Del Taco Restaurants, Inc. (f/k/a Levy Acquisition Corp. (“LAC”)) is a Delaware corporation headquartered in Lake Forest, California. The consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At June 20, 2017, there were 304 company-operated and 251 franchise-operated Del Taco restaurants located in 15 states, including one franchise-operated unit in Guam. At June 14, 2016, (Successor), there were 298 company-operated and 245 franchisedfranchise-operated Del Taco restaurants located in 16 states, including one franchised unit in Guam. At June 16, 2015 (Predecessor), there were 306 company-operated and 241 franchised Del Taco restaurants located in 16 states, including one franchisedfranchise-operated unit in Guam.

The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 29, 2015January 3, 2017 ("20152016 Form 10-K"). The accounting policies used in preparing these unaudited consolidated financial statements are the same as those described in our 20152016 Form 10-K.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances.

The following table represents other restaurant closure liability activity related to prior restaurant closures prior to 2015 and sublease income shortfalls (in thousands):

During the fourth fiscal quarter of 2015, the Company closed 12 company-operated restaurants. During the twelve and twenty-four weeks ended June 14, 2016 (Successor),20, 2017, the Company recorded accretion expense related to the closures, as well asoffset by $0.1 million related to the write-off of fixed assets associated with the closures. During the twenty-four weeks ended June 14, 2016 (Successor), the Company recorded an adjustment to decrease the lease termination liability for one closed restaurant due to a change in estimate, partially offset by an adjustment to increase the lease termination liability for two closed restaurants due to changes in estimates.

The current portion of the restaurant closure liability is $1.0$0.2 million and $1.5$0.6 million at June 14, 2016 (Successor)20, 2017 and December 29, 2015 (Successor),January 3, 2017, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability is $1.6$1.3 million and $2.3$1.2 million at June 14, 2016 (Successor)20, 2017 and December 29, 2015 (Successor),January 3, 2017, respectively, and is included in other non-current liabilities in the consolidated balance sheets.

Goodwill was $319.1 million at June 14, 2016 (Successor) comparedIn connection with the sale of company-operated restaurants to $318.3 million at December 29, 2015 (Successor). The increase was duefranchisees, the Company typically enters into several agreements, in addition to an adjustmentasset purchase agreement, with franchisees including franchise and lease agreements. The Company typically sells restaurants’ inventory and equipment and retains ownership or the leasehold interest to the purchase price allocationreal estate to lease and/or sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as describedsuch, the cash consideration received is allocated to the separate elements based on their relative selling price. Cash consideration generally includes up-front consideration for the sale of the restaurants and franchise fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in more detail in Note 3.

Goodwill andwas $319.8 million at June 20, 2017 compared to $320.0 million at January 3, 2017. The change is due to the sale of company-operated stores as described in more detail in Note 4.

The Company’s long-term debt, capital lease obligations and deemed landlord financing liabilities at June 14, 2016 (Successor)20, 2017 and December 29, 2015 (Successor)January 3, 2017 consisted of the following (in thousands):

On August 4, 2015, the Company refinanced its existing senior credit facility (“2013 Senior Credit Facility”) and entered into a new credit agreement (the “Credit Agreement”). The Credit Agreement, which matures on August 4, 2020, provides for a $250 million revolving credit facility (the “2015 Senior Credit Facility”). The Company utilized $164 million of proceeds from the Credit Agreement to refinance in total its 2013 Senior Credit Facility and pay costs associated with the refinancing. The 2013 Senior Credit Facility, as amended March 20, 2015, totaled $267.1 million, consisting of an initial $227.1 million term loan (“2013 Term Loan”) and a $40 million revolver (“2013 Revolver”). At the time of the refinance, a $162.5 million term loan balance was outstanding and $17.6 million of revolver capacity was utilized to support outstanding letters of credit under the 2013 Senior Credit Facility.

As ofIn June 14, 2016, (Successor) and December 29, 2015 (Successor), the Company hadentered into an interest rate cap agreement that became effective July 1, 2016, to hedge cash flows associated with interest rate fluctuations on variable rate debt. This agreementdebt, with a termination date of March 31, 2020 ("2016 Interest Rate Cap Agreement"). The 2016 Interest Rate Cap Agreement had aan initial notional amount of $87.5$70.0 million as of June 14, 2016 (Successor) and December 29,the 2015 (Successor). The individual caplet contracts withinSenior Credit Facility that effectively converted that portion of the remainingoutstanding balance of the 2015 Senior Credit Facility from variable rate debt to capped variable rate debt, resulting in a change in the applicable interest rate cap agreement expire at various datesfrom an interest rate of one-month LIBOR plus the applicable margin (as provided by the 2015 Senior Credit Facility) to a capped interest rate of 2.00% plus the applicable margin. During the period from July 1, 2016 through June 30, 2016.20, 2017, the 2016 Interest Rate Cap Agreement had no hedge ineffectiveness.

To ensure the effectiveness of the interest rate cap agreement through June 30, 2015 (Predecessor) ,2016 Interest Rate Cap Agreement, the Company elected the three-monthone-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the interest rate cap agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly match with the interest rate cap reset dates and other critical terms during the twelve and twenty-four weeks ended June 16, 2015 (Predecessor).20, 2017.

The fair values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying amounts due to their short maturities. The carrying value of the 2015 Senior Credit Facility approximated fair value. The interest rate cap agreement2016 Interest Rate Cap Agreement is recorded at fair value in the Company’s consolidated balance sheets.

A summary of other accrued liabilities follows (in thousands):

In connection with the approval of the Business Combination, the Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include,

without limitation, stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. Under the plan, there were 3,300,000 shareshares of common stock reserved and authorized. At June 14, 2016 (Successor),20, 2017, there were 2,010,5021,597,458 shares of common stock available for grant under the 2015 Plan.

The total compensation expense related to the 2015 Plan was $1.1 million and $0.9 million for the twelve weeks ended June 20, 2017 and June 14, 2016, respectively, and $2.1 million and $1.6 million for the twelve and twenty-four weeks ended June 20, 2017 and June 14, 2016, (Successor), respectively.

A summary of outstanding and unvested restricted stock activity as of June 14, 2016 (Successor)20, 2017 and changes during the period December 29, 2015 (Successor)from January 3, 2017 through June 14, 2016 (Successor) is20, 2017 are as follows:

A summary of stock option activity as of June 14, 2016 (Successor)20, 2017 and changes during the period December 29, 2015 (Successor)from January 3, 2017 through June 14, 2016 (Successor) is20, 2017 are as follows:

The aggregate intrinsic value in the table above is the amount by which the current market price of the Company's stock on December 29, 2015 (Successor) or June 14, 2016 (Successor), respectively, exceeds the exercise price.

On February 26, 2016, the Company's Board of Directors authorized a share repurchase program covering up to $25.0 million in the aggregate of the Company's common stock and warrants which was effective immediately and expires upon completion of the repurchase program, unless terminated earlier by the Board of Directors. On August 23, 2016, the Company announced that the Board of Directors increased the repurchase program by $25.0 million, to $50.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelve andweeks ended June 20, 2017, the Company repurchased 400,000 warrants for an average price per warrant of $3.75 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants. During the twenty-four weeks ended June 14, 2016 (Successor),20, 2017, the Company repurchased respectively 542,303 and 628,982(1) 641,165 shares of common stock for an average price per share of $9.92 and $10.04$12.48 for an aggregate cost of approximately $5.4 million and $6.4$8.0 million, including incremental direct costs to acquire the shares. During both the twelveshares, and twenty-four weeks ended June 14, 2016 (Successor), the Company repurchased 241,806(2) 400,000 warrants for an average price per warrant of $2.36$3.75 for an aggregate cost of approximately $0.6$1.5 million, including incremental direct costs to acquire the warrants. The Company expects to retire the repurchased shares and warrants and therefore has accounted for them as constructively retired as of June 14, 2016 (Successor).20, 2017. As of June 14, 2016 (Successor),20, 2017, there was approximately $18.1$25.3 million remaining under the share repurchase program. The Company has no obligations to repurchase shares or warrants under this authorization, and the timing and value of shares and warrants purchased will depend on the Company's stock price, warrant price, market conditions and other factors.

Basic income (loss) per share is calculated by dividing net income (loss) attributable to Del Taco’s common shareholders for the Successor period and to DTH’s common shareholders for the Predecessor period by the weighted average number of common shares outstanding for the period. In computing dilutive income (loss) per share, basic income (loss) per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including warrants, restricted stock, common stock options and restricted stock units.

The effective income tax rates were 38.4% and 40.5% for the twelve weeks ended June 20, 2017 and June 14, 2016, (Successor) compared to 27.2% for the twelve weeks ended June 16, 2015 (Predecessor), respectively. The provision for income taxes consisted of income tax expense of $3.3 million for both the twelve weeks ended June 20, 2017 and June 14, 2016 (Successor) and $1.7 million for the twelve weeks ended June 16, 2015 (Predecessor), respectively.2016. The effective income tax rates were 40.8%39.1% and 116.6%40.8% for the twenty-four weeks ended June 14, 2016 (Successor)20, 2017 and June 16, 2015 (Predecessor),14, 2016, respectively. The provision for income taxes consisted of income tax expense of $5.5$6.2 million and $2.2$5.5 million for the twenty-four weeks ended June 20, 2017 and June 14, 2016, (Successor) and June 16, 2015 (Predecessor).

The Company enters into various purchase obligations in the ordinary course of business, generally of short term nature. Those that are binding primarily relate to commitments for food purchases and supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, information technology service agreements and marketing initiatives, some of which are related to both Company-operatedcompany-operated and franchisedfranchise-operated locations. The Company also has a long-term beverage supply agreement with a major beverage vendor whereby marketing rebates are provided to the Company and its franchisees based upon the volumes of purchases for system-wide restaurants which vary according to demand for beverage syrup. This contract has terms extending into 2021. The Company’s future estimated cash payments under existing contractual purchase obligations for goods and services as of June 14, 2016 (Successor),20, 2017, are approximately $85.4$67.9 million. The Company has excluded agreements that are cancelable without penalty.

In July 2013, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has failed to pay overtime wages and has not appropriately provided meal breaks to its California general managers. Discovery has been completed andOn June 23, 2017, the parties are preparing their motions for and oppositionCourt filed a tentative ruling granting Del Taco’s motion to class certification. Del Taco has several defenses todecertify 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.sole remaining class. 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 June 14, 2016 (Successor).20, 2017.

We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 20152016 is the 52-week period ended December 29, 2015 (Fiscal 2015). Fiscal year 2016 will be a 53-week period ended January 3, 2017 (Fiscal 2016). Fiscal year 2017 will be a 52-week period ended January 2, 2018 (Fiscal 2017).

We are a nationwide operator and franchisor of restaurants featuring fresh and fast cuisine, including both Mexican inspired and American classic dishes. As of June 14, 2016 (Successor), there are 54320, 2017, we have 555 Del Taco restaurants, a majority of these in the Pacific Southwest. In each of our restaurants, our food is made to order in working kitchens. We 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+ — we occupy a place in the restaurant market distinct from our competitors. With a menu designed to appeal to a wide variety of budgets and tastes and recently updated interior and exterior designs across most of our entire system, we believe that we are poised for growth, operating within the fastest growing segment of the restaurant industry, the limited service restaurant (“LSR”) segment. With an average system check of $6.79$7.13 during Fiscal 2015,2016, we offer a compelling value proposition relative to both QSR and fast casual peers.

Company restaurant sales consists of sales of food and beverages in company-operated restaurants net of promotional allowances, employee meals and other discounts. Company restaurant sales in any period is directly influenced by the number of operating weeks in such period, the number of open restaurants, same store sales and per restaurant sales.

We measure company-operated average unit volumes (AUVs) on both a weekly and an annual basis. Weekly AUVs are calculated by dividing the sales from comparable company-operated restaurants over a seven day period from Wednesday to Tuesday by the number of comparable restaurants. Annual AUVs are calculated by dividing sales for the trailing 52-week period for all company-operated restaurants that are in the comparable base by the total number of restaurants in the comparable base for such period. This measurement allows management to assess changes in consumer traffic and spending patterns at our company-operated restaurants and the overall performance of the restaurant base.

Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with U.S. GAAP. Restaurant contribution is defined as company restaurant sales less restaurant operating expenses, which are food and paper costs, labor and related expenses and occupancy and other operating expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant sales. Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of restaurants and the calculations thereof may not be comparable to those reported by other companies. Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of results as reported under U.S. GAAP. Management believes that restaurant contribution and restaurant contribution margin are important tools for investors because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. Management uses restaurant contribution and restaurant contribution margin as key performance indicators to evaluate the profitability of incremental sales at Del Taco restaurants, to evaluate restaurant performance across periods and to evaluate restaurant financial performance compared with competitors.

The number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period. Before a new restaurant opens, we and our 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 normal 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 26 to 52 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 our brand. When we enter new markets, we 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.

EBITDA represents net income (loss) before interest expense, provision for income taxes, depreciation and amortization. Adjusted EBITDA represents net income (loss) before interest expense, provision for income taxes, depreciation, amortization and items that we do not consider representative of ongoing operating performance, as identified in the reconciliation table below.under the heading entitled "Management's Use of Non-GAAP Financial Measures."