5,028(Loss) income before income taxes (70,444) (22,499) 18,550 11,432 8,378Provision (benefit) for income taxes 1,233 (8,734) 7,122 4,767 3,215Net (loss) income $(71,677) $(13,765) $11,428 $6,665 $5,163_____________(1)General and administrative expenses in 2013 included $0.5 million and 2012 included $1.0 million of management fee expense, respectively, in accordance with our management services agreement and through the Class Ccommon stock dividend paid to the holder of the one outstanding share of our Class C common stock. In connection with our IPO, the management services agreement expired, and the one share of Class C common stockwas redeemed. In the second quarter of 2013, we incurred $5.7 million of IPO-related expenses: $2.0 million of stock-based compensation related to accelerated vesting of outstanding stock options, $1.2 million of stock-based compensation related to stock options granted to our then Chief Executive Officer and then-President and Chief Operating Officer of which 50% were vested at grant, $1.7 million of transaction bonuses and relatedpayroll taxes and $0.8 million in transaction payments to our Equity Sponsors. Additionally, we incurred $0.7 million of expenses related to our follow-on offering which closed in December of 2013.(2)General and administrative expenses in 2016 include a $10.6 million charge for estimated losses associated with claims and anticipated claims by payment card companies from the data security incident, a $2.7 millioncharge for severance expenses, and a $3.0 million charge for a litigation settlement related to the Castillo Litigation described under Part I, Item 3 of this report.(3)Restaurant impairments, closure costs and asset disposals include $41.6 million of charges in 2016 and $25.4 million of charges in 2015, related to 54 restaurants in 2016 and 39 restaurants in 2015 that were identified asimpaired. Additionally, we recognized $2.2 million and $3.1 million in 2016 and 2015, respectively, of closure costs which are also included in restaurant impairments, closure costs and asset disposals. The closure costsrecognized during 2016 are related to the ongoing costs of restaurants closed in the fourth quarter of 2015.30Table of Contents Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014 December 31, 2013 January 1, 2013 (in thousands, except share and per share data and restaurants)(Loss) earnings per Class A and Class B common share, combined: Basic $(2.58) $(0.48) $0.38 $0.25 $0.22Diluted $(2.58) $(0.48) $0.37 $0.24 $0.22Weighted average Class A and Class B common shares outstanding, combined: Basic 27,808,708 28,938,901 29,717,304 26,406,904 23,238,984Diluted 27,808,708 28,938,901 31,001,099 27,688,629 23,265,542Selected Operating Data: Company-owned restaurants at end of period 457 422 386 318 276Franchise-owned restaurants at end of period 75 70 53 62 51Company-owned: Average unit volumes (1) $1,075 $1,103 $1,147 $1,179 $1,178Comparable restaurant sales (2) (0.9)% (0.2)% 0.3% 3.4% 5.2%Restaurant contribution (3) $61,772 $73,032 $76,165 $71,957 $63,129as a percentage of restaurant revenue 12.8 % 16.2 % 19.1% 20.7% 21.2% As of January 3, 2017 December 29, 2015 December 30, 2014 December 31, 2013 January 1, 2013 (in thousands)Balance Sheet Data: Total current assets $25,788 $25,401 $22,776 $18,333 $16,154Total assets 209,461 239,961 238,539 187,350 155,957Total current liabilities 49,033 32,914 25,831 24,165 23,760Total long-term debt 84,676 67,732 27,136 5,860 92,693Total liabilities 183,643 146,189 98,424 62,877 141,949Temporary equity — — — — 3,601Total stockholders' equity 25,818 93,772 140,115 124,473 10,407_____________(1)AUVs consist of average annualized sales of all company-owned restaurants over the trailing 12 periods in a typical operating year.(2)Comparable restaurant sales represent year-over-year sales for restaurants open for at least 18 full periods.(3)Restaurant contribution represents restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operating costs.31Table of Contents ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6. “Selected Financial Data”and our consolidated financial statements and related notes included in Item 8. “Financial Statements and Supplementary Data.” In addition to historicalinformation, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially fromthose anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Item 1A. “Risk Factors” andelsewhere in this report.We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2016, which ended on January 3, 2017, contained53 weeks, and all other fiscal years presented below contained 52 weeks. We refer to our fiscal years as 2016 , 2015 and 2014 . Our fiscal quarters each contained13 operating weeks, with the exception of the fourth quarter of 2016, which had 14 operating weeks.NOODLES & COMPANYWorld KitchenOverviewNoodles & Company is a restaurant concept offering lunch and dinner within the fast casual segment of the restaurant industry. We opened our first location in1995, offering noodle and pasta dishes, staples of many cuisines, with the goal of delivering fresh ingredients and flavors from around the world under one roof.Today, our globally inspired menu includes a wide variety of high quality, cooked-to-order dishes, including noodles and pasta, soups, salads and appetizers, whichare served on china by our friendly team members. We believe we offer our customers value with per person spend of approximately $8.68 in 2016 .Recent Trends, Risks and UncertaintiesRestaurant Development. New restaurants have historically contributed substantially to our revenue growth. In 2016 , we opened 38 company-owned restaurantsand six franchise restaurants for a total of 44 restaurants opened system-wide. We closed three company-owned restaurants and one franchise restaurant in 2016 .As of January 3, 2017 , we had 457 company-owned restaurants and 75 franchise restaurants in 35 states, the District of Columbia and one Canadian province.In 2016, we announced that we intended to reduce our rate of company-owned restaurant unit growth, which we anticipate will result in our revenue growing at aslower rate than would be expected if our unit growth rate continued at the historical rate. In 2017, we plan to open between 12 and 15 company-ownedrestaurants; eight openings have occurred to date in the first quarter of 2017. We do not intend to open restaurants in new markets in 2017, and most of ouropenings will be in well-established markets where we maintain strong brand awareness and restaurant-level financial performance that exceeds companyaverages. We believe this more moderate growth strategy will enhance our ability to focus on improving restaurant operations and profitability. We will continueto evaluate our company-owned restaurant growth rate based on our operational and financial performance, capital resources and real estate opportunities.Furthermore, we anticipate pre-opening costs to decrease as a result of the more moderate anticipated growth rate.New Restaurant Underperformance . Our financial performance has been adversely impacted by a subset of our restaurants that have significantly underperformedour restaurant averages, as measured by AUVs, restaurant contribution margin and cash flow. Many of these restaurants were opened in the last two to three yearsin newer markets where brand awareness of our restaurants is not as strong and where it has been more difficult to adequately staff our restaurants. Our Board ofDirectors has approved the closure of certain of these restaurants in order to eliminate the negative cash flow resulting from their continued operation and to permitus to increase our focus on the remaining restaurants in our restaurant portfolio. We believe closing these restaurants will increase our restaurant contribution,restaurant contribution margin, adjusted EBITDA, adjusted EBITDA margin and net income.We have closed 39 restaurants in the first quarter of 2017 and intend to close an additional 18 restaurants prior to the end of the second quarter of 2017. Theserestaurants have significantly underperformed our restaurant averages, generating AUVs of approximately $0.7 million and an aggregate restaurant contributionmargin of approximately (22.0%) during the fiscal year ended January 3, 2017. If such restaurants had not been in operation during such period, we believe that ourrestaurant contribution would have been $8.2 million higher and restaurant contribution margin would have been 290 basis points higher.32Table of Contents Comparable Restaurant Sales and Restaurant Contribution Margin. Comparable restaurant sales decreased 0.8% system-wide, decreased 0.9% for company-owned restaurants, and increased 0.1% for franchise restaurants . Comparable restaurant sales represent year-over-year sales comparisons for restaurants open forat least 18 full periods. Our comparable restaurant sales decreased primarily as a result of underperformance at company-owned restaurants that are newly includedin the comparable restaurant base, partially offset by stronger performance at franchised locations.Increased Labor Costs . Similar to much of the restaurant industry, our labor costs have risen in recent periods and we expect that labor costs will continue to risein future periods as wage rates and benefit costs increase. Some jurisdictions, including some of those in which we operate, have recently increased their minimumwage by a significant amount, and other jurisdictions are considering similar actions. Significant additional government-imposed increases could materially affectour labor costs.Refranchising . We have identified a number of restaurants within certain markets for potential sale or refranchising to new or existing franchisees. In general,these restaurants are in markets that are less penetrated than our well-established markets and provide significant opportunity for unit growth. Given our decision tomoderate our company-owned restaurant growth rate, we believe that franchise operators will better support the development of the Noodles & Company brand inthese markets. In connection with the sale of company-owned restaurants to new or existing franchisees in existing markets, we intend to enter into agreements thatalso provide for the development of new restaurants. After refranchising select company-owned restaurants, and as we grow with existing and new franchisees intothe future, we expect franchise restaurants to represent a larger percentage of Noodles & Company system-wide restaurants than they currently constitute. Thefranchisor model requires significantly lower capital investment by the franchisor and generates revenues, in the form of development and franchise fees androyalties, which are less volatile than company-owned restaurant revenues. While we plan to embark on refranchising in 2017, we are focused on identifyingqualified franchisees, and it may take multiple years to complete this effort.Data Breach Liabilities . On June 28, 2016, we announced that a data security incident compromised the security of the payment information of some customerswho used debit or credit cards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. The malware involved in the incident has beenremoved, and we believe that it no longer poses a risk to credit or debit cards currently being used at affected locations. We have been implementing additionalsecurity procedures to further secure customers’ debit and credit card information.In the fourth quarter of 2016, we recorded a charge of $10.6 million for estimated losses associated with claims and anticipated claims by payment card companiesfor non-ordinary course operating expenses, card issuer losses and card replacement costs for which we expect to be liable (the “Data Breach Liabilities”).However, we may ultimately be subject to Data Breach Liabilities that are up to $5.5 million greater than that amount.In addition to claims by payment card companies with respect to the data security incident, we are the defendant in a purported class action lawsuit in the UnitedStates District Court for the District of Colorado, Selco Community Credit Union vs. Noodles & Company , alleging that we negligently failed to provide adequatesecurity to protect the payment card information of customers of the plaintiffs and those of other similarly situated credit unions, banks and other financialinstitutions alleged to be part of the putative class, causing those institutions to suffer financial losses. See “Legal Proceedings—Data Security Litigation” and“Risk Factors—We have incurred and in the future may incur costs resulting from breaches of security of confidential consumer information related to ourelectronic processing of credit and debit card transactions” for more information.Restaurant Closing Liabilities . Our anticipated plan of restaurant closings will result in liabilities to landlords from the termination of our leases for suchrestaurants, fees to be paid to our real estate advisor and brokers related to such terminations and other costs of closing restaurants, such as severance forterminated employees, or Restaurant Closing Liabilities. We currently anticipate that the Restaurant Closing Liabilities future cash outlays will total $24.0 millionto $29.0 million, which will include (i) $23.0 million to $28.0 million relating to the termination of leases, including related fees and expenses, to be paid out overthe next 12 to 18 months, and (ii) approximately $1.0 million relating to severance for terminated employees. However, it is possible that the Restaurant ClosingLiabilities will exceed such amounts. We expect to recognize accounting charges for the Restaurant Closing Liabilities aggregating between $17.5 million to $19.5million, at the time such restaurants are closed, subject to adjustment as lease terminations occur.Key Measures We Use to Evaluate Our PerformanceTo evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures include revenue, AUVs, comparablerestaurant sales, restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA.33Table of Contents RevenueRestaurant revenue represents sales of food and beverages in company-owned restaurants. Several factors affect our restaurant revenue in any period, including thenumber of restaurants in operation and per-restaurant sales.Franchise royalties and fees represent royalty income and initial franchise fees. While we expect that the majority of our revenue and net income growth will bedriven by company-owned restaurants, our franchise restaurants remain an important factor impacting our revenue and financial performance.Seasonal factors cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth quarters due to reducedwinter and holiday traffic and higher in the second and third quarters. As a result of these factors, our quarterly and annual operating results and comparablerestaurant sales may fluctuate significantly.Average Unit Volumes (“AUVs”)AUVs consist of the average annualized sales of all company-owned restaurants for the trailing 12 periods. AUVs are calculated by dividing restaurant revenue bythe number of operating days within each time period and multiplying by 361, which is equal to the number of operating days we have in a typical year. Thismeasurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants.Comparable Restaurant SalesComparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base. We define the comparable restaurant base to includerestaurants open for at least 18 full periods. As of the end of 2016 , 2015 and 2014 , there were 393 , 322 and 295 restaurants, respectively, in our comparablerestaurant base for company-owned locations. This measure highlights performance of existing restaurants, as the impact of new restaurant openings is excluded.Changes in comparable restaurant sales are generated by changes in traffic, which we calculate as the number of entrées sold, or changes in per person spend,calculated as sales divided by traffic. Per person spend can be influenced by changes in menu prices and the mix and number of items sold per person.Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurantsales, including:•consumer recognition of our brand and our ability to respond to changing consumer preferences;•overall economic trends, particularly those related to consumer spending;•our ability to operate restaurants effectively and efficiently to meet consumer expectations;•pricing;•per person spend and average check amount;•marketing and promotional efforts;•local competition;•trade area dynamics;•introduction of new and seasonal menu items and limited time offerings; and•opening of new restaurants in the vicinity of existing locations.Consistent with common industry practice, we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks withcomparable periods in the prior year, regardless of whether they belong to the same fiscal period or not. Since opening new company-owned and franchiserestaurants will be a significant component of our revenue growth, comparable restaurant sales are only one measure of how we evaluate our performance.Restaurant Contribution34Table of Contents Restaurant contribution is defined as restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operatingcosts. We expect restaurant contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth.Fluctuations in restaurant contribution margin can also be attributed to those factors discussed above for the components of restaurant operating costs.Restaurant Contribution MarginRestaurant contribution margin is defined as restaurant revenue less restaurant operating costs.EBITDA and Adjusted EBITDAWe define EBITDA as net income (loss) before interest expense, provision (benefit) for income taxes and depreciation and amortization. We define adjustedEBITDA as net income (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization, restaurant impairments, closure costsand asset disposals, data breach liabilities, certain litigation settlements, severance costs and stock-based compensation.EBITDA and adjusted EBITDA provide clear pictures of our operating results by eliminating certain non-cash expenses that may vary widely from period toperiod and are not reflective of the underlying business performance. The presentation of this financial information is not intended to be considered in isolation oras a substitute for, or to be superior to, the financial information prepared and presented in accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”). We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information about operating results, enhance the overall understanding of financial performance andfuture prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.Results of OperationsThe following table presents a reconciliation of net (loss) income to EBITDA and adjusted EBITDA: Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014 (in thousands)Net (loss) income $(71,677) $(13,765) $11,428Depreciation and amortization 28,134 27,802 24,787Interest expense, net 2,916 1,432 365Provision (benefit) for income taxes 1,233 (8,734) 7,122EBITDA $(39,394) $6,735 $43,702Restaurant impairments, closure costs and asset disposals 47,311 29,616 1,391Data breach liabilities 10,622 — —Litigation settlement 3,000 200 —Severance costs 2,034 — —Stock-based compensation expense 2,319 1,469 1,330Transaction costs (a) — — 100Adjusted EBITDA $25,892 $38,020 $46,523_____________(a)Expenses related to the purchase of 19 franchise restaurants. See Note 2, Business Combinations in the consolidated financial statements.Key Financial DefinitionsCost of SalesCost of sales includes the direct costs associated with the food, beverage and packaging of our menu items. Cost of sales also includes any costs related todiscounted menu items. Cost of sales is a substantial expense and can be expected to change proportionally as35Table of Contents our restaurant revenue changes. Fluctuations in cost of sales are caused primarily by volatility in the cost of commodity food items and related contracts for suchitems. Other important factors causing fluctuations in cost of sales include seasonality, discounting activity and restaurant level management of food waste.Labor CostsLabor costs include wages, payroll taxes, workers’ compensation expense, benefits and bonuses paid to our management teams. Similar to certain other expenseitems, we expect labor costs to change proportionally as our restaurant revenue changes. Factors that influence fluctuations in our labor costs include minimumwage and payroll tax legislation, the frequency and severity of workers’ compensation claims, health care costs and the performance of our restaurants.Occupancy CostsOccupancy costs include rent, common area maintenance charges and real estate tax expense related to our restaurants and are expected to grow proportionally aswe open new restaurants.Other Restaurant Operating CostsOther restaurant operating costs include the costs of repairs and maintenance, utilities, restaurant-level marketing, credit card processing fees, restaurant suppliesand other restaurant operating costs. Similar to certain other costs, they are expected to grow proportionally as restaurant revenue grows.General and Administrative ExpenseGeneral and administrative expense is composed of payroll, other compensation, travel, marketing, accounting and legal fees, insurance and other expenses relatedto the infrastructure required to support our restaurants. General and administrative expense also includes the non-cash stock compensation expense related to ouremployee stock incentive plan.Depreciation and AmortizationOur principal depreciation and amortization charges relate to depreciation of long-lived assets, such as property, equipment and leasehold improvements, fromrestaurant construction and ongoing maintenance.Pre-Opening CostsPre-opening costs relate to the costs incurred prior to the opening of a restaurant. These include management labor costs, staff labor costs during training, food andsupplies utilized during training, marketing costs and other pre-opening related costs. Pre-opening costs also include rent recorded between the date of possessionand the opening date for our restaurants.Restaurant impairments, closure costs and asset disposalsRestaurant impairments, closure costs and asset disposals include the net gain or loss on disposal of long-lived assets related to retirements and replacement ofequipment or leasehold improvements, restaurant closures and impairment charges.Interest ExpenseInterest expense consists primarily of interest on our outstanding indebtedness and amortization of debt issuance costs over the life of the related debt reduced bycapitalized interest.Provision (Benefit) for Income TaxesProvision (benefit) for income taxes consists of federal, foreign, state and local taxes on our income.Restaurant Openings, Closures and RelocationsThe following table shows restaurants opened, closed or relocated in the years indicated.36Table of Contents Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014Company-Owned Restaurant Activity Beginning of period 422 386 318Openings 38 51 49Acquisitions (1) — 1 19Closures and relocations (2) (3) (16) —Restaurants at end of period 457 422 386Franchise Restaurant Activity Beginning of period 70 53 62Openings 6 19 10Divestitures (1) — (1) (19)Closures and relocations (2) (1) (1) —Restaurants at end of period 75 70 53Total restaurants 532 492 439_____________(1)Represents franchise restaurants acquired/divested by us.(2)We account for relocated restaurants under both restaurant openings and closures and relocations.37Table of Contents Results of OperationsThe following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue, except for thecomponents of restaurant operating costs, which are expressed as a percentage of restaurant revenue. Fiscal year 2016 contained 53 operating weeks and fiscalyears 2015 and 2014 each contained 52 operating weeks. Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014Revenue: Restaurant revenue 99.0 % 98.9 % 98.8%Franchising royalties and fees 1.0 % 1.1 % 1.2%Total revenue 100.0 % 100.0 % 100.0%Costs and expenses: Restaurant operating costs (exclusive of depreciation and amortization, shown separatelybelow): (1) Cost of sales 27.1 % 26.7 % 26.9%Labor 33.4 % 31.8 % 30.2%Occupancy 11.6 % 11.2 % 10.7%Other restaurant operating costs 15.1 % 14.1 % 13.2%General and administrative 11.4 % 8.2 % 7.8%Depreciation and amortization 5.8 % 6.1 % 6.1%Pre-opening 0.6 % 1.0 % 1.1%Restaurant impairments, closure costs and asset disposals 9.7 % 6.5 % 0.3%Total costs and expenses 113.9 % 104.6 % 95.3%(Loss) income from operations (13.9)% (4.6)% 4.7%Interest expense, net 0.6 % 0.3 % 0.1%(Loss) income before income taxes (14.5)% (4.9)% 4.6%Provision (benefit) for income taxes 0.2 % (1.9)% 1.8%Net (loss) income (14.7)% (3.0)% 2.8%_____________(1)As a percentage of restaurant revenue.38Table of Contents Fiscal Year Ended January 3, 2017 compared to Fiscal Year Ended December 29, 2015Fiscal year 2016 contained 53 operating weeks and fiscal year 2015 contained 52 operating weeks. The table below presents our operating results for 2016 and2015 , and the related year-over-year changes: Fiscal Year Ended Increase / (Decrease) January 3, 2017 December 29, 2015 $ % (in thousands)Revenue: Restaurant revenue $482,544 $450,482 $32,062 7.1 %Franchising royalties and fees 4,930 4,969 (39) (0.8)%Total revenue 487,474 455,451 32,023 7.0 %Costs and Expenses: Restaurant operating costs (exclusive of depreciation and amortization,shown separately below): Cost of sales 130,630 120,455 10,175 8.4 %Labor 161,219 143,145 18,074 12.6 %Occupancy 55,912 50,300 5,612 11.2 %Other restaurant operating costs 73,011 63,549 9,462 14.9 %General and administrative 55,654 37,244 18,410 49.4 %Depreciation and amortization 28,134 27,802 332 1.2 %Pre-opening 3,131 4,407 (1,276) (29.0)%Restaurant impairments, closure costs and asset disposals 47,311 29,616 17,695 59.7 %Total costs and expenses 555,002 476,518 78,484 16.5 %Loss from operations (67,528) (21,067) (46,461) *Interest expense, net 2,916 1,432 1,484 *Loss before income taxes (70,444) (22,499) (47,945) *Provision (benefit) for income taxes 1,233 (8,734) 9,967 *Net loss $(71,677) $(13,765) $(57,912) *_____________*Not meaningful.RevenueRestaurant revenue increased by $32.1 million , or 7.1% , in 2016 compared to 2015 . Restaurants not in the comparable restaurant base accounted for $27.5million of this increase, partially offset by a slight decline in comparable restaurant sales, as well as the impact of closing 16 restaurants in the fourth quarter of2015. Comparable restaurant sales decreased by $2.9 million , or 0.9% , in 2016 due to a decrease in traffic, partially offset by a modest price increase. AUV’sdecreased $28,000 due primarily to lower AUVs at our restaurants that have been open for less than 18 full periods compared to our system-wide average.Franchise royalties and fees remained relatively flat in 2016 due to low comparable growth rate and a low number of restaurant openings.The impact of an additional operating week in 2016 on total revenue was approximately $8.1 million.Cost of SalesCost of sales increased by $ 10.2 million , or 8.4% , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . As a percentage ofrestaurant revenue, cost of sales increased to 27.1 % in 2016 from 26.7% in 2015 . This increase was primarily the result of modest commodity inflation.39Table of Contents Labor CostsLabor costs increased by $ 18.1 million , or 12.6% , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . As a percentage ofrestaurant revenue, labor costs increased to 33.4 % in 2016 from 31.8% in 2015 . The increase as a percentage of restaurant revenue resulted from an increase inwage rates and benefit costs, as well as the deleveraging impact of lower AUVs.Occupancy CostsOccupancy costs increased by $ 5.6 million , or 11.2% , in 2016 compared to 2015 , due primarily to the opening of new restaurants. As a percentage of restaurantrevenue, occupancy costs increased to 11.6% in 2016 from 11.2% in 2015 . The slight increase was due primarily to the deleveraging impact of lower AUVs.Other Restaurant Operating CostsOther restaurant operating costs increased by $ 9.5 million , or 14.9% , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . Asa percentage of restaurant revenue, other restaurant operating costs increased to 15.1 % in 2016 from 14.1% in 2015 . The increase in other restaurant operatingcost percentage was primarily due to increased marketing initiatives, the deleveraging impact of lower AUVs and additional maintenance costs in 2016 .General and Administrative ExpenseGeneral and administrative expense increased by $ 18.4 million , or 49.4% , in 2016 compared to 2015 , primarily due to a $10.6 million charge for estimatedlosses associated with claims and anticipated claims by payment card companies from the data security incident, a $2.7 million charge for severance expenses, anda $3.0 million charge for a litigation settlement related to the Castillo Litigation described under Part I, Item 3 of this report. As a percentage of revenue, generaland administrative expense increased to 11.4 % in 2016 from 8.2% in 2015 , due primarily to the charges discussed above.Depreciation and AmortizationDepreciation and amortization increased by $ 0.3 million , or 1.2% , in 2016 compared to 2015 , due primarily to an increased number of restaurants mostly offsetby the impairment of 54 restaurants throughout 2016 and restaurants impaired or closed in 2015. As a percentage of revenue, depreciation and amortizationdecreased to 5.8 % in 2016 from 6.1% in 2015 .Pre-Opening CostsPre-opening costs decreased by $ 1.3 million , or 29.0% , in 2016 compared to 2015 due to fewer restaurants under construction compared to the comparableperiod in the prior year. As a percentage of revenue, pre-opening costs decreased to 0.6 % in 2016 from 1.0 % in 2015 .Restaurant Impairments, Closure Costs and Asset DisposalsRestaurant impairments, closure costs and asset disposals increased by $17.7 million , or 59.7% , in 2016 compared to 2015 due primarily to the impairment of 54restaurants in 2016 , as a result of our current assessment of expected future cash flows, compared to the impairment of 39 restaurants in 2015. Our financialperformance has been adversely impacted by a subset of our restaurants that have significantly underperformed our restaurant averages, as measured by AUVs,restaurant contribution margin and cash flow. Many of these restaurants were opened in the last two to three years in newer markets where brand awareness of ourrestaurants is not as strong and where it has been more difficult to adequately staff our restaurants. The under performance of these 54 restaurants, compounded bythe higher than average construction costs of some of these restaurants, resulted in the recording of an impairment of fixed assets in 2016.Each quarter we evaluate possible impairment of fixed assets at the restaurant level and record an impairment loss whenever we determine that the fair value ofthese assets is less than their carrying value. There can be no assurance that such evaluations will not result in additional impairment costs in future periods.Additionally, 16 restaurants were closed in the fourth quarter of 2015, of which 15 were previously impaired during 2015. During 2016, we recognized $2.2million of ongoing closure costs associated with the restaurants closed in the fourth quarter of 2015 and a $1.1 million charge to reduce capitalized labor andoverhead as a result of the reduced growth for new restaurant development.40Table of Contents Interest ExpenseInterest expense increased by $ 1.5 million in 2016 compared to 2015 . The increase was the result of higher average borrowings and an increase in the interest rateon our credit facility during 2016 compared to 2015 .Provision (Benefit) for Income TaxesFor the year ended January 3, 2017 , we determined that it was appropriate to record a valuation allowance of $27.4 million against U.S. and Canadian deferred taxassets due to uncertainty regarding the realizability of future tax benefits. We will maintain a valuation allowance against deferred tax assets until there is sufficientevidence to support a full or partial reversal. The effective tax rate for the year ended January 3, 2017 reflects the impact of a valuation allowance on deferred taxassets, which valuation allowance was not recorded for the year ended December 29, 2015 .We reported a provision for income taxes of $1.2 million in 2016 compared to a benefit from income taxes of $8.7 million in 2015 . The change in tax provision isprimarily related to the valuation allowance recorded in 2016. As a result, the effective tax rate decreased to (1.8)% in 2016 from 38.8% in 2015 .Fiscal Year Ended December 29, 2015 compared to Fiscal Year Ended December 30, 2014Fiscal year 2015 and 2014 each contained 52 operating weeks. The table below presents our operating results for 2015 and 2014 , and the related year-over-yearchanges: Fiscal Year Ended Increase / (Decrease) December 29, 2015 December 30, 2014 $ % (in thousands)Revenue: Restaurant revenue $450,482 $398,993 $51,489 12.9 %Franchising royalties and fees 4,969 4,748 221 4.7 %Total revenue 455,451 403,741 51,710 12.8 %Costs and Expenses: Restaurant operating costs (exclusive of depreciation and amortization,shown separately below): Cost of sales 120,455 107,217 13,238 12.3 %Labor 143,145 120,492 22,653 18.8 %Occupancy 50,300 42,540 7,760 18.2 %Other restaurant operating costs 63,549 52,580 10,969 20.9 %General and administrative 37,244 31,394 5,850 18.6 %Depreciation and amortization 27,802 24,787 3,015 12.2 %Pre-opening 4,407 4,425 (18) (0.4)%Restaurant impairments, closure costs and asset disposals 29,616 1,391 28,225 *Total costs and expenses 476,518 384,826 91,692 23.8 %(Loss) income from operations (21,067) 18,915 (39,982) *Interest expense, net 1,432 365 1,067 *(Loss) income before income taxes (22,499) 18,550 (41,049) *(Benefit) provision for income taxes (8,734) 7,122 (15,856) *Net (loss) income $(13,765) $11,428 $(25,193) *_____________*Not meaningful.41Table of Contents RevenueRestaurant revenue increased by $51.5 million , or 12.9%, in 2015 compared to 2014 . Restaurants not in the comparable restaurant base accounted for $52.3million of this increase, partially offset by a slight decline in comparable restaurant sales, as well as the impact of closing 16 restaurants in the fourth quarter of2015. Comparable restaurant sales decreased by $0.8 million or 0.2% in 2015 due to a decrease in traffic, offset by a modest price increase. AUV’s decreased to$1.103 million from $1.147 million in the prior year.Franchise royalties and fees increased by $0.2 million in 2015 due to 19 new restaurant openings, the cancellation of an area development agreement offset bydecreased comparable restaurant sales of 0.9% and the loss of royalties and fees from franchise restaurants purchased by the Company during 2014 .Cost of SalesCost of sales increased by $13.2 million , or 12.3%, in 2015 compared to 2014 , due primarily to the increase in restaurant revenue in 2015 . As a percentage ofrestaurant revenue, cost of sales decreased to 26.7 % in 2015 from 26.9% in 2014 . This decrease as a percentage of restaurant revenue was primarily the result ofprice increases partially offset by modest commodity inflation.Labor CostsLabor costs increased by $22.7 million , or 18.8%, in 2015 compared to 2014 , due primarily to the increase in restaurant revenue in 2015 . As a percentage ofrestaurant revenue, labor costs increased to 31.8 % in 2015 from 30.2% in 2014 . The increase as a percentage of restaurant revenue was primarily due to thedeleveraging impact of lower AUVs, wage inflation and the implementation of the PPACA.Occupancy CostsOccupancy costs increased by $7.8 million , or 18.2%, in 2015 compared to 2014 , due primarily to new restaurants. As a percentage of restaurant revenue,occupancy costs increased to 11.2% in 2015 , from 10.7% in 2014 . The increase was due to the deleveraging impact of lower AUVs.Other Restaurant Operating CostsOther restaurant operating costs increased by $11.0 million , or 20.9%, in 2015 compared to 2014 , due primarily to the increase in restaurant revenue in 2015 . Asa percentage of restaurant revenue, other restaurant operating costs increased to 14.1 % in 2015 from 13.2% in 2014 . The increase in other restaurant operatingcost percentage was primarily due to deleverage on lower average unit volumes, as well as increased marketing initiative costs in 2015 .General and Administrative ExpenseGeneral and administrative expense increased by $5.9 million , or 18.6%, in 2015 compared to 2014 , primarily due to the support of additional restaurants,particularly in new markets, and marketing initiatives. As a percentage of revenue, general and administrative expense increased to 8.2 % in 2015 from 7.8% in2014 .Depreciation and AmortizationDepreciation and amortization increased by $3.0 million , or 12.2%, in 2015 compared to 2014 , due primarily to an increased number of restaurants offset by theimpairment of 39 restaurants throughout 2015 . As a percentage of revenue, depreciation and amortization remained flat at 6.1 % in 2015 and 2014 .Pre-Opening CostsPre-opening costs decreased by $ 18,000 , or 0.4%, in 2015 compared to 2014 . As a percentage of revenue, pre-opening costs decreased to 1.0 % in 2015 from 1.1% in 2014 .Restaurant Impairments, Closure Costs and Asset DisposalsRestaurant impairments, closure costs and asset disposals increased by $28.2 million in 2015 compared to 2014 due primarily to the impairment of 39 restaurantsin 2015 , including six restaurants in the fourth quarter, as a result of our current assessment of expected future cash flows. The under performance of these 39restaurants, compounded by the higher than average construction costs of some42Table of Contents of these restaurants, resulted in the recording of an impairment of the fixed assets. Additionally, 16 restaurants were closed in the fourth quarter of 2015 , of which15 were previously impaired during 2015 . The majority of the $3.1 million in closing costs were related to the non-cash reserves for lease obligations.Each quarter we evaluate possible impairment of fixed assets at the restaurant level and record an impairment loss whenever we determine that the fair value ofthese assets is less than their carrying value. There can be no assurance that such evaluations will not result in additional impairment costs in future periods.Interest ExpenseInterest expense increased by $1.1 million in 2015 compared to 2014 . The increase was the result of higher average borrowings used to fund our share repurchaseprogram, and an increase in the interest rate on our credit facility during 2015 compared to 2014 .(Benefit) Provision for Income TaxesIn 2015 , we had a benefit for income taxes of $8.7 million in 2015 compared to a provision for income taxes of $7.1 million in 2014 , due to a shift from pre-taxnet income in 2014 to a pre-tax loss in 2015 , as well as an increase in our effective income tax rate. The effective tax rate increased to 38.8% in 2015 from 38.4%in 2014 primarily due to an increase in employment credits, which causes an increase to the effective tax rate when applied to a period with a pre-tax book loss.43Table of Contents Quarterly Financial DataThe following table presents select historical quarterly consolidated statements of operations data and other operations data for fiscal years 2016 and 2015 . Theoperating results for any quarter are not necessarily indicative of the results for any subsequent quarter. Results from the quarters ended January 3, 2017, June 28,2016, December 29, 2015, September 29, 2015 and March 31, 2015 include the impact of significant impairments described elsewhere in this report and theseimpairments may or may not impact our results in future quarters. Each fiscal quarter contained 13 operating weeks, with the exception of the fourth quarter of2016, which had 14 operating weeks. Quarter Ended January 3, 2017 September 27,2016 June 28, 2016 March 29, 2016 December 29, 2015 September 29,2015 June 30, 2015 March 31, 2015 (in thousands, except restaurants, unaudited)Total revenue$129,400 $122,681 $121,407 $113,986 $117,128 $117,328 $115,233 $105,761Net (loss) income$(45,376) $(9,841) $(14,087) $(2,373) $(4,254) $(9,821) $3,062 $(2,752)Selected Operating Data: Company-owned restaurants at end of period457 455 443 436 422 424 411 399Franchise-owned restaurants at end of period75 73 71 71 70 64 61 56Company-owned: Average unit volumes$1,075 $1,087 $1,092 $1,101 $1,103 $1,111 $1,123 $1,136Comparable restaurant sales(1.8)% (0.9)% (0.9)% —% (0.9)% (0.7)% 0.1% 0.8%Restaurant contribution as a percentage of restaurantrevenue (1)11.9 % 12.4 % 13.7 % 13.3% 14.9 % 15.2 % 18.6% 16.2%_____________(1)Restaurant contribution represents restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operating costs.Liquidity and Capital ResourcesHistorically, our primary sources of liquidity and cash flows were operating cash flows and borrowings on our revolving line of credit. Subsequent to year end, inorder to pursue our operational strategies and fund future obligations such as the Restaurant Closing Liabilities and the Data Breach Liabilities, we determined thatwe needed additional sources of liquidity. We have executed the following transactions in order to provide us with additional liquidity: (i) we recently completed aprivate placement transaction for aggregate gross proceeds to us of $18.5 million, and (ii) concurrent with the private placement transaction, we also amended ourcredit agreement to increase our flexibility under the credit facility. We may also pursue other equity or debt financing transactions.We have historically used cash to fund capital expenditures for new restaurant openings, reinvest in our existing restaurants, invest in infrastructure andinformation technology and maintain working capital; however, due to our anticipated modest unit growth, we expect cash required for new restaurant openings tobe correspondingly reduced in upcoming periods. Our working capital position benefits from the fact that we generally collect cash from sales to customers thesame day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have at least 30 days to pay our vendors. Webelieve that expected cash flow from operations, the proceeds received from the private placement transaction and existing borrowing capacity under our creditfacility are adequate to fund debt service requirements, operating lease obligations, capital expenditures, the Restaurant Closing Liabilities with respect torestaurants we have closed to date, the Data Breach Liabilities and working capital obligations for the next year.We expect a significant use of cash in 2017 to be the funding of the Restaurant Closing Liabilities, which we anticipate will total $24.0 million to $29.0 million,including (i) $23.0 million to $28.0 million relating to the termination of leases, including related fees and expenses, to be paid out over the next 12 to 18 months,and (ii) approximately $1.0 million relating to severance for terminated employees. Despite our anticipated modest unit growth in 2017, we also expect to usesignificant cash for new restaurant development. Our total capital expenditures for 2016 were $43.3 million , and we expect to incur capital expenditures ofbetween $21.0 million and $25.0 million in 2017 , of which $8.0 million to $11.0 million relates to our construction of new restaurants before any reductions forlandlord reimbursements, and the remainder relates primarily to reinvestment in existing restaurants and investments in technology.44Table of Contents In 2016 , we spent $755,000 on average in development and construction costs per restaurant, net of landlord reimbursements. For new restaurants to be opened in2017 , we anticipate average development costs per restaurant of between $750,000 and $800,000, net of landlord reimbursements. Additionally, we anticipatepaying approximately $11.0 million for estimated losses associated with claims and anticipated claims by payment card companies for non-ordinary courseoperating expenses, card issuer losses and card replacement costs for which we expect to be liable (the “Data Breach Liabilities”). However, we may ultimately besubject to Data Breach Liabilities that are up to $5.5 million greater than that amount. We intend to use the net proceeds of the private placement (discussed inNote 18, Subsequent Events), in part, to fund the Data Breach Liabilities and Restaurant Closing Liabilities for restaurants closed to date.Cash flows from operating, investing and financing activities are shown in the following table: Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014 (in thousands)Net cash provided by operating activities $24,737 $44,506 $49,027Net cash used in investing activities (42,757) (50,721) (72,060)Net cash provided by financing activities 17,904 6,355 23,971Effect of exchange rate changes on cash 41 (134) —Net (decrease) increase in cash and cash equivalents $(75) $6 $938Operating ActivitiesNet cash provided by operating activities was $ 24.7 million in 2016 , a decrease of $ 19.8 million compared to $44.5 million in 2015 . The decrease resultedprimarily from the higher net loss during 2016 compared to 2015, adjusted for non-cash items such as depreciation and amortization, restaurant impairments,closure costs and asset disposals, and stock-based compensation expense, as well as changes in certain working capital accounts for recording accruals for alitigation settlement and data security liabilities in 2016.Net cash provided by operating activities was $44.5 million in 2015, a decrease of $4.5 million compared to $49.0 million in 2014. The decrease resulted primarilyfrom the net loss during 2015 compared to the net income in 2014, adjusted for non-cash items such as depreciation and amortization, restaurant impairments, andstock-based compensation expense, partially offset by an increase in working capital changes.Investing ActivitiesNet cash used in investing activities was primarily related to new restaurant capital expenditures for the opening of 38 , 51 and 49 company-owned restaurants in2016 , 2015 and 2014 , respectively, as well as infrastructure improvements. The decrease in investing activities in 2016 from 2015 was a result of our decision toreduce new restaurant development during the second half of 2016. The decrease in investing activities in 2015 from 2014 was due to the acquisition of 19franchise restaurants in 2014 and lower average constructions costs in 2015. We used approximately $15.7 million of cash flows for acquisitions in 2014, when weacquired substantially all of the assets of 16 restaurants from our Indiana franchisee and an additional three restaurants from our New Jersey franchisee. See Note2, Business Combinations to the consolidated financial statements for further information with respect to our acquisition activity in 2014 .Financing ActivitiesNet cash provided by financing activities was $ 17.9 million and $ 6.4 million in 2016 and 2015 , respectively. The increase over the prior year is primarily due tolower operating cash flows during 2016, which resulted in the need to increase our borrowings on our revolving line of credit.Net cash provided by financing activities was $6.4 million and $24.0 million in 2015 and 2014, respectively. The decrease over the prior year is primarily due tothe borrowings in 2014 we used to fund the acquisitions of 19 franchise locations.Share Repurchase Program45Table of Contents In June 2015, we announced a share repurchase program of up to $35.0 million of our Class A common stock. Under this program, we purchased shares of theCompany’s Class A common stock in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1under the Exchange Act) or in privately negotiated transactions. During fiscal year 2015, we repurchased 2,423,871 shares of its common stock for $35.0 million inopen market transactions and completed the repurchase program. Repurchased shares are included as treasury stock in the Consolidated Balance Sheets.Credit FacilityWe maintain a $100.0 million revolving line of credit under our credit facility. The revolving line of credit includes a swing line loan of $10.0 million used to fundworking capital requirements. The credit facility matures in June 2020. On August 2, 2016, the Company entered into an amendment to its credit facility to revisethe financial covenant levels and related definitions and make certain other changes, including an increase in the interest rate and commitment fee. All othermaterial terms remained the same. On November 4, 2016, we entered into an amendment to our credit facility to (i) remove the ability to increase the maximumcommitment amount under the credit facility, (ii) require quarterly amortization payments of $2.5 million, with corresponding reductions of commitments,beginning in the third fiscal quarter of 2017, (iii) revise the financial covenant levels and related financial definitions, (iv) reduce certain of the baskets forpermitted indebtedness, (v) add restrictions with respect to capital expenditures and the entry into new leases (as described below), (vi) increase the interest ratemargin and commitment fees and (vii) make certain other changes. The Consolidated EBITDA definition in the amended credit facility will permit up to $1.5million of one-time costs associated with the termination of leases associated with our reduction in development and up to $2.7 million of pro forma general andadministrative cash cost savings resulting from the headcount reduction completed prior to the end of the third fiscal quarter of 2016 to be added back into theEBITDA calculation. The amended credit facility also contains a new negative covenant that requires us to be in compliance with a 5.00x lease-adjusted leverageratio.On February 8, 2017, we entered into an amendment to our credit facility, which amendment (i) restores our ability to request an increase in the maximumcommitment amount under the credit facility by up to $15.0 million, (ii) suspends quarterly amortization payments of $2.5 million until the end of the second fiscalquarter of 2018, (iii) increases the interest rate margin applicable at total lease adjusted leverage levels at and above 4.25:1.00 and from the period of the date of theAmendment to the delivery of the first following quarterly compliance certificate, and (iv) makes certain other changes. The Consolidated EBITDA definition, asrevised, will permit certain costs to be added back into the Consolidated EBITDA calculation, including the costs associated with the Restaurant Closing Liabilitiesand the Data Breach Liabilities. In addition, the amendment provides that upon the completion of one or more equity issuances for an aggregate gross purchaseamount of at least $45.0 million (including the $18.5 million of preferred stock and warrants issued to L Catterton pursuant to the private placement), (i) therequired $2.5 million quarterly amortization payment will be eliminated and (ii) increased capital expenditure amounts related to restaurant growth will bepermitted. The amendment also revises certain financial covenant levels.We had $85.4 million of outstanding indebtedness, $2.7 million of outstanding letters of credit and $11.9 million available for borrowing under our revolving lineof credit as of January 3, 2017 . Borrowings under our most recent amended and restated credit facility bear interest, at our option, at either (i) LIBOR plus 2.00%to 3.25%, based on the lease-adjusted leverage ratio or (ii) the highest of the following rates plus zero to 1.00%: (a) the federal funds rate plus 0.50%; (b) the Bankof America prime rate or (c) the one month LIBOR plus 1.00%. The credit facility includes a commitment fee of 0.30% to 0.50% , based on the lease-adjustedleverage ratio, per year on any unused portion of the facility. We also maintain outstanding letters of credit to secure obligations under our workers’ compensationprogram and certain lease obligations.Availability of borrowings under the revolving line of credit is conditioned on our compliance with specified covenants, including a maximum lease-adjustedleverage ratio and a minimum consolidated fixed charge coverage ratio. We are subject to a number of other customary covenants, including limitations onadditional borrowings, acquisitions, dividend payments and lease commitments. As of January 3, 2017 , we were in compliance with all of our debt covenants. Weexpect that we will meet all applicable financial covenants in our credit facility, including the maximum lease-adjusted leverage ratio, throughout the fiscal yearending January 2, 2018, giving effect to the amendment of our credit facility on February 8, 2017. However, there can be no assurance we will meet such financialcovenants. If such covenants are not met, we would be required to seek a waiver or amendment from the banks participating in the credit facility. There can be noassurance that such waiver or amendment would be granted, which could have a material adverse impact on our liquidity.Our credit facility is secured by a pledge of stock of substantially all of our subsidiaries and a lien on substantially all of our and our subsidiaries’ personal propertyassets.46Table of Contents Contractual ObligationsOur contractual obligations at January 3, 2017 were as follows: Payments Due by Period Total 1 Year 2 - 3Years 4 - 5Years After 5Years (in thousands)Lease obligations (1) $306,802 $50,408 $87,835 $70,163 $98,396Purchase obligations (2) 33,722 21,109 8,491 4,122 —Long-term debt (3) 85,397 — 17,500 67,897 —Other liabilities (4) 3,190 2,299 610 251 30Total contractual obligations $429,111 $73,816 $114,436 $142,433 $98,426_____________(1)We are obligated under non-cancelable leases for our restaurants, administrative offices and equipment. Some restaurant leases provide for contingent rental payments based on salesthresholds, which are excluded from this table. We also include capital leases for computer equipment of approximately $0.7 million.(2)We enter into various purchase obligations in the ordinary course of business. Our binding purchase obligations relate to volume commitments for beverage and food products, aswell as binding commitments for the construction of new restaurants.(3)Reflects full payment of our long-term debt at maturity of our credit facility in 2020. Amounts related to interest expense on our revolving credit facility are not included in the tableabove because the interest rate is variable. See "Liquidity and Capital Resources” for a discussion of the terms of the revolving credit facility.(4)Reflects the expected payments associated with legal fees related to litigation regarding classification of assistant general managers, severance expense and our commitment under ournon-qualified deferred compensation plan.The amount recorded for Data Breach Liabilities is an estimate and the timing of the future payments is not known, and therefore not included in the table above.Off-Balance Sheet ArrangementsWe had no off-balance sheet arrangements or obligations as of January 3, 2017 .Critical Accounting Policies and EstimatesOur consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us tomake estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by theapplication of our accounting policies. Our significant accounting policies are described in Note 1, Business and Summary of Significant Accounting Policies, toour consolidated financial statements. Critical accounting estimates are those that require application of management’s most difficult, subjective or complexjudgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptionsbelieved to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would bereported using different assumptions. We believe the critical accounting policies described below affect our more significant judgments and estimates used in thepreparation of our consolidated financial statements.47Table of Contents Impairment of Long-Lived AssetsWe review long-lived assets, such as property and equipment and intangibles, subject to amortization, for impairment when events or circumstances indicate thecarrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant leveland primarily includes an assessment of historical cash flows and other relevant factors and circumstances. The other factors and circumstances include changes inthe economic environment, changes in the manner in which assets are used, unfavorable changes in legal factors or business climate, incurring excess costs inconstruction of the asset, overall restaurant operating performance and projections for future performance. These estimates result in a wide range of variability on ayear to year basis due to the nature of the criteria. Negative restaurant-level cash flow over the previous 24 to 36 periods is considered a potential impairmentindicator. In such situations, we evaluate future undiscounted cash flow projections in conjunction with qualitative factors and future operating plans. Ourimpairment assessment process requires the use of estimates and assumptions regarding the future undiscounted cash flows and operating outcomes, which arebased upon a significant degree of management’s judgment.In performing our impairment testing, we forecast our future undiscounted cash flows by looking at recent restaurant level performance, restaurant level operatingplans, sales trends and cost trends for cost of sales, labor and operating expenses. We believe that this combination of information gives us a fair benchmark toestimate future undiscounted cash flows. We compare this cash flow forecast to the asset’s carrying value at the restaurant. Based on this analysis, if the carryingamount of the assets is greater than the estimated future undiscounted cash flows, an impairment charge is recognized, measured as the amount by which thecarrying amount exceeds the fair value of the asset.Business Combinations and Intangible Assets Including GoodwillWe account for acquisitions using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed are recorded at their estimated fairvalues at the acquisition date. The excess of purchase price over fair value of net assets acquired, including the amount assigned to identifiable intangible assets, isrecorded as goodwill. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet, it may be several quarters before weare able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial estimates to be subsequently revised. The results of operationsof acquired businesses are included in the consolidated financial statements from the acquisition date. Our recorded identifiable intangible assets primarily includethe estimated value assigned to certain contract‑based assets, primarily favorable or unfavorable lease arrangements, which are amortized on a straight-line basisover the remaining lease terms. At January 3, 2017 , we had goodwill recorded in conjunction with franchise acquisitions of $6.4 million. Under the accountingrules, goodwill is not amortized. Instead, goodwill is subject to annual reviews for impairment on the first day of the fourth fiscal quarter.Self-Insurance ProgramsWe are self-insured for health, workers’ compensation, general and liability and property damage. Predetermined loss limits have been arranged with insurancecompanies to limit our per occurrence cash outlay. Estimated costs to settle reported claims and incurred but unreported claims for health and workers’compensation self-insured plans are recorded in accrued payroll and benefits and for general and liability and property damage in accrued expenses and otherliabilities.Restaurant Closing CostsWe record restaurant closing costs consisting of future lease commitments, net of anticipated sublease rentals and expected ancillary costs. We record a liability forthe net present value of any remaining lease obligations, net of estimated sublease income, at the date we cease using a property. Subsequent adjustments to theliability as a result of changes in estimates of sublease income or lease terminations are recorded in the period incurred. The estimates we make related to subleaseincome are subject to a high degree of judgment and may differ from actual sublease income due to changes in economic conditions, desirability of the sites andother factors.LeasesWe lease all of our restaurant locations. We record rent expense for our leases, which generally have escalating rentals over the term of the lease, on a straight-linebasis over the lease term. The lease term includes renewal options that are reasonably assured. Rent expense begins when we have the right to control the use of theproperty, which is typically before rent payments are due under the lease. We record the difference between the rent expense and rent paid as deferred rent in theConsolidated Balance Sheets. Rent expense for the period prior to the restaurant opening is reported as pre-opening expense in the Consolidated Statements ofOperations. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as reductions of rent expense over the term of thelease.48Table of Contents Certain of our operating leases contain clauses that provide additional contingent rent based on a percentage of sales greater than certain specified target amounts.We recognize contingent rent expense when the achievement of specified targets is considered probable.Recently Issued Accounting PronouncementsRefer to Note 1, Business and Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements of this report.JOBS ActWe qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an “emerging growth company,” we may takeadvantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,”including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduceddisclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation, shareholder advisory votes on golden parachute compensation and the extended transition period for complying with thenew or revised accounting standards. We could be an “emerging growth company” until the end of our 2018 fiscal year.In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided inSection 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoptionof certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extendedtransition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is requiredfor non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with newor revised accounting standards is irrevocable.ITEM 7A. Quantitative and Qualitative Disclosure about Market RiskInterest Rate RiskWe are exposed to market risk from changes in interest rates on debt. Our exposure to interest rate fluctuations is limited to our outstanding bank debt, which bearsinterest at variable rates. As of January 3, 2017 there was $85.4 million in outstanding borrowings under our credit facility. A plus or minus 1.0% in the effectiveinterest rate applied on these loans would have resulted in a pre-tax interest expense fluctuation of approximately $0.9 million on an annualized basis.Commodity Price RiskWe purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and otherfactors which are not considered predictable or within our control. Although these products are subject to changes in commodity prices, certain purchasingcontracts or pricing arrangements contain risk management techniques designed to minimize price volatility. The purchasing contracts and pricing arrangementswe use may result in unconditional purchase obligations, which are not reflected in our Consolidated Balance Sheets. Typically, we use these types of purchasingtechniques to control costs as an alternative to directly managing financial instruments to hedge commodity prices. In many cases, we believe we will be able toaddress material commodity cost increases by adjusting our menu pricing or changing our product delivery strategy. However, increases in commodity prices,without adjustments to our menu prices, could increase restaurant operating costs as a percentage of company-owned restaurant revenue.InflationThe primary inflationary factors affecting our operations are food, labor costs, energy costs and materials used in the construction of new restaurants. Increases inthe minimum wage directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance and utilities, all of which aregenerally subject to inflationary increases. Finally, the cost of constructing our restaurants is subject to inflationary increases in the costs of labor and material.Over the past five years, inflation has not significantly affected our operating results with the exception of increased wage inflation that affected our results in both2016 and 2015. We expect wage inflation to continue to affect our results in the near future.49Table of Contents ITEM 8.Financial Statements and Supplementary DataNoodles & CompanyINDEX TO CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements Consolidated Balance Sheets as of January 3, 2017 and December 29, 201551Consolidated Statements of Operations for the years ended January 3, 2017, December 29, 2015 and December 30, 2014 52Consolidated Statements of Comprehensive Income (Loss) for the years ended January 3, 2017, December 29, 2015 and December 30, 201453Consolidated Statements of Stockholders’ Equity for the years ended January 3, 2017, December 29, 2015 and December 30, 201454Consolidated Statements of Cash Flows for the years ended January 3, 2017, December 29, 2015 and December 30, 201455Notes to Consolidated Financial Statements56Report of Independent Registered Public Accounting Firm76See accompanying notes to consolidated financial statements.50Table of Contents Noodles & CompanyConsolidated Balance Sheets(in thousands, except share and per share data) January 3, 2017 December 29, 2015Assets Current assets: Cash and cash equivalents $1,837 $1,912Accounts receivable 5,438 4,990Inventories 11,285 10,494Prepaid expenses and other assets 6,972 7,185Income tax receivable 256 820Total current assets 25,788 25,401Property and equipment, net 173,533 203,713Deferred tax assets, net — 664Goodwill 6,400 6,400Intangibles, net 1,715 1,809Other assets, net 2,025 1,974Total long-term assets 183,673 214,560Total assets $209,461 $239,961Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $10,601 $15,073Accrued payroll and benefits 10,723 5,417Accrued expenses and other current liabilities 27,709 12,424Total current liabilities 49,033 32,914Long-term debt 84,676 67,732Deferred rent 44,929 39,597Deferred tax liabilities, net 435 —Other long-term liabilities 4,570 5,946Total liabilities 183,643 146,189Commitments and contingencies Stockholders’ equity: Preferred stock—$0.01 par value, authorized 1,000,000 shares as of January 3, 2017 andDecember 29, 2015; no shares issued or outstanding — —Common stock—$0.01 par value, authorized 180,000,000 shares as of January 3, 2017 andDecember 29, 2015; 30,300,925 issued and 27,877,054 outstanding as of January 3, 2017and 30,138,672 issued and 27,714,801 outstanding as of December 29, 2015 303 301Treasury stock, at cost, 2,423,871 shares as of January 3, 2017 and December 29, 2015,respectively (35,000) (35,000)Additional paid-in capital 124,272 120,634Accumulated other comprehensive loss (51) (134)(Accumulated deficit) retained earnings (63,706) 7,971Total stockholders’ equity 25,818 93,772Total liabilities and stockholders’ equity $209,461 $239,961See accompanying notes to consolidated financial statements.51Table of Contents Noodles & CompanyConsolidated Statements of Operations(in thousands, except share and per share data) Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014Revenue: Restaurant revenue $482,544 $450,482 $398,993Franchising royalties and fees 4,930 4,969 4,748Total revenue 487,474 455,451 403,741Costs and expenses: Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Cost of sales 130,630 120,455 107,217Labor 161,219 143,145 120,492Occupancy 55,912 50,300 42,540Other restaurant operating costs 73,011 63,549 52,580General and administrative 55,654 37,244 31,394Depreciation and amortization 28,134 27,802 24,787Pre-opening 3,131 4,407 4,425Restaurant impairments, closure costs and asset disposals 47,311 29,616 1,391Total costs and expenses 555,002 476,518 384,826(Loss) income from operations (67,528) (21,067) 18,915Interest expense, net 2,916 1,432 365(Loss) income before income taxes (70,444) (22,499) 18,550Provision (benefit) for income taxes 1,233 (8,734) 7,122Net (loss) income $(71,677) $(13,765) $11,428(Loss) earnings per Class A and Class B common stock, combined Basic $(2.58) $(0.48) $0.38Diluted $(2.58) $(0.48) $0.37Weighted average Class A and Class B common stock outstanding, combined Basic 27,808,708 28,938,901 29,717,304Diluted 27,808,708 28,938,901 31,001,099See accompanying notes to consolidated financial statements.52Table of Contents Noodles & CompanyConsolidated Statements of Comprehensive Income (Loss)(in thousands) Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014Net (loss) income $(71,677) $(13,765) $11,428Other comprehensive income (loss): Foreign currency translation adjustments 83 (134) —Other comprehensive income (loss) 83 (134) —Comprehensive (loss) income $(71,594) $(13,899) $11,428See accompanying notes to consolidated financial statements.53Table of Contents Noodles & CompanyConsolidated Statements of Stockholders’ Equity(in thousands, except share data) Common Stock (1) (2) Treasury Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Total Stockholders’ Equity Shares Amount Shares Amount Balance—December 31, 2013 29,544,557 $29565,478 $(2,777) $116,647 $— $10,308 $124,473Proceeds from exercise of stock options, warrants andemployee stock purchase plan 275,783 3 — — 2,673 — — 2,676Treasury shares acquired — — 2,108 (71) — — — (71)Tax benefit on exercise of stock options — — — — 253 — — 253Stock-based compensation expense — — — — 1,418 — — 1,418Other — — — — (62) — — (62)Net Income — — — — — — 11,428 11,428Balance—December 30, 2014 29,820,340 298 67,586 (2,848) 120,929 — 21,736 140,115Proceeds from exercise of stock options and employeestock purchase plan 318,332 3 — — 949 — — 952Treasury shares acquired, net — — 2,356,285 (32,152) (2,848) — — (35,000)Stock-based compensation expense — — — — 1,698 — — 1,698Other — — — — (94) — — (94)Net loss — — — — — — (13,765) (13,765)Other comprehensive loss — — — — — (134) — (134)Balance—December 29,2015 30,138,672 3012,423,871(35,000)120,634(134)7,97193,772Proceeds from exercise of stock options and employeestock purchase plan 162,253 2 — — 1,098 — — 1,100Stock-based compensation expense — — — — 2,540 — — 2,540Net loss — — — — — — (71,677) (71,677)Other comprehensive income — — — — — 83 — 83Balance—January 3, 2017 30,300,925 $303 2,423,871 $(35,000) $124,272 $(51) $(63,706) $25,818_____________(1)Unless otherwise noted, activity relates to Class A common stock(2)Includes 1,522,098 shares of Class B common stock for all periods presented.See accompanying notes to consolidated financial statements.54Table of Contents Noodles & CompanyConsolidated Statements of Cash Flows(in thousands) Fiscal Year Ended January 3, 2017 December 29, 2015 December 30, 2014Operating activities Net (loss) income $(71,677) $(13,765) $11,428Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 28,134 27,802 24,787Deferred income taxes, net 1,099 (8,878) 6,330Excess tax benefit on stock-based compensation — — (253)Restaurant impairments, closure costs and asset disposals 45,536 28,927 1,391Amortization of debt issuance costs 140 98 101Stock-based compensation 2,319 1,469 1,330Gain on insurance proceeds received for property damage (494) — —Changes in operating assets and liabilities: Accounts receivable (443) (437) (75)Inventories (790) (1,058) (1,840)Prepaid expenses and other assets 162 (1,025) (1,768)Accounts payable (2,440) 2,794 2,661Deferred rent 5,328 7,143 6,390Income taxes 564 (193) (24)Accrued expenses and other liabilities 17,299 1,629 (1,431)Net cash provided by operating activities 24,737 44,506 49,027Investing activities Purchases of property and equipment (43,335) (50,093) (56,352)Acquisitions of franchise restaurants — (628) (15,708)Insurance proceeds received for property damage 578 — —Net cash used in investing activities (42,757) (50,721) (72,060)Financing activities Net (repayments) borrowings from swing line loan (1,649) 1,846 (813)Proceeds from borrowings on long-term debt 19,800 55,600 97,400Payments on long-term debt (1,000) (16,700) (75,400)Debt issuance costs (347) (249) —Acquisition of treasury stock — (35,000) (71)Proceeds from exercise of stock options and employee stock purchase plan 1,100 952 2,676Excess tax benefit on stock-based compensation — — 253Other financing activities — (94) (74)Net cash provided by financing activities 17,904 6,355 23,971Effect of exchange rate changes on cash 41 (134) —Net increase in cash and cash equivalents (75) 6 938Cash and cash equivalents Beginning of year 1,912 1,906 968End of year $1,837 $1,912 $1,906See accompanying notes to consolidated financial statements.55Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Business and Summary of Significant Accounting PoliciesBusinessNoodles & Company (the “Company” or “Noodles & Company”), a Delaware corporation, develops and operates fast casual restaurants that serve globallyinspired noodle and pasta dishes, soups, salads and appetizers. As of January 3, 2017 , the Company had 457 company-owned restaurants and 75 franchiserestaurants in 35 states, the District of Columbia and one Canadian province. The Company operates its business as one operating and reportable segment.Principles of Consolidation and Basis of PresentationThe accompanying consolidated financial statements include the accounts of Noodles & Company and its subsidiaries. All intercompany balances and transactionsare eliminated in consolidation.As permitted by the SEC under Release No. 34-78041, the Company has used Inline eXtensible Business Reporting Language (Inline XBRL) to provide ourconsolidated financial statements to the SEC. This information is not part of the financial statements and is unaudited.Fiscal YearThe Company operates on a 52 - or 53 -week fiscal year ending on the Tuesday closest to December 31. Fiscal year 2016 , which ended on January 3, 2017 ,contained 53 weeks, and fiscal years 2015 and 2014 , which ended on December 29, 2015 and December 30, 2014 , respectively, each contained 52 weeks.EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America(“GAAP”) requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of thedate of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.Cash and Cash EquivalentsThe Company considers all highly liquid investment instruments with an initial maturity of three months or less when purchased to be cash equivalents. Amountsreceivable from credit card processors are converted to cash shortly after the related sales transaction and are considered to be cash equivalents because they areboth short-term and highly liquid in nature. Amounts receivable from credit card processors as of January 3, 2017 and December 29, 2015 were $1.1 million and$1.3 million , respectively, and were offset on the Consolidated Balance Sheets by outstanding checks. Book overdrafts, which are outstanding checks in excess ofcash and cash equivalents, are recorded within accounts payable in the accompanying consolidated balance sheets and within operating activities in theaccompanying statements of cash flows.Accounts ReceivableAccounts receivable consists primarily of tenant improvement receivables and vendor rebates, as well as amounts due from franchisees and other miscellaneousreceivables arising from the normal course of business. The Company believes all amounts to be collectible. Accordingly, no allowance for doubtful accounts hasbeen recorded as of January 3, 2017 or December 29, 2015 .InventoriesInventories consist of food, beverages, supplies and smallwares, and are stated at the lower of cost (first-in, first-out method) or market. Smallwares inventory,which consist of the plates, silverware and cooking utensils used in the restaurants, are frequently replaced and are therefore considered current assets.Replacement costs of smallwares inventory are recorded as other restaurant operating costs in the Consolidated Statements of Operations and are expensed asincurred. As of January 3, 2017 and December 29, 2015 , smallwares inventory of $7.3 million and $6.7 million , respectively, were included in the accompanyingConsolidated Balance Sheets.56Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Property and EquipmentProperty and equipment are stated at cost, less accumulated depreciation. Expenditures for major renewals and improvements are capitalized, while expendituresfor minor replacements and maintenance and repairs are expensed as incurred. Upon retirement or disposal of assets, the accounts are relieved of cost andaccumulated depreciation and the related gain or loss is reflected in earnings. Depreciation is calculated using the straight-line method over the estimated usefullives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term, which generally includes option periodsthat are reasonably assured to be exercised. Depreciation and amortization expense on property and equipment, including assets under capital lease, was $28.1million in 2016 , $27.8 million in 2015 and $24.8 million in 2014 .The estimated useful lives for property and equipment are:Property and Equipment Estimated Useful LivesLeasehold improvements Shorter of lease term or estimated useful life, not to exceed 20 yearsFurniture and fixtures 3 to 15 yearsEquipment 3 to 7 yearsThe Company capitalizes internal payroll and payroll-related costs directly related to the successful acquisition, development, design and construction of its newrestaurants. Capitalized internal costs were $2.4 million , $3.0 million and $2.9 million in 2016 , 2015 and 2014 , respectively. Interest incurred on funds used toconstruct company-owned restaurants is capitalized and amortized over the estimated useful life of the related assets. Capitalized interest totaled $0.3 million in2016 and $ 0.4 million in both 2015 and 2014 .GoodwillGoodwill represents the excess of purchase price over the fair value of identifiable net assets acquired. Goodwill is not subject to amortization, but instead is testedfor impairment at least annually (or more often, if necessary) as of the first day of the Company’s fourth fiscal quarter.Goodwill is evaluated at the level of the Company’s single operating segment, which also represents the Company’s only reporting unit. Step one of theimpairment test is based upon a comparison of the carrying value of net assets, including goodwill balances, to the fair value of net assets. Fair value is measuredusing a combination of the income approach and the market approach. The income approach consists of utilizing the discounted cash flow method that incorporatesthe Company’s estimates of future revenues and costs, discounted using a risk-adjusted discount rate. The Company’s estimates used in the income approach areconsistent with the plans and estimates used to manage operations. The market approach utilizes multiples of profit measures to estimate the fair value of theassets. The Company evaluates all methods to ensure reasonably consistent results. Additionally, the Company evaluates the key input factors in the model used todetermine whether a moderate change in any input factor or combination of factors would significantly change the results of the tests. Based on the Company’sanalysis, no impairment charges were recognized on goodwill for the fiscal years ended 2016, 2015 and 2014.However, an impairment charge may be triggered in the future if sales in the Company’s restaurants decline significantly, or if there are significant adversechanges in the operating environment of the restaurant industry.Intangibles, netIntangibles, net consists primarily of reacquired franchise rights, favorable lease agreements, trademarks and transferable liquor licenses. The Company amortizesthe fair value of reacquired franchise rights over the remaining contractual terms of the reacquired franchise area development agreements at the time ofacquisition, which ranged from approximately nine years to 17 years as of January 3, 2017 . The Company amortizes the fair value of favorable lease agreementsover the remaining related lease terms at the time of the acquisition, which ranged from approximately three years to 12 years as of January 3, 2017 . Trademarkrights are considered indefinite-lived intangible assets, the carrying value of which is analyzed for impairment at least annually (or more often, if necessary).Transferable liquor licenses are carried at the lower of cost or fair value and are evaluated annually for impairment or whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable.57Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Impairment of Long-Lived AssetsLong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by theassets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities,generally at the restaurant level. If the assets are determined to be impaired, the amount of impairment recognized is measured by the amount by which the carryingamount of the assets exceeds their fair value. Estimates of future cash flows are based on the Company’s experience and knowledge of local operations. During2016 , 2015 and 2014 , the Company recorded impairment charges of certain long-lived assets which are included in restaurant impairments, closure costs andasset disposals in the Consolidated Statements of Operations. See Note 7, Restaurant Impairments, Closure Costs and Asset Disposals . Fair value of the restaurantswas determined using Level 3 inputs (as described in Note 6, Fair Value Measurements).Debt Issuance CostsCertain fees and costs incurred to obtain long-term financing are capitalized and included as a reduction in the net carrying value of long-term debt, net ofaccumulated amortization. These costs are amortized to interest expense over the term of the related debt. When debt is extinguished prior to its maturity date, theamortization of the remaining unamortized debt issuance costs, or pro-rata portion thereof, is charged to loss on extinguishment of debt. Debt issuance costs of $0.7million and $0.5 million , net of accumulated amortization, as of January 3, 2017 and December 29, 2015 , respectively, are included as a reduction of long-termdebt in the Consolidated Balance Sheets.Self-Insurance ProgramsThe Company self-insures for health, workers’ compensation, general liability and property damage. Predetermined loss limits have been arranged with insurancecompanies to limit the Company’s per occurrence cash outlay. Estimated costs to settle reported claims and incurred but unreported claims for health and workers’compensation self-insured plans are recorded in accrued payroll and benefits and for general liability and property damage in accrued expenses and other liabilitiesin the Consolidated Balance Sheets.Concentrations of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.The Company’s cash balances may exceed federally insured limits. Credit card transactions at the Company’s restaurants are processed by one service provider.Concentration of credit risk related to accounts receivable are limited, as the Company’s receivables are primarily amounts due from landlords for thereimbursement of tenant improvements and the Company generally has the right to offset rent due for tenant improvement receivables.Revenue RecognitionRevenue consists of sales from restaurant operations and franchise royalties and fees. Revenue from the operation of company-owned restaurants are recognizedwhen sales occur. The Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing authorities.The Company sells gift cards which do not have an expiration date, and it does not deduct non-usage fees from outstanding gift card balances. The Companyrecognizes revenue from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed bythe customer is remote (“gift card breakage”). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. TheCompany has determined that approximately 6% of gift cards will not be redeemed, which is recognized ratably over the estimated redemption period of the giftcard, approximately 18 months. The Company recognized gift card breakage in restaurant revenue of $0.3 million in 2016 , $0.3 million in 2015 and $0.2 millionin 2014 .Royalties from franchise restaurants are based on a percentage of restaurant revenues and are recognized in the period the related franchised restaurants’ salesoccur. Development fees and franchise fees, portions of which are collected in advance, are nonrefundable and are recognized in income when all material servicesor conditions relating to the sale of the franchise have been substantially performed or satisfied by the Company. Both franchise fees and development fees willgenerally be recognized upon the opening of a franchise restaurant or upon termination of the agreement(s) between the Company and the franchisee.As of January 3, 2017 , December 29, 2015 and December 30, 2014 , there were 75 , 70 and 53 franchise restaurants in operation, respectively. Franchiseesopened 6 , 19 and 10 restaurants in 2016 , 2015 and 2014 , respectively. The Company purchased from franchisees 19 restaurants in 2014 (see Note 2, BusinessCombinations) and one in 2015.58Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Pre-Opening CostsPre-opening costs, including rent, wages, benefits and travel for the training and opening teams, food, beverage and other restaurant operating costs, are expensedas incurred prior to a restaurant opening for business.Advertising and Marketing CostsAdvertising and marketing costs are expensed as incurred and aggregated $10.0 million , $8.0 million and $4.4 million in 2016 , 2015 and 2014 , respectively.These costs are included in restaurant operating costs, general and administrative expenses and pre-opening costs based on the nature of the advertising andmarketing costs incurred.RentRent expense for the Company’s leases, which generally have escalating rentals over the term of the lease, is recorded on a straight-line basis over the lease term.The lease term includes renewal options which are reasonably assured of being exercised and begins when the Company has control and possession of the leasedproperty, which is typically before rent payments are due under the lease. The difference between the rent expense and rent paid is recorded as deferred rent in theConsolidated Balance Sheets. Rent expense for the period prior to the restaurant opening is reported in pre-opening costs in the Consolidated Statements ofOperations. Tenant incentives used to fund leasehold improvements are recorded in deferred rent and amortized as a reduction of rent expense over the term of thelease. Certain leases contain rental provisions based on the sales of the underlying restaurants; the Company has determined that the amount of these provisions isimmaterial.Provision (Benefit) for Income TaxesProvision (benefit) for income taxes is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which those deferred amounts are expected to be recovered or settled. Valuation allowances are recorded for deferred tax assets that more likely than notwill not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.The Company’s policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in provision(benefit) for income taxes in the Consolidated Statements of Operations.Stock-Based Compensation ExpenseStock-based compensation expense is measured at the grant date based upon the estimated fair value of the portion of the award that is ultimately expected to vestand is recognized as expense over the applicable vesting period of the award generally using the straight-line method (see Note 10, Stock-Based Compensation formore information).Foreign Currency TranslationThe Canadian dollar is the functional currency for the Company’s Canadian restaurant operations. Assets and liabilities denominated in Canadian dollars aretranslated into U.S. dollars at exchange rates in effect as of the balance sheet dates. Income and expense accounts are translated using the average exchange ratesprevailing throughout the period. Translation adjustments from currency exchange are recorded in accumulated other comprehensive income (loss) as a separatecomponent of stockholders’ equity. Gains or losses from foreign currency transactions are recognized in the Consolidated Statements of Operations.ReclassificationCertain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The Company changed itspresentation on the Consolidated Statements of Cash Flows of borrowings and repayments from its swing line loan to a net basis, which had no impact on the netchange in cash and cash equivalents or the amount of net cash provided by financing activities for all applicable prior periods presented. These reclassifications hadno effect on reported net income (loss).Recently Issued Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirementsin Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” This ASU is based on the principle that revenue is recognized to depict the transfer ofgoods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. TheASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including59Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASUNo. 2015-14, which defers the effective date of the new revenue standard by one year, and would allow entities the option to early adopt the new revenue standardas of the original effective date. There have been multiple standards updates amending this guidance or providing corrections or improvements on issues in theguidance. The requirements for these standards relating to Topic 606 will be effective for interim and annual periods beginning after December 15, 2017. Earlyadoption is permitted for interim and annual periods beginning after December 15, 2016. The Company expects to adopt these standards upon their effective date(the Company’s first quarter of fiscal 2018), using one of two retrospective application methods. The Company does not believe the new revenue recognitionstandard will materially impact its recognition of revenue from restaurant operations of company-owned restaurants or its recognition of continuing royalty feesfrom franchisees. The Company believes adoption of the new revenue recognition standard will impact its accounting for initial fees charged to franchisees. TheCompany is currently evaluating the impact the adoption of this accounting standard will have on its consolidated financial statements and related disclosures andis determining the appropriate transition method.In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330).” The pronouncement was issued to simplify the measurement of inventory and changesthe measurement from lower of cost or market to lower of cost and net realizable value. This pronouncement is effective for reporting periods beginning afterDecember 15, 2016 (the Company’s first quarter of fiscal 2017) and is required to be adopted prospectively. The Company will adopt this standard at the beginningof fiscal 2017 and the adoption is not expected to have a material impact on the Company’s financial position or results of operations and cash flows.In February 2016, the FASB issued ASU No. 2016-06, “Leases.” The pronouncement amends the existing accounting standards for lease accounting, includingrequiring lessees to recognize most leases on their balance sheet and making targeted changes to lessor accounting. This pronouncement will be effective forinterim and annual periods beginning after December 15, 2018 (the Company’s first quarter of fiscal 2019), with early adoption permitted. The new leases standardrequires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certaintransition relief. The Company believes the adoption of ASU No. 2016-02 will have a significant impact on its consolidated balance sheets by significantlyincreasing its non-current assets and non-current liabilities in order to record the right of use assets and related lease liabilities for its existing operating leases. TheCompany is currently evaluating the impact the adoption of this accounting standard will have on its results of operations and cash flows and related disclosures.In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting,” which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences,classification of awards as either equity or liabilities and classification of awards on the statement of cash flows. The pronouncement is effective for annual periodsbeginning after December 15, 2016 (the Company’s first quarter of fiscal 2017) and interim periods therein. The Company will adopt this standard at the beginningof fiscal 2017 and the adoption will impact our accounting for excess tax benefits and deficiencies as all excess tax benefits and deficiencies will be recognizedwithin the provision (benefit) for income taxes line item in the Company’s Consolidated Statements of Operations in the period in which they occur. The Companyhas elected the prospective method of transition and, except as described above, does not expect the provisions of ASU 2016-09 to have an impact on theCompany’s consolidated financial position or results of operations.In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.” ASU 2016-16 provide guidance onthe income tax consequences of an intra-entity transfer of an asset other than inventory. The guidance is effective for interim and annual periods beginning afterDecember 15, 2017. Early adoption is permitted for any entity as of the beginning of an annual reporting period for which financial statements (interim or annual)have not been issued or made available for issuance. The Company is currently evaluating the impact of the guidance, but does not believe it will materially impactthe Company’s financial position or results of operations and cash flows.Recently Adopted Accounting PronouncementsIn August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties aboutan Entity’s Ability to Continue as a Going Concern.” This update requires management of the Company to evaluate whether there is substantial doubt about theCompany’s ability to continue as a going concern. This update is effective for the annual period ending after December 15, 2016 and for annual and interim periodsthereafter. Early adoption is permitted. The Company adopted this standard as of January 3, 2017.In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for FeesPaid in a Cloud Computing Arrangement.” The pronouncement was issued to provide guidance concerning accounting for fees in a cloud computing arrangement.The update is effective for reporting periods beginning after December 15, 2015. The Company adopted this guidance prospectively as of January 3, 2017.60Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” Thestandard provides guidance for eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with theobjective of reducing diversity in practice. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017 (theCompany’s first quarter of fiscal 2018), with early adoption permitted. The Company adopted this accounting standard as of January 3, 2017 and the adoption didnot have a significant impact on the Company's Consolidated Statements of Cash Flows.2. Business CombinationsDuring 2014, the Company acquired 19 restaurants from its franchisees, through two separate transactions. The total cash purchase price was $15.7 million and theCompany incurred acquisition costs related to the transactions of $ 0.1 million reflected in General and Administrative expense for the year ended December 30,2014. The Consolidated Statements of Operations include the results of operations for the restaurants from the date of acquisition. The pro forma impact of theacquisitions is not presented as the impact was not material to reported results.The acquisition of the 19 restaurants was accounted for using the purchase method as defined in ASC 805, Business Combination . The goodwill generated by theacquisitions is not amortizable for book purposes but is amortizable and deductible for tax purposes. The assets acquired and liabilities assumed were recordedbased on their fair values at the time of the acquisitions, as detailed below (in thousands): Fair Value at December30, 2014Inventories $352Prepaid expenses and other assets 33Deferred tax asset 142Property and equipment 7,564Intangibles 1,567Goodwill 6,400Deferred rent and other liabilities (319)Total purchase price $15,739Of the $1.6 million of intangible assets, $1.4 million were related to reacquired franchise rights, which are being amortized on a straight-line basis over an averagelife of approximately 16 years and $0.2 million were related to favorable leases, which are being amortized on a straight-line basis over an average life of nineyears . The unfavorable leases, which were included in deferred rent in the accompanying Consolidated Balance Sheets, are being amortized on a straight-line basisover an average period of 11 years .3. Supplemental Financial InformationAccounts receivable consist of the following (in thousands): 2016 2015Tenant improvement receivables $1,205 $2,705Vendor rebate receivables 1,590 840Franchise and other receivables 2,643 1,445 $5,438 $4,99061Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Prepaid expenses and other assets consist of the following (in thousands): 2016 2015Prepaid occupancy related costs $4,405 $4,947Other prepaid expenses 2,364 2,019Other current assets 203 219 $6,972 $7,185Property and equipment, net, consist of the following (in thousands): 2016 2015Leasehold improvements $205,687 $216,474Furniture, fixtures and equipment 120,248 120,132Construction in progress 8,044 11,485 333,979 348,091Accumulated depreciation and amortization (160,446) (144,378) $173,533 $203,713Accrued payroll and benefits consist of the following (in thousands): 2016 2015Accrued payroll and related liabilities $6,935 $3,211Accrued bonus 1,460 774Insurance liabilities 2,328 1,432 $10,723 $5,417Accrued expenses and other current liabilities consist of the following (in thousands): 2016 2015Gift card liability $3,857 $3,348Occupancy related 2,069 3,446Utilities 1,753 1,462Data breach liabilities (Note 15) 11,622 —Legal settlement (Note 15) 3,000 —Other accrued expenses 5,408 4,168 $27,709 $12,42462Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)4. Goodwill and Intangible AssetsThe following table presents goodwill as of January 3, 2017 and December 29, 2015 , (in thousands): 2016 2015Balance at beginning of year $6,400 $6,400Acquisitions — —Balance at end of year $6,400 $6,400The Company has had no goodwill impairment losses in the periods presented in the above table.The following table presents intangible assets subject to amortization as of January 3, 2017 and December 29, 2015 , (in thousands): 2016 2015Amortized intangible assets: Reacquired franchise rights $1,306 $1,306Favorable leases 185 185Less accumulated amortization (277) (164) 1,214 1,327Non-amortized intangible assets: Trademark rights and transferable liquor licenses 501 482 $1,715 $1,809The estimated aggregate future amortization expense as of January 3, 2017 is as follows, (in thousands):2017 $1112018 1112019 1092020 1072021 106Thereafter 670 $1,214No impairment charges were recorded related to non-amortized intangible assets in fiscal years 2016, 2015 or 2014.5. Long-Term DebtThe Company has a credit facility with a borrowing capacity of $100.0 million , expiring in June 2020. As of January 3, 2017 , the Company had $85.4 million ofindebtedness and $11.9 million available for borrowing under the credit facility, which is net of outstanding letters of credit aggregating $2.7 million which reducethe amount available to borrow. The Company’s ability to borrow funds pursuant to the revolving line of credit is further limited by the requirement that it complywith the revolving line of credit’s financial covenants upon the measurement dates specified therein. These financial covenants include a maximum lease-adjustedleverage ratio and a minimum consolidated fixed charge coverage ratio. The credit agreement also contains other customary covenants, including limitations onadditional borrowings, acquisitions, dividend payments and lease commitments.On August 2, 2016, the Company entered into an amendment to its credit facility to revise the financial covenant levels and related definitions and make certainother changes, including an increase in the interest rate and commitment fee. All other material terms remained the same.On November 4, 2016, the Company entered into an amendment to its credit facility to (i) remove the ability to increase the maximum commitment amount underthe credit facility, (ii) require quarterly amortization payments of $2.5 million , with correspondingreductions of commitments, beginning in the third fiscal quarter of 2017, (iii) revise the financial covenant levels and related financial definitions (as describedbelow), (iv) reduce certain of the baskets for permitted indebtedness, (v) add restrictions with respect to capital expenditures and the entry into new leases (asdescribed below), (vi) increase the interest rate margin and commitment fees and (vii) make certain other changes. The Consolidated EBITDA definition in theamended credit facility permitted up to $1.5 million of one-time costs associated with the termination of leases associated with the Company’s reduction indevelopment and up to $2.7 million of pro forma general and administrative cash cost savings resulting from the headcount reduction completed prior to the end ofthe third fiscal quarter of 2016 to be added back into the EBITDA calculation. The credit facility amendment increased the maximum lease-adjusted leverage ratioto 5.50 x, and it provided for such ratio to step down to 5.25 x in the second fiscal quarter of 2017, 5.00 x in the fourth fiscal quarter of 2017 and 4.75 x in thesecond fiscal quarter of 2018. The amendment also reduced the minimum fixed charge coverage level from 1.50 x to 1.15 x (stepping up to 1.25 x in the third fiscalquarter of 2017). Growth capital expenditures (such as expenditures for new restaurants and acquisitions) were limited under the amended credit facility to $4.0million in the fourth fiscal quarter of 2016 and to $10.0 million in each fiscal year thereafter, and there was a test of availability under the line of credit for anyborrowings the proceeds of which were to be used for such growth capital expenditures. The amended credit facility also contained a new negative covenant thatrequired the Company to be in compliance with a 5.00 x lease-adjusted leverage ratio or have liquidity of at least $10.0 million to enter into leases for newrestaurants. Certain of the revisions to the financial covenants and financial covenant definitions in the credit facility amendment provided the Company with moreflexibility; however, certain other terms of the amended credit facility, and specifically the added restrictions with respect to capital expenditures and the entry intonew leases, had the possibility of restricting the Company’s activities, particularly development of new restaurants. Borrowings under the amended and restatedcredit facility bore interest, at the Company’s option, at either (i) LIBOR plus 2.00% to 3.00% , based on the lease-adjusted leverage ratio or (ii) the highest of thefollowing rates plus zero to 1.00% : (a) the federal funds rate plus 0.50% ; (b) the Bank of America prime rate or (c) the one month LIBOR plus 1.00% . The creditfacility included a commitment fee of 0.30% to 0.50% , based on the lease-adjusted leverage ratio, per year on any unused portion of the credit facility.On February 8, 2017, the Company entered into an amendment to its credit facility. Among other things, the amendment (i) restores the Company’s ability torequest an increase in the maximum commitment amount under the credit facility by up to $15.0 million , (ii) suspends quarterly amortization payments of $2.5million until the end of the second fiscal quarter of 2018, (iii) increases the interest rate margin applicable at total lease adjusted leverage levels at and above 4.25:1.00 and from the period of the date of Amendment to the delivery of the first following quarterly compliance certificate, and (iv) makes certain other changes.The Consolidated EBITDA definition, as revised, will permit certain costs to be added back into the Consolidated EBITDA calculation, including costs associatedwith closing underperforming restaurants in 2017 (fees to landlords resulting from the termination of the Company’s leases for such restaurants, the fees to its realestate advisor and brokers related to such terminations and other costs of closing restaurants, such as severance for terminated employees) and liabilities associatedwith the data security incident that occurred in 2016 (as described in greater detail in Note 15, Commitments and Contingencies). In addition, the amended creditfacility provides that upon the completion of one or more equity issuances for an aggregate gross purchase amount of at least $45.0 million (including the $18.5million of preferred stock and warrants issued to L Catterton pursuant to the private placement), (i) the required $2.5 million quarterly amortization payment willbe eliminated and (ii) increased capital expenditure amounts related to restaurant growth will be permitted. This amendment also revises certain financial covenantlevels. Borrowings under this amended and restated agreement bear interest, at the Company’s option, at either (i) LIBOR plus 2.00% to 3.25% , based on thelease-adjusted leverage ratio or (ii) the highest of the following rates plus zero to 1.00% : (a) the federal funds rate plus 0.50% ; (b) the Bank of America prime rateor (c) the one month LIBOR plus 1.00% . The credit facility includes a commitment fee of 0.30% to 0.50% , based on the lease-adjusted leverage ratio, per year onany unused portion of the credit facility.The credit facility bore interest at a range of 2.49% to 5.75% during 2016 . The Company recorded interest expense of $2.9 million , $1.4 million and $0.4 millionfor 2016, 2015 and 2014, respectively, of which $0.1 million was amortization of debt issuance costs in each of the respective years.The aggregate annual maturities for the debt obligations, considering the latest amendment to the credit facility, are as follows (in thousands):2017$—20187,500201910,000202067,897 $85,39763Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of January 3, 2017 , the Company was in compliance with all of its debt covenants.The credit facility is secured by a pledge of stock of substantially all of the Company’s subsidiaries and a lien on substantially all of the personal property assets ofthe Company and its subsidiaries.6. Fair Value MeasurementsThe carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The carrying amounts of borrowings approximate fair value as the line of credit and term borrowings vary with market interest rates and negotiatedterms and conditions are consistent with current market rates. The fair value of the Company’s line of credit borrowings is measured using Level 2 inputs.Adjustments to the fair value of non-financial assets measured at fair value on a non-recurring basis as of January 3, 2017 and December 30, 2015 are discussed inNote 7, Restaurant Impairments, Closure Costs and Asset Disposals.Assets and Liabilities Measured at Fair ValueThe fair values are assigned a level within the fair value hierarchy, depending on the source of the inputs into the calculation.Level 1 —Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.Level 2 —Quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset orliability.Level 3 —Prices or valuation techniques which require inputs that are both significant to the fair value measurement and unobservable ( i.e. , supported by little orno market activity).7. Restaurant Impairments, Closure Costs and Asset DisposalsThe following table presents restaurant impairments, closure costs and asset disposals for fiscal years 2016 , 2015 and 2014 (in thousands): 2016 2015 2014Restaurant impairments (1)$41,615 $25,436 $57Closure costs (1)2,251 3,076 91Loss on disposal of assets and other (2)3,445 1,104 1,243 $47,311 $29,616 $1,391_____________________________(1)Restaurant impairments and closure costs can include expenditures related to restaurants previously impaired or closed.(2)Included in loss on disposal of assets and other for the fiscal year 2016 is a $1.1 million charge to reduce capitalized labor and overhead as a result of the reduced growthfor new restaurant development and a $0.5 million gain from insurance proceeds received for property damage in excess of the loss recognized.Restaurant ImpairmentsDuring fiscal year 2016 , 54 restaurants were identified as impaired, primarily related to management’s current assessment of the expected future cash flows ofvarious restaurants based on recent results. During fiscal year 2015, 39 restaurants were identified as impaired. Fifteen of the 39 restaurants impaired in fiscal year2015 were also closed in that year (see discussion under restaurant closures below). Additionally, the Company anticipates closing approximately 55 of suchimpaired restaurants in 2017.In performing its impairment testing, the Company forecasts the future undiscounted cash flows by looking at recent restaurant level performance, restaurant leveloperating plans, sales trends and cost trends for cost of sales, labor and operating expenses. The Company compares this cash flow forecast to the asset’s carryingvalue at the restaurant. Based on this analysis, if the carrying amount of the assets is greater than the estimated future undiscounted cash flows, an impairmentcharge is recognized, measured as64Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)the amount by which the carrying amount exceeds the fair value of the asset. The fair value is determined based on a discounted cash flows analysis using adiscount rate of 10% or at salvage value if expected cash flows are not material. The measurement of an impairment charge is a Level 3 fair value measure. Thesecharges are included in the restaurant impairments, closure costs and asset disposals line item in the Consolidated Statements of Operations.Restaurant ClosuresDuring fiscal year 2015 , the Company closed 16 restaurants that operated below acceptable profitability levels. The Company recognized $2.3 million , $3.1million and $0.1 million of closure costs in fiscal years 2016 , 2015 and 2014 , respectively. The closure costs recognized during 2016 are primarily related to theongoing costs of restaurants closed in during 2015, including fees from real estate advisors and brokers related to terminations of the leases and charges resultingfrom final adjustments to liabilities as lease terminations occur.The Company provides for closed restaurant operating lease liabilities using a discount rate of 4.45% to calculate the present value of the remaining non-cancelablelease payments after the closing date, net of estimated subtenant income. The following table contains a summary of the changes in the liability for closedrestaurants as of January 3, 2017 and December 29, 2015 (in thousands): 2016 2015Closed restaurant reserves, beginning of period $4,746 $444Additions—restaurant closing costs recognized and accretion 858 4,518Decreases—payments (3,724) (216)Closed restaurant reserves, end of period $1,880 $4,746The current portion of the liability, $0.9 million and $2.4 million as of January 3, 2017 and December 29, 2015 , respectively, is included in accrued expenses andother current liabilities, and the long-term portion is reported in other long-term liabilities in the Company’s Consolidated Balance Sheets.8. Income TaxesThe following table presents the domestic and foreign components of income (loss) before income taxes (in thousands): 2016 2015 2014Domestic (loss) income $(67,626) $(21,674) $18,586Foreign loss (2,818) (825) (36) $(70,444) $(22,499) $18,550The components of the provision (benefit) for income taxes are as follows for 2016 , 2015 and 2014 (in thousands): 2016 2015 2014Current tax provision: Federal $— $— $—State 134 144 792Foreign — — — 134 144 792Deferred tax provision (benefit): Federal (1,979) (7,169) 5,662State 2,854 (1,495) 668Foreign 224 (214) — 1,099 (8,878) 6,330Total provision (benefit) for income taxes $1,233 $(8,734) $7,12265Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The reconciliation of income tax provision (benefit) that would result from applying the federal statutory rate to pre-tax income as shown in the accompanyingConsolidated Statements of Operations is as follows for 2016 , 2015 and 2014 (in thousands): 2016 2015 2014Federal income tax (benefit) expense at federal rate $(23,740) $(7,650) $6,299State income tax expense (benefit), net of federal tax (2,975) (960) 972Other permanent differences 996 378 170Foreign rate differential 214 66 6Tax credits (749) (423) (241)Change in valuation allowance 27,353 — —Other items, net 134 (145) (84)Provision (benefit) for income taxes $1,233 $(8,734) $7,122Effective income tax rate (1.8)% 38.8% 38.4%In 2016 and 2015 , the Company did not recognize any tax benefits on option exercises at fair value in excess of those utilized to record stock-based compensationfor book purposes. In 2014 , the Company recognized $0.3 million of tax benefits on option exercises at fair value in excess of those utilized to record stock-basedcompensation for book purposes as a credit to additional paid-in capital.The Company’s total deferred tax assets and liabilities are as follows (in thousands): 2016 2015Deferred tax assets $46,975 $30,748Deferred tax liabilities (47,410) (30,084)Total deferred tax (liabilities) assets, net $(435) $664Deferred income taxes arise because of the differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consistof the following (in thousands): 2016 2015Deferred tax assets (liabilities): Loss carry forwards $14,046 $4,234Deferred rent and franchise revenue 17,753 15,802Property, equipment and intangible assets (14,130) (24,950)Stock-based compensation 2,802 2,833Tax credit carry forwards 2,636 1,609Inventory smallwares (2,805) (2,589)Other accrued expenses 5,022 2,124Other 1,594 1,601Total net deferred tax assets 26,918 664 Valuation allowance (27,353) —Net deferred tax (liabilities) assets $(435) $664During 2016, the Company determined that it was appropriate to record a valuation allowance of $27.4 million against U.S. and Canadian deferred tax assets dueto uncertainty regarding the realizability of future tax benefits. The valuation allowance was recorded against net deferred tax assets, exclusive of indefinite-livedintangibles. The Company will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. Thereversal of a previously recorded valuation allowance will generally result in a benefit to the effective tax rate. The effective tax rate for fiscal year 2016 reflectsthe impact of a valuation allowance on deferred tax assets, which was not recorded for the fiscal year 2015 .66Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)As of January 3, 2017 and December 29, 2015 , net operating loss (“NOL”) carry forwards for federal income tax purposes of approximately $60.0 million and$34.0 million , respectively, were available to offset future taxable income through the year 2036 and 2035, respectively. These NOL carry forwards include excesstax deductions for equity compensation. The Internal Revenue Code Section 382 generally limits the utilization of NOLs when there is an ownership change. TheCompany has not completed an analysis of ownership changes through January 3, 2017 and prior to the utilization of NOLs in the future the Company willcomplete a Section 382 study to determine whether there are any limitations. If such a limitation exists, it is possible that a portion of the NOLs may not beavailable for use before expiration. As a result of certain realization requirements of ASC 718, the deferred tax assets shown above include only realized taxdeductions related to equity compensation recognized for financial reporting during the years ended January 3, 2017 and December 29, 2015 . Equity will beincreased by up to $8.5 million if and when the NOL is ultimately realized.Uncertain tax positions are recognized if it is more likely than not that the Company will be able to sustain the tax position taken, and the measurement of thebenefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company has analyzed filing positions inall of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.There were no uncertain tax positions for the years ended January 3, 2017 or December 29, 2015 . The only periods subject to examination for the Company’sfederal, foreign and state returns are 2012 through 2015.9. Stockholders’ EquityOn June 4, 2015, the Company announced a share repurchase program of up to $35.0 million of the Company’s Class A common stock. Under this program, theCompany purchased shares of the Company’s Class A common stock in the open market (including in pre-arranged stock trading plans in accordance with theguidelines specified in Rule 10b5-1 under the Exchange Act) or in privately negotiated transactions. During fiscal year 2015 , the Company repurchased 2,423,871shares of its common stock for approximately $35.0 million in open market transactions, thereby completing the repurchase program. Repurchased shares areincluded as treasury stock in the Consolidated Balance Sheets.The Company has 181,000,000 shares of stock authorized, consisting of 150,000,000 shares of Class A common stock, par value $0.01 per share; 30,000,000shares of Class B common stock, par value $0.01 and 1,000,000 shares of preferred stock, par value $0.01 per share. Preferred stock rights will be determined bythe Company’s Board of Directors in the event that preferred shares are issued. The following summarizes the rights of common stock:Voting —Shares of Class A common stock and Class B common stock are entitled to one vote per share in all voting matters, with the exception that Class Bcommon stock does not vote on the election or removal of directors.Conversion —Each share of Class A common stock held by either one of L Catterton Partners or Argentia Private Investments Inc. or their affiliates the (“EquitySponsors”) is convertible, at the option of the holder, into one share of Class B common stock. Each share of Class B common stock is convertible, at the option ofthe holder, into one share of Class A common stock.Dividends —A Class C dividend agreement was entered in connection with the Merger Agreement between one of the Equity Sponsors and the Company, whichprovided that the new investor would receive, in the form of a dividend, an amount equal to the compensation payable to the other new investor under amanagement services agreement. In connection with the Initial Public Offering (“IPO”), the management services agreement expired, and the one share of Class Ccommon stock was redeemed. See additional information in Note 16, Related Party Transactions. Class A common stock and Class B common stock share equallyif a dividend is declared or paid to either class, but they do not have rights to any special dividend.Liquidation, Dissolution or Winding Up —Class A common stock and Class B common stock share equally in distributions in liquidation, dissolution or windingup of the corporation.67Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Registration Rights —The Equity Sponsors have the right to demand registration of 10% or more of the shares of the Company’s common stock held by them. Afew shareholders who are also Executive Officers of the Company or members of the Company’s Board of Directors have piggyback registration rights, but theyare not required to exercise these rights.10. Stock-Based CompensationThe Company’s Stock Incentive Plan (the “Plan”), as amended and restated in May of 2013, authorizes the grant of nonqualified stock options, incentive stockoptions, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”) and incentive bonuses to employees, officers, non-employee directorsand other service providers. The number of shares of common stock available for issuance pursuant to awards granted under the Plan on or after the IPO shall notexceed 3,750,500 shares. The Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”) or another committeedesignated by the Board, or in the absence of any such committee, the Board itself (the “administrator”). Stock options are granted at a price determined by theadministrator at an exercise price that is not less than the fair market value of the underlying stock on the date of grant. The administrator may also grant SARs andRSUs with terms determined by the administrator in accordance with the Plan. The fair market value of shares prior to the IPO was determined by theCompensation Committee of the Board, or the Board using historical or current transactions, comparable public company valuations, historical transactions, third-party valuations and other factors. All share-based awards (except for RSUs) granted under the Plan have a life of ten years. Most awards vest ratably over fouryears; however, some have been granted with different vesting schedules. Of the awards outstanding, none have been granted to non-employees (except thosegranted to non-employee members of the Board of Directors of the Company) under the Plan. At January 3, 2017 , approximately 3.2 million share-based awardswere available to be granted under the Plan.Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2016 , 2015 and 2014 , non-cash stock-based compensation expense of $2.5 million , $1.7 million and $1.4 million , respectively, was included in general and administrative expense. Stock-basedcompensation of approximately $222,000 , $229,000 and $88,000 was included in capitalized internal costs in 2016 , 2015 and 2014 , respectively. Stock-basedcompensation expense also includes approximately $ 31,795 related to the Employee Stock Purchase Plan, see Note 12, Employee Benefit Plans.Included in stock-based compensation expense during the year ended January 3, 2017 is a $0.7 million charge for modifying the outstanding stock options grantedto Kevin Reddy, who resigned from his position as the Chairman of the Board and from his position as the Company’s Chief Executive Officer in July 2016. Inconnection with Mr. Reddy’s termination from the Company, the Company extended the exercise period of Mr. Reddy’s vested options and as a result he has theright to exercise his vested options to purchase the Company’s Class A common stock through October 23, 2017.The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the historicalCompany volatility, as well as volatilities from publicly traded companies operating in the Company’s industry. The Company uses historical data to estimateexpected employee forfeiture of stock options. The expected life of options granted is management’s best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.The weighted-average assumptions used in the model were as follows: 2016 2015 2014Risk-free interest rate 1.2% 1.6% 1.7%Expected term (average in years) 5.0 5.0 5.0Expected dividend yield — — —Expected volatility 37.0% 36.8% 36.5%Weighted-average Black-Scholes fair value per share at date of grant $2.85 $5.04 $10.5268Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The Company has estimated forfeiture rates that range from 0% to 40% based upon the class of employees receiving stock-based compensation in its calculation ofstock-based compensation expense for the year ended January 3, 2017. These estimates are based on historical forfeiture behavior exhibited by employees of theCompany.A summary of aggregate option award activity under the Plan as of December 30, 2014, December 29, 2015 and January 3, 2017, and changes during the fiscalyears then ended is presented below:69Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Awards Weighted- Average Exercise Price Weighted-AverageRemaining ContractualTerm (1) Aggregate Intrinsic Value (2) (in thousands)Outstanding—December 31, 2013 3,309,872 $10.59 Granted 269,552 30.40 Forfeited or expired (73,673) 19.72 Exercised (260,487) 8.85 Outstanding—December 30, 2014 3,245,264 $12.17 Granted 921,825 14.55 Forfeited or expired (307,318) 18.76 Exercised (792,363) 8.86 Outstanding—December 29, 2015 3,067,408 $13.08 Granted 117,000 8.34 Forfeited or expired (505,182) 16.55 Exercised (104,294) 9.13 Outstanding—January 3, 2017 2,574,932 $12.34 3.86 $—Vested and expected to vest 2,530,517 $12.29 3.77 $—Exercisable as of January 3, 2017 2,000,777 $11.70 2.50 $—_____________(1)Weighted-average remaining contractual terms for options outstanding, vested and expected to vest and exercisable, as of January 3, 2017 , include the options granted to KevinReddy which are outstanding, vested and exercisable and expire on October 23, 2017.(2)Aggregate intrinsic value represents the amount by which fair value of the Company’s stock exceeds the exercise price of the option as of January 3, 2017 . The stock price was not inexcess of any exercise prices at this date.The weighted-average grant-date fair value of options granted during the years ended January 3, 2017 , December 29, 2015 and December 30, 2014 was $2.85 ,$5.04 and $10.52 , respectively. The intrinsic value associated with options exercised was $0.2 million , $4.2 million and $6.0 million for the fiscal years endedJanuary 3, 2017 , December 29, 2015 and December 30, 2014 , respectively. The Company had 271,457 , 346,235 and 85,796 options that vested during the yearsended January 3, 2017 , December 29, 2015 and December 30, 2014 , respectively. These awards had a total estimated fair value of $2.7 million , $3.4 million and$2.9 million at the date of vesting for the years ended January 3, 2017 , December 29, 2015 and December 30, 2014 , respectively.A summary of the status of the Company’s non-vested options as of January 3, 2017 and changes during the year then ended is presented below: Awards Weighted- Average Grant Date Fair ValueOutstanding at December 29, 2015 1,122,266 $5.80Granted 117,000 2.85Vested (271,457) 6.42Forfeited (393,654) 5.58Non-vested at January 3, 2017 574,155 $8.58A summary of the status of the Company’s non-vested restricted share units as of January 3, 2017 and changes during the year then ended is presented below:70Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Awards Weighted- Average Grant Date Fair ValueOutstanding at December 29, 2015 — $—Granted 201,135 10.38Vested (27,672) 10.40Forfeited (50,698) 8.68Non-vested at January 3, 2017 122,765 $10.20The Company granted 201,135 restricted share units during the year ended January 3, 2017 with a weighted-average grant-date estimated fair value of $10.38 . TheCompany had 27,672 restricted share units that vested during the year ended January 3, 2017. These units had a total estimated fair value of $0.3 million at the dateof vesting for the year ended January 3, 2017.As of January 3, 2017 , there was $3.1 million of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under theStock Incentive Plan, which is expected to be recognized over 2.68 years.11. (Loss) Earnings Per ShareBasic earnings per share (“EPS”) is calculated by dividing net income (loss) available to common shareholders by the weighted-average number of shares ofcommon stock outstanding during each period. Diluted EPS is calculated using net income (loss) available to common stockholders divided by diluted weighted-average shares of common stock outstanding during each period. Potentially dilutive securities include shares of common stock underlying stock options andrestricted common stock. Diluted EPS considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of thepotential common shares would have an anti-dilutive effect.The following table sets forth the computations of basic and diluted EPS (in thousands, except share and per share data): 2016 2015 2014Net (loss) income $(71,677) $(13,765) $11,428Shares: Basic weighted average shares outstanding 27,808,708 28,938,901 29,717,304Effect of dilutive securities — — 1,283,795Diluted weighted average number of shares outstanding 27,808,708 28,938,901 31,001,099(Loss) earnings per share: Basic (loss) earnings per share $(2.58) $(0.48) $0.38Diluted (loss) earnings per share $(2.58) $(0.48) $0.37The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period. Potential common shares areexcluded from the computation of diluted earnings (loss) per share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periodsof net loss. The number of shares issuable on the exercise of share based awards excluded from the calculation of diluted earnings (loss) per share because theeffect of their inclusion would have been anti-dilutive totaled 2,697,697 ; 3,184,949 ; and 247,427 for 2016 , 2015 and 2014 , respectively.12. Employee Benefit PlansDefined Contribution PlanIn October 2003, the Company adopted a defined contribution plan, The Noodles & Company 401(k) Plan (the “401(k) Plan”). Company employees aged 21 orolder, are eligible to participate in the 401(k) Plan beginning on the first day of the calendar month following 30 days of employment. Under the provisions of theplan, the Company may, at its discretion, make contributions to the 401(k) Plan. Participants are 100% vested in their own contributions. The Company made nocontributions during 2016 , 2015 and 2014 .71Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Deferred Compensation PlanThe Company’s deferred compensation plan, under which compensation deferrals began in 2013, is a non-qualified deferred compensation plan which allowshighly compensated employees to defer a portion of their base salary and variable compensation each plan year. To offset its obligation, the Company purchasesCompany-owned whole-life insurance contracts on certain team members. As of January 3, 2017 and December 29, 2015, $ 1.6 million and $1.5 million ,respectively, were included in other assets, net, which represents the cash surrender value of the associated life insurance policies, and $ 1.5 million and $1.6million , respectively, were included in other long-term liabilities, which represents the carrying value of the liability for deferred compensation.Employee Stock Purchase PlanIn 2013, the Company adopted an Employee Stock Purchase Plan (the “ESPP”) under which eligible team members may voluntarily contribute up to 15% of theirsalaries, subject to limitations, to purchase common stock at a price equal to 85% of the fair market value of a share of the Company’s common stock on the firstday of each offering period or 85% of the fair market value of a share of the Company’s common stock on the last day of each offering period, whichever amountis less. In general, all non-highly compensated employees who have been employed by the Company for at least thirty days prior to the offering period and who areregularly scheduled to work more than 20 hours per week and for more than five months in any calendar year, are eligible to participate in the ESPP whichoperates in-line with the Company’s fiscal quarters. A total of 750,000 shares of common stock are available for issuance under the ESPP. The Company hasissued a total of 80,312 shares under this plan, of which 26,088 shares were issued during 2016 . A total of 669,688 shares remain available for future issuance. For2016 , in accordance with the guidance for accounting for stock compensation, the Company estimated the fair value of the stock purchase plan using the Black-Scholes multiple-option pricing model. The average assumptions used in the model included a 0.12% risk-free interest rate; 0.25 year expected life; expectedvolatility of 31.7% ; and a zero percent dividend yield. The weighted average fair value per share at grant date was $1.02 . In 2016 , the Company recognized $31,795 of compensation expense related to the ESPP.13. LeasesThe Company leases restaurant facilities, office space and certain equipment under operating leases that expire on various dates through September 2035 . Leaseterms for traditional shopping centers generally include a base term of 10 years, with options to extend these leases for additional periods of five to 15 years.Typically, the lease includes rent escalations, which are expensed on a straight-line basis over the expected lease term. The difference between rent expense andcash paid for rent is recognized as deferred rent. Total rent expense for 2016 , 2015 and 2014 was approximately $48.5 million , $44.6 million and $37.9 million ,respectively.Future minimum lease payments required under existing leases as of January 3, 2017 are as follows (in thousands):2017$50,408201846,699201941,136202036,831202133,332Thereafter98,396 $306,80214. Supplemental Disclosures to Consolidated Statements of Cash FlowsThe following table presents the supplemental disclosures to the Consolidated Statements of Cash Flows for fiscal years 2016 , 2015 and 2014 (in thousands): 2016 2015 2014Interest paid (net of amounts capitalized) $2,394 $839 $—Income taxes paid (net of refunds) 427 354 811Purchases of property and equipment accrued in accounts payable 1,431 1,414 3715. Commitments and ContingenciesData Security IncidentOverviewOn June 28, 2016, the Company announced that a data security incident compromised the security of the payment information of some customers who used debitor credit cards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. The malware involved in the incident has been removed, andthe Company believes that it no longer poses a risk to credit or debit cards currently being used at affected locations. The Company has been implementingadditional security procedures to further secure customers’ debit and credit card information.Card Company AssessmentsIn the fourth quarter of 2016, the Company recorded a charge of $10.6 million for estimated losses, at the low end of an estimated range, associated with claimsand anticipated claims by payment card companies for non-ordinary course operating expenses, card issuer losses and card replacement costs for which it expectsto be liable (the “Data Breach Liabilities”). However, the Company may ultimately be subject to Data Breach Liabilities that are up to $5.5 million greater than thatamount. The Company intends to use the net proceeds of the private placement and the planned common stock offering (both discussed in Note 18, SubsequentEvents), in part, to fund the Data Breach Liabilities.Data Security LitigationIn addition to claims by payment card companies with respect to the data security incident, the Company is the defendant in a purported class action lawsuit in theUnited States District Court for the District of Colorado, Selco Community Credit Union vs. Noodles & Company, alleging that the Company negligently failed toprovide adequate security to protect the payment card information of customers of the plaintiffs and those of other similarly situated credit unions, banks and otherfinancial institutions alleged to be part of the putative class, causing those institutions to suffer financial losses (the “Selco Litigation”). The complaint in the SelcoLitigation also claims the Company was negligent per se based on alleged violations of Section 5 of the Federal Trade Commission Act, and it seeks monetarydamages, injunctive relief and attorneys’ fees. The Company intends to vigorously defend the Selco Litigation. The Company cannot reasonably estimate the rangeof potential losses that will be associated with the Selco Litigation because it is at an early stage. The Company also cannot provide assurance that it will notbecome subject to other inquiries or claims, such as claims brought by customers, relating to the data security incident in the future. Although the Companymaintains data security liability insurance, and certain fees and costs associated with this data security incident and the Selco Litigation to date have been paid orreimbursed by its data security liability insurer, the Company currently believes that it is possible that the ultimate amount paid by the Company with respect to theSelco Litigation, should the Company not succeed in defending the litigation, will be in excess of the limits of its data security liability insurance coverageapplicable to claims of this nature.Fees and CostsThe Company has incurred fees and costs associated with this data security incident, including legal fees, investigative fees, other professional fees and costs ofcommunications with customers, all of which to date have been paid or reimbursed by its data security liability insurer. The Company expects to continue to incursignificant fees and costs associated with the data security incident in future periods. Fees and costs related to the data security incident may also include otherliabilities to payment card networks, liabilities from future litigation, governmental investigations and enforcement proceedings and capital investments forremediation activities, among others. The aggregate amount of such fees and costs cannot be reasonably estimated by the Company at present, but these fees andcosts may be in excess of the limit that the data security liability insurer will pay or reimburse, in which case the Company will bear these fees and costs.Insurance CoverageAs discussed above, to limit its exposure to losses arising from matters such as the data security incident, the Company maintained at the time of the incident andcontinues to maintain data privacy liability insurance coverage. This coverage, and certain other customary business insurance coverage, has reduced theCompany’s exposure related to the data security incident. The Company will pursue the maximum recoveries available under these policies.General72Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)It is possible that losses associated with the data security incident, including losses associated with the Selco Litigation, could have a material adverse effect on theCompany’s results of operations in future periods. The Company will continue to evaluate information as it becomes known and will record an estimate foradditional losses at the time or times when it is probable that a loss, if any, will be incurred and the amount of any such loss is reasonably estimable.Delaware Gift Card LitigationAs previously disclosed in prior reports filed with the SEC, the Company is named as a defendant in an action filed in the Superior Court of Delaware in NewCastle County (the “Court”), entitled The State of Delaware, William French v. Card Compliant, LLC, et. al . The case was filed under seal in June 2013 and wasunsealed on March 26, 2014. The complaint in this case alleges that a number of large retailers and restaurant companies, including the Company, knowinglyrefused to fulfill obligations under Delaware’s Abandoned Property Law by failing to report and deliver “unclaimed gift card funds” to the State of Delaware, andknowingly made, used or caused to be made or used, false statements and records to conceal, avoid or decrease an obligation to pay or transmit money to Delawarein violation of the Delaware False Claims and Reporting Act. The complaint seeks an order that the Company cease and desist from violating the DelawareAbandoned Property Law, monetary damages (including treble damages under the False Claims and Reporting Act), penalties, and attorneys’ fees and costs. OnNovember 23, 2015, the Court ruled on a motion to dismiss the complaint that the defendants—including the Company—had filed. While the Court granted themotion to dismiss with respect to a claim alleging that the defendants intended to defraud the government or willfully concealed property owed to the governmentand for which a certificate or receipt was provided, it did not dismiss the other claims alleging that the defendants knowingly made false statements to avoidtransmitting money to the government. The trial date with respect to this matter is set for January 8, 2018. The Company has recorded a loss contingency accrualbased on a reasonable estimate of the probable losses that might arise from this matter; this loss contingency accrual did not have a material effect on our results ofoperations. The Company intends to continue to vigorously defend this action.Litigation Regarding Classification of Assistant General ManagersAs the Company reported in its Quarterly Reports on Form 10-Q for the quarters ended March 29, 2016, June 28, 2016 and September 27, 2016, Carrie Castillo,Anastassia Letourneau and Jacquelyn Myhre, former employees of the Company, filed a purported collective and class action lawsuit against the Company onMarch 10, 2016 alleging violations of the Fair Labor Standards Act and Illinois and Minnesota wage laws (the “Labor Laws”) in the United States District Courtfor the Northern District of Illinois. The plaintiffs filed the case on their behalf and on behalf of all assistant general managers employed by the Company sinceJanuary 5, 2013 whom the Company classified as exempt employees, and they allege that the Company violated the Labor Laws by not paying overtimecompensation to its assistant general managers. The plaintiffs were seeking, on behalf of themselves and members of the putative class, unpaid overtimecompensation, liquidated damages and available penalties under applicable state laws, a declaratory judgment, an injunction and attorneys’ fees and costs. In thethird quarter of 2016, the Company and the plaintiffs in the litigation agreed in principle to settle the litigation. To cover the estimated costs of the settlement,including estimated payments to any opt-in members and class attorneys, as well as related settlement administration costs, the Company recorded a charge of $3.0million in 2016. The charge was recorded in general and administrative expenses in the Company’s Consolidated Statements of Operations and in accruedexpenses and other current liabilities in the Company’s Consolidated Balance Sheets. The settlement has been approved by the United States District Court for theNorthern District of Illinois.Severance CostsDuring 2016, the Company recorded a charge for severance expenses of $2.7 million . The charge was recorded in general and administrative expenses in theCompany’s Consolidated Statements of Operations. The severance expenses primarily relate to the termination benefits for Kevin Reddy, who resigned from hisposition as the Chairman of the Board and from his position as the Company’s Chief Executive Officer in July 2016. Under the release agreement executed withMr. Reddy, he is entitled to certain severance payments, including payments totaling one and one-half times his current base salary and COBRA premiums foreighteen months. The severance payments of $1.0 million owed to Mr. Reddy and one other former employee subsequent to January 3, 2017 are recorded inaccrued expenses and other current liabilities in the Company’s Consolidated Balance Sheets.Other MattersIn the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomesare not predictable with assurance. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact withrespect to these matters as of January 3, 2017. These matters could73Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)affect the operating results of any one financial reporting period when resolved in future periods. The Company believes that an unfavorable outcome with respectto these matters is remote or a potential range of loss is not material to its consolidated financial statements. Significant increases in the number of these claims, orone or more successful claims that result in greater liabilities than they currently anticipate, could materially and adversely affect our business, financial condition,results of operations or cash flows.16. Related Party TransactionsIn connection with the IPO, the Company entered into a new stockholders agreement with the Equity Sponsors (the “2013 Stockholders Agreement”). The 2013Stockholders Agreement grants the Equity Sponsors the right to nominate representatives to the Company’s Board of Directors and committees of the board. LCatterton and Argentia Private Investments Inc. (“Argentia”) each have the right to designate two members to the Company’s Board of Directors and the EquitySponsors will agree to vote to elect such director designees. If at any time an Equity Sponsor owns more than 10% and less than 20% of outstanding Class A andClass B common stock, such Equity Sponsor has the right to designate one nominee for election to the Company’s Board of Directors. If an Equity Sponsor’sownership level falls below 10% of outstanding Class A and Class B common stock, such Equity Sponsor will no longer have a right to designate a nominee. Inaddition, for so long as L Catterton and Argentia hold at least 35% of the voting power of outstanding common stock, certain actions may not be taken without theapproval of L Catterton and Argentia.17. Selected Quarterly Financial Data (unaudited)The following table presents selected unaudited quarterly financial data for the periods indicated. Each fiscal quarter contained 13 weeks, with the exception of thefourth quarter of 2016, which had 14 operating weeks (in thousands, except per share data): Fiscal 2016 January 3, 2017 September 27,2016 June 28, 2016 March 29, 2016Revenue$129,400 $122,681 $121,407 $113,986Operating loss$(44,315) $(9,062) $(11,312) $(2,839)Net loss$(45,376) $(9,841) $(14,087) $(2,373)Basic loss per share$(1.63) $(0.35) $(0.51) $(0.09)Diluted loss per share$(1.63) $(0.35) $(0.51) $(0.09) Fiscal 2015 December 29, 2015 September 29,2015 June 30, 2015 March 31, 2015Revenue$117,128 $117,328 $115,233 $105,761Operating (loss) income$(6,464) $(15,302) $5,016 $(4,318)Net (loss) income$(4,254) $(9,821) $3,062 $(2,752)Basic (loss) earnings per share$(0.15) $(0.35) $0.10 $(0.09)Diluted (loss) earnings per share$(0.15) $(0.35) $0.10 $(0.09)74Table of Contents NOODLES & COMPANYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)18. Subsequent EventsSecurities Purchase AgreementOn February 8, 2017, the Company entered into a securities purchase agreement with L Catterton, pursuant to which the Company agreed, in return for aggregategross proceeds of $18.5 million , to sell to L Catterton an aggregate of 18,500 shares of preferred stock convertible into 4,252,873 shares of the Company’s Class Acommon stock, par value $0.01 per share, at a price per share of $1,000 , plus warrants exercisable for five years beginning six months following their issuance forthe purchase of 1,913,793 shares of the Company’s Class A common stock, at a price per share of $4.35 (such transactions, collectively, the “private placement”).The proceeds will be used, in conjunction with cash flow from the Company’s operations and the proceeds received from any other measures that may be taken toaddress the Company’s capital needs, to satisfy existing and anticipated liabilities and to fund, in part, certain capital expenditures related to business initiatives inits company-owned restaurants. Any remaining proceeds are expected to be used for general corporate purposes. The funding of the private placement occurred onFebruary 9, 2017 and the net proceeds from the transaction were $17.4 million.Credit Agreement AmendmentOn February 8, 2017, the Company amended its Amended and Restated Credit Agreement, dated as of November 22, 2013, by entering into Amendment No. 5 tothe Amended and Restated Credit Agreement, as borrower, with the guarantors signatory thereto, Bank of America, N.A., as administrative agent, and the lenderssignatory thereto (the “Amendment”). See Note 5, Long-Term Debt for additional information on the Amendment.Filing of Registration Statement on Form S-1On February 9, 2017, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission with respect to shares of its Class Acommon stock. 75Report of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersNoodles & CompanyWe have audited the accompanying consolidated balance sheets of Noodles & Company (the “Company”) as of January 3, 2017 and December 29, 2015 ,and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period endedJanuary 3, 2017 . These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements 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 thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Noodles & Company atJanuary 3, 2017 and December 29, 2015 , and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 3,2017 , in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLPDenver, ColoradoMarch 2, 201776Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.ITEM 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management carried out an evaluation, under the supervision and with the participation of our interim Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of theperiod covered by this report. Based on this evaluation, our interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this annual report.Management’s Annual Report on Internal Control Over Financial ReportingThe management of Noodles & Company is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal controlover financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financialreporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with accounting principles generally accepted in the United State of America, and that our receipts and expenditures are being made only in accordancewith authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,use, or disposition of assets that could have a material effect on our financial statements.Under the supervision and with the participation of our management, including our interim chief executive officer and chief financial officer, we carried out anevaluation of the effectiveness of our internal control over financial reporting as of January 3, 2017 based on the criteria in “Internal Control - IntegratedFramework (the 2013 framework)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, ourmanagement concluded that our internal control over financial reporting was effective as of January 3, 2017 .This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm, because as an “emerging growthcompany” under the JOBS Act our independent registered public accounting firm is not required to issue such an attestation report. We could be an “emerginggrowth company” until the end of our 2018 fiscal year.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.ITEM 9B. Other InformationNone.77Table of Contents PART IIIITEM 10. Directors, Executive Officers and Corporate GovernanceThe names of our directors, their positions within the Company and their ages, as of February 24, 2017, are included below.Name Class Age Position Year ElectedDirector Current TermExpiresJohanna Murphy (2) I 46 Director 2014 2017James Rand (2) I 74 Director 2008 2017François Dufresne (1)(3) II 56 Director 2016 2018Jeffrey Jones (1)(2) II 54 Director 2013 2018Andrew Taub II 48 Director 2010 2018Dave Boennighausen III 39 Interim ChiefExecutive Officer,Chief FinancialOfficer andDirector 2015 2019Scott Dahnke (1)(3)(4) III 51 Director 2011 2019Robert Hartnett III 65 Chairman 2016 2019________________________(1)Member of the Compensation Committee.(2)Member of the Audit Committee.(3)Member of the Nominating and Corporate Governance Committee.(4)Lead Independent Director until July 25, 2016.Johanna Murphy joined our Board of Directors in June 2014. Ms. Murphy has served as Global Chief Marketing Officer for rag & bone since June 2015. Prior tojoining rag & bone, Ms. Murphy was the Chief Marketing Officer and Director of Digital for Ivanka Trump, where she was responsible for developing brandstrategy and creating dynamic retail experience through traditional and innovative digital marketing techniques from September 2013 to June 2015. FromSeptember 2011 to September 2013 Ms. Murphy served as Vice President of eCommerce at Kate Spade & Company, with a focus on elevating the customerexperience and service while exploring new customer acquisition tactics through digital strategies for kate spade new york, Kate Spade Saturday and Jack Spade.Prior to that time Ms. Murphy held several leadership roles at GSI Commerce (now eBay Enterprise), including as its Vice President of eCommerce, from January2008 to September 2011, where she led the fashion and luxury practice and served clients such as Burberry, Calvin Klein, Donna Karan, Betsey Johnson and Tumi.She received a BA in Political Science from the University of Delaware. Ms. Murphy brings to our Board of Directors substantial experience in developingmarketing and digital strategies for major consumer brands.James Rand has been a member of our Board of Directors since May 2008. Mr. Rand has served as an independent executive consultant in the retail and restaurantindustries since his retirement as Senior Vice President of Worldwide Development at McDonald’s Corporation in 2005. Mr. Rand began his career at McDonald’sCorporation in 1973, where he gained experience in marketing research, marketing and real estate development, including leading the team that launched the ExtraValue Meal strategy. He received a BA in Mathematics from Saint Mary’s College. Mr. Rand provides our Board of Directors with seasoned business judgmentand valuable insights relevant to our industry.François Dufresne has been a member of our Board of Directors since March 2016. Mr. Dufresne joined Public Sector Pension Investment Board (“PSPInvestments”) as a Senior Director, Private Equity in January 2016. Argentia Private Investments Inc. (“Argentia”) is a wholly owned subsidiary of PSPInvestments and is an affiliate of the Company because, they, together with Catterton, own more than 50% of our capital stock and we entered into a stockholdersagreement with them. These arrangements, included pursuant to which Mr. Dufresne was selected as a member of our Board of Directors, are discussed further inItem 13. “Transactions with Related Persons” section of this Annual Report on Form 10-K. From August 2013 to March 2015, he was78Table of Contents Vice President Corporate Development and Chief Financial Officer at Ovivo Inc., a Montréal-based company listed on the TSX that designs and deliversconventional to highly technological water treatment solutions for the industrial and municipal markets around the world. From 2002 to June 2013, Mr. Dufresnewas a Partner at Ernst & Young LLP in Canada. From 1997 to 2002, he was Vice-President Corporate Development at Telesystem International Wireless Inc., aMontréal-based company listed on NASDAQ and on the TSX that operated wireless voice and data networks in several markets outside of North America,including Brazil, Czech Republic and Romania. Prior to that, Mr. Dufresne spent 11 years at Arthur Andersen, the last four years as a Partner. He holds a lawdegree (LL.B., 1982) from Université Laval and a Master’s Degree in Taxation (M.Fisc., 1987) from Université de Sherbrooke. Mr. Dufresne brings to our Boardof Directors public company and international experience, as well as overall financial, corporate and strategic development experience.Jeffrey Jones has been a member of our Board of Directors since September 2013. From 2003 to 2012, Mr. Jones served as the Chief Financial Officer for VailResorts, Inc. (NYSE: MTN), a publicly held resort management company, and also served as a member of the board of directors of Vail Resorts, Inc. from 2008through 2012. In addition, later in his tenure at Vail Resorts, Inc., Mr. Jones served as President - Lodging, Retail and Real Estate. Mr. Jones is currently a memberof the board of directors of Hershey Entertainment and Resorts, where he chairs the audit and finance committee and is a member of the compensation committee;and Summit Hotel Properties, Inc. (NYSE:INN), where he is the lead independent director and chair of the audit committee and a member of the compensation andgovernance committees. He is also a member of the US Bank Advisory Board and is a member of the board at the Leeds School of Business, University ofColorado at Boulder. Prior to joining Vail Resorts, Mr. Jones held Chief Financial Officer positions with Clark Retail Enterprises and Lids Corporation. Mr. Jonesreceived a BA in Accounting and American Studies from Mercyhurst College and is a member of the AICPA. Mr. Jones brings to our Board of Directorssignificant public company experience in financial positions including significant audit committee roles, as well as overall financial, operations and strategicdevelopment experience.Andrew Taub joined our Board of Directors in December 2010. Mr. Taub is a Managing Partner at L Catterton. He joined Catterton, L Catterton’s predecessor, in1996 and has previously served as a Vice President and Principal prior to becoming a Partner in the firm. Catterton is an affiliate of the Company because, they,together with Argentia, own more than 50% of our capital stock and we entered into a stockholders agreement with them. These arrangements, included pursuantto which Mr. Taub was selected as a member of our Board of Directors, are discussed further in Item 13. “Transactions with Related Persons” section of thisAnnual Report on Form 10-K. Mr. Taub has helped capitalize and grow over a dozen consumer companies including restaurants, retail, food and beverage andmarketing services. Prior to joining Catterton, he spent three years as Vice President of Nantucket Holding Company, a merchant bank specializing in theacquisition and management of troubled companies, as well as the consolidation of fragmented industries. Previously he worked in Mergers and Acquisitions atDean Witter Reynolds and Coopers & Lybrand. Mr. Taub received a BA from the University of Michigan and an MBA from Columbia Business School. Mr. Taubbrings to our Board of Directors expertise in the retail and consumer industry.Dave Boennighausen has served as our Interim Chief Executive Officer since July of 2016, Chief Financial Officer since July 2012 and became a member of ourBoard of Directors in August 2015. Mr. Boennighausen served as our Vice President of Finance from October 2007 to March 2011 and our Executive VicePresident of Finance from April 2011 to February 2012. He began his career with May Department Stores. He received a BS in Finance and Marketing fromTruman State University and holds an MBA from the Stanford Graduate School of Business. Mr. Boennighausen brings to our Board of Directors leadership skills,financial experience and strategic guidance.Scott Dahnke has been a member of our Board of Directors since September 2011. Mr. Dahnke is the Global Co-CEO of L Catterton. Prior to becoming GlobalCo-CEO in 2016, Mr. Dahnke had been a Managing Partner of Catterton since 2003, and has a broad range of business experience in private equity, consulting,management and finance. Catterton is an affiliate of the Company because, they, together with Argentia, own more than 50% of our capital stock and we enteredinto a stockholders agreement with them. These arrangements, included pursuant to which Mr. Dahnke was selected as a member of our Board of Directors, arediscussed further in Item 13. “Transactions with Related Persons” section of this Annual Report on Form 10-K. Prior to joining Catterton, he was a ManagingDirector at Deutsche Bank Capital Partners and at AEA Investors, where he led AEA’s consumer products investing efforts. Previously, Mr. Dahnke was the ChiefExecutive Officer of infoUSA, a leading publicly traded provider of business and consumer marketing products and services. Prior to joining infoUSA,Mr. Dahnke served clients on an array of strategic and operational issues as a Partner at McKinsey & Company. His early career also includes experience in theMerger Department of Goldman, Sachs & Co. and with General Motors. Mr. Dahnke received a BS, magna cum laude, in Mechanical Engineering from theUniversity of Notre Dame. He also received academic honors while earning an MBA from the Harvard Business School. Mr. Dahnke brings to our Board ofDirectors expertise in the retail and consumer industry.79Table of Contents Robert Hartnett joined our Board of Directors and became Chairman in July 2016. He has over 40 years of restaurant industry experience. Most recently heserved as Chief Executive Officer for Houlihan’s Restaurants, Inc., a position that he held from 2001 until successfully negotiating the sale of that company in2015. During his tenure at Houlihan’s, Mr. Hartnett successfully re-invented and revitalized the Houlihan’s brand. Prior to joining Houlihan’s, Mr. Hartnettserved as President, CEO and Chairman of Einstein/Noah Bagel Inc., a then publicly traded company with more than 500 Einstein Bros. and Noah’s New YorkBagels restaurants across 27 states. In addition, he has owned and operated Einstein Bros. and Boston Market franchise restaurants and has served as President ofBennigan’s Restaurants, a multi-unit casual dining operator. Bob brings to our Board a wealth of experience in restaurant operations and restaurant branddevelopment.Code of Business Conduct and EthicsWe have adopted a code of business conduct and ethics that applies to all of our officers and employees, including our Interim Chief Executive Officer and ChiefFinancial Officer and those officers and employees responsible for financial reporting. We have also adopted a director code of business conduct and ethics thatapplies to our directors. Our codes of business conduct and ethics are posted on the investor relations section of our website at investor.noodles.com . We intend todisclose future amendments to our codes of business conduct and ethics, and any waivers of their provisions that we grant to our executive officers and directors,on our website within four business days following the date of the amendment or waiver.Audit CommitteeOur Audit Committee, is currently composed of Jeffrey Jones, Johanna Murphy and James Rand. Mr. Jones is the Chairman of the Audit Committee and our AuditCommittee financial expert, as currently defined under SEC rules.O ur Board of Directors has determined that Mr. Jones is “independent” under NASDAQ rules.Procedures for Nomination of Directors by ShareholdersNo change has occurred since the date of the Company's proxy statement filed in 2016 in the procedures through which stockholders may nominate directors forelection at the Company's annual meeting of stockholders.80Table of Contents ITEM 11. Executive CompensationOur named executive officers, or NEOs, for 2016 are:•Dave Boennighausen, our Interim Chief Executive Officer and Chief Financial Officer;•Paul Strasen, our Executive Vice President, General Counsel and Secretary;•Kathy Lockhart, our Vice President and Controller;•Kevin Reddy, our former Chairman and Chief Executive Officer; and•Mark Mears, our former Chief Marketing Officer.2016 Summary Compensation TableThe following table summarizes the compensation for 2016 and 2015 awarded to, earned by or paid to our principal executive officer and two most highly-compensated executives other than the principal executive officer, who were serving at the end of 2016, as well as the compensation awarded to two individualswho would have qualified to be among the two most highly-compensated executives other than the principal executive officer, but for the fact that the individualswere not serving as executive officers of our Company as of the end of 2016.Name and Principal Position Year Salary Bonus (1) Equity Awards (2) Non-equity incentiveplan compensation (3)All other Compensation (5)TotalDave Boennighausen 2016 $387,692 $63,750 $201,574 $60,000$13,563$726,579Interim Chief ExecutiveOfficer and Chief FinancialOfficer 2015 332,885 — 274,375 —16,294623,554Paul Strasen 2016 307,654 — 111,298 27,94020,862467,754Executive Vice President,General Counsel & Secretary 2015 289,000 — 158,172 —17,454464,626Kathy Lockhart 2016 217,710 — 39,597 12,9909,495279,792Vice President andController 2015 211,938 — 115,235 —9,079336,252Kevin Reddy 2016 721,231(4) — 302,366 —16,1421,039,739Former Chairman and ChiefExecutive Officer 2015 703,846 — 129,088 —28,353861,287Mark Mears 2016 331,709(4) — 101,733 —5,992439,434Former Chief MarketingOfficer 2015 119,519 — 120,522 —1,407241,448______________________________(1)In connection with Mr. Boennighausen’s appointment as interim Chief Executive Officer, the Company has agreed to pay him a nondiscretionary bonus of $15,000 a month, payablemonthly, for the duration of his tenure as interim Chief Executive Officer.(2)Amounts represent the aggregate grant date fair value of equity awards granted in 2016 and 2015, calculated in accordance with FASB Accounting Standards Codification Topic 718.Each of our NEOs has received annual grants of equity awards at or about the time of our annual meeting of stockholders. A description of the methodologies and assumptions we useto value option awards and the manner in which we recognize the related81Table of Contents expense are described in Note 10, Stock-Based Compensation, to our consolidated financial statements, for the year ended January 3, 2017. These amounts may not correspond to theactual value eventually realized by each NEO because the value depends on the market value of our common stock.(3)No bonuses were paid under our non-equity incentive plan to our named executive officers for 2015. A bonus will be paid to our named executive officers under our non-equityincentive plan for 2016 although we did not achieve our adjusted EBITDA targets. For each year, we maintained a bonus plan that provided each NEO with the opportunity to earn abonus based on achievement of adjusted EBITDA goals for the applicable year. The target bonuses were 50% of base salary for Mr. Boennighausen, 40% of base salary for Mr.Strasen and 25% for Ms. Lockhart. The Compensation Committee of the Board reserves the right to exercise discretion to increase or decrease such bonuses based on other factors,which can include an executive officer’s individual performance and, with respect to the amounts awarded in 2016, the committee made a determination in its discretion to awardcertain bonuses based on certain executive officers’ individual performance.(4)Amounts include cash severance paid to these individuals.(5) Amounts shown in this column are detailed in the table below:Name Year Car Allowance Life Insurance Health &Wellness Total OtherCompensationDave Boennighausen 2016 $10,844 $2,094 $625 $13,563 2015 9,980 2,094 4,220 16,294Paul Strasen 2016 13,534 7,328 — 20,862 2015 7,546 6,938 2,970 17,454Kathy Lockhart 2016 4,856 3,662 977 9,495 2015 4,687 3,404 988 9,079Kevin Reddy 2016 12,344 3,173 625 16,142 2015 19,903 6,100 2,350 28,353Mark Mears 2016 958 2,064 2,970 5,992 2015 — 1,407 — 1,40782Table of Contents Outstanding Equity Awards at January 3, 2017The following table sets forth information concerning stock options, and restricted stock that have not vested, for each of our NEOs outstanding as of January 3,2017. Option Awards Stock AwardsName Number ofsecuritiesunderlyingunexercisedoptions (#)exercisable Number ofsecuritiesunderlyingunexercisedoptions (#)unexercisable Optionexerciseprice ($) Optionexpirationdate Number ofShares orUnits of Stockthat have notVested (#) Market Valueof Shares orUnits of Stockthat Have NotVested ($)Dave Boennighausen 63,333 — $8.67 12/27/2020 22,503 — $9.53 05/14/2022 43,275 — $12.13 12/06/2022 10,000 10,000(1) $31.53 05/13/2024 8,750 26,250(2) $16.70 05/06/2025 1,909 17,183(3) $10.64 11/16/2025 18,209(4) 73,746Paul Strasen 147,135 — $8.67 12/27/2020 43,275 — $12.13 12/06/2022 5,500 5,500(1) $31.53 05/13/2024 5,125 15,375(2) $16.70 05/06/2025 1,050 9,451(3) $10.64 11/16/2025 10,054(4) 40,719Kathy Lockhart 26,312 — $8.67 12/27/2020 4,327 — $12.13 12/06/2022 1,470 491(5) $18.00 06/27/2023 3,100 3,100(1) $31.53 05/13/2024 1,156 2,311(6) $18.43 03/04/2025 2,374 7,123(2) $16.70 05/06/2025 1,034 9,306(3) $10.64 11/16/2025 3,577(4) 14,487Kevin Reddy 922,046 — $8.67 10/23/2017 227,193 — $18.00 10/23/2017 10,000 — $31.53 10/23/2017 2,500 — $16.70 10/23/2017 Mark Mears — — ______________________________(1)The options vest in two equal installments on May 13, 2017 and 2018.(2)The options vest in three equal installments on May 6, 2017, 2018 and 2019.(3)The options vest 20%, 30% and 40% on November 16, 2017, 2018 and 2019, respectively.(4)Represents restricted stock units (“RSUs”) awarded on May 5, 2016, which vest in four equal installments on May 5, 2017, 2018, 2019 and 2020.(5)The options vest on June 27, 2017.(6)The options vest in two equal installments on March 4, 2017 and 2018.83Table of Contents Potential Payments and Acceleration of Equity upon Termination or Termination in Connection with a Change in ControlEmployment and Severance AgreementsWe are a party to an employment agreement with Mr. Reddy (the “Employment Agreement”). As previously disclosed, on July 25, 2016, Mr. Reddy resigned as amember of our Board of Directors, from his position as the Chairman of the Board of the Directors and from his position as our Chief Executive Officer. Inconnection with Mr. Reddy’s transition, we entered into a Release Agreement with Mr. Reddy, dated July 25, 2016 (the “Release Agreement”), pursuant to whichMr. Reddy is entitled to severance payments totaling one and one-half times his current base salary, COBRA premiums for eighteen months and the right toexercise vested options to purchase our Class A common stock through October 23, 2017. Through the Release Agreement, Mr. Reddy releases, waives anddischarges the Company from any and all employment-related claims, and the Company releases and discharges Mr. Reddy from certain claims arising prior toJuly 25, 2016. In addition, pursuant to the Employment Agreement, Mr. Reddy generally is prohibited from competing with the Company in North American fast-or quick-casual restaurants that derive at least 20% of their revenue from sales of noodles or pasta dishes for 18 months following his resignation, and fromsoliciting employees of the Company for 12 months following his resignation.We are a party to severance agreements with Mr. Boennighausen and Mr. Strasen (the “Severance Agreements”). Pursuant to the Severance Agreements, eachexecutive is an “at-will” employee. If the Company terminates the executive’s employment without “cause” (as such term is defined in the Severance Agreements)the executive is entitled to receive compensation equal to nine months of his then-current base salary, payable in equal installments over nine months, a pro ratabonus for the year of termination and reimbursement of “COBRA” premiums for up to nine months for the executive and his dependents. The severance paymentsare conditioned upon the executive entering into a mutual release of claims with us. The Severance Agreements also include noncompetition and nonsolicitationcovenants, which restrict Mr. Boennighausen and Mr. Strasen from engaging in a competitive business during their employment and for 9 months thereafter, orsoliciting employees at or above the level of vice president or above during their employment and for 9 months thereafter. For this purpose, “competitive business”is defined as any business engaged in the fast casual restaurant business in North America that derives 20% or more of its revenues from the sale of noodle or pastadishes.In addition, each of the executives’ outstanding unvested options provide that in the event his employment is terminated without cause within 12 months followinga change in control, any remaining unvested portion of such options will vest.Payments Upon Termination or Change in ControlNone of our NEOs are entitled to receive payments or other benefits upon termination of employment or a change in control, except as provided in the SeveranceAgreements described above.Certain Other Compensation Plans401(k) PlanWe maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Eligibleemployees are able to defer eligible compensation subject to applicable annual Internal Revenue Code limits. No employer contributions were made to the 401(k)plan in 2015 or 2016. Contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to theparticipants’ directions. The 401(k) plan is intended to be qualified under Section 401(a) of the Internal Revenue Code.Pension BenefitsOur NEOs did not receive any benefits from the Company under any pension or retirement plan we sponsored during 2015 or 2016.Nonqualified Deferred CompensationOn May 16, 2013 the Company adopted The Executive Non-Qualified “Excess” Plan (the “Excess Plan”). The Excess Plan provides supplementary benefits to theeligible participants whose benefits under the Company’s 401(k) Plan are limited because of the restriction on annual additions that may be made to a qualifieddefined contribution plan and/or the limitation on compensation that may be taken into account in calculating contributions to such a plan. Our NEOs did not earnany nonqualified deferred compensation benefits from us during 2015 or 2016 under the Excess Plan or otherwise.84Table of Contents DIRECTOR COMPENSATIONThe following table sets forth information concerning the compensation of our independent directors for the fiscal year ended January 3, 2017.Director Name Fees Earned or Paid inCash ($) Stock Awards ($) Total ($)Scott Dahnke $45,000(1) $18,906(8) $63,906Francois Dufresne 35,000(2) 18,906(8) $53,906Robert Hartnett 70,000(3) 99,995(9) $169,995Jeffrey Jones 110,000(4) 49,998(10) $159,998Johanna Murphy 60,000(5) 49,998(10) $109,998James Rand 80,000(6) — $80,000Andrew Taub 25,000(7) 18,906(8) $43,906______________________________(1)This amount includes $5,000 for serving on each of the compensation and nominating committees and $5,000 for serving as the Chairman of each of the compensation andnominating committees. All amounts to which Mr. Dahnke is entitled are paid directly to Catterton Management Company, L.L.C., which is affiliatedwith our large shareholder L Catterton.(2)This amount includes $5,000 for serving on each of the compensation and nominating committees. All amounts to which Mr. Dufresne is entitled are paid directly toArgentia.(3)This amount includes $50,000 for serving as Chairman of the Board, as well as $20,000 for serving on the Special Committee.(4)This amount includes $10,000 for serving as the Chairman of the audit committee and $10,000 for serving on each of the audit and compensation committees, as well as$20,000 for service on the Special Committee and $10,000 for serving as the Chairman of the Special Committee.(5)This amount includes $10,000 for serving as a member of the audit committee.(6)This amount includes $10,000 for serving as a member of the audit committee and $20,000 for serving on the Special Committee.(7)All amounts to which Mr. Taub is entitled are paid directly to Catterton Management Company, L.L.C.(8)The annual retainer grant in 2016 had a grant date fair value (computed in accordance with FASB ASC Topic 718) of $7.42 per share. The shares in the retainer grants forMessrs. Dahnke and Taub were transferred directly to Catterton Management Company, L.L.C., and the shares in the retainer grant for Mr. Dufresnewere transferred directly to Argentia.(9)The annual retainer grant in 2016 had a grant date fair value (computed in accordance with FASB ASC Topic 718) of $10.36 per share.(10)The annual retainer grant in 2016 had a grant date fair value (computed in accordance with FASB ASC Topic 718) of $10.90 per share.We have adopted a non-employee director compensation plan covering non-employee directors other than directors affiliated with L Catterton or Argentia. Underthe plan, each non-employee director covered by the plan receives an annual cash retainer for board service, an annual cash retainer for committee service and anannual cash retainer for serving as chair of a committee. The board has currently fixed the retainer for board service at $50,000 per year, and it has fixed each ofthe retainers for committee service and committee chair at $10,000 per year, with the retainer for service on the Special Committee fixed at $20,000 per year. Aspecial committee composed of independent, disinterested members of the Board, advised by Morris, Nichols, Arsht & Tunnell LLP, as independent legal advisor,and Jefferies LLC, as independent financial advisor (the “Special Committee”), was formed by the Board of Directors in late 2016 to evaluate various alternativesfor improving the liquidity position of the Company, including pursuant to the private placement completed in early 2017. In addition, except as provided belowwith respect to directors appointed by L Catterton and Argentia, at the close of business on the date of the Company’s annual meeting of stockholders, each non-employee director covered by the plan will receive restricted stock units (“RSUs”), which shall be fully vested upon grant, having a fair market value of $50,000(or $100,000 in the case of the Chairman of the Board).Directors who are also employees, such as Mr. Boennighausen, do not and will not receive any compensation for their services as directors. In addition, under thestockholders agreement with L Catterton and Argentia, the Company is required to pay the directors appointed by L Catterton and Argentia an annual fee of$100,000 (or such other amount that may be determined by the Board of Directors to be payable to non-employee directors) for each such director serving on theBoard of Directors; provided, that any fees and stock awards otherwise payable to directors appointed by L Catterton shall instead be paid directly to CattertonManagement Company, L.L.C. and any fees and stock awards otherwise payable to directors appointed by Argentia shall instead be paid directly to Argentia. Thedirectors appointed by L Catterton and Argentina include Messrs. Dahnke and Taub appointed by L Catterton and Mr. Dufresne appointed by Argentia. StuartFrenkiel, who served as a director throughout 2015 and a portion of 2016, was appointed85Table of Contents by Argentia. In 2016, L Catterton and Argentia each waived the requirement that director fees be paid to its board designees for the first two quarters of the 2016fiscal year, and the non-employee director compensation plan provided for RSU grants to each of the directors appointed by, L Catterton and Argentia, for theirservices during the 3 rd and 4 th fiscal quarters of 2016, having a fair market value of $25,000.Directors have been and will continue to be reimbursed for travel, food, lodging and other expenses directly related to their activities as directors. Directors are alsoentitled to the protection provided by their indemnification agreements and the indemnification provisions in our certificate of incorporation and bylaws, as well asthe protection provided by director and office liability insurance provided by us.Compensation Committee Interlocks and Insider ParticipationNone of the members of our Compensation Committee is, or has at any time been, an officer or employee of the Company. None of our executive officers currentlyserves, or in the past year has served, as a member of the Board of Directors or Compensation Committee of any other entity that has one or more executiveofficers serving on our Board of Directors or Compensation Committee. No directors served on the Compensation Committee in 2016 other than Messrs. Dahnke,Frenkiel, Dufresne and Jones.Compensation Committee ReportThe JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will be exempt from certain disclosure requirements of theDodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from proxystatements and reports filed under the Exchange Act. Accordingly, we have not included such analysis or a report from our compensation committee.86Table of Contents ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe following table sets forth certain information with respect to the beneficial ownership of Class A and Class B of our common stock as of February 24, 2017for:•each stockholder known by us to be the beneficial owner of more than 5% of any class of our outstanding shares of common stock;•each of our directors;•each of our named executive officers; and•all of our directors and executive officers as a group.As of February 24, 2017, Argentia beneficially owned 1,522,098 shares of Class B common stock, which represented 100% of the outstanding shares of Class Bcommon stock on that date. Class B common stock has the same rights as the common stock except that holders of Class B common stock will not be entitled tovote in the election or removal of directors unless converted into Class A common stock.We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on theinformation furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our commonstock that they beneficially own, subject to applicable community property laws.Applicable percentage ownership in the following table is based on 27,872,925 shares of common stock outstanding as of February 24, 2017 (of which 26,350,827were Class A common stock and 1,522,098 were Class B common stock), unless otherwise indicated in the footnotes below. In computing the number of shares ofcommon stock beneficially owned by a person or entity and the percentage ownership of that person or entity, we deemed to be outstanding all shares of commonstock subject to options or other convertible securities held by that person or entity that are currently exercisable or exercisable within 60 days of February 24,2017, including the preferred stock held by L Catterton, which is convertible into 4,252,873 shares of Class A common stock. We did not deem these sharesoutstanding; however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficialowner listed in the table below is c/o Noodles & Company, 520 Zang Street, Suite D, Broomfield, CO 80021.87Table of Contents Shares Beneficially Owned Voting Shares BeneficiallyOwned Shares Percent Shares PercentName and Address of Beneficial Owner Stockholders owning more than 5% Entities affiliated with L Catterton (1)11,092,853 34.53% 11,092,853 36.25%Argentia Private Investments Inc. (2)8,266,858 29.66% 6,744,760 25.60%FMR LLC (3)3,951,069 14.18% 3,951,069 14.99% Named Executive Officers and Directors Dave Boennighausen (4)151,270 * 151,270 *Paul Strasen (5)207,028 * 207,028 *Kevin Reddy (6)1,161,739 4.00% 1,161,739 4.22%Kathy Lockhart (7)41,378 * 41,378 *Mark Mears— * — *Scott A. Dahnke (1)11,092,853 34.53% 6,744,760 36.25%Andrew Taub— * — *François Dufresne— * — *Robert Hartnett9,652 * 9,652 *James Rand (8)61,174 * 61,174 *Jeffrey Jones (9)18,704 * 18,704 *Johanna Murphy (10)13,193 * 13,193 * All Executive Officers and Director as a Group (11)1,664,138 5.97% 1,664,138 6.31%* Indicates ownership of less than one percent. __________________________(1)Includes 4,252,873 shares of our Class A common stock issuable upon conversion of the preferred stock and exercisable within 60 days. All of the shares of our ClassA common stock and preferred stock are held by Catterton-Noodles, LLC, an entity affiliated with L Catterton. Scott Dahnke is a Global Co-CEO of L Catterton, andin such capacity has voting and investment control over the securities. Mr. Dahnke disclaims beneficial ownership of such securities except to the extent of hispecuniary interest therein. The principal business address of L Catterton is 599 West Putnam Avenue, Greenwich, CT 06830.(2)Consists of 6,744,760 shares of our Class A common stock and 1,522,098 shares of our Class B common stock held by Argentia, which is affiliated with the PublicSector Pension Investment Board (“PSP Investments”), a Canadian Crown Corporation. André Bourbonnais is President and Chief Executive Officer of PSPInvestments. He is also President of Argentia. Guthrie Stewart is Director and Vice-President of Argentia and Senior Vice President and Global Head of PrivateInvestments of PSP Investments. Nathalie Bernier is Director and Vice-President of Argentia and Senior Vice President, Strategic and Business Planning and ChiefFinancial Officer of PSP Investments. In such capacities, Mr. Bourbonnais, Mr. Stewart and Ms. Bernier have investment control over such securities. Mr. Stewart andStephanie Lachance, Vice President, Responsible Investment and Corporate Secretary of PSP Investments, have voting control over such securities on behalf ofArgentia. Mr. Bourbonnais, Mr. Stewart, Ms. Bernier and Ms. Lachance disclaim beneficial ownership of such securities. The principal business address of Argentia is1250 Réne Lévesque Boulevard West, Suite 900, Montreal, Quebec, Canada H3B 4W8.(3)Abigail P. Johnson is a Director, the Vice Chairman, the Chief Executive Officer and the President of FMR LLC. Neither FMR LLC nor Abigail P. Johnson has thesole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“FidelityFunds”) advised by Fidelity Management & Research Company (“FMR Co”), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’Boards of Trustees. The principal address of FMR LLC is 245 Summer Street, Boston, MA 02210.(4)Includes options to purchase 149,770 shares of our Class A common stock exercisable within 60 days.(5)Includes options to purchase 202,085 shares of our Class A common stock exercisable within 60 days.(6)Includes options to purchase 1,161,739 shares of our Class A common stock exercisable within 60 days.(7)Includes options to purchase 40,928 shares of our Class A common stock exercisable within 60 days.(8)Includes options to purchase 44,669 shares of our Class A common stock exercisable within 60 days.88Table of Contents (9)Includes options to purchase 14,117 shares of our Class A common stock exercisable within 60 days.(10)Includes options to purchase 8,606 shares of our Class A common stock exercisable within 60 days.(11)Excludes 11,092,853 shares of our Class A common stock disclaimed by Mr. Dahnke.Equity Compensation Plan InformationThe following table summarizes information as of January 3, 2017 , about shares of common stock that may be issued under our equity compensation plans. Plan category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights (a) Weighted-average exercise price ofoutstanding options and warrants(b) Number of securities remainingavailable for future issuance underequity compensation plans (excludingsecurities reflected in column (a))(c)Equity compensation plans approved by security holders (1) 2,726,547 $12.34 3,913,823Equity compensation plans not approved by security holders — — —Total 2,726,547 $12.34 3,913,823______________________________(1)Includes in column (a) 2,574,932 shares of Class A common stock issuable upon exercise of options outstanding under the Company’s Stock Incentive Plan, 28,850 shares of Class Bcommon stock issuable upon exercise of a warrant granted to a consultant, and 122,765 gross number of shares of Class A common stock underlying outstanding RSUs. The sharesunderlying the warrant and outstanding RSUs are not included in the calculation of the Weighted-Average Exercise Price in column (b). Includes in column (c) 3,244,135 shares ofClass A common stock available for issuance upon exercise of future grants under the Company’s Stock Incentive Plan and 669,688 shares of Class A common stock available forfuture issuance under the Company’s Employee Stock Purchase Plan. Material features of the Company’s Stock Incentive Plan and Employee Stock Purchase Plan are set forth inNote 10, Stock-Based Compensation and Note 12, Employee Benefit Plans, to our consolidated financial statements, for the year ended January 3, 2017.ITEM 13. Certain Relationships and Related Transactions, and Director IndependenceTransactions with Related PersonsThe following is a description of each transaction since December 31, 2014 to which we have been a party, in which the amount involved exceeded or will exceed$120,000, and in which any of our directors, executive officers, beneficial holders of more than 5% of either our Class A or our Class B common stock, or anyother related person had or will have a direct or indirect material interest.Stockholders Agreement. In connection with our initial public offering, we amended and restated our stockholders agreement, dated as of July 2, 2013, with LCatterton and Argentia (our “Equity Sponsors”), which amendment and restatement became effective upon the completion of our initial public offering. Thestockholders agreement also grants our Equity Sponsors the right, subject to certain conditions, to nominate representatives to our Board of Directors andcommittees of our Board of Directors. L Catterton and Argentia each will have the right to designate two members to our Board of Directors, and the parties to thestockholders agreement will agree to vote to elect such director designees.Additionally, L Catterton and Argentia have agreed to elect each other’s director nominees and to not take certain actions affecting us without the consent of theother.If at any time an Equity Sponsor owns more than 10.0% and less than 20.0% of our outstanding Class A and Class B common stock, such Equity Sponsor has theright to designate one nominee for election to our Board of Directors. If an Equity Sponsor’s ownership level falls below 10.0% of our outstanding Class A andClass B common stock, such Equity Sponsor will no longer have a right to designate a nominee. In addition, for so long as L Catterton and Argentia together holdat least 35.0% of the voting power of our outstanding common stock, certain actions may not be taken without the approval of L Catterton (so long as it holds atleast 5.0% of the voting power of our outstanding common stock) and Argentia (so long as it holds at least 5.0% of the voting power of our outstanding commonstock (for certain of which actions we have obtained a waiver from each of the Equity Sponsors in connection with our completion of the private placement)),including:89Table of Contents •any merger, recapitalization or other adjustment in voting rights, if following such event, L Catterton and Argentia would not together havesufficient voting power or otherwise be entitled to elect a majority of our Board of Directors;•any sale of all or substantially all the assets of the Company;•the issuance of any capital stock or debt securities of us or any of our subsidiaries for consideration exceeding $50.0 million, other than certainissuances upon the grant of equity awards;•the creation of any new class or series of shares of equity securities having rights, preferences or privileges senior to or on a parity with the commonstock; or•any amendment of our certificate of incorporation, bylaws or equivalent organization documents of the Company or any subsidiary of the Companyin a manner that could reasonably be expected to adversely affect the rights of L Catterton or Argentia.Private Placement. On February 8, 2017, we entered into a securities purchase agreement with L Catterton, pursuant to which we sold to L Catterton, in return foraggregate gross proceeds to us of $18.5 million, an aggregate of 18,500 shares of Series A Convertible Preferred Stock, par value $0.01 per share, convertible into4,252,873 shares of Class A common stock at a conversion price of $4.35 per share, for a purchase price of $1,000 per share, plus warrants exercisable beginningsix months following their issuance for the purchase of 1,913,793 shares of Class A common stock at a price per share of $4.35.In connection with the private placement, we entered into a Letter Agreement with Argentia that provides we will indemnify Argentia in limited circumstances forcertain losses incurred by Argentia or its affiliates that arise out of the private placement, for which transaction Argentia provided its consent pursuant to the termsof our stockholders agreement. The Letter Agreement, among other things, also provides for the registration of shares of Class A common stock (including sharesof Class A common stock into which shares of Class B common stock may be converted) held by Argentia, by us on terms substantially similar to the registrationrights that we agreed to provide to L Catterton in the Securities Purchase Agreement. The specific rights of Argentia are set forth in the Letter Agreementattached as Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on February 9, 2017.Registration Rights. Pursuant to the terms of a registration rights agreement between us and certain holders of our stock, including L Catterton, certain of itsaffiliates and Argentia, certain holders of our stock are entitled to demand and piggyback rights:•Demand Registrations . Under the registration rights agreement, both L Catterton and Argentia are able to require us to file a registration statementunder the Securities Act, covering at least 10.0% of our equity interests, and we are required to notify holders of such securities in the event of suchrequest (a “Demand Registration Request”). Each of L Catterton and Argentia can issue unlimited Demand Registration Requests, unless we areineligible to use Form S-3, in which case we will not be obligated to grant more than three Demand Registration Requests to each of L Catterton andArgentia during such period of ineligibility.•Piggyback Registrations . Under the Registration Rights Agreement, if at any time we propose or are required to register any of our equity securitiesunder the Securities Act (other than a demand registration or pursuant to an employee benefit or dividend reinvestment plan), we will be required tonotify each eligible holder of its right to participate in such registration and to use commercially reasonable efforts to cause all eligible securitiesrequested to be included in the registration to be so included.Procedures for Approval of Related Party Transactions. Our policies on related party transactions, which are included in our Audit Committee charter and ourEmployee Code of Business Conduct and Ethics, address the policies and procedures for review and approval of related party transactions. These policies covercertain relationships and material obligations and interests. These policies provide that, in determining whether or not to recommend the initial approval orratification of a related party transaction, all relevant facts and circumstances available shall be considered. The Audit Committee is responsible for approval andratification of certain related person transactions pursuant to the applicable policies and procedures.Board IndependenceUnder the listing requirements and NASDAQ rules, independent directors must comprise a majority of a listed company’s Board of Directors. Our Principles ofCorporate Governance (the “Principles”) provide that an “independent” director is a director who meets the NASDAQ definition of independence and thePrinciples also provide that, under applicable NASDAQ rules, the members of each of the Audit and Compensation Committees are subject to additional,heightened independence criteria applicable to directors serving on these committees. Our Board of Directors has undertaken a review of its composition, thecomposition of its committees and the independence of each director (both generally, and, where applicable, under heightened independence criteria applicable to90Table of Contents certain committees). Based upon information requested from and provided by each director concerning his or her background, employment and affiliations,including family relationships, our Board of Directors has determined, based on the recommendation of our Nominating and Corporate Governance Committee,that each of Messrs. Dahnke, Dufresne, Hartnett, Jones, Rand, Taub and Ms. Murphy is “independent” under NASDAQ rules. In making the independencedeterminations, our Board of Directors assessed the current and prior relationships that each non-employee director has with us and all other relevant facts andcircumstances, including the beneficial ownership of our capital stock by each non-employee director. Based on these assessments, for each director deemed to beindependent, our Board of Directors made a determination that, because of the nature of the director’s relationships and/or the amounts involved, each directordeemed to be independent had no relationships with our company or our management that, in the judgment of the Board, would impair the director’s independence.Messrs. Dufresne and Dahnke are currently members of the Compensation Committee and are affiliated with Argentia and Catterton, respectively. Pursuant toapplicable SEC and NASDAQ requirements, the Board of Directors considered all factors specifically relevant to determining whether either of these directors hador has a relationship which is material to that director’s ability to be independent from management in connection with their duties as members of theCompensation Committee, including these affiliations, and the Board determined that these directors are independent for purposes of serving on the Board ofDirectors and its Compensation Committee.91Table of Contents ITEM 14.Principal Accounting Fees and ServicesThe following table sets forth the aggregate fees billed for professional services rendered by Ernst & Young for the audit of our financial statements for 2016 and2015 and the aggregate fees for other services rendered by Ernst & Young billed in those periods: 2016 2015Audit fees (1) $529,972 $475,721Audit-related fees — —Tax fees (2) 8,968 104,505Total audit and related fees $538,940 $580,226_____________________(1)2016 and 2015 audit fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when theservices were rendered.(2)Tax fees relate to professional services rendered for tax compliance, tax return review and preparation and related tax advice.The Board of Directors has adopted a written policy for the pre-approval of certain audit and non-audit services that Ernst & Young provides. The policy balancesthe need for independence of Ernst & Young while recognizing that in certain situations Ernst & Young may possess both the technical expertise and knowledge ofthe Company to best advise the Company on issues and matters in addition to accounting and auditing. In general, the Company’s independent registered publicaccounting firm cannot be engaged to provide any audit or non-audit services unless the engagement is pre-approved by the Audit Committee. Certain servicesmay also be pre-approved by the Chairman of the Audit Committee under the policy. All of the fees identified in the table above were approved in accordance withSEC requirements and pursuant to the policies and procedures described above.92Table of Contents PART IVITEM 15.Exhibits, Financial Statement Schedules1.Our Consolidated Financial Statements and Notes thereto are included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Reporton Form 10-K.2.All financial schedules have been omitted either because they are not applicable or because the required information is provided in our ConsolidatedFinancial Statements and Notes thereto, included in Item 8 of this Annual Report on Form 10-K.3.The Index to Exhibits, which appears immediately following the signature page and is incorporated herein by reference, is filed as part of this 10-K.93Table of Contents SIGNATURESPursuant 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 bythe undersigned, thereunto duly authorized, on March 2, 2017. NOODLES & COMPANY By: /s/ DAVE BOENNIGHAUSEN Dave Boennighausen Chief Financial Officer and Interim Chief Executive OfficerPOWER OF ATTORNEYKnow all persons by these presents, that each person whose signature appears below constitutes and appoints Dave Boennighausen or Paul Strasen, or any of them,as such person’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person’s name, place andstead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connectiontherewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do andperform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or coulddo in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them or their or such person’s substitute or substitutes, may lawfullydo or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.94Table of Contents SignatureTitleDate/s/ DAVE BOENNIGHAUSEN Dave BoennighausenDirector, Chief Financial Officer and Interim Chief Executive Officer(principal executive officer and principal financial officer)March 2, 2017/s/ KATHY LOCKHART Kathy LockhartVice President and Controller(principal accounting officer)March 2, 2017/s/ ROBERT HARTNETT Robert HartnettChairmanMarch 2, 2017/s/ SCOTT DAHNKE Scott A. DahnkeDirectorMarch 2, 2017/s/ FRANÇOIS DUFRESNE François DufresneDirectorMarch 2, 2017/s/ JEFFREY JONES Jeffrey JonesDirectorMarch 2, 2017/s/ JAMES RAND James RandDirectorMarch 2, 2017/s/ ANDREW TAUB Andrew TaubDirectorMarch 2, 2017/s/ JOHANNA MURPHY Johanna MurphyDirectorMarch 2, 2017 95Table of Contents EXHIBITS Description of Exhibit Incorporated Herein by Reference Exhibit Number Exhibit Description Form File No. Filing Date ExhibitNumber FiledHerewith3.1 Amended and Restated Certificate ofIncorporation S-1 333-192402 November 19,2013 3.1 3.2 Second Amended and Restated Bylaws 8-K 001-35987 August 24,2015 3.1 4.1 Specimen Stock Certificate S-1/A 333-188783 June 17, 2013 4.1 4.2 Certificate of Designations for Series AConvertible Preferred Stock 8-K 001-35987 February 9,2017 4.1 4.3 Form of Warrant to Purchase Class ACommon Stock 8-K 001-35987 February 9,2017 4.2 10.1 Noodles & Company Amended andRestated 2010 Stock Incentive Plan S-1/A 333-188783 June 17, 2013 10.1 10.2 Noodles & Company 2013 EmployeeStock Purchase Plan S-1/A 333-188783 June 17, 2013 10.2 10.3 Registration Rights Agreement, datedDecember 27, 2010, by and amongNoodles & Company and certain of itsstockholders S-1/A 333-188783 June 17, 2013 10.3 10.4 Amendment No. 1 to Registration RightsAgreement, dated as of July 8, 2014,among Noodles & Company and certainof its stockholders 10-Q 001-35987 November 6,2014 10.1 10.5 Amended and Restated CreditAgreement, dated as of November 22,2013, among Noodles & Company, theother Loan Parties thereto, Bank ofAmerica, N.A., as Administrative Agent,L/C Issuer and Swing Line Lender andthe other lenders party thereto 8-K 001-35987 November 26,2013 10.1 10.6 Amendment No.1 to the Amended andRestated Credit Agreement, dated as ofJune 4, 2015, among Noodles &Company, the other Loan Parties partythereto, the lenders thereto and Bank ofAmerica, N.A., as Administrative Agent,L/C Issuer and Swingline Lender 8-K 001-35987 June 5, 2015 10.10 96Table of Contents 10.7 Amendment No.2 to the Amended andRestated Credit Agreement, dated as ofNovember 24, 2015, by and amongNoodles & Company, each of theGuarantors signatory thereto, Bank ofAmerica, N.A., as administrative agentand the lenders signatory thereto 8-K 001-35987 November 24,2015 10.10 10.8 Amendment No. 3 to Amended and RestatedCredit Agreement, dated as of August 2,2016, by and among Noodles & Company,each of the Guarantors signatory thereto,Bank of America, N.A., as administrativeagent and the lenders signatory thereto 10-Q 001-35987 August 5, 2016 10.2 10.9 Amendment No. 4 to Amended and RestatedCredit Agreement, dated as of November 4,2016, by and among Noodles & Company,each of the Guarantors signatory thereto,Bank of America, N.A., as administrativeagent and the lenders signatory thereto 10-Q 001-35987 November 7,2016 10.3 10.10 Amendment No. 5 to Amended and RestatedCredit Agreement, dated as of February 9,2017, by and among Noodles & Company,each of the Guarantors signatory thereto,Bank of America, N.A., as administrativeagent and the lenders signatory thereto 8-K 001-35987 February 9,2017 10.2 10.11 Security Agreement, dated February 28,2011, by and between Noodles &Company and Bank of America, N.A., asadministrative agent S-1 333-188783 May 23, 2013 10.13 10.12 Pledge Agreement, dated February 28,2011, by and between Noodles &Company and Bank of America, N.A., asadministrative agent S-1 333-188783 May 23, 2013 10.14 10.13 Form of Indemnification Agreement byand between Noodles & Company andeach of its directors and executiveofficers S-1/A 333-188783 June 17, 2013 10.15 10.14 Form of Area Development Agreement 10-K 001-35987 February 24,2015 10.9 10.15 Form of Franchise Agreement 10-K 001-35987 February 24,2015 10.10 10.16 Severance Agreement with DaveBoennighausen, dated December 19,2012 10-K 001-35987 March 7, 2014 10.1 97Table of Contents 10.17 Employment Agreement, dated June 7,2013, by and between Noodles &Company and Kevin Reddy S-1/A 333-188783 June 17, 2013 10.20 10.18 Noodles & Company Compensation PlanFor Non-Employee Directors 10-Q 001-35987 November 7,2016 10.1 10.19 The Executive Nonqualified “Excess”Plan Adoption Agreement, adopted byNoodles & Company on May 16, 2013 S-1/A 333-188783 June 17, 2013 10.22 10.20 Amended and Restated StockholdersAgreement, dated as of July 2, 2013,among Noodles & Company, LCatterton-Noodles, LLC and ArgentiaPrivate Investments Inc. S-1 333-192402 November 19,2013 10.18 10.21 Severance Agreement with Paul Strasen,dated January 24, 2011 10-K 001-35987 March 1, 2016 10.20 10.22 Interim Chief Executive Officer LetterAgreement, dated July 25, 2016, betweenNoodles & Company and DaveBoennighausen 8-K 001-35987 July 26, 2016 10.1 10.23 Indemnification Agreement, dated July 25,2016, between Noodles & Company andRobert M. Hartnett 8-K 001-35987 July 26, 2016 10.2 10.24 Release Agreement, dated July 25, 2016,between Noodles & Company and KevinReddy 8-K 001-35987 July 26, 2016 10.3 10.25 Offer Letter, dated July 25, 2016, betweenNoodles & Company and Robert Hartnett 10-Q 001-35987 November 7,2016 10.7 10.26 Offer Letter, dated July 3, 2016, betweenNoodles & Company and Victor R. Heutz 10-Q 001-35987 November 7,2016 10.8 10.27 Securities Purchase Agreement, dated as ofFebruary 8, 2017, between Noodles &Company and Catterton-Noodles, LLC 8-K 001-35987 February 9,2017 10.1 10.28 Letter Agreement, dated February 8, 2017,between Noodles & Company and ArgentiaPrivate Investments Inc. 8-K 001-35987 February 9,2017 10.3 21.1 List of Subsidiaries of Noodles &Company 10-K 001-35987 March 1, 2016 21.1 23.1 Consent of Ernst & Young LLP X24.1 Power of Attorney (included on signaturepage of this report) X31.1 Certification of Principal ExecutiveOfficer and Principal Financial Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X98Table of Contents 32.1 Certification of Chief Executive Officerand Chief Financial Officer Section 906of the Sarbanes-Oxley Act of 2002 X101.INS XBRL Instance Document - the instancedocument does not appear in theInteractive Data File because its XBRLtags are embedded within the InlineXBRL document X101.SCH XBRL Taxonomy Extension SchemaDocument X101.CAL XBRL Taxonomy Extension CalculationLinkbase Document X101.DEF XBRL Taxonomy Extension DefinitionLinkbase Document X101.LAB XBRL Taxonomy Extension LabelLinkbase Document X101.PRE XBRL Taxonomy Extension PresentationLinkbase Document X99Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-189877) pertaining to the Noodles & Company Employee Stock Purchase Plan, and(2)Registration Statement (Form S-8 No. 333-189878) pertaining to the Noodles & Company Amended and Restated 2010 Stock Incentive Plan,of our report dated March 2, 2017, with respect to the consolidated financial statements of Noodles & Company included in this Annual Report (Form 10-K) ofNoodles & Company for the year ended January 3, 2017./s/ Ernst & Young LLPDenver, ColoradoMarch 2, 2017Exhibit 31.1CERTIFICATION I, Dave Boennighausen, certify that:1. I have reviewed this annual report on Form 10-K of Noodles and Company;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant's internal control over financial reporting.5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of theregistrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Date: March 2, 2017 /s/ DAVE BOENNIGHAUSEN Dave Boennighausen Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERI, Dave Boennighausen, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Reportof Noodles & Company on Form 10-K for the fiscal year ended January 3, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition andresults of operations of Noodles & Company.Date: March 2, 2017 By: /s/ DAVE BOENNIGHAUSEN Name: Dave Boennighausen Title: Interim Chief Executive Officer and ChiefFinancial OfficerThis certification accompanies this Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by theCompany for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to beincorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specificallyincorporates it by reference.

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