Del Taco Restaurants, Inc. - Quarter Report: 2015 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended September 8, 2015

OR

For the transition period from                      to                     

Commission File Number: 001-36197

DEL TACO RESTAURANTS, INC.

(f/k/a LEVY ACQUISITION CORP.)

(Exact name of registrant as specified in its charter)

(949) 462-9300

(Registrant’s telephone number, including area code)

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 19, 2015, there were 38,802,425 shares of the registrant’s common stock issued and outstanding.

Table of Contents

Del Taco Restaurants, Inc.

Index

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Del Taco Restaurants, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

(In thousands, except share data)

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Del Taco Restaurants, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

September 8, 2015

1. Description of Business

Del Taco Restaurants, Inc. (f/k/a Levy Acquisition Corp. (“LAC”)) is a Delaware corporation headquartered in Lake Forest, California. The condensed consolidated financial statements include the accounts of Del Taco Restaurants, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Del Taco”). The Company develops, franchises, owns, and operates Del Taco quick-service Mexican-American restaurants. At September 8, 2015, there were 306 company-operated and 241 franchised Del Taco restaurants located in 16 states, including one franchised unit in Guam. At September 9, 2014, there were 303 company-operated and 245 franchised Del Taco restaurants located in 17 states, including one franchised unit in Guam.

The Company was originally incorporated in Delaware on August 2, 2013 as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. On June 30, 2015 (the “Closing Date”), the Company consummated its business combination with Del Taco Holdings, Inc. (“DTH”) pursuant to the agreement and plan of merger dated as of March 12, 2015 by and among LAC, Levy Merger Sub, LLC (“Levy Merger Sub”), LAC’s wholly owned subsidiary, and DTH (the “Merger Agreement”). Under the Merger Agreement, Levy Merger Sub merged with and into DTH, with DTH surviving the merger as a wholly-owned subsidiary of the Company (the “Business Combination” or “Merger”). In connection with the closing of the Business Combination, the Company changed its name from Levy Acquisition Corp. to Del Taco Restaurants, Inc. See Note 3 for further discussion of the Business Combination.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of Securities and Exchange Commission (“SEC”). For additional information, these condensed consolidated financial statements should be read in conjunction with (i) the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 30, 2014 and (ii) DTH’s consolidated financial statements and notes thereto for the year ended December 30, 2014 included in the Company’s definitive proxy statement filed with the SEC on June 11, 2015.

As a result of the Business Combination, the Company is the acquirer for accounting purposes, and DTH is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes a “Predecessor” for DTH for periods prior to the Closing Date. The Company was subsequently re-named as Del Taco Restaurants, Inc. and is the “Successor” for periods after the Closing Date, which includes consolidation of DTH subsequent to the Business Combination on June 30, 2015. The Merger was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. See Note 3 for further discussion of the Business Combination. As a result of the application of the acquisition method of accounting as of the effective time of the Merger, the financial statements for the Predecessor period and for the Successor period are presented on a different basis and are therefore, not comparable. The historical financial information of Del Taco, formerly LAC, prior to the Business Combination have not been reflected in the financial statements as those amounts have been considered de-minimus.

For the Condensed Consolidated Statements of Shareholders’ Equity, the Predecessor results reflect the equity balances and activities of DTH at December 30, 2014 through June 30, 2015 prior to the closing of the Business Combination and the Successor results reflect the LAC equity balances at June 30, 2015 prior to the closing of the Business Combination and the activities for Del Taco through September 8, 2015.

6

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Company’s fiscal year ends on the Tuesday closest to December 31. Fiscal years 2015 and 2014 are both fifty-two week periods. In a fifty-two week fiscal year, the first, second and third quarters each include twelve weeks of operations and the fourth quarter includes sixteen weeks of operations. For fiscal year 2015, the Company’s financial statements reflect the two weeks and twenty-six weeks ended June 30, 2015 (predecessor) and ten weeks ended September 8, 2015 (successor). For fiscal year 2014, the Company’s financial statements reflect the twelve weeks (quarter) and thirty-six weeks (year to date) ended September 9, 2014 (predecessor).

In the opinion of the Company, the accompanying condensed consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the 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 condensed consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Management believes that such estimates have been based on reasonable and supportable assumptions and the resulting estimates are reasonable for use in the preparation of the condensed consolidated financial statements. Actual results could differ from these estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, restaurant closure reserves, stock-based compensation, contingent liabilities and income tax valuation allowances

7

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Variable Interest Entities

In accordance with Accounting Standards Codification (ASC) 810, Consolidation, the Company applies the guidance related to variable interest entities (VIE), which defines the process for how an enterprise determines which party consolidates a VIE as primarily a qualitative analysis. The enterprise that consolidates the VIE (the primary beneficiary) is defined as the enterprise with (1) the power to direct activities of the VIE that most significantly affect the VIEs economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The Company franchises its operations through franchise agreements entered into with franchisees and therefore, the Company does not possess any ownership interests in franchise entities or other affiliates. The franchise agreements are designed to provide the franchisee with key decision-making ability to enable it to oversee its operations and to have a significant impact on the success of the franchise, while the Company’s decision-making rights are related to protecting the Company’s brand. Additionally, the Company holds a 1% ownership interest in four public limited partnerships in which the Company serves as general partner. The limited partners have substantive kick-out rights over the general partner giving the limited partners power to direct the activities of the limited partnerships. Based upon the Company’s analysis of all the relevant facts and considerations of the franchise entities, the limited partnerships and other affiliates, the Company has concluded that these entities and franchise agreements are not variable interest entities.

Revenue Recognition

Company restaurant sales from the operation of Company restaurants are recognized when food and service is delivered to customers. Franchise revenues comprise (i) initial development fees, (ii) initial franchise fees, (iii) on-going royalties and (iv) renewal fees. Franchise fees received pursuant to individual development agreements, which grant the right to develop franchised restaurants in future periods in specific geographic areas, are deferred and recognized as revenue when the Company has substantially fulfilled its obligation pursuant to the development agreement, which is generally upon restaurant opening. Royalties from franchised restaurants are recorded in revenue when food and service are delivered to customers. Renewal fees are recognized when a renewal agreement becomes effective. The Company reports revenue net of sales taxes collected from customers and remitted to governmental taxing authorities and promotional allowances. Franchise sublease income is composed of rental income associated with properties leased or subleased to franchisees and is recognized as revenue on an accrual basis.

Gift Cards

The Company sells gift cards to customers in its restaurants. The gift cards sold to customers have no stated expiration dates and are subject to potential escheatment laws in the various jurisdictions in which the Company operates. Deferred gift card income of $1.1 million and $2.0 million is recorded in other non-current liabilities on the condensed consolidated balance sheets as of September 8, 2015 and December 30, 2014, respectively. The Company recognizes revenue from gift cards: (i) when the gift card is redeemed by the customer; or (ii) under the delayed recognition method, when the likelihood of the gift card being redeemed by the customer is remote (gift card

8

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

breakage) and the Company determines that there is not a legal obligation to remit the unredeemed gift cards to the relevant jurisdiction. The determination of the gift card breakage rate is based upon Company specific historical redemption patterns. Recognized breakage revenue was not significant to any period presented in the consolidated statements of comprehensive income (loss). Any future revisions to the estimated breakage rate may result in changes in the amount of breakage revenue recognized in future periods.

Cash and Cash Equivalents

The Company considers short-term, highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within 2 to 4 days of the original sales transaction and are considered to be cash equivalents.

Accounts and Other Receivables, Net

Accounts and other receivables, net consist primarily of receivables from franchisees, sublease tenants, a vendor and a landlord. Receivables from franchisees include sublease rents, royalties, services and contractual marketing fees associated with the franchise agreements. Sublease tenant receivables relate to subleased properties where the Company is a party and obligated on the primary lease agreement. The vendor receivable is for earned reimbursements from a vendor and the landlord receivable is for an earned landlord reimbursement related to a restaurant that opened in December 2014. The allowance for doubtful accounts is based on historical experience and a review on a specific identification basis of the collectability of existing receivables.

Vendor Allowances

The Company receives support from one of its vendors in the form of reimbursements. The reimbursements are agreed upon with the vendor, but do not represent specific, incremental, identifiable costs incurred by the Company in selling the vendor’s products. Such reimbursements are recorded as a reduction of the costs of purchasing the vendor’s products.

Inventories

Inventories, consisting of food items, packaging and beverages, are valued at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment includes land, buildings, leasehold improvements, restaurant and other equipment and buildings under capital leases. Land, property and equipment acquired in business combinations are initially recorded at their estimated fair value. Land, property and equipment acquired or constructed in the normal course of business are initially recorded at cost. The Company provides for depreciation and amortization based on the estimated useful lives of assets using the straight-line method.

9

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Estimated useful lives are as follows:

Leasehold improvements are amortized on the straight-line basis over the shorter of the estimated useful lives of the assets or the related lease term, which generally includes reasonably assured option periods expected to be exercised by the Company when the Company would suffer an economic penalty if not exercised.

Gains and losses on the disposal of assets are recorded as the difference between the net proceeds received and net carrying values of the assets disposed and are included in loss (gain) on disposal of assets in the consolidated statements of comprehensive income (loss).

Deferred Financing Costs

Deferred financing costs represent third-party debt costs that are capitalized and amortized to interest expense over the associated term. Deferred financing costs, lender discount and other lender fees are presented net of debt balances and are amortized to interest expense over the associated term.

Goodwill and Trademarks

The Company’s goodwill and trademarks are not amortized, but tested annually for impairment and tested more frequently for impairment if events and circumstances indicate that the asset might be impaired. The Company conducts annual goodwill and trademark impairment tests on the first day of the fourth quarter of each fiscal year or whenever an indicator of impairment exists.

In assessing goodwill impairment for the Company’s single reporting unit, the Company has the option to first assess the qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs a two-step impairment test of goodwill. In the first step, the Company estimates the fair value of the reporting unit and compare it to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, the second step is performed to measure the amount of the impairment loss, if any. In the second step, the amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value.

The Company’s indefinite-lived trademark is not amortized, but tested at least annually for impairment using a quantitative impairment analysis, and more frequently if events and circumstances indicate that the asset might be impaired. The quantitative impairment analysis compares the fair value of the indefinite-lived trademark, based on discounted future cash flows using a relief from royalty methodology. If the carrying amount of the indefinite-lived trademark exceeds its fair value, an impairment loss is measured as the difference between the implied fair value of the trademark and its carrying amount.

10

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Intangible Assets, Net

Intangible assets primarily include leasehold interests and franchise rights. Leasehold interests represent the fair values of acquired lease contracts having contractual rents that differ from fair market rents as of the acquisition date, and are amortized on the straight-line basis over the lease term to rent expense (occupancy and other operating expense). Franchise rights, which represent the fair value of franchise contracts based on the projected royalty revenue stream, are amortized on the straight-line basis to general and administrative expense over the term of the franchise agreements.

Other Assets, Net

Other assets, net consist of security deposits and other capitalized costs. The Company capitalizes certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest costs incurred while developing internal-use computer software. Capitalized software costs are amortized over the estimated useful life, typically three years.

The Company has elected to account for construction costs in a manner such that costs with a future benefit for the projects are capitalized. If the Company subsequently makes a determination that a site for which development costs have been capitalized will not be acquired or developed, any previously capitalized development costs are expensed and included in occupancy and other operating expenses in the consolidated statements of comprehensive income (loss). The Company capitalizes interest in connection with the construction of its restaurants.

Long-Lived Assets

Long-lived assets, including property and equipment and definite lived intangible assets (other than goodwill and indefinite-lived intangible assets), are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company evaluates such cash flows for individual restaurants and franchise contracts on an undiscounted basis. If it is determined that the carrying amounts of such long-lived assets are not recoverable, the assets are written down to their estimated fair values. The Company generally estimates fair value using either the land and building real estate value for the respective restaurant or the discounted value of the estimated cash flows associated with the respective restaurant or contract.

Rent Expense and Deferred Rent

At inception, each lease is evaluated to determine whether it will be classified as an operating or capital lease. Rent expense on operating leases with scheduled or minimum rent increases is recorded on the straight-line basis over the lease term, which includes the period of time from when the Company takes possession of the leased space until the restaurant opening date (the rent holiday period). Deferred rent represents the excess of rent charged to expense over

11

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

the rent obligations under the lease agreement, as well as leasehold improvements funded by lessor incentives which are amortized as reductions to rent expense over the expected lease term and unfavorable leasehold interests which are amortized on a straight-line basis over the expected lease term.

Deferred rent is recorded in other non-current liabilities on the consolidated balance sheets. Contingent rentals are generally based on sales levels in excess of stipulated amounts as defined in the lease agreement, and thus are not considered minimum lease payments and are included in rent expense as incurred.

The Company may expend cash for structural additions on leased premises that may be reimbursed in whole or in part by landlords as construction contributions pursuant to agreed-upon terms in the leases. Depending on the specifics of the leased space and the lease agreement, the amounts paid for structural components will be recorded during the construction period as either prepaid rent or construction-in-progress and the landlord construction contributions will be recorded as either an offset to prepaid rent or as a deemed landlord financing liability. Upon completion of construction for those leases that meet certain criteria, the lease may qualify for sale-leaseback treatment. For these leases, the deemed landlord financing liability and the associated construction-in-progress will be removed and the difference will be reclassified to prepaid or deferred rent and amortized over the lease term as an increase or decrease to rent expense. If the lease does not qualify for sale-leaseback treatment, the deemed landlord financing liability will be amortized over the lease term based on the rent payments designated in the lease agreement.

Insurance Reserves

Given the nature of the Company’s operating environment, the Company is subject to workers’ compensation and general liability claims. To mitigate a portion of these risks, the Company maintains insurance for individual claims in excess of deductibles per claim (the Company’s insurance deductibles range from $0.25 million to $0.50 million per occurrence for workers’ compensation and are $0.35 million per occurrence for general liability). The amount of self-insurance loss reserves and loss adjustment expenses is determined based on an estimation process that uses information obtained from both Company-specific and industry data, as well as general economic information. Self-insurance loss reserves are based on estimates of expected losses for determining reported claims and as the basis for estimating claims incurred but not reported. The estimation process for self-insurance loss exposure requires management to continuously monitor and evaluate the life cycle of claims. Management also monitors the reasonableness of the judgments made in the prior year’s estimation process (referred to as a hindsight analysis) and adjusts current year assumptions based on the hindsight analysis. The Company utilizes actuarial methods to evaluate open claims and estimate the ongoing development exposure related to workers’ compensation and general liability.

Advertising Costs

Franchisees pay a monthly fee to the Company of 4% of their restaurants’ net sales as reimbursement for advertising and promotional services that the Company provides. Company-operated restaurants contribute to the advertising fund on the same basis as franchised restaurants.

12

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Production costs for radio and television advertising are expensed when the commercials are initially aired. Costs of distribution of advertising are charged to expense on the date the advertising is aired or distributed. These costs, as well as other marketing-related expenses for advertising are included in occupancy and other operating expenses in the consolidated statements of comprehensive income (loss).

Pre-opening Costs

Pre-opening costs, which include restaurant labor, supplies, rent expense and other costs incurred prior to the opening of a new restaurant are expensed as incurred.

Restaurant Closure Charges, Net

The Company makes decisions to close restaurants based on their cash flows, anticipated future profitability and leasing arrangements. The Company determines if discontinued operations treatment is appropriate and estimates the future obligations, if any, associated with the closure of restaurants and records the corresponding liability at the time the restaurant is closed. These restaurant closure obligations primarily consist of the liability for the present value of future lease obligations, net of estimated sublease income, if any. Restaurant closure charges, net are comprised of initial charges associated with the recording of the liability at fair value, accretion of the liability during the period, and any positive or negative adjustments to the liability in subsequent periods as more information becomes available. To the extent that the disposal or abandonment of related property and equipment results in gains or losses, such gains or losses are included in loss (gain) on disposal of assets in the consolidated statements of comprehensive income (loss).

Stock-Based Compensation Expense

The Company measures and recognizes compensation expense for all share-based payment awards made to employees based on their estimated grant date fair values using an option pricing model for option grants, third-party valuation for grants of restricted stock units and the closing price of the underlying common stock on the date of the grant for restricted stock awards. Compensation expense for the Company’s stock-based compensation awards is generally recognized on a straight-line basis.

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred income taxes are provided for temporary differences between financial statement and income tax reporting, using tax rates scheduled to be in effect at the time the items giving rise to the deferred taxes reverse. The Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained by the taxing authority. Accordingly, the Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

13

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Derivative Instruments and Hedging Activities

The Company is exposed to variability in future cash flows resulting from fluctuations in interest rates related to its variable rate debt. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in interest rates, the Company has used various interest rate contracts including interest rate caps. The Company recognizes all derivative instruments as either assets or liabilities at fair value in the condensed consolidated balance sheets. When they qualify as hedging instruments, the Company designates interest rate caps as cash flow hedges of forecasted variable rate interest payments on certain debt principal balances.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings.

The Company enters into interest rate derivative contracts with major banks and is exposed to losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.

Contingencies

The Company recognizes liabilities for contingencies when an exposure that indicates it is probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. The Company’s ultimate legal and financial liability with respect to such matters cannot be estimated with certainty and requires the use of estimates. When the reasonable estimate is a range, the recorded loss will be the best estimate within the range. The Company records legal settlement costs when those costs are probable and reasonably estimable.

Comprehensive (Loss) Income

Comprehensive (loss) income includes changes in equity from transactions and other events and circumstances from nonoperational sources, including, among other things, the Company’s unrealized gains and losses on effective interest rate caps which are included in other comprehensive (loss) income, net of tax.

Segment Information

An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, and about which separate financial information is regularly evaluated by the Company’s chief operating decision makers in deciding how to allocate resources. Similar operating segments can be aggregated into a single operating segment if the businesses are similar. Management has determined that the Company has one operating segment, and therefore one reportable segment. The Company’s chief operating decision maker (CODM) is its Chief Executive Officer; its CODM reviews financial performance and allocates resources at a consolidated level on a recurring basis.

14

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Related Party Transactions

The Company has entered into long-term leases for 22 Del Taco restaurants whereby the lessor is one of four public partnerships where the Company serves as general partner with a 1% ownership interest. The leases require monthly rent payments in an amount equal to 12% of gross sales which were recorded within occupancy and other operating expenses in the condensed consolidated statements of comprehensive income (loss) and totaled $0.5 million, $0.1 million and $1.4 million for the ten weeks ended September 8, 2015 (successor), two weeks ended June 30, 2015 (predecessor) and twenty-six weeks ended June 30, 2015 (predecessor), respectively, and $0.6 million and $1.8 million for the twelve and thirty-six weeks ended September 9, 2014 (predecessor), respectively. The Company recorded a fair value adjustment through the purchase price allocation, as described in Note 3, of $1.5 million for the estimated fair value of its investment in the partnerships.

On July 24, 2015, the four public partnerships entered into an agreement to sell all of the properties, subject to the approval of a majority in interest of the limited partners of each of the public partnerships, to a third party that is not affiliated with the Company. If the sale of the properties is approved by their respective limited partners, then following the consummation of the sale, the respective public partnership will be dissolved and the assets of the respective partnership will be distributed pursuant to the terms of their respective partnership agreements.

At December 30, 2014 (predecessor), DTH had outstanding $108.1 million of subordinated notes due to its three largest shareholders that bore interest at 13.0%. On March 20, 2015, DTH used proceeds from the Step 1 of the Business Combination, as described in Note 3, a $10 million revolver borrowing and amended term loan proceeds of $25.1 million to fully redeem the then outstanding balance of $111.2 million of subordinated notes. Interest expense related to subordinated notes was zero and $3.1 million for the two and twenty-six weeks ended June 30, 2015 (predecessor) and $3.0 million and $11.2 million for the twelve and thirty-six weeks ended September 9, 2014 (predecessor), respectively. See Note 5 for further discussion regarding the subordinated notes.

Fair Value of Financial Instruments

The Company measures fair value using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three tiers in the fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

15

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Concentration of Risks

As of September 8, 2015, Del Taco operated a total of 366 restaurants in California (244 company-owned and 122 franchised locations). As a result, the Company is particularly susceptible to adverse trends and economic conditions in California. In addition, given this geographic concentration, negative publicity regarding any of the restaurants in California could have a material adverse effect on the Company’s business and operations, as could other regional occurrences such as local strikes, earthquakes or other natural disasters.

Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the standard requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs would not be affected by the amendments in this update. ASU No. 2015-03 applies to all entities and is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The standard is to be applied retrospectively. Upon adoption the Company will reclassify its debt issuance costs net with its debt liability.

3. Business Combination

On June 30, 2015, the Company and DTH completed the Business Combination pursuant to the Merger Agreement under which the Company’s wholly-owned subsidiary, Levy Merger Sub, merged with and into DTH, with DTH surviving the merger as a wholly-owned subsidiary of the Company.

Concurrent with the execution of the Merger Agreement, Levy Epic Acquisition Company, LLC (“Levy Newco”), Levy Epic Acquisition Company II, LLC (“Levy Newco II” and with Levy Newco, the “Levy Newco Parties”), DTH and the DTH stockholders entered into a stock purchase agreement (the “Stock Purchase Agreement”). Pursuant to the Stock Purchase Agreement, the Levy Newco Parties agreed to purchase 2,348,968 shares of DTH common stock from DTH for $91.2 million in cash, and to purchase 740,564 shares of DTH common stock directly from existing DTH shareholders for $28.8 million in cash (the “Initial Investment”). As a result of this Initial Investment, an aggregate of 3,089,532 shares of DTH common stock were purchased by the Levy Newco Parties for total cash consideration of $120.0 million. Concurrent with the consummation of the Initial Investment, DTH increased its borrowing capacity under its existing term loan credit facility by $25.1 million. Proceeds from the increased borrowings under the term loan, a $10.0 million revolver borrowing and the $91.2 million received by DTH from the sale of DTH common stock to the Levy Newco Parties was used to fully repay the outstanding balance of DTH’s subordinated notes (see Note 5), and pay approximately $15.7 million of transaction costs, which included $7.5 million of employee withholding taxes resulting from the acceleration of outstanding stock options and restricted stock units due to the change in control triggered by the Initial Investment. Employee equity redemptions were exchanged for such withholding taxes. The transactions described in this paragraph are hereafter collectively referred to as “Step 1.”

16

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Also concurrent with Step 1, the Company entered into common stock purchase agreements pursuant to which certain investors committed to acquire 3,500,000 shares of the Company’s common stock upon the closing of the Business Combination for total consideration of $35 million (the “Step 2 Investment”). The additional funds provided by these investors were used as additional cash consideration in the Business Combination.

The consideration for the Business Combination was provided by (1) the funds remaining in the Company’s trust account of $150 million after Delaware franchise taxes, stockholder redemptions, and $10.2 million of expenses paid for by the Company, (2) the $35 million provided by the Step 2 Investment, and (3) shares of the Company’s common stock. The Levy Newco Parties received only stock merger consideration in the Business Combination. The common stock purchase agreements entered into in connection with the Step 1 Investment and the closing of the Business Combination is hereafter referred to as “Step 2.” Step 1 and Step 2 are collectively referred to herein as the “Transactions.”

Step 2 is accounted for as a business combination under the scope of the FASB’s ASC 805, Business Combinations, or ASC 805. Pursuant to ASC 805, the Company has been determined to be the accounting acquirer based on the evaluation of the following facts and circumstances:

DTH constitutes a business, with inputs, processes, and outputs. Accordingly, the acquisition of DTH constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control from the merger, is accounted for using the acquisition method.

The following summarizes the merger consideration paid to DTH stockholders (except for the Levy Newco Parties) (in thousands):

17

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

18

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Company recorded a preliminary allocation of the purchase price to DTH’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair value as of the June 30, 2015 acquisition date. The preliminary purchase price allocation is as follows (in thousands):

19

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The preliminary values allocated to intangible assets and the useful lives are as follows (in thousands):

The goodwill of $317.2 million arising from the Business Combination is primarily attributable to the market position and future growth potential of DTH for both company-operated and franchised restaurants. Approximately $0.6 million of goodwill is expected to be deductible for income tax purposes.

For the ten weeks ended September 8, 2015 (successor), the two weeks ended June 30, 2015 (predecessor) and the twenty-six weeks ended June 30, 2015 (predecessor), the Company incurred approximately $12.0 million, $0.1 million and $7.3 million, respectively, of transaction expenses directly related to Step 1 and Step 2 of the Business Combination.

LAC incurred $1.6 million and $4.5 million of transaction expenses, not reported with DTH’s predecessor condensed consolidated statements of comprehensive income (loss), directly related to the Business Combination for the two weeks ended June 30, 2015 (predecessor) and 26 weeks ended June 30, 2015 (predecessor), respectively. Transaction expenses, which were $2.9 million through the second fiscal quarter ended June 16, 2015 and $0.5 million for the fiscal year 2014, were reported by LAC in prior 10-Q and 10-K filings which are also not reported with DTH’s predecessor condensed consolidated statements of comprehensive income (loss). Cash outflows of $4.3 million related to transaction expenses previously expensed by LAC are reported as a cash outflows for operating activities for the ten weeks ended September 8, 2015 (successor). In addition, in connection with the Business Combination, the Company paid deferred underwriter compensation of $5.2 million in connection with the Company’s initial public offering in November 2013 as well as repaid working capital loans of $0.5 million to the Company’s sponsor, Levy Acquisition Sponsor LLC, both of which were accrued on LAC’s balance sheet at June 16, 2015, and not included with DTH’s predecessor condensed consolidated balance sheet. Both of these payments are included as cash outflows for financing activities for the ten weeks ended September 8, 2015 (successor).

The preliminary allocation of the purchase price is based on preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets are based on preliminary valuations and are subject to final adjustment to reflect the final valuations. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed above.

The following unaudited pro forma combined financial information presents the Company’s results as though DTH and the Company had combined at January 1, 2014. The unaudited pro forma condensed consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP (in thousands):

20

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

4. Goodwill and other Intangible Assets

Changes in the carrying amount of goodwill for the thirty-six weeks ended September 8, 2015 are as follows (in thousands):

The Company’s other intangible assets at September 8, 2015 and December 30, 2014 consisted of the following (in thousands):

21

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Goodwill and intangible assets at September 8, 2015 is based on the preliminary purchase price allocation of DTH, which is based on preliminary valuations performed to determine the fair value of the acquired assets as of the acquisition date. The amount allocated to goodwill and other intangible assets are subject to final adjustment to reflect the final valuations. These final valuations could have a material impact on goodwill and other intangible assets. See Note 3 for further discussion of the acquisition of DTH.

5. Debt and Deferred Financing Costs

The Company’s long-term debt, capital lease obligations and deemed landlord financing liabilities at September 8, 2015 (successor) and December 30, 2014 (predecessor) consisted of the following (in thousands):

22

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

At September 8, 2015, the Company assessed the amounts recorded under the 2015 Revolving Credit Facility and determined that such amounts approximated fair value. At December 31, 2014, the fair value of long-term debt was based on quoted inactive market prices and is therefore classified as Level 2 within the valuation hierarchy, as described in Note 7.

2015 Revolving Credit Facility (Successor)

On August 4, 2015, the Company refinanced its existing senior credit facility (“2013 Senior Credit Facility”) and entered into a new credit agreement (the “Credit Agreement”). The Credit Agreement, which matures on August 4, 2020, provides for a $250 million revolving credit facility (the “2015 Revolving Credit Facility”). The Company utilized $164 million of proceeds from the Credit Agreement to refinance in whole its existing senior secured debt and pay costs associated with the refinancing. The Credit Agreement replaced the Company’s 2013 Senior Credit Facility. The 2013 Senior Credit Facility, as amended March 20, 2015, totaled $267.1 million, consisting of an initial $227.1 million term loan (“2013 Term Loan”) and a $40 million revolver (“2013 Revolver”). At the time of termination, a $162.5 million term loan balance was outstanding and $17.6 million of revolver capacity was utilized to support outstanding letters of credit under the 2013 Senior Credit Facility. The Company capitalized lender costs and deferred financing costs of $1.4 million and $0.5 million, respectively, in connection with the refinancing, which will be amortized to interest expense over term of the Credit Agreement. Lender costs are reported net with its debt liability and deferred financing costs are included in other assets on the condensed consolidated balances sheets.

At the Company’s option, loans under the 2015 Revolving Credit Facility may bear interest at a base rate or LIBOR, plus an applicable margin determined in accordance with a consolidated total lease adjusted leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the Federal Funds Rate plus  ¹⁄₂ of 1%, (b) the prime rate of Bank of America, and (c) LIBOR plus 1.00%. For LIBOR loans, the margin is in the range of 1.50% to 2.50%, and for base rate loans the applicable margin is in the range of 0.50% and 1.50%. The applicable margin is initially set at 2.00% for LIBOR loans and at 1.00% for base rate loans until delivery of financial statements and a compliance certificate for the fourth fiscal quarter ending after the closing date of the Credit Agreement. The 2015 Revolving Credit Facility capacity used to support letters of credit incurs fees equal to the applicable margin of 2.0%. The 2015 Revolving Credit Facility unused commitment incurs a 0.25% fee.

23

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The Credit Agreement 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 8, 2015.

Lender debt discount costs associated with the 2015 Revolving Credit Facility are presented net of the 2015 Revolving Credit Facility balance on the condensed consolidated balance sheets and deferred financing costs are included in other assets on the condensed consolidated balance sheets. Both lender debt discount costs and deferred financing costs are amortized to interest expense over the term of the 2015 Revolving Credit Facility. Amortization of deferred financing costs including debt discount totaled $37,000 during the ten weeks ended September 8, 2015 (successor).

At September 8, 2015, the interest rate on the outstanding balance of the Revolving Credit Facility was 2.2%. At September 8, 2015, the Company had a total of $71.4 million of availability for additional borrowings under the 2015 Revolving Credit Facility as the Company had $161.0 million of outstanding borrowings and letters of credit outstanding of $17.6 million which reduce availability under the 2015 Revolving Credit Facility.

DTH 2013 Senior Credit Facility

In March 2015, DTH amended its 2013 Senior Credit Facility to increase the 2013 term loan by $25.1 million to $227.1 million (the “March 2015 Debt Refinance”). A portion of the proceeds from Step 1 of the Business Combination, described in Note 3, proceeds of $10 million from the 2013 Revolver and the March 2015 Debt Refinance proceeds were used to fully redeem the then outstanding balance of the subordinated notes of $111.2 million.

On March 12, 2015, DTH satisfied the rating condition in its 2013 Senior Credit Facility resulting in a decrease in interest rates to LIBOR (not to be less than 1.00%) plus a margin of 4.25%.

DTH utilized $17.6 million of its 2013 Revolver to support outstanding letters of credit at December 30, 2014. Unused 2013 Revolver capacity at December 30, 2014 was $22.4 million.

DTH was in compliance with the financial covenants under the 2013 Senior Credit Facility as of December 30, 2014.

The Company incurred lender costs and third-party costs associated with the March 2015 Debt Refinance of $1.6 million of which $1.5 million was capitalized as lender debt discount and $0.1 million was expensed as debt modification costs in the condensed consolidated statements of comprehensive income (loss) for the twenty-six weeks ended June 30, 2015 (predecessor).

Lender debt discount costs associated with the 2013 Senior Credit Facility are presented net of the 2013 Term Loan in the condensed consolidated balance sheets and are amortized to interest expense over the term of the 2013 Term Loan using the effective interest method. Amortization of deferred financing costs including debt discount totaled $0.1 million and $0.3 million during the two weeks ended June 30, 2015 (predecessor) and the twelve weeks

24

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

ended September 9, 2014 (predecessor), respectively, and $0.9 million and $1.0 million during the twenty-six weeks ended June 30, 2015 (predecessor) and the thirty-six weeks ended September 9, 2014 (predecessor), respectively. The Company determined the fair value of the 2013 Senior Credit Facility was equal to face value at June 30, 2015 and therefore the fair value of lender debt discount costs and deferred financing costs associated with the 2013 Senior Credit Facility was zero at June 30, 2015. The Company recorded the fair value adjustment for the lender debt discount costs and deferred financing costs through the purchase price allocation, as described in Note 3.

Subordinated Notes (Predecessor)

In connection with Step 1 of the Business Combination and the March 2015 Debt Refinance discussed above, DTH fully redeemed the outstanding balance of the SAG Restaurants subordinated notes (“SAG Restaurants Sub Notes”) and F&C RHC subordinated notes (“F&C RHC Sub Notes”) on March 20, 2015 of $111.2 million.

The balance of DTH’s SAG Restaurants Sub Notes and F&C RHC Sub Notes was an aggregate of $108.1 million on December 30, 2014. For the twenty-six weeks ended June 30, 2015 (predecessor) and the thirty-six weeks ended September 9, 2014 (predecessor), interest expense was $3.1 million and $11.2 million (of which $0.4 million was paid in cash in connection with the debt refinancing in April 2014), respectively. For the twelve weeks ended September 9, 2014 (predecessor), interest expense related to SAG Restaurants Sub Notes and F&C RHC Sub Notes was an aggregate of $3.0 million.

6. Derivative Instruments

As of September 8, 2015 and December 30, 2014, the Company had an interest rate cap agreement to hedge cash flows associated with interest rate fluctuations on variable rate debt. This agreement had a notional amount of $87.5 million as of September 8, 2015 and December 30, 2014. The individual caplet contracts within the remaining interest rate cap agreement expire at various dates through June 30, 2016.

Interest Rate Cap Agreement

To ensure the effectiveness of the interest rate cap agreement through June 30, 2015, the Company elected the three-month LIBOR rate option for its variable rate interest payments on term balances equal to or in excess of the applicable notional amount of the interest rate cap agreement as of each reset date. The reset dates and other critical terms on the term loans perfectly match with the interest rate cap reset dates and other critical terms during the two and twenty-six weeks ended June 30, 2015 and twelve weeks and thirty-six weeks ended September 9, 2014.

As of the July 1, 2015 interest reset date, 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, and as a result, this hedge became ineffective. Therefore, after July 1, 2015, any changes in fair value will be recorded through interest expense.

The effective portion of the interest rate cap agreement through June 30, 2015 was included in accumulated other comprehensive income and included as a fair value adjustment through the purchase price allocation as described in Note 3.

25

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

Warrant Liability (Predecessor)

On March 20, 2015, warrants to purchase 597,802 shares of DTH common stock held by Goldman Sachs Mezzanine Partners (GSMP) were exercised at a strike price of $25.00 per share based on a fair value of $8.3 million determined based on the common stock price of Step 1 of the Business Combination discussed above in Note 3. GSMP redeemed 384,777 shares of DTH common stock upon exercise as payment for the strike price resulting in 213,025 shares of DTH common stock being issued. DTH recorded a mark-to-market adjustment of $35,000 to reduce the liability during the twenty-six weeks ended June 30, 2015 (predecessor) and then reclassified the balance of the warrant liability of $8.3 million to shareholders’ equity.

7. 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 fair value of the Company’s long-term debt instruments was determined using a market valuation approach, using market-corroborated data such as applicable interest rates for similarly rated companies’ instruments as of the balance sheet dates (Level 2). The interest rate cap agreement and the warrant liability are recorded at fair value in the Company’s condensed consolidated balance sheets.

As of September 8, 2015 and December 30, 2014, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. For both periods, these included derivative instruments related to interest rates and for December 30, 2014, these included warrants to purchase common stock, which are not traded on a public exchange. The Company determined the fair values of the interest rate cap contracts based on counterparty quotes, with appropriate adjustments for any significant impact of nonperformance risk of the parties to the interest rate cap contracts. Therefore, the Company has categorized these interest rate cap contracts as Level 2 fair value measurements. The fair value of the interest rate cap agreement was zero at September 8, 2015.

The warrant liability represented warrants to purchase shares of DTH common stock, which had limited marketability. As of December 30, 2014, management took into consideration the enterprise value of DTH as it relates to Step 1 of the Business Combination (see Note 3) when recording its warrant liability as of December 30, 2014 (i.e., the computed value of the warrants was based on their relative fair value as part of the overall transaction discussed above). As a result of certain unobservable inputs, DTH had categorized the warrant liability as of December 30, 2014 as a Level 3 fair value measurement. On March 20, 2015, GSMP exercised all of its outstanding warrants and purchased shares of DTH common stock at $25.00 per share based on a fair value of $8.3 million derived from the Step 1 of the Business Combination discussed above in Note 3. The Company recorded a mark-to-market adjustment of $35,000 to reduce the liability during the twenty-six weeks ended June 30, 2015 and then reclassified the balance of the warrant liability of $8.3 million to equity.

26

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

The DTH SAG Restaurants Sub Notes and F&C RHC Sub Notes were paid in entirety on March 20, 2015 and thus no balance was outstanding as of September 8, 2015. The following is a summary of the estimated fair values for the long-term debt instruments, warrant liability and interest rate cap agreement (in thousands):

The Company’s assets and liabilities measured at fair value on a recurring basis as of December 30, 2014 were as follows (in thousands):

27

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

8. Other Accrued Liabilities and Other Non-current Liabilities

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

28

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

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

The Company recorded fair value adjustments to the deferred rent liability and unfavorable leasehold interests through the purchase price allocation, as described in Note 3.

9. Stock-Based Compensation

The Company recognizes compensation expense based on estimated grant date fair values for all stock-based awards issued to employees and directors, The Company estimates the fair value of stock-based awards based on assumptions as of the grant date. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite service period of the award. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving the awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

29

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

2015 Omnibus Incentive Plan

In connection with the approval of the Business Combination, the Del Taco Restaurants, Inc. 2015 Omnibus Incentive Plan (the “2015 Plan”) was approved by shareholders to offer eligible employees, directors and consultants cash and stock-based incentive awards. Awards under the 2015 Plan are generally not restricted to any specific form or structure and could include, without limitation, stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. There were 3,300,000 share of common stock reserved and authorized for issuance under the 2015 Plan. At September 8, 2015, there were 3,150,000 shares of common stock available for grant under the 2015 Plan.

Stock-Based Compensation Expense (Successor)

The Company’s Board of Directors approved an initial grant of restricted stock under the 2015 Plan to certain officers upon completion of the Business Combination. The restricted stock vest on a straight-line basis over three years. A summary of outstanding and unvested restricted stock activity as of September 8, 2015 and changes during the period June 30, 2015 through September 8, 2015 is as follows:

The total compensation expense related to the 2015 Plan was $0.1 million for the ten weeks ended September 8, 2015 (successor). As of September 8, 2015, $2.1 million of total unrecognized expense related to share-based compensation plans is expected to be recognized over a weighted-average period of 2.8 years. The fair value of these awards was determined based on the Company’s stock price on the grant date.

Stock-Based Compensation Expense (Predecessor)

In connection with Step 1 of the Business Combination consummated on March 20, 2015, all unvested restricted stock units (“RSUs”) became fully vested and all vested RSUs were then immediately settled for shares of DTH common stock, net of shares withheld for minimum statutory employee tax withholding obligations and all unvested stock options became fully vested and all vested stock options were also

30

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

exercised and shares were issued, net of shares withheld for the applicable option strike price and employee tax withholding obligations. An aggregate of 237,948 shares of DTH common stock were issued and 247,552 shares of DTH common stock were redeemed for applicable option strike price and employee tax withholding obligations. In exchange for the shares withheld, DTH made payments of $7.5 million related to employee tax withholding obligations.

No RSUs or stock options remained outstanding under the predecessor plan as of September 8, 2015. DTH recorded stock-based compensation expense of $0.5 million, which included all remaining unrecognized compensation expense related to the accelerated vesting on RSUs and stock options on March 20, 2015, for the twenty-six weeks ended June 30, 2015 (predecessor) and DTH recorded $0.7 million during the thirty-six weeks ended September 9, 2014 (predecessor).

10. Shareholders’ Equity

The authorized common stock of the Company consists of 400,000,000 shares. Holders of the Company’s common stock are entitled to one vote for each share of common stock. As of September 8, 2015, there were 38,802,425 shares of common stock issued and outstanding and warrants to purchase 12,639,623 shares of the Company’s common stock outstanding at a strike price of $11.50. Of the 12,639,623 warrants, 7,500,000 were issued in the Company’s initial public offering in November 2013 and 4,750,000 warrants were issued in a private sale not involving a public offering in November 2013 (“Private Placement Warrants”). On June 30, 2015, the Company issued 389,623 additional Private Placement Warrants to Levy Acquisition Sponsor LLC (the “Sponsor”), the Company’s sponsor, to satisfy outstanding working capital loans owed to the Sponsor by the Company.

The Company previously had 15,000,000 common shares that were sold as part of the Company’s initial public offering in November 2013 which each contained a redemption feature that allows for the redemption of the common shares. The amount of the common shares subject to possible redemption was recorded as a liability on LAC’s consolidated balance sheet and as of June 16, 2015, 13,622,394 shares were classified outside of permanent equity at its redemption value of $136.2 million. On June 30, 2015, in connection with the Business Combination, 1,115 shares were redeemed at $10 per share and the remaining shares with a value of $136.2 million were reclassified into equity.

The Company is authorized to issue 1,000,000 preferred shares with designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of September 8, 2015, there were no preferred shares issued or outstanding.

As described in Note 3, on March 20, 2015, the Levy Newco Parties made a $120 million minority equity investment in DTH in connection with a stock purchase agreement dated March 12, 2015. Proceeds of $91.2 million from Step 1 of the Business Combination were used to purchase 2,348,968 shares of DTH common stock.

Also on March 20, 2015, warrants to purchase 597,802 shares of DTH common stock held by GSMP were exercised at a strike price of $25.00 per share based on a fair value of $8.3 million determined from Step 1 of the Business Combination. GSMP redeemed 384,777 DTH shares upon exercise as payment for the strike price resulting in 213,025 shares of DTH common stock issued. The Company recorded a mark-to-market adjustment of $35,000 to reduce the liability during two and twenty-six weeks ended June 30, 2015 (predecessor) and then reclassified the balance of the warrant liability of $8.3 million to shareholders’ equity.

31

Table of Contents

Del Taco Restaurants, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(Unaudited)

11. Earnings per Share

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

Below are basic and diluted net (loss) income per share for the periods indicated (amounts in thousands except share and per share data):