DEL TACO RESTAURANTS, INC., 10-Q filed on 5/3/2021
Quarterly Report
v3.21.1
Cover Page - shares
3 Months Ended
Mar. 23, 2021
Apr. 28, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 23, 2021  
Document Transition Report false  
Entity Registrant Name DEL TACO RESTAURANTS, INC.  
Entity Current Reporting Status Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   36,757,296
Amendment Flag false  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001585583  
Current Fiscal Year End Date --12-28  
Entity File Number 001-36197  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 46-3340980  
Entity Address, Address Line One 25521 Commercentre Drive  
Entity Address, City or Town Lake Forest,  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 92630  
City Area Code (949)  
Local Phone Number 462-9300  
Title of 12(b) Security Common Stock, $0.0001 Par Value  
Trading Symbol TACO  
Security Exchange Name NASDAQ  
Entity Interactive Data Current Yes  
v3.21.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 23, 2021
Dec. 29, 2020
Current assets:    
Cash and cash equivalents $ 7,310 $ 7,912
Accounts and other receivables, net 4,769 5,463
Inventories 2,574 2,799
Prepaid expenses and other current assets 3,112 2,078
Assets held for sale 1,495 1,495
Total current assets 19,260 19,747
Property and equipment, net 144,923 146,706
Operating lease right-of-use assets 248,655 249,071
Goodwill 108,979 108,979
Trademarks 208,400 208,400
Intangible assets, net 9,435 9,754
Other assets, net 5,204 4,652
Total assets 744,856 747,309
Current liabilities:    
Accounts payable 16,405 18,683
Other accrued liabilities 44,507 45,413
Current portion of finance lease obligations and other debt 116 190
Current portion of operating lease liabilities 22,005 22,648
Total current liabilities 83,033 86,934
Long-term debt, finance lease obligations and other debt, excluding current portion, net 114,472 114,418
Operating lease liabilities, excluding current portion 251,714 251,958
Deferred income taxes 61,698 61,485
Other non-current liabilities 19,790 19,760
Total liabilities 530,707 534,555
Commitments and contingencies (Note 15)
Shareholders’ equity:    
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding 0 0
Common stock, $0.0001 par value; 400,000,000 shares authorized; 36,757,296 shares issued and outstanding at March 23, 2021; 36,828,237 shares issued and outstanding at December 29, 2020 4 4
Additional paid-in capital 332,476 333,712
Accumulated other comprehensive loss 0 0
Accumulated deficit (118,331) (120,962)
Total shareholders’ equity 214,149 212,754
Total liabilities and shareholders’ equity $ 744,856 $ 747,309
v3.21.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 23, 2021
Dec. 29, 2020
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock, shares authorized (in shares) 1,000,000 1,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, shares authorized (in shares) 400,000,000 400,000,000
Common stock, shares issued (in shares) 36,757,296 36,828,237
Common stock, shares outstanding (in shares) 36,757,296 36,828,237
v3.21.1
Consolidated Statements of Comprehensive (Loss) Income - USD ($)
3 Months Ended
Mar. 23, 2021
Mar. 24, 2020
Revenue:    
Total revenue $ 115,531,000 $ 109,810,000
Restaurant operating expenses:    
Labor and related expenses 35,508,000 34,936,000
Occupancy and other operating expenses 24,842,000 24,408,000
General and administrative 11,261,000 9,866,000
Franchise advertising expenses 3,825,000 3,211,000
Depreciation and amortization 5,947,000 6,137,000
Occupancy and other - franchise subleases and other 2,878,000 1,595,000
Pre-opening costs 196,000 233,000
Impairment of goodwill 0 87,277,000
Impairment of trademarks 0 11,900,000
Impairment of long-lived assets 0 8,287,000
Restaurant closure charges, net 412,000 494,000
Loss on disposal of assets and adjustments to assets held for sale, net 2,000 122,000
Total operating expenses 111,523,000 216,761,000
Income (loss) from operations 4,008,000 (106,951,000)
Other expense (income), net    
Interest expense 721,000 1,508,000
Other income (373,000) 0
Total other expense, net 348,000 1,508,000
Income (loss) from operations before provision (benefit) for income taxes 3,660,000 (108,459,000)
Provision (benefit) for income taxes 1,029,000 (5,991,000)
Net income (loss) 2,631,000 (102,468,000)
Other comprehensive income:    
Reclassification of interest rate cap amortization included in net income (loss), net of tax 0 45,000
Total other comprehensive income, net 0 45,000
Comprehensive income (loss) $ 2,631,000 $ (102,423,000)
Earnings (loss) per share:    
Basic (in dollars per share) $ 0.07 $ (2.76)
Diluted (in dollars per share) $ 0.07 $ (2.76)
Weighted-average shares outstanding    
Basic (in shares) 36,761,670 37,075,994
Diluted (in shares) 37,190,154 37,075,994
Company restaurant sales    
Revenue:    
Revenue $ 103,578,000 $ 100,333,000
Franchise revenue    
Revenue:    
Revenue 5,205,000 4,391,000
Franchise advertising contributions    
Revenue:    
Revenue 3,825,000 3,211,000
Franchise sublease and other income    
Revenue:    
Revenue 2,923,000 1,875,000
Food and paper costs    
Restaurant operating expenses:    
Cost, Direct Material $ 26,652,000 $ 28,295,000
v3.21.1
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)
Beginning Balance, Shares at Dec. 31, 2019   37,059,202      
Beginning Balance at Dec. 31, 2019 $ 302,107 $ 4 $ 333,379 $ (52) $ (31,224)
Net income (loss) (102,468)       (102,468)
Other comprehensive income (loss), net of tax 45     45  
Comprehensive income (loss) (102,423)        
Stock-based compensation 1,225        
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares   21,758      
Issuance of vested restricted stock, net of shares withheld for tax withholding (105)   (105)    
Ending Balance, Shares at Mar. 24, 2020   37,080,960      
Ending Balance at Mar. 24, 2020 200,804 $ 4 334,499 (7) (133,692)
Beginning Balance, Shares at Dec. 29, 2020   36,828,237      
Beginning Balance at Dec. 29, 2020 212,754 $ 4 333,712 0 (120,962)
Net income (loss) 2,631       2,631
Other comprehensive income (loss), net of tax 0        
Comprehensive income (loss) 2,631        
Stock-based compensation 1,400   1,400    
Issuance of vested restricted stock, net of shares withheld for tax withholding, shares   35,108      
Issuance of vested restricted stock, net of shares withheld for tax withholding (219)   (219)    
Repurchase of common stocks and warrants, shares   (106,049)      
Repurchase of common stocks and warrants (948)   (948)    
Dividends paid (1,469)   (1,469)    
Ending Balance, Shares at Mar. 23, 2021   36,757,296      
Ending Balance at Mar. 23, 2021 $ 214,149 $ 4 $ 332,476 $ 0 $ (118,331)
v3.21.1
Consolidated Statements of Cash Flows - USD ($)
3 Months Ended
Mar. 23, 2021
Mar. 24, 2020
Operating activities    
Net income (loss) $ 2,631,000 $ (102,468,000)
Adjustments to reconcile net income (loss) to cash provided by operating activities    
Depreciation and amortization 5,947,000 6,137,000
Amortization of deferred financing costs, debt discount and interest rate cap 62,000 123,000
Amortization of operating lease assets 5,307,000 5,112,000
Stock-based compensation 1,400,000 1,225,000
Impairment of goodwill 0 87,277,000
Impairment of trademarks 0 11,900,000
Impairment of long-lived assets 0 8,287,000
Deferred income taxes 213,000 (10,158,000)
Loss on disposal of assets and adjustments to assets held for sale, net 2,000 122,000
Restaurant closure charges 4,000 46,000
Other Noncash Income (373,000) 0
Changes in operating assets and liabilities:    
Accounts and other receivables, net 693,000 1,326,000
Inventories 225,000 86,000
Prepaid expenses and other current assets (1,657,000) 3,357,000
Other assets (62,000) (95,000)
Accounts payable (1,882,000) (711,000)
Operating lease liabilities (5,154,000) (4,863,000)
Other accrued liabilities (828,000) 6,796,000
Other non-current liabilities 82,000 (940,000)
Net cash provided by operating activities 6,610,000 12,559,000
Investing activities    
Purchases of property and equipment (3,700,000) (7,983,000)
Proceeds from disposal of property and equipment, net 0 1,440,000
Purchases of other assets (830,000) (384,000)
Proceeds from sale of company-operated restaurants 0 1,219,000
Net cash used in investing activities (4,530,000) (5,708,000)
Financing activities    
Repurchase of common stock and warrants (948,000) 0
Payment of tax withholding related to restricted stock vesting (219,000) (105,000)
Payments on finance leases and other debt (46,000) (29,000)
Proceeds from revolving credit facility 9,000,000 40,000,000
Payments on revolving credit facility (9,000,000) (10,000,000)
Payment of dividends (1,469,000) 0
Net cash (used in) provided by financing activities (2,682,000) 29,866,000
Net (decrease) increase in cash and cash equivalents (602,000) 36,717,000
Cash and cash equivalents at beginning of period 7,912,000 1,421,000
Cash and cash equivalents at end of period 7,310,000 38,138,000
Supplemental cash flow information:    
Cash paid during the period for interest 706,000 854,000
Cash paid during the period for income taxes 0 0
Supplemental schedule of non-cash activities:    
Accrued property and equipment purchases 3,481,000 5,039,000
Write-offs of accounts receivables 38,000 0
Amortization of interest rate cap into net income, net of tax 0 45,000
Operating lease right-of-use assets obtained in exchange for lease obligations $ 4,890,000 $ 9,358,000
v3.21.1
Description of Business
3 Months Ended
Mar. 23, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business Description of BusinessDel Taco Restaurants, Inc. is a Delaware corporation headquartered in Lake Forest, California. The consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At March 23, 2021, there were 297 company-operated and 302 franchise-operated Del Taco restaurants located in 16 states, including one franchise-operated unit in Guam. At March 24, 2020, there were 296 company-operated and 300 franchise-operated Del Taco restaurants located in 15 states, including one franchise-operated unit in Guam.
v3.21.1
Basis of Presentation and Summary of Significant Accounting Policies
3 Months Ended
Mar. 23, 2021
Accounting Policies [Abstract]  
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2020 ("2020 Form 10-K").
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2021 is a fifty-two week period ending December 28, 2021. Fiscal year 2020 is the fifty-two week period ended December 29, 2020. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. For fiscal year 2021, the Company’s accompanying financial statements reflect the twelve weeks ended March 23, 2021. For fiscal year 2020, the Company’s accompanying financial statements reflect the twelve weeks ended March 24, 2020.
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a subsidiary becomes an equity method investment; and (3) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Furthermore, ASU 2019-12 simplifies the accounting for income taxes by doing the following: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part 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. The Company adopted the requirements of this new standard on December 30, 2020, the first day of fiscal year 2021, 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.
Summary of Significant Accounting Policies
There have been no changes to our significant accounting policies described in the 2020 Form 10-K filed with the SEC on March 11, 2021 that have had a material impact on our consolidated financial statements and related notes.
v3.21.1
Impairment of Long-Lived Assets and Restaurant Closure Charges
3 Months Ended
Mar. 23, 2021
Restructuring and Related Activities [Abstract]  
Impairment of Long-Lived Assets and Restaurant Closure Charges Impairment of Long-Lived Assets and Restaurant Closure Charges
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows are less than a minimum threshold. 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.

No impairment charges were recorded during the twelve weeks ended March 23, 2021. During the twelve weeks ended March 24, 2020, the Company evaluated certain restaurants having indicators of impairment based on operating performance, taking into consideration the negative impact of the COVID-19 pandemic on forecasted restaurant performance, which resulted in elevated impairment charges for the twelve weeks ended March 24, 2020. As a result, the Company recorded a non-cash impairment charge totaling $8.3 million related to eight restaurants based on the estimate of future recoverable cash flows.
Restaurant Closure Charges, Net
The restaurant closure liability was $0.3 million and $0.5 million at March 23, 2021 and December 29, 2020, 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):
12 Weeks Ended
March 23, 2021March 24, 2020
Beginning Balance$454 $437 
Accretion
Cash payments(117)— 
Ending Balance$340 $445 

The current portion of the restaurant closure liability was $0.1 million and $0.2 million as of March 23, 2021 and December 29, 2020, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability was $0.2 million and $0.3 million as of March 23, 2021 and December 29, 2020, respectively, and is included in other non-current liabilities in the consolidated balance sheets. The restaurant closure liability is expected to be settled by 2032.
v3.21.1
Summary of Refranchising and Franchise Acquisitions
3 Months Ended
Mar. 23, 2021
Franchise Acquisitions [Abstract]  
Summary of Refranchising and Franchise Acquisitions Refranchising and Assets Held for Sale
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 to sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as a result, the cash consideration received is allocated to the separate elements based on their relative selling price. Cash consideration generally includes up-front consideration for the sale of the restaurants and franchise fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in allocating the initial cash consideration received. The Company compares the stated rent under the lease and/or sublease agreements with comparable market rents, and the Company records sublease assets/liabilities with a corresponding offset to the gain or loss on the sale of the company-operated restaurants. Sublease assets represent subleases with stated rent above comparable market rents. Sublease assets are amortized to sublease income over the term of the related sublease. Sublease liabilities represent subleases with stated rent below comparable market rents and are amortized to sublease income over the term of the related sublease. Both sublease assets and sublease liabilities arise from the sale of company-operated restaurants to franchisees. The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are 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 recognized in franchise revenue as earned.
The Company did not sell any company-operated restaurants to franchisees during the twelve weeks ended March 23, 2021. The Company sold five company-operated restaurants to a franchisee during the twelve weeks ended March 24, 2020. The following table summarizes the net loss recognized related to this transaction (dollars in thousands):
12 Weeks Ended
March 24, 2020
Company-operated restaurants sold to franchisees
Proceeds from the sale of company-operated restaurants, net of selling costs$1,219 
Net assets sold (primarily furniture, fixtures and equipment) (a)
(731)
Goodwill related to the company-operated restaurants sold to franchisees(1,196)
Allocation to deferred franchise fees(159)
Sublease assets, net220 
Loss on sale of company-operated restaurants, net (b)
$(647)

(a) Of the net assets sold during the twelve weeks ended March 24, 2020, $0.7 million was included in assets held for sale as of December 31, 2019.
(b) Of the loss related to the five company-operated restaurants sold during the twelve weeks ended March 24, 2020, $0.6 million was previously recognized during the fifty-two weeks ended December 31, 2019 as a fair value adjustment to the assets held for sale balance. The loss on sale of company-operated restaurants is included in loss on disposal of assets and adjustments to assets held for sale, net on the consolidated statements of comprehensive income (loss).

Assets Held for Sale

Assets held for sale includes the net book value of property and equipment for company-operated restaurants that the Company plans to sell within the next year to new or existing franchisees. Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or fair value less estimated costs to sell.
As of March 23, 2021, the Company classified the land and building related to a previously closed company-operated restaurant as held for sale. During the second fiscal quarter of 2020, the Company recorded a $0.2 million adjustment to assets held for sale in order to recognize the assets at their estimated fair value less estimated costs to sell. The estimated fair value of assets held for sale is based upon Level 2 inputs, which include previous and current negotiations with third parties. Assets held for sale at March 23, 2021 and December 29, 2020 consisted of the following (in thousands):
March 23, 2021December 29, 2020
Land$561 $561 
Building934 934 
$1,495 $1,495 
v3.21.1
Goodwill and Other Intangible Assets
3 Months Ended
Mar. 23, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
Goodwill was $109.0 million as of both March 23, 2021 and December 29, 2020. 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 as of both March 23, 2021 and December 29, 2020.
Trademarks were $208.4 million as of both March 23, 2021 and December 29, 2020.
The Company’s other intangible assets at March 23, 2021 and December 29, 2020 consisted of the following (in thousands):

 March 23, 2021December 29, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Sublease assets$1,820 $(219)$1,601 $1,820 $(193)$1,627 
Franchise rights13,846 (6,617)7,229 13,918 (6,421)7,497 
Reacquired franchise rights943 (338)605 943 (313)630 
Total amortized other intangible assets$16,609 $(7,174)$9,435 $16,681 $(6,927)$9,754 

During the twelve weeks ended March 23, 2021, the Company wrote off $0.1 million of franchise rights associated with the closure of two franchise-operated restaurants.
v3.21.1
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities
3 Months Ended
Mar. 23, 2021
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 March 23, 2021 and December 29, 2020 consisted of the following (in thousands):
 
 March 23, 2021December 29, 2020
Senior Credit Facility, as amended, net of unamortized debt discount of $170 and $182 and deferred financing costs of $771 and $821 at March 23, 2021 and December 29, 2020, respectively$114,059 $113,997 
Total outstanding indebtedness114,059 113,997 
Obligations under finance leases and other debt529 611 
Total debt114,588 114,608 
Less: amounts due within one year116 190 
Total amounts due after one year, net$114,472 $114,418 
 
At March 23, 2021 and December 29, 2020, the Company assessed the amounts recorded under the Senior Credit Facility and determined that such amounts approximated fair value.

As a result of the modification of a lease from a finance lease to an operating lease during the twelve weeks ended March 23, 2021, the Company wrote off a finance lease obligation of approximately $36,000 and the related finance lease asset with a net book value of approximately $37,000. The net difference of approximately $1,000 was carried over to the new operating lease right-of-use asset.
Senior Credit Facility
On August 4, 2015, the Company refinanced its then existing senior credit facility and entered into a new credit agreement (the “Senior Credit Facility”). The Senior Credit Facility, which was to mature on August 4, 2020, provided for a $250 million revolving credit facility.
In September 2019, the Company refinanced the Senior Credit Facility, pursuant to Amendment No. 4 to the Credit Agreement among Del Taco, as borrower, the Company and its subsidiaries, as guarantors, Bank of America, N.A. as administrative agent and letter of credit issuer, the lenders party thereto, and other parties thereto, which provides for a $250 million five-year senior secured revolving facility. The Senior Credit Facility, as amended, includes a sub limit of $35 million for letters of credit. The Senior Credit Facility, as amended, will mature on September 19, 2024.

The Senior Credit Facility, as amended, contains certain financial covenants, including the maintenance of a consolidated total lease adjusted leverage ratio and a consolidated fixed charge coverage ratio. The Company was in compliance with the financial covenants as of March 23, 2021. Substantially all of the assets of the Company are pledged as collateral under the Senior Credit Facility.
At March 23, 2021, the weighted-average interest rate on the outstanding balance of the Senior Credit Facility, as amended, was 1.87%. At March 23, 2021, the Company had a total of $121.6 million of availability for additional borrowings under the Senior Credit Facility, as amended, as the Company had $115.0 million of outstanding borrowings and $13.4 million of letters of credit outstanding, which reduce availability under the Senior Credit Facility, as amended.
v3.21.1
Leases
3 Months Ended
Mar. 23, 2021
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 has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sublessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the twelve weeks ended March 23, 2021 and March 24, 2020 were as follows (in thousands):
ClassificationTwelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Operating lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative$9,528 $9,446 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization29 55 
Interest on lease liabilitiesInterest expense12 
Short-term lease costOccupancy and other operating expenses42 72 
Variable lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net460 323 
Sublease incomeFranchise sublease and other income(1,646)(1,582)
Total lease cost$8,416 $8,326 
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of March 23, 2021 and December 29, 2020 was as follows (in thousands):

March 23, 2021December 29, 2020
Operating lease assets:
Operating lease right-of-use assets$248,655 $249,071 
Operating lease liabilities:
Current portion of operating lease liabilities$22,005 $22,648 
Operating lease liabilities, excluding current portion251,714 251,958 
Total operating lease liabilities$273,719 $274,606 
Finance lease assets:
Buildings under finance leases$260 $441 
Accumulated depreciation(168)(283)
Finance lease assets, net$92 $158 
Finance lease obligations:
Current portion of finance lease obligations and other debt$63 $128 
Long-term debt, finance lease obligations and other debt, excluding current portion, net43 46 
Total finance lease obligations$106 $174 

As a result of the modification of a lease from a finance lease to an operating lease during the twelve weeks ended March 23, 2021, the Company wrote off a finance lease asset with a net book value of approximately $37,000 and the related finance lease obligation of approximately $36,000. The net difference of approximately $1,000 was carried over to the new operating lease right-of-use asset.

Weighted Average Remaining Lease Term (in years)March 23, 2021
Operating leases12.3
Finance leases2.3

Weighted Average Discount RateMarch 23, 2021
Operating leases6.53 %
Finance leases10.35 %

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

Twelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$9,900 $6,012 
Operating cash flows used for finance leases$$12 
Financing cash flows used for finance leases$31 $54 
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595 

As of March 23, 2021, we have legally binding lease payments related to restaurant leases that have not yet commenced of $5.3 million which are included in the balance of operating lease liabilities in the table above.

During the twelve weeks ended March 24, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transaction totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss).
During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of March 23, 2021, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.
Additionally, another Del Taco franchisee has a direct sublease with a third party where the Company is a guarantor on the sublease. The lease has a remaining term of 10 years, expiring in 2031, and remaining lease payments total approximately $1.5 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. In 2019, the franchisee defaulted on the lease payments. The Company had a liability of $0.1 million as of both March 23, 2021 and December 29, 2020, respectively, representing the estimated payments that the Company will be liable for until it is able to find a new franchisee or convert the restaurant to a company-operated restaurant.
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 has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sublessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sublessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the twelve weeks ended March 23, 2021 and March 24, 2020 were as follows (in thousands):
ClassificationTwelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Operating lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative$9,528 $9,446 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization29 55 
Interest on lease liabilitiesInterest expense12 
Short-term lease costOccupancy and other operating expenses42 72 
Variable lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net460 323 
Sublease incomeFranchise sublease and other income(1,646)(1,582)
Total lease cost$8,416 $8,326 
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of March 23, 2021 and December 29, 2020 was as follows (in thousands):

March 23, 2021December 29, 2020
Operating lease assets:
Operating lease right-of-use assets$248,655 $249,071 
Operating lease liabilities:
Current portion of operating lease liabilities$22,005 $22,648 
Operating lease liabilities, excluding current portion251,714 251,958 
Total operating lease liabilities$273,719 $274,606 
Finance lease assets:
Buildings under finance leases$260 $441 
Accumulated depreciation(168)(283)
Finance lease assets, net$92 $158 
Finance lease obligations:
Current portion of finance lease obligations and other debt$63 $128 
Long-term debt, finance lease obligations and other debt, excluding current portion, net43 46 
Total finance lease obligations$106 $174 

As a result of the modification of a lease from a finance lease to an operating lease during the twelve weeks ended March 23, 2021, the Company wrote off a finance lease asset with a net book value of approximately $37,000 and the related finance lease obligation of approximately $36,000. The net difference of approximately $1,000 was carried over to the new operating lease right-of-use asset.

Weighted Average Remaining Lease Term (in years)March 23, 2021
Operating leases12.3
Finance leases2.3

Weighted Average Discount RateMarch 23, 2021
Operating leases6.53 %
Finance leases10.35 %

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

Twelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$9,900 $6,012 
Operating cash flows used for finance leases$$12 
Financing cash flows used for finance leases$31 $54 
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595 

As of March 23, 2021, we have legally binding lease payments related to restaurant leases that have not yet commenced of $5.3 million which are included in the balance of operating lease liabilities in the table above.

During the twelve weeks ended March 24, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transaction totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income (loss).
During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of March 23, 2021, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.
Additionally, another Del Taco franchisee has a direct sublease with a third party where the Company is a guarantor on the sublease. The lease has a remaining term of 10 years, expiring in 2031, and remaining lease payments total approximately $1.5 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. In 2019, the franchisee defaulted on the lease payments. The Company had a liability of $0.1 million as of both March 23, 2021 and December 29, 2020, respectively, representing the estimated payments that the Company will be liable for until it is able to find a new franchisee or convert the restaurant to a company-operated restaurant.
v3.21.1
Derivative Instruments
3 Months Ended
Mar. 23, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
2016 Interest Rate Cap Agreement
In June 2016, the Company entered into an interest rate cap agreement, which became effective July 1, 2016, to hedge cash flows associated with interest rate fluctuations on variable rate debt, with a termination date of March 31, 2020 ("2016 Interest Rate Cap Agreement"). The 2016 Interest Rate Cap Agreement had an initial notional amount of $70.0 million of the Senior Credit Facility that effectively converted that portion of the outstanding balance of the Senior Credit Facility from variable rate debt to capped variable rate debt, resulting in a change in the applicable interest rate from an interest rate of one-month LIBOR plus the applicable margin (as provided by the Senior Credit Facility) to a capped interest rate of 2.00% plus the applicable margin. During the period from July 1, 2016 through the expiration on March 31, 2020, the 2016 Interest Rate Cap Agreement had no hedge ineffectiveness.
To ensure the effectiveness of the 2016 Interest Rate Cap Agreement, the Company elected the one-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the interest rate cap agreement as of each reset date. The reset dates and other critical terms perfectly match with the interest rate cap reset dates and other critical terms during fiscal year 2020 through the expiration on March 31, 2020.
During the twelve weeks ended March 24, 2020, the Company reclassified approximately $62,000 of interest expense related to the hedges of these transactions into earnings.
The effective portion of the 2016 Interest Rate Cap Agreement through the expiration on March 31, 2020 was included in accumulated other comprehensive loss.
v3.21.1
Fair Value Measurements
3 Months Ended
Mar. 23, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value MeasurementsThe 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.
v3.21.1
Other Accrued Liabilities and Other Non-current Liabilities
3 Months Ended
Mar. 23, 2021
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):

March 23, 2021December 29, 2020
Employee compensation and related items$13,952 $16,048 
Accrued advertising5,496 3,920 
Accrued income tax5,118 4,301 
Accrued insurance4,757 5,031 
Accrued sales tax3,088 3,712 
Accrued real property tax2,519 1,841 
Accrued property and equipment purchases1,835 1,970 
Deferred gift card income1,376 1,669 
Accrued rent and related items1,375 1,490 
Restaurant closure liabilities136 198 
Other4,855 5,233 
$44,507 $45,413 
 

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

March 23, 2021December 29, 2020
Insurance reserves$8,570 $8,178 
Deferred development and initial franchise fees4,569 4,523 
Deferred social security taxes3,381 3,381 
Sublease liabilities1,349 1,375 
Deferred gift card income1,161 1,464 
Restaurant closure liabilities204 256 
Other556 583 
$19,790 $19,760 
v3.21.1
Stock-Based Compensation
3 Months Ended
Mar. 23, 2021
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
The Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, other cash-based compensation and performance awards. Under the plan, there were 3,300,000 shares of common stock reserved and authorized. At March 23, 2021, there were 102,564 shares of common stock available for grant under the 2015 Plan. On March 31, 2021, the Company's Board of Directors approved an amendment to the 2015 Plan to increase the amount of shares available for grant by 1,800,000 which is subject to stockholder approval at the 2021 Annual Meeting on May 27, 2021.
Stock-Based Compensation Expense
The total compensation expense related to the 2015 Plan was $1.4 million and $1.2 million for the twelve weeks ended March 23, 2021 and March 24, 2020, respectively.
Restricted Stock Awards
A summary of outstanding and unvested restricted stock activity as of March 23, 2021 and changes during the period from December 29, 2020 through March 23, 2021 are as follows:
 
SharesWeighted-Average
Grant Date
Fair Value
Nonvested at December 29, 20201,254,775 $9.84 
Granted93,000 9.39 
Vested(59,625)9.46 
Forfeited(3,750)7.93 
Nonvested at March 23, 20211,284,400 $9.83 
For the twelve weeks ended March 23, 2021 and March 24, 2020, the Company made payments of $0.2 million and $0.1 million, respectively, related to tax withholding obligations for the vesting of restricted stock awards in exchange for 24,517 and 13,867 shares withheld, respectively.
As of March 23, 2021, there was $7.1 million of unrecognized stock compensation expense, net of estimated forfeitures, related to restricted stock awards that is expected to be recognized over a weighted-average remaining period of 2.3 years. The fair value of these awards was determined based on the Company’s stock price on the grant date.
Stock Options
A summary of stock option activity as of March 23, 2021 and changes during the period from December 29, 2020 through March 23, 2021 are as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(in years)(in thousands)
Options outstanding at December 29, 2020574,453 $9.54 4.4$624 
Granted5,000 8.94 
Exercised— — 
Forfeited/Expired(6,500)11.85 
Options outstanding at March 23, 2021572,953 $9.51 4.3$938 
Options exercisable at March 23, 2021284,875 $11.17 2.7$90 
Options exercisable and expected to vest at March 23, 2021517,663 $9.78 4.1$753 

The aggregate intrinsic value in the table above is the amount by which the current market price of the Company's stock exceeds the exercise price on March 23, 2021 and December 29, 2020, respectively.
As of March 23, 2021, there was $0.5 million of unrecognized stock compensation expense, net of estimated forfeitures, related to stock option grants that is expected to be recognized over a weighted-average remaining period of 2.7 years.
v3.21.1
Shareholders' Equity
3 Months Ended
Mar. 23, 2021
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
On February 26, 2016, the Company's Board of Directors authorized a share repurchase program covering up to $25.0 million in the aggregate of the Company's common stock and warrants which was effective immediately and expires upon completion of the repurchase program, unless terminated earlier by the Board of Directors. On August 23, 2016, the Company announced that the Board of Directors increased the repurchase program by $25.0 million to $50.0 million. The Board of Directors authorized an additional increase for the repurchase program effective July 23, 2018 of another $25.0 million to a total of $75.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelve weeks ended March 23, 2021, the Company repurchased 106,049 shares of common stock for an average price per share of $8.92 for an aggregate cost of approximately $0.9 million, including incremental direct costs to acquire the share. During the twelve weeks ended March 24, 2020, the Company did not repurchase any shares or warrants.
As of March 23, 2021, there was approximately $17.1 million remaining under the share repurchase program. All of the Company's outstanding warrants expired on June 30, 2020. The Company has no obligations to repurchase shares under this authorization, and the timing and value of shares purchased will depend on the Company's stock price, market conditions and other factors.
In January 2021, the Board of Directors authorized the initiation of a quarterly cash dividend program. During the twelve weeks ended March 23, 2021, the Company paid a dividend of $0.04 per share of common stock, which totaled $1.5 million. The dividends were paid on February 23, 2021 to shareholders of record at the close of business on February 2, 2021. The payment of dividends on common stock is at the discretion of the Board of Directors.
v3.21.1
(Loss) Earnings Per Share
3 Months Ended
Mar. 23, 2021
Earnings Per Share [Abstract]  
(Loss) Earnings Per Share Earnings (Loss) Per ShareBasic income per share is calculated by dividing net income attributable to Del Taco’s common shareholders for the period by the weighted average number of common shares outstanding for the period. In computing dilutive income per share, basic income per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including warrants, restricted stock, common stock options and restricted stock units.
Below are basic and diluted net income per share for the periods indicated (amounts in thousands except share and per share data):
 
12 Weeks Ended
March 23, 2021March 24, 2020
Numerator:
Net income (loss)$2,631 $(102,468)
Denominator:
Weighted-average shares outstanding - basic36,761,670 37,075,994 
Dilutive effect of unvested restricted stock379,375 — 
Dilutive effect of stock options49,109 — 
Weighted-average shares outstanding - diluted37,190,154 37,075,994 
Net income (loss) per share - basic$0.07 $(2.76)
Net income (loss) per share - diluted$0.07 $(2.76)
Antidilutive stock options, unvested restricted stock awards and warrants excluded from the computations274,577 6,612,980 
v3.21.1
Income Taxes
3 Months Ended
Mar. 23, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The effective income tax rates were 28.1% and 5.5% for the twelve weeks ended March 23, 2021 and March 24, 2020, respectively. The provision (benefit) for income taxes was $1.0 million and $(6.0) million for the twelve weeks ended March 23, 2021 and March 24, 2020, respectively.
The income tax expense for the twelve weeks ended March 23, 2021 is driven by the estimated annual effective income tax rate which primarily consists of statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits. The income tax benefit for the twelve weeks ended March 24, 2020 is primarily impacted by impairment of non-tax deductible goodwill of $87.3 million and reclassification of $3.5 million of goodwill from held for sale, as well as statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits.
Management believes it is more likely than not that all deferred tax assets will be realized, and therefore, no valuation allowance as of March 23, 2021 and December 29, 2020 is required.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. 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 ("ERC"), a refundable payroll tax credit for 50% of qualified wages paid during 2020. The American Rescue Plan passed into law on March 11, 2021 extended the ERC through December 31, 2021, and the credit was increased to 70% of qualified wages paid from January 1, 2021 through December 31, 2021. Based on the Company's assessment, the Company recognized a credit of $0.8 million during the twelve weeks ended March 23, 2021 for the ERC, 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 income (loss).
v3.21.1
Commitments and Contingencies
3 Months Ended
Mar. 23, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
The primary claims in the Company’s business are workers’ compensation and general liabilities. These insurance programs are self-insured or high deductible programs with excess coverage that management believes is sufficient to adequately protect the Company. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured or high deductible limits, including provision for estimated claims incurred but not reported. Because of the uncertainty of the ultimate resolution of outstanding claims, as well as the uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially. However, no estimate can currently be made of the range of additional losses.
Purchasing Commitments
The Company enters into various purchase obligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to commitments for food purchases and supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, information technology service agreements and marketing initiatives, some of which are related to both company-operated and franchise-operated locations. The Company also has a long-term beverage supply agreement with a major beverage vendor whereby marketing rebates are provided to the Company and its franchisees based upon the volume of purchases for system-wide restaurants which vary according to demand for beverage syrup. This contract has terms expiring at the end of 2021. The Company’s future estimated cash payments under existing contractual purchase obligations for goods and services as of March 23, 2021 are approximately $25.2 million. The Company has excluded agreements that are cancellable without penalty.
Litigation
In March 2014, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has not appropriately provided meal breaks and failed to pay wages to its California hourly employees. On March 24, 2021, Del Taco filed its motion to oppose the plaintiff's motion for class certification. Discovery remains in process and Del Taco intends to assert all of its defenses to this threatened class action and the individual claims. Del Taco has several defenses to the action that it believes could prevent the certification of the class, as well as the potential assessment of any damages on a class basis. Legal proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of March 23, 2021.
In September 2018, the Equal Employment Opportunity Commission (“EEOC”) filed a complaint on behalf of an individual complainant and an additional class of individuals alleging that Del Taco engaged in unlawful employment practices on the basis of sex and retaliation in violation of Title VII. The Company tendered the claim to its insurance carrier under its employment practices liability insurance policy. The Company's insurance coverage and retention includes amounts incurred for legal defense and any potential settlement. Since the Company had expected the settlement discussions to give rise to a loss in excess of the Company's insurance retention that is both probable and estimable, the Company recorded an expense for the overall action equal to the full retention of $0.5 million during the fifty-two weeks ended December 31, 2019. In December 2020, the Company reached a settlement with the EEOC for $1.25 million and a three-year consent decree, which includes company-wide injunctive relief aimed at preventing workplace harassment and retaliation. As of December 29, 2020, the Company recorded a receivable of $1.3 million from the Company's insurance carrier and an accrued liability of $1.3 million for legal fees covered by insurance and the claim settlement which was collected from the insurance carrier in the twelve weeks ended March 23, 2021. Of the $1.25 million claim settlement, $0.9 million was paid to the plaintiff during the twelve weeks ended March 23, 2021 with the remainder to be paid at a later date. In consideration of the Company's insurance coverage, the ultimate liability with respect to this action did not have a material effect on the operating results, cash flows or financial position of the Company for the twelve weeks ended March 23, 2021.
The Company and its subsidiaries are parties to other legal proceedings incidental to their businesses, including claims alleging the Company’s restaurants do not comply with the Americans with Disabilities Act of 1990. In the opinion of management, based upon information currently available, the ultimate liability with respect to those other actions will not have a material
effect on the operating results, cash flows or the financial position of the Company. However, due to the risks and uncertainties inherent in legal proceedings and litigation, actual results could differ from expectations.
Construction Defect Issues
During the second quarter of 2020, the Company identified various construction defects related to three closed restaurants in Texas. During the fourth quarter of 2020, the Company identified a fourth closed restaurant with construction defects. The Company believes the issues are attributable to defective construction performed by the same general contractor for all four restaurants. The Company plans to undertake voluntary rehabilitation of the four properties, and while the full extent of voluntary rehabilitation costs are not yet known, the Company is pursuing legal remedies against the general contractor to recover future incurred costs. These four restaurants were partially impaired in prior years.
v3.21.1
Subsequent Events
3 Months Ended
Mar. 23, 2021
Subsequent Events [Abstract]  
Subsequent Events Subsequent EventsIn April 2021, the Board of Directors declared a quarterly dividend of $0.04 per share of common stock to be paid on May 27, 2021 to shareholders of record at the close of business on May 13, 2021. While the Company intends to pay quarterly cash dividends for the foreseeable future, all subsequent dividend payments will be reviewed quarterly and declared by the Board of Directors at its discretion.
v3.21.1
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 23, 2021
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2020 ("2020 Form 10-K").
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 2021 is a fifty-two week period ending December 28, 2021. Fiscal year 2020 is the fifty-two week period ended December 29, 2020. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. For fiscal year 2021, the Company’s accompanying financial statements reflect the twelve weeks ended March 23, 2021. For fiscal year 2020, the Company’s accompanying financial statements reflect the twelve weeks ended March 24, 2020.
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year.
Principles of Consolidation
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates Use of EstimatesThe preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances
Recently Issued and Recently Adopted Accounting Standards
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a subsidiary becomes an equity method investment; and (3) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Furthermore, ASU 2019-12 simplifies the accounting for income taxes by doing the following: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part 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. The Company adopted the requirements of this new standard on December 30, 2020, the first day of fiscal year 2021, 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.
Significant Accounting Policies
Summary of Significant Accounting Policies
There have been no changes to our significant accounting policies described in the 2020 Form 10-K filed with the SEC on March 11, 2021 that have had a material impact on our consolidated financial statements and related notes.
v3.21.1
Impairment of Long-Lived Assets and Restaurant Closure Charges (Tables)
3 Months Ended
Mar. 23, 2021
Restructuring and Related Activities [Abstract]  
Closure Liability Activity for 12 Closed Restaurants A summary of the restaurant closure liability activity for these closed restaurants consisted of the following (in thousands):
12 Weeks Ended
March 23, 2021March 24, 2020
Beginning Balance$454 $437 
Accretion
Cash payments(117)— 
Ending Balance$340 $445 
v3.21.1
Summary of Refranchising and Franchise Acquisitions (Tables)
3 Months Ended
Mar. 23, 2021
Franchise Acquisitions [Abstract]  
Summary of refranchising [Table Text Block] The following table summarizes the net loss recognized related to this transaction (dollars in thousands):
12 Weeks Ended
March 24, 2020
Company-operated restaurants sold to franchisees
Proceeds from the sale of company-operated restaurants, net of selling costs$1,219 
Net assets sold (primarily furniture, fixtures and equipment) (a)
(731)
Goodwill related to the company-operated restaurants sold to franchisees(1,196)
Allocation to deferred franchise fees(159)
Sublease assets, net220 
Loss on sale of company-operated restaurants, net (b)
$(647)
v3.21.1
Goodwill and Other Intangible Assets (Tables)
3 Months Ended
Mar. 23, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Other Intangible Assets
The Company’s other intangible assets at March 23, 2021 and December 29, 2020 consisted of the following (in thousands):

 March 23, 2021December 29, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Sublease assets$1,820 $(219)$1,601 $1,820 $(193)$1,627 
Franchise rights13,846 (6,617)7,229 13,918 (6,421)7,497 
Reacquired franchise rights943 (338)605 943 (313)630 
Total amortized other intangible assets$16,609 $(7,174)$9,435 $16,681 $(6,927)$9,754 
v3.21.1
Debt, Obligations Under Capital Leases and Deemed Landlord Financing Liabilities (Tables)
3 Months Ended
Mar. 23, 2021
Debt Disclosure [Abstract]  
Schedule of Debt
The Company’s long-term debt, finance lease obligations and other debt at March 23, 2021 and December 29, 2020 consisted of the following (in thousands):
 
 March 23, 2021December 29, 2020
Senior Credit Facility, as amended, net of unamortized debt discount of $170 and $182 and deferred financing costs of $771 and $821 at March 23, 2021 and December 29, 2020, respectively$114,059 $113,997 
Total outstanding indebtedness114,059 113,997 
Obligations under finance leases and other debt529 611 
Total debt114,588 114,608 
Less: amounts due within one year116 190 
Total amounts due after one year, net$114,472 $114,418 
v3.21.1
Leases (Tables)
3 Months Ended
Mar. 23, 2021
Leases [Abstract]  
Schedule of Lease Cost, Remaining Lease Term, Discount Rate and Supplemental Cash Flow Information
The components of lease cost for the twelve weeks ended March 23, 2021 and March 24, 2020 were as follows (in thousands):
ClassificationTwelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Operating lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative$9,528 $9,446 
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization29 55 
Interest on lease liabilitiesInterest expense12 
Short-term lease costOccupancy and other operating expenses42 72 
Variable lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net460 323 
Sublease incomeFranchise sublease and other income(1,646)(1,582)
Total lease cost$8,416 $8,326 
Weighted Average Remaining Lease Term (in years)March 23, 2021
Operating leases12.3
Finance leases2.3

Weighted Average Discount RateMarch 23, 2021
Operating leases6.53 %
Finance leases10.35 %

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

Twelve Weeks Ended March 23, 2021Twelve Weeks Ended March 24, 2020
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$9,900 $6,012 
Operating cash flows used for finance leases$$12 
Financing cash flows used for finance leases$31 $54 
Schedule of Supplemental Balance Sheet Information
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of March 23, 2021 and December 29, 2020 was as follows (in thousands):

March 23, 2021December 29, 2020
Operating lease assets:
Operating lease right-of-use assets$248,655 $249,071 
Operating lease liabilities:
Current portion of operating lease liabilities$22,005 $22,648 
Operating lease liabilities, excluding current portion251,714 251,958 
Total operating lease liabilities$273,719 $274,606 
Finance lease assets:
Buildings under finance leases$260 $441 
Accumulated depreciation(168)(283)
Finance lease assets, net$92 $158 
Finance lease obligations:
Current portion of finance lease obligations and other debt$63 $128 
Long-term debt, finance lease obligations and other debt, excluding current portion, net43 46 
Total finance lease obligations$106 $174 
Schedule of Estimated Future Minimum Finance Lease Payments
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595 
Schedule of Estimated Future Minimum Operating Lease Payment
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595 
Schedule of Minimum Rental Commitments
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595 
Schedule of Sublease Minimum Rental Receipts
The estimated future lease payments as of March 23, 2021 are as follows (in thousands):

Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2021$66 $29,945 $(4,516)$25,495 
202219 42,336 (6,578)35,777 
202317 37,320 (5,935)31,402 
202416 31,405 (5,305)26,116 
202531,269 (5,619)25,651 
Thereafter— 234,016 (54,277)179,739 
Total lease payments$119 $406,291 $(82,230)$324,180 
Amounts representing interest(13)(132,572)(132,585)
Present value of lease obligations$106 $273,719 $191,595