DEL TACO RESTAURANTS, INC., 10-Q filed on 10/20/2017
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 12, 2017
Oct. 19, 2017
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 12, 2017 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
TACO 
 
Entity Registrant Name
Del Taco Restaurants, Inc. 
 
Entity Central Index Key
0001585583 
 
Current Fiscal Year End Date
--01-02 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
38,677,234 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Current assets:
 
 
Cash and cash equivalents
$ 7,022 
$ 8,795 
Accounts and other receivables, net
3,353 
4,141 
Inventories
2,642 
2,718 
Prepaid expenses and other current assets
4,273 
4,204 
Total current assets
17,290 
19,858 
Property and equipment, net
146,308 
138,320 
Goodwill
319,778 
320,025 
Trademarks
220,300 
220,300 
Intangible assets, net
22,523 
24,782 
Other assets, net
3,622 
3,872 
Total assets
729,821 
727,157 
Current liabilities:
 
 
Accounts payable
20,060 
16,427 
Other accrued liabilities
39,065 
36,653 
Current portion of capital lease obligations and deemed landlord financing liabilities
1,497 
1,588 
Total current liabilities
60,622 
54,668 
Long-term debt, capital lease obligations and deemed landlord financing liabilities, excluding current portion, net
161,968 
173,743 
Deferred income taxes
93,700 
91,273 
Other non-current liabilities
31,058 
30,140 
Total liabilities
347,348 
349,824 
Commitments and contingencies
   
   
Shareholders’ equity:
 
 
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding
0 
0 
Common stock, $0.0001 par value; 400,000,000 shares authorized; 38,677,234 shares issued and outstanding at September 12, 2017; 39,153,503 shares issued and outstanding at January 3, 2017
4 
4 
Additional paid-in capital
350,873 
360,131 
Accumulated other comprehensive (loss) income
(99)
172 
Retained earnings
31,695 
17,026 
Total shareholders’ equity
382,473 
377,333 
Total liabilities and shareholders’ equity
$ 729,821 
$ 727,157 
Condensed Consolidated Balance Sheets (Parenthetical) (Successor [Member], USD $)
Sep. 12, 2017
Jan. 3, 2017
Successor [Member]
 
 
Preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Preferred stock, shares authorized (in shares)
1,000,000 
1,000,000 
Preferred stock, shares issued (in shares)
0 
0 
Preferred stock, shares outstanding (in shares)
0 
0 
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized (in shares)
400,000,000 
400,000,000 
Common stock, shares issued (in shares)
38,677,234 
39,153,503 
Common stock, shares outstanding (in shares)
38,677,234 
39,153,503 
Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Sep. 12, 2017
Sep. 6, 2016
Revenue:
 
 
 
 
Company restaurant sales
$ 106,298 
$ 100,173 
$ 311,542 
$ 289,640 
Franchise revenue
3,978 
3,686 
11,494 
10,591 
Franchise sublease income
712 
560 
1,878 
1,617 
Total revenue
110,988 
104,419 
324,914 
301,848 
Restaurant operating expenses:
 
 
 
 
Food and paper costs
29,648 
27,574 
86,336 
80,061 
Labor and related expenses
33,635 
30,748 
100,041 
90,781 
Occupancy and other operating expenses
22,608 
20,911 
64,243 
60,560 
General and administrative
8,817 
8,566 
27,177 
25,072 
Depreciation and amortization
5,522 
5,157 
15,903 
16,175 
Occupancy and other - franchise subleases
654 
521 
1,738 
1,534 
Pre-opening costs
354 
94 
531 
222 
Restaurant closure charges, net
(16)
(133)
(1)
(121)
Loss on disposal of assets, net
233 
54 
524 
191 
Total operating expenses
101,455 
93,492 
296,492 
274,475 
Income from operations
9,533 
10,927 
28,422 
27,373 
Other expense
 
 
 
 
Interest expense
1,628 
1,412 
4,798 
4,289 
Transaction-related costs
0 
490 
0 
681 
Total other expense
1,628 
1,902 
4,798 
4,970 
Income from operations before provision for income taxes
7,905 
9,025 
23,624 
22,403 
Provision for income taxes
2,804 
4,100 
8,955 
9,500 
Net income
5,101 
4,949 
14,669 
12,874 
Other comprehensive loss:
 
 
 
 
Change in fair value of interest rate cap, net of tax
(35)
(122)
(271)
(122)
Total other comprehensive loss
(35)
(122)
(271)
(122)
Comprehensive income
$ 5,066 
$ 4,827 
$ 14,398 
$ 12,752 
Earnings per share:
 
 
 
 
Basic (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.38 
$ 0.33 
Diluted (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.37 
$ 0.33 
Weighted-average shares outstanding
 
 
 
 
Basic (in shares)
38,695,099 
38,465,064 
38,744,963 
38,518,431 
Diluted (in shares)
39,839,571 
38,688,961 
40,016,062 
38,682,273 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Operating activities
 
 
Net income
$ 14,669 
$ 12,874 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
15,903 
16,175 
Amortization of favorable and unfavorable lease assets and liabilities, net
(521)
(420)
Amortization of deferred financing costs and debt discount
267 
267 
Stock-based compensation
3,340 
2,630 
Deferred income taxes
2,607 
6,019 
Loss on disposal of assets, net
524 
191 
Restaurant closure charges
125 
(403)
Changes in operating assets and liabilities:
 
 
Accounts and other receivables, net
788 
26 
Inventories
76 
296 
Prepaid expenses and other current assets
(69)
(1,699)
Other assets
(84)
0 
Accounts payable
3,633 
302 
Other accrued liabilities
2,319 
3,374 
Other non-current liabilities
283 
(936)
Net cash provided by operating activities
43,860 
38,696 
Investing activities
 
 
Purchases of property and equipment
(30,122)
(23,143)
Proceeds from disposal of property and equipment, net
7,733 
5 
Purchases of other assets
(705)
(1,538)
Proceeds from sale of company-operated restaurants
2,192 
0 
Net cash used in investing activities
(20,902)
(24,676)
Financing activities
 
 
Repurchase of common stock and warrants
(10,711)
(12,169)
Payment of tax withholding related to restricted stock vesting
(1,923)
(916)
Payments on capital leases and deemed landlord financing
(1,133)
(1,214)
Proceeds from revolving credit facility
19,000 
14,000 
Payments on revolving credit facility
(30,000)
(12,000)
Payment for interest rate cap
0 
(312)
Proceeds from exercise of stock options
36 
0 
Net cash used in financing activities
(24,731)
(12,611)
(Decrease) increase in cash and cash equivalents
(1,773)
1,409 
Cash and cash equivalents at beginning of period
8,795 
10,194 
Cash and cash equivalents at end of period
7,022 
11,603 
Supplemental cash flow information:
 
 
Cash paid during the period for interest
4,355 
4,279 
Cash paid during the period for income taxes
4,743 
811 
Supplemental schedule of non-cash activities:
 
 
Accrued property and equipment purchases
5,552 
3,672 
Write-offs of accounts receivables
0 
72 
Change in other asset for fair value of interest rate cap recorded to other comprehensive loss, net of tax
$ (271)
$ (122)
Description of Business
Description of Business
Description of Business
Del Taco Restaurants, Inc. (f/k/a Levy Acquisition Corp. (“LAC”)) is a Delaware corporation headquartered in Lake Forest, California. The consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At September 12, 2017, there were 305 company-operated and 253 franchise-operated Del Taco restaurants located in 15 states, including one franchise-operated unit in Guam. At September 6, 2016, there were 300 company-operated and 246 franchise-operated Del Taco restaurants located in 16 states, including one franchise-operated unit in Guam.
The Company was originally incorporated in Delaware on August 2, 2013 as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. On June 30, 2015 (the “Closing Date”), the Company consummated its business combination with Del Taco Holdings, Inc. (“DTH”) pursuant to the agreement and plan of merger dated as of March 12, 2015 by and among LAC, Levy Merger Sub, LLC (“Levy Merger Sub”), LAC’s wholly owned subsidiary, and DTH (the “Merger Agreement”). Under the Merger Agreement, Levy Merger Sub merged with and into DTH, with DTH surviving the merger as a wholly-owned subsidiary of the Company (the “Business Combination” or “Merger”). In connection with the closing of the Business Combination, the Company changed its name from Levy Acquisition Corp. to Del Taco Restaurants, Inc.
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 3, 2017 ("2016 Form 10-K"). The accounting policies used in preparing these unaudited consolidated financial statements are the same as those described in our 2016 Form 10-K.
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2017 is a fifty-two week period ending January 2, 2018. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. Fiscal year 2016 is the fifty-three week period ended January 3, 2017. In a fifty-three week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes seventeen weeks of operations. For fiscal year 2017, the Company’s accompanying financial statements reflect the twelve weeks and thirty-six weeks ended September 12, 2017. For fiscal year 2016, the Company’s accompanying financial statements reflect the twelve weeks and thirty-six weeks ended September 6, 2016.
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances.
Recently Issued Accounting Standards
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 804): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether certain transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company elected as permitted by the standard, to early adopt ASU 2017-01 in the current period. The adoption of ASU 2017-01 did not have a material impact to the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The new guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with certain practical expedients available. The Company currently believes the guidance will have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a comprehensive new revenue recognition model that requires a company to recognize revenue in an amount that reflects the consideration it expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU is effective for annual periods and interim periods beginning after December 15, 2017. The ASU is to be applied retrospectively or using a cumulative effect transition method. The Company will adopt this new guidance in fiscal year 2018, and has not yet selected a transition method. The Company does not currently believe the new revenue recognition standard will materially impact the recognition of company restaurant sales or royalty fees from franchisees. Additionally, lease rental revenues are not within the scope of this new guidance. Based on an on-going assessment, the Company expects the adoption of the new guidance to change the timing of the recognition of initial franchise fees, including franchise and development fees, and renewal fees. Currently, these fees are generally recognized upfront upon either the opening of the respective restaurant or when a renewal agreement becomes effective. The Company currently believes the new guidance will generally require these fees to be recognized over the term of the related franchise agreement for the respective restaurant. In addition, the Company anticipates funds contributed by franchisees to the advertising funds managed by the Company, as well as the associated advertising fund expenditures, will be reported on a gross basis, and the advertising fund revenues and expenses may be reported in different periods. The Company is continuing to evaluate the impact the adoption of this new guidance will have on these and other revenue transactions in addition to the impact on accounting policies and related disclosures.
Restaurant Closure Charges, Net
Restaurant Closure Charges, Net
Restaurant Closure Charges, Net
At September 12, 2017 and January 3, 2017, the restaurant closure liability is $2.7 million and $3.1 million, respectively. The details of the restaurant closure activities are discussed below.
Restaurant Closures and Lease Reserves
The following table represents other restaurant closure liability activity related to restaurant closures prior to 2015 and sublease income shortfalls (in thousands):
 
 
Total
Balance at January 3, 2017
 
$
1,365

Charges for accretion in current period
 
75

Cash payments
 
(208
)
Balance at September 12, 2017
 
$
1,232


The current portion of the restaurant closure liability is $0.3 million at both September 12, 2017 and January 3, 2017 and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability is $0.9 million and $1.1 million at September 12, 2017 and January 3, 2017, respectively, and is included in other non-current liabilities in the consolidated balance sheets.
Restaurant Closure and Other Related Charges for 12 Underperforming Restaurants
During the fourth fiscal quarter of 2015, the Company closed 12 company-operated restaurants. During the thirty-six weeks ended September 12, 2017, the Company recorded accretion expense related to the closures, offset by $0.1 million of sublease income from leases which are treated as deemed landlord financing. A summary of the restaurant closure liability activity, all of which relates to contract termination costs, for these 12 closed restaurants consisted of the following (in thousands):
 
 
Total
Balance at January 3, 2017
 
$
1,773

Charges for accretion in current period
 
50

Cash payments
 
(349
)
Balance at September 12, 2017
 
$
1,474


The current portion of the restaurant closure liability is $0.1 million and $0.6 million at September 12, 2017 and January 3, 2017, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability is $1.4 million and $1.2 million at September 12, 2017 and January 3, 2017, respectively, and is included in other non-current liabilities in the consolidated balance sheets.
Summary of refranchising (Notes)
Summary of Refranchising [Text Block]
Summary of Refranchising
In connection with the sale of company-operated restaurants to franchisees, the Company typically enters into several agreements, in addition to an asset purchase agreement, with franchisees including franchise and lease agreements. The Company typically sells restaurants’ inventory and equipment and retains ownership or the leasehold interest to the real estate to lease and/or sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as such, the cash consideration received is allocated to the separate elements based on their relative selling price. Cash consideration generally includes up-front consideration for the sale of the restaurants and franchise fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in allocating the initial cash consideration received. The Company compares the stated rent under the lease and/or sublease agreements with comparable market rents and the Company records favorable or unfavorable lease assets/liabilities with a corresponding offset to the gain or loss on the sale of the company-operated restaurants. The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements which are charged for separate standalone arrangements. Therefore, the Company recognizes the franchise fees when earned. Future royalty income is also recognized in revenue as earned.
The Company sold five company-operated restaurants to franchisees in the first quarter of 2017 and the following table summarizes the related gain recognized during the thirty-six weeks ended September 12, 2017 (dollars in thousands):
 
 
36 Weeks Ended
September 12, 2017
Company-operated restaurants sold to franchisees
 
5

 
 
 
Proceeds from the sale of company-operated restaurants
 
$
2,192

Net assets sold (primarily furniture, fixtures and equipment)
 
(1,261
)
Goodwill related to the company-operated restaurants sold to franchisees
 
(247
)
Net unfavorable lease liabilities (a)
 
(548
)
Other costs
 
(5
)
Gain on sale of company-operated restaurants (b)
 
$
131

Goodwill and other Intangible Assets
Goodwill and other Intangible Assets
Goodwill and other Intangible Assets
Goodwill was $319.8 million at September 12, 2017 compared to $320.0 million at January 3, 2017. The change is due to the sale of company-operated stores as described in more detail in Note 4.
There have been no changes in the carrying amount of trademarks since January 3, 2017.
The Company’s other intangible assets at September 12, 2017 and January 3, 2017 consisted of the following (in thousands):
 
 
September 12, 2017
 
January 3, 2017
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Favorable lease assets
 
$
14,161

 
$
(4,282
)
 
$
9,879

 
$
14,176

 
$
(2,996
)
 
$
11,180

Franchise rights
 
15,489

 
(2,970
)
 
12,519

 
15,489

 
(2,038
)
 
13,451

Reacquired franchise rights
 
161

 
(36
)
 
125

 
161

 
(10
)
 
151

Total amortized other intangible assets
 
$
29,811

 
$
(7,288
)
 
$
22,523

 
$
29,826

 
$
(5,044
)
 
$
24,782



During the thirty-six weeks ended September 12, 2017, the Company wrote-off $15,000 of favorable lease assets related to the closure of one company-operated restaurant.
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
The Company’s long-term debt, capital lease obligations and deemed landlord financing liabilities at September 12, 2017 and January 3, 2017 consisted of the following (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
2015 Senior Credit Facility, net of debt discount of $835 and $1,035 and deferred financing costs of $282 and $349 at September 12, 2017 and January 3, 2017, respectively
 
$
146,883

 
$
157,616

Total outstanding indebtedness
 
146,883

 
157,616

Obligations under capital leases and deemed landlord financing liabilities
 
16,582

 
17,715

Total debt
 
163,465

 
175,331

Less: amounts due within one year
 
1,497

 
1,588

Total amounts due after one year, net
 
$
161,968

 
$
173,743

 
At September 12, 2017 and January 3, 2017, the Company assessed the amounts recorded under the 2015 Senior Credit Facility and determined that such amounts approximated fair value.
2015 Revolving Credit Facility
On August 4, 2015, the Company refinanced its existing senior credit facility and entered into a new credit agreement (the “Credit Agreement”). The Credit Agreement, which matures on August 4, 2020, provides for a $250 million revolving credit facility (the “2015 Senior Credit Facility”).

The Credit Agreement contains certain financial covenants, including the maintenance of a consolidated total lease adjusted leverage ratio and a consolidated fixed charge coverage ratio. The Company was in compliance with the financial covenants as of September 12, 2017. Substantially all of the assets of the Company are pledged as collateral under the 2015 Senior Credit Facility.
At September 12, 2017, the weighted-average interest rate on the outstanding balance of the 2015 Senior Credit Facility was 3.0%. At September 12, 2017, the Company had a total of $83.8 million of availability for additional borrowings under the 2015 Senior Credit Facility as the Company had $148.0 million of outstanding borrowings and letters of credit outstanding of $18.2 million which reduce availability under the 2015 Senior Credit Facility.
Derivative Instruments
Derivative Instruments
Derivative Instruments
In June 2016, the Company entered into an interest rate cap agreement that became effective July 1, 2016, to hedge cash flows associated with interest rate fluctuations on variable rate debt, with a termination date of March 31, 2020 ("2016 Interest Rate Cap Agreement"). The 2016 Interest Rate Cap Agreement had an initial notional amount of $70.0 million of the 2015 Senior Credit Facility that effectively converted that portion of the outstanding balance of the 2015 Senior Credit Facility from variable rate debt to capped variable rate debt, resulting in a change in the applicable interest rate from an interest rate of one-month LIBOR plus the applicable margin (as provided by the 2015 Senior Credit Facility) to a capped interest rate of 2.00% plus the applicable margin. During the period from July 1, 2016 through September 12, 2017, the 2016 Interest Rate Cap Agreement had no hedge ineffectiveness.
2016 Interest Rate Cap Agreement
To ensure the effectiveness of the 2016 Interest Rate Cap Agreement, the Company elected the one-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the interest rate cap agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly match with the interest rate cap reset dates and other critical terms during the twelve weeks ended September 12, 2017.
As of September 12, 2017, the Company was hedging forecasted transactions expected to occur through March 31, 2020. Assuming interest rates at September 12, 2017 remain constant, $0.3 million of interest expense related to hedges of these transactions is expected to be reclassified into earnings over the next 30 months. The Company intends to ensure that this hedge remains effective, therefore, approximately $34,000 is expected to be reclassified into interest expense over the next 12 months.
The effective portion of the 2016 Interest Rate Cap Agreement through September 12, 2017 was included in accumulated other comprehensive income.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
The fair values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying amounts due to their short maturities. The carrying value of the 2015 Senior Credit Facility approximated fair value. The 2016 Interest Rate Cap Agreement is recorded at fair value in the Company’s consolidated balance sheets.
As of September 12, 2017 and January 3, 2017, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. For both periods, this included a derivative instrument related to interest rates. The Company determined the fair value of the interest rate cap contract based on counterparty quotes, with appropriate adjustments for any significant impact of nonperformance risk of the parties to the interest rate cap contract. Therefore, the Company categorized this interest rate cap contract as Level 2 fair value measurements. The fair value of the 2016 Interest Rate Cap Agreement was $0.1 million and $0.6 million at September 12, 2017 and January 3, 2017, respectively, and is included in other assets in the consolidated balance sheets.

The Company's assets and liabilities measured at fair value on a recurring basis as of September 12, 2017 and January 3, 2017 were as follows (in thousands):

 
September 12, 2017 (Unaudited)
 
Markets for Identical Assets
(Level 1)
 
Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement
$
147

 
$
—

 
$
147

 
$
—

Total assets measured at fair value
$
147

 
$
—

 
$
147

 
$
—

 
 
 
 
 
 
 
 
 
January 3, 2017
 
Markets for Identical Assets (Level 1)
 
Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement
$
598

 
$
—

 
$
598

 
$
—

Total assets measured at fair value
$
598

 
$
—

 
$
598

 
$
—

Other Accrued Liabilities and Other Non-current Liabilities
Other Accrued Liabilities and Other Non-current Liabilities
Other Accrued Liabilities and Other Non-current Liabilities
A summary of other accrued liabilities follows (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
Employee compensation and related items
 
$
11,983

 
$
13,783

Accrued insurance
 
8,213

 
8,192

Accrued sales tax
 
4,758

 
3,916

Accrued advertising
 
2,173

 
1,657

Accrued income tax
 
2,167

 
562

Accrued real property tax
 
1,946

 
1,274

Restaurant closure liability
 
435

 
875

Other
 
7,390

 
6,394

 
 
$
39,065

 
$
36,653


 
A summary of other non-current liabilities follows (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
Unfavorable lease liabilities
 
$
15,249

 
$
17,072

Insurance reserves
 
4,859

 
4,269

Deferred rent liability
 
2,389

 
1,676

Restaurant closure liability
 
2,271

 
2,263

Deferred development and initial franchise fees
 
1,402

 
1,385

Unearned trade discount, non-current
 
1,284

 
1,596

Deferred gift card income
 
565

 
1,182

Other
 
3,039

 
697

 
 
$
31,058

 
$
30,140

Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
In connection with the approval of the Business Combination, the Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. Under the plan, there were 3,300,000 shares of common stock reserved and authorized. At September 12, 2017, there were 1,338,236 shares of common stock available for grant under the 2015 Plan.
Stock-Based Compensation Expense
The total compensation expense related to the 2015 Plan was $1.2 million and $1.0 million for the twelve weeks ended September 12, 2017 and September 6, 2016, respectively, and $3.3 million and $2.6 million for the thirty-six weeks ended September 12, 2017 and September 6, 2016, respectively.
Restricted Stock Awards
A summary of outstanding and unvested restricted stock activity as of September 12, 2017 and changes during the period from January 3, 2017 through September 12, 2017 are as follows:
 
 
 
Shares
 
Weighted-Average
Grant Date
Fair Value
Nonvested at January 3, 2017
 
1,133,822

 
$
10.40

Granted
 
529,690

 
13.62

Vested
 
(397,727
)
 
10.60

Forfeited
 
(175,625
)
 
10.37

Nonvested at September 12, 2017
 
1,090,160

 
$
11.89


During the thirty-six weeks ended September 12, 2017, the Company made payments of $1.9 million related to tax withholding obligations for the vesting of restricted stock awards in exchange for 140,209 shares withheld. As of September 12, 2017, there was $11.4 million of unrecognized expense, net of estimated forfeitures, related to restricted stock awards which is expected to be recognized over a weighted-average remaining period of 2.8 years. The fair value of these awards was determined based on the Company’s stock price on the grant date.
Stock Options
A summary of stock option activity as of September 12, 2017 and changes during the period from January 3, 2017 through September 12, 2017 are as follows:
 
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
 
 
 
 
 
(in years)
 
(in thousands)
Options outstanding at January 3, 2017
 
334,500

 
$
9.94

 
6.1
 
$
1,464

Granted
 
125,000

 
13.78

 

 

Exercised
 
(3,500
)
 
10.25

 

 

Forfeited/Expired
 
(10,250
)
 
9.92

 

 

Options outstanding at September 12, 2017
 
445,750

 
$
11.02

 
5.8
 
$
1,332

Options exercisable at September 12, 2017
 
130,998

 
$
10.11

 
5.2
 
$
509

Options exercisable and expected to vest at September 12,
     2017
 
417,117

 
$
10.97

 
5.8
 
$
1,265


The aggregate intrinsic value in the table above is the amount by which the current market price of the Company's stock exceeds the exercise price on January 3, 2017 and September 12, 2017, respectively.
As of September 12, 2017, there was $1.1 million of unrecognized stock compensation expense, net of estimated forfeitures, related to stock option grants which is expected to be recognized over a weighted-average remaining period of 2.9 years.
Shareholders' Equity
Shareholders' Equity
Shareholders’ Equity
On February 26, 2016, the Company's Board of Directors authorized a share repurchase program covering up to $25.0 million in the aggregate of the Company's common stock and warrants which was effective immediately and expires upon completion of the repurchase program, unless terminated earlier by the Board of Directors. On August 23, 2016, the Company announced that the Board of Directors increased the repurchase program by $25.0 million, to $50.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelve weeks ended September 12, 2017, the Company repurchased (1) 96,122 shares of common stock for an average price per share of $12.35 for an aggregate cost of approximately $1.2 million, including incremental direct costs to acquire the shares, and (2) 1,186 warrants for an average price per warrant of $3.97 for an aggregate cost of approximately $5,000, including incremental direct costs to acquire the warrants. During the thirty-six weeks ended September 12, 2017, the Company repurchased (1) 737,287 shares of common stock for an average price per share of $12.46 for an aggregate cost of approximately $9.2 million, including incremental direct costs to acquire the shares, and (2) 401,186 warrants for an average price per warrant of $3.75 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants. The Company expects to retire the repurchased shares and therefore has accounted for them as constructively retired as of September 12, 2017. As of September 12, 2017, there was approximately $24.1 million remaining under the share repurchase program. The Company has no obligations to repurchase shares or warrants under this authorization, and the timing and value of shares and warrants purchased will depend on the Company's stock price, warrant price, market conditions and other factors.
Earnings per Share
Earnings per Share
Earnings per Share
Basic income per share is calculated by dividing net income attributable to Del Taco’s common shareholders for the period by the weighted average number of common shares outstanding for the period. In computing dilutive income per share, basic income per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including warrants, restricted stock, common stock options and restricted stock units.
Below are basic and diluted net income per share for the periods indicated (amounts in thousands except share and per share data):
 
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
September 12, 2017
 
September 6, 2016
 
September 12, 2017
 
September 6, 2016
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
5,101

 
$
4,949

 
$
14,669

 
$
12,874

Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
 
38,695,099

 
38,465,064

 
38,744,963

 
38,518,431

Dilutive effect of unvested restricted stock
 
319,624

 
223,897

 
430,589

 
163,842

Dilutive effect of stock options
 
30,477

 
—

 
25,673

 
—

Dilutive effect of warrants
 
794,371

 
—

 
814,837

 
—

Weighted-average shares outstanding - diluted
 
39,839,571

 
38,688,961

 
40,016,062

 
38,682,273

Net income per share - basic
 
0.13

 
$
0.13

 
0.38

 
$
0.33

Net income per share - diluted
 
0.13

 
$
0.13

 
0.37

 
$
0.33

Antidilutive stock options, unvested restricted stock awards and warrants excluded from the computations
 
469,691

 
10,829,117

 
188,369

 
12,126,069

Antidilutive stock options, unvested restricted stock and warrants were excluded from the computation of diluted net income per share due to the assumed proceeds from the award’s exercise or vesting being greater than the average market price of the common shares.
Income Taxes
Income Taxes
Income Taxes
The effective income tax rates were 35.5% and 45.2% for the twelve weeks ended September 12, 2017 and September 6, 2016, respectively. The provision for income taxes consisted of income tax expense of $2.8 million and $4.1 million for the twelve weeks ended September 12, 2017 and September 6, 2016, respectively. The effective income tax rates were 37.9% and 42.5% for the thirty-six weeks ended September 12, 2017 and September 6, 2016, respectively. The provision for income taxes consisted of income tax expense of $9.0 million and $9.5 million for the thirty-six weeks ended September 12, 2017 and September 6, 2016, respectively.
The income tax expense for the twelve weeks ended September 12, 2017 is driven by the estimated effective income tax rate of 35.5% which primarily consists of statutory federal and state tax rates based on apportioned income, reduced by higher stock compensation expense deductible for tax related to the June 30, 2017 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, as well as federal targeted job credits. The income tax expense for the twelve weeks ended September 6, 2016 is driven by the estimated effective income tax rate of 45.2% which primarily consists of statutory federal and state tax rates based on apportioned income, as well as providing for deferred tax liabilities for the excess of the amount for financial reporting over the tax basis of an investment in a domestic subsidiary. In addition, the effective tax rate is also driven by transaction-related costs incurred in connection with the warrant tender offer which are not deductible for taxes as well as lower stock compensation expense deductible for tax related to the June 30, 2016 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by federal targeted job credits.
The income tax expense for the thirty-six weeks ended September 12, 2017 is driven by the estimated effective income tax rate of 37.9% which primarily consists of statutory federal and state tax rates based on apportioned income, reduced by higher stock compensation expense deductible for tax related to the June 30, 2017 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, as well as federal targeted job credits. The income tax expense for the thirty-six weeks ended September 6, 2016 is driven by the estimated effective income tax rate of 42.5% which primarily consists of statutory federal and state tax rates based on apportioned income, as well as providing for deferred tax liabilities for the excess of the amount for financial reporting over the tax basis of an investment in a domestic subsidiary. In addition, the effective tax rate is also driven by transaction-related costs incurred in connection with the warrant tender offer which are not deductible for taxes as well as lower stock compensation expense deductible for tax related to the June 30, 2016 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by federal targeted job credits.
Management believes it is more likely than not that all deferred tax assets will be realized and therefore no valuation allowance as of September 12, 2017 and January 3, 2017 is required.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
The primary claims in the Company’s business are workers’ compensation and general liabilities. These insurance programs are self-insured or high deductible programs with excess coverage that management believes is sufficient to adequately protect the Company. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured or high deductible limits, including provision for estimated claims incurred but not reported. Because of the uncertainty of the ultimate resolution of outstanding claims, as well as the uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially. However, no estimate can currently be made of the range of additional losses.
Purchasing Commitments
The Company enters into various purchase obligations in the ordinary course of business, generally of short term nature. Those that are binding primarily relate to commitments for food purchases and supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, information technology service agreements and marketing initiatives, some of which are related to both company-operated and franchise-operated locations. The Company also has a long-term beverage supply agreement with a major beverage vendor whereby marketing rebates are provided to the Company and its franchisees based upon the volumes of purchases for system-wide restaurants which vary according to demand for beverage syrup. This contract has terms extending into 2021. The Company’s future estimated cash payments under existing contractual purchase obligations for goods and services as of September 12, 2017, are approximately $63.5 million. The Company has excluded agreements that are cancelable without penalty.
Litigation
In July 2013, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has failed to pay overtime wages and has not appropriately provided meal breaks and wage statement to its California general managers. On March 4, 2016, the Court denied class certification on the overtime and meal period claims. At that time, the Court granted class certification on the wage statement issue only. On June 23, 2017, the Court filed a tentative ruling granting Del Taco’s motion to decertify the sole remaining class. The parties are in the process of stipulating to decertification of the class and expect the Court to approve the stipulation. Legal proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of September 12, 2017.
In March 2014, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has not appropriately provided meal breaks and failed to pay wages to its California hourly employees. Discovery is in process and Del Taco intends to assert all of its defenses to this threatened class action and the individual claims. Del Taco has several defenses to the action that it believes could prevent the certification of the class, as well as the potential assessment of any damages on a class basis. Legal proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of September 12, 2017.
The Company and its subsidiaries are parties to other legal proceedings incidental to their businesses, including claims alleging the Company’s restaurants do not comply with the Americans with Disabilities Act of 1990. In the opinion of management, based upon information currently available, the ultimate liability with respect to those other actions will not have a material effect on the operating results, cash flows or the financial position of the Company. However, due to the risks and uncertainties inherent in legal proceedings and litigation, actual results could differ from expectations.
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
Basis of Presentation 
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 3, 2017 ("2016 Form 10-K"). The accounting policies used in preparing these unaudited consolidated financial statements are the same as those described in our 2016 Form 10-K.
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2017 is a fifty-two week period ending January 2, 2018. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. Fiscal year 2016 is the fifty-three week period ended January 3, 2017. In a fifty-three week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes seventeen weeks of operations. For fiscal year 2017, the Company’s accompanying financial statements reflect the twelve weeks and thirty-six weeks ended September 12, 2017. For fiscal year 2016, the Company’s accompanying financial statements reflect the twelve weeks and thirty-six weeks ended September 6, 2016.
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year.
Principles of Consolidation 
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates 
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances
Recently Issued and Recently Adopted Accounting Standards 
Recently Issued Accounting Standards
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 804): Clarifying the Definition of a Business. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether certain transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company elected as permitted by the standard, to early adopt ASU 2017-01 in the current period. The adoption of ASU 2017-01 did not have a material impact to the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance will result in key changes to lease accounting and will aim to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The new leasing standard will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The new guidance requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with certain practical expedients available. The Company currently believes the guidance will have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a comprehensive new revenue recognition model that requires a company to recognize revenue in an amount that reflects the consideration it expects to receive for the transfer of promised goods or services to its customers. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU is effective for annual periods and interim periods beginning after December 15, 2017. The ASU is to be applied retrospectively or using a cumulative effect transition method. The Company will adopt this new guidance in fiscal year 2018, and has not yet selected a transition method. The Company does not currently believe the new revenue recognition standard will materially impact the recognition of company restaurant sales or royalty fees from franchisees. Additionally, lease rental revenues are not within the scope of this new guidance. Based on an on-going assessment, the Company expects the adoption of the new guidance to change the timing of the recognition of initial franchise fees, including franchise and development fees, and renewal fees. Currently, these fees are generally recognized upfront upon either the opening of the respective restaurant or when a renewal agreement becomes effective. The Company currently believes the new guidance will generally require these fees to be recognized over the term of the related franchise agreement for the respective restaurant. In addition, the Company anticipates funds contributed by franchisees to the advertising funds managed by the Company, as well as the associated advertising fund expenditures, will be reported on a gross basis, and the advertising fund revenues and expenses may be reported in different periods. The Company is continuing to evaluate the impact the adoption of this new guidance will have on these and other revenue transactions in addition to the impact on accounting policies and related disclosures.
Restaurant Closure Charges, Net (Tables)
Restaurant Closure Liability Activity 
The following table represents other restaurant closure liability activity related to restaurant closures prior to 2015 and sublease income shortfalls (in thousands):
 
 
Total
Balance at January 3, 2017
 
$
1,365

Charges for accretion in current period
 
75

Cash payments
 
(208
)
Balance at September 12, 2017
 
$
1,232

Closure Liability Activity for 12 Closed Restaurants 
A summary of the restaurant closure liability activity, all of which relates to contract termination costs, for these 12 closed restaurants consisted of the following (in thousands):
 
 
Total
Balance at January 3, 2017
 
$
1,773

Charges for accretion in current period
 
50

Cash payments
 
(349
)
Balance at September 12, 2017
 
$
1,474

Summary of refranchising (Tables)
Summary of refranchising [Table Text Block]
The Company sold five company-operated restaurants to franchisees in the first quarter of 2017 and the following table summarizes the related gain recognized during the thirty-six weeks ended September 12, 2017 (dollars in thousands):
 
 
36 Weeks Ended
September 12, 2017
Company-operated restaurants sold to franchisees
 
5

 
 
 
Proceeds from the sale of company-operated restaurants
 
$
2,192

Net assets sold (primarily furniture, fixtures and equipment)
 
(1,261
)
Goodwill related to the company-operated restaurants sold to franchisees
 
(247
)
Net unfavorable lease liabilities (a)
 
(548
)
Other costs
 
(5
)
Gain on sale of company-operated restaurants (b)
 
$
131

Goodwill and other Intangible Assets (Tables)
Schedule of Other Intangible Assets
The Company’s other intangible assets at September 12, 2017 and January 3, 2017 consisted of the following (in thousands):
 
 
September 12, 2017
 
January 3, 2017
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Favorable lease assets
 
$
14,161

 
$
(4,282
)
 
$
9,879

 
$
14,176

 
$
(2,996
)
 
$
11,180

Franchise rights
 
15,489

 
(2,970
)
 
12,519

 
15,489

 
(2,038
)
 
13,451

Reacquired franchise rights
 
161

 
(36
)
 
125

 
161

 
(10
)
 
151

Total amortized other intangible assets
 
$
29,811

 
$
(7,288
)
 
$
22,523

 
$
29,826

 
$
(5,044
)
 
$
24,782

Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities (Tables)
Schedule of Debt
The Company’s long-term debt, capital lease obligations and deemed landlord financing liabilities at September 12, 2017 and January 3, 2017 consisted of the following (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
2015 Senior Credit Facility, net of debt discount of $835 and $1,035 and deferred financing costs of $282 and $349 at September 12, 2017 and January 3, 2017, respectively
 
$
146,883

 
$
157,616

Total outstanding indebtedness
 
146,883

 
157,616

Obligations under capital leases and deemed landlord financing liabilities
 
16,582

 
17,715

Total debt
 
163,465

 
175,331

Less: amounts due within one year
 
1,497

 
1,588

Total amounts due after one year, net
 
$
161,968

 
$
173,743

 
Fair Value Measurements (Tables)
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
The Company's assets and liabilities measured at fair value on a recurring basis as of September 12, 2017 and January 3, 2017 were as follows (in thousands):

 
September 12, 2017 (Unaudited)
 
Markets for Identical Assets
(Level 1)
 
Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement
$
147

 
$
—

 
$
147

 
$
—

Total assets measured at fair value
$
147

 
$
—

 
$
147

 
$
—

 
 
 
 
 
 
 
 
 
January 3, 2017
 
Markets for Identical Assets (Level 1)
 
Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement
$
598

 
$
—

 
$
598

 
$
—

Total assets measured at fair value
$
598

 
$
—

 
$
598

 
$
—

Other Accrued Liabilities and Other Non-current Liabilities (Tables)
Summary of Other Accrued Liabilities 
A summary of other accrued liabilities follows (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
Employee compensation and related items
 
$
11,983

 
$
13,783

Accrued insurance
 
8,213

 
8,192

Accrued sales tax
 
4,758

 
3,916

Accrued advertising
 
2,173

 
1,657

Accrued income tax
 
2,167

 
562

Accrued real property tax
 
1,946

 
1,274

Restaurant closure liability
 
435

 
875

Other
 
7,390

 
6,394

 
 
$
39,065

 
$
36,653

Summary of Other Non-current Liabilities 
A summary of other non-current liabilities follows (in thousands):
 
 
 
September 12, 2017
 
January 3, 2017
Unfavorable lease liabilities
 
$
15,249

 
$
17,072

Insurance reserves
 
4,859

 
4,269

Deferred rent liability
 
2,389

 
1,676

Restaurant closure liability
 
2,271

 
2,263

Deferred development and initial franchise fees
 
1,402

 
1,385

Unearned trade discount, non-current
 
1,284

 
1,596

Deferred gift card income
 
565

 
1,182

Other
 
3,039

 
697

 
 
$
31,058

 
$
30,140

Stock-Based Compensation (Tables)
Summary of Outstanding and Unvested Restricted Stock Activity 
A summary of outstanding and unvested restricted stock activity as of September 12, 2017 and changes during the period from January 3, 2017 through September 12, 2017 are as follows:
 
 
 
Shares
 
Weighted-Average
Grant Date
Fair Value
Nonvested at January 3, 2017
 
1,133,822

 
$
10.40

Granted
 
529,690

 
13.62

Vested
 
(397,727
)
 
10.60

Forfeited
 
(175,625
)
 
10.37

Nonvested at September 12, 2017
 
1,090,160

 
$
11.89

Summary of Stock Options Activity 
A summary of stock option activity as of September 12, 2017 and changes during the period from January 3, 2017 through September 12, 2017 are as follows:
 
 
Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
 
 
 
 
 
 
(in years)
 
(in thousands)
Options outstanding at January 3, 2017
 
334,500

 
$
9.94

 
6.1
 
$
1,464

Granted
 
125,000

 
13.78

 

 

Exercised
 
(3,500
)
 
10.25

 

 

Forfeited/Expired
 
(10,250
)
 
9.92

 

 

Options outstanding at September 12, 2017
 
445,750

 
$
11.02

 
5.8
 
$
1,332

Options exercisable at September 12, 2017
 
130,998

 
$
10.11

 
5.2
 
$
509

Options exercisable and expected to vest at September 12,
     2017
 
417,117

 
$
10.97

 
5.8
 
$
1,265

Earnings per Share (Tables)
Schedule of Basic and Diluted Net Income (Loss) Per Share Data
Below are basic and diluted net income per share for the periods indicated (amounts in thousands except share and per share data):
 
 
 
12 Weeks Ended
 
36 Weeks Ended
 
 
September 12, 2017
 
September 6, 2016
 
September 12, 2017
 
September 6, 2016
Numerator:
 
 
 
 
 
 
 
 
Net income
 
$
5,101

 
$
4,949

 
$
14,669

 
$
12,874

Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
 
38,695,099

 
38,465,064

 
38,744,963

 
38,518,431

Dilutive effect of unvested restricted stock
 
319,624

 
223,897

 
430,589

 
163,842

Dilutive effect of stock options
 
30,477

 
—

 
25,673

 
—

Dilutive effect of warrants
 
794,371

 
—

 
814,837

 
—

Weighted-average shares outstanding - diluted
 
39,839,571

 
38,688,961

 
40,016,062

 
38,682,273

Net income per share - basic
 
0.13

 
$
0.13

 
0.38

 
$
0.33

Net income per share - diluted
 
0.13

 
$
0.13

 
0.37

 
$
0.33

Antidilutive stock options, unvested restricted stock awards and warrants excluded from the computations
 
469,691

 
10,829,117

 
188,369

 
12,126,069

Description of Business - Additional Information (Details)
0 Months Ended
Mar. 12, 2015
Sep. 12, 2017
state
Sep. 6, 2016
state
Franchisor Disclosure [Line Items]
 
 
 
Number of states in which entity operates
 
15 
16 
Stock purchase agreement date
Mar. 12, 2015 
 
 
Entity Operated Units [Member]
 
 
 
Franchisor Disclosure [Line Items]
 
 
 
Number of restaurants
 
305 
300 
Franchised Units [Member]
 
 
 
Franchisor Disclosure [Line Items]
 
 
 
Number of restaurants
 
253 
246 
Franchised Units [Member] |
GUAM
 
 
 
Franchisor Disclosure [Line Items]
 
 
 
Number of restaurants
 
1 
1 
Restaurant Closure Charges, Net - Additional Information (Details) (USD $)
9 Months Ended 3 Months Ended 4 Months Ended 9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Jan. 3, 2017
Sep. 12, 2017
Closure of 12 Underperforming Restaurants [Member]
Dec. 29, 2015
Closure of 12 Underperforming Restaurants [Member]
location
Jan. 3, 2017
Closure of 12 Underperforming Restaurants [Member]
Sep. 12, 2017
Facility Closing [Member]
Jan. 3, 2017
Facility Closing [Member]
Restructuring Cost and Reserve [Line Items]
 
 
 
 
 
 
 
 
Restructuring closure liability
$ 2,700,000 
 
$ 3,100,000 
 
 
 
$ 1,232,000 
$ 1,365,000 
Current portion of restaurant closure liability
435,000 
 
875,000 
100,000 
 
600,000 
300,000 
300,000 
Non-current portion of restaurant closure liability
2,271,000 
 
2,263,000 
1,400,000 
 
1,200,000 
900,000 
1,100,000 
Number of underperforming locations
 
 
 
 
12 
 
 
 
Charges for accretion in current period
125,000 
(403,000)
 
 
 
 
75,000 
 
Operating Leases, Rent Expense, Sublease Rentals
 
 
 
$ 100,000 
 
 
 
 
Restaurant Closure Charges, Net - Restaurant Closure Liability Activity (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Restructuring Reserve [Roll Forward]
 
 
Closure liability, Beginning balance
$ 3,100 
 
Charges for accretion in current period
125 
(403)
Closure liability, Ending balance
2,700 
 
Facility Closing [Member]
 
 
Restructuring Reserve [Roll Forward]
 
 
Closure liability, Beginning balance
1,365 
 
Charges for accretion in current period
75 
 
Cash payments
(208)
 
Closure liability, Ending balance
1,232 
 
Closure of 12 Underperforming Restaurants [Member] |
Total
 
 
Restructuring Reserve [Roll Forward]
 
 
Closure liability, Beginning balance
1,773 
 
Charges for accretion in current period
50 
 
Cash payments
(349)
 
Closure liability, Ending balance
$ 1,474 
 
Summary of refranchising (Details) (USD $)
In Thousands, unless otherwise specified
9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Jan. 3, 2017
Franchisor Disclosure [Line Items]
 
 
 
Proceeds from sale of company-operated restaurants
$ 2,192 
$ 0 
 
Favorable lease assets
22,523 
 
24,782 
Unfavorable lease liabilities
15,249 
 
17,072 
Sale of company-operated restaurants [Member]
 
 
 
Franchisor Disclosure [Line Items]
 
 
 
Company-operated restaurants sold to franchisees
5 
 
 
Proceeds from sale of company-operated restaurants
2,192 
 
 
Net assets sold (primarily furniture, fixtures and equipment)
(1,261)
 
 
Goodwill related to the company-operated restaurants sold to franchisees
(247)
 
 
(Unfavorable)/favorable lease assets/liabilities
(548)
 
 
Other costs
(5)
 
 
Gain on sale of company-operated restaurants
131 
 
 
Favorable lease assets
100 
 
 
Unfavorable lease liabilities
$ 600 
 
 
Goodwill and other Intangible Assets - Schedule of Other Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Finite-Lived Intangible Assets [Line Items]
 
 
Gross Carrying Amount
$ 29,811 
$ 29,826 
Accumulated Amortization
(7,288)
(5,044)
Net
22,523 
24,782 
Favorable Lease Assets [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Gross Carrying Amount
14,161 
14,176 
Accumulated Amortization
(4,282)
(2,996)
Net
9,879 
11,180 
Franchise rights [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Gross Carrying Amount
15,489 
15,489 
Accumulated Amortization
(2,970)
(2,038)
Net
12,519 
13,451 
Other Finite Lived Intangible Assets [Member]
 
 
Finite-Lived Intangible Assets [Line Items]
 
 
Gross Carrying Amount
161 
161 
Accumulated Amortization
(36)
(10)
Net
$ 125 
$ 151 
Goodwill and other Intangible Assets - Additional Information (Details) (USD $)
9 Months Ended
Sep. 12, 2017
Jan. 3, 2017
Finite-Lived Intangible Assets [Line Items]
 
 
Goodwill
$ 319,778,000 
$ 320,025,000 
Favorable lease assets write-off
$ 15,000 
 
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities - Schedule of Debt (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Debt Instrument [Line Items]
 
 
Total outstanding indebtedness
$ 146,883 
$ 157,616 
Obligations under capital leases and deemed landlord financing liabilities
16,582 
17,715 
Total debt
163,465 
175,331 
Less: amounts due within one year
1,497 
1,588 
Total amounts due after one year, net
161,968 
173,743 
2015 Revolving Credit Facility [Member]
 
 
Debt Instrument [Line Items]
 
 
Credit Facility
146,883 
157,616 
Debt discount
835 
1,035 
Deferred finance costs
$ 282 
$ 349 
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities - Additional Information (Detail) (2015 Revolving Credit Facility [Member], USD $)
0 Months Ended
Aug. 4, 2015
Sep. 12, 2017
Aug. 4, 2015
2015 Revolving Credit Facility [Member]
 
 
 
Debt Instrument [Line Items]
 
 
 
Credit agreement issuance date
Aug. 04, 2015 
 
 
Credit agreement maturity date
Aug. 04, 2020 
 
 
Credit facility amount
 
 
$ 250,000,000 
Letters of credit
 
18,200,000 
 
Interest rate on outstanding balance of credit facility (percent)
 
3.00% 
 
Availability for additional borrowings under credit facility
 
83,800,000 
 
Credit facility outstanding borrowings
 
$ 148,000,000 
 
Derivative Instruments - Additional Information (Details) (Interest Rate Cap [Member], Cash Flow Hedging [Member], USD $)
Sep. 12, 2017
Interest Rate Cap [Member] |
Cash Flow Hedging [Member]
 
Derivative [Line Items]
 
Notional amount
$ 70,000,000 
Cap interest rate
2.00% 
Amount expected to be reclassified into earnings over the remaining term of the agreement
300,000 
Amount expected to be reclassified into interest expense over the next 12 months
$ 34,000 
Fair Value Measurements - Additional Information (Detail) (Interest Rate Cap [Member], USD $)
Sep. 12, 2017
Jan. 3, 2017
Interest Rate Cap [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Fair value of interest rate cap
$ 100,000.0 
$ 600,000.0 
Fair Value Measurements Fair Value Measurement Summary of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Interest rate cap
$ 147 
$ 598 
Total assets measured at fair value
147 
598 
Markets for Identical Assets (Level 1)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Interest rate cap
0 
0 
Total assets measured at fair value
0 
0 
Observable Inputs (Level 2)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Interest rate cap
147 
598 
Total assets measured at fair value
147 
598 
Unobservable Inputs (Level 3)
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Interest rate cap
0 
0 
Total assets measured at fair value
$ 0 
$ 0 
Other Accrued Liabilities and Other Non-current Liabilities - Summary of Other Accrued Liabilities (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Accrued Liabilities Current [Line Items]
 
 
Employee compensation and related items
$ 11,983 
$ 13,783 
Accrued insurance
8,213 
8,192 
Accrued sales tax
4,758 
3,916 
Accrued advertising
2,173 
1,657 
Accrued income tax
2,167 
562 
Accrued real property tax
1,946 
1,274 
Restaurant closure liability
435 
875 
Other
7,390 
6,394 
Other accrued liabilities
$ 39,065 
$ 36,653 
Other Accrued Liabilities and Other Non-current Liabilities - Summary of Other Non-current Liabilities (Detail) (USD $)
In Thousands, unless otherwise specified
Sep. 12, 2017
Jan. 3, 2017
Other Non Current Liabilities [Line Items]
 
 
Unfavorable lease liabilities
$ 15,249 
$ 17,072 
Insurance reserves
4,859 
4,269 
Deferred rent liability
2,389 
1,676 
Restaurant closure liability
2,271 
2,263 
Deferred development and initial franchise fees
1,402 
1,385 
Unearned trade discount, non-current
1,284 
1,596 
Deferred gift card income
565 
1,182 
Other
3,039 
697 
Other non-current liabilities
$ 31,058 
$ 30,140 
Stock-Based Compensation - Additional Information (Details) (USD $)
9 Months Ended 3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Jan. 3, 2017
Sep. 12, 2017
2015 Plan [Member]
Sep. 6, 2016
2015 Plan [Member]
Sep. 12, 2017
2015 Plan [Member]
Sep. 6, 2016
2015 Plan [Member]
Sep. 12, 2017
Restricted Shares [Member]
Sep. 12, 2017
Restricted Shares [Member]
Sep. 12, 2017
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
 
 
 
 
 
 
 
Common stock reserved and authorized for issuance (in shares)
 
 
 
3,300,000 
 
3,300,000 
 
 
 
 
Common stock authorized and available for grant (in shares)
 
 
 
1,338,236 
 
1,338,236 
 
 
 
 
Stock-based compensation expense recorded
 
 
 
$ 1,200,000 
$ 1,000,000 
$ 3,300,000 
$ 2,600,000 
 
 
 
Unrecognized compensation expense, net
 
 
 
 
 
 
 
11,400,000 
11,400,000 
 
Weighted average period of recognition (in years)
 
 
 
 
 
 
 
 
2 years 9 months 18 days 
 
Unrecognized stock compensation expense
 
 
 
 
 
 
 
 
 
1,100,000 
Vesting period (in years)
 
 
 
 
 
 
 
 
 
2 years 10 months 10 days 
Payments related to employee tax withholding obligations
$ 1,923,000 
$ 916,000 
 
 
 
 
 
 
$ 1,900,000 
 
Shares paid for tax withholding for share based compensation
 
 
 
 
 
 
 
140,209 
 
 
Number of awards outstanding (in shares)
1,090,160 
 
1,133,822 
 
 
 
 
 
 
 
Number of stock options outstanding (in shares)
445,750 
 
334,500 
 
 
 
 
 
 
 
Stock-Based Compensation - Summary of Outstanding and Unvested Restricted Stock Activity (Details) (USD $)
9 Months Ended
Sep. 12, 2017
Shares
 
Nonvested Shares, Beginning balance (in shares)
1,133,822 
Granted (in shares)
529,690 
Vested (in shares)
(397,727)
Forfeited (in shares)
(175,625)
Nonvested Shares, Ending balance (in shares)
1,090,160 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Grant Date Fair Value, Beginning balance (in dollars per share)
$ 10.40 
Weighted-Average Grant Date Fair Value, Granted (in dollars per share)
$ 13.62 
Weighted-Average Grant Date Fair Value, Vested (in dollars per share)
$ 10.60 
Weighted-Average Grant Date Fair Value, Forfeited (in dollars per share)
$ 10.37 
Weighted-Average Grant Date Fair Value, Ending balance (in dollars per share)
$ 11.89 
Stock-Based Compensation - Summary of Stock Options Activity (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
9 Months Ended 12 Months Ended
Sep. 12, 2017
Jan. 3, 2017
Shares
 
 
Options outstanding, Beginning balance (in shares)
334,500 
 
Granted (in shares)
125,000 
 
Exercised (in shares)
(3,500)
 
Forfeited (in shares)
(10,250)
 
Options outstanding, Ending balance (in shares)
445,750 
334,500 
Options exercisable (in shares)
130,998 
 
Options exercisable and expected to vest (in shares)
417,117 
 
Weighted Average Exercise Price
 
 
Weighted Average Exercise Price, Options outstanding, Beginning balance (in dollars per share)
$ 9.94 
 
Weighted Average Exercise Price, Granted (in dollars per share)
$ 13.78 
 
Weighted Average Exercise Price, Exercised (in dollars per share)
$ 10.25 
 
Weighted Average Exercise Price, Forfeited (in dollars per share)
$ 9.92 
 
Weighted Average Exercise Price, Options outstanding, Ending balance (in dollars per share)
$ 11.02 
$ 9.94 
Weighted Average Exercise Price, Options exercisable (in dollars per share)
$ 10.11 
 
Weighted Average Exercise Price, Options exercisable and expected (in dollars per share)
$ 10.97 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
 
Weighted Average Remaining Contractual Term, Options outstanding (in years)
5 years 9 months 11 days 
6 years 1 month 
Weighted Average Remaining Contractual Term, Options exercisable (in years)
5 years 2 months 23 days 
 
Weighted Average Remaining Contractual Term, Options exercisable and expected to vest (in years)
5 years 9 months 0 days 
 
Aggregate Intrinsic Value, Options outstanding, Beginning balance
$ 1,464 
 
Aggregate Intrinsic Value, Options outstanding, Ending balance
1,332 
1,464 
Aggregate Intrinsic Value, Options exercisable
509 
 
Aggregate Intrinsic Value, Options excersiable and expected to vest
$ 1,265 
 
Shareholders' Equity - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended 3 Months Ended 9 Months Ended
Sep. 12, 2017
Common Stock and Warrants [Member]
Aug. 23, 2016
Common Stock and Warrants [Member]
Feb. 26, 2016
Common Stock and Warrants [Member]
Sep. 12, 2017
Common Stock [Member]
Sep. 12, 2017
Common Stock [Member]
Sep. 12, 2017
Warrants [Member]
Sep. 12, 2017
Warrants [Member]
Class of Stock [Line Items]
 
 
 
 
 
 
 
Maximum authorized stock repurchase amount (up to)
$ 50,000,000 
$ 25,000,000 
$ 25,000,000.0 
 
 
 
 
Shares repurchased (in shares)
 
 
 
96,122 
737,287 
1,186 
401,186 
Average price per share
 
 
 
$ 12.35 
$ 12.46 
$ 3.97 
$ 3.75 
Shares repurchased, value
 
 
 
1,200,000 
9,200,000 
5,000 
1,500,000 
Remaining authorized stock repurchase amount
$ 24,100,000 
 
 
 
 
 
 
Earnings per Share - Schedule of Basic and Diluted Net Income per Share Data (Detail) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Sep. 12, 2017
Sep. 6, 2016
Numerator:
 
 
 
 
Net income
$ 5,101 
$ 4,949 
$ 14,669 
$ 12,874 
Denominator:
 
 
 
 
Weighted-average shares outstanding - basic (in shares)
38,695,099 
38,465,064 
38,744,963 
38,518,431 
Weighted-average shares outstanding - diluted
39,839,571 
38,688,961 
40,016,062 
38,682,273 
Net (loss) income per share - basic (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.38 
$ 0.33 
Net (loss) income per share - diluted (in dollars per share)
$ 0.13 
$ 0.13 
$ 0.37 
$ 0.33 
Antidilutive stock options, unvested restricted stock awards, unvested RSUs and warrants excluded from the computations (in dollars per share)
469,691 
10,829,117 
188,369 
12,126,069 
Restricted Stock and RSUs [Member]
 
 
 
 
Denominator:
 
 
 
 
Dilutive effect (in shares)
319,624 
223,897 
430,589 
163,842 
Stock Options [Member]
 
 
 
 
Denominator:
 
 
 
 
Dilutive effect (in shares)
30,477 
0 
25,673 
0 
Warrants [Member]
 
 
 
 
Denominator:
 
 
 
 
Dilutive effect (in shares)
794,371 
0 
814,837 
0 
Income Taxes - Additional Information (Detail) (USD $)
3 Months Ended 9 Months Ended
Sep. 12, 2017
Sep. 6, 2016
Sep. 12, 2017
Sep. 6, 2016
Jan. 3, 2017
Income Tax Disclosure [Line Items]
 
 
 
 
 
Effective income tax rates (percent)
35.50% 
(45.20%)
37.90% 
42.50% 
 
Provision for income taxes
$ 2,804,000 
$ 4,100,000 
$ 8,955,000 
$ 9,500,000 
 
Valuation allowance
$ 0 
 
$ 0 
 
$ 0 
Commitments and Contingencies - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 12, 2017
Loss Contingencies [Line Items]
 
Purchasing commitments contract extended terms
2021 
Contractual purchase obligations for goods and services
$ 63.5