10-K 1 dfrgform10-k_20181225.htm FORM 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-35611
dfrglogo.jpg
Del Frisco’s Restaurant Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8453116
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2900 Ranch Trail,
Irving, TX
 
75063
(Address of principal executive offices)
 
(Zip code)
(469) 913-1845
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each Exchange on which registered
Common Stock, $0.001 par value per share
 
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     o   Yes     x   No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     o   Yes     x   No
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.     x   Yes     o   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x   Yes     o   No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act
Large accelerated filer
 
o
  
Accelerated filer
 
x
Non-accelerated filer
 
o
  
Smaller reporting company
 
o
 
 
 
 
Emerging growth company
 
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o   Yes     x  No
As of June 26, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock, $0.001 par value per share, held by non-affiliates was approximately $266.0 million.
As of March 6, 2019, 33,358,292 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year ended December 25, 2018 are incorporated by reference in Part III of this Annual Report on Form 10-K.




TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 


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FORWARD LOOKING STATEMENTS
Certain statements made or incorporated by reference in this report and our other filings with the Securities and Exchange Commission, in our press releases and in statements made by or with the approval of authorized personnel constitute 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, and are subject to the safe harbor created thereby. Forward looking statements reflect intent, belief, current expectations, estimates or projections about, among other things, our industry, management’s beliefs, and future events and financial trends affecting us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will," "should," "could" and variations of these words or similar expressions are intended to identify forward looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are reasonable, such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include, but are not limited to, the following:
economic conditions (including customer spending patterns);
our ability to compete;
our ability to implement our growth strategy, including opening new restaurants, operating them profitably and accelerating development of our brands;
customer experiences or negative publicity surrounding our restaurants;
pricing and deliveries of food and other supplies;
changes in consumer tastes and spending patterns;
laws and regulations affecting labor and employee benefit costs, including increases in state and federally mandated minimum wages;
labor shortages;
general financial and credit market conditions;
fixed rental payments and the terms of our indebtedness;
cyber security customer information;
the Barteca Acquisition;
valuation allowance; and
other factors described in "Item 1A. Risk Factors" included elsewhere in this Annual Report.
All forward-looking statements in this report, or that are made on our behalf by our directors, officers or employees related to the information contained herein, apply only as of the date of this report or as of the date they were made. We undertake no obligation, except as required by applicable law, to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

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PART I
Item 1.    Business
We were initially organized as a Delaware limited liability company on June 30, 2006 in connection with the acquisition by our former principal stockholder of Lone Star Steakhouse & Saloon, Inc., which owned the Del Frisco’s and Sullivan’s restaurant concepts. Following the acquisition, the company was restructured to separate certain other Lone Star Steakhouse & Saloon concepts by, among other things, spinning off the subsidiaries that owned and operated those concepts. We converted from a Delaware limited liability company to a Delaware corporation in July 2012 in connection with our initial public offering. Unless the context otherwise indicates, all references to ("we," "us," "our," “Del Frisco’s” or the “Company”) refer to Del Frisco’s Restaurant Group, Inc. and its subsidiaries.
On June 27, 2018, we completed the acquisition (the “Barteca Acquisition”) of Barteca with two restaurant concepts: Barcelona Wine Bar (“Barcelona”) and bartaco. We believe that Barcelona and bartaco are innovative concepts, which are highly complementary and will provide Del Frisco’s portfolio with significant growth and development opportunities, enabling us to capture market share in the experiential dining segment, while mitigating the effects of seasonality and the risk of economic downturns to our restaurant portfolio.
On September 21, 2018, we sold all of the outstanding equity interests in our Sullivan’s Steakhouse business (“Sullivan’s") to Sullivan’s Holding LLC, a Delaware limited liability company and affiliate of Romano’s Macaroni Grill.
Our Company
We develop, own and operate four contemporary and complementary restaurants: Del Frisco’s Double Eagle Steakhouse (“Double Eagle”), Barcelona, bartaco, and Del Frisco’s Grille (“Grille”). We are a leader in the experiential dining segment based on average unit volume (“AUV”) and restaurant-level EBITDA margin. We believe the success of our brands reflect relentless and consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of a positive guest experience that leaves a lasting impression. We currently operate 73 restaurants in 16 states and the District of Columbia. The Double Eagle and Grille are positioned within the fine dining segment and are designed to appeal to both business and local dining customers. Our Double Eagle restaurants are sited in urban locations to target customers seeking a “destination dining” experience, while our Grille restaurants are intended to appeal to a broader demographic, allowing them to be located either in urban areas or in close proximity to affluent residential neighborhoods. The Double Eagle and Grille offer steaks as well as other menu selections, such as chops and fresh seafood. These menu selections are complemented by an extensive, award-winning wine list. Barcelona and bartaco are designed to provide guests with a polished experience by serving seasonal flavorful food with welcoming service in an attractive and lively atmosphere. By offering this experience at an affordable price point, we believe this generates broad appeal across a wide guest demographic. This broad appeal has enabled Barcelona and bartaco to expand to locations in a variety of markets, including urban, tertiary and college towns. We believe our success reflects consistent execution across all aspects of the dining experience, from the formulation of proprietary recipes to the procurement and presentation of high quality menu items and delivery of a positive customer experience.
Del Frisco’s Double Eagle Steakhouse
We believe the Del Frisco’s Double Eagle Steakhouse is one of the premier steakhouse concepts in the United States. The Del Frisco’s Double Eagle brand is defined by its menu, which includes USDA Prime grade, wet-aged and dry-aged steaks hand-cut at the time of order and a range of other high-quality offerings, including wagyu, prime dry-aged lamb, fresh seafood, and signature side dishes and desserts. It is also distinguished by its “swarming service,” whereby customers are served simultaneously by multiple servers. Each restaurant has a sommelier to guide diners through an extensive, award-winning wine list and our bartenders specialize in hand-shaken martinis and crafted cocktails. Del Frisco’s Double Eagle restaurants target customers seeking a full-service, fine dining steakhouse experience. We believe the décor and ambiance, with both contemporary and classic designs, enhance our customers’ experience and differentiate Del Frisco’s Double Eagles from other upscale steakhouse concepts. We currently operate 16 Double Eagle steakhouses in eleven states and the District of Columbia. These restaurants range in size from 11,000 to 24,000 square feet with seating capacity for at least 300 people. Additional Double Eagle openings are planned over the next year, and we anticipate they will range in size from 12,000 to 16,000 square feet. AUVs per Double Eagle for locations open the entire year were $13.6 million for the fiscal year ended December 25, 2018. During the same period, the average check at these Double Eagle locations was $123.

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Barcelona Wine Bar
Founded in 1996, Barcelona Wine Bar is a neighborhood Spanish tapas bar that offers simple and elegant small plates and an award-winning wine list. The seasonal, high quality menu combines bold flavors with unique specialties from Spain and the Mediterranean. Barcelona has a superior Spanish wine program and offers an extensive selection of wines from Spain and South America, including over 40 wines by the glass. In 2018, all Barcelona restaurants won Wine Spectator’s “Best Of” Award of Excellence. We design our restaurants with the goal of creating a timeless, sophisticated and vibrant atmosphere. We currently operate 15 locations in seven states and the District of Columbia. Our typical restaurant size is approximately 4,500 square feet.  AUVs per Barcelona for locations open the entire year were $4.5 million for the fiscal year ended December 25, 2018. During the same period, the average check at these Barcelona locations was $34.
bartaco
Inspired by a healthy, outdoor lifestyle, the first bartaco location was opened in 2010. The cuisine pulls from a broad palate of bold, spicy flavors from the Mediterranean, Asia and beyond, while our handcrafted cocktails are made with artisanal spirits and freshly-squeezed juices. We aim to create the comfortable yet energetic atmosphere of a rustic beach shack in our restaurants. The minimalistic décor is light and breezy, featuring reclaimed wood, hand-woven basket lights and painted tiles. In addition, our outdoor patios feature lively bars, fireplaces and inviting seating options. We currently operate 18 locations in ten states. Our typical restaurant size is approximately 4,500 square feet. bartaco combines fresh, upscale street food with a coastal vibe in a relaxed environment. AUVs per bartaco for locations open the entire year were $5.0 million for the fiscal year ended December 25, 2018. During the same period, the average check at these bartaco locations was $23.
Del Frisco’s Grille
We developed the Grille in 2011 to take advantage of the positioning of the Del Frisco’s brand and to provide greater potential for expansion due to its smaller size, lower buildout cost and more diverse menu. The Grille has a refreshing, modern menu that draws inspiration from bold flavors and fresh ingredients. Borrowing from the Del Frisco’s heritage, it appeals broadly to both business and casual diners with the same high quality Double Eagle prime aged steaks, top selling signature menu items and a broad selection of the same quality wines. In addition, the Grille has an extensive menu creating new twists on American comfort classics, including regional flavors and locally sourced ingredients. We believe the ambiance of the concept appeals to a wide range of customers seeking a less formal atmosphere for their dining occasions. Each Grille features a bar that is the centerpiece for a great night out. In 2017, we carried out an in-depth brand analysis with a leading third party consultant to assist us in better understanding the Grille concept’s growth opportunities and target guests. We currently operate 24 Grilles in eleven states and the District of Columbia. AUVs per Grille restaurant for locations open the entire year were $5.3 million for the fiscal year ended December 25, 2018. During the same period, the average check at these Grille locations was $51.
Site Selection and Development
We believe site selection is critical for the potential success of our restaurants. We have partnered with a third party master broker to source potential sites against a set of clear criteria for each Brand. We carefully consider growth opportunities for each of our restaurant concepts and utilize a customized approach for each concept when selecting and prioritizing markets for expansion. We perform comprehensive demographic and customer profile studies to evaluate and rationalize the trade areas and sites within each desired market. We leverage a significant number of sources to produce extensive research and analysis on the dynamics of the local area, the specific attributes of each site considered and the unit economics we believe we can realize. Our evaluation process also includes working with a leading third party spatial analytics company, which has developed a customized model to determine the most attractive locations for each of our Brands and produces a predictive sales scoring package for specific sites. A Real Estate Committee, consisting of members of the Board and senior management, visits, assesses and approves each site against a set of clear criteria. 
For the Double Eagle brand, we focus primarily on sites in urban locations that allow us to easily access business clientele and customers seeking a premium dining experience. Many of our Double Eagle restaurants are in marquee locations, including waterfront property, popular shopping districts and active business centers. For our Barcelona and bartaco concepts, we focus on a mix of urban/metropolitan and suburban core locations.  We seek sites that allow us to establish a neighborhood feel where guests come to rely on us as their go to dining destination across multiple dayparts.  Wealthier, more sophisticated college towns have proven to be key target markets.  For our Grille concept, we target sites in high traffic urban and suburban locations in close proximity to affluent residential areas. Our site assessment analysis includes three primary components: customer profiling (demographics, lifestyle segmentation, spend metrics, clustering/density analysis), trade area and site evaluation (physical inspection, competitive benchmarking, analysis of business generators/traffic patterns), and financial modeling (square footage and seat count analysis, predictive sales analytics, margin evaluations, investment cost and return metrics). Understanding our customers is an essential element of our market planning and site selection processes. We have developed a customer profile model for each of our concepts to help guide our development efforts and educate our development partners.

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We look for the following minimum criteria in our site trade areas:
 
 
Population(a)
 
Daytime
Population(a)
 
Average HH
Income
 
Priority Age
Blocks(b)
 
Traffic
Counts(c)
 
 
 
 
 
 
 
 
 
 
 
dflogo.jpg
 
100,000+
 
150,000+
 
$100,000+
 
35-44; 45-54;
55-64
 
40,000+
 
 
 
 
 
 
 
 
 
 
 
barcelonalogo.jpg
 
50,000+
 
100,000+
 
$100,000+
 
35-44
 
30,000+
 
 
 
 
 
 
 
 
 
 
 
bartacologo.jpg
 
40,000
 
67,500
 
$100,000+
 
35-44
 
25,000+
 
 
 
 
 
 
 
 
 
 
 
dfgrillelogo.jpg
 
75,000+
 
100,000+
 
$75,000+
 
25-34; 35-44;
45-54
 
25,000+
 
 
 
 
 
 
 
 
 
 
 
(a)Represents the population within a customized target area generally with less than a 20-minute drive time.
(b)Represents the targeted age demographics for a prospective site.
(c)Represents the targeted average daily vehicle traffic for a prospective site.
We expect the size of new Double Eagle restaurants to range from 12,000 to 16,000 square feet, new Barcelona and bartaco restaurants to be approximately 4,500 square feet, and new Grille restaurants to range from 6,500 to 8,000 square feet. For the opening of a new restaurant, we measure our cash investment costs net of landlord contributions and equipment financing and including pre-opening costs. We target average cash investment costs of $8.0 million to $9.0 million for a new Double Eagle, $3.1 million to $3.5 million for a new Barcelona, $2.5 million to $3.0 million for a new bartaco, and $5.0 million to $6.0 million for a new Grille. For our three primary growth brands the Double Eagle, Barcelona and bartaco, we target a cash-on-cash return beginning in the third operating year of at least 40% (excluding pre-opening expense). To achieve these returns, we target restaurant-level EBITDA margins of 24% to 27% for the Double Eagle, 23% to 26% for Barcelona and 24% to 27% for bartaco.
We believe there are opportunities to open eight to twelve new restaurants annually, generally composed of two to three Double Eagle restaurants, two to three Barcelona restaurants and four to six bartaco restaurants. New openings of our Double Eagle, Barcelona and bartaco concepts will serve as the primary driver of new unit growth in the near term. During the fiscal year ending on December 31, 2019, we expect to open one Double Eagle restaurant, two to three Barcelona restaurants and three to four bartaco restaurants. We expect to open no Grilles in 2019 or 2020 as we evaluate the performance of 2018 openings which incorporate lessons learned from our 2017 consulting project. It generally takes 9 to 12 months after the signing of a lease to complete construction and open a new restaurant. Additional time is sometimes required to obtain certain government approvals, permits and licenses, such as liquor licenses.
Restaurant Operations and Management
Our restaurants have a distinctive combination of food, atmosphere and service in an upscale environment. We believe that our success reflects the consistency of our execution across all aspects of the dining experience, from the formulation of proprietary recipes, to the procurement and presentation of high quality menu items and the delivery of a positive customer experience. We strive to provide quality through a carefully controlled and established supply chain and proven preparation techniques.
Depending on the volume of each restaurant, our typical restaurant-level management team ranges from 4 to 10 people including one general manager, one executive chef and a team of assistant managers and sous chefs. We also have an experienced team of regional directors to oversee operations at multiple restaurants. To ensure that each restaurant and its employees meet our demanding performance requirements, we have developed a set of strict operational standards that are followed in all facets of our operations. For example, these standards are used to develop corporate recipes, many of which are proprietary, that are adhered to across all of our restaurants. These standards also mandate a quality control process for the menu items in each of our restaurants that our chefs and managers oversee before each shift. This quality control process includes the full preparation of each item on our menu, other than our steaks, and the testing of each of these items for presentation, taste, portion size and temperature before they are prepared for our customers. Items that do not meet our rigorous standards are re-made until they do. We believe this process of full preparation for testing differentiates us from our competition.

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The consistent execution at our restaurants is a result of the extensive training and supervision of our employees. Our general managers are typically required to undergo at least eight to ten weeks of initial training in food quality, customer service, alcohol beverage service, liquor liability avoidance and employee retention programs. Each of our new hourly employees also typically participates in a training program during which the employee works under the close supervision of his or her general manager. Our chefs and their assistants receive extensive training in food quality, food supply management and kitchen maintenance. All of our employees are trained to uphold each concept’s distinct characteristics and our overall values and operating philosophy.
Our training programs are administered by the general manager at each restaurant and supervised by our chief people officer and a dedicated training director for each concept. This training team ensures that all new general managers have developed a comprehensive set of tools that they can use to manage their restaurant, including employee selection, performance management and wage and hourly compliance. We also require each general manager to obtain a mandatory internal certification in areas of the kitchen, dining room and bar area. Our training team also supports new restaurant openings. Each of our concepts have developed a streamlined training program that ensures employees opening a new restaurant function as a cohesive team and maintain our high operational and food preparation standards. As a result, our corporate and concept-level infrastructure supports our growth strategy, allowing us to successfully replicate our standards in new restaurants.
Sourcing and Supply Chain
Our ability to ensure a consistent supply of safe, high-quality food and supplies at competitive prices to all our restaurant brands depends on reliable sources of procurement. Our supply chain team along with a third-party consultant source product from approved local, regional and national suppliers. All suppliers must meet our food safety and quality standard requirements. We continually research and evaluate products and supplies to ensure high quality meat, seafood, produce and other menu ingredients. The company purchases beef from two main suppliers: Stock Yards, a division of U.S. Foods, Inc., and Halpern’s, a wholly owned subsidiary of Gordon Foodservice, Inc. In addition, the company has a strong distribution relationship with Distribution Market Advantage, Inc., on a national basis to ensure that our restaurants receive a constant supply of products. Supply chain management negotiates directly with suppliers of meat, seafood, produce and certain other food and beverage products to ensure availability of supply, food safety, consistent quality and freshness.
Our Culinary leadership and supply chain establish strict product specifications for items purchased at the local, regional and national levels. Purchasing at each restaurant is directed primarily by each restaurant’s chef, who is trained in our purchasing philosophy and specifications, and who works with regional and corporate managers to ensure consistent products. Many of our restaurants also have an in-house sommelier responsible for purchasing wines based on customer preferences, market availability and menu content.
We have not experienced any significant delays in receiving restaurant supplies and equipment. Although we currently do not engage in futures contracts or other financial risk management strategies with respect to potential price fluctuations, from time to time, we may opportunistically enter into fixed price beef supply contracts or contracts for other food products or consider other risk management strategies with regard to our meat and other food costs to minimize the impact of potential price fluctuations. This practice could help stabilize our food costs during times of fluctuating prices, although there can be no assurances that this will occur.
Quality Assurance
To ensure that all restaurants provide safe, high-quality food in a clean and safe environment, we purchase only products from approved sources that meet or exceed our product specifications and standards. We rely on independent third parties to inspect and evaluate our suppliers and distributors. Suppliers are required to maintain sound manufacturing practices and operate with the comprehensive Hazard Analysis and Critical Control Point (HACCP) food safety programs and risk-based preventative controls adopted by the U.S. Food and Drug Administration. These programs focus on preventing hazards that could cause food-borne illnesses by applying scientifically-based controls to analyze hazards, identify and monitor critical control points, and establish corrective actions when monitoring shows that a critical limit has not been met. Our third-party auditors visit each restaurant regularly throughout the year to review food handling and to provide education and training in food safety and sanitation.
Information Technology and Cybersecurity
To provide industry best guest experience within our brands, Del Frisco’s Restaurant Group leverages enterprise-class technology.  Implemented technologies act as an enabler to assist with executing our strategies. Technologies focus on enabling the business to achieve visibility and to effect improvements in areas of:  financial control, cost management, guest experience and team member effectiveness, in order to drive operational excellence.
Del Frisco’s Restaurant Group maintains internal support through our Restaurant Support Center, based in Irving, Texas, for all restaurant level technologies, for all brands.  Secondary support is regularly provided by the technologies service provider via a

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service level agreement.  Del Frisco’s Restaurant Group leverages various technologies to help drive operational excellence. In utilizing such tools, the access to near real-time data is essential for in-moment management.  To support restaurant level tools, encrypted data is transmitted throughout the day and night, providing timely information to all levels of the business. Our information is transmitted in a secure method to protect both our data and computing environment. We guard against business interruption by maintaining a disaster recovery plan, which includes storing critical business information via a hybrid strategy which includes on-site, cloud environments, replicated virtual environments, and testing plan. Del Frisco’s Restaurant Group predominantly uses commercially available software and hardware, each supported by enterprise class service providers.
Cybersecurity and data protection remain as an area of focus for Del Frisco’s Restaurant Group.  In 2018, we invested in a company-wide network reengineering initiative.  Firewalls, switches and circuits were all upgraded and redesigned to ensure internal and external systems maintained strict segmentation and policies to safeguard data.  Del Frisco’s performs quarterly scans and reviews intrusion dashboards to proactively determine if data is at risk.  Additionally, Del Frisco’s subscribes to outside services to tokenize credit card transactions and customer data. We remain constantly vigilant of emerging risks and ever-changing compliance requirements to ensure we make strategic investments to protect company, customer and team member data.  
Marketing and Advertising
We believe that our commitment to providing quality food, hospitality, service and a high level of value for each price point is an effective approach to attracting customers and maintaining their loyalty. We use a variety of national, regional and local marketing and public relations techniques intended to maintain and build our customer traffic, maintain and enhance our concepts’ images and continually improve and refine our upscale experience. In addition, local restaurant marketing is important to the success of our concepts. For example, each restaurant’s general manager cultivates relationships with local businesses and luxury hotels that drive the restaurant’s business, in particular its private dining business. We also work with a national public relations firm that coordinates local firms in connection with new restaurant openings. The Double Eagle, Barcelona, bartaco and Grille each use specific marketing and advertising initiatives to position the concepts in the applicable segment of our industry, including advertisement placement in magazines, digital advertising and social media targeting the affluent segment of the population.
Competition
The full-service steak industry and general upscale restaurant businesses are highly competitive and fragmented, and the number, size and strength of competitors vary widely by region, especially within the general upscale restaurant segment. We believe restaurant competition is based on quality of food products, customer service, reputation, restaurant décor, location, name recognition and price. Depending on the specific concept, our restaurants compete with a number of restaurants within their markets, both locally-owned restaurants and restaurants that are part of regional or national chains. The principal competitors for our Double Eagle concept are other upscale steakhouses including local independents and chains such as Mastro’s Steakhouse, Fleming’s Prime Steakhouse and Wine Bar, The Capital Grille, Smith & Wollensky, The Palm, Ruth’s Chris Steak House and Morton’s The Steakhouse. The principal competitors for our Barcelona concept are Toro, Jaleo, North Italia, Eureka! and Tupelo Honey Café. The principal competitors for our bartaco concept are Velvet Taco, Tortas Frontera, Superica, Xoco, True Food Kitchen and Sweetgreen. The principal competitors for our Grille concept include other upscale chains such as Hillstone, Seasons 52, Houston’s, Paul Martin’s American Grill and Earl’s Kitchen + Bar. Our concepts also compete with additional restaurants in the broader upscale dining segment.
Seasonality
Our business is subject to seasonal fluctuations comparable to most restaurants. Historically, like other restaurants in our segment, the percentage of our annual revenues earned during the first and fourth fiscal quarters has been typically higher due to holiday traffic, increased gift card purchases and redemptions and increased private dining during the year-end holiday season. In addition, we operate on a 52- or 53-week fiscal year ending the last Tuesday of each December. In fiscal 2018, we changed to a fiscal quarter calendar where each quarter contains 13 weeks, other than in a 53-week year where the last quarter of the year will contain 14 weeks. Prior to fiscal 2018, the first three quarters of our fiscal year consisted of 12 weeks and the fourth quarter consisted of 16 weeks or 17 weeks in a 53-week year. The fiscal years ended December 25, 2018, December 26, 2017 and December 27, 2016, which we refer to as fiscal 2018, fiscal 2017 and fiscal 2016, respectively, had 52 weeks. The following fiscal year that will end on December 31, 2019, which we refer to as fiscal 2019, will also have 53 weeks.
Intellectual Property
We have registered the names Del Frisco’s, Double Eagle Steakhouse, Barcelona Wine Bar, bartaco and Del Frisco’s Grille and have applications pending to register certain other names and logos as trade names, trademarks or service marks with the United States Patent and Trademark Office and in certain foreign countries. We have the exclusive right for use of these trademarks throughout the United States, other than with respect to the following. A third party that operates a single restaurant in Louisville, Kentucky has an exclusive license to use Del Frisco’s name within a 50-mile radius of Louisville, Kentucky. We do not have any

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right to any future or recurring payments from or have any affirmative payment obligations to the third party and they are responsible for all costs associated with running their respective location, including all commodity and labor costs and any risks related thereto.  In fiscal 2016, we entered into an agreement to obtain and clarify the naming rights in certain counties in Kentucky, Indiana and Ohio related to this unrelated third party for aggregate consideration of $0.6 million. We are also aware of names similar to those of our restaurants used by various third parties in certain limited geographical areas. We believe that our trade names, trademarks and service marks are valuable to the operation of our restaurants and are important to our marketing strategy.
Government Regulation
Our restaurants are subject to licensing and regulation by state and local health, safety, fire and other authorities, including licensing and regulation requirements for the sale of alcoholic beverages and food. We maintain the necessary restaurant, alcoholic beverage and retail licenses, permits and approvals. The development and construction of additional restaurants will also be subject to compliance with applicable zoning, land use and environmental regulations. Federal and state labor laws govern our relationship with our employees and affect operating costs. These laws regulate, among other things, minimum wage, overtime, tips, tip credits, unemployment tax rates, workers’ compensation rates, health insurance, citizenship requirements and other working conditions. Our restaurants are subject in each state in which we operate to “dram shop” laws, which allow, in general, a person to sue us if that person was injured by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could exceed our liability insurance coverage policy limits and could result in substantial liability for us and have a material adverse effect on our results of operations and financial condition. Our inability to continue to obtain such insurance coverage at reasonable costs also could have a material adverse effect on us. We are also subject to the federal Americans with Disabilities Act, which prohibits discrimination on the basis of disability in public accommodations and employment.
Celebrating Life in The Community
A significant part of “Celebrating Life in Restaurants”, from extraordinary events to those everyday moments with friends and family, to supporting our team members' journeys in their celebration of life, comes from our investment to the communities where we are located, to those in need, and to our team members and guests.  We believe quality service extends beyond our restaurants and into the larger community. Our love for what we do fuels our passion for providing support to causes close to our heart.
St. Jude Children’s Research Hospital ® 
We are thrilled to partner with St. Jude Children’s Research Hospital®. We believe our national partnership with St. Jude will benefit both organizations and those in the communities in which we have a presence. “Celebrating Life in Restaurants” starts with celebrating life and is intended to ensure children live to see the other side of childhood cancer.
Veteran Roasters
Del Frisco’s Restaurant Group is paying back our veterans in need one cup at a time. We have partnered with Veteran Roasters Cup O’ Joe, a company that serves the bigger cause of ending homelessness and unemployment for veterans, while roasting incredible coffee. Veterans have defended our freedom, and we are thrilled to be able to support those who put their lives on the line for our safety.
CitySquare
CitySquare’s partnership with Del Frisco’s Restaurant Group manifests itself in many ways. CitySquare has been the beneficiary of the DFRG 5K Walk & Run for the past three years. It is a way for DFRG employees to give back and raise community awareness of the issues of poverty in Dallas. Beyond the financial support, leftover collateral including t-shirts, swag bags, and food items go to CitySquare programs to meet ongoing needs. The food is distributed through the Food Pantry and the reusable bags and t-shirts are available for any of the neighbors who are in need. For the last two years, Del Frisco’s Restaurant Group has also sponsored CitySquare’s annual “A Night to Remember” event with proceeds raised to support its mission of feeding the hungry, healing the sick, housing the homeless and renewing hope in the heart of Dallas. DFRG employees have also supported CiySquare by hosting coat drives to prepare for the winter, hiring hospitality graduates at DFRG restaurants, and providing the meal for the annual AmeriCorps Brunch, a celebration of the CitySquare AmeriCorps members who donate their time and skills to fight poverty. 
DFRG Employee Support Fund
The DFRG employee support fund was created in 2016 to help our Team Members in times of need when suffering from a catastrophic event in their life resulting in financial hardship.  Financial assistance granted from the DFRG FEED fund is a gift, not a loan and is not required to be paid back.

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Employees
As of December 25, 2018, we had approximately 6,595 employees. Many of our hourly employees are employed on a part-time basis to provide services necessary during peak periods of restaurant operations. None of our employees are covered by a collective bargaining agreement. We believe that we have good relations with our employees.
Executive Officers and Key Employees
The following table sets forth certain information regarding our executive officers and certain of our key employees.
Name
 
Age
 
Position
Norman J. Abdallah
 
56
 
Chief Executive Officer; Director
Neil Thomson
 
48
 
Chief Financial Officer
Brandon C. Coleman
 
36
 
President, Del Frisco's Grille
Thomas G. Dritsas
 
48
 
Senior Vice President of Culinary & Corporate Executive Chef
Adam Halberg
 
43
 
President, Barcelona
William S. Martens
 
45
 
Executive Vice President, Chief Development Officer
Mia Meachem
 
52
 
Chief Marketing Officer
Sabato Sagaria
 
43
 
President, bartaco
Juan Salas
 
45
 
Chief Technology Officer
April L. Scopa
 
51
 
Executive Vice President, Chief People Officer
Scott C. Smith
 
63
 
President, Del Frisco’s Double Eagle
Norman J. Abdallah has served as Chief Executive Officer since November 2016. Mr. Abdallah has also served as a member of the Board since July 2012. Mr. Abdallah also served as a member of the Company’s Advisory Board from March 2011 to July 2012. Previously, Mr. Abdallah served as an Operating Partner for CIC Partners, a private equity firm, in the role of Chief Executive Officer of TM Restaurant Holdings LLC from September 2014 to September 2016 and Executive Chairman of Willies Grill & Icehouse Holdings LLC, a restaurant company, from September 2014 to October 2016. From December 2013 through September 2014, Mr. Abdallah served as Chief Executive Officer of Counter Concepts, LLC, a private equity firm. From May 2013 through December 2013, Mr. Abdallah served as interim Chief Executive Officer of Dinosaur Bar-B-Que, a restaurant operating company. Mr. Abdallah formerly served as the Chief Executive Officer of Romano’s Macaroni Grill, a restaurant operating company, from 2010 through April 2013. Prior to joining Romano’s Macaroni Grill, Mr. Abdallah served as Chief Executive Officer of Restaurants Unlimited Inc., a privately-held multi-concept restaurant company, from 2009 to 2010. Prior to joining Restaurants Unlimited, Mr. Abdallah served as the Chief Executive Officer and Co-Founder of Fired Up, Inc., the parent company of U.S.-based casual dining concept Carino’s Italian, from 1997 to 2008. Mr. Abdallah has also served as a member of the Board of Directors of California Pizza Kitchen, Inc., a restaurant operating company, from 2011 to April 2013.
Neil Thomson has served as Chief Financial Officer since May 2017. Prior to Del Frisco’s, he served as Chief Growth Officer of the Pizza Hut Asia Pacific region, a position he held from January 2017 to May 2017. Before that, Mr. Thomson served as the Chief Development Officer for Pizza Hut International from January 2014 to December 2016. Prior to that, he served for two years as the Vice President of Finance for Yum! Restaurants International, an international owner, operator and franchisor of restaurants, from January 2012 to December 2013. He also served as the CFO of Yum! Restaurants International India subcontinent business from 2007 to 2011 and at KFC UK from 2002 to 2007 he served initially as Controller and subsequently as Commercial Director. Prior to joining Yum!, Mr. Thomson held the role of Finance Director at an internet start-up company. Mr. Thomson also served in a number of finance and supply chain roles for five years at McDonald’s UK after starting his career at KPMG in London.
Brandon C. Coleman has served as President of Del Frisco’s Grille since September 2017. Before this role, he served as Chief Marketing Officer from December 2016 until September 2017. Prior to joining our company, from 2013 to 2016, Mr. Coleman served as the Chief Executive Officer and lead management consultant for Brava Partners, a brand consulting firm, where he led engagements for over nineteen brands. Prior to Brava Partners, in 2013, Mr. Coleman served as the Chief Marketing Officer for Snapfinger, Inc., an online restaurant ordering and technology company, where he led sales, marketing and product development initiatives. Prior to Snapfinger, Inc., from 2010 to 2013, Mr. Coleman served as the Chief Marketing Officer for Romano’s Macaroni Grill, a restaurant operating company.  Prior to Macaroni Grill, from 2009 to 2010, Mr. Coleman served as the Vice President of Marketing for Restaurants Unlimited, Inc. Mr. Coleman’s career began with global advertising leader McCann Erickson NY.
Thomas G. Dritsas was promoted to Senior Vice President of Culinary & Corporate Executive Chef in June of 2018. Mr. Dritsas has served as Vice President of Culinary & Corporate Executive Chef since December 2006 and oversees the day to day culinary operations of Del Frisco’s, Barcelona, bartaco and the Grille. From 2003 to 2006, Mr. Dritsas served as Corporate Executive Chef

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for Lone Star Steakhouse & Saloon, Inc., during which time he oversaw the daily culinary operations for each of its concepts. Mr. Dritsas joined Lone Star Steakhouse & Saloon, Inc. in 1999 and served in various culinary capacities, including as part of new opening teams. Prior to joining Lone Star Steakhouse & Saloon, Mr. Dritsas assisted in the opening of numerous independent restaurants and operated his own restaurant.
Adam Halberg has served as President of Barcelona Wine Bar since June 2018. Prior to joining our company, from June 2016 to June 2018, Mr. Halberg led the Barcelona Wine Bar brand as President and as Senior Vice President of Operations at Barteca Holdings, LLC. Prior to this role Mr. Halberg served as the Senior Vice President of Culinary for the Barteca Restaurant Group, overseeing all kitchens and Purchasing for both Barcelona Wine Bar and bartaco from April 2014 to June 2016. Prior to this Mr. Halberg held a position of Culinary Director for Barcelona Wine Bar from 2008 to 2014 and for bartaco from 2010 to 2014. Prior to joining Barcelona Wine Bar, Mr. Halberg held Chef positions at award-winning restaurants in Boston and Atlanta. He trained in kitchens in Italy and Spain under multiple James Beard Award winning chefs.
William S. Martens was promoted to Executive Vice President and Chief Development Officer in October of 2017. Mr. Martens served as Chief Development Officer since November 2016, and previously as Vice President of Development & Construction since 2011, and is responsible for market planning, site selection, site acquisition and construction for our four concepts. Mr. Martens also oversees concept design, portfolio management and facilities operations. Mr. Martens has been with us since 2008, previously serving as our Director of Development where he managed all facets of new unit development and established the infrastructure to support our growth in new and existing markets. Before joining our company, Mr. Martens served as Vice President of Portfolio Management with Hudson Americas, LLC, from 2007 to 2008. Prior to Hudson Americas, Mr. Martens spent nine years with Yum! Brands, where he held multiple leadership roles in Finance and Development, including the position of Senior Manager of Development. In this role, he worked with senior brand leadership teams to develop market plans, define asset strategies and make capital appropriations decisions for approximately 350 new restaurants annually.
Mia Meachem has served as Chief Marketing Officer since July 2018. Ms. Meachem has nearly 20 years of experience in marketing, with a track record of success in a variety of luxury environments, including restaurants, retail and fashion.  Prior to joining our company, from 2015 to July 2018, Ms. Meachem served as Chief Marketing Officer for Highland Park Village, a luxury shopping center, where she developed strategies for customer growth for 65+ luxury retailers. Prior to Highland Park Village, from 2011-2015, Ms. Meachem worked for the Neiman Marcus Group, a luxury department store, as the Vice President Marketing and Vice President, Brand Marketing and Partnership where she created impactful campaigns to drive customer engagement and growth. Prior to the Neiman Marcus Group, from 2008-2010, Ms. Meachem served as Director of Global Brand Management for Burt’s Bees, a personal care company, where she was responsible for the global brand development. Prior to Burt’s Bees, Ms. Meachem worked at the Estee Lauder Companies from 2008 in various roles of increasing responsibility where she oversaw and guided the global brand development for multiple brands including the Origins brand. Ms. Meachem began her career with the luxury automotive manufacturer Land Rover where she worked from 1989 to 1998.  Ms. Meachem was instrumental in helping the brand establish a presence in the US and experience significant growth.
Sabato Sagaria has served as President of bartaco since June 2018. Prior to joining our company, from October 2017 to June 2018, Mr. Sagaria led the bartaco brand as President, at Barteca Holdings, LLC, where he has led the team overseeing operations, culinary, learning and development. Prior to this role Mr. Sagaria served as Chief Restaurant Officer for Union Square Hospitality Group from November 2013 to October 2017 growing their collection of restaurants from eight to 18 throughout New York City. Prior to Union Square Hospitality Group, from 2007 to 2013, Mr. Sagaria presided over the food and beverage operations at The Little Nell Hotel in Aspen Colorado as Food and Beverage director. Prior to this role Mr. Sagaria was Wine Director at The Inn at Little Washington from 2006 to October 2007. Mr. Sagaria's wine career began in 1997 at The Greenbrier Hotel in West Virginia as Beverage Director. In 2012 Mr. Sagaria passed the Master Sommelier exam becoming the 120th Master Sommelier in the United States and is one of 250 Master Sommeliers worldwide.
Juan Salas has served as Chief Technology Officer since June 2017. In his role, Mr. Salas partners with the senior brand leadership team developing technology strategies to implement best-in-class enterprise systems. He is responsible for our company's technology, information, and data security platforms. Prior to joining our company, from January 2014 to June 2017, Mr. Salas served as Chief Information Officer for Dallas based Good Smoke Restaurant Group, owner and operator of Dinosaur Restaurants, LLC and Jim ‘n Nicks BBQ. Prior to Good Smoke Restaurant Group, in 2013 Mr. Salas served as a Senior IT Consultant to various companies. Prior to being a consultant, Mr. Salas served as Senior Vice President of IT at Romano’s Macaroni Grill. Mr. Salas brings more than twenty-five years of restaurant and technology experience to our company, previously serving in Technology Leadership roles for brands such as: Raising Cane’s Chicken Fingers, AFC Enterprises and Fired Up, Inc. During Mr. Salas’ tenure with these brands, he has successfully led large scale systems integrations, developed growth platforms, and implemented startup businesses.
April L. Scopa was promoted to Executive Vice President and Chief People Officer in October 2017. Previously Ms. Scopa served as Chief People Officer, a position she held from November 2016 to October 2017, and as Vice President of People and Education

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from June 2011 to November 2016, and is responsible for recruiting, human resources, talent development and training strategy. Prior to joining our company, Ms. Scopa worked with Landmark Leisure Group, a national leader in entertainment development since June 2010 and served as VP of People & Development, beginning in January 2011, where she led the human resources, recruiting, new store opening development, employee relations, talent management and personnel development strategy. Prior to Landmark, Ms. Scopa spent eight years with The Capital Grille, an upscale steakhouse division of Darden Restaurants, as Director of Operations and Senior Director of Training, where her responsibilities most recently included quality of operations, people and P&L results for six locations. Prior to The Capital Grille, Ms. Scopa also worked for C.A. Muer Corporation and LongHorn Steakhouse, both in a training and operations capacity.
Scott C. Smith has served as President, Del Frisco’s Double Eagle since September 2018, prior to this he served as President, Sullivan’s from January 2017 to September 2018. Prior to joining our company, from 2013 to 2016, Mr. Smith most recently served as the Chairman and CEO of Day Star Restaurant Group, which owns and operates Texas Land & Cattle and Lone Star Steak House restaurants. Prior to Day Star, from 2011 to 2013, Mr. Smith was Senior Vice President of Operations at Romano’s Macaroni Grill, a restaurant operating company. Prior to Romano’s Macaroni Grill, from 2009 to 2011, Mr. Smith served as Chief Operating Officer of Restaurants Unlimited and later as the President and CEO. Prior to Restaurants Unlimited, from 2008 to 2009, Mr. Smith served as the President and CEO of AMER Restaurant Group, which operated a portfolio of restaurants in Cairo, Egypt. Prior to AMER Restaurant Group, Mr. Smith served in various leadership positions in various companies throughout the restaurant industry, including Brinker International, in addition to founding, owning and operating different restaurant concepts.
Available Information
Our website address is www.dfrg.com, and we also host www.delfriscos.com, www.barcelonawinebar.com, www.bartaco.com and www.delfriscosgrille.com. Information contained on our websites or connected thereto does not constitute a part of this Annual Report on Form 10-K or any other filing we make with the Securities and Exchange Commission, or the SEC. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practical after we file such material with, or furnish it to, the SEC. Certain of these documents may also be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, and other information regarding issuers that file electronically with the SEC at www.sec.gov. We also make available free of charge on our website our Corporate Governance Guidelines, our Code of Business Conduct and Ethics, and the Charters of our Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee of our Board of Directors.

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Item 1A.    Risk Factors
Changes in general economic conditions, including economic uncertainty, have adversely impacted our business and results of operations in the past, may continue to do so and may do so in the future.
Purchases at our restaurants are discretionary for consumers, and we are therefore susceptible to economic slowdowns. We believe that consumers generally are more willing to make discretionary purchases, including high-end restaurant meals, during favorable economic conditions. Economic uncertainty, including high unemployment and financial market volatility and unpredictability, including as a result of events similar to the 2008-2009 economic recession, and the related reduction in consumer confidence, can negatively affect customer traffic and sales throughout our industry, including our segment. If the economy experiences a new downturn or there are continued uncertainties regarding U.S. budgetary and fiscal policies, including recent tax legislation, our customers, including our business clientele, may reduce their level of discretionary spending, impacting the frequency with which they choose to dine out or the amount they spend on meals while dining out. We believe the majority of our weekday revenues in our Del Frisco’s Double Eagle concept is derived from business customers using expense accounts, and our business therefore may be affected by reduced expense account or other business-related dining by our business clientele. If business clientele were to dine less frequently at our restaurants, our business and results of operations would be adversely affected as a result of a reduction in customer traffic or average revenues per customer.
There is also a risk that if uncertain or depressed economic conditions persist for an extended period of time, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently. Difficult economic conditions and recessionary periods may have an adverse impact on our business and our financial condition. Negative economic conditions, coupled with high volatility and uncertainty as to the future global economic landscape, have at times had a negative effect on consumers' discretionary income and consumer confidence and similar impacts can be expected should such conditions recur. A decrease in discretionary spending due to decreases in consumer confidence in the economy, or a continued economic slowdown or deterioration in the economy, could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants and delay our re-modeling of existing locations.
If our restaurants are not able to compete successfully with other restaurants, our business and results of operations may be adversely affected.
Our industry is intensely competitive with respect to price, quality of service, restaurant location, ambiance of facilities and type and quality of food. A substantial number of national and regional restaurant chains and independently owned restaurants compete with us for customers, restaurant locations and qualified management and other restaurant staff. Our concepts also compete with additional restaurants in the broader upscale and experiential dining segment. Some of our competitors have greater financial and other resources, have been in business longer, have greater name recognition and are better established in the markets where our restaurants are located or where we may expand. Our inability to compete successfully with other restaurants may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of our restaurants. We may also need to evolve our concepts in order to compete with popular new restaurant formats or concepts that emerge from time to time, and we cannot provide any assurance that we will be successful in doing so or that any changes we make to any of our concepts in response will be successful or not adversely affect our profitability. In addition, with improving product offerings at fast casual restaurants and casual dining restaurants combined with the effects of uncertain economic conditions and other factors, consumers may choose less expensive alternatives, which could also negatively affect customer traffic at our restaurants. Any unanticipated slowdown in demand at any of our restaurants due to industry competition may adversely affect our business and results of operations.
Our future growth depends in part on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our results of operations could be adversely affected.
Our financial success depends in part on management’s ability to execute our growth strategy. One key element of our growth strategy is opening new restaurants. In fiscal 2018, we opened three Double Eagle restaurants at Back Bay in Boston, Massachusetts, Atlanta, Georgia and San Diego, California, three bartaco restaurants, post Barteca Acquisition, in North Hills, North Carolina, Fort Point, Massachusetts and Dallas, Texas, and three Grille restaurants in Westwood, Massachusetts, Philadelphia, Pennsylvania and Fort Lauderdale, Florida. In fiscal 2019, we expect to open one Double Eagle restaurant, two to three Barcelona restaurants and three to four bartaco restaurants. We typically target an average cash investment of approximately $8.0 million to $9.0 million for a new Double Eagle, $3.1 million to $3.5 million for a new Barcelona, $2.5 million to $3.0 million for a new bartaco, and $5.0 million to $6.0 million for a new Grille restaurant, in each case net of landlord contributions and equipment financing and excluding pre-opening costs.
Our ability to open new restaurants and operate them profitably is dependent upon a number of factors, many of which are beyond our control, including:

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finding quality site locations, competing effectively to obtain quality site locations and reaching acceptable agreements to lease or purchase sites;
complying with applicable zoning, land use and environmental regulations and obtaining, for an acceptable cost, required permits and approvals;
having adequate capital for construction and opening costs and efficiently managing the time and resources committed to building and opening each new restaurant;
timely hiring, training and retaining the skilled management and other employees necessary to meet staffing needs;
successfully promoting our new locations and competing in their markets;
acquiring food and other supplies for new restaurants from local suppliers; and
addressing unanticipated problems or risks that may arise during the development or opening of a new restaurant or entering a new market.
A new restaurant typically experiences a “ramp-up” period of approximately 18 to 36 months before it achieves our targeted level of performance. This is due to the costs associated with opening a new restaurant, as well as higher operating costs caused by start-up and other temporary inefficiencies associated with opening new restaurants. For example, there are a number of factors which may impact the amount of time and money we commit to the construction and development of new restaurants, including landlord delays, shortages of skilled labor, labor disputes, shortages of materials, delays in obtaining necessary permits, local government regulations and weather interference. Once the restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level of market familiarity and acceptance when we enter new markets, as well as the availability of experienced staff and the time required to negotiate reasonable prices for services and other supplies from local suppliers. Our business and profitability may be adversely affected if the “ramp-up” period for a new restaurant lasts longer than we expect.
We have incurred substantial expenses related to the completion of the Barteca Acquisition, and we expect to incur additional expenses in connection with the integration of Barteca’s business with our existing business.
We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the Barteca Acquisition and combining the operations of the two companies. The substantial majority of non-recurring expenses will be comprised of transaction costs related to the Barteca Acquisition.
We will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred as the integration progresses. We expect to implement the integration process gradually over time, and although we expect that the realization of other efficiencies related to the integration of the businesses should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all, or we may incur other costs in our operations that offset all or a portion of such cost synergies.
Combining Barteca’s business with ours may be more difficult, costly or time consuming than expected and the anticipated synergies and other benefits of the Barteca Acquisition may not be realized.
Barteca operates two highly differentiated brands, Barcelona Wine Bar and bartaco. The success of the Barteca Acquisition, including anticipated synergies and other benefits, will depend, in part, on our ability to successfully combine and integrate our business with the business of Barteca. The Barteca Acquisition will involve the integration of Barteca’s business with our existing business, which is a complex, costly and time-consuming process. The integration could result in material challenges, including, without limitation:
the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the Barteca Acquisition;
managing a larger combined company;
maintaining employee morale and retaining key management and other employees;
the possibility of faulty assumptions underlying expectations regarding the integration process;
retaining existing business and operational relationships and attracting new business and operational relationships;
potential unknown liabilities and unforeseen increased expenses;
consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in standards, controls, procedures and policies;
coordinating geographically separate organizations and addressing possible differences in corporate culture and philosophies;
unanticipated issues in integrating information technology, accounting, communications and other systems; and
unforeseen expenses or delays associated with the integration of Barteca.

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Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreases in revenues and diversion of management’s time and energy, which could materially affect the combined company’s financial position, results of operations and cash flows.
If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits of the Barteca Acquisition may not be realized fully or at all, or may take longer to realize than expected. In addition, the actual cost savings of the Barteca Acquisition could be less than anticipated.
We obtained financing to complete the Barteca Acquisition, which could adversely affect us, including by decreasing our business flexibility, and may increase our interest expense.
In order to finance the Barteca Acquisition we entered into the 2018 Credit Facility, which provides for senior secured term loans in an aggregate principal amount of $390.0 million and senior secured revolving credit commitments in an aggregate principal amount of $50.0 million. The amount and terms of the 2018 Credit Facility could affect our credit rating and our ability to obtain other financing, including through public or institutional markets. While there is no financial maintenance covenant in the term loans under the 2018 Credit Facility, the 2018 Credit Facility includes other customary affirmative and negative covenants. The failure to meet such restrictive covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations and adversely and materially affect our consolidated results of operations and financial condition, as well as adversely affect our liquidity and the value of our shares of common stock. The ability of us and our subsidiaries to comply with such provisions may be affected by events beyond our control. Any material increase in interest expense could possibly have a material impact on our ability to execute our strategies.
To manage interest rate increase risk we have entered into an interest rate cap to mitigate the impact of LIBOR variability on interest expense for a portion of our variable rate debt. The interest rate cap has been designated as a cash flow hedge. At December 25, 2018, we had an interest rate cap with a notional value of $200.0 million and 3% per annum strike rate to hedge the variability in the monthly 1-month LIBOR interest payments on a portion of our Term Loan Facility beginning July 31, 2018, through the expiration of the interest rate cap on June 30, 2022.
On August 6, 2018, we received $97.8 million of proceeds from a public offering of common stock that were used to repay a portion of the $390.0 million of the Term Loan B pursuant to an existing prepayment option.
On August 27, 2018 we amended the Term Loan B. The First Amendment amends the 2018 Credit Facility, to, among other things, completely re-syndicate the Amended Term Loan B, and provide the Company with additional term loans in an aggregate principal amount of $18.0 million. The First Amendment also amended the 2018 Credit Facility to increase the interest rate applicable to the Additional Term Loans and the existing term loans outstanding under the 2018 Credit Facility to, at our option, a rate per annum equal to either a LIBOR or ABR rate, plus an applicable margin, which is equal to 6.00% for LIBOR loans and 5.00% for ABR loans.
The amount of cash required to pay interest on our increased indebtedness levels following completion of the Barteca Acquisition, and thus the demands on our cash resources, will be much greater than the amount of cash flows required to service our indebtedness prior to the Barteca Acquisition. The increased levels of indebtedness following completion of the Barteca Acquisition will also reduce funds available for working capital, capital expenditures, acquisitions, the repayment or refinancing of our indebtedness as it becomes due and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels.
Moreover, in the future we may be required to raise substantial additional financing to fund working capital, capital expenditures, the repayment or refinancing of our indebtedness, acquisitions or other general corporate requirements. Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We cannot assure you that it will be able to obtain additional financing or refinancing on terms acceptable to us or at all.
The future results of the combined company may be adversely impacted if the combined company does not effectively manage its expanded operations following the completion of the Barteca Acquisition.
Following the completion of the Barteca Acquisition, the size of the combined company’s business became significantly larger than the current size of either our or Barteca’s respective businesses. The combined company’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two discrete companies in different geographic locations, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Barteca Acquisition.

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Uncertainties associated with the Barteca Acquisition may cause the departure of management personnel and other key employees, which could adversely affect the future business and operations of the combined company.
We are dependent upon the experience and industry knowledge of our respective officers and other key employees to execute our respective business plans. The combined company’s success after the Barteca Acquisition will depend in part upon the ability of Del Frisco’s to retain key management personnel and other key employees. Current and prospective employees of Del Frisco’s may experience uncertainty about their future roles with the combined company, which may materially adversely affect the ability of Del Frisco’s to attract and retain key personnel after the acquisition which could adversely impact operations of the combined company.
If we are unable to increase our sales or maintain our margins at existing restaurants, our profitability and overall results of operations may be adversely affected.
Another key aspect of our growth strategy is increasing comparable restaurant sales and maintaining restaurant-level margins. Improving comparable restaurant sales and maintaining restaurant-level margins depends in part on whether we achieve revenue growth through increases in the average check and further expand our private dining business at each restaurant. We believe there are opportunities to increase the average check at our restaurants through, for example, selective introduction of higher priced items and increases in menu pricing. We also believe that expanding and enhancing our private dining capacity will also increase our restaurant sales, as our private dining business typically has a higher average check and higher overall margins than regular dining room business. However, these strategies may prove unsuccessful, especially in times of economic hardship, as customers may not order or enjoy higher priced items and discretionary spending on private dining events may decrease. Select price increases have not historically adversely impacted customer traffic; however, we expect that there is a price level at which point customer traffic would be adversely affected. It is also possible that these changes could cause our sales volume to decrease. If we are not able to increase our sales at existing restaurants for any reason, our profitability and results of operations could be adversely affected.
The failure to successfully accelerate development of our Del Frisco's Double Eagle Steakhouse concept could have a material adverse effect on our financial condition and results of operations.
We operated 16 Del Frisco's Double Eagle Steakhouse locations as of the end of fiscal 2018. During fiscal 2017, we began accelerating development of the Del Frisco's Double Eagle concept, and plan to annually open two to three restaurants. Our ability to execute this initiative will require significant capital expenditures and management attention. If the “ramp-up” period for one or more of the new Del Frisco's Double Eagle restaurants does not meet our expectations, our operating results may be adversely affected. In addition, we are targeting restaurant-level EBITDA margins of between 24% to 27% for the Del Frisco's Double Eagle concept. However, because we face new challenges at the Del Frisco's Double Eagle restaurants as we enter new markets, our operating margins may not reach these levels, requiring us to take action, including possible changes to our pricing and menu offering strategies, and we may not be successful in recouping our increased investments in the concept. We may not be able to attract enough customers to meet targeted levels of performance at new restaurants because potential customers may be unfamiliar with our concept or the atmosphere or menu might not appeal to them. In addition, opening a new Del Frisco's Double Eagle restaurant in one of our existing markets could reduce the revenue of our existing restaurants in that market. If we cannot successfully execute our growth strategies for the Del Frisco's Double Eagle concept, or if customer traffic generated by a Del Frisco's Double Eagle restaurant results in a decline in customer traffic at one of our other restaurants in the same market, our business and results of operations may be adversely affected.
Our growth, including the continued development of the Del Frisco's Double Eagle concept, as well as recently acquired Barcelona and bartaco concepts, may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.
We plan to continue new restaurant growth, including the continued development and promotion of the Del Frisco's Double Eagle, Barcelona and bartaco concepts. We believe there are opportunities to open eight to twelve new restaurants annually, generally composed of two to three Double Eagle restaurants, two to three Barcelona restaurants and four to six for bartaco restaurants, which will serve as the primary driver of new unit growth in the near term. During fiscal 2019, we expect to open one Double Eagle restaurant, two to three Barcelona restaurants and three to four bartaco restaurants. We typically target an average cash investment of approximately $8.0 million to $9.0 million for a new Double Eagle, $3.1 million to $3.5 million for a new Barcelona, $2.5 million to $3.0 million for a new bartaco restaurant, in each case net of landlord contributions and equipment financing and excluding pre-opening costs. This growth and these investments will increase our operating complexity and place increased demands on our management as well as our human resources, purchasing and site management teams. While we have committed significant resources to expanding our current restaurant management systems, financial and management controls and information systems in connection with our recent growth, if this infrastructure is insufficient to support this expansion, our ability to open new restaurants, including the continued development and promotion of the Double Eagle, Barcelona and bartaco, and to manag

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e our existing restaurants, including the expansion of our private dining business, would be adversely affected. If we fail to continue to improve our infrastructure or if our improved infrastructure fails, we may be unable to implement our growth strategies or maintain current levels of operating performance in our existing restaurants.
Our New York Del Frisco’s Double Eagle location represents a significant portion of our revenues, and any significant downturn in its business or disruption in the operation of this location could harm our business, financial condition and results of operations.
Our New York Del Frisco’s Double Eagle location represented approximately 10%, 11% and 11% of our revenues in fiscal 2018, 2017 and 2016, respectively. Accordingly, we are susceptible to any fluctuations in the business at our New York Double Eagle location, whether as a result of adverse economic conditions, negative publicity, changes in customer preferences or for other reasons. In addition, any natural disaster, prolonged inclement weather, act of terrorism or national emergency, accident, system failure or other unforeseen event in or around New York City could result in a temporary or permanent closing of this location, could influence potential customers to avoid this geographic region or this location in particular or otherwise lead to a decrease in revenues. Any significant interruption in the operation of this location or other reduction in sales could adversely affect our business and results of operations.
Negative customer experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our brands less valuable.
The quality of our food and our restaurant facilities are two of our competitive strengths. Therefore, adverse publicity, whether or not accurate, relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other food service providers or others across the food industry supply chain could affect us more than it would other restaurants that compete primarily on price or other factors. An unrelated restaurant in Louisville, Kentucky has the right to use, and uses, a specific registration of the Del Frisco’s name pursuant to a concurrent use agreement, as described in greater detail in “Item 1. Business”. We do not own or control the Louisville restaurant, but any adverse publicity relating to those operations could negatively affect us. In addition, although we would not be legally liable for any such failure, because the Louisville restaurant operates under one of our brand names, we may be subject to litigation as a result of the restaurant’s failure to comply with food quality, preparation or other applicable rules and regulations. If customers perceive or experience a reduction in our food quality, service or ambiance or in any way believe we have failed to deliver a consistently positive experience, the value and popularity of one or more of our concepts could suffer.
Negative publicity relating to food safety and food-borne illnesses, could result in reduced consumer demand for our menu offerings, which could reduce sales.
Instances of food-borne illness, including Bovine Spongiform Encephalopathy, which is also known as BSE or mad cow disease, aphthous fever, which is also known as hoof and mouth disease, as well as hepatitis A, listeria, salmonella and e-coli, whether or not found in the United States or traced directly to one of our suppliers or our restaurants, could reduce demand for our menu offerings. Any negative publicity relating to these and other health-related matters, such as the confirmation of a case of mad cow disease in a dairy cow in California in April 2012, may affect consumers’ perceptions of our restaurants and the food that we offer, reduce customer visits to our restaurants and negatively impact demand for our menu offerings. Adverse publicity relating to any of these matters, beef in general or other similar concerns could adversely affect our business and results of operations.
Increases in the prices of, and/or reductions in the availability of commodities, primarily beef, could adversely affect our business and results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in commodity costs, which have a substantial effect on our total costs. For example, we purchase large quantities of beef, particularly USDA prime beef. Our beef costs represented approximately 23%, 32% and 32% of our food and beverage costs during fiscal 2018, 2017 and 2016, respectively, and we currently do not purchase beef pursuant to any long-term contractual arrangements with fixed pricing or use futures contracts or other financial risk management strategies to reduce our exposure to potential price fluctuations. The market for USDA prime beef is particularly volatile and is subject to price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors. Although we currently do not engage in futures contracts or other financial risk management strategies with respect to potential price fluctuations, from time to time, we may opportunistically enter into fixed price beef supply contracts or contracts for other food products or consider other risk management strategies with regard to our meat and other food costs to minimize the impact of potential price fluctuations. This practice could help stabilize our food costs during times of fluctuating prices, although there can be no assurances that this will occur. However, because our restaurants feature USDA prime beef, we generally expect to purchase beef even if we have not entered into any such arrangements and the price increased significantly. The prices of other commodities can affect our costs as well, including corn and other grains, which are ingredients we use regularly and are also used as cattle feed and therefore affect the price of beef. Energy prices can also affect our bottom line, as increased energy prices may cause increased transportation costs for beef and other supplies, as well as increased costs

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for the utilities required to run each restaurant. Historically we have passed increased commodity and other costs on to our customers by increasing the prices of our menu items. While we believe these price increases did not historically affect our customer traffic, there can be no assurance additional price increases would not affect future customer traffic. If prices increase in the future and we are unable to anticipate or mitigate these increases, or if there are shortages for USDA Prime beef, our business and results of operations would be adversely affected.
We depend upon frequent deliveries of food and other supplies, in most cases from a limited number of suppliers, which subjects us to the possible risks of shortages, interruptions and price fluctuations.
Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire fresh products, including USDA prime beef, fresh seafood, quality produce and related items from reliable sources in accordance with our specifications. In addition, we rely on one or a limited number of suppliers for certain ingredients. For example, Stock Yards, a division of U.S. Foods, Inc., is the primary supplier of the beef for most of our restaurants and has been since June 2009. This dependence on one or a limited number of suppliers, as well as the limited number of alternative suppliers of USDA prime beef and quality seafood, subjects us to the possible risks of shortages, interruptions and price fluctuations in beef and seafood. If any of our suppliers is unable to obtain financing necessary to operate its business or its business is otherwise adversely affected, does not perform adequately or otherwise fails to distribute products or supplies to our restaurants, or terminates or refuses to renew any contract with us, particularly with respect to one of the suppliers on which we rely heavily for specific ingredients, we may be unable to find an alternative supplier in a short period of time or if we can, it may not be on acceptable terms. Our inability to replace our suppliers in a short period of time on acceptable terms could increase our costs or cause shortages at our restaurants that may cause us to remove certain items from a menu, increase the price of certain offerings or temporarily close a restaurant, which could adversely affect our business and results of operations.
We depend on the services of key executives, and our business and growth strategy could be materially harmed if we were to lose these executives and were unable to replace them with and successfully transition to executives of equal experience and capabilities.
Some of our senior executives, such as Norman J. Abdallah, our Chief Executive Officer, are particularly important to our success. Senior executives are important to our business because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. We have employment agreements with all members of senior management; however, we cannot prevent our executives from terminating their employment with us. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. We also believe that they could not quickly be replaced with executives of equal experience and capabilities and their successors may not be as effective. We do not maintain key person life insurance policies on any of our executives.
Changes in consumer preferences and discretionary spending patterns could adversely impact our business and results of operations.
The restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and eating and purchasing habits. Our success depends in part on our ability to anticipate and respond quickly to changing consumer preferences, as well as other factors affecting the restaurant industry, including new market entrants and demographic changes. Shifts in consumer preferences away from upscale steakhouses or beef, which is a significant component of our Del Frisco’s Double Eagle concepts’ menus and appeal, whether as a result of economic, competitive or other factors, could adversely affect our business and results of operations.
Restaurant companies, including ours, have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. Proceedings of this nature, if successful, could result in our payment of substantial damages.
In recent years, we and other restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips amongst certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked.
Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illness and relating to notices with respect to chemicals contained in food products required under state law. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. In addition, our restaurants are subject to state “dram shop” or similar laws

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which generally allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.
Our business is subject to substantial government regulation.
Our business is subject to extensive federal, state and local government regulation, including regulations related to the preparation and sale of food, the sale of alcoholic beverages, the sale and use of tobacco, zoning and building codes, land use and employee, health, sanitation and safety matters. For example, the preparation, storing and serving of food and the use of certain ingredients is subject to heavy regulation. Alcoholic beverage control regulations govern various aspects of our restaurants’ daily operations, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory control, handling and storage. Typically, our restaurants’ licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause. In addition, because we operate in a number of different states, we are also required to comply with a number of different laws covering the same topics. The failure of any of our restaurants to timely obtain and maintain necessary governmental approvals, including liquor or other licenses, permits or approvals required to serve alcoholic beverages or food could delay or prevent the opening of a new restaurant or prevent regular day-to-day operations, including the sale of alcoholic beverages, at a restaurant that is already operating, any of which would adversely affect our business and results of operations.
In addition, the costs of operating our restaurants may increase if there are changes in laws governing minimum hourly wages, working conditions, overtime and tip credits, health care, workers’ compensation insurance rates, unemployment tax rates, sales taxes or other laws and regulations such as those governing access for the disabled, including the Americans with Disabilities Act. For example, the Federal Patient Protection and Affordable Care Act, or PPACA, which was enacted on March 23, 2010, among other things, includes guaranteed coverage requirements and imposes new taxes on health insurers and health care benefits that could increase the costs of providing health benefits to employees. In addition, because we have a significant number of restaurants located in certain states, regulatory changes in these states could have a disproportionate impact on our business. If any of the foregoing increased costs and we were unable to offset the change by increasing our menu prices or by other means, our business and results of operations could be adversely affected.
Government regulation can also affect customer traffic at our restaurants. A number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information. For example, the PPACA establishes a uniform, federal requirement for restaurant chains with 20 or more locations operating under the same trade name and offering substantially the same menus to post nutritional information on their menus, including the total number of calories. The law also requires such restaurants to provide to consumers, upon request, a written summary of detailed nutritional information, including total calories and calories from fat, total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber, and total protein in each serving size or other unit of measure, for each standard menu item. The FDA is also permitted to require additional nutrient disclosures, such as trans-fat content. In 2015, our Grille concept became subject to the requirements to post nutritional information on our menus and, based on current strategic outlook, our Double Eagle, Barcelona and bartaco concepts may become subject to these requirements in the near future. The FDA compliance deadline was May 7, 2018.  We intend to comply with these requirements to the extent required for all concepts. Our compliance with the PPACA or other similar laws to which we may become subject could reduce demand for our menu offerings, reduce customer traffic and/or reduce average revenue per customer, which would have an adverse effect on our revenue. Any reduction in customer traffic related to these or other government regulations could affect revenues and adversely affect our business and results of operations. 
To the extent that governmental regulations impose new or additional obligations on our suppliers, including, without limitation, regulations relating to the inspection or preparation of meat, food and other products used in our business, product availability could be limited and the prices that our suppliers charge us could increase. We may not be able to offset these costs through increased menu prices, which could have a material adverse effect on our business. If any of our restaurants were unable to serve particular food products, even for a short period of time, or if we are unable to offset increased costs, our business and results of operations could be adversely affected.

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Labor shortages or changes to wage laws could harm our business.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to keep pace with our anticipated expansion schedule and meet the needs of our existing restaurants. A sufficient number of qualified individuals of the requisite caliber to fill these positions may be in short supply in some communities. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations.
In addition, we have a substantial number of hourly employees who are paid wage rates at or based on the federal or state minimum wage and who rely on tips as a large portion of their income. Any changes in the city, state, or federal laws affecting the wages we pay our employees, including an increase in the minimum wage, such as the 5% increase in the minimum wage on January 1, 2018 in California to $11.00, could increase our costs and have a material adverse impact on our results of operations. Certain other states in which we operate restaurants have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage as well. We may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our customers, in which case, our business and results of operations could be adversely affected.
We occupy most of our restaurants under long-term non-cancelable leases for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms.
All of our restaurants are located in leased premises. Many of our current leases are non-cancelable and typically have initial terms ranging from 5 to 15 years with two to four 5-year extension options. We believe that leases that we enter into in the future will be on substantially similar terms. If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. For example, in fiscal year 2018, we paid $26.9 million, in fiscal 2017, we paid $20.7 million, and in fiscal 2016, we paid $18.2 million. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks. If we are required to make payments or otherwise perform under one of our leases after a restaurant closes or if we are unable to renew our restaurant leases, our business and results of operations could be adversely affected.
Adverse weather conditions and natural disasters could adversely affect our restaurant sales.
Adverse weather conditions can impact guest traffic at our restaurants, cause the temporary underutilization of outdoor patio seating and, in more severe cases such as hurricanes, tornadoes, severe winter storms or other natural disasters, may cause temporary closures, sometimes for prolonged periods, which would negatively impact our restaurant sales. Changes in weather could result in construction delays, interruptions to the availability of utilities, and shortages or interruptions in the supply chain of our restaurants, which could increase our costs. Some climatologists predict that the long-term effects of climate change and global warming may result in more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations, especially to our restaurants located in coastal cities where flooding occurs more frequently due to severe weather. Further, according to the U.S. Global Change Research Program Climate Science Special Report, heavy rainfall has been increasing in intensity and frequency across the United States and globally and is expected to continue to increase. The largest observed changes in the United States have occurred in the Northeast, where we have a large concentration of restaurant locations.
The impact of negative economic factors, including the availability of credit, on our landlords and other retail center tenants could negatively affect our financial results.
Negative effects on our existing and potential landlords due to any inaccessibility of credit and other unfavorable economic factors may, in turn, adversely affect our business and results of operations. If our landlords are unable to obtain financing or remain in good standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other lease covenants to us. If any landlord files for bankruptcy protection, the landlord may be able to reject our lease in the bankruptcy proceedings. While we would have the option to retain our rights under the lease, we could not compel the landlord to perform any of its obligations and would be left with damages as our sole recourse. In addition, if our landlords are unable to obtain sufficient credit to continue to properly manage their retail sites, we may experience a drop in the level of quality of such retail centers. Our development of new restaurants may also be adversely affected by the negative financial situations of developers and potential landlords.

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Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.
Social media continues to grow in importance as a tool for brands to engage with guests, but also opens companies up to risk. As active users continue to increase on these platforms and communication forums broaden the opportunities for guest engagement, there is less control over user generated messaging on social platforms. Social platforms allow subscribers and participants to post frequently, immediately and often without filters or accuracy checks. Even with the best monitoring, brands may not always realize when inaccurate or misleading information has been shared or be able to combat it when discovered. Depending on the information shared, effects can be significant and immediate to our business with field team members, guests, prospects, financial condition and operations. Effects could include increased costs, litigation, negative effects on reputation, exposure of proprietary or personally identifiable information and inaccurate data. To help mitigate risk on social media, our team is constantly innovating how we use and monitor our social platforms to drive awareness, engagement and loyalty to our brands. We have developed social media strategies across all brands that are structured to engage with our customers, tell our brand story and inspire positive and constructive dialogue. Through our marketing efforts, we work on a variety of social media platforms as well as paid digital advertising and search engine marketing to attract and retain guests. The success of these marketing initiatives is never guaranteed as social media is always changing and bringing forth unexpected content. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financing flexibility.
Payments under our operating leases account for a significant portion of our operating expenses, and we expect the new restaurants we open in the future will similarly be leased by us. Specifically, payments under our operating leases accounted for 14.1%, 14.7% and 14.1% of our restaurant operating expenses in fiscal 2018, 2017 and 2016, respectively. Our substantial operating lease obligations could have significant negative consequences, including:
increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing;
requiring a substantial portion of our available cash flow to be applied to our rental obligations, thus reducing cash available for other purposes;
limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete; and
placing us at a disadvantage with respect to some of our competitors.
We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to meet our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of operations.
Any future indebtedness we may incur may limit our operational and financing flexibility and negatively impact our business.
On June 27, 2018, in connection with the completion of the Barteca Acquisition, we entered into the 2018 Credit Facility, which provides for senior secured term loans in an aggregate principal amount of $390.0 million and senior secured revolving credit commitments in an aggregate principal amount of $50.0 million. At December 25, 2018, we had $323.8 million of outstanding borrowings on the Company’s long-term debt. We may incur substantial additional indebtedness in the future. Our credit facility, and other debt instruments we may enter into in the future, may have important consequences to us, including the following:
our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;
the requirement that we use a significant portion of our cash flows from operations to pay interest on any outstanding indebtedness, which would reduce the funds available to us for operations and other purposes; and
our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited.
We expect that we will depend primarily on cash generated by our operations for funds to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flows from operations in the future, and our currently anticipated growth in revenues and cash flows may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough money, we may be required to refinance all or part of our then existing debt, sell assets

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or borrow more money, in each case on terms that are not acceptable to us. In addition, the terms of existing or future debt agreements, including our existing credit facility, may restrict us from adopting any of these alternatives. Our ability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our company, make some transactions more difficult and impose additional financial or other covenants on us. In addition, any significant levels of indebtedness in the future could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt and could make us more vulnerable to economic downturns and adverse developments in our business.  Our indebtedness and any inability to pay our debt obligations as they come due or inability to incur additional debt could adversely affect our business and results of operations.
The terms of our credit facility impose operating and financial restrictions on us.
Our credit facility contains customary representations, warranties, affirmative covenants and negative covenants, that, among other things and subject to certain exceptions, restrict our ability to incur additional indebtedness, grant liens on assets, make investments, sell assets, engage in acquisitions, mergers or consolidations, pay dividends and other restricted payments and prepay junior debt. In addition, the Credit Agreement contains a financial covenant that requires us to maintain a maximum consolidated total leverage ratio as set forth in the Credit Agreement. The Credit Agreement contains customary events of default, including payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a change of control, inaccuracy of representations and warranties and breaches of covenants under the Credit Agreement, subject to customary grace periods. Upon occurrence of an event of default, the majority lenders (or the majority of revolving lenders in case of the financial covenant) may terminate the commitments under the Credit Agreement, declare any then-outstanding loans due and payable and exercise other customary remedies.
Our credit facility limits our ability to engage in these types of transactions even if we believed that a specific transaction would contribute to our future growth or improve our operating results. As of December 25, 2018, our credit facility also requires us to have a leverage ratio of less than 6.00. As of December 25, 2018, we were in compliance with this test. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these provisions or our inability to comply with required financial ratios in our credit facility could result in a default under the credit facility in which case the lenders will have the right to declare all borrowings to be immediately due and payable. If we are unable to repay all borrowings when due, whether at maturity or if declared due and payable following a default, the lenders would have the right to proceed against the collateral granted to secure the indebtedness. If we breach these covenants or fail to comply with the terms of the credit facility and the lenders accelerate the amounts outstanding under the credit facility our business and results of operations would be adversely affected.
Our credit facility carries floating interest rates, thereby exposing us to market risk related to changes in interest rates to the extent there are borrowings outstanding thereunder. Accordingly, our business and results of operations may be adversely affected by changes in interest rates. A one percentage point change in interest rates would be expected to have an impact on pre-tax earnings and cash flows of approximately $10,000 per $1.0 million of outstanding debt under our credit facility, which would have been approximately $3.2 million less the impact of the hedge over the course of a full fiscal year. See Note 8 Derivative Financial Instruments to our consolidated financial statements included elsewhere in this Annual Report for disclosures on our derivative instrument and hedging activities.
It is unclear how increased regulatory oversight and changes in the method for determining LIBOR may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR, or how such changes could affect our results of operations or financial condition.

In the recent past, concerns have been publicized that some of the member banks surveyed by British Bankers’ Association, or the BBA, in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivative positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.
On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. As such, the potential effect of any such event on our net investment income cannot yet be determined. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities. If LIBOR ceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in

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determining the interest rate to replace LIBOR with the new standard that is established. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans and other financial obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial condition and results of operations.
The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our brands.
We have registered the names Del Frisco’s Double Eagle Steakhouse, Barcelona Wine Bar, bartaco and Del Frisco’s Grille and have applications pending to register certain other names and logos used by our restaurants as trade names, trademarks or service marks with the United States Patent and Trademark Office and in certain foreign countries. We have the exclusive right to use these trademarks throughout the United States, other than with respect to one restaurant in Louisville, Kentucky, and the 50 mile surrounding area, where an unrelated third party has the right to use a specific registration of the Del Frisco’s name in Jefferson County in Kentucky. See Item 1, Business. The success of our business depends in part on our continued ability to utilize our existing trade names, trademarks and service marks as currently used in order to increase our brand awareness. In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trade names, trademarks or service marks could diminish the value of our brands and restaurant concepts and may cause a decline in our revenues and force us to incur costs related to enforcing our rights. In addition, the use of trade names, trademarks or service marks similar to ours in some markets may keep us from entering those markets. While we may take protective actions with respect to our intellectual property, these actions may not be sufficient to prevent, and we may not be aware of all incidents of, unauthorized usage or imitation by others. Any such unauthorized usage or imitation of our intellectual property, including the costs related to enforcing our rights, could adversely affect our business and results of operations.
Information technology system failures or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.
We and our third party providers rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants. Our operations depend upon our ability to protect our computer equipment and systems against damage and disruption from physical theft, fire, power loss, computer and telecommunications failure, workplace wrongdoing, or other natural disasters and catastrophic events, as well as from internal and external security breaches, viruses, worms, malware and other disruptive software and problems. Any damage or failure of our computer systems or network infrastructure or that of our third party providers that causes an interruption in our operations or theirs could have a material adverse effect on our business and results of operations and subject us to damages, loses, litigation or actions by regulatory authorities.
In addition, because the majority of our restaurant sales are by credit or debit cards, our possession of confidential information may also put us at a greater risk of being targeted by hackers. In the normal course of our business, we have been the target of malicious cyber-attack attempts, and other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen. We may also be impacted by breaches of our third-party processors. If this or another type of breach occurs at one of our restaurants, we may become subject to negative publicity as well as lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers’ credit or debit card information. Although no breaches have had a direct, material impact on us, we are unable to predict the direct or indirect impact of any future attacks to our business or that of our third party providers.
In addition, numerous and evolving cybersecurity threats, including advanced and persistent cyber-attacks, phishing and social engineering schemes, particularly on internet applications, could compromise the confidentiality, availability, and integrity of data in our systems. Although we employ both internal resources and external consultants to conduct auditing and testing for weaknesses in our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such damage, breaches or other disruptive problems, there can be no assurance that these security measures and procedures will be successful to prevent, counter or otherwise minimize these threats. Any such claim, proceeding or action by a regulatory authority, or any adverse publicity resulting from these allegations, could adversely affect our business and results of operations.
Because the techniques used to obtain unauthorized access, or to disable or degrade systems change frequently, have become increasingly more complex and sophisticated, and may be difficult to detect for periods of time, we may not anticipate these acts or respond adequately or timely. As these threats continue to evolve and increase, we may be required to devote significant additional resources in order to modify and enhance our security controls and to identify and remediate any security vulnerabilities.
We expect to offer restricted stock and other forms of stock-based compensation in the future, which have the potential to dilute stockholder value and cause the price of our common stock to decline.

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As of December 25, 2018, we had awards of stock options, restricted stock and performance stock units outstanding under our equity compensation plan. In addition, we expect to offer restricted stock and performance stock units and other forms of stock-based compensation to our directors, officers and employees in the future. If the options that we issue are exercised, or any restricted stock or other awards that we may issue vests, and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under our equity incentive plan, or the grant of restricted stock or other forms of stock-based compensation, may adversely affect the market price of our common stock.
We are a holding company and depend on the cash flow of our subsidiaries.
We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets and intellectual property. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and the payment of funds by our subsidiaries directly or indirectly to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations.
Provisions of our charter documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. For example, our certificate of incorporation and bylaws include provisions that:
permit us to issue without stockholder approval preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series;
prevent stockholders from calling special meetings;
prevent the ability of stockholders to act by written consent;
limit the ability of stockholders to amend our certificate of incorporation and bylaws;
require advance notice for nominations for election to the board of directors and for stockholder proposals; and
establish a classified board of directors with staggered three-year terms.
These provisions may discourage, delay or prevent a merger or acquisition of our company, including a transaction in which the acquiror may offer a premium price for our common stock.
We are also subject to Section 203 of the Delaware General Corporation Law, or the DGCL, which, subject to certain exceptions, prohibits us from engaging in any business combination with any interested stockholder, as defined in that section, for a period of three years following the date on which that stockholder became an interested stockholder. In addition, our equity incentive plan permits vesting of stock options, restricted stock and performance stock units, and payments to be made to the employees thereunder in certain circumstances, in connection with a change of control of our company, which could discourage, delay or prevent a merger or acquisition at a premium price.
We are no longer an “emerging growth company” and, as a result, we are subject to increased disclosure and governance requirements. 
We qualified as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, through the part of fiscal 2017. We are now an accelerated filer and, as such, we are subject to certain public company requirements that did not previously apply to us. These requirements include:
compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting;
full disclosure obligations regarding executive compensation; and
compliance with the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We expect that the loss of “emerging growth company” status and compliance with these additional requirements may substantially increase our legal and financial compliance costs and make some activities more time consuming and costly. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Failure to comply with these requirements could also subject us to enforcement actions by the SEC, further increase costs and divert management’s attention, damage our reputation and adversely affect our business, operating results or financial condition.

21


We have had a material weakness in internal control over financial reporting in the past and cannot assure you that additional material weaknesses will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on our stock price.
As reported in our Annual Report on Form 10-K for the year ended December 26, 2017, management identified a material weakness in our internal control over financial reporting. We have remediated this material weakness, by implementing corrective measures as described in Item 9A. Controls and Procedures of our Form 10-K for the year ended December 25, 2018.
We cannot assure you that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses or significant deficiencies, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting. The existence of a material weakness or significant deficiency could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Our reported financial results may be adversely affected by changes in accounting principles applicable to us.
Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change. For example, the FASB, together with the International Accounting Standards Board, has issued a comprehensive set of changes in accounting for leases. The lease accounting model is a “right of use” model that assumes that each lease creates an asset (the lessee’s right to use the leased asset) and a liability (the future rent payment obligations), which should be reflected on a lessee’s balance sheet to fairly represent the lease transaction and the lessee’s related financial obligations. All of our restaurant leases are accounted for as operating leases, with no related assets and liabilities on our balance sheet. However, changes in lease accounting rules or their interpretation, or changes in underlying assumptions, estimates or judgments by us could significantly change our reported or expected financial performance. Any such change could have a significant effect on our reported financial results.
We have recorded significant valuation allowances on our deferred tax assets, and the recording and release of such allowances may have a material impact on our results of operations and cause fluctuations in our stock price.
The need for a valuation allowance requires an assessment of the available positive and negative evidence at each balance sheet date to determine whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. During the third quarter of fiscal 2018, we entered a three year cumulative loss position and established a valuation allowance against our deferred tax assets. As of December 25, 2018 the valuation allowance was $17.4 million.
In the future, we may release the valuation allowance and recognize deferred tax assets depending on achieving profitability. We continue to monitor the likelihood that we will be able to recover our deferred tax assets. There can be no assurance that we will generate profits in future periods enabling us to fully realize our deferred tax assets. The timing of the reversal of such valuation allowance is subject to objective and subjective factors that cannot be readily predicted in advance. The reversal of a previously recorded valuation allowance may have a material impact on our financial results, which may lead to a fluctuation in the price of our stock.

22


Item 1B.     Unresolved Staff Comments
None.

23


Item 2.    Properties
We currently operate 73 restaurants across 16 states and the District of Columbia. We currently lease all of our restaurants, of which the majority provide for minimum annual rents with some containing percentage-of-sales rent provisions, against which the minimum rent may be applied. Typically, our lease terms are 5 to 15 years at initiation, with two to four 5-year extension options. None of our restaurant leases can be terminated early by the landlord other than as is customary in the context of a breach or default under the applicable lease.
Opening Date
  
City
  
State
  
Lease/Own
Del Frisco’s Double Eagle Steakhouse
  
 
  
 
  
 
April 1996
  
Fort Worth
  
Texas
  
Lease
January 1997
  
Denver
  
Colorado
  
Lease
March 2000
  
New York
  
New York
  
Lease
July 2000
  
Las Vegas
  
Nevada
  
Lease
April 2007
  
Charlotte
  
North Carolina
  
Lease
November 2007
  
Houston
  
Texas
  
Lease
November 2008
  
Philadelphia
  
Pennsylvania
  
Lease
April 2011
  
Boston
  
Massachusetts
  
Lease
December 2012
 
Chicago
 
Illinois
 
Lease
September 2014
  
Washington D.C.
 
 
  
Lease
August 2015
  
Orlando
 
Florida
  
Lease(1)
September 2016
 
Dallas
 
Texas
 
Lease
May 2017
 
Plano
 
Texas
 
Lease
July 2018
 
Boston
 
Massachusetts
 
Lease
September 2018
 
Dunwoody
 
Georgia
 
Lease
October 2018
 
San Diego
 
California
 
Lease
 
 
 
 
 
 
 
Barcelona Wine Bar
 
 
 
 
 
 
June 2003
 
Fairfield
 
Connecticut
 
Lease
January 2005
 
West Hartford
 
Connecticut
 
Lease
December 2006
 
New Haven
 
Connecticut
 
Lease
May 2009
 
Stamford
 
Connecticut
 
Lease
October 2011
 
Atlanta
 
Georgia
 
Lease
December 2012
 
Brookline
 
Massachusetts
 
Lease
September 2013
 
Washington D.C.
 
 
 
Lease
April 2015
 
Reston
 
Virginia
 
Lease
May 2015
 
Washington D.C.
 
 
 
Lease
December 2014
 
Boston
 
Massachusetts
 
Lease
April 2016
 
Atlanta
 
Georgia
 
Lease
December 2016
 
Norwalk
 
Connecticut
 
Lease
November 2016
 
Nashville
 
Tennessee
 
Lease
July 2017
 
Philadelphia
 
Pennsylvania
 
Lease
March 2018
 
Denver
 
Colorado
 
Lease
 
 
 
 
 
 
 
bartaco
 
 
 
 
 
 
December 2010
 
Port Chester
 
New York
 
Lease(2)
September 2011
 
Stamford
 
Connecticut
 
Lease
August 2012
 
West Hartford
 
Connecticut
 
Lease
June 2013
 
Westport
 
Connecticut
 
Lease
July 2014
 
Atlanta
 
Georgia
 
Lease
April 2015
 
Reston
 
Virginia
 
Lease
August 2015
 
Atlanta
 
Georgia
 
Lease
March 2015
 
Atlanta
 
Georgia
 
Lease
October 2015
 
Nashville
 
Tennessee
 
Lease

24


Opening Date
  
City
  
State
  
Lease/Own
July 2015
 
Tampa
 
Florida
 
Lease
October 2016
 
Orlando
 
Florida
 
Lease
July 2017
 
Boulder
 
Colorado
 
Lease
July 2017
 
Chapel Hill
 
North Carolina
 
Lease
March 2018
 
Fairfax
 
Virginia
 
Lease
May 2018
 
Fort Worth
 
Texas
 
Lease
July 2018
 
Raleigh
 
North Carolina
 
Lease
November 2018
 
Boston
 
Massachusetts
 
Lease
December 2018
 
Dallas
 
Texas
 
Lease
 
 
 
 
 
 
 
Del Frisco’s Grille
  
 
  
 
  
 
August 2011
  
New York
  
New York
  
Lease
November 2011
  
Dallas
  
Texas
  
Lease
July 2012
  
Washington D.C.
  
 
  
Lease
October 2012
  
Atlanta
  
Georgia
  
Lease
July 2013
  
Santa Monica
  
California
  
Lease
October 2013
  
Fort Worth
  
Texas
  
Lease
November 2013
  
Chestnut Hill
  
Massachusetts
  
Lease
December 2013
  
Southlake
  
Texas
  
Lease
June 2014
  
Burlington
  
Massachusetts
  
Lease
August 2014
  
Irvine
  
California
  
Lease
September 2014
  
North Bethesda
  
Maryland
  
Lease
November 2014
  
Tampa
  
Florida
  
Lease
December 2014
  
Pasadena
  
California
  
Lease
May 2015
  
The Woodlands
  
Texas
  
Lease
June 2015
  
Plano
  
Texas
  
Lease
September 2015
  
Hoboken
  
New Jersey
  
Lease
November 2015
  
Cherry Creek
  
Colorado
  
Lease
June 2016
 
Huntington
 
New York
 
Lease
October 2016
 
Nashville
 
Tennessee
 
Lease
November 2016
 
Brentwood
 
Tennessee
 
Lease
June 2017
 
New York
 
New York
 
Lease
March 2018
 
Westwood
 
Massachusetts
 
Lease
November 2018
 
Fort Lauderdale
 
Florida
 
Lease
November 2018
 
Philadelphia
 
Pennsylvania
 
Lease
(1)
During the fourth quarter of fiscal 2017, we executed a sale leaseback transaction for our Del Frisco's Double Eagle restaurant, located in Orlando, Florida. See Note 6 Leases in the notes to our consolidated financial statements.
(2)
Current lease term expires on December 31, 2019. We have two remaining five-year option periods available that have not yet been exercised.
Our corporate headquarters is located in Irving, Texas. We lease the property for our corporate headquarters.

25


Item 3.    Legal Proceedings
We are subject to various claims and legal actions, including class actions, arising in the ordinary course of business from time to time, including claims related to food quality, personal injury, contract matters, health, wage and employment matters and other issues. While it is impossible at this time to determine with certainty the ultimate outcome of these proceedings, lawsuits and claims, management believes that adequate provisions have been made and that the ultimate outcomes will not have a material adverse effect on our financial position and results of operations.

26


Item 4.    Mine Safety Disclosure
Not applicable.

27


PART II
Item 5.    Market for Registrant’s Common Equity, Related Stockholder matters and Issuer Purchases of Equity Securities
Information Regarding our Common Stock
Our common stock is listed on the Nasdaq Global Select Market under the symbol “DFRG”.
The market price of our common stock is subject to fluctuations in response to variations in our quarterly operating results, general trends in the restaurant industry as well as other factors, many of which are not within our control. In addition, broad market fluctuations, as well as general economic, business and political conditions may adversely affect the market for our common stock, regardless of our actual or projected performance.
The closing sale price of a share of our common stock, as reported by the Nasdaq Global Select Market, on March 6, 2019, was $8.11. As of March 6, 2019, there were five holders of record of our common stock, not including beneficial owners of shares registered in nominee or street name.
Issuer Purchases of Equity Securities
On February 27, 2018, our Board approved a new $50 million share repurchase program. We have suspended repurchases under this program, however, in order to preserve our liquidity and pursue deleveraging transactions.
Performance Graph
The following table and graph shows the cumulative total stockholder return on our Common Stock with the S&P 500 Stock Index, the S&P Small Cap 600 Index and the Dow Jones U.S. Restaurants & Bars Index, in each case assuming an initial investment of $100 on December 31, 2013 and full dividend reinvestment.
CUMULATIVE TOTAL RETURN
Assuming an investment of $100 and reinvestment of dividends
cumulativetotalreturn2018.jpg

28



12/31/2013
 
12/30/2014
 
12/29/2015
 
12/27/2016
 
12/26/2017
 
12/25/2018
Del Frisco's Restaurant Group, Inc.
$
100.00

 
$
99.49

 
$
68.69

 
$
74.03

 
$
65.55

 
$
27.20

S&P 500 Stock Index
$
100.00

 
$
112.55

 
$
112.44

 
$
122.75

 
$
145.02

 
$
127.20

S&P SmallCap 600 Index
$
100.00

 
$
105.19

 
$
103.29

 
$
127.68

 
$
141.28

 
$
119.28

Dow Jones U.S. Restaurants & Bars Index
$
100.00

 
$
103.52

 
$
124.85

 
$
129.48

 
$
154.18

 
$
156.11

The stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Exchange Act, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.
Information Regarding Dividends
We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock for the foreseeable future. We anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our financial condition, operating results and other factors our Board of Directors deems relevant.
Our credit facility contains, and debt instruments that we enter into in the future may contain, covenants that place limitations on the amount of dividends we may pay. In addition, under Delaware law, our Board of Directors may declare dividends only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year.

29


Item 6.    Selected Financial Data
The following table sets forth certain of our historical financial data. Other than with respect to the Operating Data, we have derived the selected historical consolidated financial data set forth below for fiscal years 2014 through 2018 from our audited consolidated financial statements and the related notes. Not all periods shown below are discussed in this Annual Report on Form 10-K. You should read this information together with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. Historical results are not necessarily indicative of future performance. ໿

Fiscal Year Ended(1)
(Amounts in thousands, except per share data)
December 25, 2018
 
December 26, 2017
 
December 27, 2016
 
December 29, 2015
 
December 30, 2014
Income Statement Data:
 
 
 
 
 
 
 
 
 
Revenues
$
378,216

 
$
293,827

 
$
273,884

 
$
252,629

 
$
220,893

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
105,985

 
83,617

 
76,319

 
72,260

 
66,824

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
189,890

 
141,520

 
129,018

 
116,666

 
96,983

Marketing and advertising costs
8,255

 
6,318

 
5,789

 
5,401

 
3,781

Pre-opening costs
9,351

 
2,182

 
3,446

 
5,228

 
4,735

General and administrative costs
39,650

 
26,891

 
23,315

 
21,122

 
18,598

Donations
335

 
836

 

 

 

Consulting project costs
6,420

 
2,786

 

 

 

Acquisition costs
11,123

 

 

 
 
 
 
Reorganization severance
2,202

 
1,072

 
793

 

 

Lease termination and closing costs
3,779

 
(2
)
 
142

 
1,381

 

Secondary public offering costs

 

 

 

 
5

Impairment charges(2)
2,115

 
22,930

 

 
3,248

 
3,536

Depreciation and amortization
21,713

 
17,595

 
14,903

 
12,825

 
9,945

Total costs and expenses
400,818

 
305,745

 
253,725

 
238,131

 
204,407

Insurance settlements
72

 

 

 

 

Operating (loss) income
(22,530
)
 
(11,918
)
 
20,159

 
14,498

 
16,486

Other income (expense), net:
 
 
 
 
 
 
 
 
 
Interest, net of capitalized interest
(32,179
)
 
(783
)
 
(70
)
 
(77
)
 
(113
)
Other  
(810
)
 
(1,435
)
 
(433
)
 
(216
)
 
(47
)
(Loss) income before income taxes
(55,519
)
 
(14,136
)
 
19,656

 
14,205

 
16,326

Income tax (benefit) expense(3)
(5,653
)
 
(13,317
)
 
5,321

 
3,169

 
5,002

(Loss) income from continuing operations
(49,866
)
 
(819
)
 
14,335

 
11,036

 
11,324

(Loss) income from discontinued operations, net of tax
(26,437
)
 
(10,638
)
 
3,431

 
4,962

 
5,273

Net (loss) income
$
(76,303
)
 
$
(11,457
)
 
$
17,766

 
$
15,998

 
$
16,597

Net (loss) income per average common share outstanding—basic
 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(1.96
)
 
$
(0.04
)
 
$
0.61

 
$
0.47

 
$
0.48

(Loss) income from discontinued operations
(1.04
)
 
(0.49
)
 
0.15

 
0.21

 
0.22

Net (loss) income
$
(3.00
)
 
$
(0.53
)
 
$
0.76

 
$
0.68

 
$
0.71

Net income (loss) per average common share outstanding—diluted
 
 
 
 
 
 
 
 
 
(Loss) income from continuing operations
$
(1.96
)
 
$
(0.04
)
 
$
0.61

 
$
0.47

 
$
0.48

(Loss) income from discontinued operations
(1.04
)
 
(0.49
)
 
0.15

 
0.21

 
0.22

Net (loss) income
$
(3.00
)
 
$
(0.53
)
 
$
0.76

 
$
0.68

 
$
0.70

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic:
25,412

 
21,570

 
23,322

 
23,380

 
23,518

Diluted:
25,412

 
21,570

 
23,435

 
23,517

 
23,740

໿

30


(Amounts in thousands)
December 25, 2018
 
December 26, 2017
 
December 27, 2016
 
December 29, 2015
 
December 30, 2014
Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8,535

 
$
4,553

 
$
14,622

 
$
5,176

 
$
3,520

Working capital (deficit)(4)
$
(31,698
)
 
$
(14,828
)
 
$
(4,396
)
 
$
(10,390
)
 
$
(2,106
)
Total assets
$
726,032

 
$
328,469

 
$
370,782

 
$
346,655

 
$
319,666

Long-term debt
$
320,736

 
$
24,477

 
$

 
$
4,500

 
$

Total stockholders' equity
$
213,582

 
$
189,087

 
$
246,366

 
$
227,699

 
$
210,983

໿

Fiscal Year Ended(1)
(Amounts in thousands)
December 25, 2018
 
December 26, 2017
 
December 27, 2016
 
December 29, 2015
 
December 30, 2014
Other Financial Data:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
11,168

 
$
38,024

 
$
49,815

 
$
45,868

 
$
42,766

Net cash used in investing activities
$
(382,485
)
 
$
(23,929
)
 
$
(34,168
)
 
$
(46,530
)
 
$
(47,956
)
Net cash provided by (used in) financing activities
$
375,299

 
$
(24,164
)
 
$
(6,201
)
 
$
2,318

 
$
(4,964
)
Capital Expenditures
$
85,838

 
$
39,426

 
$
36,698

 
$
46,150

 
$
47,491


 
 
 
 
 
 
 
 
 
Operating Data:
 
 
 
 
 
 
 
 
 
Total Restaurants (at end of period)(5)
73

 
37

 
35

 
32

 
27

Total comparable restaurants (at end of period(5)(6))
60

 
30

 
26

 
20

 
16

Average sales per comparable restaurant
$
6,200

 
$
8,092

 
$
8,452

 
$
10,263

 
$
10,753

Percentage change in comparable restaurant sales(6)
(0.9
)%
 
(0.8
)%
 
(1.0
)%
 
(1.0
)%
 
3.2
%

(1)
We utilize a 52- or 53-week accounting period which ends on the last Tuesday of December. The fiscal years ended December 25, 2018, December 26, 2017, December 27, 2016 and December 29, 2015 each had 52 weeks. The fiscal year ended December 30, 2014 had 53 weeks.
(2)
In fiscal 2018, we incurred $2.1 million in impairment charges related to one Double Eagle and two Grille locations in connection with our decision to close the Double Eagle and the Grille locations. In fiscal 2017, we incurred $22.9 million in impairment charges related to one Double Eagle and four Grille locations in connection with our decision to these locations. See note 2 Summary of Significant Accounting Policies in the notes to our consolidated financial statements.
(3)
The $5.7 million income tax benefit for the fiscal year ended December 25, 2018, is impacted by $11.2 million attributed to tax valuation allowance, established during fiscal 2018. The $13.3 million income tax benefit for the fiscal year ended December 26, 2017, was primarily attributable to permanent differences as a result of goodwill impairment and The Tax Cuts and Jobs Act, which permanently reduced the maximum federal corporate income tax rate from 35% to 21%. See note 7 in the notes to our consolidated financial statements.
(4)
Defined as total current assets minus total current liabilities.
(5)
Consistent with our consolidated financial statements, information has been presented on a continuing operations basis. Accordingly, all discontinued operations have been excluded.
(6)
We consider a restaurant to be comparable in the first full fiscal quarter following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time.


31


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview
Del Frisco’s develops, owns and operates four contemporary and complementary restaurants: Del Frisco’s Double Eagle Steakhouse (“Double Eagle”), Barcelona Wine Bar (“Barcelona”), bartaco, and Del Frisco’s Grille (“Grille”). As of the end of the period covered by this report, we owned and operated 73 restaurants in 16 states and the District of Columbia. Of the 73 restaurants we operated as of the end of the period covered by this report, there are 16 Double Eagle restaurants, 15 Barcelona restaurants, 18 bartaco restaurants and 24 Grille restaurants. During fiscal 2018, we opened three Double Eagle restaurants at Back Bay in Boston, Massachusetts, Atlanta, Georgia and San Diego, California, three bartaco restaurants, post Barteca Acquisition, in North Hills, North Carolina, Fort Point, Massachusetts and Dallas, Texas, and three Grille restaurants in Westwood, Massachusetts, Philadelphia, Pennsylvania and Fort Lauderdale, Florida.
Our Growth Strategies and Outlook. Our growth model is comprised of the following three primary drivers:
Disciplined Growth. Our long term target is to grow annual revenues through a combination of annual restaurant growth and comparable restaurant sales growth. We believe that there are significant opportunities to grow our concepts in both existing and new markets, where we believe we can generate attractive unit-level economics, which we view as the most significant driver of future growth. Our real estate process includes partnering with a third party master broker to source potential sites against a set of clear criteria for each brand, working with a third-party spatial analytics company, who have developed a model to determine the most attractive locations for each of our brands and a predictive sales model for specific sites, and a Real Estate Committee, consisting of members of the Board of Directors (the “Board”) and senior management, which visits, assesses and approves each site. While we do not believe it is possible to guarantee every site will meet its expected returns, we expect these processes to increase the probability of a site meeting its financial return on investment hurdles. We believe our concepts’ complementary market positioning and ability to coexist in the same markets, coupled with our flexible unit models and robust site assessment and approval processes, will allow us to expand each of our concepts into a greater number of locations. We will also continue to pursue opportunities to increase the sales at our existing restaurants through menu innovation, relevant and impactful marketing initiatives and loyalty programs, growing private dining and a continued focus on enhancing the guest experience.
Operating and G&A Leverage. Our long term target is to grow Adjusted EBITDA. We will continue to focus on maintaining our strong restaurant level margins through operational efficiencies and economies of scale, including purchasing synergies across our concepts. As we open new restaurants our organizational structure will enable us to keep our Brand teams focused on individual Brand priorities while leveraging our support functions across a larger business, resulting in G&A reducing as a percentage of revenue over time. The Barteca Acquisition greatly enhances our ability to leverage the benefits of scale.
Financing Strategies. Our long term target is to reduce our leverage through a combination of disciplined capital expenditures to support our restaurant count growth target and remodel needs, free cash flow generation from revenue growth and operating and G&A leverage, and other financing strategies to reduce our debt.
Our long term target is to grow the Double Eagle, Barcelona and bartaco brands by opening new restaurants. We expect to open no Grilles in 2019 or 2020 as we evaluate the performance of 2018 openings which incorporate lessons learned from our 2017 consulting project. In the fiscal 2018, we closed River Oaks, Texas, Little Rock, Arkansas, Stamford, Connecticut Grille restaurants, as well as Asheville, North Carolina and Homewood, Alabama bartaco restaurants. We also determined to close the Chicago, Illinois Double Eagle location during the first quarter of 2019. It generally takes 9 to 12 months after the signing of a lease or the closing of a purchase to complete construction and open a new restaurant. Additional time is sometimes required to obtain certain government approvals, permits and licenses, such as liquor licenses. See Item 1, Business for a discussion of our targeted average cash investment for each concept and other information regarding the opening of a new location.
Performance Indicators. We use the following key metrics in evaluating the performance of our restaurants:
Comparable Restaurant Sales Growth. We consider a restaurant to be comparable during the first full fiscal quarter following the eighteenth month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time. Changes in comparable sales reflect changes in customer count trends as well as changes in average check. Our comparable restaurant base consisted of 60 and 30 restaurants at December 25, 2018 and December 26, 2017, respectively.
Average Check. Average check is calculated by dividing total restaurant sales by customer counts for a given time period. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in customers’ preferences, the effectiveness of menu changes and price increases and per customer expenditures.

32


Average Unit Volume. Average unit volume, or AUV, consists of the average sales of our restaurants over a certain period of time. This measure is calculated by dividing total restaurant sales within a period by the number of restaurants operating during the relevant period. This indicator assists management in measuring changes in customer traffic, pricing and development of our concepts.
Customer Counts. Customer counts for Double Eagle and Grille are measured by the number of entrées ordered at our restaurants over a given time period. Barcelona and bartaco customer counts are measured by the number of customers counted in the dining room or on the patio over a given time period.
Restaurant-Level EBITDA and Restaurant-Level EBITDA Margin. Restaurant-level EBITDA represents Adjusted EBITDA before general and administrative costs. Adjusted EBITDA represents operating income (loss) before depreciation and amortization, plus the sum of certain non-operating expenses, including pre-opening costs, donations, lease termination costs, acquisition costs, consulting project costs, reorganization severance, impairment charges and insurance settlements. Restaurant-level EBITDA margin is the ratio of Restaurant-level EBITDA to revenues. These non-GAAP operating measures are useful to both management and investors because they represent one means of gauging the overall profitability of our recurring and controllable core restaurant operations for each segment, and all segments at a consolidated level. These measures are not, however, indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. See note 16 Segment Reporting, in the notes to our consolidated financial statements for a reconciliation of restaurant-level EBITDA to operating income at a consolidated level.
Our business is subject to seasonal fluctuations. Historically, the percentage of our annual revenues earned during the first and fourth fiscal quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season, respectively. As many of our operating expenses have a fixed component, our operating income and operating income margin have historically varied significantly from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year.
Change in Reporting Periods
Beginning in fiscal 2018, we changed to a fiscal quarter calendar where each quarter contains 13 weeks, other than in a 53-week year where the last quarter of the year will contain 14 weeks. Previously, the first three quarters of our fiscal year each consisted of 12 weeks and the fourth quarter consisted of 16 weeks or 17 weeks in a 53-week year.
Key Financial Definitions
Revenues. Revenues consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale. Additionally, revenues are net of the cost of loyalty points earned associated with sales made to customers in our loyalty program. Revenues also include breakage income associated with gift cards. In fiscal 2018 and 2017, food comprised 68% and 70% of food and beverage sales with beverage comprising the remaining 32% and 30%, respectively. Revenues are directly influenced by the number of operating weeks in the relevant period and comparable restaurant sales growth. Comparable restaurant sales growth reflects the change in year-over-year sales for the comparable restaurant base. Comparable restaurant sales growth is primarily influenced by the number of customers eating in our restaurants, which is influenced by the popularity of our menu items, competition with other restaurants in each market, our customer mix and our ability to deliver a high quality dining experience, and the average check, which is driven by menu mix and pricing.
Cost of Sales. Cost of sales is comprised primarily of food and beverage expenses. We measure food and beverage expenses by tracking cost of sales as a percentage of revenues. Food and beverage expenses are generally influenced by the cost of food and beverage items, distribution costs and menu mix. The components of cost of sales are variable in nature, increase with revenues, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage costs of sales at our restaurants.
Restaurant Operating Expenses. We measure restaurant operating expenses as a percentage of revenues. Restaurant operating expenses include the following:
Labor expenses, which comprise restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, fringe benefits and health insurance expenses and are measured by tracking hourly and total labor as a percentage of revenues;
Occupancy expenses, which comprise all occupancy costs other than pre-opening rent expense, consisting of both fixed and variable portions of rent, common area maintenance charges, real estate property taxes and other related occupancy costs and are measured by tracking occupancy as a percentage of revenues; and

33


Other operating expenses, which comprise repairs and maintenance, utilities, operating supplies and other restaurant-level related operating expenses and are measured by tracking other operating expenses as a percentage of revenues.
Marketing and Advertising Costs. Marketing and advertising costs include all media, production and related costs for both local restaurant advertising and national marketing. We measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues. We have historically spent approximately 1.5% to 2.5% of total revenues on marketing and advertising and expect to maintain this level in the near term.
Pre-opening Costs. Pre-opening costs are costs incurred prior to opening a restaurant, and primarily consist of manager salaries, relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities, as well as non-cash lease costs incurred prior to opening. In addition, pre-opening expenses include marketing costs incurred prior to opening as well as meal expenses for entertaining local dignitaries, families and friends. Pre-opening costs can vary significantly from site to site, primarily due to the variability in non-cash lease costs at different restaurant locations. Excluding non-cash lease costs, we currently target pre-opening costs of $1.0 million for Double Eagle openings, $0.3 million for Barcelona openings, $0.3 million for bartaco openings, and $0.5 million for Grille openings.
General and Administrative Expenses.  General and administrative expenses are comprised of costs related to certain corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company growth. These expenses reflect management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, professional and consulting fees, technology and market research. We measure general and administrative costs by tracking general and administrative expenses as a percentage of revenues. These expenses are expected to increase as a result of costs related to our anticipated growth, including substantial training costs and significant investments in infrastructure. As we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of total revenues over time.
Depreciation and Amortization. Depreciation and amortization includes depreciation of fixed assets and certain definite-life intangible assets. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life. As we accelerate our restaurant openings, depreciation and amortization is expected to increase as a result of our increased capital expenditures.

34


Results of Operations
The following table shows our operating results, as well as our operating results as a percentage of revenues for the periods indicated:

Fiscal Year Ended
(Amounts in thousands)
December 25, 2018
 
December 26, 2017
 
December 27, 2016
Revenues
$
378,216

 
100.0
%
 
$
293,827

 
100.0
%
 
$
273,884

 
100.0
%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
105,985

 
28.0

 
83,617

 
28.5

 
76,319

 
27.9

Restaurant operating expenses (excluding depreciation and amortization shown separately below)
189,890

 
50.2

 
141,520

 
48.2

 
129,018

 
47.1

Marketing and advertising costs
8,255

 
2.2

 
6,318

 
2.2

 
5,789

 
2.1

Pre-opening costs
9,351

 
2.5

 
2,182

 
0.7

 
3,446

 
1.3

General and administrative costs
39,650

 
10.5

 
26,891

 
9.2

 
23,315

 
8.5

Donations
335

 
0.1

 
836

 
0.3

 

 
0.0

Consulting project costs
6,420

 
1.7

 
2,786

 
0.9

 

 
0.0

Acquisition costs
11,123

 
2.9

 

 
0.0

 

 
0.0

Reorganization severance
2,202

 
0.6

 
1,072

 
0.4

 
793.0

 
0.3

Lease termination and closing costs
3,779

 
1.0

 
(2
)
 
0.0

 
142

 
0.1

Impairment charges
2,115

 
0.6

 
22,930

 
7.8

 

 
0.0

Depreciation and amortization
21,713

 
5.7

 
17,595

 
6.0

 
14,903

 
5.4

Total costs and expenses
400,818

 
106.0

 
305,745

 
104.1

 
253,725

 
92.6

Insurance settlements
72

 
0.0

 

 
0.0

 

 
0.0

Operating (loss) income
(22,530
)
 
(6.0
)
 
(11,918
)
 
(4.1
)
 
20,159

 
7.4

Other (expense) income, net:
 
 
 
 
 
 
 
 
 
 
 
Interest, net of capitalized interest
(32,179
)
 
(8.5
)
 
(783
)
 
(0.3
)
 
(70
)
 
0.0

Other  
(810
)
 
(0.2
)
 
(1,435
)
 
(0.5
)
 
(433
)
 
(0.2
)
(Loss) income before income taxes
(55,519
)
 
(14.7
)
 
(14,136
)
 
(4.8
)
 
19,656

 
7.2

Income tax (benefit) expense
(5,653
)
 
(1.5
)
 
(13,317
)
 
(4.5
)
 
5,321

 
1.9

(Loss) income income from continuing operations
(49,866
)
 
(13.2
)
 
(819
)
 
(0.3
)
 
14,335

 
5.2

(Loss) income from discontinued operations, net of tax(1)
(26,437
)
 
(7.0
)
 
(10,638
)
 
(3.6
)
 
3,431

 
1.3

Net (loss) income
$
(76,303
)
 
(20.2
)%
 
$
(11,457
)
 
(3.9
)%
 
$
17,766

 
6.5
 %
(1)
Discontinued operations for fiscal 2018 includes the sale of Sullivan's. See Note 4, Dispositions in the notes to our consolidated financial statements for information regarding discontinued operations.





35


Fiscal Year Ended December 25, 2018 (52 weeks) Compared to Fiscal Year Ended December 26, 2017 (52 weeks)
The following tables show our operating results by operating segment, as well as our operating results as a percentage of revenues, for the fiscal years ended December 25, 2018 and December 26, 2017. The tables below include Restaurant-level EBITDA, a non-GAAP measure. See Note 16Segment Reporting in the notes to our consolidated financial statements for additional information on this metric, including a reconciliation to operating income, the most directly comparable GAAP measure.

Fiscal Year Ended December 25, 2018
(Amounts in thousands except operating weeks)
Del Frisco's
 
Barcelona
 
bartaco
 
Grille
 
Consolidated
Revenues
$
182,957

 
100.0
%
 
$
34,084

 
100.0
%
 
$
40,186

 
100.0
%
 
$
120,989

 
100.0
%
 
$
378,216

 
100.0
%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
54,559

 
29.8

 
9,123

 
26.8

 
9,232

 
23.0

 
33,071

 
27.3

 
105,985

 
28.0

Restaurant operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Labor
44,600

 
24.4

 
10,596

 
31.1

 
13,388

 
33.3

 
39,259

 
32.4

 
107,843

 
28.5

Operating expenses
21,815

 
11.9

 
4,698

 
13.8

 
5,576

 
13.9

 
17,560

 
14.5

 
49,649

 
13.1

Occupancy
15,161

 
8.3

 
1,855

 
5.4

 
1,943

 
4.8

 
13,439

 
11.1

 
32,398

 
8.6

Restaurant operating expenses
81,576

 
44.6

 
17,149

 
50.3

 
20,907

 
52.0

 
70,258

 
58.1

 
189,890

 
50.2

Marketing and advertising costs
4,981

 
2.7

 
187

 
0.5

 
178

 
0.4

 
2,909

 
2.4

 
8,255

 
2.2

Restaurant-level EBITDA
$
41,841

 
22.9
%
 
$
7,625

 
22.4
%
 
$
9,869

 
24.6
%
 
$
14,751

 
12.2
%
 
$
74,086

 
19.6
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant operating weeks
717

 
 
 
416

 
 

 
459

 
 

 
1,229

 
 
 
2,821

 
 
Average weekly volume
$
255

 
 
 
$
82

 
 

 
$
88

 
 

 
$
98

 
 
 
$
134

 
 

Fiscal Year Ended December 26, 2017
(Amounts in thousands except operating weeks)
Del Frisco's
 
Barcelona
 
bartaco
 
Grille
 
Consolidated
Revenues
$
176,713

 
100.0
%
 
$

 
%
 
$

 
%
 
$
117,114

 
100.0
%
 
$
293,827

 
100.0
%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of sales
52,944

 
30.0

 

 

 

 

 
30,673

 
26.2

 
83,617

 
28.5

Restaurant operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Labor
41,935

 
23.7

 

 

 

 

 
39,163

 
33.4

 
81,098

 
27.6

Operating expenses
18,846

 
10.7

 

 

 

 

 
15,849

 
13.5

 
34,695

 
11.8

Occupancy
12,511

 
7.1

 

 

 

 

 
13,216

 
11.3

 
25,727

 
8.8

Restaurant operating expenses
73,292

 
41.5

 

 

 

 

 
68,228

 
58.3

 
141,520

 
48.2

Marketing and advertising costs
3,568

 
2.0

 

 

 

 

 
2,750

 
2.3

 
6,318

 
2.2

Restaurant-level EBITDA
$
46,909

 
26.5
%
 
$

 
%
 
$

 
%
 
$
15,463

 
13.2
%
 
$
62,372

 
21.2
%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restaurant operating weeks
655

 
 
 

 
 

 

 
 

 
1,221

 
 
 
1,876

 
 
Average weekly volume
$
270

 
 
 
$

 
 

 
$

 
 

 
$
96

 
 
 
$
157

 
 


36


Revenues. Consolidated revenues increased $84.4 million, or 28.7%, to $378.2 million in fiscal 2018 from $293.8 million in fiscal 2017. This increase was due to 945 net additional operating weeks in fiscal 2018 primarily as a result of the Barteca Acquisition, coupled with nine new restaurant openings over the past four quarters three Double Eagle restaurants at Back Bay in Boston, Massachusetts, Atlanta, Georgia and San Diego, California three bartaco restaurants, post Barteca Acquisition, in North Hills, North Carolina, Fort Point, Massachusetts and Dallas, Texas and three Grille restaurants in Westwood, Massachusetts, Philadelphia, Pennsylvania and Fort Lauderdale, Florida. This increase was partially offset by decreased revenue at our comparable restaurants, the closure of River Oaks, Texas, Little Rock, Arkansas and Stamford, Connecticut Grille restaurants, and Asheville, North Carolina and Homewood, Alabama bartaco restaurants. Comparable restaurant sales decreased 0.9%, comprised of 2.9% decrease in customer counts and 2.0% increase in average check, primarily driven