DEL TACO RESTAURANTS, INC., 10-Q filed on 10/19/2020
Quarterly Report
v3.20.2
Cover Page - shares
8 Months Ended
Sep. 08, 2020
Oct. 12, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 08, 2020  
Document Transition Report false  
Entity Registrant Name DEL TACO RESTAURANTS, INC.  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   37,324,593
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001585583  
Current Fiscal Year End Date --12-29  
Entity File Number 001-36197  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 46-3340980  
Entity Address, Address Line One 25521 Commercentre Drive  
Entity Address, City or Town Lake Forest,  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 92630  
City Area Code (949)  
Local Phone Number 462-9300  
Title of 12(b) Security Common Stock, $0.0001 Par Value  
Trading Symbol TACO  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 08, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 5,359 $ 1,421
Accounts and other receivables, net 3,731 3,580
Inventories 2,640 3,123
Prepaid expenses and other current assets 2,541 2,289
Assets held for sale 1,495 8,411
Total current assets 15,766 18,824
Property and equipment, net 147,569 156,921
Operating lease right-of-use assets 250,154 258,278
Goodwill 108,979 192,739
Trademarks 208,400 220,300
Intangible assets, net 10,202 10,827
Other assets, net 4,610 4,568
Total assets 745,680 862,457
Current liabilities:    
Accounts payable 17,616 19,652
Other accrued liabilities 45,690 34,577
Current portion of finance lease obligations and other debt 199 220
Current portion of operating lease liabilities 20,116 17,848
Total current liabilities 83,621 72,297
Long-term debt, finance lease obligations and other debt, excluding current portion, net 123,380 144,581
Operating lease liabilities, excluding current portion 253,121 257,361
Deferred income taxes 61,466 69,510
Other non-current liabilities 16,274 16,601
Total liabilities 537,862 560,350
Commitments and contingencies (Note 15)
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; 37,324,593 shares issued and outstanding at September 8, 2020; 37,059,202 shares issued and outstanding at December 31, 2019 4 4
Additional paid-in capital 336,285 333,379
Accumulated other comprehensive loss 0 (52)
Accumulated deficit (128,471) (31,224)
Total shareholders’ equity 207,818 302,107
Total liabilities and shareholders’ equity $ 745,680 $ 862,457
v3.20.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 08, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
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) 37,324,593 37,059,202
Common stock, shares outstanding (in shares) 37,324,593 37,059,202
v3.20.2
Consolidated Statements of Comprehensive (Loss) Income - USD ($)
3 Months Ended 8 Months Ended
Sep. 08, 2020
Sep. 10, 2019
Sep. 08, 2020
Sep. 10, 2019
Revenue:        
Total revenue $ 120,782,000 $ 120,198,000 $ 335,162,000 $ 355,855,000
Restaurant operating expenses:        
Labor and related expenses 35,450,000 36,304,000 101,995,000 108,542,000
Occupancy and other operating expenses 25,302,000 25,386,000 72,099,000 73,522,000
General and administrative 10,841,000 10,421,000 30,139,000 31,735,000
Franchise advertising expenses 4,001,000 3,458,000 9,995,000 10,048,000
Depreciation and amortization 6,055,000 5,941,000 18,477,000 17,661,000
Occupancy and other - franchise subleases and other 1,766,000 1,011,000 5,088,000 2,858,000
Pre-opening costs 63,000 465,000 359,000 720,000
Impairment of goodwill 0 0 87,277,000 0
Impairment of trademarks 0 0 11,900,000 0
Impairment of long-lived assets 0 1,407,000 8,287,000 5,101,000
Restaurant closure charges, net 413,000 588,000 1,406,000 1,718,000
Loss on disposal of assets and adjustments to assets held for sale, net 140,000 7,906,000 697,000 8,790,000
Total operating expenses 113,082,000 123,648,000 430,707,000 351,129,000
Income (loss) from operations 7,700,000 (3,450,000) (95,545,000) 4,726,000
Other expense (income), net        
Interest expense 941,000 1,663,000 3,730,000 5,169,000
Other income 0 0 0 (201,000)
Total other expense, net 941,000 1,663,000 3,730,000 4,968,000
Income (loss) from operations before provision (benefit) for income taxes 6,759,000 (5,113,000) (99,275,000) (242,000)
Provision (benefit) for income taxes 962,000 2,556,000 (2,028,000) 3,910,000
Net income (loss) 5,797,000 (7,669,000) (97,247,000) (4,152,000)
Other comprehensive income (loss):        
Change in fair value of interest rate cap, net of tax 0 (75,000) 0 (345,000)
Reclassification of interest rate cap amortization included in net income, net of tax 0 32,000 52,000 79,000
Total other comprehensive (loss) income, net 0 (43,000) 52,000 (266,000)
Comprehensive income (loss) $ 5,797,000 $ (7,712,000) $ (97,195,000) $ (4,418,000)
Earnings (loss) per share:        
Basic (in dollars per share) $ 0.16 $ (0.21) $ (2.62) $ (0.11)
Diluted (in dollars per share) $ 0.15 $ (0.21) $ (2.62) $ (0.11)
Weighted-average shares outstanding        
Basic (in shares) 37,293,390 37,023,287 37,152,419 37,000,331
Diluted (in shares) 37,420,043 37,023,287 37,152,419 37,000,331
Company restaurant sales        
Revenue:        
Revenue $ 109,522,000 $ 111,059,000 $ 305,116,000 $ 329,142,000
Franchise revenue        
Revenue:        
Revenue 5,169,000 4,490,000 14,080,000 13,193,000
Franchise advertising contributions        
Revenue:        
Revenue 4,001,000 3,458,000 9,995,000 10,048,000
Franchise sublease and other income        
Revenue:        
Revenue 2,090,000 1,191,000 5,971,000 3,472,000
Food and paper costs        
Restaurant operating expenses:        
Cost, Direct Material $ 29,051,000 $ 30,761,000 $ 82,988,000 $ 90,434,000
v3.20.2
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)
Retained Earnings (Accumulated Deficit)
Cumulative Effect, Period of Adoption, Adjustment
Beginning Balance, Shares at Jan. 01, 2019     37,305,342        
Beginning Balance at Jan. 01, 2019 $ 422,274 $ 1,912 $ 4 $ 336,941 $ 180 $ 85,149 $ 1,912
Net income (loss) 1,425         1,425  
Other comprehensive income (loss), net of tax (118)       (118)    
Comprehensive income (loss) 1,307            
Stock-based compensation 1,577     1,577      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     13,172        
Issuance of vested restricted stock, net of shares withheld for tax withholding (84)     (84)      
Exercise of stock options, shares     1,500        
Exercise of stock options 16     16      
Repurchase of common stocks and warrants, shares     (270,874)        
Repurchase of common stocks and warrants (4,306)     (4,306)      
Ending Balance, Shares at Mar. 26, 2019     37,049,140        
Ending Balance at Mar. 26, 2019 422,696   $ 4 334,144 62 88,486  
Beginning Balance, Shares at Jan. 01, 2019     37,305,342        
Beginning Balance at Jan. 01, 2019 422,274 $ 1,912 $ 4 336,941 180 85,149 $ 1,912
Net income (loss) (4,152)            
Other comprehensive income (loss), net of tax (266)            
Comprehensive income (loss) (4,418)            
Ending Balance, Shares at Sep. 10, 2019     37,059,202        
Ending Balance at Sep. 10, 2019 414,514   $ 4 331,687 (86) 82,909  
Beginning Balance, Shares at Mar. 26, 2019     37,049,140        
Beginning Balance at Mar. 26, 2019 422,696   $ 4 334,144 62 88,486  
Net income (loss) 2,092         2,092  
Other comprehensive income (loss), net of tax (105)       (105)    
Comprehensive income (loss) 1,987            
Stock-based compensation 1,677     1,677      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     48,499        
Exercise of stock options, shares     1,500        
Exercise of stock options 15     15      
Repurchase of common stocks and warrants, shares     (303,607)        
Repurchase of common stocks and warrants (3,067)     (3,067)      
Ending Balance, Shares at Jun. 18, 2019     36,795,532        
Ending Balance at Jun. 18, 2019 423,308   $ 4 332,769 (43) 90,578  
Net income (loss) (7,669)         (7,669)  
Other comprehensive income (loss), net of tax (43)       (43)    
Comprehensive income (loss) (7,712)            
Stock-based compensation 1,347     1,347      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     254,670        
Issuance of vested restricted stock, net of shares withheld for tax withholding (2,518)     (2,518)      
Exercise of stock options, shares     9,000        
Exercise of stock options 89     89      
Ending Balance, Shares at Sep. 10, 2019     37,059,202        
Ending Balance at Sep. 10, 2019 414,514   $ 4 331,687 (86) 82,909  
Beginning Balance, Shares at Dec. 31, 2019     37,059,202        
Beginning Balance at Dec. 31, 2019 302,107   $ 4 333,379 (52) (31,224)  
Net income (loss) (102,468)         (102,468)  
Other comprehensive income (loss), net of tax 45       45    
Comprehensive income (loss) (102,423)            
Stock-based compensation 1,225     1,225      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     21,758        
Issuance of vested restricted stock, net of shares withheld for tax withholding (105)     (105)      
Ending Balance, Shares at Mar. 24, 2020     37,080,960        
Ending Balance at Mar. 24, 2020 200,804   $ 4 334,499 (7) (133,692)  
Beginning Balance, Shares at Dec. 31, 2019     37,059,202        
Beginning Balance at Dec. 31, 2019 302,107   $ 4 333,379 (52) (31,224)  
Net income (loss) (97,247)            
Other comprehensive income (loss), net of tax 52            
Comprehensive income (loss) (97,195)            
Ending Balance, Shares at Sep. 08, 2020     37,324,593        
Ending Balance at Sep. 08, 2020 207,818   $ 4 336,285   (128,471)  
Beginning Balance, Shares at Mar. 24, 2020     37,080,960        
Beginning Balance at Mar. 24, 2020 200,804   $ 4 334,499 (7) (133,692)  
Net income (loss) (576)         (576)  
Other comprehensive income (loss), net of tax 7       7    
Comprehensive income (loss) (569)            
Stock-based compensation 1,413     1,413      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     42,016        
Ending Balance, Shares at Jun. 16, 2020     37,122,976        
Ending Balance at Jun. 16, 2020 201,648   $ 4 335,912 $ 0 (134,268)  
Net income (loss) 5,797         5,797  
Other comprehensive income (loss), net of tax 0            
Comprehensive income (loss) 5,797            
Stock-based compensation 1,267     1,267      
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares     201,617        
Issuance of vested restricted stock, net of shares withheld for tax withholding (894)     (894)      
Ending Balance, Shares at Sep. 08, 2020     37,324,593        
Ending Balance at Sep. 08, 2020 $ 207,818   $ 4 $ 336,285   $ (128,471)  
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
8 Months Ended
Sep. 08, 2020
Sep. 10, 2019
Operating activities    
Net loss $ (97,247,000) $ (4,152,000)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Allowance for doubtful accounts 15,000 0
Depreciation and amortization 18,477,000 17,661,000
Amortization of deferred financing costs, debt discount and interest rate cap 251,000 376,000
Amortization of operating lease assets 15,200,000 14,886,000
Stock-based compensation 3,905,000 4,601,000
Impairment of goodwill 87,277,000 0
Impairment of trademarks 11,900,000 0
Impairment of long-lived assets 8,287,000 5,101,000
Deferred income taxes (8,059,000) 1,210,000
Loss on disposal of assets and adjustments to assets held for sale, net 697,000 8,790,000
Restaurant closure charges 92,000 118,000
Changes in operating assets and liabilities:    
Accounts and other receivables, net (166,000) 394,000
Inventories 483,000 55,000
Prepaid expenses and other current assets 1,071,000 (330,000)
Other assets (252,000) (124,000)
Accounts payable (365,000) 1,293,000
Operating lease liabilities (14,513,000) (13,584,000)
Other accrued liabilities 13,148,000 2,307,000
Other non-current liabilities (678,000) 161,000
Net cash provided by operating activities 39,523,000 38,763,000
Investing activities    
Purchases of property and equipment (16,335,000) (28,440,000)
Proceeds from disposal of property and equipment, net 1,440,000 14,130,000
Purchases of other assets (1,094,000) (1,051,000)
Acquisition of franchisees 0 (4,833,000)
Proceeds from sale of company-operated restaurants 2,558,000 2,090,000
Net cash used in investing activities (13,431,000) (18,104,000)
Financing activities    
Repurchase of common stock and warrants 0 (7,373,000)
Payment of tax withholding related to restricted stock vesting (999,000) (2,602,000)
Payments on finance leases and other debt (155,000) (389,000)
Proceeds from revolving credit facility 65,000,000 27,000,000
Payments on revolving credit facility (86,000,000) (36,000,000)
Proceeds from exercise of stock options 0 120,000
Net cash used in financing activities (22,154,000) (19,244,000)
Increase in cash and cash equivalents 3,938,000 1,415,000
Cash and cash equivalents at beginning of period 1,421,000 7,153,000
Cash and cash equivalents at end of period 5,359,000 8,568,000
Supplemental cash flow information:    
Cash paid during the period for interest 3,255,000 4,720,000
Cash paid during the period for income taxes 1,060,000 1,764,000
Supplemental schedule of non-cash activities:    
Accrued property and equipment purchases 1,783,000 5,768,000
Write-offs of accounts receivables 0 21,000
Amortization of interest rate cap into net income, net of tax 52,000 79,000
Change in other asset for fair value of interest rate cap recorded to other comprehensive (loss) income, net of tax 0 (345,000)
Operating lease right-of-use assets obtained in exchange for lease obligations 13,139,000 262,369,000
Finance lease right-of-use assets obtained in exchange for lease obligations 0 1,185,000
Impairment on operating lease right-of-use assets related to the adoption of new accounting pronouncements $ 0 $ 3,116,000
v3.20.2
Description of Business
8 Months Ended
Sep. 08, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business Description of BusinessDel Taco Restaurants, Inc. 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 8, 2020, there were 295 company-operated and 301 franchise-operated Del Taco restaurants located in 15 states, including one franchise-operated unit in Guam. At September 10, 2019, there were 312 company-operated and 274 franchise-operated Del Taco restaurants located in 14 states, including one franchise-operated unit in Guam.
v3.20.2
Basis of Presentation and Summary of Significant Accounting Policies
8 Months Ended
Sep. 08, 2020
Accounting Policies [Abstract]  
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 December 31, 2019 ("2019 Form 10-K").
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2020 is a fifty-two week period ending December 29, 2020. Fiscal year 2019 is the fifty-two week period ended December 31, 2019. 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. For fiscal year 2020, the Company’s accompanying financial statements reflect the twelve weeks ended September 8, 2020. For fiscal year 2019, the Company’s accompanying financial statements reflect the twelve weeks ended September 10, 2019.
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 December 2019, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a subsidiary becomes an equity method investment; and (3) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Furthermore, ASU 2019-12 simplifies the accounting for income taxes by doing the following: (1) requiring
that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part if the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Statements - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2019. There was no material impact on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting implementation costs in cloud computing arrangements. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. There was no material impact on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.
Summary of Significant Accounting Policies
There have been no changes to our significant accounting policies described in the 2019 Form 10-K filed with the SEC on March 13, 2020 that have had a material impact on our consolidated financial statements and related notes.
v3.20.2
Impairment of Long-Lived Assets and Restaurant Closure Charges
8 Months Ended
Sep. 08, 2020
Restructuring and Related Activities [Abstract]  
Impairment of Long-Lived Assets and Restaurant Closure Charges Impairment of Long-Lived Assets and Restaurant Closure Charges
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company evaluates such cash flows for individual restaurants and franchise agreements on an undiscounted basis. If it is determined that the carrying amounts of such long-lived assets are not recoverable, the assets are written down to their estimated fair values. We generally estimate fair value using the discounted value of the estimated cash flows associated with the respective restaurant or agreement, using Level 3 inputs. The impairment charges represent the excess of each operating lease right-of-use asset, furniture, fixtures and equipment and leasehold improvement's carrying amount over its estimated fair value.
During the twelve and thirty-six weeks ended September 8, 2020, the Company evaluated certain restaurants having indicators of impairment based on operating performance, taking into consideration the negative impact of the COVID-19 pandemic on forecasted restaurant performance, which resulted in elevated impairment charges for the thirty-six weeks ended September 8, 2020. No impairment charges were recorded during the twelve weeks ended September 8, 2020. During the thirty-six weeks ended September 8, 2020, the Company recorded a non-cash impairment charge totaling $8.3 million related to eight restaurants based on the estimate of future recoverable cash flows.
During the twelve weeks ended September 10, 2019, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $1.4 million related to one restaurant based on the estimate of future recoverable cash flows. During the thirty-six weeks ended September 10, 2019, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $5.1 million related to three restaurants based on the estimate of future recoverable cash flows.
Restaurant Closure Charges
The restaurant closure liability was $0.5 million and $0.4 million at September 8, 2020 and December 31, 2019, respectively, and relates to the non-lease executory costs associated with company-operated restaurants that were closed during the fourth quarter of 2015. A summary of the restaurant closure liability activity for these closed restaurants consisted of the following (in thousands):
36 Weeks Ended
September 8, 2020September 10, 2019
Beginning Balance$437 $2,092 
Reclassified to operating lease right-of-use assets— (1,900)
Cash payments(2)(192)
Adjustments to estimates based on current activity— 118 
Accretion16 — 
Ending Balance$451 $118 

During the thirty-six weeks weeks ended September 10, 2019, in connection with the adoption of ASU 2016-02, Leases, the Company reclassified $1.9 million of the lease-related restaurant closure liability to offset the respective operating lease right-of-use assets.
The current portion of the restaurant closure liability was $0.2 million and $0.1 million as of September 8, 2020 and December 31, 2019, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability was $0.3 million as of both September 8, 2020 and December 31, 2019, respectively, and is included in other non-current liabilities in the consolidated balance sheets. The restaurant closure liability is expected to be settled by 2022.
v3.20.2
Summary of Refranchising and Franchise Acquisitions
8 Months Ended
Sep. 08, 2020
Franchise Acquisitions [Abstract]  
Summary of Refranchising and Franchise Acquisitions Summary of Refranchising and Franchise Acquisitions
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 of the leasehold interest to the real estate to sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as a result, 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 sublease assets/liabilities with a corresponding offset to the gain or loss on the sale of the company-operated restaurants. Sublease assets represent subleases with stated rent above comparable market rents. Sublease assets are amortized to sublease income over the term of the related sublease. Sublease liabilities represent subleases with stated rent below comparable market rents and are amortized to sublease income over the term of the related sublease. Both sublease assets and sublease liabilities arise from the sale of company-operated restaurants to franchisees. 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. The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in franchise revenue as earned.
The Company sold six company-operated restaurants to franchisees during the thirty-six weeks ended September 8, 2020 and 13 company-operated restaurants to franchisees during the thirty-six weeks ended September 10, 2019. The following table summarizes the net loss recognized related to these transactions (dollars in thousands):
36 Weeks Ended September 8, 202036 Weeks Ended September 10, 2019
Company-operated restaurants sold to franchisees13 
Proceeds from the sale of company-operated restaurants, net of selling costs$2,558 $2,090 
Net assets sold (primarily furniture, fixtures and equipment) (a)
(2,086)(2,051)
Goodwill related to the company-operated restaurants sold to franchisees(1,196)(83)
Allocation to deferred franchise fees(193)(281)
Sublease assets, net220 260 
Gain on lease termination40 — 
Loss on sale of company-operated restaurants, net (b)
$(657)$(65)

(a) Of the net assets sold during the thirty-six weeks ended September 8, 2020, $0.7 million was included in assets held for sale as of December 31, 2019. The net assets sold during the thirty-six weeks ended September 10, 2019 were all included in assets held for sale as of January 1, 2019.
(b) Of the loss related to the company-operated restaurants sold during the thirty-six weeks ended September 8, 2020, $0.6 million was previously recognized during the fifty-two weeks ended December 31, 2019 as a fair value adjustment to the assets held for sale balance. The loss on sale of company-operated restaurants is included in loss on disposal of assets and adjustments to assets held for sale, net on the consolidated statements of comprehensive income (loss).

Assets Held for Sale

Assets held for sale includes the net book value of property and equipment for company-operated restaurants that the Company plans to sell within the next year to new or existing franchisees. Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or fair value, less estimated costs to sell.
As of December 31, 2019, the Company classified 19 company-operated restaurants as held for sale. During the twelve weeks ended March 24, 2020, the Company sold five of these restaurants as discussed in the Refranchising section above and determined that the remaining 14 company-operated restaurants would not be sold within the next year and therefore reclassified the related long-lived assets back to held for use. The Company reclassified the assets back to held for use at their carrying amount before they were classified as held for sale, adjusted for depreciation expense that would have been recognized had the assets been continuously classified as held for use. As such, the Company recognized a loss of $0.5 million related to the reclassification which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statement of comprehensive income (loss). As of September 8, 2020, the Company classified the land and building related to a previously closed company-operated restaurant as held for sale and recorded a $0.2 million adjustment to assets held for sale in order to recognize the assets at their estimated net realizable value less estimated costs to sell. The estimated fair value of assets held for sale is based upon Level 2 inputs, which include previous negotiations with a third party. Assets held for sale at September 8, 2020 and December 31, 2019 consisted of the following (in thousands):
September 8, 2020December 31, 2019
Land$561 $— 
Building934 — 
Other property and equipment— 4,025 
Goodwill— 4,386 
$1,495 $8,411 

Franchise Acquisitions
There were no franchise acquisitions during the thirty-six weeks ended September 8, 2020. The Company acquired four franchise-operated restaurants during the thirty-six weeks ended September 10, 2019. The Company accounts for the acquisition of franchise-operated restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the market position and future growth potential of the markets acquired and is expected to be deductible for income tax purposes. The following table provides detail of the combined acquisitions for the thirty-six weeks ended September 10, 2019 (dollars in thousands):
36 Weeks Ended
September 10, 2019
Franchise-operated restaurants acquired from franchisees4
Goodwill$4,302 
Restaurant and other equipment and leasehold improvements660 
Operating lease right-of-use assets2,006 
Operating lease liabilities(2,006)
Unfavorable lease liabilities(130)
Total consideration$4,832 

The unfavorable lease liability of $0.1 million was recorded as an adjustment to the respective operating lease right-of-use asset.
v3.20.2
Goodwill and Other Intangible Assets
8 Months Ended
Sep. 08, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the thirty-six weeks ended September 8, 2020 are as follows (in thousands):
Goodwill
Balance as of December 31, 2019$192,739 
Goodwill reclassified from held for sale3,517 
Impairment of goodwill(87,277)
Balance as of September 8, 2020$108,979 

The decrease in goodwill was primarily due to an impairment of $87.3 million during the thirty-six weeks ended September 8, 2020. In March 2020, the outbreak of the COVID-19 pandemic prompted authorities in most jurisdictions where the Company operates to issue stay-at-home orders, leading to an unexpected significant disruption to the Company's business requiring the Company to close restaurant dining rooms and operate with only drive-thru, take-out and delivery orders. As such, the consequences of the outbreak of the COVID-19 pandemic coupled with a sustained decline in the Company's stock price were determined to be indicators of impairment. As such, using Level 3 inputs, the Company performed a quantitative goodwill impairment assessment during the first quarter of 2020 using both the discounted cash flow method and guideline public company method to determine the fair value of its reporting unit. Significant assumptions and estimates used in determining fair value include future revenues, operating costs, working capital changes, capital expenditures, a discount rate that approximates the Company's weighted average cost of capital and a selection of comparable companies. Based on the quantitative assessment, the Company determined that the fair value of its reporting unit was less than its carrying value and recognized a non-cash goodwill impairment charge of $87.3 million, equal to the excess of the reporting unit's carrying value above its fair value. The impairment charge was recorded in impairment of goodwill on the consolidated statements of comprehensive income (loss). Since June 30, 2015, the date of the business combination between Del Taco and Levy Acquisition Corporation, accumulated goodwill impairment losses were $205.6 million and $118.3 million as of September 8, 2020 and December 31, 2019, respectively.
In conjunction with the quantitative goodwill impairment assessment during the first quarter of 2020, the Company also performed a quantitative impairment assessment of its indefinite-lived trademarks. Using Level 3 inputs, the Company used the relief from royalty method to determine the fair value of its trademarks. Significant assumptions and estimates used in determining fair value include future revenues, the royalty rate, franchise attrition, brand maintenance expenses and a discount rate that approximates the Company's weighted average cost of capital. Based on the quantitative assessment, the Company determined the fair value of its trademarks was less than its carrying value and recognized a non-cash impairment charge of $11.9 million during the thirty-six weeks ended September 8, 2020, equal to the excess of the trademarks' carrying value above their fair value. The impairment charge was recorded in impairment of trademarks on the consolidated statements of comprehensive income (loss).
The Company’s other intangible assets at September 8, 2020 and December 31, 2019 consisted of the following (in thousands):

 September 8, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Sublease assets$1,820 $(157)$1,663 $1,340 $(82)$1,258 
Franchise rights13,995 (6,118)7,877 14,298 (5,465)8,833 
Reacquired franchise rights943 (281)662 943 (207)736 
Total amortized other intangible assets$16,758 $(6,556)$10,202 $16,581 $(5,754)$10,827 

The Company recorded sublease assets of $0.5 million and $1.0 million during the thirty-six weeks ended September 8, 2020 and September 10, 2019, respectively, in connection with the sale of company-operated restaurants (see Note 4 for more information).
During the thirty-six weeks ended September 8, 2020, the Company wrote off $0.3 million of franchise rights associated with the closure of five franchise-operated restaurants. During the thirty-six weeks ended September 10, 2019, the Company reclassified $0.5 million of franchise rights as reacquired franchise rights related to the Company's acquisition of four franchise-operated restaurants and wrote off $11,000 of franchise rights associated with the closure of one franchise-operated restaurant.
v3.20.2
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
8 Months Ended
Sep. 08, 2020
Debt Disclosure [Abstract]  
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities Debt and Obligations Under Finance Leases
The Company’s long-term debt, finance lease obligations and other debt at September 8, 2020 and December 31, 2019 consisted of the following (in thousands):
 
 September 8, 2020December 31, 2019
Senior Credit Facility, as amended, net of unamortized debt discount of $197 and
$231 and deferred financing costs of $888 and $1,038 at September 8, 2020 and
December 31, 2019, respectively
$122,915 $143,731 
Total outstanding indebtedness122,915 143,731 
Obligations under finance leases and other debt664 1,070 
Total debt123,579 144,801 
Less: amounts due within one year199 220 
Total amounts due after one year, net$123,380 $144,581 
 
At September 8, 2020 and December 31, 2019, the Company assessed the amounts recorded under the Senior Credit Facility and determined that such amounts approximated fair value.

During the thirty-six weeks ended September 8, 2020, the Company wrote off a finance lease obligation of $0.3 million related to the modification of a lease from a finance lease to an operating lease.
Senior Credit Facility
On August 4, 2015, the Company refinanced its then existing senior credit facility and entered into a new credit agreement (the “Senior Credit Facility”). The Senior Credit Facility, which was to mature on August 4, 2020, provided for a $250 million revolving credit facility.

In September 2019, the Company refinanced the Senior Credit Facility, pursuant to Amendment No. 4 to the Credit Agreement among Del Taco, as borrower, the Company and its subsidiaries, as guarantors, Bank of America, N.A. as administrative agent and letter of credit issuer, the lenders party thereto, and other parties thereto, which provides for a $250 million five-year senior secured revolving facility. The Senior Credit Facility, as amended, includes a sub limit of $35 million for letters of credit. The Senior Credit Facility, as amended, will mature on September 19, 2024.

The Senior Credit Facility, as amended, 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 8, 2020. Substantially all of the assets of the Company are pledged as collateral under the Senior Credit Facility.
At September 8, 2020, the weighted-average interest rate on the outstanding balance of the Senior Credit Facility, as amended, was 2.16%. At September 8, 2020, the Company had a total of $108.7 million of availability for additional borrowings under the Senior Credit Facility, as amended, as the Company had $124.0 million of outstanding borrowings and $17.3 million of letters of credit outstanding, which reduce availability under the Senior Credit Facility, as amended.
v3.20.2
Leases
8 Months Ended
Sep. 08, 2020
Leases [Abstract]  
Leases LeasesThe Company's material leases consist of restaurant locations and its executive offices with expiration dates through 2044. In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases for additional five-
year periods. The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.
The Company has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sublessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the twelve and thirty-six weeks ended September 8, 2020 were as follows (in thousands):
ClassificationTwelve Weeks
Ended
September 8, 2020
Thirty-Six Weeks
Ended
September 8, 2020
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative
$9,251 $28,060 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization33 123 
Interest on lease liabilitiesInterest expense23 
Short-term lease costOccupancy and other operating expenses71 238 
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net
440 1,097 
Sublease incomeFranchise sublease and other income(1,716)(4,988)
Total lease cost$8,084 $24,553 

The components of lease cost for the twelve and thirty-six weeks ended September 10, 2019 were as follows (in thousands):
ClassificationTwelve Weeks
Ended
September 10, 2019
Thirty-Six Weeks
Ended
September 10, 2019
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative
$8,792 $26,196 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization86 329 
Interest on lease liabilitiesInterest expense21 72 
Short-term lease costOccupancy and other operating expenses53 231 
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net
444 1,282 
Sublease incomeFranchise sublease and other income(1,125)(3,261)
Total lease cost$8,271 $24,849 
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of September 8, 2020 and December 31, 2019 was as follows (in thousands):
September 8, 2020December 31, 2019
Operating lease assets:
Operating lease right-of-use assets$250,154 $258,278 
Operating lease liabilities:
Current portion of operating lease liabilities$20,116 $17,848 
Operating lease liabilities, excluding current portion253,121 257,361 
Total operating lease liabilities$273,237 $275,209 
Finance lease assets:
Buildings under finance leases$441 $871 
Accumulated depreciation(240)(334)
Finance lease assets, net$201 $537 
Finance lease obligations:
Current portion of finance lease obligations and other debt$138 $162 
Long-term debt, finance lease obligations and other debt, excluding current portion, net70 412 
Total finance lease obligations$208 $574 

Weighted Average Remaining Lease Term (in years)September 8, 2020
Operating leases12.5
Finance leases2.1

Weighted Average Discount RateSeptember 8, 2020
Operating leases6.58 %
Finance leases10.44 %

Supplemental cash flow information related to leases was as follows (in thousands):

Thirty-Six Weeks Ended September 8, 2020Thirty-Six Weeks Ended September 10, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$25,529 $22,617 
Operating cash flows used for finance leases$23 $72 
Financing cash flows used for finance leases$119 $353 
The estimated future lease payments as of September 8, 2020, are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2020$38 $9,957 $(1,562)$8,433 
2021138 39,240 (6,140)33,238 
202219 41,029 (6,678)34,370 
202317 35,892 (6,005)29,904 
202416 30,076 (5,358)24,734 
Thereafter253,707 (59,927)193,784 
Total lease payments$232 $409,901 $(85,670)$324,463 
Amounts representing interest(24)(136,664)(136,688)
Present value of lease obligations$208 $273,237 $187,775 

During the thirty-six weeks ended September 8, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor during the first quarter of 2020. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transaction totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss).
During the thirty-six weeks ended September 10, 2019, the Company entered into three sale-leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter of 2019 and one during the second quarter of 2019. These sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The leases have been accounted for as operating leases. The net proceeds from the transactions totaled approximately $12.7 million. Under two of the arrangements, the Company sold the land and buildings related to restaurants constructed during 2018 and leased them back for a term of 20 years. Under one of the arrangements, the Company sold the land related to a restaurant constructed during 2018 and leased it back for a term of 20 years. The sale of these properties resulted in a net loss of approximately $0.2 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss). The assets sold were included in assets held for sale as of January 1, 2019.
During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of September 8, 2020, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.
Additionally, another Del Taco franchisee has a direct sublease with a third party where the Company is a guarantor on the sublease. The lease has a remaining term of 11 years, expiring in 2031, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. In 2019, the franchisee defaulted on the lease payments. The Company had a liability of $0.04 million and $0.08 million as of September 8, 2020 and December 31, 2019, respectively, representing the estimated payments that the Company will be liable for until it is able to find a new franchisee or convert the restaurant to a company-operated restaurant.
During the twelve weeks ended June 16, 2020, in response to the COVID-19 pandemic, the Company negotiated temporary deferrals of certain rent payments until future periods. As permitted by recent FASB staff guidance, the Company elected to not evaluate whether these concessions were considered lease modifications and adopted a policy to not account for these concessions as lease modifications. As such, the Company continued to account for the related lease liabilities and right-of-use assets using the rights and obligations of the existing leases and included $1.3 million related to temporary rent payment
deferrals in accounts payable in the consolidated balance sheet as of June 16, 2020. The Company repaid these deferrals during the
Leases LeasesThe Company's material leases consist of restaurant locations and its executive offices with expiration dates through 2044. In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases for additional five-
year periods. The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.
The Company has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sublessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the twelve and thirty-six weeks ended September 8, 2020 were as follows (in thousands):
ClassificationTwelve Weeks
Ended
September 8, 2020
Thirty-Six Weeks
Ended
September 8, 2020
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative
$9,251 $28,060 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization33 123 
Interest on lease liabilitiesInterest expense23 
Short-term lease costOccupancy and other operating expenses71 238 
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net
440 1,097 
Sublease incomeFranchise sublease and other income(1,716)(4,988)
Total lease cost$8,084 $24,553 

The components of lease cost for the twelve and thirty-six weeks ended September 10, 2019 were as follows (in thousands):
ClassificationTwelve Weeks
Ended
September 10, 2019
Thirty-Six Weeks
Ended
September 10, 2019
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative
$8,792 $26,196 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization86 329 
Interest on lease liabilitiesInterest expense21 72 
Short-term lease costOccupancy and other operating expenses53 231 
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net
444 1,282 
Sublease incomeFranchise sublease and other income(1,125)(3,261)
Total lease cost$8,271 $24,849 
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of September 8, 2020 and December 31, 2019 was as follows (in thousands):
September 8, 2020December 31, 2019
Operating lease assets:
Operating lease right-of-use assets$250,154 $258,278 
Operating lease liabilities:
Current portion of operating lease liabilities$20,116 $17,848 
Operating lease liabilities, excluding current portion253,121 257,361 
Total operating lease liabilities$273,237 $275,209 
Finance lease assets:
Buildings under finance leases$441 $871 
Accumulated depreciation(240)(334)
Finance lease assets, net$201 $537 
Finance lease obligations:
Current portion of finance lease obligations and other debt$138 $162 
Long-term debt, finance lease obligations and other debt, excluding current portion, net70 412 
Total finance lease obligations$208 $574 

Weighted Average Remaining Lease Term (in years)September 8, 2020
Operating leases12.5
Finance leases2.1

Weighted Average Discount RateSeptember 8, 2020
Operating leases6.58 %
Finance leases10.44 %

Supplemental cash flow information related to leases was as follows (in thousands):

Thirty-Six Weeks Ended September 8, 2020Thirty-Six Weeks Ended September 10, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$25,529 $22,617 
Operating cash flows used for finance leases$23 $72 
Financing cash flows used for finance leases$119 $353 
The estimated future lease payments as of September 8, 2020, are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2020$38 $9,957 $(1,562)$8,433 
2021138 39,240 (6,140)33,238 
202219 41,029 (6,678)34,370 
202317 35,892 (6,005)29,904 
202416 30,076 (5,358)24,734 
Thereafter253,707 (59,927)193,784 
Total lease payments$232 $409,901 $(85,670)$324,463 
Amounts representing interest(24)(136,664)(136,688)
Present value of lease obligations$208 $273,237 $187,775 

During the thirty-six weeks ended September 8, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor during the first quarter of 2020. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transaction totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss).
During the thirty-six weeks ended September 10, 2019, the Company entered into three sale-leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter of 2019 and one during the second quarter of 2019. These sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The leases have been accounted for as operating leases. The net proceeds from the transactions totaled approximately $12.7 million. Under two of the arrangements, the Company sold the land and buildings related to restaurants constructed during 2018 and leased them back for a term of 20 years. Under one of the arrangements, the Company sold the land related to a restaurant constructed during 2018 and leased it back for a term of 20 years. The sale of these properties resulted in a net loss of approximately $0.2 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss). The assets sold were included in assets held for sale as of January 1, 2019.
During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of September 8, 2020, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.
Additionally, another Del Taco franchisee has a direct sublease with a third party where the Company is a guarantor on the sublease. The lease has a remaining term of 11 years, expiring in 2031, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. In 2019, the franchisee defaulted on the lease payments. The Company had a liability of $0.04 million and $0.08 million as of September 8, 2020 and December 31, 2019, respectively, representing the estimated payments that the Company will be liable for until it is able to find a new franchisee or convert the restaurant to a company-operated restaurant.
During the twelve weeks ended June 16, 2020, in response to the COVID-19 pandemic, the Company negotiated temporary deferrals of certain rent payments until future periods. As permitted by recent FASB staff guidance, the Company elected to not evaluate whether these concessions were considered lease modifications and adopted a policy to not account for these concessions as lease modifications. As such, the Company continued to account for the related lease liabilities and right-of-use assets using the rights and obligations of the existing leases and included $1.3 million related to temporary rent payment
deferrals in accounts payable in the consolidated balance sheet as of June 16, 2020. The Company repaid these deferrals during the
v3.20.2
Derivative Instruments
8 Months Ended
Sep. 08, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
2016 Interest Rate Cap Agreement
In June 2016, the Company entered into an interest rate cap agreement, which 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 Senior Credit Facility that effectively converted that portion of the outstanding balance of the 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 Senior Credit Facility) to a capped interest rate of 2.00% plus the applicable margin. During the period from July 1, 2016 through the expiration on March 31, 2020, the 2016 Interest Rate Cap Agreement had no hedge ineffectiveness.
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 perfectly match with the interest rate cap reset dates and other critical terms during fiscal year 2020 through the expiration on March 31, 2020.
During the thirty-six weeks ended September 8, 2020, the Company reclassified approximately $67,000 of interest expense related to the hedges of these transactions into earnings.
The effective portion of the 2016 Interest Rate Cap Agreement through the expiration on March 31, 2020 was included in accumulated other comprehensive loss.
v3.20.2
Fair Value Measurements
8 Months Ended
Sep. 08, 2020
Fair Value Disclosures [Abstract]  
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 Senior Credit Facility, as amended, approximated its fair value. The 2016 Interest Rate Cap Agreement was recorded at fair value in the Company’s consolidated balance sheets.
As of December 31, 2019, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis, including 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 contracts. Therefore, the Company categorized these interest rate cap contracts as Level 2 fair value measurements. The 2016 Interest Rate Cap Agreement expired on March 31, 2020. The fair value of the 2016 Interest Rate Cap Agreement was $0.0 million at December 31, 2019 and was included in other assets in the Company's consolidated balance sheets.

The Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 were as follows (in thousands):

December 31, 2019Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement$— $— $— $— 
Total assets measured at fair value$— $— $— $— 
v3.20.2
Other Accrued Liabilities and Other Non-current Liabilities
8 Months Ended
Sep. 08, 2020
Other Liabilities Disclosure [Abstract]  
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 8, 2020December 31, 2019
Employee compensation and related items$15,212 $10,008 
Accrued income tax6,575 1,605 
Accrued insurance5,389 5,900 
Accrued sales tax4,475 4,099 
Accrued advertising3,249 1,345 
Accrued real property tax2,708 1,652 
Accrued rent and related items1,451 1,382 
Deferred gift card income1,218 1,585 
Accrued property and equipment purchases915 3,190 
Restaurant closure liabilities198 129 
Other4,300 3,682 
$45,690 $34,577 
 

A summary of other non-current liabilities follows (in thousands):

September 8, 2020December 31, 2019
Insurance reserves$8,325 $8,110 
Deferred development and initial franchise fees4,510 4,241 
Sublease liabilities1,409 1,223 
Deferred gift card income733 1,474 
Restaurant closure liability253 308 
Unearned trade discount, non-current128 320 
Other916 925 
$16,274 $16,601 
v3.20.2
Stock-Based Compensation
8 Months Ended
Sep. 08, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
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, restricted stock units, 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 8, 2020, there were 172,422 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 $1.3 million for both the twelve weeks ended September 8, 2020 and September 10, 2019, respectively, and $3.9 million and $4.6 million for the thirty-six weeks ended September 8, 2020 and September 10, 2019, respectively.
Restricted Stock Awards
A summary of outstanding and unvested restricted stock activity as of September 8, 2020 and changes during the period from December 31, 2019 through September 8, 2020 are as follows:
 
SharesWeighted-Average
Grant Date
Fair Value
Nonvested at December 31, 20191,142,718 $12.92 
Granted614,518 6.36 
Vested(429,936)12.52 
Forfeited(79,650)12.64 
Nonvested at September 8, 20201,247,650 $9.85 
For the thirty-six weeks ended September 8, 2020 and September 10, 2019, the Company made payments of $1.0 million and $2.6 million, respectively, related to tax withholding obligations for the vesting of restricted stock awards in exchange for 164,545 and 204,494 shares withheld, respectively.
As of September 8, 2020, there was $8.6 million of unrecognized stock compensation expense, net of estimated forfeitures, related to restricted stock awards that is expected to be recognized over a weighted-average remaining period of 2.7 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 8, 2020 and changes during the period from December 31, 2019 through September 8, 2020 are as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(in years)(in thousands)
Options outstanding at December 31, 2019412,750 $11.71 3.8$— 
Granted236,453 6.40 
Exercised— — 
Forfeited/Expired(74,250)11.37 
Options outstanding at September 8, 2020574,953 $9.57 4.7$443 
Options exercisable at September 8, 2020274,625 $11.34 3.1$— 
Options exercisable and expected to vest at September 8, 2020499,064 $9.91 4.5$319 

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 September 8, 2020 and December 31, 2019, respectively.
As of September 8, 2020, there was $0.6 million of unrecognized stock compensation expense, net of estimated forfeitures, related to stock option grants that is expected to be recognized over a weighted-average remaining period of 3.2 years.
v3.20.2
Shareholders' Equity
8 Months Ended
Sep. 08, 2020
Equity [Abstract]  
Shareholders' Equity Shareholders’ EquityOn 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. The Board of Directors
authorized an additional increase for the repurchase program effective July 23, 2018 of another $25.0 million to a total of $75.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelve and thirty-six weeks ended September 8, 2020, the Company did not repurchase any shares or warrants. During the twelve weeks ended September 10, 2019, the Company did not repurchase any shares or warrants. During the thirty-six weeks ended September 10, 2019, the Company repurchased (1) 574,481 shares of common stock for an average price per share of $10.17 for an aggregate cost of approximately $5.9 million, including incremental direct costs to acquire the shares, and (2) 846,441 warrants for an average price per warrant of $1.78 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants.
As of September 8, 2020, there was approximately $22.3 million remaining under the share repurchase program. All of the Company's outstanding warrants expired on June 30, 2020. The Company has no obligations to repurchase shares under this authorization, and the timing and value of shares purchased will depend on the Company's stock price, market conditions and other factors.
v3.20.2
(Loss) Earnings Per Share
8 Months Ended
Sep. 08, 2020
Earnings Per Share [Abstract]  
(Loss) Earnings Per Share Earnings (Loss) 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 Ended36 Weeks Ended
September 8, 2020September 10, 2019September 8, 2020September 10, 2019
Numerator:
Net income (loss)$5,797 $(7,669)$(97,247)$(4,152)
Denominator:
Weighted-average shares outstanding - basic37,293,390 37,023,287 37,152,419 37,000,331 
Dilutive effect of unvested restricted stock126,653 — — — 
Dilutive effect of stock options— — — — 
Dilutive effect of warrants— — — — 
Weighted-average shares outstanding - diluted37,420,043 37,023,287 37,152,419 37,000,331 
Net income (loss) per share - basic$0.16 $(0.21)$(2.62)$(0.11)
Net income (loss) per share - diluted$0.15 $(0.21)$(2.62)$(0.11)
Antidilutive stock options, unvested restricted
stock awards and warrants excluded from the
computations
1,929,726 897,881 5,137,453 4,587,387 
v3.20.2
Income Taxes
8 Months Ended
Sep. 08, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesThe effective income tax rates were 14.2% and (50.0)% for the twelve weeks ended September 8, 2020 and September 10, 2019, respectively. The provision for income taxes was $1.0 million and $2.6 million for the twelve weeks ended September 8, 2020 and September 10, 2019, respectively. The effective income tax rates were 2.0% and (1,615.7)% for the thirty-six weeks ended September 8, 2020 and September 10, 2019, respectively. The (benefit) provision for income taxes was $(2.0) million and $3.9 million for the thirty-six weeks ended September 8, 2020 and September 10, 2019, respectively.
The income tax expense for the twelve weeks ended September 8, 2020 is driven by the estimated effective income tax rate and consists of statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020, the impact of non-tax deductible compensation to executives and the impact of lower stock compensation expense deductible for tax related to the June 30, 2020 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 twelve weeks ended September 10, 2019, despite a pre-tax loss, is primarily impacted by $14.8 million of non-tax deductible goodwill that was reclassified to assets held for sale, as well as statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits.
The income tax benefit for the thirty-six weeks ended September 8, 2020 is primarily impacted by impairment of non-tax deductible goodwill of $87.3 million and reclassification of $3.5 million of goodwill from held for sale, as well as statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020, the impact of non-tax deductible compensation to executives and the impact of lower stock compensation expense deductible for tax related to the June 30, 2020 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 10, 2019, despite a pre-tax loss, is primarily impacted by $14.8 million of non-tax deductible goodwill that was reclassified to assets held for sale, as well as statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, 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 8, 2020 and December 31, 2019 is required.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company has benefited from the technical correction for qualified leasehold improvements eligible for 100% tax bonus depreciation, recognizing accelerated tax depreciation deductions of $1.2 million and $2.0 million for 2018 and 2019, respectively. Beginning with pay dates on and after April 14, 2020, the Company has elected to defer the employer-paid portion of social security taxes. The Company is also currently assessing its eligibility for certain employee retention tax credits.