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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
FORM 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35373 
FIESTA RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
 
90-0712224
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
14800 Landmark Boulevard, Suite 500
Dallas, TX
 
75254
(Address of principal executive office)
 
(Zip Code)
Registrant’s telephone number, including area code: (972) 702-9300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name on each exchange on which registered:
Common Stock, par value $.01 per share
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
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As of February 22, 2018, Fiesta Restaurant Group, Inc. had 27,093,581 shares of its common stock, $.01 par value, outstanding. The aggregate market value of the common stock held by non-affiliates as of July 2, 2017 of Fiesta Restaurant Group, Inc. was $522,577,697.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for Fiesta Restaurant Group, Inc.'s 2018 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A no later than 120 days after the conclusion of Fiesta Restaurant Group, Inc.'s fiscal year ended December 31, 2017 are incorporated by reference into Part III of this annual report.
 
 



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FIESTA RESTAURANT GROUP, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2017
 
 
 
Page

 






 
 
 
 
 








 
 
 





 
 
 
 
 

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PART I
Presentation of Information
Throughout this Annual Report on Form 10-K, we refer to Fiesta Restaurant Group, Inc. as “Fiesta Restaurant Group” or "Fiesta" and, together with its consolidated subsidiaries, as “we,” “our” and “us” unless otherwise indicated or the context otherwise requires. Any reference to restaurants refers to company-owned restaurants unless otherwise indicated.
We own, operate and franchise two fast-casual restaurant brands, Pollo Tropical® and Taco Cabana®, through our wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Our common stock is traded on The NASDAQ Global Select Market under the symbol “FRGI.”
We use a 52 or 53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended December 29, 2013, December 28, 2014, January 1, 2017 and December 31, 2017 each contained 52 weeks. The fiscal year ended January 3, 2016 contained 53 weeks. The next year to contain 53 weeks is expected to be the fiscal year ending January 3, 2021.
Use of Non-GAAP Financial Measures
Consolidated Adjusted EBITDA and margin and Restaurant-Level Adjusted EBITDA and margin are non-GAAP financial measures. We use these non-GAAP financial measures in addition to net income and income from operations to assess our performance, and we believe it is important for investors to be able to evaluate us using the same measures used by management. We believe these measures are important indicators of our operational strength and the performance of our business. These non-GAAP financial measures as calculated by us are not necessarily comparable to similarly titled measures reported by other companies, and should not be considered as an alternative to net income, earnings per share, cash flows from operating activities or other financial information determined under GAAP.
Prior to the second quarter of 2017, Adjusted EBITDA and Consolidated Adjusted EBITDA were defined as earnings before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other expense (income), net. In 2017, our board of directors appointed a new Chief Executive Officer who initiated the Strategic Renewal Plan (the "Plan") and uses an Adjusted EBITDA measure for the purpose of assessing performance and allocating resources to our segments. The Adjusted EBITDA measure used by the chief operating decision maker includes adjustments for significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants. Beginning in the second quarter of 2017, the primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is now defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, construction and other administrative functions. See Note 11 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Consolidated Adjusted EBITDA margin and Adjusted EBITDA margin are derived by dividing Consolidated Adjusted EBITDA and Adjusted EBITDA by total revenues and segment revenues, respectively.
Restaurant-level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses). Restaurant-Level Adjusted EBITDA margin is derived by dividing Restaurant-Level Adjusted EBITDA by restaurant sales.
Management believes that such financial measures, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-Level Adjusted EBITDA (i) provide useful information about our operating performance and period-over-period changes, (ii) provide additional information that is useful for evaluating the operating performance of our business and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.


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All such financial measures have important limitations as analytical tools. These limitations include the following:
such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment;
such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt;
although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and such financial information does not reflect the cash required to fund such replacements; and
such financial information does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as impairment and other lease charges, other income and expense and stock-based compensation expense) have recurred and may recur.
See Item 6—"Selected Financial Data” for a quantitative reconciliation from net income (loss), which we believe is the most directly comparable GAAP financial performance measure to Consolidated Adjusted EBITDA and Restaurant-Level Adjusted EBITDA.
Forward-Looking Statements
This 2017 Annual Report on Form 10-K contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. "Forward-looking statements" are any statements that are not based on historical information. Statements other than statements of historical facts included herein, including, without limitation, statements regarding our future financial position and results of operations, business strategy, budgets, projected costs and plans and objectives of management for future operations, are "forward-looking statements." Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or "cautionary statements," include, but are not limited to:
Increases in food and other commodity costs;
Risks associated with the expansion of our business, including increasing construction costs;
Risks associated with food borne illness or other food safety issues, including negative publicity through traditional and social media;
Our ability to manage our growth and successfully implement our business strategy;
A decrease in the labor supply to us or our key suppliers due to changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States;
Labor and employment benefit costs, including the impact of increases in federal and state minimum wages, increases in exempt status salary levels and healthcare costs;
Cyber security breaches;
General economic conditions, particularly in the retail sector;
Competitive conditions;
Weather conditions including hurricanes, windstorms and flooding, and other natural disasters;
Significant disruptions in service or supply by any of our suppliers or distributors;
Increases in employee injury and general liability claims;
Changes in consumer perception of dietary health and food safety;
Regulatory factors;
Fuel prices;
The outcome of pending or future legal claims or proceedings;
Environmental conditions and regulations;

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Our borrowing costs;
The availability and terms of necessary or desirable financing or refinancing and other related risks and uncertainties;
The risk of an act of terrorism or escalation of any insurrection or armed conflict involving the United States or any other national or international calamity;
Factors that affect the restaurant industry generally, including product recalls, liability if our products cause injury, ingredient disclosure and labeling laws and regulations; and
Other factors discussed under Item 1A-“Risk Factors” and elsewhere herein.



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ITEM 1. BUSINESS
Overview
Our Company
We own, operate and franchise two restaurant brands, Pollo Tropical® and Taco Cabana®, which have almost 30 and 40 years, respectively, of operating history and loyal customer bases. Our Pollo Tropical restaurants feature citrus marinated, fire-grilled chicken and other freshly prepared tropical inspired menu items, while our Taco Cabana restaurants specialize in Mexican inspired food made fresh by hand. We believe that both brands offer distinct and unique flavors with broad appeal at a compelling value, which differentiates them in the competitive fast-casual and quick-service restaurant segments. Nearly all of our restaurants offer the convenience of drive-thru windows.
For the fiscal year ended December 31, 2017, the average annual sales per restaurant was approximately $2.3 million for our Pollo Tropical restaurants and approximately $1.8 million for our Taco Cabana restaurants. As of December 31, 2017, we owned and operated 146 Pollo Tropical restaurants in the southeast United States, and 166 Taco Cabana restaurants in Texas, for a total of 312 restaurants across three states. We franchise our Pollo Tropical restaurants primarily in international markets, and as of December 31, 2017, we had 25 franchised Pollo Tropical restaurants outside the United States. In addition, as of December 31, 2017, we had five domestic non-traditional licensed locations on college campuses and one location in a hospital in Florida. As of December 31, 2017, we had five Taco Cabana franchised restaurants in New Mexico and two non-traditional Taco Cabana licensed domestic locations on college campuses in Texas. For the fiscal year ended December 31, 2017, we generated consolidated revenues of $669.1 million, and comparable restaurant sales decreased 6.5% for Pollo Tropical and 7.3% for Taco Cabana from 2016.
The Strategic Renewal Plan (the "Plan")
On February 27, 2017, we announced the appointment of Richard C. Stockinger as Chief Executive Officer and President of the Company, effective February 28, 2017. Shortly thereafter, we developed and began implementing the Plan designed to significantly improve our core business model and drive long term shareholder value creation, consisting of the following: 1) revitalizing restaurant performance in core markets; 2) managing capital and financial discipline; 3) establishing platforms for long term growth; and 4) optimizing each brands' restaurant portfolio.
We filled open positions on our senior management team by early in the fourth quarter of 2017 to ensure the successful implementation of the Plan and the refinement of our strategy and tactics as we move forward. We relaunched the Pollo Tropical brand in October 2017 and intend to relaunch the Taco Cabana brand in mid-2018 once the material aspects of the Plan with respect to Taco Cabana are in place. The relaunch of both brands was delayed as a result of Hurricanes Harvey and Irma (the "Hurricanes").
The items detailed below reflect our meaningful progress during the 2017 fiscal year and areas of focus as we enter 2018:
Revitalizing Restaurant Brands in Core Markets
We have comprehensively implemented refined recipes that improve food quality with higher quality fresh ingredients, impacting approximately 90% of menu items at both brands. We have vertically integrated our chicken supply chain, allowing us to control the feed and breed of all chickens purchased, initially at Pollo Tropical. Commencing in January 2018, all chicken served at Pollo Tropical was 100% No Antibiotics Ever (NAE).
Multiple operational initiatives have been put in place to deliver high quality execution with consistency, including the implementation of new labor models to improve speed of service, transaction flow, and the quality and consistency of hospitality.
Comprehensive research including Attitude, Awareness and Usage (AAU) and Total Unduplicated Reach and Frequency (TURF) studies have been completed by both brands to identify issues and opportunities within our current user groups. Each brand will conduct focus groups in the first half of 2018 to better understand brand obstacles and opportunities as we refine our menu offerings and reposition our brands outside of our core markets.
Both brands have rolled out digital menu boards that introduce new menu items that we believe help to further differentiate our brands in a competitive marketplace. Research further validated our new menu direction, including identifying new and future opportunities to further enhance our menu and appeal to our guests.
In late 2017, new creative TV, radio, billboard and social media advertising campaigns were launched at both brands that feature signature and new menu offerings being freshly prepared in our restaurant kitchens. New promotional strategies have been implemented to balance everyday value with premium offerings.
We continue to upgrade our restaurant facilities, including added signage and exterior lighting to improve visibility. We anticipate that these material upgrades in 2017 and 2018 will provide a clean, safe and appealing environment for

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our guests and our team members, and further provide cooking platforms to produce high quality menu items with consistency.
Regional chefs were added to the field structure to enhance food knowledge, provide culinary training and further ensure adherence to high quality operating and food safety standards.
Training systems, process and structure are being revamped in 2018. Materials will be digitized and trainers will take on a more proactive and impactful role in the field.
Managing Capital and Financial Discipline
Based on research and financial modeling, we have introduced a tiered menu pricing strategy across both brands in October 2017.
Nine Pollo Tropical restaurants were remodeled in 2017.
We restructured our organization during 2017 and eliminated field and corporate positions to mitigate investments we are making to enhance the guest experience.
In 2018 we will implement a preventative maintenance program to improve the longevity of our restaurant base.
Restaurant prototypes for both brands are being redesigned to optimize the guest experience and deliver attractive investment returns at lower costs.
We are planning to test kiosks during 2018 which could potentially mitigate increasing labor costs, increase our average guest check and improve accuracy.
Establishing Platforms for Long Term Growth
We launched an outsourced call center to answer guest inquiries and handle catering orders, initially at Pollo Tropical. Catering and delivery are a significant source of future growth at both brands and will be keen areas of focus in 2018.
We are working with new partners to establish comprehensive digital capabilities that will include refining delivery, catering, mobile apps, online ordering and new loyalty platforms for implementation in 2018.
We continue to refine the positioning of both brands in core markets and outside of core markets beginning with Pollo Tropical locations in North Florida and the Atlanta metropolitan area.
Optimizing our Restaurant Portfolio
We have rationalized our restaurant portfolio at both brands with the closure of a number of unprofitable restaurants.
We are updating our franchise disclosure documents to support potential franchise growth in the future.
We plan to update our site selection and restaurant optimization models for future expansion outside of core markets.
Other Events
During the third quarter of 2017, Texas and Florida were struck by the Hurricanes. 43 Taco Cabana and two Pollo Tropical restaurants in the Houston metropolitan area and all Pollo Tropical restaurants in Florida and the Atlanta metropolitan area were closed and affected by the Hurricanes to varying degrees (e.g. property preparation and damage, inventory losses, payment of hourly restaurant employees while restaurants were closed, lost business related to temporary closures, limited menu and modified hours of operations). Other Texas markets where we operate restaurants including San Antonio were also affected by Hurricane Harvey, but to a lesser degree.
We estimate that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $2.5 million to $3.5 million for Pollo Tropical, net of $0.7 million in estimated insurance recoveries, and approximately $0.5 million to $1.5 million for Taco Cabana, net of $0.2 million in estimated insurance recoveries, and negatively impacted comparable restaurant sales and transactions by approximately 1.0% to 2.0% for Pollo Tropical, and approximately 0.5% to 1.0% for Taco Cabana for the twelve months ended December 31, 2017.
Primarily based on a restaurant portfolio examination as part of our strategic review process to enhance long-term shareholder value and, to a lesser extent, due to the impact of Hurricane Harvey in Houston, we closed six of our Taco Cabana restaurants and 40 of our Pollo Tropical restaurants during 2017, including all of our Pollo Tropical restaurants in Texas and Nashville, Tennessee. In 2017, one of the closed Pollo Tropical restaurants in Texas was converted to a Taco Cabana restaurant and we anticipate up to five closed Pollo Tropical restaurants in Texas will be converted to Taco Cabana restaurants in 2018.
In 2017, we recognized impairment charges with respect to the 46 restaurants that were closed and two additional Pollo Tropical restaurants and five Taco Cabana restaurants that we continue to operate. Impairment and other lease charges for the twelve months ended December 31, 2017 were $61.8 million and included impairment charges of $54.2 million and lease and other charges related

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to closed restaurants of $7.5 million. The 46 closed restaurants contributed approximately $10.1 million in operating losses to income from operations for the twelve months ended December 31, 2017, including $3.0 million in depreciation expense.
The restaurant industry experienced a continued general slowdown in 2017. We believe the challenging market and industry conditions, opportunities for improvement at both brands that are being addressed as part of the Plan, reduced media over several consecutive months while we implemented key aspects of the Plan, and the Hurricanes contributed to a decline in comparable restaurant transactions and sales at both brands in 2017.
Our Brands
Our restaurants operate in the fast-casual and quick-service restaurant segments and feature fresh-made cooking, drive thru service and catering.
Pollo Tropical. Our Pollo Tropical restaurants offer fresh, fire-grilled chicken marinated in a proprietary blend of tropical fruit juices and spices. Other favorite menu items include Mojo Roast Pork, TropiChops® (a create your own casserole bowl of grilled chicken breast, roast pork or grilled vegetables served over white, brown or yellow rice and red or black beans and vegetables), sandwiches, wraps, salads and freshly made sides including rice and beans. The menu’s emphasis is on freshness and quality, with a focus on flavorful chicken served “hot off the grill”. We also offer a self-service "Saucing Island" which includes a wide selection of salsas, sauces, cilantro, onions and other items which allow our guests to further customize their orders. We also offer tropical inspired desserts such as key lime pie and cuatro leches cake, and beverages including fountain soft drinks and other bottled drinks. Most menu items are prepared daily in each of our restaurants, which feature open display cooking on large, open-flame grills. We offer both individual and family meal-sized portions which enable us to provide a home meal replacement for our guests and catering for parties and corporate events. Guests also have the ability to order on-line in advance.
Our Pollo Tropical restaurants feature dining areas designed to create an inviting, festive and tropical atmosphere. We also provide our guests the option of take-out, including the ability to order on-line in advance, and nearly all of our restaurants provide the convenience of drive-thru windows. In some locations, delivery is available. Our Pollo Tropical restaurants are generally open for lunch, dinner and late night seven days a week. As of December 31, 2017, substantially all of our Pollo Tropical restaurants were freestanding buildings. Our typical freestanding Pollo Tropical restaurant ranges from 2,800 to 3,700 square feet and provides interior seating for approximately 70 to 90 guests. For the year ended December 31, 2017, the average sales transaction at our Pollo Tropical restaurants was $11.16, with sales at dinner and lunch representing 52.8% and 47.2%, respectively. For the year ended December 31, 2017, our Pollo Tropical brand generated total revenues of $374.1 million and Adjusted EBITDA of $50.9 million.
Pollo Tropical opened its first restaurant in 1988 in Miami, Florida. As of December 31, 2017, we owned and operated a total of 146 Pollo Tropical restaurants, of which 137 were located in Florida and nine were located in Atlanta, Georgia. We continue to reimage existing Pollo Tropical restaurants to update both the exterior and interior of the restaurants to the latest standard. In 2017, we reimaged nine Pollo Tropical restaurants.
We are franchising our Pollo Tropical restaurants primarily internationally, and as of December 31, 2017, we had 25 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, the Bahamas, Venezuela and Guyana, and five non-traditional licensed locations on college campuses and one located in a hospital in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.
Taco Cabana. Our Taco Cabana restaurants serve fresh, Mexican-inspired food, including tacos, flame-grilled steak and chicken fajitas served on sizzling iron skillets, quesadillas, hand-rolled flautas, enchiladas, burritos, fresh-made flour tortillas, customizable salads served in our Cabana Bowl®, and our popular breakfast tacos. We also offer a self-service salsa bar which includes a wide selection of made-from-scratch salsas, sauces, sliced jalapeños, chopped cilantro, chopped onions and other items which allow our guests to further customize their orders. Our beverage offerings include fountain soft drinks, our signature frozen margaritas and beer as well as bottled Mexican Coke and Fanta Orange soda made with real cane sugar. Most menu items are freshly-prepared at each restaurant daily.
Taco Cabana restaurants feature open display cooking that enables guests to observe fajitas cooking on an open grill, a tortilla machine pressing and grilling fresh flour tortillas and the fresh preparation of other menu items. Our Taco Cabana restaurants feature interior dining areas as well as semi-enclosed and outdoor patio areas, which provide a vibrant, contemporary decor and relaxing atmosphere. We offer both individual and family meal-sized portions which enable us to provide a home meal replacement for our guests and catering for parties and corporate events. Additionally, we provide our guests the option to order on-line in advance, as well as the convenience of drive-thru windows. In some locations, delivery is available. Our typical freestanding Taco Cabana restaurants average approximately 3,500 square feet (exclusive of the exterior dining area) and provide seating for approximately 80 guests, with additional outside patio seating for approximately 50 guests. As of December 31, 2017, substantially all of our Taco Cabana restaurants were freestanding buildings.

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Taco Cabana pioneered the Mexican patio cafe concept with its first restaurant in San Antonio, Texas in 1978. As of December 31, 2017, we owned and operated 166 Taco Cabana restaurants, all located in Texas. As of December 31, 2017, we also had five Taco Cabana franchised restaurants located in New Mexico and two non-traditional Taco Cabana licensed locations located on college campuses in Texas. At the beginning of 2017, the majority of our Taco Cabana restaurants were open 24 hours a day, seven days a week. However, during 2017, we reviewed hours of operation across our restaurant portfolio and reduced the number of restaurants that operate 24 hours a day, seven days a week to 32 by the end of the year. For the year ended December 31, 2017, sales at dinner, lunch and breakfast represented 24.7%, 21.8% and 23.5%, respectively, and the average sales transaction at our Taco Cabana restaurants was $9.43. For the year ended December 31, 2017, our Taco Cabana brand generated total revenues of $295.0 million and Adjusted EBITDA of $16.5 million.
Our Competitive Strengths
We believe the success of our Pollo Tropical and Taco Cabana brands is a result of the following key attributes:
Well Positioned and Differentiated in the Fast-Casual and Quick-Service Segments. As of December 31, 2017, we owned, operated and franchised 350 fast-casual restaurants under our Pollo Tropical and Taco Cabana brands which have almost 30 and 40 years, respectively, of operating history. In addition, at $2.3 million and $1.8 million, respectively, we believe Pollo Tropical and Taco Cabana have compelling average annual sales per restaurant within the fast-casual and quick-service segments. We believe our brands are well positioned in the industry due to our high quality, freshly-prepared food, value and differentiation of flavor profiles. In addition, we anticipate that the Plan will enhance the guest experience and better position our brands for successful and sustainable future growth.
Two Leading, Differentiated Brands Serving Fresh, High Quality Foods With Broad Appeal and a Compelling Value Proposition. Our Pollo Tropical and Taco Cabana brands are differentiated from other dining options and offer distinct flavor profiles and healthful menu choices at affordable prices that we believe have broad consumer appeal, provide guests with a compelling value proposition, attract a diverse customer base and drive guest frequency and loyalty. Pollo Tropical and Taco Cabana are committed to serving freshly-prepared food using quality ingredients that are made-to-order and customized for each guest. Both of our brands offer a wide range of menu offerings and home meal replacement options in generous portion sizes and at affordable price points which appeal to a broad customer base. Our open display kitchen format allows guests to view and experience our food being freshly-prepared and cooked to order. Pollo Tropical is known for its fresh, fire-grilled chicken marinated in a proprietary blend of tropical fruit juices and spices. Taco Cabana specializes in Mexican inspired food made fresh by hand, including breakfast and non-breakfast tacos and sizzling fajitas served hot on an iron skillet. In order to provide variety to our guests and to address changes in consumer preferences, we have enhanced our menus, including some seasonal offerings at our Pollo Tropical and Taco Cabana restaurants. We also selectively use promotions and limited time offers which are intended to reinforce our value proposition and to introduce new products. Additionally, our menus include a number of options to address guests’ increasing focus on healthful eating, and we offer our guests drive-thru service at the majority of our restaurants in order to provide a fast, convenience option including home meal replacement and family meals.
Compelling Business Model. We enjoy significant brand recognition due to high market penetration of our restaurants in our core markets which provides operating, marketing and distribution efficiencies and convenience for our guests. Both of our brands have strong brand affinity in our core markets as evidenced by fast-casual and quick-service segment-leading average annual sales volumes, as noted above. With the implementation of the Plan, sales growth and effective cost management, we anticipate that the brands will produce higher restaurant-level operating margins in the future, as they have in the past.
Growth Strategies
Our long-term strategy is focused on profitably building our base business, growing new distribution channels, including delivery, catering, licensed and franchised locations, and development of new restaurants. Prior to 2017, the development of new Pollo Tropical restaurants was the primary growth vehicle. In 2016, given industry headwinds and brand opportunities for improvement that are being addressed as part of the Plan, we slowed our restaurant development to focus on revitalizing our restaurants in our core markets and brand repositioning outside of our core markets. In 2017, we opened nine new Pollo Tropical restaurants in Florida and six new Taco Cabana restaurants in Texas. Based on a restaurant portfolio examination as part of our strategic review process to enhance long-term shareholder value, we closed 40 Pollo Tropical restaurants and six Taco Cabana restaurants in 2017 and ten Pollo Tropical restaurants in 2016. In 2018, we expect to open nine new Pollo Tropical restaurants in Florida and seven new Taco Cabana restaurants in Texas, including up to five closed Pollo Tropical restaurants that we anticipate will be converted to Taco Cabana restaurants in 2018.
Our strategies for growth primarily include:
Develop New Restaurants. We believe that we have opportunities to develop additional Pollo Tropical and Taco Cabana restaurants in Florida and Texas, respectively, as well as potential future expansion opportunities in other existing markets and into other regions of the United States that match our targeted demographic and site selection criteria. However, taking into account challenging market conditions and because restaurants in new markets have not achieved expected sales volumes and profitability at the pace

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we anticipated, we have suspended new restaurant development of Pollo Tropical restaurants outside of south Florida until we successfully reposition our brands in non-core markets.
We target opening freestanding restaurants in order to provide drive-thru service which is an important convenience and sales component for our brands. The location of our restaurants is a critical component of each restaurant’s success. We evaluate potential new sites on many critical criteria including accessibility, visibility, costs, surrounding traffic patterns, competition and demographic characteristics. Our senior management team determines the acceptability of all new sites, based upon analyses prepared by our real estate, financial and operations professionals as well as a third party vendor that employs proprietary location research technology and performs site evaluations on our behalf. Historically, this process has typically resulted in entering into a long-term lease for the land followed by construction of the building or the conversion of an existing building using cash generated from our operations or with borrowings under our senior credit facility.
The following table includes the recent historical initial interior cost (including equipment, seating, signage and other interior costs) of a typical new or converted freestanding restaurant, as well as the historical exterior cost (including building and site improvements) and land if acquired.
 
 
Pollo Tropical
 
Taco Cabana
Interior costs and signage
 
$0.5 million to $0.7 million
 
$0.4 million to $0.7 million
Exterior costs
 
$1.1 million to $1.4 million
 
$0.5 million to $1.3 million
The cost of securing real estate and building and equipping new restaurants can vary significantly and depends on a number of factors, including the local economic conditions, geographic considerations, size of the restaurant and the characteristics of a particular site. Accordingly, the cost of opening new restaurants in the future may differ substantially from the historical cost of restaurants previously opened.
Increase Comparable Restaurant Sales. We experienced a decline in comparable restaurant sales and transactions in both 2016 and 2017 which we believe was attributable to challenging market and industry conditions and opportunities for improvement at both brands that are being addressed as part of the Plan. In addition, 2017 was further negatively impacted by reduced media over several consecutive months while we implemented key aspects of the Plan as well as the impact of the Hurricanes. We experienced an increase in comparable restaurant sales at each brand in 2011 through 2015 and we intend to increase comparable restaurant sales in the future by attracting new customers and increasing guest frequency through the following strategies:
Focus on consistency of operations and food quality: We believe high quality food and hospitality results in an enjoyable guest experience, which drives loyalty and guest frequency. We are improving systems and processes, including a new labor scheduling tool, tighter management spans of control and regional chefs, to ensure consistency of operations at both brands. During 2017, we improved over 90 percent of our recipes with higher quality, fresh ingredients and through vertical integration and introduced NAE chicken at Pollo Tropical restaurants in early 2018. We believe offering NAE chicken is meaningful to health conscious consumers and differentiates our brand in the market place. In addition, supply chain and food preparation processes have been implemented at both brands to ensure high quality, freshness and consistency of our food, which we believe are critical components to the continued success of our brands.
New product innovation: Across both brands, our menus are centered on freshly prepared, high quality food offerings that we believe have both broad appeal and provide everyday value. Pollo Tropical and Taco Cabana each have separate teams of product research and development professionals that enables us to continually refine our menu offerings and develop new products, several of which are validated by consumer research. Maintaining a strong product pipeline is critical to keeping our offerings compelling, and we intend to introduce innovative new menu items and enhancements to existing menu favorites throughout the year to drive further guest traffic and maximize guest frequency.
Focus on effective advertising to highlight our everyday value proposition: Pollo Tropical and Taco Cabana utilize an integrated, multi-level marketing approach that includes periodic system-wide promotions, outdoor marketing including billboards, in-restaurant promotions, local store marketing, social media, digital and web-based marketing and other strategies, including the use of radio and television advertising and limited-time offer menu item promotions. We plan to continue to refine our advertising and media strategies to continue to reinforce the key attributes of our brands which include high quality, freshly-prepared food, an enhanced guest experience, everyday value, convenience and new limited time menu offerings. In addition, we are introducing new loyalty programs at Pollo Tropical and Taco Cabana in 2018 to further connect with our guests to build affinity and frequency. As a percentage of Pollo Tropical restaurant sales, Pollo Tropical’s advertising expenditures were 4.4% in 2017, 3.7% in 2016 and 2.6% in 2015. As a percentage of Taco Cabana restaurant sales, Taco Cabana’s advertising expenditures were 3.3% in 2017, 3.9% in 2016 and 3.8% in 2015.
Grow our off-premise sales: The inclusion of portable menu items, such as wraps, sandwiches, bowls and salads, as well as home meal replacement and family meals, and an increased focus on catering and delivery will continue to be

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a key focus for both brands as we look to capture more off-premise meal occasions which we believe may be significant. Therefore, in 2018 we expect to introduce enhanced delivery and catering platforms utilizing dedicated leadership and enhanced digital capabilities and launch a redesigned website with enhanced on-line ordering.
Continue our reimage program: We believe ensuring a high quality restaurant environment that complements our quality focus on food and hospitality will further drive incremental sales and profitability. We continue to implement restaurant enhancement initiatives to ensure safe, consistent and appealing environments at our Pollo Tropical and Taco Cabana restaurants. In addition, we are continuing to gradually update the exterior and interior elements of our restaurants to the current standard to be more relevant to our target audience. We expect that these enhancements will improve our brands’ positioning in the marketplace and offer a consistent, quality guest experience. In 2017, we reimaged nine Pollo Tropical restaurants and plan to reimage additional Pollo Tropical and Taco Cabana restaurants in 2018 and beyond.
Improve Profitability and Optimize Our Infrastructure. With the implementation of the Plan, we anticipate that our restaurant-level operations for our restaurants at both brands will improve over time and our restaurants will become more competitive within the fast-casual and quick-service segments through new restaurant development and growing comparable restaurant sales and traffic. In addition to growing sales and expanding margins, we also believe that our large restaurant base, skilled management team, operating systems, technology initiatives and training and development programs support our strategy of enhancing operating efficiencies while prudently growing our restaurant base. We continue to focus on maximizing cost efficiencies, including, among other things, implementing profit enhancement initiatives focused on food and labor costs, leveraging our purchasing power and enhancing our supply chain expertise to optimize costs while delivering a high quality guest experience with consistency.
Competition
The restaurant industry is highly competitive with respect to price, service, location and food quality. In each of our markets, our restaurants compete with a large number of national and regional quick service, fast casual, and in some cases casual dining restaurant chains, as well as locally owned restaurants. We also compete with delivered meal solutions, convenience stores, grocery stores and other purveyors of moderately priced and quickly prepared foods.
We believe that:
product quality and taste;
brand differentiation and recognition;
convenience of location;
speed of service;
menu variety;
value perception;
ambiance;
cleanliness; and
hospitality
are among the important competitive factors in the fast-casual and quick-service restaurant segments and that our two concepts effectively compete against those categories. Pollo Tropical’s competitors include national and regional chicken-based concepts, as well as other concepts. Taco Cabana’s restaurants compete with other Mexican inspired concepts as well as other concepts.

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Restaurant Operating Data
Selected restaurant operating data for our two restaurant concepts is as follows:
 
 
Year ended
 
 
December 31, 2017
 
January 1, 2017
 
January 3, 2016
Pollo Tropical:
 
 
 
 
 
 
Average annual sales per company-owned restaurant (in thousands) (1)
 
$
2,331

 
$
2,354

 
$
2,585

Average sales transaction
 
$
11.16

 
$
10.94

 
$
10.76

Drive-through sales as a percentage of total sales
 
47.9
%
 
46.3
%
 
45.7
%
Day-part sales percentages:
 
 
 
 
 
 
Lunch
 
47.2
%
 
47.1
%
 
46.8
%
Dinner and late night
 
52.8
%
 
52.9
%
 
53.2
%
Taco Cabana:
 
 
 
 
 
 
Average annual sales per company-owned restaurant (in thousands) (1)
 
$
1,760

 
$
1,894

 
$
1,920

Average sales transaction
 
$
9.43

 
$
9.27

 
$
9.16

Drive-through sales as a percentage of total sales
 
56.4
%
 
55.7
%
 
54.7
%
Day-part sales percentages:
 
 
 
 
 
 
Breakfast
 
23.5
%
 
22.3
%
 
20.8
%
Lunch
 
21.8
%
 
22.0
%
 
22.4
%
Dinner
 
24.7
%
 
24.9
%
 
25.4
%
Late night (9pm to midnight)
 
11.4
%
 
11.8
%
 
12.1
%
Afternoon (2pm to 5pm)
 
12.7
%
 
12.6
%
 
12.7
%
Overnight (midnight to 6am)
 
5.9
%
 
6.4
%
 
6.6
%
(1) Average annual sales for company-owned restaurants are derived by dividing restaurant sales for such year for the applicable segment by the average number of company-owned restaurants for the applicable segment for such year. For comparative purposes, the calculation of average annual sales per company-owned restaurant is based on a 52-week fiscal year. Restaurant sales data for the extra week in the fiscal year ended January 3, 2016 have been excluded for purposes of calculating average annual sales per company-owned restaurant.
Seasonality
Our business is marginally seasonal due to regional weather conditions. Sales from our restaurants located in south Florida are generally higher during the winter months than during the summer months, while sales from our restaurants located in Texas, central and north Florida and Atlanta are generally higher during the summer months than the winter months. In addition, we have outdoor seating at many of our restaurants and the effects of adverse weather may impact the use of these areas and may negatively impact our restaurant sales.
Operations
Management Structure
We conduct substantially all of our operations, training, marketing, real estate, facilities and culinary research and development support functions from our Pollo Tropical division headquarters in Miami, Florida, and our Taco Cabana division headquarters in San Antonio, Texas. The management structure of Pollo Tropical consists of our President of Pollo Tropical, Danny Meisenheimer, who also serves as our Chief Operating Officer of Fiesta, and has over 30 years of experience in the restaurant industry, and one Vice President of Operations who is supported by six Regional Directors and 20 District Managers. The management structure of Taco Cabana consists of our President of Taco Cabana, Charles Locke, who has over 20 years of restaurant industry experience, and is supported by six Regional Directors, one Senior District Manager and 27 District Managers. The Pollo Tropical and Taco Cabana Presidents are supported by a number of divisional and corporate executives with responsibility for operations, marketing, product development, purchasing, human resources, training, real estate and finance. For each of our brands, a district manager is responsible for the direct oversight of the day-to-day operations of an average of approximately seven restaurants. Typically, district managers have previously served as restaurant managers at one of our restaurants. District managers and restaurant managers are compensated with a fixed salary plus an incentive bonus based upon the performance of the restaurants under their supervision.

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Typically, our restaurants are staffed with hourly employees who are supervised by a salaried restaurant or general manager and one to three salaried assistant managers and one to eight shift leaders.
Our executive management functions are primarily conducted from our offices in Dallas, Texas and Miami, Florida. Our new management team is led by Richard Stockinger, who serves as our President and Chief Executive Officer, Lynn Schweinfurth serves as our Senior Vice President, Chief Financial Officer and Treasurer, Maria Chang Mayer serves as our Senior Vice President, General Counsel and Secretary, Anthony Dinkins serves as our Senior Vice President of Human Resources, Danny Meisenheimer serves as our Senior Vice President, Chief Operating Officer of Fiesta and President of Pollo Tropical, and Charles Locke serves as President of Taco Cabana.
Training
We maintain a comprehensive training and development program for all our restaurant personnel and provide both classroom and in-restaurant training for our salaried and hourly team members. Technology enhancements to our Learning Management System and a re-design of our e-learning courses is underway to focus our team members on system-wide operating procedures by position, food preparation methods and guest service standards.
The first six months of a new manager’s time is spent in initial training with active coaching and a limited span of control. This period covers basic shift control, team member supervision, procedural and technical skills and management development. During the following eight weeks, managers are under the direct supervision of a dedicated field training manager. The ensuing four months contain intense classroom training with an emphasis on skills building. Thereafter, we customize an intensive, self-paced ongoing development program designed to prepare each employee for the next level of management.
Our training process for new restaurant openings has been developed over the last five years as we expanded into new territory. Dedicated trainers, a new restaurant opening support team and a well-documented training and logistics process is in place to assist us in ensuring consistent execution of the brand standards as new restaurants open. The process consists of digital courses, hands-on training and role playing to ensure we transfer knowledge of our menu authenticity, knowledge and passion for our food and a culture of caring, which are strengths in our traditional markets. Our opening processes and training programs are designed to effectively instill these values along with our operating standards to our teams in new markets.
Management Information Systems
Our management information systems provide us the ability to efficiently and effectively manage our restaurants and to ensure consistent application of operating controls at our restaurants.
In all corporate-owned restaurants, we use computerized management information systems, which we believe are scalable to support our future growth plans. We use touch-screen point-of-sale (POS) systems designed specifically for the restaurant industry that facilitate accuracy and speed of order taking, are user-friendly, require limited cashier training and improve speed-of-service through the use of conversational order-taking techniques. The POS systems are integrated with above-store enterprise applications that are designed to facilitate financial and management control of our restaurant operations. All products sold and related prices at our restaurants are programmed into the system from our central support office.
We provide in-store access to enterprise systems that assist in labor scheduling and food cost management, allow on-line ordering from distributors, and reduce managers’ administrative time. Critical information from such systems is available in near real-time to our restaurant managers, who are expected to react quickly to trends or situations in their restaurant. Our district managers also receive near real-time information from all restaurants under their control and have access to key operating data on a remote basis. Management personnel at all levels, from the restaurant manager through senior management, utilize key restaurant performance indicators to manage our business.
These enterprise systems provide daily tracking and reporting of traffic counts, menu item sales, labor and food data including costs, and other key operating information for each restaurant. These systems also provide the ability to monitor labor utilization and sales trends on a real-time basis at each restaurant and provide analyses, reporting and tools to enable all levels of management to review a wide-range of financial, product mix and operational data.
We use an integrated digital ordering system that is integrated with our POS system at each restaurant. Individual, group or catering orders placed on our website or that of our third party delivery partners, mobile app or through our call center are transmitted electronically to the restaurants to provide a seamless ordering, payment and pickup or delivery experience for our guests.
We expect to continue to make substantial investments in technology that we believe will drive sales and transaction growth through improved customer engagement and off-premise service offerings, improve the effectiveness of labor and inventory management and business analytics, and improve efficiencies with our core enterprise systems.




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Community Social Impact
We are committed to being a deeply responsible company in the communities where we do business. Our focus is on serving high quality food to our guests and contributing positively to the communities where our restaurants are located. This is integral to our business strategy. Some of our initiatives include:
Introducing "No Antibiotics Ever" chicken at our Pollo Tropical restaurants in early 2018 which will provide our guests with higher quality food containing more natural ingredients;
Actively working to procure more earth-friendly serving and packaging materials for our products in all of our restaurants;
Beginning a program to actively recruit military veterans to work at our restaurants;
Providing hundreds of hot meals to first responders, victims, elderly residents and others in Texas and in Florida in the aftermath of the Hurricanes;
Providing hundreds of hot meals to local police, FBI, first responders and local residents in need after the Parkland shooting tragedy; and
Assisting, through our non-profit Fiesta Family Foundation, many of our employees who have personally suffered losses as a result of the Hurricanes or other hardships.
As a result of these initiatives, we believe we deliver benefits to our stakeholders, including employees, business partners, customers, suppliers, stockholders, community members and others.
Suppliers and Distributors
For our Pollo Tropical and Taco Cabana restaurants, we have negotiated directly with local and national suppliers for the purchase of food and beverage products and supplies to ensure consistent quality and freshness and to obtain competitive prices. Food and supplies for both brands are ordered from approved suppliers and are shipped to the restaurants via distributors. Both brands are responsible for monitoring quality control, for the supervision of these suppliers and for conducting inspections to observe preparations and ensure the quality of products purchased.
As part of our initiative to improve food quality, we introduced 100% NAE chicken for all chicken menu items at Pollo Tropical in early 2018. NAE chicken ensures that antibiotics were never introduced through feed, water source or any other means during the life of the birds. To ensure this, the Company’s chicken producers are only those approved and certified as NAE compliant by the United States Department of Agriculture (USDA). If at any time these producers lose their certification, they will be removed from our supply chain network. Fiesta will also work closely with each producer to ensure that NAE qualifications are upheld.
For both our Pollo Tropical and Taco Cabana restaurants, we have long-term service agreements with our primary distributors of food and paper products. In 2014, we consolidated our food distribution with Performance Food Group, Inc., which is now our primary distributor of food and beverage products and supplies for both our Pollo Tropical and Taco Cabana restaurants under a distribution services agreement that expires on July 26, 2019. For our Pollo Tropical restaurants, Kelly Food Service is our primary chicken distributor under an agreement that expires on December 31, 2018. We also currently rely on six suppliers for chicken for our Pollo Tropical restaurants under agreements that expire on December 31, 2018.
Quality Assurance
Pollo Tropical and Taco Cabana are committed to obtaining quality ingredients and creating freshly-prepared food in a safe manner. In addition to operating in accordance with quality assurance and health standards mandated by federal, state and local governmental laws and regulations regarding minimum cooking times and temperatures, maximum time standards for holding prepared food, food handling guidelines and cleanliness, among other things, we have also developed our own internal quality control standards. We require our suppliers to adhere to our high quality control standards, and we regularly inspect their products and production and distribution facilities to ensure that they conform to those standards. In addition, we have implemented certain procedures to ensure that we serve safe, quality meals to our guests. As an example, we utilize the nationally-recognized ServSafe program to train our kitchen staff and managers in proper food handling and preparation techniques. In addition, we have hired a third party that conducts unscheduled inspections of our restaurants, and restaurant managers conduct internal inspections for taste, quality, cleanliness and food safety on a regular basis.
In addition to food safety, our operational focus at each of our two concepts is closely monitored to achieve a high level of guest satisfaction via speed of service, order accuracy and quality of service. Our senior management and restaurant management staffs are principally responsible for ensuring compliance with our operating policies. We have uniform operating standards and specifications relating to the quality, preparation and selection of menu items, maintenance and cleanliness of the restaurants and employee conduct. In order to maintain compliance with these operating standards and specifications, we distribute to our restaurant operations management team detailed reports measuring compliance with various guest service standards and objectives, including feedback obtained directly from our guests. The guest feedback is monitored by an independent agency and by us and consists of evaluations of speed of service, quality of service, quality of our menu items and other operational objectives including the cleanliness of our restaurants. We also have in-house guest service representatives that manage guest feedback and inquiries.

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Trademarks
We believe that our trademarks, service marks, trade dress, logos and other proprietary intellectual property are important to our success. We have registered the principal Pollo Tropical and Taco Cabana logos and designs with the U.S. Patent and Trademark Office on the Principal Register as a service mark for our restaurant services. We also have secured or have applied for state and federal registrations for several other advertising or promotional marks, including variations of the Pollo Tropical and Taco Cabana principal marks as well as those related to our core menu offerings. In connection with our current and potential international franchising activities, we have applied for or been granted registrations in foreign countries of the Pollo Tropical and Taco Cabana principal marks and several other marks.
Other than the Pollo Tropical and Taco Cabana trademarks and the logo and trademark of Fiesta Restaurant Group (including Internet domain names and addresses) and proprietary rights relating to certain of our core menu offerings, we have no proprietary intellectual property.
Continued Commitment to Strong Governance
At the 2018 Annual Meeting of Stockholders, we intend to include a proposal to declassify our board of directors so that beginning at our 2019 Annual Meeting of Stockholders, our entire board of directors would stand for re-election for a one-year term.  Additionally, our board of directors has adopted a maximum age of 75 for any director nominee, including a mandatory retirement age for an incumbent director which will preclude an incumbent director from seeking nomination for re-election to our board of directors. 
Government Regulation
Various federal, state and local laws affect our business, including various health, sanitation, fire and safety standards. Restaurants to be constructed or reimaged are subject to state and local building code and zoning requirements. In connection with the development and reimaging of our restaurants, we may incur costs to meet certain federal, state and local regulations, including regulations promulgated under the Americans with Disabilities Act.
We are subject to the federal Fair Labor Standards Act and various other federal and state laws governing employment matters. While we pay, on average, rates that are above the federal minimum wage, and where applicable, state minimum wage, increases in those minimum wages have in the past increased wage rates at our restaurants and in the future will affect our labor costs. Also, certain provisions of the comprehensive federal health care reform law enacted in 2010 became effective in 2015. We anticipate that a combination of labor management, cost reduction initiatives, technology and menu price increases can materially offset the potential increased costs associated with these and other regulations in 2018.
Taco Cabana is subject to alcoholic beverage control regulations that require state, county or municipal licenses or permits to sell alcoholic beverages at each restaurant location that sells alcoholic beverages. Typically, licenses must be renewed every one to two years and may be revoked or suspended for cause at any time. Licensing entities, authorized with law enforcement authority, may issue violations and conduct audits and investigations of the restaurant’s records and procedures. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of our Taco Cabana restaurants including minimum age for consumption, certification requirements for employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. These regulations also prescribe certain required banking and accounting practices related to alcohol sales and purchasing. Our Taco Cabana restaurants are subject to state “dram-shop” laws. Dram-shop laws provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated or minor patron. We have specific insurance that covers claims arising under dram-shop laws. However, we cannot ensure that this insurance will be adequate to cover any claims that may be instituted against us. During 2016 certain of our Pollo Tropical restaurants served alcoholic beverages; however, we discontinued the sale of alcoholic beverages at Pollo Tropical restaurants in early 2017.
Employees
As of December 31, 2017, we employed approximately 10,290 persons, of which approximately 200 were corporate and administrative personnel and approximately 10,090 were restaurant operations and other supervisory personnel. None of our employees are covered by collective bargaining agreements. We believe that overall relations with our employees are good.
Availability of Information
We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1 800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
We make available through our internet website (www.frgi.com) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the

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Exchange Act as soon as reasonably practicable after electronically filing such material with the SEC. The reference to our website address is a textual reference only, meaning that it does not constitute incorporation by reference of the information contained on the website and should not be considered part of this document. In addition, at our website you may also obtain, free of charge, copies of our corporate governance materials, including the charters for the committees of our board of directors and copies of various corporate policies including our Code of Business Ethics and Conduct, Code of Ethics for Executives and our "Whistle Blower" policy.
ITEM  1A.
RISK FACTORS
You should carefully consider the risks described below, as well as other information and data included in this Annual Report on Form 10-K. Any of the following risks, as well as additional risks and uncertainties not currently known to us, could materially adversely affect our business, consolidated financial condition or results of operations and could also adversely affect the trading price of our common stock.
Risks Related to Our Business
Intense competition in the restaurant industry could make it more difficult to grow our business and could also have a negative impact on our operating results if guests favor our competitors or we are forced to change our pricing and other marketing strategies.
The restaurant industry is highly competitive. In each of our markets, our restaurants compete with a large number of national and regional restaurant chains, as well as locally owned restaurants, offering low and medium-priced fare. We also compete also compete with delivered meal solutions, convenience stores, grocery stores and other purveyors of moderately priced and quickly prepared foods.
Pollo Tropical's competitors include national and regional chicken-based concepts as well as other types of quick-service and fast-casual restaurants. Our Taco Cabana restaurants compete with Mexican concepts, including those in the quick-service, fast-casual and casual dining segments.
To remain competitive, we, as well as certain of the other major fast-casual chains, have increasingly offered selected food items and combination meals at discounted prices. These pricing and other marketing strategies have had, and in the future may have, a negative impact on our sales and earnings.
Factors applicable to the quick-service and fast-casual restaurant segments may adversely affect our results of operations, which may cause a decrease in earnings and revenues.
The quick-service and fast-casual restaurant segments are highly competitive and can be materially adversely affected by many factors, including:
changes in local, regional or national economic conditions;
changes in demographic trends;
changes in consumer tastes;
changes in traffic patterns;
increases in fuel prices and utility costs;
consumer concerns about health, diet and nutrition;
instances of food-borne or localized illnesses or other food safety issues;
increases in the number of, and particular locations of, competing restaurants;
changes in discretionary consumer spending;
inflation;
availability of key commodities such as beef, chicken, eggs and produce;
increases in the cost of key commodities, such as beef, chicken, eggs and produce as well as the cost of paper goods and packaging;
the availability of hourly-paid employees and experienced restaurant managers including a decrease in the labor supply due to changes in immigration policy such as barriers for entry into, working in, or remaining in the United States;
increased labor costs, including higher wages, unemployment insurance, minimum wage, unionization of restaurant employees and overtime requirements;

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increases in the cost of providing healthcare and related benefits to employees, including the impact of the Affordable Care Act;
costs related to remaining competitive and current with regard to new technologies in our restaurants such as loyalty programs, gift cards, on-line ordering and credit card security; and
regional weather conditions including hurricanes, windstorms and flooding, and other natural disasters.  
 Our continued growth depends on our ability to open and operate new restaurants profitably, which in turn depends on our continued access to capital, and newly developed restaurants may not perform as we expect and there can be no assurance that our growth and development plans will be achieved.
Our continued growth depends on our ability to develop additional Pollo Tropical and Taco Cabana restaurants. Development involves substantial risks, including the following:
developed restaurants that do not achieve desired revenue or cash flow levels or other operating and performance targets once opened;
the inability to recruit and retain managers and other employees necessary to staff each new restaurant;
incurring substantial unrecoverable costs in the event a development project is abandoned prior to completion or a new restaurant is closed due to poor financial performance;
changes in general economic and business conditions;
the inability to fund development;
increasing development costs or development costs that exceed budgeted amounts;
delays in completion of construction;
the inability to obtain all necessary zoning and construction permits;
the inability to identify, or the unavailability of, suitable sites on acceptable leasing or purchase terms; and
changes in governmental rules and regulations or enforcement thereof.
We cannot ensure that our growth and development plans can be achieved. Our long-term development plans will require additional management, operational and financial resources. For example, we will be required to recruit managers and other personnel for each new restaurant. We cannot ensure that we will be able to manage our expanding operations effectively and our failure to do so could adversely affect our results of operations. In addition, our ability to open new restaurants and to grow, as well as our ability to meet other anticipated capital needs, may depend on our continued access to external financing, including borrowing under our senior secured revolving credit facility, which we refer to as the "senior credit facility". There can be no assurance that we will have access to the capital we need at acceptable terms or at all, which could materially adversely affect our business. In addition, our need to manage our indebtedness levels to ensure continued compliance with financial leverage ratio covenants under our senior credit facility may reduce our ability to develop new restaurants.
We could be adversely affected by food-borne or local illnesses, as well as widespread negative publicity regarding food quality, illness, injury or other health concerns.
Negative publicity about food quality, illness, injury or other health concerns (including health implications of obesity) or similar issues stemming from one restaurant or a number of restaurants could materially adversely affect us, regardless of whether they pertain to our own restaurants, restaurants operated by our franchisees or to restaurants owned or operated by other companies. For example, outbreaks of e-coli, norovirus, salmonella, lysteria and other illnesses or health concerns about the consumption of certain foods such as beef or chicken or by specific events such as the outbreak of “mad cow” disease or “avian” flu could lead to changes in consumer preferences, reduce consumption of our products and adversely affect our financial performance. These events could also reduce the available supply of beef, chicken or other key commodities, such as eggs or produce, or significantly raise the price of these key commodities.
In addition, while we believe we have appropriate food handling safety guidelines and employee training regarding the same, we cannot guarantee that our operational controls and employee training will be effective in preventing food-borne illnesses, food tampering and other food safety issues that may affect our restaurants. Food-borne or local illness or food tampering incidents could be caused by guests, employees, food suppliers or distributors and, therefore, could be outside of our control. Any publicity relating to health concerns or the perceived or specific outbreaks of food-borne illnesses, food tampering or other food safety issues attributed to one or more of our restaurants, could result in a significant decrease in guest traffic in all of our restaurants and could have a material adverse effect on our results of operations. In addition, similar publicity or occurrences with respect to other restaurants or restaurant chains could also decrease our guest traffic and have a similar material adverse effect on our business.

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Changes in consumer tastes and purchasing habits could negatively impact our business.
We obtain a significant portion of our revenues from the sale of foods that are characterized as tropical and Mexican inspired and if consumer preferences for these types of foods change, it could have a material adverse effect on our operating results. The quick-service and fast-casual segments are characterized by the frequent introduction of new products often accompanied by substantial promotional campaigns and are subject to changing consumer preferences, tastes, and eating and purchasing habits and demographic changes. Our success depends on our ability to anticipate and respond to changing consumer preferences, tastes and dining and purchasing habits, as well as other factors affecting the restaurant industry, including new market entrants and demographic changes. In addition, consumer dining and purchasing habits may shift due to competing alternatives and services including grab-and-go kiosks and home delivery of meals and groceries, and other factors affecting the restaurant industry. We may find it necessary to make changes to our menu items in order to respond to changes in consumer tastes or dining patterns, and we may lose guests who do not prefer the new menu items. In recent years, numerous companies in the industry have introduced products positioned to capitalize on the growing consumer preference for food products that are, or are perceived to be, promoting good health, nutritious, fresh, local, clean and all-natural, no antibiotic ever, free from artificial ingredients, minimally processed, low in calories and low in fat content. If we do not continually develop and successfully introduce new menu offerings that appeal to changing consumer preferences or if we do not timely capitalize on new products, our operating results could suffer. In addition, any significant event that adversely affects consumption of our products, such as cost, changing tastes or health concerns, could adversely affect our financial performance.
An increase in food costs could adversely affect our operating results.
Our profitability and operating margins are dependent in part on our ability to anticipate and react to changes in food costs. Changes in the cost or availability of certain food products could affect our ability to offer a broad menu and maintain competitive prices and could materially adversely affect our profitability and reputation. The type, variety, quality and cost of produce, beef, poultry, cheese and other commodities can be subject to change and to factors beyond our control, including weather, governmental regulation, availability and seasonality, each of which may affect our food costs or cause a disruption in our supply. Our food distributors or suppliers also may be affected by higher costs to produce and transport commodities used in our restaurants, including higher minimum wage and benefit costs and other expenses that they pass through to their customers, which could result in higher costs for goods and services supplied to us. Although we utilize purchasing contracts to lock in the prices for a material portion of the food commodities used in our restaurants, some of the commodities used in our operations cannot be locked in for periods longer than one month. Currently, we have contracts of varying lengths with several of our distributors and suppliers, including our distributors and suppliers of poultry and beef. We do not use financial instruments to hedge our risk against market fluctuations in the price of commodities at this time. We may not be able to anticipate and react to changing food costs through our purchasing practices and menu price adjustments in the future, and failure to do so could negatively impact our revenues and results of operations.
If a significant disruption in service or supply by any of our suppliers or distributors were to occur, it could create disruptions in the operations of our restaurants, which could have a material adverse effect on our business.
Our financial performance is dependent on our continuing ability to offer fresh, quality food at competitive prices. If a significant disruption in service or supply by our suppliers or distributors were to occur, it could create disruptions in the operations of our restaurants, which could have a material adverse effect on us.
We negotiate directly with local and national suppliers for the purchase of food and beverage products and supplies to ensure consistent quality and freshness and to obtain competitive prices. Food and supplies for both brands are ordered from approved suppliers and are shipped to the restaurants via distributors. Both brands are responsible for monitoring quality control, for the supervision of these suppliers and for conducting inspections to observe preparations and ensure the quality of products purchased. For both our Pollo Tropical and Taco Cabana restaurants, we have long-term service agreements with our primary distributors of food and paper products. In 2014, we consolidated our food distribution with Performance Food Group, Inc., which is now our primary distributor of food and beverage products and supplies for both our Pollo Tropical and Taco Cabana restaurants under a distribution services agreement that expires on July 26, 2019. For our Pollo Tropical restaurants, Kelly Food Service is our primary chicken distributor under an agreement that expires on December 31, 2018. We also currently rely on six suppliers for chicken for our Pollo Tropical restaurants under agreements that expire on December 31, 2018. If our distributors or suppliers were unable to service us, this could lead to a material disruption of service or supply until a new distributor or supplier is engaged, which could have a material adverse effect on our business.
If there is a lack of sufficient labor or labor costs increase, our operating results may be adversely affected.
Labor is a primary component in the cost of operating our restaurants. If we face labor shortages or increased labor costs, because of increased competition for employees, a decrease in the labor supply to us or our key suppliers due to changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States, higher employee-turnover rates, unionization of restaurant workers, or increases in federal, state, or local minimum wages or in other employee benefits costs

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(including costs associated with health insurance coverage or workers’ compensation insurance), this could have a material adverse effect on our operating results.
If a significant portion of our employees were to become union organized, our labor costs could increase. Potential changes in labor laws, including the possible passage of legislation designed to make it easier for employees to unionize, could increase the likelihood of some or all of our employees being subjected to greater organized labor influence, and could have an adverse effect on our business and financial results by imposing requirements that could potentially increase our costs.
The efficiency and quality of our competitors' advertising and promotional programs and the extent and cost of our advertising could have a material adverse effect on our results of operations and financial condition.
If our competitors increase spending on advertising and promotions, or the cost of television, radio or digital advertising increase, or our advertising and promotions are less effective than our competitors, there could be a material adverse effect on our results of operations and financial condition.
Our business is regional and we therefore face risks related to reliance on certain markets as well as risks for other unforeseen events.
As of December 31, 2017, excluding our franchised locations, all but nine of our Pollo Tropical restaurants were located in Florida and all of our Taco Cabana restaurants were located in Texas. Therefore, the economic conditions, state and local government regulations, weather conditions or other conditions affecting Florida and Texas, the tourism industry affecting Florida and other unforeseen events may have a material impact on the success of our restaurants in those locations.
Many of our restaurants are located in regions that may be susceptible to severe weather conditions. As a result, adverse weather conditions in any of these areas could damage these restaurants, and/or result in fewer guest visits to these restaurants and otherwise have a material adverse impact on our business. For example, our Florida and certain of our Texas restaurants are susceptible to hurricanes, other severe tropical weather events and flooding, and in the past, a number of our Texas restaurants have been periodically affected by severe winter weather.
Economic downturns may adversely impact consumer spending patterns.
Our business is dependent to a significant extent on national, regional and local economic conditions, particularly those that affect our guests that frequently patronize our restaurants. In particular, where our guests’ disposable income is reduced (such as by job losses, credit constraints and higher housing, tax, utility, gas, consumer credit or other costs) or where the perceived wealth of guests has decreased (because of circumstances such as lower residential real estate values, lower investment values, increased foreclosure rates, increased tax rates or other economic disruptions), our restaurants have in the past experienced, and may in the future experience, lower sales and guest traffic as guests choose lower-cost alternatives or choose alternatives to dining out. The resulting decrease in our guest traffic or average sales per transaction has had an adverse effect in the past, and could in the future have a material adverse effect, on our business.
Our expansion into new markets may present increased risks due to a lack of market awareness of our brands.
We have encountered and may continue to encounter difficulties developing restaurants outside of our more mature core markets, and there can be no assurance that we will be able to successfully grow our market presence beyond our more mature core markets. We may be unable to find attractive locations or successfully market our products as we attempt to expand beyond our existing markets, as the competitive circumstances and consumer characteristics in these new areas may differ substantially from those in areas in which we currently operate. It may be more challenging for us to attract guests to our restaurants in areas where there is a limited or a lack of market awareness of the Pollo Tropical or Taco Cabana brand. Restaurants opened in new markets where we have not reached media efficiency may open at lower sales volumes than restaurants opened in more mature markets, and may have lower restaurant-level operating margins than more mature markets. Sales at restaurants opened in new markets that are not yet media efficient have taken and may continue to take longer to reach average restaurant sales volumes, if at all, thereby adversely affecting our operating results, including the recognition of future impairment and other lease charges. Opening new restaurants in areas in which potential guests may not be familiar with our restaurants may include costs related to the opening and marketing of those restaurants that are substantially greater than those incurred by our restaurants in other areas. Even though we may incur substantial additional costs with respect to these new restaurants, they may attract fewer guests than our more established restaurants in existing markets. We may also not open a sufficient number of restaurants in new markets to adequately leverage distribution, supervision and marketing costs. As a result of the foregoing, we cannot ensure that we will be able to successfully or profitably operate our new restaurants outside our existing markets.
We cannot ensure that the current locations of our existing restaurants will continue to be economically viable or that additional locations will be acquired at reasonable costs.
The location of our restaurants has significant influence on their success. We cannot ensure that current locations will continue to be economically viable or that additional locations can be constructed and leased at reasonable costs. In addition, the economic

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environment where restaurants are located could decline in the future, which could result in reduced sales in those locations. We cannot ensure that new sites will be profitable or as profitable as existing sites.
Government regulation could adversely affect our financial condition and results of operations.
We are subject to extensive laws and regulations relating to the development and operation of restaurants, including regulations relating to the following:
health care;
employer/employee relationships, including minimum wage requirements, overtime, working and safety conditions, family leave mandates, immigration and citizenship or work authorization or related requirements;
federal and state laws that prohibit discrimination and laws regulating design and operation of, and access to, facilities, such as the Americans With Disabilities Act of 1990;
requirements relating to labeling of caloric and other nutritional information on menu boards, advertising and food packaging;
the preparation and sale of food;
liquor licenses which allow us to serve alcoholic beverages at our Taco Cabana restaurants;
zoning; and
federal and state regulations governing the operations of franchises, including rules promulgated by the Federal Trade Commission.
In the event that legislation has a negative impact on our business, it could have a material adverse impact. For example, substantial increases in the minimum wage or state or Federal unemployment taxes could adversely affect our financial condition and results of operations. Local zoning or building codes or regulations and liquor license approvals can cause substantial delays in our ability to build and open new restaurants. Local authorities may revoke, suspend or deny renewal of our liquor licenses if they determine that our conduct violates applicable regulations. Any failure to obtain and maintain required licenses, permits and approvals could adversely affect our operating results. Complying with these rules and regulations subjects us to substantial expense and can expose us to liabilities from claims for non-compliance. We could suffer losses from, and we incur legal costs to defend, these claims and the amount of such losses could be significant.
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 as exempt/non-exempt for overtime and other purposes, minimum wage requirements, unemployment tax rates, workers' compensation rates, immigration status and other wage and benefit requirements. In addition, states in which we operate are considering or have already adopted new immigration laws or enforcement programs, and the U.S. Congress and Department of Homeland Security from time to time consider and may implement changes to federal immigration laws, regulations or enforcement programs as well. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees. Although we require all workers to provide us with government-specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. We currently participate in the E-Verify program, an Internet-based, free program run by the United States government to verify employment eligibility, in states in which participation is required. However, use of the E-Verify program does not guarantee that we will properly identify all applicants who are ineligible for employment. Unauthorized workers are subject to deportation and may subject 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 and may make it more difficult to hire and keep qualified employees. Termination of a significant number of employees who were unauthorized employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in additional adverse publicity. We could also become subject to fines, 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 and results of operations.
The effect of changes to U.S. health care laws may increase our health care costs and negatively impact our financial results.
Under the comprehensive U.S. health care reform law enacted in 2010, the Affordable Care Act, changes that became effective in 2014, and the employer mandate and employer penalties that became effective in 2015, may increase our labor costs significantly. While changes in the law that became effective in 2015, including the imposition of a penalty on individuals who do not obtain health care coverage, have not resulted in significant numbers of additional employees electing to participate in our health care plans, there can be no assurance that this will not change in the future which may increase our health care costs. It is also possible that making changes or failing to make changes in the health care plans we offer will make us less attractive to our current or potential employees. The costs and other effects of these new health care requirements on future periods cannot be determined

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with certainty and could have a material adverse effect on our results of operations.
We are dependent on information technology, and any material failure of that technology could impair our ability to efficiently operate our business.
We rely on information systems across our operations, including, for example, point-of-sale processing in our restaurants, management of our supply chain, collection of cash, and payment of obligations and various other processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with maintenance, upgrading or transitioning to replacement systems or a breach in security of these systems could cause delays in guest service and reduce efficiency in our operations. Significant capital investments might be required to remediate any problems.
In recent years, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls”, have purchased technology related patents and other intellectual property assets related to our information technology for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or may be the subject of claims that technology or equipment we use infringe or violate the intellectual property rights of others. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand, and cause us to incur significant expenses.
Security breaches of confidential guest information in connection with our electronic processing of credit and debit card transactions or security breaches of confidential employee information may adversely affect our business.
A significant amount of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their guests has been stolen. We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our guests’ credit or debit card information. Any such claim or proceeding, or any adverse publicity resulting from these allegations, may have a material adverse effect on us and our restaurants.
We also collect and maintain personal information about our employees and customers as part of some of our marketing and guest loyalty programs. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. We also rely increasingly on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. If the security and information systems of our outsourced third party providers we use to store or process such information are compromised or if we or such third parties otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties, which could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected, which could impair our sales or ability to attract and keep qualified employees.
We may incur significant liability or reputational harm if claims are brought against us or against our franchisees.
We or our franchisees may be subject to complaints, regulatory proceedings or litigation from guests or other persons alleging food-related illness, injuries suffered on our premises or other food quality, health or operational concerns, including environmental claims. In addition, in recent years a number of restaurant companies have been subject to lawsuits, including class action lawsuits, alleging, among other things, violations of federal and state law regarding workplace and employment matters, discrimination, harassment, wrongful termination and wage, rest break, meal break and overtime compensation issues and, in the case of certain restaurants, alleging that they have failed to disclose the health risks associated with high-fat or high sodium foods and that their marketing practices have encouraged obesity. We may also be subject to litigation or other actions initiated by governmental authorities, our employees and our franchisees, among others, based upon these and other matters. Adverse publicity resulting from such allegations or occurrences or alleged discrimination or other operating issues stemming from one of our locations, a number of our locations or our franchisees could adversely affect our business, regardless of whether the allegations are true, or whether we are ultimately held liable. Any cases filed against us could materially adversely affect us if we lose such cases and have to pay substantial damages or if we settle such cases. In addition, any such cases may materially and adversely affect our operations by increasing our litigation costs and diverting our attention and resources to address such actions. In addition, if a claim is successful, our insurance coverage may not cover or be adequate to cover all liabilities or losses and we may not be able to continue to maintain such insurance, or to obtain comparable insurance at a reasonable cost, if at all. If we suffer losses, liabilities or loss of income in excess of our insurance coverage or if our insurance does not cover such loss, liability or loss of income, there could be a material adverse effect on our results of operations.
Our franchisees could take actions that harm our reputation.
As of December 31, 2017, a total of 38 Pollo Tropical and Taco Cabana restaurants were owned and operated by our franchisees. We do not exercise control of the day-to-day operations of our franchisees and the number of franchised restaurants may increase in the future. While we attempt to ensure that franchisee-owned restaurants maintain the same high operating standards as our Company-owned restaurants, one or more of these franchisees may fail to meet these standards. Any shortcomings at our franchisee-owned restaurants could be attributed to our company as a whole and could adversely affect our reputation and damage our brands.

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Our indebtedness could adversely affect our financial condition.
As of December 31, 2017, we had $76.5 million of outstanding indebtedness comprised of $75.0 million of revolving credit borrowings under our senior credit facility and capital lease obligations of $1.5 million.
As a result of our indebtedness, a portion of our operating cash flow will be required to make payments on our outstanding indebtedness. In addition, to the extent we significantly increase our borrowings and interest rates increase under our senior credit facility, we may not generate sufficient cash flow from operations to enable us to both repay our indebtedness and fund our other liquidity needs.
 Our indebtedness could have important consequences. For example, it could:
make it more difficult for us to satisfy our obligations with respect to our debt;
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a portion of our cash flow from operations to payments on our indebtedness and related interest, including indebtedness we may incur in the future, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
increase our cost of borrowing;
place us at a competitive disadvantage compared to our competitors that may have less debt; and
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes.
We expect to use cash flow from operations and revolving borrowings under our senior credit facility to meet our current and future financial obligations, including funding our operations, debt service and capital expenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness, or to fund other liquidity needs. If we do not have enough money, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, including our senior credit facility, on or before maturity. We cannot make any assurances that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future indebtedness, including the agreements for our senior credit facility, may limit our ability to pursue any of these alternatives.
Despite current indebtedness levels and restrictive covenants, we may still be able to incur more debt or make certain restricted payments, which could further exacerbate the risks described above.
We and our subsidiaries may be able to incur additional debt in the future. Although our senior credit facility contains restrictions on our ability to incur indebtedness, those restrictions are subject to a number of exceptions. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. Moreover, although our senior credit facility contains restrictions on our ability to make restricted payments, including the declaration and payment of dividends, we are able to make such restricted payments under certain circumstances. Adding new debt to current debt levels or making restricted payments could intensify the related risks that we and our subsidiaries now face.
Our senior credit facility restricts our ability to engage in some business and financial transactions.
Our senior credit facility restricts our ability in certain circumstances to, among other things:
incur additional debt;
pay dividends and make other distributions on, redeem or repurchase, capital stock;
make investments or other restricted payments;
enter into transactions with affiliates;
sell all, or substantially all, of our assets;
create liens on assets to secure debt; or
effect a consolidation or merger.
These covenants limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively. In addition, our senior credit facility requires us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we cannot ensure that we will meet these tests.


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If one of our employees sells alcoholic beverages to an intoxicated patron, we may be liable to third parties for the acts of the patron.
We serve alcoholic beverages at our Taco Cabana restaurants and are subject to the “dram-shop” statutes of the jurisdictions in which we serve alcoholic beverages. “Dram-shop” statutes generally provide that serving alcohol to an intoxicated patron is a violation of the law. We discontinued the sale of alcoholic beverages at Pollo Tropical restaurants in early 2017.
In most jurisdictions, if one of our employees sells alcoholic beverages to an intoxicated patron we may be liable to third parties for the acts of the patron. We cannot guarantee that those patrons will not be served or that we will not be subject to liability for their acts. Our liquor liability insurance coverage may not be adequate to cover any potential liability and insurance may not continue to be available on commercially acceptable terms or at all, or we may face increased deductibles on such insurance. A significant dram-shop claim or claims could have a material adverse effect on us as a result of the costs of defending against such claims; paying deductibles and increased insurance premium amounts; implementing improved training and heightened control procedures for our employees; and paying any damages or settlements on such claims.
If one of our employees sells alcoholic beverages to a minor patron, we may be liable for significant fines or penalties including the suspension or loss of our liquor license.
We are subject to statutes of the jurisdictions in which we serve alcoholic beverages which prohibit us from selling or serving alcohol to minor patrons. These statutes generally provide that serving or selling alcohol to minors is a violation of the law, and will result in fines and other penalties including the suspension or loss of our license to sell alcohol in the future. If we were to incur a significant number of sale to minor violations the fines or penalties could have a material adverse effect on us.
Federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of hazardous materials could expose us to liabilities, which could adversely affect our results of operations.
We are subject to a variety of federal, state and local environmental regulations relating to the use, storage, discharge, emission and disposal of hazardous substances or other regulated materials, release of pollutants into the air, soil and water, and the remediation of contaminated sites.
Failure to comply with environmental laws could result in the imposition of fines or penalties, restrictions on operations by governmental agencies or courts of law, as well as investigatory or remedial liabilities and claims for alleged personal injury or damages to property or natural resources. Some environmental laws impose strict, and under some circumstances joint and several, liability for costs of investigation and remediation of contaminated sites on current and prior owners or operators of the sites, as well as those entities that send regulated materials to the sites. We cannot ensure that we have been or will be at all times in complete compliance with such laws, regulations and permits. Therefore, our costs of complying with current and future environmental, health and safety laws could adversely affect our results of operations.
We are subject to all of the risks associated with leasing property subject to long-term non-cancelable leases.
The leases for our restaurant locations generally have initial terms of 10 to 20 years, and typically provide for renewal options in five year increments as well as for rent escalations. Generally, our leases are “net” leases, which require us to pay all of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an existing or future restaurant is not profitable, and we decide to close it, we may nonetheless be obligated to perform our monetary obligations under the applicable lease including, among other things, paying all amounts due for the balance of the lease term. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close restaurants in desirable locations.
Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.
We own certain common law trademark rights and a number of federal and international trademark and service mark registrations, including the Pollo Tropical and Taco Cabana names and logos, and proprietary rights relating to certain of our core menu offerings. We believe that our trademarks, service marks, trade dress and other proprietary rights are important to our success and our competitive position. We, therefore, devote appropriate resources to the protection of our trademarks and proprietary rights. If our efforts to protect our intellectual property are inadequate or if any third party misappropriates or infringes on our intellectual property either in print or on the internet, the value of our brands may be harmed which could have a material adverse effect on our business. We are aware of restaurants in foreign jurisdictions using menu items, logos or branding that we believe are based on our intellectual property and our ability to prevent these restaurants from using these elements may be limited in jurisdictions in which we are not operating. This could have an adverse impact on our ability to expand into other jurisdictions in the future.
We are not aware of any assertions that our trademarks or menu offerings infringe upon the proprietary rights of third parties, but we cannot ensure that third parties will not claim infringement by us in the future. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations and financial condition.

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Risks Related to Our Common Stock
The market price of our common stock may be highly volatile or may decline regardless of our operating performance.
The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control. Broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. The fluctuations could cause a loss of all or part of an investment in our common stock. Factors that could cause fluctuation in the trading price of our common stock may include, but are not limited to the following:
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of our company as well as companies generally or restaurant companies;
actual or anticipated variations in the earnings or operating results of our company or our competitors;
actual or anticipated changes in financial estimates by us or by any securities analysts who might cover our stock or the stock of other companies in our industry;
market conditions or trends in our industry and the economy as a whole;
announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures and our ability to complete any such transaction;
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
capital commitments;
changes in accounting principles;
additions or departures of key personnel; and
sales of our common stock, including sales of large blocks of our common stock or sales by our directors and officers.
In addition, if the market for restaurant company stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry or related industries even if these events do not directly affect us.
In the past, following periods of volatility in the market price of a company’s securities, class action securities litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
We do not expect to pay any cash dividends for the foreseeable future, and our senior credit facility limits our ability to pay dividends to our stockholders.
We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. The absence of a dividend on our common stock may increase the volatility of the market price of our common stock or make it more likely that the market price of our common stock will decrease in the event of adverse economic conditions or adverse developments affecting our company. Our senior credit facility limits, and the debt instruments that we and our subsidiaries may enter into in the future may limit, our ability to pay dividends to our stockholders.
If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We cannot ensure that these analysts will publish research or reports about us or that any analysts that do so will not discontinue publishing research or reports about us in the future. If one or more analysts who cover us downgrade our stock, our stock price could decline rapidly. If analysts do not publish reports about us or if one or more analyst ceases coverage of our stock, we could lose visibility in the market, which in turn could cause our stock price to decline.
Percentage ownership of our common stock may be diluted in the future.
Percentage ownership of our common stock may be diluted in the future because of equity awards that we expect will be granted to our directors, officers and employees. The Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, and other equity-based awards to our directors, officers and other employees, advisors and consultants. In addition, in the future we may also issue common stock or other securities to raise additional capital. Any new shares issued would dilute our existing shareholders.

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Proxy contests threatened or commenced against us could be disruptive and costly, and adversely affect our business, operation results and financial condition.
Stockholders may from time to time attempt to effect changes, engage in proxy solicitations or advance stockholder proposals. Responding to proxy contests and related actions by activist stockholders can be costly and time-consuming, disrupt our operations, and divert the attention of our management and employees away from their regular duties and the pursuit of our business strategies, which could materially and adversely affect our business, operating results and financial conditions. Perceived uncertainties as to our future direction as a result of proxy contests and related actions by activist stockholders may lead to the perception of a change in the direction of our business, instability or lack of continuity. This may affect our relationship with current or potential suppliers, vendors, and other third parties, and make it more difficult to attract and retain management employees and executives which could adversely affect our business, operating results and financial condition. Further, proxy contests and related actions by activist stockholders could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Provisions in our restated certificate of incorporation and amended and restated bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Delaware corporate law and our restated certificate of incorporation and amended and restated bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:
require that special meetings of our stockholders be called only by our board of directors or certain of our officers, thus prohibiting our stockholders from calling special meetings;
deny holders of our common stock cumulative voting rights in the election of directors, meaning that stockholders owning a majority of our outstanding common stock will be able to elect all of our directors;
authorize the issuance of "blank check" preferred stock that our board could issue to dilute the voting and economic rights of our common stock and to discourage a takeover attempt;
provide the approval of our board of directors or a supermajority of stockholders is necessary to make, alter or repeal our amended and restated bylaws and that approval of a supermajority of stockholders is necessary to amend, alter or change certain provisions of our restated certificate of incorporation;
establish advance notice requirements for stockholder nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings;
divided our board into three classes of directors, with each class serving a staggered 3-year term, which generally increases the difficulty of replacing a majority of the directors;
provide that directors only may be removed for cause by a majority of the board and/or by a supermajority of our stockholders; and
require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2017, we owned or leased the following operating restaurant properties:
 
 
Owned
Leased (1) 
Total (2)
Restaurants:
 
 
 
Pollo Tropical
7

139

146

Taco Cabana
9

157

166

Total operating restaurants
16

296

312

(1)
Includes eleven restaurants located in in-line or storefront locations.
(2)
Excludes restaurants operated by our Pollo Tropical and Taco Cabana franchisees.

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As of December 31, 2017, we leased 95% of our Pollo Tropical restaurants and 95% of our Taco Cabana restaurants. We typically enter into leases (including renewal options) ranging from 35 to 45 years. The average remaining term for all leases for operating restaurant properties, including options, was approximately 25 years as of December 31, 2017. Generally, we have been able to renew leases, upon or prior to their expiration, at the prevailing market rates, although there can be no assurance that this will continue to occur.
Most leases require us to pay utility and water charges and real estate taxes. Certain leases also require contingent rentals based upon a percentage of gross sales of the particular restaurant that exceed specified minimums. In some of our mall locations, we are also required to pay certain other charges such as a pro-rata share of the mall's common area maintenance costs, insurance and security costs.
As of December 31, 2017, we had two restaurants under development, seven closed properties subleased to third parties, twenty-six closed restaurant properties available for sublease and four owned and closed restaurant properties, of which two are available for sale and two are available for lease. One of the owned properties available for sale was subsequently sold in January 2018.
In addition to the restaurant locations, we lease approximately 21,000 square feet at 14800 Landmark Boulevard, Suite 500, Dallas, Texas which houses some of our executive offices and certain of our administrative functions, including some of our administrative operations for our Pollo Tropical restaurants. We also lease approximately 10,400 square feet at 7255 Corporate Center Drive, Miami, Florida, which houses some of our executive offices and administrative operations for our Pollo Tropical restaurants. In addition, we lease approximately 17,700 square feet of office space at 8918 Tesoro Drive, Suite 200, San Antonio, Texas, which houses most of our administrative operations for our Taco Cabana restaurants. In December 2017, we vacated an office facility located at 3220 Keller Spring Road, Suite 108, Carrollton, Texas, which is available for sublease.
ITEM 3. LEGAL PROCEEDINGS
On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were misclassified as exempt from overtime wages under the Fair Labor Standards Act. On September 30, 2016, prior to any suit being filed, Pollo Tropical reached a settlement with seven named individuals and a proposed collective action class that will allow current and former assistant managers to receive notice and opt-in to the settlement. Pollo Tropical denies any liability or unlawful conduct. The Company recorded a charge of $0.8 million in 2016 to cover the estimated costs related to the settlement, including estimated payments to individuals that opt-in to the settlement, premium payments to named individuals, attorneys’ fees for the individuals' counsel, and related settlement administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending the action. During the fourth quarter of 2017, the settlement agreement was approved by the arbitrator and the arbitrator's award was confirmed by a Florida state judge on December 29, 2017. The settlement will result in dismissal with prejudice for the named individuals and all individuals that opt-in to the settlement.

We are a party to various other litigation matters incidental to the conduct of our business. We do not believe that the outcome of any of these matters will have a material adverse effect on our business, results of operations or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
None.



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Table of Contents

PART II
ITEM  5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on The NASDAQ Global Select Market under the symbol “FRGI”. The common stock has been quoted on The NASDAQ Global Select Market since May 8, 2012. On February 22, 2018, there were 27,093,581 shares of our common stock outstanding held by 507 holders of record. This excludes persons whose shares are held by a brokerage house or clearing agency. The closing price of our common stock on February 22, 2018 was $19.40.
The following table presents the range of high and low closing prices of our common stock for the periods indicated, as reported by The NASDAQ Global Select Market:  
 
Common Stock Price  
 
    High     
    Low     
Year Ended December 31, 2017
 
 
First Quarter
$
29.45

$
19.80

Second Quarter
$
25.00

$
20.15

Third Quarter
$
20.60

$
15.90

Fourth Quarter
$
20.10

$
16.10

 
 
 
Year Ended January 1, 2017
 
 
First Quarter
$
38.42

$
31.38

Second Quarter
$
35.70

$
21.01

Third Quarter
$
26.48

$
21.93

Fourth Quarter
$
30.50

$
23.74

Dividends
We did not pay any cash dividends during 2017 or 2016. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain the majority of available funds to fund the development and growth of our business or to use for other corporate related purposes such as the repayment of revolving credit borrowings under our senior credit facility. In addition, we are a holding company and conduct all of our operations through our direct and indirect subsidiaries. As a result, for us to pay dividends, we need to rely on dividends and distributions to us from our subsidiaries. Our senior credit facility limits, and debt instruments that we and our subsidiaries may enter into in the future may limit, our ability to pay dividends to our stockholders.
Stock Performance Graph
The following graph compares, from May 8, 2012 (the date on which our common stock began "regular way" trading on The NASDAQ Global Select Market), the cumulative total stockholder return on our common stock with the cumulative total returns of The NASDAQ Composite Index and a peer group, The S&P Small Cap 600 Restaurant Index. We have elected to use the S&P Small Cap 600 Restaurant Index in compiling our stock performance graph because we believe the S&P Small Cap 600 Restaurant Index represents a comparison to competitors with similar market capitalization as us.
The initial trading price of our common stock on May 8, 2012 was $11.10 and the closing price of our common stock on December 29, 2017, the last trading day before our fiscal year end date of December 31, 2017, was $19.00. The following graph is based upon the closing price of our common stock from December 31, 2012 through December 31, 2017.


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Table of Contents

cumulativereturns2017.jpg
Total Cumulative Shareholder Returns
 
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Fiesta Restaurant Group, Inc.
$
100.00

$
340.99

$
396.87

$
219.32

$
194.84

$
124.02

NASDAQ Composite
$
100.00

$
141.63

$
162.09

$
173.33

$
187.19

$
242.29

S&P Small Cap 600 Restaurants
$
100.00

$
162.20

$
188.79

$
176.07

$
185.75

$
178.90

The graph and table above provide the cumulative change of $100.00 invested on December 31, 2012, including reinvestment of dividends, if applicable, for the periods indicated.

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Table of Contents

ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data derived from our audited consolidated financial statements for each of the years ended December 31, 2017, January 1, 2017, January 3, 2016, December 28, 2014 and December 29, 2013. The information in the following table should be read together with our consolidated financial statements and accompanying notes as of December 31, 2017 and January 1, 2017 and for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, and “Management's Discussion and Analysis of Financial Condition and Results of Operations” included under Item 7 of this Annual Report. These historical results are not necessarily indicative of the results to be expected in the future. Our fiscal years ended December 31, 2017, January 1, 2017, December 28, 2014, and December 29, 2013 each contained 52 weeks. The fiscal year ended January 3, 2016 contained 53 weeks.
(Dollars in thousands, except share and per share data)
Year ended  
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
 
December 29, 2013
Statement of operations data:
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Restaurant sales
$
666,584

 
$
708,956

 
$
684,584

 
$
608,540

 
$
548,980

Franchise royalty revenues and fees
2,548

 
2,814

 
2,808

 
2,603

 
2,357

Total revenues
669,132

 
711,770

 
687,392

 
611,143

 
551,337

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
202,888

 
214,609

 
217,328

 
192,250

 
176,123

Restaurant wages and related expenses (including stock-based compensation expense of $52, $142, $156, $71, and $2, respectively)
184,742

 
185,305

 
174,222

 
155,140

 
143,392

Restaurant rent expense
36,936

 
37,493

 
33,103

 
29,645

 
26,849

Other restaurant operating expenses
98,927

 
96,457

 
87,285

 
78,921

 
69,021

Advertising expense
26,091

 
26,800

 
21,617

 
19,493

 
17,138

General and administrative (including stock-based compensation expense of $3,493, $3,141, $4,137, $3,426, and $2,296, respectively)
60,144

 
56,084

 
54,521

 
49,414

 
48,521

Depreciation and amortization
34,957

 
36,776

 
30,575

 
23,047

 
20,375

Pre-opening costs
2,118

 
5,511

 
4,567

 
4,061

 
2,767

Impairment and other lease charges(1)
61,760

 
25,644

 
2,382

 
363

 
199

Other expense (income), net(2)
1,679

 
(128
)
 
(679
)
 
(558
)
 
(554
)
Total operating expenses
710,242

 
684,551

 
624,921

 
551,776

 
503,831

Income (loss) from operations
(41,110
)
 
27,219

 
62,471

 
59,367

 
47,506

Interest expense
2,877

 
2,171

 
1,889

 
2,228

 
18,043

Loss on extinguishment of debt(3)

 

 

 

 
16,411

Income (loss) before income taxes
(43,987
)
 
25,048

 
60,582

 
57,139

 
13,052

Provision for (benefit from) income taxes
(7,755
)
 
8,336

 
22,046

 
20,963

 
3,795

Net income (loss)
$
(36,232
)
 
$
16,712

 
$
38,536

 
$
36,176

 
$
9,257

 
 
 
 
 
 
 
 
 
 
Per share data:
 
 
 
 
 
 
 
 
 
Basic net income (loss) per share
$
(1.35
)
 
$
0.62

 
$
1.44

 
$
1.35

 
$
0.39

Diluted net income (loss) per share
$
(1.35
)
 
$
0.62

 
$
1.44

 
$
1.35

 
$
0.39

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
26,821,471

 
26,682,227

 
26,515,029

 
26,293,714

 
23,271,431

Diluted weighted average shares outstanding
26,821,471

 
26,689,179

 
26,522,196

 
26,296,049

 
23,271,431

Other financial data:
 
 
 
 
 
 
 
 
 
Net cash provided from operating activities
$
50,820

 
$
80,679

 
$
81,352

 
$
64,106

 
$
36,176

Net cash used for investing activities
(55,492
)
 
(81,160
)
 
(87,671
)
 
(66,658
)
 
(34,067
)
Net cash provided from (used in) financing activities
4,075

 
(604
)
 
6,513

 
(3,339
)
 
(6,664
)
Total capital expenditures
(55,866
)
 
(82,365
)
 
(87,570
)
 
(74,079
)
 
(47,025
)

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Year ended
(Dollars in thousands)
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
 
December 29, 2013
Balance sheet data:
 
 
 
 
 
 
 
 
 
Total assets
$
423,313

 
$
441,565

 
$
415,645

 
$
357,956

 
$
318,785

Working capital
(18,796
)
 
(19,827
)
 
(15,067
)
 
(14,243
)
 
(8,180
)
Long-term debt:
 
 
 
 
 
 
 
 
 
Revolving credit facility
75,000

 
69,900

 
71,000

 
66,000

 
71,000

Lease financing obligations

 
1,664

 
1,663

 
1,660

 
1,657

Capital leases
1,523

 
1,612

 
1,681

 
1,325

 
1,385

Total long-term debt
$
76,523

 
$
73,176

 
$
74,344

 
$
68,985

 
$
74,042

 
 
 
 
 
 
 
 
 
 
Stockholders' equity
$
231,516

 
$
264,175

 
$
243,982

 
$
199,587

 
$
158,306

Operating statistics:
 
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
 
Restaurant-Level Adjusted EBITDA(4)
$
117,462

 
$
148,434

 
$
151,185

 
$
133,162

 
$
116,459

Restaurant-Level Adjusted EBITDA margin(4)
17.6
 %
 
20.9
 %
 
22.1
%
 
21.9
%
 
21.2
%
Adjusted EBITDA(4)
67,445

 
96,567

 
101,040

 
85,670

 
70,578

Adjusted EBITDA margin(4)
10.1
 %
 
13.6
 %
 
14.7
%
 
14.0
%
 
12.8
%
Total company-owned restaurants (at end of period)
312

 
343

 
317

 
291

 
267

Pollo Tropical:
 
 
 
 
 
 
 
 
 
Company-owned restaurants (at end of period)
146

 
177

 
155

 
124

 
102

Average number of company-owned restaurants
159.7

 
169.8

 
138.5

 
112.3

 
96.7

Revenues:
 
 
 
 
 
 
 
 
 
Restaurant sales
$
372,328

 
$
399,736

 
$
364,544

 
$
305,404

 
$
257,837

Franchise royalty revenues and fees
1,787

 
2,062

 
2,197

 
2,072

 
1,865

Total revenues
374,115

 
401,798

 
366,741

 
307,476

 
259,702

Average annual sales per company-owned restaurant(5)
2,331

 
2,354

 
2,585

 
2,720

 
2,666

Restaurant-Level Adjusted EBITDA(4)
78,371

 
90,294

 
90,374

 
78,960

 
67,785

Restaurant-Level Adjusted EBITDA margin(4)
21.0
 %
 
22.6
 %
 
24.8
%
 
25.9
%
 
26.3
%
Adjusted EBITDA(4)
50,937

 
58,286

 
61,265

 
52,794

 
44,159

Adjusted EBITDA margin(4)
13.6
 %
 
14.5
 %
 
16.7
%
 
17.2
%
 
17.0
%
Change in comparable company-owned restaurant sales(6)
(6.5
)%
 
(1.6
)%
 
3.8
%
 
6.6
%
 
5.9
%

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Table of Contents

 
Year ended
(Dollars in thousands)
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
 
December 29, 2013
Taco Cabana:
 
 
 
 
 
 
 
 
 
Company-owned restaurants (at end of period)
166

 
166

 
162

 
167

 
165

Average number of company-owned restaurants
167.2

 
163.3

 
163.9

 
165.6

 
163.3

Revenues:
 
 
 
 
 
 
 
 
 
Restaurant sales
$
294,256

 
$
309,220

 
$
320,040

 
$
303,136

 
$
291,143

Franchise royalty revenues and fees
761

 
752

 
611

 
531

 
492

Total revenues
295,017

 
309,972

 
320,651

 
303,667

 
291,635

Average annual sales per company-owned restaurant(5)
1,760

 
1,894

 
1,920

 
1,831

 
1,783

Restaurant-Level Adjusted EBITDA(4)
39,091

 
58,140

 
60,811

 
54,202

 
48,674

Restaurant-Level Adjusted EBITDA margin(4)
13.3
 %
 
18.8
 %
 
19.0
%
 
17.9
%
 
16.7
%
Adjusted EBITDA(4)
16,508

 
38,281

 
39,775

 
32,876

 
26,419

Adjusted EBITDA margin(4)
5.6
 %
 
12.3
 %
 
12.4
%
 
10.8
%
 
9.1
%
Change in comparable company-owned restaurant sales(6)
(7.3
)%
 
(2.5
)%
 
4.4
%
 
3.3
%
 
0.5
%

(1) 
Impairment charges for the year ended December 31, 2017, primarily include impairment charges for 40 Pollo Tropical restaurants that were closed in 2017, seven of which were initially impaired in 2016, six Taco Cabana restaurants that were closed in 2017, four of which were initially impaired in 2016, two Pollo Tropical and five Taco Cabana restaurants which we continue to operate and an office location that was closed in December 2017. Other lease charges, net of recoveries, for the year ended December 31, 2017 were related primarily to restaurants and an office location that were closed in 2017 as well as previously closed restaurants. Impairment and other lease charges for the year ended January 1, 2017 primarily include impairment charges for 17 Pollo Tropical restaurants that were closed in 2016 and 2017, and seven Taco Cabana restaurants, four of which were subsequently closed in 2017 and three of which we continue to operate. Other lease charges, net of recoveries, for the year ended January 1, 2017 were related to restaurants closed in 2016 as well as previously closed restaurants. Impairment and other lease charges for the year ended January 3, 2016 primarily include charges related to the closure of two restaurants as well as previously closed restaurants.
(2)  
Other expense (income), net for the year ended December 31, 2017, primarily includes $2.1 million in costs for the removal of signs and equipment and equipment transfers and storage related to the closure of restaurants and severance for closed restaurant employees, and $0.5 million in food donated to charitable organizations, partially offset by $0.4 million in additional proceeds received related to two Taco Cabana locations as a result of eminent domain proceedings, $0.3 million in expected insurance proceeds related to a Taco Cabana restaurant that was temporarily closed due to a fire, and $0.2 million in estimated insurance recoveries related to a restaurant closed due to Hurricane Harvey damage. Other income for the year ended January 1, 2017, includes additional proceeds related to a location that closed in 2015 as a result of an eminent domain proceeding, partially offset by costs for the removal of signs and equipment related to the closure of 10 Pollo Tropical restaurants in the fourth quarter of 2016. Other income for the year ended January 3, 2016 consisted primarily of a previously deferred gain of $0.4 million from a sale-leaseback transaction that was recognized upon termination of the lease as a result of an eminent domain proceeding and expected business interruption proceeds of $0.3 million related to a Pollo Tropical that was temporarily closed due to a fire. Other income for the year ended December 28, 2014 consisted primarily of a gain of $0.6 million from a condemnation award resulting from an eminent domain proceeding related to a location that closed in 2014. Other income for the year ended December 29, 2013 resulted primarily from a gain of $0.5 million from the sale of a non-operating Pollo Tropical restaurant property.
(3) 
In the year ended December 29, 2013, we completed a tender offer and consent solicitation for all of our outstanding $200.0 million 8.875% Senior Secured Second Lien Notes due 2016 ("Notes") and called for redemption and redeemed all of our Notes that were not validly tendered and accepted for payment in the tender offer. We recognized a loss on extinguishment of debt of $16.4 million in the fourth quarter of 2013 related to the repurchase and redemption of the Notes. The loss on extinguishment of debt includes the write-off of $3.9 million in deferred financing costs related to the Notes and $12.5 million of debt redemption premiums, consent payments, additional interest and other fees related to the redemption of the Notes.
(4) 
Consolidated Adjusted EBITDA and margin and Restaurant-Level Adjusted EBITDA and margin, are non-GAAP financial measures. Prior to the second quarter of 2017, Adjusted EBITDA and Consolidated Adjusted EBITDA were defined as earnings before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, and other expense (income), net. In 2017, our board of directors appointed a new Chief Executive

30

Table of Contents

Officer who initiated the Plan and uses an Adjusted EBITDA measure for the purpose of assessing performance and allocating resources to segments. The new Adjusted EBITDA measure used by the chief operating decision maker includes adjustments for significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants. Beginning in the second quarter of 2017, the primary measure of segment profit or loss used by the chief operating decision maker to assess performance and allocate resources is Adjusted EBITDA, which is now defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, construction and other administrative functions. Consolidated Adjusted EBITDA margin and Adjusted EBITDA margin are derived by dividing Consolidated Adjusted EBITDA and Adjusted EBITDA by total revenues and segment revenues, respectively.
Restaurant-Level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenue and fees, pre-opening costs and general and administrative expense (including corporate-level general and administrative expenses). Restaurant-Level Adjusted EBITDA margin is derived by dividing Restaurant-Level Adjusted EBITDA by restaurant sales.
Management believes that such non-GAAP financial measures, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-Level Adjusted EBITDA (i) provide useful information about our operating performance and period-over-period changes, (ii) provide additional information that is useful for evaluating the operating performance of our business, and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.

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Table of Contents

A reconciliation from consolidated net income (loss) to Consolidated Adjusted EBITDA and Restaurant-Level Adjusted EBITDA is presented below:
 
Year ended
(Dollars in thousands)
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
December 28, 2014
 
December 29, 2013
Net income (loss)
$
(36,232
)
 
$
16,712

 
$
38,536

 
$
36,176

 
$
9,257

Provision for (benefit from) income taxes
(7,755
)
 
8,336

 
22,046

 
20,963

 
3,795

Income (loss) before taxes
(43,987
)

25,048

 
60,582

 
57,139

 
13,052

Add:
 
 
 
 
 
 
 
 
 
Non-general and administrative expense adjustments:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
34,957

 
36,776

 
30,575

 
23,047

 
20,375

Impairment and other lease charges
61,760

 
25,644

 
2,382

 
363

 
199

Interest expense
2,877

 
2,171

 
1,889

 
2,228

 
18,043

Loss on extinguishment of debt

 

 

 

 
16,411

Other (income) expense, net
1,679

 
(128
)
 
(679
)
 
(558
)
 
(554
)
Stock-based compensation expense in restaurant wages
52

 
142

 
156

 
71

 
2

Unused pre-production costs in advertising expense(a)
410

 

 

 

 

    Total Non-general and administrative expense adjustments
101,735

 
64,605

 
34,323

 
25,151

 
54,476

   General and administrative expense adjustments:
 
 
 
 
 
 
 
 
 
Stock-based compensation expense
3,493

 
3,141

 
4,137

 
3,426

 
2,296

Terminated capital project(b)
849

 

 

 

 

Secondary offering expenses(c)

 

 

 

 
425

Board and shareholder matter costs(d)
3,049

 
1,580

 

 

 

Write-off of site development costs(e)
511

 
1,258

 
365

 
490

 
329

Plan restructuring costs and retention bonuses(f)
2,420

 
86

 

 

 

Office restructuring and relocation costs(g)
(152
)
 
539

 

 

 

Legal settlements and related costs(h)
(473
)
 
310

 
1,633

 
(536
)
 

    Total general and administrative expense adjustments
9,697

 
6,914

 
6,135

 
3,380

 
3,050

Consolidated Adjusted EBITDA:
67,445

 
96,567

 
101,040

 
85,670

 
70,578

Add:
 
 
 
 
 
 
 
 
 
Pre-opening costs
2,118

 
5,511

 
4,567

 
4,061

 
2,767

General and administrative(i)
50,447

 
49,170

 
48,386

 
46,034

 
45,471

Less:
 
 
 
 
 
 
 
 
 
Franchise royalty revenue and fees
2,548

 
2,814

 
2,808

 
2,603

 
2,357

Restaurant-Level Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
Pollo Tropical
$
78,371

 
$
90,294

 
$
90,374

 
$
78,960

 
$
67,785

Taco Cabana
39,091

 
58,140

 
60,811

 
54,202

 
48,674

Consolidated
117,462

 
148,434

 
151,185

 
133,162

 
116,459

(a)Unused pre-production costs for the year ended December 31, 2017, include costs for advertising pre-production that will not be used.
(b)Terminated capital project costs for the year ended December 31, 2017, include costs related to the write-off of a capital project that was terminated in the first quarter of 2017.
(c)Secondary offering expenses for the year ended December 29, 2013 include costs associated with the underwritten secondary public equity offering completed in March 2013.
(d)Board and shareholder matter costs for the year ended December 31, 2017, include fees related to shareholder activism and CEO and board member searches. Board and shareholder matter costs for the year ended January 1, 2017, primarily include fees related to the previously proposed and terminated separation transaction, and costs related to shareholder activism.
(e)Write-off of site development costs for all years includes the write-off of site costs related to locations that we decided not to develop.
(f)Plan restructuring costs and retention bonuses for the years ended December 31, 2017 and January 1, 2017, include severance related to the Plan and reduction in force and bonuses paid to certain employees for retention purposes.
(g)Office restructuring and relocation costs for the years ended December 31, 2017 and January 1, 2017, include severance and relocation adjustments and costs associated with the prior-year restructuring of Pollo Tropical brand and corporate offices.
(h)Legal settlements and related costs for the years ended December 31, 2017, January 1, 2017, January 3, 2016 and December 28, 2014, include benefits or costs related to litigation matters.
(i) Excludes general and administrative adjustments included in Adjusted EBITDA.
(5) 
Average annual sales per company-owned restaurant are derived by dividing restaurant sales for the applicable segment by the average number of company-owned and operated restaurants. For comparative purposes, the calculation of average annual

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sales per company-owned restaurant is based on a 52-week fiscal year. Restaurant sales data for the extra week in the fiscal year ended January 3, 2016 have been excluded for purposes of calculating average annual sales per company-owned restaurant.
(6) 
Restaurants are included in comparable restaurant sales after they have been open for 18 months. For comparative purposes, the calculation of the changes in comparable restaurant sales is based on a 52-week fiscal year. Restaurant sales for the extra week in the fiscal year ended January 3, 2016 have been excluded for purposes of calculating the change in comparable company-owned restaurant sales.


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Table of Contents

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying financial statement notes. Any reference to restaurants refers to company-owned restaurants unless otherwise indicated.
We use a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal years ended December 31, 2017 and January 1, 2017 each contained 52 weeks. The fiscal year ended January 3, 2016 contained 53 weeks.
Company Overview
We own, operate and franchise two restaurant brands, Pollo Tropical® and Taco Cabana®, which have almost 30 and 40 years, respectively, of operating history and loyal customer bases. Our Pollo Tropical restaurants feature citrus marinated, fire-grilled chicken and other freshly prepared tropical inspired menu items, while our Taco Cabana restaurants specialize in Mexican inspired food made fresh by hand. We believe that both brands offer distinct and unique flavors with broad appeal at a compelling value, which differentiates them in the competitive fast-casual and quick-service restaurant segments. Nearly all of our restaurants offer the convenience of drive-thru windows. As of December 31, 2017, our restaurants included 146 Pollo Tropical restaurants in the southeast United States and 166 Taco Cabana restaurants in Texas for a total of 312 restaurants across three states.
We franchise our Pollo Tropical restaurants primarily internationally and as of December 31, 2017, we had 25 franchised Pollo Tropical restaurants located in Puerto Rico, the Bahamas, Panama, Venezuela and Guyana and six licensed locations on college campuses and at a hospital in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.
As of December 31, 2017, we had five franchised Taco Cabana restaurants located in New Mexico and two non-traditional Taco Cabana licensed locations on college campuses in Texas. We entered into a new franchise agreement in December 2017 for a franchisee to develop a new franchised Taco Cabana restaurant in New Mexico, which is expected to open in April 2018.
Events Affecting our Results of Operations
The Plan
See Item 1 -- "Business" included in this Annual Report on Form 10-K for a discussion of the meaningful progress we made under the Plan during 2017 and areas of focus as we enter 2018.
Store Closures
As part of the Plan, which includes an initiative to optimize our restaurant portfolio, we closed 30 Pollo Tropical restaurants in April 2017, including all Pollo Tropical locations in Dallas-Fort Worth and Austin, Texas, and Nashville, Tennessee, three Pollo Tropical locations in Georgia and eight Pollo Tropical locations in southern Texas. In September 2017, due to the ongoing uncertainty created in south Texas by Hurricane Harvey, limited awareness of the Pollo Tropical brand and overhead costs needed to operate the small remaining Pollo Tropical restaurant base in Texas, we closed the six remaining Pollo Tropical restaurants in south Texas. These restaurants included two restaurants in Houston, Texas that were not re-opened after Hurricane Harvey and four restaurants in San Antonio, Texas. In December 2017, we closed four additional underperforming Pollo Tropical restaurants in Atlanta, Georgia upon completion of our portfolio optimization analysis as part of the Plan.
We continue to own and operate nine Pollo Tropical restaurants in Atlanta, Georgia, of which one was impaired in 2017. We continue to evaluate the long-term viability of the Pollo Tropical restaurants in Georgia and may decide to further impair or close some of these restaurants if their performance does not improve as projected.
One Pollo Tropical restaurant that closed in 2016 was rebranded as a Taco Cabana restaurant in 2017. Up to five Pollo Tropical restaurants that were closed in 2016 and 2017 in Texas may be rebranded as Taco Cabana restaurants in 2018.
We also closed six Taco Cabana restaurants in 2017, including one located in Oklahoma City.
Impairment and other lease charges for the twelve months ended December 31, 2017 were $61.8 million and included impairment charges of $54.2 million and lease and other charges of $7.5 million primarily with respect to the 46 restaurants that were closed in 2017, an office location that was closed in 2017 and two Pollo Tropical restaurants and five Taco Cabana restaurants that we continue to operate.
For the twelve months ended December 31, 2017, the 40 closed Pollo Tropical restaurants and six closed Taco Cabana restaurants contributed approximately $15.2 million and $3.6 million in restaurant sales, respectively, and $9.2 million and $1.0

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million in restaurant-level operating losses to loss from operations, respectively, including depreciation expense of $2.9 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively.

Hurricanes

During the third quarter of 2017, Texas and Florida were struck by Hurricane Harvey and shortly thereafter Hurricane Irma (the "Hurricanes"). 43 Taco Cabana and two Pollo Tropical restaurants in the Houston metropolitan area and all 149 Pollo Tropical restaurants in Florida and the Atlanta metropolitan area were closed and affected by the Hurricanes to varying degrees (e.g. property preparation and damage, inventory losses, payment of hourly restaurant employees while restaurants were closed, lost business related to temporary closures, limited menu and modified hours of operations). Other Texas markets where we operate restaurants including San Antonio were also affected by Hurricane Harvey, but to a lesser degree. All of the restaurants that were closed have re-opened except for one Taco Cabana restaurant and two Pollo Tropical restaurants that were permanently closed in Houston.

We estimate that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $2.5 million to $3.5 million for Pollo Tropical, net of $0.7 million in estimated insurance recoveries, and approximately $0.5 million to $1.5 million for Taco Cabana, net of $0.2 million in estimated insurance recoveries, and negatively impacted comparable restaurant sales and transactions by approximately 1.0% to 2.0% for Pollo Tropical, and approximately 0.5% to 1.0% for Taco Cabana for the twelve months ended December 31, 2017.

As a result of the Hurricanes, we recorded inventory losses, net of estimated insurance recoveries, of $0.2 million for Pollo Tropical and $0.1 million for Taco Cabana within cost of sales for the twelve months ended December 31, 2017. We recorded costs associated with hurricane preparation and repairs of $0.6 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively, within other restaurant operating expenses for twelve months ended December 31, 2017. In addition, we recognized an impairment loss of $0.1 million and lease charges of $0.2 million related to one Taco Cabana restaurant in the Houston metropolitan area that we decided to close due to extensive flood damage. We also incurred fixed costs while the impacted restaurants were temporarily closed due to the Hurricanes such as restaurant management wages and rent expense.

We maintain comprehensive insurance coverage on all of our restaurants including property, flood and business interruption. In 2017, we recorded estimated insurance proceeds of $0.7 million and $0.2 million for Pollo Tropical and Taco Cabana, respectively, for the inventory loss and idle time wages paid to hourly employees due to the Hurricanes. We also recorded $0.2 million, which represents a portion of expected insurance proceeds for a Taco Cabana restaurant with extensive flood damages. We will record additional expected insurance proceeds related to hurricane affected restaurants in future periods when additional information is available or, for business interruption coverage for lost profit, at the time of final settlement.

Change in Tax Law

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”), which includes a provision that reduces the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, was signed into law. In addition, the Act limits net operating loss deductions generated in future years and modifies net operating loss carryover terms. The Act also makes changes related to executive compensation deductions and allows for immediate expensing of certain qualified property for tax purposes. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required us to revalue our net deferred income tax assets at the new corporate statutory rate of 21.0% as of the enactment date, which resulted in a one-time adjustment to our deferred income taxes of $9.0 million with a corresponding non-cash increase to the provision for income taxes as a discrete item during the fourth quarter of 2017. The change in the corporate tax rate reduced the nominal value of our deferred tax assets, but it did not reduce the future tax deductions they represent. For fiscal years after 2017, our federal statutory tax rate will be 21%.
We continue to evaluate the impact of the Act on various matters. The actual impact of the Act on us may differ from the provisional amounts recognized based on our reasonable estimates due to, among other things, changes in assumptions we made in our interpretation of the Act, guidance related to application of the Act that may be issued in the future, and actions that we may take as a result of the expected impact of the Act. We will adjust the amounts we recognized related to the Act if more information becomes available.
Industry Conditions
The restaurant industry experienced a continued general slowdown in 2016 that continued into 2017, specifically in Florida and Texas. According to data reported by TDn2K’s Black Box Intelligence, comparable restaurant transactions in 2017 in the fast casual segment declined 430 bps nationwide, and declined 500 bps and 570 bps in Florida and Texas, respectively, from 2016.

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We believe the challenging market and industry conditions in Florida and Texas contributed to a decline in comparable restaurant transactions and sales for the twelve months ended December 31, 2017.
Executive Summary-Consolidated Operating Performance for the Year Ended December 31, 2017
Our fiscal year 2017 results include the following:
We recognized a net loss of $(36.2) million in 2017, or $(1.35) per diluted share, compared to net income of $16.7 million, or $0.62 per diluted share in 2016, due primarily to impairment and other lease charges, the net impact of lower comparable restaurant sales and the effect of the Act. The increase in net loss is also due to higher repair and maintenance costs, general and administrative costs, and Taco Cabana cost of sales as a percentage of sales, partially offset by the impact of closing unprofitable restaurants and lower pre-opening costs.
Total revenues decreased 6.0% in 2017 to $669.1 million from $711.8 million in 2016, driven primarily by a decrease in comparable restaurant sales partially attributable to the Hurricanes combined with the impact of permanent restaurant closures in the fourth quarter of 2016 and in 2017. Comparable restaurant sales decreased 7.3% for our Taco Cabana restaurants resulting primarily from a decrease in comparable restaurant transactions of 8.7% partially offset by an increase in average check of 1.4%. Comparable restaurant sales decreased 6.5% for our Pollo Tropical restaurants resulting primarily from a decrease in comparable restaurant transactions of 8.8%, partially offset by an increase in average check of 2.3%.
During 2017, we opened nine new Pollo Tropical restaurants and six new Taco Cabana restaurants and permanently closed 40 Pollo Tropical restaurants and six Taco Cabana restaurants.
Consolidated Adjusted EBITDA decreased $29.1 million for the twelve months ended December 31, 2017 to $67.4 million compared to $96.6 million for the twelve months ended January 1, 2017, driven primarily by lower comparable restaurant sales and higher costs associated with the Plan to improve the guest experience to drive incremental transactions, partially offset by closing unprofitable Pollo Tropical restaurants. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures".
Results of Operations
The following table summarizes the changes in the number and mix of Pollo Tropical and Taco Cabana company-owned and franchised restaurants in each fiscal year:
 
2017
 
2016
 
2015
 
Owned
 
Franchised
 
Total
 
Owned