Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 10, 2019June 16, 2020

OR
 
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to
Commission File Number: 001-36197
DEL TACO RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
46-3340980
Delaware
46-3340980
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
25521 Commercentre Drive
Lake Forest, California92630
(Address of principal executive offices)(Zip Code)
(949)462-9300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per share$0.0001 Par ValueTACONASDAQ CapitalThe Nasdaq Stock Market
Warrants, each exercisable for one share of common stockTACOWNASDAQ Capital Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x ☒No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer¨Accelerated Filerx
Large accelerated filerNon-Accelerated Filer¨Accelerated filerSmaller Reporting Companyx☐
Non-accelerated filer¨Smaller reporting companyEmerging Growth Company¨
Emerging growth company¨☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act     ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  x☒
As of October 18, 2019,July 20, 2020, there were 37,059,20237,324,593 shares of the registrant’s common stock issued and outstanding.




Table of Contents

Del Taco Restaurants, Inc.
Index


PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 10, 2019June 16, 2020 (Unaudited) and January 1,December 31, 2019
31
Unaudited Consolidated Statements of Comprehensive(Loss) Incomefor the Twelve and Thirty-Six Twenty-Four Weeks Ended September 10, 2019June 16, 2020 and the Twelve and Thirty-Six Twenty-Four Weeks Ended September 11, 2018June 18, 2019
42
Unaudited Consolidated Statements of Shareholders'Stockholders' Equity for the Twelve and Thirty-Six weeks ended September 10, 2019Twenty-Four Weeks Ended June 16, 2020 and the Twelve and Thirty-Six weeks ended September 11, 2018Twenty-Four Weeks Ended June 18, 2019
53
Unaudited Consolidated Statements of Cash Flows for the Thirty-SixTwenty-Four Weeks Ended September 10, 2019June 16, 2020 and the Thirty-SixTwenty-Four Weeks Ended September 11, 2018June 18, 2019
75
Notes to Consolidated Financial Statements (Unaudited)
86
2623
4542
4744
PART II. OTHER INFORMATION
4845
4845
4845
4947




Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Del Taco Restaurants, Inc.Del Taco Restaurants, Inc.Del Taco Restaurants, Inc.
Consolidated Balance SheetsConsolidated Balance SheetsConsolidated Balance Sheets
(In thousands, except share and per share data)(In thousands, except share and per share data)(In thousands, except share and per share data)
 September 10, 2019 January 1, 2019 June 16, 2020December 31, 2019
Assets (Unaudited)  Assets(Unaudited)
Current assets:    Current assets:
Cash and cash equivalents $8,568
 $7,153
Cash and cash equivalents$10,749  $1,421  
Accounts and other receivables, net 2,980
 3,167
Accounts and other receivables, net5,301  3,580  
Inventories 2,877
 2,932
Inventories2,471  3,123  
Prepaid expenses and other current assets 3,457
 4,935
Prepaid expenses and other current assets1,776  2,289  
Assets held for sale 14,260
 14,794
Assets held for sale1,495  8,411  
Total current assets 32,142
 32,981
Total current assets21,792  18,824  
Property and equipment, net 148,903
 161,429
Property and equipment, net150,245  156,921  
Operating lease right-of-use assets 232,935
 —
Operating lease right-of-use assets253,180  258,278  
Goodwill 310,989
 321,531
Goodwill108,979  192,739  
Trademarks 220,300
 220,300
Trademarks208,400  220,300  
Intangible assets, net 11,049
 18,507
Intangible assets, net10,543  10,827  
Other assets, net 3,918
 4,208
Other assets, net4,705  4,568  
Total assets $960,236
 $758,956
Total assets$757,844  $862,457  
Liabilities and shareholders’ equity    Liabilities and shareholders’ equity
Current liabilities:    Current liabilities:
Accounts payable $20,749
 $19,877
Accounts payable$17,818  $19,652  
Other accrued liabilities 38,286
 34,785
Other accrued liabilities41,700  34,577  
Current portion of finance lease obligations, other debt and deemed landlord financing liabilities 363
 1,033
Current portion of finance lease obligations and other debtCurrent portion of finance lease obligations and other debt198  220  
Current portion of operating lease liabilities 18,800
 —
Current portion of operating lease liabilities20,667  17,848  
Total current liabilities 78,198
 55,695
Total current liabilities80,383  72,297  
Long-term debt, finance lease obligations, other debt and deemed landlord financing liabilities, excluding current portion, net 150,601
 178,664
Long-term debt, finance lease obligations and other debt, excluding current portion, netLong-term debt, finance lease obligations and other debt, excluding current portion, net144,368  144,581  
Operating lease liabilities, excluding current portion 231,002
 —
Operating lease liabilities, excluding current portion256,277  257,361  
Deferred income taxes 71,290
 69,471
Deferred income taxes59,148  69,510  
Other non-current liabilities 14,631
 32,852
Other non-current liabilities16,020  16,601  
Total liabilities 545,722
 336,682
Total liabilities556,196  560,350  
Commitments and contingencies (Note 15)
 
 
Commitments and contingencies (Note 15)
Shareholders’ equity:    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; 37,059,202 shares issued and outstanding at September 10, 2019; 37,305,342 shares issued and outstanding at January 1, 2019 4
 4
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstandingPreferred stock, $0.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding—  —  
Common stock, $0.0001 par value; 400,000,000 shares authorized; 37,122,976 shares issued and outstanding at June 16, 2020; 37,059,202 shares issued and outstanding at December 31, 2019Common stock, $0.0001 par value; 400,000,000 shares authorized; 37,122,976 shares issued and outstanding at June 16, 2020; 37,059,202 shares issued and outstanding at December 31, 20194  4  
Additional paid-in capital 331,687
 336,941
Additional paid-in capital335,912  333,379  
Accumulated other comprehensive (loss) income (86) 180
Retained earnings 82,909
 85,149
Accumulated other comprehensive lossAccumulated other comprehensive loss—  (52) 
Accumulated deficitAccumulated deficit(134,268) (31,224) 
Total shareholders’ equity 414,514
 422,274
Total shareholders’ equity201,648  302,107  
Total liabilities and shareholders’ equity $960,236
 $758,956
Total liabilities and shareholders’ equity$757,844  $862,457  
See accompanying notes to consolidated financial statements.

1
Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
(In thousands, except share and per share data)
         
  12 Weeks Ended 36 Weeks Ended
  September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Revenue:        
Company restaurant sales $111,059
 $109,559
 $329,142
 $324,468
Franchise revenue 4,490
 4,308
 13,193
 12,249
Franchise advertising contributions 3,458
 3,155
 10,048
 9,227
Franchise sublease and other income 1,191
 808
 3,472
 2,253
Total revenue 120,198
 117,830
 355,855
 348,197
Operating expenses:        
Restaurant operating expenses:        
Food and paper costs 30,761
 29,601
 90,434
 88,656
Labor and related expenses 36,304
 35,301
 108,542
 105,541
Occupancy and other operating expenses 25,386
 22,844
 73,522
 67,457
General and administrative 10,421
 9,606
 31,735
 30,356
Franchise advertising expenses 3,458
 3,155
 10,048
 9,227
Depreciation and amortization 5,941
 5,855
 17,661
 17,616
Occupancy and other - franchise subleases and other 1,011
 762
 2,858
 2,051
Pre-opening costs 465
 259
 720
 900
Impairment of long-lived assets 1,407
 —
 5,101
 1,661
Restaurant closure charges, net 588
 672
 1,718
 635
Loss on disposal of assets and adjustments to
   assets held for sale, net
 7,906
 580
 8,790
 760
Total operating expenses 123,648
 108,635
 351,129
 324,860
(Loss) income from operations (3,450) 9,195
 4,726
 23,337
Other expense (income), net        
Interest expense 1,663
 2,062
 5,169
 5,984
Other income —
 (523) (201) (523)
Total other expense, net 1,663
 1,539
 4,968
 5,461
(Loss) income from operations before provision for income taxes (5,113) 7,656
 (242) 17,876
Provision for income taxes 2,556
 1,782
 3,910
 4,563
Net (loss) income (7,669) 5,874
 (4,152) 13,313
Other comprehensive (loss) income:     
  
Change in fair value of interest rate cap, net of tax (75) 23
 (345) 312
Reclassification of interest rate cap amortization included in net income, net of tax 32
 15
 79
 31
Total other comprehensive (loss) income, net (43) 38
 (266) 343
Comprehensive (loss) income $(7,712) $5,912
 $(4,418) $13,656
(Loss) earnings per share:        
Basic $(0.21) $0.15
 $(0.11) $0.35
Diluted $(0.21) $0.15
 $(0.11) $0.34
Weighted-average shares outstanding        
Basic 37,023,287
 38,191,335
 37,000,331
 38,310,842
Diluted 37,023,287
 39,391,284
 37,000,331
 39,108,573
Table of Contents


Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
(In thousands, except share and per share data)
12 Weeks Ended24 Weeks Ended
 June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Revenue:
Company restaurant sales$95,261  $112,180  $195,594  $218,083  
Franchise revenue4,520  4,638  8,911  8,703  
Franchise advertising contributions2,783  3,459  5,994  6,590  
Franchise sublease and other income2,006  1,183  3,881  2,281  
Total revenue104,570  121,460  214,380  235,657  
Operating expenses:
Restaurant operating expenses:
Food and paper costs25,642  30,855  53,937  59,673  
Labor and related expenses31,609  36,338  66,545  72,238  
Occupancy and other operating expenses22,389  23,703  46,797  48,136  
General and administrative9,432  10,849  19,298  21,314  
Franchise advertising expenses2,783  3,459  5,994  6,590  
Depreciation and amortization6,285  5,813  12,422  11,720  
Occupancy and other - franchise subleases and other1,727  993  3,322  1,847  
Pre-opening costs63  155  296  255  
Impairment of goodwill—  —  87,277  —  
Impairment of trademarks—  —  11,900  —  
Impairment of long-lived assets—  3,694  8,287  3,694  
Restaurant closure charges, net499  490  993  1,130  
Loss on disposal of assets and adjustments to assets held for sale, net435  594  557  884  
Total operating expenses100,864  116,943  317,625  227,481  
Income (loss) from operations3,706  4,517  (103,245) 8,176  
Other expense (income), net
Interest expense1,281  1,722  2,789  3,506  
Other income—  (97) —  (201) 
Total other expense, net1,281  1,625  2,789  3,305  
Income (loss) from operations before provision (benefit) for income taxes2,425  2,892  (106,034) 4,871  
Provision (benefit) for income taxes3,001  800  (2,990) 1,354  
Net (loss) income(576) 2,092  (103,044) 3,517  
Other comprehensive income (loss):
Change in fair value of interest rate cap, net of tax—  (131) —  (270) 
Reclassification of interest rate cap amortization included in net income, net of tax7  26  5247
Total other comprehensive income (loss), net7  (105) 52  (223) 
Comprehensive (loss) income$(569) $1,987  $(102,992) $3,294  
(Loss) earnings per share:
Basic$(0.02) $0.06  $(2.78) $0.10  
Diluted$(0.02) $0.06  $(2.78) $0.09  
Weighted-average shares outstanding
Basic37,086,962  36,821,728  37,081,511  36,988,853  
Diluted37,086,962  37,083,799  37,081,511  37,215,059  
See accompanying notes to consolidated financial statements.

2
Table of Contents


Del Taco Restaurants, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(In thousands, except share data)
    AccumulatedRetained
AdditionalOtherEarningsTotal
 PreferredCommon StockPaid-inComprehensive(AccumulatedShareholders’
 StockSharesAmountCapitalIncome (Loss)Deficit)Equity
Balance at January 1, 2019$—  37,305,342  $4  $336,941  $180  $85,149  $422,274  
Adjustment for adoption of new lease standard, net of tax—  —  —  —  1,912  1,912  
Net income—  —  —  —  —  1,425  1,425  
Other comprehensive loss, net of tax—  —  —  —  (118) —  (118) 
Comprehensive income1,307  
Stock-based compensation—  —  —  1,577  —  —  1,577  
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		—  13,172  —  (84) —  —  (84) 
Exercise of stock options—  1,500  —  16  —  —  16  
Repurchase of common
     stocks and warrants
—  (270,874) —  (4,306) —  —  (4,306) 
Balance at March 26, 2019—  37,049,140  4  334,144  62  88,486  422,696  
Net income—  —  —  —  —  2,092  2,092  
Other comprehensive loss, net of tax—  —  —  —  (105) —  (105) 
Comprehensive income1,987  
Stock-based compensation—  —  —  1,677  —  —  1,677  
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		—  48,499  —  —  —  —  —  
Exercise of stock options—  1,500  —  15  —  —  15  
Repurchase of common
     stocks and warrants
—  (303,607) —  (3,067) —  —  (3,067) 
Balance at June 18, 2019$—  36,795,532  $4  $332,769  $(43) $90,578  $423,308  
3
Table of Contents

Del Taco Restaurants, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(In thousands, except share data)
               
          Accumulated    
        Additional Other   Total
  Preferred Common Stock Paid-in Comprehensive Retained Shareholders’
  Stock Shares Amount Capital Income (Loss) Earnings Equity
Balance at January 1, 2019 $—
 37,305,342
 $4
 $336,941
 $180
 $85,149
 $422,274
Adjustment for adoption of new lease standard, net of tax —
 —
 —
 —
 —
 1,912
 1,912
Net income —
 —
 —
 —
 —
 1,425
 1,425
Other comprehensive loss, net of tax —
 —
 —
 —
 (118) —
 (118)
Comprehensive income             1,307
Stock-based compensation —
 —
 —
 1,577
 —
 —
 1,577
Issuance of vested
      restricted stock, net of
      shares withheld for tax
      withholding
 —
 13,172
 —
 (84) —
 —
 (84)
Exercise of stock options —
 1,500
 —
 16
 —
 —
 16
Repurchase of common
     stocks and warrants
 —
 (270,874) —
 (4,306) —
 —
 (4,306)
Balance at March 26, 2019 —
 37,049,140
 4
 334,144
 62
 88,486
 422,696
Net income —
 —
 —
 —
 —
 2,092
 2,092
Other comprehensive loss, net of tax —
 —
 —
 —
 (105) —
 (105)
Comprehensive income 

 

 

 

 

 

 1,987
Stock-based compensation —
 —
 —
 1,677
 —
 —
 1,677
Issuance of vested
      restricted stock, net of
      shares withheld for tax
      withholding
 —
 48,499
 —
 —
 —
 —
 —
Exercise of stock options —
 1,500
 —
 15
 —
 —
 15
Repurchase of common
     stocks and warrants
 —
 (303,607) —
 (3,067) —
 —
 (3,067)
Balance at June 18, 2019 —
 36,795,532
 4
 332,769
 (43) 90,578
 423,308
Net loss —
 —
 —
 —
 —
 (7,669) (7,669)
Other comprehensive loss, net of tax —
 —
 —
 —
 (43) —
 (43)
Comprehensive loss             (7,712)
Stock-based compensation —
 —
 —
 1,347
 —
 —
 1,347
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		 —
 254,670
 —
 (2,518) —
 —
 (2,518)
Exercise of stock options —
 9,000
 —
 89
 —
 —
 89
Repurchase of common
stocks and warrants		 —
 —
 —
 —
 —
 —
 —
Balance at September 10, 2019 $—
 37,059,202
 $4
 $331,687
 $(86) $82,909
 $414,514
Del Taco Restaurants, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(In thousands, except share data)
Accumulated
AdditionalOtherTotal
PreferredCommon StockPaid-inComprehensiveAccumulatedShareholders’
StockSharesAmountCapitalIncome (Loss)DeficitEquity
Balance at December 31, 2019$—  37,059,202  $4  $333,379  $(52) $(31,224) $302,107  
Net loss—  —  —  —  —  (102,468) (102,468) 
Other comprehensive income, net of tax—  —  —  —  45  —  45  
Comprehensive loss(102,423) 
Stock-based compensation—  —  —  1,225  —  —  1,225  
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		—  21,758  —  (105) —  —  (105) 
Balance at March 24, 2020—  37,080,960  4  334,499  (7) (133,692) 200,804  
Net loss—  —  —  —  —  (576) (576) 
Other comprehensive
income, net of tax		—  —  —  —  7  —  7  
Comprehensive loss(569) 
Stock-based
compensation		—  —  —  1,413  —  —  1,413  
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		—  42,016  —  —  —  —  —  
Balance at June 16, 2020$—  37,122,976  $4  $335,912  $—  $(134,268) $201,648  

Del Taco Restaurants, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(In thousands, except share data)
 
          Accumulated    
        Additional Other   Total
  Preferred Common Stock Paid-in Comprehensive Retained Shareholders’
  Stock Shares Amount Capital Income Earnings Equity
Balance at January 2, 2018 $—
 38,434,274
 $4
 $349,334
 $14
 $66,897
 $416,249
Adjustment for adoption of new revenue recognition standard, net of tax           (707) (707)
Net income —
 —
 —
 —
 —
 3,229
 3,229
Other comprehensive income, net of tax —
 —
 —
 —
 180
 —
 180
Comprehensive income             3,409
Stock-based compensation —
 —
 —
 1,274
 —
 —
 1,274
Issuance of vested
      restricted stock, net of
      shares withheld for tax
      withholding
 —
 9,892
 —
 (79) —
 —
 (79)
Exercise of stock options —
 4,750
 —
 48
 —
 —
 48
Repurchase of common
     stocks and warrants
 —
 —
 —
 (34) —
 —
 (34)
Balance at March 27, 2018 —
 38,448,916
 4
 350,543
 194
 69,419
 420,160
Net income —
 —
 —
 —
 —
 4,210
 4,210
Other comprehensive income, net of tax —
 —
 —
 —
 125
 —
 125
Comprehensive income             4,335
Stock-based compensation —
 —
 —
 1,359
 —
 —
 1,359
Issuance of vested
      restricted stock, net of
      shares withheld for tax
      withholding
 —
 42,570
 —
 —
 —
 —
 —
Exercise of stock options —
 7,500
 —
 75
 —
 —
 75
Repurchase of common
     stocks and warrants
 —
 (407,821) —
 (4,757) —
 —
 (4,757)
Balance at June 19, 2018 —
 38,091,165
 4
 347,220
 319
 73,629
 421,172
Net income —
 —
 —
 —
 —
 5,874
 5,874
Other comprehensive income, net of tax —
 —
 —
 —
 38
 —
 38
Comprehensive income             5,912
Stock-based compensation —
 —
 —
 1,445
 —
 —
 1,445
Issuance of vested
restricted stock, net of
shares withheld for tax
withholding		 —
 204,927
 —
 (2,299) —
 —
 (2,299)
Exercise of stock options —
 5,750
 —
 64
 —
 —
 64
Repurchase of common
stocks and warrants		 —
 (235,041) —
 (3,018) —
 —
 (3,018)
Balance at September 11, 2018 $—
 38,066,801
 $4
 $343,412
 $357
 $79,503
 $423,276


See accompanying notes to consolidated financial statements.

4
Del Taco Restaurants, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
     
  36 Weeks Ended
  September 10, 2019 September 11, 2018
Operating activities    
Net (loss) income $(4,152) $13,313
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Depreciation and amortization 17,661
 17,616
Amortization of favorable and unfavorable lease assets and liabilities, net —
 (602)
Amortization of deferred financing costs, debt discount and interest rate cap 376
 297
Amortization of operating lease assets 14,886
 —
Stock-based compensation 4,601
 4,079
Impairment of long-lived assets 5,101
 1,661
Deferred income taxes 1,210
 698
Loss on disposal of assets and adjustments to assets held for sale, net 8,790
 760
Restaurant closure charges 118
 604
Changes in operating assets and liabilities:    
Accounts and other receivables, net 394
 263
Inventories 55
 116
Prepaid expenses and other current assets (330) 1,993
Other assets (124) 9
Accounts payable 1,293
 649
Operating lease liabilities (13,584) —
Other accrued liabilities 2,307
 1,732
Other non-current liabilities 161
 1,120
Net cash provided by operating activities 38,763
 44,308
Investing activities    
Purchases of property and equipment (28,440) (30,575)
Proceeds from disposal of property and equipment, net 14,130
 1,323
Purchases of other assets (1,051) (1,107)
Acquisition of franchisees (4,833) (1,841)
Proceeds from sale of company-operated restaurants 2,090
 —
Net cash used in investing activities (18,104) (32,200)
Financing activities    
Repurchase of common stock and warrants (7,373) (7,810)
Payment of tax withholding related to restricted stock vesting (2,602) (2,378)
Payments on finance leases, other debt and deemed landlord financing (389) (1,038)
Proceeds from revolving credit facility 27,000
 17,000
Payments on revolving credit facility (36,000) (18,000)
Proceeds from exercise of stock options 120
 187
Net cash used in financing activities (19,244) (12,039)
(Decrease) increase in cash and cash equivalents 1,415
 69
Cash and cash equivalents at beginning of period 7,153
 6,559
Cash and cash equivalents at end of period $8,568
 $6,628
Supplemental cash flow information:    
Cash paid during the period for interest $4,720
 $5,513
Cash paid during the period for income taxes 1,764
 675
Supplemental schedule of non-cash activities:    
Accrued property and equipment purchases $5,768
 $3,967
Write-off of accounts and other receivables 21
 26
Amortization of interest rate cap into net income, net of tax 79
 31
Change in other asset for fair value of interest rate cap recorded to other comprehensive (loss) income, net of tax (345) 312
Operating lease right-of-use assets obtained in exchange for lease obligations(1)
 262,369
 —
Finance lease right-of-use assets obtained in exchange for lease obligations(1)
 1,185
 —
Impairment on operating lease right-of-use assets related to the adoption of new accounting pronouncement 3,116
 —
Table of Contents
(1)Amounts for the thirty-six weeks ended September 10, 2019 include the transition adjustment for the adoption of Topic 842 discussed in Note 2 to the consolidated financial statements.

Del Taco Restaurants, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
24 Weeks Ended
 June 16, 2020June 18, 2019
Operating activities
Net (loss) income$(103,044) $3,517  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Allowance for doubtful accounts15  —  
Depreciation and amortization12,422  11,720  
Amortization of deferred financing costs, debt discount and interest rate cap190  244  
Amortization of operating lease assets10,155  9,915  
Stock-based compensation2,638  3,254  
Impairment of goodwill87,277  —  
Impairment of trademarks11,900  —  
Impairment of long-lived assets8,287  3,694  
Deferred income taxes(10,377) (138) 
Loss on disposal of assets and adjustments to assets held for sale, net557  884  
Restaurant closure charges42  118  
Changes in operating assets and liabilities:
Accounts and other receivables, net(444) 904  
Inventories652  101  
Prepaid expenses and other current assets2,685  1,003  
Other assets(174) (67) 
Accounts payable4  543  
Operating lease liabilities(9,658) (9,316) 
Other accrued liabilities9,216  (1,446) 
Other non-current liabilities(882) 865  
Net cash provided by operating activities21,461  25,795  
Investing activities
Purchases of property and equipment(13,794) (17,895) 
Proceeds from disposal of property and equipment, net1,440  12,696  
Purchases of other assets(829) (776) 
Acquisition of franchisees—  (3,120) 
Proceeds from sale of company-operated restaurants1,266  2,090  
Net cash used in investing activities(11,917) (7,005) 
Financing activities
Repurchase of common stock and warrants—  (7,373) 
Payment of tax withholding related to restricted stock vesting(105) (84) 
Payments on finance leases and other debt(111) (267) 
Proceeds from revolving credit facility65,000  14,000  
Payments on revolving credit facility(65,000) (27,000) 
Proceeds from exercise of stock options—  31  
Net cash used in financing activities(216) (20,693) 
Increase (decrease) in cash and cash equivalents9,328  (1,903) 
Cash and cash equivalents at beginning of period1,421  7,153  
Cash and cash equivalents at end of period$10,749  $5,250  
Supplemental cash flow information:
Cash paid during the period for interest$2,336  $3,008  
Cash paid during the period for income taxes—  1,764  
Supplemental schedule of non-cash activities:
Accrued property and equipment purchases$1,586  $5,939  
Write-offs of accounts receivables—  21  
Amortization of interest rate cap into net income, net of tax52  47  
Change in other asset for fair value of interest rate cap recorded to other comprehensive (loss) income, net of tax—  (270) 
Operating lease right-of-use assets obtained in exchange for lease obligations10,249  252,440  
Finance lease right-of-use assets obtained in exchange for lease obligations—  1,185  
Impairment on operating lease right-of-use assets related to the adoption of new accounting pronouncements—  3,116  

See accompanying notes to consolidated financial statements.



5
Table of Contents

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
1. Description of Business
Del Taco Restaurants, Inc. is a Delaware corporation headquartered in Lake Forest, California. The consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At September 10,June 16, 2020, there were 294 company-operated and 299 franchise-operated Del Taco restaurants located in 15 states, including 1 franchise-operated unit in Guam. At June 18, 2019, there were 312310 company-operated and 274273 franchise-operated Del Taco restaurants located in 14 states, including one franchise-operated unit in Guam. At September 11, 2018, there were 317 company-operated and 250 franchise-operated Del Taco restaurants located in 14 states, including one1 franchise-operated unit in Guam.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). For additional information, these unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 1,December 31, 2019 ("20182019 Form 10-K").
 
The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal year 20192020 is a fifty-two week period ending December 31, 2019.29, 2020. Fiscal year 20182019 is athe fifty-two week period ended January 1,December 31, 2019. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. For fiscal year 2020, the Company’s accompanying financial statements reflect the twelve weeks ended June 16, 2020. For fiscal year 2019, the Company’s accompanying financial statements reflect the twelve weeks ended September 10,June 18, 2019. For fiscal year 2018, the Company’s accompanying financial statements reflect the twelve weeks ended September 11, 2018.
Effective January 2, 2019 (the first day of fiscal year 2019), the Company adopted the requirements of Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), as discussed below in Note 2, using the modified retrospective method of transition. Current year results have been prepared in accordance with the new standard.
In the opinion of management, the accompanying consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented. The results of operations for such interim periods are not necessarily indicative of results of operations to be expected for the full fiscal year.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, valuations provided in business combinations, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities, certain leasing activities and income tax valuation allowances.

Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a subsidiary becomes an equity method investment; and (3) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Furthermore, ASU 2019-12 simplifies the accounting for income taxes by doing the following: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for
6
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part if the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
Recently IssuedAdopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Statements - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2019. There was no material impact on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting implementation costs in cloud computing arrangements. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, and issued additional clarifications and improvements during 2018. This guidance amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. There was no material impact on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), along with related clarifications and improvements. This guidance results in key changes to lease accounting and aims to bring leases onto balance sheets to give investors, lenders, and other financial statement users a more comprehensive view of a company's long-term financial obligations as well as the assets it owns versus leases. The pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The Company adopted the requirements of the new lease standard effective January 2, 2019, the first day of fiscal year 2019, electing the optional transition method to apply the standard as of the effective date and therefore will not apply the standard to the comparative periods presented in the Company's financial statements. During the process of adoption, the Company made the following elections:

The Company elected the package of practical expedients which allowed the Company to not reassess:
Whether existing or expired contracts contain leases under the new definition of a lease;
Lease classification for existing or expired leases; and
Initial direct costs for any expired or existing leases to determine if they would qualify for capitalization under ASC 842.
The Company did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets.
The Company did not elect the land easement practical expedient, which permits an entity to continue applying its current policy for accounting for land easements that existed as of, or expired before, the effective date of Topic 842.
The Company elected to make the accounting policy election for short-term leases, permitting the Company to not apply the recognition requirements of this standard to short-term leases with terms of 12 months or less.

Upon adoption of ASU 2016-02, the Company recorded operating lease right-of-use assets and operating lease liabilities and derecognized all landlord funded assets, deemed landlord financing liabilities, deferred rent liabilities and favorable lease assets and unfavorable lease liabilities upon transition. Upon adoption, the Company recorded operating lease liabilities of approximately $230.6 million based on the present value of the remaining rental payments using discount rates as of the effective date. In addition, the Company recorded corresponding operating lease right-of-use assets of approximately $218.9 million, calculated as the initial amount of the Company's operating lease liabilities adjusted for prepaid and deferred rent, unamortized favorable lease assets and unamortized unfavorable lease liabilities, liabilities associated with lease termination costs and impairment of right-of-use assets recognized in retained earnings as of January 2, 2019. At the beginning of the period of adoption, the Company recorded the cumulative effect of adoption to retained earnings. Beginning in fiscal 2019, leases historically treated as deemed landlord financing liabilities will be treated as operating leases resulting in an increase in occupancy and other expense and a decrease to depreciation expense and interest expense.

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

The impact on the consolidated balance sheet was as follows:
 January 1, 2019 
Effect of Adoption of Topic 842
(Leases)
 January 2, 2019
Assets  (Unaudited)  
Current assets:     
Cash and cash equivalents$7,153
 $—
 $7,153
Accounts and other receivables, net3,167
 —
 3,167
Inventories2,932
 —
 2,932
Prepaid expenses and other current assets4,935
 (2,564) 2,371
Assets held for sale14,794
 —
 14,794
Total current assets32,981
 (2,564) 30,417
Property and equipment, net161,429
 (13,839) 147,590
Operating lease right-of-use assets—
 218,855
 218,855
Goodwill321,531
 —
 321,531
Trademarks220,300
 —
 220,300
Intangible assets, net18,507
 (7,576) 10,931
Other assets, net4,208
 —
 4,208
Total assets$758,956
 $194,876
 $953,832
Liabilities and shareholders’ equity     
Current liabilities:     
Accounts payable$19,877
 $—
 $19,877
Other accrued liabilities34,785
 (425) 34,360
Current portion of finance lease obligations and deemed landlord financing liabilities1,033
 (547) 486
Current portion of operating lease liabilities—
 17,303
 17,303
Total current liabilities55,695
 16,331
 72,026
Long-term debt, finance lease obligations and deemed landlord financing liabilities, excluding current portion, net178,664
 (19,040) 159,624
Operating lease liabilities—
 213,313
 213,313
Deferred income taxes69,471
 708
 70,179
Other non-current liabilities32,852
 (18,348) 14,504
Total liabilities336,682
 192,964
 529,646
 
 
 
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; 37,305,342 shares issued and outstanding at January 1, 20194
 —
 4
Additional paid-in capital336,941
 —
 336,941
Accumulated other comprehensive income180
 —
 180
Retained earnings85,149
 1,912
 87,061
Total shareholders’ equity422,274
 1,912
 424,186
Total liabilities and shareholders’ equity$758,956
 $194,876
 $953,832


Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

Revenue Recognition
The adoption of Topic 606 in Fiscal 2018 changed the timing of the recognition of initial franchise fees, including franchise and development fees, and renewal fees, both included in franchise revenue in the consolidated statements of comprehensive income. Franchise and renewal fees are deferred and recognized over the term of the related franchise agreement for the respective restaurant. Franchise agreements typically have a term of twenty years. 
During the twelve and thirty-six weeks ended September 10, 2019, the Company recognized approximately $20,000 and $61,000, respectively, in franchise revenue related to the amortization of the deferred franchise fees recognized at January 1, 2019. During the twelve and thirty-six weeks ended September 11, 2018, the Company recognized approximately $12,000 and $40,000, respectively, in franchise revenue related to the amortization of the deferred franchise fees recognized at January 2, 2018.
Deferred franchise fees are recognized straight-line over the term of the underlying agreement and the amount expected to be recognized in franchise revenue for amounts in deferred franchise fees as of September 10, 2019 is as follows (in thousands):
FY 2019 $38
FY 2020 120
FY 2021 117
FY 2022 117
FY 2023 114
Thereafter 1,338
Total Deferred Franchise Fees $1,844
Summary of Significant Accounting Policies
Except for the accounting policies for leases discussed in Note 7, updated as a result of adopting Topic 842, thereThere have been no changes to our significant accounting policies described in the Annual Report on2019 Form 10-K for the year ended January 1, 2019, filed with the SEC on March 18, 2019,13, 2020 that have had a material impact on our consolidated financial statements and related notes.
3. Impairment of Long-Lived Assets and Restaurant Closure Charges
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company evaluates such cash flows for individual restaurants and franchise agreements on an undiscounted basis. If it is determined that the carrying amounts of such long-lived assets are not recoverable, the assets are written down to their estimated fair values. We generally estimate fair value using the discounted value of the estimated cash flows associated with the respective restaurant or agreement, using Level 3 inputs. The impairment charges represent the excess of each operating lease right-of-use asset, furniture, fixtures and equipment and leasehold improvementsimprovement's carrying amount over its estimated fair value.
In connection withDuring the adoption of Topic 842,twelve and twenty-four weeks ended June 16, 2020, the Company evaluated certain restaurants having indicators of impairment based on operating performance, taking into consideration the negative impact of the COVID-19 pandemic on forecasted restaurant performance, which resulted in elevated impairment charges for the twenty-four weeks ended June 16, 2020. NaN impairment charges were recorded during the twelve weeks ended June 16, 2020. During the twenty-four weeks ended June 16, 2020, the Company recorded a non-cash impairment charge totaling $8.3 million related to 8 restaurants based on the estimate of future recoverable cash flows. As part of the impairment charge, the Company wrote-off $4.2 million of operating lease right-of-use assets, for impairment indicating the carrying amount$1.3 million of the operating lease assets for certain restaurants may not be recoverablefurniture, fixtures and recorded an impairment charge totaling $3.1equipment and $2.8 million at January 2, 2019 based on the estimates of future recoverable cash flows.leasehold improvements.

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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

During the thirty-sixtwelve and twenty-four weeks ended September 10,June 18, 2019, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an additional impairment charge totaling $5.1 million related to three restaurants. The Company wrote-off a portion of the operating lease right-of-use assets, furniture, fixtures and equipment and leasehold improvements based on the estimate of future recoverable cash flows. During the thirty-six weeks ended September 11, 2018, the Company evaluated certain restaurants having indicators of impairment based on operating performance and recorded an impairment charge totaling $1.7$3.7 million related to two restaurants. The Company wrote-off the value of leasehold improvements and other equipment2 restaurants based on the estimate of future recoverable cash flows. As part of the impairment charge, the Company wrote-off $2.0 million of operating lease right-of-use assets, $0.5 million of furniture, fixtures and equipment and $1.2 million of leasehold improvements.
Restaurant Closure Charges Net
At September 10,The restaurant closure liability was $0.4 million at both June 16, 2020 and December 31, 2019 and January 1, 2019,relates to the non-lease executory costs associated with company-operated restaurants that were closed during the fourth quarter of 2015. A summary of the restaurant closure liability was $0.1 million and $2.4 million, respectively. The detailsactivity for these closed restaurants consisted of the restaurant closure activities are discussed below.following (in thousands):
Restaurant Closures and Lease Reserves
24 Weeks Ended
June 16, 2020June 18, 2019
Beginning Balance$437  $2,092  
Reclassified to operating lease right-of-use assets—  (1,900) 
Cash payments(1) (192) 
Adjustments to estimates based on current activity—  118  
Accretion12  —  
Ending Balance$448  $118  
At January 1, 2019, the restaurant closure liability balance was $0.3 million related to restaurant closures prior to 2015.
During the thirty-sixtwenty-four weeks weeks ended September 10,June 18, 2019, in connection with the adoption of Topic 842,ASU 2016-02, Leases, the Company reclassified $1.9 million of the $0.3 millionlease-related restaurant closure liability to offset the respective operating lease right-of-use assets.
Restaurant Closure and Other Related Charges for 12 Underperforming Restaurants
During the fourth fiscal quarter of 2015, the Company closed 12 company-operated restaurants. During the thirty-six weeks ended September 10, 2019, in connection with the adoption of Topic 842, the Company reclassified approximately $1.9 million of the lease related restaurant closure liability to offset the respective operating lease right-of-use assets. A summary of the restaurant closure liability activity for these 12 closed restaurants consisted of the following (in thousands):
  Total
Balance at January 1, 2019 $2,092
Reclassified to operating lease right-of-use assets (1,900)
Cash payments (192)
Adjustments to estimates based on current activity 118
Balance at September 10, 2019 $118
The current portion of the restaurant closure liability iswas $0.2 million and $0.1 million at September 10, 2019as of June 16, 2020 and $0.5 million at January 1,December 31, 2019, respectively, and is included in other accrued liabilities in the consolidated balance sheets. The non-current portion of the restaurant closure liability is zerowas $0.2 million and $1.6$0.3 million at September 10, 2019as of June 16, 2020 and January 1,December 31, 2019, respectively, and is included in other non-current liabilities in the consolidated balance sheets.
Upon adoption of Topic 842, rent expense and non lease executory costs for these previously closed restaurants are now recorded to The restaurant closure charges as incurred.liability is expected to be settled by 2022.

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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

4. Summary of Refranchising Assets Held for Sale and Franchise Acquisitions
Refranchising
In connection with the sale of company-operated restaurants to franchisees, the Company typically enters into several agreements, in addition to an asset purchase agreement, with franchisees including franchise and lease agreements. The Company typically sells restaurants’ inventory and equipment and retains ownership of the leasehold interest to the real estate to sublease to the franchisee. The Company has determined that its restaurant dispositions usually represent multiple-element arrangements, and as a result, the cash consideration received is allocated to the separate elements based on their relative selling price. Cash consideration generally includes up-front consideration for the sale of the restaurants and franchise fees and future cash consideration for royalties and lease payments. The Company considers the future lease payments in allocating the initial cash consideration received. The Company compares the stated rent under the lease and/or sublease agreements with comparable market rents, and the Company records favorable lease assets or unfavorable lease sublease assets/liabilities with a corresponding offset to the gain or loss on the sale of the company-operated restaurants. Sublease assets represent subleases with stated rent above comparable market rents. Sublease assets are amortized to sublease income over the term of the related sublease. Sublease liabilities represent subleases with stated rent below comparable market rents and are amortized to sublease income over the term of the related sublease. Both sublease assets and sublease liabilities arise from the sale of company-operated restaurants to franchisees. The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements. The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in franchise revenue as earned.
The Company sold thirteen6 company-operated restaurants to franchisees during the thirty-sixtwenty-four weeks ended September 10, 2019. There was no refranchising activityJune 16, 2020 and 13 company-operated restaurants to franchisees during the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. The following table summarizes the related net loss recognized during the thirty-six weeks ended September 10, 2019related to these transactions (dollars in thousands):
24 Weeks Ended June 16, 202024 Weeks Ended June 18, 2019
Company-operated restaurants sold to franchisees6  13  
Proceeds from the sale of company-operated restaurants, net of selling costs (a)
$2,558  $2,090  
Net assets sold (primarily furniture, fixtures and equipment) (b)
(2,086) (2,051) 
Goodwill related to the company-operated restaurants sold to franchisees(1,196) (83) 
Allocation to deferred franchise fees(193) (281) 
Sublease assets, net220  260  
Gain on lease termination40  —  
Loss on sale of company-operated restaurants, net (c)
$(657) $(65) 
  
36 Weeks Ended
September 10, 2019
Company-operated restaurants sold to franchisees 13
   
Proceeds from the sale of company-operated restaurants $2,090
Net assets sold (primarily furniture, fixtures and equipment) (a)
 (2,051)
Goodwill related to the company-operated restaurants sold to franchisees (83)
Allocation to deferred franchise fees (281)
Favorable sublease assets, net (b)
 260
Loss on sale of company-operated restaurants (c)
 $(65)


(a) Included Of the net proceeds related to the company-operated restaurants sold during the twenty-four weeks ended June 16, 2020, $1.3 million was a receivable as of June 16, 2020.
(b) Of the net assets sold during the twenty-four weeks ended June 16, 2020, $0.7 million was included in assets held for sale atas of December 31, 2019. The net assets sold during the twenty-four weeks ended June 18, 2019 were all included in assets held for sale as of January 1, 2019.
(b) Comprised of favorable sublease assets of $1.0 million and unfavorable lease liabilities of $0.7 million.
(c) IncludedOf the loss related to the company-operated restaurants sold during the twenty-four weeks ended June 16, 2020, $0.6 million was previously recognized during the fifty-two weeks ended December 31, 2019 as a fair value adjustment to the assets held for sale balance. The loss on sale of company-operated restaurants is included in loss on disposal of assets and adjustments to assets held for sale, net on the consolidated statements of comprehensive (loss) income.



9
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

Assets Held for Sale

Assets held for sale includes the net book value of property and equipment for Company-operatedcompany-operated restaurants that the Company plans to sell within the next year to new or existing franchisees. Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or fair value, less estimated costs to sell.
During the thirty-six weeks ended September 10,As of December 31, 2019, the Company classified 19 company-operated restaurants as held for sale. During the twelve weeks ended March 24, 2020, the Company sold 5 of these restaurants as discussed in the Refranchising section above and determined that the remaining 14 company-operated restaurants would not be sold within the next year and therefore reclassified approximately $7.4the related long-lived assets back to held for use. The Company reclassified the assets back to held for use at their carrying amount before they were classified as held for sale, adjusted for depreciation expense that would have been recognized had the assets been continuously classified as held for use. As such, the Company recognized a loss of $0.5 million of property and equipment and approximately $14.8 million of goodwill related to the company-operated restaurants the Company plans to sellreclassification which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statement of comprehensive (loss) income. As of June 16, 2020, the Company classified the land and alsobuilding related to a previously closed company-operated restaurant as held for sale and recorded an $7.9a $0.2 million adjustment to the goodwill reclassified asassets held for sale in order to recordrecognize the assets held for sale at their estimated net realizable value net ofless estimated direct selling costs and estimated sublease assets and liabilities. If the determination is made that the Company no longer expects to sell an asset within the next year, the asset is reclassified out of assets held for sale.sell. The estimated fair value of assets held for sale is based upon Level 2 inputs, which include an asset purchase agreement and negotiated or proposed letters of intent.a sale agreement. Assets held for sale at September 10, 2019June 16, 2020 and January 1,December 31, 2019 consisted of the following (in thousands):
June 16, 2020December 31, 2019
Land$561  $—  
Building934  —  
Other property and equipment—  4,025  
Goodwill—  4,386  
$1,495  $8,411  
  September 10, 2019 January 1, 2019
Other property and equipment held for sale $7,401
 $2,023
Goodwill 6,859
 —
Assets held for sale and leaseback —
 12,771
Assets held for sale $14,260
 $14,794


Franchise Acquisitions
There were 0 franchise acquisitions during the twenty-four weeks ended June 16, 2020. The Company acquired four3 franchise-operated restaurants during the thirty-sixtwenty-four weeks ended September 10,June 18, 2019. The Company acquired four franchise-operated restaurants during the thirty-six weeks ended September 11, 2018, of which one closed prior to the completion of the purchase. The Company accounts for the acquisition of franchise-operated restaurants using the acquisition method of accounting for business combinations. The purchase price allocations were based on fair value estimates determined using significant unobservable inputs (Level 3). The goodwill recorded primarily relates to the market position and future growth potential of the markets acquired and is expected to be deductible for income tax purposes. The following table provides detail of the combined acquisitions for the thirty-sixtwenty-four weeks ended September 10,June 18, 2019 and September 11, 2018 (dollars in thousands):
24 Weeks Ended
June 18, 2019
Franchise-operated restaurants acquired from franchisees3
Goodwill$2,672 
Restaurant and other equipment and leasehold improvements578 
Operating lease right-of-use assets858 
Operating lease liabilities(858)
Unfavorable lease liabilities(130)
Total consideration$3,120 
 12 Weeks Ended 36 Weeks Ended
 September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Franchise-operated restaurants acquired from franchisees1 4 4 4
        
Goodwill$1,630
 $893
 $4,302
 $893
Restaurant and other equipment and leasehold improvements82
 798
 660
 798
Reacquired franchise rights—
 150
 —
 150
Operating lease right-of-use assets1,148
 —
 2,006
 —
Operating lease liabilities(1,148) —
 (2,006) —
Unfavorable lease liabilities (a)
—
 —
 (130) —
Total consideration$1,712
 $1,841
 $4,832
 $1,841

(a)The unfavorable lease liabilitiesliability of $0.1 million was recorded as an adjustment to the respective operating lease right-of-use asset.

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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

5. Goodwill and otherOther Intangible Assets
The changesChanges in the carrying amount of goodwill for the twenty-four weeks ended June 16, 2020 are as follows (in thousands):
Goodwill
Balance as of December 31, 2019$192,739 
Goodwill reclassified from held for sale3,517 
Impairment of goodwill(87,277)
Balance as of June 16, 2020$108,979 

The decrease in goodwill was primarily due to an impairment of $87.3 million during the twenty-four weeks ended June 16, 2020. In March 2020, the outbreak of the COVID-19 pandemic prompted authorities in most jurisdictions where the Company operates to issue stay-at-home orders, leading to an unexpected significant disruption to the Company's business requiring the Company to close restaurant dining rooms and operate with only drive-thru, take-out and delivery orders. As such, the consequences of the outbreak of the COVID-19 pandemic coupled with a sustained decline in the Company's stock price were determined to be indicators of impairment. As such, using Level 3 inputs, the Company performed a quantitative goodwill impairment assessment during the first quarter of 2020 using both the discounted cash flow method and guideline public company method to determine the fair value of its reporting unit. Significant assumptions and estimates used in determining fair value include future revenues, operating costs, working capital changes, capital expenditures, a discount rate that approximates the Company's weighted average cost of capital and a selection of comparable companies. Based on the quantitative assessment, the Company determined that the fair value of its reporting unit was less than its carrying value and recognized a non-cash goodwill impairment charge of $87.3 million, equal to the excess of the reporting unit's carrying value above its fair value. The impairment charge was recorded in impairment of goodwill on the consolidated statements of comprehensive (loss) income. Since June 30, 2015, the date of the business combination between Del Taco and Levy Acquisition Corporation, accumulated goodwill impairment losses were $205.6 million and $118.3 million as of June 16, 2020 and December 31, 2019, respectively.
In conjunction with the quantitative goodwill impairment assessment during the first quarter of 2020, the Company also performed a quantitative impairment assessment of its indefinite-lived trademarks. Using Level 3 inputs, the Company used the relief from royalty method to determine the fair value of its trademarks. Significant assumptions and estimates used in determining fair value include future revenues, the royalty rate, franchise attrition, brand maintenance expenses and a discount rate that approximates the Company's weighted average cost of capital. Based on the quantitative assessment, the Company determined the fair value of its trademarks was less than its carrying value and recognized a non-cash impairment charge of $11.9 million during the twenty-four weeks ended June 16, 2020, equal to the excess of the trademarks' carrying value above their fair value. The impairment charge was recorded in impairment of trademarks on the consolidated statements of comprehensive (loss) income.
The Company’s other intangible assets at September 10, 2019 compared to January 1,June 16, 2020 and December 31, 2019 consisted of the following (in thousands):

  Total
Balance at January 1, 2019 $321,531
Acquisition of franchise-operated restaurants 4,302
Sale of company-operated restaurants to franchisees (83)
Goodwill classified as held for sale (14,761)
Balance at September 10, 2019 $310,989
 June 16, 2020December 31, 2019
 Gross
Carrying
Amount		Accumulated
Amortization		NetGross
Carrying
Amount		Accumulated
Amortization		Net
Sublease assets$1,820  $(130) $1,690  $1,340  $(82) $1,258  
Franchise rights14,057  (5,890) 8,167  14,298  (5,465) 8,833  
Reacquired franchise rights943  (257) 686  943  (207) 736  
Total amortized other intangible assets$16,820  $(6,277) $10,543  $16,581  $(5,754) $10,827  
There have been no changes in the carrying amount of trademarks since January 1, 2019.
The Company’s other intangibleCompany recorded sublease assets at September 10, 2019of $0.5 million and January 1, 2019 consisted of$1.0 million during the following (in thousands):
  September 10, 2019 January 1, 2019
  
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net 
Gross
Carrying
Amount
 
Accumulated
Amortization
 Net
Favorable lease assets $—
 $—
 $—
 $13,118
 $(5,542) $7,576
Favorable sublease assets 1,090
 (56) 1,034
 —
 —
 —
Franchise rights 14,377
 (5,131) 9,246
 15,032
 (4,411) 10,621
Reacquired franchise rights 943
 (174) 769
 417
 (107) 310
Total amortized other intangible assets $16,410
 $(5,361) $11,049
 $28,567
 $(10,060) $18,507

During the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, the Company recorded $1.0 million of favorable sublease assetsrespectively, in connection with the sale of company-operated restaurants (see Note 4 for more information). Favorable sublease assets represents favorable subleases with franchisees recorded in connection

11
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
During the twenty-four weeks ended June 16, 2020, the Company wrote off $0.2 million of franchise rights associated with the saleclosure of company-operated restaurants to franchisees.

In connection with the adoption of Topic 842, the Company reclassified $7.6 million of favorable lease assets, net to operating lease right-of-use assets (see Note 2 for more information) as of January 2, 2019.four franchise-operated restaurants. During the thirty-sixtwenty-four weeks ended September 10,June 18, 2019, the Company reclassified $0.5$0.4 million of franchise rights as reacquired franchise rights related to the Company's acquisition of four3 franchise-operated restaurants and wrote off $11,000 of franchise rights associated with the closure of one1 franchise-operated restaurant.


Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

6. Debt and Obligations Under Finance Leases and Deemed Landlord Financing Liabilities
The Company’s long-term debt, finance lease obligations and other debt at June 16, 2020 and deemed landlord financing liabilities at September 10, 2019 and January 1,December 31, 2019 consisted of the following (in thousands):
 
June 16, 2020December 31, 2019
 September 10, 2019 January 1, 2019
2015 Senior Credit Facility, net of debt discount of $260 and $459 and deferred financing costs of $88 and $155 at September 10, 2019 and January 1, 2019, respectively $149,652
 $158,386
Senior Credit Facility, as amended, net of unamortized debt discount of $208 and $231 and deferred financing costs of $938 and $1,038 at June 16, 2020 and December 31, 2019, respectivelySenior Credit Facility, as amended, net of unamortized debt discount of $208 and $231 and deferred financing costs of $938 and $1,038 at June 16, 2020 and December 31, 2019, respectively$143,854  $143,731  
Total outstanding indebtedness 149,652
 158,386
Total outstanding indebtedness143,854  143,731  
Obligations under finance lease, other debt and deemed landlord financing
liabilities
 1,312
 21,311
Obligations under finance leases and other debtObligations under finance leases and other debt712  1,070  
Total debt 150,964
 179,697
Total debt144,566  144,801  
Less: amounts due within one year 363
 1,033
Less: amounts due within one year198  220  
Total amounts due after one year, net $150,601
 $178,664
Total amounts due after one year, net$144,368  $144,581  
 
At September 10, 2019June 16, 2020 and January 1,December 31, 2019, the Company assessed the amounts recorded under the 2015 Senior Credit Facility and determined that such amounts approximated fair value.
2015 Revolving
During the twenty-four weeks ended June 16, 2020, the Company wrote off a finance lease obligation of $0.3 million related to the modification of a lease from a finance lease to an operating lease.
Senior Credit Facility
On August 4, 2015, the Company refinanced its then existing senior credit facility and entered into a new credit agreement (the “Credit Agreement”“Senior Credit Facility”). The Senior Credit Agreement,Facility, which matureswas to mature on August 4, 2020, providesprovided for a $250 million revolving credit facility (the “2015facility.

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


The Senior Credit AgreementFacility, as amended, contains certain financial covenants, including the maintenance of a consolidated total lease adjusted leverage ratio and a consolidated fixed charge coverage ratio. The Company was in compliance with the financial covenants as of September 10, 2019.June 16, 2020. Substantially all of the assets of the Company are pledged as collateral under the 2015 Senior Credit Facility.
At September 10, 2019,June 16, 2020, the weighted-average interest rate on the outstanding balance of the 2015 Senior Credit Facility, as amended, was 3.9%2.17%. At September 10, 2019,June 16, 2020, the Company had a total of $83.7$87.7 million of availability for additional borrowings under the 2015 Senior Credit Facility, as amended, as the Company had $150.0$145.0 million of outstanding borrowings and $17.3 million of letters of credit outstanding, of $16.3 million which reduce availability under the 2015 Senior Credit Facility.Facility, as amended.
7. Leases
The Company's material leases consist of restaurant locations and its executive offices with expiration dates through 2044. In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases for additional five-yearfive-
12
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
year periods. The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.
The Company determines if an arrangement is a lease at inception. The right-of-use assets and lease liabilities are recognized at the lease commencement date. In determining the Company’s right-of-use assets and lease liabilities, the Company applies a discount rate to the lease payments within each lease agreement. As most of the Company’s lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right-of-use asset also includes any lease payments made and is reduced by lease incentives, initial direct costs incurred and impairment of operating lease right-of-use assets and adjusted by favorable lease assets and unfavorable lease liabilities.
Some of the Company's lease agreements contain rent escalation clauses (including adjustments based on changes in indexes), rent holidays, capital improvement funding or other lease concessions. The Company recognizes rental expense on a straight-line basis based on fixed components of a lease arrangement and the Company amortizes this expense over the term of the lease

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

beginning with the date of initial possession. Variable lease components represent amounts that are not fixed in nature and are recognized in expense as incurred.
The Company has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sub-lesseesublessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sub-lessee.sublessee. In general, the terms of the sublease are similar to the terms of the master lease.
The components of lease cost for the twelve and twenty-four weeks ended June 16, 2020 were as follows (in thousands):
ClassificationTwelve Weeks Ended June 16, 2020Twenty-Four Weeks Ended June 16, 2020
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative		$9,363  $18,809  
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization35  90  
Interest on lease liabilitiesInterest expense6  18  
Short-term lease costOccupancy and other operating expenses95  167  
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net		334  657  
Sublease incomeFranchise sublease and other income(1,690) (3,272) 
Total lease cost$8,143  $16,469  

The components of lease cost for the twelve and twenty-four weeks ended June 18, 2019 were as follows (in thousands):
ClassificationTwelve Weeks Ended June 18, 2019Twenty-Four Weeks Ended June 18, 2019
Operating lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other, Pre-opening costs, Restaurant
closure charges, net and General and
administrative		$8,733  $17,404  
Finance lease cost:
Amortization of right of use assetsDepreciation and amortization110  243  
Interest on lease liabilitiesInterest expense24  51  
Short-term lease costOccupancy and other operating expenses77  178  
Variable lease costOccupancy and other operating expenses,
Occupancy and other - franchise subleases
and other and Restaurant closure charges,
net		448  838  
Sublease incomeFranchise sublease and other income(1,134) (2,136) 
Total lease cost$8,258  $16,578  

13
 Classification 12 Weeks Ended September 10, 2019 36 Weeks Ended September 10, 2019
Operating lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative $8,792
 $26,196
Finance lease cost:     
Amortization of right of use assetsDepreciation and amortization 86
 329
Interest on lease liabilitiesInterest expense 21
 72
Short-term lease costOccupancy and other operating expenses 53
 231
Variable lease costOccupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net 444
 1,282
Sublease incomeFranchise sublease and other income (1,125) (3,261)
Total lease cost  $8,271
 $24,849
Table of Contents


Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of September 10, 2019June 16, 2020 and January 1,December 31, 2019 was as follows (in thousands):
June 16, 2020December 31, 2019
Operating lease assets:
Operating lease right-of-use assets$253,180  $258,278  
Operating lease liabilities:
Current portion of operating lease liabilities$20,667  $17,848  
Operating lease liabilities, excluding current portion256,277  257,361  
Total operating lease liabilities$276,944  $275,209  
Finance lease assets:
Buildings under finance leases$441  $871  
Accumulated depreciation(208) (334) 
Finance lease assets, net$233  $537  
Finance lease obligations:
Current portion of finance lease obligations and other debt$138  $162  
Long-term debt, finance lease obligations and other debt, excluding current portion, net105  412  
Total finance lease obligations$243  $574  

Weighted Average Remaining Lease Term (in years)June 16, 2020
Operating leases12.6
Finance leases2.2

Weighted Average Discount RateJune 16, 2020
Operating leases6.58 %
Finance leases10.46 %

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

Twenty-Four Weeks Ended June 16, 2020Twenty-Four Weeks Ended June 18, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases$15,749  $14,238  
Operating cash flows used for finance leases$18  $51  
Financing cash flows used for finance leases$87  $243  

14
 September 10, 2019 January 1, 2019
Operating lease assets:   
  Operating lease right-of-use assets$232,935
 $—
Operating lease liabilities:   
Current portion of operating lease liabilities$18,800
 $—
Operating lease liabilities, excluding current portion231,002
 —
Total operating lease liabilities$249,802
 $—
    
Finance lease assets:   
Buildings under finance leases$1,062
 $3,370
Accumulated depreciation(329) (2,193)
Finance lease asset, net$733
 $1,177
Finance lease obligations:   
Current portion of finance lease obligations, other debt and deemed landlord financing liabilities$307
 $510
Long-term debt, finance lease obligations, other debt and deemed landlord
     financing liabilities, excluding current portion, net
493
 757
Total finance lease obligations$800
 $1,267
Table of Contents



Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

Weighted Average Remaining Lease Term (in years)September 10, 2019
Operating leases11.7
Finance leases3.5

Weighted Average Discount RateSeptember 10, 2019
Operating leases6.85%
Finance leases10.40%

Supplemental cash flow information related to leases was as follows (in thousands):
  Thirty-Six Weeks Ended September 10, 2019
Cash paid for amounts in the measurement of lease liabilities:  
Operating cash flows used for operating leases $22,617
Operating cash flows used for finance leases $72
Financing cash flows used for finance leases $353

The estimated future lease payments as of September 10, 2019,June 16, 2020, are as follows (in thousands):


Finance Lease LiabilitiesOperating Lease LiabilitiesOperating SubleasesNet Lease Commitments
2020$78  $19,768  $(3,176) $16,670  
2021138  39,015  (6,247) 32,906  
202219  40,753  (6,802) 33,970  
202317  35,666  (6,120) 29,563  
202416  29,936  (5,463) 24,489  
Thereafter4  251,138  (60,760) 190,382  
Total lease payments$272  $416,276  $(88,568) $327,980  
Amounts representing interest(29) (139,332) (139,361) 
Present value of lease obligations$243  $276,944  $188,619  
  Finance Lease Liabilities Operating Lease Liabilities Operating Subleases Net Lease Commitments
2019 $134
 $9,233
 $(1,750) $7,617
2020 335
 37,214
 (3,531) 34,018
2021 200
 36,188
 (3,635) 32,753
2022 79
 34,837
 (3,623) 31,293
2023 79
 32,473
 (3,449) 29,103
Thereafter 132
 221,957
 (27,293) 194,796
Total lease payments $959
 $371,902
 $(43,281) $329,580
Amounts representing interest (159) (122,100)   (122,259)
Present value of lease obligations $800
 $249,802
   $207,321


Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

Rental commitments and sublease rental receipts as of January 1, 2019, under finance and operating leases having an initial non-cancelable term of one year or more are shown in the following table (in thousands):

 Finance Lease and Deemed Landlord Financing Liabilities Operating Leases Operating Subleases Net Lease Commitments
2019 $3,561
 $33,951
 $(2,564) $34,948
2020 3,317
 32,071
 (2,403) 32,985
2021 3,186
 30,794
 (2,409) 31,571
2022 3,056
 29,362
 (2,392) 30,026
2023 3,123
 26,414
 (2,274) 27,263
Thereafter 34,071
 153,675
 (16,844) 170,902
Total lease payments $50,314
 $306,267
 $(28,886) $327,695
Imputed interest (29,003)      
Present value of payments $21,311
      

As of September 10, 2019, we have legally binding lease payments related to restaurant leases that have not yet commenced of $15.7 million.
During the thirty-sixtwenty-four weeks ended September 10,June 16, 2020, the Company entered into 1 sale-leaseback arrangement with a third party private investor. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transactions totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income.
During the twenty-four weeks ended June 18, 2019, the Company entered into three sale leaseback3 sale-leaseback arrangements with third party private investors, with two2 arrangements occurring during the first quarter of 2019 and one1 during the second quarter of 2019. These sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The leases have been accounted for as operating leases. The net proceeds from the transactions totaled approximately $12.7 million. Under two2 of the arrangements, the Company sold the land and buildingsbuilding related to restaurants constructed during 2018 and leased them back for a term of 20 years. Under one1 of the arrangements, the Company sold the land related to a restaurant constructed during 2018 and leased it back for a term of 20 years. The sale of these properties resulted in a loss of approximately $0.2 million which is included in loss on disposal of assets, and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income. The assets sold were included in assets held for sale as of January 1, 2019.
During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of June 16, 2020, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.
During the twelve weeks ended June 16, 2020, in response to the COVID-19 pandemic, the Company negotiated temporary deferrals of certain rent payments until future periods. As permitted by recent FASB staff guidance, the Company has elected to not evaluate whether these concessions are considered lease modifications and has adopted a policy to not account for these concessions as lease modifications. As such, the Company has continued to account for the related lease liabilities and right-of-use assets using the rights and obligations of the existing leases and has included $1.3 million related to temporary rent payment deferrals in accounts payable in the consolidated balance sheet as of June 16, 2020. The Company expects to repay these deferrals during the third quarter of fiscal year 2020.
15
Table of Contents

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
8. Derivative Instruments
2016 Interest Rate Cap Agreement
In June 2016, the Company entered into an interest rate cap agreement, thatwhich became effective July 1, 2016, to hedge cash flows associated with interest rate fluctuations on variable rate debt, with a termination date of March 31, 2020 ("2016 Interest Rate Cap Agreement"). The 2016 Interest Rate Cap Agreement has a fixedhad an initial notional amount of $70.0 million of the 2015 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 rate from 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. As of September 10, 2019, one-month LIBOR was 2.11%. During the twelve and thirty-six weeks ended September 10, 2019, the Company received payments totaling approximately $0.1 million and $0.2 million, respectively, related to the 2016 Interest Rate Cap Agreement. During the period from July 1, 2016 through September 10, 2019,the expiration on March 31, 2020, the 2016 Interest Rate Cap Agreement had no hedge ineffectiveness.
To ensure the effectiveness of the 2016 Interest Rate Cap Agreement, the Company elected the one-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the interest rate cap agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly match with the interest rate cap reset dates and other critical terms during fiscal year 2020 through the thirty-six weeks ended September 10, 2019.expiration on March 31, 2020.
During the twelve and thirty-sixtwenty-four weeks weeks ended September 10, 2019,June 16, 2020, the Company reclassified approximately $44,000$5,000 and $0.1 million,$67,000, respectively, of interest expense related to the hedges of these transactions into earnings. As of September 10, 2019, the

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

Company was hedging forecasted transactions expected to occur through March 31, 2020. Assuming interest rates at September 10, 2019 remain constant, $0.1 million of interest expense related to hedges of these transactions is expected to be reclassified into earnings over the next 6 months. The Company intends to ensure that this hedge remains effective, therefore, approximately $0.1 million is expected to be reclassified into interest expense over the next 6 months.
The effective portion of the 2016 Interest Rate Cap Agreement through September 10, 2019the expiration on March 31, 2020 was included in accumulated other comprehensive income.loss.
9. Fair Value Measurements
The fair values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate their carrying amounts due to their short maturities. The carrying value of the 2015 Senior Credit Facility, as amended, approximated its fair value. The 2016 Interest Rate Cap Agreement is recorded at fair value in the Company’s consolidated balance sheets.
As of September 10, 2019June 16, 2020 and January 1,December 31, 2019, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. For both periods, this includedbasis, including a derivative instrument related to interest rates. The Company determined the fair value of the interest rate cap contract based on counterparty quotes, with appropriate adjustments for any significant impact of nonperformance risk of the parties to the interest rate cap contract.contracts. Therefore, the Company categorized thisthese interest rate cap contractcontracts as Level 2 fair value measurements. The 2016 Interest Rate Cap Agreement expired on March 31, 2020. The fair value of the 2016 Interest Rate Cap Agreement was $24,000$0.0 million at September 10,December 31, 2019 and $0.5 million at January 1, 2019, respectively, and iswas included in other assets in the Company's consolidated balance sheets.


The Company's assets and liabilities measured at fair value on a recurring basis as of September 10, 2019 and January 1,December 31, 2019 were as follows (in thousands):


December 31, 2019Markets for Identical Assets (Level 1)Observable Inputs (Level 2)Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement$— $— $— $— 
Total assets measured at fair value$— $— $— $— 

16
 September 10, 2019 (Unaudited) 
Markets for Identical Assets
(Level 1)
 Observable Inputs (Level 2) Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement$24
 $—
 $24
 $—
Total assets measured at fair value$24
 $—
 $24
 $—
        
 January 1, 2019 Markets for Identical Assets (Level 1) Observable Inputs (Level 2) Unobservable Inputs (Level 3)
2016 Interest Rate Cap Agreement$499
 $—
 $499
 $—
Total assets measured at fair value$499
 $—
 $499
 $—
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
10. Other Accrued Liabilities and Other Non-current Liabilities
A summary of other accrued liabilities follows (in thousands):

 September 10, 2019 January 1, 2019June 16, 2020December 31, 2019
Employee compensation and related items $11,020
 $12,888
Employee compensation and related items$10,765  $10,008  
Accrued income taxAccrued income tax8,991  1,605  
Accrued insurance 5,495
 5,664
Accrued insurance5,681  5,900  
Accrued sales tax 4,757
 3,952
Accrued sales tax4,851  4,099  
Accrued property and equipment purchases 3,696
 3,196
Accrued advertising 3,042
 1,578
Accrued advertising1,897  1,345  
Accrued real property tax 2,478
 1,420
Accrued real property tax1,846  1,652  
Deferred gift card incomeDeferred gift card income1,277  1,585  
Accrued rent and related itemsAccrued rent and related items1,223  1,382  
Accrued property and equipment purchasesAccrued property and equipment purchases885  3,190  
Restaurant closure liabilitiesRestaurant closure liabilities199  129  
Other 7,798
 6,087
Other4,085  3,682  
 $38,286
 $34,785
$41,700  $34,577  
 

On January 2, 2019, the first day of Fiscal 2019, the Company reclassified $0.4 million of current restaurant closure liabilities to operating lease right-of-use assets in connection with the adoption of Topic 842 (see Note 2 for more information).


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

June 16, 2020December 31, 2019
Insurance reserves$7,978  $8,110  
Deferred development and initial franchise fees4,369  4,241  
Sublease liabilities1,434  1,223  
Deferred gift card income852  1,474  
Restaurant closure liability249  308  
Unearned trade discount, non-current204  320  
Other934  925  
$16,020  $16,601  
  September 10, 2019 January 1, 2019
Insurance reserves 8,835
 8,794
Deferred development and initial franchise fees 3,106
 2,742
Deferred gift card income 677
 1,290
Unearned trade discount, non-current 439
 739
Unfavorable lease liabilities —
 11,975
Deferred rent liability —
 4,594
Restaurant closure liability —
 1,788
Other 1,574
 930
  $14,631
 $32,852


On January 2, 2019, the first day of Fiscal 2019, the Company reclassified $12.0 million of unfavorable lease liabilities, $4.6 million of deferred rent liabilities and $1.8 million of restaurant closure liabilities to the respective operating lease right-of-use assets in connection with the adoption of Topic 842 (see Note 2 for more information).
11. Stock-Based Compensation
In connection with the approval of the Business Combination, theThe Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, other cash-based compensation and performance awards. Under the plan, there were 3,300,000 shares of common stock reserved and authorized. At September 10, 2019,June 16, 2020, there were 593,384638,565 shares of common stock available for grant under the 2015 Plan.
Stock-Based Compensation Expense
The total compensation expense related to the 2015 Plan was $1.3$1.4 million and $1.5$1.7 million for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively, and $4.6$2.6 million and $4.1$3.3 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively.
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Restricted Stock Awards
A summary of outstanding and unvested restricted stock activity as of September 10, 2019June 16, 2020 and changes during the period from January 1,December 31, 2019 through September 10, 2019June 16, 2020 are as follows:
 
  Shares 
Weighted-Average
Grant Date
Fair Value
Nonvested at January 1, 2019 1,234,531
 $12.87
Granted 531,173
 12.17
Vested (520,835) 12.04
Forfeited (9,337) 10.71
Nonvested at September 10, 2019 1,235,532
 $12.94

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

SharesWeighted-Average
Grant Date
Fair Value
Nonvested at December 31, 20191,142,718  $12.92  
Granted140,500  7.75  
Vested(77,641) 11.09  
Forfeited(68,750) 12.83  
Nonvested at June 16, 20201,136,827  $12.42  
For both the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, the Company made payments of $2.6$0.1 million and $2.4 million, respectively, related to tax withholding obligations for the vesting of restricted stock awards in exchange for 204,49413,867 and 168,4848,078 shares withheld, respectively. As of September 10, 2019,June 16, 2020, there was $11.3$7.5 million of unrecognized stock compensation expense, net of estimated forfeitures, related to restricted stock awards that is expected to be recognized over a weighted-average remaining period of 2.82.3 years. The fair value of these awards was determined based on the Company’s stock price on the grant date.
Stock Options
A summary of stock option activity as of September 10, 2019June 16, 2020 and changes during the period from January 1,December 31, 2019 through September 10, 2019June 16, 2020 are as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(in years)(in thousands)
Options outstanding at December 31, 2019412,750  $11.71  3.8$—  
Granted55,000  7.93  
Exercised—  —  
Forfeited/Expired(46,500) 11.70  
Options outstanding at June 16, 2020421,250  $11.22  3.8$—  
Options exercisable at June 16, 2020249,498  $11.04  2.8$—  
Options exercisable and expected to vest at June 16, 2020392,662  $11.28  3.6$—  
  Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
      (in years) (in thousands)
Options outstanding at January 1, 2019 453,250
 $11.74
 5.0 $77
Granted 5,000
 10.43
 
 
Exercised (12,000) 10.05
 
 
Forfeited/Expired (14,750) 12.60
 
 
Options outstanding at September 10, 2019 431,500
 $11.74
 4.3 $271
Options exercisable at September 10, 2019 280,748
 $11.01
 3.8 $225
Options exercisable and expected to vest at September 10, 2019 403,541
 $11.63
 4.3 $265

The aggregate intrinsic value in the table above is the amount by which the current market price of the Company's stock exceeds the exercise price on January 1, 2019June 16, 2020 and September 10,December 31, 2019, respectively.
As of September 10, 2019,June 16, 2020, there was $0.5$0.3 million of unrecognized stock compensation expense, net of estimated forfeitures, related to stock option grants whichthat is expected to be recognized over a weighted-average remaining period of 2.22.1 years.
12. Shareholders’ Equity
On February 26, 2016, the Company's Board of Directors authorized a share repurchase program covering up to $25.0 million in the aggregate of the Company's common stock and warrants which was effective immediately and expires upon completion of the repurchase program, unless terminated earlier by the Board of Directors. On August 23, 2016, the Company announced that the Board of Directors increased the repurchase program by $25.0 million to $50.0 million. The Board of Directors authorized an additional increase for the repurchase program effective July 23, 2018 of another $25.0 million to a total of $75.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelve and
18
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
twenty-four weeks ended September 10, 2019,June 16, 2020, the Company did not repurchase any common stockshares or warrants. During the thirty-sixtwelve weeks ended September 10,June 18, 2019, the Company repurchased (1) 303,607 shares of common stock for an average price per share of $10.05 for an aggregate cost of approximately $3.1 million, including incremental direct costs to acquire the shares, and (2) 6,186 warrants for an average price per warrant of $1.30 for an aggregate cost of approximately $8,000, including incremental direct costs to acquire the warrants. During the twenty-four weeks ended June 18, 2019, the Company repurchased (1) 574,481 shares of common stock for an average price per share of $10.17 for an aggregate cost of approximately $5.9 million, including incremental direct costs to acquire the shares, and (2) 846,441 warrants for an average price per warrant of $1.78 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants. The Company expects to retire the repurchased shares and therefore has accounted for them as constructively retired as of September 10, 2019.
As of September 10, 2019,June 16, 2020, there was approximately $22.3 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.

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

13. (Loss) Earnings Per Share
Basic income per share is calculated by dividing net income attributable to Del Taco’s common shareholders for the period by the weighted average number of common shares outstanding for the period. In computing diluteddilutive income per share, basic income per share is adjusted for the assumed issuance of all applicable potentially dilutive share-based awards, including warrants, restricted stock, and common stock options. Antidilutive warrants, restricted stock and common stock options were excluded from the computation of diluted net loss per share due to the Company incurring net losses for the periods presented for fiscal year 2019. In periods of a net loss, no potential common shares are included in diluted shares outstanding as the effect is anti-dilutive. During the twelve and thirty-six weeks ended September 10, 2019, the Company had a loss per share, and therefore potentially dilutive shares were excluded from the calculation.restricted stock units.
Below are basic and diluted net (loss) income per share for the periods indicated (amounts in thousands except share and per share data):
 
12 Weeks Ended24 Weeks Ended
June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Numerator:
Net (loss) income$(576) $2,092  $(103,044) $3,517  
Denominator:
Weighted-average shares outstanding - basic37,086,962  36,821,728  37,081,511  36,988,853  
Dilutive effect of unvested restricted stock—  254,317  —  221,626  
Dilutive effect of stock options—  7,754  —  4,580  
Dilutive effect of warrants—  —  —  —  
Weighted-average shares outstanding - diluted37,086,962  37,083,799  37,081,511  37,215,059  
Net (loss) income per share - basic$(0.02) $0.06  $(2.78) $0.10  
Net (loss) income per share - diluted$(0.02) $0.06  $(2.78) $0.09  
Antidilutive stock options, unvested restricted
stock awards and warrants excluded from the
computations		6,618,810  5,865,601  6,612,770  6,205,932  
  12 Weeks Ended 
36 Weeks Ended

  September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Numerator:        
Net (loss) income $(7,669) $5,874
 $(4,152) $13,313
Denominator:     
 
Weighted-average shares outstanding - basic 37,023,287
 38,191,335
 37,000,331
 38,310,842
Dilutive effect of unvested restricted stock —
 309,973
 —
 333,815
Dilutive effect of stock options —
 43,829
 —
 24,697
Dilutive effect of warrants —
 846,147
 —
 439,219
Weighted-average shares outstanding - diluted 37,023,287
 39,391,284
 37,000,331
 39,108,573
Net (loss) income per share - basic $(0.21) $0.15
 $(0.11) $0.35
Net (loss) income per share - diluted $(0.21) $0.15
 $(0.11) $0.34
Antidilutive stock options, unvested restricted stock awards and warrants excluded from the computations 897,881
 664,760
 4,587,387
 307,718

On June 30, 2020, the Company's 5,105,982 outstanding warrants expired. As such, the Company no longer has any outstanding warrants and will no longer have any potential dilutive impact to its earnings per share from outstanding warrants.
14. Income Taxes
The effective income tax rates were (50.0)%123.8% and 23.3%27.7% for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The provision for income taxes was $2.6$3.0 million and $1.8$0.8 million for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The effective income tax rates were (1,615.7)%2.8% and 25.5%27.8% for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The Company had a benefit for income taxes of $3.0 million for the twenty-four weeks ended June 16, 2020 and a provision for income taxes was $3.9 million and $4.6of $1.4 million for the thirty-sixtwenty-four weeks ended September 10, 2019 and September 11, 2018, respectively.June 18, 2019.
The income tax expenseprovision for the twelve weeks ended September 10, 2019June 16, 2020 is driven by the estimated effective income tax rate of (50.0)%. This $2.6 million tax provision, despite a pre-tax loss, is primarily impacted by $14.8 million123.8%, which consists of non-tax deductible goodwill that was reclassified to assets held for sale, as well as statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020 and
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits. The income tax expenseprovision for the twelve weeks ended September 11, 2018June 18, 2019 is driven by the estimated effective income tax rate of 23.3%27.7%, which primarily consists of statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits.
The benefit for income tax expensetaxes for the thirty-sixtwenty-four weeks ended September 10, 2019 is driven by the estimated effective income tax rate of (1,615.7)%. This $3.9 million tax provision, despite a pre-tax loss,June 16, 2020 is primarily impacted by $14.8 millionimpairment of non-tax deductible goodwill that was reclassified to assetsof $87.3 million and reclassification of $3.5 million of goodwill from held for sale, as well as statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020 and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

credits. The income tax expense for the thirty-sixtwenty-four weeks ended September 11, 2018June 18, 2019 is driven by the estimated effective income tax rate of 25.5%27.8%, which primarily consists of statutory federal and state tax rates based on apportioned income and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits.
Management believes it is more likely than not that all deferred tax assets will be realized and therefore no0 valuation allowance as of September 10, 2019June 16, 2020 and January 1,December 31, 2019 is required.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company anticipates it will benefit from the technical correction for qualified leasehold improvements eligible for 100% tax bonus depreciation, and beginning with pay dates on and after April 14, 2020, the Company has elected to defer the employer-paid portion of social security taxes. The Company is also currently assessing its eligibility for certain employee retention tax credits but does not expect such credits to have a material impact on the financial statements.
15. Commitments and Contingencies
The primary claims in the Company’s business are workers’ compensation and general liabilities. These insurance programs are self-insured or high deductible programs with excess coverage that management believes is sufficient to adequately protect the Company. In the opinion of management, adequate provision has been made for all incurred claims up to the self-insured or high deductible limits, including provision for estimated claims incurred but not reported. Because of the uncertainty of the ultimate resolution of outstanding claims, as well as the uncertainty regarding claims incurred but not reported, it is possible that management’s provision for these losses could change materially. However, no estimate can currently be made of the range of additional losses.
Purchasing Commitments
The Company enters into various purchase obligations in the ordinary course of business, generally of short terma short-term nature. Those that are binding primarily relate to commitments for food purchases and supplies, amounts owed under contractor and subcontractor agreements, orders submitted for equipment for restaurants under construction, information technology service agreements and marketing initiatives, some of which are related to both company-operated and franchise-operated locations. The Company also has a long-term beverage supply agreement with a major beverage vendor whereby marketing rebates are provided to the Company and its franchisees based upon the 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 September 10, 2019,June 16, 2020 are approximately $43.1$32.4 million. The Company has excluded agreements that are cancelablecancellable without penalty.
Litigation
In March 2014, a former Del Taco employee filed a purported class action complaint alleging that Del Taco has not appropriately provided meal breaks and failed to pay wages to its California hourly employees. Discovery is in process and Del
20
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Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Taco intends to assert all of its defenses to this threatened class action and the individual claims. Del Taco has several defenses to the action that it believes could prevent the certification of the class, as well as the potential assessment of any damages on a class basis. Legal proceedings are inherently unpredictable, and the Company is not able to predict the ultimate outcome or cost of the unresolved matter. However, based on management’s current understanding of the relevant facts and circumstances, the Company does not believe that these proceedings give rise to a probable or estimable loss and should not have a material adverse effect on the Company’s financial position, operations or cash flows. Therefore, Del Taco has not recorded any amount for the claim as of September 10, 2019.June 16, 2020.
In September 2018, the Equal Employment Opportunity Commission (“EEOC”) filed a complaint on behalf of an individual complainant and an additional class of individuals alleging that Del Taco engaged in unlawful employment practices on the basis of sex and retaliation in violation of Title VII and are seeking an unspecified amount of damages. The Company has tendered the claim to its insurance carrier under its employment practices liability insurance policy. The Company’sCompany's insurance coverage and retention includes amounts incurred for legal defense and any potential settlement. The parties are engaged in settlement discussions which are now expected to give rise to a loss in excess of the Company’sCompany's insurance retention, but less than the coverage limit, that is both probable and estimable. Therefore, the Company has recorded an expense for this overall action equal to the full retention as of September 10, 2019.June 16, 2020.
The Company and its subsidiaries are parties to other legal proceedings incidental to their businesses, including claims alleging the Company’s restaurants do not comply with the Americans with Disabilities Act of 1990. In the opinion of management, based upon information currently available, the ultimate liability with respect to those other actions arewill not expected to have a material effect on the operating results, cash flows or the financial position of the Company. However, due to the risks and uncertainties inherent in legal proceedings and litigation, actual results could differ from expectations.

Del Taco Restaurants, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)

16. Subsequent Event
2015 Revolving Credit Facility AmendmentConstruction Defect Issues
During the fourth quarter of 2019,twelve weeks ended June 16, 2020, the Company refinancedidentified various construction defects related to three closed restaurants in Texas. The Company believes the 2015 Senior Credit Facility, pursuantissues are attributable to Amendment No. 4defective construction performed by the same general contractor for all three restaurants. The Company plans to undertake voluntary rehabilitation of the Credit Agreement (the "2019 Revolving Credit Facility Amendment") among Del Taco, as borrower,three properties, and while the full extent of voluntary rehabilitation costs are not yet known, the Company and its subsidiaries, as guarantors, Bankis pursuing legal remedies against the general contractor to recover future incurred costs.

21
Table of America, N.A. as administrative agent and letter of credit issuer, the lenders party thereto, and other parties thereto, which provides for a $250 million five-year senior secured revolving facility (the "2019 Revolver"). The 2019 Revolver includes a sub limit of $35.0 million for letters of credit. The proceeds of the 2019 Revolver were used to refinance the 2015 Senior Credit Facility and may also be used from time to time for general corporate purposes. The 2019 Revolver will mature on September 19, 2024. Substantially all of the assets of the Company are pledged as collateral under the 2019 Revolving Credit Facility Amendment.Contents
Borrowings under the 2019 Revolver bear interest, at the borrower's option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published of Bank of America prime rate, or (c) Eurodollar plus 1.00%. For Eurodollar loans, the margin is in the range of 1.25% to 2.00%, and for base rate loans the margin is in the range of 0.25% to 1.00%. Borrowings under the 2019 Revolver may be repaid and reborrowed.
The 2019 Revolver includes negative covenants and financial covenants, including, among others, a maximum lease-adjusted consolidated leverage ratio covenant and a minimum consolidated fixed charge coverage ratio. The 2019 Revolver also includes certain affirmative covenants and events of default.

PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's audited consolidated financial statements for the fiscal year ended January 1,December 31, 2019, 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019.13, 2020.
In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties such as the number of restaurants we intend to open and estimates of our effective tax rates. We use words such as “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose,” “preliminary,” “guidance” and variations of these words or similar expressions (or the negative versions of such words or expressions) to identify forward-looking statements.  These statements are based on assumptions and information available to us as of the date any such statements are made and are subject to risks and uncertainties.  These risks and uncertainties include, without limitation, the impact of the COVID-19 pandemic, consumer demand, our inability to successfully open company-operated or franchise-operated restaurants or establish new markets, competition in our markets, our inability to grow and manage growth profitably, adverse changes in food and supply costs, our inability to access additional capital, changes in applicable laws or regulations, food safety and foodborne illness concerns, our inability to manage existing and to obtain additional franchisees, our inability to attract and retain qualified personnel, our inability to profitably expand into new markets, changes in, or the discontinuation of the Company's repurchase program, and the possibility that we may be adversely affected by other economic, business, and/or competitive factors.  Our actual results may differ materially from those anticipated in these forward-looking statements due to these risks and uncertainties, as well as others, including, without limitation, those discussed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended January 1, 2019.December 31, 2019 and in Part II. Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. We assume no obligation to update or revise these forward-looking statements as a result of new information, future events or any other reason.
Fiscal Year
We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 20182020 is the 52-week period ended January 1, 2019December 29, 2020 ("Fiscal 2018"2020"). Fiscal year 2019 will be ais the 52-week period ended December 31, 2019 ("Fiscal 2019").
Overview
We are a nationwide operator and franchisor of restaurants featuring fresh and fast cuisine, including both Mexican inspired and American classic dishes. As of September 10, 2019,June 16, 2020, we have 586593 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 $7.72$8.06 during Fiscal 2018,2019, we offer a compelling value proposition relative to both QSR and fast casual peers.


Significant Recent Developments Regarding COVID-19

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly spreading outbreak of a novel strain of coronavirus designated COVID-19. The pandemic has significantly impacted economic conditions in the United States, where all except one of our restaurants are located. We first began to experience impacts from COVID-19 around the middle of March 2020 as federal, state and local governments began to react to the public health crisis by encouraging or requiring social distancing, instituting stay-at-home orders, and requiring, in varying degrees, restaurant dine-in limitations, capacity limitations or other restrictions that largely limited restaurants to take-out, drive-thru and delivery sales. Although we have experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on our business remains uncertain, the duration and scope of which cannot currently be predicted. Please refer to Part II. Item 1A. Risk Factors in this Quarterly Report on Form 10-Q for further information.



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Highlights and Trends
ThirdSecond Quarter 20192020 Highlights
Our thirdsecond quarter 20192020 results and highlights include the following:
•Total revenues increased 2.0%decreased 13.9% for the twelve weeks ended September 10, 2019June 16, 2020 to $120.2$104.6 million compared to $117.8$121.5 million for the twelve weeks ended September 11, 2018June 18, 2019. Total revenues decreased 9.0% for the twenty-four weeks ended June 16, 2020 to $214.4 million compared to $235.7 million for the twenty-four weeks ended June 18, 2019. The decrease in both the twelve and twenty-four weeks ended June 16, 2020 is primarily due to growth infewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity and negative company-operated and franchise-operated same store sales andprimarily driven by the impact of the COVID-19 pandemic. This is partially offset by additional franchise-operated restaurants open during 20192020 compared to 2018. Total revenues increased 2.2% for2019 due to our refranchising activity.
•For the thirty-sixtwelve weeks ended September 10, 2019 to $355.9 million compared to $348.2 million for the thirty-six weeks ended September 11, 2018 primarily due to growth inJune 16, 2020, system-wide same store sales decreased 10.1%, company-operated same store sales decreased 12.6% and franchise-operated same store sales decreased 7.2%. For the twenty-four weeks ended June 16, 2020, system-wide same store sales decreased 6.7%, company-operated same store sales decreased 7.7% and additional franchise-operated restaurants open during 2019 compared to 2018.same store sales decreased 5.6%.
•During the twelve weeks ended September 10, 2019,June 16, 2020, we opened two newsold one company-operated restaurants and two new franchise-operated restaurants,restaurant to a franchisee, closed one company-operated restaurant and purchased oneclosed two franchise-operated restaurant. During the thirty-six weeks ended September 10, 2019, we opened three new company-operated restaurants and eight new franchise-operated restaurants, purchased four franchise-operated restaurants, sold 13 company-operated restaurants to franchisees and closed four company-operated restaurants and one franchise-operated restaurant.restaurants. During the twelve weeks ended September 11, 2018,June 18, 2019, we opened twoone new company-operated restaurants and threerestaurant, opened two new franchise-operated restaurants and closed three company-operated restaurant and one franchise-operated restaurant. restaurants.
•During the thirty-sixtwenty-four weeks ended September 11, 2018,June 16, 2020, we opened a total of sixtwo new company-operated restaurants, and fouropened one new franchise-operated restaurant, sold six company-operated restaurants to franchisees, closed two company-operated restaurants and closed four franchise-operated restaurants. During the twenty-four weeks ended June 18, 2019, we opened one new company-operated restaurant, opened six new franchise-operated restaurants, purchased three franchise-operated restaurants from franchisees, sold thirteen company-operated restaurants to franchisees, closed three company-operated restaurants and threeclosed one franchise-operated restaurants.restaurant.
Same Store Sales
Same store sales growth reflects the change in year-over-year sales for the same store base. We include a restaurant in the same store base in the accounting period following its 18th full month of operations and exclude restaurant closures. The following table shows the same store sales growth for the twelve and thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and September 11, 2018:June 18, 2019:
12 Weeks Ended24 Weeks Ended
June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Company-operated same store sales(12.6)%1.7 %(7.7)%0.6 %
Franchise-operated same store sales(7.2)%2.8 %(5.6)%1.7 %
System-wide same store sales(10.1)%2.2 %(6.7)%1.1 %
 12 Weeks Ended 36 Weeks Ended
 September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Company-operated same store sales0.4% 0.3% 0.5% 1.8%
Franchise-operated same store sales1.8% 3.0% 1.7% 4.1%
System-wide same store sales1.0% 1.4% 1.0% 2.8%
The increase in company-operated same store sales in the twelve weeks ended September 10, 2019 was comprised of an increase in average check size of 4.1% partially offset by a decrease in traffic of 3.7% compared to the twelve weeks ended September 11, 2018. The increase in company-operated same store sales in the twelve weeks ended September 11, 2018 was driven by an increase in average check size of 2.9% offset by a decrease in traffic of 2.6% compared to the twelve weeks ended September 12, 2017.
The increase in company-operated same store sales in the thirty-six weeks ended September 10, 2019 was comprised of an increase in average check size of 4.4% partially offset by a decrease in traffic of 3.9% compared to the thirty-six weeks ended September 11, 2018. The increase in company-operated same store sales in the thirty-six weeks ended September 11, 2018 was driven by an increase in average check size of 3.1% offset by a decrease in traffic of 1.3% compared to the thirty-six weeks ended September 12, 2017.


Restaurant Development
Del Taco restaurant counts at the end of the twelve weeks and twenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, arewere as follows:

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 12 Weeks Ended 36 Weeks Ended12 Weeks Ended24 Weeks Ended
 September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018 June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Company-operated restaurant activity:        Company-operated restaurant activity:
Beginning of period 310
 315
 322
 312
Beginning of period296  312  300  322  
Openings 2
 2
 3
 6
Openings—  1  2  1  
Closures (1) (3) (4) (4)Closures(1) (3) (2) (3) 
Purchased from franchisees 1
 3
 4
 3
Purchased from franchisees—  —  —  3  
Sold to franchisees —
 —
 (13) —
Sold to franchisees(1) —  (6) (13) 
Restaurants at end of period 312

317
 312
 317
Restaurants at end of period294  310  294  310  
Franchise-operated restaurant activity:        Franchise-operated restaurant activity:
Beginning of period 273
 251
 258
 252
Beginning of period300  271  296  258  
Openings 2
 3
 8
 4
Openings—  2  1  6  
Closures —
 (1) (1) (3)Closures(2) —  (4) (1) 
Purchased from Company —
 —
 13
 —
Purchased from Company1  —  6  13  
Sold to Company (1) (3) (4) (3)Sold to Company—  —  —  (3) 
Restaurants at end of period 274

250
 274
 250
Restaurants at end of period299  273  299  273  
Total restaurant activity:        Total restaurant activity:
Beginning of period 583
 566
 580
 564
Beginning of period596  583  596  580  
Openings 4
 5
 11
 10
Openings—  3  3  7  
Closures (1) (4) (5) (7)Closures(3) (3) (6) (4) 
Restaurants at end of period 586

567
 586
 567
Restaurants at end of period593  583  593  583  


Since 2012,The closures presented in the table above represent permanent closures of restaurants. Temporary closures, which can occur for a variety of reasons, are not reflected as a reduction in this table and temporarily closed restaurants are included in the summary counts at the beginning and end of each period shown. None of the permanent closures shown above were directly related to COVID-19 issues. Our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors that are outside of our control, including but not limited to, franchisees' agreements with their landlords and lenders.

For the full year of 2020, we believe our expectations regarding net restaurant development and closures by our franchisees could be materially impacted by COVID-19. Following the fiscal second quarter, one new company-operated and two new franchise-operated restaurants have opened, and we are currently evaluating the appropriate timing for the remainder of the originally planned fiscal 2020 system-wide openings. Given the significant uncertainties related to the COVID-19 pandemic, including the timing of lifting dine-in operating restrictions and various social-distancing and stay-at-home orders, customer re-engagement with our brand and the short- and long-term impact on consumer discretionary spending, we have focused on repositioningwithdrawn our brand, increasing brand awareness, re-imaging our restaurants, strengthening operational capabilities and refinancing indebtedness to build a foundation for future organic and new unit growth. New2020 net restaurant development is expected to contribute to our growth strategy. We currently plan to open at least 25 system-wide restaurants in Fiscal 2019. From time to time, we and our franchisees may close restaurants.closure guidance issued on March 11, 2020.
Key Performance Indicators


In assessing the performance of our business, management utilizes a variety of financial and performance measures.
These key measures include company restaurant sales, same store sales, company-operated average unit volumes, restaurant contribution and restaurant contribution margin, number of new restaurant openings, EBITDA and Adjusted EBITDA.
Company Restaurant Sales
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 isare directly influenced by the number of operating weeks in such period, the number of open restaurants, same store sales and per restaurant sales.
Seasonal factors and the timing of holidays cause revenue to fluctuate from quarter to quarter. Revenue per restaurant is typically lower in the first quarter due to reduced January traffic. As a result of seasonality, quarterly and annual results of operations and key performance indicators, such as company restaurant sales and same store sales, may fluctuate.

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Same Store Sales Growth
We regularly monitor 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. We include a restaurant in the same store base in the accounting period following its 18th full month of operations and exclude restaurant closures. As of September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, there were 292281 and 294288 restaurants, respectively, in the comparable company-operated restaurant base. As of September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, there were 254279 and 240253 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 menu price increases.
Company-Operated Average Unit Volumes
We measure company-operated average unit volumes (AUVs)("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
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 thembe considered 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. See the heading entitled "Management's Use of Non-GAAP Financial Measures" for the reconciliation of restaurant contribution to company restaurant sales.the most directly comparable GAAP financial measure.
Number of New Restaurant Openings
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 and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization. Adjusted EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, amortization and items that we do not consider representative of ongoing operating performance, as identified in the reconciliation table under the heading entitled "Management's Use of Non-GAAP Financial Measures."

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EBITDA and Adjusted EBITDA as presented in this quarterly report 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 (loss) 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 aware that in the future we may incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items.
EBITDA and Adjusted EBITDA 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. 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 we consider not to be indicative of ongoing operations; and
(vii)other companies in the industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
(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 we consider not to be indicative of ongoing operations; and
(vii)other companies in the industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by providing specific information regarding the U.S. GAAP amounts excluded from such non-GAAP financial measures. We further compensate for the limitations in the use of non-GAAP financial measures by presenting comparable U.S. GAAP measures more prominently.
We believe EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in their industry, (ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to compare performance to that of competitors. See the heading entitled "Management's Use of Non-GAAP Financial Measures" for the reconciliation of EBITDA and Adjusted EBITDA to net income.income (loss).
Key Financial Definitions
Company Restaurant Sales
Company restaurant sales represents sale 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 performance and per restaurantper-restaurant sales.
Franchise Revenue
Franchise revenue consists of franchise royalty income from the franchiseefranchisees and, to a lesser extent, renewal fees and franchise fees from franchise owners for new franchise restaurant openings, as well as other franchise fees.openings. Franchise fees are collected upon signing a franchise agreement and deferred and recognized as revenue over the term of the franchise agreement and renewal fees are deferred and recognized over the term of the renewal agreement. To a lesser extent, franchise revenue also includes pass-through fees for services, such as software maintenance and technology subscriptions, since we are considered the principal related to the purchase and sale of the services to the franchisee and have no remaining performance obligations. The related expenses are recognized in general and administrative expenses.

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Franchise Advertising Contributions
Franchise advertising contributions consist of a percentage of a franchise restaurant's net sales, typically 4%, paid to the Company for advertising and promotional services that the Company provides.
Franchise Sublease and Other Income
Franchise sublease and other income consists of rental income received from franchisees or other third parties in the case of previously closed restaurants, in both cases related to properties where we have subleased a leasehold interest to the franchisee orbut remain primarily liable to the landlord. The related expenses are recognized in Occupancy and Other - Franchise Subleases and Other. Franchise sublease income also includes rental income for closed restaurant properties where we have subleased to a third party but remain primarily liable to the landlord, as well aslandlord. The related expenses are recognized in Restaurant Closure Charges, Net. Franchise other franchise income related toincludes information technology hardware such as point of sale equipment, tablets, kitchen display systems, servers, scanners and printers that we occasionally purchase from third party vendors and then sell to franchisees. Since we are considered the principal related to the purchase and sale of the hardware to the franchisee and have no remaining performance obligations, the franchisee reimbursement is recognized as Franchise Sublease and Other Income upon transfer of the hardware. The related expenses are recognized in Occupancy and Other - Franchise Subleases and Other.
Food and Paper Costs
Food and paper costs include the direct costs associated with food, beverage and packaging of menu items. The components of food and paper costs are variable in nature, change with sales volume and are impacted by menu mix and are subject to increases or decreases based on fluctuations in commodity, distribution and transportation costs. Other important factors causing fluctuations in food and paper costs include seasonality, promotional activity and restaurant level management of food and paper waste. Food and paper are a significant expense and can be expected to grow proportionally as company restaurant sales grow.grows.
Labor and Related Expenses
Labor and related expenses include all restaurant-level management and hourly labor costs, including wages, benefits, bonuses, workers’ compensation expense, group health insurance, paid leave and payroll taxes. Like other expense items, we expect labor and related expenses to grow proportionately as company restaurant sales grows. Factors that influence fluctuations in labor and related expenses include minimum wage, paid sick leave and payroll tax legislation, health care and workers compensation costs and the performance of Del Taco restaurants.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses include all other restaurant-level operating expenses, such as rent, utilities, restaurant supplies, repairs and maintenance, credit and debit card processing fees, advertising, insurance, common area maintenance, real estate taxes, third party delivery fees and other restaurant operating costs.
General and Administrative Expenses
General and administrative expenses are comprised of expenses associated with corporate and regional supervision functions that support the operations of existing restaurants and development of new restaurants, including compensation and benefits, travel expenses, stock-based compensation expenses, legal and professional fees, information systems, corporate office occupancy costs and other related corporate costs. Also included are expenses above the restaurant level, including salaries for field management, such as area and regional managers, and franchise operational support. General and administrative expenses also include legal, accounting, insurance, investor relations and other expenses that are incurred as a public company.
Franchise Advertising Expenses
Franchise advertising expenses consist of the franchise portion of advertising expense.
Depreciation and Amortization
Depreciation and amortization expenses are periodic non-cash charges that consist of depreciation of fixed assets, including leasehold improvements and equipment, and amortization of various intangible assets primarily including franchise rights.rights and capitalized software.
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Occupancy and Other – Franchise Subleases and Other
Occupancy and other – franchise subleases and other includes rent, property taxes and common area maintenance paid on properties subleased to franchisees where we remain primarily liable to the landlord, as well as other franchise expenses related to information technology hardware that we occasionally purchase from third party vendors and then sell to franchisees and recognize in Franchise Sublease and Other Income.

Pre-opening Costs
Pre-opening costs are incurred in connection with opening of new restaurants and incurred prior to opening, including restaurant labor related to the hiring and training of restaurant employees, as well as supplies, occupancy costs including cash and non-cash rent expense and other operating expenses directly associated with the opening of new restaurants. Pre-opening costs are expensed as incurred.
Impairment of Goodwill
Goodwill arises from the excess purchase price over acquired net assets, including identifiable intangible assets, in business combinations. Goodwill is not amortized, and is instead reviewed for impairment annually, or more frequently if events and circumstances indicate that it might be impaired. The amount by which the carrying amount of the Company exceeds its fair value is recorded as impairment of goodwill.
Impairment of Trademarks
The Company's trademarks are not amortized, but instead are tested for impairment annually in the fourth quarter of each fiscal year or more frequently if events and circumstances indicate that the assets might be impaired. When events or circumstances indicate the carrying value of the Company's trademarks may not be recoverable, an appropriate impairment charge is recorded. Impairments could increase if performance of the Company is not sufficient to recover the carrying amount of its trademarks.
Impairment of Long-Lived Assets
We review long-lived assets such as leasehold improvements, equipment and intangibleoperating lease right-of-use assets on a unit-by unitunit-by-unit basis for impairment. When events or circumstances indicate the carrying value of the assets may not be recoverable, an appropriate impairment charge is recorded. Impairments could increase if performance of company-operated restaurants is not sufficient to recover the carrying amount of the related long-lived assets.
Restaurant Closure Charges, Net
During 2018, restaurant closure charges, net, consists primarily of (1) future obligations associated with the closure or net sublease shortfall of a restaurant, including the present value of future non-lease obligations net of estimated sublease income, if any; (2) accretion of the liability during the reporting period; (3) any positive or negative adjustments to the liability as more information becomes available; and (4) direct costs related to restaurant closures including lease termination costs. During 2019, restaurantRestaurant closure charges, net, consist primarily of (1) rent expense related to previously closed restaurants; (2) non-lease executory costs for closed restaurants, including any positive or negative adjustments to these amounts as more information becomes available; and (3) direct costs related to restaurant closures.
Loss on Disposal of Assets and Adjustments to Assets Held forFor Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net includes the loss on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements, furniture, fixtures or equipment in the ordinary course of business, and impairment losses to reduce the carrying amount for assets held for sale to estimated fair value less costs to sell, net of amortization of deferredremeasurement losses for assets held for sale reclassified back to held for use, gains on asset salesor losses associated with sale-leaseback transactions and gains or losses recorded associated with the sale of company-operated restaurants to franchisees.
Interest Expense
Interest expense consists primarily of interest expense on outstanding debt including finance lease obligations and other debt, capital lease obligations and deemed landlord financing liabilities.debt. Deferred financing costs and debt discount are amortized at cost over the life of the related debt.
Other Income
Other income consists of gains including gainsinsurance proceeds related to insurance proceeds for fires at company-operated restaurants and gains related to the write-off of unfavorable lease liabilities on franchise subleases of restaurants terminated and subsequently acquired by the Company.restaurants.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists of federal and state current and deferred income tax expense.

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Results of Operations
Comparison of Results of Operations for the Twelve Weeks Ended September 10, 2019June 16, 2020 and Twelve Weeks Ended September 11, 2018June 18, 2019
The following table presents operating results for the twelve weeks ended September 10, 2019June 16, 2020 and twelve weeks ended September 11, 2018,June 18, 2019, in absolute terms and expressed as a percentage of total revenue (or company restaurant sales), as compared below:
 
12 Weeks Ended
 June 16, 2020June 18, 2019Increase / (Decrease)
(Dollar amounts in thousands)($)(%)($)(%)($)(%)
Statement of Operations Data:
Revenue:
Company restaurant sales$95,261  91.1 %$112,180  92.4 %$(16,919) (15.1)%
Franchise revenue4,520  4.3  4,638  3.8  (118) (2.5) 
Franchise advertising contributions2,783  2.7  3,459  2.8  (676) (19.5) 
Franchise sublease and other income2,006  1.9  1,183  1.0  823  69.6  
Total revenue104,570  100.0  121,460  100.0  (16,890) (13.9) 
Operating expenses
Restaurant operating expenses:
Food and paper costs25,642  26.9  
(1)
30,855  27.5  
(1)
(5,213) (16.9) 
Labor and related expenses31,609  33.2  
(1)
36,338  32.4  
(1)
(4,729) (13.0) 
Occupancy and other operating expenses22,389  23.5  
(1)
23,703  21.1  
(1)
(1,314) (5.5) 
Total restaurant operating expenses79,640  83.6  
(1)
90,896  81.0  
(1)
(11,256) (12.4) 
General and administrative9,432  9.0  10,849  8.9  (1,417) (13.1) 
Franchise advertising expenses2,783  2.7  3,459  2.8  (676) (19.5) 
Depreciation and amortization6,285  6.0  5,813  4.8  472  8.1  
Occupancy and other-franchise subleases and other1,727  1.7  993  0.8  734  73.9  
Pre-opening costs63  0.1  155  0.1  (92) (59.4) 
Impairment of long-lived assets—  —  3,694  3.0  (3,694) (100.0) 
Restaurant closure charges, net499  0.5  490  0.4  9  1.8  
Loss on disposal of assets and
adjustments to assets held for sale,
net		435  0.4  594  0.5  (159) (26.8) 
Total operating expenses100,864  96.5  116,943  96.3  (16,079) (13.7) 
Income from operations3,706  3.5  4,517  3.7  (811) (18.0) 
Other expense (income), net
Interest expense1,281  1.2  1,722  1.4  (441) (25.6) 
Other income—  —  (97) (0.1) 97  (100.0) 
Total other expense, net1,281  1.2  1,625  1.3  (344) (21.2) 
Income from operations before provision for income taxes2,425  2.3  2,892  2.4  (467) (16.1) 
Provision for income taxes3,001  2.9  800  0.7  2,201  275.1  
Net (loss) income$(576) (0.6)%$2,092  1.7 %$(2,668) (127.5)%

(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful
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  12 Weeks Ended    
  September 10, 2019 September 11, 2018 Increase / (Decrease)
(Dollar amounts in thousands) ($) (%) ($) (%) ($) (%)
Statement of Operations Data:            
Revenue:            
Company restaurant sales $111,059
 92.4 % $109,559
 93.0 % $1,500
 1.4 %
Franchise revenue 4,490
 3.7
 4,308
 3.7
 182
 4.2
Franchise advertising contributions 3,458
 2.9
 3,155
 2.7
 303
 9.6
Franchise sublease and other income 1,191
 1.0
 808
 0.6
 383
 47.4
Total revenue 120,198
 100.0
 117,830
 100.0
 2,368
 2.0
Operating expenses            
Restaurant operating expenses:            
Food and paper costs 30,761
 27.7
(1) 
29,601
 27.0
(1) 
1,160
 3.9
Labor and related expenses 36,304
 32.6
(1) 
35,301
 32.2
(1) 
1,003
 2.8
Occupancy and other operating expenses 25,386
 22.9
(1) 
22,844
 20.9
(1) 
2,542
 11.1
Total restaurant operating expenses 92,451
 83.2
(1) 
87,746
 80.1
(1) 
4,705
 5.4
General and administrative 10,421
 8.7
 9,606
 8.2
 815
 8.5
Franchise advertising expenses 3,458
 2.9
 3,155
 2.7
 303
 9.6
Depreciation and amortization 5,941
 4.9
 5,855
 5.0
 86
 1.5
Occupancy and other-franchise subleases and other 1,011
 0.8
 762
 0.6
 249
 32.7
Pre-opening costs 465
 0.4
 259
 0.2
 206
 79.5
Impairment of long-lived assets 1,407
 1.2
 —
 —
 1,407
 *
Restaurant closure charges, net 588
 0.5
 672
 0.6
 (84) (12.5)
Loss on disposal of assets and
   adjustments to assets held for
   sale, net
 7,906
 6.6
 580
 0.5
 7,326
 *
Total operating expenses 123,648
 102.9
 108,635
 92.2
 15,013
 13.8
(Loss) income from operations (3,450) (2.9) 9,195
 7.8
 (12,645) (137.5)
Other expense            
Interest expense 1,663
 1.4
 2,062
 1.7
 (399) (19.4)
        Other income —
 —
 (523) (0.4) 523
 *
Total other expense 1,663
 1.4
 1,539
 1.3
 124
 8.1
(Loss) income from operations before provision for income taxes (5,113) (4.3) 7,656
 6.5
 (12,769) (166.8)
Provision for income taxes 2,556
 2.1
 1,782
 1.5
 774
 43.4
Net (loss) income $(7,669) (6.4)% $5,874
 5.0 % $(13,543) (230.6)%

(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful

Company Restaurant Sales
Company restaurant sales increased $1.5decreased $16.9 million, or 1.4%15.1%, for the twelve weeks ended September 10, 2019,June 16, 2020, primarily due to an increase infewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity and the negative impact of COVID-19 on company-operated same store sales of 0.4%. The increase in company-operatedsales. Company-operated same store sales wasdecreased 12.6%. Delivery represented over 7% of company restaurant sales during the twelve weeks ended June 16, 2020 and is expected to remain elevated as a result of average check size growth of 4.1% partially offset by a decrease in traffic of 3.7%.the COVID-19 pandemic.
Franchise Revenue
Franchise revenue increased $0.2decreased $0.1 million, or 4.2%2.5%, for the twelve weeks ended September 10, 2019,June 16, 2020, primarily due to an increasea decrease in franchise-operated same store sales of 1.8% as well as7.2%, partially offset by additional franchise-operated restaurants open during 20192020 compared to 2018.2019 due to our refranchising activity.
Franchise Advertising Contributions
Franchise advertising contributions increased $0.3decreased $0.7 million, or 9.6%19.5%, for the twelve weeks ended September 10, 2019June 16, 2020 and is directly related to franchise revenue. In addition, starting the last fiscal week of the first quarter of 2020, as a result of the COVID-19 pandemic, the Company decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks. The Company adjusted the advertising contribution percentage back to 4.0% starting with the eighth fiscal week of the second quarter of 2020.
Franchise Sublease and Other Income
Franchise sublease and other income increased $0.4$0.8 million, or 47.4%69.6%, for the twelve weeks ended September 10, 2019,June 16, 2020, primarily due to an increase in sublease income related to the sale of thirteen18 company-operated restaurants to franchisees during the fourth quarter of 2019 and the sale of five company-operated restaurants to franchisees during the first quarter of 20192020, in which we retained the leasehold interest to the real estate and sublease income related to previously closed stores included in franchise sublease and other income as part of the adoption of Topic 842, partially offset by a reduction in sublease income due to the purchase of one franchise-operated restaurant where we had a sublease with a franchisee during the first quarter of 2019.estate.
Food and Paper Costs
Food and paper costs increased $1.2decreased $5.2 million, or 3.9%16.9%, for the twelve weeks ended September 10, 2019June 16, 2020 due to the reduction in company restaurant sales, partially offset by commodity inflation. As a percentage of company restaurant sales, food and paper costs were 27.7%26.9% for the twelve weeks ended September 10, 2019June 16, 2020 compared to 27.0%27.5% for the twelve weeks ended September 11, 2018.June 18, 2019. This percentage increasedecrease was the result of commodity inflationmenu price increases, partially offset by menu price increases.commodity inflation.
Labor and Related Expenses
Labor and related expenses increased $1.0decreased $4.7 million, or 2.8%13.0%, for the twelve weeks ended September 10, 2019,June 16, 2020, primarily due to increased labor costs resulting from a California minimum wage increase on January 1, 2019decrease in company restaurant sales and a Los Angeles minimum wage increase on July 1, 2019, partially offset by a reduction in workers compensation expense based on lower payments and reserves related to underlying claims activity, lower group health insurance expense and lower payroll taxes.partially offset by a California minimum wage increase on January 1, 2020. As a percentage of company restaurant sales, labor and related expenses were 32.6%33.2% for the twelve weeks ended September 10, 2019June 16, 2020 compared to 32.2%32.4% for the twelve weeks ended September 11, 2018.June 18, 2019. This percentage increase resulted primarily from the impact of the increased California minimum wage and Los Angeles minimum wage discussed above and impact from the negative same store sales including impact from COVID-19, partially offset by the impact of menu price increases lower group health insurance expense,and reduced workers compensation expense and lower payroll taxes.expense.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $2.5decreased $1.3 million, or 11.1%5.5%, for the twelve weeks ended September 10, 2019,June 16, 2020, primarily due to increased occupancy costs including impact from the adoption of Topic 842 as well as increasedreduced advertising, repairs and maintenance and credit and debit card processingfee expenses, partially offset by increased third party delivery fees, supplies and services and property taxes, partially offset by reduced utilities.fees. As a percentage of company restaurant sales, occupancy and other operating expenses were 22.9%23.5% for the twelve weeks ended September 10, 2019June 16, 2020 compared to 20.9%21.1% for the twelve weeks ended September 11, 2018.June 18, 2019. This percentage increase resultedwas primarily from the aforementioned increased occupancy costs (including the adoption of Topic 842), increased advertising costs andrelated to increased third party delivery fees.fees and deleverage across our fixed occupancy costs related to the negative same store sales including impact from COVID-19, partially offset by reduced advertising, repairs and maintenance and credit card fee expenses.


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General and Administrative Expenses
General and administrative expenses increased $0.8decreased $1.4 million, or 8.5%13.1%, for the twelve weeks ended September 10, 2019 compared to the twelve weeks ended September 11, 2018,June 16, 2020, primarily due to increased legal and related expense, executive transition costs and general inflationary trends, partially offset by a reduction inreduced management incentive compensation, lower stock-based compensation and stock-based compensation.reduced salaries. As a percentage of total revenue, general and administrative expense was 8.7%9.0% for the twelve weeks ended

September 10, 2019 June 16, 2020 compared to 8.2%8.9% for the twelve weeks ended September 11, 2018.June 18, 2019. The increase as a percent of total revenue was primarily due to the increase in legal and related expense, executive transition costs and general inflationary trends,impact of lower revenue, partially offset by the impact of increased revenues and reductions inreduced management incentive compensation, lower stock-based compensation and stock-based compensation.reduced salaries.
Franchise Advertising Expenses
Franchise advertising expenses increased $0.3decreased $0.7 million, or 9.6%19.5%, for the twelve weeks ended September 10, 2019June 16, 2020 and are directly related to franchise advertising expenses. These amounts offset against franchise advertising contributions included in revenue. Starting the last fiscal week of the first quarter of 2020, as a result of the COVID-19 pandemic, the Company decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks.
Depreciation and Amortization
Depreciation and amortization expenses remained consistent at $5.9were $6.3 million and $5.8 million for both the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, andrespectively. The increase primarily reflects the twelve weeks ended September 11, 2018.addition of new assets, partially offset by the impact of refranchising. As a percentage of total revenue, depreciation and amortization expenses were 4.9%6.0% for the twelve weeks ended September 10, 2019June 16, 2020 compared to 5.0%4.8% for the twelve weeks ended September 11, 2018 reflectingJune 18, 2019. The increase as a reduction frompercent of total revenue was primarily due to the adoptionimpact of Topic 842 Leases (which changed the accounting for deemed landlord assets) partially offset by increased depreciation from the addition of new assets.lower revenue.
Occupancy and Other – Franchise Sublease and Other
Occupancy and other – franchise sublease and other was $1.0$1.7 million and $0.8$1.0 million for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The increase is primarily due to sublease expense related to the sale of thirteen18 company-operated restaurants to franchisees during the fourth quarter of 2019 and the sale of five company-operated restaurants to franchisees during the first quarter of 20192020, in which wethe Company retained the leasehold interest to the real estate, partially offset by a reduction in sublease expense due to the purchase of one franchise-operated restaurant where we had a sublease with a franchisee during the first quarter of 2019.estate.
Pre-opening Costs
Pre-opening costs increasedwere $0.1 million and $0.2 million or 79.5% for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, respectively. The decrease was due to less restaurant opening activity during the twelve weeks ended June 16, 2020 compared to the twelve weeks ended September 11, 2018, due to increased pre-opening activity compared to the prior year.June 18, 2019.
Impairment of Long-Lived Assets
We recordedNo impairment charges were recorded during the twelve weeks ended June 16, 2020. The Company recorded a non-cash impairment charge of $1.4$3.7 million during the twelve weeks ended September 10,June 18, 2019 related to ourthe evaluation of long-lived assets underlying one restaurant,two restaurants in Georgia,California and Nevada which had indicators of impairment. There was no impairment of long-lived assets for the twelve weeks ended September 11, 2018.
Restaurant Closure Charges, Net
Restaurant closure charges, net, were approximately $0.6$0.5 million for both the twelve weeks ended September 10, 2019 compared to approximately $0.7 million forJune 16, 2020 and the twelve weeks ended September 11, 2018. The current quarter activity primarily includes rent expense, non lease executory costs and other direct costs associated with previously closed restaurants. The twelve weeks ended September 11, 2018 includes an adjustment of $0.5 million to increase the lease termination liability for two restaurants due to a change in estimate, lease termination costs of $0.2 million and accretion expense, partially offset by sublease income from leases which are treated as deemed landlord financing.June 18, 2019.
Loss on Disposal of Assets and Adjustments to Assets Held for Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net was $7.9$0.4 million and $0.6 million for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. Current year net loss on disposal of assets and adjustments to assets held for sale primarily related to the closure of one company-operated restaurant, an adjustment to estimated net realizable value for assets reclassified as held for sale and a loss on the closuresale of one company-operated restaurant, partially offset by a gain on lease termination.restaurant. Prior year net loss on disposal of assets wasand adjustments to assets held for sale primarily related to the closure of three company-operated restaurants.restaurants, the replacement of certain restaurant equipment and a loss on one sale-leaseback transaction.
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Interest Expense
Interest expense was $1.7$1.3 million and $2.1$1.7 million for the twelve weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The decrease is primarily due to a reduction from the adoption of Topic 842 (which changed the accounting for our deemed landlord financing restaurants),lower weighted average interest rates, partially offset by an increase in interest rates compared to prior year.

Other Income
Other income was $0.5 million forhigher average outstanding balances during the twelve weeks ended September 11, 2018 and consists of a gain relatedJune 16, 2020 compared to the write-off of unfavorable lease liabilities related to franchise subleases which were terminated in connection with the Company's acquisition of the related franchise-operated restaurants (see Note 4 to our unaudited consolidated financial statements for more information). prior year.
Other Income
There was no other income for the twelve weeks ended September 10, 2019.June 16, 2020. Other income was $0.1 million for the twelve weeks ended June 18, 2019 and consisted of insurance proceeds related to a fire at a company-operated restaurant.
Provision for Income Taxes
The effective income tax rates were (50.0)%123.8% for the twelve weeks ended September 10, 2019 compared to 23.3%June 16, 2020 and 27.7% for the twelve weeks ended September 11, 2018.June 18, 2019. The provision for income taxes was $2.6$3.0 million for the twelve weeks ended September 10, 2019June 16, 2020 and $1.8$0.8 million for the twelve weeks ended September 11, 2018.June 18, 2019. The income tax expense of $2.6 million for the twelve weeks ended September 10, 2019, despite a pre-tax loss,June 16, 2020 is primarily impacteddriven by $14.8 millionour estimated annual effective income tax rate and consists of non-tax deductible goodwill that was reclassified to assets held for sale, as well as statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020 and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits. The income tax expense related tofor the twelve weeks ended September 11, 2018June 18, 2019 is driven by our estimated annual effective income tax rate, which primarily consists of statutory federal and state tax rates based on estimated apportioned income for fiscal year 2019 and the impact of non-tax deductible compensation to executives, reducedpartially offset by higher stock compensation expense deductible for tax related to the June 30, 2018 vesting of certain restricted awards as compared to the cumulative amount recorded as stock-based compensation expense, as well as federal targeted job credits.



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Results of Operations
Comparison of Results of Operations for the thirty-sixTwenty-Four Weeks Ended September 10, 2019June 16, 2020 and thirty-sixTwenty-Four Weeks Ended September 11, 2018June 18, 2019
The following table presents operating results for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and thirty-sixtwenty-four weeks ended September 11, 2018,June 18, 2019, in absolute terms and expressed as a percentage of total revenue (or company restaurant sales), as compared below:
 
24 Weeks Ended
 June 16, 2020June 18, 2019Increase / (Decrease)
(Dollar amounts in thousands)($)(%)($)(%)($)(%)
Statement of Operations Data:
Revenue:
Company restaurant sales$195,594  91.2 %$218,083  92.5 %$(22,489) (10.3)%
Franchise revenue8,911  4.2  8,703  3.7  208  2.4  
Franchise advertising contributions5,994  2.8  6,590  2.8  (596) (9.0) 
Franchise sublease and other income3,881  1.8  2,281  1.0  1,600  70.1  
Total revenue214,380  100.0  235,657  100.0  (21,277) (9.0) 
Operating expenses
Restaurant operating expenses:
Food and paper costs53,937  27.6  
(1)
59,673  27.4  
(1)
(5,736) (9.6) 
Labor and related expenses66,545  34.0  
(1)
72,238  33.1  
(1)
(5,693) (7.9) 
Occupancy and other operating expenses46,797  23.9  
(1)
48,136  22.1  
(1)
(1,339) (2.8) 
Total restaurant operating expenses167,279  85.5  
(1)
180,047  82.6  
(1)
(12,768) (7.1) 
General and administrative19,298  9.0  21,314  9.0  (2,016) (9.5) 
Franchise advertising expenses5,994  2.8  6,590  2.8  (596) (9.0) 
Depreciation and amortization12,422  5.8  11,720  5.0  702  6.0  
Occupancy and other-franchise subleases and other3,322  1.5  1,847  0.8  1,475  79.9  
Pre-opening costs296  0.1  255  0.1  41  16.1  
Impairment of goodwill87,277  40.7  —  —  87,277  *
Impairment of trademarks11,900  5.6  —  —  11,900  *
Impairment of long-lived assets8,287  3.9  3,694  1.6  4,593  124.3  
Restaurant closure charges, net993  0.5  1,130  0.5  (137) (12.1) 
Loss on disposal of assets and
adjustments to assets held for sale,
net		557  0.3  884  0.4  (327) (37.0) 
Total operating expenses317,625  148.2  227,481  96.5  90,144  39.6  
(Loss) income from operations(103,245) (48.2) 8,176  3.5  (111,421) *
Other expense (income), net
Interest expense2,789  1.3  3,506  1.5  (717) (20.5) 
Other income—  —  (201) (0.1) 201  (100.0) 
Total other expense, net2,789  1.3  3,305  1.4  (516) (15.6) 
(Loss) income from operations before (benefit) provision for income taxes(106,034) (49.5) 4,871  2.1  (110,905) *
(Benefit) provision for income taxes(2,990) (1.4) 1,354  0.6  (4,344) *
Net (loss) income$(103,044) (48.1)%$3,517  1.5 %$(106,561) *

(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful
33
  36 Weeks Ended    
  September 10, 2019 September 11, 2018 Increase / (Decrease)
(Dollar amounts in thousands) ($) (%) ($) (%) ($) (%)
Statement of Operations Data:            
Revenue:            
Company restaurant sales $329,142
 92.5 % $324,468
 93.2 % $4,674
 1.4 %
Franchise revenue 13,193
 3.7
 12,249
 3.6
 944
 7.7
Franchise advertising contributions 10,048
 2.8
 9,227
 2.6
 821
 8.9
Franchise sublease and other income 3,472
 1.0
 2,253
 0.6
 1,219
 54.1
Total revenue 355,855
 100.0
 348,197
 100.0
 7,658
 2.2
Operating expenses            
Restaurant operating expenses:            
Food and paper costs 90,434
 27.5
(1) 
88,656
 27.3
(1) 
1,778
 2.0
Labor and related expenses 108,542
 33.0
(1) 
105,541
 32.5
(1) 
3,001
 2.8
Occupancy and other operating expenses 73,522
 22.3
(1) 
67,457
 20.8
(1) 
6,065
 9.0
Total restaurant operating expenses 272,498
 82.8
(1) 
261,654
 80.6
(1) 
10,844
 4.1
General and administrative 31,735
 8.9
 30,356
 8.7
 1,379
 4.5
Franchise advertising expenses 10,048
 2.8
 9,227
 2.6
 821
 8.9
Depreciation and amortization 17,661
 5.0
 17,616
 5.1
 45
 0.3
Occupancy and other-franchise subleases and other 2,858
 0.8
 2,051
 0.6
 807
 39.3
Pre-opening costs 720
 0.2
 900
 0.3
 (180) (20.0)
Impairment of long-lived assets 5,101
 1.4
 1,661
 0.5
 3,440
 207.1
Restaurant closure charges, net 1,718
 0.5
 635
 0.2
 1,083
 170.6
Loss on disposal of assets and
   adjustments to assets held for
   sale, net
 8,790
 2.5
 760
 0.2
 8,030
 *
Total operating expenses 351,129
 98.7
 324,860
 93.3
 26,269
 8.1
Income from operations 4,726
 1.3
 23,337
 6.7
 (18,611) (79.7)
Other expense            
Interest expense 5,169
 1.5
 5,984
 1.7
 (815) (13.6)
        Other income (201) (0.1) (523) (0.2) 322
 *
Total other expense 4,968
 1.4
 5,461
 1.6
 (493) (9.0)
(Loss) income from operations before provision for income taxes (242) (0.1) 17,876
 5.1
 (18,118) (101.4)
Provision for income taxes 3,910
 1.1
 4,563
 1.3
 (653) (14.3)
Net (loss) income $(4,152) (1.2)% $13,313
 3.8 % $(17,465) (131.2)%
Table of Contents

(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful

Company Restaurant Sales
Company restaurant sales increased $4.7decreased $22.5 million, or 1.4%10.3%, for the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, primarily due to fewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity and the increase innegative impact of COVID-19 on company-operated same store sales. Company-operated same store sales decreased 7.7%. Delivery represented approximately 5% of 0.5%. The increase in company-operated same storecompany restaurant sales wasduring the twenty-four weeks ended June 16, 2020 and is expected to remain elevated as a result of average check size growth of 4.4% offset by a decrease in traffic of 3.9%.the COVID-19 pandemic.
Franchise Revenue
Franchise revenue increased $0.9$0.2 million, or 7.7%2.4%, for the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, primarily due to an increaseadditional franchise-operated restaurants open during 2020 compared to 2019 due to our refranchising activity, partially offset by a decrease in franchise-operated same store sales of 1.7% as well as additional restaurants open during 2019 compared to 2018.5.6%.
Franchise Advertising Contributions
Franchise advertising contributions increased $0.8decreased $0.6 million, or 8.9%9.0%, for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and is directly related to franchise revenue. In addition, starting the last fiscal week of the first quarter of 2020, as a result of the COVID-19 pandemic, the Company decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks. The Company adjusted the advertising contribution percentage back to 4.0% starting with the eighth fiscal week of the second quarter of 2020.
Franchise Sublease and Other Income
Franchise sublease and other income increased $1.2$1.6 million, or 54.1%70.1%, for the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, primarily due to an increase in sublease income related to the sale of thirteen18 company-operated restaurants to franchisees during the fourth quarter of 2019 and the sale of five company-operated restaurants to franchisees during the first quarter of 20192020, in which we retained the leasehold interest to the real estate and sublease income related to previously closed stores included in franchise sublease and other income as part of the adoption of Topic 842, partially offset by a reduction in sublease income due to the purchase of one franchise-operated restaurant where we had a sublease with a franchisee during the first quarter of 2019.estate.
Food and Paper Costs
Food and paper costs increased $1.8decreased $5.7 million, or 2.0%9.6%, for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 due to the reduction in company restaurant sales, partially offset by commodity inflation. As a percentage of company restaurant sales, food and paper costs were 27.5%27.6% for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 compared to 27.3%27.4% for the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. This percentage increase was the result of commodity inflation, partially offset by menu price increases.
Labor and Related Expenses
Labor and related expenses increased $3.0decreased $5.7 million, or 2.8%7.9%, for the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, primarily due to increased labor costs resulting from a California minimum wage increase on January 1, 2019decrease in company restaurant sales and a Los Angeles minimum wage increase on July 1, 2019, partially offset by a reduction in workers compensation expense based on lower payments and reserves related to underlying claims activity, lower payroll taxes and lower group health insurance expense.partially offset by a California minimum wage increase on January 1, 2020. As a percentage of company restaurant sales, labor and related expenses were 33.0%34.0% for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 compared to 32.5%33.1% for the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. This percentage increase resulted primarily from the impact of the increased California minimum wage and Los Angeles minimum wage discussed above and impact from the negative same store sales including impact from COVID-19, partially offset by the impact of menu price increases lower group health insurance expense,and reduced workers compensation expense and lower payroll taxes.expense.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $6.1decreased $1.3 million, or 9.0%2.8%, for the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, primarily due to increased occupancy including the impact from the adoption of Topic 842, as well as increased supplies and services,reduced advertising, property taxes, insurance, third party deliverycredit card fees and creditrepairs and debit card processingmaintenance expenses, partially offset by reduced utilities.increased third party delivery fees. As a percentage of company restaurant sales, occupancy and other operating expenses were 22.3%23.9% for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 compared to 20.8%22.1% for the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. This percentage increase resultedwas primarily related to increased third party delivery fees and negative same store sales including impact from increased occupancy costs (including the adoption of Topic 842), as well as increased insurance, suppliesCOVID-19, partially offset by reduced advertising and services, property taxesrepairs and credit and debit card processing expenses as discussed above.maintenance expenses.

General and Administrative Expenses
General and administrative expenses increased $1.4decreased $2.0 million, or 4.5%9.5%, for the thirty-sixtwenty-four weeks ended September 10, 2019 compared to the thirty-six weeks ended September 11, 2018,June 16, 2020, primarily due to increased salaries,reduced management incentive compensation, lower stock-based compensation legal and related expenses, executive transition costs and general inflationary trends, partially offset by a reduction in management incentive compensation.reduced salaries. As a percentage of
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total revenue, general and administrative expenses were 8.9%expense was 9.0% for both the

thirty-six twenty-four weeks ended September 10, 2019 compared to 8.7% forJune 16, 2020 and the thirty-sixtwenty-four weeks ended September 11, 2018. This percentage increase resulted primarily from increases discussed above, partially offset by the growth in total revenue and the reduction in management incentive compensation.June 18, 2019.
Franchise Advertising Expenses
Franchise advertising expenses increased $0.8decreased $0.6 million, or 8.9%9.0%, for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and are directly related to franchise advertising expenses. These amounts offset against franchise advertising contributions included in revenue. Starting the last fiscal week of the first quarter of 2020, as a result of the COVID-19 pandemic, the Company decreased franchise advertising contributions from 4.0% to 2.5% of franchise restaurant net sales for eight weeks.
Depreciation and Amortization
Depreciation and amortization expenses was $17.7were $12.4 million and $11.7 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and $17.6 millionrespectively. The increase primarily reflects the thirty-six weeks ended September 11, 2018.addition of new assets, partially offset by the impact of refranchising. As a percentage of total revenue, depreciation and amortization expenses were 5.8% for the twenty-four weeks ended June 16, 2020 compared to 5.0% for the thirty-sixtwenty-four weeks ended September 10, 2019 comparedJune 18, 2019. The increase as a percent of total revenue was primarily due to 5.1% for the thirty-six weeks ended September 11, 2018 reflecting a reduction from the adoptionimpact of Topic 842 Leases (which changed the accounting for deemed landlord assets), partially offset by increased depreciation from the addition of new assets.lower revenue.
Occupancy and Other – Franchise Sublease and Other
Occupancy and other – franchise sublease and other was $2.9$3.3 million and $2.1$1.8 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The increase is primarily due to sublease expense related to the sale of thirteen18 company-operated restaurants to franchisees during the thirty-six weeks ended September 10,fourth quarter of 2019 and the sale of five company-operated restaurants to franchisees during the first quarter of 2020, in which wethe Company retained the leasehold interest to the real estate, partially offset by a reduction in sublease expense due to the purchase of one franchise-operated restaurant where we had a sublease with a franchisee during the first quarter of 2019.estate.
Pre-opening Costs
Pre-opening costs were $0.7 million and $0.9$0.3 million for both the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and September 11, 2018, respectively. the twenty-four weeks ended June 18, 2019.
Impairment of Goodwill
The reduction was dueCompany recorded a non-cash impairment charge of $87.3 million during the twenty-four weeks ended June 16, 2020 related to an interim goodwill impairment assessment performed during the first quarter of 2020 in response to changes in business, market and economic conditions resulting from the COVID-19 pandemic coupled with a reduced levelsustained decline in the Company's stock price, which were indicators of pre-opening activity comparedpotential goodwill impairment. No impairment charges were recorded during the twenty-four weeks ended June 18, 2019.
Impairment of Trademarks
The Company also recorded a non-cash impairment charge of $11.9 million during the twenty-four weeks ended June 16, 2020 related to last year.an interim trademark impairment assessment performed during the first quarter of 2020 in response to changes in business, market and economic conditions resulting from the COVID-19 pandemic coupled with a sustained decline in the Company's stock price, which were indicators of potential impairment. No impairment charges were recorded during the twenty-four weeks ended June 18, 2019.
Impairment of Long-Lived Assets
WeThe Company recorded a non-cash impairment chargescharge of $5.1$8.3 million during the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 related to ourthe evaluation of long-lived assets underlying threeeight restaurants in California, GeorgiaNevada and Nevada,Georgia which had indicators of impairment. WeThe Company recorded a non-cash impairment chargescharge of $1.7$3.7 million during the thirty-sixtwenty-four weeks ended September 11, 2018June 18, 2019 related to ourthe evaluation of long-lived assets underlying two restaurants in California and Georgia,Nevada which had indicators of impairment.
Restaurant Closure Charges, Net
Restaurant closure charges, net, were approximately $1.7$1.0 million and $1.1 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, comparedrespectively. The decrease was due to approximately $0.6 million for the thirty-six weeks ended September 11, 2018. The current year activity primarily includeslower rent and property tax expense non lease executory costs and other direct costs associated withrelated to previously closed restaurants. The thirty-six weeks ended September 11, 2018 includes an adjustment
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Table of $0.5 million to increase the lease termination liability for two restaurants due to a change in estimate, lease termination cost of $0.2 million and accretion expense, partially offset by sublease income from leases which are treated as deemed landlord financing.Contents
Loss on Disposal of Assets and Adjustments to Assets Held for Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net was $8.8$0.6 million and $0.8$0.9 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. Current year net loss on disposal of assets and adjustments to assets held for sale primarily related to an adjustment resulting from the reclassification of 14 company-operated restaurants from held for sale to held for use, losses on the closure of one company-operated restaurant, an adjustment to estimated net realizable value for assets reclassified as held for sale and losses on the sale of six company-operated restaurants, partially offset by a gain from one sale-leaseback transaction. Prior year net loss on disposal of assets and adjustments to assets held for sale primarily related to the closure of fourthree company-operated restaurants, the replacement of certain restaurant equipment, losses on the sale of thirteen13 company-operated restaurants and losses on threetwo sale-leaseback transactions, partially offset by a gain on lease termination. Prior year net loss on disposal of assets was primarily related to the closure of four company-operated restaurants and the write-off of leasehold improvements associated with two temporary company-operated restaurant closures, mostly offset by insurance recovery and a gain on the disposal of assets.

one sale-leaseback transaction.
Interest Expense
Interest expense was $5.2$2.8 million and $6.0$3.5 million for the thirty-sixtwenty-four weeks ended September 10,June 16, 2020 and June 18, 2019, and September 11, 2018, respectively. The decrease is primarily due to a reduction from the adoption of Topic 842 (which changed the accounting for our deemed landlord financing restaurants),lower weighted average interest rates, partially offset by an increase in interest rates.higher average outstanding balances during the twenty-four weeks ended June 16, 2020.
Other Income
There was no other income for the twenty-four weeks ended June 16, 2020. Other income was $0.2 million and $0.5 million for the thirty-sixtwenty-four weeks ended September 10,June 18, 2019 and September 11, 2018, respectively. Current year other income consistsconsisted of insurance proceeds related to a fire at a company-operated restaurant. Prior year other income consists of a gain related to the write-off of unfavorable lease liabilities related to franchise subleases which were terminated in connection with the Company's acquisition of the related franchise-operated restaurants (see Note 4 to our unaudited consolidated financial statements for more information).
(Benefit) Provision for Income Taxes
The effective income tax rates were (1,615.7)%(2.8%) for the thirty-sixtwenty-four weeks ended September 10, 2019 compared to 25.5%June 16, 2020 and 27.8% for the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. The (benefit) provision for income taxes was $3.9consisted of income tax benefit of $3.0 million for the thirty-sixtwenty-four weeks ended September 10, 2019June 16, 2020 and $4.6income tax provision of $1.4 million for the thirty-sixtwenty-four weeks ended September 11, 2018.June 18, 2019. The income tax expense of $3.9 millionbenefit for the thirty-sixtwenty-four weeks ended September 10, 2019, despite a pre-tax loss,June 16, 2020 is primarily impacted by $14.8 millionimpairment of non-tax deductible goodwill that was reclassified to assetsof $87.3 million and reclassification of $3.5 million of goodwill from held for sale, as well as statutory federal and state tax rates based on estimated apportioned income for fiscal year 2020 and the impact of non-tax deductible compensation to executives, partially offset by federal targeted job credits. The income tax expense related tofor the thirty-sixtwenty-four weeks ended September 11, 2018June 18, 2019 is driven by our estimated annual effective income tax rate, which primarily consists of statutory federal and state tax rates based on estimated apportioned income for fiscal year 2019 and the impact of non-tax deductible compensation to executives, reducedpartially offset by higher stock compensation expense deductible for tax related to the June 30, 2018 vesting of certain restricted awards as compared to the cumulative amount recorded as stock-based compensation expense, as well as federal targeted job credits.


Liquidity and Capital Resources
Potential Impacts of Market Conditions on Capital Resources
As sales declined from the impact of the COVID-19 pandemic, we proactively implemented several actions to reduce cash outlays and expenses. On March 16, 2020, we borrowed $25.0 million under our Senior Credit Facility as a precautionary measure to enhance our financial flexibility. On March 30, 2020, we borrowed an additional $25.0 million under our Senior Credit Facility. As our efforts to reduce cash outlays and expenses proved effective and as our business began to stabilize, we subsequently repaid the $50.0 million of precautionary borrowings prior to June 16, 2020.
In recent years,our restaurants, we have experienced increasesadjusted our operating expenses, which included adjusting labor hours to align with reduced demand and reducing non-essential controllable costs. We negotiated temporary rent deferrals with our landlords during the second quarter of 2020 and expect to repay the rent deferrals during the third quarter of 2020. During the second quarter of 2020, we also implemented voluntary salary reductions for our executive officers and all Vice Presidents and above and reduced board member compensation. Subsequently, during the third quarter of 2020, the compensation for all our executive officers and Vice Presidents and above, as well as board members, was restored to their previous levels. Additional actions taken during the second quarter of 2020 in same store salesresponse to the COVID-19 pandemic include elimination of all non-essential general and restaurant contribution. However,administrative expense, deferral or elimination of all open support center positions, a small reduction in force at the restaurant industry is highly competitivesupport center and uncertainty exists as to the sustainabilitydeferral of these favorable trends.certain planned non-essential capital expenditures.
We believe that expected cash flow from operations, availabletogether with our cash balance of $8.6$10.7 million at September 10, 2019 and available borrowing capacity of $83.7$87.7 million at September 10, 2019June 16, 2020, will be adequatesufficient to fundmeet ongoing debt service requirements, operating and finance lease obligations, capital expenditures, and working capital obligationsrequirements and other needs for at least the next 12 months. However, the abilityShould our business take longer to continuerecover than we currently anticipate, there are other actions we can take to meet these requirements and obligations will depend on, among other things, the ability to achieve anticipated levelsfurther conserve liquidity.
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Table of revenue and cash flow and the ability to manage costs and working capital successfully.Contents
Summary of Cash Flows
Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and our senior secured credit facilities. Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (primarily maintenance and roll-out of equipment related to our strategy to emphasize freshness and speed)maintenance), 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, we are able to sell many inventory items before we have to pay suppliers for such items since we typically have payment terms for our food and paper suppliers. Our company-operated restaurants do not require significant inventories.
The following table presents summary cash flow information for the periods indicated (in thousands).
 
 36 Weeks Ended 24 Weeks Ended
 September 10, 2019 September 11, 2018 June 16, 2020June 18, 2019
Net cash provided by (used in)    Net cash provided by (used in)
Operating activities $38,763
 $44,308
Operating activities$21,461  $25,795  
Investing activities (18,104) (32,200)Investing activities(11,917) (7,005) 
Financing activities (19,244) (12,039)Financing activities(216) (20,693) 
Net (decrease) increase in cash $1,415
 $69
Net increase (decrease) in cashNet increase (decrease) in cash$9,328  $(1,903) 
Cash Flows Provided by Operating Activities
InDuring the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, cash flows provided by operating activities were $38.8$21.5 million. The cash flows provided by operating activities resulted from a net loss of $103.0 million, non-cash adjustments for goodwill impairment of $87.3 million, trademark impairment of $11.9 million, long-lived asset impairment of $8.3 million, asset depreciation and amortization of $12.6 million, amortization of operating lease assets of $10.2 million, stock-based compensation of $2.6 million, a loss on disposal of assets and adjustments to assets held for sale of $0.6 million, restaurant closure charges of $0.04 million and net working capital requirements of $1.4 million, partially offset by a non-cash adjustment for deferred income taxes of $10.4 million.
During the twenty-four weeks ended June 18, 2019, cash flows provided by operating activities were $25.8 million. The cash flows provided by operating activities resulted from net income of $3.5 million, non-cash adjustments for asset depreciation and amortization of $18.0$12.0 million, amortization of operating lease assets of $14.9$9.9 million, stock-based compensation of $4.6$3.2 million, impairment of long-lived assets of $5.1 million, deferred income taxes of $1.2$3.7 million, restaurant closure charges of $0.1 million and a loss on disposal of assets and adjustments to assets held for sale, net of $8.8$0.9 million, partially offset by net lossdeferred income taxes of $4.2$0.1 million and net working capital requirements of $9.7 million.
In the thirty-six weeks ended September 11, 2018, cash flows provided by operating activities were $44.3 million. The cash flows provided by operating activities resulted from net income of $13.3 million, non-cash adjustments for asset depreciation and amortization of $17.3 million, stock-based compensation of $4.1 million, deferred income taxes of $0.7 million, restaurant closure costs of $0.6 million, a loss on disposal of assets of $0.7 million, impairment of long-lived assets of $1.7 million and net working capital requirements of $5.9$7.4 million.
Cash Flows Used in Investing Activities
InDuring the thirty-sixtwenty-four weeks ended September 10, 2019,June 16, 2020, cash flows used in investing activities were $18.1$11.9 million, which were primarily the result of purchase of property and equipment and other assets of $29.5 million and the acquisition of four franchise-operated restaurants for $4.8$14.6 million, partially offset by proceeds from the disposal of property and equipment of $14.1$1.4 million and proceeds from the sale of thirteen company-operated restaurants to franchisees of $2.1$1.3 million.

InDuring the thirty-sixtwenty-four weeks ended September 11, 2018,June 18, 2019, cash flows used in investing activities were $32.2$7.0 million, which were primarily the result of the purchase of property and equipment and other assets of $31.7$18.7 million and the acquisition of fourthree franchise-operated restaurants of $1.8for $3.1 million, partially offset by proceeds from the disposal of property and equipment of $1.3$12.7 million and proceeds from the sale of 13 company-operated restaurants of $2.1 million.
Cash Flows Used in Financing Activities
InDuring the thirty-sixtwenty-four weeks ended September 10,June 16, 2020, cash flows used in financing activities were $0.2 million. The cash flows used in financing activities were primarily the result of payments of tax withholding of $0.1 million related to restricted stock vesting and payments on finance leases totaling $0.1 million. In addition, during the twenty-four weeks ended June 16, 2020, the Company borrowed $65.0 million on its revolving credit facility and made payments of $65.0 million on its revolving credit facility.
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During the twenty-four weeks ended June 18, 2019, cash flows used in financing activities were $19.2$20.7 million. The cash flows used in financing activities were primarily the result of the repurchase of 574,481 shares of our common stock and 846,441 warrants for an aggregate purchase price of $7.3$7.4 million, including incremental direct costs to acquire the shares and warrants, payments of tax withholding of $2.6$0.1 million related to restricted stock vesting and payments on finance leases totaling $0.4$0.2 million, partially offset by proceeds from exercise of stock options of $0.1 million.$31,000. In addition, during the twelvetwenty-four weeks ended September 10,June 18, 2019, wethe Company borrowed $27.0$14.0 million on theits revolving credit facility and made payments of $36.0$27.0 million on theits revolving credit facility.
In the thirty-six weeks ended September 11, 2018, cash flows used in financing activities were $12.0 million. The cash flows used in financing activities were primarily the result of the repurchase of 642,862 shares of our common stock and 26,915 warrants for an aggregate purchase price of $7.8 million, including incremental direct costs to acquire the shares and warrants, payments of tax withholding of $2.4 million related to restricted stock vesting and payments on capital lease and deemed landlord financing totaling $1.0 million, offset by proceeds from exercise of stock options of $0.2 million. In addition, during the thirty-six weeks ended September 11, 2018, we borrowed $17.0 million on the revolving credit facility and made payments of $18.0 million on the revolving credit facility.
Debt and Other Obligations
Senior Credit Facility
On August 4, 2015, weDuring the fourth quarter of 2019, the Company refinanced our existing senior credit facility and entered into the 2015 Senior Credit Facility, which matures on August 4, 2020, and provides for a $250 million five-year senior secured revolving credit facility. The 2015 Senior Credit Facility, as amended, includes a sub limit of $35 million for letters of credit. The Senior Credit Facility, as amended, will mature on September 19, 2024.
The Senior Credit Facility, as amended, contains certain financial covenants, including the maintenance of a consolidated total lease adjusted leverage ratio and a consolidated fixed charge coverage ratio. We wereThe Company was in compliance with the financial covenants as of September 10, 2019.
The 2015 Senior Credit Facility does not have scheduled principal payments until its maturity on August 4,June 16, 2020.
At September 10, 2019,As of June 16, 2020, the weighted-average interest rate on the outstanding balance of the 2015 Senior Credit Facility was 3.9%2.17%. As of September 10, 2019June 16, 2020, there were $150.0$145.0 million of borrowings under the 2015 Senior Credit Facility and letters of credit outstanding of $16.3$17.3 million. Unused borrowing capacity at September 10, 2019June 16, 2020 was $83.7$87.7 million.
2015 Revolving Credit Facility Amendment
During the fourth quarter of 2019, the Company refinanced the 2015 Senior Credit Facility, pursuant to Amendment No. 4 to the Credit Agreement (the "2019 Revolving Credit Facility Amendment") among Del Taco, as borrower, the Company and its subsidiaries, as guarantors, Bank of America, N.A. as administrative agent and letter of credit issuer, the lenders party thereto, and other parties thereto, which provides for a $250 million five-year senior secured revolving facility (the "2019 Revolver"). The 2019 Revolver includes a sub limit of $35.0 million for letters of credit. The proceeds of the 2019 Revolver were used to refinance the 2015 Senior Credit Facility and may also be used from time to time for general corporate purposes. The 2019 Revolver will mature on September 19, 2024. Substantially all of the assets of the Company are pledged as collateral under the 2019 Revolving Credit Facility Amendment.
Borrowings under the 2019 Revolver bear interest, at the borrower's option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published of Bank of America prime rate, or (c) Eurodollar plus 1.00%. For Eurodollar loans, the margin is in the range of 1.25% to 2.00%, and for base rate loans the margin is in the range of 0.25% to 1.00%. Borrowings under the 2019 Revolver may be repaid and reborrowed.
The 2019 Revolver includes negative covenants and financial covenants, including, among others, a maximum lease-adjusted consolidated leverage ratio covenant and a minimum consolidated fixed charge coverage ratio. The 2019 Revolver also includes certain affirmative covenants and events of default.

Hedging Arrangements
In June 2016, we entered 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, with a termination date of March 31, 2020 ("2016 Interest Rate Cap Agreement"). The 2016 Interest Rate Cap Agreement has a fixedhad an initial notional amount of $70.0 million of the 2015 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 rate from an interest rate of one-month LIBOR plus the applicable percentagemargin (as provided by the 2015 Senior Credit Facility) to a capped interest rate of 2.00% plus the applicable percentage. As of September 10, 2019, one-month LIBOR was 2.11%.margin. During fiscal year 2020 through the thirty-six weeks ended September 10, 2019,expiration on March 31, 2020 the Company receiveddid not receive any payments of approximately $0.2 million related to the 2016 Interest Rate Cap Agreement.
Stock Repurchase Program
In February 2016, the Board of Directors authorized a share repurchase program under which we may purchase up to $25.0 million in the aggregate of our common stock and warrants, which expires upon completion of the repurchase program, unless terminated earlier by the Board of Directors. On August 23, 2016, we announced that the Board of Directors increased the repurchase program by $25.0 million to $50.0 million. The Board of Directors authorized an additional increase for the repurchase program effective July 23, 2018 of another $25.0 million to a total of $75.0 million. Purchases under the program may be made in open market or privately negotiated transactions. During the twelvetwenty-four weeks ended September 10, 2019,June 16, 2020, the Company did not repurchase any common stock or warrants. During the thirty-six weeks ended September 10, 2019, the Company repurchased (1) 574,481 shares of common stock for an average price per share of $10.17 for an aggregate cost of approximately $5.9 million, including incremental direct costs to acquire the shares, and (2) 846,441 warrants for an average price per warrant of $1.78 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants. As of September 10, 2019,June 16, 2020, there was approximately $22.3 million remaining under the share repurchase program. All of the Company's outstanding warrants expired on June 30, 2020. We have no obligations to repurchase shares or warrants under this authorization,the share repurchase program, and the timing and value of shares and warrants purchased (if any) will depend on our stock price, warrant price, market conditions and other factors.

Construction Defect Issues
During the twelve weeks ended June 16, 2020, we identified various construction defects related to three closed restaurants in Texas. We believe the issues are attributable to defective construction performed by the same general contractor for all three restaurants. We plan to undertake voluntary rehabilitation of the three properties, and while the full extent of voluntary rehabilitation costs are not yet known, we are pursuing legal remedies against the general contractor to recover future incurred costs.

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Management's Use of Non-GAAP Financial Measures
A reconciliation of company restaurant sales to restaurant contribution is provided below (in thousands):
 
12 Weeks Ended24 Weeks Ended
 June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Company restaurant sales$95,261  $112,180  $195,594  $218,083  
Restaurant operating expenses79,640  90,896  167,279  180,047  
Restaurant contribution$15,621  $21,284  $28,315  $38,036  
Restaurant contribution margin16.4 %19.0 %14.5 %17.4 %

A reconciliation of income (loss) from operations to restaurant contribution is provided below (in thousands):

12 Weeks Ended24 Weeks Ended
June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Income (loss) from operations$3,706  $4,517  $(103,245) $8,176  
Less:
Franchise revenue(4,520) (4,638) (8,911) (8,703) 
Franchise advertising contributions(2,783) (3,459) (5,994) (6,590) 
Franchise sublease income and other(2,006) (1,183) (3,881) (2,281) 
Plus:
General and administrative9,432  10,849  19,298  21,314  
Franchise advertising expenses2,783  3,459  5,994  6,590  
Depreciation and amortization6,285  5,813  12,422  11,720  
Occupancy and other - franchise subleases and other1,727  993  3,322  1,847  
Pre-opening costs63  155  296  255  
Impairment of goodwill—  —  87,277  —  
Impairment of trademarks—  —  11,900  —  
Impairment of long-lived assets—  3,694  8,287  3,694  
Restaurant closure charges, net499  490  993  1,130  
Loss on disposal of assets and adjustments to assets held
for sale, net		435  594  557  884  
Restaurant contribution$15,621  $21,284  $28,315  $38,036  
Company restaurant sales$95,261  $112,180  $195,594  $218,083  
Restaurant contribution margin16.4 %19.0 %14.5 %17.4 %
39
  12 Weeks Ended 36 Weeks Ended
  September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Company restaurant sales $111,059
 $109,559
 $329,142
 $324,468
Restaurant operating expenses 92,451
 87,746
 272,498
 261,654
Restaurant contribution $18,608
 $21,813
 $56,644
 $62,814
Restaurant contribution margin 16.8% 19.9% 17.2% 19.4%
Table of Contents

The following table sets forth reconciliations of net (loss) income to EBITDA and Adjusted EBITDA (in thousands):
 
12 Weeks Ended24 Weeks Ended
 June 16, 2020June 18, 2019June 16, 2020June 18, 2019
Net (loss) income$(576) $2,092  $(103,044) $3,517  
Non-GAAP adjustments:
Provision (benefit) for income taxes3,001  800  (2,990) 1,354  
Interest expense1,281  1,722  2,789  3,506  
Depreciation and amortization6,285  5,813  12,422  11,720  
EBITDA9,991  10,427  (90,823) 20,097  
Stock-based compensation expense (a)1,413  1,676  2,638  3,253  
Loss on disposal of assets and adjustments to assets
held for sale, net (b)		435  594  557  884  
Impairment of goodwill (c)—  —  87,277  —  
Impairment of trademarks (d)—  —  11,900  —  
Impairment of long-lived assets (e)—  3,694  8,287  3,694  
Restaurant closure charges, net (f)499  490  993  1,130  
Amortization of favorable and unfavorable lease
assets and liabilities, net (g)		(66) (23) (115) 63  
Pre-opening costs (h)63  155  296  255  
Sublease income for closed restaurants (i)(248) (180) (498) (381) 
Executive transition costs (j)—  —  287  —  
Other income (k)—  (97) —  (201) 
Adjusted EBITDA$12,087  $16,736  $20,799  $28,794  

(a)Includes non-cash, stock-based compensation.
(b)Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less cost to sell, loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees, gains from the write-off of right-of-use assets and operating lease liabilities related to the termination of leases and net gains or losses recorded associated with sale-leaseback transactions.
(c)Includes non-cash charges related to impairment of goodwill.
(d)Includes non-cash charges related to impairment of trademarks.
(e)Includes non-cash charges related to impairment of long-lived assets.
(f)Restaurant closure costs include rent expense, non-lease executory costs, other direct costs associated with previously closed restaurants and future obligations associated with the closure or net sublease shortfall of a restaurant.
(g)Includes amortization of favorable lease assets and unfavorable lease liabilities.
(h)Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, cash and non-cash rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening.
(i)Includes other sublease income related to closed restaurants that have been subleased to third parties.
(j)Includes costs associated with the transition of former Company executives, such as severance expense.
(k)During 2019, other income consists of insurance proceeds related to a fire at a company-operated restaurant.
40
  12 Weeks Ended 36 Weeks Ended
  September 10, 2019 September 11, 2018 September 10, 2019 September 11, 2018
Net (loss) income $(7,669) $5,874
 $(4,152) $13,313
Non-GAAP adjustments:        
Provision for income taxes 2,556
 1,782
 3,910
 4,563
Interest expense 1,663
 2,062
 5,169
 5,984
Depreciation and amortization 5,941
 5,855
 17,661
 17,616
EBITDA 2,491
 15,573
 22,588
 41,476
Stock-based compensation expense (a) 1,347
 1,445
 4,601
 4,079
Loss on disposal of assets and adjustments to assets held for
     sale, net (b)
 7,906
 580
 8,790
 760
Restaurant closure charges, net (c) 588
 672
 1,718
 635
Amortization of favorable and unfavorable lease assets and liabilities, net (d) (19) (352) 44
 (602)
Pre-opening costs (e) 465
 259
 720
 900
Impairment of long-lived assets (f) 1,407
 —
 5,101
 1,661
Other income (g) —
 (523) (201) (523)
Sublease income for closed restaurants (h) (173) —
 (554) —
Executive transition costs (i) 438
 —
 438
 —
Adjusted EBITDA $14,450
 $17,654
 $43,245
 $48,386

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(a)Includes non-cash, stock-based compensation.
(b)Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less costs to sell, the loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees and net gains or losses recorded associated with sale-leaseback transactions.
(c)During 2019, restaurant closure costs includes rent expense, non lease executory costs and other direct costs associated with previously closed restaurants. During 2018, restaurant closure costs includes costs related to future obligations associated with the closure or net sublease shortfall of a restaurant and lease termination costs, partially offset by sublease income from leases which are treated as deemed landlord financing.
(d)Includes amortization of favorable lease assets and unfavorable lease liabilities.
(e)Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, cash and non-cash rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening.
(f)Includes costs related to impairment of long-lived assets.
(g)During 2019, other income consists of insurance proceeds related to a fire at a company-operated restaurant. During 2018, other income consists of a gain related to the write-off of unfavorable lease liabilities related to franchise subleases which were terminated in connection with the Company's acquisition of the related franchise-operated restaurants.
(h)Includes other sublease income related to closed restaurants that have been subleased to third parties.
(i)Includes costs associated with the transition of former Company executives, such as severance expense.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our senior credit facility,Senior Credit Facility, which currently bears interest at variable rates. However, we seek to mitigate our variable interest rate risk on our senior credit facility by entering into an interest rate derivative on a portion of the senior credit facility, as discussed above under “—Liquidity and Capital Resources—Debt and Other Obligations—Hedging Arrangements.” As of September 10, 2019,June 16, 2020, we had outstanding variable rate borrowings of $150.0$145.0 million. A 100 basis point increase in the effective interest rate applied to this borrowing would result in a pre-tax interest expense increase of approximately $1.5 million on an annualized basis, excluding the effect of our existing 2016 Interest Rate Cap Agreement.basis.
Commodity Price Risk
We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions, potential cross-border taxes and tariffs and other factors which are not considered predictable or within our 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, we 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. We could also experience shortages of key ingredients if our suppliers need to close or restrict operations due to the impact of the COVID-19 pandemic.
Inflation
Inflation has an impact on food, paper, construction, utility, labor and benefits, rent, general and administrative and other costs, all of which can materially impact operations. We 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 our labor costs.
On July 1, 2014, the State of California (where most of our restaurants are located) increased its minimum wage to $9.00 per hour (from $8.00 per hour), and it increased to $10.00 per hour on January 1, 2016. On March 31, 2016, the California 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 increased to $10.50 per hour inon January 1, 2017, increased to $11.00 inper hour on January 1, 2018, increased to $12.00 inper hour on January 1, 2019, increased to $13.00 per hour on January 1, 2020 and will then increase by an additional dollar per hour each calendar year through 2022 when it reaches $15.00 per hour. Based on our current number of restaurants in California, this is expected to impact 331326 restaurants in California of which 216206 are company-operated and 115120 are franchise-operated, (does not include thoseexcluding certain California restaurants in special jurisdictions noted below).with local minimum wage requirements that are accelerated compared to the California requirements.
In addition, in September 2015, the Los Angeles County Board of Supervisors approved increases to the minimum wage to $15.00 per hour by 2020 with the first phase of the wage increase to $10.50 effective on July 1, 2016, followed by an increase to $12.00 per hour on July 1, 2017, $13.25 per hour on July 1, 2018, and $14.25 per hour on July 1, 2019 until it reachesand finally to $15.00 per hour on July 1, 2020. Also, in June 2016, the Los Angeles City Council approved a sick paid leave ordinance to provide six days of paid sick leave per year, with carry-over of 72 hours, effective July 1, 2016. These local ordinances impacted 2021 company-owned restaurants and 1312 franchise-owned restaurants in the City of Los Angeles and in the unincorporated areas of the County of Los Angeles.
On March 14, 2016, the Pasadena City Council adopted an ordinance to increase Pasadena’s minimum wage. Beginning on July 1, 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 increased to $12.00 per hour on July 1, 2017 and $13.25 per hour on July 1, 2018. This local ordinance impacted three company-operated restaurants.
On June 7, 2016, San Diego voters voted in favor of an ordinance to increase San Diego's minimum wage rate and allow employees working within the San Diego city limits to earn one hour of paid sick leave for every 30 hours worked. The San Diego City Council certified this minimum wage increase on July 11, 2016 with the increase taking effect on July 11, 2016. Under this ordinance, for any employee who works at least two hours within San Diego city limits, minimum wage increased to $10.50 per hour on July 11, 2016, $11.50 per hour inon January 1, 2017, $12.00 per hour on January 1, 2019, $13.00 per hour on January 1, 2020, 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 five days of paid sick leave and allows unused sick leave to be carried over to the following year. This ordinance impacted three company-operated restaurants and twofive franchise-operated restaurants.



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On July 1, 2016, the Santa Monica minimum wage rates increased to $10.50 per hour and allow employees working within the Santa Monica city limits to earn one hour of paid sick leave for every 30 hours worked. The minimum wage increased to $12.00 per hour on July 1, 2017, and $13.25 per hour on July 1, 2018. The minimum wage will increase to2018, $14.25 per hour on July 1, 2019 and $15.00 per hour on July 1, 2020. This local ordinance impacted one company-operated restaurant.
On November 8, 2016, Arizona voters voted in favor to increase the state minimum wage to $10.00 per hour effective January 1, 2017 (from $8.05 per hour) and to allow employees to earn one hour of paid sick leave for every 30 hours worked effective July 1, 2017. The minimum wage increased to $10.50 per hour in 2018, increased to $11.00 per hour in 2019 and will increaseincreased to $12.00 per hour in 2020. The law provides up to five days of paid sick leave per year. The new law impacted three company-operated restaurants and 3539 franchise-operated restaurants.
On June 12,13, 2019, the governor of Nevada voters voted in favor to increasesigned a bill into law that increases the state minimum wage to $8.00 per hour for employers that offer qualified health insurance and to $9.00 per hour for employers that do not offer qualified health insurance, effective July 1, 2020 (from $7.25 per hour) if the employer provides health benefits.2020. The minimum wage will increase to $8.75 on July 1, 2021, $9.50 on July 1, 2022, $10.25 on July 1, 2023 and $11.00 on July 1, 2024. If the employer does not provide health benefits, the minimum wage will increase from $8.25 to $9.00 on July 1, 2020 and will increase everyby $0.75 per hour each year until Julyit reaches $11.00 per hour for employers that offer qualified health insurance and $12.00 per hour for employers that do not offer qualified health insurance in 2024. Additionally, it allows employees working within the state to accrue approximately 0.02 hours of paid leave for each hour worked, which translates to 40 hours of paid leave per year for full-time employees, effective January 1, 2024 when it hits $12.00. The2020. This new law impacted 47will impact 39 company-operated restaurants and onenine franchise-operated restaurant.restaurants.
Other municipalities may set minimum wages above the applicable federal or state standards. The federal minimum wage has been $7.25 per hour since July 24, 2009. Additional federally-mandated, state-mandated or locally mandated minimum wages may be raised in the future. Furthermore, on July 1, 2015, the Healthy Workplaces, Healthy Families Act of 2014 went into effect for California employees, which provides up to three days of paid sick leave for employees who work more than 30 days within a year.
Due to various federal, state and local regulations enacted in response to the COVID-19 pandemic, including enhanced sick leave benefits and relaxed eligibility requirements for unemployment benefits, the Company expects to incur additional labor and related expenses for the duration of the COVID-19 pandemic.
We may be unable to increase our menu prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected, which could have a material adverse effect on our business, financial condition and results of operations. In addition, if our menu prices are increased to cover increased labor costs, the higher prices could adversely affect sales and thereby reduce our margins and profitability.
Critical Accounting Policies and Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We 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. Our significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities and income tax valuation allowances.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our 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 our critical accounting policies, refer to “Critical Accounting Policies and Use of Estimates” in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2019 filed with the SEC on March 18, 2019.13, 2020. There have been no material changes in any of our critical accounting policies during the twelve week period ended September 10, 2019, except as described in Note 2 of the notes to the accompanying unaudited consolidated financial statements, included elsewhere in this quarterly report on Form 10-Q.June 16, 2020.
Recently Issued Accounting Standards
See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the notes to the accompanying unaudited consolidated financial statements, included elsewhere in this quarterly report on Form 10-Q, for a description of the recently issued accounting standards.

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Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We have evaluated our disclosure controls and procedures which are based on assumptions. Additionally, even effective controls and procedures only provide reasonable assurance of achieving their objectives. Accordingly, we cannot guarantee that our controls and procedures will succeed or be adhered to in all circumstances.
Under the supervision and with the participation of our senior management, consisting of our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report (the “Evaluation Date”).
Based on thatthe above evaluation, the Company’s management, including our chief executive officer and chief financial officer, concluded that as of the Evaluation Date our disclosure controls and procedures were effective.
Our controls and procedures are based on assumptions. Additionally, even effective controls and procedures only provide reasonable assurance of achieving their objectives. Accordingly, we cannot guarantee that our controls and procedures will succeed or be adhered to in all circumstances.
We have evaluated our disclosure controls and procedures with the participation, and under the supervision, of our management, including our chief executive and chief financial officers. Based on this evaluation, our chief executive and chief financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
During the twelve weeks ended September 10, 2019June 16, 2020, we continued to make progress on the implementation of an integrated comprehensive cloud-based human resource and payroll system which replaced our previous application. We continue to evaluate processesreview our controls as we begin to develop and refine post-implementation controlspart of the transition to ensure adequate evaluation ofwe adequately evaluate our contractsHR and proper assessmentPayroll processes and the impact of the impact due to the new lease accounting standardsystem on our financial statements as adopted on January 2, 2019.statements.
No other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this reportsecond fiscal quarter of 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.



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Table of Contents
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See Note 15, Commitments and Contingencies, of the notes to the unaudited consolidated financial statements for a discussion of our legal matters.
Item 1A. Risk Factors
See “Item 1A. Risk Factors” includedThe risk factor below updates the risk factors contained in theItem 1A of our Annual Report on Form 10-K for the fiscal year ended January 1, 2019December 31, 2019.
The COVID-19 pandemic has adversely affected and could continue to adversely affect our financial results, operations and outlook for an extended period of time.
The COVID-19 pandemic and restrictions imposed by federal, state and local governments in response to the outbreak have disrupted and will continue to disrupt our business. In many areas where we operate our restaurants, individuals are being encouraged to practice social distancing, are restricted from gathering in groups and, in some areas, are mandated to stay home except for essential activities. In response to the COVID-19 pandemic and government restrictions, we have closed all dining rooms system-wide and are continuing operations through limited contact or contactless channels such as drive-thru, takeout and delivery only. The stay-at-home orders and the sudden increase in unemployment caused by the closure of businesses in response to the COVID-19 pandemic have adversely affected and will continue to adversely affect our guest traffic, which adversely impacts our liquidity, financial condition and results of operations. Even after stay-at-home orders are loosened or lifted, guests may still be reluctant to return to in-restaurant dining, and the impact of lost wages due to COVID-19 related unemployment may dampen consumer spending for some time in the future.
Our restaurant operations could be further disrupted if a significant number of our employees are unable or unwilling to work, whether because of illness, quarantine, restrictions on travel or fear of contracting COVID-19. Restaurant closures or modified hours of operation due to staffing shortages could further materially adversely affect our liquidity, financial position and results of operations. In certain areas, face coverings for all restaurant employees are required, and to support our employees and protect the health and safety of our employees and guests, we may offer enhanced health and welfare benefits, provide bonuses to restaurant employees, and purchase additional sanitation supplies and personal protective materials. These measures will increase our operating costs and adversely affect our liquidity.
The COVID-19 pandemic may also adversely affect the ability of our suppliers to fulfill their obligations to us, which may negatively affect our restaurant operations. These suppliers include third parties that supply and/or prepare our ingredients, packaging and other necessary operating materials, distribution centers, and logistics providers. If our suppliers are unable to fulfill their obligation to us, we could face shortages of food items or other supplies at our restaurants, and our operations and sales could be adversely impacted.
We have also modified our plans for opening new restaurants and remodeling existing restaurants due to the COVID-19 pandemic. To preserve our liquidity, we have delayed planned capital expenditures. These changes may adversely affect our ability to grow our business, particularly if these projects are delayed for a significant amount of time.
As more business and activities have shifted online due to restrictions on congregating and physical movements, we have seen an increase in cyber security threats and attempts to breach our security networks.
We cannot predict how long the COVID-19 pandemic will last or if it will recur, if new government restrictions and mandates will be imposed or how long they will be effective, or how quickly, if at all, guests will return to their pre-COVID-19 purchasing behaviors, so we cannot predict how long our results of operations and financial performance will be adversely impacted.
The COVID-19 pandemic may also have the effect of heightening other risks disclosed in the Risk Factors section included in our Form 10-K filed with the SEC on March 18, 2019 for a discussion of our risk factors. There have been no material changes13, 2020, such as, but not limited to, our risk factors.those related to cybersecurity threats, consumer behavior, supply chain interruptions and labor availability and cost.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 7, 2016, we announced that our Board of Directors authorized a share repurchase program under which we may purchase up to $25.0 million in the aggregate of our common stock and warrants. On August 23, 2016, we announced the Board of Directors increased the repurchase program by $25.0 million to $50.0 million. The Board of Directors authorized an additional increase for the repurchase program effective July 23, 2018 of another $25.0 million to a total of $75.0 million.
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Purchases under the program may be made in open market or privately negotiated transactions and expires upon completion of the program, unless earlier terminated by our Board of Directors.
During the twelve weeks ended September 10, 2019,June 16, 2020, the Company did not repurchase any common stockshares or warrants. During the twenty-four weeks ended September 10, 2019, the Company repurchased (1) 574,481 shares of common stock for an average price per share of $10.17 for an aggregate cost of approximately $5.9 million, including incremental direct costs to acquire the shares, and (2) 846,441 warrants for an average price per warrant of $1.78 for an aggregate cost of approximately $1.5 million, including incremental direct costs to acquire the warrants. The Company expects to retire the repurchased shares and therefore has accounted for them as constructively retired as of September 10, 2019. As of September 10, 2019,June 16, 2020, there was approximately $22.3 million remaining under the share repurchase program. All of the Company's outstanding warrants expired on June 30, 2020. The amount and timing of additional purchases (if any) will depend upon a number of factors, including the price and availability of our common stock and general market conditions.
The following table summarizes shares and warrants repurchased during the quarter ended September 10, 2019. The average price paid per share and warrant in column (b) below does not include the cost of brokerage fees or the incremental direct costs to acquire the shares.
45
  (a) (b) (c) (d)
  
Total number of
shares/warrants
purchased
 
Average price paid per
share
 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 19, 2019 - July 16, 2019 196,416
(1 
) 
—
 $12.82
 $—
 —
 —
 $22,306,208
July 16, 2019 - August 13, 2019 —
 —
 $—
 $—
 —
 —
 $22,306,208
August 14, 2019 - September 10, 2019 —
 —
 $—
 $—
 —
 —
 $22,306,208
Total 196,416
 —
 
   —
 —
 $22,306,208
(1) Includes 196,416 shares withheld upon vesting
Table of restricted stock awards in satisfaction of withholding tax obligations pursuant to the 2015 Omnibus Incentive Plan during the period June 19, 2019 to July 16, 2019. These shares do not reduce the repurchase authorization discussed above.Contents

Item 6. Exhibits
 
Exhibit
No.
Description
10.1*31.1
10.2
Amendment No. 4 to Credit Agreement, dated as of September 19, 2019, among Sagittarius Restaurants LLC, as Borrower, Del Taco Holdings, Inc., as Holdings, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto.
10.3*
Separation and Release Agreement, dated September 20, 2019, between David A. Pear and Del Taco LLC
31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2
32.1
32.2
101.INSInline XBRL Instance Document.Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document.Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.Document
101.DEFInline XBRL Taxonomy Extension Definition Document.Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan or arrangement.

46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DEL TACO RESTAURANTS, INC.
DEL TACO RESTAURANTS, INC.Date: July 23, 2020
Date: October 21, 2019
/s/ John D. Cappasola, Jr.
Name: John D. Cappasola, Jr.
Title: President and Chief Executive Officer
(principal executive officer)
/s/ Steven L. Brake
Name: Steven L. Brake
Title: Executive Vice President and Chief Financial Officer
(principal financial officer)



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