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EX-32.1 - CHIEF FINANCIAL OFFICER'S CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350 - Fiesta Restaurant Group, Inc.frgi-ex322_2015927xq3.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 - Fiesta Restaurant Group, Inc.frgi-ex311_2015927xq3.htm
EX-32.1 - CHIEF EXECUTIVE OFFICER'S CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350 - Fiesta Restaurant Group, Inc.frgi-ex321_2015927xq3.htm
EX-31.2 - CHIEF FINANCIAL OFFICER'S CERTIFICATE PURSUANT TO SECTION 302 - Fiesta Restaurant Group, Inc.frgi-ex312_2015927xq3.htm

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 September 27, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-35373 
__________________________________________________________
FIESTA RESTAURANT GROUP, INC.
(Exact name of Registrant as specified in its charter)
__________________________________________________________
Delaware
90-0712224
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
14800 Landmark Boulevard, Suite 500
Addison, Texas
75254
(Address of principal executive office)
(Zip Code)
Registrant’s telephone number, including area code: (972) 702-9300
__________________________________________________________
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. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
(Do not check if smaller reporting company)
 
 
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 October 23, 2015, Fiesta Restaurant Group, Inc. had 26,829,619 shares of its common stock, $.01 par value, outstanding.



FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 27, 2015
 
 
 
Page
PART I   FINANCIAL INFORMATION
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
Item 5
 
 
 
Item 6

2


PART I—FINANCIAL INFORMATION
ITEM 1—INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
September 27,
2015
 
December 28,
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
972

 
$
5,087

Trade receivables
9,058

 
6,340

Inventories
2,661

 
2,719

Prepaid rent
3,110

 
2,894

Income tax receivable
3,756

 
4,974

Prepaid expenses and other current assets
3,242

 
3,166

Deferred income taxes
2,925

 
2,925

Total current assets
25,724

 
28,105

Property and equipment, net
237,611

 
191,371

Goodwill
123,484

 
123,484

Deferred income taxes
8,829

 
11,055

Deferred financing costs, net
1,002

 
1,233

Other assets
2,616

 
2,708

Total assets
$
399,266

 
$
357,956

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
52

 
$
61

Accounts payable
13,175

 
10,151

Accrued payroll, related taxes and benefits
15,134

 
15,857

Accrued real estate taxes
5,952

 
5,044

Other liabilities
9,768

 
8,310

Total current liabilities
44,081

 
39,423

Long-term debt, net of current portion
68,732

 
67,264

Lease financing obligations
1,662

 
1,660

Deferred income—sale-leaseback of real estate
30,990

 
34,079

Other liabilities
19,789

 
15,943

Total liabilities
165,254

 
158,369

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Common stock, par value $.01; authorized 100,000,000 shares, issued 26,829,619 and 26,782,945 shares, respectively, and outstanding 26,569,431 and 26,358,448 shares, respectively.
266

 
264

Additional paid-in capital
158,595

 
153,867

Retained earnings
75,151

 
45,456

Total stockholders' equity
234,012

 
199,587

Total liabilities and stockholders' equity
$
399,266

 
$
357,956



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3


FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 27, 2015 AND SEPTEMBER 28, 2014
(In thousands of dollars, except share and per share amounts)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Revenues:
 
 
 
 
 
 
 
Restaurant sales
$
171,469

 
$
154,643

 
$
505,795

 
$
452,983

Franchise royalty revenues and fees
636

 
655

 
2,085

 
1,936

Total revenues
172,105

 
155,298

 
507,880

 
454,919

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
55,409

 
48,980

 
160,755

 
143,469

Restaurant wages and related expenses (including stock-based compensation expense of $40, $20, $147, and $50, respectively)
44,183

 
39,824

 
127,156

 
115,446

Restaurant rent expense
8,396

 
7,314

 
24,451

 
21,892

Other restaurant operating expenses
22,511

 
20,686

 
63,732

 
58,037

Advertising expense
4,831

 
4,180

 
15,529

 
14,275

General and administrative (including stock-based compensation expense of $1,127, $812, $3,056, and $2,582, respectively)
14,259

 
11,845

 
41,647

 
36,128

Depreciation and amortization
7,596

 
6,038

 
21,844

 
16,961

Pre-opening costs
1,689

 
1,427

 
3,851

 
3,298

Impairment and other lease charges
387

 
183

 
481

 
200

Other (income) expense
(165
)
 
(552
)
 
(679
)
 
(558
)
Total operating expenses
159,096

 
139,925

 
458,767

 
409,148

Income from operations
13,009

 
15,373

 
49,113

 
45,771

Interest expense
493

 
536

 
1,345

 
1,707

Income before income taxes
12,516

 
14,837

 
47,768

 
44,064

Provision for income taxes
4,571

 
5,682

 
18,073

 
16,876

Net income
$
7,945

 
$
9,155

 
$
29,695

 
$
27,188

Basic net income per share
$
0.30

 
$
0.34

 
$
1.11

 
$
1.02

Diluted net income per share
$
0.30

 
$
0.34

 
$
1.11

 
$
1.02

Basic weighted average common shares outstanding
26,557,940

 
26,344,102

 
26,494,599

 
26,272,322

Diluted weighted average common shares outstanding
26,565,575

 
26,347,326

 
26,501,951

 
26,273,584



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4


FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 27, 2015 AND SEPTEMBER 28, 2014
(In thousands of dollars, except share amounts) 
(Unaudited)

 
 
Number of
 
 
 
Additional
 
 
 
Total
 
 
Common
 
Common
 
Paid-In
 
Retained
 
Stockholders'
 
 
Stock Shares
 
Stock
 
Capital
 
Earnings
 
Equity
Balance at December 29, 2013
 
26,082,800

 
$
261

 
$
148,765

 
$
9,280

 
$
158,306

Stock-based compensation
 

 

 
2,632

 

 
2,632

Vesting of restricted shares and related tax benefit
 
272,948

 
3

 
1,725

 

 
1,728

Share issuance costs
 

 

 
(30
)
 

 
(30
)
Net income
 

 

 

 
27,188

 
27,188

Balance at September 28, 2014
 
26,355,748

 
$
264

 
$
153,092

 
$
36,468

 
$
189,824

 
 
 
 
 
 
 
 
 
 
 
Balance at December 28, 2014
 
26,358,448

 
$
264

 
$
153,867

 
$
45,456

 
$
199,587

Stock-based compensation
 

 

 
3,203

 

 
3,203

Vesting of restricted shares and related tax benefit
 
210,983

 
2

 
1,525

 

 
1,527

Net income
 

 

 

 
29,695

 
29,695

Balance at September 27, 2015
 
26,569,431

 
$
266

 
$
158,595

 
$
75,151

 
$
234,012



The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5


FIESTA RESTAURANT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 27, 2015 AND SEPTEMBER 28, 2014
(In thousands of dollars)
(Unaudited)
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
Cash flows from operating activities:
 
 
 
Net income
$
29,695

 
$
27,188

Adjustments to reconcile net income to net cash provided from operating activities:
 
 
 
Gain on disposals of property and equipment
(236
)
 
(409
)
Stock-based compensation
3,203

 
2,632

Impairment and other lease charges
481

 
200

Depreciation and amortization
21,844

 
16,961

Amortization of deferred financing costs
232

 
231

Amortization of deferred gains from sale-leaseback transactions
(2,713
)
 
(2,754
)
Deferred income taxes
2,226

 
102

Changes in other operating assets and liabilities
4,236

 
1,619

Net cash provided from operating activities
58,968

 
45,770

Cash flows from investing activities:
 
 
 
Capital expenditures:
 
 
 
New restaurant development
(55,057
)
 
(45,161
)
Restaurant remodeling
(2,723
)
 
(6,635
)
Other restaurant capital expenditures
(5,197
)
 
(3,930
)
Corporate and restaurant information systems
(3,242
)
 
(3,212
)
Total capital expenditures
(66,219
)
 
(58,938
)
Proceeds from sale-leaseback transactions

 
5,692

Proceeds from disposals of other properties
149

 
1,729

Net cash used in investing activities
(66,070
)
 
(51,517
)
Cash flows from financing activities:
 
 
 
Excess tax benefit from vesting of restricted shares
1,527

 
1,728

Share issuance costs

 
(30
)
Borrowings on revolving credit facility
23,500

 
23,000

Repayments on revolving credit facility
(22,000
)
 
(28,000
)
Principal payments on capital leases
(40
)
 
(44
)
Other financing costs

 
(6
)
Net cash provided by (used in) financing activities
2,987

 
(3,352
)
Net decrease in cash
(4,115
)
 
(9,099
)
Cash, beginning of period
5,087

 
10,978

Cash, end of period
$
972

 
$
1,879

Supplemental disclosures:
 
 
 
Interest paid on long-term debt
$
1,263

 
$
1,493

Interest paid on lease financing obligations
$
105

 
$
104

Accruals for capital expenditures
$
5,325

 
$
2,113

Income tax payments, net
$
13,101

 
$
12,442


The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6

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



1. Basis of Presentation
Business Description. Fiesta Restaurant Group, Inc. ("Fiesta Restaurant Group" or "Fiesta") owns, operates and franchises two fast-casual restaurant brands through its wholly-owned subsidiaries Pollo Operations, Inc., and its subsidiaries, and Pollo Franchise, Inc., (collectively “Pollo Tropical”) and Taco Cabana, Inc. and its subsidiaries (collectively “Taco Cabana”). Unless the context otherwise requires, Fiesta and its subsidiaries, Pollo Tropical and Taco Cabana, are collectively referred to as the “Company”. At September 27, 2015, Fiesta owned and operated 149 Pollo Tropical® restaurants and 163 Taco Cabana® restaurants. The Pollo Tropical restaurants include 115 located in Florida, 20 located in Texas, ten located in Georgia and four located in Tennessee. The Taco Cabana restaurants include 161 located in Texas, one located in Oklahoma and, under the Cabana Grill® logo, which is an elevated, non-24 hour format for Taco Cabana, one located in Florida. At September 27, 2015, Fiesta franchised a total of 35 Pollo Tropical restaurants and six Taco Cabana restaurants. The franchised Pollo Tropical restaurants include 17 in Puerto Rico, five in Panama, two in Guatemala, two in Trinidad & Tobago, one in Venezuela, one in the Bahamas, one in Ecuador, one in Honduras and five on college campuses in Florida. The franchised Taco Cabana restaurants include four in New Mexico, and two on college campuses in Texas.
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.
Fiscal Year. The Company uses a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 28, 2014 contained 52 weeks. The three and nine months ended September 27, 2015 and September 28, 2014 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending January 3, 2016 will contain 53 weeks.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 27, 2015 and September 28, 2014 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 GAAP for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of such financial statements have been included. The results of operations for the three and nine months ended September 27, 2015 and September 28, 2014 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 December 28, 2014 included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2014. The December 28, 2014 balance sheet data is derived from those audited financial statements.
  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 on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value as follows: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities; and Level 3 inputs are unobservable and reflect our own assumptions. The following methods were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Current Assets and Liabilities. The carrying values reported on the balance sheet of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of those financial instruments.
Revolving Credit Borrowings. The 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 and at September 27, 2015, was approximately $67.5 million.
Long-Lived Assets. The Company reviews its long-lived assets, principally property and equipment, for impairment at the restaurant level. In addition to considering management’s plans, known regulatory or governmental actions and damage due to acts of God (hurricanes, tornadoes, etc.), the Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. If an indicator of impairment exists for any of its assets, an estimate of undiscounted future cash flows over the life of the primary asset for each restaurant is compared to that long-lived asset’s carrying value. If the carrying value is greater than the undiscounted cash 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

7

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


of the asset over its fair value. 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.
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 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 and lease accounting matters. Actual results could differ from those estimates.
2. Other Liabilities
Other liabilities, current, consisted of the following:
 
September 27, 2015
 
December 28, 2014
Accrued workers' compensation and general liability claims
$
4,737

 
$
3,996

Sales and property taxes
2,293

 
1,933

Accrued occupancy costs
623

 
508

Other
2,115

 
1,873

 
$
9,768

 
$
8,310

Other liabilities, long-term, consisted of the following:
 
September 27, 2015
 
December 28, 2014
Accrued occupancy costs
$
14,647

 
$
12,254

Deferred compensation
1,606

 
1,102

Accrued workers' compensation and general liability claims
758

 
977

Other
2,778

 
1,610

 
$
19,789

 
$
15,943

Accrued occupancy costs include obligations pertaining to closed restaurant locations and accruals to expense operating lease rental payments on a straight-line basis over the lease term.
The following table presents the activity in the closed-store reserve, of which $1.1 million and $1.0 million are included in long-term accrued occupancy costs at September 27, 2015 and December 28, 2014, respectively, with the remainder in other current liabilities:
 
Nine Months Ended September 27, 2015
 
Year Ended December 28, 2014
Balance, beginning of period
$
1,251

 
$
1,439

       Additional lease charges, net of recoveries
386

 
5

Payments, net
(190
)
 
(321
)
Other adjustments
98

 
128

Balance, end of period
$
1,545

 
$
1,251

3. Stock-Based Compensation
During the nine months ended September 27, 2015 and September 28, 2014, the Company granted 24,401 and 71,891 non-vested restricted shares, respectively, under the Fiesta Restaurant Group, Inc. 2012 Stock Incentive Plan (the "Fiesta Plan") to certain employees. These shares generally vest and become non-forfeitable over a four year vesting period. The weighted average fair value at grant date for these non-vested shares issued to employees during the nine months ended September 27, 2015 and September 28, 2014 was $61.57 and $45.04, respectively.
During the nine months ended September 27, 2015 and September 28, 2014, the Company granted 10,007 and 24,252 restricted stock units, respectively, under the Fiesta Plan to certain employees. Certain of the restricted stock units vest and become

8

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


non-forfeitable over a four year vesting period and certain of the restricted stock units vest and become non-forfeitable at the end 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 September 27, 2015 and September 28, 2014 was $62.05 and $45.04, respectively.
During the nine months ended September 27, 2015 and September 28, 2014, the Company granted 8,698 and 8,399 non-vested restricted shares, respectively, to non-employee directors. The weighted average fair value at the grant date for restricted non-vested shares issued to directors during the nine months ended September 27, 2015 and September 28, 2014 was $54.06 and $37.23, respectively. These shares vest and become non-forfeitable over a one year vesting period.
Also during the nine months ended September 27, 2015, the Company granted in the aggregate 17,501 non-vested restricted shares and 17,501 restricted stock units 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 performance conditions. The restricted stock units vest and become non-forfeitable at the end of a three year vesting period. The number of shares into which the restricted stock units convert is determined based on the attainment of certain performance conditions, and ranges from no shares if the minimum performance condition is not met to 35,002 shares if the maximum performance condition is met. The weighted average fair value at the grant date for restricted non-vested shares and restricted stock units subject to performance conditions issued during the nine months ended September 27, 2015 was $65.01.
Stock-based compensation expense for the nine months ended September 27, 2015 and September 28, 2014 was $3.2 million and $2.6 million, respectively. As of September 27, 2015, the total unrecognized stock-based compensation expense relating to non-vested restricted shares and restricted stock units was approximately $7.8 million. At September 27, 2015, the remaining weighted average vesting period for non-vested restricted shares and restricted stock units was 1.8 years.
  A summary of all non-vested restricted shares and restricted stock units activity for the nine months ended September 27, 2015 was as follows:
 
Non-Vested Shares
 
Restricted Stock Units
 
 
 
Weighted
 
 
 
Weighted
 
 
 
Average
 
 
 
Average
 
 
 
Grant Date
 
 
 
Grant Date
 
Shares
 
Price
 
Units
 
Price
Outstanding at December 28, 2014
424,497

 
$
20.50

 
20,783

 
$
45.04

Granted
50,600

 
61.47

 
27,508

 
63.93

Vested
(210,834
)
 
17.47

 
(149
)
 
45.04

Forfeited
(4,075
)
 
40.39

 
(3,791
)
 
51.01

Outstanding at September 27, 2015
260,188

 
$
30.62

 
44,351

 
$
56.25

The fair value of the non-vested restricted shares and restricted stock units is based on the closing price on the date of grant.
4. Business Segment Information
The Company is engaged in the fast-casual restaurant industry, with two restaurant concepts (each of which is an operating segment): Pollo Tropical and Taco Cabana. Pollo Tropical is a fast-casual restaurant brand offering a wide variety of freshly prepared Caribbean inspired food, while our Taco Cabana restaurants offer a broad selection of hand-made, freshly prepared and authentic Mexican food.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies discussed in Note 1. The Company reports more than one measure of segment profit or loss to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The primary measures of segment profit or loss used to assess performance and allocate resources are income before taxes and Adjusted EBITDA, which is 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. Although the chief operating decision maker uses Adjusted EBITDA as a measure of segment profitability, in accordance with Accounting Standards Codification 280, Segment Reporting, the following table includes segment income before taxes, which is the measure of segment profit or loss determined in accordance with the measurement principles that are most consistent with the principles used in measuring the corresponding amounts in the consolidated financial statements.

9

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, and a current income tax receivable.
 
Three Months Ended
 
Pollo Tropical
 
Taco Cabana
 
Other
 
Consolidated
September 27, 2015:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
91,440

 
$
80,029

 
$

 
$
171,469

Franchise revenue
 
468

 
168

 

 
636

Cost of sales
 
31,054

 
24,355

 

 
55,409

Restaurant wages and related expenses (1)
 
20,984

 
23,199

 

 
44,183

Restaurant rent expense
 
4,158

 
4,238

 

 
8,396

Other restaurant operating expenses
 
11,741

 
10,770

 

 
22,511

Advertising expense
 
2,448

 
2,383

 

 
4,831

General and administrative expense (2)
 
8,419

 
5,840

 

 
14,259

Depreciation and amortization
 
4,504

 
3,092

 

 
7,596

Pre-opening costs
 
1,597

 
92

 

 
1,689

Impairment and other lease charges
 
387

 

 

 
387

Interest expense
 
204

 
289

 

 
493

Income before taxes
 
6,567

 
5,949

 

 
12,516

Capital expenditures
 
22,960

 
3,847

 
(488
)
 
26,319

September 28, 2014:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
77,887

 
$
76,756

 
$

 
$
154,643

Franchise revenue
 
520

 
135

 

 
655

Cost of sales
 
25,939

 
23,041

 

 
48,980

Restaurant wages and related expenses (1)
 
17,681

 
22,143

 

 
39,824

Restaurant rent expense
 
3,051

 
4,263

 

 
7,314

Other restaurant operating expenses
 
10,110

 
10,576

 

 
20,686

Advertising expense
 
2,097

 
2,083

 

 
4,180

General and administrative expense (2)
 
6,526

 
5,319

 

 
11,845

Depreciation and amortization
 
3,104

 
2,934

 

 
6,038

Pre-opening costs
 
1,318

 
109

 

 
1,427

Impairment and other lease charges
 
183

 

 

 
183

Interest expense
 
252

 
284

 

 
536

Income before taxes
 
8,146

 
6,691

 

 
14,837

Capital expenditures
 
17,397

 
5,009

 
508

 
22,914





















10

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
September 27, 2015:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
267,898

 
$
237,897

 
$

 
$
505,795

Franchise revenue
 
1,626

 
459

 

 
2,085

Cost of sales
 
89,687

 
71,068

 

 
160,755

Restaurant wages and related expenses (1)
 
58,989

 
68,167

 

 
127,156

Restaurant rent expense
 
11,627

 
12,824

 

 
24,451

Other restaurant operating expenses
 
32,723

 
31,009

 

 
63,732

Advertising expense
 
6,710

 
8,819

 

 
15,529

General and administrative expense (2)
 
23,867

 
17,780

 

 
41,647

Depreciation and amortization
 
12,583

 
9,261

 

 
21,844

Pre-opening costs
 
3,611

 
240

 

 
3,851

Impairment and other lease charges
 
387

 
94

 

 
481

Interest expense
 
565

 
780

 

 
1,345

Income before taxes
 
29,065

 
18,703

 

 
47,768

Capital expenditures
 
55,104

 
9,505

 
1,610

 
66,219

September 28, 2014:
 
 
 
 
 
 
 
 
Restaurant sales
 
$
224,496

 
$
228,487

 
$

 
$
452,983

Franchise revenue
 
1,550

 
386

 

 
1,936

Cost of sales
 
74,151

 
69,318

 

 
143,469

Restaurant wages and related expenses (1)
 
49,369

 
66,077

 

 
115,446

Restaurant rent expense
 
9,039

 
12,853

 

 
21,892

Other restaurant operating expenses
 
27,909

 
30,128

 

 
58,037

Advertising expense
 
5,698

 
8,577

 

 
14,275

General and administrative expense (2)
 
19,186

 
16,942

 

 
36,128

Depreciation and amortization
 
8,431

 
8,530

 

 
16,961

Pre-opening costs
 
2,819

 
479

 

 
3,298

Impairment and other lease charges
 
113

 
87

 

 
200

Interest expense
 
801

 
906

 

 
1,707

Income before taxes
 
28,530

 
15,534

 

 
44,064

Capital expenditures
 
41,520

 
14,780

 
2,638

 
58,938

Identifiable Assets:
 
 
 
 
 
 
 
 
September 27, 2015:
 
$
225,779

 
$
164,211

 
$
9,276

 
$
399,266

December 28, 2014
 
177,923

 
167,729

 
12,304

 
357,956


(1) Includes stock-based compensation expense of $40 and $147 for the three and nine months ended September 27, 2015, respectively, and $20 and $50 for the three and nine months ended September 28, 2014, respectively.
(2) Includes stock-based compensation expense of $1,127 and $3,056 for the three and nine months ended September 27, 2015, respectively, and $812 and $2,582 for the three and nine months ended September 28, 2014, respectively.


11

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


5. Net Income per Share
We compute basic net income per share by dividing net income applicable to common shares by the weighted average number of common shares outstanding during each period. Our non-vested restricted shares contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares and are thus considered participating securities. The impact of the participating securities is included in the computation of basic net income per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Net income per common share was computed by dividing undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested restricted shares based on the weighted average shares outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if our restricted stock units were converted into common shares. Restricted stock units with performance conditions are only included in the diluted earnings per share calculation to the extent that the performance conditions have been met at the measurement date. We compute diluted earnings per share by adjusting the basic weighted average number of common shares by the dilutive effect of the restricted stock units, determined using the treasury stock method.
The computation of basic and diluted net income per share is as follows:
 
  
Three Months Ended
 
Nine Months Ended
 
  
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Basic and diluted net income per share:
  
 
 
 
 
 
 
 
Net income
  
$
7,945

 
$
9,155

 
$
29,695

 
$
27,188

Less: income allocated to participating securities
  
(81
)
 
(150
)
 
(359
)
 
(504
)
Net income available to common stockholders
  
$
7,864

 
$
9,005

 
$
29,336

 
$
26,684

Weighted average common shares, basic
 
26,557,940

 
26,344,102

 
26,494,599

 
26,272,322

Restricted stock units
 
7,635

 
3,224

 
7,352

 
1,262

Weighted average common shares, diluted
  
26,565,575

 
26,347,326

 
26,501,951

 
26,273,584

 
 
 
 
 
 
 
 
 
Basic net income per common share
  
$
0.30

 
$
0.34

 
$
1.11

 
$
1.02

Diluted net income per common share
 
$
0.30

 
$
0.34

 
$
1.11

 
$
1.02

6. Commitments and Contingencies
Lease Assignments. The Company has assigned four leases on properties where it no longer operates restaurants with lease terms expiring on various dates through 2029 to various parties. Although the Company is a not a guarantor under these leases, it remains secondarily liable as a surety for these leases. The maximum potential liability for future rental payments the Company could be required to make under these leases at September 27, 2015 was $2.4 million. The obligations under these leases will generally continue to decrease over time as the operating leases expire. The assignee for two of these leases filed for Chapter 11 bankruptcy in the third quarter of 2015. Future rental payments as of September 27, 2015 for these two leases, which expire in 2020, totaled $0.8 million. The assignee's obligation to the Company under these leases is secured by personal guarantees. The Company does not believe it is probable that it would be ultimately responsible for the obligations under these leases.
Legal Matters. The Company is a party to legal proceedings incidental to the conduct of business. The Company records accruals for outstanding legal matters when it believes it is probable that a loss will be incurred and the amount can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, the Company does not establish an accrued liability.

12

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


On September 29, 2014, Daisy, Inc., an automotive repair shop in Cape Coral, Florida, filed a putative class action suit against Fiesta's subsidiary, Pollo Operations, Inc. ("Pollo") in the United States District Court for the Middle District of Florida. The suit claims that Pollo allegedly engaged in unlawful activity in violation of the Telephone Consumer Protection Act, § 227 et seq. occurring in December 2010 and January 2011. As of September 27, 2015, Pollo has reached a settlement with the plaintiff and has recorded a charge of $0.7 million to cover the estimated costs related to the settlement, which include estimated payments to class members, plaintiffs attorneys' fees and related settlement administration costs, but does not include legal fees incurred by Pollo in defending the action. The settlement, which is subject only to approval by the Court, will result in dismissal of the case.
The Company is a party to various other litigation matters incidental to the conduct of business. The Company does not believe that the outcome of any of these matters will have a material effect on its consolidated financial statements.
7. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the guidance in former ASC 605, Revenue Recognition, and provides for either a full retrospective adoption in which the standard is applied to all of the periods presented or a modified retrospective adoption in which the cumulative effect 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 in the scope of other US GAAP requirements. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate. The Company is currently evaluating the impact of the provisions of ASC 606; however, the Company expects the provisions to primarily impact certain franchise revenues and does not expect the standard to have a material effect on its financial statements. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2017.
In April 2015, the Financial Accounting Standards Board issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, and in August 2015, the Financial Accounting Standards Board issued ASU 2015-15, Interest-Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-03 changes the presentation of debt issuance costs and generally requires debt issuance costs related to a recognized liability to be reported as a direct reduction from the carrying amount of the debt. ASU 2015-15 clarifies that debt issuance costs incurred in connection with line-of-credit arrangements may continue to be presented as an asset. The new standards do not change the recognition and measurement of debt issuance costs. Because the Company's debt issuance costs are related to its senior credit facility, the Company may continue to classify its debt issuance costs as an asset. For the Company, the new standard is effective for interim and annual periods beginning after December 15, 2015.



13


ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of financial condition and results of operations ("MD&A") is written to help the reader understand our company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying financial statement notes. Any reference to restaurants refers to company-owned restaurants unless otherwise indicated. Throughout this MD&A, we refer to Fiesta Restaurant Group, Inc., together with its consolidated subsidiaries, as "we," "our" and "us."
We use a 52-53 week fiscal year ending on the Sunday closest to December 31. The fiscal year ended December 28, 2014 contained 52 weeks. The three and nine months ended September 27, 2015 and September 28, 2014 each contained thirteen and thirty-nine weeks, respectively. The fiscal year ending January 3, 2016 will contain 53 weeks.
Company Overview
We own, operate and franchise two fast-casual restaurant brands, Pollo Tropical® and Taco Cabana®, which have over 25 years and 35 years, respectively, of operating history and loyal customer bases. Our Pollo Tropical restaurants offer a wide variety of freshly prepared Caribbean inspired food, while our Taco Cabana restaurants offer a broad selection of hand-made, freshly prepared and authentic Mexican food. We believe that both brands are differentiated from other 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 all of our restaurants offer the convenience of drive-thru windows. As of September 27, 2015, our company-owned restaurants included 149 Pollo Tropical restaurants and 163 Taco Cabana restaurants (including one restaurant under the Cabana Grill® logo, which is an elevated, non-24 hour format for Taco Cabana which we are currently testing outside of Texas).
We franchise our Pollo Tropical restaurants primarily internationally and as of September 27, 2015, we had 30 franchised Pollo Tropical restaurants located in Puerto Rico, Ecuador, Honduras, Trinidad & Tobago, the Bahamas, Venezuela, Panama and Guatemala, and five non-traditional licensed locations on college campuses in Florida. We have agreements for the continued development of franchised Pollo Tropical restaurants in certain of our existing franchised markets, and we have commitments for additional non-traditional locations in U.S. markets in which we currently operate.
As of September 27, 2015, we had four Taco Cabana franchised restaurants located in New Mexico and two non-traditional Taco Cabana licensed locations in Texas.
Executive Summary-Consolidated Operating Performance for the Three Months Ended September 27, 2015:
Our third quarter 2015 results and highlights include the following:
Net income decreased $1.2 million to $7.9 million in the third quarter of 2015, or $0.30 per diluted share, compared to net income of $9.2 million, or $0.34 per diluted share in the third quarter of 2014, primarily due to legal settlement and related costs recognized in the current year, contrasted by a gain from a condemnation award resulting from an eminent domain proceeding and a gain from a litigation settlement in the third quarter of 2014.
Total revenues increased 10.8% in the third quarter of 2015 to $172.1 million compared to $155.3 million in the third quarter of 2014, driven primarily by an increase in the number of our company-owned restaurants and an increase in comparable restaurant sales of 4.2% for our Pollo Tropical restaurants and 4.8% for our Taco Cabana restaurants. The growth in comparable restaurant sales resulted primarily from an increase in average check of 5.2% at Pollo Tropical and Taco Cabana, partially offset by a decrease in comparable guest traffic of 1.0% at Pollo Tropical and 0.4% at Taco Cabana.
During the third quarter of 2015, we opened 14 new company-owned Pollo Tropical restaurants and one Taco Cabana restaurant and permanently closed one company-owned Pollo Tropical restaurant and one company-owned Taco Cabana restaurant. During the third quarter of 2014, we opened seven new company-owned Pollo Tropical restaurants and two new company-owned Taco Cabana restaurants and closed two company-owned Taco Cabana restaurants.
Adjusted EBITDA increased $0.1 million in the third quarter of 2015 to $22.0 million compared to $21.9 million in the third quarter of 2014. The net impact of revenue growth in the third quarter of 2015 was largely offset by the impact of legal settlements and related costs. Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see "Management's Use of Non-GAAP Financial Measures".

14


Results of Operations
The following table summarizes the changes in the number and mix of Pollo Tropical and Taco Cabana company-owned and franchised restaurants:
 
Pollo Tropical
 
Taco Cabana
 
Owned
 
Franchised
 
Total
 
Owned
 
Franchised
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
December 28, 2014
124

 
37

 
161

 
167

 
7

 
174

   New
6

 

 
6

 

 

 

   Closed

 

 

 
(3
)
 

 
(3
)
March 29, 2015
130

 
37

 
167

 
164

 
7

 
171

   New
6

 

 
6

 
1

 

 
1

   Closed

 
(2
)
 
(2
)
 
(2
)
 
(1
)
 
(3
)
June 28, 2015
136

 
35

 
171

 
163

 
6

 
169

   New
14

 

 
14

 
1

 

 
1

   Closed
(1
)
 

 
(1
)
 
(1
)
 

 
(1
)
September 27, 2015
149

 
35

 
184

 
163

 
6

 
169

 
 
 
 
 
 
 
 
 
 
 
 
December 29, 2013
102

 
39

 
141

 
165

 
7

 
172

   New
4

 
1

 
5

 

 

 

   Closed

 
(1
)
 
(1
)
 

 

 

March 29, 2014
106

 
39

 
145

 
165

 
7

 
172

   New
6

 

 
6

 
1

 

 
1

   Closed

 
(4
)
 
(4
)
 

 

 

June 29, 2014
112

 
35

 
147

 
166

 
7

 
173

   New
7

 
3

 
10

 
2

 

 
2

   Closed

 
(2
)
 
(2
)
 
(2
)
 

 
(2
)
September 28, 2014
119

 
36

 
155

 
166

 
7

 
173

Three Months Ended September 27, 2015 Compared to Three Months Ended September 28, 2014
The following table sets forth, for the three months ended September 27, 2015 and September 28, 2014, selected consolidated operating results as a percentage of consolidated restaurant sales and selected segment operating results as a percentage of applicable segment restaurant sales:
 
Three Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
Restaurant sales:
 
 
 
 
 
 
 
 
 
 
 
Pollo Tropical
 
 
 
 
 
 
 
 
53.3
%
 
50.4
%
Taco Cabana
 
 
 
 
 
 
 
 
46.7
%
 
49.6
%
Consolidated restaurant sales
 
 
 
 
 
 
 
 
100.0
%
 
100.0
%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
34.0
%
 
33.3
%
 
30.4
%
 
30.0
%
 
32.3
%
 
31.7
%
Restaurant wages and related expenses
22.9
%
 
22.7
%
 
29.0
%
 
28.8
%
 
25.8
%
 
25.8
%
Restaurant rent expense
4.5
%
 
3.9
%
 
5.3
%
 
5.6
%
 
4.9
%
 
4.7
%
Other restaurant operating expenses
12.8
%
 
13.0
%
 
13.5
%
 
13.8
%
 
13.1
%
 
13.4
%
Advertising expense
2.7
%
 
2.7
%
 
3.0
%
 
2.7
%
 
2.8
%
 
2.7
%
Pre-opening costs
1.7
%
 
1.7
%
 
0.1
%
 
0.1
%
 
1.0
%
 
0.9
%

15


Consolidated Revenues. Revenues include restaurant sales, which consist of food and beverage sales, net of discounts, at our company-owned restaurants, and franchise royalty revenues and fees, which represent ongoing royalty payments that are determined based on a percentage of franchisee sales, franchise fees associated with new restaurant openings, and development fees associated with the opening of new franchised restaurants in a given market. Restaurant sales are influenced by new restaurant openings, closures of restaurants and changes in comparable restaurant sales.
Total revenues increased 10.8% to $172.1 million in the third quarter of 2015 from $155.3 million in the third quarter of 2014. Restaurant sales increased 10.9% to $171.5 million in the third quarter of 2015 from $154.6 million in the third quarter of 2014. The following table presents the primary drivers of the increase in restaurant sales for both Pollo Tropical and Taco Cabana for the third quarter of 2015 compared to the third quarter of 2014 (in millions):
Pollo Tropical:
 
Increase in comparable restaurant sales
$
2.9

Incremental sales related to new restaurants, net of closed restaurants
10.7

   Total increase
$
13.6

 
 
Taco Cabana:
 
Increase in comparable restaurant sales
$
3.6

Decrease in sales related to closed restaurants, net of new restaurants
(0.3
)
   Total increase
$
3.3

Comparable restaurant sales for Pollo Tropical restaurants increased 4.2% in the third quarter of 2015. Comparable restaurant sales for Taco Cabana restaurants increased 4.8% in the third quarter of 2015. Restaurants are included in comparable restaurant sales after they have been open for 18 months. Increases in comparable restaurant sales result primarily from an increase in average check and an increase in guest traffic. The increase in average check is primarily driven by menu price increases. For Pollo Tropical, menu price increases drove an increase in restaurant sales of 5.4% in the third quarter of 2015 as compared to the third quarter of 2014, partially offset by a decrease in average check due to sales mix and higher discounting. For Taco Cabana, menu price increases drove an increase in restaurant sales of 4.3% in the third quarter of 2015 as compared to the third quarter of 2014, and the remaining increase in average check was primarily driven by a positive change in sales mix due to the implementation of new menu boards during the first quarter of 2015. Comparable restaurant sales for Pollo Tropical were negatively impacted by planned sales cannibalization of existing restaurants as a result of new restaurant openings and rain in Florida. Comparable restaurant sales for Taco Cabana were negatively impacted by declining breakfast transactions related to nation-wide egg shortages.
Restaurants in markets that haven't reached media efficiency generally have lower sales than restaurants in existing media-efficient markets.
Franchise revenues remained relatively stable and decreased by less than $0.1 million to $0.6 million in the third quarter of 2015 from $0.7 million in the third quarter of 2014.
Operating costs and expenses. Operating costs and expenses include cost of sales, restaurant wages and related expenses, other restaurant expenses and advertising expenses. Cost of sales consists of food, paper and beverage costs including packaging costs, less rebates and purchase discounts. Cost of sales is generally influenced by changes in commodity costs, the sales mix of items sold and the effectiveness of our restaurant-level controls to manage food and paper costs. Key commodities, including chicken and beef, are generally purchased under contracts for future periods of up to one year.
Restaurant wages and related expenses include all restaurant management and hourly productive labor costs, employer payroll taxes, restaurant-level bonuses and related benefits. Payroll and related taxes and benefits are subject to inflation, including minimum wage increases and increased costs for health insurance, workers' compensation insurance and state unemployment insurance.
Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are utilities, repairs and maintenance, general liability insurance, real estate taxes and credit card fees.
Advertising expense includes all promotional expenses including television, radio, billboards and other sponsorships and promotional activities.
Pre-opening costs include costs incurred prior to opening a restaurant, including restaurant employee wages and related expenses, travel expenditures, recruiting, training, promotional costs associated with the restaurant opening and rent, including

16


any non-cash rent expense recognized during the construction period. Pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening.
The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the third quarter of 2015 compared to the third quarter of 2014. All percentages are stated as a percentage of applicable segment restaurant sales.
Pollo Tropical:
 
Cost of sales:
 
Higher commodity costs
2.0
 %
Menu price increases
(1.8
)%
Operating inefficiencies at new restaurants
0.5
 %
      Net increase in cost of sales as a percentage of restaurant sales
0.7
 %
 
 
Restaurant wages and related expenses:
 
   Impact of higher sales volumes on fixed labor costs for comparable restaurants
(0.8
)%
   Higher labor costs and impact of lower sales volumes for new restaurants
1.0
 %
   Higher medical benefit costs
0.3
 %
   Lower workers' compensation claim costs
(0.2
)%
   Other
(0.1
)%
      Net increase in restaurant wages and related costs as a percentage of restaurant sales
0.2
 %
 
 
Other operating expenses:
 
Lower repairs and maintenance costs (1)
(0.2
)%
Lower utilities
(0.2
)%
Higher real estate taxes related to new restaurants
0.3
 %
   Other
(0.1
)%
      Net decrease in other restaurant operating expenses as a percentage of restaurant sales
(0.2
)%
 
 
Advertising expense:
 
      Net change in advertising expense as a percentage of restaurant sales
 %
 
 
Pre-opening costs:
 
      Net change in pre-opening costs as a percentage of restaurant sales
 %
(1) The prior year includes additional costs related to the conversion to Coca-Cola products under a new five year contract.



17


Taco Cabana:
 
Cost of sales:
 
Higher commodity costs
1.7
 %
Menu price increases
(1.4
)%
Menu board changes and sales mix
(0.5
)%
Higher promotions and discounts
0.6
 %
      Net increase in cost of sales as a percentage of restaurant sales
0.4
 %
 
 
Restaurant wages and related expenses:
 
Impact of higher sales volumes on fixed labor costs for comparable restaurants
(0.3
)%
Higher workers' compensation claim costs
0.2
 %
Higher medical costs
0.2
 %
   Other
0.1
 %
      Net increase in restaurant wages and related costs as a percentage of restaurant sales
0.2
 %
 
 
Other operating expenses:
 
   Lower repairs and maintenance costs
(0.2
)%
   Lower utilities
(0.3
)%
   Higher insurance costs
0.2
 %
      Net decrease in other restaurant operating expenses as a percentage of restaurant sales
(0.3
)%
 
 
Advertising expense:
 
  Timing of promotions
0.3
 %
      Net increase in advertising expense as a percentage of restaurant sales
0.3
 %
 
 
Pre-opening costs:
 
      Net change in pre-opening costs as a percentage of restaurant sales
 %
Consolidated Restaurant Rent Expense. Restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. Restaurant rent expense, as a percentage of total restaurant sales, increased to 4.9% in the third quarter of 2015 from 4.7% in the third quarter of 2014 primarily as a result of new restaurants, which generally have higher rent, partially offset by the impact of higher sales.
Consolidated General and Administrative Expenses. General and administrative expenses are comprised primarily of (1) salaries and expenses associated with the development and support of our company and brands and the management oversight of the operation of our restaurants; and (2) legal, auditing and other professional fees and stock-based compensation expense.
General and administrative expenses were $14.3 million in the third quarter of 2015 and $11.8 million in the third quarter of 2014, and as a percentage of total revenues, general and administrative expenses increased to 8.3% the third quarter of 2015 compared to 7.6% in the third quarter of 2014. General and administrative expenses increased $2.4 million in the third quarter of 2015 compared to the third quarter of 2014 primarily due to the impact of legal settlements and related costs and brand and corporate personnel and training to support the ongoing Pollo Tropical expansion into new markets. General and administrative expenses in the third quarter of 2015 include a charge for estimated costs related to a class action settlement plus legal fees and other costs incurred in defending the action totaling $0.9 million (see Note 6 to the condensed consolidated financial statements). General and administrative expenses in the third quarter of 2014 included the benefit of a $0.5 million payment received as a settlement of a litigation matter.
Adjusted EBITDA. Adjusted EBITDA, which is one of the measures of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance, is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. Adjusted EBITDA may not be necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Adjusted EBITDA for each of

18


our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain accounting, legal, supply chain, development, and other administrative functions. Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see the heading entitled "Management's Use of Non-GAAP Financial Measures".
Adjusted EBITDA for Pollo Tropical was $12.1 million in the third quarter of 2015 and the third quarter of 2014. The net impact of the increase in revenues was offset by legal settlements and related costs. Adjusted EBITDA for Taco Cabana increased to $9.9 million in the third quarter of 2015 from $9.8 million in the third quarter of 2014 primarily due to the net impact of the increase in revenues.
Depreciation and Amortization. Depreciation and amortization expense increased to $7.6 million in the third quarter of 2015 from $6.0 million in the third quarter of 2014 due primarily to increased depreciation relating to new restaurant openings.
Impairment and Other Lease Charges. Impairment and other lease charges in the third quarter of 2015 primarily consisted of a $0.3 million lease charge related to the closure during the quarter of a Pollo Tropical location that was relocated prior to the end of its lease term to a superior site in the same trade area and a $0.1 million lease charge related to a previously closed Pollo Tropical location. Impairment and other lease charges in the third quarter of 2014 consisted of a $0.2 million impairment charge representing the write-down of the carrying value to fair value of certain assets related to the Pollo Tropical location that closed in the third quarter of 2015. This charge was partially offset by recoveries of additional sublease income of less than $0.1 million related to two previously closed Pollo Tropical locations.
Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related cash flows are below a certain threshold. After reviewing the specific cash flows and management’s plans related to the restaurants for which an impairment review was performed, we determined that no impairment was currently necessary. However, for three Pollo Tropical restaurants and one Taco Cabana restaurant, the projected cash flows were not substantially in excess of their carrying values. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.
Other (Income) Expense. Other income in the third quarter of 2015 primarily consisted of expected business interruption insurance proceeds for a Pollo Tropical location that was temporarily closed due to a fire. Other income in the third quarter of 2014 consisted of a gain from a condemnation award resulting from an eminent domain proceeding related to a location that closed in the third quarter of 2014.
Interest Expense. Interest expense was $0.5 million in the third quarter of 2015 and the third quarter 2014.
Provision for Income Taxes. The provision for income taxes was derived using an estimated effective annual income tax rate of 37.8% for the third quarter of 2015 and 38.3% for the third quarter of 2014. The effective tax rate in the third quarter of 2015 decreased from the prior year due primarily to Work Opportunity Tax Credits related to employees hired in 2014 for which the credits were not available until 2015 and a lower Texas franchise tax rate in 2015.
Net Income. As a result of the foregoing, we had net income of $7.9 million in the third quarter of 2015 compared to net income of $9.2 million in the third quarter of 2014.

19


Nine Months Ended September 27, 2015 Compared to Nine Months Ended September 28, 2014
The following table sets forth, for the nine months ended September 27, 2015 and September 28, 2014, selected consolidated operating results as a percentage of consolidated restaurant sales:
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
 
Pollo Tropical
 
Taco Cabana
 
Consolidated
Restaurant sales:
 
 
 
 
 
 
 
 
 
 
 
Pollo Tropical
 
 
 
 
 
 
 
 
53.0
%
 
49.6
%
Taco Cabana
 
 
 
 
 
 
 
 
47.0
%
 
50.4
%
Consolidated restaurant sales
 
 
 
 
 
 
 
 
100.0
%
 
100.0
%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
33.5
%
 
33.0
%
 
29.9
%
 
30.3
%
 
31.8
%
 
31.7
%
Restaurant wages and related expenses
22.0
%
 
22.0
%
 
28.7
%
 
28.9
%
 
25.1
%
 
25.5
%
Restaurant rent expense
4.3
%
 
4.0
%
 
5.4
%
 
5.6
%
 
4.8
%
 
4.8
%
Other restaurant operating expenses
12.2
%
 
12.4
%
 
13.0
%
 
13.2
%
 
12.6
%
 
12.8
%
Advertising expense
2.5
%
 
2.5
%
 
3.7
%
 
3.8
%
 
3.1
%
 
3.2
%
Pre-opening costs
1.3
%
 
1.3
%
 
0.1
%
 
0.2
%
 
0.8
%
 
0.7
%
Total revenues increased 11.6% to $507.9 million in the nine months ended September 27, 2015 from $454.9 million in the nine months ended September 28, 2014. Restaurant sales also increased 11.7% to $505.8 million in the nine months ended September 27, 2015 from $453.0 million in the nine months ended September 28, 2014. The following table presents the primary drivers of the increase in restaurant sales for both Pollo Tropical and Taco Cabana for the nine months ended September 27, 2015 compared to the nine months ended September 28, 2014 (in millions):
Pollo Tropical:
 
Increase in comparable restaurant sales
$
10.4

Incremental sales related to new restaurants, net of closed restaurants
33.0

   Total increase
$
43.4

 
 
Taco Cabana:
 
Increase in comparable restaurant sales
$
10.6

Decrease in sales related to closed restaurants, net of new restaurants
(1.2
)
   Total increase
$
9.4

Comparable restaurant sales for Pollo Tropical restaurants increased 5.0% in the nine months ended September 27, 2015. Comparable restaurant sales for Taco Cabana restaurants increased 4.8% in the nine months ended September 27, 2015. For Pollo Tropical, menu price increases drove an increase in restaurant sales of 5.4% in the nine months ended September 27, 2015 as compared to the nine months ended September 28, 2014. For Taco Cabana, menu price increases drove an increase in restaurant sales of 3.0% in the nine months ended September 27, 2015 as compared to the nine months ended September 28, 2014, and the remaining increase in average check was primarily driven by a positive change in sales mix due to the implementation of new menu boards in the first quarter of 2015. Comparable restaurant sales for Pollo Tropical were negatively impacted by planned sales cannibalization of existing restaurants as a result of new restaurant openings and rain in Florida. Comparable restaurant sales for Taco Cabana were negatively impacted by declining breakfast transactions related to nation-wide egg shortages.
Restaurants in markets that haven't reached media efficiency generally have lower sales than restaurants in existing media-efficient markets.
Franchise revenues increased to $2.1 million in the nine months ended September 27, 2015 from $1.9 million in the nine months ended September 28, 2014.

20


The following tables present the primary drivers of the changes in the components of restaurant operating margins for Pollo Tropical and Taco Cabana for the nine months ended September 27, 2015 compared to the nine months ended September 28, 2014. All percentages are stated as a percentage of applicable segment restaurant sales.
Pollo Tropical:
 
Cost of sales:
 
Higher commodity costs
2.0
 %
Menu price increases
(1.8
)%
Sales mix and operating inefficiencies at new restaurants
0.3
 %
      Net increase in cost of sales as a percentage of restaurant sales
0.5
 %
 
 
Restaurant wages and related expenses:
 
   Impact of higher sales volumes on fixed labor costs for comparable restaurants
(0.9
)%
   Higher labor costs and impact of lower sales volumes for new restaurants
0.9
 %
      Net change in restaurant wages and related costs as a percentage of restaurant sales
 %
 
 
Other operating expenses:
 
   Lower repairs and maintenance costs (1)
(0.3
)%
   Other
0.1
 %
      Net decrease in other restaurant operating expenses as a percentage of restaurant sales
(0.2
)%
 
 
Advertising expense:
 
      Net change in advertising expense as a percentage of restaurant sales
 %
 
 
Pre-opening costs:
 
      Net change in pre-opening costs as a percentage of restaurant sales
 %
(1) The prior year includes additional costs related to the conversion to Coca-Cola products under a new five year contract.



21


Taco Cabana:
 
Cost of sales:
 
Higher commodity costs
0.7
 %
Menu price increases
(1.0
)%
Menu board changes and sales mix
(0.5
)%
Higher promotions and discounts
0.4
 %
      Net decrease in cost of sales as a percentage of restaurant sales
(0.4
)%
 
 
Restaurant wages and related expenses:
 
   Impact of higher sales volumes on fixed labor costs for comparable restaurants
(0.3
)%
   Other
0.1
 %
      Net decrease in restaurant wages and related costs as a percentage of restaurant sales
(0.2
)%
 
 
Other operating expenses:
 
Impact of higher sales on maintenance and other costs
(0.2
)%
      Net decrease in other restaurant operating expenses as a percentage of restaurant sales
(0.2
)%
 
 
Advertising expense:
 
   Impact of higher sales
(0.1
)%
      Net decrease in advertising expense as a percentage of restaurant sales
(0.1
)%
 
 
Pre-opening costs:
 
   Impact of increased sales and timing of restaurant openings
(0.1
)%
      Net decrease in pre-opening costs as a percentage of restaurant sales
(0.1
)%
Consolidated Restaurant Rent Expense. Restaurant rent expense includes base rent and contingent rent on our leases characterized as operating leases, reduced by amortization of gains on sale-leaseback transactions. Restaurant rent expense, as a percentage of total restaurant sales was 4.8% in the nine months ended September 27, 2015 and the nine months ended September 28, 2014. The impact of higher sales was offset by new restaurants, which generally have higher rent.
Consolidated General and Administrative Expenses. General and administrative expenses were $41.6 million in the nine months ended September 27, 2015 and $36.1 million in the nine months ended September 28, 2014 and as a percentage of total revenues, general and administrative expenses increased to 8.2% in the nine months ended September 27, 2015 compared to 7.9% in the nine months ended September 28, 2014. General and administrative expenses increased $5.5 million in the nine months ended September 27, 2015 compared to the nine months ended September 28, 2014 primarily due to brand and corporate personnel and training to support the ongoing Pollo Tropical expansion into new markets and the impact of legal settlements and related costs. General and administrative expenses in the nine months ended September 27, 2015 include a charge for estimated costs related to a class action settlement plus legal fees and other costs incurred in defending the action totaling $1.1 million (see Note 6 to the condensed consolidated financial statements). General and administrative expenses in the nine months ended September 28, 2014 included the benefit of a $0.5 million payment received as a settlement of a litigation matter.
Adjusted EBITDA. Adjusted EBITDA, which is one of the measures of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance, is defined as earnings attributable to the applicable segment before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. Adjusted EBITDA may not be necessarily 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 accounting, legal, supply chain, development, and other administrative functions. Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see the heading entitled "Management's Use of Non-GAAP Financial Measures".
Adjusted EBITDA for Pollo Tropical increased to $44.0 million in the nine months ended September 27, 2015 from $39.2 million in the nine months ended September 28, 2014 due primarily to the net impact of the increase in revenues, partially offset

22


by legal settlements and related costs and an increase in pre-opening costs. Adjusted EBITDA for Taco Cabana increased to $30.0 million in the nine months ended September 27, 2015 from $25.8 million in the nine months ended September 28, 2014 also primarily due to the net impact of the increase in revenues.
Depreciation and Amortization. Depreciation and amortization expense increased to $21.8 million in the nine months ended September 27, 2015 from $17.0 million in the nine months ended September 28, 2014 due primarily to increased depreciation relating to new restaurant openings.
Impairment and Other Lease Charges. Impairment and other lease charges in the nine months ended September 27, 2015 primarily consisted of a $0.3 million lease charge related to the closure of a Pollo Tropical location that was relocated prior to the end of its lease term to a superior site in the same trade area, a $0.1 million lease charge related to a previously closed Pollo Tropical location and impairment charges totaling $0.1 million for Taco Cabana locations that have closed. Impairment and other lease charges in the nine months ended September 28, 2014 consisted of a $0.1 million impairment related to two Taco Cabana locations and a $0.2 million impairment charge representing the write-down of the carrying value to fair value of certain assets related to the Pollo Tropical location that closed in the third quarter of 2015. These charges were partially offset by recoveries of additional sublease income of $0.1 million related to two previously closed Pollo Tropical locations.
Each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event, including restaurants for which the related cash flows are below a certain threshold. After reviewing the specific cash flows and management’s plans related to the restaurants for which an impairment review was performed, we determined that no impairment was currently necessary. However, for three Pollo Tropical restaurants and one Taco Cabana restaurant, the projected cash flows were not substantially in excess of their carrying values. If the performance of these restaurants does not improve as projected, an impairment charge could be recognized in future periods, and such charge could be material.
Other (Income) Expense. Other income in the nine months ended September 27, 2015 primarily consisted of a previously deferred gain from a sale-leaseback transaction that was recognized upon termination of the lease as a result of an eminent domain proceeding and expected business interruption insurance proceeds for a Pollo Tropical location that was temporarily closed due to a fire. Other income in the nine months ended September 28, 2014 primarily consisted of a gain from a condemnation award resulting from an eminent domain proceeding related to a location that closed in the third quarter of 2014.
Interest Expense. Interest expense decreased $0.4 million to $1.3 million in the nine months ended September 27, 2015 from $1.7 million in the nine months ended September 28, 2014 due primarily to lower borrowing rates and higher capitalized interest in 2015.
Provision for Income Taxes. The provision for income taxes was derived using an estimated effective annual income tax rate of 37.8% for the nine months ended September 27, 2015 and 38.3% for the nine months ended September 28, 2014. The effective tax rate in the nine months ended September 27, 2015 decreased from the prior year due primarily to Work Opportunity Tax Credits related to employees hired in 2014 for which the credits were not available until 2015 and a lower Texas franchise tax rate in 2015.
Net Income. As a result of the foregoing, we had net income of $29.7 million in the nine months ended September 27, 2015 compared to net income of $27.2 million in the nine months ended September 28, 2014.
Liquidity and Capital Resources
We do not have significant receivables or inventory and receive trade credit based upon negotiated terms in purchasing food products and other supplies. We are able to operate with a substantial working capital deficit because:
restaurant operations are primarily conducted on a cash basis;
rapid turnover results in a limited investment in inventories; and
cash from sales is usually received before related liabilities for food, supplies and payroll become due.
Capital expenditures and payments related to our lease obligations represent significant liquidity requirements for us. We believe cash generated from our operations, availability of borrowings under our senior credit facility and proceeds from any sale-leaseback transactions which we may choose to do will provide sufficient cash availability to cover our anticipated working capital needs, capital expenditures and debt service requirements for the next twelve months.
Operating Activities. Net cash provided by operating activities in the first nine months of 2015 and 2014 was $59.0 million and $45.8 million, respectively. The increase in net cash provided by operating activities in the first nine months of 2015 was primarily driven by the increase in Adjusted EBITDA and the timing of payments. Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion of our use of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see "Management's Use of Non-GAAP Financial Measures".

23


Investing Activities. Net cash used in investing activities in the first nine months of 2015 and 2014 was $66.1 million and $51.5 million, respectively. Capital expenditures are the largest component of our investing activities and include: (1) new restaurant development, which may include the purchase of real estate; (2) restaurant remodeling/reimaging, which includes the renovation or rebuilding of the interior and exterior of our existing restaurants; (3) other restaurant capital expenditures, which include capital maintenance expenditures for the ongoing reinvestment and enhancement of our restaurants; and (4) corporate and restaurant information systems.
The following table sets forth our capital expenditures for the periods presented (in thousands):
 
Pollo
Tropical
 
Taco
Cabana
 
Other
 
Consolidated
Nine Months Ended September 27, 2015:
 
 
 
 
 
 
 
New restaurant development
$
51,175

 
$
3,882

 
$

 
$
55,057

Restaurant remodeling
826

 
1,897

 

 
2,723

Other restaurant capital expenditures (1)
2,078

 
3,119

 

 
5,197

Corporate and restaurant information systems
1,025

 
607

 
1,610

 
3,242

Total capital expenditures
$
55,104

 
$
9,505

 
$
1,610

 
$
66,219

Number of new restaurant openings
26

 
2

 
 
 
28

Nine Months Ended September 28, 2014:
 
 
 
 
 
 
 
New restaurant development
$
38,912

 
$
6,249

 
$

 
$
45,161

Restaurant remodeling

 
6,635

 

 
6,635

Other restaurant capital expenditures (1)
2,411

 
1,519

 

 
3,930

Corporate and restaurant information systems
197

 
377

 
2,638

 
3,212

Total capital expenditures
$
41,520

 
$
14,780

 
$
2,638

 
$
58,938

Number of new restaurant openings
17

 
3

 
 
 
20

 _____________
1)
Excludes restaurant repair and maintenance expenses included in other restaurant operating expenses in our consolidated financial statements. For the nine months ended September 27, 2015 and September 28, 2014, total restaurant repair and maintenance expenses were approximately $11.4 million and $11.2 million, respectively.    
For 2016, we anticipate that total capital expenditures will range from $95 million to $110 million.
In the first nine months of 2014, investing activities also included two sale-leaseback transactions related to our restaurant properties, the net proceeds from which were $5.7 million, as well as the sale of an excess Taco Cabana property, the net proceeds from which totaled $1.7 million.
Financing Activities. Net cash provided by financing activities in the first nine months of 2015 was $3.0 million and included net revolving credit borrowings under our senior credit facility of $1.5 million and the excess tax benefit from vesting of restricted shares of $1.5 million. Net cash used by financing activities in the first nine months of 2014 was $3.4 million and included net repayments of revolving credit borrowings under our senior credit facility of $5.0 million and the excess tax benefit from vesting of restricted shares of $1.7 million.
Senior Credit Facility. In December 2013, we terminated our former senior credit facility and entered into a new senior credit facility. The senior credit facility provides for aggregate revolving credit borrowings of up to $150 million (including $15 million available for letters of credit) and matures on December 11, 2018. The senior credit facility also provides for potential incremental increases of up to $50 million to the revolving credit borrowings available under the senior credit facility. On September 27, 2015, there were $67.5 million in outstanding revolving credit borrowings under our senior credit facility.
Borrowings under the senior credit facility bear interest at a per annum rate, at our option, equal to either (all terms as defined in the senior credit facility):
1) the Alternate Base Rate plus the applicable margin of 0.50% to 1.50% based on our Adjusted Leverage Ratio
(with a margin of 0.50% as of September 27, 2015), or
2) the LIBOR Rate plus the applicable margin of 1.50% to 2.50% based on our Adjusted Leverage Ratio (with a
margin of 1.50% at September 27, 2015).

24


In addition, the senior credit facility requires us to pay (i) a commitment fee based on the applicable Commitment Fee margin of 0.25% to 0.45%, based on our Adjusted Leverage Ratio, (with a margin of 0.25% at September 27, 2015) and the unused portion of the facility and (ii) a letter of credit fee based on the applicable LIBOR margin and the dollar amount of outstanding letters of credit.
All obligations under the senior credit facility are guaranteed by all of our material domestic subsidiaries. In general, our obligations under our senior credit facility and our subsidiaries’ obligations under the guarantees are secured by a first priority lien and security interest on substantially all of our assets and the assets of our material subsidiaries (including a pledge of all of the capital stock and equity interests of our material subsidiaries), other than certain specified assets, including real property owned by us or our subsidiaries.
The outstanding borrowings under the senior credit facility are prepayable without penalty (other than customary breakage costs). 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, 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, the senior credit facility requires us to maintain certain financial ratios, including minimum Fixed Charge Coverage and maximum Adjusted Leverage Ratios (all as defined under 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 of $5.0 million or more which results in the acceleration of such indebtedness prior to its stated maturity or is caused by a failure to pay principal when due.
As of September 27, 2015, we were in compliance with the covenants under our senior credit facility. After reserving $5.5 million for letters of credit issued under the senior credit facility, $77.0 million was available for borrowing under the senior credit facility at September 27, 2015.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no off-balance sheet arrangements other than our operating leases, which are primarily for our restaurant properties and not recorded on our consolidated balance sheet.
There have been no significant changes outside the ordinary course of business to our contractual obligations since December 28, 2014. Information regarding our contractual obligations is included under "Contractual Obligations" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014.