| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
6, 2016
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(f/k/a LEVY ACQUISITION CORP.)
| Delaware | 46-3340980 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
25521 Commercentre Drive Lake Forest, California | 92630 | |
| (Address of principal executive offices) | (Zip Code) | |
| (949) 462-9300 | ||
| (Registrant’s telephone number, including area code) | ||
(949) 462-9300
(Registrant’s telephone number, including area code)
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
| |||||
| PART I. FINANCIAL INFORMATION | |||||
PART II. OTHER INFORMATION | |||||
Assets Current assets: Cash and cash equivalents Accounts and other receivables, net Inventories Prepaid expenses and other current assets Deferred tax assets Total current assets Property and equipment, net Goodwill Trademarks Intangible assets, net Other assets, net Total assets Liabilities and shareholders’ equity Current liabilities: Accounts payable Other accrued liabilities Current portion of long-term debt, capital lease obligations and deemed landlord financing liabilities Total current liabilities Long-term debt, capital lease obligations and deemed landlord financing liabilities, excluding current portion, net Deferred income taxes Warrant liability Other non-current liabilities Total liabilities Commitments and contingencies (Note 13) Shareholders’ equity: Del Taco Holdings, Inc. (Predecessor) preferred stock, $0.01 par value; 200,000 shares authorized; no shares issued and outstanding Del Taco Restaurants, Inc. (Successor) preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding Del Taco Holdings, Inc. (Predecessor) common stock, $0.01 par value; 5,800,000 shares authorized; 3,907,835 shares issued and outstanding at December 30, 2014 Del Taco Restaurants, Inc. (Successor) common stock, $0.0001 par value; 400,000,000 shares authorized; 38,802,425 shares issued and outstanding at September 8, 2015 Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders’ equity Total liabilities and shareholders’ equity Revenue: Company restaurant sales Franchise revenue Franchise sublease income Total revenue Operating expenses: Restaurant operating expenses: Food and paper costs Labor and related expenses Occupancy and other operating expenses General and administrative Depreciation and amortization Occupancy and other - franchise subleases Pre-opening costs Restaurant closure charges, net Loss (gain) on disposal of assets Total operating expenses Income from operations Other expenses: Interest expense Transaction-related costs Debt modification costs Change in fair value of warrant liability Total other expenses (Loss) income from operations before provision for income taxes (Benefit) provision for income taxes Net (loss) income Other comprehensive (loss) income: Change in fair value of interest rate cap Reclassification of interest rate cap amortization included in net (loss) income Total other comprehensive loss, net Comprehensive (loss) income (Loss) earnings per share: Basic Diluted Weighted-average shares outstanding Basic Diluted Revenue: Company restaurant sales Franchise revenue Franchise sublease income Total revenue Operating expenses: Restaurant operating expenses: Food and paper costs Labor and related expenses Occupancy and other operating expenses General and administrative Depreciation and amortization Occupancy and other - franchise subleases Pre-opening costs Restaurant closure charges, net Loss (gain) on disposal of assets Total operating expenses Income from operations Other expenses: Interest expense Transaction-related costs Debt modification costs Change in fair value of warrant liability Total other expenses (Loss) income from operations before provision for income taxes (Benefit) provision for income taxes Net (loss) income Other comprehensive income (loss): Change in fair value of interest rate cap Reclassification of interest rate cap amortization included in net (loss) income Total other comprehensive income (loss), net Comprehensive (loss) income (Loss) earnings per share: Basic Diluted Weighted-average shares outstanding: Basic Diluted Balance at December 30, 2014, Predecessor Net income Other comprehensive income, net of tax Comprehensive income Stock-based compensation Exercise and settlement of warrants Exercise of options and distribution of restricted stock units, net of tax withholding Issuance of common stock Balance at June 30, 2015, Predecessor Balance at June 30, 2015, Successor Common stock of Del Taco Restaurants, Inc. released from possible redemption Issuance of common stock Issuance of warrants Net loss Stock-based compensation Balance at September 8, 2015, Successor Operating activities Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization Amortization of deferred financing costs Subordinated note interest paid-in-kind Debt modification costs Stock-based compensation Change in fair value of warrant liability Loss (gain) on disposal of assets Changes in operating assets and liabilities: Accounts and other receivables, net Inventories Prepaid expenses and other current assets Accounts payable Other accrued liabilities Other non-current liabilities Net cash (used in) provided by operating activities Investing activities Purchases of property and equipment Proceeds from disposal of property and equipment Proceeds from the Company’s trust account (see Note 3) Purchases of other assets Acquisition of Del Taco Holdings, net of cash acquired Net cash provided by (used in) investing activities Financing activities Proceeds from term loan, net of debt discount Proceeds from deemed landlord financing liabilities Proceeds from issuance of common stock Payment of tax withholding related to option exercises and distribution of restricted stock units Payments on term loans Payments on capital leases and deemed landlord financing Payment on subordinated notes Proceeds from revolving credit facility, net of debt discount Payments on revolving credit facility Payments for debt issue costs Repayment of note payable Payment of deferred underwriter compensation Settlement of vested restricted stock units Net cash (used in) provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow information: Cash paid during the period for interest Cash paid during the period for income taxes Supplemental schedule of non-cash activities: Accrued property and equipment purchases Write-offs against bad debt reserves Amortization of interest rate cap into net loss, net of tax Change in other asset for fair value of interest rate cap recorded to other comprehensive loss, net Warrant liability reclassified to equity upon exercise of warrants Issuance of shares for consideration in the acquisition of Del Taco Holdings, Inc. Issuance of warrants as payment for working capital loans Common stock of Del Taco Restaurants, Inc. reclassified to equity upon release from possible redemption our 2015 Form 10-K.Del Taco Restaurants, Inc.Condensed Consolidated Balance Sheets(In thousands, except share and per share data)(Unaudited) Successor Predecessor September 8,
2015 December 30,
2014 $ 7,174 $ 8,553 2,290 3,383 2,758 2,687 4,058 3,816 2,014 — 18,294 18,439 110,341 85,164 317,174 281,200 220,300 144,000 29,521 17,683 4,790 3,548 $ 700,420 $ 550,034 $ 18,039 $ 14,645 30,426 32,088 1,665 1,634 50,130 48,367 174,720 321,764 77,078 64,736 — 8,309 36,306 25,454 338,234 468,630 — — — — — 39 4 — 370,908 110,941 — (409 ) (8,726 ) (29,167 ) 362,186 81,404 $ 700,420 $ 550,034 Del Taco Restaurants, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) Successor September 6, 2016 December 29, 2015 Assets (Unaudited) Current assets: Cash and cash equivalents $ 11,603 $ 10,194 Accounts and other receivables, net 3,194 3,220 Inventories 2,510 2,806 Prepaid expenses and other current assets 5,244 3,545 Total current assets 22,551 19,765 Property and equipment, net 122,982 114,030 Goodwill 319,526 318,275 Trademarks 220,300 220,300 Intangible assets, net 25,903 28,373 Other assets, net 3,308 2,829 Total assets $ 714,570 $ 703,572 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 17,133 $ 16,831 Other accrued liabilities 36,294 32,897 Current portion of capital lease obligations and deemed landlord financing liabilities 1,639 1,725 Total current liabilities 55,066 51,453 Long-term debt, capital lease obligations and deemed landlord financing liabilities, excluding current portion, net 169,107 167,968 Deferred income taxes 86,323 79,523 Other non-current liabilities 33,400 36,251 Total liabilities 343,896 335,195 Shareholders’ equity: Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding — — Common stock, $0.0001 par value; 400,000,000 shares authorized; 39,365,513 shares issued and outstanding at September 6, 2016; 38,802,425 shares issued and outstanding at December 29, 2015 4 4 Additional paid-in capital 361,805 372,260 Accumulated other comprehensive loss (122 ) — Retained earnings (accumulated deficit) 8,987 (3,887 ) Total shareholders’ equity 370,674 368,377 Total liabilities and shareholders’ equity $ 714,570 $ 703,572 condensed consolidated financial statements.Condensed Consolidated Statements of Comprehensive Income (Loss)(Unaudited)(In thousands, except share and per share data) Successor Predecessor 10 Weeks
Ended
September 8, 2015 2 Weeks
Ended
June 30, 2015 12 Weeks
Ended
September 9, 2014 $ 78,874 $ 15,891 $ 88,819 2,694 546 3,034 467 95 540 82,035 16,532 92,393 22,567 4,607 25,543 23,512 4,712 27,393 17,024 3,653 19,722 5,824 1,004 5,975 4,147 664 4,385 437 87 516 41 28 181 19 — 20 1 84 (24 ) 73,572 14,839 83,711 8,463 1,693 8,682 1,725 664 6,786 11,978 61 241 78 1 — — — 303 13,781 726 7,330 (5,318 ) 967 1,352 (3,132 ) (1,449 ) 463 (2,186 ) 2,416 889 — (1 ) (14 ) — — 5 — (1 ) (9 ) $ (2,186 ) $ 2,415 $ 880 $ (0.06 ) $ 0.36 $ 0.23 $ (0.06 ) $ 0.36 $ 0.23 38,802,425 6,707,776 3,907,835 38,802,425 6,707,776 3,910,866 Del Taco Restaurants, Inc. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In thousands, except share and per share data) Successor Predecessor 12 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 2 Weeks Ended
June 30, 2015Revenue: Company restaurant sales $ 100,173 $ 78,874 $ 15,891 Franchise revenue 3,686 2,694 546 Franchise sublease income 560 467 95 Total revenue 104,419 82,035 16,532 Operating expenses: Restaurant operating expenses: Food and paper costs 27,574 22,567 4,607 Labor and related expenses 30,748 23,512 4,712 Occupancy and other operating expenses 20,911 17,024 3,653 General and administrative 8,566 5,824 1,004 Depreciation and amortization 5,157 4,147 664 Occupancy and other - franchise subleases 521 437 87 Pre-opening costs 94 41 28 Restaurant closure charges, net (133 ) 19 — Loss on disposal of assets 54 1 84 Total operating expenses 93,492 73,572 14,839 Income from operations 10,927 8,463 1,693 Other expenses: Interest expense 1,412 1,725 664 Transaction-related costs 490 11,978 61 Debt modification costs — 78 1 Total other expenses 1,902 13,781 726 Income (loss) from operations before provision (benefit) for income taxes 9,025 (5,318 ) 967 Provision (benefit) for income taxes 4,076 (3,132 ) (1,449 ) Net income (loss) 4,949 (2,186 ) 2,416 Other comprehensive loss: Change in fair value of interest rate cap (122 ) — (1 ) Total other comprehensive loss (122 ) — (1 ) Comprehensive income (loss) $ 4,827 $ (2,186 ) $ 2,415 Earnings (loss) per share: Basic $ 0.13 $ (0.06 ) $ 0.36 Diluted $ 0.13 $ (0.06 ) $ 0.36 Weighted-average shares outstanding Basic 38,465,064 38,802,425 6,707,776 Diluted 38,688,961 38,802,425 6,707,776 condensed consolidated financial statements.Condensed Consolidated Statements of Comprehensive Income (Loss)(Unaudited)(In thousands, except share and per share data) Successor Predecessor 10 Weeks
Ended
September 8, 2015 26 Weeks
Ended
June 30, 2015 36 Weeks
Ended
September 9, 2014 $ 78,874 $ 200,676 $ 259,948 2,694 6,693 8,817 467 1,183 1,542 82,035 208,552 270,307 22,567 57,447 76,171 23,512 61,120 80,065 17,024 43,611 57,152 5,824 14,850 18,304 4,147 8,252 13,300 437 1,109 1,470 41 276 371 19 94 (171 ) 1 99 (229 ) 73,572 186,858 246,433 8,463 21,694 23,874 1,725 11,491 21,968 11,978 7,255 241 78 139 1,241 — (35 ) 303 13,781 18,850 23,753 (5,318 ) 2,844 121 (3,132 ) 740 1,259 (2,186 ) 2,104 (1,138 ) — (24 ) (103 ) — 58 7 — 34 (96 ) $ (2,186 ) $ 2,138 $ (1,234 ) $ (0.06 ) $ 0.38 $ (0.29 ) $ (0.06 ) $ 0.37 $ (0.29 ) 38,802,425 5,492,417 3,907,835 38,802,425 5,610,859 3,907,835 Del Taco Restaurants, Inc. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (In thousands, except share and per share data) Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015Revenue: Company restaurant sales $ 289,640 $ 78,874 $ 200,676 Franchise revenue 10,591 2,694 6,693 Franchise sublease income 1,617 467 1,183 Total revenue 301,848 82,035 208,552 Operating expenses: Restaurant operating expenses: Food and paper costs 80,061 22,567 57,447 Labor and related expenses 90,781 23,512 61,120 Occupancy and other operating expenses 60,560 17,024 43,611 General and administrative 25,072 5,824 14,850 Depreciation and amortization 16,175 4,147 8,252 Occupancy and other - franchise subleases 1,534 437 1,109 Pre-opening costs 222 41 276 Restaurant closure charges, net (121 ) 19 94 Loss on disposal of assets 191 1 99 Total operating expenses 274,475 73,572 186,858 Income from operations 27,373 8,463 21,694 Other expenses: Interest expense 4,289 1,725 11,491 Transaction-related costs 681 11,978 7,255 Debt modification costs — 78 139 Change in fair value of warrant liability — — (35 ) Total other expenses 4,970 13,781 18,850 Income (loss) from operations before provision (benefit) for income taxes 22,403 (5,318 ) 2,844 Provision (benefit) for income taxes 9,529 (3,132 ) 740 Net income (loss) 12,874 (2,186 ) 2,104 Other comprehensive income (loss): Change in fair value of interest rate cap (122 ) — (24 ) Reclassification of interest rate cap amortization included in net income (loss) — — 58 Total other comprehensive income (loss), net (122 ) — 34 Comprehensive income (loss) $ 12,752 $ (2,186 ) $ 2,138 Earnings (loss) per share: Basic $ 0.33 $ (0.06 ) $ 0.38 Diluted $ 0.33 $ (0.06 ) $ 0.37 Weighted-average shares outstanding Basic 38,518,431 38,802,425 5,492,417 Diluted 38,682,273 38,802,425 5,610,859 Del Taco Restaurants, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015Operating activities Net income (loss) $ 12,874 $ (2,186 ) $ 2,104 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 16,175 4,289 8,249 Amortization of favorable and unfavorable lease assets and liabilities, net (420 ) (142 ) 3 Amortization of deferred financing costs and debt discount 267 37 908 Subordinated note interest paid-in-kind — — 37 Debt modification costs — 78 139 Stock-based compensation 2,630 146 532 Change in fair value of warrant liability — — (35 ) Deferred income taxes 6,019 — 551 Loss on disposal of assets 191 1 99 Restaurant closure charges (403 ) — — Changes in operating assets and liabilities: Accounts and other receivables, net 26 938 154 Inventories 296 (217 ) 145 Prepaid expenses and other current assets (1,699 ) (1,985 ) (426 ) Accounts payable 302 (2,100 ) 4,222 Other accrued liabilities 3,374 779 (5,026 ) Other non-current liabilities (936 ) (1,477 ) (1,573 ) Net cash provided by (used in) operating activities 38,696 (1,839 ) 10,083 Investing activities Purchases of property and equipment (23,143 ) (7,723 ) (14,813 ) Proceeds from disposal of property and equipment 5 — 42 Proceeds from the Company's trust account — 149,989 — Purchases of other assets (1,538 ) (297 ) (513 ) Acquisition of Del Taco Holdings, net of cash acquired — (89,827 ) — Net cash (used in) provided by investing activities (24,676 ) 52,142 (15,284 ) Financing activities Proceeds from term loan, net of debt discount — — 23,654 Proceeds from issuance of common stock — 35,000 91,236 Repurchase of common stock and warrants (12,169 ) — — Payment of tax withholding related to restricted stock vesting, option exercises and distribution of restricted stock units (916 ) — (7,533 ) Payments on term loan — (227,100 ) — Payments on capital leases and deemed landlord financing (1,214 ) (328 ) (831 ) Payment on subordinated notes — — (108,113 ) Proceeds from revolving credit facility 14,000 162,556 10,000 Payments on revolving credit facility (12,000 ) (7,000 ) (6,000 ) Payment for interest rate cap (312 ) — — Payments for debt issue costs — (484 ) (593 ) Repayment of note payable — (523 ) — Payment of deferred underwriter compensation — (5,250 ) — Net cash (used in) provided by financing activities (12,611 ) (43,129 ) 1,820 Increase (decrease) in cash and cash equivalents 1,409 7,174 (3,381 ) Cash and cash equivalents at beginning of period 10,194 — 8,553 Cash and cash equivalents at end of period $ 11,603 $ 7,174 $ 5,172 Supplemental cash flow information: Cash paid during the period for interest $ 4,279 $ 1,180 $ 13,548 Cash paid during the period for income taxes 811 — 46 Supplemental schedule of non-cash activities: Accrued property and equipment purchases $ 3,672 $ 2,322 $ 2,460 Write-offs of accounts receivables 72 — — Amortization of interest rate cap into net loss, net of tax — — 58 Change in other asset for fair value of interest rate cap recorded to other comprehensive loss, net (122 ) — (24 ) Warrant liability reclassified to equity upon exercise of warrants — — 8,274 Issuance of shares for consideration in the acquisition of Del Taco Holdings, Inc. — 189,305 — Issuance of warrants as payment for working capital loans — 389 — Common stock of Del Taco Restaurants, Inc. reclassified to equity upon release from possible redemption — 136,213 — Condensed Consolidated Statements of Shareholders’ Equity(Unaudited)(In thousands, except share data) Del Taco Holdings, Inc. (Predecessor) Accumulated Additional Other Total Preferred Common Stock Paid-in Comprehensive Accumulated Shareholders’ Stock Shares Amount Capital Loss Deficit Equity $ — 3,907,835 $ 39 $ 110,941 $ (409 ) $ (29,167 ) $ 81,404 — — — — — 2,104 2,104 — — — — 34 — 34 — — — — — — 2,138 — — — 532 — — 532 — 213,025 2 8,272 — — 8,274 — 237,948 2 (7,535 ) — — (7,533 ) — 2,348,968 24 91,212 — — 91,236 $ — 6,707,776 $ 67 $ 203,422 $ (375 ) $ (27,063 ) $ 176,051 Del Taco Restaurants, Inc. (Successor) Accumulated Additional Other Total Preferred Common Stock Paid-in Comprehensive Accumulated Shareholders’ Stock Shares Amount Capital Loss Deficit Equity $ — 5,127,606 $ 1 $ 9,857 $ — $ (6,540 ) $ 3,318 — 13,621,279 1 136,212 — — 136,213 — 20,053,540 2 224,304 — — 224,306 — — — 389 — — 389 — — — — — (2,186 ) (2,186 ) — — — 146 — — 146 $ — 38,802,425 $ 4 $ 370,908 $ — $ (8,726 ) $ 362,186 See accompanying notes to condensed consolidated financial statements.Condensed Consolidated Statements of Cash Flows(Unaudited)(In thousands) Successor Predecessor 10 Weeks
Ended
September 8, 2015 26 Weeks
Ended
June 30, 2015 36 Weeks
Ended
September 9, 2014 $ (2,186 ) $ 2,104 $ (1,138 ) 4,147 8,252 13,300 37 908 950 — 37 10,779 78 139 1,241 146 532 711 — (35 ) 303 1 99 (229 ) 938 154 (147 ) (217 ) 145 (37 ) (1,985 ) (426 ) (59 ) (2,100 ) 4,222 453 779 (5,026 ) 5,352 (1,477 ) (1,022 ) (914 ) (1,839 ) 10,083 30,565 (7,723 ) (14,813 ) (12,850 ) — 42 212 149,989 — — (297 ) (513 ) (627 ) (89,827 ) — — 52,142 (15,284 ) (13,265 ) — 23,654 60,388 — — 900 35,000 91,236 — — (7,533 ) — (227,100 ) — (14,500 ) (328 ) (831 ) (1,153 ) — (108,113 ) (62,000 ) 162,556 10,000 — (7,000 ) (6,000 ) — (484 ) (593 ) (392 ) (523 ) — — (5,250 ) — — — — (87 ) (43,129 ) 1,820 (16,844 ) 7,174 (3,381 ) 456 — 8,553 6,071 $ 7,174 $ 5,172 $ 6,527 $ 1,180 $ 11,599 $ 5,938 — 46 53 $ 2,322 $ 2,460 $ 547 — — 23 — 58 7 — (24 ) (103 ) — 8,274 — 189,305 — — 389 — — 136,213 — — See accompanying notes to condensed consolidated financial statements. Condensed Consolidated Financial StatementsSeptember 8, 2015 condensed consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At September 6, 2016 (Successor), there were 300 company-operated and 246 franchised Del Taco restaurants located in 16 states, including one franchised unit in Guam. At September 8, 2015 (Successor), there were 306 company-operated and 241 franchised Del Taco restaurants located in 16 states, including one franchised unit in Guam. At September 9, 2014, there were 303 company-operated and 245 franchised Del Taco restaurants located in 17 states, including one franchised unit in Guam. condensed consolidated financial statements 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 Securities and Exchange Commission (“SEC”). For additional information, these condensed consolidated financial statements should be read in conjunction with (i) the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2014 and (ii) DTH’s29, 2015 ("2015 Form 10-K"). The accounting policies used in preparing these consolidated financial statements and notes thereto forare the year ended December 30, 2014 includedsame as those described in the Company’s definitive proxy statement filed with the SEC on June 11, 2015. was subsequently re-named as Del Taco Restaurants, Inc. and is the “Successor” for periods after the Closing Date, which includes consolidation of DTH subsequent to the Business Combination on June 30, 2015. The Merger was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. See Note 3 for further discussion of the Business Combination. As a result of the application of the acquisition method of accounting as of the effective time of the Merger,Closing Date, the financial statements for the Predecessor period and for the Successor period are presented on a different basis and are therefore, not comparable. The historical financial information of Del Taco, formerly LAC, prior to the Business Combination have not been reflected in the financial statements as those amounts have been considered de-minimus.For the Condensed Consolidated Statements of Shareholders’ Equity, the Predecessor results reflect the equity balances and activities of DTH at December 30, 2014 through June 30, 2015 prior to the closing of the Business Combination and the Successor results reflect the LAC equity balances at June 30, 2015 prior to the closing of the Business Combination and the activities for Del Taco through September 8, 2015.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)yearsyear 2016 is the fifty-three week period ended January 3, 2017 (Successor). Fiscal year 2015 and 2014 are bothis the fifty-two week periods.period ended December 29, 2015 (Successor). 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. 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 2015,2016, the Company’s accompanying financial statements reflect the twelve weeks and thirty-six weeks ended September 6, 2016 (Successor). For fiscal year 2015, the Company’s accompanying financial statements reflect the two weeks and twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor) and the ten weeks ended September 8, 2015 (successor)(Successor). For fiscal year 2014, the Company’s financial statements reflect the twelve weeks (quarter) and thirty-six weeks (year to date) ended September 9, 2014 (predecessor).the Company,management, the accompanying condensed 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 condensed 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. condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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 condensed 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 allowancesDel Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESVariable Interest EntitiesIn accordance with Accounting Standards Codification (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 VIEs 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. Additionally, the Company holds a 1% ownership interest in four public limited partnerships in which the Company serves as general partner. The limited partners have substantive kick-out rights over the general partner giving the limited partners power to direct the activities of the limited partnerships. Based upon the Company’s analysis of all the relevant facts and considerations of the franchise entities, the limited partnerships and other affiliates, the Company has concluded that these entities and franchise agreements are not variable interest entities.Revenue RecognitionCompany restaurant sales from the operation of Company restaurants are recognized when food and service is delivered to customers. Franchise revenues comprise (i) initial development fees, (ii) initial franchise fees, (iii) on-going royalties and (iv) renewal fees. Franchise fees received pursuant to individual development agreements, which grant the right to develop franchised restaurants in future periods in specific geographic areas, are deferred and recognized as revenue when the Company has substantially fulfilled its obligation pursuant to the development agreement, which is generally upon restaurant opening. Royalties from franchised restaurants are recorded in revenue when food and service are delivered to customers. Renewal fees are recognized when a renewal agreement becomes effective. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities and promotional allowances. Franchise sublease income is composed of rental income associated with properties leased or subleased to franchisees and is recognized as revenue on an accrual basis.Gift CardsThe 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 of $1.1 million and $2.0 million is recorded in other non-current liabilities on the condensed consolidated balance sheets as of September 8, 2015 and December 30, 2014, respectively. 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 cardDel Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)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 breakage revenue was not significant to any period presented in the consolidated statements of comprehensive income (loss). Any future revisions to the estimated breakage rate may result in changes in the amount of breakage revenue recognized in future periods.Cash and Cash EquivalentsThe 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, NetAccounts and other receivables, net consist primarily of receivables from franchisees, sublease tenants, a vendor and a landlord. 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 and the landlord receivable is for an earned landlord reimbursement related to a restaurant that opened in December 2014. The allowance for doubtful accounts is based on historical experience and a review on a specific identification basis of the collectability of existing receivables.Vendor AllowancesThe 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.InventoriesInventories, consisting of food items, packaging and beverages, are valued at the lower of cost (first-in, first-out method) or market.Property and EquipmentProperty and equipment includes land, buildings, leasehold improvements, restaurant and other equipment and buildings under capital leases. Land, property and equipment acquired in business combinations are initially recorded at their estimated fair value. Land, property and 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.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)Estimated useful lives are as follows:Buildings20–35 yearsLeasehold improvementsShorter of useful life (typically 20 years) or lease termBuildings under capital leasesShorter of useful life (typically 20 years) or lease termRestaurant and other equipment3–15 yearsLeasehold improvements are amortized on the straight-line basis over 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.Gains and losses on the disposal of assets are recorded as the difference between the net proceeds received and net carrying values of the assets disposed and are included in loss (gain) on disposal of assets in the consolidated statements of comprehensive income (loss).Deferred Financing CostsDeferred financing costs represent third-party debt costs that are capitalized and amortized to interest expense over the associated term. Deferred financing costs, lender discount and other lender fees are presented net of debt balances and are amortized to interest expense over the associated term.Goodwill and TrademarksThe 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 on the first day of the fourth quarter of each fiscal year or whenever an indicator of impairment exists.In assessing goodwill impairment for the Company’s single reporting unit, 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 the reporting unit is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a two-step impairment test of goodwill. In the first step, the Company estimates the fair value of the reporting unit and compare it to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of the impairment loss, if any. In the second step, the amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value.The Company’s indefinite-lived trademark is not amortized, but tested at least annually for impairment using a quantitative impairment analysis, and more frequently if events and circumstances indicate that the asset might be impaired. The quantitative impairment analysis compares the fair value of the indefinite-lived trademark, based on discounted future cash flows using a relief from royalty methodology. If the carrying amount of the indefinite-lived trademark exceeds its fair value, an impairment loss is measured as the difference between the implied fair value of the trademark and its carrying amount.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)Intangible Assets, NetIntangible assets primarily include leasehold interests and franchise rights. Leasehold interests represent the fair values of acquired lease contracts having contractual rents that differ from fair market rents as of the acquisition date, and are amortized on the straight-line basis over the lease term to rent expense (occupancy and other operating expense). Franchise rights, which represent the fair value of franchise contracts based on the projected royalty revenue stream, are amortized on the straight-line basis to general and administrative expense over the term of the franchise agreements.Other Assets, NetOther assets, net consist of security deposits 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, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest costs incurred while developing internal-use computer software. Capitalized software costs are amortized over the estimated useful life, typically three years.The Company has elected to account for construction costs in a manner such that costs with a future benefit for the projects are capitalized. 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 occupancy and other operating expenses in the consolidated statements of comprehensive income (loss). The Company capitalizes interest in connection with the construction of its restaurants.Long-Lived AssetsLong-lived assets, including property and equipment and definite lived intangible assets (other than goodwill and indefinite-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 contracts 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 either the land and building real estate value for the respective restaurant or the discounted value of the estimated cash flows associated with the respective restaurant or contract.Rent Expense and Deferred RentAt inception, each lease is evaluated to determine whether it will be classified as an operating or capital lease. Rent expense on operating leases with scheduled or minimum rent increases is recorded on the straight-line basis over the lease term, 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). Deferred rent represents the excess of rent charged to expense overDel Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)the rent obligations under the lease agreement, as well as leasehold improvements funded by lessor incentives which are amortized as reductions to rent expense over the expected lease term and unfavorable leasehold interests which are amortized on a straight-line basis over the expected lease term.Deferred rent is recorded in other non-current liabilities on the consolidated balance sheets. Contingent rentals are generally based on 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.The Company may expend cash for structural additions on leased premises that may be reimbursed in whole or in part by landlords as construction contributions pursuant to agreed-upon terms in the leases. Depending on the specifics of the leased space and the lease agreement, the amounts paid for structural components will be recorded during the construction period as either prepaid rent or construction-in-progress and the landlord construction contributions will be recorded as either an offset to prepaid rent or as a deemed landlord financing liability. Upon completion of construction for those leases that meet certain criteria, the lease may qualify for sale-leaseback treatment. For these leases, the deemed landlord financing liability and the associated construction-in-progress will be removed and the difference will be reclassified to prepaid or deferred rent and amortized over the lease term as an increase or decrease to rent expense. If the lease does not qualify for sale-leaseback treatment, the deemed landlord financing liability will be amortized over the lease term based on the rent payments designated in the lease agreement.Insurance ReservesGiven 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). The amount of self-insurance 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. Self-insurance loss reserves are based on estimates of expected losses for determining reported claims and as the basis for estimating claims incurred but not reported. The estimation process for self-insurance 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 a 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.Advertising CostsFranchisees pay a monthly fee to the Company of 4% of their restaurants’ net sales as reimbursement for advertising and promotional services that the Company provides. Company-operated restaurants contribute to the advertising fund on the same basis as franchised restaurants.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)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 income (loss).Pre-opening CostsPre-opening costs, which include restaurant labor, supplies, rent expense and other costs incurred prior to the opening of a new restaurant are expensed as incurred.Restaurant Closure Charges, NetThe 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 liability at the time the restaurant is closed. These restaurant closure obligations primarily consist of the liability for the present value of future lease obligations, net of estimated sublease income, if any. Restaurant closure charges, net are comprised of initial charges associated with the recording of the liability at fair value, accretion of the liability during the period, and any positive or negative adjustments to the liability in subsequent periods as more information becomes available. To the extent that the disposal or abandonment of related property and equipment results in gains or losses, such gains or losses are included in loss (gain) on disposal of assets in the consolidated statements of comprehensive income (loss).Stock-Based Compensation ExpenseThe Company measures and recognizes compensation expense for all share-based payment awards made to employees based on their estimated grant date fair values using an option pricing model for option grants, third-party valuation for grants of restricted stock units and the closing price of the underlying common stock on the date of the grant for restricted stock awards. Compensation expense for the Company’s stock-based compensation awards is generally recognized on a straight-line basis.Income TaxesThe 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.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)Derivative Instruments and Hedging ActivitiesThe 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 recognizes all derivative instruments as either assets or liabilities at fair value in the condensed consolidated balance sheets. When they qualify as hedging instruments, the Company designates interest rate caps as cash flow hedges of forecasted variable rate interest payments on certain debt principal balances.For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings.The Company enters into interest rate derivative contracts with major banks and is exposed to losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.ContingenciesThe Company recognizes liabilities for contingencies when an exposure that 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) IncomeComprehensive (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 InformationAn 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.Del Taco Restaurants, Inc.Notes to Condensed Consolidated Financial Statements (continued)(Unaudited)Related Party TransactionsThe Company has entered into long-term leases for 22 Del Taco restaurants whereby the lessor is one of four public partnerships where the Company serves as general partner with a 1% ownership interest. The leases require monthly rent payments in an amount equal to 12% of gross sales which were recorded within occupancy and other operating expenses in the condensed consolidated statements of comprehensive income (loss) and totaled $0.5 million, $0.1 million and $1.4 million for the ten weeks ended September 8, 2015 (successor), two weeks ended June 30, 2015 (predecessor) and twenty-six weeks ended June 30, 2015 (predecessor), respectively, and $0.6 million and $1.8 million for the twelve and thirty-six weeks ended September 9, 2014 (predecessor), respectively. The Company recorded a fair value adjustment through the purchase price allocation, as described in Note 3, of $1.5 million for the estimated fair value of its investment in the partnerships.On July 24, 2015, the four public partnerships entered into an agreement to sell all of the properties, subject to the approval of a majority in interest of the limited partners of each of the public partnerships, to a third party that is not affiliated with the Company. If the sale of the properties is approved by their respective limited partners, then following the consummation of the sale, the respective public partnership will be dissolved and the assets of the respective partnership will be distributed pursuant to the terms of their respective partnership agreements.At December 30, 2014 (predecessor), DTH had outstanding $108.1 million of subordinated notes due to its three largest shareholders that bore interest at 13.0%. On March 20, 2015, DTH used proceeds from the Step 1 of the Business Combination, as described in Note 3, a $10 million revolver borrowing and amended term loan proceeds of $25.1 million to fully redeem the then outstanding balance of $111.2 million of subordinated notes. Interest expense related to subordinated notes was zero and $3.1 million for the two and twenty-six weeks ended June 30, 2015 (predecessor) and $3.0 million and $11.2 million for the twelve and thirty-six weeks ended September 9, 2014 (predecessor), respectively. See Note 5 for further discussion regarding the subordinated notes.Fair Value of Financial InstrumentsThe 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;
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Concentration of Risks
As of September 8, 2015, Del Taco operated a total of 366 restaurants in California (244 company-owned and 122 franchised locations). 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, earthquakes or other natural disasters.
Recently Issued Accounting Standards
consolidated financial statements and related disclosures.
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Also concurrent with Step 1, the Company entered into common stock purchase agreements pursuant to which certain investors committed to acquire 3,500,000 shares of the Company’s common stock upon the closing of the Business Combination for total consideration of $35 million (the “Step 2 Investment”). The additional funds provided by these investors were used as additional cash consideration in the Business Combination.
The consideration for the Business Combination was provided by (1) the funds remaining in the Company’s trust account of $150 million after Delaware franchise taxes, stockholder redemptions, and $10.2 million of expenses paid for by the Company, (2) the $35 million provided by the Step 2 Investment, and (3) shares of the Company’s common stock. The Levy Newco Parties received only stock merger consideration in the Business Combination. The common stock purchase agreements entered into in connection with the Step 1 Investment and the closing of the Business Combination is hereafter referred to as “Step 2.” Step 1 and Step 2 are collectively referred to herein as the “Transactions.”
Step 2 is accounted for as a business combination under the scope of the FASB’s ASC 805, Business Combinations, or ASC 805. Pursuant to ASC 805, the Company has been determined to be the accounting acquirer based on the evaluation of the following facts and circumstances:
DTH constitutes a business, with inputs, processes, and outputs. Accordingly, the acquisition of DTH constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control from the merger, is accounted for using the acquisition method.
The following summarizes the merger considerationtotal purchase price paid to DTH stockholders (except for the Levy NewcoNewCo Parties) (in thousands):
| Calculation of Purchase Price | ||||
Cash consideration paid(1) | $ | 105,164 | ||
Value of share consideration issued(2) | 69,305 | |||
Fair value of equity interests acquired in Step 1(3) | 120,000 | |||
Less: Transaction expenses paid by the Company(1) | (10,164 | ) | ||
|
| |||
Total purchase price | $ | 284,305 | ||
|
| |||
Del Taco Restaurants, Inc.
Noteswas $284.3 million. The closing of the Business Combination and the Initial Investment were accounted for as related events transferring control of DTH to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| (in thousands, except share and per share data) | Calculation of Share Consideration | |||
Number of shares issued | 4,553,540 | |||
Value per share as of June 30, 2015 | $ | 15.22 | ||
|
| |||
Value of share consideration transferred | $ | 69,305 | ||
|
| |||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
the Company through a minority investment in the Initial Investment and a controlling interest at the closing of the Business Combination.
| Preliminary Purchase Price Allocation | ||||
Cash and cash equivalents | $ | 5,173 | ||
Accounts receivable and other receivables | 3,228 | |||
Inventories | 2,541 | |||
Prepaid expenses and other current assets | 4,145 | |||
|
| |||
Total current assets | 15,087 | |||
Property and equipment | 106,461 | |||
Intangible assets | 250,490 | |||
Other assets | 4,194 | |||
|
| |||
Total identifiable assets acquired | 376,232 | |||
Accounts payable | (18,866 | ) | ||
Other accrued liabilities | (26,607 | ) | ||
Current portion of long-term debt, capital lease obligations and deemed landlord financing liabilities | (1,670 | ) | ||
Long-term debt | (246,562 | ) | ||
Deferred income taxes | (79,215 | ) | ||
Other long-term liabilities | (36,181 | ) | ||
|
| |||
Net identifiable liabilities assumed | (32,869 | ) | ||
Goodwill | 317,174 | |||
|
| |||
Total gross consideration | $ | 284,305 | ||
|
| |||
Purchase Price Allocation | |||
| Cash and cash equivalents | $ | 5,173 | |
| Accounts receivable and other receivables | 3,228 | ||
| Inventories | 2,541 | ||
| Prepaid expenses and other current assets | 4,266 | ||
| Total current assets | 15,208 | ||
| Property and equipment | 105,524 | ||
| Intangible assets | 250,490 | ||
| Other assets | 4,194 | ||
| Total identifiable assets acquired | 375,416 | ||
| Accounts payable | (18,866 | ) | |
| Other accrued liabilities | (26,607 | ) | |
| Current portion of capital lease obligations and deemed landlord financing liabilities | (1,670 | ) | |
| Long-term debt, capital lease obligations and deemed landlord financing liabilities | (246,562 | ) | |
| Deferred income taxes | (80,254 | ) | |
| Other long-term liabilities | (36,208 | ) | |
| Net identifiable liabilities assumed | (34,751 | ) | |
| Goodwill | 319,056 | ||
| Total gross consideration | $ | 284,305 | |
The preliminary values allocated
| Fair Value | Useful life | |||||
Favorable leasehold interests and other intangible assets | $ | 14,290 | 0.6 to 19 years | |||
Trademarks | 220,300 | Indefinite | ||||
Franchise agreements | 15,900 | 0.1 to 40 years | ||||
|
| |||||
Total intangible assets | $ | 250,490 | ||||
|
| |||||
Unfavorable leasehold interests(1) | $ | (23,652 | ) | 1.5 to 19 years | ||
|
| |||||
Weighted average life of definite-lived intangibles | 11 years | |||||
The goodwillderivative complaint (see Note 14 for further discussion) of $317.2$0.2 million arising from the Business Combination is primarily attributableits insurance company related to the market position and future growth potential of DTH for both company-operated and franchised restaurants. Approximately $0.6 million of goodwill is expected to be deductible for income tax purposes.
costs previously expensed. For the ten weeks ended September 8, 2015 (successor),(Successor) and the two weeks ended June 30, 2015 (predecessor) and the twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor), the Company incurred approximately $12.0 million, $0.1 million and $7.3 million, respectively, of transaction expenses directly related to Step 1the Business Combination.
LAC incurred $1.6restaurant closure activities are discussed below.
| Total | ||||
| Balance at December 29, 2015 (Successor) | $ | 1,023 | ||
| Charges for accretion in current period | 57 | |||
| Cash payments | (73 | ) | ||
| Balance at September 6, 2016 (Successor) | $ | 1,007 | ||
| Contract termination costs | Other associated costs | Total | ||||||||||
| Balance at December 29, 2015 (Successor) | $ | 3,637 | $ | 163 | $ | 3,800 | ||||||
| Charges for accretion in current period | 96 | — | 96 | |||||||||
| Cash payments | (1,076 | ) | (163 | ) | (1,239 | ) | ||||||
| Adjustments to estimates based on current activity | (552 | ) | — | (552 | ) | |||||||
| Balance at September 6, 2016 (Successor) | $ | 2,105 | $ | — | $ | 2,105 | ||||||
sheets. The preliminary allocationnon-current portion of the purchase pricerestaurant closure liability is based on preliminary valuations performed to determine$1.2 million and $2.3 million at September 6, 2016 (Successor) and December 29, 2015 (Successor), respectively, and is included in other non-current liabilities in the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets are based on preliminary valuations and are subject to final adjustment to reflect the final valuations. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed above.
The following unaudited pro forma combined financial information presents the Company’s results as though DTH and the Company had combined at January 1, 2014. The unaudited pro forma condensed consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP (in thousands):
| 2 Weeks Ended June 30, 2015 (pro forma) | 12 Weeks Ended September 9, 2014 (pro forma) | 26 Weeks Ended June 30, 2015 (pro forma) | 36 Weeks Ended September 9, 2014 (pro forma) | |||||||||||||
| (unaudited) | ||||||||||||||||
Total Revenue | $ | 16,532 | $ | 92,393 | $ | 208,552 | $ | 270,307 | ||||||||
Net income (loss) | $ | 735 | $ | 634 | $ | (2,790 | ) | $ | (1,809 | ) | ||||||
balance sheets.
4.
Changes
| Goodwill | ||||
Balance as of December 30, 2014 (Predecessor) | $ | 281,200 | ||
Elimination of predecessor goodwill | (281,200 | ) | ||
Acquisition of businesses | 317,174 | |||
|
| |||
Balance as of September 8, 2015 (Successor) | $ | 317,174 | ||
|
| |||
(Successor).
| Successor | Predecessor | |||||||||||||||||||||||||
| September 8, 2015 | December 30, 2014 | |||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||||
Favorable leasehold interests | $ | 14,207 | $ | (392 | ) | $ | 13,815 | $ | 6,788 | $ | (3,282 | ) | $ | 3,506 | ||||||||||||
Franchise rights | 15,900 | (275 | ) | 15,625 | 20,882 | (6,828 | ) | 14,054 | ||||||||||||||||||
Other | 83 | (2 | ) | 81 | 263 | (140 | ) | 123 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total amortized other intangible assets | $ | 30,190 | $ | (669 | ) | $ | 29,521 | $ | 27,933 | $ | (10,250 | ) | $ | 17,683 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| Successor | ||||||||||||||||||||||||
| September 6, 2016 | December 29, 2015 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||||
| Favorable lease assets | $ | 14,207 | $ | (2,409 | ) | $ | 11,798 | $ | 14,207 | $ | (1,020 | ) | $ | 13,187 | ||||||||||
| Franchise rights | 15,783 | (1,678 | ) | 14,105 | 15,897 | (711 | ) | 15,186 | ||||||||||||||||
| Total amortized other intangible assets | $ | 29,990 | $ | (4,087 | ) | $ | 25,903 | $ | 30,104 | $ | (1,731 | ) | $ | 28,373 | ||||||||||
5. During the thirty-six weeks ended September 6, 2016 (Successor), the Company wrote-off $0.1 million of franchise rights associated with the closure of three franchise locations.
Liabilities
| Successor | Predecessor | |||||||||
| September 8, 2015 | December 30, 2014 | |||||||||
2015 Revolving Credit Facility, net of $1,416 debt discount at September 8, 2015 | $ | 159,584 | $ | — | ||||||
2013 Term Loan, net of $4,559 debt discount at December 30, 2014 | — | 197,441 | ||||||||
F&C Restaurant Holding Co. (F&C RHC) subordinated notes | — | 72,189 | ||||||||
Sagittarius Restaurants LLC (SAG Restaurants) subordinated notes | — | 35,887 | ||||||||
2013 Revolver | — | — | ||||||||
|
|
|
| |||||||
Total outstanding indebtedness | 159,584 | 305,517 | ||||||||
Obligations under capital leases and deemed landlord financing liabilities | 16,801 | 17,881 | ||||||||
|
|
|
| |||||||
Total debt | 176,385 | 323,398 | ||||||||
Less: amounts due within one year | 1,665 | 1,634 | ||||||||
|
|
|
| |||||||
Total long-term debt due after one year | $ | 174,720 | $ | 321,764 | ||||||
|
|
|
| |||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| Successor | ||||||||
| September 6, 2016 | December 29, 2015 | |||||||
| 2015 Senior Credit Facility, net of debt discount of $1,128 and $1,328 and deferred financing costs of $381 and $448 at September 6, 2016 (Successor) and December 29, 2015 (Successor), respectively | $ | 154,491 | $ | 152,224 | ||||
| Total outstanding indebtedness | 154,491 | 152,224 | ||||||
| Obligations under capital leases and deemed landlord financing liabilities | 16,255 | 17,469 | ||||||
| Total debt | 170,746 | 169,693 | ||||||
| Less: amounts due within one year | 1,639 | 1,725 | ||||||
| Total amounts due after one year, net | $ | 169,107 | $ | 167,968 | ||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
2015 (Successor). Lender debt discount costs and deferred financing costs associated with the 2015 RevolvingSenior Credit Facility are presented net of the 2015 RevolvingSenior Credit Facility balance on the condensed consolidated balance sheets and deferred financing costs are included in other assets on the condensed consolidated balance sheets. Both lender debt discount costs and deferred financing costs arewill be amortized to interest expense over the term of the 2015 RevolvingSenior Credit Facility. Amortization of deferred financing costs includingand debt discount related to the 2015 Senior Credit Facility totaled $37,000$0.1 million and $0.3 million during the tentwelve weeks and thirty-six weeks ended September 8, 2015 (successor).
6, 2016 (Successor), respectively.
DTH utilized $17.6 million of its 2013 Revolver to support outstanding letters of credit at December 30, 2014. Unused 2013 Revolver capacity at December 30, 2014 was $22.4 million.
DTH was in compliance with the financial covenants under the 2013 Senior Credit Facility as of December 30, 2014.
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
ended September 9, 2014 (predecessor), respectively, and $0.9 million and $1.0 million during the twenty-six weeks ended June 30, 2015, (predecessor) and the thirty-six weeks ended September 9, 2014 (predecessor), respectively. The Company determined the fair value of the 2013 Senior Credit Facility was equal
Consolidated Financial Statements (continued)
The balance of DTH’s
6. Derivative Instruments
As of September 8, 2015 and December 30, 2014,2016, the Company had an interest rate cap agreement to hedge cash flows associated with interest rate fluctuations on variable rate debt. This agreementdebt ("2010 Interest Rate Cap Agreement"). The 2010 Interest Rate Cap Agreement had a notional amount of $87.5 million as of September 8,December 29, 2015 and December 30, 2014.(Successor). The individual caplet contracts within the remaining interest rate cap agreement expireexpired at various dates through June 30, 2016.
(Successor)
(Predecessor).
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
7.
The warrant liability represented warrants to purchase shares of DTH common stock, which had limited marketability. As of December 30, 2014, management took into consideration the enterprise value of DTH as it relates to Step 1 of the Business Combination (see Note 3) when recording its warrant liability as of December 30, 2014 (i.e., the computed value of the warrants was based on their relative fair value as part of the overall transaction discussed above). As a result of certain unobservable inputs, DTH had categorized the warrant liability as of December 30, 2014 as a Level 3 fair value measurement. On March 20,29, 2015 GSMP exercised all of its outstanding warrants and purchased shares of DTH common stock at $25.00 per share based on a fair value of $8.3 million derived from the Step 1 of the Business Combination discussed above in Note 3. The Company recorded a mark-to-market adjustment of $35,000 to reduce the liability during the twenty-six weeks ended June 30, 2015 and then reclassified the balance of the warrant liability of $8.3 million to equity.
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The DTH SAG Restaurants Sub Notes and F&C RHC Sub Notes were paid in entirety on March 20, 2015 and thus no balance was outstanding as of September 8, 2015. (Successor).
| Successor | Predecessor | |||||||||||||||||
| September 8, 2015 | December 30, 2014 | |||||||||||||||||
| Estimated Fair Value | Book Value | Estimated Fair Value | Book Value | |||||||||||||||
| (Unaudited) | ||||||||||||||||||
2015 Revolving Credit Facility | $ | 159,584 | $ | 159,584 | $ | — | $ | — | ||||||||||
2013 Term Loan | — | — | 199,172 | 197,441 | ||||||||||||||
2013 Revolver | — | — | — | — | ||||||||||||||
SAG Subordinated Notes | — | — | 34,846 | 35,887 | ||||||||||||||
F&C RHC Subordinated Notes | — | — | 70,962 | 72,189 | ||||||||||||||
Warrant liability | — | — | 8,309 | 8,309 | ||||||||||||||
Interest rate cap agreement | — | — | 25 | 25 | ||||||||||||||
| Successor | ||||||||||||||||
| September 6, 2016 | December 29, 2015 | |||||||||||||||
Estimated Fair Value | Book Value | Estimated Fair Value | Book Value | |||||||||||||
| 2015 Senior Credit Facility | $ | 154,491 | $ | 154,491 | $ | 152,224 | $ | 152,224 | ||||||||
Predecessor | ||||||||||||||||
| December 30, 2014 | Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | |||||||||||||
Warrant liability | $ | (8,309 | ) | $ | — | $ | — | $ | (8,309 | ) | ||||||
Interest rate cap | 25 | — | 25 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total (liabilities) assets measured at fair value | $ | (8,284 | ) | $ | — | $ | 25 | $ | (8,309 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
8.
| (Unaudited) September 6, 2016 | Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
| 2016 Interest Rate Cap Agreement | $ | 190 | $ | — | $ | 190 | $ | — | |||||||
| Total assets measured at fair value | $ | 190 | $ | — | $ | 190 | $ | — | |||||||
| December 29, 2015 | Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||
| 2010 Interest Rate Cap Agreement | $ | — | $ | — | $ | — | $ | — | |||||||
| Total assets measured at fair value | $ | — | $ | — | $ | — | $ | — | |||||||
| Successor | Predecessor | |||||||||
| September 8, 2015 | December 30, 2014 | |||||||||
| (Unaudited) | ||||||||||
Employee compensation and related items | $ | 7,356 | $ | 7,395 | ||||||
Accrued insurance | 7,019 | 6,198 | ||||||||
Accrued sales tax | 3,892 | 3,161 | ||||||||
Accrued interest payable | 170 | 2,056 | ||||||||
Accrued real property tax | 1,759 | 1,301 | ||||||||
Accrued bonus | 3,345 | 4,563 | ||||||||
Accrued advertising | 1,828 | 2,129 | ||||||||
Accrued transaction-related costs | 545 | 1,374 | ||||||||
Deferred current income taxes | 1,145 | 193 | ||||||||
Other | 3,367 | 3,718 | ||||||||
|
|
|
| |||||||
| $ | 30,426 | $ | 32,088 | |||||||
|
|
|
| |||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| Successor | ||||||||
| September 6, 2016 | December 29, 2015 | |||||||
| Employee compensation and related items | $ | 7,847 | $ | 7,818 | ||||
| Accrued insurance | 7,091 | 7,168 | ||||||
| Accrued sales tax | 3,926 | 3,604 | ||||||
| Accrued bonus | 3,173 | 5,352 | ||||||
| Accrued income tax | 2,724 | 30 | ||||||
| Accrued advertising | 2,452 | 999 | ||||||
| Accrued real property tax | 1,743 | 1,378 | ||||||
| Restaurant closure liability | 1,033 | 1,617 | ||||||
| Other | 6,305 | 4,931 | ||||||
| $ | 36,294 | $ | 32,897 | |||||
| Successor | Predecessor | |||||||||
| September 8, 2015 | December 30, 2014 | |||||||||
| (Unaudited) | ||||||||||
Deferred rent liability | $ | 218 | $ | 4,956 | ||||||
Insurance reserves | 6,205 | 7,289 | ||||||||
Unfavorable leasehold interests | 23,117 | 5,308 | ||||||||
Unearned trade discount, non-current | 2,156 | 2,445 | ||||||||
Deferred gift card income | 1,140 | 1,994 | ||||||||
Deferred development and initial franchise fees | 2,045 | 1,685 | ||||||||
Other | 1,425 | 1,777 | ||||||||
|
|
|
| |||||||
| $ | 36,306 | $ | 25,454 | |||||||
|
|
|
| |||||||
The Company recorded fair value adjustments to the deferred rent liability and unfavorable leasehold interests through the purchase price allocation, as described in Note 3.
9. Stock-Based Compensation
The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, The Company estimates the fair value of stock-based awards based on assumptions as of the grant date. 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.
| Successor | ||||||||
| September 6, 2016 | December 29, 2015 | |||||||
| Unfavorable lease liabilities | $ | 17,876 | $ | 19,685 | ||||
| Insurance reserves | 6,335 | 5,963 | ||||||
| Restaurant closure liability | 2,079 | 3,206 | ||||||
| Unearned trade discount, non-current | 1,736 | 2,028 | ||||||
| Deferred development and initial franchise fees | 1,700 | 1,920 | ||||||
| Deferred gift card income | 1,356 | 2,217 | ||||||
| Deferred rent liability | 1,348 | 731 | ||||||
| Other | 970 | 501 | ||||||
| $ | 33,400 | $ | 36,251 | |||||
2015 Omnibus Incentive Plan
| Shares | Weighted-Average Grant Date Fair Value | |||||||
Nonvested at June 30, 2015 | — | $ | — | |||||
Granted | 150,000 | 15.22 | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
|
|
|
| |||||
Nonvested at September 8, 2015 | 150,000 | $ | 15.22 | |||||
|
|
|
| |||||
The total compensation expense related to
| Shares | Weighted-Average Grant Date Fair Value | ||||||
| Nonvested at December 29, 2015 (Successor) | 946,494 | $ | 11.16 | ||||
| Granted | 461,124 | 9.30 | |||||
| Vested | (265,046 | ) | 11.25 | ||||
| Forfeited | — | — | |||||
| Nonvested at September 6, 2016 (Successor) | 1,142,572 | $ | 10.39 | ||||
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||
| (in years) | |||||||||||||
| Options outstanding at December 29, 2015 (Successor) | 224,000 | $ | 10.40 | 6.5 | $ | 67 | |||||||
| Granted | 122,000 | 9.14 | |||||||||||
| Exercised | — | — | |||||||||||
| Forfeited | (8,500 | ) | 10.40 | ||||||||||
| Options outstanding at September 6, 2016 (Successor) | 337,500 | $ | 9.95 | 6.4 | $ | 419 | |||||||
| Options exercisable at September 6, 2016 (Successor) | 54,250 | $ | 10.40 | 6.2 | $ | 43 | |||||||
| Options exercisable and expected to vest at September 6, 2016 (Successor) | 305,296 | $ | 9.96 | 6.4 | $ | 376 | |||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
exercised and shares were issued, net of shares withheld for the applicable option strike price and employee tax withholding obligations. An aggregate of 237,948 shares of DTH common stock were issued and 247,552 shares of DTH common stock were redeemedwithheld for applicable option strike price and employee tax withholding obligations. In exchange for the shares withheld, DTH made payments of $7.5 million related to employee tax withholding obligations.
10. Shareholders’ Equity
The authorized common stock of6, 2016 (Successor), 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 September 8, 2015, there were 38,802,425repurchased (1) 1,134,790 shares of common stock issuedfor an average price per share of $9.78 for an aggregate cost of approximately $11.2 million, and outstanding(2) 476,806 warrants for an average price per warrant of $2.11 for an aggregate cost of approximately $1.0 million including incremental direct costs to acquire the shares and warrants. The Company expects to retire the repurchased shares and warrants to purchase 12,639,623 shares of the Company’s common stock outstanding at a strike price of $11.50. Of the 12,639,623 warrants, 7,500,000 were issued in the Company’s initial public offering in November 2013 and 4,750,000 warrants were issued in a private sale not involving a public offering in November 2013 (“Private Placement Warrants”). On June 30, 2015, the Company issued 389,623 additional Private Placement Warrants to Levy Acquisition Sponsor LLC (the “Sponsor”), the Company’s sponsor, to satisfy outstanding working capital loans owed to the Sponsor by the Company.
The Company previously had 15,000,000 common shares that were soldtherefore has accounted for them as part of the Company’s initial public offering in November 2013 which each contained a redemption feature that allows for the redemption of the common shares. The amount of the common shares subject to possible redemption was recorded as a liability on LAC’s consolidated balance sheet andconstructively retired as of June 16, 2015, 13,622,394 shares were classified outside of permanent equity at its redemption value of $136.2 million. On June 30, 2015, in connection with the Business Combination, 1,115 shares were redeemed at $10 per share and the remaining shares with a value of $136.2 million were reclassified into equity.
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.September 6, 2016 (Successor). As of September 8, 2015,6, 2016 (Successor), there werewas approximately $37.9 million remaining under the share repurchase program. The Company has no preferredobligations to repurchase shares issued or outstanding.
As described in Note 3, on March 20, 2015,warrants under this authorization, and the Levy Newco Parties made a $120 million minority equity investment in DTH in connection with a stock purchase agreement dated March 12, 2015. Proceeds of $91.2 million from Step 1 of the Business Combination were used to purchase 2,348,968 shares of DTH common stock.
Also on March 20, 2015, warrants to purchase 597,802 shares of DTH common stock held by GSMP were exercised at a strike price of $25.00 per share based on a fairtiming and value of $8.3 million determined from Step 1 ofshares and warrants purchased will depend on the Business Combination. GSMP redeemed 384,777 DTH shares upon exercise as payment for the strikeCompany's stock price, resulting in 213,025 shares of DTH common stock issued. The Company recorded a mark-to-market adjustment of $35,000 to reduce the liability during twowarrant price, market conditions and twenty-six weeks ended June 30, 2015 (predecessor) and then reclassified the balance of the warrant liability of $8.3 million to shareholders’ equity.
other factors.
11.
stock units.
| Successor | �� | Predecessor | ||||||||||||
| 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | 12 Weeks Ended September 9, 2014 | ||||||||||||
Numerator: | ||||||||||||||
Net (loss) income | $ | (2,186 | ) | $ | 2,416 | $ | 889 | |||||||
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||
Weighted-average shares outstanding - basic | 38,802,425 | 6,707,776 | 3,907,835 | |||||||||||
Dilutive effect of restricted stock and RSUs | — | — | — | |||||||||||
Dilutive effect of stock options | — | — | 3,031 | |||||||||||
Dilutive effect of warrants | — | — | — | |||||||||||
Weighted-average shares outstanding - diluted | 38,802,425 | 6,707,776 | 3,910,866 | |||||||||||
|
|
|
|
|
| |||||||||
Net (loss) income per share - basic | $ | (0.06 | ) | $ | 0.36 | $ | 0.23 | |||||||
Net (loss) income per share - diluted | $ | (0.06 | ) | $ | 0.36 | $ | 0.23 | |||||||
|
|
|
|
|
| |||||||||
Antidilutive options, unvested restricted stock awards, unvested RSUs and warrants excluded from the computations | 2,632,739 | — | 41,502 | |||||||||||
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
| Successor | Predecessor | |||||||||||||
| 10 Weeks Ended September 8, 2015 | 26 Weeks Ended June 30, 2015 | 36 Weeks Ended September 9, 2014 | ||||||||||||
Numerator: | ||||||||||||||
Net (loss) income | $ | (2,186 | ) | $ | 2,104 | $ | (1,138 | ) | ||||||
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||
Weighted-average shares outstanding - basic | 38,802,425 | 5,492,417 | 3,907,835 | |||||||||||
Dilutive effect of restricted shares and RSUs | — | 13,972 | — | |||||||||||
Dilutive effect of stock options | — | 93,634 | — | |||||||||||
Dilutive effect of warrants | — | 10,836 | — | |||||||||||
Weighted-average shares outstanding - diluted | 38,802,425 | 5,610,859 | 3,907,835 | |||||||||||
|
|
|
|
|
| |||||||||
Net (loss) income per share - basic | $ | (0.06 | ) | $ | 0.38 | $ | (0.29 | ) | ||||||
Net (loss) income per share - diluted | $ | (0.06 | ) | $ | 0.37 | $ | (0.29 | ) | ||||||
|
|
|
|
|
| |||||||||
Antidilutive options, unvested restricted stock awards, unvested RSUs and warrants excluded from the computations | 2,632,739 | — | 67,957 | |||||||||||
| Successor | Predecessor | ||||||||||||
| 12 Weeks Ended September 6, 2016 | 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | |||||||||||
| Numerator: | |||||||||||||
| Net income (loss) | $ | 4,949 | $ | (2,186 | ) | $ | 2,416 | ||||||
| Denominator: | |||||||||||||
| Weighted-average shares outstanding - basic | 38,465,064 | 38,802,425 | 6,707,776 | ||||||||||
| Dilutive effect of unvested restricted stock and RSUs | 223,897 | — | — | ||||||||||
| Dilutive effect of stock options | — | — | — | ||||||||||
| Dilutive effect of warrants | — | — | — | ||||||||||
| Weighted-average shares outstanding - diluted | 38,688,961 | 38,802,425 | 6,707,776 | ||||||||||
| Net income (loss) per share - basic | $ | 0.13 | $ | (0.06 | ) | $ | 0.36 | ||||||
| Net income (loss) per share - diluted | $ | 0.13 | $ | (0.06 | ) | $ | 0.36 | ||||||
| Antidilutive stock options, unvested restricted stock awards, unvested RSUs and warrants excluded from the computations | 10,829,117 | 2,632,739 | — | ||||||||||
| Successor | Predecessor | ||||||||||||
| 36 Weeks Ended September 6, 2016 | 10 Weeks Ended September 8, 2015 | 26 Weeks Ended June 30, 2015 | |||||||||||
| Numerator: | |||||||||||||
| Net income (loss) | $ | 12,874 | $ | (2,186 | ) | $ | 2,104 | ||||||
| Denominator: | |||||||||||||
| Weighted-average shares outstanding - basic | 38,518,431 | 38,802,425 | 5,492,417 | ||||||||||
| Dilutive effect of unvested restricted stock and RSUs | 163,842 | — | 13,972 | ||||||||||
| Dilutive effect of stock options | — | — | 93,634 | ||||||||||
| Dilutive effect of warrants | — | — | 10,836 | ||||||||||
| Weighted-average shares outstanding - diluted | 38,682,273 | 38,802,425 | 5,610,859 | ||||||||||
| Net income (loss) per share - basic | $ | 0.33 | $ | (0.06 | ) | $ | 0.38 | ||||||
| Net income (loss) per share - diluted | $ | 0.33 | $ | (0.06 | ) | $ | 0.37 | ||||||
| Antidilutive stock options, unvested restricted stock awards, unvested RSUs and warrants excluded from the computations | 12,126,069 | 2,632,739 | — | ||||||||||
12.
The effective income tax rates were 42.5% and 26.0% for the thirty-six weeks ended September 6, 2016 (Successor) and 1040.5% for the twenty-six weeks ended June 30, 2015 (predecessor) and thirty-six weeks ended September 9, 2014 (predecessor)(Predecessor), respectively. The provision for income taxes consisted of income tax expense of $9.5 million and $0.7 million for the thirty-six weeks ended September 6, 2016 (Successor) and $1.3 million for the twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor), respectively.
13.
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Company reached a settlement in principleclass entered into a Stipulation of allSettlement with the defendants pursuant to which the plaintiff class broadly released claims asserted inrelating to the Complaint. The settlement resolvedMerger, including all claims that the June 11, 2015Company’s preliminary proxy statement or definitive proxy filed by the Company isstatement were misleading or incomplete, as well as all other causes of action asserted inimproper. Under the case. The settlement, in principle doesdefendants were not provide forrequired to make any monetary payment to the plaintiff or the putative plaintiff class but the plaintiff may request that the Circuit Court order the Companyagreed to pay its attorneys’ feesa portion of the hourly fee accrued by plaintiff’s counsel. On July 26, 2016, the Court held a final hearing and costs. Anythen certified a settlement class, approved the Stipulation of Settlement and entered a final settlement will be subject tojudgment dismissing the Circuit Court’s approval. The amount of attorney’s fees and costs that the court might award is not currently estimable.
action.
was received by October 2016.
Del Taco Restaurants, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of September 8, 2015.
In March 2014, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has not appropriately provided meal breaks and failed to pay wages to its California hourly employees. Discovery is in process and Del Taco intends to assert all of its defenses to this threatened class action and the individual claims. Del Taco has several defenses to the action that it believes should prevent the certification of the class, as well as the potential assessment of any damages on a class basis. Legal proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of September 8, 2015.
6, 2016 (Successor).
14.
30, 2015. The application of acquisition accounting for the Business Combination and exterior designs across most of 2015: Company-operated restaurant activity: Beginning of period Openings Closures Purchased from franchisee Restaurants at end of period Franchised restaurant activity: Beginning of period Openings Closures Restaurants sold to Company Restaurants at end of period Total restaurant activity: Beginning of period Openings Closures Restaurants at end of period Company restaurant sales Restaurant operating expenses Restaurant contribution Company restaurant sales Restaurant operating expenses Restaurant contribution sales. inefficiencies in the form of higher food and paper, labor and other direct operating expenses and, as a result, restaurant contribution margins are generally lower during the start-up period of operation. Typically, the average start-up period after which new company restaurant sales and restaurant operating expenses normalize is approximately under the heading entitled "Management's Use of Non-GAAP Financial Measures."The following includes management’s discussion related to Del Taco Restaurants, Inc. (“Del Taco”). The discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from Del Taco management’s expectations. Factors that could cause such differences are discussed in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors-Risks Related to Del Taco’s Business and Industry” included in the Definitive Proxy Statement on Schedule 14A filed by Levy Acquisition Corp. (“LAC”) with the Securities and Exchange Commission (“SEC”) on June 11, 2015. We assume no obligation to update any of these forward-looking statements.of the Company should be read in conjunction with (1) the Company’s condensedCompany's audited consolidated financial statements for the twelve and twenty-four weeks ended June 16, 2015, including the notes thereto, filed with a report on Form 8-K on July 27, 2015 and (2) the audited consolidated financial statements of DTH, our accounting predecessor, for thefiscal year ended December 30, 2014,29, 2015 (Successor), and related notes thereto, along with the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Proxy Statement datedAnnual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 8, 2016.11, 2015 (the “Proxy Statement”). (defined below) significantly affected certain assets, liabilities and expenses. As a result, financial information as of September 8, 20156, 2016 and for the twelve and thirty-six weeks ended September 8, 20156, 2016 may not be comparable to Del Taco’s predecessorPredecessor financial information for the twelve and thirty-six weeks ended September 9, 2014.8, 2015. Therefore, we did not combine certain financial information for the ten weeks ended September 8, 2015 with Del Taco’s predecessor financial information for the two weeks ended June 30, 2015 and for the twenty-six weeks ended June 30, 2015 for comparison to prior periods. We have combined our same store sales, company restaurant sales, franchise revenue, franchise sublease income, food and paper costs, labor and related expenses, general and administrative expenses, occupancy and other – franchise subleases, pre-opening costs, restaurant closure charges and loss on disposal of assets for the ten weeks ended September 8, 2015 with Del Taco’s predecessor same store sales, company restaurant sales, franchise revenue, franchise sublease income, food and paper costs, labor and related expenses, general and administrative expenses, occupancy and other – franchise subleases, pre-opening costs, restaurant closure charges and loss on disposal of assets for the two weeks ended June 30, 2015 and the twenty-six weeks ended June 30, 2015. Same store sales, company restaurant sales, franchise revenue, franchise sublease income, food and paper costs, labor and related expenses, restaurant closure charges and loss on disposal of assets were not affected by acquisition accounting. Refer to NoteNotes 2 and 3 to the condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for additional information on the acquisition accounting for the Business Combination.20142015 is the 52-week period ended December 30, 2014 (Fiscal 2014). Fiscal year 2015 will be a 52-week period ended December 29, 2015 (Fiscal 2015). For fiscalFiscal year 2015, the Company’s financial statements reflect the two weeks and twenty-six weeks2016 will be a 53-week period ended June 30, 2015 (predecessor) and ten weeks ended September 8, 2015 (successor) and for fiscal year 2014, the Company’s financial statements reflect the twelve weeks (quarter) and thirty-six weeks (year to date) ended September 9, 2014 (predecessor)January 3, 2017 (Fiscal 2016).Del Taco isThere are 547As of September 6, 2016 (Successor), there were 546 Del Taco restaurants, a majority of these in the Pacific Southwest. In each of itsour restaurants, Del Taco’sour food is made to order in working kitchens. Del Taco serves itsWe serve our customers fresh and high-quality food typical of fast casual restaurants but with the speed, convenience and value associated with traditional quick service restaurants (“QSRs”). With attributes of both a fast casual restaurant and a QSR — a combination we call QSR+Del Taco occupieswe occupy a place in the restaurant market distinct from itsour competitors. With a menu designed to appeal to a wide variety of budgets and tastes and recently updated interioritsour entire system, we believe that Del Taco iswe are poised for growth, operating within the fastest growing segment of the restaurant industry, the limited service restaurant (“LSR”) segment. With an average check of $6.49$6.79 during Fiscal 2014, Del Taco offers2015, we offer a compelling value proposition relative to both QSR and fast casual peers.Business CombinationOn June 30, 2015, we consummated our business combination with Del Taco Holdings, Inc. (DTH) pursuant to the agreement and plan of merger dated as of March 12, 2015 (the “Merger Agreement”), whereby our wholly-owned subsidiary, Levy Merger Sub, LLC, merged with and into DTH, with DTH surviving the merger as a wholly-owned subsidiary of the Company (the “Business Combination”). As a result of the merger, we acquired all of the common stock of DTH. Following the completion of the merger, we changed our name to Del Taco Restaurants, Inc. and remained a public company listed on NASDAQ. See Note 3 – “Business Combination” in the Notes to Condensed Consolidated Financial Statements. In addition, DTH used $68.6 million of the proceeds from the merger to reduce its existing senior credit facility (“2013 Senior Credit Facility”).Del Taco includesWe include a restaurant in the same store base in the accounting period following its 18th full month of operations. Foroperations and exclude restaurant closures. The following table shows the same store sales growth for the twelve weeks ended September 8, 2015 and September 9, 2014, system-wide same store sales increased 5.6% for both periods. For the thirty-six weeks ended September 8, 20156, 2016 (Successor) and September 9, 2014, system-wide same store sales increased 6.4% and 4.9%, respectively. Same store sales at company-operated restaurants increased 5.4% for the twelve weeks ended September 8, 2015 and 5.6% for the twelve weeks ended September 9, 2014. Same store sales at company-operated restaurants increased 6.4% for the thirty-six weeks ended September 8, 2015 and 5.1% for the thirty-six weeks ended September 9, 2014. The increase in company-operated same store sales in the twelve weeks ended September 8, 2015 was driven by an increase in average check size of 4.8% and an increase in traffic of 0.6% compared to the twelve weeks ended September 9, 2014. The increase in company-operated same store sales in the thirty-six weeks ended September 8, 2015 was driven by an increase in average check size of 4.3% and an increase in traffic of 2.1% compared to the thirty-six weeks ended September 9, 2014. Same store sales at franchised restaurants increased 5.8% and 5.6% for the twelve weeks ended September 8, 2015 and September 9, 2014, respectively. Same store sales at franchised restaurants increased 6.5% and 4.8% for the thirty-six weeks ended September 8, 2015 and September 9, 2014, respectively. 12 Weeks Ended 36 Weeks Ended September 6, 2016 September 8, 2015 September 6, 2016 September 8, 2015 Company-operated same store sales 7.1 % 5.4 % 4.4 % 6.4 % Franchised restaurants same store sales 6.2 % 5.8 % 4.5 % 6.5 % System-wide same store sales 6.7 % 5.6 % 4.4 % 6.4 % 8, 2015,6, 2016 (Successor) and September 9, 2014,8, 2015, are as follows: 12 Weeks Ended 36 Weeks Ended September 8,
2015 September 9,
2014 September 8,
2015 September 9,
2014 306 302 304 300 1 1 3 3 (1 ) — (1 ) — — — — — 306 303 306 303 241 244 243 247 — 2 — 4 — (1 ) (2 ) (6 ) — — — — 241 245 241 245 547 546 547 547 1 3 3 7 (1 ) (1 ) (3 ) (6 ) 547 548 547 548 12 Weeks Ended 36 Weeks Ended September 6, 2016 September 8, 2015 September 6, 2016 September 8, 2015 Company-operated restaurant activity: Beginning of period 298 306 297 304 Openings 1 1 3 3 Closures — (1 ) (1 ) (1 ) Purchased from franchisee 1 — 1 — Restaurants at end of period 300 306 300 306 Franchised restaurant activity: Beginning of period 245 241 247 243 Openings 2 — 3 — Closures — — (3 ) (2 ) Restaurants sold to Company (1 ) — (1 ) — Restaurants at end of period 246 241 246 241 Total restaurant activity: Beginning of period 543 547 544 547 Openings 3 1 6 3 Closures — (1 ) (4 ) (3 ) Restaurants at end of period 546 547 546 547 Del Taco haswe have focused on repositioning itsour brand, increasing brand awareness, re-imaging itsour restaurants, strengthening operational capabilities and refinancing indebtedness to build a foundation for future organic and new unit growth. New restaurant development is expected to contribute to Del Taco’sour growth strategy. Del Taco plansWe plan to open an estimated thirteen14 system-wide restaurants in Fiscal 2015,2016 including seven company-operated restaurants. From time to time Del Tacosix restaurants that have opened through September 6, 2016 (Successor).its franchisees close restaurants and Del Taco anticipates closing approximately 13 company-operated restaurants in Fiscal 2015, including the 12 restaurants discussed in the “Recent Events” section.Restaurant Re-ImagingDel Taco and itsour franchisees commenced the Ambience Shake Up (ASU) re-imaging program in 2012 and, as of September 8, 2015,6, 2016 (Successor), a total of 479513 restaurants feature Del Taco’sour current image through a re-image or new prototype design, including all 306300 restaurants that are company-operated. Del Taco expects over 90%We expect substantially all of itsour restaurant system to feature the current image by the end of 2015.2016. The ASU remodeling program involved a use of cash and impacted net property and depreciation line items on theour consolidated balance sheets and statements of comprehensive income (loss), among others. The cost of the ASU restaurant remodels varied depending on the scope of work required, but on average the company-operated investment was $45,000 per restaurant. Del Taco believesWe believe the ASU remodeling program is an important element of our strategy that has led to higher system restaurant sales and a strengthened brand.Recent EventsConcurrent with the execution of the Merger Agreement on March 12, 2015, Levy Epic Acquisition Company, LLC (“Levy Newco”), Levy Epic Acquisition Company II, LLC (“Levy Newco II” and with Levy Newco, the “Levy Newco Parties”), DTH and the DTH stockholders entered into a stock purchase agreement (the “Stock Purchase Agreement”). Pursuant to the Stock Purchase Agreement on March 20, 2015, Levy Newco Parties purchased 2,348,968 shares of DTH common stock from DTH for $91.2 million in cash and 740,564 shares of DTH common stock directly from existing DTH shareholders for $28.8 million in cash (the “Initial Investment”). As a result of this Initial Investment, an aggregate of 3,089,532 shares of DTH common stock were purchased by the Levy Newco Parties for total cash consideration of $120.0 million. Concurrent with the completion of the Initial Investment, DTH increased its borrowing capacity under its existing 2013 Term Loan by $25.1 million. Proceeds from the increased borrowings under the 2013 Term Loan, a $10.0 million drawdown under DTH’s $40.0 million revolving credit facility, and the $91.2 million received by DTH from the sale of DTH common stock to the Levy Newco Parties was used to repay the outstanding balance of DTH’s subordinated notes of $111.2 million and pay transaction costs. As a result of the repayment of the subordinated notes, DTH expects an annual net interest savings of over $13.0 million. The transactions described in this paragraph are hereafter collectively referred to as “Step 1.”Also concurrent with Step 1, the Company entered into common stock purchase agreements pursuant to which certain investors committed to acquire 3,500,000 shares of the Company’s common stock upon the closing of the Business Combination for total consideration of $35 million. The additional funds provided by these investors were used as additional cash consideration in the Business Combination.On August 4, 2015, we completed a debt refinance transaction (the “August 2015 Refinance”) and used the proceeds from the new senior credit facility (“2015 Senior Credit Facility”) of $164 million to pay off our existing 2013 Senior Credit Facility and expenses related to the debt refinance. The existing 2013 Senior Credit Facility totaled $267.1 million, consisting of an initial $227.1 million term loan and a $40 million revolver. At the time of termination, $162.5 million term loan balance was outstanding and $17.6 million of revolver capacity was utilized to support outstanding letters of credit under this facility. The 2015 Senior Credit Facility features a $250 million revolving credit facility, which had an interest rate of 2.2% on the outstanding balance as of September 8, 2015. We capitalized lender costs and debt issuance costs of $1.4 million and $0.5 million, respectively, in connection with the August 2015 Refinance, which will be amortized into interest expense over the term of the 2015 Senior Credit Facility.During the year ended December 30, 2014, DTH recorded impairment of long-lived assets charges totaling $9.6 million related to 13 underperforming restaurants that generated negative restaurant contribution of approximately $1.6 million during the 52 weeks ended December 30, 2014 (predecessor). In the second quarter of 2015, DTH commenced a plan to close 12 of the 13 underperforming restaurants and enter into subleases with third parties. Upon closure, which is expected to occur by the end of 2015, we expect to record restaurant closure charges totaling approximately $4.2 million to $5.0 million that will include the present value of the future lease obligations net of estimated sublease income, as well as brokerage commissions and other direct costs associated with the closure including building de-identification and equipment removal, transportation and storage. Del Tacomonitorsmonitor company, franchise and total system same store sales. Same store sales growth reflects the change in year-over-year sales for the comparable company, franchise and total system restaurant base. Del Taco includesWe include a restaurant in the same store base in the accounting period following its 18th full month of operations.operations and exclude restaurant closures. As of September 6, 2016 (Successor) and September 8, 2015 and September 9, 2014,(Successor), there were 299290 and 295299 restaurants, respectively, in the comparable company-operated restaurant base. As of September 6, 2016 (Successor) and September 8, 2015 and September 9, 2014,(Successor), there were 236237 and 236 restaurants, respectively, in the comparable franchise-operated restaurant base. This measure highlights the performance of existing restaurants as the impact of new restaurant openings is excluded. Same store sales growth can be generated by an increase in the number of transactions and/or by increases in the average check resulting from a shift in menu mix and/or higher prices resulting from new products, promotions or price increases.Del Taco measuresDel Tacoour company-operated restaurants and the overall performance of the restaurant base.A See the heading entitled "Management's Use of Non-GAAP Financial Measures" for the reconciliation of restaurant contribution to company restaurant sales is provided below (in thousands): Successor Predecessor 10 Weeks
Ended
September 8, 2015 2 Weeks
Ended
June 30, 2015 12 Weeks
Ended
September 9, 2014 $ 78,874 $ 15,891 $ 88,819 63,103 12,972 72,658 $ 15,771 $ 2,919 $ 16,161 Successor Predecessor 10 Weeks
Ended
September 8, 2015 26 Weeks
Ended
June 30, 2015 36 Weeks
Ended
September 9, 2014 $ 78,874 $ 200,676 $ 259,948 63,103 162,178 213,388 $ 15,771 $ 38,498 $ 46,560 Del Tacous and itsour franchisees during a particular reporting period. Before a new restaurant opens, Del Tacowe and itsour franchisees incur pre-opening costs, as described below. Some new restaurants open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. Typically new restaurants experience normal1326 to 2652 weeks. In new markets, the length of time before average company restaurant sales and restaurant operating expenses for new restaurants stabilize is less predictable and can be longer as a result of limited knowledge of these markets and consumers’ limited awareness of Del Taco’sour brand. When Del Taco enterswe enter new markets, itwe may be exposed to start-up times that are longer and restaurant contribution margins that are lower than typical historical experience, and these new restaurants may not be profitable and their sales performance may not follow historical patterns.the Company doeswe do not consider representative of ongoing operating performance, as identified in the reconciliation table below.statementreport are supplemental measures of performance that are neither required by, nor presented in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP and should not be considered as alternatives to net income (loss), income from operations or any other performance measures derived in accordance with U.S. GAAP or as alternatives to cash flow from operating activities as a measure of liquidity. In addition, in evaluating EBITDA and Adjusted EBITDA, you should be awarenote that in the future Del Tacowe may incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA. Del Taco’sOur presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items.you should not consider thembe considered in isolation, or as substitutes for analysis of results as reported under U.S. GAAP. Some of these limitations include but are not limited to:(i) they do not reflect cash expenditures, or future requirements for capital expenditures or contractual commitments;
| (ii) | they do not reflect changes in, or cash requirements for, working capital needs; |
| (iii) | they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt; |
| (iv) | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; |
| (v) | they do not adjust for all non-cash income or expense items that are reflected in the statements of cash flows; |
| (vi) | they do not reflect the impact of earnings or charges resulting from matters Del Taco considers not to be indicative of ongoing operations; and |
| (vii) | other companies in the industry may calculate these measures differently than Del Taco does, limiting their usefulness as comparative measures. |
The following table sets forth reconciliations See the heading entitled "Management's Use of Non-GAAP Financial Measures" for the reconciliation of EBITDA and Adjusted EBITDA to net (loss) income (in thousands):
| Successor | Predecessor | |||||||||||||
| 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | 12 Weeks Ended September 9, 2014 | ||||||||||||
Net (loss) income | $ | (2,186 | ) | $ | 2,416 | $ | 889 | |||||||
Non-GAAP adjustments: | ||||||||||||||
(Benefit) provision for income taxes | (3,132 | ) | (1,449 | ) | 463 | |||||||||
Interest expense | 1,725 | 664 | 6,786 | |||||||||||
Depreciation and amortization | 4,147 | 664 | 4,385 | |||||||||||
|
|
|
|
|
| |||||||||
EBITDA | 554 | 2,295 | 12,523 | |||||||||||
|
|
|
|
|
| |||||||||
Stock-based compensation expense(a) | 146 | — | 189 | |||||||||||
Loss (gain) on disposal of assets(b) | 1 | 84 | (24 | ) | ||||||||||
Restaurant closure charges, net(c) | 19 | — | 20 | |||||||||||
Debt modification costs(d) | 78 | 1 | — | |||||||||||
Transaction-related costs(e) | 11,978 | 61 | 241 | |||||||||||
Change in fair value of warrant liability(f) | — | — | 303 | |||||||||||
Pre-opening costs(g) | 41 | 28 | 181 | |||||||||||
Insurance reserves adjustment(h) | — | — | 510 | |||||||||||
|
|
|
|
|
| |||||||||
Adjusted EBITDA | $ | 12,817 | $ | 2,469 | $ | 13,943 | ||||||||
|
|
|
|
|
| |||||||||
| Successor | Predecessor | |||||||||||||
| 10 Weeks Ended September 8, 2015 | 26 Weeks Ended June 30, 2015 | 36 Weeks Ended September 9, 2014 | ||||||||||||
Net (loss) income | $ | (2,186 | ) | $ | 2,104 | $ | (1,138 | ) | ||||||
Non-GAAP adjustments: | ||||||||||||||
(Benefit) provision for income taxes | (3,132 | ) | 740 | 1,259 | ||||||||||
Interest expense | 1,725 | 11,491 | 21,968 | |||||||||||
Depreciation and amortization | 4,147 | 8,252 | 13,300 | |||||||||||
|
|
|
|
|
| |||||||||
EBITDA | 554 | 22,587 | 35,389 | |||||||||||
|
|
|
|
|
| |||||||||
Stock-based compensation expense(a) Loss (gain) on disposal of assets(b) Restaurant closure charges, net(c) Debt modification costs(d) Transaction-related costs(e) Change in fair value of warrant liability(f) Pre-opening costs(g) Insurance reserves adjustment(h) Adjusted EBITDA 146 532 711 1 99 (229 ) 19 94 (171 ) 78 139 1,241 11,978 7,255 241 — (35 ) 303 41 276 371 — — 1,411 $ 12,817 $ 30,947 $ 39,267
(loss).
Impairment of Long-Lived Assets
Del Taco reviews long-lived assets such as leasehold improvements, equipment and intangibles on a unit-by unit basis for impairment whenever events or circumstances indicate the value of the assets may not be recoverable and records an impairment charge when appropriate.
(Gain) available as well as direct costs related to the restaurant closure.
(Gain) loss
Agreement on June 30, 2015.
In April 2014, DTH refinanced its existing debt by amending the 2013 Senior Credit Facility and incurred charges for a write-off of previous deferred financing costs and new lender and third party costs.
| Successor | Predecessor | |||||||||||||||||||||||||
10 Weeks Ended | 2 Weeks Ended June 30, 2015 | 12 Weeks Ended | ||||||||||||||||||||||||
(Dollar amounts in thousands) | ($) | (%) | ($) | (%) | ($) | (%) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Company restaurant sales | $ | 78,874 | 96.1 | $ | 15,891 | 96.1 | $ | 88,819 | 96.1 | |||||||||||||||||
Franchise revenue | 2,694 | 3.3 | 546 | 3.3 | 3,034 | 3.3 | ||||||||||||||||||||
Franchise sublease income | 467 | 0.6 | 95 | 0.6 | 540 | 0.6 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Revenue | 82,035 | 100.0 | 16,532 | 100 | 92,393 | 100.0 | ||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||||||||||||
Food and paper costs | 22,567 | 28.6 | (1) | 4,607 | 29.0 | (1) | 25,543 | 28.8 | (1) | |||||||||||||||||
Labor and related expenses | 23,512 | 29.8 | (1) | 4,712 | 29.7 | (1) | 27,393 | 30.8 | (1) | |||||||||||||||||
Occupancy and other operating expenses | 17,024 | 21.6 | (1) | 3,653 | 23.0 | (1) | 19,722 | 22.2 | (1) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total restaurant operating expenses | 63,103 | 80.0 | (1) | 12,972 | 81.6 | (1) | 72,658 | 81.8 | (1) | |||||||||||||||||
General and administrative | 5,824 | 7.1 | 1,004 | 6.1 | 5,975 | 6.5 | ||||||||||||||||||||
Depreciation and amortization | 4,147 | 5.1 | 664 | 4.0 | 4,385 | 4.7 | ||||||||||||||||||||
Occupancy and other-franchise subleases | 437 | 0.5 | 87 | 0.5 | 516 | 0.6 | ||||||||||||||||||||
Pre-opening costs | 41 | * | 28 | 0.2 | 181 | 0.2 | ||||||||||||||||||||
Restaurant closure charges, net | 19 | * | — | — | 20 | * | ||||||||||||||||||||
Loss (gain) on disposal of assets | 1 | * | 84 | 0.5 | (24 | ) | * | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total operating expenses | 73,572 | 89.7 | 14,839 | 89.8 | 83,711 | 90.6 | ||||||||||||||||||||
Income from operations | 8,463 | 10.3 | 1,693 | 10.2 | 8,682 | 9.4 | ||||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||
Interest expense | 1,725 | 2.1 | 664 | 4.0 | 6,786 | 7.3 | ||||||||||||||||||||
Transaction-related costs | 11,978 | 14.6 | 61 | 0.4 | 241 | 0.3 | ||||||||||||||||||||
Debt modification costs | 78 | 0.1 | 1 | * | — | — | ||||||||||||||||||||
Change in fair value of warrant liability | — | — | — | — | 303 | 0.3 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total other expenses | 13,781 | 16.8 | 726 | 4.4 | 7,330 | 7.9 | ||||||||||||||||||||
(Loss) income from operations before provision for income taxes | (5,318 | ) | (6.5 | ) | 967 | 5.8 | 1,352 | 1.5 | ||||||||||||||||||
(Benefit) provision for income taxes | (3,132 | ) | (3.8 | ) | (1,449 | ) | (8.8 | ) | 463 | 0.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net (loss) income | $ | (2,186 | ) | (2.7 | ) | $ | 2,416 | 14.6 | $ | 889 | 1.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Successor | Predecessor | ||||||||||||||||||||||
| 12 Weeks Ended September 6, 2016 | 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | |||||||||||||||||||||
| (Dollar amounts in thousands) | ($) | (%) | ($) | (%) | ($) | (%) | |||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Company restaurant sales | $ | 100,173 | 95.9 | % | $ | 78,874 | 96.1 | % | $ | 15,891 | 96.1 | % | |||||||||||
| Franchise revenue | 3,686 | 3.5 | 2,694 | 3.3 | 546 | 3.3 | |||||||||||||||||
| Franchise sublease income | 560 | 0.5 | 467 | 0.6 | 95 | 0.6 | |||||||||||||||||
| Total Revenue | 104,419 | 100.0 | 82,035 | 100.0 | 16,532 | 100.0 | |||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Restaurant operating expenses: | |||||||||||||||||||||||
| Food and paper costs | 27,574 | 27.5 | (1) | 22,567 | 28.6 | (1) | 4,607 | 29.0 | (1) | ||||||||||||||
| Labor and related expenses | 30,748 | 30.7 | (1) | 23,512 | 29.8 | (1) | 4,712 | 29.7 | (1) | ||||||||||||||
| Occupancy and other operating expenses | 20,911 | 20.9 | (1) | 17,024 | 21.6 | (1) | 3,653 | 23.0 | (1) | ||||||||||||||
| Total restaurant operating expenses | 79,233 | 79.1 | (1) | 63,103 | 80.0 | (1) | 12,972 | 81.6 | (1) | ||||||||||||||
| General and administrative | 8,566 | 8.2 | 5,824 | 7.1 | 1,004 | 6.1 | |||||||||||||||||
| Depreciation and amortization | 5,157 | 4.9 | 4,147 | 5.1 | 664 | 4.0 | |||||||||||||||||
| Occupancy and other-franchise subleases | 521 | 0.5 | 437 | 0.5 | 87 | 0.5 | |||||||||||||||||
| Pre-opening costs | 94 | 0.1 | 41 | * | 28 | 0.2 | |||||||||||||||||
| Restaurant closure charges, net | (133 | ) | (0.1 | ) | 19 | * | — | — | |||||||||||||||
| Loss on disposal of assets | 54 | 0.1 | 1 | * | 84 | 0.5 | |||||||||||||||||
| Total operating expenses | 93,492 | 89.5 | 73,572 | 89.7 | 14,839 | 89.8 | |||||||||||||||||
| Income from operations | 10,927 | 10.5 | 8,463 | 10.3 | 1,693 | 10.2 | |||||||||||||||||
| Other expenses: | |||||||||||||||||||||||
| Interest expense | 1,412 | 1.4 | 1,725 | 2.1 | 664 | 4.0 | |||||||||||||||||
| Transaction-related costs | 490 | 0.5 | 11,978 | 14.6 | 61 | 0.4 | |||||||||||||||||
| Debt modification costs | — | — | 78 | 0.1 | 1 | * | |||||||||||||||||
| Total other expenses | 1,902 | 1.8 | 13,781 | 16.8 | 726 | 4.4 | |||||||||||||||||
| Income (loss) from operations before provision for income taxes | 9,025 | 8.6 | (5,318 | ) | (6.5 | ) | 967 | 5.8 | |||||||||||||||
| Provision (benefit) for income taxes | 4,076 | 3.9 | (3,132 | ) | (3.8 | ) | (1,449 | ) | (8.8 | ) | |||||||||||||
| Net income (loss) | $ | 4,949 | 4.7 | % | $ | (2,186 | ) | (2.7 | )% | $ | 2,416 | 14.6 | % | ||||||||||
| (1) | As a percentage of company restaurant sales. |
| * | Immaterial/not meaningful |
| Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||||||||||||
| (Dollar amounts in thousands) | 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | 12 Weeks Ended | 12 Weeks Ended | Increase/ | |||||||||||||||||||||||||||||
| ($) | ($) | ($) | (%) | ($) | (%) | $ | % | |||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||
Company restaurant sales | $ | 78,874 | $ | 15,891 | $ | 94,765 | 96.1 | $ | 88,819 | 96.1 | $ | 5,946 | 6.7 | |||||||||||||||||||||
Franchise revenues | 2,694 | 546 | 3,240 | 3.3 | 3,034 | 3.3 | 206 | 6.8 | ||||||||||||||||||||||||||
Franchise sublease income | 467 | 95 | 562 | 0.6 | 540 | 0.6 | 22 | 4.1 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total revenue | 82,035 | 16,532 | 98,567 | 100 | 92,393 | 100 | 6,174 | 6.7 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||||||||||||||||||||
Food and paper costs | 22,567 | 4,607 | 27,174 | 28.7 | (1) | 25,543 | 28.8 | (1) | 1,631 | 6.4 | ||||||||||||||||||||||||
Labor and related expenses | 23,512 | 4,712 | 28,224 | 29.8 | (1) | 27,393 | 30.8 | (1) | 831 | 3.0 | ||||||||||||||||||||||||
General and administrative | 5,824 | 1,004 | 6,828 | 6.9 | 5,975 | 6.5 | 853 | 14.3 | ||||||||||||||||||||||||||
Occupancy and other - franchise subleases | 437 | 87 | 524 | 0.5 | 516 | 0.6 | 8 | 1.6 | ||||||||||||||||||||||||||
Pre-opening costs | 41 | 28 | 69 | 0.1 | 181 | 0.2 | (112 | ) | (61.9 | ) | ||||||||||||||||||||||||
Restaurant closure charges, net | 19 | — | 19 | — | 20 | * | (1 | ) | (5.0 | ) | ||||||||||||||||||||||||
Loss (gain) on disposal of assets | 1 | 84 | 85 | 0.1 | (24 | ) | * | 109 | * | |||||||||||||||||||||||||
| Successor | Predecessor | Combined | ||||||||||||||||||||||||||||
| 12 Weeks Ended September 6, 2016 | 10 Weeks Ended September 8, 2015 | 2 Weeks Ended June 30, 2015 | 12 Weeks Ended September 8, 2015 | Increase/ (Decrease) | ||||||||||||||||||||||||||
| (Dollar amounts in thousands) | ($) | (%) | ($) | ($) | ($) | (%) | ($) | (%) | ||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||
| Company restaurant sales | $ | 100,173 | 95.9 | % | $ | 78,874 | $ | 15,891 | $ | 94,765 | 96.1 | % | $ | 5,408 | 5.7 | % | ||||||||||||||
| Franchise revenue | 3,686 | 3.5 | 2,694 | 546 | 3,240 | 3.3 | 446 | 13.8 | ||||||||||||||||||||||
| Franchise sublease income | 560 | 0.5 | 467 | 95 | 562 | 0.6 | (2 | ) | (0.4 | ) | ||||||||||||||||||||
| Total Revenue | 104,419 | 100.0 | 82,035 | 16,532 | 98,567 | 100.0 | 5,852 | 5.9 | ||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||
| Restaurant operating expenses: | ||||||||||||||||||||||||||||||
| Food and paper costs | 27,574 | 27.5 | (1) | 22,567 | 4,607 | 27,174 | 28.7 | (1) | 400 | 1.5 | ||||||||||||||||||||
| Labor and related expenses | 30,748 | 30.7 | (1) | 23,512 | 4,712 | 28,224 | 29.8 | (1) | 2,524 | 8.9 | ||||||||||||||||||||
| General and administrative | 8,566 | 8.2 | 5,824 | 1,004 | 6,828 | 6.9 | 1,738 | 25.5 | ||||||||||||||||||||||
| Occupancy and other-franchise subleases | 521 | 0.5 | 437 | 87 | 524 | 0.5 | (3 | ) | (0.6 | ) | ||||||||||||||||||||
| Pre-opening costs | 94 | 0.1 | 41 | 28 | 69 | 0.1 | 25 | 36.2 | ||||||||||||||||||||||
| Restaurant closure charges, net | (133 | ) | (0.1 | ) | 19 | — | 19 | * | (152 | ) | * | |||||||||||||||||||
| Loss on disposal of assets | 54 | 0.1 | 1 | 84 | 85 | 0.1 | (31 | ) | (36.5 | ) | ||||||||||||||||||||
| (1) | As a percentage of company restaurant sales. |
| * | Immaterial/not meaningful |
increase in traffic of 2015, as well as an increase in initial fees during the third quarter of 2016. menu price increases. company restaurant sales. total revenue. in June 2015. (Dollar amounts in thousands) Statement of Operations Data: Revenue: Company restaurant sales Franchise revenue Franchise sublease income Total Revenue Operating expenses: Restaurant operating expenses: Food and paper costs Labor and related expenses Occupancy and other operating expenses Total restaurant operating expenses General and administrative Depreciation and amortization Occupancy and other - franchise subleases Pre-opening costs Restaurant closure charges, net Loss (gain) on disposal of assets Total operating expenses Income from operations Other expenses: Interest expense Transaction-related costs Debt modification costs Change in fair value of warrant liability Total other expenses (Loss) income from operations before provision for income taxes (Benefit) provision for income taxes Net (loss) income $5.9$5.4 million, or 6.7%5.7%, for the combined twelve weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in company-operated same store sales of $4.7$6.4 million, or 5.4%.7.1%, offset by a decrease of $1.0 million from the net impact of restaurant openings, transfers and closures since the beginning of the third quarter of 2015. The growth in company-operated same store sales was primarily the result of an increase in average check size of 4.8%, and an0.6%2.3% compared to the prior period. Company restaurant sales also increased by $1.7 million of additional sales from eight restaurants not in the comparable restaurant base partially offset by a reduction of $0.5 million from the impact of two restaurant closures since the beginning of the third quarter of 2014.$0.2$0.4 million, or 6.8%13.8%, for the combined twelve weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in franchised same store sales of 5.8%, partially offset by the impact of the net closure of three6.2% and additional franchised restaurants since the beginning ofcompared to the third quarter of 2014.combined twelve week periodsweeks ended September 8, 20156, 2016 (Successor) and September 9, 2014 (predecessor).Food and Paper CostsFood and paper costs increased $1.6 million, or 6.4% for the combined twelve weeks ended September 8, 2015, consisting of a $1.5 million increase in food costs2015.a $0.1 million increase in paper costs. The increase in foodPaper Costswas primarily due to increased company restaurant sales and increased commodity costs.$0.4 million, or 1.5% for the twelve weeks ended September 6, 2016 (Successor). As a percentage of company restaurant sales, food and paper costs declined slightlyto 27.5% for the twelve weeks ended September 6, 20162015 compared to 28.8% for the twelve weeks ended September 9, 2014 (predecessor).2015. This slight reduction was driven by the impact of modest menu price increases that were mostly offset by the impact of increasedand a reduction in commodity costs.$0.8$2.5 million, or 3.0%8.9% for the combined twelve weeks ended September 8, 2015,6, 2016 (Successor), primarily due to increased labor costs resulting from higher company restaurant sales, the impact from a California minimum wage increase on January 1, 2016, the impact from new paid sick leave requirements that began July 1, 2014,2015 in California and new company restaurants opened since the third quarter of 2014, partially offset by a decreasean increase in workers compensation costs.expense due to higher payments and reserves related to underlying claims activity. As a percentage of company restaurant sales, labor and related expenses were 30.7% for the twelve weeks ended September 6, 2016 (Successor) compared to 29.8% for the combined twelve weeks ended September 8, 2015 compared to 30.8% for the twelve weeks ended September 9, 2014 (predecessor).2015. This percentage decreaseincrease resulted primarily from modest menu price increasesthe impact of the increased California minimum wage, new sick leave requirements and the same store sales increase in traffic which helped to leverage the fixed components of labor costs and decreasedincreased workers compensation costsexpense discussed above, partially offset by the impact of the California minimum wage discussed above.(successor)(Successor) and $3.7 million for the two weeks ended June 30, 2015 (predecessor), compared to $19.7 million for the twelve weeks ended September 9, 2014 (predecessor)(Predecessor). The increase during the ten weeks ended September 8, 2015 (successor) and two weeks ended June 30, 2015 (predecessor) compared to the twelve weeks ended September 9, 2014 (predecessor) was primarily due to an increase in operating expenses resulting from higher company restaurant sales, increased credit and debit card processing fees, supplies and uniforms and repairs and maintenance expense. In addition, occupancy and other operating expenses for the ten weeks ended September 8, 2015 (successor) includes $0.1 million of incremental non-cash rent expense resulting from fair value adjustments to reset prospective straight-line rent expense due to acquisition accounting for the Business Combination. As a percentage of company restaurant sales, occupancy and other operating expenses were 20.9% for the twelve weeks ended September 6, 2016 (Successor) compared to 21.6% for the ten weeks ended September 8, 2015 (successor)(Successor) and 23.0% for the two weeks ended June 30, 2015 (predecessor) compared to 22.2% for the twelve weeks ended September 9, 2014 (predecessor)(Predecessor). This overall reduction as a percent of company restaurant sales was primarily due to modest menu price increases and the same store sales increase in trafficincreases which helped to leverage the fixed components of occupancy and other operating expenses, as well asincluding a reduction in advertisingrent, utilities and insurance as a percent of company restaurant sales, which all more thanpartially offset the impactby advertising and credit card fees as a percent of the increases discussed above.$0.9$1.7 million, or 14.3%25.5%, for the combined twelve weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in performance-basedstock-based compensation, legal expenses, public company costs, compensation and management incentive compensation other compensation, legal and professional expense and additional costs incurred as a public company.based on performance. As a percentage of total revenue, general and administrative expense was 8.2% for the twelve weeks ended September 6, 2016 (Successor) compared to 6.9% for the combined twelve weeks ended September 8, 2015 compared to 6.5% for the twelve weeks ended September 9, 2014 (predecessor) and the2015. The increase as a percent of total revenue was due to the above mentioned cost increases partially offset by the increased revenues.(successor)(Successor) and $0.7 million for the two weeks ended June 30, 2015 (predecessor)(Predecessor), comparedprimarily due to $4.4 million for the twelve weeks ended September 9, 2014 (predecessor). The ten weeks ended September 8, 2015 includes $0.9addition of new assets and $0.1 million of incremental depreciation and amortization expense compared to the twelve weeks ended September 9, 2014 (predecessor) resulting from adjusting property and equipment and identifiable intangible assets to fair value in acquisition accounting for the Business Combination. As a percentage of total revenue, depreciation and amortization expenses was 4.9% for the twelve weeks ended September 6, 2016 (Successor), compared to 5.1% for the ten weeks ended September 8, 2015 (successor)(Successor) and 4.0% for the two weeks ended June 30, 2015 (predecessor), compared to 4.7% for the twelve weeks ended September 9, 2014 (predecessor)(Predecessor). The increase as a percent of total revenue for the ten weeks ended September 8, 2015 (successor) is primarily the result of the incremental depreciation and amortization expense discussed above. The decrease as a percent of total revenue for the two weeks ended June 30, 2015 (predecessor) is due to assets being fully depreciated.2015 compared to $0.52015.9, 2014 (predecessor).Pre-opening CostsPre-opening costs was $0.1 million for6, 2016 (Successor) and the combined twelve weeks ended September 8, 2015 compared to $0.2 million2015.9, 2014 (predecessor). The reduction was due to a reduced level of pre-opening activity6, 2016 (Successor) compared to the prior year.Restaurant Closure Charges, netRestaurant closure charges, net, were $19,000 for the combined twelve weeks ended September 8, 2015. The current quarter activity primarily includes an adjustment to decrease the lease termination liability for one closed restaurant due to a change in estimate, accretion expense and other incremental charges related to the 12 underperforming restaurants we closed during the fourth fiscal quarter of 2015. The combined twelve weeks ended September 8, 2015 compared to $20,000includes accretion expense for the lease termination liability for previously closed restaurants.9, 2014 (predecessor)6, 2016 (Successor) and each period included accretion expense.Loss(Gain) on Disposal of AssetsLoss (gain) on disposal of assets was $85,000 for the combined twelve weeks ended September 8, 2015 compared2015. Current year loss was related to ($24,000)the replacement of certain restaurant equipment. Prior year loss was primarily related to the closure of one company restaurant and the replacement of restaurant and other equipment.9, 2014 (predecessor).Interest ExpenseInterest expense was6, 2016 (Successor), compared to $1.7 million for the ten weeks ended September 8, 2015 (successor)(Successor) and $0.7 million for the two weeks ended June 30, 2015 (predecessor), compared to $6.8 million for the twelve weeks ended September 9, 2014 (predecessor)(Predecessor). The decrease in interest expense for the tentwelve weeks ended September 8, 2015 (successor) and two weeks ending June 30, 2015 (predecessor)6, 2016 (Successor) is primarily due to the reduced interest rate on the 2013 Senior Credit Facility as a result of a ratings upgradedebt refinancing that occurred in March 2015 and the repayment of DTH’s subordinated notes in March2015 (collectively the “March 2015 Refinance”), the $68.6 million reduction to the 2013 Senior Credit Facility in June 2015 and the August 2015 Refinance which replaced the existing term loan with a revolving credit facility with a significantly lower interest rate as discussed inand the “Recent Events” section. In addition, the ten weeks ended September 8, 2015 (successor) includes an interest expense decrease of ($0.15)$68.6 million resulting from fair value adjustments in acquisition accounting for the Business Combination relatedreduction to debt discount and deferred financing costs for the 2013 Senior Credit Facility as well as capital lease and deemed landlord financing liabilities.(successor)(Successor) and $0.1 million for the two weeks ended June 30, 2015 (predecessor), compared(Predecessor). Current year transaction-related costs primarily consist of direct costs incurred in connection with the offer to $0.2 millionexchange shares of the Company's common stock for each outstanding Company warrant (see Note 11 to the twelve weeks ended September 9, 2014 (predecessor)unaudited consolidated financial statements). AllPrior year transaction-related costs primarily consist of direct costs incurred in connection with the Business Combination which closed on June 30, 2015 (see noteNote 3 to the unaudited condensed consolidated financial statements).(successor)(Successor) and $1,000 for the two weeks ended June 30, 2015 (predecessor)(Predecessor). These costs related to the August 2015 Refinance. There were no such debt modification costs for the twelve weeks ended September 9, 2014 (predecessor)6, 2016 (Successor).Change in Fair Value of Warrant LiabilityChange in fair value of warrant liability required no adjustmentthe ten weeks ended September 8, 2015 (successor) and for the two weeks ended June 30, 2015 (predecessor). Income Taxeswarrant liability was reclassified to equity on March 20, 2015 in connection with the Step 1 of the Business Combination discussed in Note 3. Change in fair value of warrant liability was $0.3 millioneffective income tax rates were 45.2% for the twelve weeks ended September 9, 2014 (predecessor).Provision for Income TaxesThe effective income tax rates were6, 2016 (Successor) compared to 58.9% for the ten weeks ended September 8, 2015 (successor) compared to (149.8%)(Successor) and 34.2%(149.8)% for the two weeks ended June 30, 2015 (predecessor) and twelve weeks ended September 9, 2014 (predecessor), respectively.(Predecessor). The provision for income taxes consisted of income tax (benefit) expense of ($3.1)$4.1 million for the twelve weeks ended September 6, 2016 (Successor) and $(3.1) million for the ten weeks ended September 8, 2015 (successor)(Successor) and ($1.4)$(1.4) million two weeks ended June 30, 2015 (Predecessor). The income tax expense related to the twelve weeks ended September 6, 2016 (Successor) is driven by our estimated effective income tax rate of 45.2% which primarily consists of statutory federal and $0.5 millionstate tax rates based on apportioned income, as well as providing for deferred tax liabilities for the excess of the amount for financial reporting over the tax basis of an investment in a domestic subsidiary. In addition, the effective rate is also driven by transaction-related costs incurred in connection with the warrant tender offer which are not deductible for taxes as well as lower stock compensation expense deductible for tax related to the June 30, 2016 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by federal targeted job credits. The income tax expense related to the ten weeks ended September 8, 2015 (Successor) and the two weeks ended June 30, 2015 (predecessor)(Predecessor) primarily related to the increase in deferred tax liabilities for indefinite-lived assets and twelve weeks endedthe related effect of maintaining a full valuation allowance against certain of deferred tax assets as of September 9, 2014 (predecessor), respectively. 8, 2015 (Successor).the Company waswe were required to record all of DTH’s acquired assets and liabilities at their acquisition date fair value, including deferred income taxes. The CompanyWe considered the weight of both positive and negative evidence and concluded that it is more likely than not that net deferred tax assets will be realized and that no valuation allowance was required as of the date of acquisition. As a result, the Companywe established deferred tax assets as well as deferred tax liabilities related to indefinite-lived intangibles through the purchase price allocation (see note 3 to the unaudited condensed consolidated financial statements). In addition, after considering the Business Combination, the projected post-combination results and all available evidence, the Companywe released $1.9 million of valuation allowance through income tax benefit in accordance with ASC 805-740-30-3 during the ten week period ended September 8, 2015 (successor)(Successor)., and Twenty-Six Weeks Ended June 30, 2015 (Predecessor), and Thirty-Six Weeks Ended September 9, 2014(Predecessor)(successor),(Successor) and twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor), and thirty-six weeks ended September 9, 2014 (predecessor) in absolute terms and expressed as a percentage of total revenue (or company restaurant sales), as compared below: Successor Predecessor 10 Weeks
Ended
September 8, 2015 26 Weeks
Ended
June 30, 2015 36 Weeks
Ended
September 9, 2014 ($) (%) ($) (%) ($) (%) $ 78,874 96.1 $ 200,676 96.2 $ 259,948 96.2 2,694 3.3 6,693 3.2 8,817 3.3 467 0.6 1,183 0.6 1,542 0.6 82,035 100.0 208,552 100 270,307 100.0 22,567 28.6 (1) 57,447 28.6 (1) 76,171 29.3 (1) 23,512 29.8 (1) 61,120 30.5 (1) 80,065 30.8 (1) 17,024 21.6 (1) 43,611 21.7 (1) 57,152 22.0 (1) 63,103 80.0 (1) 162,178 80.8 (1) 213,388 82.1 (1) 5,824 7.1 14,850 7.1 18,304 6.8 4,147 5.1 8,252 4.0 13,300 4.9 437 0.5 1,109 0.5 1,470 0.5 41 * 276 0.1 371 0.1 19 * 94 * (171 ) (0.1 ) 1 * 99 * (229 ) (0.1 ) 73,572 89.7 186,858 89.6 246,433 91.2 8,463 10.3 21,694 10.4 23,874 8.8 1,725 2.1 11,491 5.5 21,968 8.1 11,978 14.6 7,255 3.5 241 0.1 78 0.1 139 0.1 1,241 0.5 — — (35 ) * 303 0.1 13,781 16.8 18,850 9.0 23,753 8.8 (5,318 ) (6.5 ) 2,844 1.4 121 * (3,132 ) (3.8 ) 740 0.4 1,259 0.5 $ (2,186 ) (2.7 ) $ 2,104 1.0 $ (1,138 ) (0.4 ) Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015 (Dollar amounts in thousands) ($) (%) ($) (%) ($) (%) Statement of Operations Data: Revenue: Company restaurant sales $ 289,640 96.0 % $ 78,874 96.1 % $ 200,676 96.2 % Franchise revenue 10,591 3.5 2,694 3.3 6,693 3.2 Franchise sublease income 1,617 0.5 467 0.6 1,183 0.6 Total Revenue 301,848 100.0 82,035 100.0 208,552 100.0 Operating expenses Restaurant operating expenses: Food and paper costs 80,061 27.6 22,567 28.6 57,447 28.6 Labor and related expenses 90,781 31.3 23,512 29.8 61,120 30.5 Occupancy and other operating expenses 60,560 20.9 17,024 21.6 43,611 21.7 Total restaurant operating expenses 231,402 79.9 63,103 80.0 162,178 80.8 General and administrative 25,072 8.3 5,824 7.1 14,850 7.1 Depreciation and amortization 16,175 5.4 4,147 5.1 8,252 4.0 Occupancy and other-franchise subleases 1,534 0.5 437 0.5 1,109 0.5 Pre-opening costs 222 0.1 41 * 276 0.1 Restaurant closure charges, net (121 ) * 19 * 94 * Loss on disposal of assets 191 0.1 1 * 99 * Total operating expenses 274,475 90.9 73,572 89.7 186,858 89.6 Income from operations 27,373 9.1 8,463 10.3 21,694 10.4 Other expenses: Interest expense 4,289 1.4 1,725 2.1 11,491 5.5 Transaction-related costs 681 0.2 11,978 14.6 7,255 3.5 Debt modification costs — — 78 0.1 139 0.1 Change in fair value of warrant liability — — — — (35 ) * Total other expenses 4,970 1.6 13,781 16.8 18,850 9.0 Income (loss) from operations before provision for income taxes 22,403 7.4 (5,318 ) (6.5 ) 2,844 1.4 Provision (benefit) for income taxes 9,529 3.2 (3,132 ) (3.8 ) 740 0.4 Net income (loss) $ 12,874 4.3 $ (2,186 ) (2.7 ) $ 2,104 1.0 (1) As a percentage of company restaurant sales. * Immaterial/not meaningful
| Successor | Predecessor | Combined | Predecessor | |||||||||||||||||||||||||||||||
| 10 Weeks Ended September 8, 2015 | 26 Weeks Ended June 30, 2015 | 36 Weeks Ended September 8, 2015 | 36 Weeks Ended September 9, 2014 | Increase/ (Decrease) | ||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | ($) | ($) | ($) | (%) | ($) | (%) | $ | % | ||||||||||||||||||||||||||
Company restaurant sales | $ | 78,874 | $ | 200,676 | $ | 279,550 | 96.2 | $ | 259,948 | 96.2 | $ | 19,602 | 7.5 | |||||||||||||||||||||
Franchise revenues | 2,694 | 6,693 | 9,387 | 3.2 | 8,817 | 3.3 | 570 | 6.5 | ||||||||||||||||||||||||||
Franchise sublease income | 467 | 1,183 | 1,650 | 0.6 | 1,542 | 0.6 | 108 | 7.0 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total revenue | 82,035 | 208,552 | 290,587 | 100 | 270,307 | 100 | 20,280 | 7.5 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Operating expense | ||||||||||||||||||||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||||||||||||||||||||
Food and paper costs | 22,567 | 57,447 | 80,014 | 28.6 | (1) | 76,171 | 29.3 | (1) | 3,843 | 5.0 | ||||||||||||||||||||||||
Labor and related expenses | 23,512 | 61,120 | 84,632 | 30.3 | (1) | 80,065 | 30.8 | (1) | 4,567 | 5.7 | ||||||||||||||||||||||||
General and administrative | 5,824 | 14,850 | 20,674 | 7.1 | 18,304 | 6.8 | 2,370 | 12.9 | ||||||||||||||||||||||||||
Occupancy and other-franchise subleases | 437 | 1,109 | 1,546 | 0.5 | 1,470 | 0.5 | 76 | 5.2 | ||||||||||||||||||||||||||
Pre-opening costs | 41 | 276 | 317 | 0.1 | 371 | 0.1 | (54 | ) | (14.6 | ) | ||||||||||||||||||||||||
Restaurant closure charges, net | 19 | 94 | 113 | * | (171 | ) | (0.1 | ) | 284 | * | ||||||||||||||||||||||||
Loss (gain) on disposal of assets | 1 | 99 | 100 | * | (229 | ) | (0.1 | ) | 329 | * | ||||||||||||||||||||||||
| Successor | Predecessor | Combined | ||||||||||||||||||||||||||
| 36 Weeks Ended September 6, 2016 | 10 Weeks Ended September 8, 2015 | 26 Weeks Ended June 30, 2015 | 36 Weeks Ended September 8, 2015 | Increase/ (Decrease) | ||||||||||||||||||||||||
| (Dollar amounts in thousands) | ($) | (%) | ($) | ($) | ($) | (%) | ($) | (%) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||
| Company restaurant sales | $ | 289,640 | 96.0 | $ | 78,874 | $ | 200,676 | $ | 279,550 | 96.2 | $ | 10,090 | 3.6 | |||||||||||||||
| Franchise revenue | 10,591 | 3.5 | 2,694 | 6,693 | 9,387 | 3.2 | 1,204 | 12.8 | ||||||||||||||||||||
| Franchise sublease income | 1,617 | 0.5 | 467 | 1,183 | 1,650 | 0.6 | (33 | ) | (2.0 | ) | ||||||||||||||||||
| Total Revenue | 301,848 | 100.0 | 82,035 | 208,552 | 290,587 | 100.0 | 11,261 | 3.9 | ||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||
| Restaurant operating expenses: | ||||||||||||||||||||||||||||
| Food and paper costs | 80,061 | 27.6 | (1) | 22,567 | 57,447 | 80,014 | 28.6 | (1) | 47 | 0.1 | ||||||||||||||||||
| Labor and related expenses | 90,781 | 31.3 | (1) | 23,512 | 61,120 | 84,632 | 30.3 | (1) | 6,149 | 7.3 | ||||||||||||||||||
| General and administrative | 25,072 | 8.3 | 5,824 | 14,850 | 20,674 | 7.1 | 4,398 | 21.3 | ||||||||||||||||||||
| Occupancy and other-franchise subleases | 1,534 | 0.5 | 437 | 1,109 | 1,546 | 0.5 | (12 | ) | (0.8 | ) | ||||||||||||||||||
| Pre-opening costs | 222 | 0.1 | 41 | 276 | 317 | 0.1 | (95 | ) | (30.0 | ) | ||||||||||||||||||
| Restaurant closure charges, net | (121 | ) | * | 19 | 94 | 113 | * | (234 | ) | * | ||||||||||||||||||
| Loss on disposal of assets | 191 | 0.1 | 1 | 99 | 100 | * | 91 | 91.0 | ||||||||||||||||||||
| (1) | As a percentage of company restaurant sales. |
| * | Immaterial/not meaningful |
2015, as well as an increase in initial fees during the thirty-six weeks ended September 6, 2016 (Successor). menu price increases. company restaurant sales. total revenue. result of the incremental depreciation and amortization expense discussed above. 2015. 6, 2016 (Successor). Net cash provided by (used in) Operating activities Investing activities Financing activities Net increase (decrease) in cash , partially offset by non-cash adjustments for asset depreciation and amortization of $4.2 million, debt modification costs of $0.1 million and stock-based compensation of $0.1 million. investing activities were $24.7 million, which were primarily the result of purchase of property and equipment and other assets. credit. Facility. Following delivery of financial statements and a compliance certificate for the fourth fiscal quarter ending December 29, 2015 (Successor), the applicable margin decreased 0.25% for both LIBOR loans and base rate loans on March 18, 2016. 6, 2016 (Successor). 2015. There were no changes in fair value for the interest rate cap from July 1, 2015 through June 30, 2016. Operating leases Capital leases and deemed landlord financing Long-term debt Interest on long-term debt(1) Purchase commitments(2) Total(3) 2.00% plus the applicable percentage.$19.6$10.1 million, or 7.5%3.6%, for the combined thirty-six weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in company-operated same store sales of $16.0$11.7 million, or 6.4%.4.4% offset by a decrease of $1.6 million from the net impact of restaurant openings, transfers and closures since the beginning of the first quarter of 2015. The growth in company-operated same store sales was primarily the result of an increase in average check size of 4.3% and an increase5.1%, partially offset by a decrease in traffic of 2.1%0.7% compared to the prior period. Company restaurant sales also increased by $4.7 million of additional sales from eight restaurants not in the comparable restaurant base partially offset by a reduction of $1.1 million from the impact of two restaurant closures since the beginning of the first quarter of 2014.$0.6$1.2 million, or 6.5%12.8%, for the combined thirty-six weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in franchised same store sales of 6.5%, partially offset by the impact of the net closure of five4.5% and additional franchised restaurants sincecompared to the beginning of the first quarter of 2014.combined thirty-six week periodsweeks ended September 8, 20156, 2016 (Successor) and September 9, 2014 (predecessor).Food and Paper CostsFood and paper costs increased $3.8 million, or 5.0% for the combined thirty-six weeks ended September 8, 2015, consisting of a $3.3 million increase in food costs2015.a $0.5 million increase in paper costs. The increase in foodPaper Costswas primarily due to increased company restaurant salesremained substantially the same for both the thirty-six weeks ended September 6, 2016 (Successor) and increased commodity costs, partially offset by reduced costs associated with the renewal of DTH’s beverage supply agreement which occurred mid-2014.combined thirty-six weeks ended September 8, 2015. As a percentage of company restaurant sales, food and paper costs were2015, compared to 29.3%2015. This reduction was driven by the impact of menu price increases and a reduction in commodity costs.9, 2014 (predecessor). This percentage decrease resulted from modest menu price increases and reduced costs associated with DTH’s beverage supply contract discussed above, partially offset by increased commodity costs during the combined thirty-six weeks ended September 8, 2015.Labor and Related ExpensesLabor and related expenses increased $4.6 million, or 5.7%6, 2016 (Successor), for the combined thirty-six weeks ended September 8, 2015, primarily due to increased labor costs resulting from higher company restaurant sales, the impact from a California minimum wage increase on January 1, 2016, the impact from new paid sick leave requirements that began July 1, 2014,2015 in California and new company restaurants opened since the beginning of 2014, partially offset by a decreasean increase in workers compensation costs.expense due to higher payments and reserves related to underlying claim activity. As a percentage of company restaurant sales, labor and related expenses were 31.3% for the thirty-six weeks ended September 6, 2016 (Successor) compared to 30.3% for the combined thirty-six weeks ended September 8, 2015, compared to 30.8% for the thirty-six weeks ended September 9, 2014 (predecessor).2015. This percentage decreaseincrease resulted primarily from modest menu price increasesthe impact of the increased California minimum wage, new sick leave requirements and the same store sales increase in traffic which helps to leverage the fixed components of labor costs and decreasedincreased workers compensation costsexpense discussed above, partially offset by the impact of the California minimum wage discussed above.wasexpenses were $60.6 million for the thirty-six weeks ended September 6, 2016 (Successor) compared to $17.0 million for the ten weeks ended September 8, 2015 (successor)(Successor) and $43.6 million for the twenty-six weeks ended June 30, 2015 (predecessor) compared to $57.2 million for the thirty-six weeks ended September 9, 2014 (predecessor)(Predecessor). The increase during the ten weeks ended September 8, 2015 (successor) and twenty-six weeks ended June 30, 2015 (predecessor) compared to the thirty-six weeks ended September 9, 2014 (predecessor) was primarily due to an increase in operating expenses resulting from higher company restaurant sales, increased credit and debit card processing fees, supplies and uniforms and repairs and maintenance expense. In addition, occupancy and other operating expenses for the ten weeks ended September 8, 2015 (successor) includes $0.1 of incremental non-cash rent expense resulting from fair value adjustments to reset prospective straight-line rent expense due to acquisition accounting for the Business Combination. As a percentage of company restaurant sales, occupancy and other operating expenses were 20.9% for the thirty-six weeks ended September 6, 2016 (Successor) compared to 21.6% for the ten weeks ended September 8, 2015 (successor)(Successor) and 21.7% for the twenty-six weeks ended June 30, 2015 (predecessor), compared to 22.0% forthe thirty-six weeks ended September 9, 2014 (predecessor)(Predecessor). This overall reduction as a percent of company restaurant sales was primarily due to modest menu price increases and the same store sales increase in trafficincreases which helped to leverage the fixed components of occupancy and other operating expenses, as well asincluding a reduction in advertisingrent, utilities, and repairs and maintenance as a percent of company restaurant sales, which all more thanpartially offset the impactby advertising and credit card fees as a percent of the increases discussed above.$2.4$4.4 million or 12.9%21.3%, for the combined thirty-six weeks ended September 8, 2015,6, 2016 (Successor), primarily due to an increase in stock-based compensation, compensation, legal expenses, and public company costs, partially offset by a decrease in performance-based incentive compensation, other compensation, legal and professional expense, travel expense and additional costs incurred as a public company. General and administrative expenses ascompensation. As a percentage of total revenue, weregeneral and administrative expense was 8.3% for the thirty-six weeks ended September 6, 2016 (Successor) compared to 7.1% for the combined thirty-six weeks ended September 8, 2015, compared to 6.8% for the thirty-six weeks ended September 9, 2014 (predecessor) and the2015. The increase as a percent of total revenue was due to the above mentioned cost increases partially offset by the increased revenues.wasexpenses were $16.2 million for the thirty-six weeks ended September 6, 2016 (Successor), compared to $4.1 million for the ten weeks ended September 8, 2015 (successor)(Successor) and $8.3 million for the twenty-six weeks ended June 30, 2015 (predecessor), compared to $13.3 million for the thirty-six weeks ended September 9, 2014 (predecessor)(Predecessor). The ten weeks ended September 8, 2015 (successor) includes $0.9increase is primarily due to the addition of new assets and $1.7 million of incremental depreciation and amortization expense compared to the thirty-six weeks ended September 9, 2014 (predecessor) resulting from adjusting property and equipment and identifiable intangible assets to fair value in acquisition accounting for the Business Combination. As a percentage of total revenue, depreciation and amortization expenseexpenses was 5.4% for the thirty-six weeks ended September 6, 2016 (Successor), compared to 5.1% for the ten weeks ended September 8, 2015 (successor)(Successor) and 4.0% for the twenty-six weeks ended June 30, 2015 (predecessor) compared to 4.9%(Predecessor). The increase as a percent of total revenue for the thirty-six weeks ended September 9, 2014 (predecessor). The decrease for6, 2016 (Successor) is primarily the twenty-six weeks ended June 30, 2015 (predecessor) is due to assets being fully depreciated.combined thirty-six weeks ended September 8, 20156, 2016 (Successor) and September 9, 2014 (predecessor). As a percentage of total revenue, occupancy and other – franchise sublease was 0.5% for both the combined thirty-six weeks ended September 8, 2015 and September 9, 2014 (predecessor).waswere $0.2 million for the thirty-six weeks ended September 6, 2016 (Successor) compared to $0.3 million for the combined thirty-six weeks ended September 8, 2015, compared to $0.42015.9, 2014 (predecessor). The reduction was due to a reduced level of pre-opening activity6, 2016 (Successor) compared to the prior year.Restaurant Closure Charges, netRestaurant closure charges, net was $0.1 million for the combined thirty-six weeks ended September 8, 2015. The current year activity includes net adjustments to decrease the lease termination liability due to changes in estimates, partially offset by accretion expense and other incremental charges related to the 12 underperforming restaurants we closed during the fourth fiscal quarter of 2015. The combined thirty-six weeks ended September 8, 2015 comparedincludes accretion expense for the lease termination liability for previously closed restaurants and an adjustment to ($0.2)increase the lease termination liability for one closed restaurant.9, 2014 (predecessor).Loss(Gain) on Disposal6, 2016 (Successor) compared to $0.1 million for the combined thirty-six weeks ended September 8, 2015. Current year loss was related to the closure of AssetsLoss (gain) on disposalone company restaurant and the replacement of assetscertain restaurant equipment. Prior year loss was $0.1primarily related to the closure of one company restaurant and the replacement of restaurant and other equipment.8, 2015,6, 2016 (Successor), compared to ($0.2) million for the thirty-six weeks ended September 9, 2014 (predecessor).Interest ExpenseInterest expense was $1.7 million for the ten weeks ended September 8, 2015 (successor)(Successor) and $11.5 million for the twenty-six weeks ended June 30, 2015 (predecessor), compared to $22.0 million for the thirty-six weeks ended September 9, 2014 (predecessor)(Predecessor). The decrease in interest expense for the tenthirty-six weeks ended September 8, 2015(successor) and twenty-six weeks ending June 30, 2015 (predecessor)6, 2016 (Successor) is primarily due to the reduceddebt refinancing that occurred in August 2015 which replaced the existing term loan with a revolving credit facility with a significantly lower interest rate, on the 2013 Senior Credit Facility as a result of a ratings upgrade in March 2015 and the repayment of DTH’s subordinated notes in March 2015 (collectively the “March 2015 Refinance”), the debt refinance in April 2014 (“April 2014 Refinancing”) which resulted in reduced interest rates on the 2013 Senior Credit Facility and a lower proportion of subordinated note debt outstanding, the $68.6 million reduction to the 2013 Senior Credit Facility in June 2015, and the August 2015 Refinance which replacedfull repayment of DTH's subordinated notes in March 2015.term loan with a revolving credit facility at a significantly lower interest rate, as discussed in the “Recent Events” section. In addition, the tenthirty-six weeks ended September 8, 2015 (successor) includes an interest expense decrease of ($0.15) million resulting from fair value adjustments in acquisition accounting for the Business Combination related6, 2016 (Successor), compared to debt discount and deferred financing costs for the 2013 Senior Credit Facility as well as capital lease and deemed landlord financing liabilities.Transaction-Related CostsTransaction-related costs totaled $12.0 million for the ten weeks ended September 8, 2015 (successor),(Successor) and $7.3 million for the twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor). Current year transaction-related costs primarily consist of direct costs incurred in connection with the offer to exchange shares of the Company's common stock for each outstanding Company warrant and $0.2 million fordirect costs incurred in connection with the thirty-six weeks ended September 9, 2014 (predecessor)Business Combination which closed on June 30, 2015 (see Note 11 and Note 3, respectively, to the unaudited consolidated financial statements). AllPrior year transaction-related costs primarily consist of direct costs incurred in connection with the Business Combination which closed on June 30, 2015 (see Note 3)3 to the unaudited consolidated financial statements).(successor)(Successor) and related to the August 2015 Refinance. Debt modification costs totaledtotals $0.1 million for the twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor) and related to the March 2015 Refinance. DebtThere were no such debt modification costs totaled $1.2 million duringfor the thirty-six weeks ended September 9, 2014 (predecessor) and related to the April 2014 Refinancing whereby additional senior secured debt was raised through an amendment to DTH’s 2013 Senior Credit Facility and the proceeds were used to partially redeem the subordinated notes.required no adjustmentwas $35,000 for the tentwenty-six weeks ended September 8,June 30, 2015 (successor)(Predecessor). The warrant liability was reclassified to equity on March 20, 2015 in connection with the Step 1 of the Business CombinationInitial Investment discussed in Note 3. Change3 to the unaudited consolidated financial statements. There was no such change in fair value of warrant liability was ($35,000) for the twenty-six weeks ended June 30, 2015 (predecessor) and $0.3 million for the thirty-six weeks ended September 9, 2014 (predecessor)6, 2016 (Successor) and the ten weeks ended September 8, 2015 (Successor).(successor),(Successor) and 26.0% and 1040.5% for the twenty-six weeks ended June 30, 2015 (predecessor) and thirty-six weeks ended September 9, 2014 (predecessor), respectively.(Predecessor). The provision for income taxes consisted of income tax (benefit) expense of ($3.1)$9.5 million for the thirty-six weeks ended September 6, 2016 (Successor), $(3.1) million for the ten weeks ended September 8, 2015 (successor)(Successor) and $0.7 million and $1.3 million for the twenty-six weeks ended June 30, 2015 (predecessor)(Predecessor). The income tax expense related to the thirty-six weeks ended September 9, 2014 (predecessor)6, 2016 (Successor) is driven by our estimated effective income tax rate of 42.5% which primarily consists of statutory federal and state tax rates based on apportioned income, as well as providing for deferred tax liabilities for the excess of the amount for financial reporting over the tax basis of an investment in a domestic subsidiary. In addition, the effective rate is also driven by transaction-related costs incurred in connection with the warrant tender offer which are not deductible for taxes as well as lower stock compensation expense deductible for tax related to the June 30, 2016 vesting of certain restricted stock awards as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by federal targeted job credits. The income tax expense related to the ten weeks ended September 8, 2015 (Successor) and twenty-six weeks ended June 30, 2015 (Predecessor) primarily related to the increase in deferred tax liabilities for indefinite-lived assets and the related effect of maintaining a full valuation allowance against certain of deferred tax assets as of September 8, 2015 (Successor).the Company waswe were required to record all of DTH’s acquired assets and liabilities at their acquisition date fair value, including deferred income taxes. The CompanyWe considered the weight of both positive and negative evidence and concluded that it is more likely than not that net deferred tax assets will be realized and that no valuation allowance was required as of the date of acquisition. As a result, the Companywe established deferred tax assets as well as deferred tax liabilities related to indefinite-lived intangibles through the purchase price allocation (see note 3 to the unaudited condensed consolidated financial statements). In addition, after considering the Business Combination, the projected post-combination results and all available evidence, the Companywe released $1.9 million of valuation allowance through income tax benefit in accordance with ASC 805-740-30-3 during the ten week period ended September 8, 2015 (successor)(Successor).The Company continues to experience positive trends in consumer traffic and$7.2$11.6 million at September 8, 20156, 2016 (Successor) and available borrowing capacity of $71.4$75.0 million at September 8, 20156, 2016 (Successor) will be adequate to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations for at least the next 12 months. However, the ability to continue to meet these requirements and obligations will depend on, among other things, the ability to achieve anticipated levels of revenue and cash flow and the ability to manage costs and working capital successfully.The Company’sOur primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (primarily maintenance)maintenance and roll-out of equipment related to our strategy to emphasize freshness and speed), investments in infrastructure and information technology, interest payments on debt, lease obligations, income tax payments, purchases under our share and warrant repurchase program and working capital and general corporate needs. The working capital requirements are not significant since customers pay for their purchases in cash or by payment card (credit or debit) at the time of sale. Thus, the Company iswe are able to sell many inventory items before it haswe have to pay suppliers for such items since itwe typically hashave payment terms for itsour food and paper suppliers. The Company restaurants do not require significant inventories. Successor Predecessor 10 Weeks
Ended
September 8, 2015 26 Weeks
Ended
June 30, 2015 36 Weeks
Ended
September 9, 2014 (Amounts in thousands) $ (1,839 ) $ 10,083 $ 30,565 52,142 (15,284 ) (13,265 ) (43,129 ) 1,820 (16,844 ) $ 7,174 $ (3,381 ) $ 456 Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015Net cash provided by (used in) Operating activities $ 38,696 $ (1,839 ) $ 10,083 Investing activities (24,676 ) 52,142 (15,284 ) Financing activities (12,611 ) (43,129 ) 1,820 Net increase (decrease) in cash $ 1,409 $ 7,174 $ (3,381 ) (successor)(Successor), cash flows used in operating activities were $1.8 million. The cash flows used in operating activities resulted from net loss of $2.2 million non-cash adjustment for asset depreciation and amortization of $4.2 million, debt modification costs of $0.1 million, stock-based compensation of $0.1 million and the changes in net working capital requirements totaling $(4.0) million, which includes cash outflows of $4.3 million related to transaction expenses previously expensed by LAC and not reported with DTH’s predecessor condensed consolidated statements of comprehensive income (loss).Used(Used in) Provided by Investing ActivitiesInvesting Activities(successor)(Successor), cash flows provided by investing activities were $52.1 million. The cash flows used in investing activities were primarily the result of proceeds from the Company’s trust account of $149.9 million, partially offset by $89.8 million for the Business Combination with DTH and purchase of property and equipment and other assets totaling $8.0 million.(successor)(Successor), cash flows used in financing activities were $43.1 million. The cash flows used in financing activities were primarily the result of the full repayment of the 2013 Term LoanSenior Credit Facility of $227.1 million, payments on revolving credit facilities capital lease and deemed landlord financing and debt issue costs in aggregate of $7.8 million as well as repayment of note payable of $0.5 million and payment of deferred underwriter compensation of $5.3 million both of which were accrued on LAC’s balance sheet at June 16, 2015, partially offset by net proceeds from the 2015 RevolvingSenior Credit Facility of $162.6 million and proceeds of $35.0 million from the issuance of common stock.Term Loanterm loan and $40.0 million Revolverrevolving credit facility revolver with maturity dates of October 1, 2018 and April 1, 2018, respectively. On April 21, 2014, DTH amended the 2013 Senior Credit Facility whereby the then outstanding balance of the Term Loanterm loan was increased by $62.0 million to $220.0 million and the revolving credit facility remained at $40 million. The amended Term Loanterm loan bore interest at LIBOR (not to be less than 1.00%) plus a margin of 4.50%. Principal borrowings were payable on a quarterly basis in the amount of $550,000 beginning on June 30, 2014, with mandatory annual prepayment equal to 50% of excess cash flow beginning in fiscal 2015 which may be reduced by voluntary prepayments made during the fiscal year and which may be further reduced if the senior leverage ratio is less than 2.75 to 1.00. Any remaining principal and accrued interest is payable in full at maturity on October 1, 2018. DTH made mandatory and voluntary prepayments on the Term Loan in the aggregate of $22.5 million during Fiscal 2014. The voluntary prepayments have been designated to cover the mandatory quarterly principal payments through the maturity of the Term Loan in October 2018. On March 20, 2015, DTH increased the borrowings on its 2013 Senior Credit Facility by $25.1 million and borrowed $10.0 million on its revolver.under the revolving credit facility. In addition, on March 12, 2015, DTH satisfied the rating condition in its 2013 Senior Credit Facility resulting in a decrease in interest rates to LIBOR (not to be less than 1.00%) plus a margin of 4.25% as of March 25, 2015. On June 30, 2015, DTH used $68.6 million of the proceeds from the business combinationBusiness Combination to reduce itspay down borrowings under the 2013 Senior Credit Facility.the Company replaced itswe refinanced our existing 2013 Senior Credit Facility with a newand entered into the 2015 Senior Credit AgreementFacility which matures on August 4, 2020, and provides for a $250 million revolving credit facility (“2015 Revolving Credit Facility”). The Company utilizedfacility. We borrowed $164 million under the 2015 Senior Credit Facility to repay all of proceeds from the newexisting indebtedness under our existing 2013 Senior Credit AgreementFacility and to refinance in whole its existing senior secured debt and pay costs associated with the refinancing.financing. At the time of termination, $162.5 million of term loan balance wasborrowings were outstanding under the 2013 Senior Credit Facility and $17.6 million of revolver capacity that was utilized to support outstanding letters of credit under this facility.the Company’sour option, loans under the 2015 RevolvingSenior Credit Facility may bear interest at a base rate or LIBOR, plus a margin determined in accordance with a consolidated total lease adjusted leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the Federal Funds Rate plus 1⁄ 1/2 of 1%, (b) the prime rate of Bank of America, and (c) LIBOR plus 1.00%. For LIBOR loans, the margin is in the range of 1.50% to 2.50%, and for base rate loans the margin is in the range of 0.50% and 1.50%. The margin iswas initially set at 2.00% for LIBOR loans and at 1.00% for base rate loans until delivery of financial statements and a compliance certificate for the fourth fiscal quarter ending after the closing date of the 2015 Senior Credit Agreement.AgreementFacility contains certain financial covenants, including the maintenance of a consolidated total lease adjusted leverage ratio and a consolidated fixed charge coverage ratio. The Company wasWe were in compliance with the financial covenants as of September 8, 2015.RevolvingSenior Credit Facility does not have scheduled principal payments until its maturity on August 4, 2020.8, 2015,6, 2016 (Successor), the weighted-average interest rate on the outstanding balance of the 2015 RevolvingSenior Credit Facility was 2.2%2.3%. As of September 8, 20156, 2016 (Successor) there was $161.0were $156.0 million of borrowings under the revolver2015 Senior Credit Facility and letters of credit outstanding of $17.6$19.0 million. Unused revolverborrowing capacity at September 8, 20156, 2016 (Successor) was $71.4$75.0 million.On May 18, 2010, DTH underwent a restructuring transaction (the “Restructuring”). the Restructuring, Sagittarius Restaurants LLC (“SAG Restaurants”) and F&C Restaurant Holding Co. (“F&C RHC”),DTH's May 2010 restructuring, wholly owned subsidiaries of DTH issued subordinated notes in the aggregate principal amount of $110.0$150.0 million (“SAG Restaurants Sub Notes”) and $40.0 million (“F&C RHC Sub Notes”), respectively to GSMP, Green and Charlesbank and issued warrants to purchase 597,802 shares of common stock of DTH to GSMP. Both the SAG Restaurants Sub Notes and F&C RHC Sub Notes had no scheduled principal repayments until their scheduled maturity on April 29, 2022 and March 29, 2019, respectively, andwhich had an interest rate of 13.0%, with interest accrued to principal. The outstanding balance of the Company Sub Notes and F&C RHC Sub Notes of $111.2 million in aggregateon these subordinated notes was paid in full on March 20, 2015 as discussed inRecent Events above.will bewas recorded through interest expense.Contractual Obligationsfollowing table represents2016 Interest Rate Cap Agreement had an initial notional amount of $70.0 million of the Company’s contractual commitments (which include expected2015 Senior Credit Facility that effectively converted that portion of the outstanding balance of the 2015 Senior Credit Facility from variable rate debt to capped variable rate debt, resulting in a change in the applicable interest expense, calculated based on currentrate from an interest rates)rate of one-month LIBOR plus the applicable percentage (as provided by the 2015 Senior Credit Facility) to make future payments pursuant to debt and other obligations disclosed above and pursuant to restaurant operating leases outstanding asa capped interest rate of September 8, 2015: Payments Due by Period (Amounts in thousands) Total Remaining
2015 2016 - 2017 2018-2019 2020 and
thereafter $ 209,234 $ 7,388 $ 45,741 $ 39,723 $ 116,382 16,801 529 3,245 2,376 10,651 161,000 — — — 161,000 20,037 1,252 8,140 8,140 2,505 86,079 4,342 30,889 29,348 21,500 $ 493,151 $ 13,511 $ 88,015 $ 79,587 $ 312,038 (1)Interest on long-term debt includes monthly interest due on the drawn portion of the revolver at interest rates of 2.2%, a fee of 2.0% on the outstanding letters of credit and a 0.25% unused commitment fee on the unused balance of the revolver.(2)Purchase commitments included in the table above are for commitments in excess of one year related to both Company-operated and franchised restaurants for food purchases and supplies, information technology service agreements and a long-term beverage supply agreement.(3)The above table excludes purchase commitments related to certain vendors that supply food products, construction, marketing and other service-related arrangements which occur in the normal course of business and are typically short-term in nature. Other obligations excluded from the above table include contingent rent payments, property taxes, insurance payments and common area maintenance costs.8, 2015, the Company6, 2016 (Successor), we had a $250.0 million revolving credit facility under the 2015 Senior Credit Facility of which $17.6$19.0 million was reserved for outstanding letters of credit and $71.4$75.0 million was unused and available for borrowings. The CompanyWe did not have any other material off-balance sheet arrangements, except for restaurant operating leases entered into in the normal course of business. Successor Predecessor 12 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 2 Weeks Ended
June 30, 2015Company restaurant sales $ 100,173 $ 78,874 $ 15,891 Restaurant operating expenses 79,233 63,103 12,972 Restaurant contribution $ 20,940 $ 15,771 $ 2,919 Restaurant contribution margin 20.9 % 20.0 % 18.4 % Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015Company restaurant sales $ 289,640 $ 78,874 $ 200,676 Restaurant operating expenses 231,402 63,103 162,178 Restaurant contribution $ 58,238 $ 15,771 $ 38,498 Restaurant contribution margin 20.1 % 20.0 % 19.2 % Successor Predecessor 12 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 2 Weeks Ended
June 30, 2015Net income (loss) $ 4,949 $ (2,186 ) $ 2,416 Non-GAAP adjustments: Provision (benefit) for income taxes 4,076 (3,132 ) (1,449 ) Interest expense 1,412 1,725 664 Depreciation and amortization 5,157 4,289 659 EBITDA 15,594 696 2,290 Stock-based compensation expense (a) 1,001 146 — Loss on disposal of assets (b) 54 1 84 Restaurant closure charges, net (c) (133 ) 19 — Amortization of favorable and unfavorable lease assets and liabilities, net (d) (140 ) (142 ) 5 Debt modification costs (e) — 78 1 Transaction-related costs (f) 490 11,978 61 Pre-opening costs (h) 94 41 28 Adjusted EBITDA $ 16,960 $ 12,817 $ 2,469 Successor Predecessor 36 Weeks Ended
September 6, 2016 10 Weeks Ended
September 8, 2015 26 Weeks Ended
June 30, 2015Net income (loss) $ 12,874 $ (2,186 ) $ 2,104 Non-GAAP adjustments: Provision (benefit) for income taxes 9,529 (3,132 ) 740 Interest expense 4,289 1,725 11,491 Depreciation and amortization 16,175 4,289 8,249 EBITDA 42,867 696 22,584 Stock-based compensation expense (a) 2,630 146 532 Loss on disposal of assets (b) 191 1 99 Restaurant closure charges, net (c) (121 ) 19 94 Amortization of favorable and unfavorable lease assets and liabilities, net (d) (420 ) (142 ) 3 Debt modification costs (e) — 78 139 Transaction-related costs (f) 681 11,978 7,255 Change in fair value of warrant liability (g) — — (35 ) Pre-opening costs (h) 222 41 276 Adjusted EBITDA $ 46,050 $ 12,817 $ 30,947 (a) Includes non-cash, stock-based compensation. (b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment. (c) Includes costs related to future obligations associated with the closure or net sublease shortfall of a restaurant. (d) Includes amortization of favorable lease assets and unfavorable lease liabilities. (e) Includes costs associated with debt refinancing transaction in August 2015 and March 2015. (f) Includes costs related to the offer to exchange the Company's common stock for each outstanding Company warrant and the strategic sale process which commenced during 2014 and resulted in the Stock Purchase Agreement with the Levy Newco Parties and the Business Combination consummated pursuant to the Merger Agreement. (g) Relates to fair value adjustments to the warrants to purchase shares of common stock of DTH that had been issued to certain of DTH’s equity shareholders, all of which were exchanged for shares of common stock of DTH on March 20, 2015. (h) Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening.
Quantitative and Qualitative Disclosures About Market RiskITEMQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company isdebt,our senior credit facility, which currently bears interest at variable rates and currently has a LIBOR floor of 1.0%.rates. As of September 8, 2015, Del Taco6, 2016 (Successor), we had outstanding variable rate borrowings of $161.0$156.0 million. A 1.00% increase in the effective interest rate applied to this borrowing would result in a pre-tax interest expense increase of $1.6 million on an annualized basis.The Company managesthe Companywe entered into an interest rate cap agreement as discussed above under “—Liquidity and Capital Resources—Debt and Other Obligations—Hedging Arrangements” above.The Company purchasesitsour control. Although these products are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements used contain risk management techniques designed to minimize price volatility. In many cases, the Company believes itwe believe we will be able to address material commodity cost increases by adjusting menu pricing or making other operational adjustments that increase productivity. However, increases in commodity prices, without adjustments to menu prices, could increase restaurant operating costs as a percentage of restaurant sales.The Company hasWe have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal, state or local minimum wage and increases in the minimum wage will increase labor costs. SinceFrom July 1, 2014 to December 31, 2015, the State of California (where a majority of company-operated restaurants are located) has had a minimum wage of $9.00 per hour. From January 1, 2008 to June 30, 2014, California minimum wage had been $8.00 per hour. The California minimum wage is scheduled to riseincreased to $10.00 per hour on January 1, 2016.ThisAlso, in June 2016, the Los Angeles City Council approved a paid sick leave ordinance is expected to impact 25 company-ownedprovide six days of paid sick leave per year, with carry-over of 72 hours, effective July 1, 2016. These ordinances impacted 24 company-operated restaurants and 8 franchise-ownedeight franchise-operated restaurants in the City of Los Angeles and in the unincorporated areas of the County of Los Angeles.2015,2016, employers with 26 or more employees must pay a minimum wage of $10.50 per hour to all employees who work at least 2 hours per week within Pasadena’s geographic bounds. The minimum wage will increase to $12.00 per hour on July 1, 2017, and $13.25 per hour on July 1, 2018. This impacted two company-operated restaurants.Healthy Workplaces, Healthy Families ActCalifornia Legislature passed legislation which was designed to raise the statewide minimum wage gradually until it reaches $15.00 per hour in 2022 and it was signed into law on April 4, 2016. Under the new California law, minimum wage would increase to $10.50 per hour in 2017, $11.00 in 2018 and then increase by an additional dollar each calendar year through 2022 when it reaches $15.00 per hour. Based on our current number of 2014 went intorestaurants in California, this is expected to impact 367 restaurants in California of which 246 are company-operated and 121 are franchised-operated.California employees, whichany employee who works at least two hours within San Diego city limits, minimum wage would increase to $10.50 per hour on July 11, 2016, $11.50 per hour in 2017 and beginning 2019, the minimum wage rate will increase annually to an amount that corresponds to the prior year's increase, if any, in the cost of living. In addition, the ordinance provides up to threefive days of paid sick leave for employees who work more than 30 days within aand allows unused sick leave to be carried over to the following year. The new law is expected to have an impact on labor costs. This ordinance impacted four company-operated restaurants and one franchise-operated restaurant.the Company haswe have been able to substantially offset cost increases resulting from inflation by increasing menu prices, managing menu mix, improving productivity or through other adjustments. The CompanyWe may or may not be able to offset cost increases in the future.The Company believesWe believe 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’sOur significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided by business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances.the Company’sour financial statements. A thorough understanding of these accounting policies is essential when reviewing the Company’sour reported results of operations and the Company’sour financial position. Management believes that the critical accounting policies and estimates involve the most difficult management judgments due to the sensitivity of the methods and assumptions used. For a description of the Company’sour critical accounting policies, refer to “Critical Accounting Policies”Policies and Use of Estimates” in “Del Taco Management’s Discussion and AnalysisItem 7 of Financial Condition and ResultsPart II of Operations” of Del Taco Restaurant, Inc.’s. Currentour Annual Report on Form 8-K10-K for the fiscal year ended December 29, 2015 (Successor) filed with the SEC on July 2, 2015.March 8, 2016. There have been no material changes in any of the Company’sour critical accounting policies during the twelve week period ended September 8, 2015.Recently Adopted and 6, 2016 (Successor).condensed consolidated financial statements, included elsewhere in this quarterly report on Form 10-Q, for a description of the recently issued accounting standards.
13,14, Commitments and Contingencies, of the notes to the unaudited condensed consolidated financial statements for a discussion of our contingencies and legal matters.
“Risk Factors-Risks Related to Del Taco’s Business and Industry”“Item 1A. Risk Factors” included in the Definitive Proxy StatementAnnual Report on Schedule 14AForm 10-K for the fiscal year ended December 29, 2015 (Successor) filed with the SEC on June 11, 2015March 8, 2016 for a discussion of our risk factors. There have been no material changes to our risk factors.
None. (a) (b) (c) (d) Average price paid per warrant Total number of shares purchased as part of publicly announced programs Total number of warrants purchased as part of publicly announced programs Maximum dollar value that may yet be purchased under these programs Common Stock Warrants June 15, 2016 - July 12, 2016 361,573 235,000 $ 8.79 $ 1.85 990,555 476,806 $ 14,500,460 July 13, 2016 - August 9, 2016 — — $ — $ — 990,555 476,806 $ 14,500,460 August 10, 2016 - September 6, 2016 144,235 — $ 11.11 $ — 1,134,790 476,806 $ 37,898,009 Total 505,808 235,000 $ 9.45 $ 1.85
Description /s/ Paul J.B. Murphy III /s/ Steven L. Brake 3.1 Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36197) filed with the Securities and Exchange Commission on July 2, 2015). 4.1Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-36197) filed with the Securities and Exchange Commission on July 2, 2015). 4.2Specimen Warrant Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-36197) filed with the Securities and Exchange Commission on July 2, 2015). 10.1Credit Agreement, dated as of August 4, 2015, among Sagittarius Restaurants LLC, as Borrower, Del Taco Holdings, Inc., as Holdings, certain other subsidiaries of Holdings party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto (incorporated by reference to the Company’s Form 8-k filed with the Securities and Exchange Commission on August 7, 2015).31.1 Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). 31.2 Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). 32.1 Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. 32.2 Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Document. DEL TACO RESTAURANTS, INC. Date: October 19, 201517, 2016Name: Paul J.B. Murphy III Title: President and Chief Executive Officer (principal(principal executive officer) Name: Steven L. Brake Title: Executive Vice President and Chief
Financial Officer (principal(principal financial officer)
64