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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, 2017July 3, 2022
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35373 

FIESTA RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)

DelawareDE90-0712224
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
14800 Landmark Boulevard, Suite 500
Dallas, Texas
75254
DallasTX(Zip Code)
(Address of principal executive office)(Zip Code)
Registrant’sRegistrant's telephone number, including area code: (972) 702-9300

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareFRGINASDAQ 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☒
Large accelerated filerNon-accelerated Filerý☐Accelerated filerSmaller Reporting Company¨☒
Non-accelerated filer
¨ (Do not check if smaller reporting company)
Emerging Growth Company
Smaller reporting company¨
Emerging growth company¨☐

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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. ¨☐

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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,August 5, 2022, Fiesta Restaurant Group, Inc. had 27,087,09425,995,285 shares of its common stock, $.01$0.01 par value, outstanding.

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 1, 2017JULY 3, 2022
 
Page
PART I   FINANCIAL INFORMATION
Page
PART I   FINANCIAL INFORMATION
Item 1
��
Condensed Consolidated Balance Sheets as of October 1, 2017July 3, 2022 and January 1, 20172, 2022
42
Condensed Consolidated Statements of Operations for the Three and Nine Six Months Ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021
53
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Nine Three and Six Months Ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021
64
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021
75
Notes to Unaudited Condensed Consolidated Financial Statements
86
Item 2
2116
Item 3
4232
Item 4
4232
Item 1
4232
Item 1A
4232
Item 2
4232
Item 3
4232
Item 4
4233
Item 5
4333
Item 6
4434


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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)
July 3, 2022January 2, 2022
ASSETS
Current assets:
Cash$39,262 $36,797 
Restricted cash3,631 3,837 
Accounts receivable5,777 6,223 
Inventories2,527 2,524 
Prepaid rent109 109 
Income tax receivable2,777 3,846 
Prepaid expenses and other current assets7,812 5,706 
Total current assets61,895 59,042 
Property and equipment, net85,506 89,884 
Operating lease right-of-use assets150,423 154,127 
Goodwill56,307 56,307 
Deferred tax assets175 — 
Other assets6,385 7,753 
Total assets$360,691 $367,113 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt$69 $63 
Accounts payable14,653 12,342 
Accrued payroll, related taxes and benefits8,198 8,475 
Accrued real estate taxes2,956 1,630 
Other current liabilities18,800 18,032 
Total current liabilities44,676 40,542 
Long-term debt, net of current portion397 438 
Operating lease liabilities158,876 163,270 
Deferred tax liabilities— 229 
Other non-current liabilities7,669 7,763 
Total liabilities211,618 212,242 
Commitments and contingencies00
Stockholders' equity:
Preferred stock, $0.01 par value; 20,000,000 shares authorized, no shares issued— — 
Common stock, $0.01 par value; 100,000,000 shares authorized, 28,858,749 and 28,445,812 shares issued, respectively, and 24,971,073 and 24,829,002 shares outstanding, respectively278 277 
Additional paid-in capital184,628 182,686 
Retained earnings (accumulated deficit)(5,534)2,043 
Treasury stock, at cost; 2,862,538 and 2,847,792 shares, respectively(30,299)(30,135)
Total stockholders' equity149,073 154,871 
Total liabilities and stockholders' equity$360,691 $367,113 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
 October 1, 2017 January 1, 2017
ASSETS   
Current assets:   
Cash$4,244
 $4,196
Trade receivables8,864
 8,771
Inventories2,552
 2,865
Prepaid rent3,335
 3,575
Income tax receivable3,689
 3,304
Prepaid expenses and other current assets8,534
 4,231
Total current assets31,218
 26,942
Property and equipment, net227,686
 270,920
Goodwill123,484
 123,484
Deferred income taxes31,263
 14,377
Other assets4,146
 5,842
Total assets$417,797
 $441,565
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Current portion of long-term debt$96
 $89
Accounts payable19,126
 16,165
Accrued payroll, related taxes and benefits11,535
 12,275
Accrued real estate taxes6,881
 6,924
Other liabilities21,116
 11,316
Total current liabilities58,754
 46,769
Long-term debt, net of current portion62,350
 71,423
Lease financing obligations—
 1,664
Deferred income—sale-leaseback of real estate24,365
 27,165
Other liabilities30,836
 30,369
Total liabilities176,305
 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 capital166,044
 163,204
Retained earnings75,180
 100,704
Total stockholders' equity241,492
 264,175
Total liabilities and stockholders' equity$417,797
 $441,565

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINESIX MONTHS ENDED OCTOBER 1, 2017JULY 3, 2022 AND OCTOBER 2, 2016JULY 4, 2021
(In thousands, of dollars, except share and per share amounts)data)
(Unaudited)
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Revenues:
Restaurant sales$98,023 $90,764 $193,223 $178,604 
Franchise royalty revenues and fees464 391 873 766 
Total revenues98,487 91,155 194,096 179,370 
Costs and expenses:
Cost of sales32,580 27,558 63,327 54,859 
Restaurant wages and related expenses (including stock-based compensation expense of $6, $15, $13 and $31, respectively)24,583 21,901 48,157 42,240 
Restaurant rent expense5,976 5,824 12,003 11,701 
Other restaurant operating expenses16,755 14,215 33,405 27,520 
Advertising expense3,245 2,898 6,109 5,273 
General and administrative (including stock-based compensation expense of $1,388, $1,046, $2,011 and $2,040, respectively)12,791 11,050 25,133 21,716 
Depreciation and amortization5,232 4,875 10,346 9,963 
Impairment and other lease charges (recoveries)2,110 (202)1,408 (254)
Closed restaurant rent expense, net of sublease income401 966 781 1,716 
Other expense (income), net83 170 134 293 
Total operating expenses103,756 89,255 200,803 175,027 
Income (loss) from operations(5,269)1,900 (6,707)4,343 
Interest expense85 61 170 122 
Income (loss) from continuing operations before taxes(5,354)1,839 (6,877)4,221 
Provision for (benefit from) income taxes1,134 (841)912 2,236 
Income (loss) from continuing operations(6,488)2,680 (7,789)1,985 
Income (loss) from discontinued operations, net of tax267 (2,763)212 (4,157)
Net loss$(6,221)$(83)$(7,577)$(2,172)
Earnings (loss) per common share:
Continuing operations – basic$(0.26)$0.11 $(0.31)$0.07 
Discontinued operations – basic0.01 (0.11)0.01 (0.16)
Basic$(0.25)$— $(0.30)$(0.09)
Continuing operations – diluted$(0.26)$0.11 $(0.31)$0.07 
Discontinued operations – diluted0.01 (0.11)0.01 (0.16)
Diluted$(0.25)$— $(0.30)$(0.09)
Weighted average common shares outstanding:
Basic24,946,674 25,496,038 24,889,650 25,410,123 
Diluted24,946,674 25,496,038 24,889,650 25,410,783 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
 Three Months Ended Nine Months Ended
Revenues:October 1, 2017 October 2, 2016 October 1, 2017 October 2, 2016
Restaurant sales$158,100
 $181,592
 $505,082
 $538,366
Franchise royalty revenues and fees591
 664
 1,840
 2,099
Total revenues158,691
 182,256
 506,922
 540,465
Costs and expenses:       
Cost of sales49,151
 54,726
 150,827
 163,383
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 rent expense9,104
 9,488
 27,881
 27,522
Other restaurant operating expenses24,856
 25,715
 73,560
 72,366
Advertising expense5,885
 7,506
 17,716
 21,507
General and administrative (including stock-based compensation expense of $938, $330, $2,723 and $2,523, respectively)12,065
 14,520
 47,213
 42,621
Depreciation and amortization8,483
 9,513
 26,265
 26,474
Pre-opening costs544
 1,509
 1,878
 4,707
Impairment and other lease charges15,905
 18,513
 59,081
 18,607
Other expense (income), net461
 —
 1,259
 (238)
Total operating expenses171,103
 188,993
 544,730
 516,485
Income (loss) from operations(12,412) (6,737) (37,808) 23,980
Interest expense672
 542
 1,910
 1,635
Income (loss) before income taxes(13,084) (7,279) (39,718) 22,345
Provision for (benefit from) income taxes(4,827) (2,748) (14,241) 8,065
Net income (loss)$(8,257) $(4,531) $(25,477) $14,280
Basic net income (loss) per share$(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 outstanding26,845,568
 26,716,219
 26,811,610
 26,658,739
Diluted weighted average common shares outstanding26,845,568
 26,716,219
 26,811,610
 26,665,091

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINETHREE AND SIX MONTHS ENDED OCTOBER 1, 2017JULY 3, 2022 AND OCTOBER 2, 2016JULY 4, 2021
(In thousands, of dollars, except share amounts)data) 
(Unaudited)

Common StockAdditional
Paid-In
Capital		Retained
Earnings
(Accumulated Deficit)		Treasury
Stock		Total
Stockholders'
Equity
SharesAmount
Balance at January 3, 202125,293,149 $273 $176,614 $(8,327)$(20,779)$147,781 
Stock-based compensation— — 1,163 — — 1,163 
Vesting of restricted shares109,528 1 (1)— — — 
Net loss— — — (2,089)— (2,089)
Balance at April 4, 202125,402,677 274 177,776 (10,416)(20,779)146,855 
Stock-based compensation— — 1,241 — — 1,241 
Vesting of restricted shares126,791 1 (1)— — — 
Net loss— — — (83)— (83)
Balance at July 4, 202125,529,468 $275 $179,016 $(10,499)$(20,779)$148,013 
Balance at January 2, 202224,829,002 $277 $182,686 $2,043 $(30,135)$154,871 
Stock-based compensation— — 549 — — 549 
Vesting of restricted shares66,372 — — — — — 
Purchase of treasury stock(14,746)— — — (164)(164)
Net loss— — — (1,356)— (1,356)
Balance at April 3, 202224,880,628 277 183,235 687 (30,299)153,900 
Stock-based compensation— — 1,394 — — 1,394 
Vesting of restricted shares90,445 1 (1)— — — 
Net loss— — — (6,221)— (6,221)
Balance at July 3, 202224,971,073 $278 $184,628 $(5,534)$(30,299)$149,073 



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
 Number of
Common
Stock Shares		 Common
Stock		 Additional
Paid-In
Capital		 Retained
Earnings		 Total
Stockholders'
Equity
Balance at January 3, 201626,571,602
 $266
 $159,724
 $83,992
 $243,982
Stock-based compensation—
 —
 2,634
 —
 2,634
Vesting of restricted shares174,410
 1
 (1) —
 —
Tax deficiency from stock-based compensation    (9)   (9)
Net income—
 —
 —
 14,280
 14,280
Balance at October 2, 201626,746,012
 $267
 $162,348
 $98,272
 $260,887
          
Balance at January 1, 201726,755,640
 $267
 $163,204
 $100,704
 $264,175
Stock-based compensation—
 —
 2,767
 —
 2,767
Vesting of restricted shares91,169
 1
 

 —
 1
Cumulative effect of adopting a new accounting standard (Note 1)    73
 (47) 26
Net loss—
 —
 —
 (25,477) (25,477)
Balance at October 1, 201726,846,809
 $268
 $166,044
 $75,180
 $241,492

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FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINESIX MONTHS ENDED OCTOBER 1, 2017JULY 3, 2022 AND OCTOBER 2, 2016JULY 4, 2021
(In thousands of dollars)thousands)
(Unaudited)
Six Months Ended
July 3, 2022July 4, 2021
Operating activities:
Net loss$(7,577)$(2,172)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on disposals of property and equipment, net— (285)
Stock-based compensation1,943 2,404 
Impairment and other lease charges (recoveries)1,408 40 
Depreciation and amortization10,346 17,762 
Amortization of deferred financing costs40 400 
Deferred income taxes(404)(975)
Changes in other operating assets and liabilities4,940 4,342 
Net cash provided by operating activities10,696 21,516 
Investing activities:
Capital expenditures:
Restaurant remodeling(3,311)(1,237)
Other restaurant capital expenditures(3,895)(6,458)
Corporate and restaurant information systems(1,239)(1,374)
Total capital expenditures(8,445)(9,069)
Proceeds from disposals of properties— 1,307 
Proceeds from insurance recoveries203 — 
Proceeds from sale-leaseback transactions— 3,083 
Net cash used in investing activities(8,242)(4,679)
Financing activities:
Repayment of secured debt— (375)
Principal payments on finance leases(31)(154)
Payments to purchase treasury stock(164)— 
Net cash used in financing activities(195)(529)
Net change in cash and restricted cash2,259 16,308 
Cash and restricted cash, beginning of period40,634 53,362 
Cash and restricted cash of discontinued operations, beginning of period— 257 
Cash and restricted cash of discontinued operations, end of period— (260)
Cash and restricted cash, end of period$42,893 $69,667 
 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 equipment1,020
 178
Stock-based compensation2,767
 2,634
Impairment and other lease charges59,081
 18,607
Depreciation and amortization26,265
 26,474
Amortization of deferred financing costs231
 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 liabilities3,355
 13,400
Net cash provided from operating activities47,653
 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 facility7,000
 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 cash48
 (419)
Cash, beginning of period4,196
 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
 $—

The accompanying notes are an integral part of these unaudited condensed consolidated unaudited financial statements.
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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 restaurant brandsPollo Tropical restaurants through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, Pollo Franchise, Inc. (collectively “Pollo Tropical”"Pollo Tropical"). Fiesta owned, operated and franchised Taco Cabana restaurants through its wholly-owned subsidiary, Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”"Taco Cabana"). through August 15, 2021. 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,July 3, 2022, the Company owned and operated 149138 Pollo Tropical® restaurants and 168 Taco Cabana® restaurants. The Pollo Tropical restaurants included 136 located in Florida and 13 located in Georgia. The Taco Cabana restaurants included 167 located in Texas and one located in Oklahoma. At October 1, 2017, the Company franchised a total of 3229 Pollo Tropical restaurants and seven Taco Cabana restaurants. The franchised Pollo Tropical restaurants includedinclude 17 in Puerto Rico, one2 in Panama, 1 in Guyana, 1 in Ecuador, 1 in the Bahamas, two in Guyana, one in Venezuela, four in Panama, one in Honduras, and six on college campuses and at a hospital in Florida. The franchised Taco Cabana restaurants included five in New Mexico and two4 on college campuses in Texas.Florida, and locations at 1 hospital and 2 sports and entertainment stadiums in Florida. The Company operates its business as one operating and reportable segment.
Discontinued Operations. On July 1, 2021, the Company entered into a stock purchase agreement for the sale of Taco Cabana, Inc. and its subsidiaries (collectively "Taco Cabana"). On August 16, 2021, the Company completed the sale of Taco Cabana. The Company has classified the revenues, costs and expenses and income taxes attributable to the Taco Cabana business segment, together with certain costs related to the transaction, within income (loss) from discontinued operations, net of tax, on the condensed consolidated statements of operations for all periods presented. See Note 2—Dispositions. Unless otherwise noted, amounts and disclosures throughout these notes to the condensed consolidated financial statements relate to the Company's continuing operations.
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 52-5352–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 1, 20172, 2022 contained 52 weeks. The three and ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021 each contained thirteen and thirty-ninetwenty-six weeks, respectively. The fiscal year ending December 31, 2017January 1, 2023 will contain 52 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021 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 ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021 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, 20172, 2022 included in the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022. The January 1, 20172, 2022 balance sheet data is derived from those audited financial statements.
Reclassification. Certain prior period balances have been reclassified to conform to the current period presentation in the accompanying notes to the condensed consolidated financial statements.
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 aton the measurement date under current market conditions. In determining fair value, the accounting standards establish a three levelthree-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
6
FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share data)


liabilities; and Level 3 inputs are unobservable and reflect ourmanagement'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 condensed consolidated balance sheets of cash and restricted cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
•
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. There were no outstanding revolving credit borrowings under the Company's senior credit facility as of July 3, 2022 and January 2, 2022.
See Note 4 for discussion of the fair value measurement of non-financial assets.
•
Revolving Credit Borrowings. The fair value of outstanding revolving credit borrowings under the Company's senior credit facility, which is considered Level 2, is based on current LIBOR rates. The fair value and carrying value of the Company's senior credit facility were approximately $60.9 million at October 1, 2017 and $69.9 million at January 1, 2017.
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 whenwhenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. See Note 3.4—Impairment of Long-Lived Assets and Other Lease Charges (Recoveries).
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.
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements. Estimates also affect the reported amounts of expenses during the reporting periods. Significant items subject to such estimates and assumptions include: accrued occupancy costs,insurance liabilities, evaluation for impairment of goodwill and long-lived assets, lease accounting matters, and deferred income tax assets. Actual results could differ from those estimates. Due to the uncertainty associated with the unprecedented nature of the COVID-19 pandemic and the impact it will have on the Company's 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.

2. Dispositions
On June 30, 2021, the Company's Board of Directors approved a stock purchase agreement, which was subsequently entered into by the Company on July 1, 2021, for the sale of all of the outstanding capital stock of Taco Cabana, Inc., including nearly all related assets and liabilities, for a cash purchase price of $85.0 million subject to reduction for (i) closing adjustments of approximately $4.6 million and (ii) certain other working capital adjustments as set forth in the stock purchase agreement. The transaction was completed August 16, 2021.
8
7
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 Company filed an insurance liabilities, evaluationclaim for impairment of goodwill and long-lived assets and lease accounting matters. Actual results could differ from those estimates.
Guidance Adoptedwinter storm damages in 2017. In March 2016, the Financial Accounting Standards Board issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), to simplify various aspects of the accounting and presentation of share-based payments, including the income tax effects of awards and forfeiture assumptions. In the first quarter of 2017, the Company prospectively adopted the amendments in this guidanceTexas that relate to the classification of excess tax benefits or tax benefit deficiencies from share-based payment arrangements 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 earningsoccurred in the first quarter of 20172021 and retained the right to receive the insurance claim proceeds. The Company recognized $0.4 million of insurance proceeds within income (loss) from discontinued operations, net of tax, in the second quarter of 2022 and $0.9 million of insurance proceeds in the fourth quarter of 2021, and expects to recognize any additional proceeds when the claim is ultimately resolved.
All revenues, costs and expenses and income taxes attributable to Taco Cabana, together with certain costs related to the transaction, have been aggregated within income (loss) from discontinued operations, net of tax, in the condensed consolidated statements of operations for all periods presented. No amounts for shared general and administrative operating support expense were allocated to discontinued operations. Depreciation and amortization related to Taco Cabana property and equipment and lease ROU assets was not recorded after June 30, 2021 when Taco Cabana was classified as held for sale. As required by the terms of the senior credit facility, the net proceeds from the sale were used to fully repay Fiesta's outstanding term loan borrowings on August 16, 2021. The early repayment was subject to a 103% loan prepayment premium. Interest expense and amortization of discount and debt issuance costs related to the term loan portion of the senior credit facility are included within income (loss) from discontinued operations, net of tax.
Upon completion of the sale of Taco Cabana, the Company provided certain services to Taco Cabana subject to a transition services agreement which expired on December 13, 2021. The Company retained certain closed Taco Cabana restaurant leases, including the associated operating lease right-of-use assets and operating lease liabilities. The Company also retained liability for Taco Cabana's accrued worker's compensation and general liability claims for periods prior to the sale. These liabilities are recognized in other current liabilities and other non-current liabilities in the condensed consolidated balance sheets. As there are estimates and assumptions inherent in recording these insurance liabilities, including the ability to estimate the future development of incurred claims based on historical trends or the severity of the claims, differences between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.
During the three and six months ended July 3, 2022, the Company recognized $0.4 million and $0.2 million of adoptingincome, respectively, primarily related to insurance proceeds and slightly offset by expenses related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the standard.condensed consolidated statement of operations. Additionally, during the six months ended July 3, 2022, the Company recognized a reduction of stock-based compensation of $(0.1) million within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. A summary of the results of the discontinued operations for the three and six months ended July 4, 2021 is as follows:
Three Months EndedSix Months Ended
July 4, 2021July 4, 2021
Major classes of line items constituting pretax loss of discontinued operations:
Revenues:
Total revenues$66,352 $122,876 
Costs and expenses:
Cost of sales18,823 34,608 
Restaurant wages and related expenses (including stock-based compensation expense of $24 and $50, respectively)20,640 38,345 
Restaurant rent expense5,657 11,413 
Other restaurant operating expenses10,459 19,450 
General and administrative (including stock-based compensation expense of $156 and $283, respectively)4,089 7,991 
Depreciation and amortization3,961 7,799 
Other income and expense items that are not major2,658 4,381 
Total operating expenses66,287 123,987 
Income (loss) from operations65 (1,111)
Interest expense1,906 3,868 
Loss from discontinued operations before income taxes(1,841)(4,979)
Provision for (benefit from) income taxes922 (822)
Loss from discontinued operations, net of tax$(2,763)$(4,157)
8
FIESTA RESTAURANT GROUP, INC.
2.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share data)



A summary of significant investing activity and non-cash operating, investing, and financing activity of the discontinued operations for the six months ended July 4, 2021 is as follows:
Six Months Ended
July 4, 2021
Non-cash operating activities:
Gain on disposals of property and equipment, net$(290)
Stock-based compensation333 
Impairment and other lease charges294 
Depreciation and amortization7,799 
Investing activities:
Capital expenditures:
New restaurant development$— 
Restaurant remodeling(645)
Other restaurant capital expenditures(2,708)
Corporate and restaurant information systems(110)
Total capital expenditures(3,463)
Proceeds from disposals of properties1,307 
Proceeds from sale-leaseback transactions3,083 
Net cash provided by investing activities – discontinued operations$927 
Supplemental cash flow disclosures:
Interest paid on long-term debt$3,356 
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures$1,692 
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets5,156 
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets2,194 
Operating lease liabilities2,795 

3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
July 3, 2022January 2, 2022
Prepaid contract expenses$4,685 $4,462 
Other3,127 1,244 
$7,812 $5,706 
 October 1, 2017 January 1, 2017
Prepaid contract expenses$3,455
 $2,089
Assets held for sale(1)
2,705
 —
Other2,374
 2,142
 $8,534
 $4,231

9
FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share data)

(1) See Note 3.
3.4. Impairment of Long-Lived Assets and Other Lease Charges (Recoveries)
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’smanagement'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’srestaurant'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’srestaurant'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’sasset 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 onof long-lived assets and other lease charges recorded by segment(recoveries) 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 Cabana2,176
 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)
(In thousands of dollars, except share and per share amounts)


closed all Pollo Tropical locations in Dallas-Fort Worth and Austin, Texas, and Nashville, Tennessee during the second quarter of 2017. In September 2017, due to the ongoing uncertainty created in south Texas by Hurricane Harvey, limited awareness of the Pollo Tropical brand and overhead costs needed to operate the small remaining Pollo Tropical restaurant base in Texas, 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.
 Three Months EndedSix Months Ended
 July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Impairment of long-lived assets$2,156 $32 $2,156 $142 
Other lease charges (recoveries)(46)(234)(748)(396)
$2,110 $(202)$1,408 $(254)
Impairment 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.
Impairment and other lease charges for the three and ninesix months ended October 2, 2016 consistJuly 3, 2022 related primarily to impairment of impairment charges of $18.5 million related to sixteen Company-ownedassets from four underperforming Pollo Tropical restaurants that were subsequently closedfor which continued performance declines resulted in a decrease in the fourth quarter of 2016estimated future cash flows. For the three and second quarter of 2017 and one Company-owned Taco Cabana restaurant that was subsequently closed in the third quarter of 2017. Impairment andsix months ended July 3, 2022, other lease charges (recoveries) consist of gains from lease terminations.
Impairment charges for the ninethree and six months ended October 2, 2016 also includedJuly 4, 2021 related primarily to impairment of equipment from previously impaired and closed restaurants. For the three and six months ended July 4, 2021, other lease charges of $0.1 million(recoveries) related primarily to previously closed Company-owned Taco Cabana restaurants.gains from lease terminations.
The Company determineddetermines the fair value of restaurant equipment, for those restaurants reviewed for impairment, based on current economic conditions, the Company’sCompany'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 companyCompany owns the land and building, the Company utilizedutilizes third-party information such as a broker quoted value to determine the fair value of the property.property, when applicable. The Company also utilizedutilizes discounted future cash flows to determine the fair value of assets for certain leased restaurants with positive discounted projected future cash flows. The Company utilizes 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 ninesix months ended October 1, 2017 and October 2, 2016July 3, 2022 totaled $13.5 million and $8.6 million, respectively, which primarily$1.2 million.
5. Other Liabilities
Other current liabilities 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.following:
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.
July 3, 2022January 2, 2022
Operating lease liabilities$10,685 $10,381 
Accrued workers' compensation and general liability claims2,832 3,083 
Sales and property taxes1,382 921 
Other3,901 3,647 
$18,800 $18,032 

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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 non-current liabilities current, consist of the following:
 October 1, 2017 January 1, 2017
Accrued workers' compensation and general liability claims$6,796
 $4,838
Sales and property taxes2,134
 1,844
Accrued occupancy costs7,296
 2,161
Other4,890
 2,473
 $21,116
 $11,316

July 3, 2022January 2, 2022
Accrued workers' compensation and general liability claims$6,432 $6,432 
Deferred compensation268 320 
Other969 1,011 
$7,669 $7,763 
Other liabilities, long-term, consist
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 following: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 14,746 shares of common stock valued at approximately $0.2 million during the six months ended July 3, 2022. As of July 3, 2022, 137,462 shares of common stock remain available for purchase under the share repurchase program. The repurchased shares are held as treasury stock at cost.
 October 1, 2017 January 1, 2017
Accrued occupancy costs$21,551
 $20,172
Deferred compensation992
 2,027
Accrued workers’ compensation and general liability claims4,028
 4,030
Other4,265
 4,140
 $30,836
 $30,369

Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-restaurant reserve, of which $6.0 million and $3.1 million are included in long-term accrued occupancy costs at October 1, 2017 and January 1, 2017, respectively, with the remainder in current accrued occupancy costs.
 Nine Months Ended October 1, 2017 Year Ended January 1, 2017
Balance, beginning of period$4,912
 $1,832
Provisions for restaurant closures7,857
 3,093
Additional lease charges, net of (recoveries)(1,616) (237)
Payments, net(3,526) (806)
Other adjustments(1)
5,507
 1,030
Balance, end of period$13,134
 $4,912

(1) Includes the transfer of accruals to expense operating lease payments on a straight-line basis.
5. Stock-Based Compensation
On April 28, 2021, the stockholders of the Company approved the Fiesta Restaurant Group, Inc. 2021 Stock Incentive Plan (the "2021 Plan"). Following a grant of a total 37,874 shares to non-employee directors under the Company's 2012 Stock Incentive Plan (the "2012 Plan") on April 28, 2021, no additional shares will be granted under the 2012 Plan.
During the ninesix months ended October 1, 2017 and October 2, 2016,July 3, 2022, the Company granted certain employees 182,522 and 50,087a total of 227,781 non-vested restricted shares respectively, under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive2021 Plan (the "Fiesta Plan"). These shares generallythat vest and become non-forfeitable over a four year-year vesting period. Additionally, during the six months ended July 3, 2022, the Company granted certain employees a total of 185,000 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. During the six months ended July 3, 2022, the Company granted non-employee directors a total of 80,268 non-vested restricted shares under the 2021 Plan that vest and become non-forfeitable over a one-year vesting period. The weighted average fair value at grant date for these non-vested shares issued during the ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021 was $20.75$8.83 per share and $35.25,$16.83 per share, respectively.
During the ninesix months ended October 1, 2017,July 3, 2022, the Company granted new non-employee directors 8,927 non-vested restricted shares, under the Fiesta Plan. These shares vest 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 the nine months ended October 1, 2017 and October 2, 2016, the Company granted non-employee directors 29,669 and 14,081 non-vested restricted shares, respectively, under the Fiesta Plan. The weighted average fair value at the grant date for restricted non-vested shares issued to directors 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)
(In thousands of dollars, except share and per share amounts)


During the nine months ended October 1, 2017 and October 2, 2016, the Companyalso granted certain employees 11,745 and 5,762 restricted stock units, respectively, under the Fiesta Plan. The restricted stock units granted during the nine months ended October 1, 2017 and October 2, 2016 vest and become non-forfeitable at the enda total of a four year vesting period. The weighted average fair value at grant date for these restricted stock units issued to employees during the nine months ended October 1, 2017 and October 2, 2016 was $20.75 and $35.25, respectively.
Also during the nine months ended October 1, 2017, the Company granted 92,171107,539 restricted stock units under the Fiesta2021 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-year vesting period. The number of shares into which thethese 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 67,382215,078 shares if the maximum performance condition is met. The weighted average fair value at grant date for both restricted non-vested shares andthe restricted stock units subject to financial performance conditions granted during the ninesix months ended October 2, 2016July 3, 2022 and July 4, 2021 was $35.25.$9.02 per share and $17.43 per share, respectively.
Stock-based compensation expense from continuing operations for the three and ninesix months ended October 1, 2017July 3, 2022 was $0.9$1.4 million and $2.8$2.0 million, respectively, and for the three and ninesix months ended October 2, 2016July 4, 2021 was $0.4$1.1 million and $2.6$2.1 million, respectively. Stock-based compensation expense from discontinued operations for the six months ended July 3, 2022 was $(0.1) million and for the three and six months ended July 4, 2021 was $0.2 million and $0.3 million, respectively. At October 1, 2017,July 3, 2022, the total unrecognized stock-based compensation expense related to non-vested restricted shares and restricted stock units was approximately $5.8$7.2 million. At October 1, 2017,July 3, 2022, the remaining weighted average vesting period for non-vested restricted shares was 2.81.6 years and restricted stock units was 1.72.3 years.
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FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share data)


A summary of all non-vested restricted shares and restricted stock units activity for the ninesix months ended October 1, 2017July 3, 2022 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, 2017129,352
 $37.94
 51,445
 $46.59
Granted221,118
 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, 2017240,638
 $24.82
 145,284
 $23.25

Non-Vested SharesRestricted Stock Units
SharesWeighted
Average
Grant Date
Fair Value		UnitsWeighted
Average
Grant Date
Fair Value
Outstanding at January 2, 2022769,018 $11.19 64,175 $17.45 
Granted493,049 8.83 107,539 9.02 
Vested and released(156,817)12.20 — — 
Forfeited(80,112)11.02 (5,021)17.43 
Outstanding at July 3, 20221,025,138 $9.92 166,693 $12.01 
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 granted during the six months ended July 3, 2022 is based on the closing stock price on the date of grant.

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7. Earnings (Loss) Per Share
Table of Contents
FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands of dollars, except share andBasic earnings (loss) per share amounts)


6. Business Segment Information
The Company("EPS") is engaged in the fast-casual restaurant industry, with two restaurant concepts (each of which is an operating segment): Pollo Tropical and Taco Cabana. Pollo Tropical restaurants offer a wide variety of freshly prepared tropical inspired food while our Taco Cabana restaurants offer a broad selection of freshly prepared Mexican inspired food.
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. 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 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.

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


The “Other” column includes corporate-related items not allocated to reportable segments and consists primarily of corporate-owned property and equipment, miscellaneous prepaid costs, capitalized costs associated with the issuance of indebtedness, corporate cash accounts, a current income tax receivable, and advisory fees related to a previously proposed and terminated separation transaction.
Three Months Ended Pollo Tropical Taco Cabana Other Consolidated
October 1, 2017:        
Restaurant sales $87,888
 $70,212
 $—
 $158,100
Franchise revenue 396
 195
 —
 591
Cost of sales 28,527
 20,624
 —
 49,151
Restaurant wages and related expenses 21,208
 23,441
 —
 44,649
Restaurant rent expense 4,655
 4,449
 —
 9,104
Other restaurant operating expenses 13,034
 11,822
 —
 24,856
Advertising expense 4,980
 905
 —
 5,885
General and administrative expense 6,655
 5,410
 —
 12,065
Adjusted EBITDA 9,396
 3,776
 —
 13,172
Depreciation and amortization 5,187
 3,296
 —
 8,483
Capital expenditures 6,302
 5,471
 613
 12,386
October 2, 2016:        
Restaurant sales $103,353
 $78,239
 $—
 $181,592
Franchise revenue 474
 190
 —
 664
Cost of sales 32,565
 22,161
 —
 54,726
Restaurant wages and related expenses 24,383
 23,120
 —
 47,503
Restaurant rent expense 5,059
 4,429
 —
 9,488
Other restaurant operating expenses 14,361
 11,354
 —
 25,715
Advertising expense 5,026
 2,480
 —
 7,506
General and administrative expense 9,091
 5,355
 74
 14,520
Adjusted EBITDA 13,782
 9,762
 —
 23,544
Depreciation and amortization 6,337
 3,176
 —
 9,513
Capital expenditures 18,146
 2,791
 (132) 20,805


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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)


Nine Months Ended Pollo Tropical Taco Cabana Other Consolidated
October 1, 2017:        
Restaurant sales $281,572
 $223,510
 $—
 $505,082
Franchise revenue 1,272
 568
 —
 1,840
Cost of sales 87,430
 63,397
 —
 150,827
Restaurant wages and related expenses 66,945
 72,105
 —
 139,050
Restaurant rent expense 14,502
 13,379
 —
 27,881
Other restaurant operating expenses 39,353
 34,207
 —
 73,560
Advertising expense 11,316
 6,400
 —
 17,716
General and administrative expense 26,331
 20,882
 —
 47,213
Adjusted EBITDA 41,257
 17,252
 —
 58,509
Depreciation and amortization 16,705
 9,560
 —
 26,265
Capital expenditures 23,208
 13,487
 1,844
 38,539
October 2, 2016:        
Restaurant sales $304,138
 $234,228
 $—
 $538,366
Franchise revenue 1,559
 540
 —
 2,099
Cost of sales 96,435
 66,948
 —
 163,383
Restaurant wages and related expenses 71,259
 68,277
 —
 139,536
Restaurant rent expense 14,528
 12,994
 —
 27,522
Other restaurant operating expenses 40,654
 31,712
 —
 72,366
Advertising expense 12,473
 9,034
 —
 21,507
General and administrative expense 25,619
 16,180
 822
 42,621
Adjusted EBITDA 43,832
 30,530
 —
 74,362
Depreciation and amortization 17,043
 9,431
 —
 26,474
Capital expenditures 52,713
 8,058
 2,272
 63,043
Identifiable Assets:        
October 1, 2017 $234,433
 $166,368
 $16,996
 $417,797
January 1, 2017 263,868
 165,195
 12,502
 441,565


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


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


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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)


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


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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)


7. Net Income (Loss) per Share
The Company computes basic net income (loss) per sharecomputed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vestedNon-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 shareEPS pursuant to the two-class method. The two-class method of computing earnings per shareEPS 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 shareEPS 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 shareEPS reflects the potential dilution that could occur if ourthe restricted stock units were to be converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per shareEPS calculation to the extent that performance conditions have been met at the measurement date. We compute diluted earnings per shareDiluted 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.
ForAll outstanding restricted stock units in the three and ninesix months ended October 1, 2017July 3, 2022 and for the three months ended October 2, 2016,July 4, 2021 were performance-based awards which had not yet met their performance conditions as of July 3, 2022 and July 4, 2021. For the six months ended July 4, 2021, all shares of outstanding restricted stock units outstanding were excluded from the computation of diluted earnings per shareEPS because to do soincluding these restricted stock units would have been antidilutive as a result of the net loss from continuing operations in these periods. Weighted average outstanding restricted stock units totaling 11,489 shares for the ninesix months ended October 2, 2016 were not included in the computation of diluted earnings per share because to do so would have been antidilutive.
The computation of basic and diluted net income (loss) per share is as follows:July 4, 2021.
 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, basic26,845,568
 26,716,219
 26,811,610
 26,658,739
Restricted stock units—
 —
 —
 6,352
Weighted average common shares, diluted26,845,568
 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
12


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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 computation of basic and diluted EPS is as follows:
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Basic and diluted EPS:
Income (loss) from continuing operations$(6,488)$2,680 $(7,789)$1,985 
Income (loss) from discontinued operations, net of tax267 (2,763)212 (4,157)
Net loss$(6,221)$(83)$(7,577)$(2,172)
Weighted average common shares—basic24,946,674 25,496,038 24,889,650 25,410,123 
Restricted stock units— — — 660 
Weighted average common shares—diluted24,946,674 25,496,038 24,889,650 25,410,783 
Earnings (loss) from continuing operations per common share—basic$(0.26)$0.11 $(0.31)$0.07 
Earnings (loss) from discontinued operations per common share—basic0.01 (0.11)0.01 (0.16)
Earnings (loss) per common share—basic$(0.25)$— $(0.30)$(0.09)
Earnings (loss) from continuing operations per common share—diluted$(0.26)$0.11 $(0.31)$0.07 
Earnings (loss) from discontinued operations per common share—diluted0.01 (0.11)0.01 (0.16)
Earnings (loss) per common share—diluted$(0.25)$— $(0.30)$(0.09)
8. Commitments and Contingencies

Lease Assignments. Taco Cabana hasPollo Tropical assigned three2 leases to variousthird parties on properties where it no longer operates restaurants with lease terms expiring on various dates through 2029. Thein 2033 and 2036. Although the assignees are responsible for making the payments required by the leases. The Company is a guarantor under one oflease, the leases, and it remains secondarily liable as a surety with respect to two of the leases. In the third quarter of 2017, Pollo Tropical assigned one lease to a third party on a property where it no longer operates with a lease term expiring in 2033. The assignee is responsible for making the payments required by the lease. The Company is a guarantor under the lease.leases.

The maximum potential liability for future rental payments that the Company could be required to make under these leases at October 1, 2017July 3, 2022 was $4.1$4.5 million. The Company could also be obligated to pay property taxes and other lease relatedlease-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.

Indemnity of Lease Guarantees. As discussed in Note 2—Dispositions, Taco Cabana, Inc., a former wholly-owned subsidiary of the Company, was sold in the third quarter of 2021 to YTC Enterprises LLC ("YTC Enterprises") through a stock purchase agreement. The Company's previous owners, Carrols Restaurant Group, Inc. ("Carrols") remains a guarantor under 12 Taco Cabana restaurant property leases with lease terms expiring on various dates through 2030, all of which are still operating, as of July 3, 2022. The Company has indemnified Carrols for all obligations under the guarantees per the terms of the Separation and Distribution Agreement entered into in connection with the spin-off of Fiesta. The Company remains liable for all obligations under the terms of the leases in the event YTC Enterprises fails to pay any sums due under the lease, subject to indemnification provisions under the stock purchase agreement.
The maximum potential amount of future undiscounted rental payments the Company could be required to make under these leases at July 3, 2022 was $7.9 million. The obligations under these leases will generally continue to decrease over time as these operating leases expire, except for any execution of renewal options that exist under the original leases. No payments related to these guarantees have been made by the Company to date and none are expected to be required to be made in the future. YTC Enterprises has indemnified the Company for all such obligations and the Company does not believe it is probable it will be required to perform under any of the guarantees or direct obligations.
Legal Matters. The Company is a party to various legal proceedings incidental to the conduct of business, includingbusiness. 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
13
FIESTA RESTAURANT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in thousands, except per share data)


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 under9. Related Party Transactions
The Company engaged Jefferies LLC ("Jefferies"), an affiliate of one of the Fair Labor Standards Act. On September 30, 2016, prior to any suit being filed, Pollo Tropical reached a settlement with seven named individualscurrent members of Fiesta's board of directors, and a proposed collective action class that will allow currentsubsidiary of Jefferies Financial Group, Inc, a holder of more than 20 percent of the total outstanding shares of Fiesta, in connection with a refinancing of the Company's former amended senior credit facility in 2020 and former assistant managers to receive notice and opt-in to the settlement. Pollo Tropical denies any liability or unlawful conduct. The Company has recorded a charge of $0.8 million to cover the estimated costsother advisory services including related to the settlement, including estimated paymentssale of Taco Cabana. The Company paid fees of $1.7 million to individuals that opt-inJefferies and reimbursed Jefferies for reasonable out of pocket and ancillary expenses of less than $0.1 million when the refinancing was completed in the fourth quarter of 2020. The Company paid Jefferies a transaction advisory fee of $2.0 million upon the sale of Taco Cabana. As of July 3, 2022 and January 2, 2022, there were no amounts due to the settlement, premium payments to named individuals, attorneys’ fees forrelated party recognized on the individuals' counsel, and related settlement administration costs. The charge does not include legal fees incurred by Pollo Tropical in defending the action. The settlement, which is subject to approval by an arbitrator and a judicial body, will result in dismissal with prejudice for the named individuals and all individuals that opt-in to the settlement.condensed consolidated balance sheets.

10. Supplemental Cash Flow Information
The Company is also a party to various other litigation matters incidental to the conductfollowing table details supplemental cash flow disclosures of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements.non-cash investing and financing activities from continuing operations: 

Contingency Related to Insurance Recoveries. During 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 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 damages, inventory losses, payment of hourly employees while restaurants were closed, lost business related to temporary closures, limited menu and modified hours of operations). Other Texas markets where the Company operates Company-owned restaurants including San Antonio were also affected by Hurricane Harvey, but to a lesser degree. All of the restaurants that were closed have re-opened except for one Taco Cabana restaurant and two Pollo Tropical restaurants that remain closed in Houston. The Company maintains comprehensive insurance coverage on all of its restaurants including property, flood and business interruption and is in the process of assessing 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.


Six Months Ended
July 3, 2022July 4, 2021
Supplemental cash flow disclosures:
Interest paid on long-term debt$97 $115 
Income tax payments (refunds), net323 (6,347)
Supplemental cash flow disclosures of non-cash investing and financing activities:
Accruals for capital expenditures$2,437 $2,481 
Right-of-use assets obtained in exchange for lease liabilities:
Operating lease ROU assets5,281 1,490 
Right-of-use assets and lease liabilities reduced for terminated leases:
Operating lease ROU assets2,370 2,288 
Operating lease liabilities3,321 2,793 
Cash and restricted cash reconciliation:
Beginning of period
Cash$36,797 $49,778 
Restricted cash3,837 3,584 
Cash and restricted cash, beginning of period$40,634 $53,362 
End of period
Cash$39,262 $65,830 
Restricted cash3,631 3,837 
Cash and restricted cash, end of period$42,893 $69,667 
19
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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)



9.11. Recent Accounting Pronouncements
In May 2014, and in subsequent updates,March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers2020-04, Reference Rate Reform (Topic 606)848) ("ASU No. 2020-04"), which amendsprovides 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 March 12, 2020 through December 31, 2022. As of July 3, 2022, the guidance in former Topic 605, Revenue Recognition, and provides for either a full retrospective adoption in whichCompany's only exposure to LIBOR rates was the standard is applied to allundrawn $10.0 million revolving credit facility under its senior credit facility. Upon cessation of the periods presented orLIBOR, the senior credit facility would use a modified retrospective adoption in which the cumulative effectbenchmark replacement rate. According to ASU No. 2020-04, modifications of initially applying the standard is recognized at the date of initial application. The new standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless the contracts are inwithin the scope of other US GAAP requirements. The guidance also provides a modelTopic 470 Debt should be accounted for by prospectively adjusting 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.effective interest rate. 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 is effective for interim and annual periods beginning after December 15, 2017.
In February 2016, the FASB issuedexpect ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required with an option2020-04 to use certain practical expedients. The new guidance is required to be applied at the beginning of the earliest comparative period presented. The Company is currently evaluating thehave a significant impact on its financial statements. Although the impact is not currently estimable, the Company expects to recognize lease assets and lease liabilities for most

15


ITEM 2-MANAGEMENT'S2. 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 52-5352–53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended January 1, 20172, 2022 contained 52 weeks. The three and ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016July 4, 2021 each contained thirteen and thirty-ninetwenty-six weeks, respectively. The fiscal year ending December 31, 2017January 1, 2023 will contain 52 weeks.
Company Overview
We own, operate and franchise two fast-casualthe restaurant brands,brand Pollo Tropical® and Taco Cabana®, which have almosthas over 30 years and 40 years, respectively, of operating history and a loyal customer bases in their core markets.base. Our Pollo Tropical restaurants offer a wide variety oflocations feature fire-grilled and crispy citrus marinated chicken and other freshly prepared tropical inspired food, while our Taco Cabana restaurants offer a broad selection of freshly prepared Mexican inspired food.menu items. We believe that both brands are differentiated from otherthe brand offers a distinct and unique flavor with broad appeal at a compelling value, which differentiates it 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, nearly allsegments. All but one of our restaurants offer the convenience of drive-thru windows. As of October 1, 2017, ourJuly 3, 2022, we operated 138 Pollo Tropical Company-owned restaurants, included 149 Pollo Tropical restaurants and 168 Taco Cabana restaurants.all of which are located in Florida.
We franchise our Pollo Tropical restaurants primarily internationallyin international markets, and as of October 1, 2017,July 3, 2022, we had 2622 franchised Pollo Tropical restaurants located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, Venezuela, Panama, Honduras and Guyana, and sixseven licensed locationsPollo Tropical restaurants located in Florida consisting of four on college campuses and locations at a hospital in Florida.and two sports and entertainment stadiums. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets.
As of October 1, 2017, we had five franchised Taco Cabana restaurants located in New Mexico and two non-traditional Taco Cabana licensed locations on college campuses in Texas.
Recent Events Affecting ourOur Results of Operations
HurricanesCOVID-19 Pandemic
DuringThe novel coronavirus (COVID-19) pandemic has affected and is continuing to affect the thirdrestaurant industry and the economy. Based on current conditions, we do not expect sales trends to significantly deteriorate further as a direct result of COVID-19. However, labor shortages may negatively impact sales trends and there can be no assurance that sales trends will not deteriorate further. We have implemented measures to control costs to mitigate any negative impact from the COVID-19 pandemic and labor shortages.
Labor Challenges and Inflationary Factors
Hours of operations have been limited due to labor shortages which are affecting our brand and the restaurant industry. In the second quarter of 2017, Texas2022, we estimate that operating hours were reduced by approximately 3.0% as a result of labor shortages. Additionally, we experienced increased overtime due to training and Florida were struck by Hurricanes Harveystaffing shortages. In response to these labor shortages and Irma (the "Hurricanes"). 43 Taco Cabanacompetition for labor, we implemented special incentive pay in affected locations and two Pollo Tropical Company-owned restaurants in 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 to a lesser degree. Allfor particular days of the restaurants that were closedweek, and we have re-opened exceptintroduced sign-on bonuses payable after a specified term of service. We believe these labor cost increases for one Taco Cabana restaurantovertime and two Pollo Tropical restaurants that remain closedstaffing-related incentives are short-term in Houston.

nature. We estimate that the Hurricanes negatively impacted Adjusted EBITDAhave intensified our focus on accelerating labor optimization efforts to improve staffing efficiency, which we believe will increase both staff availability 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 impacted comparable restaurant sales and transactions by approximately 5.5% to 6.5% for Pollo Tropical, and approximately 2% to 3% for Taco Cabana for the third quarter of 2017.

margins. As a result of the Hurricanes, we recorded inventory losses of $0.6 million for Pollo Tropicalour efforts, staffing levels improved in June 2022, enabling us to open all service channels, particularly dine-in, curbside and $0.2 million for Taco Cabana within cost of salesdigital.
Inflationary factors have been experienced primarily in the third quarter of 2017. We recorded wages paidlabor, food costs, and other operating costs categories. Due primarily to hourly employees who were unable to work of $0.3 million and $0.1 million for Pollo Tropical and Taco Cabana, respectively, withinhigher wage rates, 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 operatingrelated expenses for the third quarter of 2017. In addition, we recognized an impairment loss of $0.1 million related to one Taco Cabana restaurant in the Houston metropolitan area that will be closed for an extended period due 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 on all of our restaurants including property, flood and business interruption. We are in the process of assessing the extent of damage and loss, and expected insurance proceeds. A full assessment is expected to be completed in the weeks ahead. In the third quarter of 2017, we 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. 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.
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 resultpercentage of the Hurricanes.
The items detailed below reflect our meaningful progressnet sales increased 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 impaired25.1% in the second quarter of 2017.
In2022 from 24.1% in the thirdsecond quarter of 2017, we recognized impairment2021. Commodity costs as a percentage of net sales increased 6.2% in the second quarter of 2022 compared to the second quarter of 2021. The increase was partially due to non-recurring additional chicken costs of approximately $0.9 million as a result of utilizing a back-up supplier from May to early July 2022 due to a short-term capacity disruption experienced by our primary chicken supplier. Chicken costs, the primary protein purchased, are not expected to increase significantly for the remainder of 2022. Utilities costs as a percentage of net sales also increased to 4.0% in the second quarter of 2022 from 3.6% in the second quarter of 2021 primarily due to higher energy prices in 2022.
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Pricing action has been taken to offset labor, food and other lease charges associatedoperating cost increases. In order to maintain value perceptions with our customers, we implemented a phased approach to menu price increases and took lower pricing increases on items purchased by value-conscious customers including our "Pollo Time" promotional items. Recent price increases include a 5.2% price increase in mid-December 2021, a 5.0% increase in March 2022, and a 1.4% increase in June 2022. As a result of this phased approach to menu price increases, margin improvement is trailing the six closed Pollo Tropical restaurantsimpact of cost increases noted above, with improved margins expected in Texas, as well as impairment charges with respectfuture quarters compared to six 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 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 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.
Industry Conditions
The fast-casual restaurant industry experienced a continued general slowdown in 2016 that continued into the thirdsecond quarter of 2017, specifically2022, barring unforeseen changes in Floridaour cost structure 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.operating environment.
Executive Summary - Summary—Consolidated Operating Performance for the Three Months Ended October 1, 2017July 3, 2022
Our thirdsecond quarter 20172022 results and highlights include the following:
Net loss increased $3.7 million to $(8.3) million in the third quarter of 2017, or $(0.31) per diluted share, compared to•We recognized a net loss of $(4.5)$(6.2) million, or $(0.17)$(0.25) per diluted share, in the thirdsecond quarter of 2016,2022 compared to a net loss of $(0.1) million, or $0.00 per diluted share, in the second quarter of 2021 due primarily to lower comparable restaurant sales andthe impact of higher cost 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 ongoinglabor 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, partially offset by the impact of closing unprofitable restaurants and lowerutilities costs, insurance costs, general and administrative expenses, advertising and impairment and other lease charges.charges, and delivery fees in the second quarter of 2022, partially offset by increased comparable restaurant sales at Pollo Tropical in the second quarter of 2022. The loss in the second quarter of 2021 was primarily the result of the loss from discontinued operations.

•We recognized a loss from continuing operations of $(6.5) million, or $(0.26) per diluted share, in the second quarter of 2022 compared to income from continuing operations of $2.7 million, or $0.11 per diluted share, in the second quarter of 2021 primarily as a result of the foregoing.
•Total revenues decreased 12.9%increased 8.0% in the thirdsecond quarter of 20172022 to $158.7$98.5 million compared to $182.3$91.2 million in the thirdsecond quarter of 2016,2021, driven primarily by a decreasean increase in comparable restaurant sales partially attributable to the Hurricanes combined with the impact of permanent restaurant closures in the fourth quarter of 2016 and in 2017.at Pollo Tropical. Comparable restaurant sales decreased 12.6%increased 8.4% for our Taco CabanaPollo Tropical restaurants resulting primarily from an increase in the net impact of product/channel mix and pricing of 15.1%, partially offset by a decrease in comparable restaurant transactions of 14.3% partially offset by an increase in average check of 1.7%6.7%. Comparable restaurant sales decreased 10.9% for our Pollo Tropical restaurants resulting primarily from a decrease in comparable restaurant transactions of 13.1% partially offset by an increase in average check of 2.2%.
During the third quarter 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.
•Consolidated Adjusted EBITDA decreased $10.4$3.5 million in the thirdsecond quarter of 20172022 to $13.2$5.7 million compared to $23.5$9.1 million in the thirdsecond quarter of 2016,2021, driven primarily by lower comparable restauranthigher labor costs, repair and maintenance costs, utilities costs, insurance costs, general and administrative costs and delivery fee expense, and commodity costs and sales highermix within cost of sales, as a percentagepartially offset by the impact of sales and higher repair and maintenance costs.restaurant sales. 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."

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Results of Operations
Unless otherwise noted, this discussion of operating results relates to our continuing operations.
The following table summarizes the changes in the number and mix of Pollo Tropical and Taco Cabana Company-owned and franchised restaurants.restaurants:
Pollo Tropical
OwnedFranchisedTotal
January 2, 2022138 31 169 
New— 1 1 
Closed— (1)(1)
April 3, 2022138 31 169 
New— — — 
Closed— (2)(2)
July 3, 2022138 29 167 
January 3, 2021138 29 167 
New— — — 
Closed— — — 
April 4, 2021138 29 167 
New— — — 
Closed— — — 
July 4, 2021138 29 167 
 Pollo Tropical Taco Cabana
 Owned Franchised Total Owned Franchised Total
            
January 1, 2017177
 35
 212
 166
 7
 173
   New3
 2
 5
 1
 —
 1
   Closed—
 (3) (3) —
 —
 —
April 2, 2017180
 34
 214
 167
 7
 174
   New3
 1
 4
 2
 —
 2
   Closed(30) (3) (33) —
 —
 —
July 2, 2017153
 32
 185
 169
 7
 176
   New2
 —
 2
 3
 —
 3
   Closed(6) —
 (6) (4) —
 (4)
October 1, 2017149
 32
 181
 168
 7
 175
            
January 3, 2016155
 35
 190
 162
 6
 168
   New6
 1
 7
 —
 —
 —
   Closed—
 —
 —
 —
 —
 —
April 3, 2016161
 36
 197
 162
 6
 168
   New11
 2
 13
 2
 1
 3
   Closed—
 (1) (1) —
 —
 —
July 3, 2016172
 37
 209
 164
 7
 171
   New9
 —
 9
 —
 —
 —
   Closed—
 (3) (3) —
 —
 —
October 2, 2016181
 34
 215
 164
 7
 171

Three Months Ended October 1, 2017July 3, 2022 Compared to Three Months Ended October 2, 2016July 4, 2021
The following table sets forth, for the three months ended October 1, 2017July 3, 2022 and October 2, 2016,July 4, 2021, selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales.
sales:
Three Months Ended
Three Months EndedJuly 3, 2022July 4, 2021
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        55.6% 56.9%
Taco Cabana        44.4% 43.1%
Consolidated restaurant sales        100.0% 100.0%
Costs and expenses:           Costs and expenses:
Cost of sales32.5% 31.5% 29.4% 28.3% 31.1% 30.1%Cost of sales33.2 %30.4 %
Restaurant wages and related expenses24.1% 23.6% 33.4% 29.6% 28.2% 26.2%Restaurant wages and related expenses25.1 %24.1 %
Restaurant rent expense5.3% 4.9% 6.3% 5.7% 5.8% 5.2%Restaurant rent expense6.1 %6.4 %
Other restaurant operating expenses14.8% 13.9% 16.8% 14.5% 15.7% 14.2%Other restaurant operating expenses17.1 %15.7 %
Advertising expense5.7% 4.9% 1.3% 3.2% 3.7% 4.1%Advertising expense3.3 %3.2 %
Pre-opening costs0.3% 1.4% 0.4% 0.1% 0.3% 0.8%
Consolidated Revenues. Revenues include restaurant sales and franchise royalty revenues and fees. Restaurant sales consistsconsist 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%increased 8.0% to $158.7$98.5 million in the thirdsecond quarter of 20172022 from $182.3$91.2 million in the thirdsecond quarter of 2016.2021. Restaurant sales decreased 12.9%increased 8.0% to $158.1$98.0 million in the thirdsecond quarter of 20172022 from $181.6$90.8 million in the thirdsecond quarter of 2016.2021.
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The following table presents the primary drivers of the increase or decrease in restaurant sales for both Pollo Tropical and Taco Cabana for the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 20162021 (in millions).:
Increase in comparable restaurant sales$7.5 
Decrease in sales related to closed restaurants, including temporary and partial closures(0.2)
Total increase$7.3 
Pollo Tropical: 
Decrease in comparable restaurant sales$(9.6)
Decrease in sales related to closed restaurants, net of new restaurants(5.9)
   Total decrease$(15.5)
  
Taco Cabana: 
Decrease in comparable restaurant sales$(9.5)
Incremental sales related to new restaurants, net of closed restaurants1.5
   Total decrease$(8.0)
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.Restaurants are excluded from comparable restaurant sales for any fiscal month in which the restaurant was closed for more than five days. Comparable restaurant sales are compared to the same period in the prior year.
Comparable restaurant sales increased 8.4% for Pollo Tropical restaurants in the second quarter of 2022 compared to the second quarter of 2021. Increases or decreases in comparable restaurant sales result primarily from an increase or decrease in comparable restaurant transactions and in average check. The increaseChanges in average check is generallyare primarily driven by menu price increases. increases net of discounts and promotions and changes in sales channel and sales mix.
For Pollo Tropical, an increase in the net impact of product/channel mix and pricing of 15.1% was partially offset by a decrease in comparable restaurant transactions of 13.1%6.7% in the second quarter of 2022 compared to the second quarter of 2021. The increase in product/channel mix and pricing was partially offsetdriven primarily by menu price increases that drove an increaseof 14.4% and increases in dine-in and delivery average check. We believe staffing challenges had a negative impact on sales trends driven by reduced operating hours and sales channels in the second quarter of 2022. Comparable restaurant sales of 1.2% in the thirdsecond quarter of 2017 as compared to the third quarter of 2016. For Taco Cabana, comparable restaurant transactions decreased 14.3%, partially offset2022 were negatively impacted by menu price increasesremodels and refreshes that positively impacted restaurant sales by 1.7% in the third quarter of 2017 as compared to the third quarter of 2016.
The decrease in comparable sales for both brands was partially attributable totemporarily closed dine-in and counter take-out operations. We estimate that these temporary dine-in 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%0.4% in the thirdsecond 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.2022.
Restaurant sales for Pollo Tropical for the third quarter of 2017 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 millionincreased to $0.6$0.5 million in the thirdsecond quarter of 20172022 from $0.7$0.4 million in the thirdsecond quarter of 20162021 due primarily to a net decrease of twohigher sales at franchised Pollo Tropical restaurants.
Operating costsCosts and expenses.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 increasedchanges in 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.
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The following tables presenttable presents the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 2016.2021. 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 PlanHigher commodity cost1.06.2 %
   Hurricane inventory lossSales mix0.70.8 %
   Lower commodity costsHigher promotions and discounts(0.50.4 )%
Menu price increases(0.3(4.7))%
   OtherOperating efficiency0.1(0.2)%
Other0.3 %
Net increase in cost of sales as a percentage of restaurant sales1.02.8 %
Restaurant wages and related expenses:
   Lower
Higher labor costs due to closurehigher wage rates, overtime pay and training costs, partially offset by the impact of restaurantshigher restaurant sales(1)
(1.51.6 )%
Higher workers' compensation costs0.4 %
Higher medical benefits costs0.2 %
Lower other labor costs including special incentive pay and sign-on bonuses(1.1)%
   Higher labor costs for comparable restaurantsLower incentive bonus(1) (2)
1.8(0.3)%
   Higher medical benefit and payroll tax costs(2)
0.2 %
Other0.2 %
Net increase in restaurant wages and related costs as a percentage of restaurant sales0.51.0 %
Other operating expenses:
Higher repair and maintenance costs(2) (3)
1.00.6 %
Higher utilityutilities costs(2)
0.4%
   Hurricane preparationHigher property and repairgeneral liability insurance costs0.3%
Higher sanitation costsdelivery fee expense due to increased delivery channel sales(2)
0.20.3 %
Lower real estate taxesoperating supplies(2)
(0.5(0.3))%
   Other(0.5)%
Other0.1 %
Net increase in other restaurant operating expenses as a percentage of restaurant sales0.91.4 %
Advertising expense:
   Impact of lower restaurant salesIncreased advertising0.80.1 %
Net increase in advertising expense as a percentage of restaurant sales0.80.1 %
Pre-opening costs:
   Decrease in the number of restaurant openings(1.1)%
      Net decrease in pre-opening costs as a percentage of restaurant sales(1.1)%
(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 costs related to the Plan1.3 %
   Sales mix1.2 %
   Hurricane inventory loss0.3 %
   Lower promotions and discounts(1.4)%
   Menu price increases(0.5)%
   Other0.2 %
      Net increase in cost of sales as a percentage of restaurant sales1.1 %
Restaurant wages and related expenses:
   Higher labor costs(1) (2)
3.7 %
   Higher payroll tax costs(2)
0.2 %
   Other(0.1)%
      Net increase in restaurant wages and related costs as a percentage of restaurant sales3.8 %
Other operating expenses:
   Higher repair and maintenance(2) (3)
1.3 %
   Higher utility costs(2)
0.4 %
   Higher real estate taxes(2)
0.3 %
   Higher sanitation costs(2)
0.2 %
   Lower insurance costs(2)
(0.6)%
   Other(2)
0.7 %
      Net increase in other restaurant operating expenses as a percentage of restaurant sales2.3 %
Advertising expense:
   Reduced advertising(1.9)%
      Net decrease in advertising expense as a percentage of restaurant sales(1.9)%
Pre-opening costs:
   Increase in restaurant openings0.3 %
      Net increase in pre-opening costs as a percentage of restaurant sales0.3 %
(1)Includes the impact of higherHigher wage rates, overtime pay and restaurant wages incurred during temporary restaurant closurespayroll taxes due in part to labor shortages in 2022.
(2)    Primarily due to Hurricane Harvey.guaranteed bonus payments in 2021.
(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, increaseddecreased to 5.8%6.1% in the thirdsecond quarter of 20172022 from 5.2%6.4% in the thirdsecond quarter of 20162021 due primarily as a result ofto the impact of lower comparablehigher restaurant sales.sales which were partially offset by higher rental costs related to renewed leases.
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 companyCompany and brandsbrand 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.
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General and administrative expenses were $12.1$12.8 million infor the thirdsecond quarter of 20172022 and $14.5$11.1 million infor the thirdsecond quarter of 2016,2021 and, as a percentage of total revenues, general and administrative expenses decreasedincreased to 7.6%13.0% in the thirdsecond quarter of 20172022 compared to 8.0%12.1% in the thirdsecond quarter of 2016,2021 due primarily to lower legal settlement costsincreased professional fees, higher employee and lower write-offs of site development costs, partially offset by higher stock-based compensation costs and the impact of lower current year sales. General and administrative expense for third 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.other support costs. General and administrative expenses infor the thirdsecond quarter of 20162022 included a $0.8$1.7 million charge for estimated costs related to a class action settlement plus legalin non-recurring expenses comprised of $1.2 million of professional fees, 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 matterdigital platform costs, and $0.2 million in office restructuringof general and relocation costs associated with restructuring Pollo Tropical management in Miami, Floridaadministrative efficiency initiative costs. General and Dallas, Texas.

administrative expenses for the second quarter of 2021 included $0.3 million related to non-recurring digital platform costs.
Consolidated Adjusted EBITDA. In 2017, our Board of Directors appointed a new Chief Executive Officer who initiated the Plan and uses anConsolidated Adjusted EBITDA, a non-GAAP financial 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 (recoveries), 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.

Consolidated 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 entitledtitled "Management's Use of Non-GAAP Financial Measures".Measures."
Consolidated Adjusted EBITDA for Pollo Tropical decreased to $9.4$5.7 million, or 5.7% of total revenues, in the thirdsecond quarter of 20172022 from $13.8$9.1 million, or 10.0% of total revenues, in the thirdsecond quarter of 20162021 due primarily to the impact of lower comparable restaurant sales, higher cost of sales as a percentage of sales and higherlabor costs, repair and maintenance costs, as well as the negative impactutilities costs, insurance costs, general and administrative costs and delivery fee expense, and commodity costs and sales mix within cost of the Hurricanes,sales, 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.sales.
Restaurant-LevelRestaurant-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 Consolidated 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$14.9 million, or 15.2% of restaurant sales, in the thirdsecond quarter of 20172022 from $22.0$18.4 million, or 20.3% of restaurant sales, in the thirdsecond quarter of 20162021 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 Consolidated Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitledtitled "Management's Use of Non-GAAP Financial Measures".Measures."
Depreciation and Amortization. Depreciation and amortization expense decreasedincreased to $8.5$5.2 million in the thirdsecond quarter of 20172022 from $9.5$4.9 million in the thirdsecond quarter of 2016 due2021 primarily to decreased depreciation as a result of impairing closed restaurant assets, partially offset byincreased depreciation related to newongoing reinvestment and enhancements to restaurants openings.that have been made since the second quarter of 2021.
Impairment and Other Lease Charges.Charges (Recoveries). 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 (recoveries) increased to $2.1 million in the second quarter of 2022 from $(0.2) million in the second quarter of 2021.
Impairment and other lease charges (recoveries) for the third quarter of 2016 includedthree months ended July 3, 2022 include impairment charges of $18.5$2.2 million related

primarily to sixteenimpairment of assets from four underperforming Pollo Tropical restaurants, that were subsequently closed in the fourth quarterpartially offset by net gains from lease terminations of 2016less than $(0.1) million.
Impairment 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 additionalother lease charges or recoveries, and such amounts could be material.(recoveries) for the three months ended July 4, 2021 consist of gains from lease terminations of $(0.3) million partially offset by a lease termination charge of $0.1 million.
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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 monthtwelve-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 may continue to have on our 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.
For fivetwo 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$0.9 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,deteriorates from current projections, an impairment charge could be recognized in future periods, and such charge could be material.
Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of sublease income, was $0.4 million for the second quarter of 2022 and consisted of closed restaurant rent and ancillary lease costs of $2.1 million net of sublease income of $(1.7) million. Closed restaurant rent expense, net of sublease income, was $1.0 million for the second quarter of 2021 and consisted of closed restaurant rent and ancillary lease costs of $2.3 million net of sublease income of $(1.3) million.
Other Expense (Income), Net. Other expense (income), net, was $0.5 million infor the thirdsecond quarter of 20172022 primarily consisted of closed restaurant related costs of $0.1 million. Other expense (income), net, for the second quarter of 2021 was $0.2 million and primarily consisted of $0.6 million in costs related tofor the removal, of signs and equipment and equipment transferstransfer, and storage forof equipment from closed Pollo Tropical restaurants partially offset by $0.2 million in estimated insurance proceedsand other closed restaurant related to a Taco Cabana restaurant that was temporarily closed due to Hurricane Harvey damages.costs.
Interest Expense. Interest expense increased to $0.7remained flat at $0.1 million in the thirdsecond quarter of 2017 from $0.5 million in2022 compared to the thirdsecond quarter of 2016 due primarily to higher interest rates on borrowings under our revolving credit facility.2021.
Provision for (Benefit from) Income Taxes. The effective tax rate was 36.9%(21.2)% and 37.8%(45.7)% for the thirdsecond quarter of 20172022 and 2016,2021, respectively. The benefitprovision from income taxes for the thirdsecond quarter of 20172022 was derived using an estimated annual effective tax rate of 36.8%,(9.1)% which includes changes in the valuation allowance as a result of originating temporary differences during the year and 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.million. The provision forbenefit from income taxes for the thirdsecond quarter of 20162021 was derived using an estimatedthe actual effective annual income tax rate excluding discrete items,for the year to date period, which includes changes in the valuation allowance as a result of 36.3%.originating temporary differences during the year.

Income (Loss) from Discontinued Operations, Net of Tax. All revenues, costs and expenses and income taxes attributable to Taco Cabana have been aggregated within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations for all periods presented. During the second quarter of 2022, we recognized $0.4 million of income, primarily related to insurance proceeds, slightly offset by expenses related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. See Note 2—Dispositions in our unaudited condensed consolidated financial statements.
Net Income (Loss).Loss. As a result of the foregoing, we had a net loss of $8.3$(6.2) million in the thirdsecond quarter of 20172022 compared to a net loss of $4.5$(0.1) million in the thirdsecond quarter of 2016.2021.

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Nine
Six Months Ended October 1, 2017July 3, 2022 Compared to NineSix Months Ended October 2, 2016July 4, 2021
The following table sets forth, for the ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016,July 4, 2021, selected consolidated operating results as a percentage of consolidated restaurant sales and select segment operating results as a percentage of applicable segment restaurant sales:
Six Months Ended
July 3, 2022July 4, 2021
Costs and expenses:
Cost of sales32.8 %30.7 %
Restaurant wages and related expenses24.9 %23.7 %
Restaurant rent expense6.2 %6.6 %
Other restaurant operating expenses17.3 %15.4 %
Advertising expense3.2 %3.0 %
 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 sales31.1% 31.7% 28.4% 28.6% 29.9% 30.3%
Restaurant wages and related expenses23.8% 23.4% 32.3% 29.1% 27.5% 25.9%
Restaurant rent expense5.2% 4.8% 6.0% 5.5% 5.5% 5.1%
Other restaurant operating expenses14.0% 13.4% 15.3% 13.5% 14.6% 13.4%
Advertising expense4.0% 4.1% 2.9% 3.9% 3.5% 4.0%
Pre-opening costs0.4% 1.4% 0.4% 0.1% 0.4% 0.9%

Revenues. Total revenues decreased 6.2%increased 8.2% to $506.9$194.1 million in the ninesix months ended October 1, 2017July 3, 2022 from $540.5$179.4 million in the ninesix months ended October 2, 2016.July 4, 2021. Restaurant sales decreased 6.2%increased 8.2% to $505.1$193.2 million in the ninesix months ended October 1, 2017July 3, 2022 from $538.4$178.6 million in the ninesix months ended October 2, 2016.July 4, 2021.
The following table presents the primary drivers of the increase or decrease in restaurant sales for both Pollo Tropical and Taco Cabana for the nine months ended October 1, 2017 compared to the nine months ended October 2, 2016 (in millions):
Pollo Tropical: 
Decrease in comparable restaurant sales$(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$(16.5)
Incremental sales related to new restaurants, net of closed restaurants5.8
   Total decrease$(10.7)
Comparable restaurant sales for Pollo Tropical restaurants decreased 8.5% infor the ninesix months ended October 1, 2017. July 3, 2022 compared to the six months ended July 4, 2021 (in millions):
Increase in comparable restaurant sales$14.5 
Increase in sales related to closed restaurants, including a temporary closure0.1 
Total increase$14.6 
Comparable restaurant sales increased 8.2% for Taco CabanaPollo Tropical restaurants decreased 7.2% in the ninesix months ended October 1, 2017. July 3, 2022.
For Pollo Tropical, aan increase in the net impact of product/channel mix and pricing of 15.1% was coupled with an decrease in comparable restaurant transactions of 10.7%6.9% in the six months ended July 3, 2022 compared to the six months ended July 4, 2021. The increase in product/channel mix and pricing was partially offsetdriven primarily by menu price increases that drove an increaseof 14.1% and increases in dine-in and delivery average check. We believe staffing challenges had a negative impact on sales trends driven by reduced operating hours and sales channels in the six months ended July 3, 2022. Comparable restaurant sales of 1.8% in the ninesix 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 offsetJuly 3, 2022 were negatively impacted by menu price increasesremodels and refreshes 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 totemporarily closed dine-in and counter take-out operations. We estimate that these temporary dine-in 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%0.4% in the ninesix 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.July 3, 2022.
Franchise revenues decreasedincreased to $1.8$0.9 million in the ninesix months ended October 1, 2017July 3, 2022 from $2.1$0.8 million in ninethe six months ended October 2, 2016July 4, 2021 due primarily due to the closurehigher sales at franchised restaurants.
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The following tables presenttable presents the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the ninesix months ended October 1, 2017July 3, 2022 compared to the ninesix months ended October 2, 2016.July 4, 2021. All percentages are stated as a percentage of applicable segment restaurant sales.
sales:
Pollo Tropical:
Cost of sales:
Higher commodity costs5.5 %
Sales mix0.9 %
Higher promotions and discounts0.3 %
Menu price increases(0.7(4.6))%
   Lower commodity costsOperating efficiency(0.3(0.4))%
   Lower promotions and discountsOther(0.20.4 )%
   Improved operating efficiency(0.2)%
   Hurricane inventory loss0.2 %
   Menu offering improvement costs related to the Plan0.1 %
   Sales mix0.1 %
   Other0.4 %
Net decreaseincrease in cost of sales as a percentage of restaurant sales(0.62.1 )%
Restaurant wages and related expenses:
Higher labor costs for comparable restaurants(1) (2)
0.8 %
   Lower labor costs due to closurehigher wage rates, overtime pay and training costs, partially offset by the impact of restaurantshigher restaurant sales(1)(0.51.8 )%
Higher workers' compensation costs0.2 %
Lower other labor costs including special incentive pay and sign-on bonuses(0.6)%
   OtherLower incentive bonus(2)
0.1(0.2)%
Net increase in restaurant wages and related costs as a percentage of restaurant sales0.41.2 %
Other operating expenses:
Higher utility costs(2)
0.3 %
   Higher repairsrepair and maintenance costs(2) (3)
0.30.9 %
Higher sanitationutilities costs(2)
0.20.4 %
   OtherHigher delivery fee expense due to increased delivery channel sales
(0.20.3 )%
Higher property and general liability insurance costs0.3 %
Lower operating supplies(0.2)%
Other0.2 %
Net increase in other restaurant operating expenses as a percentage of restaurant sales0.61.9 %
Advertising expense:
   ReducedIncreased advertising(0.10.2 )%
Net decreaseincrease in advertising expense as a percentage of restaurant sales(0.10.2 )%
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 Plan0.5 %
   Sales mix0.4 %
   Hurricane inventory loss0.1 %
   Other0.3 %
      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 sales3.2 %
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 sales1.8 %
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 openings0.3 %
      Net increase in pre-opening costs as a percentage of restaurant sales0.3 %
(1)Includes the impact of higherHigher wage rates, one-time initiatives relatedovertime pay and payroll taxes due in part to the Plan and restaurant wages incurred during temporary restaurant closureslabor shortages in 2022.
(2)    Primarily due to the Hurricanes.guaranteed bonus payments in 2021.
(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, increaseddecreased to 5.5%6.2% in the ninesix months ended October 1, 2017July 3, 2022 from 5.1%6.6% in the ninesix months ended October 2, 2016July 4, 2021 due primarily as a result ofto the impact of lowerhigher comparable restaurant sales.sales which were partially offset by higher rental costs related to renewed leases.
Consolidated General and Administrative Expenses. General and administrative expenses were $47.2$25.1 million infor the ninesix months ended October 1, 2017July 3, 2022 and $42.6$21.7 million infor the ninesix months ended October 2, 2016July 4, 2021 and, as a percentage of total revenues, general and administrative expenses increased to 9.3%12.9% in the ninesix months ended October 1, 2017July 3, 2022 compared to 7.9%12.1% in the ninesix months ended October 2, 2016July 4, 2021 due primarily to increased professional fees, and higher boardemployee and shareholder matterother support costs, Plan restructuring costs and retention bonuses and charges for terminated capital projects.partially offset by higher total revenue. General and administrative expense for the ninesix months ended October 1, 2017July 3, 2022 included $3.7$3.0 million in non-recurring expenses comprised of $1.9 million of board and shareholder matterprofessional fees, $0.6 million digital platform 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 mattersgeneral and a $0.2 million favorable adjustment related

to costs associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.administrative efficiency initiative costs. General and administrative expenses for the ninesix months ended October 2, 2016July 4, 2021 included $1.0$0.7 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 in Miami, Florida and Dallas, Texas, and $0.5 million net charges related to litigation matters.non-recurring digital platform costs.
Consolidated 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, 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, decreased to $10.9 million, or 5.6% of performance.total revenues, in the six months ended July 3, 2022 from $18.8 million, or 10.5% of total revenues, in the
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six months ended July 4, 2021 due primarily to higher commodity costs, labor costs, repair and maintenance costs, and utilities costs, partially offset by the impact of higher restaurant sales. 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 entitledtitled "Management's Use of Non-GAAP Financial Measures".
Adjusted EBITDA for Pollo Tropical decreased to $41.3 million in the nine months ended October 1, 2017 from $43.8 million in the nine months ended October 2, 2016 primarily due to the impact of lower comparable restaurant sales and the negative impact of the Hurricanes, partially offset by decreases in cost of sales as a percentage of sales, pre-opening costs and advertising expense, and the impact of closing unprofitable restaurants. Adjusted EBITDA for Taco Cabana decreased to $17.3 million in the nine months ended October 1, 2017 from $30.5 million in the nine months ended October 2, 2016 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 as a percentage of sales. Consolidated Adjusted EBITDA decreased to $58.5 million in the nine months ended October 1, 2017 from $74.4 million in the nine months ended October 2, 2016.Measures."
Restaurant-LevelRestaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA,a non-GAAP financial measure, as a supplemental measuredecreased to evaluate the performance and profitability$30.2 million, or 15.6% of our restaurantsrestaurant sales, 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 $62.3six months ended July 3, 2022 from $37.0 million, or 20.7% of restaurant sales, in the ninesix months ended October 1, 2017 from $68.8 million in the nine months ended October 2, 2016July 4, 2021 due primarily due to the foregoing. Restaurant-level Adjusted EBITDA for Taco Cabana decreased to $34.2 million in nine months ended October 1, 2017 from $45.3 million in the nine months ended October 2, 2016 as a result of the foregoing. For a reconciliation from Consolidated Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading entitledtitled "Management's Use of Non-GAAP Financial Measures".Measures."
Depreciation and Amortization. Depreciation and amortization expense decreasedincreased to $26.3$10.3 million in the ninesix months ended October 1, 2017July 3, 2022 from $26.5$10.0 million in the ninesix months ended October 2, 2016July 4, 2021 due primarily to a decrease in depreciation as a result of impairing closed restaurant assets, partially offset by increased depreciation related to new restaurant openings.ongoing reinvestment and enhancements to our restaurants that have been made since the second quarter of 2021.
Impairment and Other Lease Charges.Charges (Recoveries). Impairment and Other Lease Chargesother lease charges (recoveries) increased to $59.1$1.4 million in the ninesix months ended October 1, 2017July 3, 2022 from $18.6$(0.3) million in the ninesix 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 in the second quarter of 2017.4, 2021.
Impairment and other lease charges (recoveries) for the ninesix months ended October 1, 2017 for Pollo Tropical consist ofJuly 3, 2022 include impairment charges of $51.3$2.2 million and otherrelated primarily to impairment of assets from four underperforming Pollo Tropical restaurants, partially offset by net gains from lease charges, netterminations of recoveries, of $5.0$(0.7) million. Impairment charges 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 2016 as a result of the decision not to convert the location to a Taco Cabana restaurant. Other lease charges, net of recoveries, are related to restaurants closed in 2017 as well as previously closed restaurants.

Impairment and other lease charges (recoveries) for the ninesix months ended October 1, 2017 for Taco Cabana consistJuly 4, 2021 include net gains from lease terminations of $(0.4) million, partially offset by impairment charges of $1.4$0.1 million related primarily to impairment of equipment from previously impaired and other lease charges,closed restaurants.
Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent expense, net of recoveries,sublease income was $0.8 million for the six months ended July 3, 2022 and consisted of $1.3 million. Impairment charges are related to four Taco Cabana restaurants that were closed in July 2017restaurant rent and five Taco Cabana restaurants that we continue to operate. Otherancillary lease charges,costs of $4.3 million net of recoveries, are related to restaurantssublease income of $(3.6) million. Closed restaurant rent expense, net of sublease income was $1.7 million for the six months ended July 4, 2021 and consisted of closed in 2017 as well as previously closed restaurants. There is uncertainty in the estimates of futurerestaurant rent and ancillary lease costs andof $4.6 million net of 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 months ended October 2, 2016 primarily included impairment chargesincome 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.
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 $1.3 million, respectively, projected cash flows are not substantially in excess of their carrying values. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.$(2.9) million.
Other Expense (Income), Net. Other expense, (income) net was $1.3$0.1 million infor the ninesix months ended October 1, 2017July 3, 2022 and primarily consisted of $1.6 million in costsclosed restaurant related to the removal of signs and equipment and equipment transfers and storage for closed Pollo Tropical restaurants and severance for restaurant employees, partially offset by $0.2 million in expected insurance proceeds related to a Taco Cabana restaurant that 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.costs. Other income, of $0.2net was $0.3 million infor the ninesix months ended October 2, 2016July 4, 2021 and primarily consisted of proceedscosts for the removal, transfer, and storage of equipment from closed restaurants and other closed restaurant related to a Taco Cabana location that closed in 2015 as a result of an eminent domain proceeding.costs.
Interest Expense. Interest expense increased to $1.9$0.2 million infor the ninesix months ended October 1, 2017July 3, 2022 from $1.6$0.1 million infor the ninesix months ended October 2, 2016 primarily due to higher interest rates related to borrowings under our revolving credit facility.July 4, 2021.
Provision for (Benefit from) Income Taxes. The effective tax rates were 35.9%rate was (13.3)% and 53.0% for the ninesix months ended October 1, 2017July 3, 2022 and 36.1%July 4, 2021, respectively. The provision for the nine months ended October 2, 2016. The benefit from income taxes for the ninesix months ended October 1, 2017July 3, 2022 was derived using an estimated annual effective tax rate of 36.8%,(9.1)% which includes changes in the valuation allowance as a result of originating temporary differences during the year and 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.million. The provision for income taxes for the ninesix months ended October 2, 2016July 4, 2021 was derived using the actual effective tax rate for the year to date period, which includes changes in the valuation allowance as a result of originating temporary differences during the year and excludes an estimated effective annualout-of-period adjustment that increased our income tax rate, excluding discrete items,provision.
Income (Loss) from Discontinued Operations. During the six months ended July 3, 2022, we recognized $0.2 million of 36.3%. As discussedincome, primarily related to insurance proceeds and a reduction of stock-based compensation, slightly offset by expenses related to workers' compensation claims within income (loss) from discontinued operations, net of tax, in the condensed consolidated statement of operations. See Note 1, tax benefit deficiencies and excess tax benefits created upon the vesting of restricted shares are now recorded as a discrete item within the income tax provision. These amounts were previously recorded as an adjustment to Additional paid-in capital.2—Dispositions in our unaudited condensed consolidated financial statements.
Net Income (Loss).Loss. As a result of the foregoing, we had a net loss of $25.5$(7.6) million infor the ninesix months ended October 1, 2017July 3, 2022 compared to a net incomeloss of $14.3$(2.2) million infor the ninesix months ended October 2, 2016.July 4, 2021.

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Liquidity and Capital Resources
Unless otherwise noted, this discussion of liquidity and capital resources relates to our combined operations.
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 ableAlthough, as a result of our substantial cash balance, we did not have a working capital deficit at July 3, 2022, we have the ability to operate with a substantial working capital deficit (and we have historically operated with a working capital deficit) because:
restaurant•Restaurant operations are primarily conducted on a cash basis;
rapid•Rapid turnover results in a limited investment in inventories; and
cash•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 our cash reserves, cash generated from our operations, and availability of borrowings under our senior credit facility will provide sufficient

cash availability to cover our anticipated working capital needs and capital expenditures and debt service requirements for the next twelve months. We used the net proceeds from the sale of Taco Cabana to repay the outstanding term loan under our senior credit facility in the third quarter of 2021.
Operating Activities. Net cash provided fromby operating activities in the first ninesix months of 20172022 and 20162021 was $47.7$10.7 million and $66.4$21.5 million, respectively. The decrease in net cash provided fromby operating activities in the ninesix months ended October 1, 2017July 3, 2022 was primarily driven by thea decrease in Consolidated Adjusted EBITDA, and increaseincluding contributions from discontinued operations, the receipt of income tax refunds in deferred income taxes, partially offset by2021, and the timing of payments.
Investing Activities. Net cash used in investing activities in the first ninesix months of 20172022 and 20162021 was $38.5$8.2 million and $61.8$4.7 million, respectively. Capital expenditures are generally the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.
The following table sets forth our capital expenditures from continuing operations for the periods presented (in(dollars in thousands).:
Pollo
Tropical		OtherContinuing Operations
Six Months Ended July 3, 2022:
New restaurant development$— $— $— 
Restaurant remodeling3,311 — 3,311 
Other restaurant capital expenditures(1)
3,895 — 3,895 
Corporate and restaurant information systems1,185 54 1,239 
Total capital expenditures$8,391 $54 $8,445 
Number of new restaurant openings— — 
Six Months Ended July 4, 2021:
New restaurant development$— $— $— 
Restaurant remodeling592 — 592 
Other restaurant capital expenditures(1)
3,750 — 3,750 
Corporate and restaurant information systems719 545 1,264 
Total capital expenditures$5,061 $545 $5,606 
Number of new restaurant openings— — 
 
Pollo
Tropical
 
Taco
Cabana
 Other Consolidated
Nine Months Ended October 1, 2017:       
New restaurant development$15,863
 $8,131
 $—
 $23,994
Restaurant remodeling2,243
 37
 —
 2,280
Other restaurant capital expenditures(1)
4,033
 3,617
 —
 7,650
Corporate and restaurant information systems1,069
 1,702
 1,844
 4,615
Total capital expenditures$23,208
 $13,487
 $1,844
 $38,539
Number of new restaurant openings8
 6
 —
 14
Nine Months Ended October 2, 2016:       
New restaurant development$48,857
 $3,971
 $—
 $52,828
Restaurant remodeling956
 —
 —
 956
Other restaurant capital expenditures(1)
1,508
 3,117
 —
 4,625
Corporate and restaurant information systems1,392
 970
 2,272
 4,634
Total capital expenditures$52,713
 $8,058
 $2,272
 $63,043
Number of new restaurant openings26
 2
 
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(1)Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our unaudited condensed consolidated financial statements. For the ninesix months ended October 1, 2017July 3, 2022 and October 2, 2016,July 4, 2021, total restaurant repair and maintenance expenses were approximately $15.6$7.5 million and $14.1$5.4 million, respectively.
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In 2017, we expect to open nine new Company-owned Pollo Tropical restaurants in Florida and six new Company-owned Taco Cabana restaurants in Texas, including 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
The following table sets forth our capital expenditures in 2017 are expected to be $60.0 million to $70.0 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 $26.0 millionfrom discontinued operations for the ongoing reinvestmentperiod presented (dollars in thousands):
Taco
Cabana
Six Months Ended July 4, 2021:
New restaurant development$— 
Restaurant remodeling645 
Other restaurant capital expenditures(1)
2,708 
Corporate and restaurant information systems110 
Total capital expenditures$3,463 
Number of new restaurant openings— 
(1)    Excludes restaurant repair and maintenance expenses included in discontinued operations in our Pollo Tropicalunaudited condensed consolidated financial statements. For the six months ended July 4, 2021, total restaurant repair and Taco Cabana restaurants for capital maintenance expenditures,expenses from discontinued operations were 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.$4.2 million.
In 2018, we expect to open nine new Company-owned Pollo Tropical restaurantsNet cash provided by investing activities from discontinued operations in Floridathe first six months of 2022 included proceeds from insurance recoveries of $0.2 million. Net cash used in investing activities from discontinued operations in the first six months of 2021 included net proceeds of $3.1 million from the sale-leaseback of two restaurant properties and seven new Company-owned Taco Cabana restaurants in Texas including five closed Pollo Tropical restaurants that will be converted to Taco Cabana restaurants.net proceeds of $1.3 million from the sale of one restaurant property.
Total capital expenditures in 20182022 are expected to be $60.0 million to $68.0 million. Capital expenditures include $26.0 million to $28.0 million for the development of new Company-owned restaurants, $23.0 million tobetween $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.$28.0 million.
Financing Activities. Net cash used in financing activities in the first ninesix months of 20172022 was $9.1$0.2 million and included net revolving credit borrowing repayments underprimarily consisted of payments to repurchase our senior credit facility of $9.0 million.common stock. Net cash used in financing activities in the first ninesix months of 2016 primarily2021 included net revolving creditterm loan borrowing repayments under our senior credit facility of $5.1$0.4 million partially offset by the excess tax benefit from vesting of restricted shares ofand $0.2 million.million in principal payments on finance leases.
Senior Credit Facility. OurOn November 23, 2020, we terminated our former amended senior secured revolving credit facility and entered into a new senior secured credit facility, which is referred to as the "senior credit facility." The senior credit facility provides for aggregatewas comprised of a term loan facility (the "term loan facility") of $75.0 million and a revolving credit borrowingsfacility (the "revolving credit facility") of up to $150$10.0 million (including up to $15 million available for letters of credit) and matures on December 11, 2018.November 23, 2025. The senior credit facility also provides for potential incremental term loan borrowing increases of up to $50$37.5 million in the aggregate, subject to, among other items, compliance with a minimum Total Leverage Ratio and other terms specified in the revolvingsenior credit facility. As required by the terms of the senior credit facility, the net proceeds from the sale of Taco Cabana were used to fully repay our outstanding term loan borrowings availableon August 16, 2021. The early repayment was subject to a 103% loan prepayment premium.
The senior credit facility provides that we be in compliance with the Total Leverage Ratio under the senior credit facility. On October 1, 2017, there were $60.9 millionfacility beginning January 3, 2022. We will be permitted to exercise equity cure rights with respect to compliance with the Total Leverage Ratio subject to certain restrictions as set forth in outstanding revolving credit borrowings under ourthe senior credit facility.
Borrowings under the 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)    the Alternate Base Rate plus the applicable marginApplicable Margin of 0.50% to 1.50% based on our Adjusted Leverage Ratio
(6.75% with a marginminimum Base Rate of 1.00% as of October 1, 2017)2.00%, or
2)    the LIBOR (or Benchmark Replacement) Rate plus the applicable marginApplicable Margin of 1.50% to 2.50% based on our Adjusted Leverage Ratio (with7.75%, with a
margin minimum LIBOR (or Benchmark Replacement) Rate of 2.00% as of October 1, 2017)1.00%.
In addition, the senior credit facility requires us to pay (i) a commitment fee basedof 0.50% per annum on the applicable Commitment Fee margindaily 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 and (ii) a letter ofrevolving credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
All obligations under the senior credit facility are guaranteed by all of our material domestic subsidiaries. In general, our obligations under our senior credit facility and our subsidiaries’ obligations under the guarantees are secured by a 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.facility.
The outstanding borrowings under the seniorrevolving credit facility are prepayable without penalty or premium (other than customary breakage costs). The outstanding borrowings under the term loan facility were voluntarily prepayable by us, and the term loan facility provided that each of the following required a mandatory prepayment of outstanding term loan borrowings by us as follows: (i) 100% of any cash Net Proceeds (as defined in the senior credit facility requires 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,facility) in excess of $2.0 million individually 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) change our business. In addition,in the aggregate over the term of the senior credit facility will require us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all asin respect of any Casualty Event (as defined underin the senior credit facility). affecting collateral provided that we were permitted to reinvest such Net Proceeds in accordance with the senior credit facility, (ii) 100% of any Net Proceeds of a Specified Equity Contribution (as defined in the senior credit facility), (iii) 100% of any cash Net Proceeds from the issuance of debt issued by us or our subsidiaries other than Permitted Debt (as defined in the
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senior credit facility), (iv) 100% of any Net Proceeds from the Disposition (as defined in the senior credit facility) of certain assets individually, or in the aggregate, in excess of $2.0 million in any fiscal year provided that we were permitted to reinvest such Net Proceeds in accordance with the senior credit facility and (v) beginning with the fiscal year ending January 2, 2022, an amount equal to the Excess Cash Flow (as defined in the senior credit facility) in accordance with the senior credit facility.
Our senior credit facility contains customary default provisions, including without limitation, a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount in excess 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 senior credit facility contains certain covenants, including, without limitation, those limiting our ability to, among other things, incur indebtedness, incur liens, sell or acquire assets or businesses, change the character of our business in any material respects, engage in transactions with related parties, make certain investments, make certain restricted payments or pay dividends.
Our obligations under the senior credit facility are secured by all of our and our subsidiaries' assets (including a pledge of all of the capital stock and equity interests of our subsidiaries).
Under the 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 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 senior credit facility).
As of October 1, 2017,July 3, 2022, we were in compliance with the financial covenants under our senior credit facility. After reserving $4.9 million for letters of credit issued under the senior credit facility, $84.2At July 3, 2022, $10.0 million was available for borrowing under the seniorrevolving credit facility at October 1, 2017.facility.
Off-Balance Sheet Arrangements and Contractual ObligationsCash Requirements
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 obligationscash requirements since January 1, 2017.2, 2022. Information regarding our contractual obligationscash requirements is included under "Contractual Obligations""Cash Requirements" 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.

2, 2022.
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 a number of factors such as labor supply and changing market conditions, as well as changes in the Federalfederal and state hourly minimum wage rates as well as changes in payroll related taxes, including Federalfederal and state unemployment taxes. Labor supply across other industries also negatively impacts the costs of supplies, commodities, logistics, and utilities. 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 PoliciesEstimates
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, 20172, 2022 included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022. 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. These estimates involve a significant level of estimation uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations. There have been no material changes affecting our critical accounting policies for the ninesix months ended October 1, 2017.July 3, 2022.
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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 (loss) and income (loss) 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.business and it provides a view of operations absent non-cash activity and items that are not related to the ongoing operation of our restaurants or affect comparability period over period. Consolidated Adjusted EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization, impairment and other lease charges (recoveries), 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. 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 (loss), earnings (loss) 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 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 and other administrative functions. See Note 6 to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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 Consolidated Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs, and general and administrative expenses (including corporate-level general and administrative expenses). Restaurant-LevelRestaurant-level Adjusted EBITDA margin is derived by dividing Restaurant-level Adjusted EBITDA by restaurant sales. Restaurant-level Adjusted EBITDA is also a non-GAAP financial measure.
Management believes that Adjusted EBITDA for our segments, Consolidated Adjusted EBITDA and Restaurant-LevelRestaurant-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-LevelRestaurant-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•Such financial information does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments to purchase capital equipment;
such•Such financial information does not reflect interest expense or the cash requirements necessary to service payments on our debt;
although•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•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 (recoveries), closed restaurant rent expense, net of sublease income, other income and expense and stock-based compensation expense) have recurred and may recur.

29
A reconciliation from consolidated net income (loss)loss to Consolidated Adjusted EBITDA follows (in thousands):. All amounts are from continuing operations unless otherwise indicated.
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Net loss$(6,221)$(83)$(7,577)$(2,172)
Loss (income) from discontinued operations, net of tax(267)2,763 (212)4,157 
Provision for (benefit from) income taxes1,134 (841)912 2,236 
Income (loss) from continuing operations before taxes(5,354)1,839 (6,877)4,221 
Add:
Non-general and administrative adjustments:
Depreciation and amortization5,232 4,875 10,346 9,963 
Impairment and other lease charges (recoveries)2,110 (202)1,408 (254)
Interest expense85 61 170 122 
Closed restaurant rent expense, net of sublease income401 966 781 1,716 
Other expense (income), net83 170 134 293 
Stock-based compensation expense6 15 13 31 
Total non-general and administrative adjustments7,917 5,885 12,852 11,871 
General and administrative adjustments:
Stock-based compensation expense1,388 1,046 2,011 2,040 
Non-recurring professional fees(1)
1,197 — 1,902 — 
G&A efficiency initiatives(2)
193 — 454 — 
Restructuring costs and retention bonuses— 18 — 18 
Digital costs(3)
315 335 606 651 
Total general and administrative adjustments3,093 1,399 4,973 2,709 
Consolidated Adjusted EBITDA$5,656 $9,123 $10,948 $18,801 
Total revenues$98,487 $91,155 $194,096 $179,370 
Consolidated Adjusted EBITDA as a percentage of total revenues5.7 %10.0 %5.6 %10.5 %
  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
(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    Non-recurring professional fees consist of costs related to the write-offgrowth initiatives.
(2)    G&A efficiency initiatives consist of a capital project that was terminated in the first quarter.non-recurring retention bonus costs.
(3)Board and shareholder matter     Digital costs for the three and ninesix months ended October 1, 2017,July 3, 2022 and July 4, 2021 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 bonusesenhancing the digital experience 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.


our customers.
A reconciliation from Consolidated Adjusted EBITDA to Restaurant-LevelRestaurant-level Adjusted EBITDA follows (in thousands):
Three Months EndedSix Months Ended
July 3, 2022July 4, 2021July 3, 2022July 4, 2021
Consolidated Adjusted EBITDA$5,656 $9,123 $10,948 $18,801 
Restaurant-level adjustments:
Add: Other general and administrative expense(1)
9,698 9,651 20,160 19,007 
Less: Franchise royalty revenue and fees464 391 873 766 
Restaurant-level Adjusted EBITDA$14,890 $18,383 $30,235 $37,042 
Restaurant sales$98,023 $90,764 $193,223 $178,604 
Restaurant-level Adjusted EBITDA as a percentage of restaurant sales15.2 %20.3 %15.6 %20.7 %
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
(1)    Excludes general and administrative adjustments included in Consolidated Adjusted EBITDA.


30

Forward Looking Statements
This Quarterly ReportMatters 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 COVID-19 pandemic and our initiatives designed to respond to the COVID-19 pandemic 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 statementsoften 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 whichthat are difficult to predict. Therefore, actual outcomespredict, and results may differ materially from what is expressed or forecasted in suchyou 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 causestatements. Our actual results toand the timing of certain events could differ materially from those expressed or implied by theanticipated in these forward-looking statements or “cautionary statements,” include,as a result of certain factors, including, but are not limited to:
Increasesto, those set forth under "Risk Factors" and elsewhere in foodthis report and in our other commodity costs;
Risks associatedpublic 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 nationalsubsequent 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; andotherwise.
Factors that affect the restaurant industry generally, including product recalls, liability if our products cause injury, ingredient disclosure and labeling laws and regulations.
31

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. Additionally, shortages in key ingredients may impact 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, 20172, 2022 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.July 3, 2022.
Changes in Internal Control over Financial Reporting.No change occurred in our internal control over financial reporting during the thirdsecond quarter of 20172022 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, 20172, 2022, 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 have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended January 1, 2017.2, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NoneNone.
Item 3. Defaults Upon Senior Securities
NoneNone.
32
Item 4. Mine Safety Disclosures
Not applicableapplicable.

Item 5. Other Information
NoneNone.

33
Table of Contents
Item 6. Exhibits
(a) The following exhibits are filed as part of this report.
Exhibit
No.
Exhibit
No.31.1
10.1
31.1
Chief Executive Officer’sOfficer's Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Fiesta Restaurant Group, Inc.
31.2
32.1
32.2
101.INSXBRL Instance DocumentDocument—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
+ Compensatory plan or arrangement104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


+ Compensatory plan or arrangement


34
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: August 11, 2022FIESTA RESTAURANT GROUP, INC.
Date: November 6, 2017
/S/s/ RICHARD C. STOCKINGER
(Signature)
Richard C. Stockinger

Chief Executive Officer
Date: November 6, 2017August 11, 2022
/s/ DIRK MONTGOMERYS/    LYNN S. SCHWEINFURTH
(Signature)
Lynn S. Schweinfurth
Dirk Montgomery
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: November 6, 2017
/S/    CHERI L. KINDER
(Signature)
Cheri L. Kinder
Vice President, Corporate Controller


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