DEL TACO RESTAURANTS, INC., 10-K filed on 3/11/2021
Annual Report
v3.20.4
Cover - USD ($)
$ in Millions
12 Months Ended
Dec. 29, 2020
Mar. 05, 2021
Jun. 16, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Transition Report false    
Entity File Number 001-36197    
Entity Registrant Name DEL TACO RESTAURANTS, INC.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 46-3340980    
Entity Address, Postal Zip Code 92630    
Entity Address, State or Province CA    
Entity Address, City or Town Lake Forest,    
Entity Address, Address Line One 25521 Commercentre Drive    
Local Phone Number 462-9300    
City Area Code (949)    
Title of 12(b) Security Common Stock, $0.0001 Par Value    
Trading Symbol TACO    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Amendment Flag false    
Document Period End Date Dec. 29, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001585583    
Current Fiscal Year End Date --12-29    
Entity Public Float     $ 199.8
Entity Common Stock, Shares Outstanding   36,757,296  
ICFR Auditor Attestation Flag true    
v3.20.4
Cover
12 Months Ended
Dec. 29, 2020
Cover [Abstract]  
Documents Incorporated by Reference Portions of the registrant's definitive proxy statement relating to the registrant's 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the registrant's fiscal year end of December 29, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 29, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 7,912 $ 1,421
Accounts and other receivables, net 5,463 3,580
Inventories 2,799 3,123
Prepaid expenses and other current assets 2,078 2,289
Assets held for sale 1,495 8,411
Total current assets 19,747 18,824
Property and equipment, net 146,706 156,921
Operating Lease, Right-of-Use Asset 249,071 258,278
Goodwill 108,979 192,739
Trademarks 208,400 220,300
Intangible assets, net 9,754 10,827
Other assets, net 4,652 4,568
Total assets 747,309 862,457
Current liabilities:    
Accounts payable 18,683 19,652
Other accrued liabilities 45,413 34,577
Current portion of capital lease obligations and deemed landlord financing liabilities 190 220
Operating Lease, Liability, Current 22,648 17,848
Total current liabilities 86,934 72,297
Long-term debt, finance lease obligations and other debt, excluding current portion, net 114,418 144,581
Operating Lease, Liability 251,958 257,361
Deferred income taxes 61,485 69,510
Other non-current liabilities 19,760 16,601
Total liabilities 534,555 560,350
Commitments and contingencies
Shareholders’ equity:    
Preferred Stock, Value, Issued 0 0
Common Stock, Value, Issued 4 4
Additional paid-in capital 333,712 333,379
Accumulated other comprehensive loss 0 (52)
Accumulated deficit (120,962) (31,224)
Total shareholders’ equity 212,754 302,107
Total liabilities and shareholders’ equity $ 747,309 $ 862,457
Preferred stock, shares issued (in shares) 0 0
Common stock, shares issued (in shares) 36,828,237 37,059,202
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 outstanding (in shares) 0 0
Common stock, shares authorized (in shares) 400,000,000 400,000,000
Common stock, shares outstanding (in shares) 36,828,237 37,059,202
v3.20.4
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 29, 2020
Dec. 31, 2019
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) 36,828,237 37,059,202
Common stock, shares outstanding (in shares) 36,828,237 37,059,202
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 29, 2020
Dec. 31, 2019
Jan. 01, 2019
Revenue:      
Total revenue $ 491,883 $ 512,951 $ 505,490
Restaurant operating expenses:      
Labor and related expenses 148,183 156,095 151,954
Occupancy and other operating expenses 105,666 105,376 97,745
General and administrative 43,996 43,877 43,773
Franchise advertising expenses 15,116 14,516 13,300
Depreciation and amortization 26,599 25,488 25,794
Occupancy and other - franchise subleases and other 8,083 4,463 3,167
Pre-opening costs 471 1,650 1,584
Goodwill, Impairment Loss 87,277 118,250 0
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill) 11,900 0 0
Impairment of long-lived assets 8,287 7,159 3,861
Restaurant closure charges, net 2,048 2,961 394
Loss on disposal of assets and adjustments to assets held for sale, net 401 9,448 1,012
Total operating expenses 578,872 619,994 471,457
(Loss) income from operations (86,989) (107,043) 34,033
Other expense (income), net      
Interest expense 4,811 7,235 9,075
Other Nonoperating Income 0 364 660
Other income 4,811 6,871 8,415
(Loss) income from operations before (benefit) provision for income taxes (91,800) (113,914) 25,618
(Benefit) provision for income taxes (2,062) 4,371 6,659
Net (loss) income (89,738) (118,285) 18,959
Other comprehensive income (loss):      
Change in fair value of interest rate cap, net of tax 0 (364) 122
Reclassification of interest rate cap amortization included in net (loss) income, net of tax 52 132 44
Total other comprehensive income (loss), net 52 (232) 166
Comprehensive (loss) income $ (89,686) $ (118,517) $ 19,125
(Loss) earnings per share:      
Basic (in dollars per share) $ (2.41) $ (3.20) $ 0.50
Diluted (in dollars per share) $ (2.41) $ (3.20) $ 0.49
Weighted-average shares outstanding:      
Basic (in shares) 37,161,921 37,018,445 38,106,057
Diluted (in shares) 37,161,921 37,018,445 38,683,959
Company restaurant sales      
Revenue:      
Revenue $ 446,805 $ 473,991 $ 471,193
Franchise revenue      
Revenue:      
Revenue 20,763 19,002 17,569
Franchise advertising contributions      
Revenue:      
Revenue 15,116 14,516 13,300
Franchise sublease and other income      
Revenue:      
Revenue 9,199 5,442 3,428
Food and paper costs      
Restaurant operating expenses:      
Food and paper costs $ 120,845 $ 130,711 $ 128,873
v3.20.4
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Thousands
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Earnings (Accumulated Deficit)
Retained Earnings (Accumulated Deficit)
Cumulative Effect, Period of Adoption, Adjustment
Beginning Balance at Jan. 02, 2018 $ 416,249 $ (707) $ 4 $ 349,334 $ 14 $ 66,897 $ (707)
Beginning Balance, Shares at Jan. 02, 2018     38,434,274        
Net income (loss) 18,959         18,959  
Other comprehensive income (loss), net of tax 166       166    
Comprehensive income (loss) 19,125            
Stock-based compensation 6,079     6,079      
Restricted stock awards vested, shares     257,389        
Exercise of stock options, shares     21,750        
Exercise of stock options, value 222     222      
Repurchase of common stock, shares     (1,408,071)        
Repurchase of common stock, value (16,316)     (16,316)      
Ending Balance at Jan. 01, 2019 422,274 $ 1,912 $ 4 336,941 180 85,149 $ 1,912
Ending Balance, Shares at Jan. 01, 2019     37,305,342        
Adjustments To Additional Paid In Capital Issuance of Vested Restricted Stock Net of Tax Witholding (2,378)     (2,378)      
Net income (loss) (118,285)         (118,285)  
Other comprehensive income (loss), net of tax (232)       (232)    
Comprehensive income (loss) (118,517)            
Stock-based compensation 6,293     6,293      
Restricted stock awards vested, shares     316,341        
Exercise of stock options, shares     12,000        
Exercise of stock options, value 120     120      
Repurchase of common stock, shares     (574,481)        
Repurchase of common stock, value (7,373)     (7,373)      
Ending Balance at Dec. 31, 2019 302,107   $ 4 333,379 (52) (31,224)  
Ending Balance, Shares at Dec. 31, 2019     37,059,202        
Adjustments To Additional Paid In Capital Issuance of Vested Restricted Stock Net of Tax Witholding (2,602)     (2,602)      
Net income (loss) (89,738)         (89,738)  
Other comprehensive income (loss), net of tax 52       52    
Comprehensive income (loss) (89,686)            
Stock-based compensation 5,652     5,652      
Restricted stock awards vested, shares     265,391        
Repurchase of common stock, shares     (496,356)        
Repurchase of common stock, value (4,222)     (4,222)      
Noncontrolling Interest, Decrease from Redemptions or Purchase of Interests (98)     98      
Ending Balance at Dec. 29, 2020 212,754   $ 4 333,712 $ 0 $ (120,962)  
Ending Balance, Shares at Dec. 29, 2020     36,828,237        
Adjustments To Additional Paid In Capital Issuance of Vested Restricted Stock Net of Tax Witholding $ (999)     $ (999)      
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 29, 2020
Dec. 31, 2019
Jan. 01, 2019
Operating activities      
Net (loss) income $ (89,738) $ (118,285) $ 18,959
Adjustments to reconcile net (loss) income to net cash provided by operating activities      
Loss from discontinued operations 30 41 45
Allowance for doubtful accounts 26,599 25,488 25,794
Depreciation and amortization 0 0 (767)
Amortization of favorable and unfavorable lease assets and liabilities, net 333 550 445
Operating Lease, Right-of-Use Asset, Amortization 22,035 21,681 0
Non-cash change in fair value of interest rate cap 5,652 6,293 6,079
Goodwill, Impairment Loss 87,277 118,250 0
Impairment of Intangible Assets, Indefinite-lived (Excluding Goodwill) 11,900 0 0
Impairment of long-lived assets 8,287 7,159 3,861
Gain on troubled debt restructuring (8,040) (583) 1,097
Loss on disposal of assets and adjustments to assets held for sale, net 401 9,448 1,012
Restructuring expense (168) 0 (449)
Other Noncash Income 0 0 (523)
Change in operating assets and liabilities:      
Accounts and other receivables, net (1,913) (349) 616
Inventories 324 (191) (220)
Prepaid expenses and other current assets 3,710 (732) 1,949
Other assets (227) (273) (125)
Accounts payable (471) (271) 2
Increase (Decrease) in Operating Lease Liabilities (21,057) (18,846) 0
Other accrued liabilities 11,530 (1,308) (488)
Other non-current liabilities 2,963 973 3,647
Net cash provided by operating activities 59,763 49,045 61,832
Investing activities      
Purchases of property and equipment (22,019) (43,696) (48,032)
Proceeds from disposal of property and equipment, net 3,638 14,107 1,323
Purchases of other assets (1,730) (2,039) (1,474)
Proceeds from dissolution of investment in partnership 0 (4,832) (1,841)
Proceeds from Divestiture of Businesses 2,558 7,187 0
Net cash used in investing activities (17,553) (29,273) (50,024)
Financing activities      
Proceeds from issuance of member interests, net of issuance costs 0 0 2,675
Proceeds from long-term debt, net of original issue discount (4,222) (7,373) (16,316)
Repayments of Other Long-term Debt (218) (635) (1,417)
Repurchase of common stock and warrants (999) (2,602) (2,378)
Payments on subordinated notes 66,000 41,000 31,000
Proceeds from exercise of stock options (96,000) (55,000) (25,000)
Noncontrolling Interest, Decrease from Redemptions or Purchase of Interests (280) 0 0
Payments of Debt Issuance Costs 0 (1,014) 0
Proceeds from Stock Options Exercised 0 120 222
Net cash used in financing activities (35,719) (25,504) (11,214)
Net increase (decrease) in cash and cash equivalents 6,491 (5,732) 594
Cash and cash equivalents, beginning of period 1,421 7,153 6,559
Cash and cash equivalents, end of period 7,912 1,421 7,153
Supplemental cash flow information:      
Interest Paid, Excluding Capitalized Interest, Operating Activities 4,090 6,919 8,823
Cash paid during the period for income taxes 3,456 3,856 3,061
Supplemental schedule of non-cash activities:      
Accrued property and equipment purchases 4,012 5,729 5,691
Write-offs against bad debt reserves 0 30 26
Change in other asset for fair value of interest rate cap recorded to other comprehensive (loss) income, net of tax 0 (364) 122
Operating Lease, Right-of-Use Asset 18,926 298,942 0
Finance Lease, Right-of-Use Asset 0 1,185 0
Impairment of Operating Lease, Right-of-Use Asset 0 3,116 0
Reclassification of interest rate cap amortization included in net (loss) income, net of tax $ 52 $ 132 $ 44
v3.20.4
Description of Business
12 Months Ended
Dec. 29, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business Description of BusinessDel 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”), one of which is Del Taco LLC which has all of the material assets and operations of the Company. The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At December 29, 2020, there were 295 company-operated and 301 franchise-operated Del Taco restaurants located in 16 states, including one franchise-operated unit in Guam. At December 31, 2019, there were 300 company-operated and 296 franchise-operated Del Taco restaurants located in 15 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.
v3.20.4
Basis of Presentation and Summary of Significant Accounting Policies
12 Months Ended
Dec. 29, 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 Company uses a fifty-two or fifty-three week fiscal year ending on the Tuesday closest to December 31. Fiscal years 2020, 2019 and 2018 are fifty-two week periods. 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. 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 2020, the Company’s financial statements reflect the fifty-two weeks ended December 29, 2020. For fiscal year 2019, the Company's financial statements reflect the fifty-two weeks ended December 31, 2019. For fiscal year 2018, the Company’s financial statements reflect the fifty-two weeks ended January 1, 2019.

Principles of Consolidation
The 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”). The accompanying 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Interest Entities
In accordance with ASC 810, Consolidation, the Company applies the guidance related to variable interest entities ("VIE"), which defines the process for how an enterprise determines which party consolidates a VIE as primarily a qualitative analysis. The enterprise that consolidates the VIE (the primary beneficiary) is defined as the enterprise with (1) the power to direct activities of the VIE that most significantly affect the VIE's economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The Company franchises its operations through franchise agreements entered into with franchisees and therefore, the Company does not possess any ownership interests in franchise entities or other affiliates. The franchise agreements are designed to provide the franchisee with key decision-making ability to enable it to oversee its operations and to have a significant impact on the success of the franchise, while the Company’s decision-making rights are related to protecting the Company’s brand. Based upon the Company’s analysis of all the relevant facts and considerations of the franchise entities, the Company has concluded that the franchise agreements are not variable interest entities.
Revenue Recognition
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers.
Company restaurant sales from the operation of company-operated restaurants are recognized when food and service is delivered to customers. The Company reports revenue net of promotional allowances as well as sales taxes collected from customers and remitted to governmental taxing authorities.
Franchise revenue is comprised of (i) development fees, (ii) franchise fees, (iii) on-going royalties, (iv) renewal fees and (v) other franchise revenue. Development and franchise fees, portions of which are collected in advance and are non-refundable, received pursuant to individual development agreements, grant the right to develop franchise-operated restaurants in future periods in specific geographic areas. Both development fees and franchise fees are deferred and recognized as revenue over the term of the related franchise agreement for the respective restaurant, and renewal fees are deferred and recognized as revenue over the term of the renewal agreement. Development fees and franchise fees are generally recognized as revenue upon the termination of the development agreement with the franchisee. Deferred development fees and deferred franchise fees are included in other non-current liabilities on the consolidated balance sheets with the current portion included in accrued liabilities on the consolidated balance sheets. Royalties from franchise-operated restaurants are based on a percentage of franchise restaurant sales and are recognized in the period the related franchise-operated restaurant sales occur. To a lesser extent, franchise revenue also includes pass-through fees for services, such as software maintenance and technology subscriptions, since the Company is considered the principal related to the purchase and sale of the services to the franchisee and has no remaining performance obligations. The related expenses are recognized in general and administrative expenses.
Deferred franchise fees are recognized straight-line over the term of the underlying agreement and the amount expected to be recognized in franchise revenue for amounts in deferred franchise fees as of December 29, 2020 is as follows (in thousands):
FY 2021$198 
FY 2022199 
FY 2023191 
FY 2024188 
FY 2025188 
Thereafter2,116 
Total deferred franchise fees$3,080 
Franchise advertising contributions consist of a percentage of a franchise restaurant's net sales, typically 4%, paid to the Company for advertising and promotional services that the Company provides. The offset is recorded to franchise advertising expenses. Starting the last fiscal week of the first quarter of 2020, as a result of the COVID-19 pandemic, the Company
decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks and then adjusted the advertising contribution percentage back to 4.0% for the balance of 2020.
Franchise sublease and other income consists of rental income received from franchisees related to properties where the Company has subleased a leasehold interest to the franchisee but remain primarily liable to the landlord. The related expenses are recognized in occupancy and other - franchise subleases and other. Franchise sublease and other income also includes rental income for closed restaurant properties where the Company has subleased to a third party but remain primarily liable to the landlord. The related expenses are recognized in restaurant closure charges, net. Franchise sublease and other income also includes information technology hardware such as point of sale equipment, tablets, kitchen display systems, servers, scanners and printers that the Company occasionally purchases from third party vendors and then sells to franchisees. Since the Company is considered the principal related to the purchase and sale of the hardware to the franchisee and has no remaining performance obligations, the franchisee reimbursement is recognized as franchise sublease and other income upon transfer of the hardware. The related expenses are recognized in occupancy and other - franchise subleases and other.
Gift Cards
The Company sells gift cards to customers in its restaurants. The gift cards sold to customers have no stated expiration dates and are subject to potential escheatment laws in the various jurisdictions in which the Company operates. Deferred gift card income totaled $3.1 million as of both December 29, 2020 and December 31, 2019. The current portion of the deferred gift card income is included in other accrued liabilities on the consolidated balance sheets and totaled approximately $1.7 million and $1.6 million as of December 29, 2020 and December 31, 2019, respectively. The non-current portion of the deferred gift card income was approximately $1.5 million as of both December 29, 2020 and December 31, 2019 and is included in other non-current liabilities on the consolidated balance sheets. The Company recognizes revenue from gift cards: (i) when the gift card is redeemed by the customer; or (ii) under the delayed recognition method, when the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and the Company determines that there is not a legal obligation to remit the unredeemed gift cards to the relevant jurisdiction. The determination of the gift card breakage rate is based upon Company specific historical redemption patterns. Recognized gift card breakage revenue was not significant to any period presented in the consolidated statements of comprehensive (loss) income. Any future revisions to the estimated breakage rate may result in changes in the amount of breakage revenue recognized in future periods but is not expected to be significant.
Cash and Cash Equivalents
The Company considers short-term, highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within 2 to 4 days of the original sales transaction and are considered to be cash equivalents.
Accounts and Other Receivables, Net
Accounts and other receivables, net consist primarily of receivables from franchisees, sublease tenants, a vendor, delivery service providers ("DSPs") and landlords. Receivables from franchisees include sublease rents, royalties, services and contractual marketing fees associated with the franchise agreements. Sublease tenant receivables relate to subleased properties where the Company is a party and obligated on the primary lease agreement. The vendor receivable is for earned reimbursements from a vendor, receivables from DSPs are for company restaurant sales related to delivery orders fulfilled by the DSPs and the landlord receivables are for earned landlord reimbursement related to restaurants opened. The allowance for doubtful accounts is based on expected credit losses utilizing a range of information, including historical collections experience and a review on a specific identification basis of the collectability of existing receivables, and totaled approximately $0.1 million and as of both December 29, 2020 and December 31, 2019.
Vendor Allowances
The Company receives support from one of its vendors in the form of reimbursements. The reimbursements are agreed upon with the vendor, but do not represent specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products. Such reimbursements are recorded as a reduction of the costs of purchasing the vendor’s products. The non-current portion of reimbursements received by the Company in advance is included in other non-current liabilities on the consolidated balance sheets and totaled $27,000 and $0.3 million as of December 29, 2020 and December 31, 2019, respectively. The current portion of these reimbursements is included in other accrued liabilities on the consolidated balance sheets and totaled $0.4 million as of both December 29, 2020 and December 31, 2019.
Inventories
Inventories, consisting of food items, packaging and beverages, are valued at the lower of cost (first-in, first-out method) or net realizable value.
Assets Held for Sale
Assets held for sale include the net book value of property and equipment and goodwill for Company-operated restaurants that the Company plans to sell within the next year to new or existing franchisees, as well as the net book value of owned property that the Company plans to sell within the next year. 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. If the determination is made that the Company no longer expects to sell an asset within the next year, the asset is reclassified out of assets held for sale.
Property and Equipment
Property and equipment includes land, buildings, leasehold improvements, restaurant and other equipment, restaurant property leased to others and buildings under finance leases. Land, buildings, leasehold improvements, restaurant and other equipment acquired in business combinations are initially recorded at their estimated fair value. Land, buildings, leasehold improvements, restaurant and other equipment acquired or constructed in the normal course of business are initially recorded at cost. The Company provides for depreciation and amortization based on the estimated useful lives of assets using the straight-line method.
 
Estimated useful lives for property and equipment are as follows:
Buildings  20–35 years
Leasehold improvements  Shorter of useful life (typically 20 years) or lease term
Buildings under finance leasesShorter of useful life (typically 20 years) or lease term
Restaurant and other equipment  3–15 years
The estimated useful lives for leasehold improvements are based on the shorter of the estimated useful lives of the assets or the related lease term, which generally includes reasonably assured option periods expected to be exercised by the Company when the Company would suffer an economic penalty if not exercised. Depreciation and amortization expense associated with property and equipment totaled $23.2 million for the fifty-two weeks ended December 29, 2020, $22.7 million for the fifty-two weeks ended December 31, 2019 and $23.1 million for the fifty-two weeks ended January 1, 2019. These amounts include $0.2 million for the fifty-two weeks ended December 29, 2020 and $0.5 million for the fifty-two weeks ended December 31, 2019 related to buildings under finance leases, as well as $0.9 million for the fifty-two weeks ended January 1, 2019 related to buildings under capital leases. Accumulated depreciation and amortization associated with property and equipment includes $0.3 million related to buildings under finance leases as of both December 29, 2020 and December 31, 2019.
The Company capitalizes construction costs which consist of internal payroll and payroll related costs and travel costs related to the successful acquisition, development, design and construction of the Company's new restaurants. Capitalized construction costs totaled $0.8 million for the fifty-two weeks ended December 29, 2020, $1.8 million for the fifty-two weeks ended December 31, 2019 and $1.6 million for the fifty-two weeks ended January 1, 2019. If the Company subsequently makes a determination that a site for which development costs have been capitalized will not be acquired or developed, any previously
capitalized development costs are expensed and included in general and administrative expenses in the consolidated statements of comprehensive (loss) income. The Company capitalizes interest in connection with the construction of its restaurants. Interest capitalized totaled approximately $34,000 for the fifty-two weeks ended December 29, 2020 and $0.1 million for both the fifty-two weeks ended December 31, 2019 and the fifty-two weeks ended January 1, 2019.
Gains and losses on the disposal of assets are recorded as the difference between the net proceeds received, if any, and net carrying values of the assets disposed and are included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income.
Deferred Financing Costs
Deferred financing costs represent third-party debt costs that are capitalized and amortized to interest expense over the associated term of the debt agreement using the effective interest method. Deferred financing costs, along with lender debt discount, are presented net of the related debt balances on the consolidated balance sheets.
Goodwill and Trademarks
The Company’s goodwill and trademarks are not amortized, but tested annually for impairment and tested more frequently for impairment if events and circumstances indicate that the asset might be impaired. The Company conducts annual goodwill and trademark impairment tests in the fourth quarter of each fiscal year or whenever an indicator of impairment exists.
In assessing potential goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of net assets, including goodwill, is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of net assets, including goodwill, is less than the carrying amount, the Company performs a quantitative impairment test. The methods the Company uses to estimate fair value include discounted future cash flows analysis and market valuation based on similar companies. Key assumptions included in the cash flow model include future revenues, operating costs, working capital changes, capital expenditures and a discount rate that approximates the Company's weighted average cost of capital. As the Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, in 2019, the Company recognizes goodwill impairment for the carrying amount in excess of fair value. The Company also performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.
During the fifty-two weeks ended December 29, 2020, in the first quarter, the Company identified indicators of impairment and performed quantitative impairment assessments, which resulted in a non-cash impairment of goodwill of $87.3 million and a non-cash impairment of trademarks of $11.9 million. See Note 6, Goodwill and Other Intangible Assets, for further discussion.
During the fourth quarter of 2020, the Company performed its annual impairment test using a qualitative assessment to determine whether it is more likely than not that the fair value of goodwill or indefinite-lived trademarks is less than the carrying value. Based on the qualitative assessment, the Company determined that no additional goodwill or trademark impairment was needed.
Intangible Assets, Net
Intangible assets primarily include franchise rights, reacquired franchise rights and sublease assets. Franchise rights, which represent the fair value of franchise agreements based on the projected royalty revenue stream as of the Closing Date of the Business Combination, are amortized on a straight-line basis to depreciation and amortization expense in the consolidated statements of comprehensive (loss) income over the remaining term of the franchise agreements. Reacquired franchise rights, which represent the fair value of reacquired rights that were previously granted to franchisees to use Del Taco's trade name under a franchise agreement, are amortized on a straight-line basis to depreciation and amortization in the consolidated statements of comprehensive (loss) income over the term of the former franchise agreement. Sublease assets, which represent subleases with stated rent above comparable market rents, are amortized to sublease income over the term of the related sublease.
Other Assets, Net
Other assets, net consist of security deposits, straight-line rental income related to subleases and other capitalized costs. The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, and (ii) compensation and related benefits for employees who are directly associated with the software projects. Capitalized software costs are amortized over the estimated useful life, typically three to five years. The net carrying value of capitalized software costs for the Company totaled $2.5 million and $2.9 million as of December 29, 2020 and December 31, 2019, respectively, and is included in other assets, net in the consolidated balance sheets. Capitalized software costs totaled $1.6 million for the fifty-two weeks ended December 29, 2020, $2.0 million for the fifty-two weeks ended December 31, 2019 and $1.5 million for the fifty-two weeks ended January 1, 2019. Amortization expenses totaled $1.9 million for the fifty-two weeks ended December 29, 2020, $1.4 million for the fifty-two weeks ended December 31, 2019 and $1.2 million for the fifty-two weeks ended January 1, 2019.
Long-Lived Assets
Long-lived assets, including property and equipment and definite-lived intangible assets, are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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. The Company generally estimates fair value using the discounted value of the estimated cash flows associated with the respective restaurant or agreement. During the fifty-two weeks ended December 29, 2020, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $8.3 million related to eight restaurants. During the fifty-two weeks ended December 31, 2019, the Company recorded an impairment charge totaling $7.2 million related to seven restaurants. During the fifty-two weeks ended January 1, 2019, the Company recorded an impairment charge totaling $3.9 million related to five restaurants.
Rent Expense
The Company has non-cancelable lease agreements for certain restaurant land and buildings under terms ranging up to 50 years, with one to four options to extend the lease generally for five to ten years per option period. At inception, each lease is evaluated to determine whether it will be classified as an operating or finance lease. Certain leases provide for contingent rentals based on percentages of net restaurant sales or have other provisions obligating the Company to pay related property taxes and certain other expenses. Contingent rentals are generally based on restaurant sales levels in excess of stipulated amounts as defined in the lease agreement, and thus are not considered minimum lease payments and are included in rent expense as incurred. Certain leases contain fixed and determinable escalation clauses for which the Company recognizes rental expense under these leases on the straight-line basis over the lease terms, which includes the period of time from when the Company takes possession of the leased space until the restaurant opening date (the rent holiday period). In addition, the Company subleases certain buildings to franchisees and other unrelated third parties, which are classified as operating leases.
Insurance Reserves
Given the nature of the Company’s operating environment, the Company is subject to workers’ compensation and general liability claims. To mitigate a portion of these risks, the Company maintains insurance for individual claims in excess of deductibles per claim. The Company’s insurance deductibles range from $0.25 million to $0.50 million per occurrence for workers’ compensation and are $0.35 million per occurrence for general liability. Beginning in 2020, one workers compensation claim per policy year has a deductible of $0.75 million in California only. The amount of loss reserves and loss adjustment expenses is determined based on an estimation process that uses information obtained from both Company-specific and industry data, as well as general economic information. Loss reserves are based on estimates of expected losses for determining reported claims and used as the basis for estimating claims incurred but not reported. The estimation process for loss exposure requires management to continuously monitor and evaluate the life cycle of claims. Management also monitors
the reasonableness of the judgments made in the prior year’s estimation process (referred to as hindsight analysis) and adjusts current year assumptions based on the hindsight analysis. The Company utilizes actuarial methods to evaluate open claims and estimate the ongoing development exposure related to workers’ compensation and general liability. The Company is not the primary obligor for its workers' compensation insurance policy, so therefore, the Company records a liability up to its deductible exposure.
Insurance Recovery Assets
In the normal course of its business, the Company incurs losses, such as those resulting from property damage and legal actions, that are covered by the Company's insurance policies. The Company records insurance recovery assets for losses it is entitled to recover under its insurance policies and when such recovery is probable. In determining whether a recovery is probable, the Company considers whether the Company has exceeded its deductible, the limits of its insurance policies and subsequent payment of claims.
Advertising Costs
Franchisees pay a weekly fee to the Company of 4.0% of their restaurants’ net sales as reimbursement for advertising and promotional services that the Company provides. As a result of the COVID-19 pandemic, starting the last fiscal week of the first quarter of 2020, the Company decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks and then adjusted the advertising contribution percentage back to 4.0% for the balance of 2020.
 
Production costs for radio and television advertising are expensed when the commercials are initially aired. Costs of distribution of advertising are charged to expense on the date the advertising is aired or distributed. These costs, as well as other marketing-related expenses for advertising are included in occupancy and other operating expenses in the consolidated statements of comprehensive (loss) income for company expenses and included in franchise advertising expenses in the consolidated statements of comprehensive (loss) income for franchise expenses. Advertising expenses for the Company were $16.4 million for the fifty-two weeks ended December 29, 2020, $18.8 million for the fifty-two weeks ended December 31, 2019 and $19.0 million for the fifty-two weeks ended January 1, 2019.
Pre-opening Costs
Pre-opening costs, which include restaurant labor, supplies, cash and non-cash rent expense and occupancy and other operating costs incurred prior to the opening of a new restaurant are expensed as incurred. Pre-opening costs were $0.5 million for the fifty-two weeks ended December 29, 2020, $1.7 million for the fifty-two weeks ended December 31, 2019, and $1.6 million for the fifty-two weeks ended January 1, 2019.
Restaurant Closure Charges, Net
The Company makes decisions to close restaurants based on their cash flows, anticipated future profitability and leasing arrangements. The Company determines if discontinued operations treatment is appropriate and estimates the future obligations, if any, associated with the closure of restaurants and records the corresponding restaurant closure liability at the time the restaurant is closed. Prior to the adoption of Topic 842, these restaurant closure obligations primarily consist of the liability for the present value of future lease obligations, net of estimated sublease income. Restaurant closure charges, net were comprised of direct costs related to the restaurant closure and initial charges associated with the recording of the liability at fair value, accretion of the restaurant closure liability during the period, any positive or negative adjustments to the restaurant closure liability in subsequent periods as more information becomes available. After the adoption of Topic 842, these restaurant closure obligations primarily consist of rent, property tax and common area maintenance on closed restaurant properties and the present value of non-lease executory costs for closed restaurant properties, net of non-lease executory costs to be recovered from sublessees. Changes to the estimated liability for future non-lease executory costs based on new facts and circumstances are considered to be a change in estimate and are recorded prospectively. The change resulting from the adoption of Topic 842 led to an increase in restaurant closure charges for the fifty-two weeks ended December 29, 2020 and the fifty-two weeks ended December 31, 2019 as compared to the fifty-two weeks ended January 1, 2019.
Stock-Based Compensation Expense
The Company recognizes compensation expense for all share-based payment awards made to employees and non-employee directors based on their estimated grant date fair values using the Black-Scholes option pricing model for option grants and the closing price of the underlying common stock on the date of the grant for restricted stock awards. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite service period of the award. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management's expectations of employee turnover within the specific employee groups receiving the awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Stock-based compensation expense for the Company’s stock-based compensation awards is recognized ratably over the vesting period on a straight-line basis.
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between financial statement and income tax reporting, using tax rates scheduled to be in effect at the time the items giving rise to the deferred taxes reverse. The Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained by the taxing authority. Accordingly, the Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Derivative Instruments and Hedging Activities
The Company is exposed to variability in future cash flows resulting from fluctuations in interest rates related to its variable rate debt. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in interest rates, the Company has used various interest rate contracts including interest rate caps. The Company recognized all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheets. When they qualified as hedging instruments, the Company designated interest rate caps as cash flow hedges of forecasted variable rate interest payments on certain debt principal balances.
For derivative instruments that were designated and qualified as cash flow hedges, the effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. Gains and losses on the derivative representing hedge ineffectiveness were recognized in current earnings.
The Company entered into interest rate derivative contracts with major banks and was exposed to losses in the event of nonperformance by these banks. However, these banks were able to fully satisfy their obligations under the contracts. Accordingly, the Company did not obtain collateral or other security to support the contracts. The Company's interest rate cap agreement, as discussed in Note 8, expired on March 31, 2020.
Contingencies
The Company recognizes liabilities for contingencies when an exposure indicates it is probable that an asset has been impaired or that a liability has been incurred, and the amount of impairment or loss can be reasonably estimated. The Company’s ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. The Company records legal settlement costs when those costs are probable and reasonably estimable.
Comprehensive (Loss) Income
Comprehensive (loss) income includes changes in equity from transactions and other events and circumstances from nonoperational sources, including, among other things, the Company’s unrealized gains and losses on effective interest rate caps which are included in other comprehensive (loss) income, net of tax.
Segment Information
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Company’s chief operating decision makers in deciding how to allocate resources. Similar operating segments can be aggregated into a single operating segment if the businesses are similar. Management has determined that the Company has one operating segment and, therefore, one reportable segment. The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer; its CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis.
Related Party Transactions
There were no related party transactions in the fifty-two weeks ended December 29, 2020, the fifty-two weeks ended December 31, 2019 or the fifty-two weeks ended January 1, 2019.
Fair Value of Financial Instruments
The Company measures fair value using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three tiers in the fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
 
Level 1, defined as observable inputs such as quoted prices in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3, defined as unobservable inputs which reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques may include the use of third-party pricing services, option pricing models, discounted cash flow models and similar techniques.
 
Concentration of Risks
Financial instruments that potentially subject the Company to a concentration of credit risk are cash and cash equivalents. The Company maintains its day-to-day operating cash balances in non-interest-bearing accounts. Although the Company at times maintains balances that exceed amounts insured by the Federal Deposit Insurance Corporation, it has not experienced any losses related to these balances and management believes the credit risk to be minimal.
The Company extends credit to franchisees for franchise and advertising fees on customary credit terms, which generally do not require collateral or other security. In addition, management believes there is no concentration of risk with any single franchisee or small group of franchisees whose failure or nonperformance would materially affect the Company’s results of operations.
The Company has entered into a long-term purchase agreement with a distributor for delivery of essentially all food and paper supplies to all company-operated and franchise-operated restaurants except for one restaurant in Guam. Disruption in shipments from this distributor could have a material adverse effect on the results of operations and financial condition of the Company. However, management of the Company believes sufficient alternative distributors exist in the marketplace although it may take some time to enter into replacement distribution arrangements and the cost of distribution may increase as a result.
As of December 29, 2020, Del Taco operated and franchised a total of 370 restaurants in California (232 company-operated and 138 franchise-operated restaurants). As a result, the Company is particularly susceptible to adverse trends and economic conditions in California. In addition, given this geographic concentration, negative publicity regarding any of the restaurants in California could have a material adverse effect on the Company’s business and operations, as could other regional occurrences such as local strikes, fires, earthquakes, other natural disasters or regional restrictions and regulations including those related to the COVID-19 pandemic.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board ("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. The Company adopted the requirements of this new standard in the first quarter of 2020, utilizing the modified retrospective approach. 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. The Company adopted the requirements of this new standard in the first quarter of 2020, utilizing the prospective approach. There was no material impact on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.

Recently Issued Accounting Standards
In December 2019, the FASB issued 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 of 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.
v3.20.4
Restaurant Closure and Other Related Charges
12 Months Ended
Dec. 29, 2020
Restructuring and Related Activities [Abstract]  
Restaurant Closure and Other Related Charges 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.  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. The Company generally estimates 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 the aggregate carrying value of a restaurant's operating lease right-of-use asset, furniture, fixtures and equipment and leasehold improvements over their estimated fair value. Impairment charges are allocated to a restaurant's operating lease right-of-use assets, furniture, fixtures and equipment and leasehold improvements on a pro rata basis based on the respective assets' carrying values.
During the fifty-two weeks ended December 29, 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, and recorded an impairment charge totaling $8.3 million related to eight restaurants. During the fifty-two weeks ended December 31, 2019, the Company evaluated certain restaurants that had indicators of impairment based on operating performance and recorded an impairment charge totaling $7.2 million related to seven restaurants. During the fifty-two weeks ended January 1, 2019, the Company evaluated certain restaurants that had indicators of impairment based on operating performance and recorded an impairment charge totaling $3.9 million related to five restaurants. The Company wrote-off a portion of the operating lease right-of-use assets, furniture, fixtures and equipment and leasehold improvements based on the estimate of future recoverable cash flows.

In connection with the adoption of Topic 842, the Company evaluated the operating lease right-of-use assets for impairment, indicating the carrying amount of the operating lease assets for certain restaurants may not be recoverable, and recorded an impairment charge totaling $3.1 million at January 2, 2019 based on the estimates of future recoverable cash flows.

Restaurant Closure Charges, Net
The restaurant closure liability was $0.5 million and $0.4 million at December 29, 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):
Total
Balance at January 2, 2018$1,611 
Charges for accretion in current period61 
Cash payments(327)
Adjustment to estimates based on current activity747 
Balance at January 1, 20192,092 
Reclassified to operating lease right-of-use assets (a)
(1,900)
Cash payments(263)
Adjustments to estimates based on current activity508 
Balance at December 31, 2019437 
Charges for accretion in current period21 
Cash payments(4)
Balance at December 29, 2020$454 

(a) During the fifty-two weeks ended December 31, 2019, in connection with the adoption of Topic 842, the Company reclassified $1.9 million of the lease-related 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 December 29, 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 $0.3 million as of both December 29, 2020 and December 31, 2019 and is included in other non-current liabilities in the consolidated balance sheets. The restaurant closure liability is expected to be settled by 2022.
v3.20.4
Property and Equipment, Net
12 Months Ended
Dec. 29, 2020
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net Property and Equipment, Net
Property and equipment, net at December 29, 2020 and December 31, 2019 consisted of the following, excluding amounts related to properties classified as held for sale (in thousands):
December 29, 2020December 31, 2019
Land$— $1,927 
Buildings1,939 4,569 
Restaurant and other equipment103,446 92,025 
Leasehold improvements121,775 116,177 
Buildings under finance leases441 871 
Restaurant property leased to others12,167 10,899 
Construction-in-progress10,823 11,680 
250,591 238,148 
Less: Accumulated depreciation(103,885)(81,227)
Property and equipment, net$146,706 $156,921 
v3.20.4
Summary of Refranchsing and Franchise Acquisitions (Notes)
12 Months Ended
Dec. 29, 2020
Franchise Acquisitions [Abstract]  
Refranchising and Franchise Acquisitions Refranchising, Assets Held for Sale and Acquisitions of Franchises and Non-Controlling Interest
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 the restaurants' inventory and equipment and retains ownership of the leasehold interest on the real estate of the 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 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 also 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 fifty-two weeks ended December 29, 2020 and 31 company-operated restaurants to franchisees during the fifty-two weeks ended December 31, 2019. The Company did not sell any company-operated restaurants to franchisees during the fifty-two weeks ended January 1, 2019. The following table summarizes the loss recognized related to these transactions during the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019 (dollars in thousands):
52 Weeks Ended
December 29, 2020
52 Weeks Ended
December 31, 2019
52 Weeks Ended
January 1, 2019
Company-operated restaurants sold to franchisees631 
Proceeds from the sale of company-operated restaurants, net of selling costs$2,558 $7,310 $— 
Net assets sold (primarily furniture, fixtures and equipment) (a)
(2,086)(4,952)— 
Goodwill related to the company-operated restaurants sold to franchisees(1,196)(6,078)— 
Allocation to deferred franchise fees(193)(771)— 
Sublease assets (liabilities), net220 (50)— 
Gain on lease termination40 — — 
Other direct costs— (123)— 
Loss on sale of company-operated restaurants (b)
$(657)$(4,664)$— 
(a) Of the net assets sold during the fifty-two weeks ended December 29, 2020, $0.7 million was included in assets held for sale as of December 31, 2019. Of the net assets sold during the fifty-two weeks ended December 31, 2019, $2.1 million was included in assets held for sale as of January 1, 2019.
(b) Of the loss related to the company-operated restaurants sold during the fifty-two weeks ended December 29, 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 (loss) income.
Assets Held for Sale
Assets held for sale include 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 criteria are held for sale and reported at the lower of their carrying value or fair value less estimated cost to sell.
As of December 29, 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 fair value less estimated cost 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. 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 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 (loss) income.
Assets held for sale at December 29, 2020 and December 31, 2019 consisted of the following (in thousands):
December 29, 2020December 31, 2019
Land$561 $— 
Building934 — 
Other property and equipment— 4,025 
Goodwill— 4,386 
$1,495 $8,411 
Franchise Acquisitions
There were no franchise acquisitions during the fifty-two weeks ended December 29, 2020. The Company acquired four franchise-operated restaurants during the fifty-two weeks ended December 31, 2019 and three franchise-operated restaurants during the fifty-two weeks ended January 1, 2019. The Company accounts for the acquisition of franchise-operated restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the market position and future growth potential of the markets acquired and is expected to be deductible for income tax purposes.
The following table provides detail of the combined acquisitions for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019 (dollars in thousands):
52 Weeks Ended
December 29, 2020
52 Weeks Ended
December 31, 2019
52 Weeks Ended
January 1, 2019
Franchise-operated restaurants acquired from franchisees43
Goodwill$— $4,302 $893 
Property and equipment— 660 798 
Reacquired franchise rights— — 150 
Operating lease right-of-use assets— 2,006 — 
Operating lease liabilities— (2,006)— 
Unfavorable lease liabilities (a)
— (130)— 
Total Consideration$— $4,832 $1,841 

(a) Unfavorable lease liabilities of $0.1 million for the fifty-two weeks ended December 31, 2019 were recorded as an adjustment to the respective operating lease right-of-use asset.

During the fifty-two weeks ended January 1, 2019, the Company wrote-off $0.6 million of unfavorable lease liabilities related to franchise subleases, offset by $0.1 million of straight line deferred rent assets (included in other assets) which were terminated in connection with the Company's acquisition of the related franchise-operated restaurants.

Acquisition of Non-Controlling Interest

During the fifty-two weeks ended December 29, 2020, the Company acquired the 25% non-controlling interest in the partnership that operates the Company's restaurant in La Verne, California for $0.3 million. As a result, the Company recognized a reduction to additional paid-in capital of $0.1 million for the difference between the consideration paid and the carrying amount of the acquired non-controlling interest. The partnership's financial position and results of operations were previously consolidated into the Company's consolidated balance sheets and consolidated statements of comprehensive (loss) income since the Company had a controlling interest.
v3.20.4
Goodwill and Other Intangible Assets
12 Months Ended
Dec. 29, 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 fifty-two weeks ended December 29, 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 December 29, 2020$108,979 

The decrease in goodwill was primarily due to an impairment of $87.3 million during the fifty-two weeks ended December 29, 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 (loss) income. 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 December 29, 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 fifty-two weeks ended December 29, 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 (loss) income. The carrying value of trademarks was $208.4 million and $220.3 million as of December 29, 2020 and December 31, 2019, respectively.
The Company’s other intangible assets at December 29, 2020 and December 31, 2019 consisted of the following (in thousands):
 December 29, 2020December 31, 2019
 Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Sublease assets1,820 (193)1,627 1,340 (82)1,258 
Franchise rights13,918 (6,421)7,497 14,298 (5,465)8,833 
Reacquired franchise rights943 (313)630 943 (207)736 
Total amortized other intangible assets$16,681 $(6,927)$9,754 $16,581 $(5,754)$10,827 

During the fifty-two weeks ended December 29, 2020 and December 31, 2019, the Company recorded $0.5 million and $1.2 million, respectively, of sublease assets in connection with the sale of company-operated restaurants (see Note 5 for more information).
During the fifty-two weeks ended December 29, 2020, the Company wrote-off $0.2 million of franchise rights associated with the closure of seven franchise operated restaurants. During the fifty-two weeks ended December 31, 2019, the Company wrote-off $0.1 million of franchise rights associated with the closure of three franchise operated restaurants, and the Company reclassified $0.5 million of franchise rights as reacquired franchise rights from the acquisition of four franchise locations.
Sublease assets are amortized using the straight-line method over the remaining life of the sublease. The weighted-average amortization period as of December 29, 2020 for sublease assets was 15.1 years. Franchise rights are amortized using the straight-line method over the remaining life of the franchise agreements or 40 years, whichever is less. The weighted-average amortization period as of December 29, 2020 for franchise rights was 12.7 years. Reacquired franchise rights are amortized using the straight-line method over the remaining life of the former franchise agreement. The weighted-average amortization period as of December 29, 2020 for reacquired franchise rights was 9.3 years.
Amortization expense for amortizable intangible assets and other assets totaled $3.4 million, $2.8 million and $3.1 million for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019, respectively. Amortization for sublease assets totaled $111,000, $82,000 and $12,000 for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019, respectively. Amortization expense for franchise rights totaled $1.3 million, $1.3 million and $1.4 million for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019, respectively. Amortization expense for reacquired franchise rights totaled $107,000, $101,000 and $58,000 for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019, respectively. The estimated future amortization for sublease assets, franchise rights and reacquired franchise rights for the next five fiscal years is as follows (in thousands):

Sublease AssetsFranchise RightsReacquired Franchise Rights
2021$116 $998 $101 
2022115 903 78 
2023113 820 67 
2024113 746 66 
2025113 656 56 
v3.20.4
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
12 Months Ended
Dec. 29, 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 December 29, 2020 and December 31, 2019 consisted of the following (in thousands): 
 December 29, 2020December 31, 2019
2015 Senior Credit Facility, as amended, net of unamortized debt discount of $182 and $231 and deferred financing costs of $821 and $1,038 at December 29, 2020 and December 31, 2019, respectively$113,997 $143,731 
Total outstanding indebtedness113,997 143,731 
Obligations under finance leases and other debt611 1,070 
Total debt, net114,608 144,801 
Less: amounts due within one year190 220 
Total amounts due after one year, net$114,418 $144,581 
 
At December 29, 2020 and December 31, 2019, the Company assessed the amounts recorded under the 2015 Senior Credit Facility, as amended, and determined that such amounts approximated fair value.
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. Substantially all of the assets of the Company are pledged as collateral under the Senior Credit Facility.
Borrowings under the Senior Credit Facility, as amended, bear interest, at the borrower's option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the Federal Funds Rate plus 0.50%, (b) the published Bank
of America prime rate, or (c) Eurodollar Rate plus 1.00%. For Eurodollar loans, the margin is in the range of 1.25% to 2.00%. For base rate loans, the margin is in the range of 0.25% to 1.00%. Borrowings under the Senior Credit Facility, as amended, may be repaid and reborrowed.
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 December 29, 2020.
Upon the original refinancing in August 2015, the Company capitalized lender debt discount costs and deferred financing costs of $1.4 million and $0.5 million, respectively, related to the Senior Credit Facility. In September 2019, the Company capitalized deferred financing costs of $1.0 million in connection with the amendment of the Senior Credit Facility. Debt discount costs and deferred financing costs are presented net of the outstanding balance on the consolidated balance sheets and will be amortized to interest expense over the term of the facility. Amortization of deferred financing costs and debt discount totaled $0.3 million for the fifty-two weeks ended December 29, 2020, and $0.4 million for both the fifty-two weeks ended December 31, 2019 and the fifty-two weeks ended January 1, 2019.
At December 29, 2020, the weighted average interest rate on the outstanding balance of the Senior Credit Facility, as amended, was 1.90%. At December 29, 2020, the Company had a total of $117.7 million of availability for additional borrowings under the Senior Credit Facility, as amended, as the Company had $115.0 million of outstanding borrowings and $17.3 million of letters of credit outstanding which reduce availability under the Senior Credit Facility, as amended.
Other Debt Information

Based on debt agreements and finance leases in place as of December 29, 2020, future maturities of debt were as follows (in thousands):
 
2021$190 
202278 
202378 
2024115,079 
202563 
Thereafter123 
Total maturities115,611 
Less: debt discount and deferred financing costs(1,003)
Total debt, net$114,608 
v3.20.4
Derivative Instruments
12 Months Ended
Dec. 29, 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 a 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 fifty-two weeks ended December 29, 2020, the Company reclassified $0.1 million 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.
v3.20.4
Fair Value Measurements
12 Months Ended
Dec. 29, 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 derivative instruments 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 has categorized the interest rate cap contract as a Level 2 fair value measurement. 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.
v3.20.4
Other Accrued Liabilities and Other Non-current Liabilities
12 Months Ended
Dec. 29, 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):
 December 29, 2020December 31, 2019
Employee compensation and related items$16,048 $10,008 
Accrued insurance5,031 5,900 
Accrued income tax4,301 1,605 
Accrued advertising3,920 1,345 
Accrued sales tax3,712 4,099 
Accrued property and equipment purchases1,970 3,190 
Accrued real property tax1,841 1,652 
Deferred gift card income1,669 1,585 
Accrued rent and related items1,490 1,382 
Restaurant closure liabilities198 129 
Other5,233 3,682 
$45,413 $34,577 
 
A summary of other non-current liabilities follows (in thousands):
 December 29, 2020December 31, 2019
Insurance reserves$8,178 $8,110 
Deferred development and initial franchise fees4,523 4,241 
Deferred social security taxes3,381 — 
Deferred gift card income1,464 1,474 
Sublease liabilities1,375 1,223 
Restaurant closure liability256 308 
Unearned trade discount, non-current27 320 
Other556 925 
$19,760 $16,601 

Sublease liabilities represent subleases with stated rent below comparable market rents and are amortized to sublease income over the term of the related sublease. Amortization credits recorded for sublease liabilities totaled $0.1 million, $0.1 million and $33,000 for the fifty-two weeks ended December 29, 2020, December 31, 2019 and January 1, 2019, respectively. The weighted-average amortization period as of December 29, 2020 for sublease liabilities was 14.0 years. The estimated future amortization for sublease liabilities for each of the next five fiscal years is $0.1 million.
v3.20.4
Stock-Based Compensation
12 Months Ended
Dec. 29, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
2015 Omnibus Incentive Plan
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 are 3,300,000 shares of common stock reserved and authorized. At December 29, 2020, there were 165,797 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 $5.7 million for the fifty-two weeks ended December 29, 2020, $6.3 million for the fifty-two weeks ended December 31, 2019 and $6.1 million for the fifty-two weeks ended January 1, 2019.
Restricted Stock Awards
During the fifty-two weeks ended December 29, 2020, 624,518 shares of restricted stock were granted to certain board of directors, officers and employees of the Company under the 2015 Plan. These restricted stock awards vest on a straight-line basis in equal annual installments over four years from the grant date for officers and employees and over one year from the grant date for board of directors.
A summary of outstanding and unvested restricted stock activity as of December 29, 2020 and changes during the period from December 31, 2019 through December 29, 2020 are as follows:
SharesWeighted-Average
Grant Date
Fair Value
Nonvested at December 31, 20191,142,718 $12.92 
Granted624,518 6.39 
Vested(429,936)12.52 
Forfeited(82,525)12.56 
Nonvested at December 29, 20201,254,775 $9.84 

During the fifty-two weeks ended December 29, 2020 and December 31, 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 December 29, 2020, there was $7.4 million of unrecognized compensation expense, net of estimated forfeitures, related to restricted stock, which is expected to be recognized over a weighted-average period of 2.4 years. The weighted average grant date fair value of restricted stock awards granted was $6.39, $12.17 and $13.88 during the fifty-two weeks ended December 29, 2020, fifty-two weeks ended December 31, 2019 and fifty-two weeks ended January 1, 2019, respectively. The total fair value of awards that became fully vested during the fifty-two weeks ended December 29, 2020, fifty-two weeks ended December 31, 2019 and fifty-two weeks ended January 1, 2019 was $2.7 million, $6.6 million and $5.9 million, respectively.
Stock Options
During the fifty-two weeks ended December 29, 2020, 238,453 stock options were granted to certain officers and employees of the Company under the 2015 Plan. The stock options vest on a straight-line basis in equal annual installments over four years from the grant date.
A summary of stock option activity as of December 29, 2020 and changes during the period from December 31, 2019 through December 29, 2020 are as follows:
SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (in Years)Aggregate Intrinsic Value
(in thousands)
Options outstanding at December 31, 2019412,750 $11.71 3.8$— 
Granted238,453 6.40 
Exercised— — 
Forfeited/Expired(76,750)11.46 
Options outstanding at December 29, 2020574,453 $9.54 4.4$624 
Options exercisable at December 29, 2020275,125 $11.34 2.7$— 
Options exercisable and expected to vest at December 29, 2020509,115 $9.84 4.2$470 
The aggregated 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 December 29, 2020 and December 31, 2019, respectively.
The following table reflects the weighted-average assumptions used in the Black-Scholes option-pricing model to value the stock options granted in the fifty-two weeks ended December 29, 2020, the fifty-two weeks ended December 31, 2019 and the fifty-two weeks ended January 1, 2019:
52 Weeks Ended
December 29, 2020
52 Weeks Ended
December 31, 2019
52 Weeks Ended
January 1, 2019
Expected volatility44.40 %35.61 %36.29 %
Risk-free rate of return0.58 %2.49 %2.71 %
Expected life (in years)4.754.754.74
Dividend yield— — — 
Fair value per share at date of grant$2.41 $3.59 $4.92 
Expected volatility was based on the historical volatility of the Company's stock for a period approximating the expected life. The risk-free rate is based on published U.S. Treasury rates in effect at the time of grant with a similar duration of the expected life of the options. The expected life of options granted is derived using the simplified method. The Company has not paid any dividends through December 29, 2020; therefore, the Company used an expected dividend yield of zero for option valuation purposes.
As of December 29, 2020, there was $0.5 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options grants, which is expected to be recognized over a weighted-average remaining period of 2.9 years. The total intrinsic value of stock options exercised was $29,000 and $51,000 during the fifty-two weeks ended December 31, 2019 and fifty-two weeks ended January 1, 2019, respectively. There were no stock options exercised during the fifty-two weeks ended December 29, 2020.
v3.20.4
Shareholders' Equity
12 Months Ended
Dec. 29, 2020
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
The authorized common stock of the Company consists of 400,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of December 29, 2020, there were 36,828,237 shares of common stock issued and outstanding. All of the Company's warrants expired on June 30, 2020.
The Company is authorized to issue 1,000,000 preferred shares with designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of December 29, 2020, there were no preferred shares issued or outstanding.
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 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 fifty-two weeks ended December 29, 2020, the Company repurchased 496,356 shares of common stock for an average price per share of $8.49 for an aggregate cost of approximately $4.2 million, including incremental direct costs to acquire the shares.
During the fifty-two weeks ended December 31, 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) 846,411 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.
During the fifty-two weeks ended January 1, 2019, the Company repurchased (1) 1,408,071 shares of common stock for an average price per share of $11.48 for an aggregate cost of approximately $16.2 million, including incremental direct costs to acquire the shares, and (2) 47,511 warrants for an average price per warrant of $2.55 for an aggregate cost of approximately $0.1 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 December 29, 2020. As of December 29, 2020, there was approximately $18.1 million remaining under the share repurchase
program. 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.
v3.20.4
Earnings per Share
12 Months Ended
Dec. 29, 2020
Earnings Per Share [Abstract]  
Earnings per Share Earnings per Share
Basic (loss) income per share is calculated by dividing net income attributable to Del Taco’s common shareholders by the weighted average number of common shares outstanding for the period. In computing dilutive income per share, basic (loss) income per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including warrants, restricted stock and common stock options.
Below are basic and diluted net (loss) income per share for the periods indicated (amounts in thousands except share and per share data):
 
 52 Weeks Ended
December 29, 2020
52 Weeks Ended
December 31, 2019
52 Weeks Ended
January 1, 2019
Numerator:
Net (loss) income$(89,738)$(118,285)$18,959 
Denominator:
Weighted-average shares outstanding - basic37,161,921 37,018,445 38,106,057 
Dilutive effect of unvested restricted stock— — 256,217 
Dilutive effect of stock options— — 17,611 
Dilutive effect of warrants— — 304,074 
Weighted-average shares outstanding - diluted37,161,921 37,018,445 38,683,959 
Net (loss) income per share - basic$(2.41)$(3.20)$0.50 
Net (loss) income per share - diluted$(2.41)$(3.20)$0.49 
Antidilutive stock options, unvested restricted stock awards and warrants excluded from the computations3,930,968 6,661,450 686,278 
Antidilutive stock options and unvested restricted stock 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. The Company reported a net loss for the fifty-two weeks ended December 29, 2020 and the fifty-two weeks ended December 31, 2019 and, accordingly, all outstanding stock options and unvested restricted stock were excluded from the calculation of diluted earnings per share because their effect would be antidilutive.
v3.20.4
Income Taxes
12 Months Ended
Dec. 29, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of the (benefit) provision for income taxes are as follows (in thousands):
52 Weeks Ended December 29, 202052 Weeks Ended December 31, 201952 Weeks Ended January 1, 2019
Current:
Federal$4,058 $3,311 $3,762 
State1,920 1,643 1,800 
5,978 4,954 5,562 
Deferred:
Federal(5,521)(146)698 
State(2,519)(437)399 
(8,040)(583)1,097 
Income tax (benefit) provision$(2,062)$4,371 $6,659 
The effective tax rates for the fifty-two weeks ended December 29, 2020, fifty-two weeks ended December 31, 2019 and fifty-two weeks ended January 1, 2019 were 2.2%, (3.8)% and 26.0%, respectively. The difference between the effective rates and the statutory federal income tax rate is composed of the following items (dollars in thousands):
52 Weeks Ended December 29, 202052 Weeks Ended December 31, 201952 Weeks Ended January 1, 2019
Federal income taxes$(19,278)21.0 %$(23,922)21.0 %$5,380 21.0 %
State and local income taxes, net of federal tax benefit(288)0.3 %1,302 (1.1)%1,639 6.4 %
Goodwill impairment and adjustments to assets held for sale17,590 (19.2)%27,909 (24.5)%— — %
Targeted job credits(377)0.4 %(712)0.6 %(727)(2.8)%
Tax reform— — %— — %(291)(1.1)%
Uncertain tax positions(175)0.2 %— — %— — %
Executive compensation disallowed111 (0.1)%413 (0.3)%362 1.4 %
Permanent tax differences and other355 (0.4)%(619)0.5 %296 1.1 %
Income tax (benefit) provision$(2,062)2.2 %$4,371 (3.8)%$6,659 26.0 %
Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
December 29, 2020December 31, 2019
Deferred tax assets:
Accrued insurance$3,422 $3,625 
Restaurant closure liabilities161 139 
Net operating loss carryforwards and tax credits21 70 
Deferred income1,693 1,484 
Stock-based compensation1,215 1,122 
Accrued compensation591 589 
Deferred social security taxes1,822 — 
Operating lease liabilities74,003 75,330 
Other, net526 542 
Deferred tax assets83,454 82,901 
Less: valuation allowance— — 
Net deferred tax assets83,454 82,901 
Deferred tax liabilities:
Property, equipment and intangible assets(68,618)(73,473)
Operating lease right-of-use assets(67,229)(69,930)
Investment in subsidiary(7,167)(7,309)
Prepaid expenses(1,658)(1,574)
Other assets(267)(125)
Deferred tax liabilities(144,939)(152,411)
Net deferred tax liabilities$(61,485)$(69,510)
The Company maintains deferred tax liabilities related to trademarks and other indefinite-lived assets that are not netted against the deferred tax assets as the reversal of the taxable temporary difference cannot serve as a source for realization of the deferred tax assets because the deferred tax liability will not reverse until some indefinite future period when the assets are either sold or written down due to an impairment.
The Company had no federal net operating loss carryforwards as of both December 29, 2020 and December 31, 2019. There were no state tax credit carryforwards as of December 29, 2020. State tax credit carryforwards as of December 31, 2019 totaled $0.1 million.
As of December 29, 2020 and December 31, 2019, the Company considered the weight of both positive and negative evidence and concluded that it is more likely than not that the Company's deferred tax assets will be realized and no valuation allowance is required.
As of December 29, 2020 and December 31, 2019, the liability for unrecognized tax benefits was $38,000 and $0.2 million, respectively, and is included in other non-current liabilities in the consolidated balance sheets. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During the fifty-two weeks ended December 29, 2020, unrecognized tax benefits totaling $175,000 were reversed as they related to an uncertain tax position for a year prior to 2017 which is no longer subject to federal income tax. During the fifty-two weeks ended December 29, 2020, fifty-two weeks ended December 31, 2019 and fifty-two weeks ended January 1, 2019, the Company did not have any accrued interest and penalties related to unrecognized tax benefits. The Company does not expect any significant increases or decreases within the next twelve months to its unrecognized tax benefits. The total amount of net unrecognized tax benefits that would impact the Company's effective tax rate, if ever recognized, is $38,000.
The Company is subject to U.S. and state income taxes. The Company is no longer subject to federal and state income tax examinations for years before 2017 and 2016, respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses and tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss and tax credit carry forward amounts.
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, during the fifty-two weeks ended December 29, 2020. Beginning with pay dates on and after April 14, 2020, the Company has elected to defer the employer-paid portion of social security taxes through the end of fiscal year 2020. The total amount deferred as of December 29, 2020 is $6.8 million, of which 50% is due by December 31, 2021 and 50% is due by December 31, 2022. The Company also assessed its eligibility for the business relief provision under the CARES Act known as the Employee Retention Credit, a refundable payroll tax credit for 50% of qualified wages paid during 2020. Based on the Company's assessment, the Company recognized a credit of $0.6 million for the Employee Retention Credit which is recorded as an offset to related wages paid to employees while not providing services due to COVID-19 classified in occupancy and other operating expenses on the consolidated statements of comprehensive (loss) income. The Employee Retention Credit provision was extended through June 30, 2021, and the credit was increased to 70% of qualified wages paid from January 1, 2021 through June 30, 2021.
v3.20.4
Leases
12 Months Ended
Dec. 29, 2020
Leases [Abstract]  
Leases Leases
The 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 determines if an arrangement is a lease and whether it is an operating lease or finance lease at inception. The operating right-of-use assets and operating lease liabilities are recognized at the lease commencement date. In determining the Company’s operating right-of-use assets and operating lease liabilities, the Company applies a discount rate to the lease payments within each lease agreement. As most of the Company’s lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating right-of-use asset also includes any advanced payments made and is reduced by lease incentives, initial direct costs incurred and impairment of operating lease right-of-use assets and adjusted by favorable lease assets and unfavorable lease liabilities.
Some of the Company's lease agreements contain rent escalation clauses (including adjustments based on changes in indices), rent holidays, capital improvement funding or other lease concessions. The Company recognizes rental expense on a straight-line basis based on fixed components of a lease arrangement and the Company amortizes this expense over the term of the lease beginning with the date of initial possession. Variable lease components represent amounts that are not fixed in nature and are recognized in expense as incurred.
The Company has subleased certain properties to franchisees and other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sub-lessee 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 sub-lessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the fifty-two weeks ended December 29, 2020 and the fifty-two weeks ended December 31, 2019 were as follows (in thousands):
Classification52 Weeks Ended
December 29, 2020
52 Weeks Ended
December 31, 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$40,474 $38,816 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization166 451 
Interest on lease liabilitiesInterest expense30 95 
Short-term lease costOccupancy and other operating expenses291 421 
Variable lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net1,655 1,769 
Sublease incomeFranchise sublease and other income(7,270)(4,448)
Total lease cost$35,346 $37,104 
Prior to the adoption of Topic 842, the components of rent expense for all non-cancelable operating leases for the fifty-two weeks ended January 1, 2019 were comprised of the following (in thousands):
52 Weeks Ended
January 1, 2019
Minimum rental expense$29,134 
Favorable and unfavorable lease assets and liabilities amortization, net
(767)
Straight-line rent expense722 
Contingent rent expense715 
$29,804 
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of December 29, 2020 and December 31, 2019 was as follows (in thousands):
December 29, 2020December 31, 2019
Operating lease assets:
  Operating lease right-of-use assets$249,071 $258,278 
Operating lease liabilities:
Current portion of operating lease liabilities$22,648 $17,848 
Operating lease liabilities, excluding current portion251,958 257,361 
Total operating lease liabilities$274,606 $275,209 
Finance lease assets:
Buildings under finance leases$441 $871 
Accumulated depreciation(283)(334)
Finance lease asset, net$158 $537 
Finance lease obligations:
Current portion of finance lease obligations
$128 $162 
Long-term portion of finance lease obligations
46 412 
Total finance lease obligations$174 $574 
During the fifty-two weeks ended December 29, 2020, the Company terminated three leases, resulting in a $1.9 million reduction to operating lease right-of-use assets, a $2.0 million reduction to operating lease liabilities and a $0.1 million gain on lease termination which is recorded in loss on disposal of assets and adjustments to assets held for sale, net.

Weighted Average Remaining Lease Term (in years)December 29, 2020
Operating leases12.4
Finance leases1.9

Weighted Average Discount RateDecember 29, 2020
Operating leases6.55 %
Finance leases10.40 %
Supplemental cash flow information related to leases was as follows (in thousands):
52 Weeks Ended December 29, 202052 Weeks Ended December 31, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$35,330 $33,009 
Operating cash flows used for finance leases$30 $95 
Financing cash flows used for finance leases$163 $489 
The estimated future lease payments as of December 29, 2020 are as follows (in thousands):
Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$138 $39,928 $(6,015)$34,051 
202219 41,672 (6,578)35,113 
202317 36,627 (5,935)30,709 
202416 30,769 (5,305)25,480 
202530,578 (5,619)24,960 
Thereafter— 229,336 (54,277)175,059 
Total lease payments$191 $408,910 $(83,729)$325,372 
Amounts representing interest(17)(134,304)(134,321)
Present value of lease obligations$174 $274,606 $191,051