UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 1, 2017~~September 27, 2020



¨☐	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~~DE		90-0712224
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14800 Landmark Boulevard, Suite 500 ~~Dallas, Texas~~		75254
Dallas	TX	(Zip Code)
(Address of principal executive office)		~~(Zip Code)~~

~~Registrant’s~~Registrant's telephone number, including area code: ~~(972)~~ (972) 702-9300

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	FRGI	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on their Corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated ~~filer”~~filer", ~~“accelerated filer”~~"accelerated filer", ~~“smaller~~"smaller reporting ~~company”~~company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large ~~accelerated filer~~Accelerated Filer	ý☐	Accelerated ~~filer~~Filer	¨☒

Non-accelerated ~~filer~~Filer	¨ ~~(Do not check if smaller reporting company)~~ ☐	Smaller Reporting Company	☐

		~~Smaller reporting company~~Emerging Growth Company	¨

		~~Emerging growth company~~	¨☐

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

~~Table of Contents~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of ~~November 1, 2017,~~October 29, 2020, Fiesta Restaurant Group, Inc. had ~~27,087,094~~25,920,828 shares of its common stock, ~~$.01~~$0.01 par value, outstanding.

~~Table of Contents~~

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED ~~OCTOBER 1, 2017~~SEPTEMBER 27, 2020



		Page
PART I FINANCIAL INFORMATION

Item 1	Interim Condensed Consolidated Financial Statements (Unaudited) - Fiesta Restaurant Group, Inc.:
	��
	Condensed Consolidated Balance Sheets as of ~~October 1, 2017~~September 27, 2020 and ~~January 1, 2017~~December 29, 2019	42

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019	53

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019	64

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019	75

	Notes to Unaudited Condensed Consolidated Financial Statements	86

Item 2	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures About Market Risk	4243

Item 4	Controls and Procedures	4243

PART II OTHER INFORMATION

Item 1	Legal Proceedings	4243

Item 1A	Risk Factors	4243

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4244

Item 3	Defaults Upon Senior Securities	4244

Item 4	Mine Safety Disclosures	4244

Item 5	Other Information	4344

Item 6	Exhibits	4445

PART I—I. FINANCIAL INFORMATION

ITEM 1—1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, ~~of dollars,~~ except share and per share ~~amounts)~~data)

(Unaudited)

October 1, 2017 January 1, 2017
ASSETS
Current assets:
Cash $ 4,244
$ 4,196
Trade receivables 8,864
8,771
Inventories 2,552
2,865
Prepaid rent 3,335
3,575
Income tax receivable 3,689
3,304
Prepaid expenses and other current assets 8,534
4,231
Total current assets 31,218
26,942
Property and equipment, net 227,686
270,920
Goodwill 123,484
123,484
Deferred income taxes 31,263
14,377
Other assets 4,146
5,842
Total assets $ 417,797
$ 441,565
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 96
$ 89
Accounts payable 19,126
16,165
Accrued payroll, related taxes and benefits 11,535
12,275
Accrued real estate taxes 6,881
6,924
Other liabilities 21,116
11,316
Total current liabilities 58,754
46,769
Long-term debt, net of current portion 62,350
71,423
Lease financing obligations —
1,664
Deferred income—sale-leaseback of real estate 24,365
27,165
Other liabilities 30,836
30,369
Total liabilities 176,305
177,390
Commitments and contingencies

Stockholders' equity:
Common stock, par value $.01; authorized 100,000,000 shares, issued 27,087,447 and 26,884,992 shares, respectively, and outstanding 26,846,809 and 26,755,640 shares, respectively. 268
267
Additional paid-in capital 166,044
163,204
Retained earnings 75,180
100,704
Total stockholders' equity 241,492
264,175
Total liabilities and stockholders' equity $ 417,797
$ 441,565



	September 27, 2020			December 29, 2019
ASSETS
Current assets:
Cash	$	17,997		$	13,413
Accounts receivable	8,457			7,933
Inventories	3,281			3,394
Prepaid rent	115			117
Income tax receivable	11,121			3,821
Prepaid expenses and other current assets	13,287			10,605
Total current assets	54,258			39,283
Property and equipment, net	174,551			211,944
Operating lease right-of-use assets	258,913			251,272
Goodwill	56,307			56,307
Other assets	7,739			9,835
Total assets	$	551,768		$	568,641
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	262		$	212
Accounts payable	28,950			14,776
Accrued payroll, related taxes and benefits	9,599			9,866
Accrued real estate taxes	7,959			6,497
Other current liabilities	34,174			32,269
Total current liabilities	80,944			63,620
Long-term debt, net of current portion	41,586			76,823
Operating lease liabilities	265,356			256,798
Deferred tax liabilities	5,311			4,759
Other non-current liabilities	12,646			8,405
Total liabilities	405,843			410,405
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued	0			0
Common stock, $0.01 par value; 100,000,000 shares authorized, 27,914,555 and 27,461,697 shares issued, respectively, and 25,291,941 and 25,612,597 shares outstanding, respectively	273			271
Additional paid-in capital	175,614			173,132
Retained earnings (accumulated deficit)	(9,183		)	1,884
Treasury stock, at cost; 1,993,495 and 1,493,495 shares, respectively	(20,779		)	(17,051		)
Total stockholders' equity	145,925			158,236
Total liabilities and stockholders' equity	$	551,768		$	568,641

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED ~~OCTOBER 1, 2017~~SEPTEMBER 27, 2020 AND ~~OCTOBER 2, 2016~~SEPTEMBER 29, 2019

(In thousands, ~~of dollars,~~ except share and per share ~~amounts)~~data)

(Unaudited)


													Three Months Ended						Nine Months Ended
	Three Months Ended						Nine Months Ended						September 27, 2020			September 29, 2019			September 27, 2020			September 29, 2019
Revenues:	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Restaurant sales	$	158,100		$	181,592		$	505,082		$	538,366		$	136,819		$	163,589		$	404,452		$	499,483
Franchise royalty revenues and fees	591			664			1,840			2,099			513			659			1,447			1,998
Total revenues	158,691			182,256			506,922			540,465			137,332			164,248			405,899			501,481
Costs and expenses:
Cost of sales	49,151			54,726			150,827			163,383			41,752			52,056			125,835			156,324
Restaurant wages and related expenses (including stock-based compensation expense of $9, $35, $44 and $111, respectively)	44,649			47,503			139,050			139,536
Restaurant wages and related expenses (including stock-based compensation expense of $47, $102, $152 and $145, respectively)													35,545			44,459			109,787			135,261
Restaurant rent expense	9,104			9,488			27,881			27,522			11,174			11,970			33,792			35,613
Other restaurant operating expenses	24,856			25,715			73,560			72,366			21,138			24,153			61,638			68,429
Advertising expense	5,885			7,506			17,716			21,507			2,033			6,385			9,959			17,789
General and administrative (including stock-based compensation expense of $938, $330, $2,723 and $2,523, respectively)	12,065			14,520			47,213			42,621
General and administrative (including stock-based compensation expense of $597, $509, $2,332 and $1,993, respectively)													11,855			13,820			38,527			42,387
Depreciation and amortization	8,483			9,513			26,265			26,474			9,432			10,165			28,427			29,520
Pre-opening costs	544			1,509			1,878			4,707			0			77			69			863
Impairment and other lease charges	15,905			18,513			59,081			18,607			2,404			3,254			8,922			4,667
Goodwill impairment													0			21,424			0			67,909
Closed restaurant rent expense, net of sublease income													1,481			726			4,943			3,485
Other expense (income), net	461			—			1,259			(238		)	(1,304		)	64			388			920
Total operating expenses	171,103			188,993			544,730			516,485			135,510			188,553			422,287			563,167
Income (loss) from operations	(12,412		)	(6,737		)	(37,808		)	23,980			1,822			(24,305		)	(16,388		)	(61,686		)
Interest expense	672			542			1,910			1,635			1,172			823			3,370			3,024
Loss on extinguishment of debt													212			0			212			0
Income (loss) before income taxes	(13,084		)	(7,279		)	(39,718		)	22,345			438			(25,128		)	(19,970		)	(64,710		)
Provision for (benefit from) income taxes	(4,827		)	(2,748		)	(14,241		)	8,065
Benefit from income taxes													(4,155		)	(2,946		)	(8,903		)	(1,377		)
Net income (loss)	$	(8,257	)	$	(4,531	)	$	(25,477	)	$	14,280		$	4,593		$	(22,182	)	$	(11,067	)	$	(63,333	)
Basic net income (loss) per share	$	(0.31	)	$	(0.17	)	$	(0.95	)	$	0.53
Diluted net income (loss) per share	$	(0.31	)	$	(0.17	)	$	(0.95	)	$	0.53
Basic weighted average common shares outstanding	26,845,568			26,716,219			26,811,610			26,658,739
Diluted weighted average common shares outstanding	26,845,568			26,716,219			26,811,610			26,665,091
Earnings (loss) per common share:
Basic													$	0.18		$	(0.84	)	$	(0.44	)	$	(2.37	)
Diluted													0.18			(0.84		)	(0.44		)	(2.37		)
Weighted average common shares outstanding:
Basic													25,290,357			26,548,116			25,359,004			26,734,822
Diluted													25,291,719			26,548,116			25,359,004			26,734,822

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED ~~OCTOBER 1, 2017~~SEPTEMBER 27, 2020 AND ~~OCTOBER 2, 2016~~SEPTEMBER 29, 2019

(In thousands, ~~of dollars,~~ except share ~~amounts)~~data)

(Unaudited)


	Number of Common Stock Shares	Common Stock		Additional Paid-In Capital			Retained Earnings			Total Stockholders' Equity			Common Stock				Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Treasury Stock				Total Stockholders' Equity
Balance at January 3, 2016	26,571,602	$	266	$	159,724		$	83,992		$	243,982										Retained Earnings (Accumulated Deficit)				Treasury Stock				Total Stockholders' Equity
													Shares		Amount		Additional Paid-In Capital			Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Treasury Stock				Total Stockholders' Equity
Balance at December 30, 2018													26,858,988		$	270				Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)				Treasury Stock				Total Stockholders' Equity
Stock-based compensation	—	—		2,634			—			2,634			—		—		792				—				—				792
Vesting of restricted shares	174,410	1		(1		)	—			—			68,286		0		(1		)		—				—				(1		)
Tax deficiency from stock-based compensation				(9		)				(9		)
Cumulative effect of adopting a new accounting standard													—		—		—				14,002				—				14,002
Purchase of treasury stock													(158,269	)	—		—				—				(2,199		)		(2,199		)
Net income	—	—		—			14,280			14,280			—		—		—				2,289				—				2,289
Balance at October 2, 2016	26,746,012	$	267	$	162,348		$	98,272		$	260,887

Balance at January 1, 2017	26,755,640	$	267	$	163,204		$	100,704		$	264,175
Balance at March 31, 2019													26,769,005		270		171,081				88,559				(4,968		)		254,942
Stock-based compensation	—	—		2,767			—			2,767			—		—		735				—				—				735
Vesting of restricted shares	91,169	1					—			1			57,547		1		(1		)		—				—				0
Cumulative effect of adopting a new accounting standard (Note 1)				73			(47		)	26
Net loss	—	—		—			(25,477		)	(25,477		)	—		—		—				(43,440		)		—				(43,440		)
Balance at October 1, 2017	26,846,809	$	268	$	166,044		$	75,180		$	241,492
Balance at June 30, 2019													26,826,552		271		171,815				45,119				(4,968		)		212,237
Stock-based compensation													—		—		611				—				—				611
Vesting of restricted shares													6,277		0		0				—				—				0
Purchase of treasury stock													(906,268	)	—		—				—				(9,158		)		(9,158		)
Net loss													—		—		—				(22,182		)		—				(22,182		)
Balance at September 29, 2019													25,926,561		$	271	$	172,426			$	22,937			$	(14,126	)		$	181,508


Balance at December 29, 2019													25,612,597		$	271	$	173,132			$	1,884			$	(17,051	)		$	158,236
Stock-based compensation													—		—		812				—				—				812
Vesting of restricted shares													73,998		0		0				—				—				0
Purchase of treasury stock													(500,000	)	—		—				—				(3,728		)		(3,728		)
Net loss													—		—		—				(7,317		)		—				(7,317		)
Balance at March 29, 2020													25,186,595		271		173,944				(5,433		)		(20,779		)		148,003
Stock-based compensation													—		—		1,028				—				—				1,028
Vesting of restricted shares													101,661		2		(2		)		—				—				0
Net loss													—		—		—				(8,343		)		—				(8,343		)
Balance at June 28, 2020													25,288,256		273		174,970				(13,776		)		(20,779		)		140,688
Stock-based compensation													—		—		644				—				—				644
Vesting of restricted shares													3,685		0		0				—				—				0
Net income													—		—		—				4,593				—				4,593
Balance at September 27, 2020													25,291,941		$	273	$	175,614			$	(9,183	)		$	(20,779	)		$	145,925

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED ~~OCTOBER 1, 2017~~SEPTEMBER 27, 2020 AND ~~OCTOBER 2, 2016~~SEPTEMBER 29, 2019

(In ~~thousands of dollars)~~thousands)

(Unaudited)

Nine Months Ended
October 1, 2017 October 2, 2016

Cash flows from operating activities:
Net income (loss) $ (25,477 ) $ 14,280
Adjustments to reconcile net income to net cash provided from operating activities:
Loss on disposals of property and equipment 1,020
178
Stock-based compensation 2,767
2,634
Impairment and other lease charges 59,081
18,607
Depreciation and amortization 26,265
26,474
Amortization of deferred financing costs 231
232
Amortization of deferred gains from sale-leaseback transactions (2,703 ) (2,687 )
Deferred income taxes (16,886 ) (6,761 )
Changes in other operating assets and liabilities 3,355
13,400
Net cash provided from operating activities 47,653
66,357
Cash flows from investing activities:
Capital expenditures:
New restaurant development (23,994 ) (52,828 )
Restaurant remodeling (2,280 ) (956 )
Other restaurant capital expenditures (7,650 ) (4,625 )
Corporate and restaurant information systems (4,615 ) (4,634 )
Total capital expenditures (38,539 ) (63,043 )
Properties purchased for sale-leaseback —
(2,663 )
Proceeds from disposals of other properties —
226
Proceeds from sale-leaseback transactions —
3,642
Net cash used in investing activities (38,539 ) (61,838 )
Cash flows from financing activities:
Excess tax benefit from vesting of restricted shares —
211
Borrowings on revolving credit facility 7,000
14,400
Repayments on revolving credit facility (16,000 ) (19,500 )
Principal payments on capital leases (66 ) (49 )
Net cash used in financing activities (9,066 ) (4,938 )
Net increase (decrease) in cash 48
(419 )
Cash, beginning of period 4,196
5,281
Cash, end of period $ 4,244
$ 4,862
Supplemental disclosures:
Interest paid on long-term debt $ 1,756
$ 1,393
Interest paid on lease financing obligations $ 83
$ 106
Accruals for capital expenditures $ 7,950
$ 9,591
Income tax payments, net $ 3,003
$ 9,540
Non-cash reduction of lease financing obligations $ 1,664
$ —
Non-cash reduction of assets under lease financing obligations $ 1,193
$ —



	Nine Months Ended
	September 27, 2020			September 29, 2019
Operating activities:
Net loss	$	(11,067	)	$	(63,333	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposals of property and equipment	(1,047		)	(6		)
Stock-based compensation	2,484			2,138
Impairment and other lease charges	8,922			4,667
Goodwill impairment	0			67,909
Loss on extinguishment of debt	212			0
Depreciation and amortization	28,427			29,520
Amortization of deferred financing costs	261			203
Deferred income taxes	552			(2,112		)
Changes in other operating assets and liabilities	18,230			11,988
Net cash provided by operating activities	46,974			50,974
Investing activities:
Capital expenditures:
New restaurant development	(1,846		)	(10,681		)
Restaurant remodeling	(1,087		)	(368		)
Other restaurant capital expenditures	(5,847		)	(15,845		)
Corporate and restaurant information systems	(3,136		)	(7,179		)
Total capital expenditures	(11,916		)	(34,073		)
Proceeds from disposals of properties	2,864			1,774
Proceeds from insurance recoveries	0			42
Proceeds from sale-leaseback transactions	6,284			0
Net cash used in investing activities	(2,768		)	(32,257		)
Financing activities:
Borrowings on revolving credit facility	154,143			21,000
Repayments on revolving credit facility	(189,225		)	(30,000		)
Borrowings of unsecured debt	15,000			0
Repayments of unsecured debt	(15,000		)	0
Principal payments on finance leases	(166		)	(109		)
Financing costs associated with debt amendment	(646		)	0
Payments to purchase treasury stock	(3,728		)	(11,357		)
Net cash used in financing activities	(39,622		)	(20,466		)
Net change in cash	4,584			(1,749		)
Cash, beginning of period	13,413			5,258
Cash, end of period	$	17,997		$	3,509

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

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

1. Basis of Presentation

Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises ~~two fast-casual~~2 restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively ~~“Pollo Tropical”~~"Pollo Tropical"), and Taco Cabana, Inc. and its subsidiaries (collectively ~~“Taco Cabana”~~"Taco Cabana"). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the ~~“Company”.~~"Company." At ~~October 1, 2017,~~September 27, 2020, the Company owned and operated ~~149~~138 Pollo Tropical^® restaurants and ~~168~~145 Taco Cabana^® restaurants. ~~The~~All of the Pollo Tropical restaurants ~~included 136~~are located in Florida and ~~13 located in Georgia. The~~all of the Taco Cabana restaurants ~~included 167~~are located in ~~Texas and one located in Oklahoma.~~Texas. At ~~October 1, 2017,~~September 27, 2020, the Company franchised a total of 3233 Pollo Tropical restaurants and ~~seven~~7 Taco Cabana restaurants. The franchised Pollo Tropical restaurants ~~included~~include 17 in Puerto Rico, ~~one~~4 in Panama, 2 in Guyana, 1 in Ecuador, 1 in the Bahamas, ~~two in Guyana, one in Venezuela, four in Panama, one in Honduras, and six~~7 on college campuses and 1 at a hospital in Florida. The franchised Taco Cabana restaurants ~~included five~~include 6 in New Mexico and ~~two~~1 on a college ~~campuses~~campus in Texas.

The COVID-19 pandemic has affected and is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, the Company closed the dining room seating areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. During the second quarter of 2020, certain restrictions were lifted and the Company opened certain dining rooms on a limited basis; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. The Company began re-opening certain dining rooms and patios with limited capacity and hours at both brands and the state of Florida removed restaurant capacity restrictions in late September 2020. The Company expects the COVID-19 restrictions and economic impact to result in reduced earnings. As the COVID-19 situation is dynamic, the Company does not currently know when it will resume full operations or when its results of operations will return to pre-COVID-19 levels.

Basis of Consolidation. The unaudited condensed consolidated financial statements presented herein reflect the consolidated financial position, results of operations and cash flows of Fiesta and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Fiscal Year. The Company uses a ~~52-53~~52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended ~~January 1, 2017~~December 29, 2019 contained 52 weeks. The three and nine months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending ~~December 31, 2017~~January 3, 2021 will contain 5253 weeks.

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019 have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission and do not include certain information and footnotes required by U.S. Generally Accepted Accounting Principles ("GAAP") for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and nine months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019 are not necessarily indicative of the results to be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended ~~January 1, 2017~~December 29, 2019 included in the Company's Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017.~~December 29, 2019. The ~~January 1, 2017~~December 29, 2019 balance sheet data is derived from those audited financial statements.

Guidance Adopted in 2020. In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this new accounting standard on December 30, 2019 and will apply it prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard did not have a material effect on the Company's financial statements. The Company deferred and amortized application development stage costs for cloud-based computing arrangements over the life of the related service (subscription) agreement in the same line item that the fees associated with the subscription arrangement were presented prior to adoption of the new standard.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Revenue Recognition. Revenue is recognized upon transfer of promised products or services to customers in an amount that reflects the consideration the Company received in exchange for those products or services. Revenues from the Company's owned and operated restaurants are recognized when payment is tendered at the time of sale. Franchise royalty revenues are based on a percentage of gross sales and are recorded as income when earned. Initial franchise fees and area development fees associated with new franchise agreements are not distinct from the continuing rights and services offered by the Company during the term of the related franchise agreements and are recognized as income over the term of the related franchise agreements. A portion of the initial franchise fee is allocated to training services and is recognized as revenue when the Company completes the training services.

Fair Value of Financial Instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In determining fair value, the accounting standards establish a ~~three level~~three-level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect ~~our~~management's own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:


•	Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.

•

Revolving Credit Borrowings. The Company's senior credit facility was amended on July 10, 2020. The fair value of outstanding revolving credit borrowings under the Company's senior secured revolving credit facility (the "senior credit facility") and the amended senior secured revolving credit facility (the "amended senior credit facility"), which is considered Level 2, is based on current LIBOR rates. The fair value of the amended senior credit facility and senior credit facility was approximately $39.9 million at September 27, 2020 and $75.0 million at December 29, 2019, respectively. The carrying value of the ~~Company's~~amended senior credit facility ~~were approximately $60.9~~and senior credit facility was $39.9 million at ~~October 1, 2017~~September 27, 2020 and ~~$69.9~~$75.0 million at ~~January 1, 2017.~~December 29, 2019, respectively.

Long-Lived Assets. The Company assesses the recoverability of property and equipment and definite-lived intangible assets, including right-of-use ("ROU") lease assets, by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows. Impairment is reviewed ~~when~~whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3.3—Impairment of Long-Lived Assets and Other Lease Charges.

Leases. The Company assesses whether an agreement contains a lease at inception. All leases are reviewed for finance or operating classification once control is obtained. The majority of the Company's leases are operating leases. Operating leases are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included within property and equipment, net, current portion of long-term debt, and long-term debt, net of current portion in the condensed consolidated balance sheets.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset also includes any lease payments made in advance and is reduced by lease incentives received. As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. The Company assumes options are reasonably certain to be exercised when such options are required to achieve a minimum 20-year lease term for new restaurant properties and when it incurs significant leasehold improvement costs near the end of a lease term. The Company uses judgment and available data to allocate consideration in a contract when it leases land and a building. The Company also uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a synthetic credit rating determined using a valuation model. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless the related ROU asset has been adjusted for an impairment charge. The Company has real estate lease agreements with lease and non-lease components, which are accounted for as a single lease component.

As a result of the COVID-19 pandemic the Company entered into rent deferral agreements with approximately 185 landlords as of September 27, 2020. Under these agreements, certain rent payments are deferred without penalty for various periods, generally for up to three months. The Company also entered into 2 limited abatement agreements. The Company has elected to account for lease concessions and deferrals resulting directly from COVID-19 as though the enforceable rights and obligations to the

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

concessions and deferrals existed in the respective contracts at lease inception and did not account for the concessions and deferrals as lease modifications.

During the third quarter of 2020, the Company sold 2 restaurant properties for total proceeds of $6.3 million in sale-leaseback transactions that resulted in a total gain of $1.5 million, which is recognized in other expense (income), net in the condensed consolidated statements of operations, and a financial liability of $0.5 million, which is recognized in other current and non-current liabilities in the condensed consolidated balance sheet.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: ~~accrued occupancy costs,~~

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~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(In thousands of dollars, except share and per share amounts)~~

insurance liabilities, evaluation for impairment of goodwill and long-lived assets, ~~and~~ lease accounting ~~matters.~~matters, and deferred income tax assets. Actual results could differ from those estimates.

~~Guidance Adopted in 2017.~~ ~~In March 2016,~~ Due to the ~~Financial Accounting Standards Board issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), to simplify various aspects~~uncertainty associated with the unprecedented nature of the ~~accounting~~COVID-19 pandemic and ~~presentation~~the impact it will have on the Company's operations and future cash flows, it is reasonably possible that the estimates of ~~share-based payments, including~~future cash flows used in impairment assessments will change in the ~~income tax effects~~near term and the effect of ~~awards~~the change could be material. The Company's current estimates assume that operating restrictions, regulations and ~~forfeiture assumptions. In~~directives for restaurants and other changes related to COVID-19 will continue to have a significant impact through at least the first ~~quarter~~half of ~~2017,~~2021 with the ~~Company prospectively adopted the amendments in this guidance that relate to the classification of excess tax benefits or tax benefit deficiencies from share-based payment arrangements~~greatest impact in the statement of cash flows and income statement. Excess tax benefits from share-based payment arrangements result from share-based compensation windfall deductions in excess of compensation costs for financial reporting purposes and tax benefit deficiencies result from share-based compensation deduction shortfalls. During the nine months ended October 1, 2017, the Company recognized $0.2 million of tax benefit deficiencies, which pursuant to the adopted guidance increased income tax expense and decreased net income by $0.2 million. Effective January 2, 2017, the Company elected to change its accounting policy to recognize forfeitures as they occur. The new forfeiture policy election was adopted using a modified retrospective approach with a $0.1 million cumulative-effect adjustment to beginning retained earnings in the first quarter of 2017 as a result of adopting the standard.near term.

2. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:


	October 1, 2017		January 1, 2017		September 27, 2020		December 29, 2019
Prepaid contract expenses	$	3,455	$	2,089	$	3,591	$	4,410
Assets held for sale⁽¹⁾	2,705		—		7,098		4,110
Other	2,374		2,142		2,598		2,085
	$	8,534	$	4,231	$	13,287	$	10,605


⁽¹⁾	As of September 27, 2020, 2 closed Pollo Tropical restaurant properties and 1 operating and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale. As of December 29, 2019, 1 closed Pollo Tropical restaurant property and 2 closed Taco Cabana restaurant properties owned by the Company were classified as held for sale.

⁽¹⁾~~See Note 3.~~

3. Impairment of Long-Lived Assets and Other Lease Charges

The Company reviews its long-lived assets, principally property and equipment and lease ROU assets, for impairment at the restaurant level. The Company has elected to exclude operating lease payments and liabilities from future cash flows and carrying values, respectively, in its impairment review. In addition to considering ~~management’s~~management's plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the ~~restaurant’s~~restaurant's cash flows, exclusive of operating lease payments, for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the ~~restaurant’s~~restaurant's assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows, exclusive of operating lease payments, over the life of the primary asset for each restaurant is compared to that long-lived ~~asset’s~~asset group's carrying ~~value.~~value, excluding operating lease liabilities. If the carrying value is greater than the undiscounted cash flow, the Company then determines the fair value of the asset and if an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the asset over its fair value. There is uncertainty in the projected undiscounted future cash flows used in the Company's impairment review analysis. If actual performance does not achieve the projections, the Company may recognize impairment charges in future periods, and such charges could be material. For closed restaurant locations, the Company reviews the future minimum lease payments and related ancillary costs from the date of the restaurant closure to the end of the remaining lease term and records a lease charge for the lease liabilities to be incurred, net of any estimated sublease recoveries. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material.

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

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Pollo Tropical $ 13,729
$ 18,390
$ 56,336
$ 18,390
Taco Cabana 2,176
123
2,745
217
$ 15,905
$ 18,513
$ 59,081
$ 18,607

On April 24, 2017, the Company announced a Strategic Renewal Plan (the "Plan") to drive long-term shareholder value creation that included the closure of 30 Company-owned Pollo Tropical restaurants outside its core Florida markets. The Company

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

~~closed all Pollo Tropical locations in Dallas-Fort Worth and Austin, Texas, and Nashville, Tennessee during the second quarter~~A summary of ~~2017. In September 2017, due to the ongoing uncertainty created in south Texas by Hurricane Harvey, limited awareness~~impairment of the Pollo Tropical brand and overhead costs needed to operate the small remaining Pollo Tropical restaurant base in Texas, the Company closed the six remaining Company-owned 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. The Company continues to own and operate 13 Pollo Tropical restaurants located in Atlanta, Georgia. Up to three Pollo Tropical restaurants that closed in April 2017 and one Pollo Tropical restaurant that closed in September 2017 may be rebranded as Taco Cabana restaurants. In July 2017, the Company closed four Company-owned Taco Cabana restaurants in Texas.

In the first quarter of 2017, the Company recognized impairment charges of $32.0 million with respect to the 30 closed Pollo Tropical restaurants, seven of which were impaired in 2016, as well as an additional impairment charge related to previously closed Pollo Tropical restaurants primarily as a result of the decision not to convert a location to a Taco Cabana restaurant. In the first quarter of 2017, the Company also recognized impairment charges of $0.3 million with respect to three Company-owned Taco Cabana restaurants that it continues to operate.

In the second quarter of 2017, the Company recognized other lease charges, net of recoveries, of $6.7 million, primarily related to Pollo Tropical restaurants that were closed during the quarter. In addition, the Company recognized impairment charges of $3.8 million related to three closed Pollo Tropical restaurants as a result of the decision not to convert the locations to Taco Cabana restaurants and $0.2 million with respect to four Taco Cabana restaurants that were closed in July 2017.

In the third quarter of 2017, the Company recognized impairment charges of $15.6 million with respect to the six Company-owned Pollo Tropical restaurants that closed in September 2017 and six additional Company-owned Pollo Tropical restaurants that it continues to operate, including five in Georgia and one in Florida. In addition, the Company recognized a net reduction to other lease charges, net of recoveries, of $1.9 million related to previously closed Company-owned Pollo Tropical restaurants as a result of lease terminations, assignments and other adjustments to estimates of future lease costs, partially offset by lease charges related to Company-owned Pollo Tropical restaurants closed in September 2017. In the third quarter of 2017, the Company also recognized impairment charges of $0.9 million primarily related to two Company-owned Taco Cabana restaurants that it continues to operate, and $1.3 million in other lease charges related to the closure of four Company-owned Taco Cabana restaurants in July 2017.

~~Impairment~~long-lived assets and other lease charges for the nine months ended October 1, 2017 for Pollo Tropical consist of impairment charges of $51.3 million and other lease charges, net of recoveries, of $5.0 million. Impairment and other lease charges for the nine months ended October 1, 2017 for Taco Cabana consist of impairment charges of $1.4 million and other lease charges, net of recoveries, of $1.3 million.(recoveries) recorded by segment is as follows:



	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Pollo Tropical	$	2,395	$	165	$	8,023	$	(162	)
Taco Cabana	9		3,089		899		4,829
	$	2,404	$	3,254	$	8,922	$	4,667

Impairment and other lease charges for the three and nine months ended ~~October 2, 2016 consist of~~September 27, 2020 for Pollo Tropical include impairment charges of ~~$18.5~~$2.6 million and $7.3 million, respectively, and other lease charges (gains) of $(0.2) million and $0.7 million, respectively. Pollo Tropical impairment charges for the three months ended September 27, 2020 related primarily to ~~sixteen Company-owned~~the write-down of saucing islands and self-service soda machines that are being removed from dining rooms as a result of COVID-19. For the nine months ended September 27, 2020, impairment charges also include the impairment of assets from 3 underperforming Pollo Tropical restaurants, ~~that~~2 of which were ~~subsequently closed in the fourth quarter of 2016 and second quarter of 2017 and one Company-owned Taco Cabana restaurant that was subsequently~~ closed in the third quarter of ~~2017.~~2020, for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows and the write-down of assets held for sale to their fair value less costs to sell. For the three months ended September 27, 2020, other lease charges for Pollo Tropical related primarily to a gain from lease terminations of $(0.2) million. For the nine months ended September 27, 2020, other lease charges also included lease termination charges of $0.9 million for restaurant locations the Company decided not to develop. Impairment and other lease charges for the nine months ended ~~October~~September 27, 2020 for Taco Cabana include impairment charges of $1.1 million, and a gain from a lease termination of $(0.2) million. Taco Cabana impairment charges for the nine months ended September 27, 2020, related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for 2 ~~2016 also included~~underperforming Taco Cabana restaurants for which continued sales declines coupled with the impact of expected sales declines resulted in a decrease in the estimated future cash flows.

Impairment and other lease charges for the three and nine months ended September 29, 2019 for Pollo Tropical include impairment charges of ~~$0.1~~$0.2 million and $0.6 million, respectively, related primarily to additional impairment of equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed ~~Company-owned~~restaurant lease terminations of $(0.8) million for the nine months ended September 29, 2019. Impairment and other lease charges for the three and nine months ended September 29, 2019 for Taco Cabana ~~restaurants.~~include impairment charges of $3.1 million and $4.9 million, respectively, related primarily to impairment of assets for 8 underperforming Taco Cabana restaurants for which continued sales declines resulted in a decrease in the estimated future cash flows and equipment from previously impaired restaurants as well as a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million for the nine months ended September 29, 2019.

The Company determined the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the ~~Company’s~~Company's history of using these assets in the operation of its business and the Company's expectation of how a market participant would value the assets. In addition, for those restaurants reviewed for impairment where the ~~company~~Company owns the land and building, the Company utilized third-party information such as a broker quoted value to determine the fair value of the property. The Company also utilized discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilized current market lease rent and discount rates to determine the fair value of right-of-use lease assets. These fair value asset measurements rely on significant unobservable inputs and are considered Level 3 in the fair value hierarchy. The Level 3 assets measured at fair value associated with impairment charges recorded during the nine months ended ~~October 1, 2017 and October 2, 2016~~September 27, 2020 totaled $13.5 million and $8.6 million, respectively, which primarily consist of leasehold improvements related to Pollo Tropical restaurants that may be rebranded as Taco Cabana restaurants and the estimated fair value of owned properties.$4.9 million.

The Company owns four of the Pollo Tropical restaurants that were closed in the second and third quarters of 2017. Three of these properties are available for sale and the Company intends to lease the other property. Two of these restaurants with a total carrying value of $2.7 million at October 1, 2017 are classified as held for sale.

109

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

4. Other Liabilities

Other current liabilities ~~current,~~ consist of the following:


	October 1, 2017		January 1, 2017		September 27, 2020		December 29, 2019
Operating lease liabilities					$	23,932	$	22,338
Accrued workers' compensation and general liability claims	$	6,796	$	4,838	4,457		4,354
Sales and property taxes	2,134		1,844		1,807		1,889
Accrued occupancy costs	7,296		2,161
Accrued occupancy costs⁽¹⁾					365		891
Other	4,890		2,473		3,613		2,797
	$	21,116	$	11,316	$	34,174	$	32,269


⁽¹⁾	Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

Other non-current liabilities ~~long-term,~~ consist of the following:


	October 1, 2017		January 1, 2017		September 27, 2020		December 29, 2019
Accrued occupancy costs	$	21,551	$	20,172
Accrued workers' compensation and general liability claims					$	7,348	$	7,348
Accrued payroll taxes⁽¹⁾					3,719		0
Deferred compensation	992		2,027		457		424
Accrued workers’ compensation and general liability claims	4,028		4,030
Accrued occupancy costs⁽²⁾					78		78
Other	4,265		4,140		1,044		555
	$	30,836	$	30,369	$	12,646	$	8,405

~~Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.~~


⁽¹⁾	Includes employer Social Security payroll tax deferred as a result of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act")


⁽²⁾	Accrued occupancy costs primarily consisted of obligations pertaining to closed restaurant locations.

The following table presents the activity in the ~~closed-restaurant~~closed restaurant reserve, of which ~~$6.0~~$0.1 million ~~and $3.1 million are~~is included in ~~long-term accrued occupancy costs~~non-current liabilities at ~~October 1, 2017~~both September 27, 2020 and ~~January 1, 2017, respectively,~~December 29, 2019, with the remainder in other current ~~accrued occupancy costs.~~liabilities.


	Nine Months Ended October 1, 2017			Year Ended January 1, 2017			Nine Months Ended September 27, 2020			Year Ended December 29, 2019
Balance, beginning of period	$	4,912		$	1,832		$	752		$	8,819
Provisions for restaurant closures	7,857			3,093
Additional lease charges, net of (recoveries)	(1,616		)	(237		)
Payments, net	(3,526		)	(806		)	(248		)	(1,405		)
Other adjustments⁽¹⁾	5,507			1,030			(178		)	(6,662		)
Balance, end of period	$	13,134		$	4,912		$	326		$	752

⁽¹⁾

As a result of adopting ASC 842 on December 31, 2018, the portion of the closed restaurant reserve related to operating lease rental payments totaling $6.0 million was reclassified and included as a component of the related ROU assets during the twelve months ended December 29, 2019. The portion of the closed restaurant reserve related to variable ancillary lease costs was not reclassified and was not included as a reduction to ROU assets.

^{(1) Includes the transfer of accruals to expense operating lease payments on a straight-line basis.}

5. ~~Stock-Based Compensation~~Long-Term Debt

~~During~~Long-term debt consists of the ~~nine months ended October 1, 2017 and October 2, 2016,~~following:



	September 27, 2020			December 29, 2019
Revolving credit facility	$	39,918		$	75,000
Finance/capital leases	1,930			2,035
	41,848			77,035
Less: current portion of long-term debt	(262		)	(212		)
	$	41,586		$	76,823

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Amended Senior Credit Facility. On July 10, 2020, the Company ~~granted certain employees 182,522~~entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and ~~50,087 non-vested restricted shares, respectively,~~a syndicate of lenders. The amended senior credit facility includes adjustments to the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio (each as amended and defined in the amended senior credit facility) that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants under the ~~Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan~~Company's amended senior credit facility that require compliance will be a minimum liquidity covenant and a maximum capital expenditure covenant discussed below. The amended senior credit facility reduced the aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the ~~"Fiesta Plan"~~"revolving commitment")~~. These shares generally vest~~ by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and ~~become non-forfeitable over a four year vesting period.~~ (ii) $10.0 million to $95.0 million on April 4, 2021. On September 27, 2020, there were $39.9 million in outstanding borrowings under the amended senior credit facility.

The ~~weighted average fair value at grant date for these non-vested shares issued during the nine months ended October 1, 2017 and October 2, 2016 was $20.75 and $35.25, respectively.~~

~~During the nine months ended October 1, 2017,~~amended senior credit facility provides that the Company ~~granted new non-employee directors 8,927 non-vested restricted shares,~~is not required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio under the ~~Fiesta Plan. These shares vest~~amended senior credit facility from July 10, 2020 through April 3, 2021. The Company is required to be in compliance with the Adjusted Leverage Ratio and ~~become non-forfeitable over a five year vesting period. The weighted average fair value at grant date for these non-vested shares was $22.41.~~

~~During~~Fixed Charge Coverage Ratio beginning with the ~~nine months ended October 1, 2017 and October 2, 2016,~~fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, the Company ~~granted non-employee directors 29,669~~will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and ~~14,081 non-vested restricted shares, respectively,~~Fixed Charge Coverage Ratio subject to certain restrictions as set forth in the amended senior credit facility. The amended senior credit facility also provides that the Company must maintain minimum liquidity (as defined in the amended senior credit facility, generally unrestricted cash plus available borrowings under the ~~Fiesta Plan. The weighted average fair value~~amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021, and (iii) $25.0 million on January 4, 2021 and thereafter.

Borrowings under the amended senior credit facility bear interest at a rate per annum, at the ~~grant~~Company's option, equal to either (all terms as defined in the amended senior credit facility):


1)	the Alternate Base Rate plus the Applicable Rate of 4.00% with a minimum Alternate Base Rate of 2.00%, or


2)	the Adjusted LIBOR Rate plus the Applicable Rate of 5.00% with a minimum Adjusted LIBOR Rate of 1.00%.

In addition, the amended senior credit facility requires the Company to pay (i) a commitment fee of 0.50% per annum on the daily amount of the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit. The amended senior credit facility also provides for a benchmark replacement (as defined in the amended senior credit facility) for LIBOR, which may be a SOFR-based rate, when LIBOR becomes unavailable or an earlier date under certain circumstances.

The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility requires that proceeds received when a prepayment event (as defined in the amended senior credit facility) occurs must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. As of September 27, 2020, the outstanding revolving credit borrowings and revolving commitment were reduced by $9.1 million from proceeds received. The amended senior credit facility further provides that Company must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (as defined in the amended senior credit facility) of the Company exceeds $20.0 million.

The amended senior credit facility contains certain covenants, including, without limitation, those limiting Company's and its subsidiaries' ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in certain transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by the Company cannot exceed an aggregate of $22.0 million for ~~restricted non-vested shares issued~~each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants.

The amended senior credit facility also provides that the Company will be required to ~~directors~~engage a financial advisor or chief restructuring officer if the Company is not in compliance with certain milestones.

The Company's obligations under the amended senior credit facility are secured by all of the assets of the Company and its subsidiaries (including a pledge of all of the capital stock and equity interests of its subsidiaries) pursuant to an amended and restated security agreement. Under the amended senior credit facility, the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during ~~the nine months ended October 1, 2017 and October 2, 2016 was $20.90 and $33.39, respectively. These shares vest and become non-forfeitable over a one year vesting period.~~

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

the continuance of customary defaults which include, without limitation, payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, certain judgments or upon the occurrence of a change of control (as specified in the amended senior credit facility).

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

The amended senior credit facility matures on November 30, 2022. As of September 27, 2020, the Company was in compliance with the financial covenants under its amended senior credit facility. After reserving $3.5 million for letters of credit, $67.5 million was available for borrowing under the amended senior credit facility at September 27, 2020.

Senior Credit Facility. In November 2017, the Company entered into a senior secured revolving credit facility with a syndicate of lenders. Prior to July 10, 2020, the senior credit facility provided for aggregate revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit) and was scheduled to mature on November 30, 2022. The senior credit facility also provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the senior credit facility. The senior credit facility was amended on July 10, 2020.

Borrowings under the senior credit facility bore interest at a per annum rate, at the Company's option, equal to either (all terms as defined in the senior credit facility agreement):


1)	the Alternate Base Rate plus the applicable margin of 0.75% to 1.50% based on the Company's Adjusted Leverage Ratio, or


2)	the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on the Company's Adjusted Leverage Ratio.

In addition, the senior credit facility required the Company to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on the Company's Adjusted Leverage Ratio, (with a rate of 0.35% at September 27, 2020) and the unused portion of the facility and (ii) a letter of credit participation fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.

6. Stockholders' Equity

Purchase of Treasury Stock

In 2018, the Company's board of directors approved a share repurchase program for up to 1,500,000 shares of the Company's common stock. In 2019, the Company's board of directors approved increases to the share repurchase program of an additional 1,500,000 shares of the Company's common stock for an aggregate approval of 3,000,000 shares of the Company's common stock. Under the share repurchase program, shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The share repurchase program has no time limit and may be modified, suspended, superseded or terminated at any time by the Company's board of directors. The Company repurchased 500,000 shares of common stock valued at approximately $3.7 million and 1,064,537 shares of common stock valued at approximately $11.3 million during the nine months ended September 27, 2020 and September 29, 2019, respectively. The shares repurchased in 2020 were purchased on or before March 12, 2020. The repurchased shares are held as treasury stock at cost. The Company's senior credit facility as amended on July 10, 2020 prohibits share repurchases, and the Company currently does not intend to repurchase additional shares of its common stock for the foreseeable future.

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FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in thousands, except per share data)

Stock-Based Compensation

During the nine months ended ~~October 1, 2017 and October 2, 2016,~~September 27, 2020, the Company granted certain employees ~~11,745~~ and ~~5,762~~non-employee directors a total of 501,706 non-vested restricted ~~stock units, respectively,~~shares under the Fiesta ~~Plan.~~Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan"). The ~~restricted stock units~~shares granted ~~during the nine months ended October 1, 2017 and October 2, 2016~~to employees vest and become non-forfeitable ~~at the end of~~over a ~~four year~~four-year vesting period. The shares granted to non-employee directors vest and become non-forfeitable over a one-year vesting period, or for an initial grant to a new director, over a five-year vesting period. The weighted average fair value at grant date for ~~these restricted stock units~~non-vested shares issued ~~to employees~~ during the nine months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019 was ~~$20.75~~$8.27 and ~~$35.25,~~$13.00 per share, respectively.

Also during the nine months ended October 1, 2017, the Company granted 92,171 restricted stock units under the Fiesta Plan to certain employees subject to continued service requirements and market performance conditions:

The Company granted its Chief Executive Officer 72,290 restricted stock units, which vest in four tranches over a four year vesting period subject to continued service and attainment of specified share prices of the Company's Common Stock during 20 consecutive trading days at any point during each year. Each tranche vests by the end of a one year period if the specified target stock price condition for that year is met. If the specified target stock price condition for any tranche is not met for the year, the cumulative unearned units will be rolled over to subsequent tranches on a pro rata basis. The number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 72,290 shares, if the service and market performance conditions are met in the fourth year. The weighted average fair value at grant date for ~~these restricted stock units was $12.90.~~

The Company granted certain executives 19,881 restricted stock units which vest in three tranches over a three year vesting period subject to continued service and attainment of specified share price of the Company's Common Stock. The number of shares into which these restricted stock units convert ranges from no shares, if the service and market performance conditions are not met, to 19,881 shares, if the service and market performance conditions are met in the third year.

During the nine months ended October 2, 2016, the Company granted 33,691 non-vested restricted shares and 33,691 restricted stock units, respectively, under the Fiesta Plan to certain employees subject to performance conditions. The non-vested restricted shares vest and become non-forfeitable over a four year vesting period subject to the attainment of financial performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three year vesting period. The number of shares into which the restricted stock units convert is based on the attainment of certain financial performance conditions and for the restricted stock units granted during the nine months ended October 2, 2016, ranges from no shares, if the minimum financial performance condition is not met, to 67,382 shares, if the maximum performance condition is met. The weighted average fair value at grant date for both restricted non-vested shares and restricted stock units subject to ~~financial performance~~market conditions granted ~~during~~in the nine months ended ~~October 2, 2016~~September 29, 2019 was ~~$35.25.~~$1.76 per share.

Stock-based compensation expense for the three and nine months ended ~~October 1, 2017~~September 27, 2020 was ~~$0.9~~$0.6 million and ~~$2.8~~$2.5 million, respectively, and for the three and nine months ended ~~October 2, 2016~~September 29, 2019 was ~~$0.4~~$0.6 million and ~~$2.6~~$2.1 million, respectively. At ~~October 1, 2017,~~September 27, 2020, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately ~~$5.8~~$5.0 million. At ~~October 1, 2017,~~September 27, 2020, the remaining weighted average vesting period for non-vested restricted shares was 2.8 years and restricted stock units was ~~1.7~~0.4 years.

A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended ~~October 1, 2017~~September 27, 2020 is as follows:

Non-Vested Shares Restricted Stock Units
Shares Weighted
Average
Grant Date
Price Units Weighted
Average
Grant Date
Price
Outstanding at January 1, 2017 129,352
$ 37.94
51,445
$ 46.59
Granted 221,118
20.84
103,916
13.10
Vested/Released (89,739 ) 29.99
(1,430 ) 51.51
Forfeited (20,093 ) 32.16
(8,647 ) 35.43
Outstanding at October 1, 2017 240,638
$ 24.82
145,284
$ 23.25



	Non-Vested Shares				Restricted Stock Units
	Shares		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding at December 29, 2019	355,605		$	15.47	176,362		$	9.42
Granted	501,706		8.27		0		0
Vested and released	(178,597	)	15.20		(747	)	32.44
Forfeited	(49,595	)	11.83		(25,030	)	8.33
Outstanding at September 27, 2020	629,119		$	10.13	150,585		$	9.49

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



	2019
Grant date stock price	$	14.66
Fair value at grant date	$	1.76
Risk free interest rate	2.53		%
Expected term (in years)	2
Dividend yield	0		%
Expected volatility	43.18		%

1213

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

6.7. Business Segment Information

The Company ~~is engaged in the fast-casual~~owns, operates and franchises 2 restaurant ~~industry, with two restaurant concepts (each~~brands, Pollo Tropical^® and Taco Cabana^®, each of which is an operating ~~segment): Pollo Tropical and Taco Cabana.~~segment. Pollo Tropical restaurants ~~offer a wide variety of~~feature fire-grilled and crispy citrus marinated chicken and other freshly prepared ~~tropical inspired food~~menu items, while ~~our~~ Taco Cabana restaurants ~~offer a broad selection of freshly prepared Mexican inspired food.~~specialize in Mexican-inspired food made fresh by hand.

Each segment's accounting policies are ~~the same as those~~ described in the summary of significant accounting policies in Note 1 to the Company's audited financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2017. Prior to the second quarter of 2017, the primary measures of segment profit or loss used to assess performance and allocate resources were income (loss) before taxes and an Adjusted EBITDA measure, which was defined as earnings attributable to the applicable operating segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense.

In 2017, the Company’s Board of Directors appointed a new Chief Executive Officer who initiated the Plan and uses an Adjusted EBITDA measure for the purpose of assessing performance and allocating resources to segments.December 29, 2019. 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 the Company’s 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-compensation~~goodwill impairment, closed restaurant rent expense, net of sublease income, 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 the Company's restaurants as set forth in the reconciliation table below. ~~The Company has included the presentation of Adjusted EBITDA for all periods presented.~~

~~Table of Contents~~

~~FIESTA RESTAURANT GROUP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(In thousands of dollars, except share and per share amounts)~~

The ~~“Other”~~"Other" column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, lease assets, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, and a current income tax ~~receivable, and advisory fees related to a previously proposed and terminated separation transaction.~~receivable.


Three Months Ended	Pollo Tropical		Taco Cabana		Other			Consolidated		Pollo Tropical		Taco Cabana		Other		Consolidated
October 1, 2017:
September 27, 2020:
Restaurant sales	$	87,888	$	70,212	$	—		$	158,100	$	77,604	$	59,215	$	0	$	136,819
Franchise revenue	396		195		—			591		336		177		0		513
Cost of sales	28,527		20,624		—			49,151		24,614		17,138		0		41,752
Restaurant wages and related expenses	21,208		23,441		—			44,649
Restaurant wages and related expenses⁽¹⁾										18,051		17,494		0		35,545
Restaurant rent expense	4,655		4,449		—			9,104		5,585		5,589		0		11,174
Other restaurant operating expenses	13,034		11,822		—			24,856		12,125		9,013		0		21,138
Advertising expense	4,980		905		—			5,885		815		1,218		0		2,033
General and administrative expense	6,655		5,410		—			12,065
General and administrative expense⁽²⁾										6,604		5,251		0		11,855
Adjusted EBITDA	9,396		3,776		—			13,172		10,621		4,172		0		14,793
Depreciation and amortization	5,187		3,296		—			8,483		5,171		4,261		0		9,432
Capital expenditures	6,302		5,471		613			12,386		1,457		1,112		644		3,213
October 2, 2016:
September 29, 2019:
Restaurant sales	$	103,353	$	78,239	$	—		$	181,592	$	88,309	$	75,280			$	163,589
Franchise revenue	474		190		—			664		432		227		0		659
Cost of sales	32,565		22,161		—			54,726		28,239		23,817		0		52,056
Restaurant wages and related expenses	24,383		23,120		—			47,503
Restaurant wages and related expenses⁽¹⁾										20,944		23,515		0		44,459
Restaurant rent expense	5,059		4,429		—			9,488		5,477		6,493		0		11,970
Other restaurant operating expenses	14,361		11,354		—			25,715		12,807		11,346		0		24,153
Advertising expense	5,026		2,480		—			7,506		3,130		3,255		0		6,385
General and administrative expense	9,091		5,355		74			14,520
General and administrative expense⁽²⁾										7,521		6,299		0		13,820
Adjusted EBITDA	13,782		9,762		—			23,544		10,980		1,174		0		12,154
Depreciation and amortization	6,337		3,176		—			9,513		5,529		4,636		0		10,165
Capital expenditures	18,146		2,791		(132		)	20,805		6,402		5,015		985		12,402

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)


Nine Months Ended	Pollo Tropical		Taco Cabana		Other		Consolidated		Pollo Tropical		Taco Cabana		Other		Consolidated
October 1, 2017:
September 27, 2020:
Restaurant sales	$	281,572	$	223,510	$	—	$	505,082	$	226,617	$	177,835	$	0	$	404,452
Franchise revenue	1,272		568		—		1,840		886		561		0		1,447
Cost of sales	87,430		63,397		—		150,827		72,666		53,169		0		125,835
Restaurant wages and related expenses	66,945		72,105		—		139,050
Restaurant wages and related expenses⁽¹⁾									54,196		55,591		0		109,787
Restaurant rent expense	14,502		13,379		—		27,881		16,885		16,907		0		33,792
Other restaurant operating expenses	39,353		34,207		—		73,560		35,225		26,413		0		61,638
Advertising expense	11,316		6,400		—		17,716		5,497		4,462		0		9,959
General and administrative expense	26,331		20,882		—		47,213
General and administrative expense⁽²⁾									20,630		17,897		0		38,527
Adjusted EBITDA	41,257		17,252		—		58,509		24,394		5,937		0		30,331
Depreciation and amortization	16,705		9,560		—		26,265		15,682		12,745		0		28,427
Capital expenditures	23,208		13,487		1,844		38,539		5,501		4,772		1,643		11,916
October 2, 2016:
September 29, 2019:
Restaurant sales	$	304,138	$	234,228	$	—	$	538,366	$	271,955	$	227,528	$	0	$	499,483
Franchise revenue	1,559		540		—		2,099		1,325		673		0		1,998
Cost of sales	96,435		66,948		—		163,383		85,855		70,469		0		156,324
Restaurant wages and related expenses	71,259		68,277		—		139,536
Restaurant wages and related expenses⁽¹⁾									63,387		71,874		0		135,261
Restaurant rent expense	14,528		12,994		—		27,522		16,393		19,220		0		35,613
Other restaurant operating expenses	40,654		31,712		—		72,366		36,665		31,764		0		68,429
Advertising expense	12,473		9,034		—		21,507		9,351		8,438		0		17,789
General and administrative expense	25,619		16,180		822		42,621
General and administrative expense⁽²⁾									23,568		18,819		0		42,387
Adjusted EBITDA	43,832		30,530		—		74,362		39,943		8,189		0		48,132
Depreciation and amortization	17,043		9,431		—		26,474		16,118		13,402		0		29,520
Capital expenditures	52,713		8,058		2,272		63,043		18,195		14,982		896		34,073
Identifiable Assets:
October 1, 2017	$	234,433	$	166,368	$	16,996	$	417,797
January 1, 2017	263,868		165,195		12,502		441,565
September 27, 2020									$	319,714	$	189,266	$	42,788	$	551,768
December 29, 2019									340,012		195,883		32,746		568,641

⁽¹⁾Includes stock-based compensation expense of $47 and $152 for the three and nine months ended September 27, 2020, respectively, and $102 and $145 for the three and nine months ended September 29, 2019, respectively.

⁽²⁾Includes stock-based compensation expense of $597 and$2,332 for the three and nine months ended September 27, 2020, respectively, and $509and $1,993 for the three and nine months ended September 29, 2019, respectively.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

A reconciliation of consolidated net income (loss) to Adjusted EBITDA follows:



Three Months Ended	Pollo Tropical			Taco Cabana			Other			Consolidated
September 27, 2020:
Net income										$	4,593
Benefit from income taxes										(4,155		)
Income (loss) before taxes	$	3,035		$	(2,385	)	$	(212	)	$	438
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	5,171			4,261			0			9,432
Impairment and other lease charges	2,395			9			0			2,404
Interest expense	593			579			0			1,172
Closed restaurant rent expense, net of sublease income	356			1,125			0			1,481
Loss on extinguishment of debt	0			0			212			212
Other expense (income), net	(1,404		)	100			0			(1,304		)
Stock-based compensation expense in restaurant wages	15			32			0			47
Total non-general and administrative expense adjustments	7,126			6,106			212			13,444
General and administrative expense adjustments:
Stock-based compensation expense	307			290			0			597
Restructuring costs and retention bonuses	99			117			0			216
Digital and brand repositioning costs	54			44			0			98
Total general and administrative expense adjustments	460			451			0			911
Adjusted EBITDA	$	10,621		$	4,172		$	0		$	14,793

September 29, 2019:
Net loss										$	(22,182	)
Benefit from income taxes										(2,946		)
Income (loss) before taxes	$	3,857		$	(28,985	)	$	0		$	(25,128	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	5,529			4,636			0			10,165
Impairment and other lease charges	165			3,089			0			3,254
Goodwill impairment	0			21,424			0			21,424
Interest expense	398			425			0			823
Closed restaurant rent expense, net of sublease income	601			125			0			726
Other expense (income), net	5			59			0			64
Stock-based compensation expense in restaurant wages	39			63			0			102
Total non-general and administrative expense adjustments	6,737			29,821			0			36,558
General and administrative expense adjustments:
Stock-based compensation expense	268			241			0			509
Digital and brand repositioning costs	118			97			0			215
Total general and administrative expense adjustments	386			338			0			724
Adjusted EBITDA	$	10,980		$	1,174		$	0		$	12,154

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

Three Months Ended Pollo Tropical Taco Cabana Other Consolidated
October 1, 2017:
Net income (loss) $ (8,257 )
Provision for (benefit from) income taxes (4,827 )
Income (loss) before taxes $ (10,816 ) $ (2,268 ) $ —
$ (13,084 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 5,187
3,296
—
8,483
          Impairment and other lease charges 13,729
2,176
—
15,905
          Interest expense 329
343
—
672
          Other expense (income), net 566
(105 ) —
461
          Stock-based compensation expense in restaurant wages (4 ) 13
—
9
                Total Non-general and administrative expense adjustments 19,807
5,723
—
25,530
     General and administrative expense adjustments:
          Stock-based compensation expense 587
351
—
938
          Board and shareholder matter costs (89 ) (66 ) —
(155 )
          Write-off of site development costs 8
—
—
8
          Plan restructuring costs and retention bonuses 51
36
—
87
          Office restructuring and relocation costs (152 ) —
—
(152 )
               Total General and administrative expense adjustments 405
321
—
726
Adjusted EBITDA: $ 9,396
$ 3,776
$ —
$ 13,172

October 2, 2016:
Net income (loss) $ (4,531 )
Provision for (benefit from) income taxes (2,748 )
Income (loss) before taxes $ (13,070 ) $ 5,865
$ (74 ) $ (7,279 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 6,337
3,176
—
9,513
          Impairment and other lease charges 18,390
123
—
18,513
          Interest expense 229
313
—
542
          Stock-based compensation expense in restaurant wages 18
17
—
35
                Total Non-general and administrative expense adjustments 24,974
3,629
—
28,603
     General and administrative expense adjustments:
          Stock-based compensation expense 183
147
—
330
          Board and shareholder matter costs 119
89
74
282
          Write-off of site development costs 549
32
—
581
          Office restructuring and relocation costs 193
—
—
193
          Legal settlements and related costs 834
—
—
834
               Total General and administrative expense adjustments 1,878
268
74
2,220
Adjusted EBITDA: $ 13,782
$ 9,762
$ —
$ 23,544

Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
October 1, 2017:
Net income (loss) $ (25,477 )
Provision for (benefit from) income taxes (14,241 )
Income (loss) before taxes $ (39,414 ) $ (304 ) $ —
$ (39,718 )
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 16,705
9,560
—
26,265
          Impairment and other lease charges 56,336
2,745
—
59,081
          Interest expense 873
1,037
—
1,910
          Other expense (income), net 1,454
(195 ) —
1,259
          Stock-based compensation expense in restaurant wages (4 ) 48
—
44
          Unused pre-production costs in advertising expense 322
88
—
410
                Total Non-general and administrative expense adjustments 75,686
13,283
—
88,969
     General and administrative expense adjustments:
          Stock-based compensation expense 1,542
1,181
—
2,723
          Terminated capital project 484
365
—
849
          Board and shareholder matter costs 2,136
1,612
—
3,748
          Write-off of site development costs 170
292
—
462
          Plan restructuring costs and retention bonuses 1,278
823
—
2,101
          Office restructuring and relocation costs (152 ) —
—
(152 )
          Legal settlements and related costs (473 ) —
—
(473 )
               Total General and administrative expense adjustments 4,985
4,273
—
9,258
Adjusted EBITDA: $ 41,257
$ 17,252
$ —
$ 58,509

October 2, 2016:
Net income (loss) $ 14,280
Provision for (benefit from) income taxes 8,065
Income (loss) before taxes $ 4,235
$ 18,932
$ (822 ) $ 22,345
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 17,043
9,431
—
26,474
          Impairment and other lease charges 18,390
217
—
18,607
          Interest expense 708
927
—
1,635
          Other expense (income), net (12 ) (226 ) —
(238 )
          Stock-based compensation expense in restaurant wages 56
55
—
111
                Total Non-general and administrative expense adjustments 36,185
10,404
—
46,589
     General and administrative expense adjustments:
          Stock-based compensation expense 1,408
1,115
—
2,523
          Board and shareholder matter costs 119
89
822
1,030
          Write-off of site development costs 796
81
—
877
          Office restructuring and relocation costs 539
—
—
539
          Legal settlements and related costs 550
(91 ) —
459
               Total General and administrative expense adjustments 3,412
1,194
822
5,428
Adjusted EBITDA: $ 43,832
$ 30,530
$ —
$ 74,362



Nine Months Ended	Pollo Tropical			Taco Cabana			Other			Consolidated
September 27, 2020:
Net loss										$	(11,067	)
Benefit from income taxes										(8,903		)
Loss before taxes	$	(3,978	)	$	(15,780	)	$	(212	)	$	(19,970	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	15,682			12,745			0			28,427
Impairment and other lease charges	8,023			899			0			8,922
Interest expense	1,701			1,669			0			3,370
Closed restaurant rent expense, net of sublease income	1,629			3,314			0			4,943
Loss on extinguishment of debt	0			0			212			212
Other expense (income), net	(653		)	1,041			0			388
Stock-based compensation expense in restaurant wages	53			99			0			152
Total non-general and administrative expense adjustments	26,435			19,767			212			46,414
General and administrative expense adjustments:
Stock-based compensation expense	1,140			1,192			0			2,332
Restructuring costs and retention bonuses	551			556			0			1,107
Digital and brand repositioning costs	246			202			0			448
Total general and administrative expense adjustments	1,937			1,950			0			3,887
Adjusted EBITDA	$	24,394		$	5,937		$	0		$	30,331

September 29, 2019:
Net loss										$	(63,333	)
Benefit from income taxes										(1,377		)
Income (loss) before taxes	$	16,731		$	(81,441	)	$	0		$	(64,710	)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	16,118			13,402			0			29,520
Impairment and other lease charges	(162		)	4,829			0			4,667
Goodwill impairment	0			67,909			0			67,909
Interest expense	1,534			1,490			0			3,024
Closed restaurant rent expense, net of sublease income	2,784			701			0			3,485
Other expense (income), net	749			171			0			920
Stock-based compensation expense in restaurant wages	48			97			0			145
Total non-general and administrative expense adjustments	21,071			88,599			0			109,670
General and administrative expense adjustments:
Stock-based compensation expense	1,196			797			0			1,993
Restructuring costs and retention bonuses	827			137			0			964
Digital and brand repositioning costs	118			97			0			215
Total general and administrative expense adjustments	2,141			1,031			0			3,172
Adjusted EBITDA	$	39,943		$	8,189		$	0		$	48,132

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

~~7. Net Income~~8. Earnings (Loss) ~~per~~Per Share

~~The Company computes basic net income~~Basic earnings (loss) per share ("EPS") is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. ~~Our non-vested~~Non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic ~~net income per share~~EPS pursuant to the two-class method. The two-class method of computing ~~earnings per share~~EPS is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. ~~Net income per common share~~EPS is computed by dividing undistributed earnings allocated to common stockholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.

Diluted ~~earnings per share~~EPS reflects the potential dilution that could occur if ~~our~~the restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted ~~earnings per share~~EPS calculation to the extent that performance conditions have been met at the measurement date. ~~We compute diluted earnings per share~~Diluted EPS is computed by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.

For the three ~~and nine~~ months ended ~~October 1, 2017 and for the three months ended October 2, 2016, all~~September 27, 2020, no shares of outstanding restricted stock units ~~outstanding~~ were excluded from the computation of diluted ~~earnings per share~~EPS because ~~to do so~~none were antidilutive. For the nine months ended September 27, 2020 and the three and nine months ended September 29, 2019, all shares of outstanding restricted stock units were excluded from the computation of diluted EPS because including such restricted stock units would have been antidilutive as a result of the net loss in ~~these periods. Weighted average outstanding restricted stock units totaling 11,489 shares for~~ the nine months ended ~~October 2, 2016 were not included in~~September 27, 2020 and the ~~computation of diluted earnings per share because to do so would have been antidilutive.~~three and nine months ended September 29, 2019.

The computation of basic and diluted ~~net income (loss) per share~~EPS is as follows:

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Basic and diluted net income (loss) per share:
Net income (loss) $ (8,257 ) $ (4,531 ) $ (25,477 ) $ 14,280
Less: income allocated to participating securities —
—
—
(138 )
Net income (loss) available to common shareholders $ (8,257 ) $ (4,531 ) $ (25,477 ) $ 14,142
Weighted average common shares, basic 26,845,568
26,716,219
26,811,610
26,658,739
Restricted stock units —
—
—
6,352
Weighted average common shares, diluted 26,845,568
26,716,219
26,811,610
26,665,091

Basic net income (loss) per share $ (0.31 ) $ (0.17 ) $ (0.95 ) $ 0.53
Diluted net income (loss) per share $ (0.31 ) $ (0.17 ) $ (0.95 ) $ 0.53



	Three Months Ended					Nine Months Ended
	September 27, 2020		September 29, 2019			September 27, 2020			September 29, 2019
Basic and diluted EPS:
Net income (loss)	$	4,593	$	(22,182	)	$	(11,067	)	$	(63,333	)
Less: income allocated to participating securities	112		0			0			0
Net income (loss) available to common shareholders	$	4,481	$	(22,182	)	$	(11,067	)	$	(63,333	)
Weighted average common shares—basic	25,290,357		26,548,116			25,359,004			26,734,822
Restricted stock units	1,362		0			0			0
Weighted average common shares—diluted	25,291,719		26,548,116			25,359,004			26,734,822

Loss per common share—basic	$	0.18	$	(0.84	)	$	(0.44	)	$	(2.37	)
Loss per common share—diluted	0.18		(0.84		)	(0.44		)	(2.37		)

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

8.9. Commitments and Contingencies

Lease Assignments. Taco Cabana ~~has~~ assigned ~~three leases~~1 lease to ~~various parties~~a third party on ~~properties~~a property where it no longer operates ~~restaurants~~ with a lease ~~terms~~term expiring ~~on various dates through~~in 2029. ~~The assignees are~~Although the assignee is responsible for making the payments required by the ~~leases. The~~lease, the Company ~~is a guarantor under one of the leases, and it~~ remains secondarily liable as a surety with respect to ~~two of~~ the ~~leases. In the third quarter of 2017,~~lease. Pollo Tropical assigned ~~one~~1 lease to a third party on a property where it no longer operates with a lease term expiring in 2033. ~~The~~Although the assignee is responsible for making the payments required by the ~~lease. The~~lease, the Company is a guarantor under the lease.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at ~~October 1, 2017~~September 27, 2020 was ~~$4.1~~$3.0 million. The Company could also be obligated to pay property taxes and other ~~lease related~~lease-related costs. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The Company does not believe it is probable that it will be ultimately responsible for the obligations under these leases.

Legal Matters. The Company is a party to ~~legal proceedings~~various litigation matters incidental to the conduct of ~~business, including~~business. The Company does not believe that the ~~matter described below.~~outcome of any of these matters will have a material effect on its condensed consolidated financial statements. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

On November 24, 2015, Pollo Tropical received a legal demand letter alleging that assistant managers were 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.

10. Income Taxes

The Company has ~~recorded a charge~~historically calculated the provision for income taxes during interim reporting periods by applying an estimate of ~~$0.8 million~~the annualized effective tax rate for the full fiscal year to ~~cover~~"ordinary" income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the ~~estimated costs related~~reporting period. Due to the ~~settlement, including estimated payments to individuals that opt-in to~~uncertainty created by the ~~settlement, premium payments to named individuals, attorneys’ fees~~events surrounding the COVID-19 pandemic, the actual effective tax rate for the ~~individuals' counsel, and related settlement administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending~~year to date period was used to calculate the ~~action. The settlement, which is subject to approval by an arbitrator and a judicial body, will result in dismissal with prejudice~~income tax benefit for the ~~named individuals~~three and ~~all individuals~~nine months ended September 27, 2020 as permitted by Accounting Standards Codification ("ASC") 740-270-30-18.

Tax Law Changes. On March 27, 2020, the CARES Act was signed into law. The CARES Act includes provisions that ~~opt-in~~allow net operating losses in 2018, 2019, and 2020 to be carried back for up to five years and eliminates the ~~settlement.~~80% taxable income limitation on net operating loss deductions for 2018 through 2020. These changes allowed the Company to record an incremental benefit of $1.8 million during the first quarter of 2020 and $0.1 million during the third quarter of 2020, which represents the impact of carrying net operating losses from 2018 and 2019 back to years with a higher federal corporate income tax rate.

The CARES Act also includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately. Reclassifying certain assets as qualified improvement property and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing the Company's 2019 federal income tax return resulted in an incremental benefit of $1.9 million, which was recorded in the third quarter of 2020.

11. Related Party Transactions

The Company is ~~also a party to various other litigation matters incidental to~~exploring the ~~conduct~~potential refinancing of ~~business.~~ its amended senior credit facility, although it cannot make any assurance of the timing or certainty of completing any refinancing transactions.

The Company ~~does not believe that~~has engaged Jefferies LLC ("Jefferies"), an affiliate of two of the ~~outcome~~members of ~~any~~Fiesta's board of ~~these matters will have~~directors and a ~~material effect on its consolidated financial statements.~~

~~Contingency Related to Insurance Recoveries. During~~subsidiary of Jefferies Financial Group, Inc, a holder of more than 20 percent of the total outstanding shares of Fiesta, in the third quarter of ~~2017, Texas~~2020 in connection with advisory services and ~~Florida were struck by Hurricanes Harvey and Irma (the "Hurricanes"). 43 Taco Cabana and two Pollo Tropical Company-owned restaurants in~~a refinancing of the ~~Houston metropolitan area and all 149 Pollo Tropical Company-owned restaurants in Florida~~Company's amended senior credit facility. The engagement of Jefferies and the ~~Atlanta metropolitan area were closed and affected~~corresponding engagement letter was approved by the ~~Hurricanes to varying degrees (e.g. property preparation and damages, inventory losses, payment~~Audit Committee in accordance with the Company's Related Party Transaction Policy as disclosed in its most recent proxy statement for the 2020 Annual Meeting of ~~hourly employees while restaurants were closed, lost business related to temporary closures, limited menu and modified hours of operations). Other Texas markets where~~Stockholders. Whether or not a transaction occurs, the Company ~~operates Company-owned restaurants including San Antonio were also affected by Hurricane Harvey, but~~will reimburse Jefferies for reasonable out of pocket and ancillary expenses in addition to ~~a lesser degree. All of~~any fees that may be paid to Jefferies. For the ~~restaurants that were closed have re-opened except for one Taco Cabana restaurant~~three and two Pollo Tropical restaurants that remain closed in Houston. The Company maintains comprehensive insurance coverage on all of its restaurants including property, flood and business interruption and is innine months ended September 27, 2020, the ~~process of assessing~~condensed consolidated financial statements do not include any fees or expenses or amounts due to the extent of damage and loss, and expected insurance proceeds. In the third quarter of 2017, the Company recorded expected insurance proceeds of $0.2 million, which represents a portion of expected insurance proceeds for a Taco Cabana restaurant with extensive flood damage. The Company will record additional expected insurance proceeds related ~~to this and other hurricane affected restaurants in future periods when the amounts are estimable or, for business interruption coverage for lost profit, at the time of final settlement.~~party.

Table of Contents

FIESTA RESTAURANT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(InDollars in thousands, ~~of dollars,~~ except ~~share and~~ per share ~~amounts)~~data)

9.12. Supplemental Cash Flow Information

The following table details supplemental cash flow disclosures of non-cash investing and financing activities:



	Nine Months Ended
	September 27, 2020			September 29, 2019
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures	$	1,826		$	3,198
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets	28,798			8,618
Finance lease ROU assets	33			495
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets	2,387			4,058
Operating lease liabilities	2,843			4,787
Operating lease right-of-use assets obtained and lease liabilities incurred as a result of adoption of ASC 842:
Operating lease ROU assets	0			267,743
Operating lease liabilities	0			291,373
Accruals for financing costs associated with debt amendment	154			0
Supplemental cash flow disclosures:
Interest paid on long-term debt	$	3,095		$	3,558
Income tax payments (refunds), net	(2,155		)	(15,620		)

13. Recent Accounting Pronouncements

In ~~May 2014, and in subsequent updates,~~December 2019, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update ("ASU")~~ASU No. ~~2014-09, Revenue from Contracts with Customers~~2019-12, Income Taxes (Topic ~~606)~~740), which ~~amends the guidance in former Topic 605, Revenue Recognition, and provides for either~~is a ~~full retrospective adoption in which the standard is applied to all~~part of the ~~periods presented or a modified retrospective adoption~~Simplification Initiative being undertaken by the FASB to reduce complexity of accounting standards. The amendments in ~~which~~this update simplify the ~~cumulative effect of initially applying~~accounting for income taxes by removing certain exceptions, the ~~standard is recognized at~~most notable for the ~~date of initial application. The new standard provides accounting guidance~~Company being the exception to the general methodology for ~~all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless~~calculating income taxes in an interim period when the ~~contracts are in~~year-to-date loss exceeds the ~~scope of other US GAAP requirements.~~anticipated loss for the full year. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property and equipment, including real estate. The Company is currently evaluating the impact of the provisions of Topic 606; however, the Company does not believe the standard will impact its recognition of revenue from Company-owned restaurants or its recognition of franchise royalty revenues, which are based on a percent of gross sales. The Company expects the provisions to primarily impact franchise and development fees as well as gift card programs and does not expect the standard to have a material effect on its financial statements. The Company does not plan to early adopt the standard and plans to use the modified retrospective approach to adopt the standard. For the Company, the new standard isbe effective for interim and annual periods beginning after December 15, ~~2017.~~2020. Early adoption is permitted and any adjustments should be reflected as of the beginning of the annual period of adoption. Amendments relevant to the Company should be applied on a prospective basis. The Company is still evaluating the impact the standard will have on its financial statements.

In ~~February 2016,~~March 2020, the FASB issued ASU No. ~~2016-02, Leases~~2020-04, Reference Rate Reform (Topic ~~842)~~848) ("ASU No. 2020-04"), which ~~requires lessee recognition~~provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective as of ~~lease assets and lease liabilities on~~March 12, 2020 through December 31, 2022. As of September 27, 2020, the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an optionCompany's only exposure to ~~use certain practical expedients. The new guidance is required to be applied at the beginning~~LIBOR rates was its amended senior credit facility. Upon cessation of the ~~earliest comparative period presented.~~LIBOR, the amended senior credit facility will be amended to reflect an alternative reference rate. According to ASU No. 2020-04, modifications of contracts within the scope of Topic 470 Debt should be accounted for by prospectively adjusting the effective interest rate. The Company ~~is currently evaluating the~~does not expect ASU No. 2020-04 to have a significant impact on its financial statements. ~~Although the impact is not currently estimable,~~

14. Subsequent Events

Subsequent to September 27, 2020, the Company ~~expects to recognize lease assets~~sold 3 restaurant properties in sale-leaseback transactions for total net proceeds of $6.6 million and ~~lease liabilities for most of the leases it currently accounts for as operating leases. In addition, for the Company's leases~~an additional 2 restaurant properties that ~~are~~were classified as ~~sale-leaseback transactions,~~held for sale as of September 27, 2020 for total net proceeds of $2.8 million. Net proceeds from the ~~Company will be required~~sales were used to ~~record an initial adjustment to retained earnings associated with~~repay outstanding revolving credit borrowings and reduced the ~~previously deferred gains, and for any future transactions,~~revolving commitment under the gain, adjusted for any off-market terms, will be recorded immediately. Currently the Company amortizes sale-leaseback gains over the lease term. The Company is continuing its assessment and may identify other impacts.amended senior credit facility.

ITEM ~~2-MANAGEMENT'S~~2. 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 unaudited condensed consolidated financial statements and the accompanying ~~financial statement~~ notes. Any reference to restaurants refers to Company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "Fiesta," "we," "our" and "us."

We use a ~~52-53~~52–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended ~~January 1, 2017~~December 29, 2019 contained 52 weeks. The three and nine months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016~~September 29, 2019 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending ~~December 31, 2017~~January 3, 2021 will contain 5253 weeks.

Company Overview

We own, operate and franchise two ~~fast-casual~~ restaurant brands, Pollo Tropical^® and Taco Cabana^®, which have ~~almost~~over 30 ~~years~~ and 40 years, respectively, of operating history and loyal customer ~~bases in their core markets.~~bases. Our Pollo Tropical restaurants ~~offer a wide variety of~~feature fire-grilled and crispy citrus marinated chicken and other freshly prepared ~~tropical inspired food,~~menu items, while our Taco Cabana restaurants ~~offer a broad selection of freshly prepared Mexican inspired food.~~specialize in Mexican-inspired food made fresh by hand. We believe that both brands ~~are differentiated from other~~offer distinct and unique flavors with broad appeal at a compelling value, which differentiates them in the competitive fast-casual and quick-service restaurant concepts and offer a unique dining experience. We are positioned within the value-oriented fast-casual restaurant segment, which combines the convenience and value of quick-service restaurants with the variety, food quality, décor and atmosphere more typical of casual dining restaurants. Our open display kitchen format allows guests to view and experience our food being freshly-prepared and cooked to order. Additionally, nearlysegments. Nearly all of our restaurants offer the convenience of drive-thru windows. As of ~~October 1, 2017, our Company-owned restaurants included 149~~September 27, 2020, we owned and operated 138 Pollo Tropical restaurants and ~~168~~145 Taco Cabana restaurants.

We franchise our Pollo Tropical restaurants primarily internationally and as of ~~October 1, 2017,~~September 27, 2020, we had 2625 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, ~~Venezuela, Panama, Honduras~~ and ~~Guyana, and six licensed locations~~seven on college campuses and one 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 ~~October 1, 2017,~~September 27, 2020, we had ~~five~~six franchised Taco Cabana restaurants located in New Mexico and ~~two~~one non-traditional Taco Cabana licensed ~~locations~~location on a college ~~campuses~~campus in Texas.

Recent Events Affecting ~~our~~Our Results of Operations

~~Hurricanes~~COVID-19 Pandemic

~~During~~The novel coronavirus (COVID-19) pandemic is continuing to affect the restaurant industry and the economy. In response to COVID-19 and in compliance with governmental restrictions, we closed the dining room seating areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to take-out, drive-thru, and delivery operations beginning in mid-March 2020. We also temporarily closed three Pollo Tropical locations due to the impact of the restrictions on sales, one of which was reopened during the second quarter of 2020 and two of which were subsequently permanently closed in August. Fiesta began opening certain dining rooms at 50% capacity with easement of municipality restrictions during the second quarter of 2020; however, it temporarily closed all dining rooms on July 12, 2020, in response to increased COVID-19 infection rates in both Texas and Florida. We began re-opening certain dining rooms and patios with limited capacity and hours at both brands and the state of Florida removed restaurant capacity restrictions at the end of September 2020. We have opened approximately 20 dining rooms with limited hours and capacity at both brands and have opened approximately 75 patios at Taco Cabana. Comparable restaurant sales at both Pollo Tropical and Taco Cabana restaurants declined in the third quarter of ~~2017, Texas and Florida were struck by Hurricanes Harvey and Irma (the "Hurricanes"). 43 Taco Cabana and two Pollo Tropical Company-owned restaurants in~~2020 compared to the Houston metropolitan area and all 149 Pollo Tropical Company-owned 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 Company-owned restaurants including San Antonio were also affected by Hurricane Harvey, but toprior year as a ~~lesser degree. All~~result of the ~~restaurants that were closed have re-opened except for one Taco Cabana restaurant and two Pollo Tropical restaurants that remain closed in Houston.~~

We estimate that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $3.0 million to $4.0 million for Pollo Tropical and approximately $1.0 million to $1.5 million for Taco Cabana and negatively impactedpandemic. However, both brands experienced sequential comparable restaurant sales ~~and transactions by approximately 5.5% to 6.5% for Pollo Tropical, and approximately 2% to 3% for Taco Cabana for~~improvement in the third quarter of ~~2017.~~2020 compared to the second quarter of 2020.

As we continue to prioritize the well-being of our team members and guests during this pandemic, we believe we are also creating a better business model that is easier and safer for our consumers. We currently do not expect sales trends to significantly deteriorate further, although there can be no assurance that sales trends will not deteriorate further, and we have implemented measures to control costs. We have also implemented a number of changes to maximize sales, maintain service, and improve liquidity:

We have adjusted our operating model to better meet our customers' needs during the COVID-19 crisis. We have also adjusted staffing models to match shifting traffic and channel patterns of our guests and to improve efficiency.

We are maximizing off-premise sales opportunities. We significantly increased the number of delivery service providers that offer our brands during the first quarter of 2020, modified our menus, and worked with a third party to enhance our online ordering and mobile apps including curbside pickup features. We also launched curbside pickup for both brands in July 2020.

We have significantly reduced our capital expenditure budget and 2020 capital expenditures will not exceed $22.0 million.

In early April 2020, approximately 170 employees were terminated or furloughed, approximately 60 of which were support personnel. The majority of the furloughed support personnel were terminated in the third quarter of 2020 resulting in a total of approximately 55 eliminated support personnel positions representing annualized general and administrative savings of approximately $4.1 million. The remaining employees were restaurant employees. However, a portion of the restaurant employees were recalled during the second and third quarters and additional restaurant employees may be recalled in the future based on business needs. Additionally, the salaries for all vice-presidents and executives were reduced by 10% to 35% for the second quarter of 2020.

We sold two restaurant properties and completed two sale-leaseback transactions in the third quarter of 2020. We have completed two sales and three sale-leaseback transactions in the fourth quarter through November 2, 2020 and currently have offers or contracts in place for the sale or sale-leaseback of our seven remaining owned properties, although there can be no assurance that any such sales or sale-leaseback transactions will be consummated. Net proceeds from these sales have been and will be used to reduce the outstanding revolving credit borrowings and availability under our amended senior credit facility (as defined below).

The COVID-19 pandemic has not had a significant negative disruptive impact on our supply chain or access to labor, although there can be no assurance that there will not be a significant impact on our supply chain or access to labor in the future. We are actively monitoring our food suppliers to determine how they are managing their operations to mitigate supply flow and food safety risks. To ensure we mitigate potential supply availability risk, we are building additional inventory backstock levels when appropriate and we have also identified alternative supply sources in key product categories including but not limited to proteins and sanitation and safety supplies.

We incurred additional costs related to the COVID-19 pandemic totaling an estimated $3.4 million during the second quarter of 2020 including additional labor costs such as COVID-19 special incentive pay, quarantine pay and overtime to cover for employees in quarantine, as well as additional operating expenses for safety related supplies including masks, cleaning supplies and sanitizer. We incurred additional costs related to the COVID-19 pandemic totaling an estimated $0.4 million during the third quarter of 2020, including quarantine pay and costs related to COVID testing, masks and sanitizer. Although we discontinued COVID-19 special incentive pay in the third quarter of 2020, we expect many of the other COVID-19 related costs to continue during the pandemic.

Restaurant Closures

As a result of ~~the Hurricanes,~~restaurant portfolio reviews, we ~~recorded inventory losses~~closed 19 underperforming Taco Cabana restaurants in January 2020, all of ~~$0.6 million for~~which were impaired in prior years. Additionally, we closed one Pollo Tropical restaurant as a result of landlord redevelopment that was not compatible with our use in the first quarter of 2020 and ~~$0.2 million for Taco Cabana within cost of sales~~two underperforming Pollo Tropical restaurants in the third quarter of 2017. We recorded wages paid to hourly employees who were unable to work of $0.3 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively, within restaurant wages, and costs associated with hurricane preparation and repairs of $0.2 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively, within other restaurant operating expenses for2020. In the third quarter of ~~2017. In addition,~~2020, we ~~recognized an impairment loss~~also closed one owned Pollo Tropical restaurant, which was subsequently sold in the fourth quarter of ~~$0.1 million related to~~2020, and closed and sold one owned Taco Cabana restaurant to generate additional cash to reduce our outstanding borrowings under our amended senior credit facility.

Amendment to our Senior Credit Facility

As discussed in Note 1 to our unaudited condensed consolidated financial statements, we expect the ~~Houston metropolitan area that will be closed for an extended period due~~COVID-19 pandemic to ~~storm 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.~~

Hurricane Maria severely impacted our Pollo Tropical franchise operations in Puerto Rico, causing temporary closures of all of the franchised Pollo Tropical restaurants in late September. The majority of the 17 franchised Pollo Tropical restaurants in Puerto Rico re-opened in October with limited hours and menu offerings. The challenging current economic conditions in Puerto Rico will likely have a negative impact on our ~~future franchise revenue.~~

~~We maintain comprehensive insurance coverage~~profitability. On July 10, 2020, we entered into the Second Amendment to Credit Agreement (the credit agreement as amended, the "amended senior credit facility") among the Company and a syndicate of lenders that includes adjustments to our covenants that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants that require compliance under the amended senior credit facility will be a minimum liquidity target and a maximum capital expenditure covenant. Pursuant to the amended senior credit facility, the available revolving credit borrowings under the amended senior credit facility will be reduced from $150.0 million to $95.0 million in a phased reduction beginning with a $30.0 million permanent reduction that occurred on ~~all of our restaurants including property, flood and business interruption. We are~~July 10, 2020, a $15.0 million reduction in the ~~process~~fourth quarter of ~~assessing the extent of damage~~2020 and ~~loss, and expected insurance proceeds. A full assessment is expected to be completed~~a $10.0 million reduction in the ~~weeks ahead. In the third~~first quarter of ~~2017, we recorded expected insurance proceeds of $0.2 million, which represents a portion of expected insurance proceeds~~2021. See Note 5 to our unaudited condensed consolidated financial statements and Amended Senior Credit Facility under Liquidity and Capital Resources in this MD&A for a Taco Cabana restaurant with extensive flood damage. We will record additional expected insurance proceeds related to this and other hurricane affected restaurants in future periods when the amounts are estimable or, for business interruption coverage for lost profit, at the time of final settlement.further discussion.

~~Strategic Renewal Plan~~

On April 24, 2017, we announced a Strategic Renewal Plan (the "Plan") designed to significantly improve our core business model and drive results in the future. The Plan consists 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.

As part of the Plan, we relaunched the Pollo Tropical brand in October 2017 and intend to relaunch the Taco Cabana brand in early 2018 once the material aspects of the Plan are in place. The relaunch of both brands was delayed as a result of the Hurricanes.

~~The items detailed below reflect our meaningful progress to date:~~

~~Revitalizing Restaurant Brands in Core Markets~~

~~We have implemented refined recipes that improve food quality with fresh and clean ingredients, positively impacting approximately 90% of each brand's menu.~~

We have uniquely vertically integrated our chicken supply chain for Pollo Tropical, allowing us to control the feed and breed of all chickens purchased with the objective of "no antibiotics ever" by 2018.

~~Multiple operational initiatives have been put in place to deliver high quality execution with consistency.~~

~~Pollo Tropical launched a new creative TV, radio, billboard and social media advertising campaign in late October 2017 which features freshly prepared menu offerings.~~

In October 2017, Pollo Tropical rolled out a new menu featuring new menu items which is demonstrating promising initial results including higher check averages. Research validates the new menu direction including new and future opportunities.

~~Taco Cabana recently launched a new advertising campaign that features for a limited time three new chicken fajita tacos with composed topping recipes.~~

~~New digital menu boards are in the process of being rolled out across both brands featuring enhanced displays with flexibility to rotate by daypart and feature promotions and videos.~~

~~New labor models have been implemented at both brands to improve speed of service, transaction flow, and the quality and consistency of hospitality.~~

~~We continue to upgrade our kitchens and restaurant presentation, including added signage and exterior lighting to improve visibility.~~

~~Regional chefs were added to the field structure to enhance food knowledge, provide culinary training and ensure adherence to high quality operating and food safety standards.~~

~~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 Company-owned restaurants have been remodeled this year and one Taco Cabana restaurant will be remodeled by the end of 2017.~~

~~We are in the process of developing 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.~~

~~Establishing Platforms for Long Term Growth~~

~~We launched an outsourced call center to answer guest inquiries and handle catering orders initially at Pollo Tropical, This is a significant source of future growth at both brands.~~

We are working with new partners to establish comprehensive digital capabilities that will include refining delivery, catering, mobile apps, online ordering and 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 several 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.~~

~~Store Closures~~

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 Houston by Hurricane Harvey, we did not re-open our two Houston Pollo Tropical restaurants. Due to limited awareness of the Pollo Tropical brand and high relative overhead costs needed to support the four remaining restaurants in San Antonio, we decided to permanently close all six Pollo Tropical restaurants in Texas and focus on revitalizing core markets and brand repositioning outside of core markets. Up to four Pollo Tropical restaurants that closed in 2017 in Texas may be rebranded as Taco Cabana restaurants. We continue to own and operate 13 Pollo Tropical restaurants in Atlanta, Georgia, of which five were impaired in the third quarter of 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.

~~We also closed four Company-owned Taco Cabana restaurants in Texas in July 2017 which were impaired in~~During the second quarter of ~~2017.~~

In2020 we borrowed all available funds under our senior secured revolving credit facility prior to the ~~third quarter~~execution of ~~2017, we recognized impairment~~the amended senior credit facility. We repaid borrowings under our amended senior credit facility as follows: $30.0 million on July 10, 2020, pursuant to the terms of the amended senior credit facility, an additional $76.6 million through September 27, 2020, and ~~other lease charges associated with the six closed Pollo Tropical restaurants in Texas, as well as impairment charges with respect to six~~an additional ~~Pollo Tropical restaurants, including five in Georgia and one in Florida and two Taco Cabana restaurants in Texas that we continue to operate.~~

~~Impairment and other lease charges for the three and nine months ended October 1, 2017 for Pollo Tropical consist of impairment charges of $15.6~~$20.4 million and $51.3 million, respectively, and other lease charges, net of recoveries, of $(1.9) million and $5.0 million, respectively. Impairment and other lease charges for the three and nine months ended October 1, 2017 for Taco Cabana consist of impairment charges of $0.9 million and $1.4 million, respectively, and other lease charges, net of recoveries, of $1.3 million for both periods.

~~For the nine months ended October 1, 2017, the 36 closed Pollo Tropical restaurants and four closed Taco Cabana restaurants contributed approximately $12.0 million and $2.1~~through November 2, 2020. On November 2, 2020, there were $19.5 million in restaurant sales, respectively, and $7.2 million and $0.6 million in restaurant-level operating losses to income from operations, respectively, including depreciation expense of $2.2 million for Pollo Tropical.outstanding revolving credit borrowings under our amended senior credit facility.

~~Industry Conditions~~

The fast-casual restaurant industry experienced a continued general slowdown in 2016 that continued into the third quarter of 2017, specifically in Florida and Texas. We believe the challenging market and industry conditions in Florida and Texas contributed to a decline in comparable restaurant transactions and sales for the nine months ended October 1, 2017.

Executive ~~Summary -~~ Summary—Consolidated Operating Performance for the Three Months Ended ~~October 1, 2017~~September 27, 2020

Our third quarter ~~2017~~2020 results and highlights include the following:

~~Net loss increased $3.7 million to $(8.3) million in the third quarter~~We recognized net income of ~~2017, or $(0.31) per diluted share, compared to net loss of $(4.5)~~$4.6 million, or ~~$(0.17)~~$0.18 per diluted share, in the third quarter of ~~2016,~~2020 compared to a net loss of $(22.2) million, or $(0.84) per diluted share, in the third quarter of 2019, due primarily to a $21.4 million goodwill impairment charge for the Taco Cabana reporting unit in the third quarter of 2019, and an income tax benefit related to reducing our deferred tax asset valuation allowance and reclassifying certain assets as qualified improvement property and other changes to depreciation methods for certain assets in conjunction with filing our 2019 federal income tax return, and lower ~~comparable restaurant sales and higher cost~~advertising expense in the third quarter of sales as a percentage of sales, attributable in part to the impact of the Hurricanes, which caused temporary closures, modified hours of operations, loss of inventory and limited menu offerings, as well as ongoing costs incurred during the temporary closures and modified hours of operations. The increase in net loss is also due to higher repair and maintenance costs,2020, partially offset by the impact of ~~closing unprofitable restaurants~~declines in comparable restaurant sales at both brands in 2020 and additional costs related to the COVID-19 pandemic. In addition, gains from the sale-leaseback and sale of property, lower general and administrative expenses, ~~advertising~~as well as favorable operating and ~~impairment and other lease charges.~~

~~Total revenues decreased 12.9%~~labor efficiencies at both brands, positively contributed to the increase in net income in the third quarter of ~~2017~~2020. This increase was partially offset by higher delivery fee expense and closed restaurant rent expense, net of sublease income in the third quarter of 2020.

Total revenues decreased 16.4% in the third quarter of 2020 to ~~$158.7~~$137.3 million compared to ~~$182.3~~$164.2 million in the third quarter of ~~2016,~~2019, driven ~~primarily~~ by a decrease in comparable restaurant sales ~~partially attributable to the Hurricanes combined with~~at both brands (including as a result of the impact of ~~permanent restaurant closures~~COVID-19), and the impact of closing 19 underperforming Taco Cabana restaurants in the ~~fourth~~first quarter of ~~2016 and in 2017.~~2020. Comparable restaurant sales decreased ~~12.6%~~11.1% for our ~~Taco Cabana~~Pollo Tropical restaurants resulting ~~primarily~~ from a decrease in comparable restaurant transactions of ~~14.3% partially offset by~~22.1% and an increase in ~~average check~~the net impact of ~~1.7%~~product/channel mix and pricing of 11.0%. Comparable restaurant sales decreased ~~10.9%~~14.2% for our ~~Pollo Tropical~~Taco Cabana restaurants resulting ~~primarily~~ from a decrease in comparable restaurant transactions of ~~13.1% partially offset by~~23.8% and an increase in ~~average check~~the net impact of ~~2.2%.~~

~~During the third quarter~~product/channel mix and pricing of 2017, we opened two Company-owned Pollo Tropical restaurants and three Company-owned Taco Cabana restaurants. We closed six Company-owned Pollo Tropical restaurants and four Company-owned Taco Cabana restaurants during the third quarter of 2017. During the third quarter of 2016, we opened nine Company-owned Pollo Tropical restaurants.9.6%.

Consolidated Adjusted EBITDA ~~decreased $10.4~~increased $2.6 million in the third quarter of ~~2017~~2020 to ~~$13.2~~$14.8 million compared to ~~$23.5~~$12.2 million in the third quarter of ~~2016,~~2019, driven primarily by lower ~~comparable restaurant sales, higher~~advertising expenses, lower cost of sales and labor costs as a percentage of restaurant sales, lower general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020, partially offset by the impact of lower restaurant sales and higher ~~repair~~delivery fee expense and ~~maintenance costs.~~additional costs related to the COVID-19 pandemic. 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".~~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.

Pollo Tropical Taco Cabana
Owned Franchised Total Owned Franchised Total

January 1, 2017 177
35
212
166
7
173
   New 3
2
5
1
—
1
   Closed —
(3 ) (3 ) —
—
—
April 2, 2017 180
34
214
167
7
174
   New 3
1
4
2
—
2
   Closed (30 ) (3 ) (33 ) —
—
—
July 2, 2017 153
32
185
169
7
176
   New 2
—
2
3
—
3
   Closed (6 ) —
(6 ) (4 ) —
(4 )
October 1, 2017 149
32
181
168
7
175

January 3, 2016 155
35
190
162
6
168
   New 6
1
7
—
—
—
   Closed —
—
—
—
—
—
April 3, 2016 161
36
197
162
6
168
   New 11
2
13
2
1
3
   Closed —
(1 ) (1 ) —
—
—
July 3, 2016 172
37
209
164
7
171
   New 9
—
9
—
—
—
   Closed —
(3 ) (3 ) —
—
—
October 2, 2016 181
34
215
164
7
171



	Pollo Tropical					Taco Cabana
	Owned		Franchised	Total		Owned		Franchised		Total
December 29, 2019	142		32	174		164		8		172
New	—		1	1		1		—		1
Closed	(1	)	—	(1	)	(19	)	—		(19	)
March 29, 2020	141		33	174		146		8		154
New	—		—	—		—		—		—
Closed	—		—	—		—		(1	)	(1	)
June 28, 2020	141		33	174		146		7		153
New	—		—	—		—		—		—
Closed	(3	)	—	(3	)	(1	)	—		(1	)
September 27, 2020	138		33	171		145		7		152

December 30, 2018	139		30	169		162		8		170
New	—		1	1		2		—		2
Closed	—		—	—		—		—		—
March 31, 2019	139		31	170		164		8		172
New	1		—	1		1		—		1
Closed	—		—	—		—		—		—
June 30, 2019	140		31	171		165		8		173
New	1		—	1		—		—		—
Closed	—		—	—		—		—		—
September 29, 2019	141		31	172		165		8		173

Three Months Ended ~~October 1, 2017~~September 27, 2020 Compared to Three Months Ended ~~October 2, 2016~~September 29, 2019

The following table sets forth, for the three months ended ~~October 1, 2017~~September 27, 2020 and ~~October 2, 2016,~~September 29, 2019, selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales.


	Three Months Ended												Three Months Ended
	October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016		October 1, 2017		October 2, 2016		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
	Pollo Tropical				Taco Cabana				Consolidated				Pollo Tropical				Taco Cabana				Consolidated
Restaurant sales:
Pollo Tropical									55.6	%	56.9	%									56.7	%	54.0	%
Taco Cabana									44.4	%	43.1	%									43.3	%	46.0	%
Consolidated restaurant sales									100.0	%	100.0	%									100.0	%	100.0	%
Costs and expenses:
Cost of sales	32.5	%	31.5	%	29.4	%	28.3	%	31.1	%	30.1	%	31.7	%	32.0	%	28.9	%	31.6	%	30.5	%	31.8	%
Restaurant wages and related expenses	24.1	%	23.6	%	33.4	%	29.6	%	28.2	%	26.2	%	23.3	%	23.7	%	29.5	%	31.2	%	26.0	%	27.2	%
Restaurant rent expense	5.3	%	4.9	%	6.3	%	5.7	%	5.8	%	5.2	%	7.2	%	6.2	%	9.4	%	8.6	%	8.2	%	7.3	%
Other restaurant operating expenses	14.8	%	13.9	%	16.8	%	14.5	%	15.7	%	14.2	%	15.6	%	14.5	%	15.2	%	15.1	%	15.4	%	14.8	%
Advertising expense	5.7	%	4.9	%	1.3	%	3.2	%	3.7	%	4.1	%	1.1	%	3.5	%	2.1	%	4.3	%	1.5	%	3.9	%
Pre-opening costs	0.3	%	1.4	%	0.4	%	0.1	%	0.3	%	0.8	%	—	%	0.1	%	—	%	—	%	—	%	—	%

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

Total revenues decreased ~~12.9%~~16.4% to ~~$158.7~~$137.3 million in the third quarter of ~~2017~~2020 from ~~$182.3~~$164.2 million in the third quarter of ~~2016.~~2019. Restaurant sales decreased ~~12.9%~~16.4% to ~~$158.1~~$136.8 million in the third quarter of ~~2017~~2020 from ~~$181.6~~$163.6 million in the third quarter of ~~2016.~~2019.

The following table presents the primary drivers of the ~~increase or decrease~~decreases in restaurant sales for both Pollo Tropical and Taco Cabana for the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016~~2019 (in millions).


Pollo Tropical:
Decrease in comparable restaurant sales	$	(9.6	)	$	(9.5	)
Decrease in sales related to closed restaurants, net of new restaurants	(5.9		)	(1.2		)
Total decrease	$	(15.5	)	$	(10.7	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(9.5	)	$	(9.6	)
Incremental sales related to new restaurants, net of closed restaurants	1.5
Decrease in sales related to closed restaurants, net of new restaurants				(6.5		)
Total decrease	$	(8.0	)	$	(16.1	)

Comparable restaurant sales include restaurants that were temporarily closed due to the Hurricanes for both brands, with the exception of one Taco Cabana restaurant in the Houston metropolitan area which will be closed for an extended period due to storm damage. Comparable restaurant sales for both brands were negatively impacted by the Hurricanes.

Comparable restaurant sales for our Pollo Tropical restaurants decreased 10.9% in the third quarter of 2017. Comparable restaurant sales for our Taco Cabana restaurants decreased 12.6% in the third quarter of 2017. Restaurants are included in comparable restaurant sales after they have been open for 18 months.

Comparable restaurant sales decreased 11.1% and 14.2% for Pollo Tropical and Taco Cabana restaurants, respectively, in the third quarter of 2020. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check. ~~The increase~~Changes in average check ~~is generally~~are primarily driven by changes in sales channel and sales mix, and to a lesser extent, menu price ~~increases.~~ increases net of discounts and promotions.

For Pollo Tropical, a decrease in comparable restaurant transactions of ~~13.1%~~22.1% was partially offset by ~~menu price increases that drove~~ an increase in ~~restaurant sales~~the net impact of ~~1.2%~~product/channel mix and pricing of 11.0% in the third quarter of ~~2017 as~~2020 compared to the third quarter of ~~2016. For Taco Cabana, comparable restaurant transactions decreased 14.3%, partially offset~~2019. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases ~~that positively impacted~~of 0.2%. Comparable restaurant sales ~~by 1.7%~~for Pollo Tropical in the third quarter of ~~2017 as~~2020 benefited from the negative impact of Hurricane Dorian in 2019. After adjusting for the impact of the named storm, 2020 third quarter comparable restaurant sales would have been approximately 140 basis points lower.

For Taco Cabana, a decrease in comparable restaurant transactions of 23.8% was partially offset by an increase in the net impact of product/channel mix and pricing of 9.6% in the third quarter of 2020 compared to the third quarter of ~~2016.~~2019. The increase in product/channel mix and pricing was driven primarily by increases in drive-thru and delivery sales channel penetration and growth in average check for drive-thru compared to last year due in part to an increase in transactions that include alcohol, and menu price increases of 1.6%.

~~The decrease in comparable sales for both brands was partially attributable~~Franchise revenues decreased by $0.1 million to temporary closures, limited menu offerings and modified hours of operations as a result of the Hurricanes, which we estimate negatively impacted comparable restaurant sales and transactions for Pollo Tropical by approximately 5.5% to 6.5% and Taco Cabana by approximately 2% to 3%$0.5 million in the third quarter of 2017. As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by 0.6% in the third quarter of 2017. Comparable restaurant sales for both brands continue to be negatively impacted by the general fast-casual industrywide slowdown in restaurant sales in Florida and Texas. In addition, third quarter 2017 comparable restaurant transactions and sales for Taco Cabana were negatively impacted by reduced promotional discounts and our planned reduction in advertising, including media and promotions, while we implemented initiatives related to the Plan.

~~Restaurant sales for Pollo Tropical for the third quarter of 2017~~2020 compared to the third quarter of ~~2016 were also negatively impacted by the restaurant closures that occurred in the fourth quarter of 2016 and the second and third quarters of 2017.~~

~~Franchise revenues remained relatively stable and decreased by $0.1 million to $0.6 million in the third quarter of~~ ~~2017~~ ~~from $0.7 million in the third quarter of 2016~~2019 due to lower sales at franchised restaurants in 2020 primarily as a ~~net decrease~~result of ~~two franchised Pollo Tropical restaurants.~~COVID-19.

Operating costs and expenses. Operating costs and expenses include cost of sales, restaurant wages and related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts for future periods of up to one year.

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

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

Advertising expense includes all promotional expenses including television, radio, billboards and other sponsorships and promotional ~~activities.~~activities and agency fees.

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

The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the third quarter of ~~2017~~2020 compared to the third quarter of ~~2016.~~2019. All percentages are stated as a percentage of applicable segment restaurant ~~sales.~~sales:



Pollo Tropical:
Cost of sales:
~~Menu offering improvement costs related to the Plan~~Operating efficiency	~~1.0~~(1.3	)%
~~Hurricane inventory loss~~Lower promotions and discounts	(0.6	)%
Menu price increases	(0.1	)%
Sales mix	0.7	%
Lower ~~commodity costs~~rebates and discounts	(0.5	)%
~~Menu price increases~~	~~(0.3~~	)%
~~Other~~	~~0.1~~	%
Higher commodity costs	0.5	%
Net ~~increase~~decrease in cost of sales as a percentage of restaurant sales	~~1.0~~(0.3	)%

Restaurant wages and related expenses:
Lower labor costs due to ~~closure of restaurants~~labor efficiencies	(~~1.5~~0.9	)%
Higher ~~labor costs for comparable restaurants~~incentive bonus^{(1) (2)}	~~1.8~~0.4	%
Higher ~~medical benefit and payroll tax~~labor costs due to COVID-19⁽²⁾	0.2	%
Other	(0.1	)%
Net ~~increase~~decrease in restaurant wages and related costs as a percentage of restaurant sales	~~0.5~~(0.4	)%

Other operating expenses:
Higher ~~repair and maintenance~~^{(2) (3)} delivery fee expense due to increased delivery channel sales	~~1.0~~1.6	%
~~Higher utility~~Lower repair and maintenance costs⁽²⁾	(0.4	)%
Lower operating supplies	(0.2	)%
Other	0.1	%
~~Hurricane preparation and repair costs~~	~~0.3~~	%
~~Higher sanitation costs~~⁽²⁾	~~0.2~~	%
~~Lower real estate taxes~~⁽²⁾	~~(0.5~~	)%
~~Other~~	~~(0.5~~	)%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	~~0.9~~1.1	%

Advertising expense:
~~Impact of lower restaurant sales~~Reduced advertising	~~0.8~~(2.4	)%
Net ~~increase~~decrease in advertising expense as a percentage of restaurant sales	~~0.8~~(2.4	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(~~1.1~~0.1	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(~~1.1~~0.1	)%


⁽¹⁾	Primarily due to improved controllable operating profit margins and changes to the bonus program structure.


⁽²⁾	Primarily includes quarantine pay.

⁽¹⁾~~Includes the impact of restaurant wages incurred during temporary restaurant closures due to the Hurricanes.~~

⁽²⁾ ~~Includes the impact of lower sales on fixed and semi-fixed costs.~~

⁽³⁾~~Includes costs related to the Plan.~~



Taco Cabana:
Cost of sales:
~~Menu offering improvement~~Lower commodity costs ~~related to the Plan~~	~~1.3~~(1.8	)%
~~Sales mix~~Operating efficiency	~~1.2~~(1.5	)%
~~Hurricane inventory loss~~ Lower liquor tax⁽¹⁾	~~0.3~~(0.7	)%
Lower promotions and discounts	(~~1.4~~0.6	)%
Menu price increases	(~~0.5~~0.4	)%
~~Other~~Sales mix	~~0.2~~1.7	%
Lower rebates and discounts	0.5	%
Other	0.1	%
Net ~~increase~~decrease in cost of sales as a percentage of restaurant sales	~~1.1~~(2.7	)%

Restaurant wages and related expenses:
~~Higher~~Lower labor costs^{(1) (2)} due to labor efficiencies	~~3.7~~(2.0	)%
Lower payroll taxes	(0.2	)%
Higher ~~payroll tax costs~~incentive bonus⁽²⁾	~~0.2~~0.6	%
Other	(0.1	)%
Net ~~increase~~decrease in restaurant wages and related costs as a percentage of restaurant sales	~~3.8~~(1.7	)%

Other operating expenses:
Higher ~~repair and maintenance~~^{(2) (3)} delivery fee expense due to increased delivery channel sales	~~1.3~~0.9	%
Higher ~~utility~~insurance costs⁽²⁾	~~0.4~~	%
~~Higher real estate taxes~~⁽²⁾	~~0.3~~	%
~~Higher sanitation costs~~⁽²⁾ and impact of lower sales	0.2	%
Lower ~~insurance costs~~⁽²⁾ operating supplies	(~~0.6~~0.4	)%
~~Other~~⁽²⁾ Lower repair and maintenance costs	~~0.7~~(0.3	)%
Lower utilities costs	(0.2	)%
Lower restaurant entertainment costs	(0.2	)%
Other	0.1	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	~~2.3~~0.1	%

Advertising expense:
Reduced advertising	(~~1.9~~2.2	)%
Net decrease in advertising expense as a percentage of restaurant sales	(~~1.9~~2.2	)%

Pre-opening costs:
~~Increase in restaurant openings~~	~~0.3~~	%
Net ~~increase~~change in pre-opening costs as a percentage of restaurant sales	~~0.3~~—	%


⁽¹⁾	Includes the impact of one-time liquor tax refunds and a shift to off-premises alcohol sales.


⁽²⁾	Primarily due to improved controllable operating profit margins and changes to the bonus program structure.

⁽¹⁾~~Includes the impact of higher wage rates and restaurant wages incurred during temporary restaurant closures due to Hurricane Harvey.~~

⁽²⁾~~Includes the impact of lower sales on fixed and semi-fixed costs.~~

⁽³⁾~~Includes costs related to the Plan.~~

Consolidated Restaurant Rent Expense. Restaurant rent expense includes base rent, ~~and~~ contingent rent onand common area maintenance and property taxes related to our leases characterized as operating ~~leases, reduced by amortization of gains on sale-leaseback transactions.~~leases. Restaurant rent expense, as a percentage of total restaurant sales, increased to ~~5.8%~~8.2% in the third quarter of ~~2017~~2020 from ~~5.2%~~7.3% in the third quarter of ~~2016~~2019 due primarily ~~as a result of~~to the impact of lower ~~comparable~~ restaurant sales.

Consolidated General and Administrative Expenses. General and administrative expenses are comprised primarily of (1) salaries and expenses associated with the development and support of our ~~company~~Company and brands and the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees, corporate system costs, and stock-based compensation expense.

General and administrative expenses were ~~$12.1~~$11.9 million infor the third quarter of ~~2017~~2020 and ~~$14.5~~$13.8 million infor the third quarter of ~~2016,~~2019, and as a percentage of total revenues, general and administrative expenses decreased to ~~7.6%~~8.6% in the third quarter of ~~2017~~ 2020

compared to ~~8.0%~~8.4% in the third quarter of ~~2016,~~2019, due primarily to lower ~~legal settlement~~management support costs ~~and lower write-offs~~primarily as a result of ~~site development costs, partially offset by higher stock-based compensation costs and~~headcount reductions in the ~~impact of lower current year sales. General and administrative expense for third~~second quarter of 2017 included a $0.2 million reduction in board and shareholder matter costs, a $0.2 million favorable adjustment related to costs associated with restructuring Pollo Tropical management in Miami, Florida and

Dallas, Texas and $0.1 million in Plan restructuring costs and retention bonuses. General and administrative expenses in the third quarter of 2016 included a $0.8 million charge for estimated costs related to a class action settlement plus legal fees2020, reduced travel and other costs incurred in defending the action, a $0.6 million write-off of site development costs related to locations that we decided not to develop, $0.3 million in board and shareholder matter costs and $0.2 million in office restructuring and relocation costs associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.

~~Adjusted EBITDA~~. In 2017, our Board of Directors appointed a new Chief Executive Officer who initiated the Plan and uses an Adjusted EBITDA measure for the purpose of assessing performance and allocating resources to 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.

Adjusted EBITDA is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance and is defined as earnings attributable to the applicable segment 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 that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants.

Adjusted EBITDA may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain finance, legal, supply chain, human resources, development, and other administrative functions. Consolidated Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and Consolidated Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures".

Adjusted EBITDA for Pollo Tropical decreased to $9.4 million in the third quarter of 2017 from $13.8 million in the third quarter of 2016 due primarily to the impact of lower comparable restaurant sales, higher cost ~~of sales as a percentage of sales and higher repair and maintenance costs, as well as the negative impact of the Hurricanes,~~savings initiatives, partially offset by the impact of ~~closing unprofitable restaurants,~~ lower general and administrative expenses, and a decrease in pre-opening costs. Adjusted EBITDA for Taco Cabana decreased to $3.8 million in the third quarter of 2017 from $9.8 million in the third quarter of 2016 primarily as a result of the impact of lower comparable restaurant sales, higher cost of sales as a percentage of sales and higher restaurant wages and repair and maintenance costs, as well as the negative impact of Hurricane Harvey, partially offset by a decrease in advertising expense. Consolidated Adjusted EBITDA decreased to $13.2 million in the third quarter of 2017 from $23.5 million in the third quarter of 2016.

~~Restaurant-Level Adjusted EBITDA~~. We also use Restaurant-level Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which 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 for Pollo Tropical decreased to $15.5 million in the third quarter of 2017 from $22.0 million in the third quarter of 2016 primarily due to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to $9.0 million in the third quarter of 2017 from $14.7 million in the third quarter of 2016 primarily as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures".

~~Depreciation and Amortization.~~ Depreciation and amortization expense decreased to $8.5 million in the third quarter of 2017 from $9.5 million in the third quarter of 2016 due primarily to decreased depreciation as a result of impairing closed restaurant assets, partially offset by depreciation related to new restaurants openings.

~~Impairment and Other Lease Charges.~~ Impairment and Other Lease Charges decreased to $15.9 million in the third quarter of 2017 from $18.5 million in the third quarter of 2016. In the third quarter of 2017, we recognized impairment charges of $15.6 million with respect to the six Company-owned Pollo Tropical restaurants that closed in September 2017 and six additional Company-owned Pollo Tropical restaurants that we continue to operate, including five in Georgia and one in Florida. In addition, we recognized a net reduction to other lease charges, net of recoveries, of $1.9 million related to previously closed Pollo Tropical restaurants as a result of lease terminations, assignments and other adjustments to estimates of future lease costs, partially offset by lease charges related to Company-owned Pollo Tropical restaurants closed in September 2017. In the third quarter of 2017, we also recognized impairment charges of $0.9 million primarily related to two Company-owned Taco Cabana restaurants that we continue to operate, and $1.3 million in other lease charges related to the closure of four Company-owned Taco Cabana restaurants in July 2017. Impairment and other lease charges for the third quarter of 2016 included impairment charges of $18.5 million related

to sixteen Pollo Tropical restaurants that were subsequently closed in the fourth quarter of 2016 and second quarter of 2017 and one Taco Cabana restaurant that was subsequently closed in the third quarter of 2017. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material.

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related trailing twelve month cash flows are below a certain threshold. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material.

For five Pollo Tropical restaurants including one in Atlanta, Georgia and four in central and southwest Florida and three Taco Cabana restaurants with combined carrying values of $5.0 million and $1.3 million, respectively, projected cash flows are not substantially in excess of their carrying values. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.

~~Other Expense (Income), Net.~~ Other expense (income), net was $0.5 million in the third quarter of 2017 and primarily consisted of $0.6 million in costs related to the removal of signs and equipment and equipment transfers and storage for closed Pollo Tropical restaurants, partially offset by $0.2 million in estimated insurance proceeds related to a Taco Cabana restaurant that was temporarily closed due to Hurricane Harvey damages.

~~Interest Expense.~~ Interest expense increased to $0.7 million in the third quarter of 2017 from $0.5 million in the third quarter of 2016 due primarily to higher interest rates on borrowings under our revolving credit facility.

~~Provision for (Benefit from) Income Taxes.~~ The effective tax rate was 36.9% and 37.8% for the third quarter of 2017 and 2016, respectively. The benefit from income taxes for the third quarter of 2017 was derived using an estimated annual effective tax rate of 36.8%, which excludes the discrete impact of a tax benefit deficiency from the vesting of restricted shares and the tax benefit resulting from impairment and other lease charges of $0.2 million and $21.6 million, respectively. The provision for income taxes for the third quarter of 2016 was derived using an estimated effective annual income tax rate, excluding discrete items, of 36.3%.

~~Net Income (Loss).~~ ~~As a result of the foregoing, we had a net loss of $8.3 million in the third quarter of 2017 compared to net loss of $4.5 million in the third quarter of 2016.~~

~~Nine Months Ended October 1, 2017 Compared to Nine Months Ended October 2, 2016~~

The following table sets forth, for the nine months ended October 1, 2017 and October 2, 2016, selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales:

Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Pollo Tropical Taco Cabana Consolidated
Restaurant sales:
Pollo Tropical 55.7 % 56.5 %
Taco Cabana 44.3 % 43.5 %
Consolidated restaurant sales 100.0 % 100.0 %
Costs and expenses:
Cost of sales 31.1 % 31.7 % 28.4 % 28.6 % 29.9 % 30.3 %
Restaurant wages and related expenses 23.8 % 23.4 % 32.3 % 29.1 % 27.5 % 25.9 %
Restaurant rent expense 5.2 % 4.8 % 6.0 % 5.5 % 5.5 % 5.1 %
Other restaurant operating expenses 14.0 % 13.4 % 15.3 % 13.5 % 14.6 % 13.4 %
Advertising expense 4.0 % 4.1 % 2.9 % 3.9 % 3.5 % 4.0 %
Pre-opening costs 0.4 % 1.4 % 0.4 % 0.1 % 0.4 % 0.9 %

Total revenues decreased 6.2% to $506.9 million in the nine months ended October 1, 2017 from $540.5 million in the nine months ended October 2, 2016. Restaurant sales decreased 6.2% to $505.1 million in the nine months ended October 1, 2017 from $538.4 million in the nine months ended October 2, 2016.

The following table presents the primary drivers of the increase or decrease in restaurant sales for both Pollo Tropical and Taco Cabana for the nine months ended October 1, 2017 compared to the nine months ended October 2, 2016 (in millions):

Pollo Tropical:
Decrease in comparable restaurant sales $ (22.3 )
Decrease in sales related to closed restaurants, net of new restaurants (0.3 )
Total decrease $ (22.6 )

Taco Cabana:
Decrease in comparable restaurant sales $ (16.5 )
Incremental sales related to new restaurants, net of closed restaurants 5.8
Total decrease $ (10.7 )

Comparable restaurant sales for Pollo Tropical restaurants decreased 8.5% in the nine months ended October 1, 2017. Comparable restaurant sales for Taco Cabana restaurants decreased 7.2% in the nine months ended October 1, 2017. For Pollo Tropical, a decrease in comparable restaurant transactions of 10.7% was partially offset by menu price increases that drove an increase in restaurant sales of 1.8% in the nine months ended October 1, 2017 as compared to the nine months ended October 2, 2016. For Taco Cabana, comparable restaurant transactions decreased 7.6%, partially offset by menu price increases that drove an increase in restaurant sales of 2.0% in the nine months ended October 1, 2017 as compared to the nine months ended October 2, 2016.

The decrease in comparable sales for both brands was partially attributable to temporary closures, limited menu offerings and modified hours of operations during the third quarter of 2017 as a result of the Hurricanes, which we estimate negatively impacted comparable restaurant sales and transactions for Pollo Tropical by approximately 1.5% to 2.0% and Taco Cabana by approximately 0.5% to 1.0% in the nine months ended October 1, 2017. As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by 0.6% in the nine months ended October 1, 2017. Comparable restaurant sales for both brands continue to be negatively impacted by the general industrywide slowdown in restaurant sales. In addition, comparable restaurant transactions and sales for the nine months ended October 1, 2017 for Taco Cabana were negatively impacted by reduced promotional discounts and our planned material reduction in advertising, including media and promotions, while we implemented initiatives related to the Plan.

Restaurant sales for Pollo Tropical for the nine months ended October 1, 2017 compared to the same period in 2016 were also negatively impacted by the restaurant closures that occurred in the fourth quarter of 2016 and the second and third quarter of 2017.

Franchise revenues decreased to $1.8 million in the nine months ended October 1, 2017 from $2.1 million in nine months ended October 2, 2016 primarily due to the closure of six franchised Pollo Tropical restaurants in 2017.

The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the nine months ended October 1, 2017 compared to the nine months ended October 2, 2016. All percentages are stated as a percentage of applicable segment restaurant sales.



~~Pollo Tropical:~~
~~Cost of sales:~~
~~Menu price increases~~	~~(0.7~~	)%
~~Lower commodity costs~~	~~(0.3~~	)%
~~Lower promotions and discounts~~	~~(0.2~~	)%
~~Improved operating efficiency~~	~~(0.2~~	)%
~~Hurricane inventory loss~~	~~0.2~~	%
~~Menu offering improvement costs related to the Plan~~	~~0.1~~	%
~~Sales mix~~	~~0.1~~	%
~~Other~~	~~0.4~~	%
~~Net decrease in cost of sales as a percentage of restaurant sales~~	~~(0.6~~	)%

~~Restaurant wages and related expenses:~~
~~Higher labor costs for comparable restaurants~~^{(1) (2)}	~~0.8~~	%
~~Lower labor costs due to closure of restaurants~~	~~(0.5~~	)%
~~Other~~⁽²⁾	~~0.1~~	%
~~Net increase in restaurant wages and related costs as a percentage of restaurant sales~~	~~0.4~~	%

~~Other operating expenses:~~
~~Higher utility costs~~⁽²⁾	~~0.3~~	%
~~Higher repairs and maintenance costs~~^{(2) (3)}	~~0.3~~	%
~~Higher sanitation costs~~⁽²⁾	~~0.2~~	%
~~Other~~	~~(0.2~~	)%
~~Net increase in other restaurant operating expenses as a percentage of restaurant sales~~	~~0.6~~	%

~~Advertising expense:~~
~~Reduced advertising~~	~~(0.1~~	)%
~~Net decrease in advertising expense as a percentage of restaurant sales~~	~~(0.1~~	)%

~~Pre-opening costs:~~
~~Decrease in the number of restaurant openings~~	~~(1.0~~	)%
~~Net decrease in pre-opening costs as a percentage of restaurant sales~~	~~(1.0~~	)%

⁽¹⁾~~Includes the impact of restaurant wages incurred during temporary restaurant closures due to the Hurricanes.~~

⁽²⁾~~Includes the impact of lower sales on fixed and semi-fixed costs.~~

⁽³⁾~~Includes costs related to the Plan.~~



~~Taco Cabana:~~
~~Cost of sales:~~
~~Lower commodity costs~~	~~(0.7~~	)%
~~Menu price increases~~	~~(0.6~~	)%
~~Lower promotions and discounts~~	~~(0.2~~	)%
~~Menu offering improvement costs related to the Plan~~	~~0.5~~	%
~~Sales mix~~	~~0.4~~	%
~~Hurricane inventory loss~~	~~0.1~~	%
~~Other~~	~~0.3~~	%
~~Net decrease in cost of sales as a percentage of restaurant sales~~	~~(0.2~~	)%

~~Restaurant wages and related expenses:~~
~~Higher labor costs~~^{(1) (2)}	~~2.8~~	%
~~Higher medical benefit and payroll tax costs~~⁽²⁾	~~0.3~~	%
~~Other~~⁽²⁾	~~0.1~~	%
~~Net increase in restaurant wages and related costs as a percentage of restaurant sales~~	~~3.2~~	%

~~Other operating expenses:~~
~~Higher repairs and maintenance costs~~^{(2) (3)}	~~0.7~~	%
~~Higher real estate taxes~~⁽²⁾	~~0.3~~	%
~~Higher utility costs~~⁽²⁾	~~0.2~~	%
~~Higher operating supplies~~⁽²⁾	~~0.2~~	%
~~Other~~⁽²⁾	~~0.4~~	%
~~Net increase in other restaurant operating expenses as a percentage of restaurant sales~~	~~1.8~~	%

~~Advertising expense:~~
~~Reduced advertising~~	~~(1.0~~	)%
~~Net decrease in advertising expense as a percentage of restaurant sales~~	~~(1.0~~	)%

~~Pre-opening costs:~~
~~Increase in restaurant openings~~	~~0.3~~	%
~~Net increase in pre-opening costs as a percentage of restaurant sales~~	~~0.3~~	%

⁽¹⁾~~Includes the impact of higher wage rates, one-time initiatives related to the Plan and restaurant wages incurred during temporary restaurant closures due to the Hurricanes.~~

⁽²⁾~~Includes the impact of lower sales on fixed and semi-fixed costs.~~

⁽³⁾~~Includes costs related to the Plan.~~

~~Consolidated Restaurant Rent Expense~~. Restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. Restaurant rent expense, as a percentage of total restaurant sales, increased to 5.5% in the nine months ended October 1, 2017 from 5.1% in the nine months ended October 2, 2016 primarily as a result of the impact of lower comparable restaurant sales.

~~Consolidated General and Administrative Expenses.~~ General and administrative expenses were $47.2 million in the nine months ended October 1, 2017 and $42.6 million in the nine months ended October 2, 2016 and, as a percentage of total revenues, general and administrative expenses increased to 9.3% in the nine months ended October 1, 2017 compared to 7.9% in the nine months ended October 2, 2016 due primarily to higher board and shareholder matter costs, Plan restructuring costs and retention bonuses and charges for terminated capital projects. General and administrative expense for the nine months ended October 1, 2017 included $3.7 million of board and shareholder matter costs related to shareholder activism matters and Chief Executive Officer and board member searches, $2.1 million related to Plan restructuring costs and retention bonuses, $0.8 million in charges for terminated capital projects and $0.5 million in write-off of site development costs related to locations that we decided not to develop, partially offset by a benefit of $0.5 million related to litigation matters and a $0.2 million favorable adjustment related

~~to costs associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.~~revenues. General and administrative expenses for the ~~nine months ended October 2, 2016~~third quarter of 2020 included ~~$1.0~~$0.2 million ~~in board and shareholder matter costs primarily~~ related to ~~the previously proposed and terminated separation transaction, $0.9 million in write-off of site development costs related to locations that we decided not to develop, $0.5 million in~~ severance ~~and related~~ costs associated with ~~restructuring Pollo Tropical management~~positions eliminated in ~~Miami, Florida~~response to the COVID-19 pandemic and ~~Dallas, Texas, and $0.5~~$0.1 million ~~net charges~~ related to ~~litigation matters.~~digital and brand repositioning costs. General and administrative expenses for the third quarter of 2019 included $0.2 million related to digital and brand repositioning costs and $0.2 million related to search fees for senior executive positions.

Adjusted EBITDA. Adjusted EBITDA is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance and is defined as earnings attributable to the applicable segment before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, goodwill impairment, closed restaurant rent expense, net of sublease income, stock-based compensation expense, other expense (income), net and certain significant items that management believes are related to strategic changes and/or are not related to the ongoing operation of our restaurants.

Adjusted EBITDA for Pollo Tropical decreased to ~~$41.3~~$10.6 million, or 13.6% of total revenues, in the ~~nine months ended October 1, 2017~~third quarter of 2020 from ~~$43.8~~$11.0 million, or 12.4% of total revenues, in the ~~nine months ended October 2, 2016~~third quarter of 2019 due primarily ~~due~~ to the impact of lower ~~comparable~~ restaurant sales, ~~and~~including the ~~negative~~ impact of COVID-19, higher delivery fee expense and additional costs related to the ~~Hurricanes,~~COVID-19 pandemic, partially offset by ~~decreases in~~lower advertising expenses, lower cost of sales and labor costs as a percentage of restaurant sales, ~~pre-opening costs~~ and ~~advertising expense,~~lower general and ~~the impact of closing unprofitable restaurants.~~administrative expenses. Adjusted EBITDA for Taco Cabana ~~decreased~~increased to ~~$17.3~~$4.2 million, or 7.0% of total revenues, in the ~~nine months ended October 1, 2017~~third quarter of 2020 from ~~$30.5~~$1.2 million, or 1.6% of total revenues, in the ~~nine months ended October 2, 2016~~third quarter of 2019 due primarily ~~due~~ to ~~the impact of~~ lower ~~comparable restaurant sales, higher restaurant wages and operating expenses, and the negative impact of Hurricane Harvey, partially offset by decreases in advertising expense and~~ cost of sales and labor costs as a percentage of ~~sales.~~restaurant sales, lower advertising costs and general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020, partially offset by lower restaurant sales, higher delivery fee expense and additional costs related to the COVID-19 pandemic. Consolidated Adjusted EBITDA ~~decreased~~increased to ~~$58.5~~$14.8 million in the ~~nine months ended October 1, 2017~~third quarter of 2020 from ~~$74.4~~$12.2 million in the ~~nine months ended October 2, 2016.~~third quarter of 2019.

~~Restaurant-Level~~Restaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which 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 for Pollo Tropical decreased to ~~$62.3~~$16.4 million, or 21.2% of restaurant sales, in the ~~nine months ended October 1, 2017~~third quarter of 2020 from ~~$68.8~~$17.8 million, or 20.1% of restaurant sales, in the ~~nine months ended October 2, 2016~~third quarter of 2019 primarily due to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana ~~decreased~~increased to ~~$34.2~~$8.8 million, ~~in nine months ended October 1, 2017 from $45.3 million~~or 14.9% of restaurant sales, in the ~~nine months ended October 2, 2016~~third quarter of 2020 from $6.9 million, or 9.2% of restaurant sales, in the third quarter of 2019 primarily as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial ~~Measures".~~Measures."

Depreciation and Amortization. Depreciation and amortization expense decreased to ~~$26.3~~$9.4 million in the ~~nine months ended October 1, 2017~~third quarter of 2020 from ~~$26.5~~$10.2 million in the ~~nine months ended October 2, 2016~~third quarter of 2019 due primarily to ~~a decrease in~~decreased depreciation as a result of impairing closed restaurant assets, partially offset by ~~increased~~an increase in depreciation related to new restaurant ~~openings.~~openings and ongoing reinvestment and enhancements to our restaurants that have been made since the third quarter of 2019.

Impairment and Other Lease Charges. Impairment and ~~Other Lease Charges increased~~other lease charges decreased to ~~$59.1~~$2.4 million in the nine months ended October 1, 2017 from $18.6 million in the nine months ended October 2, 2016. As discussed under "Recent Events Affecting our Results of Operations", on April 24, 2017, we announced the Plan to drive long-term shareholder value creation that included the closure of 30 Pollo Tropical restaurants located outside our core Florida markets during the second quarter of 2017. In April 2017, we closed all of our Company-owned Pollo Tropical locations in Dallas-Fort Worth and Austin, Texas, and Nashville, Tennessee. We closed the six remaining Company-owned Pollo Tropical restaurants in south Texas in September 2017, including two restaurants in Houston, Texas that did not reopen after Hurricane Harvey and four restaurants in San Antonio, Texas. Up to four Pollo Tropical restaurants that closed in 2017 in Texas may be rebranded as Taco Cabana restaurants. We continue to own and operate 13 Pollo Tropical restaurants in Georgia, of which five were impaired in the third quarter of ~~2017. We also closed four Company-owned Taco Cabana restaurants in Texas in July 2017 which were impaired~~2020 from $3.3 million in the ~~second~~third quarter of ~~2017.~~2019.

Impairment and other lease charges for the ~~nine~~three months ended ~~October 1, 2017~~September 27, 2020 for Pollo Tropical ~~consist of~~include impairment charges of ~~$51.3~~$2.6 million related primarily to the write-down of saucing islands and ~~other lease charges, net of recoveries, of $5.0 million. Impairment charges~~self-service soda machines that are related to 36 restaurants closed in 2017, seven of which were impaired in 2016, and six restaurants that we continue to operate, as well as an additional impairment charge related to a restaurant closed in 2016being removed from dining rooms as a result of ~~the decision not to convert the location to~~COVID-19 and a ~~Taco Cabana restaurant. Other~~gain of $(0.2) million from lease ~~charges, net of recoveries, are related to restaurants closed in 2017 as well as previously closed restaurants.~~

terminations.

Impairment and other lease charges for the ~~nine~~three months ended ~~October 1, 2017~~September 29, 2019 for ~~Taco Cabana consist of~~Pollo Tropical include impairment charges of ~~$1.4~~$0.2 million ~~and other lease charges, net~~related primarily to additional impairment of recoveries, of $1.3 million. Impairment charges are related to four Taco Cabana restaurants that were closed in July 2017 and five Taco Cabana restaurants that we continue to operate. Other lease charges, net of recoveries, are related to restaurants closed in 2017 as well asequipment from previously closed restaurants. There is uncertainty in the estimates of future lease costs and sublease recoveries. Actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries, and such amounts could be material.

Impairment and other lease charges for the ~~nine~~three months ended ~~October 2, 2016 primarily included~~September 29, 2019 for Taco Cabana include impairment charges of ~~$18.5~~ $3.1

million related primarily to ~~sixteen Pollo Tropical~~assets for five underperforming restaurants that ~~were subsequently~~we continued to operate, three of which closed in ~~the fourth quarter of 2016~~January 2020, and ~~second quarter of 2017 and one Taco Cabana restaurant that was subsequently closed in the third quarter of 2017.~~equipment from previously impaired restaurants.

Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related trailing ~~twelve month~~twelve-month cash flows are below a certain threshold. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets, exclusive of operating lease payments, to their respective carrying ~~values.~~values, excluding operating lease liabilities. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset group's carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, and for right-of-use lease assets, current market lease rent and discount rates, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will continue to have on restaurant operations and future cash flows, it is reasonably possible that the estimates of future cash flows used in impairment assessments will change in the near term and the effect of the change could be material. Our current estimates assume that operating restrictions, regulations and directives for restaurants and other changes related to COVID-19 will continue to have a significant impact through at least the first half of 2021 with the greatest impact in the near term.

For ~~five~~four Pollo Tropical restaurants ~~including one in Atlanta, Georgia~~ and four ~~in central and southwest Florida and three~~ Taco Cabana restaurants with combined carrying values (excluding right-of-use lease assets) of ~~$5.0~~$2.8 million and ~~$1.3~~$1.4 million, respectively, projected cash flows are not substantially in excess of their carrying values. In addition, one Pollo Tropical restaurant and one Taco Cabana restaurant with carrying values (excluding right-of-use lease assets) of $1.9 million and $0.9 million, respectively, have initial sales volumes lower than expected but do not have significant operating history to form a good basis for future projections. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.

Goodwill Impairment. Goodwill impairment was $21.4 million for the third quarter of 2019 and consisted of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was $1.5 million for the third quarter of 2020 and consisted of closed restaurant rent and ancillary lease costs of $1.7 million and $1.2 million net of sublease income of $1.4 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively. Closed restaurant rent expense, net of sublease income was $0.7 million for the third quarter of 2019 and consisted of closed restaurant rent and ancillary lease costs of $1.6 million and $0.3 million net of sublease income of $1.0 million and $0.2 million for Pollo Tropical and Taco Cabana, respectively. Our sublessees are in the restaurant or retail industry and are also experiencing reduced sales volumes and/or temporary closures due to the COVID-19 pandemic. Our sublease income in future periods may be less than it has been historically if our tenants are unable to pay in a timely manner or at all. In addition, for our subleases for which collectability has historically been determined to be probable, we will be required to reverse sublease income receivables we have recognized on a straight-line basis and begin recording sublease income as payments are collected if our assessment of collectability changes and we determine that collectability over the remaining lease term is no longer probable. Straight-line rent receivables and deferred initial direct costs totaled $1.3 million at September 27, 2020.

Other Expense (Income), Net.Other expense (income), net was ~~$1.3~~$(1.3) million infor the ~~nine months ended October 1, 2017~~third quarter of 2020 and primarily consisted of ~~$1.6~~total gains of $(1.6) million ~~in costs related to~~on the ~~removal~~sale-leaseback of ~~signs~~two restaurant properties and ~~equipment and equipment transfers and storage for closed Pollo Tropical restaurants and severance for~~the sale of two restaurant ~~employees,~~properties, partially offset by ~~$0.2 million in expected insurance proceeds~~costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related ~~to a Taco Cabana restaurant that~~costs of $0.3 million. Other expense, net was ~~temporarily closed due to Hurricane Harvey damages and~~ $0.1 million ~~in expected business interruption proceeds related to a Taco Cabana restaurant that was temporarily closed due to a fire. Other income~~for the third quarter of ~~$0.2 million in the nine months ended October 2, 2016~~2019 and primarily consisted of ~~proceeds related to a Taco Cabana location that closed in 2015 as a result~~$0.1 million for the write-off of ~~an eminent domain proceeding.~~site development costs.

Interest Expense. Interest expense increased to ~~$1.9~~$1.2 million in the ~~nine months ended October 1, 2017 from $1.6~~third quarter of 2020 compared to $0.8 million in the ~~nine months ended October 2, 2016~~third quarter of 2019 due primarily ~~due~~ to higher interest rates ~~related to borrowings~~ under our ~~revolving~~amended senior credit facility partially offset by a lower borrowing level under our amended senior credit facility.

~~Provision for~~Benefit from Income Taxes. The effective tax ~~rates were 35.9%~~rate was (948.6)% and 11.7% for the ~~nine months ended October 1, 2017~~third quarter of 2020 and ~~36.1% for the nine months ended October 2, 2016.~~2019, respectively. The benefit from income taxes for the ~~nine months ended October 1, 2017~~third quarter of 2020 was derived using the actual effective tax rate for the year to date period, which includes a $1.9 million benefit as a result of reclassifying certain assets as qualified improvement property as permitted by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing our 2019 federal income tax return and a $2.5 million adjustment to reduce our deferred tax valuation allowance related to this reclassification and filing our 2019 federal income tax returns. The benefit from income taxes for the third quarter of 2019 was derived using an estimated annual effective tax rate of ~~36.8%~~27.2%, which excludes the discrete impact of tax benefits of $(2.1) million from tax deductible goodwill

impairment charges and $(0.4) million from interest on an income tax refund and a tax ~~benefit~~ deficiency from the vesting of restricted shares ~~and the tax benefit resulting from impairment and other lease charges~~ of $0.2 ~~million~~million.

The CARES Act includes provisions that allow net operating losses arising in 2018, 2019, and ~~$21.6 million, respectively. The provision~~2020 to be carried back for income taxes for the nine months ended October 2, 2016 was derived using an estimated effective annual income tax rate, excluding discrete items, of 36.3%. As discussed in Note 1, tax benefit deficienciesup to five years and ~~excess tax benefits created upon the vesting of restricted shares~~includes technical amendments that are ~~now recorded~~retroactive to 2018 which permit certain assets to be classified as ~~a discrete item within the income tax provision. These amounts were previously recorded as an adjustment to Additional paid-in capital.~~qualified improvement property and expensed immediately.

Net Income (Loss). As a result of the foregoing, we had net income of $4.6 million in the third quarter of 2020 compared to a net loss of ~~$25.5~~$22.2 million in the third quarter of 2019.

Nine Months Ended September 27, 2020 Compared to Nine Months Ended September 29, 2019

The following table sets forth, for the nine months ended September 27, 2020 and September 29, 2019, selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales:



	Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
	Pollo Tropical				Taco Cabana				Consolidated
Restaurant sales:
Pollo Tropical									56.0	%	54.5	%
Taco Cabana									44.0	%	45.5	%
Consolidated restaurant sales									100.0	%	100.0	%
Costs and expenses:
Cost of sales	32.1	%	31.6	%	29.9	%	31.0	%	31.1	%	31.3	%
Restaurant wages and related expenses	23.9	%	23.3	%	31.3	%	31.6	%	27.1	%	27.1	%
Restaurant rent expense	7.5	%	6.0	%	9.5	%	8.4	%	8.4	%	7.1	%
Other restaurant operating expenses	15.5	%	13.5	%	14.9	%	14.0	%	15.2	%	13.7	%
Advertising expense	2.4	%	3.4	%	2.5	%	3.7	%	2.5	%	3.6	%
Pre-opening costs	—	%	0.1	%	—	%	0.2	%	—	%	0.2	%

Total revenues decreased 19.1% to $405.9 million in the nine months ended ~~October 1, 2017 compared to net income of $14.3~~September 27, 2020 from $501.5 million in the nine months ended ~~October 2, 2016.~~September 29, 2019. Restaurant sales decreased 19.0% to $404.5 million in the nine months ended September 27, 2020 from $499.5 million in the nine months ended September 29, 2019.

The following table presents the primary drivers of the decreases in restaurant sales for both Pollo Tropical and Taco Cabana for the nine months ended September 27, 2020 compared to the nine months ended September 29, 2019 (in millions):



Pollo Tropical:
Decrease in comparable restaurant sales	$	(44.6	)
Decrease in sales related to closed restaurants, net of new restaurants	(0.7		)
Total decrease	$	(45.3	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(32.3	)
Decrease in sales related to closed restaurants, net of new restaurants	(17.4		)
Total decrease	$	(49.7	)

Comparable restaurant sales for Pollo Tropical restaurants decreased 16.8% in the nine months ended September 27, 2020. Comparable restaurant sales for Taco Cabana restaurants decreased 15.7% in the nine months ended September 27, 2020. Comparable restaurant sales for both brands were significantly impacted by governmental restrictions, closed dining rooms, reductions in operating hours and reduced staffing as a result of COVID-19.

For Pollo Tropical, a decrease in comparable restaurant transactions of 23.0% was partially offset by an increase in the net impact of product/channel mix and pricing of 6.2% in the nine months ended September 27, 2020 compared to the nine months

ended September 29, 2019. The increase in product/channel mix and pricing was driven primarily by increases in delivery and drive-thru average check and sales channel penetration, and menu price increases of 0.2%. As a result of new restaurant openings, sales cannibalization of existing restaurants negatively impacted comparable restaurant sales for Pollo Tropical by 0.2% in the nine months ended September 27, 2020 compared to the nine months ended September 29, 2019.

For Taco Cabana, a decrease in comparable restaurant transactions of 22.7% was partially offset by an increase in net impact of product/channel mix and pricing of 7.0% in the nine months ended September 27, 2020 compared to the nine months ended September 29, 2019. The increase in product/channel mix and pricing was driven primarily by increases in drive-thru and delivery sales channel penetration and growth in average check for drive-thru compared to last year due in part to an increase in transactions that include alcohol and menu price increases of 0.5%.

Franchise revenues decreased by $0.6 million to $1.4 million in the nine months ended September 27, 2020 compared to the nine months ended September 29, 2019 due to lower sales at franchised restaurants in 2020 primarily as a result of COVID-19.

The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the nine months ended September 27, 2020 compared to the nine months ended September 29, 2019. All percentages are stated as a percentage of applicable segment restaurant sales.



Pollo Tropical:
Cost of sales:
Higher commodity costs	0.7	%
Sales mix	0.4	%
Lower rebates and discounts	0.2	%
Higher packaging costs	0.1	%
Operating efficiency	(0.9	)%
Menu price increases	(0.1	)%
Other	0.1	%
Net increase in cost of sales as a percentage of restaurant sales	0.5	%

Restaurant wages and related expenses:
Higher labor costs due to COVID-19⁽¹⁾	0.6	%
Lower labor costs due to labor efficiencies	(0.2	)%
Other	0.2	%
Net increase in restaurant wages and related costs as a percentage of restaurant sales	0.6	%

Other operating expenses:
Higher delivery fee expense due to increased delivery channel sales	1.4	%
Higher insurance costs	0.2	%
Impact of lower sales on utilities cost	0.2	%
Higher linen and uniform expense including COVID-19 masks and the impact of lower sales	0.1	%
Lower repair and maintenance costs	(0.2	)%
Other⁽²⁾	0.3	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	2.0	%

Advertising expense:
Reduced advertising	(1.0	)%
Net decrease in advertising expense as a percentage of restaurant sales	(1.0	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(0.1	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(0.1	)%


⁽¹⁾	Primarily includes the impact of COVID-19 related special incentive pay and quarantine, which is partially offset (0.1%) by lower incentive bonus resulting from the special incentive pay.


⁽²⁾	Includes the impact of lower sales on sanitation costs and operating supplies.



Taco Cabana:
Cost of sales:
Lower commodity costs	(1.5	)%
Operating efficiency	(0.8	)%
Lower promotions and discounts	(0.2	)%
Menu price increases	(0.1	)%
Sales mix	1.3	%
Lower rebates and discounts	0.3	%
Other	(0.1	)%
Net decrease in cost of sales as a percentage of restaurant sales	(1.1	)%

Restaurant wages and related expenses:
Lower labor costs due to labor efficiencies	(1.1	)%
Higher labor costs due to COVID-19⁽¹⁾	0.9	%
Other	(0.1	)%
Net decrease in restaurant wages and related costs as a percentage of restaurant sales	(0.3	)%

Other operating expenses:
Higher delivery fee expense due to increased delivery channel sales	0.8	%
Higher linen and uniform expense including COVID-19 masks and the impact of lower sales	0.1	%
Lower repairs and maintenance	(0.2	)%
Other	0.2	%
Net increase in other restaurant operating expenses as a percentage of restaurant sales	0.9	%

Advertising expense:
Reduced advertising	(1.2	)%
Net decrease in advertising expense as a percentage of restaurant sales	(1.2	)%

Pre-opening costs:
Decrease in the number of restaurant openings	(0.2	)%
Net decrease in pre-opening costs as a percentage of restaurant sales	(0.2	)%


⁽¹⁾	Primarily includes the impact of COVID-19 related special incentive pay and quarantine pay, which is partially offset (0.1%) by lower incentive bonus resulting from the special incentive pay.

Consolidated Restaurant Rent Expense. Restaurant rent expense, as a percentage of total restaurant sales, increased to 8.4% in the nine months ended September 27, 2020 from 7.1% in the nine months ended September 29, 2019 due primarily to the impact of lower comparable restaurant sales.

Consolidated General and Administrative Expenses. General and administrative expenses were $38.5 million for the nine months ended September 27, 2020 and $42.4 million for the nine months ended September 29, 2019 and, as a percentage of total revenues, general and administrative expenses increased to 9.5% in the nine months ended September 27, 2020 compared to 8.5% in the nine months ended September 29, 2019 due primarily to the impact of lower total revenues partially offset by lower management support costs primarily as a result of headcount reductions for the nine months ended September 27, 2020. General and administrative expense for the nine months ended September 27, 2020 also included $1.1 million related to severance costs associated with positions eliminated in response to the COVID-19 pandemic, $0.4 million related to digital and brand repositioning costs and $0.1 million related to search fees for senior executive positions. General and administrative expenses for the nine months ended September 29, 2019 included $1.0 million related to restructuring costs due to eliminated or relocated positions, $0.2 million related to digital and brand repositioning costs and $0.4 million related to search fees for senior executive positions.

Adjusted EBITDA. Adjusted EBITDA for Pollo Tropical decreased to $24.4 million, or 10.7% of total revenues, in the nine months ended September 27, 2020 from $39.9 million, or 14.6% of total revenues, in the nine months ended September 29, 2019 due primarily to the impact of lower restaurant sales, including the impact of COVID-19, higher delivery fee expense, higher cost

of sales as a percentage of restaurant sales and additional costs related to the COVID-19 pandemic, partially offset by lower advertising and general and administrative expenses. Adjusted EBITDA for Taco Cabana decreased to $5.9 million, or 3.3% of total revenues, in the nine months ended September 27, 2020 from $8.2 million, or 3.6% of total revenues, in the nine months ended September 29, 2019 due primarily to the impact of lower restaurant sales, including the impact of COVID-19, higher delivery fee expense and additional costs related to the COVID-19 pandemic, partially offset by lower cost of sales as a percentage of restaurant sales, advertising expenses, labor costs as a percentage of restaurant sales due to labor efficiencies, and general and administrative expenses and the impact of the closure of unprofitable restaurants in the first quarter of 2020. Consolidated Adjusted EBITDA decreased to $30.3 million in the nine months ended September 27, 2020 from $48.1 million in the nine months ended September 29, 2019.

Restaurant-level Adjusted EBITDA. Restaurant-level Adjusted EBITDA for Pollo Tropical decreased to $42.2 million, or 18.6% of restaurant sales, in the nine months ended September 27, 2020 from $60.4 million, or 22.2% of restaurant sales, in the nine months ended September 29, 2019 due primarily to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to $21.4 million, or 12.0% of restaurant sales, in the nine months ended September 27, 2020 from $25.9 million, or 11.4% of restaurant sales, in the nine months ended September 29, 2019 as a result of the foregoing. For a reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitled "Management's Use of Non-GAAP Financial Measures."

Depreciation and Amortization. Depreciation and amortization expense decreased to $28.4 million in the nine months ended September 27, 2020 from $29.5 million in the nine months ended September 29, 2019 due primarily to decreased depreciation as a result of impairing closed restaurant assets, partially offset by an increase in depreciation related to new restaurant openings and ongoing reinvestment and enhancements to our restaurants that have been made since the third quarter of 2019.

Impairment and Other Lease Charges. Impairment and other lease charges increased to $8.9 million in the nine months ended September 27, 2020 from $4.7 million in the nine months ended September 29, 2019.

Impairment and other lease charges for the nine months ended September 27, 2020 for Pollo Tropical include impairment charges of $7.3 million related primarily to the impairment of assets from three underperforming Pollo Tropical restaurants, two of which we closed in the third quarter of 2020, the write-down of assets held for sale to their fair value less costs to sell, and the write-down of saucing islands and self-service soda machines that are being removed from dining rooms as a result of COVID-19, and lease termination charges of $0.9 million for restaurant locations we decided not to develop, net of a gain from lease terminations of $(0.2) million. Impairment and other lease charges for the nine months ended September 27, 2020 for Taco Cabana include impairment charges of $1.1 million related primarily to the write-down of assets held for sale to their fair value less costs to sell and the impairment of assets for two underperforming Taco Cabana restaurants that we continue to operate, and a gain of $(0.2) million from a lease termination.

Impairment and other lease charges for the nine months ended September 29, 2019 for Pollo Tropical include impairment charges of $0.6 million related primarily to additional impairment of equipment from previously closed restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.8) million. Impairment and other lease charges for the nine months ended September 29, 2019 for Taco Cabana include impairment charges of $4.9 million related primarily to impairment of assets for eight underperforming restaurants that we continued to operate, equipment from previously impaired restaurants and a lease charge recoveries benefit related to previously closed restaurant lease terminations of $(0.1) million.

Goodwill Impairment. Goodwill impairment was $67.9 million for the nine months ended September 29, 2019 and consisted of a non-cash impairment charge to write down the value of goodwill for the Taco Cabana reporting unit.

Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income was $4.9 million for the nine months ended September 27, 2020 and consisted of closed restaurant rent and ancillary lease costs of $5.2 million and $3.7 million net of sublease income of $3.6 million and $0.3 million for Pollo Tropical and Taco Cabana, respectively. Closed restaurant rent expense, net of sublease income was $3.5 million for the nine months ended September 29, 2019 and consisted of closed restaurant rent and ancillary lease costs of $5.1 million and $1.1 million net of sublease income of $2.4 million and $0.4 million for Pollo Tropical and Taco Cabana, respectively.

Other Expense (Income), Net. Other expense, net was $0.4 million for the nine months ended September 27, 2020 and primarily consisted of $1.4 million in costs for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related costs and $0.6 million for the write-off of site development costs, partially offset by total gains of $(1.6) million on the sale-leaseback of two restaurant properties and the sale of two restaurant properties. Other expense, net was $0.9 million for the nine months ended September 29, 2019 and primarily consisted of $0.7 million in costs for the removal, transfer, and storage of equipment from closed restaurants and $0.1 million for the write-off of site development costs.

Interest Expense. Interest expense increased to $3.4 million for the nine months ended September 27, 2020 compared to $3.0 million for the nine months ended September 29, 2019 due to a higher borrowing level under our amended senior credit facility and higher interest rates.

Benefit from Income Taxes. The effective tax rate was 44.6% and 2.1% for the nine months ended September 27, 2020 and September 29, 2019, respectively. The benefit from income taxes for the nine months ended September 27, 2020 was derived using the actual effective tax rate for the year to date period, which includes a benefit of $1.9 million related to the carryback of net operating losses as a result of the CARES Act, a $1.9 million benefit as a result reclassifying certain assets as qualified improvement property as permitted by the CARES Act and other changes to depreciation methods for certain assets made in conjunction with a cost segregation study conducted prior to filing our 2019 federal income tax return, a $2.5 million adjustment to reduce our deferred tax valuation allowance related to this reclassification and filing our 2019 federal income tax returns, and a tax deficiency from the vesting of restricted shares of $0.5 million. The benefit from income taxes for the nine months ended September 29, 2019 was derived using an estimated effective annual income tax rate of 27.2%, which excludes the discrete impact of tax benefits of $(2.1) million from tax deductible goodwill impairment charges and $(0.4) million from interest on an income tax refund and a tax deficiency from the vesting of restricted shares of $0.2 million.

The CARES Act includes provisions that eliminate the 80% of taxable income limitation for certain net operating loss carryforward deductions and allow net operating losses arising in 2018, 2019, and 2020 to be carried back for up to five years and includes technical amendments that are retroactive to 2018 which permit certain assets to be classified as qualified improvement property and expensed immediately.

Net Loss. As a result of the foregoing, we had a net loss of $11.1 million for the nine months ended September 27, 2020 compared to a net loss of $63.3 million for the nine months ended September 29, 2019.

Liquidity and Capital Resources

We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:

restaurant operations are primarily conducted on a cash basis;

rapid turnover results in a limited investment in inventories; and

cash from sales is usually received before related liabilities for food, supplies and payroll become due.

Capital expenditures and payments related to our lease obligations represent significant liquidity requirements for us. We believe cash generated from our operations and the sale of owned property (including sale-leaseback transactions) and availability of borrowings under our amended senior credit facility will provide sufficient

cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.

On July 10, 2020, we executed an amendment to our senior credit facility that includes adjustments to our covenants that are more reflective of current sales and profit trends. For the remainder of 2020, the only applicable financial covenants under our amended senior credit facility that require compliance will be a minimum liquidity target and a maximum capital expenditure covenant. During the second quarter we borrowed all available funds under our senior credit facility. We repaid $30.0 million on July 10, 2020, an additional $76.6 million through September 27, 2020, and an additional $20.4 million through November 2, 2020. On November 2, 2020, there were $19.5 million in outstanding revolving credit borrowings under our amended senior credit facility. See Note 5 to our unaudited condensed consolidated financial statements and "Amended Senior Credit Facility" below for a further discussion.

Operating Activities. Net cash provided ~~from~~by operating activities in the first nine months of ~~2017~~2020 and ~~2016~~2019 was ~~$47.7~~$47.0 million and ~~$66.4~~$51.0 million, respectively. The decrease in net cash provided ~~from~~by operating activities in the nine months ended ~~October 1, 2017~~September 27, 2020 was primarily driven by ~~the~~a decrease in Adjusted EBITDA, ~~and increase in deferred income taxes,~~ partially offset by the timing of ~~payments.~~payments including the impact of vendor and landlord payment term renegotiations.

Investing Activities. Net cash used in investing activities in the first nine months of ~~2017~~2020 and ~~2016~~2019 was ~~$38.5~~$2.8 million and ~~$61.8~~$32.3 million, respectively. Capital expenditures are the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.

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


	Pollo Tropical		Taco Cabana		Other		Consolidated		Pollo Tropical		Taco Cabana		Other		Consolidated
Nine Months Ended October 1, 2017:
Nine Months Ended September 27, 2020:
New restaurant development	$	15,863	$	8,131	$	—	$	23,994	$	992	$	854	$	—	$	1,846
Restaurant remodeling	2,243		37		—		2,280		357		730		—		1,087
Other restaurant capital expenditures⁽¹⁾	4,033		3,617		—		7,650		3,226		2,621		—		5,847
Corporate and restaurant information systems	1,069		1,702		1,844		4,615		926		567		1,643		3,136
Total capital expenditures	$	23,208	$	13,487	$	1,844	$	38,539	$	5,501	$	4,772	$	1,643	$	11,916
Number of new restaurant openings	8		6		—		14		—		1				1
Nine Months Ended October 2, 2016:
Nine Months Ended September 29, 2019:
New restaurant development	$	48,857	$	3,971	$	—	$	52,828	$	6,822	$	3,859	$	—	$	10,681
Restaurant remodeling	956		—		—		956		182		186		—		368
Other restaurant capital expenditures⁽¹⁾	1,508		3,117		—		4,625		8,626		7,219		—		15,845
Corporate and restaurant information systems	1,392		970		2,272		4,634		2,565		3,718		896		7,179
Total capital expenditures	$	52,713	$	8,058	$	2,272	$	63,043	$	18,195	$	14,982	$	896	$	34,073
Number of new restaurant openings	26		2				28		2		3				5


⁽¹⁾⁽¹⁾	Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our unaudited condensed consolidated financial statements. For the nine months ended September 27, 2020 and September 29, 2019, total restaurant repair and maintenance expenses were approximately $12.8 million and $16.8 million, respectively.

Cash used in investing activities in the first nine months ~~ended October 1, 2017~~of 2020 included net proceeds of $6.3 million from the sale-leaseback of two restaurant properties and ~~October 2, 2016, total~~$2.9 million from the sale of an additional two restaurant ~~repair and maintenance expenses were approximately $15.6 million and $14.1 million, respectively.~~

~~In 2017, we expect to open~~properties. Cash used in investing activities in the first nine ~~new Company-owned Pollo Tropical restaurants in Florida and six new Company-owned Taco Cabana restaurants in Texas, including~~months of 2019 included net proceeds from the sale of one ~~Pollo Tropical~~ restaurant closed in October 2016 that we plan to convert to a Taco Cabana restaurant. In addition, up to five Pollo Tropical restaurants in Texas that were previously closed in October 2016, April 2017 and September 2017 may be converted to Taco Cabana restaurants in 2018. Total capital expenditures in 2017 are expected to be $60.0 million to $70.0property of $1.8 million. Capital expenditures in 2017 are expected to include $22.0 million to $25.0 million for development of new restaurants, approximately $22.0 million to $26.0 million for the ongoing reinvestment in our Pollo Tropical and Taco Cabana restaurants for capital maintenance expenditures, approximately $2.0 million to $3.0 million for remodeling costs and approximately $13.0 million to $16.0 million of other expenditures which primarily includes information technology and systems projects and indoor video menu boards.

In 2018, we expect to open nine new Company-owned Pollo Tropical restaurants in Florida and seven new Company-owned Taco Cabana restaurants in Texas including five closed Pollo Tropical restaurants that will be converted to Taco Cabana restaurants.

Total capital expenditures in ~~2018 are expected to be $60.0 million to $68.0~~2020 will not exceed $22.0 million. Capital expenditures include $26.0 million to $28.0 million for the development of new Company-owned restaurants, $23.0 million to $25.0 million for the ongoing reinvestment in our Pollo Tropical and Taco Cabana Company-owned restaurants including approximately $11.0 million to $13.0 million in deferred maintenance needs related to the Plan; approximately $4.0 million to $6.0 million for restaurant remodeling costs and approximately $7.0 million to $9.0 million of other expenditures which primarily include information technology and systems projects.

In the first nine months of 2016, cash used in investing activities also included $2.7 million for the purchase of a property for a sale-leaseback, partially offset by proceeds of $3.6 million from a sale-leaseback transaction related to our restaurant properties.

Financing Activities. Net cash used in financing activities in the first nine months of ~~2017~~2020 was ~~$9.1~~$39.6 million and included net revolving credit borrowing repayments under our amended senior credit facility of $35.1 million and $3.7 million in payments to repurchase our common stock, as well as borrowings and subsequent repayment of funds pursuant to the Paycheck Protection Program under the CARES Act. Net cash used in financing activities in the first nine months of 2019 included net revolving credit borrowing repayments under our senior credit facility of $9.0 ~~million. Net cash used~~million combined with $11.4 million in ~~financing activities in the first nine months of 2016 primarily included net revolving credit borrowing repayments under~~payments to repurchase our ~~senior credit facility of $5.1 million, partially offset by the excess tax benefit from vesting of restricted shares of $0.2 million.~~common stock.

Amended Senior Credit Facility. ~~Our~~On July 10, 2020, we entered into the amended senior credit facility. The amended senior credit facility reduced aggregate maximum commitments available for revolving credit borrowings (including standby letters of credit) under the amended senior credit facility (the "revolving commitment") by $30.0 million to $120.0 million on July 10, 2020. The amended senior credit facility further reduces the revolving commitment by (i) $15.0 million to $105.0 million on January 3, 2021 and (ii) $10.0 million to $95.0 million on April 4, 2021.

The amended senior credit facility provides ~~for aggregate revolving credit borrowings of up~~that Fiesta is not required to ~~$150 million (including up to $15 million available for letters of credit)~~be in compliance with the Adjusted Leverage Ratio and ~~matures on December 11, 2018. The~~Fixed Charge Coverage Ratio covenants (each as amended and defined in the amended senior credit facility ~~also provides for potential incremental increases of up to $50 million to the revolving credit borrowings available~~agreement) under the amended senior credit ~~facility. On October 1, 2017, there were $60.9 million~~facility from July 10, 2020 through April 3, 2021. Fiesta is required to be in compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio beginning with the fiscal quarter ending April 4, 2021 (the first quarter of 2021). After April 3, 2021, we will be permitted to exercise equity cures with respect to compliance with the Adjusted Leverage Ratio and Fixed Charge Coverage Ratio provided that, among other items, (i) the equity raised is from the issuance of common stock of Fiesta, (ii) not less than 50% of the net proceeds received by us from the issuance of Fiesta common stock are immediately used to prepay outstanding revolving credit borrowings under ~~our~~the amended senior credit ~~facility.~~facility which will result in a corresponding reduction of the revolving commitment by such amount, (iii) the amount of the equity cure is not more than $5.0 million in any fiscal quarter, and (iv) the aggregate amount of all equity cures do not exceed $15.0 million. The amended senior secured credit facility also provides that Fiesta must maintain minimum liquidity (as defined in the amended senior credit facility, generally unrestricted cash plus available borrowings under the amended senior credit facility) of (i) $40.0 million through September 27, 2020, (ii) $30.0 million from September 28, 2020 through January 3, 2021 and (iii) $25.0 million on January 4, 2021 and thereafter (the "Liquidity Covenant").

Borrowings under the amended senior credit facility bear interest at a rate per annum, ~~rate,~~ at our option, ~~equal to either (all terms as defined in the senior credit facility):~~

1)of (a) the Alternate Base Rate (as defined in the amended senior credit facility) plus the ~~applicable margin~~Applicable Rate (as defined in the amended senior credit facility) of ~~0.50% to 1.50% based on our Adjusted Leverage Ratio~~

(4.0% with a ~~margin~~minimum Alternate Base Rate of ~~1.00% as of October 1, 2017),~~2.0% or

2) (b) the Adjusted LIBOR Rate (as defined in the amended senior credit facility) plus the ~~applicable margin~~Applicable Rate of ~~1.50%~~5.0% with a minimum Adjusted LIBOR Rate of 1.0%. Pursuant to ~~2.50% based on our Adjusted Leverage Ratio (with a~~

~~margin of 2.00% as of October 1, 2017).~~

~~In addition,~~ the amended senior credit facility, ~~requires us~~we will be subject to ~~pay (i)~~ a commitment fee ~~based~~of 0.50% per annum on the ~~applicable Commitment Fee margin~~daily amount of ~~0.25% to 0.45%, based on our Adjusted Leverage Ratio, (with a margin of 0.35% as of October 1, 2017) and~~ the unused portion of the facility.

The outstanding borrowings under the amended senior credit facility are prepayable without penalty (other than customary breakage costs). The amended senior credit facility provides that for any of the following by Fiesta, (i) the sale of certain specified real property, including pursuant to sale-leaseback transactions, (ii) the issuance of equity of Fiesta (other than under our 2012 Stock Incentive Plan, subject to the restrictions set forth in the amended senior credit facility), (iii) the incurrence of certain indebtedness and (iv) the receipt of insurance proceeds (each a "prepayment event"), (a) if such prepayment event occurs prior to April 4, 2021, 100% of the net proceeds of such prepayment event received by us in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment and (b) beginning April 4, 2021, (1) 50% of the net proceeds received by us pursuant to the issuance of equity of Fiesta described above and the sale of real property pursuant to a sale-leaseback transaction in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment and (2) 100% of the net proceeds received by us pursuant to prepayment event other those identified in (1) above, in each case must be used to reduce the outstanding revolving credit borrowings under the amended senior credit facility which will result in a corresponding reduction of the revolving commitment. As of September 27, 2020, the outstanding revolving credit borrowings and revolving commitment were reduced by $9.1 million from proceeds received. The amended senior credit facility further provides that we must prepay outstanding revolving credit borrowings if the outstanding revolving credit borrowings exceed $75.0 million and excess cash (defined in the amended senior credit facility) of Fiesta exceeds $20.0 million.

The amended senior credit facility contains certain covenants, including, without limitation, those limiting Fiesta's ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of its business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends, including, without limitation, (i) that capital expenditures by Fiesta cannot exceed an aggregate of $22.0 million for each of the fiscal years ending 2020 and 2021 and cannot exceed an aggregate of $25.0 million for the fiscal year ending 2022 (the "Capital Expenditures Covenant") and (ii) limiting the construction or development of new restaurants to one Pollo Tropical prototype restaurant in 2021 and three Pollo Tropical prototype restaurants in 2022, provided further that (a) no default shall have occurred and be continuing or would exist after giving effect to the construction or development of the new Pollo Tropical restaurant(s), (b) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a ~~letter~~pro forma basis Fiesta is in compliance with each of ~~credit fee based on~~ the ~~applicable LIBOR margin~~Liquidity Covenant, the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio and the ~~dollar~~Capital Expenditures Covenant, (c) the aggregate revolving commitment is less than or equal to $95.0 million and (d) after giving effect to the construction or development of such new Pollo Tropical restaurant(s) on a pro forma basis, liquidity is greater than or equal to the sum of $5.0 million plus the amount of ~~outstanding letters~~minimum liquidity required on such date pursuant to the Liquidity Covenant.

The amended senior credit facility also provides that we will be required to engage a financial advisor or chief restructuring officer if we are not in compliance with certain milestones, including, among other items, (i) using commercially reasonable efforts to refinance and pay in full the obligations under the amended senior credit facility, (ii) furnishing a written assessment and reasonable action plan for the disposition of ~~credit.~~owned real property with a targeted gross value of $30.0 million and complying with such action plan, (iii) furnishing a written plan for executing certain actions intended to improve service levels, reduce costs and increase efficiency, (iv) providing a proposed timeline for completion of a shelf registration with the Securities and Exchange Commission for the issuance of common equity interests of Fiesta, (v) maintaining $30.0 million of liquidity on October 1, 2020, (vi) on or before October 1, 2020, furnishing information demonstrating compliance with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant, (vii) no default shall have occurred and (viii) compliance at all times with the Adjusted Leverage Ratio, the Fixed Charge Coverage Ratio, the Liquidity Covenant and the Capital Expenditures Covenant.

All obligations under the amended senior credit facility are ~~guaranteed~~secured by all of our material domestic subsidiaries. In general, our obligations under our senior credit facility and our subsidiaries’ obligations under the guarantees are secured by a first priority lien and security interest on substantially all of our assets ~~and the assets of our material subsidiaries~~ (including a pledge of all of the capital stock and equity interests of all our ~~material~~ subsidiaries)~~, other than certain specified assets, including real property owned by us or our subsidiaries.~~

~~The outstanding borrowings under~~ pursuant to an amended and restated security agreement. Under the amended senior credit facility, ~~are prepayable without penalty (other than~~the lenders may terminate their obligation to advance and may declare the unpaid balance of borrowings, or any part thereof, immediately due and payable upon the occurrence and during the continuance of customary ~~breakage costs). The senior credit facility requires us to comply with customary affirmative, negative and financial covenants, including,~~defaults which include, without limitation, ~~those limiting our and our subsidiaries’ ability to (i) incur~~payment default, covenant defaults, bankruptcy type defaults, defaults on other indebtedness, ~~(ii) incur liens, (iii) loan, advance,~~certain judgments or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests, (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii)upon the occurrence of a change ~~our business. In addition,~~of control (as specified in the ~~senior credit facility will require us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under the~~amended senior credit facility).

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

~~As of October 1, 2017, we~~Our amended senior credit facility matures on November 30, 2022.

On September 27, 2020, there were $39.9 million in ~~compliance with the covenants~~outstanding revolving credit borrowings under our amended senior credit facility.

After reserving ~~$4.9~~$3.5 million for letters of credit issued under ~~the~~our amended senior credit facility, ~~$84.2~~$67.5 million was available for borrowing at September 27, 2020.

Senior Credit Facility. Prior to July 10, 2020, our senior credit facility provided for aggregate revolving credit borrowings of up to $150.0 million (including up to $15.0 million available for letters of credit). Prior to July 10, 2020, the senior credit facility also provided for potential incremental increases of up to $50.0 million to the revolving credit borrowings available under the senior credit facility.

Prior to July 10, 2020, borrowings under the senior credit facility bore interest at ~~October 1, 2017.~~a per annum rate, at our option, equal to either (all terms as defined in the senior credit facility):


1)	the Alternate Base Rate plus the applicable margin of 0.75% to 1.50% based on our Adjusted Leverage Ratio, or


2)	the LIBOR Rate plus the applicable margin of 1.75% to 2.50% based on our Adjusted Leverage Ratio.

In addition, prior to July 10, 2020, the senior credit facility required us to pay (i) a commitment fee based on the applicable Commitment Fee rate of 0.25% to 0.35%, based on our Adjusted Leverage Ratio, and the unused portion of the facility and (ii) a letter of credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.

All obligations under the senior credit facility were guaranteed by all of our material domestic subsidiaries. In general, prior to July 10, 2020, our obligations under our senior credit facility and our subsidiaries' obligations under the guarantees were secured by a first priority lien and security interest on substantially all of our assets and the assets of our material subsidiaries (including a pledge of all of the capital stock and equity interests of our material subsidiaries), other than certain specified assets, including real property owned by us or our subsidiaries.

The outstanding borrowings under the senior credit facility were prepayable subject to breakage costs as defined in the senior credit facility agreement. Prior to July 10, 2020, the senior credit facility required us to comply with customary affirmative, negative and financial covenants, including, without limitation, those limiting our and our subsidiaries' ability to (i) incur indebtedness, (ii) incur liens, (iii) loan, advance, or make acquisitions and other investments or other commitments to construct, acquire or develop new restaurants (subject to certain exceptions), (iv) pay dividends, (v) redeem and repurchase equity interests (subject to certain exceptions), (vi) conduct asset and restaurant sales and other dispositions (subject to certain exceptions), (vii) conduct transactions with affiliates and (viii) change our business. In addition, prior to July 10, 2020, the senior credit facility required us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under the senior credit facility agreement).

Off-Balance Sheet Arrangements and Contractual Obligations

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

There have been no significant changes outside the ordinary course of business to our contractual obligations since ~~January 1, 2017.~~December 29, 2019. Information regarding our contractual obligations is included under "Contractual Obligations" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017.~~

December 29, 2019.

Inflation

The inflationary factors that have historically affected our results of operations include increases in food and paper costs, labor and other operating expenses and energy costs. Labor costs in our restaurants are impacted by changes in the ~~Federal~~federal and state hourly minimum wage rates as well as changes in payroll related taxes, including ~~Federal~~federal and state unemployment taxes. We typically attempt to offset the effect of inflation, at least in part, through periodic menu price increases and various cost reduction programs. However, no assurance can be given that we will be able to fully offset such inflationary cost increases in the future.

Application of Critical Accounting Policies

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in the ~~“Significant Accounting Policies”~~"Basis of Presentation" footnote in the notes to our consolidated financial statements for the year ended ~~January 1, 2017~~December 29, 2019 included in our Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017.~~December 29, 2019. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. There have been no material changes affecting our critical accounting policies for the nine months ended ~~October 1, 2017.~~September 27, 2020.

Management's Use of Non-GAAP Financial Measures

Consolidated Adjusted EBITDA is a non-GAAP financial measure. We use Consolidated Adjusted EBITDA 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 this measure is an important indicator of our operational strength and the performance of our business. Consolidated Adjusted EBITDA as calculated by us is not necessarily comparable to similarly titled measures reported by other companies, and should not be considered as an alternative to net income, earnings per share, cash 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-compensation expense and other expense (income), net. In 2017, our Board of Directors appointed a new Chief Executive Officer who initiated 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-compensation~~goodwill impairment, closed restaurant rent expense, net of sublease income, 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, ~~development~~construction and other administrative functions. See Note 67 to ~~the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.~~our unaudited condensed consolidated financial statements.

We also use Restaurant-level Adjusted EBITDA as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate, which is defined as Adjusted EBITDA for the applicable segment excluding franchise royalty revenues and fees, pre-opening costs, and general and administrative expenses (including corporate-level general and administrative expenses). ~~Restaurant-Level~~Restaurant-level Adjusted EBITDA is also a non-GAAP financial measure.

Management believes that ~~Adjusted EBITDA for our segments,~~ Consolidated Adjusted EBITDA and ~~Restaurant-Level~~Restaurant-level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and ~~Adjusted EBITDA to Restaurant-Level~~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.

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, closed restaurant rent expense, net of sublease income, other income and expense and stock-based compensation expense) have recurred and may recur.

A reconciliation from consolidated net income ~~(loss)~~ to Consolidated Adjusted EBITDA follows (in thousands):

Three Months Ended Nine Months Ended
October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016

Net income (loss) $ (8,257 ) $ (4,531 ) $ (25,477 ) $ 14,280
Provision for (benefit from) income taxes (4,827 ) (2,748 ) (14,241 ) 8,065
Income (loss) before taxes (13,084 ) (7,279 ) (39,718 ) 22,345
Add:
     Non-general and administrative expense adjustments:
          Depreciation and amortization 8,483
9,513
26,265
26,474
          Impairment and other lease charges 15,905
18,513
59,081
18,607
          Interest expense 672
542
1,910
1,635
          Other expense (income), net 461
—
1,259
(238 )
          Stock-based compensation expense in restaurant wages 9
35
44
111
          Unused pre-production costs in advertising expense⁽¹⁾
—
—
410
—
                Total Non-general and administrative expense adjustments 25,530
28,603
88,969
46,589
     General and administrative expense adjustments:
          Stock-based compensation expense 938
330
2,723
2,523
          Terminated capital project⁽²⁾
—
—
849
—
          Board and shareholder matter costs⁽³⁾
(155 ) 282
3,748
1,030
          Write-off of site development costs⁽⁴⁾
8
581
462
877
          Plan restructuring costs and retention bonuses⁽⁵⁾
87
—
2,101
—
          Office restructuring and relocation costs⁽⁶⁾
(152 ) 193
(152 ) 539
          Legal settlements and related costs⁽⁷⁾
—
834
(473 ) 459
               Total General and administrative expense adjustments 726
2,220
9,258
5,428
Consolidated Adjusted EBITDA: $ 13,172
$ 23,544
$ 58,509
$ 74,362



	Three Months Ended						Nine Months Ended
	September 27, 2020			September 29, 2019			September 27, 2020			September 29, 2019

Net income (loss)	$	4,593		$	(22,182	)	$	(11,067	)	$	(63,333	)
Benefit from income taxes	(4,155		)	(2,946		)	(8,903		)	(1,377		)
Income (loss) before income taxes	438			(25,128		)	(19,970		)	(64,710		)
Add:
Non-general and administrative expense adjustments:
Depreciation and amortization	9,432			10,165			28,427			29,520
Impairment and other lease charges	2,404			3,254			8,922			4,667
Goodwill impairment	—			21,424			—			67,909
Interest expense	1,172			823			3,370			3,024
Closed restaurant rent expense, net of sublease income	1,481			726			4,943			3,485
Loss on extinguishment of debt	212			—			212			—
Other expense (income), net	(1,304		)	64			388			920
Stock-based compensation expense in restaurant wages	47			102			152			145
Total non-general and administrative expense adjustments	13,444			36,558			46,414			109,670
General and administrative expense adjustments:
Stock-based compensation expense	597			509			2,332			1,993
Restructuring costs and retention bonuses⁽¹⁾	216			—			1,107			964
Digital and brand repositioning costs⁽²⁾	98			215			448			215
Total general and administrative expense adjustments	911			724			3,887			3,172
Consolidated Adjusted EBITDA	$	14,793		$	12,154		$	30,331		$	48,132
Total revenues	$	137,332		$	164,248		$	405,899		$	501,481
Adjusted EBITDA as a percentage of total revenues	10.8		%	7.4		%	7.5		%	9.6		%

⁽¹⁾~~Unused pre-production costs for the nine months ended October 1, 2017, include costs for advertising pre-production that will not be used.~~

⁽²⁾~~Terminated capital project costs for the nine months ended October 1, 2017, include costs related to the write-off of a capital project that was terminated in the first quarter.~~

⁽³⁾Board and shareholder matter costs for the three and nine months ended October 1, 2017, include fees related to shareholder activism and CEO and board member searches. Board and shareholder matter costs for the three and nine months ended October 2, 2016, primarily include fees related to the previously proposed and terminated separation transaction.

⁽⁴⁾~~Write-off of site development costs for the three and nine months ended October 1, 2017 and October 2, 2016, includes the write-off of site costs related to locations that we decided not to develop.~~

⁽⁵⁾Plan restructuring costs and retention bonuses for the three and nine months ended October 1, 2017, include severance related to the Plan and reduction in force and bonuses paid to certain employees for retention purposes.

⁽⁶⁾~~Office restructuring and relocation costs for the three and nine months ended October 1, 2017~~ ~~and~~ ~~October 2, 2016, include severance and relocation costs and adjustments associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.~~

⁽⁷⁾~~Legal settlements and related costs for the nine months ended October 1, 2017 and the three and nine months ended October 2, 2016, include benefits related to litigation matters.~~

Restructuring costs and retention bonuses for the three and nine months ended September 27, 2020 include severance costs related to terminations in response to the COVID-19 pandemic. Restructuring costs and retention bonuses for the three and nine months ended September 29, 2019 primarily include severance costs related to eliminated positions.


⁽²⁾	Digital and brand repositioning costs for the three and nine months ended September 27, 2020 and September 29, 2019 include consulting costs related to repositioning the digital experience for our customers.

A reconciliation from Adjusted EBITDA to ~~Restaurant-Level~~Restaurant-level Adjusted EBITDA follows (in thousands):

Three Months Ended Pollo Tropical Taco Cabana
October 1, 2017:
Adjusted EBITDA: $ 9,396
$ 3,776
Restaurant-Level Adjustments:
          Add: Pre-opening costs 230
314
          Add: Other general and administrative expense⁽¹⁾
6,250
5,089
          Less: Franchise royalty revenue and fees 396
195
Restaurant-Level Adjusted EBITDA: $ 15,480
$ 8,984

October 2, 2016:
Adjusted EBITDA: $ 13,782
$ 9,762
Restaurant-Level Adjustments:
          Add: Pre-opening costs 1,456
53
          Add: Other general and administrative expense⁽¹⁾
7,213
5,087
          Less: Franchise royalty revenue and fees 474
190
Restaurant-Level Adjusted EBITDA: $ 21,977
$ 14,712

Nine Months Ended Pollo Tropical Taco Cabana
October 1, 2017:
Adjusted EBITDA: $ 41,257
$ 17,252
Restaurant-Level Adjustments:
          Add: Pre-opening costs 1,013
865
          Add: Other general and administrative expense⁽¹⁾
21,345
16,610
          Less: Franchise royalty revenue and fees 1,272
568
Restaurant-Level Adjusted EBITDA: $ 62,343
$ 34,159

October 2, 2016:
Adjusted EBITDA: $ 43,832
$ 30,530
Restaurant-Level Adjustments:
          Add: Pre-opening costs 4,365
342
          Add: Other general and administrative expense⁽¹⁾
22,208
14,985
          Less: Franchise royalty revenue and fees 1,559
540
Restaurant-Level Adjusted EBITDA: $ 68,846
$ 45,317



Three Months Ended	Pollo Tropical			Taco Cabana
September 27, 2020:
Adjusted EBITDA	$	10,621		$	4,172
Restaurant-level adjustments:
Add: Pre-opening costs	—			—
Add: Other general and administrative expense⁽¹⁾	6,145			4,799
Less: Franchise royalty revenue and fees	336			177
Restaurant-level Adjusted EBITDA	$	16,430		$	8,794
Restaurant sales	$	77,604		$	59,215
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	21.2		%	14.9		%

September 29, 2019:
Adjusted EBITDA	$	10,980		$	1,174
Restaurant-level adjustments:
Add: Pre-opening costs	68			9
Add: Other general and administrative expense⁽¹⁾	7,135			5,961
Less: Franchise royalty revenue and fees	432			227
Restaurant-level Adjusted EBITDA	$	17,751		$	6,917
Restaurant sales	$	88,309		$	75,280
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	20.1		%	9.2		%

Nine Months Ended	Pollo Tropical			Taco Cabana
September 27, 2020:
Adjusted EBITDA	$	24,394		$	5,937
Restaurant-level adjustments:
Add: Pre-opening costs	—			69
Add: Other general and administrative expense⁽¹⁾	18,694			15,946
Less: Franchise royalty revenue and fees	886			561
Restaurant-level Adjusted EBITDA	$	42,202		$	21,391
Restaurant sales	$	226,617		$	177,835
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	18.6		%	12.0		%

September 29, 2019:
Adjusted EBITDA	$	39,943		$	8,189
Restaurant-level adjustments:
Add: Pre-opening costs	307			556
Add: Other general and administrative expense⁽¹⁾	21,427			17,788
Less: Franchise royalty revenue and fees	1,325			673
Restaurant-level Adjusted EBITDA	$	60,352		$	25,860
Restaurant sales	$	271,955		$	227,528
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales	22.2		%	11.4		%

⁽¹⁾ Excludes general and administrative adjustments included in Adjusted EBITDA.

Forward Looking Statements

~~This Quarterly Report~~Matters discussed in this report and in our public disclosures, whether written or oral, relating to future events or our future performance, including any discussion, express or implied, regarding our anticipated growth, operating results, future earnings per share, plans, objectives, the impact of our other business initiatives, the impact of our initiatives designed to strengthen our liquidity and cash position, including those related to working capital efficiency initiatives and sales of real property and the impact of the recent COVID-19 outbreak and our initiatives designed to respond to the COVID-19 outbreak on ~~Form 10-Q contains “forward-looking”~~future sales, margins, earnings and liquidity, contain 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”~~amended, (the "Exchange Act"). These statements are ~~any statements~~often identified by the words "believe," "positioned," "estimate," "project," "plan," "goal," "target," "assumption," "continue," "intend," "expect," "future," "anticipate," and other similar expressions, whether in the negative or the affirmative, 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 offact. These 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~~that are difficult to ~~predict. Therefore, actual outcomes~~predict, and ~~results may differ materially from what is expressed or forecasted in such~~you should not place undue reliance on our forward-looking ~~statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause~~statements. Our actual results toand the timing of certain events could differ materially from those ~~expressed or implied by the~~anticipated in these forward-looking statements ~~or “cautionary statements,” include,~~as a result of certain factors, including, but ~~are~~ not limited ~~to:~~

~~Increases~~to, those set forth under "Risk Factors" and elsewhere in ~~food~~this report and in our other ~~commodity costs;~~

~~Risks associated~~public filings with ~~the expansion of our business, including increasing real estate and construction costs;~~

~~Risks associated with food borne illness or other food safety issues, including negative publicity through traditional~~

~~and social media;~~

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

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

~~Cyber security breaches;~~

~~General economic conditions, particularly in the retail sector;~~

~~Competitive conditions;~~

~~Weather conditions;~~

~~Significant disruptions in service or supply by any of our suppliers or distributors;~~

~~Increases in employee injury and general liability claims;~~

~~Changes in consumer perception of dietary health and food safety;~~

~~Regulatory factors;~~

~~Fuel prices;~~

~~The outcome of pending or future legal claims or proceedings;~~

~~Environmental conditions and regulations;~~

~~Our borrowing costs;~~

~~The availability and terms of necessary or desirable financing or refinancing and other related risks and uncertainties;~~

~~The risk of an act of terrorism or escalation of any insurrection or armed conflict involving~~ the United States Securities and Exchange Commission ("SEC"). All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this report or other periodic reports represent our estimates as of the date made and should not be relied upon as representing our estimates as of any ~~other national~~subsequent date. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or ~~international calamity; and~~otherwise.

~~Factors that affect the restaurant industry generally, including product recalls, liability if our products cause injury, ingredient disclosure and labeling laws and regulations.~~

ITEM 3—3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

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

There were no material changes from the information presented in Item 7A included in our Annual Report on Form 10-K for the year ended ~~January 1, 2017~~December 29, 2019 with respect to our market risk sensitive instruments.

ITEM 4—4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our senior management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~"Exchange Act")), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~October 1, 2017.~~September 27, 2020.

Changes in Internal Control over Financial Reporting.No change occurred in our internal control over financial reporting during the third quarter of ~~2017~~2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART ~~II—~~II. OTHER INFORMATION

Item 1. Legal Proceedings

~~None.~~We are a party to various litigation matters incidental to the conduct of 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 1A. Risk Factors

Part ~~1 -~~ 1—Item 1A of our Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017~~December 29, 2019, describes important factors that could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time-to-time. ~~There~~The Company's risk factor disclosure has been updated to add the following:

Pandemics or disease outbreaks, such as the current novel coronavirus (COVID-19 virus) pandemic may disrupt our business, which could materially affect our operations and results of operations.

Pandemics or disease outbreaks such as the current novel coronavirus (COVID-19 virus) pandemic, have ~~been no material~~and may continue to impact customer traffic at our restaurants, may make it more difficult to staff our restaurants and, in more severe cases, may cause a temporary inability to obtain supplies, increase commodity costs or cause full and partial closures of our affected restaurants, sometimes for prolonged periods of time. We have temporarily shifted to a "to-go" only operating model at many of our Pollo Tropical and Taco Cabana restaurants in Florida and Texas, suspending sit-down dining and serving our guests through take-out, drive-thru and delivery. We have also implemented closures, modified hours or reductions in on-site staff, resulting in canceled

shifts for some of our employees. COVID-19 may also materially adversely affect our ability to implement our growth plans, including delays in construction of new restaurants. These changes ~~from~~and any additional changes may materially adversely affect our business or results of operations, and may impact our liquidity or financial condition, particularly if these changes are in place for a significant amount of time. In addition, our operations could be disrupted if any of our employees or employees of our business partners were or are suspected of having COVID-19 or other illnesses since this could require us or our business partners to quarantine some or all such employees or close and disinfect our restaurant facilities. If a significant percentage of our workforce or the workforce of our business partners are unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks (including the current COVID-19 pandemic), our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations. Furthermore, such viruses may be transmitted through human contact, and the risk ~~factors previously disclosed~~of contracting viruses could cause employees or guests to avoid gathering in public places, which has had, and could further have, adverse effects on our ~~Annual Report~~restaurant guest traffic or the ability to adequately staff restaurants, in addition to the measures we have already taken with respect to moving to "to-go" only operations. We could also be adversely affected if government authorities continue to impose additional restrictions on ~~Form 10-K for~~public gatherings, human interactions, operations of restaurants or mandatory closures, seek voluntary closures, restrict hours of operations or impose curfews, restrict the ~~fiscal year ended January 1, 2017.~~import or export of products or if suppliers issue mass recalls of products. Currently, several states and municipalities in the U.S. and abroad have temporarily placed restrictions on the operation of dining in at restaurants in light of changing conditions and infection rates with respect to COVID-19, including in Dade and Broward Counties, Florida and various municipalities in Texas. Additional regulation or requirements with respect to the compensation of our employees could also have an adverse effect on our business. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business, liquidity, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None~~None.

Item 3. Defaults Upon Senior Securities

~~None~~None.

Item 4. Mine Safety Disclosures

Not ~~applicable~~applicable.

Item 5. Other Information

~~None~~On November 3, 2020, the Compensation Committee (the "Committee") of the Company awarded special one-time retention awards of restricted common stock of the Company pursuant to the Company's 2012 Stock Incentive Plan, as amended (the "Plan") to certain of its executive officers, including Richard Stockinger, the Company's Chief Executive Officer and President, Dirk Montgomery, the Company's Senior Vice President, Chief Financial Officer and Treasurer and Louis DiPietro, the Company's Senior Vice President, General Counsel, Chief Legal and People Officer and Secretary (the "Grants"). The Grants provide that each recipient shall receive restricted common stock of the Company equal to one and a half times of each recipient's annual base salary on November 11, 2020 (the "Grant Date") valued at the closing market price of the Company's common stock on the Grant Date. The Grants will vest in their entirety on the second anniversary of the Grant Date. As a condition to the issuance of the Grants, certain recipients were required to enter into an agreement to not compete with the Company for a period ending one year after such recipient's termination of employment with the Company.

Item 6. Exhibits

(a) The following exhibits are filed as part of this report.




Exhibit No.

~~10.1~~		~~Agreement dated as of October 12, 2017 between Charles Locke and Fiesta Restaurant Group, Inc.+~~

31.1		Chief Executive ~~Officer’s~~Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

31.2		Chief Financial ~~Officer’s~~Officer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.1		Chief Executive ~~Officer’s~~Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

32.2		Chief Financial ~~Officer’s~~Officer's Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.

101.INS		XBRL Instance ~~Document~~Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+ Compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	FIESTA RESTAURANT GROUP, INC.

Date: November ~~6, 2017~~4, 2020	/S/s/ RICHARD C. STOCKINGER
	(Signature)
	Richard C. Stockinger Chief Executive Officer

Date: November ~~6, 2017~~4, 2020	/S~~/ LYNN S. SCHWEINFURTH~~ s/ DIRK MONTGOMERY
	(Signature)
	~~Lynn S. Schweinfurth~~ Dirk Montgomery Senior Vice President, Chief Financial Officer and Treasurer

Date: November ~~6, 2017~~4, 2020	/S/s/ CHERI L. KINDER
	(Signature)
	Cheri L. Kinder Vice President, Corporate Controller and Chief Accounting Officer

4546



Pollo Tropical:
Decrease in comparable restaurant sales	$	(22.3	)
Decrease in sales related to closed restaurants, net of new restaurants	(0.3		)
Total decrease	$	(22.6	)

Taco Cabana:
Decrease in comparable restaurant sales	$	(16.5	)
Incremental sales related to new restaurants, net of closed restaurants	5.8
Total decrease	$	(10.7	)