How often does Del Taco review its contingencies to determine the adequacy of accruals and related disclosures?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
| Sixteen Weeks Ended | ||
|---|---|---|
| January 19, | January 21, | |
| 2025 | 2024 | |
| Weighted-average shares outstanding – basic | 19,050 | 19,893 |
| Effect of potentially dilutive securities: | ||
| Nonvested stock awards and units | 97 | 145 |
| Performance share awards | 68 | 13 |
| Weighted-average shares outstanding – diluted | 19,215 | 20,051 |
| Excluded from diluted weighted-average shares outstanding: | ||
| Antidilutive | 324 | 24 |
| Performance conditions not satisfied at the end of the period | 150 | 136 |
14. COMMITMENTS AND CONTINGENCIES
Legal matters — The Company assesses contingencies, including litigation contingencies, to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in the financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of January 19, 2025, the Company had accruals of $17.5 million for all of its legal matters in aggregate, presented within "Accrued liabilities" on our condensed consolidated balance sheet. Because litigation is inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. The Company regularly reviews contingencies to determine the adequacy of the accruals and related disclosures.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the company regularly reviews contingencies to determine if the accruals and related disclosures are adequate. This review process is essential because assessing contingencies, especially those related to legal matters, is subjective and relies on judgments about uncertain future events. As of January 19, 2025, Del Taco had accruals of $17.5 million for all of its legal matters in aggregate, which is presented within "Accrued liabilities" on their condensed consolidated balance sheet.
For a prospective Del Taco franchisee, this regular review of contingencies suggests that the company is actively monitoring and managing its potential liabilities. This includes litigation, where the company acknowledges the inherent unpredictability and the need for careful evaluation. Factors influencing these evaluations include the status of legal proceedings, availability of appeals, insurance coverage, and the complexity of legal theories involved.
However, the FDD also notes that damage amounts claimed in litigation may be exaggerated or unrelated to possible outcomes, meaning these figures are not necessarily reliable indicators of potential liability. The company emphasizes that the ultimate amount of loss may differ from their estimates, and any estimate is not an indication of expected loss or the company's maximum possible loss exposure. This disclosure highlights the inherent uncertainty in estimating potential losses from contingencies and the possibility that actual losses could significantly deviate from initial estimates.